EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
XXXXXXXXX.XXX, INC.
WIND ACQUISITION CORPORATION
ZEPHYR SOFTWARE, INC.,
THE PRINCIPAL STOCKHOLDER OF ZEPHYR SOFTWARE, INC.
AND CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
October 22, 1999
TABLE OF CONTENTS
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1. Certain Definitions........................................................................................ 2
2. The Merger................................................................................................. 5
2.1 Merger; Effective Time............................................................................ 5
2.2 Closing........................................................................................... 6
2.3 Effect of the Merger.............................................................................. 6
3. Effect of Merger on the Capital Stock of the Constituent Corporations; Exchange of Certificates; Additional
Payments.......................................................................................... 6
3.1 Exchange of Stock; Rights to Additional Payments.................................................. 6
3.2 Company Options and Warrants...................................................................... 7
3.3 Conversion of Sub Common Stock.................................................................... 7
3.4 Adjustments to Parent Common Stock................................................................ 7
3.5 Fractional Shares................................................................................. 7
3.6 Exchange of Certificates.......................................................................... 8
3.7 Taking of Necessary Action; Further Action........................................................ 9
3.8 Escrow Account.................................................................................... 10
3.9 Dissenters' Rights................................................................................ 10
3.10 Dissenting Shares After Payment of Fair Value..................................................... 11
3.11 Tax and Accounting Consequences................................................................... 11
4. Securities Act Compliance.................................................................................. 11
5. Representations and Warranties of the Company and Principal Stockholder.................................... 11
5.1 Organization, Qualification, and Corporate Power.................................................. 11
5.2 Authorization..................................................................................... 12
5.3 Capitalization.................................................................................... 12
5.4 Noncontravention.................................................................................. 13
5.5 Fees.............................................................................................. 13
5.6 Financial Statements.............................................................................. 13
5.7 Subsidiaries...................................................................................... 14
5.8 Title to Assets................................................................................... 14
5.9 Events Subsequent to Most Recent Fiscal Period End................................................ 14
5.10 Undisclosed Liabilities........................................................................... 16
5.11 Legal Compliance.................................................................................. 17
5.12 Tax Matters....................................................................................... 17
5.13 Properties........................................................................................ 18
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TABLE OF CONTENTS
(continued)
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5.14 Intellectual Property....................................................................... 19
5.15 Tangible Assets............................................................................. 22
5.16 Contracts................................................................................... 22
5.17 Notes and Accounts Receivable............................................................... 24
5.18 Power of Attorney........................................................................... 24
5.19 Insurance................................................................................... 24
5.20 Litigation.................................................................................. 25
5.21 Restrictions on Business Activities......................................................... 25
5.22 Product Warranty............................................................................ 25
5.23 Employees................................................................................... 25
5.24 Employee Matters and Benefits............................................................... 25
5.25 Guaranties.................................................................................. 30
5.26 Environment, Health, and Safety............................................................. 30
5.27 Certain Business Relationships With the Company............................................. 32
5.28 Year 2000 Compliance........................................................................ 32
5.29 No Adverse Developments..................................................................... 32
5.30 Full Disclosure............................................................................. 33
6. Representations and Warranties of Parent and Sub..................................................... 33
6.1 Organization, Qualification, and Corporate Power............................................ 33
6.2 Authorization............................................................................... 33
6.3 Capitalization.............................................................................. 34
6.4 Noncontravention............................................................................ 34
6.5 SEC Filings................................................................................. 34
6.6 Brokers'Fees................................................................................ 35
7. Pre-Closing Covenants................................................................................ 35
7.1 General..................................................................................... 35
7.2 Notices and Consents........................................................................ 35
7.3 Operation of Business....................................................................... 35
7.4 Access to Information....................................................................... 35
7.5 Notice of Developments...................................................................... 36
7.6 Stockholder Approval........................................................................ 36
7.7 No Solicitation............................................................................. 36
8. Post-Closing Covenants............................................................................... 37
8.1 General..................................................................................... 37
8.2 Litigation Support.......................................................................... 37
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TABLE OF CONTENTS
(continued)
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8.3 Confidentiality........................................................................... 37
8.4 FIRPTA Compliance......................................................................... 38
8.5 Registration Statement.................................................................... 38
8.6 Additional Documents and Further Assurances............................................... 38
8.7 Tax Free Reorganization................................................................... 38
9. Conditions to Obligations to Close................................................................. 38
9.1 Conditions to Parent's and Sub's Obligation to Close...................................... 38
9.2 Conditions to the Company's Obligations................................................... 41
10. Survival of Representations, Warranties and Covenants; Indemnity; Escrow........................... 42
10.1 Survival of Representations and Warranties................................................ 42
10.2 Escrow Arrangements....................................................................... 42
10.3 Exclusive Remedy.......................................................................... 50
11. Termination........................................................................................ 50
11.1 Termination of the Agreement.............................................................. 50
11.2 Effect of Termination..................................................................... 51
11.3 Termination Fees and other Events......................................................... 52
11.4 Technology License Agreement; Business Development Agreement.............................. 53
12. Miscellaneous...................................................................................... 53
12.1 Press Releases and Public Announcements................................................... 53
12.2 No Third-Party Beneficiaries.............................................................. 53
12.3 Entire Agreement and Modification......................................................... 54
12.4 Succession and Assignment................................................................. 54
12.5 Counterparts.............................................................................. 54
12.6 Headings.................................................................................. 54
12.7 Notices................................................................................... 54
12.8 Governing Law............................................................................. 55
12.9 Forum Selection; Consent to Jurisdiction.................................................. 55
12.10 Waivers................................................................................... 56
12.11 Severability.............................................................................. 56
12.12 Expenses.................................................................................. 56
12.13 Construction.............................................................................. 56
12.14 Company Disclosure Letter................................................................. 56
12.15 Attorneys'Fees............................................................................ 57
12.16 Further Assurances........................................................................ 57
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TABLE OF CONTENTS
(continued)
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12.17 Time of Essence.............................................................................. 57
EXHIBITS
Exhibit A Certificate of Merger
Exhibit B Voting Agreement
Exhibit C-1 List of Persons signing Employment Agreements
Exhibit C-2 Form of Employment Agreement
Exhibit D Consideration Schedule
Exhibit E Stockholder Certificate
Exhibit F Registration Rights Agreement
Exhibit G-1 List of Persons signing Non-Disclosure, Invention Release and Non-Competition
Agreement
Exhibit G-2 Form of Non-Disclosure, Invention Release and Non-Competition Agreement
Exhibit H Opinion of Company Counsel
Exhibit I Stock Restriction Agreement
Exhibit J Form of Release
Exhibit K Opinion of Parent Counsel
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is entered into
as of October 22, 1999, by and among XxxxXxxxx.xxx, Inc., a Delaware corporation
("Parent"), Wind Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Parent ("Sub"), Zephyr Software, Inc., a Delaware corporation (the
"Company"), Xxxxxxxxx Xxxxx, an individual (the "Principal Stockholder") and, as
to Section 10.2 hereof only, ChaseMellon Shareholder Services, L.L.C., as Escrow
Agent. Parent, the Company, Sub and each Principal Stockholder are sometimes
referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
A. Pursuant to the Certificate of Merger in the form attached hereto as
Exhibit A (the "Certificate of Merger") providing for the merger of Sub with and
into the Company (the "Merger") pursuant to the Delaware General Corporation
Law, the shares of capital stock of the Company issued and outstanding
immediately prior to the Effective Time will be converted into shares of Common
Stock of Parent and all options and warrants to acquire capital stock of the
Company will be converted into rights to acquire Common Stock of Parent.
B. The Parties desire to enter into this Agreement for the purpose of
setting forth certain representations, warranties and covenants made as an
inducement to the execution and delivery of this Agreement, and to serve as
conditions precedent to the consummation of the Merger.
C. The respective Boards of Directors of Parent, Sub and the Company have
approved and adopted this Agreement, and (i) the Agreement is intended to be a
plan of reorganization under the provisions of Section 368(a) of the Internal
Revenue Code of 1986, as amended and (ii) the Merger is intended to be accounted
for as a purchase.
D. Concurrent with the execution of this Agreement, as a material
inducement to Parent and Sub, certain stockholders of the Company are entering
into voting agreements in the form of Exhibit B hereto (the "Voting Agreements")
and employment agreements in the form of Exhibit C-2 hereto (the "Employment
Agreements").
NOW, THEREFORE, in consideration of these premises and of the mutual
agreements, representations, warranties and covenants herein contained, the
Parties do hereby agree as follows:
AGREEMENT
1. Certain Definitions. As used in this Agreement, the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa). Certain other terms are defined
in the text of this Agreement.
"Affiliate" of a Person means any other Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with such Person.
"Best Efforts" means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible; provided, however, that an obligation
to use Best Efforts under this Agreement does not require the Person subject to
that obligation to take actions that would result in a materially adverse change
in the benefits to such Person of this Agreement and the Contemplated
Transactions.
"Breach" of a representation, warranty, covenant, obligation, or other
provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
other occurrence or circumstance that is or was inconsistent with such
representation, warranty, covenant, obligation, or other provision, and the term
"Breach" means any such inaccuracy, breach, failure, claim, occurrence, or
circumstance.
"Business Condition" means the current business, financial condition,
results of operations and assets of a corporate entity.
"Company Disclosure Letter" means the Company Disclosure Letter
delivered by the Company to the Parent concurrently with the execution and
delivery of this Agreement.
"Company Intellectual Property" shall mean any Intellectual Property
that is owned by or exclusively licensed to the Company.
"Company Stockholders" shall mean the stockholders of record of the
Company immediately prior to the Effective Time (other than the holders of
Dissenting Shares, if any).
"Contemplated Transactions" means all of the transactions contemplated
by this Agreement, including:
(a) the merger of Sub with the Company, the issuance by Parent of the
Parent Common Stock and Parent's acquisition and ownership of the Company and
exercise of control over the Company;
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(b) the execution, delivery, and performance of the Employment
Agreement, the Voting Agreements, the Stock Restriction Agreement, the Non-
Competition Agreements;
(c) the performance by Parent, the Company and Sub of their respective
covenants and obligations under this Agreement.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation, retirement plan, severance plan or similar plan or arrangement;
(b) Employee Pension Benefit Plan; (c) Employee Welfare Benefit Plan; and (d)
any other nonqualified plan providing welfare benefits, including but not
limited to medical, dental, life insurance and disability benefits.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Sec. 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Sec. 3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Governmental Body" means any:
(a) nation, province, state, county, city, town, village, district, or
other jurisdiction of any nature;
(b) federal, provincial, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"Gross Negligence" consists of an intentional act, or the failure to
perform a duty, in each instance with reckless disregard for the consequences of
such act or failure.
"Intellectual Property" means any or all industrial and intellectual
property rights, including, but not limited to all of the following and all
rights in, arising out of, or associated therewith: (i) all United States and
foreign patents and applications therefor and all reissues, divisions, renewals,
extensions, provisionals, continuations and continuations-in-part thereof; (ii)
all inventions (whether patentable or not), invention disclosures, improvements,
trade secrets, proprietary information, proprietary processes or formulae,
franchises, licenses, know how, technology, technical data and customer lists,
and all documentation relating to any of the foregoing; (iii) all copyrights,
copyrights registrations and applications therefor and all other rights
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corresponding thereto throughout the world; (iv) all industrial designs and any
registrations and applications therefor throughout the world; (v) all trade
names, logos, common law trademarks and service marks; trademark and service
xxxx registrations and applications therefor and all goodwill associated
therewith throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; (vii) all computer software including all
source code, object code, algorithms, display screens, layouts, firmware,
development tools, files, records and data, all media on which any of the
foregoing is recorded, all Web addresses, sites and domain names; (viii) any
similar, corresponding or equivalent rights to any of the foregoing; (ix) any
and all other industrial or intellectual property; and (xi) all documentation
related to any of the foregoing.
An individual is deemed to have "Knowledge" of a particular fact or
other matter means:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonable investigation concerning the existence of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving as a
director, officer, partner, executor, or trustee of such Person (or in any
similar capacity) has, or at any time had, Knowledge of such fact or other
matter.
"Material Adverse Effect" shall mean a material adverse effect on the
Business Condition of the corporate entity and its subsidiaries, taken as a
whole, other than as a result of (i) general economic or industry conditions, or
(ii) performance by such corporate entity of its obligations under this
Agreement.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37) and
Code Sec. 414(f).
"Ordinary Course of Business" is an action taken by a Person only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of such
Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority) and is not required to be specifically authorized by the
parent company (if any) of such Person; and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or by
any Person or group of Persons exercising
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similar authority), in the ordinary course of the normal day-to-day operations
of other Persons that are in the same line of business as such Person.
"Parent SEC Reports" has the meaning set forth in Section 6.5.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Registered Intellectual Property" means all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; and (iv) any other Company Intellectual Property that is
the subject of an application, certificate, filing, registration or other
document issued by, filed with, or recorded by, any state, government or other
public legal authority.
"Representatives" means, with respect to a Person, that Person's
officers, directors, employees, accountants, counsel, investment bankers,
financial advisors, stockholders and other representatives.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (d) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
"SEC" means the United States Securities and Exchange Commission.
"Stockholder Agent" means Xxxxxxxxx Xxxxx as agent and attorney-in-
fact for each of the Company Stockholders.
2. The Merger.
2.1 Merger; Effective Time. Subject to the terms and conditions of
this Agreement and the applicable provisions of the Delaware General Corporation
Law ("Delaware Law"), Sub will be merged with and into the Company (the
"Merger"), the separate existence of Sub shall cease and the Company shall
continue as the surviving corporation and as a wholly owned subsidiary of
Parent. In accordance with the provisions of this Agreement, the Certificate of
Merger shall be filed with the Delaware Secretary of State in accordance with
Delaware Law and each issued and outstanding share of capital stock, of the
Company ("Company Capital Stock"), shall be converted into shares of Common
Stock, $0.0001 par value, of Parent ("Parent Common Stock") in the
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manner contemplated by Section 3. The Merger shall become effective at the time
of the acceptance of the Certificate of Merger by the Delaware Secretary of
State (the date of such acceptance being hereinafter referred to as the
"Effective Date" and the time of such acceptance being hereinafter referred to
as the "Effective Time").
2.2 Closing. The closing of the Merger (the "Closing") will take place
as soon as practicable after satisfaction or waiver of the latest to occur of
the conditions set forth in Section 9 (the "Closing Date"), at the offices of
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, 000 Xxxx Xxxx Xxxx,
Xxxx Xxxx, Xxxxxxxxxx 00000.
2.3 Effect of the Merger. At the Effective Time, (i) the separate
existence of Sub shall cease and Sub shall be merged with and into the Company
(Sub and the Company are sometimes referred to herein as the "Constituent
Corporations" and the Company after the Merger is sometimes referred to herein
as the "Surviving Corporation"), (ii) the Certificate of Incorporation of Sub in
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation; provided, however, that Article I of
the Certificate of Incorporation of the Surviving Corporation shall be amended
to read as follows: "The name of the corporation is XxxxXxxxx.xxx India, Inc.",
(iii) the Bylaws of Sub in effect immediately prior to the Effective Time shall
be the Bylaws of the Surviving Corporation, (iv) the directors of Sub shall be
the directors of the Surviving Corporation until their successors shall have
been duly elected and qualified, (v) the officers of Sub shall be the initial
officers of the Surviving Corporation until their successors have been duly
appointed and qualified, (vi) all shares of capital stock of Sub shall be
canceled, and (vii) the Merger shall, from and after the Effective Time, have
all the effects provided by applicable law.
3. Effect of Merger on the Capital Stock of the Constituent Corporations;
Exchange of Certificates; Additional Payments.
3.1 Exchange of Stock; Rights to Additional Payments. As of the
Effective Time, each share of Company Capital Stock that is issued and
outstanding immediately prior to the Effective Time (other than shares, if any,
held by Persons exercising dissenters' rights in accordance with Delaware Law as
provided for in Section 3.9 below) shall, by virtue of the Merger and without
any action on the part of Company Stockholders, be converted into a number of
shares of Parent Common Stock based upon the Exchange Ratio (as defined below).
The "Exchange Ratio" for Parent Common Stock shall equal the quotient obtained
by dividing One Hundred Sixty-Six Thousand Nine Hundred Fifty-Six (166,956)
shares (the "Merger Consideration") by the sum of (A) the total number of shares
of Company Capital Stock that are issued and outstanding immediately prior to
the Effective Time and (B) the total number of shares of Company Capital Stock
issuable upon conversion or exercise in full of all convertible securities or
options (vested and unvested), warrants or other rights to acquire Company
Capital Stock that are outstanding immediately prior to the Effective Time.
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3.2 Company Options and Warrants. At the Effective Time, each of the
then outstanding options and warrants to purchase Company Capital Stock whether
vested or unvested (collectively, the "Company Options") (including all
outstanding options granted under the Company's 1998 Stock Option Plan (the
"Company Plan"), and any individual non-plan options) will by virtue of the
Merger, and without any further action on the part of any holder thereof, be
cancelled. Parent agrees to grant to each of the holders of such options and
warrants (all of whom are listed on Section 3.2 of the Company Disclosure
Letter) a replacement non-statutory stock option (a "Replacement Option") to
purchase that whole number of shares of Parent Common Stock determined by
multiplying the number of shares of Company Capital Stock subject to such
Company Option at the Effective Time by the Exchange Ratio, at an exercise price
per share of Parent Common Stock equal to the exercise price per share of such
Company Option immediately prior to the Effective Time divided by the Exchange
Ratio, rounded up to the nearest cent. If the foregoing calculation results in a
Replacement Option being exercisable for a fraction of a share of Parent Common
Stock, then the number of shares of Parent Common Stock subject to such option
will be rounded down to the nearest whole number of shares. The term,
exercisability, vesting schedule, vesting commencement date of the Company
Options will otherwise be unchanged, and all other terms and conditions of the
Replacement Options shall be as provided in Parent's Restated 1996 Flexible
Stock Incentive Plan and standard form of agreement. Continuous employment with
the Company will be credited to an optionee of the Company for purposes of
determining the number of shares of Parent Common Stock subject to exercise
under a Replacement Option after the Effective Time. Prior to the Effective
Time, the Company shall take all action necessary so that all Company Options
issued to non-employees of the Company are either exercised in full or
terminated immediately prior to the Effective Time.
3.3 Conversion of Sub Common Stock. Each share of common stock,
$0.0001 par value, of Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, $0.0001 par value, of the
Surviving Corporation. Each stock certificate of Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
3.4 Adjustments to Parent Common Stock. The number of shares of Parent
Common Stock issuable hereunder shall be adjusted to reflect fully the effect of
any stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock or Company
Capital Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock or Company Capital Stock occurring after the date
hereof.
3.5 Fractional Shares. No fractional shares of Parent Common Stock
shall be issued in the Merger. In lieu thereof, any fractional share shall be
rounded up to the nearest whole share of Parent Common Stock.
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3.6 Exchange of Certificates.
(a) Exchange Agent. Prior to the Closing Date, Parent shall appoint
itself or ChaseMellon Shareholder Services, L.L.C., to act as the exchange agent
(the "Exchange Agent") in the Merger.
(b) Parent to Provide Parent Common Stock. Promptly after the
Effective Date, Parent shall make available for exchange in accordance with this
Section 3, through such reasonable procedures as Parent may adopt, the shares of
Parent Common Stock issuable pursuant to Section 3.1 in exchange for outstanding
shares of Company Capital Stock, other than the shares to be held in escrow
pursuant to Section 3.8 hereof. The number of shares allocated to each of the
Company Stockholders is provided on the Consideration Schedule attached hereto
as Exhibit D.
(c) Exchange Procedures. Within ten (10) days after the Effective
Date, the Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Company Capital Stock (the "Certificates") whose shares
are being converted into the Merger Consideration pursuant to Section 3.1 hereof
(less any shares held in escrow pursuant to Section 3.8 hereof), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and which shall be in such form and have such
other provisions as Parent may reasonably specify, including appropriate
investment representations)(the "Letter of Transmittal") and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for the
Merger Consideration (less any shares held in escrow pursuant to Section 3.8
hereof). Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Parent, together with
such letter of transmittal and a Stockholder Certificate in the form of Exhibit
E, duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor the number of shares of Parent Common Stock (less any shares
held in escrow pursuant to Section 3.8 hereof) to which the holder of Company
Common Stock is entitled pursuant to Section 3.1 hereof. The Certificate so
surrendered shall forthwith be canceled. No interest will accrue or be paid to
the holder of any outstanding Company Common Stock. From and after the Effective
Date, until surrendered as contemplated by this Section 3.6, each Certificate
shall be deemed for all corporate purposes to evidence the number of shares of
Parent Common Stock into which the shares of Company Common Stock represented by
such Certificate have been converted.
(d) No Further Ownership Rights in Capital Stock of the Company. The
Merger Consideration delivered upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such
Company Capital Stock. There shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of Company Capital Stock
which were outstanding immediately prior to the Effective Date. If, after the
Effective Date, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as
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provided in this Section 3.6, provided that the presenting holder is listed on
the Company's stockholder list as a holder of Company Capital Stock.
(e) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(f) Transfers of Ownership. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the Person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(g) Lost, Stolen or Destroyed Certificates. In the event that any
certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of Parent Common Stock as may be required
pursuant to Section 3.1; provided, however, that Parent may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against Parent
or the Exchange Agent with respect to the certificates alleged to have been
lost, stolen or destroyed.
(h) No Liability. Notwithstanding anything to the contrary in this
Section 3.6, none of the Exchange Agent, the Surviving Corporation or any Party
hereto shall be liable to a holder of shares of Parent Common Stock or Company
Capital Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
3.7 Taking of Necessary Action; Further Action. Parent, Sub and the Company
shall take all such actions as may be necessary or appropriate in order to
effect the Merger as promptly as possible. If, at any time after the Effective
Date, any further action is necessary or desirable to carry out the purposes of
this Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
the
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Company, the officers and directors of such corporation are fully authorized
in the name of the corporation or otherwise to take, and shall take, all such
action.
3.8 Escrow Account. The Parties agree that ten percent (10%) of the
shares of Parent Common Stock to be issued to the Company Stockholders (the
"Escrow Amount") will, without any act of any stockholder of the Company, be
deposited with the Escrow Agent, such deposit to constitute an escrow fund to be
governed by the terms of Section 10.2. The portion of the Escrow Amount
contributed on behalf of each such Company Stockholder shall be in proportion to
the aggregate Merger Consideration which such Company Stockholder would
otherwise be entitled to receive. Each Company Stockholder's contribution to the
escrow fund is listed on the Consideration Schedule. No shares of Parent Common
Stock shall be deposited in the escrow fund with respect to the Company Options.
3.9 Dissenters' Rights.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has exercised
and perfected appraisal rights for such shares in accordance with Delaware Law
and who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("Dissenting Shares"), shall not be converted into or represent
a right to receive the Merger Consideration, but the holder thereof shall only
be entitled to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) his or her appraisal rights, then, as of the later of
the Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
Merger Consideration, without interest thereon, upon surrender of the
Certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any
written demand for appraisal received by the Company pursuant to the applicable
provisions of Delaware Law and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any such demands or offer to settle or settle any such
demands. To the extent that Parent or the Company makes any payment or payments
in respect of any Dissenting Shares, Parent shall be entitled to recover under
the terms of Section 10 hereof (by surrender of shares of Parent Common Stock)
(i) the aggregate amount by which such payment or payments exceed the aggregate
Merger Consideration that otherwise would have been payable in respect of such
shares plus (ii) the aggregate fees and expenses (including reasonable
attorneys' fees and expenses) incurred by Parent or the Surviving Corporation in
connection with calculating, settling or litigating the amount of, or making,
any such payment.
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3.10 Dissenting Shares After Payment of Fair Value. Dissenting
Shares, if any, after payments of fair value in respect thereto have been made
to dissenting stockholders of the Company pursuant to Delaware Law, shall be
canceled.
3.11 Tax and Accounting Consequences. It is intended by the Parties
hereto that the Merger shall (i) constitute a reorganization within the meaning
of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code") and
(ii) qualify for accounting treatment as a purchase. Each Party has consulted
with its own tax advisors and accountants with respect to the tax and accounting
consequences, respectively, of the Merger.
4. Securities Act Compliance. The shares of Parent Common Stock issued in
connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), by reason of Rule 506 of Regulation D thereof and, as such, will
constitute "restricted securities" within the meaning of Rule 144 promulgated
thereunder. The certificates for the shares of Parent Common Stock to be issued
in the Merger shall bear appropriate legends to identify such privately placed
shares as being restricted under the Securities Act, to comply with applicable
state securities laws and, if applicable, to notice the restrictions on transfer
of such shares. It is acknowledged and understood that Parent is relying upon
certain written representations made by the Company Stockholders in the
Stockholder Certificates in substantially the form attached hereto as Exhibit E.
5. Representations and Warranties of the Company and Principal
Stockholder. Each of the Company and the Principal Stockholder hereby
represents and warrants to Parent that the statements contained in this Section
5 are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 5).
5.1 Organization, Qualification, and Corporate Power. The Company is
a corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware. The Company is duly authorized to conduct
business and is in good standing under the laws of each other jurisdiction where
such qualification is required. There is no state other than Washington in which
the Company owns any property or in which it has any employees, offices or
operations. The Company has full corporate power and authority, and has all
necessary licenses and permits, to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. Section 5.1 of
the Company Disclosure Letter lists the directors and officers of the Company.
The operations now being conducted by the Company have not been conducted under
any other name since its inception. The copies of the Company's Certificate of
Incorporation, Bylaws, minute books, stock transfer ledger, stock option ledger
and warrant ledger which have been delivered to Parent are accurate, correct and
complete as of the date hereof and shall be as of the Effective Time of the
Merger.
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5.2 Authorization. The Company has full power and authority to
execute and deliver this Agreement and all agreements and instruments delivered
pursuant hereto (the "Ancillary Agreements") to which it is a Party, and,
subject to receipt of the requisite approval of its stockholders, to consummate
the transactions contemplated hereunder and to perform its obligations hereunder
and no other proceedings on the part of the Company are necessary to authorize
the execution, delivery and performance of this Agreement and the Ancillary
Agreements to which the Company is a Party. This Agreement and the Ancillary
Agreements to which the Company is a Party and the Contemplated Transactions
have been approved by the unanimous vote of the Company's Board of Directors.
This Agreement and the Ancillary Agreements to which the Company is a Party
constitute the valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their respective terms and conditions.
Other than (i) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws, (ii) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, and (iii) the filings to
be made with the India government or any India regulatory agencies relating to
or arising out of the Merger, the Company need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated by
this Agreement.
5.3 Capitalization.
(a) Capital Stock. The entire authorized capital stock of the
Company consists of 14,250,000 shares of Common Stock, 3,019,902 of which are
issued and outstanding, 2,600,000 shares of Preferred Stock, of which 2,100,000
shares are designated Series A Preferred Stock and 500,000 of which are
designated Series B Preferred Stock, of which 2,100,000 shares of Series A
Preferred Stock and 267,855 shares of Series B Preferred Stock are issued and
outstanding. All of the issued and outstanding shares of capital stock have been
duly authorized, are validly issued, fully paid, non-assessable and free of
preemptive rights and are held of record by the respective stockholders as set
forth in Section 5.3(a) of the Company Disclosure Letter. All of the outstanding
shares of capital stock have been offered, issued and sold by the Company in
compliance with applicable federal and state securities laws. All shares of
Preferred Stock of the Company are convertible into shares of Company Common
Stock at a one-for-one conversion ratio.
(b) No Other Rights or Agreements. Section 5.3(b) of the Company
Disclosure Letter lists all of the holders of options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights and other rights
that could require the Company to issue, sell or otherwise cause to become
outstanding any of its capital stock or other agreements or commitments of any
character to which Company is a Party relating to the issued or unissued capital
stock or other securities of Company, including, without limitation, any
agreement or commitment obligating Company to issue, deliver or sell, or cause
to be issued, delivered or sold, shares of capital stock or other securities of
Company or obligating Company to grant, extend or enter into any subscription,
option, warrant, right or convertible or exchangeable security, right of first
refusal, right to receive
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notification of the transactions contemplated hereby or other similar agreement
or commitment with respect to Company, or obligating Company to make any
payments pursuant to any stock based or stock related plan or award, in each
case other than any rights in favor of Parent or Sub (the "Stock Rights"), and
the number and class of shares of Company Capital Stock subject to such Stock
Rights. Except as set forth in Section 5.3(b) of the Company Disclosure Letter,
there are no other outstanding or authorized Stock Rights. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. No terms relating
to the vesting or exercisability of any Stock Rights or restricted shares of
Company Capital Stock will be affected by the execution of the Agreement or the
consummation of the transactions contemplated hereby. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of the Company. As of the Closing Date, there will
be (i) no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company and (ii) no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of the Company. As a result of the Merger, Parent
will be the sole beneficial owner of all outstanding Company Capital Stock and
all rights to acquire or receive any Company Capital Stock, whether or not such
Company Capital Stock is outstanding.
5.4 Noncontravention. Neither the execution and the delivery of this
Agreement by the Company nor the consummation of the Contemplated Transactions
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of its Certificate of Incorporation or bylaws, or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any Party the right to accelerate, terminate, modify, or cancel, or require any
notice or consent under, any agreement, contract, lease, license, instrument,
franchise, permit, mortgage, indenture or other arrangement to which the Company
is a Party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets).
5.5 Fees. The Company has no liability or obligation to pay any fees
or commissions to any broker, finder, agent or attorney, with respect to the
transactions contemplated by this Agreement.
5.6 Financial Statements. Section 5.6 of the Company Disclosure
Letter contains the following financial statements (collectively the "Financial
Statements"): (i) unaudited balance sheets and statements of income and cash
flows as of and for the fiscal year ended December 31, 1998 for the Company;
(ii) an unaudited balance sheet and statements of income and cash flows (the
"Most Recent Financial Statements") as of and for the nine months ended
September 30, 1999 (the "Most Recent Fiscal Period End") for the Company and
(iii) unaudited balance sheets and statements of income and cash flows for
Zephyr Software (India) Private Limited as of and for the six months ended
September 30, 1999, as complied by such entity's outside accountants. The
Financial Statements, (including the notes thereto) have been prepared in
accordance with generally
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accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods covered thereby and present fairly the financial condition of the
Company as of such dates and the results of operations of the Company for such
periods; provided, however, that the Most Recent Financial Statements lack
footnotes and certain other presentation items and are subject to normal year
end adjustments which will not be material individually or in the aggregate. The
books of account of the Company reflect as of the dates shown thereon all items
of income and expenses, and all assets, liabilities and accruals of the Company
required to be reflected therein.
5.7 Subsidiaries. Other than Zephyr Software (India) Private
Limited, the Company does not have, and never has had, any subsidiaries or
affiliated companies and does not otherwise own, and has not otherwise owned,
any shares in the capital of or any interest in, or control, directly or
indirectly, any other corporation, partnership, association, joint venture or
other business entity.
5.8 Title to Assets. Except as set forth in Section 5.8 of the
Company Disclosure Letter, the Company has good and marketable title to, or a
valid leasehold interest in, the properties and assets (including, without
limitation, all Company Intellectual Property) used by it, located on its
premises, or shown on the balance sheet contained within the Most Recent
Financial Statements (the "Most Recent Balance Sheet") or acquired after the
date thereof, free and clear of all Security Interests whether absolute,
contingent or otherwise, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance Sheet. No
Person other than the Company will own at the time of the Closing any assets or
properties currently utilized in or necessary to the operations or business of
the Company or situated on any of the premises of the Company. There are no
existing contracts, agreements, commitments or arrangements with any Person to
acquire any of the assets or properties of the Company (or any interest therein)
except for this Agreement.
5.9 Events Subsequent to Most Recent Fiscal Period End. Since the
Most Recent Fiscal Period End, there has not been any material adverse change in
the Business Condition of the Company. Without limiting the generality of the
foregoing, since that date:
(a) the Company has not sold, leased, transferred, or assigned
any assets or properties, tangible or intangible, outside the Ordinary Course of
Business;
(b) the Company has not entered into, assumed or become bound
under or obligated by any agreement, contract, lease or commitment (collectively
a "Company Agreement") or extended or modified the terms of any Company
Agreement which (i) involves the payment of greater than $10,000 per annum or
which extends for more than one (1) year, (ii) involves any payment or
obligation to any Affiliate of the Company other than in the Ordinary Course of
Business, (iii) involves the sale of any material assets, or (iv) involves any
license of any Company Intellectual Property;
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(c) no Party (including the Company) has accelerated,
terminated, made modifications to, or canceled any agreement, contract, lease,
or license to which the Company is a Party or by which it is bound and the
Company has not modified, canceled or waived or settled any debts or claims held
by it, outside the Ordinary Course of Business, or waived or settled any rights
or claims of a substantial value, whether or not in the Ordinary Course of
Business;
(d) none of the assets of the Company, tangible or intangible,
has become subject to any Security Interest;
(e) the Company has not made any capital expenditures except in
the Ordinary Course of Business and not exceeding $10,000 in the aggregate of
all such capital expenditures;
(f) the Company has not made any capital investment in, or any
loan to, any other Person;
(g) the Company has not created, incurred, assumed, prepaid or
guaranteed any indebtedness for borrowed money and capitalized lease
obligations, or extended or modified any existing indebtedness;
(h) the Company has not granted any license or sublicense of any
rights under or with respect to any Company Intellectual Property;
(i) there has been no change made or authorized in the
Certificate of Incorporation or bylaws of the Company;
(j) there has not been (i) any change in the Company's
authorized or issued capital stock, (ii) any grant of any stock option or right
to purchase shares of capital stock of the Company, (iii) the issuance of any
security convertible into such capital stock, (iv) the grant of any registration
rights, (v) any purchase, redemption, retirement, or other acquisition by the
Company of any shares of any such capital stock or (vi) any declaration or
payment of any dividend or other distribution or payment in respect of shares of
capital stock;
(k) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property in excess of $10,000
in the aggregate of all such damage, destruction and losses;
(l) the Company has not suffered any repeated, recurring or
prolonged shortage, cessation or interruption of communications, customer
access, supplies or utility services;
(m) the Company has not made any loan to, or entered into any
other transaction with, or paid any bonuses in excess of an aggregate of $10,000
to, any of its Affiliates, directors, officers, or employees or their
Affiliates, and, in any event, any such transaction was on fair and reasonable
terms no less favorable to the Company than would be obtained in a comparable
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arm's length transaction with a Person which is not such a director, officer or
employee or Affiliate thereof;
(n) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
(o) the Company has not granted any increase in the base
compensation of any of its directors or officers, or, except in the Ordinary
Course of Business, any of its employees;
(p) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers, or
employees (or taken any such action with respect to any other Employee Benefit
Plan);
(q) the Company has not made any other change in employment
terms for any of its directors or officers, and the Company has not made any
other change in employment terms for any other employees outside the Ordinary
Course of Business;
(r) the Company has not suffered any adverse change or any
threat of any adverse change in its relations with, or any loss or threat of
loss of, any of its major customers, distributors or partners;
(s) the Company has not suffered any adverse change or any
threat of any adverse change in its relations with, or any loss or threat of
loss of, any of it major suppliers;
(t) the Company has not received notice and does not have
Knowledge of any actual or threatened labor trouble or strike, or any other
occurrence, event or condition of a similar character;
(u) the Company has not changed any of the accounting principles
followed by it or the method of applying such principles;
(v) the Company has not made a change in any of its banking or
safe deposit arrangements;
(w) the Company has not entered into any transaction other than
in the Ordinary Course of Business; and
(x) the Company has not become obligated to do any of the
foregoing.
5.10 Undisclosed Liabilities. The Company has no liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type (whether asserted or
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unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due, including
any liability for taxes), except for that which individually or in the aggregate
(i) is reflected on the Most Recent Balance Sheet or (ii) has arisen after the
Most Recent Fiscal Period End in the Ordinary Course of Business.
5.11 Legal Compliance. The Company has complied with all material
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof). No action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, notice or
inquiry has been filed or commenced against the Company by any governmental body
alleging any failure to so comply. The Company has all licenses, permits,
approvals, registrations, qualifications, certificates and other governmental
authorizations that are necessary for the operations of the Company as they are
presently conducted.
5.12 Tax Matters.
(a) For purposes of this Agreement, (i) "Tax" or, collectively,
"Taxes", means (i) any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts;
(ii) any liability for the payment of any amounts of the type described in
clause (i) as a result of being or ceasing to be a member of an affiliated,
consolidated, combined or unitary group for any period (including, without
limitation, any liability under Treas. Reg. Section 1.1502-6 or any comparable
provision of foreign, state or local law); and (iii) any liability for the
payment of any amounts of the type described in clause (i) or (ii) as a result
of any express or implied obligation to indemnify any other person or as a
result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) The Company has filed all reports and returns with respect
to any Taxes ("Tax Returns") that it was required to file. All such Tax Returns
were correct and complete in all respects and have been completed in accordance
with applicable law and were prepared in accordance with the applicable
statutes, rules and regulations. No such Tax Returns are currently the subject
of audit or examination nor has the Company been notified of any request for an
audit or examination. All Taxes owed by the Company (whether or not shown on any
Tax Return) were paid in full when due or are being contested in good faith and
are supported by adequate reserves on the Most Recent Financial Statements. The
Company has provided adequate reserves on its Financial Statements for the
payment of any taxes accrued but not yet due and payable. The Company is not
currently the beneficiary of any extension of time within which to file any Tax
Return, and the Company has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to any Tax assessment or
deficiency.
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(c) There is no dispute, claim or proposed adjustment concerning
any Tax liability of the Company either (A) claimed or raised by any authority
in writing or (B) based upon personal contact with any agent of such authority.
The Company is not a Party to nor has it been notified that it is the subject of
any pending, proposed or threatened action, investigation, proceeding, audit,
claim or assessment by or before the Internal Revenue Service or any other
governmental authority and no claim for assessment, deficiency or collection of
Taxes, or proposed assessment, deficiency or collection from the Internal
Revenue Service or any other governmental authority which has not been
satisfied, nor does the Company have any reason to believe that any such notice
will be received in the future. The Internal Revenue Service has never audited
any federal income tax return of the Company. The Company has not filed any
requests for rulings with the Internal Revenue Service. No power of attorney has
been granted by the Company or any of its Affiliates with respect to any matter
relating to Taxes of the Company. There are no tax liens of any kind upon any
property or assets of the Company, except for inchoate liens for taxes not yet
due and payable.
(d) The Company has not filed a consent under Sec. 341(f) of the
Code concerning collapsible corporations. The Company has not made any payments,
is not obligated to make any payments, and is not a Party to any agreement that
under any circumstances could obligate it to make any payments as a result of
the consummation of the Merger that will not be deductible under Code Sec. 280G.
The Company has not been a United States real property holding corporation
within the meaning of Code Sec. 897(c)(2) during the applicable period specified
in Code Sec. 897(c)(1)(A)(ii). The Company is not a Party to any tax allocation
or sharing agreement. The Company (A) has not been a member of any affiliated
group within the meaning of Code Sec. 1504 or any similar group defined under a
similar provision of state, local, or foreign law (an "Affiliated Group") filing
a consolidated federal Income Tax Return (other than a group the common parent
of which was the Company) and (B) has no liability for the taxes of any Person
(other than any of the Company) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise. The Company has not requested or received
a ruling from any taxing authority or signed a closing agreement with any taxing
authority. No claim has ever been made by a taxing authority in a jurisdiction
where the Company does not file Tax returns that the Company is or may be
subject to taxation by such jurisdiction.
(e) The unpaid Taxes of the Company (A) did not, as of the Most
Recent Fiscal Period End, exceed by any amount the reserve for Tax liability
(other than any reserve for deferred taxes established to reflect timing
differences between book and tax income) set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) and (B) will not exceed
that reserve as adjusted for operations and transactions through the Closing
Date in accordance with the past custom and practice of the Company in filing
its Tax Returns.
5.13 Properties.
(a) The Company does not currently own and has never previously
owned any real property.
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(b) Section 5.13 of the Company Disclosure Letter lists and
describes briefly all real property leased or subleased to the Company. The
Company has delivered to Parent correct and complete copies of the leases and
subleases (as amended to date) listed in Section 5.13 of the Company Disclosure
Letter. With respect to each lease and sublease listed in Section 5.13 of the
Company Disclosure Letter:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect in all respects against the Company
and, to the Company's Knowledge, the other Parties thereto;
(ii) neither the Company nor, to the Company's Knowledge,
any other Party thereto is in breach or default, and no event has occurred
which, with notice or lapse of time, would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(iii) neither the Company nor, to the Company's Knowledge,
any other Party thereto has repudiated any provision thereof;
(iv) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease: and
(v) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold.
5.14 Intellectual Property.
(a) Section 5.14(a) of the Company Disclosure Letter lists all
Registered Intellectual Property owned by, or filed in the name of, the Company
(the "Company Registered Intellectual Property") and lists any proceedings or
actions before any court, tribunal (including the United States Patent and
Trademark Office (the "PTO") or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property.
(b) Each item of Company Intellectual Property, including all
Company Registered Intellectual Property listed in Section 5.14(a) of the
Company Disclosure Letter and all Intellectual Property licensed to the Company,
is free and clear of any Security Interest. The Company (i) is the exclusive
owner of all trademarks and trade names used in connection with the operation or
conduct of the business of the Company, including the sale of any products or
technology or the provision of any services by the Company and (ii) owns
exclusively, and has good title to, all copyrighted works that are products of
the Company or other works of authorship that the Company otherwise purports to
own.
(c) To the extent that any Intellectual Property has been
developed or created by any Person other than the Company for which the Company
has, directly or indirectly, paid, the Company has a written agreement with such
Person with respect thereto, and the Company thereby
-19-
has obtained ownership of, and is the exclusive owner of, all such Intellectual
Property by operation of law or by valid assignment.
(d) The Company has not transferred ownership of or granted any
license of or right to use or authorized the retention of any rights to use any
Intellectual Property that is or was Company Intellectual Property, to any other
Person.
(e) The Company Intellectual Property constitutes all the
Intellectual Property used in and/or necessary to the conduct of the business of
the Company as it currently is conducted or is reasonably contemplated to be
conducted, including, without limitation, the design, development, manufacture,
use, import and sale of products, technology and services (including products,
technology or services currently under development).
(f) Other than "shrink-wrap" and similar widely available
commercial end-user licenses, the contracts, licenses and agreements listed in
Section 5.14(f) of the Company Disclosure Letter include all contracts, licenses
and agreements to which the Company is a Party with respect to any Intellectual
Property. No Person who has licensed Intellectual Property to the Company has
ownership rights or license rights to improvements made by the Company in such
Intellectual Property which has been licensed to the Company.
(g) Section 5.14(g) of the Company Disclosure Letter lists all
contracts, licenses and agreements between the Company and any other Person
wherein or whereby the Company has agreed to, or assumed, any obligation or duty
to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or liability or provide a right of rescission with respect
to the infringement or misappropriation by the Company or such other Person of
the Intellectual Property of any Person other than the Company.
(h) The operation of the business of the Company as it currently
is conducted or is reasonably contemplated to be conducted, including but not
limited to the Company's design, development, use, import, manufacture and sale
of the products, technology or services (including products, technology or
services currently under development) of the Company does not infringe or
misappropriate the Intellectual Property of any Person, violate the rights of
any Person (including rights to privacy or publicity), or constitute unfair
competition or trade practices under the laws of any jurisdiction, and the
Company has not received notice from any Person claiming that such operation or
any act, product, technology or service (including products, technology or
services currently under development) of the Company infringes or
misappropriates the Intellectual Property of any Person or constitutes unfair
competition or trade practices under the laws of any jurisdiction (nor is the
Company aware of any basis therefor).
(i) Each item of Company Registered Intellectual Property is
valid and subsisting, and all necessary registration, maintenance and renewal
fees in connection with such Company Registered Intellectual Property have been
paid and all necessary documents and
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certificates in connection with such Company Registered Intellectual Property
have been filed with the relevant patent, copyright, trademark or other
authorities in the United States or foreign jurisdictions, as the case may be,
for the purposes of maintaining such Registered Intellectual Property. There are
no actions that must be taken by the Company within sixty (60) days of the
Closing Date, including the payment of any registration, maintenance or renewal
fees or the filing of any documents, applications or certificates for the
purposes of maintaining, perfecting or preserving or renewing any Registered
Intellectual Property. For each product or technology of the Company that
constitutes or includes a copyrightable work, the Company has registered the
copyright in the latest version of such work with the U.S. Copyright Office. In
each case in which the Company has acquired any Intellectual Property rights
from any Person, the Company has obtained a valid and enforceable assignment
sufficient to irrevocably transfer all rights in such Intellectual Property
(including the right to seek past and future damages with respect to such
Intellectual Property) to the Company and, to the maximum extent provided for
by, and in accordance with, applicable laws and regulations, the Company has
recorded each such assignment with the relevant governmental authorities,
including the PTO, the U.S. Copyright Office, or their respective equivalents in
any relevant foreign jurisdiction, as the case may be.
(j) There is no contract, license or agreement between the
Company and any other Person with respect to Company Intellectual Property under
which there is any dispute known to the Company regarding the scope of such
agreement, or performance under such agreement including with respect to any
payments to be made or received by the Company thereunder.
(k) To the Knowledge of the Company, no Person is
infringing or misappropriating any Company Intellectual Property.
(l) The Company has taken all steps that are required to
protect the Company's rights in confidential information and trade secrets of
the Company or provided by any other Person to the Company. Without limiting the
foregoing, the Company has, and enforces, a policy requiring each employee,
consultant and contractor to execute proprietary information, confidentiality
and assignment agreements substantially in accordance with the Company's
standard forms and all current and former employees, consultants and contractors
of the Company have executed such an agreement.
(m) The execution, delivery and performance of this
Agreement and the consummation of the Contemplated Transactions will not breach,
violate or conflict with any instrument or agreement governing any Company
Intellectual Property, and will not cause the forfeiture, modification or
termination or give right of forfeiture, modification or termination of any
Company Intellectual Property or in any way impair the right of the Company (or
the right of Parent if the Company is merged into Parent) to use, sell, license
or dispose of or to bring any action for the infringement of any Company
Intellectual Property or portion thereof.
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(n) Neither the development, manufacture, marketing,
license, sale nor use of any product currently licensed or sold by the Company
or currently under development violates or will violate any license or agreement
with any third party or infringes or will infringe any Intellectual Property of
any other Person which would have a Material Adverse Effect; there is no pending
or, to the Company's Knowledge, threatened claim or litigation contesting the
validity, ownership or right to use, sell, license or dispose of any Company
Intellectual Property nor, to the Company's Knowledge, is there any basis for
any such claim, nor has the Company received any notice asserting that any
Company Intellectual Property or the proposed use, sale, license or disposition
thereof conflicts or will conflict with the rights of any other Person, nor is
there any basis for any such assertion.
(o) No Company Intellectual Property or product, technology
or service of the Company is subject to any proceeding or outstanding decree,
order, judgment, agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
(p) No (i) product, technology, service or publication of
the Company, (ii) material published or distributed by the Company or (iii)
conduct or statement of Company constitutes obscene material, a defamatory
statement or material, false advertising, violates any rights of privacy or
publicity of any third party, is injurious to any third party or otherwise
violates any law or regulation.
5.15 Tangible Assets. The buildings, equipment, and other
tangible assets that the Company owns and leases have been maintained in
accordance with normal industry practice, and are in good operating condition
and repair (subject to normal wear and tear) and are usable in the Ordinary
Course of Business.
5.16 Contracts. Section 5.16 of the Company Disclosure Letter
lists the following written or oral contracts, agreements, commitments and other
arrangements to which the Company is a Party or by which the Company or any of
its assets is bound:
(a) any agreement (or group of related agreements) for the
lease of personal property to or from any Person that involves aggregate annual
payments of more than $10,000;
(b) any agreement under which the consequences of a default
or termination could have a Material Adverse Effect on the Company;
(c) any agreement (or group of related agreements) for the
purchase or sale of commodities, supplies, products, or other personal property,
or for the furnishing or receipt of services, the performance of which will
extend over a period of more than one year or involve consideration in excess of
$10,000;
-22-
(d) any agreement for the purchase of supplies, components,
products or services from single source suppliers, custom manufacturers or
subcontractors that involves aggregate annual payments of more than $10,000;
(e) any agreement concerning a partnership or joint
venture;
(f) any agreement (or group of related agreements) under
which the Company has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or any capitalized lease obligation in excess of $10,000 or
under which a Security Interest has been imposed on any of the Company's assets,
tangible or intangible;
(g) any agreement concerning noncompetition or restraint of
trade;
(h) any agreement with any Company Stockholder or any of
such stockholder's Affiliates (other than the Company) or with any Affiliate of
the Company;
(i) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current or former directors, officers or employees;
(j) any collective bargaining agreement;
(k) any agreement for the employment (other than employment
agreements that are terminable at will by the Company without payment of any
penalty or severance benefit) of any individual on a full-time, part-time,
consulting, or other basis;
(l) any executory agreement under which the Company has
advanced or loaned any amount to any of its directors, officers, and employees;
(m) any advertising services, e-commerce or other agreement
involving the promotion of products and services of third parties by the
Company;
(n) any executory agreement pursuant to which the Company
is obligated to provide maintenance, support or training for its services or
products;
(o) any revenue or profit participation agreement which
involves aggregate annual payments of more than $10,000;
(p) any license, agreement or other permission which the
Company or any Affiliate of the Company has granted to any third party with
respect to any of the Intellectual Property used in the Company's business; and
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(q) any other agreement (or group of related agreements)
the performance of which involves consideration in excess of $10,000 or which is
expected to continue for more than one (1) year from the date hereof.
The Company has delivered to Parent a correct and complete copy of each written
agreement (as amended to date) listed in Section 5.16 of the Company Disclosure
Letter and a written summary setting forth the terms and conditions of each oral
agreement referred to in Section 5.16 of the Company Disclosure Letter. With
respect to each such agreement: (A) the agreement, with respect to the Company
and, to the Company's Knowledge, all other parties thereto, is legal, valid,
binding, enforceable, and in full force and effect in all respects; (B) neither
the Company nor, to the Company's Knowledge, any other Party is in breach or
default, and no event has occurred, which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; (C) no Party has repudiated any provision of
the agreement; and (D) the Company does not have any reason to believe that the
service called for thereunder cannot be supplied in accordance with its terms
and without resulting in a loss to the Company in excess of $10,000 annually.
The Company has obtained or will obtain prior to the Closing Date, all necessary
consents, waivers and approvals of Parties to any such agreement as are required
thereunder in connection with the Merger or to remain in effect without
modification after the Closing. Following the Effective Time, the Company will
be permitted to exercise all of the Company's rights under such agreements to
the same extent the Company would have been able to had the Merger not occurred
and without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which the Company would otherwise be
required to pay.
5.17 Notes and Accounts Receivable. All notes and accounts
receivable of the Company, all of which are reflected properly on the books and
records of the Company, are valid receivables subject to no setoffs, defenses or
counterclaims, are current and, to the Company's Knowledge, collectible subject
in each case only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet as adjusted for operations and transactions through the
Closing Date in accordance with the past custom and practice of the Company.
5.18 Power of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company.
5.19 Insurance. The Company has delivered to Parent copies of
each insurance policy (including policies providing property, casualty,
liability, and workers' compensation coverage and bond and surety arrangements)
with respect to which the Company is a Party, a named insured, or otherwise the
beneficiary of coverage. With respect to each such insurance policy: (A) the
policy is legal, valid, binding, enforceable, and in full force and effect (and
there has been no notice of cancellation or nonrenewal of the policy received);
(B) neither the Company nor any other Party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would
-24-
constitute such a breach or default, or permit termination, modification, or
acceleration, under the policy; (C) no Party to the policy has repudiated any
provision thereof; and (D) there has been no failure to give any notice or
present any claim under the policy in due and timely fashion. Section 5.19 of
the Company Disclosure Letter describes any self-insurance arrangements
presently maintained by the Company.
5.20 Litigation. Section 5.20 of the Company Disclosure Letter
sets forth each instance in which the Company (or any of its assets) (i) is
subject to any outstanding injunction, judgment, order, decree, ruling, or
charge or (ii) is or has been since its inception a Party, or, to the Knowledge
of the Company, is threatened to be made a Party, to any action, suit,
proceeding, hearing, arbitration, or investigation of, in, or before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator. To the Knowledge of the Company,
there are no facts or circumstances which would form the basis of any claim
against the Company.
5.21 Restrictions on Business Activities. Except as set forth in
Section 5.21 of the Disclosure Letter, there is no agreement (not to compete or
otherwise), commitment, judgment, injunction, order or decree to which the
Company is a Party or which is otherwise binding upon the Company which has the
effect of prohibiting or restricting any business or any acquisition of property
(tangible or intangible) by the Company. Without limiting the foregoing, the
Company has not entered into any agreement under which the Company is restricted
from selling, licensing or otherwise distributing any of its technology
(including any Company Intellectual Property) or products to or providing
services to, customers or potential customers or any class of customers, in any
geographic area, or in any segment of the market.
5.22 Product Warranty. The technologies or products licensed,
sold, leased, and delivered and all services provided by the Company have
conformed in all material respects with all applicable contractual commitments
and all express and implied warranties, and the Company has no liability
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due) for replacement or modification thereof or
other damages in connection therewith, other than in the Ordinary Course of
Business in an aggregate amount not exceeding $10,000.
5.23 Employees. No executive, key employee, or significant group
of employees has advised any executive officer of the Company that he, she or
they plan to terminate employment with the Company during the next 12 months.
The Company is not a Party to or bound by any collective bargaining agreement,
nor has it experienced any strike or grievance, claim of unfair labor practices,
or other collective bargaining dispute. To the Company's Knowledge, there is no
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Company.
5.24 Employee Matters and Benefits.
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(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 5.24(a)(i) below (which definition shall apply
only to this Section 5.24), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity
under common control with the Company within the meaning of Section 414(b), (c),
(m) or (o) of the Code and the regulations issued thereunder;
(ii) "Code" shall mean the Internal Revenue Code of 1986,
as amended, or any successor statute thereto;
(iii) "Company Employee Plan" shall mean any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Affiliate has or may have any liability or obligation;
(iv) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(v) "DOL" shall mean the Department of Labor;
(vi) "Employee" shall mean any current or former employee,
consultant or director of the Company or any Affiliate;
(vii) "Employee Agreement" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or other agreement, contract or understanding between the
Company or any Affiliate and any Employee;
(viii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(ix) "FMLA" shall mean the Family Medical Leave Act of
1993, as amended;
(x) "International Employee Plan" shall mean each Company
Employee Plan that has been adopted or maintained by the Company or any
Affiliate, whether informally or formally, or with respect to which the Company
or any Affiliate will or may have any liability, for the benefit of Employees
who perform services out side the United States;
-26-
(xi) "IRS" shall mean the Internal Revenue Service;
(xii) "Multiemployer Plan" shall mean any "Pension Plan"
(as defined below) which is a "multiemployer plan," as defined in Section 3(37)
of ERISA;
(xiii) "PBGC" shall mean the Pension Benefit Guaranty
Corporation; and
(xiv) "Pension Plan" shall mean each Company Employee Plan
which is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Section 5.24(b) of the Company Disclosure
Letter contains an accurate and complete list of each Company Employee Plan and
each Employee Agreement under each Company Employee Plan or Employee Agreement.
The Company does not have any plan or commitment to establish any new Company
Employee Plan or Employee Agreement, to modify any Company Employee Plan or
Employee Agreement (except to the extent required by law or to conform any such
Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement.
(c) Documents. The Company has provided to Parent: (i)
correct and complete copies of all documents embodying each Company Employee
Plan and each Employee Agreement including (without limitation) all amendments
thereto and all related trust documents; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the three (3)
most recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan; (iv) if the Company Employee Plan is
funded, the most recent annual and periodic accounting of Company Employee Plan
assets; (v) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each Company Employee Plan; (vi) all IRS determination, opinion,
notification and advisory letters, and all applications and correspondence to or
from the IRS or the DOL with respect to any such application or letter; (vii)
all material written agreements and contracts relating to each Company Employee
Plan, including, but not limited to, administrative service agreements, group
annuity contracts and group insurance contracts; (viii) all communications
material to any Employee or Employees relating to any Company Employee Plan and
any proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to the Company; (ix) all correspondence to or from any
governmental agency relating to any Company Employee Plan; (x) all COBRA forms
and related notices; (xi) all policies pertaining to fiduciary liability
insurance covering the fiduciaries for each Company Employee Plan; (xii) all
discrimination tests for each Company Employee Plan for the
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most recent plan year; and (xiii) all registration statements, annual reports
(Form 11-K and all attachments thereto) and prospectuses prepared in connection
with each Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Section
5.24(d) of the Company Disclosure Letter, (i) the Company has performed in all
material respects all obligations required to be performed by it under, is not
in default or violation of, and has no Knowledge of any default or violation by
any other Party to each Company Employee Plan, and each Company Employee Plan
has been established and maintained in all material respects in accordance with
its terms and in compliance with all applicable laws, statutes, orders, rules
and regulations, including but not limited to ERISA or the Code; (ii) each
Company Employee Plan intended to qualify under Section 401(a) of the Code and
each trust intended to qualify under Section 501(a) of the Code has either
received a favorable determination, opinion, notification or advisory letter
from the IRS with respect to each such Plan as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has remaining a period of time under
applicable Treasury regulations or IRS pronouncements in which to apply for such
a letter and make any amendments necessary to obtain a favorable determination
as to the qualified status of each such Company Employee Plan; (iii) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of
ERISA, has occurred with respect to any Company Employee Plan; (iv) there are no
actions, suits or claims pending, or, to the Knowledge of the Company,
threatened or reasonably anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan; (v) each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to the Parent, Company or any of its Affiliates (other than ordinary
administration expenses); (vi) there are no audits, inquiries or proceedings
pending or, to the Knowledge of the Company or any Affiliates, threatened by the
IRS or DOL with respect to any Company Employee Plan; and (vii) neither the
Company nor any Affiliate is subject to any penalty or tax with respect to any
Company Employee Plan under Section 502(i) of ERISA or Sections 4975 through
4980 of the Code.
(e) Pension Plan. Neither the Company nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company or any
Affiliate contributed to or been obligated to contribute to any Multiemployer
Plan.
(g) No Post-Employment Obligations. Except as set forth in
Section 5.24(g) of the Company Disclosure Letter, no Company Employee Plan
provides, or reflects or represents any liability to provide, retiree life
insurance, retiree health or other retiree employee welfare benefits to any
Person for any reason, except as may be required by COBRA or other applicable
statute, and the Company has never represented, promised or contracted (whether
in oral or written form) to any
-28-
Employee (either individually or to Employees as a group) or any other Person
that such Employee(s) or other Person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
(h) COBRA etc. Neither the Company nor any Affiliate has, prior
to the Effective Time and in any material respect, violated any of the health
care continuation requirements of COBRA, the requirements of FMLA, the
requirements of the Women's Heath and Cancer Rights Act, the requirements of the
Newborns' and Mothers' Health Protection Act of 1996, or any similar provisions
of state law applicable to its Employees.
(i) Effect of Transaction.
(i) Except as set forth on Section 5.24(i) of the Company
Disclosure Letter, the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) Except as set forth on Section 5.24(i) of the Company
Disclosure Letter, no payment or benefit which will or may be made by the
Company or its Affiliates with respect to any Employee as a result of the
transactions contemplated by this Agreement or otherwise will be characterized
as a "parachute payment," within the meaning of Section 280G(b)(2) of the Code
(but without regard to clause (ii) thereof).
(j) Employment Matters. The Company: (i) is in compliance
in all respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages, salaries and other
payments to Employees; (iii) is not liable for any arrears of wages or any taxes
or any penalty for failure to comply with any of the foregoing; and (iv) is not
liable for any payment to any trust or other fund governed by or maintained by
or on behalf of any governmental authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending, threatened or
reasonably anticipated claims or actions against the Company under any worker's
compensation policy or long-term disability policy.
(k) Labor. No work stoppage or labor strike against the
Company is pending, threatened or reasonably anticipated. The Company does not
know of any activities or proceedings of any labor union to organize any
Employees. Except as set forth in Section 5.24(k) of the
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Company Disclosure Letter, there are no actions, suits, claims, labor disputes
or grievances pending, or, to the Knowledge of the Company, threatened or
reasonably anticipated relating to any labor, safety or discrimination matters
involving any Employee, including, without limitation, charges of unfair labor
practices or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to the
Company. Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act.
Except as set forth in Section 5.24(k) of the Company Disclosure Letter, the
Company is not presently, nor has it been in the past, a Party to, or bound by,
any collective bargaining agreement or union contract with respect to Employees
and no collective bargaining agreement is being negotiated by the Company.
(l) International Employee Plan. The Company does not now,
nor has it ever had the obligation to, maintain, establish, sponsor, participate
in, or contribute to any International Employee Plan.
5.25 Guaranties. The Company is not a guarantor or otherwise
responsible for any liability or obligation (including indebtedness) of any
other Person.
5.26 Environment, Health, and Safety.
(a) For purposes of this Agreement, the following terms
have the following meanings:
"Environmental, Health, and Safety Laws" means any and all
federal, state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, plans, injunctions, judgments, decrees, requirements or
rulings now or hereafter in effect, imposed by any governmental authority
regulating, relating to, or imposing liability or standards of conduct relating
to pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
public health and safety, or employee health and safety, concerning any
Hazardous Materials or Extremely Hazardous Substances, as such terms as defined
herein, or otherwise regulated, under any Environmental, Health and Safety Laws.
The term "Environmental, Health and Safety Laws" shall include, without
limitation, the Clean Water Act (also known as the Federal Water Pollution
Control Act), 33 U.S.C. Section 1251 et seq., the Toxic Substances Control Act,
15 U.S.C. Section 2601 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et
seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section
136 et seq., the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq., the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq., the Superfund Amendment and Reauthorization Act of 1986,
Public Law 99-4, 99, 100 Stat. 1613, the Emergency Planning and Community Right
to Know Act, 42 U.S.C. Section 11001 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., and the Occupational Safety and
Health Act, 29 U.S.C. Section 651 et seq., all as amended, together with any
amendments thereto, regulations promulgated thereunder and all substitutions
thereof.
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"Extremely Hazardous Substance" means a substance on the list
described in Section 302 (42 U.S.C. Section 11002(a)(2)) of the Emergency
Planning and Community Right to Know Act, 42 U.S.C. Section 11001 et seq., as
amended.
"Hazardous Material" means any material or substance that,
whether by its nature or use, is now or hereafter defined as a pollutant,
dangerous substance, toxic substance, hazardous waste, hazardous material,
hazardous substance or contaminant under any Environmental, Health and Safety
Laws, or which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and which is now or
hereafter regulated under any Environmental, Health and Safety Laws, or which is
or contains petroleum, gasoline, diesel fuel or other petroleum hydrocarbon
product.
(b) Each of the Company and its predecessors and Affiliates (A)
has complied with the Environmental, Health, and Safety Laws (and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand,
directive or notice has been filed or commenced against any of them alleging any
such failure to comply), (B) has obtained and been in substantial compliance
with all of the terms and conditions of all permits, licenses, certificates and
other authorizations which are required under the Environmental, Health, and
Safety Laws, and (C) has complied in all material respects with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in the Environmental,
Health, and Safety Laws.
(c) The Company has no liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), and none of the Company and its predecessors and Affiliates has handled or
disposed of any Hazardous Materials or Extremely Hazardous Substances, arranged
for the disposal of any Hazardous Materials or Extremely Hazardous Substances,
exposed any employee or other individual to any Hazardous Materials or Extremely
Hazardous Substances, or owned or operated any property or facility in any
manner that could give rise to any liability, for damage to any site, location,
surface water, groundwater, land surface or subsurface strata, for any illness
of or personal injury to any employee or other individual, or for any reason
under any Environmental, Health, and Safety Law.
(d) No Extremely Hazardous Substances are currently, or have
been, located at, on, in, under or about all properties and equipment used in
the business of the Company and its predecessors and Affiliates.
(e) No Hazardous Materials are currently located at, on, in,
under or about all properties and equipment used in the business of the Company
and its predecessors and Affiliates in a manner which violates any
Environmental, Health and Safety Laws or which requires cleanup or corrective
action of any kind under any Environmental, Health and Safety Laws.
-31-
5.27 Certain Business Relationships With the Company. To the
Company's Knowledge, neither the stockholders of the Company nor any director or
officer of the Company, nor any member of their immediate families, nor any
Affiliate of any of the foregoing, owns, directly or indirectly, or has an
ownership interest in (a) any business (corporate or otherwise) which is a Party
to, or in any property which is the subject of, any business arrangement or
relationship of any kind with the Company, or (b) any business (corporate or
otherwise) which conducts the same business as, or a business similar to, that
conducted by the Company.
5.28 Year 2000 Compliance.
(a) Company Products. Each product sold, distributed, licensed,
leased or delivered by the Company or used in connection with operations of the
Company's business as presently conducted (the "Company Products") is designed
to be used without defect prior to, during, and after the calendar year 2000
A.D. The Company Products will operate during each such time period without
error relating to date data, specifically including any error relating to, or
the product of, date data which represents or references different centuries or
more than a century. Without limiting the generality of the foregoing, the
Company further represents and warrants that the Company Products (i) will not
abnormally end or provide invalid or incorrect results as a result of date data,
specifically including date data which represents or references different
centuries or more than one century; (ii) have been designed to ensure year 2000
compatibility, including, but not limited to, date data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, and date data interface values that reflect the century; and (iii)
include Year 2000 Capabilities. For purposes of this Section 5.28, "Year 2000
Capabilities" means that (i) the Company Products will manage, calculate,
sequence, compare and manipulate data involving dates, including single century
formulas and multi-century formulas and including leap years, and will not cause
an abnormally ending scenario within the application or generate incorrect
values or invalid results involving such dates; (ii) all date-related user
interface functionalities and data fields associated with the Company Products
include the indication of century; and (iii) all date-related data interface
functionalities associated with the Company Products include the indication of
century.
(b) Internal Operating Systems and Licensed Third Party
Software. The Company has audited its internal operating systems and licensed
third party software, and, to its Knowledge, those systems and licensed third
party software include Year 2000 Capabilities.
5.29 No Adverse Developments. There is no development (exclusive of
general economic factors affecting business in general or the Internet sector in
particular) or, to the Company's Knowledge, threatened development affecting the
Company (or affecting customers, suppliers, employees, and other Persons which
have relationships with the Company) that (i) is having or is reasonably likely
to have a Material Adverse Effect on the Company, or (ii) would prevent Parent
from conducting the business of the Surviving Corporation following the Closing
in the manner in which it was conducted by the Company prior to the Closing.
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5.30 Full Disclosure. No representation or warranty in this Section 5
or in any document delivered by the Company or its Representatives pursuant to
the transactions contemplated by this Agreement, and no statement, list,
certificate or instrument furnished to Parent pursuant hereto or in connection
with this Agreement, when taken as a whole, contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the statement
herein or therein, in light of the circumstances in which they were made, not
misleading. The Company has delivered to Parent true, correct and complete
copies of all documents, including all amendments, supplements and modifications
thereof or waivers currently in effect thereunder, described in the Company
Disclosure Letter.
6. Representations and Warranties of Parent and Sub. Parent and Sub
represent and warrant to the Company that the statements contained in this
Section 6 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 6).
6.1 Organization, Qualification, and Corporate Power. Parent and Sub
are corporations duly organized, validly existing, and in good standing under
the laws of the State of Delaware. Parent and Sub are duly authorized to conduct
business and are in good standing under the laws of each other jurisdiction
where such qualification is required and in which the failure to so qualify
would have a Material Adverse Effect. Parent and Sub have full corporate power
and authority, and have all necessary licenses and permits, to carry on the
businesses in which they are engaged and to own and use the properties owned and
used by them.
6.2 Authorization. Parent and Sub have full power and authority to
execute and deliver this Agreement and the Ancillary Agreements to which they
are Parties, and to consummate the transactions contemplated hereunder and to
perform their obligations hereunder, and no other proceedings on the part of
Parent or Sub are necessary to authorize the execution, delivery and performance
of this Agreement and the Ancillary Agreements to which they are Parties. This
Agreement and the Ancillary Agreements to which they are Parties and the
transactions contemplated hereby and thereby have been approved by Parent's
Board of Directors. The consummation of the Contemplated Transactions does not
require the approval or consent of the stockholders of Parent. This Agreement
and the Ancillary Agreements to which they are Parties constitute the valid and
legally binding obligations of Parent and/or Sub, enforceable against Parent
and/or Sub in accordance with their respective terms and conditions. Other than
(i) such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, (iv) the filing of the Merger Amendment with the Secretary of
State of the State of Delaware, and (iii) the filings to be made with the India
government or any India regulatory agencies relating to or arising out of the
Merger, neither Parent nor Sub need give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this Agreement.
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6.3 Capitalization.
(a) As of June 30, 1999 the authorized capital stock of Parent
consisted of (i) 15,000,000 shares of Preferred Stock, $0.0001 par value, none
of which was issued or outstanding, and (ii) 200,000,000 shares of Common Stock,
$0.0001 par value, of which 47,557,639 shares were issued and outstanding. All
of the outstanding shares of Parent's capital stock have been duly authorized
and validly issued and are fully paid and nonassessable. Except as set forth in
this Section 6.3 or as described in the Parent SEC Reports, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of Parent or
obligating Parent to issue or sell any shares of capital stock of, or other
equity interests in, Parent.
(b) The shares of Parent Common Stock to be issued pursuant to
Section 3.1 of this Agreement are duly authorized and reserved for issuance, and
upon issuance thereof in accordance with this Agreement and the Certificate of
Merger will be validly issued, fully paid and nonassessable.
6.4 Noncontravention. Neither the execution and the delivery of this
Agreement nor the consummation of the Contemplated Transactions, will (A)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Parent or Sub is subject or any provision
of their respective charters or bylaws, or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
Party the right to accelerate, terminate, modify, or cancel, or require any
notice under, any agreement, contract, lease, license, instrument, or other
arrangement to which Parent or Sub is a Party or by which either is bound or to
which any of their assets is subject which has been filed as an exhibit to the
Parent SEC Reports.
6.5 SEC Filings. Parent has filed all forms, reports and documents
required to be filed with the SEC since December 31, 1998, and has heretofore
made available to the Company, in the form filed with the SEC, (i) its Annual
Report on Form 10-K for the fiscal year ended December 31, 1998, (ii) its
Quarterly Report on Form 10-Q for the periods ended March 31, 1999 and June 30,
1999, (iii) the proxy statement relating to Parent's annual meeting of
stockholders held on May 24, 1999 and (iv) its Current Reports on Form 8-K dated
July 15, 1999 and August 16, 1999 (collectively, the "Parent SEC Reports"). The
Parent SEC Reports (i) were prepared in accordance with the requirements of the
Securities Exchange Act of 1934, as amended, and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
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6.6 Brokers' Fees. Parent does not have any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
7. Pre-Closing Covenants. With respect to the period between the execution
of this Agreement and the earlier of the termination of this Agreement and the
Effective Time:
7.1 General. Each of the Parties will use their Best Efforts to take
all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 9 below).
7.2 Notices and Consents. The Company will give any notices to third
parties and will use its reasonable best efforts to obtain any third party
consents that are required in connection with the matters identified in Section
5.4 of the Company Disclosure Letter or otherwise required in connection with
the Merger so as to preserve all material rights of or benefits to the Company.
Each of the Parties will give any notices to, make any filings with, and use its
reasonable best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters identified
in Section 5.4 of the Company Disclosure Letter or as otherwise required in
connection with the Merger.
7.3 Operation of Business. The Company will (a) conduct its business
only in the Ordinary Course of Business, (b) use its Best Efforts to preserve
intact the current business organization of the Company, keep available the
services of the current officers, employees, and agents of the Company, and
maintain the relations and good will with suppliers, customers, landlords,
creditors, employees, agents, and others having business relationships with the
Company, (c) confer with Parent concerning operational matters of a material
nature, (d) not hire or engage any new employee or contractor, or enter into any
binding commitment to do so, without the prior written consent of Parent, which
consent shall not be unreasonably withheld or delayed and (e) otherwise report
periodically to Parent concerning the status of the business, operations, and
finances of the Company. In addition, except as otherwise expressly permitted by
this Agreement, the Company will not, without the prior consent of Parent, take
any affirmative action, or fail to take any reasonable action within their or
its control, as a result of which any of the changes or events listed in Section
5.9 is likely to occur.
7.4 Access to Information. Each of the Company and Parent will permit
the other Party and its representatives to have access at all reasonable times,
and in a manner so as not to interfere with its normal business operations, to
its business and operations (subject, in the case of Parent, to compliance with
applicable securities laws). Neither such access, inspection and furnishing of
information to any Party and its representatives, nor any investigation by any
Party and its representatives, shall in any way diminish or otherwise affect
such Party's right to rely on any representation or warranty made by the other
Parties hereunder.
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7.5 Notice of Developments. Each of the Company and Parent will give
prompt written notice to the other Party of any material development causing a
breach of any of its own representations and warranties in Section 5 or Section
6 above, as the case may be. No disclosure pursuant to this Section 7.5,
however, shall be deemed to amend or supplement the Company Disclosure Letter,
or to prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
7.6 Stockholder Approval. As promptly as practicable after the
execution of this Agreement, the Company shall submit this Agreement and the
transactions contemplated hereby to the Company Stockholders for approval and
adoption as provided by Delaware Law and its Certificate of Incorporation and
Bylaws. The Company shall use its Best Efforts to solicit and obtain the consent
of its stockholders sufficient to approve the Merger and this Agreement and to
enable the Closing to occur as promptly as practicable. The materials submitted
to the Company Stockholders shall be subject to review and approval by Parent
and include information regarding the Company, the terms of the Merger and this
Agreement and the unanimous recommendation of the Board of Directors of the
Company regarding the Merger and this Agreement. The Company shall deliver to
Parent, concurrently with the execution of this Agreement, executed Voting and
Affiliate Restriction Agreements from holders with beneficial ownership of (i) a
majority of the outstanding shares of Company Preferred Stock and (ii) a
majority of the outstanding shares of Company Common Stock.
7.7 No Solicitation.
(a) From and after the date hereof and until the earlier of the
Effective Time, the termination of this Agreement and November 23, 1999, the
Company shall instruct its Representatives, and each Principal Stockholder
agrees, not to, directly or indirectly, solicit, initiate or intentionally
encourage (including by way of furnishing non-public information) any proposal
which constitutes or may reasonably be expected to lead to an Acquisition
Proposal (as defined below) in respect of the Company or any of its material
assets, from any Person, or engage in any discussion or negotiations relating
thereto or enter into any agreement with any Person providing for or
contemplating any Acquisition Proposal.
(b) The Company and the Principal Stockholder shall immediately
cease and terminate any existing solicitation, initiation, encouragement,
activity, discussion or negotiation with any Party or Parties conducted
heretofore by the Company, the Principal Stockholder or its other
Representatives with respect to any Acquisition Proposal. The Company shall
notify Parent orally and in writing of any Acquisition Proposal and any
amendments thereto with respect to the Company or any other transaction, the
consummation of which would reasonably be expected to prevent or materially
interfere with or materially delay the Merger (including the material terms and
conditions of any such Acquisition Proposal and the identity of the Person
making it and any subsequent modifications thereto), promptly, but in any event
within 24 hours, after receipt by the Company.
(c) As used in this Section 7.7, "Acquisition Proposal" shall
mean:
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(i) a bona fide proposal or offer for a merger, consolidation or
other business combination involving an acquisition of the Company or any
material asset of the Company; or
(ii) any proposal to acquire in any manner any of the Company's
Capital Stock (other than upon the exercise of options outstanding on the date
hereof and listed in Section 5.3(b) of the Company Disclosure Letter).
8. Post-Closing Covenants. With respect to the period following the
Effective Time:
8.1 General. In case at any time after the Effective Time any further
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 10
below).
8.2 Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction (A) on or
prior to the Effective Time involving the Company or (B) arising out of Parent's
operation of the business of the Surviving Corporation following the Effective
Time in the manner in which it is presently conducted and planned to be
conducted, each of the other Parties will cooperate with the Party and its
counsel in the contest or defense, make available their personnel, and provide
such testimony and access to their books and records as shall be reasonably
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Section 10 below).
8.3 Confidentiality. Each of the Parties hereto hereby agrees to keep
such information or Knowledge obtained in any due diligence or other
investigation pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential, except to
the extent that such information is or becomes publicly known or available or is
independently acquired or developed. In this regard, the Company and its
employees and agents acknowledge that Parent's Common Stock is publicly traded
and that any information obtained during the course of its due diligence could
be considered to be material non-public information within the meaning of
federal and state securities laws. Accordingly, the Company and its employees
and agents, acknowledge and agree not to engage in any transactions in Parent's
Common Stock in violation of applicable xxxxxxx xxxxxxx laws.
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8.4 FIRPTA Compliance. On the Closing Date, the Company shall deliver
to Parent a properly executed statement in a form reasonably acceptable to
Parent for purposes of satisfying Parent's obligations under U.S. Treasury
Regulation Section 1.1445-2(c)(3).
8.5 Registration Statement. Subject to certain limitations set forth
in the Registration Rights Agreement attached hereto as Exhibit F, if on or
after December 20, 1999, Parent proposes to register Parent Common Stock on a
registration statement on Form S-3 (the "Registration Statement") under the
Securities Act then the Parent shall provide written notice of such proposed
transaction to the Company Stockholders. Upon the request, within 15 days of
delivery of notice from the Parent, of a Company Stockholder, Parent shall
include 100% of the shares of Parent Common Stock constituting the Merger
Consideration (including the Escrow Shares) held by the requesting Company
Stockholder. The rights and obligations of the Company Stockholders and Parent
in respect of the Registration Statement shall be as set forth in the
Registration Rights Agreement. Notwithstanding anything herein or in the
Registration Rights Agreement, Parent shall have no obligation to cause such
shares to be registered unless Parent proposes to file a Registration Statement.
8.6 Additional Documents and Further Assurances. Each Party hereto, at
the request of another Party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of the transactions
contemplated hereby.
8.7 Tax Free Reorganization. The Parties intend to adopt this
Agreement and the Merger as a tax-free plan of reorganization under Section
368(a)(1)(A) of the code by virtue of the provisions of Section 368(a)(2)(E) of
the Code. The Parent Common Stock issued in the Merger will be issued solely in
exchange for the Company Capital Stock, and no other transaction other than the
Merger represents, provides for or is intended to be an adjustment to the
consideration paid for the Company Capital Stock. No consideration that could
constitute "other property" within the meaning of Section 356(b) of the Code is
being transferred by Parent for the Company Capital Stock in the Merger. The
Parties shall not take a position on any tax return inconsistent with this
Section 8.7 unless there has been a final "determination" (within the meaning of
Section 1313(a) of the Code) to the contrary. From and after the Effective Time,
neither Parent, Sub nor, the Company shall take any action that could reasonably
be expected to cause the Merger not to be treated as a reorganization within the
meaning of Section 368 of the Code.
9. Conditions to Obligations to Close.
9.1 Conditions to Parent's and Sub's Obligation to Close. The
obligations of Parent and Sub to consummate the transactions to be performed by
them in connection with the Closing is subject to satisfaction of the following
conditions:
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(a) Representations and Warranties.
(i) The representations and warranties set forth in
Section 5 above shall be true and correct when made and shall be true and
correct in all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of the Closing Date; and
(ii) The representations and warranties set forth in
Sections 5.2, 5.3 and 5.6 above shall be true and correct on and as of the
Closing Date as though such representations and warranties were made on and as
of the Closing Date;
(b) Covenants. The Company shall have performed and complied
with all of its covenants hereunder in all material respects through the
Closing.
(c) Consents. The Company shall have procured all of the third
party consents specified in Section 5.4 of the Company Disclosure Letter.
(d) No Actions. No action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect materially the right of Parent to control the
Company following the Effective Time, or (D) affect materially the right of
Parent or the Company to own the Company's assets (including without limitation
its Intellectual Property) and to operate the Company's businesses (and no such
injunction, judgment, order, decree, ruling or charge shall be in effect) and no
law, statute, ordinance, rule, regulation or order shall have been enacted,
enforced or entered which has caused, or would reasonably be expected to cause,
any of the effects under clause (A), (B), (C), or (D) of this Section 9.1(d) to
occur.
(e) Certificates. The President and the Secretary of the Company
shall have delivered to Parent a certificate to the effect that each of the
conditions specified above in Section 9.1(a) to 9.1(d) (inclusive) is satisfied
in all respects.
(f) Governmental Authorizations. The Parties shall have received
all authorizations, consents and approvals of governments and governmental
agencies referred to in Section 5.4 or Section 7.2 above or disclosed in a
corresponding section in the Company Disclosure Letter.
(g) Standard Employee Agreements. The Persons listed on Exhibit
G-1 shall each have executed delivered to Parent Parent's standard form of
employee Non-Disclosure, Invention Release and Non-Competition Agreement in
substantially the form attached hereto as
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Xxxxxxx X-0, and such Non-Disclosure, Invention Release and Non-Competition
Agreements shall be in full force and effect.
(h) Employment Agreements. The Persons listed on Exhibit C-1
shall each have executed and delivered to Parent an Employment Agreement in
substantially the form attached hereto as Exhibit C-2, and such Employment
Agreements shall be in full force and effect.
(i) Stockholder Certificate. Each Company Stockholder shall have
executed and delivered to Parent a Stockholder Certificate in substantially the
form attached hereto as Exhibit E.
(j) Legal Opinion. Parent shall have received from Summit Law
Group PLLC, counsel to the Company and the Principal Stockholder, an opinion in
form and substance as set forth in Exhibit H attached hereto, addressed to
Parent, and dated as of the Closing Date.
(k) Stockholder Vote. This Agreement and the Merger shall have
been approved by the vote of the holders of at least 66-2/3% of the outstanding
Company Capital Stock and holders of not more than 5% of Company Capital Stock
shall continue to have a right to exercise appraisal, dissenters or similar
rights under applicable law with respect to their Company Capital Stock by
virtue of the Merger;
(l) No Material Adverse Change. There shall not have occurred
any material adverse change in the Business Condition of the Company since the
Most Recent Fiscal Period End.
(m) Resignation of Directors. Each of the directors of the
Company shall have resigned.
(n) Voting and Affiliate Restriction Agreements. The Voting and
Affiliate Restriction Agreements executed and delivered to Parent on the date
hereof shall remain in full force and effect.
(o) Nasdaq Listing. The shares of Parent Common Stock issuable
in connection with the Merger shall have been authorized for listing on the
Nasdaq National Market upon official notice of issuance.
(p) H-1B Visas. Each Company employee who is reliant on an H-1B
visa to work in the United States shall have had his or her H-1B visa renewed
and such visa shall be in good standing.
(q) Restricted Stock Agreement. Xxxxxxxxx Xxxxx shall have
executed the Restricted Agreement attached hereto as Exhibit I.
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(r) Indian Regulatory Approvals. (i) A properly executed Form OAC
shall have been filed with the India government attesting that the Company is an
OCB, (ii) the Company shall have filed for a "software technology park" tax
exemption with the India government and (iii) all other necessary regulatory
approvals relating to the Merger shall have been obtained from the India
government.
(s) Releases. Each officer and director of the Company, and each
holder of more than five percent (5%) of the Company's capital stock, shall have
executed and delivered a Release in substantially the form attached hereto as
Exhibit J.
(t) Optionee Consents. Each holder of an outstanding Company Option
shall have consented to the granting of a Replacement Option, as contemplated by
Section 3.2.
(u) Optionee Consents. Each holder of an outstanding Company Option
shall have consented to the granting of a Replacement Option, as contemplated by
Section 3.2.
(v) Repayment of Promissory Notes. Xxxxx Xxxxxxx shall have repaid all
outstanding principle and interest due on the promissory notes issued by him to
the Company in the principle amount of $25,000 and $25,000, respectively, and
the Principal Stockholder shall have repaid all outstanding principle and
interest due on the promissory note issued by her to the Company in the
principle amount of $70,000.
Parent may waive any condition (in whole or in part) specified in this
Section 9.1 if it executes a writing so stating at or prior to the Closing.
9.2 Conditions to the Company's Obligations. The obligation of the Company
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(a) Representations and Warranties. The representations and warranties
set forth in Section 6 above shall be true and correct when made and shall be
true and correct in all material respects on and as of the Closing Date as
though such representations and warrants were made on and as of the Closing
Date.
(b) Covenants. Parent shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing.
(c) No Actions. No action, suit, or proceeding shall be pending before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement or (B)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect).
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All waiting periods under the HSR Act relating to the transactions contemplated
hereby shall have expired or terminated early.
(d) Certificate. The President or other duly authorized officer of
Parent shall have delivered to the Company a certificate to the effect that each
of the conditions specified above in Section 9.2(a) to 9.2(c) (inclusive) is
satisfied in all respects.
(e) Legal Opinion. The Company shall have received from Xxxxxx Xxxxxxx
Xxxxxxxx & Xxxxxx, Professional Corporation, counsel to Parent an opinion in
form and substance as set forth in Exhibit K attached hereto, addressed to the
Company, and dated as of the Closing Date.
(f) Nasdaq Listing. The shares of Parent Common Stock issuable in
connection with the Merger shall have been authorized for listing on the Nasdaq
National Market upon official notice of issuance.
The Company may waive any condition (in whole or in part) specified in this
Section 9.2 if it executes a writing so stating at or prior to the Closing.
10. Survival of Representations, Warranties and Covenants; Indemnity; Escrow.
10.1 Survival of Representations and Warranties. All covenants of the
Company and the Principal Stockholder to be performed prior to the Effective
Time, and all representations and warranties of the Company and the Principal
Stockholder in this Agreement or in any instrument delivered pursuant to this
Agreement, shall survive the Merger for a period ending one (1) year from the
Effective Time; provided, however, that the indemnification obligations due to
breaches of the representations and warranties with respect to Taxes shall
survive until the expiration of the applicable statute of limitations, if any.
All covenants of Parent to be performed prior to the Effective Time, and all
representations and warranties of Parent in this Agreement or in any instrument
delivered pursuant to this Agreement shall terminate at the Effective Time.
10.2 Escrow Arrangements.
(a) Indemnity; Escrow Fund.
(i) The Company Stockholders, jointly and severally, agree to
indemnify and hold Parent and its Representatives and Affiliates (including the
Company) (collectively, the "Indemnified Persons") from and harmless against all
claims, losses, liabilities, damages, deficiencies, costs, expenses (including
reasonable attorneys' fees and expenses of investigation) and diminution in
value (hereinafter individually a "Loss" and collectively "Losses") incurred by
the Indemnified Persons directly or indirectly as a result of (A) any inaccuracy
or breach of a representation or warranty of the Company contained in this
Agreement, or (B) any failure by the Company to perform or comply with any
covenant contained in this Agreement. The Escrow Fund shall be available to
compensate Parent and its affiliates for such Losses. Company
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Stockholders shall not have any right of contribution from Parent with respect
to any Loss claimed by Parent. Parent and the Company and each acknowledge that
such Losses, if any, would relate to unresolved contingencies existing at the
Effective Time, which if resolved at the Effective Time would have led to a
reduction in the aggregate Merger Consideration.
(ii) As soon as practicable after the Effective Time, shares of
Parent Common Stock which comprise the Escrow Amount, without any act of any
Company Stockholder, will be deposited with ChaseMellon Shareholder Services,
L.L.C., as Escrow Agent (the "Escrow Agent"), such deposit to constitute an
escrow fund (the "Escrow Fund") to be governed by the terms set forth herein.
The portion of the Escrow Amount contributed on behalf of each Company
Stockholder shall be in proportion to the aggregate Merger Consideration which
such holder would otherwise be entitled under Section 3.1. The Escrow Agent
shall not be responsible for confirming that the shares contributed to the
Escrow Fund comprise the Escrow Amount or that the portion contributed on behalf
of each Company Stockholder is in the proper proportion, which determination
shall be made by Parent.
(iii) Notwithstanding anything contained herein to the contrary,
the Company Stockholders shall not have any liability or obligation to indemnify
Parent or Sub for any Losses unless and until Officer's Certificates (as
hereinafter defined) shall have been delivered with respect to Losses which
equal or exceed $25,000 in the aggregate for all Losses (the "Basket Amount").
At such time as Officer's Certificates with respect to Losses which meet the
foregoing thresholds have been delivered, Parent and Sub shall be entitled to
indemnification for all Losses, including the Basket Amount.
(b) Escrow Period; Distribution upon Termination of Escrow Period.
Subject to the following requirements, the Escrow Fund shall remain in existence
during the period following the Closing until termination of the representations
and warranties of the Company pursuant to Section 10.1 hereof (the "Escrow
Period"). At the expiration of the Escrow Period a portion of the Escrow Fund
shall be released from Escrow to the Company Stockholders in an amount equal to
the Escrow Amount less an amount equal to the sum of (i) all amounts theretofore
distributed out of the Escrow Fund to Parent and the other Indemnified Persons
pursuant to this Section 10 and (ii) an amount equal to such portion of the
Escrow Fund which, in the reasonable judgment of Parent, subject to the
reasonable objection of the Stockholder Agent and the subsequent arbitration of
the matter in the manner provided in Section 10.2(f) hereof, is necessary to
satisfy any unsatisfied claims specified in any Officer's Certificate
theretofore delivered to the Escrow Agent prior to the end of the Escrow Period,
which amount shall remain in the Escrow Fund (and the Escrow Fund shall remain
in existence) until such claims have been resolved. As soon as all such claims
have been resolved (such resolution to be evidenced by the written agreement of
Parent and the Stockholder Agent or the written decision of the arbitrators as
described in Section 10.2(f)), the Escrow Agent shall deliver to the Company
Stockholders the remaining portion of the Escrow Fund not required to satisfy
such claims. Deliveries of Escrow Amounts to the Company Stockholders pursuant
to this Section 10.2(b) and Section 10.2(d)(iii) shall be made in proportion to
their
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respective original contributions to the Escrow Fund, as calculated by the
Stockholder Agent and delivered to the Escrow Agent in writing.
(c) Protection of Escrow Fund. The Escrow Agent shall hold and
safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and not as the
property of Parent and shall hold and dispose of the Escrow Fund only in
accordance with the terms hereof.
(d) Distributions; Voting; Claims Upon Escrow Fund.
(i) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split) ("New Shares") in respect of Parent Common Stock in the Escrow Fund which
have not been released from the Escrow Fund, shall be added to the Escrow Fund
and become a part thereof. Any cash dividends paid on Parent Common Stock in the
Escrow Fund, shall be paid to the Persons who, prior to the Merger, were Company
Stockholders in accordance with their respective contributions to the Escrow
Fund. New Shares and cash dividends issued in respect of Parent Common Stock
which have been released from the Escrow Fund shall not be added to the Escrow
Fund, but shall be distributed to the record holders thereof.
(ii) Each person who, prior to the Merger, was a stockholder of
the Company shall have voting rights with respect to the shares of Parent Common
Stock contributed to the Escrow Fund on behalf of such stockholder (and on any
voting securities added to the Escrow Fund in respect of such shares of Parent
Common Stock) so long as such shares of Parent Common Stock or other voting
securities are held in the Escrow Fund.
(iii) Upon receipt by the Escrow Agent at any time on or before
the last day of the Escrow Period of a certificate signed by any officer of
Parent (an "Officer's Certificate"): (A) stating that Parent or its Affiliates
has incurred and paid or properly accrued Losses, or reasonably anticipates that
it may have to pay or accrue Losses, (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date on which
each such item was incurred and paid or properly accrued, or the basis for such
anticipated liability, and the nature of the misrepresentation, breach of
warranty or claim to which such item is related, and (C) indicating the number
of shares of Parent Common Stock to be disbursed to Parent out of the Escrow
Fund, the Escrow Agent shall, subject to the provisions of Section 10.2(e)
hereof, deliver to Parent out of the Escrow Fund, as promptly as practicable,
such amounts held in the Escrow Fund equal to such Losses.
(iv) For the purposes of determining the number of shares of
Parent Common Stock to be disbursed to Parent out of the Escrow Fund, the shares
of Parent Common Stock shall be valued at the closing price of the Parent Common
Stock as reported in the Wall Street Journal on the Nasdaq National Market on
the Closing Date.
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(e) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Stockholder Agent, and for a period of thirty (30) days after
such delivery the Escrow Agent shall make no delivery to Parent of any Escrow
Amount specified in such Officer's Certificate unless the Escrow Agent shall
have received written authorization from the Stockholder Agent to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of an amount from the Escrow Fund in accordance with such
Officer's Certificate and Section 10.2(d) hereof, provided that no such payment
or delivery may be made if the Stockholder Agent shall object in a written
statement to the claim made in the Officer's Certificate, and such statement
shall have been delivered to the Escrow Agent prior to the expiration of such
thirty (30) day period.
(f) Resolution of Conflicts; Arbitration.
(i) In case the Stockholder Agent shall so object in writing to
any claim or claims made in any Officer's Certificate within 30 days after
delivery of such Officer's Certificate, the Stockholder Agent and Parent shall
attempt in good faith to agree upon the rights of the respective Parties with
respect to each of such claims. If the Stockholder Agent and Parent should so
agree, a memorandum setting forth such agreement shall be prepared and signed by
both Parties and shall be furnished to the Escrow Agent. The Escrow Agent shall
be entitled to rely on any such memorandum and distribute amounts from the
Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Stockholder Agent may demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both Parties agree to arbitration; and in
either such event the matter shall be settled by arbitration conducted by one
arbitrator mutually agreeable to Parent and the Stockholder Agent. In the event
that within forty-five (45) days after submission of any dispute to arbitration,
Parent and the Stockholder Agent cannot mutually agree on one arbitrator, Parent
and the Stockholder Agent shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. The arbitrator or
arbitrators, as the case may be, shall set a limited time period not to exceed
forty-five (45) and establish procedures designed to limit the cost and time for
discovery while allowing the Parties an opportunity, adequate in the sole
judgement of the arbitrator or majority of the three arbitrators, as the case
may be, to discover relevant information from the opposing Parties about the
subject matter of the dispute. The arbitrator or a majority of the three
arbitrators, as the case may be, shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys'
fees and costs, to the same extent as a competent court of law or equity, should
the arbitrators or a majority of the three arbitrators, as the case may be,
determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of the arbitrator or a majority of the three arbitrators, as the case
may be, as to the validity and amount of any claim in such Officer's Certificate
shall be binding and conclusive upon the Parties to this Agreement, and
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notwithstanding anything in Section 9.2(e) to the hereof, the Escrow Agent shall
be entitled to act in accordance with such decision and make or withhold
payments out of the Escrow Funds in accordance therewith. Such decision shall be
written and shall be supported by written findings of fact and conclusions which
shall set forth the award, judgment, decree or order awarded by the
arbitrator(s). In the event that the Escrow Agent has not received evidence of
resolution under Section 10.2(f)(i) or this Section 10.2(f)(ii), the Escrow
Agent shall continue to hold the Escrow Funds in accordance herewith.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
King County, Washington, under the rules then in effect of the American
Arbitration Association. Each Party to any arbitration pursuant to this Section
9.2(f) shall pay its own expenses; the fees of each arbitrator and the
administrative fee of the American Arbitration Association shall be borne
equally by Parent, on the one hand and the Company Stockholders, on the other.
Neither the expenses that the Stockholder Agent incurs in the course of any
arbitration pursuant to this Section 10.2(f) nor the Stockholder Agent's portion
of the fees of the arbitrators or the administrative fees for the American
Arbitration Association shall be deducted from any amounts held in the Escrow
Fund.
(g) Stockholder Agent; Power of Attorney.
(i) In the event that the Merger is approved by the Company
Stockholders, effective upon such vote, and without any further act of any
Company Stockholder, the Stockholder Agent shall be appointed as agent and
attorney-in-fact for each Company Stockholder, for and on behalf of each such
Principal Stockholder, to give and receive notices and communications, to
authorize delivery to Parent of shares from the Escrow Fund in satisfaction of
claims by Parent, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of Stockholder Agent
for the accomplishment of the foregoing. The Stockholder Agent may be changed by
the Company Stockholders from time to time upon not less than thirty (30) days'
prior written notice to Parent and Escrow Agent; provided that the Stockholder
Agent may not be removed unless holders of a two-thirds interest of the Escrow
Amount in the Escrow Fund agree to such removal and to the identity of the
substituted agent. Any vacancy in the position of Stockholder Agent may be
filled by approval of the holders of a majority in interest of the Escrow Fund.
No bond shall be required of the Stockholder Agent, and the Stockholder Agent
shall not receive compensation for his services. Notices or communications to or
from the Stockholder Agent shall constitute notice to or from each of the
Company Stockholders.
(ii) The Stockholder Agent shall not be liable for any act done
or omitted hereunder as Stockholder Agent while acting in good faith and in the
exercise of reasonable judgment. The Company Stockholders on whose behalf the
Escrow Amount was contributed to the Escrow Fund shall severally indemnify the
Stockholder Agent and hold the Stockholder Agent
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harmless against any loss, liability or expense incurred without negligence or
bad faith on the part of the Stockholder Agent and arising out of or in
connection with the acceptance or administration of the Stockholder Agent's
duties hereunder, including the reasonable fees and expenses of any legal
counsel retained by the Stockholder Agent.
(h) Actions of the Stockholder Agent. A decision, act, consent or
instruction of the Stockholder Agent shall constitute a decision of all the
Company Stockholders and shall be final, binding and conclusive upon each of
such Company Stockholders, and the Escrow Agent and Parent may rely upon any
such decision, act, consent or instruction of the Stockholder Agent as being the
decision, act, consent or instruction of each Company Stockholder. The Escrow
Agent and Parent are hereby relieved from any liability to any Person for any
acts done by them in accordance with such decision, act, consent or instruction
of the Stockholder Agent.
(i) Third-Party Claims. In the event that Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall notify the Stockholder Agent of such claim, and the
Stockholder Agent and the Company Stockholders shall be entitled, at their
expense, to participate in any defense of such claim. Parent shall have the
right in its sole discretion to settle any such claim; provided, however, that
except with the consent of the Stockholder Agent, no settlement of any such
claim with third-party claimants shall alone be determinative of the amount of
any claim against the Escrow Fund. In the event that the Stockholder Agent has
consented to any such settlement, the Stockholder Agent shall have no power or
authority to object under any provision of this Section 9 to the amount of any
claim by Parent against the Escrow Fund with respect to such settlement to the
extent that such amount is consistent with the terms of such settlement.
(j) Escrow Agent's Duties.
(i) The Escrow Agent's duties are purely ministerial in nature,
and the Escrow Agent shall be obligated only for the performance of such duties
as are specifically set forth in this Agreement and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Agreement which are signed by an officer of Parent and the
Stockholder Agent, and may rely and shall be protected in relying or refraining
from acting on any instrument reasonably believed to be genuine and to have been
signed or presented by the proper Party or Parties. The Escrow Agent shall not
be liable for any action taken, suffered or omitted hereunder as Escrow Agent
absent gross negligence or willful misconduct, and the Escrow Agent shall be
fully protected and shall incur no liability for any action taken, suffered or
omitted pursuant to the advice of counsel.
(ii) The Escrow Agent is hereby expressly authorized to disregard
any and all warnings given by any of the Parties hereto or by any other Person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such order, judgment or decree
of any court, the Escrow Agent shall not be liable to any of the Parties hereto
or to any other Person by reason of such compliance, notwithstanding any such
order,
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judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the Parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow
Agent shall not be liable to any Party for damages, claims, liabilities, losses,
or expenses, except for gross negligence or willful misconduct on the part of
the Escrow Agent (which for all purposes of any section of this Agreement as it
pertains to the Escrow Agent shall be finally determined by a court of competent
jurisdiction). The Escrow Agent shall not incur any such liability for (A) any
action taken, suffered or omitted in good faith, or (B) any action taken,
suffered or omitted in reliance upon any instrument, including any written
statement or affidavit provided for in this Agreement that the Escrow Agent
shall in good faith believe to be genuine, nor will the Escrow Agent be liable
or responsible for forgeries, fraud, impersonations, or determining the scope of
any representative authority. In addition, the Escrow Agent may consult with
legal counsel in connection with Escrow Agent's duties under this Agreement and
shall be fully protected in any action taken, suffered, or omitted by it in
accordance with the advice of counsel. The Escrow Agent is not responsible for
determining and verifying the authority of any Person acting or purporting to
act on behalf of any Party to this Agreement. The Escrow Agent shall have the
right to perform any of its duties hereunder through agents, custodians or
nominees, and the Escrow Agent shall not be liable or responsible for any
misconduct or negligence on the part of any such agent, custodian or nominee
absent gross negligence, willful misconduct or bad faith on the part of the
Escrow Agent in the selection and continued employment thereof.
(vi) If any controversy arises between the Parties to this
Agreement, or with any other Party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and funds and may wait for settlement of any such
controversy by final appropriate legal proceedings or other means as, in the
Escrow Agent's discretion, the Escrow Agent may be required, despite what may be
set forth elsewhere in this Agreement. In such event, the Escrow Agent will not
be liable for damages. Furthermore, the Escrow Agent may at its option, file an
action of interpleader requiring the Parties to answer and litigate any claims
and rights among themselves. The Escrow Agent is authorized to deposit with the
clerk of the court all documents and funds held in escrow, except all cost,
expenses, charges and
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reasonable attorney fees incurred by the Escrow Agent through such time and
which the Parties jointly and severally agree to pay. Upon initiating such
action, the Escrow Agent shall be fully released and discharged of and from all
obligations and liability imposed by the terms of this Agreement.
(vii) The Parties and their respective successors and assigns
agree jointly and severally to indemnify and hold Escrow Agent harmless against
any and all losses, claims, costs, fines, settlement judgments, penalties,
demands, damages, liabilities, and expenses, including reasonable costs of
investigation, counsel fees, including allocated costs of in-house counsel and
disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in
connection with the execution of this Agreement or the performance of its duties
under this Agreement, including but not limited to any litigation arising from
this Agreement or involving its subject matter other than arising out of its
negligence or willful misconduct.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the Parties; provided, however, that no
such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the Parties shall use their
best efforts to mutually agree on a successor escrow agent within thirty (30)
days after receiving such notice. If the Parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the state of Washington.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. Upon appointment of a successor escrow
agent, the Escrow Agent shall be discharged from any further duties and
liability under this Agreement. Alternatively, if a successor escrow agent is
not appointed within the above time frames, then the Escrow Agent may apply to a
court of competent jurisdiction for appointment of a successor escrow agent.
(ix) In no event shall the Escrow Agent be liable for special,
indirect, incidental, punitive or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits) even if the Escrow Agent
has been advised of the likelihood of such loss or damage and regardless of the
form of action.
(x) Any Person into which the Escrow Agent may be merged or
converted or with which it may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which the Escrow Agent in its individual
capacity shall be a party, or any Person to which substantially all the business
of the Escrow Agent may be transferred, shall be the Escrow Agent under this
Agreement without further act.
(k) Fees. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent in accordance with the schedule of the Escrow
Agent delivered to Parent at or prior to the execution of this Agreement. Such
fee schedule may be amended or
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modified upon mutual consent of Parent and the Escrow Agent. It is understood
that the fees and usual charges agreed upon for services of the Escrow Agent
shall be considered compensation for ordinary services as contemplated by this
Agreement. In the event that the conditions of this Agreement are not promptly
fulfilled, or if the Escrow Agent renders any service not provided for in this
Agreement, or if the Parties request a substantial modification of its terms, or
if any controversy arises, or if the Escrow Agent is made a Party to, or
intervenes in, any litigation pertaining to the Escrow Fund or its subject
matter, the Escrow Agent shall be reasonably compensated for such extraordinary
services and reimbursed for all costs, attorney's fees, including allocated
costs of in-house counsel, and expenses occasioned by such default, delay,
controversy or litigation and the Escrow Agent shall not be obligated to take
any such action unless and until it is reasonably satisfied that it will receive
such compensation and reimbursement.
(l) Survival. The obligations of the Parties under Section 10.2(k) and
Section 10.2(j)(vii) hereof shall survive termination of this Agreement and
resignation or substitution of the Escrow Agent.
10.3 Exclusive Remedy. The indemnity set forth in this Section 10 and the
Escrow Fund provided for herein shall apply only to breaches by the Company of
any representation, warranty, covenant or agreement of the Company contained
herein and, except as provided below, resort to the Escrow Fund shall be the
exclusive right and remedy of Parent for such breaches, or for breaches of any
Stockholder Certificate or otherwise under or in connection with this Agreement,
once the Closing occurs. Notwithstanding the foregoing, the existence of this
Section 10 and of the rights and restrictions set forth herein do not limit any
other potential remedies of Parent against the Principal Stockholder with
respect to any knowing and intentional or fraudulent actual breaches of the
representations and warranties or covenants of the Company contained in this
Agreement or against any Company stockholder with respect to any knowing and
intentional or fraudulent actual breaches of the representations and warranties
or covenants of any Company Stockholder contained in a Stockholder Certificate.
In addition, this Section 10.3 shall not apply if the Merger does not close.
11. Termination.
11.1 Termination of the Agreement. The Parties may terminate this
Agreement as provided below:
(a) Parent and the Company may terminate this Agreement as to all
Parties by mutual written consent at any time prior to the Closing;
(b) Parent or the Company may terminate this Agreement by written
notice if: (i) the Closing has not occurred by December 31, 1999; provided,
however, that the right to terminate this Agreement under this Section
11.1(b)(i) shall not be available to any Party whose action or failure to act
has been a principal cause of or resulted in the failure of the Merger to occur
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on or before such date and such action or failure to act constitutes a breach of
this Agreement; (ii) there shall be a final nonappealable order of a court of
competent jurisdiction in effect preventing consummation of the Merger or (iii)
there shall be any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any governmental entity that would
make consummation of the Merger illegal;
(c) Parent may terminate this Agreement by written notice if
there shall be any action taken, or any statute, rule, regulation or order
enacted, or issued or deemed applicable to the Merger by any Governmental
Entity, which would (i) prohibit Parent's or the Company's ownership or
operation of all or a portion of the business of the Company or (ii) compel
Parent or the Company to dispose of or hold separate all or a portion of the
business or assets of Parent or the Company as a result of the Merger;
(d) Parent may terminate this Agreement by written notice if it
is not in material breach of its obligations under this Agreement and there has
been a material breach of any representation, warranty, covenant or agreement
contained in this Agreement on the part of the Company or any Principal
Stockholder and such breach has not been cured within thirty (30) calendar days
after written notice to the Company and the Principal Stockholder; provided,
however, that, no cure period shall be required for a breach which by its nature
cannot be cured;
(e) the Company may terminate this Agreement by written notice if
neither it nor any Principal Stockholder is in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent and such breach has not been cured within thirty (30)
calendar days after written notice to Parent; provided, however, that no cure
period shall be required for a breach which by its nature cannot be cured;
(f) Parent or the Company may terminate this Agreement by written
notice if the Company Stockholders Meeting (including any adjournments or
postponements thereof) shall have been held and completed and the Company's
stockholders shall have taken a final vote on the matters set forth in Section
7.6 hereof, and such matters shall not have been approved at such meeting by the
Company Stockholders; and
(g) Parent may terminate this Agreement by written notice if an
event having a Material Adverse Effect on the Company shall have occurred after
the date of this Agreement.
11.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 11.1 above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); provided, however, that
the provisions contained in Sections 8.3 (expenses), 11.3 (termination fees and
other events) and 12 (miscellaneous) shall survive termination.
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11.3 Termination Fees and other Events.
(a) The Company shall pay to Parent a termination fee of
$384,000, plus Expenses payable in cash by wire transfer or cashier's check (or
assets, if sufficient cash is not readily available), in the event, and only in
the event, that the Closing does not occur, this Agreement is terminated, Parent
is not in material breach of its obligations under this Agreement, and one or
more of the following events has occurred:
(i) the Company or the Principal Stockholder has willfully
and materially breached any representation, warranty, covenant or agreement
contained in this Agreement; or
(ii) the Board of Directors of the Company shall have
failed to unanimously recommend, shall have changed its unanimous recommendation
concerning the Merger and the Contemplated Transactions, or shall have
recommended an alternative Acquisition Proposal, or shall have disclosed, in any
manner, its intention not to unanimously recommend, to change its unanimous
recommendation to stockholders concerning the Merger or to recommend an
Alternative Proposal; or
(iii) the Company Stockholders shall have failed to approve
the Contemplated Transactions.
(b) Parent shall pay to the Company a termination fee of $384,000
plus Expenses, payable in cash by wire transfer or cashier's check (or assets,
if sufficient cash is not readily available), in the event, and only in the
event, that the Closing does not occur, this Agreement is terminated, the
Company is not in material breach of its obligations under this Agreement, and
Parent has willfully and materially breached any representation, warranty,
covenant or agreement contained in this Agreement; or
(c) For purposes of this Section "Expenses" shall mean the amount
of any documented out-of-pocket expenses incurred by a Party and its Affiliates
in connection with the negotiation and preparation of this Agreement and any
other ancillary agreements executed and delivered in connection with the
transactions contemplated hereby and thereby and its due diligence review
(including fees of counsel and accountants) up to the date of termination of
this Agreement.
(d) The Company, the Principal Stockholder and Parent each
acknowledge and agree that the agreements contained in this Section 11.3 are an
integral part of the transactions contemplated by this Agreement.
Notwithstanding anything to the contrary contained in this Section 11.3, if any
Party fails to pay the other Party any fees or expenses due under this Section
11.3 within the time required under this Agreement or, if no time period is
specified, within five business days of the event giving rise to the payment of
such fees and expenses, in addition to any other amounts paid or payable
pursuant to this Agreement, the delinquent Party shall pay the out-of-pocket
costs and
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expenses (including reasonable legal fees and expenses) in connection with any
action, including the filing of any lawsuit or other legal action, taken to
collect payment together with interest on the amount of any unpaid fees and
expenses at the publicly announced prime rate of Chase Manhattan Bank from the
date on which such fees and expenses were required to be paid.
(e) The Parties acknowledge and agree that it is difficult or
impossible to determine with precision the amount of damages that would or might
be incurred by non-terminating Party if a Party were to terminate this Agreement
as contemplated by paragraph (a) or (b). It is understood and agreed by the
Parties that if the non-terminating Party shall be damaged by such a
termination, (i) it would be impracticable or extremely difficult to fix the
actual damages resulting therefrom, (ii) the termination fee is in the nature of
liquidated damages, and not a penalty, and is fair and reasonable, and (iii) the
termination fee represents a reasonable estimate of fair compensation for the
losses that may reasonably be anticipated from such a termination, and shall be
the sole and exclusive measure of damages with respect to any such termination.
Once such liquidated damages have been paid in accordance with the provisions of
this Agreement, the terminating Party and its Affiliates shall be relieved of
any further liability in respect of damages relating to the fact or circumstance
giving rise to such liquidated damages.
11.4 Technology License Agreement; Business Development Agreement. In
the event of a termination, other than a termination pursuant to which a
termination fee is paid pursuant to Section 11.3, the Parties agree to negotiate
in good faith a technology license agreement or business development agreement
containing terms and conditions mutually satisfactory to the Parties.
Notwithstanding the above, there can be no assurance that the Parties will be
able to agree on mutually satisfactory terms and conditions and consummate such
technology license agreement and/or business development agreement.
12. Miscellaneous.
12.1 Press Releases and Public Announcements. No Party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement prior to the Closing without the prior written approval of the
other Party; provided, however, that Parent may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case Parent will
use its reasonable best efforts to advise the Company prior to making the
disclosure). In furtherance of the foregoing sentence, the Parties agree and
acknowledge that Parent will issue a press release following the execution and
delivery of this Agreement by the Parties.
12.2 No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties, and their
respective successors and permitted assigns.
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12.3 Entire Agreement and Modification. This Agreement (including the
exhibits hereto) constitutes the entire agreement among the Parties with respect
to the subject matter hereof and supersedes any prior understandings,
agreements, or representations by or among the Parties, written or oral, to the
extent they related in any way to the subject matter hereof. This Agreement may
not be amended except by a written agreement executed by all Parties.
12.4 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Parties other than the Escrow Agent; provided, however,
that Parent may (i) assign any or all of its rights and interests hereunder to
one or more of its Affiliates and (ii) designate one or more of its Affiliates
to perform its obligations hereunder.
12.5 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
12.6 Headings. The Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.7 Notices. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a) five
(5) days after deposit with the U.S. Postal Service or other applicable postal
service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, (c) one business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid or (d) one
business day after the business day of facsimile transmission, if delivered by
facsimile transmission with copy by first class mail, postage prepaid, and shall
be addressed to the intended recipient as set forth below:
If to Parent:
XxxxXxxxx.xxx, Inc.
00000 XX 00xx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxx
Facsimile: 000-000-0000
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Copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
000 Xxxx Xxxx Xx.
Xxxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxx
Facsimile: 000-000-0000
If to the Company:
Zephyr Software, Inc.
0000 000/xx/ Xxx. X.
Xxxxxxx, XX 00000
Attention: Xxxxxxxxx Xxxxx
Facsimile:
Copy to:
Summit Law Group PLLC
0000 Xxxxxxxx Xxx. X., Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxx
Facsimile: 000-000-0000
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties ten (10) days' advance written notice to the other Parties pursuant to
the provisions above.
12.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Washington without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Washington or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Washington; provided, however,
that all provisions regarding the rights, duties and obligations of the Escrow
Agent shall be governed by and construed in accordance with the laws of the
State of New York applicable to contracts made and to be performed entirely
within such State.
12.9 Forum Selection; Consent to Jurisdiction. All disputes arising
out of or in connection with this Agreement (other than matters subject to
arbitration pursuant to the terms of this Agreement or the other agreements
delivered by the Parties pursuant hereto) shall be solely and exclusively
resolved by a court of competent jurisdiction in the State of Washington. The
Parties hereby consent to the jurisdiction of the Courts of the State of
Washington and the United States District Court of the Western District of
Washington and waive any objections or rights as to forum
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nonconvenience, lack of personal jurisdiction or similar grounds with respect to
any dispute relating to this Agreement.
12.10 Waivers. The rights and remedies of the Parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any Party in exercising any right, power or privilege under this Agreement or
the documents referred to in this Agreement will operate as a waiver of such
right, power or privilege, and no single or partial exercise of such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement or the documents referred to in this Agreement can be
discharged by one Party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other Party; (b) no waiver that
may be given by a Party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one Party will be deemed to
be a waiver of any obligation of such Party or of the right of the Party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
12.11 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
12.12 Expenses. Each Party will bear its own costs and expenses
(including legal and accounting fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby. In the event the Merger
is consummated, Parent will bear the costs and expenses (including accounting
and legal fees and expenses) of the Company incurred in connection with this
Agreement and the transactions contemplated thereby, up to a maximum of $20,000,
any costs or expenses in excess of such amount shall be borne by the Company
Stockholders in proportion to the amount of Merger Consideration received.
12.13 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
12.14 Company Disclosure Letter.
(a) The disclosures in the Company Disclosure Letter, and those
in any Supplement thereto, must relate only to the representations and
warranties in the Section of the
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Agreement to which they expressly relate and not to any other representation or
warranty in this Agreement.
(b) In the event of any inconsistency between the statements in
the body of this Agreement and those in the Company Disclosure Letter (other
than an exception expressly set forth as such in the Company Disclosure Letter
with respect to a specifically identified representation or warranty), the
statements in the body of this Agreement will control.
12.15 Attorneys' Fees. If any legal proceeding or other action
relating to this Agreement is brought or otherwise initiated, the prevailing
Party shall be entitled to recover reasonable attorneys fees, costs and
disbursements (in addition to any other relief to which the prevailing Party may
be entitled).
12.16 Further Assurances. The Parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other Party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
12.17 Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on of
the date first above written.
Parent: XXXXXXXXX.XXX, INC.
By: /s/ Xxxxxx Xxxx
Name: Xxxxxx Xxxx
Title: CEO
Company: ZEPHYR SOFTWARE, INC.
By: /s/ Xxxxxxxxx Xxxxx
Name: Xxxxxxxxx Xxxxx
Title: President and CEO
Principal Stockholder: /s/ Xxxxxxxxx Xxxxx
Xxxxxxxxx Xxxxx
Sub: WIND ACQUISITION CORPORATION
By: /s/ Xxxxxx Xxxx
Name: Xxxxxx Xxxx
Title: CEO
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
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Escrow Agent: CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
By: /s/ Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: Assistant Vice President
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
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