EXHIBIT 10.13
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SHARE EXCHANGE AGREEMENT
among:
MERCURY INTERACTIVE CORPORATION
a Delaware corporation;
CONDUCT LTD
an Israeli corporation;
CONDUCT SOFTWARE TECHNOLOGIES, INC.
a California corporation;
and
THE CONDUCT SHAREHOLDERS
and
THE CONDUCT NOTEHOLDERS
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Dated as of November 24, 1999
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SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT ("Agreement") is made and entered into as of
November 24, 1999, by and among: Mercury Interactive Corporation, a Delaware
corporation ("Mercury"); Conduct Ltd., an Israeli corporation ("Conduct");
Conduct Software Technologies, Inc., a California corporation and wholly-owned
subsidiary of Conduct (the "Subsidiary"); the shareholders of Conduct Ltd., as
identified on Exhibit A (the "Conduct Shareholders"); and the Conduct
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Noteholders. Certain capitalized terms used in this Agreement are defined in
Exhibit B.
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Recitals
A. Mercury, Conduct and the Conduct Shareholders intend to effect an
exchange of all of the issued and outstanding capital shares of Conduct for
newly issued shares of Mercury common stock.
B. This Agreement contemplates a transaction in which Mercury will acquire
all of the outstanding capital shares of Conduct for stock of Mercury in a
taxable purchase of stock.
C. This Agreement has been adopted and approved by the respective boards
of directors of Mercury, Conduct and Subsidiary.
Agreement
The parties to this Agreement agree as follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 Exchange of Shares. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing, Mercury agrees to issue 408,000 shares
of common stock of Mercury (the "Mercury Stock") in exchange for all outstanding
Conduct ordinary shares and preferred shares (the "Conduct Capital Shares"), all
outstanding Convertible Promissory Notes and all outstanding options and
warrants to purchase Conduct Capital Shares and the Conduct Shareholders agree
to assign and transfer to Mercury in exchange for the Mercury Stock all
outstanding Conduct Capital Shares. Thereupon, Conduct will be a wholly-owned
subsidiary of Mercury and the corporate existence of Conduct, with all its
purposes, powers and objects, shall continue unaffected and unimpaired.
1.2 Escrow of Mercury Stock. At the Closing, Mercury shall segregate from
the Mercury Stock issuable hereunder such number of shares of Mercury Stock as
is equal to 10% of the shares of Mercury Stock to be issued to Conduct
Shareholders at the Closing represented by one stock certificate issued in the
name of the Escrow Agent and cause such stock to be deposited with and U.S. Bank
Trust National Association to act as escrow agent (the "Escrow Agent"), under
the escrow agreement in the form attached hereto as Exhibit C.
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1.3 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of General Counsel
Associates LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ at 5:00 p.m. on
November 30, 1999 (provided that all other conditions set forth in Sections 7
and 8 have been satisfied or waived) or on such other date as is mutually agreed
upon by Conduct and Mercury. (The date on which the Closing actually takes
place is referred to in this Agreement as the "Closing Date.").
1.4 Deliveries at Execution and Closing.
(a) Contemporaneously with the execution and delivery of this
Agreement:
(i) Mercury, the Escrow Agent, the Conduct Shareholders and the
Shareholders' Agent are entering into an Escrow Agreement in the form of
Exhibit C (the "Escrow Agreement");
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(ii) Mercury and each of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇ are
amending the Employment Agreements between Subsidiary and each of them as set
forth in the Amendment to their respective Employment Agreements in the form of
Exhibit D;
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(iii) Conduct shall deliver to Mercury a certificate pursuant to
which Conduct represents and warrants to Mercury that attached to such
certificate are resolutions duly adopted by the unanimous consent of the Board
of Directors approving the Agreement and the transactions contemplated by this
Agreement; and
(b) Mercury shall deliver to Conduct a certificate pursuant to which
Mercury represents and warrants to Conduct that attached to such certificate are
resolutions duly adopted by unanimous consent of the Board of Directors
approving the Agreement and the transactions contemplated by this Agreement.
(c) At the Closing: (i) the Conduct Shareholders shall deliver to
Mercury (x) the share certificates representing one hundred percent of the
outstanding Conduct Capital Shares, duly endorsed share transfer deeds signed by
each of Conduct's Shareholders (and if the Conduct Shareholder is not an
individual, such deed shall be approved by the entity's lawyer as binding upon
the entity) and witnessed regarding the transfer of shares of such Conduct
Shareholder to Mercury; and (ii) the officers and directors of Conduct and
Subsidiary shall resign from their positions as officers and directors of
Conduct; and (iii) Mercury shall deliver the Mercury Stock in accordance with
Sections 1.5(a) and 1.5(g), shall make the cash payments for fractional shares
specified in Section 1.5(f).
(d) All actions and transactions occurring at the Closing shall be
deemed to take place simultaneously and no transaction shall be deemed to have
been completed or any document delivered until all such transactions have been
completed and all required documents delivered.
1.5 Articles of Association; Directors and Officers.
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(a) The Articles of Association of Conduct shall be amended and
restated as of the Closing in a form satisfactory to Mercury.
(b) The directors and officers of Conduct and Subsidiary immediately
after the Closing shall be those Persons designated by Mercury in its sole
discretion.
1.6 The Exchange.
(a) At the Closing, by virtue of the terms of this Agreement and
without any further action on the part of Mercury, Conduct or any Conduct
Shareholder:
(i) First:
(1) each share of Series A Preferred of Conduct (the
"Series A Preferred") outstanding immediately prior to the Closing shall be
exchanged into: (A) a fraction of a share of Mercury Stock (as defined
below) (y) having a numerator equal to $0.286 (representing the liquidation
preference of each share of Series A Preferred under Conduct's Articles of
Association plus any declared but unpaid dividends), and (z) having a
denominator equal to the Mercury Average Stock Price ("the Series A
Liquidation Amount"); plus (B) the Applicable Fraction (defined below) of a
share of the common stock of Mercury;
(2) each share of Series B Preferred of Conduct (the
"Series B Preferred") outstanding immediately prior to the Closing shall be
exchanged into: (A) a fraction of a share of Mercury Stock (as defined
below), in each case (y) having a numerator equal to $0.865 (representing
the liquidation preference of each share of Series B Preferred under
Conduct's Articles of Association plus any declared but unpaid dividends),
and (z) having a denominator equal to the Mercury Average Stock Price ("the
Series B Liquidation Amount"); and (B) the Applicable Fraction of a share
of Mercury Stock;
(ii) Thereafter,
(1) each share of the ordinary shares of Conduct (the
"Conduct Ordinary Shares") outstanding immediately prior to the C losing
shall be exchanged into the Applicable Fraction (as defined below) of a
share of the common stock (par value $0.002 per share) of Mercury ("Mercury
Stock"). The "Applicable Fraction" shall be the fraction (A) having a
numerator equal to 408,000 less the Aggregate Preferred Stock Liquidation
Preference (if any) and (B) having a denominator equal to the Fully Diluted
Number of Conduct Capital Shares;
(2) each share of the Conduct Preferred Shares outstanding
immediately prior to the Closing (in addition to the amounts set forth
above in Subsection 1.6(a)(i)) shall be exchanged into the Applicable
Fraction of a share of the Mercury Stock.
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(iii) all calculations under this Section 1.6(a) shall be
rounded to the nearest one thousandth (1/1,000th); and
(iv) subject only to Section 1.6(c), in no case shall the number
of shares of Mercury Stock issued under this Section 1.6(a) to the Conduct
Shareholders, when added to the shares of Mercury Stock issuable to the
holders of options and warrants to purchase Conduct Capital Shares under
Section 1.7, exceed 408,000 shares.
(b) Notwithstanding anything to the contrary contained in this
Agreement, a portion of the shares of Mercury Stock issued in the transactions
contemplated by this Agreement shall be delivered into escrow and held as
specified in Section 1.8 hereof.
(c) In the event Mercury at any time or from time to time between the
date of this Agreement and the Closing declares or pays any dividend on Mercury
Stock payable in Mercury Stock or in any right to acquire Mercury Stock, or
effects a subdivision of the outstanding shares of Mercury Stock into a greater
number of shares of Mercury Stock (by stock dividends, combinations, splits,
recapitalizations and the like), or in the event the outstanding shares of
Mercury Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Mercury Stock, then the Applicable
Fraction shall be appropriately adjusted.
(d) The shares of Mercury Stock to be issued in the transaction shall
be characterized as "restricted securities" for purposes of Rule 144 under the
Securities Act, and each certificate representing any of such shares shall bear
a legend identical or similar in effect to the following legend (together with
any other legend or legends required by applicable state securities laws or
otherwise):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
UNLESS REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE."
(e) If any Conduct Capital Shares outstanding immediately prior to
the Closing are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with Conduct, then the shares of Mercury Stock
issued in exchange for such Conduct Capital Shares will also be unvested and
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of Mercury Stock may accordingly
be marked with appropriate legends.
(f) No fractional shares of Mercury Stock shall be issued in
connection with the transactions contemplated by this Agreement, and no
certificates for any such fractional shares shall be issued. In lieu of such
fractional shares, any holder of capital shares of Conduct
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who would otherwise be entitled to receive a fraction of a share of Mercury
Stock (after aggregating all fractional shares of Mercury Stock issuable to such
holder) shall, upon surrender of such holder's stock certificate(s) representing
capital shares of Conduct, be paid in cash the dollar amount (rounded to the
nearest whole cent), without interest, determined by multiplying such fraction
by the Mercury Average Stock Price. In no case shall any holder of capital
shares of Conduct be entitled to receive cash in an amount equal to or greater
than the value of one share of Mercury Stock.
(g) Mercury shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable to any holder or former holder of
Conduct Capital Shares pursuant to this Agreement such amounts as Mercury may be
required to deduct or withhold therefrom under the Internal Revenue Code of
1986, as amended (the "Code") or under any provision of state, local or foreign
tax law. To the extent such amounts are so deducted or withheld, such amounts
shall be treated for all purposes under this Agreement as having been paid to
the Person to whom such amounts would otherwise have been paid.
(h) The shares of Mercury Stock issued upon surrender for exchange of
shares of Conduct Capital Shares in accordance with the terms of this Agreement
shall be deemed to have been fully paid and issued in full satisfaction of all
rights pertaining to such shares.
1.7 Stock Options, Warrants and Convertible Promissory Notes.
(a) At the Closing, each option to purchase capital shares of Conduct
that is then outstanding, whether vested or unvested (a "Conduct Option"), shall
be assumed by Mercury in accordance with the terms (as in effect as of the date
of this Agreement) of the stock option agreement by which such Conduct Option is
evidenced. At the Closing, all rights with respect to Conduct Capital Shares
under outstanding Conduct Options shall be converted into rights with respect to
Mercury Stock. Accordingly, from and after the Closing, (i) each Conduct Option
assumed by Mercury may be exercised solely for shares of Mercury Stock, (ii) the
number of shares of Mercury Stock subject to each such assumed Conduct Option
shall be equal to the number of Conduct Capital Shares that were subject to such
Conduct Option immediately prior to the Closing multiplied by the Applicable
Fraction, rounded down to the nearest whole number of shares of Mercury Stock,
(iii) the per share exercise price for the Mercury Stock issuable upon exercise
of each such assumed Conduct Option shall be determined by dividing the exercise
price per share of Conduct Capital Shares subject to such Conduct Option, as in
effect immediately prior to the Closing, by the Applicable Fraction, and
rounding the resulting exercise price up to the nearest whole cent and (iv) all
restrictions on the exercise of each such assumed Conduct Option shall continue
in full force and effect, and the term, exercisability, vesting schedule and
other provisions of such Conduct Option shall otherwise remain unchanged;
provided, however, that each such assumed Conduct Option shall, in accordance
with its terms, be subject to further adjustment as appropriate to reflect any
stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction effected by Mercury after the Closing. It is the intention
of the parties that Conduct Options so assumed by Mercury qualify, to the
maximum extent permissible following the Closing, as incentive stock options as
defined in Section 422 of the Code to the extent such options qualified as
incentive stock options prior to the Closing, or as options granted pursuant to
the provisions of section 102 of the Israeli Income
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Tax Ordinance (new version) 1961 (the "Ordinance") and any regulations, rules,
orders or procedures promulgated thereunder, including the Income Tax Rules (Tax
benefits in Stock Issuance to Employees) 5349-1989 (the "Rules"), as
appropriate. Conduct and Mercury shall take all action that may be necessary to
effectuate the provisions of this Section 1.7. As soon as is reasonably
practicable following the Closing, Mercury will send to each holder of an
assumed Conduct Option a written notice setting forth (i) the number of shares
of Mercury Stock subject to such assumed Conduct Option and (ii) the exercise
price per share of Mercury Stock issuable upon exercise of such assumed Conduct
Option. Mercury shall file with the SEC, within 10 days after the Closing, a
registration statement on Form S-8 registering the exercise of any Conduct
Options assumed by Mercury pursuant to this Section 1.7.
(b) Immediately prior to the Closing, each warrant to purchase
Conduct Capital Shares that is then outstanding (a "Conduct Warrant"), shall
terminate according to its terms.
(c) Immediately prior to the Closing, each Conduct Noteholder hereby
agrees to convert all Conduct Convertible Promissory Notes held by such holder
into such number of Conduct Series B Preferred Shares as is equal to the amount
of outstanding principal divided by $0.865.
1.8 Exchange of Certificates; Escrow Shares.
(a) At the Closing, each Conduct Shareholder shall surrender to
Mercury all certificates representing shares of Conduct Ordinary Shares or
Conduct Preferred Shares, as appropriate, for cancellation, together with an
executed share transfer deed duly endorsed and witnessed in blank by such holder
and such other documents as may be reasonably required by Mercury. As soon as
practicable after the Closing, Mercury shall (i) deliver to each Conduct
Shareholder who has surrendered its, his or her certificates formerly
representing Conduct Capital Shares in compliance with the preceding sentence a
certificate representing 90 percent of the number of whole shares of Mercury
Stock that such Conduct Shareholder has the right to receive pursuant to the
provisions of Section 1.6 and (ii) deliver to the escrow agent under the Escrow
Agreement in the form of Exhibit C hereto (the "Escrow Agreement"), on behalf
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the Conduct Shareholders, a certificate representing 10 percent of the number of
whole shares of Mercury Stock that each Conduct Shareholder has the right to
receive pursuant to the provisions of Section 1.6 represented by one stock
certificate issued in the name of the Escrow Agent (the "Escrow Shares"). In
determining the number of whole shares that represent 90 percent of the number
of shares of Mercury Stock to which each Conduct Shareholder is entitled
pursuant to Section 1.6, Mercury shall round up to the nearest whole number of
shares, and in determining the number of Escrow Shares to which such Conduct
Shareholder is entitled pursuant to Section 1.6, Mercury shall round down to the
nearest whole number. If any shares of Mercury Stock are to be issued in the
name of a person other than the person in whose name Conduct Stock Certificate
surrendered in exchange therefor is registered, it shall be a condition to the
issuance of such shares that (i) the certificate(s) so surrendered shall be
transferable, and shall be properly assigned, endorsed or accompanied by
appropriate stock powers, (ii) such transfer shall otherwise be proper and (iii)
the person requesting such transfer shall pay Mercury, or its exchange agent,
any transfer or other taxes payable by reason of the foregoing or establish to
the
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satisfaction of Mercury that such taxes have been paid or are not required
to be paid. If any Conduct share certificate shall have been lost, stolen or
destroyed, Mercury may, in its discretion and as a condition precedent to the
issuance of any certificate representing Mercury Stock, require the owner of
such lost, stolen or destroyed Company share certificate to provide an
appropriate affidavit with respect to such Company share certificate.
(b) No dividends or other distributions declared or made with respect
to Mercury Stock with a record date after the Closing shall be paid to the
holder of any unsurrendered Conduct share certificate with respect to the shares
of Mercury Stock represented thereby, and no cash payment in lieu of any
fractional share shall be paid to any such holder, until such holder surrenders
such Company Stock Certificate in accordance with this Section 1.8 (at which
time such holder shall be entitled receive all such dividends and distributions
and such cash payment payable subsequent to the Closing but prior to the
surrender of such Company Stock Certificate.).
1.9 Tax Consequences. For United States federal income tax purposes and the
Israeli Income Tax Ordinance, the transactions contemplated by this Agreement
are intended to constitute a taxable sale of Conduct shares to Mercury.
1.10 Accounting Treatment. For accounting purposes, the transaction is
intended to be treated as a "pooling of interests."
1.11 Further Action. If, at any time after the Closing, any further action
is determined by Mercury to be necessary or desirable to carry out the purposes
of this Agreement or to vest Conduct or Mercury with full right, title and
possession of and to all rights and property of Conduct, the officers and
directors of Conduct and Mercury shall be fully authorized (in the name of
Conduct and otherwise) to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF CONDUCT AND SUBSIDIARY
Except as set forth in the Disclosure Schedule attached hereto as Exhibit
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E, Conduct and, Subsidiary jointly and severally represent and warrant, to
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Mercury that the representations and warrants set forth below are true and
correct as of the date of the 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), as follows:
2.1 Due Organization; Subsidiaries; Etc.
(a) Conduct is a corporation duly organized, validly existing and in
good standing under the laws of Israel, and Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the state of
California. Conduct and the Subsidiary each have all necessary power and
authority: (i) to conduct its business in the manner in which its business is
currently being conducted; (ii) to own and use its assets in the manner in which
its assets are currently owned; and (iii) to perform its obligations in all
material respects under all Material Contracts by which it is bound.
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(b) Except as set forth on Part 2.1(b) neither Conduct nor Subsidiary
have conducted any business under or otherwise used, for any purpose or in any
jurisdiction, any fictitious name, assumed name, trade name or other name.
(c) Neither Conduct nor Subsidiary is, and has not been, required to
be qualified, authorized, registered or licensed to do business as a foreign
corporation in any jurisdiction, except where the failure to be so qualified,
authorized, registered or licensed would not have a Material Adverse Effect on
Conduct.
(d) Part 2.1(d) of the Disclosure Schedule accurately sets forth (i)
the names of the members of Conduct's and Subsidiary's board of directors, and
(ii) the names and titles of Conduct's and Subsidiary's officers. Neither
Conduct's nor Subsidiary's board of directors has ever established any
committees, other than the Conduct Compensation Committee and the Audit
Committee.
(e) Conduct has no subsidiaries, other than Subsidiary, and has never
owned, beneficially or otherwise, any shares or other securities of, or any
direct or indirect interest of any nature in, any other Entity.
2.2 Articles of Association and Bylaws; Records. Conduct has delivered to
Mercury accurate and complete copies of: (a) Conduct's articles of association
and Subsidiary's articles of incorporation and bylaws, including all amendments
thereto; (b) the share records of Conduct and Subsidiary and (c) the minutes and
other records of the meetings and other proceedings (including any actions taken
by written consent or otherwise without a meeting) of the shareholders of
Conduct and Subsidiary and the board of directors of Conduct and the Subsidiary.
There have been no meetings or other proceedings or actions of the shareholders
of Conduct or Subsidiary or the board of directors of Conduct or Subsidiary in
which any material action took place that are not fully reflected in such
minutes or other records. There has not been any material violation of any of
the provisions of Conduct's articles of association or Subsidiary's articles of
incorporation or bylaws or of any resolution adopted by Conduct's or
Subsidiary's shareholders or Conduct's or Subsidiary's board of directors. The
books of account, stock records, minute books and other records of Conduct and
Subsidiary are accurate, up-to-date and complete in all material respects, and
have been maintained in accordance with all applicable material Legal
Requirements.
2.3 Capitalization, Etc.
(a) The authorized capital shares of Conduct consist of (i)
14,371,965 ordinary shares, of which 3,911,875 shares are issued and outstanding
as of the date of this Agreement and (ii) 7,349,285 Preferred Shares, 2,096,250
of which are designated as Series A Preferred, 2,096,250 of which are issued and
outstanding as of the date of this Agreement, and 5,253,035 of which are
designated Series B Preferred Stock, 4,625,000 of which are issued and
outstanding as of the date of this Agreement. The authorized capital stock of
Subsidiary consists of 1,000 shares of common stock, of which 100 shares are
issued and outstanding as of the date of this Agreement and all of which are
owned by Conduct. Exhibit A to this Agreement sets forth the names of Conduct's
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Shareholders as of the date of this Agreement and the number of
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Conduct Ordinary Shares and Conduct Preferred Shares owned of record by each of
such Conduct Shareholders as of the date of this Agreement. Conduct has reserved
an additional 1,875,000 Conduct Ordinary Shares for issuance under its 1998
Share Option Plan (the "Option Plan") to employees, advisory board members,
officers or directors of, or consultants to, Conduct, of which options to
acquire 739,063 Ordinary Shares have been granted and are outstanding as of the
date of this Agreement (and 8,125 have been exercised at the date hereof). Part
2.3(a)(1) of the Disclosure Schedule sets forth a true and complete list as of
the date hereof of all holders of outstanding Conduct Options, including the
number of Conduct Ordinary Shares subject to each such Conduct Option, the
exercise and vesting schedule, and the exercise price per share. Conduct has
reserved an additional 628,035 shares of Conduct Series B Preferred Stock for
issuance pursuant to outstanding warrants as of the date of this Agreement to
purchase shares of Conduct Series B Preferred Stock and pursuant to convertible
unsecured promissory notes. Part 2.3(a)(2) of the Disclosure Schedule sets forth
the names of Conduct's warrant holders as of the date of this Agreement and the
number of shares issuable upon exercise of outstanding warrants as of the date
of this Agreement and the names of the Conduct Noteholders, the aggregate
principal amounts of such notes and the number of shares issuable upon
conversion in full of such note as of the date of this Agreement.
(b) All of the outstanding Conduct Ordinary Shares and Conduct
Preferred Shares have been duly authorized and validly issued and are fully paid
and nonassessable. Except as set forth on Part 2.3(b), there are no preemptive
rights applicable to any capital shares of Conduct or Subsidiary.
(c) Except as identified in Section 2.3(a), as of the date of this
Agreement, there is no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any shares of the
capital shares or other securities of Conduct or Subsidiary; or (ii) outstanding
security, instrument or obligation that is or may become convertible into or
exchangeable for any shares of the capital shares or other securities of Conduct
or Subsidiary.
(d) No capital shares or other securities have been repurchased,
redeemed or otherwise reacquired by Conduct.
(e) All outstanding Conduct Capital Shares have been issued in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements, and (ii) all requirements set forth in applicable Contracts.
2.4 Financial Statements.
(a) Conduct has delivered to Mercury the following financial
statements and notes (collectively, the "Conduct Financial Statements"):
(i) the audited consolidated balance sheets of Conduct as of
December 31, 1998, 1997 and 1996, and the related audited consolidated
statements of income, statements of shareholders' equity and statements of cash
flows of Conduct for the years then ended, together with the notes thereto; and
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(ii) the unaudited consolidated balance sheet of Conduct as of
September 30, 1999 (the "Unaudited Interim Balance Sheet"), and the related
unaudited consolidated statement of income of Conduct for the nine months then
ended.
(b) Conduct Financial Statements are accurate and complete in all
material respects and present fairly the financial position of Conduct as of the
respective dates thereof and the results of operations and cash flows of Conduct
for the periods covered thereby. Conduct Financial Statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods covered (except that the financial
statements referred to in Section 2.4(a)(ii) do not contain footnotes and are
subject to normal and recurring year-end audit adjustments, which will not,
individually or in the aggregate, be material in magnitude).
2.5 Absence of Changes. Except as set forth in Part 2.5 of the Disclosure
Schedule, and except with respect to the actions contemplated by this agreement
since September 30, 1999:
(a) there has not been any material adverse change in Conduct's or
Subsidiary's business, condition, assets, liabilities, operations or financial
performance, and no event has occurred that will, or could reasonable be
expected tohave a Material Adverse Effect on Conduct;
(b) there has not been any material loss, damage or destruction to,
or any interruption in the use of, any of Conduct's or Subsidiary's assets
(whether or not covered by insurance);
(c) Neither Conduct nor Subsidiary has declared, accrued, set aside
or paid any dividend or made any other distribution in respect of any capital
shares, and has not repurchased, redeemed or otherwise reacquired any capital
shares or other securities;
(d) Neither Conduct nor Subsidiary has sold, issued or authorized the
issuance of (i) any capital shares or other security, (ii) any option, call,
warrant or right to acquire, or otherwise relating to, any capital shares or any
other security, or (iii) any instrument convertible into or exchangeable for any
capital shares or other security;
(e) Neither Conduct nor Subsidiary has made any capital expenditure
which individually exceeds $10,000 or, when added to all other capital
expenditures made by Conduct since September 30, 1999, exceeds $25,000 in the
aggregate;
(f) Neither Conduct nor Subsidiary has (i) entered into or permitted
any of the assets owned or used by it to become bound by any Material Contract
(as defined in Section 2.10(a)), or (ii) amended or prematurely terminated, or
waived any material right or remedy under any Material Contract to which it is
or was a party or under which it has or had any rights or obligations;
(g) Neither Conduct nor Subsidiary has (i) acquired, leased or
licensed any right or other assets from any other Person (other than immaterial
rights or other immaterial assets acquired, leased or licensed by Conduct from
other Persons in the ordinary course of
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business and consistent with Conduct's past practices), (ii) sold, assigned or
otherwise disposed of, or leased or licensed, any right or other asset to any
other Person (other than immaterial rights or other immaterial assets disposed
of or leased or licensed by Conduct to other Persons in the ordinary course of
business and consistent with Conduct's past practices), or (iii) waived or
relinquished any right (other than immaterial rights waived or relinquished by
Conduct in the ordinary course of business and consistent with Conduct's past
practices);
(h) Neither Conduct nor Subsidiary has written off as uncollectible,
or established any extraordinary reserve with respect to, any account receivable
or other indebtedness;
(i) Neither Conduct nor Subsidiary has made any pledge of any of its
assets or otherwise permitted any of its assets to become subject to any
Encumbrance, except for pledges of immaterial assets made in the ordinary course
of business and consistent with Conduct's past practices;
(j) Neither Conduct nor Subsidiary has (i) lent money to any Person,
or (ii) incurred or guaranteed any indebtedness for borrowed money;
(k) Neither Conduct nor Subsidiary has (i) established, adopted or
amended any Employee Benefit Plan, or (ii) made any profit-sharing or similar
payment to any of its directors, officers or employees;
(l) Neither Conduct nor Subsidiary has materially changed any of its
methods of accounting or accounting practices in any respect;
(m) Neither Conduct nor Subsidiary has made any Tax election;
(n) Neither Conduct nor Subsidiary has commenced or settled any
material Legal Proceeding;
(o) Neither Conduct nor Subsidiary has entered into any material
transaction or taken any other material action outside the ordinary course of
business or inconsistent with its past practices; and
(p) Conduct has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(o)" above.
2.6 Title to Assets.
(a) Except as set forth in Part 2.6(a) of the Disclosure Schedule,
Conduct owns, and has good, valid and marketable title to, all material assets
purported to be owned by it, including: (i) all material assets reflected on the
Unaudited Interim Balance Sheet (except for those disposed of in the ordinary
course of business since September 30, 1999); (ii) all material assets referred
to in Parts 2.8 and 2.9 of the Disclosure Schedule and all of Conduct's rights
under the Contracts identified in Part 2.10(a) of the Disclosure Schedule; and
(iii) all other material assets reflected in Conduct's books and records as
being owned by Conduct. Except as
11
set forth in Part 2.6(a) of the Disclosure Schedule, all of said material assets
are owned by Conduct free and clear of any liens or other Encumbrances, except
for (i) any lien for current taxes not yet due and payable, and (ii) minor liens
that have arisen in the ordinary course of business and that do not (in any case
or in the aggregate) materially detract from the value of the assets subject
thereto or materially impair the operations of Conduct.
(b) Part 2.6(b) of the Disclosure Schedule identifies all assets that
are being leased or licensed to Conduct, except for (i) any equipment being
leased to Conduct under a standard operating lease requiring annual payments by
Conduct of less than $12,000, and (ii) any software being licensed to Conduct
under any third party software license generally available to the public at a
total cost of less than $10,000.
2.7 Bank Accounts; Receivables; Customers.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate and
complete information (including account numbers, type of account and names of
all individuals authorized to draw on or make withdrawals from each account)
with respect to each account maintained by or for the benefit of Conduct or
Subsidiary at any bank or other financial institution.
(b) Except as set forth in Part 2.7(b) of the Disclosure Schedule,
all existing accounts receivable of Conduct or Subsidiary (including those
accounts receivable reflected on the Unaudited Interim Balance Sheet that have
not yet been collected and those accounts receivable that have arisen since
September 30, 1999 and have not yet been collected) (i) represent valid
obligations of customers of Conduct or Subsidiary arising from bona fide
transactions entered into in the ordinary course of business, and (ii) no
request or agreement for deduction or discount has been made with respect to any
amounts receivable.
(c) Part 2.7(c) of the Disclosure Schedule (i) identifies and
provides an accurate and complete breakdown of the revenues received from each
customer or other Person that accounted for more than 5% of the revenues of
Conduct in the fiscal year ended December 31, 1998 and the nine months ending
September 30, 1999. and (ii) identifies each customer that is obligated to make
payments to Conduct in an aggregate amount exceeding $25,000 per year. Conduct
has not received any notice or other communication indicating that any customer
or other Person identified in Part 2.7(c) of the Disclosure Schedule intends or
expects to cease dealing with Conduct or to effect a material reduction in the
volume of business transacted by such Person with Conduct below historical
levels: except where the termination or modification of such customer
relationship would not, individually or in to aggregate, have a Material Adverse
Effect on the Conduct or Subsidiary
2.8 Equipment; Leasehold.
(a) The equipment owned or leased by Conduct and Subsidiary is, taken
as a whole, adequate for the uses to which it is being put, is in good condition
and repair (ordinary wear and tear excepted) and is adequate for the conduct of
Conduct's business in the manner in which such business is currently being
conducted.
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(b) Neither Conduct nor Subsidiary owns any real property or any
interest in real property, except for the leasehold created under the real
property leases identified in Part 2.8(b) of the Disclosure Schedule.
2.9 Proprietary Assets.
(a) Part 2.9(a)(1) of the Disclosure Schedule sets forth, with
respect to each Conduct Proprietary Asset that has been registered, recorded or
filed with any Governmental Body or with respect to which an application has
been filed with any Governmental Body, (i) a brief description of such Conduct
Proprietary Asset, and (ii) the names of the jurisdictions covered by the
applicable registration, recordation, filing or application. Part 2.9(a)(2) of
the Disclosure Schedule identifies the Conduct Proprietary Assets owned by
Conduct or Subsidiary as set forth in the product brochures or the product
specifications attached as Part 2.9(a)(2) of the Disclosure Schedule. Part
2.9(a)(3) of the Disclosure Schedule identifies and provides a brief description
of each Conduct Proprietary Asset that is owned by any other Person and that is
licensed to or used by Conduct or Subsidiary (except for any Conduct Proprietary
Asset that is licensed to Conduct or Subsidiary under any third party software
license that (1) is generally available to the public at a cost of less than
$5,000, and (2) imposes no future monetary obligation on Conduct or Subsidiary)
and identifies the license agreement or other agreement under which such Conduct
Proprietary Asset is being licensed to or used by Conduct or Subsidiary. Except
as set forth in Part 2.9(a)(4) of the Disclosure Schedule, Conduct has good,
valid and marketable title to all of the Conduct Proprietary Assets identified
in Parts 2.9(a)(1) and 2.9(a)(2) of the Disclosure Schedule, free and clear of
all liens and other Encumbrances, and has a valid right to use all Proprietary
Assets identified in Part 2.9(a)(3) of the Disclosure Schedule. Except as set
forth in Part 2.9(a)(5) of the Disclosure Schedule, neither Conduct nor
Subsidiary is obligated to make any payment to any Person for the use of any
Conduct Proprietary Asset. Except as set forth in Part 2.9(a)(6) of the
Disclosure Schedule, Conduct is free to use, modify, copy, distribute, sell,
license or otherwise exploit each of the Conduct Proprietary Assets on an
exclusive basis (other than Conduct Proprietary Assets consisting of software
licensed to Conduct or Subsidiary under third party licenses generally available
to the public, with respect to which Conduct's rights are not exclusive).
(b) Conduct and Subsidiary have taken all reasonable measures and
precautions necessary to protect and maintain the confidentiality and secrecy of
all Conduct Proprietary Assets (except Conduct Proprietary Assets whose value
would be unimpaired by public disclosure), and otherwise to maintain and protect
the value of all Conduct Proprietary Assets. Except as set forth in Part 2.9(b)
of the Disclosure Schedule, neither Conduct nor Subsidiary have disclosed nor
delivered nor permitted to be disclosed or delivered to any Person, and, no
Person, to the Company's and Subsidiary's Knowledge (other than Conduct or
Subsidiary), has access to or has any rights with respect to, the source code,
or any portion or aspect of the source code, of any Conduct Proprietary Asset.
(c) To Conduct and Subsidiary's Knowledge, none of Conduct
Proprietary Assets infringes or conflicts with any Proprietary Asset owned or
used by any other Person. Except as set forth in Part 2.9(c) of the Disclosure
Schedule, to Conduct and Subsidiary's Knowledge, neither Conduct nor Subsidiary
is infringing, misappropriating or making any
13
unlawful use of, and neither Conduct nor Subsidiary has at any time infringed,
misappropriated or made any unlawful use of, or received any written notice or
other communication of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Proprietary Asset owned or used by any
other Person. Except as set forth in Part 2.9(c) of the Disclosure Schedule, to
Conduct and Subsidiary's Knowledge, no other Person is infringing,
misappropriating or making any unlawful use of, and no Proprietary Asset owned
or used by any other Person infringes or conflicts with, any Conduct Proprietary
Asset.
(d) Conduct Proprietary Assets constitute all the Proprietary Assets
necessary to enable Conduct to conduct its business in the manner in which such
business is currently being conducted. Except as set forth in Part 2.9(d) of the
Disclosure Schedule, (i) neither Conduct nor Subsidiary has licensed any of
Conduct Proprietary Assets to any Person on an exclusive basis, and (ii) neither
Conduct nor Subsidiary has entered into any covenant not to compete or Contract
limiting its ability to exploit fully any of the Conduct Proprietary Assets or
to transact business in any market or geographical area or with any Person.
(e) Except as set forth in Part 2.9(e) of the Disclosure Schedule,
all current and former employees of Conduct and Subsidiary, and all current and
former consultants and independent contractors to Conduct and Subsidiary, have
executed and delivered to Conduct or Subsidiary, as applicable, written
agreements (containing no exceptions to or exclusions from the scope of their
coverage) that are substantially identical to the form of Employee Invention
Assignment and Confidentiality Agreement attached to Part 2.9(e) of the
Disclosure Schedule.
(f) Except as set forth in Part 2.9(f) of the Disclosure Schedule,
neither Conduct nor Subsidiary has entered into and is not bound by any Contract
under which any Person has the right to distribute or license, on a commercial
basis, any Conduct Proprietary Asset including source code, object code, or any
versions, modifications or derivative works of source code or object code in any
Conduct Proprietary Asset.
(g) To Conduct's and Subsidiary's Knowledge, each computer program
and other item of software owned by Conduct or Subsidiary is Year 2000
Compliant. To Conduct and Subsidiary's Knowledge, each computer program and
other item of software that has been designed, developed, sold, installed,
licensed or otherwise made available by Conduct or Subsidiary to any Person is
Year 2000 Compliant. As used in this Section 2.9(g), "Year 2000 Compliant"
means, with respect to a computer program or other item of software (i) the
functions, calculations, and other computing processes of the program or
software (collectively, "Processes") perform in a consistent and correct manner
without interruption regardless of the date on which the Processes are actually
performed and regardless of the date input to the applicable computer system,
whether before, on, or after January 1, 2000; (ii) the program or software
accepts, calculates, compares, sorts, extracts, sequences, and otherwise
processes date inputs and date values, and returns and displays date values, in
a consistent and correct manner regardless of the dates used whether before, on,
or after January 1, 2000; (iii) the program or software accepts and responds to
year input, if any, in a manner that resolves any ambiguities as to century in a
defined, predetermined, and appropriate manner; (iv) the program or software
stores and displays date information in ways that are unambiguous as to the
determination of the century; and (v) leap years will be determined by the
following standard (A) if dividing the year
14
by 4 yields an integer, it is a leap year, except for years ending in 00, but
(B) a year ending in 00 is a leap year if dividing it by 400 yields an integer.
2.10 Contracts.
(a) Part 2.10(a) of the Disclosure Schedule identifies each Conduct
Contract that constitutes a "Material Contract." (For purposes of this
Agreement, each of the following (and each other Contract that is material to
the business of Conduct and Subsidiary taken together as a whole) shall be
deemed to constitute a "Material Contract":
(i) any Contract relating to the employment or engagement of, or
the performance of services by, any employee, consultant or independent
contractor (other than offer letters which do not contain any payments to an
employee which become due upon termination of employment);
(ii) any Contract relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Proprietary Asset
(except for Contracts with respect to any Proprietary Asset that is licensed to
Conduct or Subsidiary under any third party software license that (1) is
generally available to the public at a cost of less than $5,000, and (2) imposes
no future monetary obligation on Conduct or Subsidiary);
(iii) any Contract imposing any restriction on Conduct's or
Subsidiary's right or ability (A) to compete with any other Person, (B) to
acquire any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any other Person
or to transact business or deal in any other manner with any other Person, or
(C) to develop or distribute any technology;
(iv) any Contract creating or involving any agency relationship,
distribution arrangement or franchise relationship;
(v) any Contract creating or relating to the creation of any
material Encumbrance with respect to any material asset owned or used by Conduct
or Subsidiary;
(vi) any Contract involving or incorporating any guaranty, any
pledge, any performance or completion bond, any indemnity, any right of
contribution or any surety arrangement;
(vii) any Contract creating or relating to any partnership or
joint venture or any sharing of revenues, profits, losses, costs or liabilities;
(viii) any Contract relating to the purchase or sale of any
product or other asset by or to, or the performance of any services by or for,
any Related Party (as defined in Section 2.19);
(ix) any Contract to which any Governmental Body is a party or
under which any Governmental Body has any rights or obligations, or involving or
directly or indirectly benefiting any Governmental Body (including any
subcontract or other Contract between Conduct and any contractor or
subcontractor to any Governmental Body);
(x) any Contract entered into outside the ordinary course of
business or inconsistent with Conduct's past practices;
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(xi) any written Contract between Conduct and Subsidiary;
(xii) any Contract that has a term of more than 90 days and that
may not be terminated by Conduct or Subsidiary (without penalty) within 90 days
after the delivery of a termination notice by Conduct or Subsidiary; and
(xiii) any Contract (not otherwise identified in clauses "(i)"
through "(xii)" of this sentence) that contemplates or involves (A) the payment
or delivery of cash or other consideration in an amount or having a value in
excess of $25,000 in the aggregate, or (B) the performance of services having a
value in excess of $25,000 in the aggregate.
(b) Conduct has delivered or made available to Mercury accurate and
complete copies of all Contracts identified in Part 2.10(a) of the Disclosure
Schedule, including all amendments thereto. Each Contract identified in Part
2.10(a) of the Disclosure Schedule is valid and in full force and effect, and is
enforceable by Conduct or Subsidiary in accordance with its terms, subject to
(i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.10(c) of the Disclosure Schedule:
(i) Neither Conduct nor Subsidiary has committed any material
breach or default under any Conduct Contract, and, to the Knowledge of Conduct
and Subsidiary, no other Person has committed any material breach or default
under any Conduct Contract;
(ii) to the Knowledge of Conduct and Subsidiary, no event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time) will, or could reasonably be expected to, (A) result in a
material violation or breach of any of the provisions of any Conduct Contract,
(B) give any Person the right to declare a default or exercise any remedy under
any Conduct Contract, (C) give any Person the right to accelerate the maturity
or performance of any Conduct Contract, or (D) give any Person the right to
cancel, terminate or materially modify any Conduct Contract;
(iii) Neither Conduct nor Subsidiary has received any written
notice or other communication regarding (i) any material violation or breach of,
or default under, any Conduct Contract, or (ii) any termination of any material
Conduct Contract; and
(iv) Neither Conduct nor Subsidiary has waived any of its
material rights under any Contract.
16
(d) No Person is renegotiating, or has the right to renegotiate, any
amount paid or payable to Conduct or Subsidiary under any Conduct Contract or
any other term or provision of any Conduct Contract.
(e) The Contracts identified in Part 2.10(a) of the Disclosure
Schedule collectively constitute all of the Material Contracts necessary to
enable Conduct and Subsidiary to conduct the business in the manner in which the
business is currently being conducted.
2.11 Liabilities.
(a) Neither Conduct nor Subsidiary has accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for: (i)
liabilities identified as such in the "liabilities" column of the Unaudited
Interim Balance Sheet; (ii) liabilities incurred in the ordinary course of
business (and in compliance with this Agreement) since the date of the Unaudited
Interim Balance Sheet; (iii) liabilities for future performance under existing
Material Contracts (iv) accounts payable or accrued salaries that have been
incurred by Conduct or Subsidiary since September 30, 1999 in the ordinary
course of business and consistent with Conduct's past practices; (v) the
liabilities identified in Part 2.11(a) of the Disclosure Schedule; (vi)
transaction expenses incurred in connection with this Agreement and (vii)
liabilities (other than those provided for separately in sections (i), (ii),
(iii), (iv), (v) and (vi) of this Section 2.11) which do not exceed $10,000,
individually or in the aggregate.
(b) Part 2.11(b) of the Disclosure Schedule provides an accurate and
complete breakdown of: (i) all accounts payable of Conduct and Subsidiary as of
September 30, 1999, (ii) all notes payable of Conduct or Subsidiary and all
indebtedness of Conduct or Subsidiary for borrowed money, (iii) all customer
deposits and other deposits held by Conduct or Subsidiary as of September 30,
1999; and (iv) deferred revenue, warranty or obligations to deliver services,
support or upgrades.
2.12 Compliance with Legal Requirements. Except as set forth in Part 2.12
of the Disclosure Schedule, Conduct and Subsidiary each is, in substantial
compliance with each Legal Requirement that is applicable in any material
respect to the conduct of its business or the ownership of its assets. No event
has occurred, and no condition or circumstance exists, that might (with or
without notice or lapse of time) constitute or result directly or indirectly in
a material violation by Conduct or Subsidiary of, or a failure in any material
respect on the part of Conduct or Subsidiary to comply with, any material Legal
Requirement. Except as set forth in Part 2.12 of the Disclosure Schedule,
neither Conduct nor Subsidiary has ever received any written notice or other
communication from any Governmental Body regarding any actual or possible
material violation of, or failure to comply with, any material Legal
Requirement.
2.13 Governmental Authorizations. Part 2.13 of the Disclosure Schedule
identifies each Governmental Authorization held by Conduct or Subsidiary, and
Conduct has delivered to Mercury accurate and complete copies of all
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule.
The Governmental Authorizations identified in Part 2.13 of the
17
Disclosure Schedule are valid and in full force and effect, and collectively
constitute all Governmental Authorizations necessary to enable Conduct and
Subsidiary to conduct the business in the manner in which their business is
currently being conducted except such Governmental Authorizations that no
Governmental Body has demanded to be obtained or of which Conduct and Subsidiary
are unaware, or which the failure to obtain if required, would not have a
Material Adverse Effect on Conduct or Subsidiary. Conduct and Subsidiary each is
in compliance with the material terms and requirements of the respective
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule.
Neither Conduct nor Subsidiary has ever received any written notice or other
written communication from any Governmental Body regarding (a) any material
violation of or failure to comply with any material term or requirement of any
Governmental Authorization, or (b) any revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization.
2.14 Tax Matters.
(a) Except as set forth in Part 2.14(a) of the Disclosure Schedule,
all material Tax Returns required to be filed by or on behalf of Conduct or
Subsidiary with any Governmental Body on or before the date hereof (the "Conduct
Returns") (i) have been filed in a timely manner, and (ii) to Conduct's and
Subsidiary's Knowledge, have been accurately and completely prepared in any
material respect in compliance with all applicable Legal Requirements. All
material amounts shown on Conduct Returns to be due on or before the date hereof
have been paid. Conduct has delivered to Mercury accurate and complete copies of
all Conduct Returns filed since the date of Conduct's incorporation.
(b) Except as set forth in Part 2.14(b) of the Disclosure Schedule,
each Tax required to have been paid, or claimed by any Governmental Body to be
payable, by Conduct or Subsidiary (whether pursuant to any Tax Return or
otherwise) has been to the extent material duly paid in full on a timely basis.
Any Tax required to have been withheld or collected by Conduct or Subsidiary has
been duly withheld and collected on a timely basis; and (to the extent required)
each such Tax has been paid to the appropriate Governmental Body on a timely
basis or adequately reserved in the Conduct financial statements.
(c) Conduct Financial Statements fully accrue all actual and
contingent material liabilities for Taxes with respect to all periods through
the dates thereof in accordance with generally accepted accounting principles.
Conduct has established, in the ordinary course of business and consistent with
its past practices, reserves adequate for the payment of all Taxes for the
period from September 30, 1999 through the date hereof.
(d) No Conduct Return relating to income Taxes has ever been examined
or audited by any Governmental Body. Except as set forth in Part 2.14(d) of the
Disclosure Schedule, there has been no examination or audit of any Conduct
Return, and no such examination or audit has been proposed or scheduled by any
Governmental Body. Conduct has delivered to Mercury accurate and complete copies
of all audit reports and similar documents (to which Conduct has access)
relating to Conduct Returns. No extension or waiver of the limitation
18
period applicable to any of Conduct Returns has been granted (by Conduct,
Subsidiary or any other Person), and no such extension or waiver has been
requested from Conduct.
(e) No claim or Legal Proceeding is pending or to the Knowledge of
Conduct or Subsidiary has been threatened against or with respect to Conduct or
Subsidiary in respect of any Tax. There are no unsatisfied liabilities for Taxes
(including liabilities for interest, additions to tax and penalties thereon and
related expenses) with respect to any notice of deficiency or similar document
received by Conduct or Subsidiary. There are no liens for Taxes upon any of the
assets of Conduct, except liens for current Taxes not yet due and payable.
Subsidiary has not entered into or become bound by any agreement or consent
pursuant to Section 341(f) of the Code. Subsidiary has not been, and will not
be, required to include any adjustment in taxable income for any tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions or events
occurring, or accounting methods employed, prior to the date hereof. Conduct
will not be required to include any adjustment in its taxable income for any tax
period (or portion thereof) as a result of transactions or events occurring, or
accounting methods employed, prior to the date hereof.
(f) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of Subsidiary that, considered individually or considered
collectively with any other such Contracts, will, or could reasonably be
expected to, give rise directly or indirectly to the payment of any amount that
would not be deductible pursuant to Section 280G or Section 162 of the Code.
Neither Conduct or Subsidiary is, and has never been, a party to or bound by any
tax indemnity agreement, tax sharing agreement, tax allocation agreement or
similar Contract.
(g) Except as set forth in Part 2.14(g) of the Disclosure Schedule,
since Conduct's incorporation, (i) no Governmental Body has asserted any claim
or otherwise made any allegation that Conduct or Subsidiary has failed or may
have failed to pay any sales tax, use tax or similar Tax, and (ii) neither
Conduct or Subsidiary has engaged in any discussions or negotiations with any
Governmental Body, and has not sent any written communication to or received any
written communication from any Governmental Body, in connection with any
possible failure on the part of Conduct or Subsidiary to pay any sales tax, use
tax or similar Tax.
(h) Subsidiary has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code (S)6662. Subsidiary (A) has not
been a member of an affiliated group filing a consolidated federal income Tax
Return and (B) does not have any Liability for the Taxes of any other Person
under Reg. (S)1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(i) Conduct has not been required to file a United States federal
income tax return or any state income tax return for any year. Conduct has had
no income which is effectively connected with a US trade or business under Code
section 864. Except as set forth in Part 2.14(i) of the Disclosure Schedule,
Conduct is not a party to an Advance Pricing Agreement (or any similar agreement
under foreign law) and all transactions between Conduct and
19
Subsidiary (and any other commonly controlled parties) have been in accordance
with the arm's length standard in compliance with Code section 482 and the
treasury regulations thereunder.
2.15 Employee and Labor Matters; Benefit Plans.
(a) Part 2.15(a) of the Disclosure Schedule contains a list of all
employees of Conduct or Subsidiary as of the date of this Agreement, and
correctly reflects their salaries, any other compensation payable to them
(including compensation payable pursuant to bonus, deferred compensation or
commission arrangements), their dates of employment and their positions and
their vacation accruals as of September 30, 1999. Neither Conduct or Subsidiary
is, and has never been, a party to any collective bargaining contract or other
Contract with a labor union involving any of its employees.
(b) To the Knowledge of Conduct or Subsidiary, there is no employee
of Conduct or Subsidiary who is not fully available to perform work because of
disability or other leave, except as set forth in Part 2.15(b). The employment
of each employee of Conduct or Subsidiary is terminable by Conduct or Subsidiary
at will. Conduct has made available copies of all employee manuals and
handbooks, disclosure materials, policy statements and other materials relating
to the employment of the current employees of Conduct and Subsidiary.
(c) Part 2.15(c) of the Disclosure Schedule identifies each bonus,
deferred compensation, incentive compensation, stock purchase, stock option,
severance pay, termination pay, hospitalization, medical, insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plan,
program or agreement (individually referred to as a "Plan" and collectively
referred to as the "Plans") sponsored, maintained, contributed to or required to
be contributed to by Conduct or Subsidiary for the benefit of any current or
former employee of Conduct or Subsidiary.
(d) Except as set forth in Parts 2.15(c) or 2.15(d) of the Disclosure
Schedule, neither Conduct nor Subsidiary maintains, sponsors or contributes to,
and has not at any time in the past maintained, sponsored or contributed to, any
employee pension benefit plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") , which applies to
such employees, whether or not excluded from coverage under specific Titles or
Merger Subtitles of ERISA and as required pursuant to the Israeli Severance
Payment Law - 1963, applicable collective agreements and extension orders) for
the benefit of employees or former employees of Conduct or Subsidiary (a
"Pension Plan").
(e) Except as set forth in Parts 2.15(c) or 2.15(e) of the Disclosure
Schedule, neither Conduct or Subsidiary maintains, sponsors or contributes to
any employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether
or not excluded from coverage under specific Titles or Merger Subtitles of
ERISA) for the benefit of employees or former employees of Conduct or Subsidiary
(a "Welfare Plan") except for those Welfare Plans described in Part 2.15(e) of
the Disclosure Schedule, none of which is a multiemployer plan (within the
meaning of Section 3(37) of ERISA).
(f) With respect to each Plan, Conduct has delivered to Mercury:
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(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report (if
required under ERISA) with respect to such Plan for each of 1997 and 1998;
(iii) an accurate and complete copy of (A) the most recent
summary plan description, together with each Summary of Material Modifications
(if required under ERISA) with respect to such Plan, and (B) each material
employee communication relating to such Plan;
(iv) if such Plan is funded through a trust or any third party
funding vehicle, an accurate and complete copy of the trust or other funding
agreement (including all amendments thereto) and accurate and complete copies
the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to
such Plan, including service provider agreements, insurance contracts, minimum
premium contracts, stop-loss agreements, investment management agreements,
subscription and participation agreements and recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent
determination, opinion, notification, or advisory letter received from the
Internal Revenue Service with respect to such Plan (if such Plan is intended to
be qualified under Section 401(a) of the Code).
(g) Except with respect to each other, neither Conduct nor Subsidiary
is and has never been required to be treated as a single employer with any other
Person under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of
the Code. Neither Conduct or Subsidiary has ever been a member of an "affiliated
service group" within the meaning of Section 414(m) of the Code. Neither Conduct
or Subsidiary has ever made a complete or partial withdrawal from a
"multiemployer plan" (as defined in Section 3(37) of ERISA) resulting in
"withdrawal liability" (as defined in Section 4201 of ERISA), without regard to
subsequent reduction or waiver of such liability under either Section 4207 or
4208 of ERISA.
(h) Neither Conduct or Subsidiary has any plan or commitment to
create any additional Welfare Plan or any Pension Plan, or to modify or change
any existing Welfare Plan or Pension Plan (other than to comply with applicable
law).
(i) No Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former employee of
Conduct or Subsidiary after any such employee's termination of service (other
than (i) benefit coverage mandated by applicable law, including coverage
provided pursuant to Section 4980B of the Code, (ii) deferred compensation
benefits accrued as liabilities on the Unaudited Interim Balance Sheet, and
(iii) benefits the full cost of which are borne by current or former employees
of Conduct or Subsidiary (or their beneficiaries)).
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(j) With respect to each of the Welfare Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
(k) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
ERISA and the Code.
(l) Each of the Plans intended to be qualified under Section 401(a)
of the Code has either received a favorable determination, opinion, notification
or advisory letter from the Internal Revenue Service with respect to each such
plan as to its qualified status under the Code, or has remaining a period of
time under applicable Treasury regulations or IRS pronouncements in which to
apply for such a letter, and neither Conduct nor Subsidiary is aware of any
reason why any such determination letter should be revoked.
(m) Except as set forth in Part 2.15(m) of the Disclosure Schedule,
neither the execution, delivery or performance of this Agreement, nor the
consummation of the transactions contemplated by this Agreement, will result in
any bonus payment, golden parachute payment, severance payment or other payment
to any current or former employee or director of Conduct or Subsidiary (whether
or not under any Plan), or materially increase the benefits payable under any
Plan, or result in any acceleration of the time of payment or vesting of any
such benefits.
(n) Except as set forth in Part 2.15(n) of the Disclosure Schedule,
Conduct and Subsidiary are in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, employee compensation, wages, bonuses and terms and conditions of
employment.
(o) Conduct and Subsidiary have good labor relations, and, except as
set forth in Part 2.15(o) of the Disclosure Schedule, neither Conduct nor
Subsidiary has any Knowledge of any facts indicating that (i) the consummation
of the transactions contemplated by this Agreement will have a material adverse
effect on Conduct's or Subsidiary's labor relations, or (ii) any of Conduct's or
Subsidiary's employees intends to terminate his or her employment with Conduct
or Subsidiary, as applicable. To the Knowledge of Conduct and Subsidiary no
employee of Conduct or Subsidiary is a party to or is bound by any
confidentiality agreement, noncompetition agreement or other Contract (with any
Person) that may have an adverse effect on (A) the performance by such employee
of any of his duties or responsibilities as an employee of Conduct or
Subsidiary, or (B) the business or operations of Conduct and Subsidiary.
2.16 Environmental Matters. To Conduct's Knowledge, Conduct is and has at
all times been in compliance with all applicable Israeli environmental laws and
regulations. There is no pending or, to Conduct's Knowledge, threatened Legal
Proceeding alleging violation of, or requesting compliance by Conduct with,
Israeli environmental laws and regulations.
2.17 Sale of Products; Performance of Services.
(a) Except as set forth in Part 2.17(a) of the Disclosure Schedule,
to Conduct's and Subsidiary's Knowledge, each product, system, program,
Proprietary Asset or other asset designed, developed, manufactured, assembled,
sold, installed, repaired, licensed or
22
otherwise made available by Conduct or Subsidiary to any Person: (i) conformed
and complied in all material respects with the terms and requirements of any
applicable warranty or other Contract and with all material applicable Legal
Requirements; and (ii) was free of any bug, virus, design defect or other defect
or deficiency at the time it was sold or otherwise made available, other than
any immaterial bug or similar defect that would not adversely affect in any
material respect such product, system, program, Proprietary Asset or other asset
(or the operation or performance thereof).
(b) To Conduct's and Subsidiary's Knowledge, all installation
services, design services, development services, programming services, repair
services, maintenance services, support services, training services, upgrade
services and other services that have been performed by Conduct or Subsidiary
were performed properly and in conformity in all material respects with the
terms and requirements of all applicable warranties and other Contracts and with
all material applicable Legal Requirements.
(c) Neither Conduct nor Subsidiary will incur or otherwise become
subject to any material Liability arising directly or indirectly from (i) any
product, system, program, Proprietary Asset or other asset designed, developed,
manufactured, assembled, sold, installed, repaired, licensed or otherwise made
available by Conduct or Subsidiary, or (ii) any installation services, design
services, development services, programming services, repair services,
maintenance services, support services, training services, upgrade services or
other services performed by Conduct or Subsidiary.
(d) Except as set forth in Part 2.17(d) of the Disclosure Schedule,
no customer or other Person has ever asserted or, to Conduct's or Subsidiary's
Knowledge, threatened to assert any claim against Conduct or Subsidiary (i)
under or based upon any warranty provided by or on behalf of Conduct or
Subsidiary, or (ii) under or based upon any other warranty relating to any
product, system, program, Proprietary Asset or other asset designed, developed,
manufactured, assembled, sold, installed, repaired, licensed or otherwise made
available by Conduct or Subsidiary or any services performed by Conduct or
Subsidiary. To the Knowledge of Conduct and Subsidiary, no material event has
occurred, and no condition or circumstance exists, that might (with or without
notice or lapse of time) give rise to or serve as a basis for the assertion of
any such claim.
2.18 Insurance. Part 2.18 of the Disclosure Schedule identifies each
insurance policy maintained by, at the expense of or for the benefit of Conduct
and Subsidiary. Conduct has delivered to Mercury accurate and complete copies
of the insurance policies identified in Part 2.18 of the Disclosure Schedule.
Each of the insurance policies identified in Part 2.18 of the Disclosure
Schedule is in full force and effect.
2.19 Related Party Transactions. Except as set forth in Part 2.19 of the
Disclosure Schedule and except for this agreement and the transactions
contemplated hereby: (a) no Related Party has, and no Related Party has at any
time had any material indirect interest in any material asset used in or
otherwise relating to the business of Conduct or Subsidiary; (b) no Related
Party is, or has at any time been, indebted to Conduct or Subsidiary; (c) no
Related Party has entered into, or has had any material financial interest in,
any material Contract, transaction or business
23
dealing involving Conduct or Subsidiary. For purposes of this Section 2.19, each
of the following shall be deemed to be a "Related Party": (i) each of the
Conduct Shareholders; (ii) each individual who is, or who has at any time been
an officer or director of Conduct or Subsidiary; (iii) each individual who is,
or who at any time been a member of the immediate family of any of the
individuals referred to in clauses "(i)" and "(ii)" above; (iv) any trust or
other Entity (other than Conduct) in which any one of the individuals referred
to in clauses "(i)", "(ii)" and "(iii)" above holds (or in which more than one
of such individuals collectively hold), beneficially or otherwise, a material
voting, proprietary or equity interest; and (v) as defined in Section 96A of the
Israeli Companies Ordinance-1983.
2.20 Legal Proceedings; Orders.
(a) Except as set forth in Part 2.20(a) of the Disclosure Schedule,
there is no pending Legal Proceeding, and (to the Knowledge of Conduct and
Subsidiary ) no Person has threatened to commence any Legal Proceeding: (i) that
involves Conduct, Subsidiary or any of the assets owned or used by Conduct or
Subsidiary; or (ii) that challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the transactions
contemplated by this Agreement. To the Knowledge of Conduct and Subsidiary
except as set forth in Part 2.20(a) of the Disclosure Schedule, no material
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, give rise to or
serve as a basis for the commencement of any such material Legal Proceeding.
(b) Except as set forth in Part 2.20(b) of the Disclosure Schedule,
no material Legal Proceeding has ever been commenced by, and no material Legal
Proceeding has ever been pending against, Conduct or Subsidiary.
(c) There is no order, writ, injunction, judgment or decree to which
Conduct or Subsidiary, or any of the assets owned or used by Conduct or
Subsidiary, is subject. To the Knowledge of Conduct and Subsidiary, none of the
Conduct Principal Shareholders is subject to any order, writ, injunction,
judgment or decree that relates to Conduct's business or to any of the assets
owned or used by Conduct or Subsidiary. To the Knowledge of Conduct and
Subsidiary, no officer or other employee of Conduct or Subsidiary is subject to
any order, writ, injunction, judgment or decree that prohibits such officer or
other employee from engaging in or continuing any conduct, activity or practice
relating to Conduct's business.
2.21 Authority; Binding Nature of Agreement. Conduct or Subsidiary each
have the absolute and unrestricted right, power and authority to enter into and
to perform its obligations under this Agreement and under each other agreement,
document or instrument referred to in or contemplated by this Agreement to which
Conduct or Subsidiary is or will be a party; and the execution, delivery and
performance by Conduct and Subsidiary of this Agreement and of each such other
agreement, document and instrument have been duly authorized by all necessary
action on the part of Conduct, Subsidiary and each of their boards of directors.
This Agreement and each other agreement, document and instrument referred to in
or contemplated by this Agreement to which Conduct or Subsidiary is a party
constitutes, assuming the due authorization, execution and delivery hereof by
Mercury and subject to the filings and approvals specified in Section 7 hereof,
the legal, valid and binding obligation of Conduct or Subsidiary, as
24
applicable, enforceable against Conduct or Subsidiary, as applicable, in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
2.22 Non-Contravention; Consents. Except as set forth in Part 2.22 of the
Disclosure Schedule and except for Breaches which could not reasonably be
expected to have a Material Adverse Effect on Conduct or Subsidiary, neither (1)
the execution, delivery or performance of this Agreement or any other agreement,
document or instrument referred to in or contemplated by this Agreement, nor (2)
the consummation of the transactions contemplated by this Agreement or any such
other agreement, document or instrument, will directly or indirectly (with or
without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of Conduct's articles of association or (ii) Subsidiary's
articles of incorporation or bylaws, or (ii) any resolution adopted by Conduct's
or Subsidiary's shareholders or Conduct's or Subsidiary's board of directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction, judgment
or decree to which Conduct or Subsidiary, or any of the assets owned or used by
Conduct or Subsidiary, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by Conduct or Subsidiary or that otherwise relates to Conduct's
business or to any of the assets owned or used by Conduct or Subsidiary;
(d) contravene, conflict with or result in a material violation or
breach of, or result in a material default under, any provision of any material
Contract, or give any Person the right to (i) declare a default or exercise any
remedy under any Contract, (ii) accelerate the maturity or performance of any
Contract, or (iii) cancel, terminate or modify any Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by Conduct or
Subsidiary (except for minor liens that will not, in any case or in the
aggregate, materially detract from the value of the assets subject thereto or
materially impair the operations of Conduct or Subsidiary).
Neither Conduct nor Subsidiary is, nor will be, required to make any filing with
or give any notice to, or to obtain any Consent from, any Person in connection
with (x) the execution, delivery or performance of this Agreement or any other
agreement, document or instrument referred to in or contemplated by this
Agreement, or (y) the consummation of the transactions contemplated by this
Agreement or contemplated by any other agreement, document or instrument
referred to in or contemplated by this Agreement except for (A) filings with the
Israel
25
Investment Center of the Israeli Ministry of Trade & Industry, (B) filings with
the Chief Scientist of the Israeli Ministry of Trade & Industry, (C) the
approval of the General Director of the Antitrust Authority in Israel, (D)
approval of Israeli Income Tax Authorities as specified in Section 6.8 below,
and (E) such other consents, approvals, orders, authorizations, registrations,
declarations and filings, the failure of which to be obtained or made would not
have, individually or in the aggregate, a Material Adverse Effect on Conduct or
Subsidiary.
2.23 Approved Enterprise. Except as set forth in Part 2.23, Conduct has
complied in all material respects with the terms and conditions as specified in
the letter of approval dated December 29, 1996 and September 8, 1999, from the
Israeli Investment Center of the Ministry of Industry and Trade for an
investment program and the terms of the Encouragement of Capital Investments
law-1959, issued to it.
2.24 Chief Scientist. Except as set forth in Part 2.24 of the Disclosure
Schedule, Conduct has complied in all material respects with the terms and
conditions as specified in the letter of approval dated March 19, 1997, from the
Chief Scientist of the Israeli Ministry of Industry and Trade and the terms of
the Encouragement of Industrial Research and Development Law - 1984.
2.25 No Brokers. Except as set forth in Part 2.25, none of Conduct nor
Subsidiary has agreed or become obligated to pay to any Person, or has taken any
action that might result in any Person claiming to be entitled to receive, any
brokerage commission, finder's fee or similar commission or fee in connection
with any of the transactions contemplated by this Agreement.
2.26 Full Disclosure. This Agreement (including the Disclosure Schedule)
does not contain any representation, warranty or information that is false or
misleading with respect to any material fact.
Section 3. Representations and Warranties of Conduct Shareholders
The Conduct Shareholders each, severally and not jointly, represent and
warrant to Mercury that on the date hereof and as of the Closing, as though made
at the Closing, as follows:
3.1 Ownership of Conduct Capital Shares. Such Conduct Shareholder is the
sole record and beneficial owner of the Conduct Capital Shares designated as
being owned by the Conduct Shareholder opposite his, her or its name in Exhibit
-------
A to this Agreement. Such Conduct Capital Shares are not subject to any Liens
-
or to any rights of first refusal of any kind, and such Conduct Shareholder has
not granted any rights to purchase such Conduct Capital Shares to any other
person or entity. Such Conduct Shareholder has the sole right to transfer such
Conduct Capital Shares to Mercury. Such Conduct Capital Shares constitute all
of the Conduct Capital Shares owned, beneficially or of record, by such Conduct
Shareholder. and such Conduct Shareholder has no options, warrants or other
rights to acquire Conduct Capital Shares. At the Closing, in exchange for the
Mercury Stock issued pursuant to Sections 1.1 and 1.5 hereof, Mercury will
receive good title to such Conduct Capital Shares, subject to no Liens retained,
granted or permitted by such Conduct Shareholder or Conduct. Such Conduct
Shareholder hereby waivers its Right of First Refusal and Right of Co-Sale with
respect to the shares held by
26
other Conduct Shareholders as set forth in the Conduct Articles of Association
as currently in effect.
3.2 Tax Matters. Such Conduct Shareholder has had an opportunity to review
with his own tax advisors the tax consequences to the Conduct Shareholder of the
transactions contemplated by this Agreement. Such Conduct Shareholder
understands that he must rely solely on his advisors and not on any statements
or representations by Mercury, Conduct, Subsidiary or any of their agents. Such
Conduct Shareholder understands that he (and not Mercury, Conduct, or
Subsidiary) shall be responsible for his, her or its own tax liability that may
arise as a result of the transactions contemplated by this Agreement.
3.3 Authority. Such Conduct Shareholder has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
such Conduct Shareholder, and, assuming the due authorization, execution and
delivery by the other parties hereto, constitutes the valid and binding
obligation of such Conduct Shareholder, enforceable in accordance with its
terms, except as such enforceability may be limited by principles of public
policy and subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and to rules of law governing specific
performance, injunctive relief or other equitable remedies.
3.4 No Conflict. The execution and delivery by such Conduct Shareholder of
this Agreement and the consummation of the transactions contemplated hereby will
not conflict with any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise or license to which such
Conduct Shareholder or any of his, her or its properties or assets is subject,
or any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to such Conduct Shareholder or his, her or its properties or assets.
3.5 Exemption from Registration. Such Conduct Shareholder is aware (i)
that the Mercury Stock to be issued to Conduct Shareholder in the transactions
contemplated by this Agreement will not be registered immediately and will not
be issued pursuant to a registration statement under the Securities Act, but
will instead be issued in reliance on the exemption from registration set forth
in Section 4(2) of the Act and in Regulation D under the Act, and (ii) that
neither the transactions contemplated by this Agreement nor the issuance of such
Mercury Stock has been approved or reviewed by the SEC or by any other
governmental agency.
3.6 No Immediate Resale. Such Conduct Shareholder is aware that, because
the Mercury Stock to be issued in the transactions contemplated by this
Agreement will not be registered immediately under the Act, such Mercury Stock
cannot be resold unless such Mercury Stock is registered under the Act or unless
an exemption from registration is available. Conduct Shareholder is also aware
that while Mercury has agreed to file a registration statement promptly after
the Closing with respect to the Mercury Stock to be issued to Conduct
Shareholder in the transactions contemplated by this Agreement pursuant to the
terms of a Registration Rights Agreement among Mercury and the Conduct
Shareholders, there may be times that such registration statement would be
unavailable for use by Conduct Shareholder to sell his or her shares. If the
registration statement is unavailable then the provisions of Rule 144 under the
Act will permit resale of the Mercury Stock to be issued to Conduct Shareholder
in the transactions
27
contemplated by this Agreement only under limited circumstances, and such
Mercury Stock must be held by Conduct Shareholder for at least one year before
it can be sold pursuant to Rule 144.
3.7 Investment Intent. The Mercury Stock to be issued to Conduct
Shareholder in the transactions contemplated by this Agreement will be acquired
by Conduct Shareholder for investment and for his own account, and not with a
view to, or for resale in connection with, any unregistered distribution
thereof.
3.8 Adequate Investigation. Conduct Shareholder has received, reviewed and
considered all the information Conduct Shareholder considers necessary to enable
Conduct Shareholder to make an informed decision to invest in Mercury Stock,
including the Mercury SEC Documents (defined below).
3.9 Sophisticated Investor. Conduct Shareholder (either by himself or in
conjunction with his representative) is knowledgeable, sophisticated and
experienced in making, and is qualified to make, decisions with respect to
investments in securities presenting investment decisions like that involved in
Conduct Shareholder's contemplated investment in the Mercury Stock to be issued
in the transactions contemplated by this Agreement. Conduct Shareholder
understands and has fully considered the risks of acquiring and owning Mercury
Stock and further understands that: (i) an investment in Mercury Stock is a
speculative investment which involves a high degree of risk and is suitable only
for an investor who is able to bear the economic consequences of losing his or
her entire investment; and (ii) there are substantial restrictions on the
transferability of the Mercury Stock to be issued in the transactions
contemplated by this Agreement, and, accordingly, it may not be possible for
Conduct Shareholder to liquidate his investment in such Mercury Stock (in whole
or in part) in the case of emergency. Conduct Shareholder is able: (1) to hold
the Mercury Stock that he is to receive in the transactions contemplated by this
Agreement for a substantial period of time; and (2) to afford a complete loss of
his investment in such Mercury Stock.
3.10 Legends; Stop Transfer Orders. Conduct Shareholder understands that
stop transfer instructions will be given to Mercury's transfer agent with
respect to the Mercury Stock to be issued to Conduct Shareholder in the
transactions contemplated by this Agreement, and that there will be placed on
the certificate or certificates representing such Mercury Stock a legend
identical or similar in effect to the following legend (together with any other
legend or legends required by applicable state securities laws or otherwise):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
UNLESS REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE."
28
Section 4. Representations and Warranties of Mercury Mercury represents and
warrants to Conduct, Subsidiary and the Conduct Shareholders as follows:
4.1 Corporate Status. Mercury is a corporation duly organized, validly
existing and in good standing under, the laws of the State of Delaware.
4.2 SEC Filings; Financial Statements.
(a) Mercury has filed all required reports, schedules, forms,
statements and other documents with the SEC since January 1, 1995 (the "Mercury
SEC Documents"). Mercury has delivered or otherwise made available to the
Conduct Shareholders accurate and complete copies (excluding copies of exhibits)
of each report, registration statement (on a form other than Form S-8) and
definitive proxy statement filed by Mercury with the SEC between January 1, 1999
and the date of this Agreement. As of the time it was filed with the SEC (or, if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing): (i) each of the Mercury SEC Documents complied in all
material respects with the applicable requirements of the Securities Act or the
Exchange Act (as the case may be); and (ii) none of the Mercury SEC Documents
contained any untrue statement of a material fact or omitted 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.
(b) The consolidated financial statements contained in the Mercury
SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered, except as may be indicated in
the notes to such financial statements and (in the case of unaudited statements)
as permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to normal and recurring
year-end audit adjustments (which will not, individually or in the aggregate, be
material in magnitude); and (iii) fairly present the consolidated financial
position of Mercury and its subsidiaries as of the respective dates thereof and
the consolidated results of operations of Mercury and its subsidiaries for the
periods covered thereby.
4.3 Authority; Binding Nature of Agreement. Mercury has the absolute and
unrestricted right, power and authority to perform its obligations under this
Agreement and under each other agreement, document or instrument referred to in
or contemplated by this Agreement to which Mercury is or will be a party; and
the execution, delivery and performance by Mercury of this Agreement and under
each other agreement, document or instrument referred to in or contemplated by
this Agreement to which Mercury is or will be a party has been duly authorized
by all necessary action on the part of Mercury and its board of directors. This
Agreement and each other agreement, document or instrument referred to in or
contemplated by this Agreement to which Mercury is or will be a party
constitutes the legal, valid and binding obligation of Mercury, enforceable
against Mercury in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
29
4.4 Consents and Approvals; No Violations. There is no requirement
applicable to Mercury to make any filing with, or to obtain any permit,
authorization, consent or approval of any Governmental Body as a condition to
the execution, delivery or performance by Mercury of this Agreement or any other
agreement, document or instrument referred to in or contemplated by this
Agreement, or the lawful consummation by Mercury of the transactions
contemplated by this Agreement, except for (A) the approval of the General
Director of the Antitrust Authority in Israel, (B) filings with the Israel
Investment Center of the Israeli Ministry of Trade & Industry, (C) filings with
the Chief Scientist of the Israeli Ministry of Trade & Industry, (D) the
approval of Israeli Income Tax Authorities set forth in Section 6.8 below, and
(E) such other consents, approvals, orders, authorizations, registrations,
declarations and filings, the failure of which to be obtained or made would not
have, individually or in the aggregate, a Material Adverse Effect on Mercury.
Neither the execution, delivery or performance of this Agreement by Mercury or
any other agreement, document or instrument referred to in or contemplated by
this Agreement nor the consummation by Mercury of the transactions contemplated
by this Agreement or any such other agreement, document or instrument will
directly or indirectly (with or without notice or lapse of time) (i) contravene,
conflict with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws of Mercury or any resolution adopted by Mercury's
shareholders or board of directors, (ii) contravene, conflict with or result in
a material breach or default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any material note, bond, mortgage, indenture, license agreement, lease or
other material contract, instrument or obligation to which Mercury is a party or
by which any of its assets may be bound, (iii) contravene, conflict with or
result in violation in any material respects any statute, rule, regulation,
order, writ, injunction or decree or any other Government Authorization
applicable to Mercury or any of its material assets, where the consequences of
any and all such breaches, defaults and violations would, in the aggregate, have
a material and adverse effect on the business, operations or financial condition
of Mercury taken as a whole, (iv) contravene, conflict with or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the transactions contemplated by this Agreement or to exercise
any remedy or obtain any relief under any Legal Requirement or any order, writ,
injunction, judgement or decree, or (v) result in the creation of any material
(individually or in the aggregate) liens, charges or Encumbrances on any of the
assets of Mercury. Mercury is aware that in order to obtain the approval of the
Chief Scientist of the Israeli Ministry of Trade & Industry, it will be required
to deliver to the Chief Scientist certain undertakings substantially in the form
attached as Exhibit J. As promptly as practicable after the date hereof, and in
---------
any event prior to the Closing, Mercury will sign and deliver such form to the
Chief Scientist.
4.5 Valid Issuance. Subject to Section 1.5(e), the Mercury Stock to be
issued in the transactions contemplated by this Agreement will, when issued in
accordance with the provisions of this Agreement, be validly issued, fully paid
and nonassessable, and free of Encumbrances, issued in compliance with all Legal
Requirements and free of restriction on transfer other than restrictions
pursuant to this Agreement and under applicable securities laws.
30
SECTION 5. Certain Covenants
5.1 Access and Investigation.
(a) During the period from the date of this Agreement through the
Closing Date (the "Pre-Closing Period"), Conduct shall: (a) provide Mercury and
Mercury's Representatives with reasonable access to Conduct's and Subsidiary's
personnel and assets and to all existing books, records, tax returns, work
papers and other documents and information relating to Conduct and Subsidiary;
and (b) provide Mercury and Mercury's Representatives with copies of such
existing books, records, tax returns, work papers and other documents and
information relating to Conduct and Subsidiary, and with such additional
financial, operating and other data and information regarding Conduct and
Subsidiary, as Mercury may reasonably request.
(b) During the Pre-Closing Period, Mercury shall: (a) provide Conduct
and Conduct's Representatives with reasonable access to Mercury's personnel and
assets and to all existing books, records, tax returns, work papers and other
documents and information relating to Mercury; and (b) provide Conduct and
Conduct's Representatives with copies of such existing books, records, tax
returns, work papers and other documents and information relating to Mercury,
and with such additional financial, operating and other data and information
regarding Mercury, as Conduct may reasonably request.
(c) All information provided during the Pre-Closing Period by Mercury
or Conduct to the other or the other's Representatives in connection with any
investigation hereunder or pursuant to the negotiation and execution of this
Agreement and the consummation of the transactions contemplated hereby shall be
subject to the provisions of the Mutual Nondisclosure Agreement between Mercury
and Conduct dated as of September 29, 1999 (the "Nondisclosure Agreement"),
which shall remain in full force and effect. Except for information set forth in
the Disclosure Schedule or the attachments thereto, no information obtained in
any investigation shall effect or be deemed to modify any representation or
warranty contained in this Agreement.
5.2 Operation of the Business of Conduct. Without the prior written consent
of Mercury during the Pre-Closing Period, and except as otherwise contemplated
or permitted by this Agreement:
(a) Conduct and Subsidiary shall each use its best effort to conduct
its business and operations in the ordinary course and in substantially the same
manner as such business and operations have been conducted prior to the date of
this Agreement, shall pay its debts and Taxes when due (subject to good faith
disputes, if any, over such debts and Taxes), and shall pay or perform its other
material obligations when due;
(b) Conduct and Subsidiary shall each use commercially reasonable
efforts to (i) preserve intact its current business organization, (ii) keep
available the services of its current officers and employees and (iii) maintain
its relations and good will with all suppliers,
31
customers, landlords, creditors, employees and other Persons having business
relationships with Conduct;
(c) Conduct and Subsidiary shall not declare, accrue, set aside or
pay any dividend or make any other distribution in respect of any capital
shares;
(d) Conduct and Subsidiary shall not repurchase, redeem or otherwise
reacquire any capital shares or other securities other than pursuant to
Contracts in effect as of the date of this Agreement;
(e) Except for Conduct Capital Shares issued upon the exercise of
options and warrants to purchase Conduct Capital Shares and any convertible
promissory notes outstanding on the date of this Agreement and upon the
conversion of Conduct Preferred Shares, neither Conduct nor Subsidiary shall
sell, issue or authorize the issuance of (i) any capital shares or other
security, (ii) any option or right to acquire any capital shares or other
security or (iii) any instrument convertible into or exchangeable for any
capital shares or other security;
(f) Conduct shall not amend its articles of association or the
articles of incorporation or bylaws of Subsidiary, or effect or permit Conduct
or Subsidiary to become a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(g) Conduct and Subsidiary shall not form any subsidiary or acquire
any equity interest or other interest in any other Entity;
(h) Neither Conduct nor Subsidiary shall (i) establish, adopt or
amend any employee benefit plan, (ii) pay any bonus or make any profit-sharing
payment, severance (except as required by applicable law), cash incentive
payment or similar payment to, increase the amount of the wages, salary,
commissions, fringe benefits or other compensation or remuneration payable to,
any of its directors, officers or employees, or accelerate the vesting of any
Conduct Option or any Conduct Capital Shares subject to vesting or (iii) hire
any new employee or terminate any current employee;
(i) Neither Conduct nor Subsidiary shall change any of its methods of
accounting or accounting practices;
(j) Neither Conduct nor Subsidiary shall make any Tax election;
(k) Neither Conduct nor Subsidiary shall commence or settle any Legal
Proceeding, except as required by applicable law;
(l) Neither Conduct nor Subsidiary shall enter into any license
agreement with respect to or otherwise transfer any rights to any Conduct
Proprietary Asset, or except in the ordinary course of business enter into any
license with respect to any Proprietary Asset of any other person or entity;
32
(m) Neither Conduct nor Subsidiary shall enter into or amend any
Contract pursuant to which any other party is granted marketing, distribution or
similar rights of any type or scope with respect to any products or technology
of Conduct or Subsidiary;
(n) Neither Conduct nor Subsidiary shall amend or otherwise modify or
violate the terms of any of Conduct Contracts set forth or described in the
Disclosure Schedule;
(o) Neither Conduct nor Subsidiary shall incur any indebtedness for
borrowed money (other than indebtedness to trade creditors in the ordinary
course of business) or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others;
(p) Neither Conduct nor Subsidiary shall grant any loans to others
(other than advances of employee travel expenses in the ordinary course of
business consistent with past practices) or purchase debt securities of others
or amend the terms of any outstanding loan agreement;
(q) Neither Conduct nor Subsidiary shall revalue any of its assets,
including without limitation writing down the value of inventory or writing off
notes;
(r) Other than obligations existing as of the date of this Agreement,
neither Conduct nor Subsidiary shall pay, discharge or satisfy, in an amount in
excess of $25,000 (in any one case) or $100,000 (in the aggregate), any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise);
(s) No Conduct Shareholder shall transfer any Conduct Capital Shares
to any other Person; and
(t) Neither Conduct nor Subsidiary nor any Conduct Shareholder shall
agree or commit to take any of the actions described in clauses "(c)" through
"(s)" above.
5.3 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, Conduct shall promptly notify
Mercury in writing of: (i) the discovery by Conduct or Subsidiary of any event,
condition, fact or circumstance that occurred or existed on or prior to the date
of this Agreement and that caused or constitutes an inaccuracy in or breach of
any representation or warranty made by Conduct or Subsidiary in this Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or exists
after the date of this Agreement and that would cause or constitute an
inaccuracy in or breach of any representation or warranty made by Conduct or
Subsidiary in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement; (iii) any breach of any covenant or obligation of Conduct or
Subsidiary; and (iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 7
impossible or unlikely. Notification in accordance with this Section 5.3(a)
shall not
33
affect Conduct's or Subsidiary's liability for breach of any such
representation, warranty or covenant under this Agreement.
(b) During the Pre-Closing Period, Mercury shall promptly notify
Conduct in writing of: (i) the discovery by Mercury of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by Mercury in this Agreement; (ii) any event,
condition, fact or circumstance that occurs, arises or exists after the date of
this Agreement and that would cause or constitute an inaccuracy in or breach of
any representation or warranty made by Mercury in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance or (B)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement; (iii) any breach of any covenant or
obligation of Mercury; and (iv) any event, condition, fact or circumstance that
would make the timely satisfaction of any of the conditions set forth in Section
8 impossible or unlikely. Notification in accordance with this Section 5.3(b)
shall not affect Mercury's liability for breach of any such representation,
warranty or covenant under this Agreement.
5.4 No Negotiation. During the Pre-Closing Period, Conduct, Subsidiary and
the Conduct Shareholders shall not, and shall not permit any of their
Representatives to: (a) solicit any proposal or offer from any Person (other
than Mercury) for or relating to a possible Acquisition Transaction; or (b)
participate in any negotiations or enter into any agreement with, or provide any
information to or cooperate with, any Person (other than Mercury) relating to or
in connection with a possible Acquisition Transaction or any other transaction
which would alter the equity ownership of Conduct. In addition to the foregoing,
if Conduct receives prior to the Closing or the termination of this Agreement
any offer, proposal, or request relating to any of the above, Conduct shall
immediately notify Mercury thereof, including information as to the identity of
the offeror or the party making any such offer or proposal and the specific
terms of such offer or proposal, as the case may be, and such other information
related thereto as Mercury may reasonably request.
SECTION 6. Additional Covenants of the Parties
6.1 Filings and Consents. As promptly as practicable after the execution of
this Agreement, each party to this Agreement (a) shall make all filings, if any,
and give all notices, if any, required to be made and given by such party in
connection with the transactions contemplated by this Agreement and (b) shall
use all commercially reasonable efforts to obtain all Consents, if any, required
to be obtained (pursuant to any applicable Legal Requirement or Contract, or
otherwise) by such party in connection with the transactions contemplated by
this Agreement. Without limiting the foregoing, the parties shall promptly (i)
apply for and obtain the approvals of the Chief Scientist of the Israel,
Ministry of Trade and Industry, the Investment Center of the Israeli Ministry of
Trade and Industry, the Israeli Income Tax Authorities and the Israeli General
Director of the Antitrust Authority and (ii) provide notices of to holders of
Conduct Warrants.
34
6.2 Reservation of Authorized Common Stock. Mercury shall also reserve a
sufficient number of Common Stock for issuance upon exercise of assumed options
of Conduct.
6.3 Nasdaq Listing. As promptly as practicable after the date hereof, and
in any event prior to the Closing, Mercury shall use its best efforts to cause
the shares of the Mercury Stock to be issued pursuant to this Agreement to be
included on Nasdaq, subject to notice of official issuance thereof.
6.4 Public Announcements . Except as required by applicable law, Mercury,
in its sole discretion, shall determine the form, timing and contents of
announcements and disclosures regarding the proposed transaction; provided,
--------
however, prior to any such announcement, Mercury shall afford Conduct a
-------
reasonable opportunity to review and comment on any such announcement or
disclosure.
6.5 Best Efforts. During the Pre-Closing Period, Conduct, Subsidiary and
Mercury shall each use their best efforts to cause the conditions set forth in
Sections 7 and 8 to be satisfied before November 30, 1999.
6.6 Employee Matters. Mercury and Conduct shall use commercially
reasonable efforts to recruit each key employee of Conduct or Subsidiary to
continue at-will employment with Conduct or Subsidiary after the Closing. Those
employees of Conduct or Subsidiary that continue to be employees of Mercury or
any of its affiliates, including Conduct or Subsidiary, following the Closing
shall upon the closing be eligible to participate in Mercury's health, vacation,
employee stock purchase, 401(k) and other plans, to the same extent as
comparably situated employees of Mercury and shall receive credit under
Mercury's benefit plans for time served as an employee of Conduct or Subsidiary.
6.7 Additional Shareholders. Conduct shall notify Mercury of any exercises
or cancellations of options or warrants or conversions of convertible promissory
notes after the date of this Agreement until the Closing. Conduct shall use its
best efforts to cause each such Person who exercises a Conduct Option or Conduct
Warrant or converts a Conduct Convertible Promissory Note to become parties to
this Agreement (the "New Conduct Shareholders"). Any such New Conduct
Shareholders may be added as parties to this Agreement as set forth in Section
11.12 hereof. Any such New Conduct Shareholder who executes this Agreement and
shall be considered "Conduct Shareholders" for all purposes of this Agreement.
6.8 Qualified Option Plan. As promptly as practicable after the date
hereof, and in any event prior to the Closing, Mercury shall use its best
efforts to obtain approval of the Israeli Income Tax Authorities for the
qualification of the options of Conduct assumed by Mercury pursuant to this
Agreement as Options granted pursuant to the provisions of section 102 of the
Israeli Income Tax Ordinance (new version) 1961 (the "Ordinance") and any
regulations, rules, orders or procedures promulgated thereunder, including the
Income Tax Rules (Tax benefits in Stock Issuance to Employees) 5349-1989 (the
"Rules").
35
6.9 Indemnification of Directors and Officers . For a period of six years
from the Closing Date, Mercury shall, and shall cause Conduct to, fulfill and
honor in all respects all rights to indemnification existing in favor of the
directors and officers of Conduct, as provided in and subject to the terms of
Conduct's Articles of Association (as in effect as of the date of this
Agreement) and pursuant to any resolutions of Conduct or Subsidiary provided
that (a) the indemnified party has met any applicable standard of conduct to
qualify for such indemnification and (b) the basis of the claim against such
indemnified party does not otherwise constitute a breach of any of the
representations or warranties made by, or covenants to be performed by, Conduct
under this Agreement. This Section 6.9 shall survive the consummation of the
transactions contemplated hereby, is intended to benefit and may be enforced by
the directors and officers of Conduct, and shall be binding on all successors
and assigns of Mercury and Conduct.
6.10 Private Placement. Mercury and Conduct shall each take all steps
necessary or desirable, utilize all commercially reasonable efforts and
cooperate with one another in every way to have the issuance of the shares of
Mercury Stock to be issued in the transactions contemplated by this Agreement
qualify for one of the exemptions from registration under the Securities Act
provided in Regulation D promulgated thereunder, including the retention of a
purchaser representative, if necessary.
6.11 Registration Statements.
(a) Mercury will prepare and file with the SEC a registration
statement on Form S-3 in accordance with the terms of the Registration Rights
Agreement.
(b) Mercury will, within 10 days after the Closing, prepare and file
with the SEC a registration statement on Form S-8, in connection with the
issuance of the Mercury Stock with respect to the assumed Conduct Options and
maintain the effectiveness of such registration statement thereafter for so long
as any such options remain outstanding.
SECTION 7. Conditions Precedent to Obligations of Mercury
The obligations of Mercury to effect the transactions contemplated by this
Agreement are subject to the satisfaction (or waiver by Mercury), at or prior to
the Closing, of each of the following conditions:
7.1 Accuracy of Representations. Each of the representations and warranties
made by Conduct, Subsidiary and the Conduct Shareholders in this Agreement shall
have been accurate as of the date of this Agreement. In addition, the
representations and warranties of Conduct, Subsidiary and the Conduct
Shareholders contained in this Agreement shall be true and correct in all
material respects on and as of the Closing except for changes contemplated by
this Agreement and except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as of
such particular date), with the same force and effect as if made on and as of
the Closing except in such cases (other than the representations in Sections
2.2, 2.3, 2.21, 3.1 and 3.4) where the failure to be so true and correct would
not have a Material Adverse Effect on Conduct. Mercury shall have received a
certificate
36
with respect to the foregoing signed on behalf of Conduct and Subsidiary by two
of the respective executive officers or legally authorized signatories of each
of Conduct and Subsidiary.
7.2 Performance of Covenants. All of the covenants and obligations that
Conduct is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all material respects, except
where the failure to have performed or complied with such covenants and
obligations has not had a Material Adverse Effect on Conduct, or Mercury's
ownership and control thereof, after the Closing.
7.3 Agreements and Documents. Mercury shall have received the following
agreements and documents, each of which shall be in full force and effect:
(a) an Escrow Agreement in the form of Exhibit C hereto, executed by
---------
the Shareholders' Agent on behalf of the Conduct Shareholders;
(b) written resignations of all directors of Conduct and Subsidiary,
effective as of the Closing Date
(c) a legal opinion of ▇▇▇▇ ▇▇▇▇▇▇ & Co., Advocates substantially in
the form of Exhibit F-1 hereto
-----------
(d) a legal opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, PC,
substantially in the form of Exhibit F-2 hereto;
-----------
(e) evidence of the termination effective at or prior to the Closing
of the distribution agreement dated February 27, 1996 between Forval Creative
Inc. and Conduct;
(f) the other documents specified in Section 1.4 hereof; and
(g) Each of Mercury and Conduct shall have received a letter from the
respective accounting firms set forth below, dated as of the Closing, as
follows:
(i) A letter from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, independent accountants
for Conduct, and addressed to Conduct, reasonably satisfactory in form and
substance to Mercury and PricewaterhouseCoopers LLP, independent accountants for
Mercury, to the effect that, after reasonable investigation, the independent
accountants for Conduct are not aware of any fact concerning the transactions
contemplated by this Agreement or any of the shareholders or affiliates of
Conduct that could preclude Mercury from accounting for the transactions
contemplated by this Agreement as a "pooling of interests" in accordance with
generally accepted accounting principles, Accounting Principles Board Opinion
No. 16 and all published rules, regulations and policies of the SEC.
(ii) A letter from PricewaterhouseCoopers LLP, independent
accountants for Mercury, and addressed to Mercury, reasonably satisfactory in
form and substance to Mercury, to the effect that, after reasonable
investigation, that PricewaterhouseCoopers LLP concurs with Mercury management's
conclusion that as of the Closing Date, no conditions exist that would preclude
Mercury from accounting for the
37
transactions contemplated by this Agreement as a "pooling of interests", in each
case in accordance with generally accepted accounting principles, Accounting
Principles Board Opinion No. 16 and all published rules, regulations and
policies of the SEC.
7.4 Affiliate Pooling Agreements. Each of the persons or entities listed on
Schedule 7.4 attached to this Agreement shall have executed and delivered an
Affiliate Pooling Agreement with Mercury in the form of Exhibits G-1 or G-2
------------ --
attached hereto (collectively the "Affiliate Pooling Agreements"), regarding
compliance with requirements for accounting treatment of the transactions
contemplated by this Agreement as a pooling of interests.
7.5 Consents. All Consents required to be obtained (pursuant to any
applicable Legal Requirement or Contract, or otherwise) in connection with the
transactions contemplated by this Agreement have been obtained, including the
approvals of the Israeli General Director of Antitrust Authority, the Chief
Scientist of the Israeli Ministry of Trade and Industry, the Investment Center
of the Israeli Ministry of Trade and Industry and of the Israeli Income Tax
Authorities for the qualification of the options of Conduct assumed by Mercury
pursuant to this Agreement as Options granted pursuant to the provisions of
section 102 of the Israeli Income Tax Ordinance (new version) 1961 (the
"Ordinance") and any regulations, rules, orders or procedures promulgated
thereunder, including the Income Tax Rules (Tax benefits in Stock Issuance to
Employees) 5349-1989 (the "Rules").
7.6 No Restraints. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the transactions
contemplated by this Agreement shall have been issued by any court of competent
jurisdiction and remain in effect, and there shall not be any Legal Requirement
enacted or deemed applicable to the transactions contemplated by this Agreement
that makes consummation of the transactions contemplated by this Agreement
illegal.
7.7 Conduct Warrants. If the Closing occurs less than 20 days after the
notice required under the Conduct Warrants is delivered to the holders of
Conduct Warrants, the holders of Conduct Warrants shall have delivered written
waivers of such notice to Mercury.
7.8 Additional Shareholders. Conduct shall have caused each New Conduct
Shareholder to become a party to this Agreement.
SECTION 8. Conditions Precedent to Obligations of Conduct
The obligations of Conduct to effect the transactions contemplated by
this Agreement are subject to the satisfaction (or waiver), at or prior to the
Closing, of the following conditions:
8.1 Accuracy of Representations. Each of the representations and warranties
made by Mercury in this Agreement shall have been accurate as of the date of
this Agreement. In addition, the representations and warranties of Mercury
contained in this Agreement shall be true and correct in all material respects
on and as of the Closing except for changes contemplated by this Agreement and
except for those representations and warranties which address matters only as of
a particular date (which shall remain true and correct as of such particular
date), with the
38
same force and effect as if made on and as of the Closing except in such cases
where the failure to be so true and correct would not have a Material Adverse
Effect on Mercury. Conduct shall have received a certificate with respect to the
foregoing signed on behalf of Mercury by the Chief Financial Officer of Mercury.
8.2 Performance of Covenants. All of the covenants and obligations that
Mercury are required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all material respects, except
where the failure to have performed or complied with such covenants and
obligations has not had a Material Adverse Effect on Mercury.
8.3 Agreements and Documents. Conduct shall have received the following
documents.
(a) a Registration Rights Agreement in the form of Exhibit H hereto,
---------
executed by Mercury;
(b) an Escrow Agreement in the form of Exhibit C hereto, executed by
---------
Mercury;
(c) A legal opinion of General Counsel Associates LLP substantially
in the form of Exhibit I hereto.
(d) An undertaking towards the Chief Scientist in the form of Exhibit
J hereto, executed by Mercury.
8.4 Consents. All Consents required to be obtained (pursuant to any
applicable Legal Requirement or Contract, or otherwise) in connection with the
transactions contemplated by this Agreement have been obtained, including the
approvals of the Israeli Antitrust Authority, the Chief Scientist of the Israeli
Ministry of Trade and Industry, the Investment Center of the Israeli Ministry of
Trade and Industry.
8.5 Nasdaq Listing. The shares of Mercury Stock to be issued in the
transactions contemplated by this Agreement shall have been approved for listing
(subject to notice of issuance) on the Nasdaq National Market.
8.6 No Restraints. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the transactions
contemplated by this Agreement shall have been issued by any court of competent
jurisdiction and remain in effect, and there shall not be any Legal Requirement
enacted or deemed applicable to the transactions contemplated by this Agreement
that makes consummation of the transactions contemplated by this Agreement
illegal.
SECTION 9. TERMINATION
39
9.1 Termination Events. This Agreement may be terminated prior to the
Closing:
(a) by Mercury if (i) any representation or warranty of Conduct or
Subsidiary contained in Section 2 was incorrect in any material respect when
made such that the condition set forth in Section 7.1 would not be satisfied;
(ii) any representation or warranty of the Conduct Shareholders contained in
Section 3 was incorrect in any material respect when made such that the
condition set forth in Section 7.1 would not be satisfied; or (iii) if (x) any
of Conduct's covenants contained in this Agreement shall have been breached in
any material respect; (y) such breach has not been cured within 15 days after
written notice thereof is delivered by Mercury to Conduct; provided, however,
that no cure period shall apply if such breach is not capable of cure; and (z)
as a result of such breach, the condition set forth in Section 7.2 would not be
satisfied;
(b) by Conduct if any representation or warranty of Mercury contained in
Section 4 was incorrect in any material respect when made such that the
condition set forth in Section 8.1 would not be satisfied, or if: (i) any of
Mercury's covenants contained in this Agreement shall have been breached in
any material respect; (ii) such breach has not been cured within 15 days after
written notice thereof is delivered by Conduct to Mercury; provided, however,
that no cure period shall apply if such breach is not capable of cure; and (iii)
as a result of such breach, the condition set forth in Section 8.2 would not be
satisfied;
(c) by Mercury if the Closing has not taken place on or before March 1, 2000
(other than as a result of any failure on the part of Mercury to comply with or
perform any covenant or obligation of Mercury set forth in this Agreement or in
any other agreement or instrument delivered to Conduct);
(d) by Conduct if the Closing has not taken place on or before March 1, 2000
(other than as a result of the failure on the part of Conduct to comply with or
perform any covenant or obligation set forth in this Agreement or in any other
agreement or instrument delivered to Mercury);
(e) by the mutual written consent of Mercury and Conduct.
(f) by Conduct if Mercury common stock trades on the Nasdaq National Market
at an amount lower than $36 per share (appropriately adjusted for stock splits,
recapitalizations and the like) at any time prior to the Closing.
9.2 Termination Procedures. If Mercury wishes to terminate this Agreement
pursuant to Section 9.1(a) or Section 9.1(c), Mercury shall deliver to Conduct a
written notice stating that Mercury is terminating this Agreement and setting
forth a brief description of the basis on which Mercury is terminating this
Agreement. If Conduct wishes to terminate this Agreement pursuant to Section
9.1(b) or Section 9.1(d) or Section 9.1(f), Conduct shall deliver to Mercury a
notice, in writing, stating that Conduct is terminating this Agreement and
setting forth a brief description of the basis on which it is terminating this
Agreement.
9.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) none of the parties shall be relieved of
any obligation or liability arising from any prior
40
willful breach by such party of any provision of this Agreement; and (b) the
parties shall, in all events, remain bound by and continue to be subject to the
provisions set forth in Sections 6.2, 11 and this Section 9.3 and in the
Nondisclosure Agreement.
Section 10. Indemnification, Etc.
10.1 Survival of Representations, Etc. The representations and warranties
made by Conduct, Subsidiary, Conduct Shareholders and Mercury in this Agreement
shall survive the Closing and shall expire upon the earlier of (i) one year from
the date of the Closing or (ii) the issuance by Mercury's regularly employed
independent public accountants of audited financial statements and accompanying
audit report covering thirty days of combined operations of Mercury and Conduct
ending after the Closing Date (the "Termination Date"). Upon the expiration of
the representations and warranties of Conduct, Subsidiary, Conduct Shareholders
and Mercury, all liability of the parties with respect to any breach of such
representation or warranties shall thereupon be extinguished except to the
extent a claim for breach shall have been made prior to such expiration. The
pre-closing covenants of Conduct and Mercury contained in this Agreement shall
terminate as of the Closing.
10.2 Indemnification.
(a) Indemnification by Conduct Shareholders. From and after the Closing Date
(but subject to Section 10.1), the Conduct Shareholders who shall have received
Mercury Stock pursuant to Section 1.5 (the "Shareholder Indemnitors"), shall
(pro rata in accordance with their interest in the Escrow Fund) hold harmless
and indemnify each of the Indemnitees from and against, and shall compensate and
reimburse each of the Indemnitees for, any Damages which are suffered or
incurred by any of the Indemnitees or to which any of the Indemnitees may
otherwise become subject (regardless of whether or not such Damages relate to
any third-party claim) and which arise from or as a direct or indirect result
of, or are directly or indirectly connected with: (i) any inaccuracy in or
Breach of any representation or warranty made by Conduct, Subsidiary or Conduct
Shareholders in this Agreement or the Disclosure Schedule(ii) any breach of any
covenant or obligation of Conduct, Subsidiary or the Conduct Shareholders; or
(iii) any Legal Proceeding relating to any Breach referred to in clause "(i)" or
"(ii)" of this sentence.
(b) Indemnification by Mercury. From and after the Closing Date (but subject
to Section 10.1), Mercury shall hold harmless and indemnify each Conduct
Shareholder from and against, and shall compensate and reimburse each of the
Conduct Shareholders for, any Damages which are suffered or incurred by any of
the Conduct Shareholders or to which any of the Conduct Shareholders may
otherwise become subject (regardless of whether or not such Damages relate to
any third-party claim) and which arise from or as a direct or indirect result
of, or are directly or indirectly connected with: (i) any inaccuracy in or
Breach of any representation or warranty made by Mercury in this Agreement ;
(ii) any breach of any covenant or obligation of Mercury; or (iii) any Legal
Proceeding relating to any Breach referred to in clause "(i)" or "(ii)" of this
sentence. Notwithstanding anything to the contrary, Mercury shall be under no
obligation to deal directly with individual Conduct Shareholders in connection
with the indemnity provided to the Conduct Shareholders under this Section 10
but shall only be
41
obligated to respond to notices from, and to provide notices to, and otherwise
deal only with, the Shareholders' Agent, who shall have exclusive authority to
act for purposes of the indemnification provided by Mercury under this Section
10 on behalf of all of the Conduct Shareholders.
(c) Damages to Conduct. If Conduct or Subsidiary suffers or otherwise
becomes subject to any Damages, then (without limiting any of the rights of
Conduct as an Indemnitee) Mercury shall also be deemed, by virtue of its
ownership of the shares of Conduct, to have suffered Damages.
(d) Deductible. The Shareholder Indemnitors shall not be required to make
any indemnification, compensation or reimbursement payment pursuant to Section
10.2(a) until such time as the total amount of all Damages that have been
directly incurred by Mercury as a result of a breach of this Agreement by
Conduct exceeds $50,000. (If the total amount of such Damages exceeds $50,000,
then Mercury shall be entitled to be indemnified only for the portion of such
Damages exceeding $50,000.) Mercury shall not be required to make any
indemnification, compensation or reimbursement payment pursuant to Section
10.2(b) until such time as the total amount of all Damages that have been
directly incurred by the Conduct Shareholders as a result of a breach of this
Agreement by Mercury exceeds $50,000. (If the total amount of such Damages
exceeds $50,000, then the Conduct Shareholders shall be entitled to be
indemnified against only for the portion of such Damages exceeding $50,000.)
10.3 Exclusive Remedy; Limitations. Absent fraud, willful
misrepresentation, or willful deceit, from and after the Closing, recourse of
the Indemnitees to the Escrow Amount in the Escrow Fund shall be the sole and
exclusive remedy of the Indemnitees for Damages relating to any claim relating
to this Agreement provided, however, that nothing in this Section 10 shall limit
an individual Conduct Shareholder's liability with respect to a Breach of a
representation or warranty made by such Conduct Shareholder in Section 3.1 of
this Agreement. Absent fraud, willful misrepresentation, or willful deceit, from
and after the Closing, the maximum liability of Mercury to the Conduct
Shareholders for Damages relating to any Breach of any representation, warranty,
covenant or agreement contained in this Agreement shall be limited to an amount
equal to the value of the number of shares placed in the Escrow Fund multiplied
by the closing sales price of a share of Mercury common stock price as reported
on the Nasdaq National Market on the Closing Date.
10.4 No Contribution. Each Conduct Shareholder waives, acknowledges and
agrees that he shall not have and shall not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of indemnity or other
similar right or remedy against Conduct or Subsidiary or any officer or director
or counsel of Conduct or Subsidiary in connection with any actual or alleged
inaccuracy in or other Breach of any representation, warranty, covenant or
obligation set forth in this Agreement.
10.5 Defense of Third Party Claims against Indemnitees. In the event of the
assertion or commencement by any Person of any claim or Legal Proceeding
(whether against Conduct or Subsidiary, against any other Indemnitee or against
any other Person) with respect to which any of the Conduct Shareholders may
become obligated to indemnify, hold harmless, pay,
42
compensate or reimburse any Indemnitee pursuant to this Section 10, (i) Mercury,
as soon as practicable after it receives written notice of any such claim or
Legal Proceeding, shall notify the Shareholders' Agent of such claim or Legal
Proceeding (it being understood that the failure to notify the Shareholders'
Agent shall not in any way limit the rights of the Indemnitees under this
Agreement except to the extent that such failure materially prejudices the
defenses available to the Shareholders' Agent), and (ii) Mercury shall have the
right, at its election, to assume the defense of such claim or Legal Proceeding;
provided, however, that notwithstanding the foregoing if the maximum exposure
(as reasonably determined by Mercury) to all Indemnitees in such claim or Legal
Proceeding, together with the maximum exposure (as reasonably determined by
Mercury) under all claims or Legal Proceedings that may then already be pending
involving exposure to the Indemnitees under this Section 10, does not exceed the
value of the shares placed in the Escrow Fund (with such shares being deemed to
have a per share value equal to Mercury Average Stock Price), or if Mercury does
not within a reasonable period of time assume the defense of such claim or Legal
Proceeding, then the Shareholders' Agent may assume the defense of such claim or
Legal Proceeding. If the Shareholders' Agent assumes the defense of any such
claim or Legal Proceeding:
(a) the Shareholders' Agent shall proceed to defend such claim or Legal
Proceeding in a diligent manner with counsel reasonably satisfactory to Mercury;
(b) Mercury shall make available to the Shareholders' Agent any non-
privileged documents and non-privileged materials in the possession of Mercury
that
(c) the Shareholders' Agent shall keep Mercury informed of all material
developments and events relating to such claim or Legal Proceeding;
(d) Mercury shall have the right to participate in the defense of such claim
or Legal Proceeding at its own expense;
(e) the Shareholders' Agent shall not settle, adjust or compromise such
claim or Legal Proceeding without the prior written consent of Mercury (which
consent shall not be unreasonably withheld); and
(f) Mercury may at any time assume the defense of such claim or Legal
Proceeding if (i) the Shareholders' Agent shall fail to comply with any of its
obligations under this Section 10.5 (including its obligation to defend any
claim or Legal Proceeding in a diligent manner), or (ii) Mercury, after
consultation with its counsel, reasonably determines that the control of the
defense by the Shareholders' Agent would give rise to a conflict of interest.
If Mercury proceeds with the defense of any such claim or Legal Proceeding on
its own:
(i) the Conduct Shareholders shall make available to Mercury any documents
and materials in the possession or control of any of the Conduct Shareholders
that may be necessary to the defense of such claim or Legal Proceeding;
43
(ii) Mercury shall keep the Shareholders' Agent informed of all material
developments and events relating to such claim or Legal Proceeding; and
(iii) Mercury shall have the right to settle, adjust or compromise such
claim or Legal Proceeding with the consent of the Shareholders' Agent; provided,
however, that the Shareholders' Agent shall not unreasonably withhold such
consent.
10.6 Defense of Third Party Claims against Conduct Shareholders. In the
event of the assertion or commencement by any Person of any claim or Legal
Proceeding with respect to which Mercury may become obligated to indemnify, hold
harmless, pay, compensate or reimburse any Conduct Shareholder pursuant to this
Section 10, (i) the Shareholders' Agent, as soon as practicable after it
receives written notice of any such claim or Legal Proceeding, shall notify
Mercury of such claim or Legal Proceeding (it being understood that the failure
to notify Mercury shall not in any way limit the rights of the Conduct
Shareholders under this Agreement except to the extent such failure materially
prejudices the defenses available to Mercury), and (ii) the Shareholders' Agent
shall have the right, at its election, to assume the defense of such claim or
Legal Proceeding; provided, however, that notwithstanding the foregoing if the
maximum exposure (as reasonably determined by the Shareholders' Agent) to the
Conduct Shareholders in such claim or Legal Proceeding, together with the
maximum exposure (as reasonably determined by the Shareholders' Agent) under all
claims or Legal Proceedings that may then already be pending involving exposure
to the Conduct Shareholders under this Section 10, does not exceed the value of
the amount set forth in the second sentence of Section 10.3, or if the
Shareholders' Agent does not within a reasonable period of time assume the
defense of such claim or Legal Proceeding, then Mercury may assume the defense
of such claim or Legal Proceeding. The parties shall thereafter proceed in the
manner provided in Section 10.5 with the roles of Mercury and the Shareholders'
Agent reversed.
10.7 Exercise of Remedies by Indemnitees Other Than Mercury. No Indemnitee
(other than Mercury or any successor thereto or assign thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy under
this Agreement unless Mercury (or any successor thereto or assign thereof) shall
have consented to the assertion of such indemnification claim or the exercise of
such other remedy.
Section 11. Miscellaneous Provisions
11.1 Shareholders' Agent. The Conduct Shareholders irrevocably appoint ▇▇▇▇▇
▇▇▇▇▇▇▇▇ as their agent in connection with the transactions contemplated by
Section 10 of this Agreement, the Registration Rights Agreement and the Escrow
Agreement (the "Shareholders' Agent"), and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ hereby accepts his
appointment as the Shareholders' Agent. Mercury shall be entitled to deal with
the Shareholders' Agent on all matters relating to Section 10, the Registration
Rights Agreement and the Escrow Agreement, and shall be entitled to rely on any
document executed or purported to be executed on behalf of the Shareholder
Indemnitors by the Shareholders' Agent, and on any other action taken or
purported to be taken on behalf of the Shareholder Indemnitors by the
Shareholders' Agent, as fully binding upon such Shareholder
44
Indemnitor. If the Shareholders' Agent shall die, become disabled or otherwise
be unable to fulfill his responsibilities as agent of the Shareholder
Indemnitors, then the Shareholder Indemnitors shall, within ten days after such
death or disability, appoint a successor agent and, promptly thereafter, shall
notify Mercury of the identity of such successor. Any such successor shall
become the "Shareholders' Agent" for purposes of this Section 11.1. If for any
reason there is no Shareholders' Agent at any time, all references herein to the
Shareholders' Agent shall be deemed to refer to the Shareholder Indemnitors.
11.2 Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
11.3 Fees and Expenses. Each party to this Agreement shall bear and pay all
fees, costs and expenses (including legal fees and accounting fees) that have
been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement; provided, however, if the
transactions contemplated by this Agreement are consummated, all fees, costs and
expenses incurred by Conduct and the Conduct Shareholders in connection with the
transactions contemplated by this Agreement shall be paid by Mercury, it being
understood that if fees, costs and expenses incurred by Conduct and the Conduct
Shareholders shall exceed $250,000, then Mercury shall be entitled to be
indemnified from the Escrow Fund against only the portion of such fees, costs
and expenses exceeding $250,000.
11.4 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, 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).
11.5 Notices. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Mercury:
Mercury Interactive Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
45
with a copy to:
--------------
General Counsel Associates LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
if to Conduct:
Conduct, Ltd.
c/o Conduct Software Technologies, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
--------------
Wilson, Sonsini, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, PC
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇, Esq.
▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
And to:
------
▇▇▇▇ ▇▇▇▇▇▇ & Co., Advocates
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇, Israel
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Esq.
Telephone: ▇▇▇-▇-▇▇▇-▇▇▇▇
Facsimile: 972-3-613-7969
46
If to the Shareholders' Agent or any of the Shareholder Indemnitors:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
11.6 Headings. The underlined headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
11.7 Counterparts. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
11.8 Governing Law; Venue. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of laws). In any
action between the parties arising out of or relating to this Agreement or any
of the transactions contemplated by this Agreement: (a) each of the parties
irrevocably and unconditionally consents and submits to the exclusive
jurisdiction and venue of the state and federal courts located in the County of
Santa ▇▇▇▇▇, State of California; (b) if any such action is commenced in a state
court, then, subject to applicable law, no party shall object to the removal of
such action to any federal court located in the Northern District of
California; (c) each of the parties irrevocably consents to service of process
by first class certified mail, return receipt requested, postage prepaid, to the
address at which such party is to receive notice in accordance with Section
11.5.
11.9 Successors and Assigns. This Agreement shall be binding upon each of
the parties hereto and each of their respective successors and assigns, if any.
This Agreement shall inure to the benefit of: Conduct; the Conduct Shareholders;
Mercury; and the respective successors and assigns, if any, of the foregoing.
No party may assign any of its rights, or delegate any of its obligations, under
this Agreement without the prior written consent of the other parties.
11.10 Remedies Cumulative; Specific Performance. The rights and remedies of
the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision and (b) an injunction restraining such breach or threatened breach.
11.11 Waiver. No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such
47
power, right, privilege or remedy; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further exercise
thereof or of any other power, right, privilege or remedy. No Person shall be
deemed to have waived any claim arising out of this Agreement, or any power,
right, privilege or remedy under this Agreement, unless the waiver of such
claim, power, right, privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of such Person; and any such
waiver shall not be applicable or have any effect except in the specific
instance in which it is given.
11.12 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto; provided, however, that any
amendment to this Agreement which solely adds New Conduct Shareholders as
parties shall not require any approval by any of the parties and may be effected
by adding additional signature pages and additional Exhibit A pages hereto.
11.13 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
11.14 Parties in Interest. Except for the provisions of Sections 1.7 and
6.9 (which are intended to benefit and are enforceable by the persons referred
to therein), none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto, and their
respective successors and assigns, if any.
11.15 Entire Agreement. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties hereto relating to the
subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof; provided, however, that the Nondisclosure Agreement
shall not be superseded by this Agreement and shall remain in effect in
accordance with its terms until the earlier of (a) the Closing Date or (b) the
date on which such Nondisclosure Agreement is terminated in accordance with its
terms.
11.16 Construction.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Agreement.
48
(c) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections", "Schedules" and "Exhibits" are intended to refer to Sections of this
Agreement and Schedules and Exhibits to this Agreement.
49
EXHIBITS
Exhibit A - Conduct Shareholders
Exhibit B - Certain definitions
Exhibit C - Form of Escrow Agreement
Exhibit D - Form of Amendment to Employment Agreements
Exhibit E - Conduct Disclosure Schedule
Exhibit F-1 - ▇▇▇▇ ▇▇▇▇▇▇ & Co., Ltd, Advocates Legal Opinion
Exhibit F-2 - ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation
Legal Opinion
Exhibit G1 - Conduct Affiliate Pooling Agreement
Exhibit G2 - Mercury Affiliate Pooling Agreement
Exhibit H - Registration Rights Agreement
Exhibit I - General Counsel Associates LLP Legal Opinion
Exhibit J - Undertaking for Chief Scientist
50
The parties hereto have caused this Agreement to be executed and delivered
as of November 24, 1999.
--
MERCURY INTERACTIVE CORPORATION
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------
Title: CFO
-------------------------
CONDUCT LTD.
-------------------------------
Name:__________________________
Title:_________________________
CONDUCT SHAREHOLDERS' AGENT
_______________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
The parties hereto have caused this Agreement to be executed and delivered
as of November , 1999.
MERCURY INTERACTIVE CORPORATION
--------------------------------
Name:___________________________
Title:__________________________
CONDUCT LTD.
/s/ ▇. ▇▇▇▇▇▇▇▇
--------------------------------
Name: ▇. ▇▇▇▇▇▇▇▇
---------------------------
Title: Director
--------------------------
CONDUCT LTD.
/s/ ▇. ▇▇▇▇▇▇
--------------------------------
Name: ▇. ▇▇▇▇▇▇
---------------------------
Title: Director
--------------------------
CONDUCT SOFTWARE, TECHNOLOGIES, INC.
/s/ ▇. ▇▇▇▇▇▇▇▇
--------------------------------
Name: ▇. ▇▇▇▇▇▇▇▇
---------------------------
Title: President and CEO
--------------------------
CONDUCT SOFTWARE, TECHNOLOGIES, INC.
/s/ ▇. ▇▇▇▇▇▇
--------------------------------
Name: ▇. ▇▇▇▇▇▇
---------------------------
Title: CTO
--------------------------
CONDUCT SHAREHOLDERS' AGENT
/s/ ▇. ▇▇▇▇▇▇▇▇
--------------------------------
▇. ▇▇▇▇▇▇▇▇
Conduct Ltd. Page 1 of 2
(List of All Current Shareholders - Alphabetic)
Exhibit A
---------
Total % of
Shareholder Class/Series Name Shares Class Series
-------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ All (As if converted) 18,079 0.1700
ORDINARY SHARES 674 0.0172
SERIES A PREFERRED SHARES 17,405 0.8303
▇▇▇▇▇▇ ▇▇▇▇▇▇ All (As if converted) 885,966 8.3321
ORDINARY SHARES 885,966 22.6481
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ All (As if converted) 885,965 8.3321
ORDINARY SHARES 885,965 22.6481
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ All (As if converted) 112,551 1.0585
ORDINARY SHARES 4,194 0.1072
SERIES A PREFERRED SHARES 108,357 5.1691
Casin 1997 Chartible Trust UTA dated 1/28/97 All (As if converted) 150,104 1.4117
ORDINARY SHARES 5,594 0.1430
SERIES B PREFERRED SHARES 144,510 3.1245
The ▇▇▇▇▇▇ Foundation
All (As if converted) 120,083 1.1293
ORDINARY SHARES 4,475 0.1144
SERIES B PREFERRED SHARES 115,608 2.4996
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, SUCCTTEE, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Profit All (As if converted) 270,184 2.5410
Sharing Trust ORDINARY SHARES 10,068 0.2574
SERIES B PREFERRED SHARES 260,116 5.6241
Forval Creative, Inc. All (As if converted) 1,814,491 17.0645
ORDINARY SHARES 67,616 1.7285
SERIES A PREFERRED SHARES 1,746,875 83.3333
Investee Clali Trust Company, Ltd. All (As if converted) 8,125 0.0764
ORDINARY SHARES 8,125 0.2077
Ran Levy All (As if converted) 925,243 8.7015
ORDINARY SHARES 925,243 23.6522
RWI Group II, L.P. All (As if converted) 600,410 5.6466
ORDINARY SHARES 22,374 0.5720
SERIES B PREFERRED SHARES 578,036 12.4981
Sand Hill Financial Company All (As if converted) 300,204 2.8233
ORDINARY SHARES 11,187 0.2860
SERIES B PREFERRED SHARES 289,017 6.2490
Santa ▇▇▇▇▇ University All (As if converted) 60,040 0.5647
ORDINARY SHARES 2,237 0.0572
SERIES B PREFERRED SHARES 57,803 1.2498
▇▇▇▇ ▇▇▇▇▇▇, Adv (FBO ▇▇▇▇▇▇ ▇▇▇▇▇▇) All (As if converted) 450,538 4.2371
ORDINARY SHARES 450,538 11.5172
▇▇▇▇ ▇▇▇▇▇▇, Adv (FBO ▇▇▇▇▇ ▇▇▇▇▇▇▇▇) All (As if converted) 450,538 4.2371
ORDINARY SHARES 450,538 11.5172
▇▇▇▇ ▇▇▇▇▇▇ All (As if converted) 45,341 0.4264
ORDINARY SHARES 45,341 1.1591
St. ▇▇▇▇▇▇▇ Growth Fund All (As if converted) 30,025 0.2824
ORDINARY SHARES 1,119 0.0286
SERIES B PREFERRED SHARES 28,906 0.6250
Saint Mary's College of California All (As if converted) 30,025 0.2824
ORDINARY SHARES 1,119 0.0286
SERIES B PREFERRED SHARES 28,906 0.6250
Gil Sudai All (As if converted) 54,780 0.5152
ORDINARY SHARES 2,041 0.0522
Report Date: 11/16/99 Conduct Ltd. Page 2 of 2
Date Printed: 11/16/99 (List of All Current Shareholders - Alphabetic)
Total % of
Shareholder Class/Series Name Shares Class Series
----------------------------------------------------------------------------------------------------------------------------
Telos Venture Partners, L.P. All (As if converted) 2,402,367 22.5932
ORDINARY SHARES 89,523 2.2885
SERIES B PREFERRED SHARES 2,312,844 50.0074
Teton Capital Company All (As if converted) 810,553 7.6229
ORDINARY SHARES 30,205 0.7721
SERIES B PREFERRED SHARES 780,348 16.8724
▇▇▇ ▇▇▇▇▇▇▇ All (As if converted) 87,096 0.8191
ORDINARY SHARES 3,246 0.0830
SERIES A PREFERRED SHARES 83,850 4.0000
Unicycle Trading Company All (As if converted) 90,392 0.8501
ORDINARY SHARES 3,368 0.0861
SERIES A PREFERRED SHARES 87,024 4.1514
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ All (As if converted) 30,025 0.2824
ORDINARY SHARES 1,119 0.0286
SERIES B PREFERRED SHARES 28,906 0.6250
-----------------------
No. of Shareholders: 24 TOTALS: All (As if converted) 10,633,125 100.0000
No. of Shareholders: 24 ORDINARY SHARES 3,911,875 100.0000
No. of Shareholders: 6 SERIES A PREFERRED SHARES 2,096,250 100.0000
No. of Shareholders: 11 SERIES B PREFERRED SHARES 4,625,000 100.0000
EXHIBIT B
---------
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit B):
---------
Acquisition Transaction. "Acquisition Transaction" means any transaction
involving: (a) the sale, license, disposition or acquisition of all or
substantially all of the business or assets of Conduct (taken as a whole) or
Mercury (taken as a whole), as the case may be; (b) the issuance, disposition or
acquisition of capital shares or other equity securities of Conduct or Mercury,
as the case may be, constituting more than 50% of the outstanding voting
securities of Conduct or Mercury, as the case may be; or (c) any merger,
consolidation, business combination, reorganization or similar transaction
involving Conduct or Mercury, as the case may be.
Aggregate Preferred Stock Liquidation Preference. "Aggregate Preferred
Stock Liquidation Preference" means the aggregate number of shares of Mercury
Stock issuable pursuant to Section 1.5(a)(i) and Section 1.5(a)(ii) of the
Agreement.
Agreement. "Agreement" shall mean the Share Exchange Agreement to which
this Exhibit B is attached (including the Disclosure Schedule), as it may be
---------
amended from time to time.
Breach. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been any
material inaccuracy in or breach of, or any failure to comply with or perform,
such representation, warranty, covenant, obligation or other provision.
Conduct Capital Shares. "Conduct Capital Shares" means the shares of
Conduct Ordinary Shares and the Conduct Preferred Shares.
Conduct Contract. "Conduct Contract" shall mean any Contract: (a) to which
Conduct or Subsidiary is a party; (b) by which Conduct, Subsidiary or any of
either of their assets is or may become bound or under which Conduct or
Subsidiary has, or may become subject to, any obligation; or (c) under which
Conduct or Subsidiary has or may acquire any right or interest.
Conduct Convertible Promissory Note. "Conduct Convertible Promissory Note"
means the outstanding Conduct convertible unsecured promissory notes in the
aggregate principal amounts listed in Part 2.3(a)(2) of the Disclosure Schedule.
Conduct Noteholders. "Conduct Noteholders" means the holders of the Conduct
Convertible Promissory Notes listed in Part 2.3(a)(2) of the Disclosure
Schedule.
Conduct Preferred Shares. "Conduct Preferred Shares" means the shares
of Series A Preferred and the Series B Preferred of Conduct.
Conduct Proprietary Asset. "Conduct Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to Conduct or Subsidiary or otherwise
used by Conduct or Subsidiary.
Consent. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan, or legally binding commitment or undertaking of
any nature which has any continuing obligation or liability after the Closing.
Damages. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, Liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
Disclosure Schedule. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to Mercury on behalf of the Conduct
Shareholders.
Employee Benefit Plan. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
Fully Diluted Number of Conduct Capital Shares. "Fully Diluted Number of
Conduct Capital Shares" means the sum of (i) the aggregate number of shares of
Conduct Ordinary Shares, Series A Preferred and Series B Preferred outstanding
immediately prior to the Closing, plus (ii) the aggregate number of shares of
Conduct Ordinary Shares issuable upon the exercise of any option to purchase
Conduct Ordinary Shares outstanding immediately prior to the Closing, regardless
of whether such option is exercisable as of the Closing.
Governmental Authorization. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
Governmental Body. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
Knowledge. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or other matter; or (b) a prudent individual would be expected to
become aware of such fact or other matter in normal scope of performing his
duties. Conduct shall be deemed to have "Knowledge" of a particular fact or
other matter if any officer or director level employee of Conduct or Subsidiary
has Knowledge of such fact or other matter. Mercury shall be deemed to have
"Knowledge" of a particular fact or other matter if any officer of Mercury has
Knowledge of such fact or other matter.
Indemnitees. "Indemnitees" shall mean the following Persons: (a) Mercury;
(b) Mercury's current and future affiliates (including Conduct); (c) the
respective Representatives of the Persons referred to in clauses "(a)" and "(b)"
above; and (d) the respective successors and assigns of the Persons referred to
in clauses "(a)", "(b)" and "(c)" above; provided, however, that the Conduct
Shareholders shall not be deemed to be "Indemnitees."
Legal Proceeding. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
Legal Requirement. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
Liability. "Liability" means any debt, obligation, duty or liability of any
nature (including any unknown, undisclosed, unmatured, unaccrued, unasserted,
contingent, indirect, conditional, implied, vicarious, derivative, joint,
several or secondary liability), regardless of whether such debt, obligation,
duty or liability would be required to be disclosed on a balance sheet prepared
in accordance with generally accepted accounting principles and regardless of
whether such debt, obligation, duty or liability is immediately due and payable.
Material Adverse Effect. A violation or other matter will be deemed to have
a "Material Adverse Effect" on Conduct and Subsidiary if such violation or other
matter would have a material adverse effect on Conduct's business, condition,
assets, liabilities, operations or financial performance.
Mercury Stock. "Mercury Stock" shall mean the common stock, par value $.002
per share, of Mercury.
Mercury Average Stock Price. "Mercury Average Stock Price" means the
average of the closing sale prices of a share of Mercury Stock as reported on
the Nasdaq National Market for the ten trading days ending on the first trading
day immediately preceding the date of this Agreement.
Person. "Person" shall mean any individual, Entity or Governmental Body.
Proprietary Asset. "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service ▇▇▇▇ (whether
registered or unregistered), service ▇▇▇▇ application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, source code, computer program, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset; or (b) right to use or exploit
any of the foregoing.
Representatives. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
Securities Act. "Securities Act" shall mean the Securities Act of 1933, as
amended.
Tax. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
Tax Return. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
EXHIBIT C TO SHARE
EXCHANGE AGREEMENT
ESCROW AGREEMENT
This Escrow Agreement (the "Escrow Agreement") is entered into as of
November 24, 1999, by and among Mercury Interactive Corporation, a Delaware
corporation ("Mercury"), each of the Conduct Shareholders of Conduct Ltd.
identified on Attachment A (the "Conduct Shareholders"), ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (the
"Conduct Shareholders' Agent") and U.S. Bank Trust National Association (the
"Escrow Agent").
Recitals
A. Mercury, the Conduct Shareholders and Conduct Ltd., an Israeli
corporation ("Conduct"), Conduct Software Technologies, Inc., a California
corporation and wholly-owned subsidiary of Conduct (the "Subsidiary") are
entering into an Share Exchange Agreement of even date herewith (the "Exchange
Agreement"), pursuant to which the Conduct Shareholders are exchanging all of
their outstanding capital shares of Conduct for shares of common stock of
Mercury, after which, Conduct will be a wholly-owned subsidiary of Mercury.
B. The Exchange Agreement contemplates the establishment of an escrow
arrangement to secure the indemnification and other obligations of the Conduct
Shareholders under the Exchange Agreement.
Agreement
The parties, intending to be legally bound, agree as follows:
1. Defined Terms. Capitalized terms used in this Escrow Agreement and not
otherwise defined shall have the meanings given to them in the Exchange
Agreement.
2. Escrow and Indemnification.
(a) Shares and Stock Powers Placed in Escrow. At the Closing: (i)
Mercury shall issue an aggregate of 38,789 shares of Mercury Stock, evidenced by
one stock certificate of Mercury issued in the name of the Escrow Agent,
evidencing the shares of Mercury Stock to be held in escrow in accordance with
this Agreement. The shares of Mercury Stock being held in escrow pursuant to
this Agreement (the "Escrow Shares") shall constitute an escrow fund (the
"Escrow Fund") with respect to the indemnification obligations of the Conduct
Shareholders under the Exchange Agreement. The Escrow Fund shall be held as a
trust fund and shall not be treated as the property of Mercury nor subject to
any lien, attachment, trustee process or any other judicial process of any
creditor of any Conduct Shareholder or of any party hereto. The Escrow Agent
agrees to accept delivery of the Escrow Fund and to hold the Escrow Fund in an
escrow account (the "Escrow Account") subject to the terms and conditions of
this Agreement.
(b) Voting of Escrow Shares. The Escrow Agent shall agree to vote the
Escrow Shares as directed by the Conduct Shareholders.
1.
(c) Dividends, Etc. Any cash, securities or other property
distributable (whether by way of dividend, stock split or otherwise) in respect
of or in exchange for any Escrow Shares shall be held by the Escrow Agent in the
Escrow. At the time any Escrow Shares are required to be released from the
Escrow to any Person pursuant to this Escrow Agreement, any cash, securities or
other property previously distributed in respect of or in exchange for such
Escrow Shares shall be released from the Escrow to such Person.
(d) Transferability. The interests of the Conduct Shareholders in the
Escrow and in the Escrow Shares shall not be assignable or transferable, other
than by operation of law. No transfer of any of such interests by operation of
law shall be recognized or given effect until Mercury and the Escrow Agent shall
have received written notice of such transfer.
(e) Fractional Shares. No fractional shares of Mercury Stock shall be
retained in or released from the Escrow pursuant to this Escrow Agreement. In
connection with any release of Escrow Shares from the Escrow, Mercury and the
Escrow Agent shall be permitted to "round down" or to follow such other rounding
procedures as Mercury or the Escrow Agent reasonably determines to be
appropriate in order to avoid retaining any fractional share in the Escrow and
in order to avoid releasing any fractional share from the Escrow.
3. Conduct Shareholder Agent.
(a) Power of Attorney. Effective as of the Closing, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
is hereby appointed as agent and attorney-in-fact (the "Conduct Shareholder
Agent") for each Conduct Shareholder, for and on behalf of Conduct Shareholders,
to give and receive notices and communications, to authorize delivery to Mercury
of shares of Mercury Stock from the Escrow Fund in satisfaction of claims by
Mercury, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of the Conduct Shareholder
Agent for the accomplishment of the foregoing. Such agency may be changed by
the Conduct Shareholders prior to the Closing, and after the Closing by the
former Conduct Shareholders as of the Closing from time to time upon not less
than thirty (30) days prior written notice to Mercury; provided that the Conduct
Shareholder Agent may not be removed unless holders of a two-thirds interest of
the Escrow Fund agree to such removal. Any vacancy in the position of Conduct
Shareholder 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 Conduct
Shareholder Agent, and the Conduct Shareholder Agent shall not receive
compensation for his or her services. Notices or communications to or from the
Conduct Shareholder Agent shall constitute notice to or from each of the Conduct
Shareholders.
(b) Indemnification of the Conduct Shareholder Agent. The Conduct
Shareholder Agent shall not be liable for any act done or omitted hereunder as
Conduct Shareholder Agent while acting in good faith and in the exercise of
reasonable judgment. The Conduct Shareholders on whose behalf the Escrow Amount
was contributed to the Escrow Fund shall severally indemnify the Conduct
Shareholder Agent and hold the Conduct Shareholder Agent harmless against any
loss, liability or expense incurred without negligence or bad faith on the part
of the Conduct Shareholder Agent and arising out of or in connection with the
acceptance or administration of the Conduct Shareholder Agent's duties
hereunder, including the reasonable fees and expenses of any legal counsel
retained by the Conduct Shareholder Agent.
2.
(c) Actions of the Conduct Shareholder Agent. A decision, act,
consent or instruction of the Conduct Shareholder Agent shall constitute a
decision of all the Conduct Shareholders for whom a portion of the Escrow Amount
otherwise issuable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each of such Conduct Shareholders, and the Escrow
Agent and Mercury may rely upon any such decision, act, consent or instruction
of the Conduct Shareholder Agent as being the decision, act, consent or
instruction of each and every such Conduct Shareholder. The Escrow Agent and
Mercury 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
Conduct Shareholder Agent.
4. Administration of Escrow Account. Except as otherwise provided herein,
the Escrow Agent shall administer the Escrow Account as follows:
(a) If any Indemnitee has or claims to have incurred or suffered
Damages for which it is or may be entitled to indemnification, compensation or
reimbursement under Section 10 of the Exchange Agreement, once the aggregate of
such Damages exceeds $50,000, such Indemnitee may, on or prior to the
Termination Date, deliver a claim notice (a "Claim Notice") signed by any
Authorized Officer (as defined below) of Mercury (an "Officer's Certificate") to
the Conduct Shareholders' Agent and to the Escrow Agent. Each Claim Notice
shall state that such Indemnitee believes that there is or has been a breach of
a representation, warranty or covenant or other provision contained in the
Exchange Agreement or that such Indemnitee is otherwise entitled to
indemnification, compensation or reimbursement under the Exchange Agreement and
contain a brief description of the circumstances supporting such Indemnitee's
belief that there is or has been such a breach or that such Indemnitee is so
entitled to indemnification, compensation or reimbursement and shall, to the
extent possible, contain a non-binding, preliminary estimate of the amount of
Damages such Indemnitee claims to have so incurred or suffered (the "Claimed
Amount"). For purposes hereof, the term Authorized Officer shall refer to each
of Mercury's Chief Executive Officer, President and Chief Financial Officer.
(b) Within 30 business days after delivery of a Claim Notice, the
Conduct Shareholders' Agent may deliver to the Indemnitee who delivered the
Claim Notice and to the Escrow Agent a written response (the "Response Notice")
in which the Conduct Shareholders' Agent: (i) agrees that Escrow Shares having
a "Stipulated Value" (as defined below) equal to the full Claimed Amount may be
released from the Escrow Account to the Indemnitee; (ii) agrees that Escrow
Shares having a Stipulated Value equal to part, but not all, of the Claimed
Amount (the "Agreed Amount") may be released from the Escrow Account to the
Indemnitee; or (iii) indicates that no part of the Claimed Amount may be
released from the Escrow Account to the Indemnitee. Any part of the Claimed
Amount that is not to be released to the Indemnitee shall be the "Contested
Amount." If a Response Notice is not delivered by the Conduct Shareholders'
Agent to the Indemnitee and the Escrow Agent within such 30 business-day period,
the Conduct Shareholders' Agent shall be deemed to have agreed that Escrow
Shares having a Stipulated Value equal to the full Claimed Amount may be
released to the Indemnitee from the Escrow Account, but only to the extent such
Claimed Amount exceeds $50,000.
(c) If the Conduct Shareholders' Agent in the Response Notice agrees
that Escrow Shares having a Stipulated Value equal to the full Claimed Amount
may be released from the Escrow Account to the Indemnitee, or if a Response
Notice is not delivered in accordance with Section 3(b), the Escrow Agent shall
promptly following the receipt of the Response Notice (or, if a Response Notice
is not duly delivered, promptly following the
3.
expiration of the 30 business-day period referred to in Section 3(b)), deliver
to such Indemnitee such Escrow Shares, but only to the extent such Claimed
Amount exceeds $50,000.
(d) If the Conduct Shareholders' Agent in the Response Notice agrees
that Escrow Shares having a Stipulated Value equal to part, but not all, of the
Claimed Amount may be released from the Escrow Account to the Indemnitee, the
Escrow Agent shall promptly following the receipt of the Response Notice deliver
to such Indemnitee Escrow Shares having a Stipulated Value equal to the Agreed
Amount, but only to the extent such Agreed Amount exceeds $50,000.
(e) If any Response Notice indicates that there is a Contested Amount,
the Conduct Shareholders' Agent and the Indemnitee shall attempt in good faith
to resolve the dispute related to the Contested Amount. If the Indemnitee and
the Conduct Shareholders' Agent shall resolve such dispute, a settlement
agreement shall be signed by the Indemnitee and the Conduct Shareholders' Agent
and sent to the Escrow Agent, who shall upon receipt thereof, release Escrow
Shares from the Escrow Account in accordance with such agreement, but only to
the extent the amount of such settlement exceeds $50,000.
(f) If the Conduct Shareholders' Agent and the Indemnitee are unable
to resolve the dispute relating to any Contested Amount within 30 business days
after the delivery of the Claim Notice, then the claim described in the Claim
Notice shall be settled by binding arbitration in the County of Santa ▇▇▇▇▇ in
the State of California in accordance with the Commercial Arbitration Rules then
in effect of the American Arbitration Association (the "AAA Rules").
Arbitration will be conducted by three arbitrators; one selected by Mercury, one
selected by the Conduct Shareholders' Agent and the third selected by the first
two arbitrators. The parties agree to use all reasonable efforts to cause the
arbitration hearing to be conducted within 60 calendar days after the
appointment of the last of the three arbitrators and to use all reasonable
efforts to cause the arbitrators' decision to be furnished within 95 calendar
days after the appointment of the last of the three arbitrators. The
arbitrators' decision shall relate solely to whether the Indemnitee is entitled
to recover the Contested Amount (or a portion thereof), and the portion of such
Contested Amount the Indemnitee is entitled to recover and to which party is the
prevailing party in the arbitration. The final decision of the arbitrators
shall be furnished to the Conduct Shareholders' Agent, the Indemnitee and the
Escrow Agent in writing and shall constitute a conclusive determination of the
issue in question, binding upon the Conduct Shareholders' Agent, the Conduct
Shareholders, the Indemnitee and the Escrow Agent and shall not be contested by
any of them. The non-prevailing party (as determined by the arbitrator) in any
arbitration shall pay the reasonable expenses (including attorneys' fees) of the
prevailing party and the fees and expenses associated with the arbitration
(including the arbitrators' fees and expenses) ), provided, however, that if the
non-prevailing party is the Conduct Shareholders such expenses may only be
recovered from the Escrow Fund.
(g) The Escrow Agent shall release Escrow Shares from the Escrow
Account in connection with any Contested Amount within five (5) business days
after the delivery to it of: (i) a copy of a settlement agreement executed by
the Indemnitee and the Conduct Shareholders' Agent setting forth instructions to
the Escrow Agent as to the number of Escrow Shares, if any, to be released from
the Escrow Account, with respect to such Contested Amount; or (ii) a copy of the
award of the arbitrators referred to and as provided in Section 3(f) setting
forth instructions to the Escrow Agent as to the number of Escrow Shares, if
any, to be released from the Escrow Account, with respect to such Contested
Amount.
4.
5. Release of Escrow Fund. If any Escrow Shares are to be released to any
Indemnitee pursuant to this Escrow Agreement, the Escrow Agent shall be entitled
to use a Stock Power held in the Escrow, and to take such other actions as the
Escrow Agent determines to be necessary or advisable, to release and transfer
Escrow Shares to such Indemnitee. Within five business days after the
Termination Date, the Escrow Agent shall distribute to the Conduct Shareholders
all of the Escrow Shares then held in escrow; provided, however, that
notwithstanding the foregoing, if, prior to the Termination Date, any Indemnitee
has given a Claim Notice containing a claim which has not been resolved prior to
the Termination Date in accordance with Section 3, the Escrow Agent shall retain
in the Escrow Account after the Termination Date Escrow Shares having a
Stipulated Value equal to 100% of the Claimed Amount or Contested Amount, as the
case may be, with respect to all claims which have not then been resolved. To
the extent that upon such release any of the Escrow Shares being distributed
remain subject to the terms of Share Restriction Agreements to which any of the
Conduct Shareholders are a party ("SRAs"), then the Escrow Agent shall be
directed by Mercury to distribute such Escrow Shares to the Corporate Secretary
of Mercury (or any other or successor escrow agent under such SRAs as designated
by Mercury) to be held under the terms of such SRAs.
6. Valuation of Escrow Shares, Etc.
(a) Stipulated Value. For purposes of this Escrow Agreement, the
"Stipulated Value" of each Escrow Share means the closing sale price of a share
of Mercury Stock as reported on the Nasdaq National Market on the Closing Date
of the transactions contemplated by the Exchange Agreement.
(b) Stock Splits. All numbers contained in, and all calculations
required to be made pursuant to, this Escrow Agreement shall be adjusted as
appropriate to reflect any stock split, reverse stock split, stock dividend or
similar transaction effected by Mercury after the date hereof.
7. Fees and Expenses. The fees of the Escrow Agent, including (i) the
normal costs of administering the Escrow as set forth on the Fee Schedule
attached hereto as Attachment B and (ii) all fees and costs associated with the
------------
Escrow Agent's administration of Indemnification Claims, shall be paid by
Mercury. In the event that the Escrow Agent renders any service hereunder not
provided for herein or there is any assignment of any interest in the subject
matter of the Escrow or modification hereof, the Escrow Agent shall be
reasonably compensated for such extraordinary services by the party that is
responsible for or requests such services.
8. Limitation of Escrow Agent's Liability.
(a) The Escrow Agent undertakes to perform such duties as are
specifically set forth in this Escrow Agreement only and shall have no duty
under any other agreement or document notwithstanding their being referred to
herein or attached hereto as an exhibit. The Escrow Agent shall not be liable
except for the performance of such duties as are specifically set forth in this
Escrow Agreement, and no implied covenants or obligations shall be read into
this Escrow Agreement against the Escrow Agent. The Escrow Agent shall incur no
liability with respect to any action taken by it or for any inaction on its part
in reliance upon any notice, direction, instruction, consent, statement or other
document believed by it to be genuine and duly
5.
authorized, nor for any other action or inaction except for its own willful
misconduct or negligence. In all questions arising under this Escrow Agreement,
the Escrow Agent may rely on the advice of counsel, and for anything done,
omitted or suffered in good faith by the Escrow Agent based upon such advice the
Escrow Agent shall not be liable to anyone. The Escrow Agent shall not be
required to take any action hereunder involving any expense unless the payment
of such expense is made or provided for in a manner reasonably satisfactory to
it.
(b) Mercury hereby agrees to indemnify the Escrow Agent for, and hold
it harmless against, any loss, liability or expense incurred without negligence
or willful misconduct on the part of Escrow Agent, arising out of or in
connection with its carrying out of its duties hereunder. This right of
indemnification shall survive the termination of this Escrow Agreement, and the
resignation of the Escrow Agent. The costs and expenses of enforcing this right
of indemnification shall also be paid by Mercury.
(c) 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 that are not resolved pursuant to Section 4 hereof, Escrow
Agent will not be required to determine the controversy or to take any action
regarding it. 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 Escrow Agent's discretion, Escrow Agent may require, despite
what may be set forth elsewhere in this Agreement. In such event, Escrow Agent
will not be liable for interest or damage. Furthermore, Escrow Agent may at its
option, file an action of interpleader requiring the Parties to answer and
litigate any claims and rights among themselves. Escrow Agent is authorized to
deposit with the clerk of the court all documents and funds held in escrow,
except all costs, expenses, charges and reasonable attorney fees incurred by
Escrow Agent due to the interpleader action and which the Parties jointly and
severally agree to pay. Upon initiating such action, Escrow Agent shall be
fully released and discharged of and from all obligations and liability imposed
by the terms of this Agreement.
9. Termination. This Escrow Agreement shall terminate upon the earlier of:
(i) the first anniversary of the Closing Date; (ii) the filing with the SEC of
Mercury's Form 10-K containing audited financial statements and accompanying
audit report of combined operations of Mercury and Conduct ending after the
Closing; or (iii) the issuance by Mercury's regularly employed independent
public accountants of audited financial statements and accompanying audit report
covering thirty days of combined operations of Mercury and Conduct ending after
the Closing Date (the "Termination Date").
10. Successor Escrow Agent; Automatic Succession.
(a) In the event the Escrow Agent becomes unavailable or unwilling to
continue as escrow agent under this Escrow Agreement, the Escrow Agent may
resign and be discharged from its duties and obligations hereunder by giving its
written resignation to the parties to this Escrow Agreement. Such resignation
shall take effect not less than 30 calendar days after it is given to all
parties hereto. Mercury may appoint a successor Escrow Agent only with the
consent of the Conduct Shareholders' Agent (which consent shall not be
unreasonably withheld or delayed). The Escrow Agent shall act in accordance
with written instructions from Mercury as to the transfer of the Escrow Fund to
a successor escrow agent.
6.
(b) Any company into which the Escrow Agent may be merged or with
which it may be consolidated, or any company to whom Escrow Agent may transfer a
substantial amount of its global escrow business, shall be the successor of
Escrow Agent without the execution or filing of any paper of any further act on
the part of any of the parties hereof, anything herein to the contrary
notwithstanding.
11. Miscellaneous.
(a) Notices. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to the Conduct Shareholders' Agent:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
--------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇, Esq.
▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
And to:
------
▇▇▇▇ ▇▇▇▇▇▇ & Co., Advocates
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇, Israel
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Esq.
Telephone: ▇▇▇-▇-▇▇▇-▇▇▇▇
Facsimile: 972-3-613-7969
if to Mercury:
Mercury Interactive Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
7.
with a copy to:
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General Counsel Associates LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Escrow Agent:
U.S. Bank Trust National Association
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ Gatsby
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
(b) Counterparts. This Escrow Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
(c) Governing Law; Venue. This Escrow Agreement shall be construed in
accordance with, and governed in all respects by, the laws of the State of
California without giving effect to principles of conflicts of laws. Any legal
action or other legal proceeding relating to this Escrow Agreement or the
enforcement of any provision of this Escrow Agreement may be brought or
otherwise commenced in any state or federal court located in the County of Santa
Clara, California. Each party to this Escrow Agreement: (i) expressly and
irrevocably consents and submits to the jurisdiction of each state and federal
court located in the County of Santa Clara, California (and each appellate court
located in the County of Santa Clara, California) in connection with any such
legal proceeding; (ii) agrees that each state and federal court located in the
County of Santa Clara, California shall be deemed to be a convenient forum; and
(iii) agrees not to assert (by way of motion, as a defense or otherwise), in any
such legal proceeding commenced in any state or federal court located in the
County of Santa Clara, California, any claim that such party is not subject
personally to the jurisdiction of such court, that such legal proceeding has
been brought in an inconvenient forum, that the venue of such proceeding is
improper or that this Escrow Agreement or the subject matter of this Escrow
Agreement may not be enforced in or by such court. Nothing contained in this
Section 10(c) shall be deemed to limit or otherwise affect the right of any
party hereto to commence any legal proceeding or otherwise proceed against any
other party hereto in any other forum or jurisdiction.
(d) Successors and Assigns. This Escrow Agreement shall be binding
upon: the Conduct Shareholders and their respective personal representatives,
executors, administrators, estates, heirs, successors and assigns (if any); and
Mercury and its successors and assigns (if any). This Escrow Agreement shall
inure to the benefit of: the Conduct Shareholders; Mercury; the other
Indemnitees; and the respective successors and assigns (if any) of the
foregoing. Mercury may freely assign any or all of its rights under this Escrow
Agreement, in
8.
whole or in part, to any other Person without obtaining the
consent or approval of any other party hereto or of any other Person. None of
the Conduct Shareholders or the Conduct Shareholders' Agent shall be permitted
to assign any of his rights or delegate any of his obligations under this Escrow
Agreement without Mercury's prior written consent.
(e) Waiver. No failure on the part of any Person to exercise any
power, right, privilege or remedy under this Escrow Agreement, and no delay on
the part of any Person in exercising any power, right, privilege or remedy under
this Escrow Agreement, shall operate as a waiver of such power, right, privilege
or remedy; and no single or partial exercise of any such power, right, privilege
or remedy shall preclude any other or further exercise thereof or of any other
power, right, privilege or remedy. No Person shall be deemed to have waived any
claim arising out of this Escrow Agreement, or any power, right, privilege or
remedy under this Escrow Agreement, unless the waiver of such claim, power,
right, privilege or remedy is expressly set forth in a written instrument duly
executed and delivered on behalf of such Person; and any such waiver shall not
be applicable or have any effect except in the specific instance in which it is
given.
(f) Amendments. This Escrow Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of Mercury, the Conduct Shareholders' Agent and
the Escrow Agent.
(g) Severability. In the event that any provision of this Escrow
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Escrow Agreement, and the
application of such provision to Persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
(h) Entire Agreement. This Escrow Agreement sets forth the entire
understanding of the parties relating to the subject matter hereof and thereof
and supersede all prior agreements and understandings among or between any of
the parties relating to the subject matter hereof and thereof.
(i) Construction. For purposes of this Escrow Agreement, whenever the
context requires: the masculine gender shall include the feminine and neuter
genders; the feminine gender shall include the masculine and neuter genders; and
the neuter gender shall include the masculine and feminine genders. The parties
hereto agree that any rule of construction to the effect that ambiguities are to
be resolved against the drafting party shall not be applied in the construction
or interpretation of this Escrow Agreement. As used in this Escrow Agreement,
the words "include" and "including," and variations thereof, shall not be deemed
to be terms of limitation, but rather shall be deemed to be followed by the
words "without limitation." Except as otherwise indicated, all references in
this Escrow Agreement to "Sections" and "Attachments" are intended to refer to
Sections of this Escrow Agreement and Attachments to this Escrow Agreement.
[Remainder of Page Intentionally Left Blank]
9.
IN WITNESS WHEREOF, the parties have duly executed this Escrow Agreement as
of the day and year first above written.
MERCURY INTERACTIVE CORPORATION
By:
________________________________
Title:
_____________________________
Conduct Shareholders' Agent
Name: ______________________________
ESCROW AGENT
U.S. BANK TRUST NATIONAL
ASSOCIATION
_____________________________________
By:
_________________________________
Title:
______________________________
10.
SIGNATURE PAGE TO THE
ESCROW AGREEMENT AMONG MERCURY INTERACTIVE CORPORATION,
THE CONDUCT SHAREHOLDER AGENT, THE ESCROW AGENT
AND THE CONDUCT SHAREHOLDERS OF CONDUCT, LTD.
CONDUCT SHAREHOLDER: ____________________________________________
Signature
By:
Title:_______________________________________
Print or Type Name:
Address:____________________________________
____________________________________
ATTACHMENT A
LIST OF CONDUCT SHAREHOLDERS
Name of Conduct Shareholder No. of Escrow Shares
--------------------------- --------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 58
▇▇▇▇▇▇ ▇▇▇▇▇▇ 2,584
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 2,584
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 364
▇▇▇▇▇▇ 1997 Charitable Trust UTA dated 1/28/97 582
The ▇▇▇▇▇▇ Foundation 466
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, SUCCTTEE, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Profit
Sharing Trust dtd 1/1/84 1,501
Forval Creative, Inc. 5,870
Investec Clali Trust Company Ltd. 24
Ran Levy 2,699
RWI Group II, L.P. 2,782
Sand Hill Financial Company 1,165
Santa ▇▇▇▇▇ University 233
▇▇▇▇ ▇▇▇▇▇▇, Adv. (FBO ▇▇▇▇▇▇ ▇▇▇▇▇▇) 1,314
▇▇▇▇ ▇▇▇▇▇▇, Adv. (FBO ▇▇▇▇▇ Barzalai) 1,314
▇▇▇▇ ▇▇▇▇▇▇ 132
St. ▇▇▇▇▇▇▇ Growth Fund ▇▇▇
▇▇▇▇▇ ▇▇▇▇'▇ ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇ 116
Silicon Valley Bank 196
Gil Sudai 177
Telos Venture Partners, L.P. 10,678
Teton Capital Company 3,144
▇▇▇ ▇▇▇▇▇▇▇ 282
Unicycle Trading Company , a Nevada Limited Partnership 292
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 116
--------------------------------------------------------------------------------------------
TOTALS: 38,789
ATTACHMENT B
U.S. BANK
CORPORATE TRUST SERVICES
Schedule of Fees for Mercury Interactive Corporation/Conduct Ltd. Escrow
Services
ACCEPTANCE FEE
010 The acceptance fee includes the review of all documents, initial $2,000.00
set-up of the account, and other reasonably required services up to
and including the closing. This is a one-time fee, payable at inception.
ADMINISTRATION/AGENT FEES
Annual account administration fee covers the normal duties of the
escrow agent associated with the management of the account.
Administration fees are payable in advance and will not be prorated.
470 Depository Escrow Agent $1,000.00
TRANSACTION FEES
880 Disbursement/Draw
Charge per item disbursed. Includes the $20.00
wire or check fee.
100 Trades-Open Market/Directed $100.00
Charge per trade to buy or sell permitted investments.
This excludes U.S. Bank Investment transactions.
101 Receipts $20.00
Charge per item received.
INDIRECT OUT OF POCKET
Charge for miscellaneous expenses such as fax, messenger service, overnight mail, stationery, and
postage (excluding large mailings).
166 This charge is applied against your total Administration/Agent Fees, and will be prorated. 3%
EXTRAORDINARY SERVICES
Charge for duties or responsibilities of an unusual nature not provided for
in the indenture or otherwise set forth in this schedule. A reasonable
charge will be made based on the nature of the service and the
responsibility involved. These charges will be billed as a flat fee or our
hourly rate then in effect, at our option.
Final account acceptance is subject to review of documents. Fees are based on
our understanding of the transaction and are subject to revision if the
structure is changed. In the event this transaction does not close, any related
out-of-pocket expenses will be billed to you at cost. Fees for any services not
specifically covered will be based on appraisal of services rendered.
With general reference to all of our charges, it should be understood that they
are subject to adjustment from time to time, upon written notification.
The fees in this schedule are terms under which you agree to do business.
Closing the transaction constitutes agreement to this fee schedule, as does
payment of the invoice received after subsequent fee adjustment notification.
Absent your instructions to sweep or otherwise invest balances, no interest,
earnings, or other compensation for uninvested balances will be paid to you.
Dated: November 4, 1999 Confidential
EXHIBIT D TO
SHARE EXCHANGE AGREEMENT
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
---------------------------------------
This Agreement is made this _______ day of November, 1999 (the
"Agreement"), by and between Mercury Interactive Corporation, a Delaware
corporation ("Mercury"), with its principal offices at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Conduct Software Technologies, Inc. and _____________ (the
"Employee").
BACKGROUND
----------
Employee is and will be employed by Conduct Software Technologies, Inc., a
California corporation and wholly-owned subsidiary ("Subsidiary") of Conduct
Ltd. ("Conduct"), pursuant to that certain Conduct Software Technologies, Inc.
Employment Agreement, entered into as of January 22, 1998 (the "Employment
Agreement").
A. Pursuant to a Share Exchange Agreement, dated as of November _____,
1999, among Mercury, Subsidiary, Conduct, and the shareholders of Conduct (the
"Exchange Agreement"), it is contemplated that the shareholders of Conduct will
exchange all of their capital shares of Conduct for shares of Common Stock of
Mercury.
B. As provided for in the Exchange Agreement, Mercury shall assume the
Employment Agreement and the other agreements between the Employee and Conduct
and/or Subsidiary listed in the Disclosure Schedule which is attached to the
Exchange Agreement as Exhibit E thereto (the "Other Employee Agreements") upon
the closing date of the Exchange Agreement (the "Closing Date").
C. Employee, Subsidiary and Mercury, as a sole owner of all of the
outstanding capital shares of Conduct, desire that, upon the Closing Date, the
Employment Agreement be amended as hereinafter provided.
NOW, THEREFORE, in consideration of the covenants and promises contained in
this Agreement, Mercury, Subsidiary and Employee hereto agree to amend the
Employment Agreement, as of the Closing Date, as follows:
AMENDED EMPLOYMENT TERMS
1. Title. Section 1(a) of the Employment Agreement is hereby amended such
-----
that Employee's title shall be _______ and Employee shall report to
______________. Employee, Subsidiary and Mercury agree that nothing
contemplated by this Agreement or the Exchange Agreement, including but not
limited to the assumption by Employee of a new title or position, shall
constitute a termination of Employee's employment, with or
without cause or otherwise, under the Employment Agreement or any Other Employee
Agreements.
2. Salary. Section 2(a) of the Employment Agreement is hereby amended such
------
that Employee's base salary shall be _________ which shall be paid to Employee
during the term of the Employment Agreement in accordance with Mercury's regular
payroll practices. All payments shall be subject to all applicable taxes
required to be withheld by Subsidiary pursuant to federal, state or local law.
3. Severance. The severance payment provided pursuant to Section 13 of the
---------
Employment Agreement is hereby amended to equal twelve months of Employee's then
current base salary (rather than five months) and, if such severance payment is
required to be paid, shall be paid in twelve equal monthly installments (rather
than five equal monthly installments). Employee shall be entitled to receive
severance paymentsonly if Employee's employment is terminated prior to the
expiration of the Term (as hereinafter defined) without Cause.
4. Cause. The definition of "Cause" set forth at Section 13(a) of the
-----
Employment Agreement and as set forth in any Other Employee Agreements is hereby
amended in each such agreement to read as follows:
"Cause" means (x) any act of personal dishonesty taken by Employee in
-----
connection with Employee's responsibilities as an employee and intended to
result in substantial personal enrichment; (y) Employee being convicted of
a felony; or (z) a willful act by Employee which constitute gross
misconduct and which is injurious to Mercury, Conduct or Subsidiary.
5. Non-Competition. The terms and conditions of Section 14(a) of the
---------------
Employment Agreement (Non-Competition) shall apply to Employee from the Closing
Date until the second anniversary of such date (the "Non-Compete Period"). In
addition to not competing with the business of Conduct during the Non-Compete
Period, Employee shall also not compete with Mercury's testing or application
performance management business during the Non-Compete Period.
6. Term. The term of the Employment Agreement shall be for the Non-Compete
----
Period (the "Term") subject to Subsidiary's right to terminate Employee's
employment prior to the expiration of the Term for any reason or no reason
whatsoever, provided, however, that if Employee's employment is terminated prior
--------
to the expiration of the Term, Employee shall have the right to receive
severance payments to the extent provided for in the Employment Agreement, as
amended herein.
7. Expenses and Relocation Costs. Employee agrees and acknowledges that all
-----------------------------
expenses owed to Employee pursuant to Employee's rights as set forth in Section
4(b) of the Employment Agreement and all moving and relocation expenses owed to
Employee as set forth in Section 5 of the Employment Agreement have been
reimbursed by Subsidiary to Employee prior to the Closing Date. Employee agrees
that he is not
2
entitled to reimbursement for any costs and expenses which he incurs on or
following the Closing Date which are otherwise reimbursable under sections 4(b)
and 5 of the Employment Agreement. Subsidiary has no claim for reimbursement for
any relocation costs and expenses under Section 5 of the Employment Agreement.
8. Prior Employment Agreement. Employee agrees and acknowledges that the
--------------------------
Employment Agreement between Employee and Conduct dated on or about December 28,
1995 has been terminated and is no longer of any force or effect and Employee
has been paid in full any and all amounts due and owing under such agreement.
9. Mercury Employee Proprietary Information Agreement. As a condition of the
--------------------------------------------------
continuation employment with Subsidiary, Employee agrees to execute and deliver
Mercury's standard form of Employee Proprietary Information Agreement ("Mercury
Proprietary Information Agreement"). To the extent that the rights or
obligations of Employee or Mercury or Subsidiary under the Mercury Proprietary
Information Agreement differ with Employee's or Subsidiary's rights or
obligations under the Employment Agreement or any other Agreement, the terms of
the Mercury Proprietary Information Agreement shall govern.
10. No Other Changes. Except for the specific amendments to the terms and
----------------
conditions of the Employment Agreement and the Other Employee Agreements
expressly noted in this Agreement, all other terms and conditions of such
agreements shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the
date and year first above written.
CONDUCT SOFTWARE TECHNOLOGIES, INC.
By: ______________________________
Title: ____________________________
EMPLOYEE
_________________________________
Address: ______________________
_______________________
3
EXHIBIT F-1 TO SHARE
EXCHANGE AGREEMENT
LEGAL OPINION OF TIDA SHAMIR&CO., ADVOCATES
To:
Mercury Interactive Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Reference is made to the Share Exchange Agreement, dated as of November 24,
1999, complete with all listed exhibits thereto, by and among: Mercury
Interactive Corporation, a Delaware corporation ("Mercury"), Conduct Ltd., an
Israeli corporation ("Conduct"); Conduct Software Technologies, Inc., a
California corporation and wholly-owned subsidiary of Conduct (the
"Subsidiary"); and the shareholders of Conduct Ltd. (the "Conduct Shareholders")
(the "Exchange Agreement"), pursuant to which the Conduct Shareholders are
exchanging all of their outstanding capital shares of Conduct for shares of
common stock of Mercury, after which Conduct will be a wholly-owned subsidiary
of Mercury.
This opinion is rendered to you pursuant to Section 7.3(c) of the Exchange
Agreement, and capitalized terms used but not defined herein shall have the
meanings given to them in the Exchange Agreement.
We have acted as counsel to Conduct in connection with the Exchange Agreement.
The opinion hereinafter expressed is subject to the following qualifications:
1. We are members of the Bar of the State of Israel and are not expressing an
opinion as to any matter relating to the laws other than the laws of the
State of Israel as the same are in force on the date hereof and have not,
for the purpose of giving this opinion, made any investigation of the laws
of any other jurisdiction including, without limitation, the laws of the
State of California or the laws of the United States of America Any issue
which may arise with respect to this opinion will be resolved in Israel
according to the laws of the State of Israel.
2. We have made such legal and factual examinations and inquiries as we have
deemed advisable or necessary for the purposes of rendering this opinion,
and we are also relying upon (without any independent investigation or
review thereof) on the legal opinions of other counsels of Conduct or
Subsidiary. In addition, we have examined and are relying upon (without any
independent investigation or review thereof) the truth and accuracy, at all
relevant times, of statements, covenants, representations and warranties
contained in such
documents and other instruments related to the formation, organization and
operations of Conduct provided to us by certain of Conduct's officers as we
deemed necessary or appropriate in order to enable us to express this
opinion. We have also assumed that the representations and warranties as to
factual matters made by all parties to the Exchange Agreement and pursunat
thereto are true, correct and complete.
3. In rendering an opinion on matters set forth, we have assumed (without any
independent investigation or review thereof) the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of
all documents submitted to us as originals and the conformity to original
documents of all documents submitted to us as copies and the authenticity of
the originals of such documents. In making our examination of documents
executed by corporate or other entities other than Conduct, we have assumed
(without any independent investigation or review thereof) that such entities
had the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed (without any independent investigation or
review thereof), the due authorization by all requisite action, corporate or
other, and due execution and delivery by such entities on such documents and
the validity and binding effect thereof. As to any facts material to this
opinion we did not independently establish or verify, we have relied upon
statements and representations of Conduct and others.
4. As used in this opinion, the expression "to our knowledge" or similar
language, with reference to matters of fact, means that we have examined the
documents made available to us by Conduct and that we made inquiries of
officers of Conduct, and, based upon such examination and inquiries, we find
no reason to believe that the opinions expressed herein, with respect to
such matters of fact, are incorrect; but we have made no independent factual
investigation or review with respect to the existence or absence of any such
facts, other than such inquiries, for the purpose of rendering this opinion,
and no inference as to our knowledge of the existence or absence of any fact
should be drawn from our representations of Conduct of the rendering of the
opinion set forth below.
5. This opinion is based on the facts existing on the date hereof and of which
we are aware.
6. This opinion is subject to and is qualified by limitations and constraints
of any applicable bankruptcy, insolvency, reorganiztion, moratorium,
arrangement, fraudulent conveyance or other similar laws now or hereunder in
effect of general application relating to or affecting the rights of
creditors generally.
7. This opinion is subject to and is qualified by limitations and constraints
and the effect of judicial decisions which may permit the introduction of
extrinsic evidence to modify the terms or the interpretation of the Exchange
Agreement or the exhibits thereto. No assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the opinion
expressed herein.
8. This opinion is subject to and is qualified by limitations and constraints
and the enforceability of provisions of the Exchange Agreement or the
exhibits
thereto expressly or by implication waiving broadly or vaguely, rights
granted by law where such waivers are against public policy.
Based upon and subject to the foregoing, and subject to the qualifications
hereinafter appearing and to any factual matters, documents or events not
disclosed to us and except as set forth in the Exchange Agreement or the
exhibits thereto, and subject to the Closing of the Exchange Agreement, we
advise you that in our opinion:
1. Conduct is a corporation validly existing and in good standing under
the laws of Israel.
2. Conduct has the corporate power and authority to enter into and perform
the Exchange Agreement, and Conduct has taken all necessary corporate action to
authorize the execution, delivery and performance of the Exchange Agreement.
3. The Exchange Agreement has been duly executed and delivered by Conduct
and constitutes the legal, valid and binding obligation of Conduct enforceable
against Conduct in accordance with its terms.
4. As of the date hereof, the authorized share capital of Conduct consists
of 14,371,965 Ordinary Shares, and 7,349,285 Preferred Shares, of which
2,096,250 shares are designated Series A Preferred and 5,253,035 shares are
designated Series B Preferred. As of the date hereof, 3,911,875 Ordinary Shares
are issued and outstanding, 2,096,250 Series A Preferred Shares are issued and
outstanding and 4,625,000 Series B Preferred Shares are issued and outstanding.
Conduct has no other capital shares authorized, issued or outstanding. Conduct
has reserved 1,875,000 Ordinary Shares for issuance to employees and consultants
pursuant to its 1998 Share Option Plan, of which options to acquire 739,063
Ordinary Shares have been granted, at the date hereof, of which 8,125 have been
exercised at the date hereof.. Conduct has reserved 628,035 Series B Preferred
Shares for issuance pursuant to outstanding warrants, at the date hereof, and
pursuant to convertible promissory notes. Conduct has not reserved any
additional Series B Preferred Shares for the Noteholders to be able to convert
the interest of the convertible promissory notes, nor for exercise of the
warrants, if the loan secured by such warrants is not repaid before December 16,
1999,
5. All outstanding Conduct capital shares are duly authorized, validly
issued, and, to our knowledge, fully paid and non-assessable, and, except as set
forth in the Disclosure Schedule, not subject to preemptive rights created by
statute, the Articles of Association of Conduct or any agreement listed on the
Disclosure Schedule to which Conduct is a party or by which Conduct is bound and
which is governed and construed under the laws of the State of Israel and all
such shares have been issued in compliance with applicable Israeli securities
laws. To our knowledge, except as set forth in the Disclosure Schedule, there
are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which Conduct is a party or by which it is bound
obligating Conduct to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any capital shares of Conduct
or
obligating Conduct to grant, extend, accelerate the vesting of, change the price
of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement.
6. Except as set forth in the Disclosure Schedule and except for Breaches
which could not reasonably be expected to have a Material Adverse Effect on
Conduct, the execution, delivery and performance of the Exchange Agreement and
the consummation of the transactions therein contemplated do not result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, (a) any provision of the Articles of Association of Conduct, (b)
to our knowledge any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Conduct, or its properties or assets and known to us,
or (c) except with respect to any consents required under any Material Contract
listed on the Disclosure Schedule to which Conduct is a party (or by which it is
bound) and which is governed and construed under the laws of the State of
Israel.
7. To our knowledge, there is no proceeding or litigation pending or
threatened (a) against Conduct, or (b) which might adversely affect the ability
of Conduct to execute, deliver and perform the Exchange Agreement or to
consummate the transactions contemplated thereby or which challenges or seeks to
prevent, enjoin, alter or delay any such transaction.
8. To our knowledge, neither the execution nor delivery of the Exchange
Agreement, the consummation of any of the transactions contemplated thereby nor
compliance with or fulfillment of the terms, conditions and provisions thereof
as of the date hereof will require the approval, consent, authorization or act
of, or the making by Conduct of any declaration, filing or registration with,
any Person, except (i) as set forth in Section 2.22 of the Exchange Agreement,
(ii) such approvals, consents and authorizations as have previously been
obtained, and (iii) such other approvals, consents, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, have a Material Adverse Effect
on Conduct, materially impair the ability of Conduct to perform its obligations
under the Exchange Agreement or prevent the consummation of any of the
transactions contemplated by the Exchange Agreement.
The opinion set forth (i) is subject to the assumption that Mercury has duly and
validly authorized, executed and delivered the Exchange Agreement and (ii)
assumes that there are no agreements, understandings or negotiations between
Conduct or Subsidiary or any of the Conduct Shareholders and Mercury that would
modify the respective rights of the parties under the Exchange Agreement. We
express no opinion if the transactions contemplated by the Exchange Agreement
are not consummated in accordance with the terms of the Exchange Agreement and
without waiver or breach of any material provision thereof or if all
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is
incorrect, inaccurate, incomplete, breached or ineffective, our opinion might be
adversely affected and might not be relied upon. We express no opinion as to
remedies available to Mercury in respect of material violations or breaches of
the Exchange Agreement by Conduct which are the direct and proximate result of
material violations or breaches of the Exchange Agreement by Mercury.
This opinion is rendered solely to Mercury in connection with the Closing under
the Exchange Agreement and the transactions contemplated thereby. This opinion
is not to be used, relied on, circulated, quoted or otherwise referred to for
any other purpose or by any person who is not a member of the management of
Mercury or any other entity, without our expressed prior written consent. In
particular, this opinion is not to be used, relied on, circulated, quoted or
otherwise referred to in connection with the proposal to treat the transactions
contemplated by the Exchange Agreement as a pooling of interests for accounting
purposes.
This opinion speaks only as of its date, and we disclaim any express or implied
undertaking or obligation to advise of any subsequent change of law or fact
(even though the change may affect the legal analysis, a legal conclusion or an
informational confirmation in this opinion letter).
Very truly yours,
▇▇▇▇ ▇▇▇▇▇▇ & Co., Advocates
EXHIBIT F-2 TO SHARE
AGREEMENT
LEGAL OPINION OF ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, PC
All capitalized terms used but not defined herein shall have the meanings given
to them in the Share Exchange Agreement
[Subject to customary qualifications and exceptions]
1. Subsidiary is a corporation validly existing and in good standing under
the laws of the State of California.
2. Subsidiary has the corporate power and authority to enter into and
perform the Agreement. Subsidiary has taken all necessary corporate action to
authorize the execution, delivery and performance of the Agreement.
3. The Agreement has been duly executed and delivered by Subsidiary and
constitutes the legal, valid and binding obligation of Subsidiary enforceable
against Subsidiary in accordance with its terms.
4. The authorized capital stock of Subsidiary consists of 1,000 shares of
authorized Common Stock of which 100 shares are issued and outstanding.
Subsidiary has no other capital shares authorized, issued or outstanding.
5. All outstanding shares of Subsidiary capital stock are duly authorized,
validly issued, fully paid and non-assessable, not subject to preemptive rights
created by statute, the Articles of Incorporation or Bylaws of Subsidiary or any
agreement listed on the Disclosure Schedule to which Subsidiary is a party or by
which it is bound.
6. The execution, delivery and performance of the Agreement and the
consummation of the transactions therein contemplated do not result in a breach
or violation of any of the terms or provisions of, or constitute a default
under, (a) any provision of the Articles of Incorporation and Bylaws of
Subsidiary, (b) to our knowledge any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Subsidiary, or its properties or
assets, or (c) except with respect to any consents required under the Contracts,
any Material Contract listed on the Disclosure Schedule to which Subsidiary is a
party or by which it is bound.
7. To our knowledge, there is no proceeding or litigation pending or
threatened (a) against Conduct or Subsidiary, or (b) which might adversely
affect the ability of Conduct or Subsidiary to execute, deliver and perform the
Agreement or to consummate the transactions contemplated thereby or which
challenges or seeks to prevent, enjoin, alter or delay any such transaction.
EXHIBIT G-1 TO THE SHARE
EXCHANGE AGREEMENT
CONDUCT AFFILIATE POOLING AGREEMENT dated as of November 30, 1999,
between MERCURY INTERACTIVE CORPORATION, a Delaware corporation ("Mercury"), and
the undersigned shareholder (the "Shareholder") of CONDUCT LTD., an Israeli
corporation ("Conduct"), who is a signatory hereto.
Simultaneously with the execution and delivery of this Agreement,
Mercury, Conduct, Conduct Software Technologies, Inc., a California corporation
and wholly-owned subsidiary of Conduct ("Subsidiary"), the shareholders of
Conduct (the "Conduct Shareholders") have entered into a Share Exchange
Agreement (the "Exchange Agreement"), providing for, among other things, the
Conduct Shareholders receiving newly issued shares of common stock of Mercury in
exchange for all outstanding shares of capital stock of Conduct, all outstanding
Convertible Promissory Notes and all outstanding options and warrants to
purchase shares of Conduct stock, in the manner provided in the Exchange
Agreement, after which Conduct will be a wholly-owned subsidiary of Mercury (the
"Exchange"). The transactions contemplated by the Exchange Agreement are
intended to be accounted for as a pooling of interests pursuant to Opinion No.
16 of the Accounting Principals Board. All capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Exchange
Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from the Exchange and of the mutual covenants contained in this Agreement, the
parties agree as follows:
1. Transfer Restrictions.
---------------------
(a) The Shareholder may be deemed to be an "affiliate" of Conduct
within the meaning of Rule 145 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), and Accounting Series Release No. 130, as
amended ("Release No. 130"), Accounting Series Release No. 135 and Staff
Accounting Bulletin No. 76 of the Securities and Exchange Commission (the
"Commission"), although nothing contained herein should be construed as an
admission thereof nor as a waiver of any right Shareholder may have to object to
any claim that Shareholder is such an affiliate on or after the date hereof.
(b) The Shareholder shall not sell, exchange, transfer, pledge,
distribute, make any gift or otherwise dispose of or grant any option, establish
any "short" or put-equivalent position with respect to or enter into any similar
transaction (through derivatives or otherwise) or otherwise reduce his risk
relative to any Mercury Shares until such time after the Closing as financial
results covering at least 30 days of the combined operations of Conduct and
Mercury after the Closing have been published, within the meaning of Release No.
130, by Mercury in an effective registration statement, Annual Report on Form
10-K, Quarterly Report on Form 10-Q or Current Report on Form 8-K filed with the
Securities and Exchange Commission, or any publicly disclosed quarterly earnings
report or press release or other authorized public disclosure by Mercury that
includes the combined results of operations of Mercury and Conduct. Mercury,
at its discretion, may cause stop transfer orders to be placed with its transfer
agent with respect to certificates for the Mercury Shares.
(c) During the period described in Section 1(b) above, subject to
providing written notice to Mercury and the other restrictions set forth below,
and to the extent permitted under the "pooling of interests" accounting rules
and applicable securities laws, Shareholder will be permitted to sell up to 10%
of Mercury Shares held by Shareholder or to make charitable contributions or
bona fide gifts of the Mercury Shares received by Shareholder, subject to the
same restrictions. Such sales or other transfer shall subject to an aggregate
limitation on sales and other transfers for all affiliates of Conduct and
Mercury of not more than 1% of the number of shares of outstanding Common Stock
of Mercury. Prior to making any such sale , charitable contributions or gifts,
Shareholder will obtain Mercury's prior written approval. Shareholder shall
give Mercury not less than five (5) business days notice prior to making any
sales, charitable contributions or gifts as contemplated under this Section
1(c), Shareholder will provide any information reasonably requested by Mercury
or Mercury's accounting firm regarding such sale, charitable contribution or
give, and Shareholder will refrain from making such sales, charitable
contributions or gifts if Shareholder does not obtain Mercury's prior written
approval. Mercury may withhold such approval if Mercury determines, after
consultation with its accounting firm, that such transaction could preclude the
Exchange from being accounted for as a "pooling of interests." The 10% of
Mercury Shares shall be calculated in accordance with SEC Accounting Series
Release No. 135 as amended by Staff Accounting Bulletin No. 76.
(d) Notwithstanding anything to the contrary contained in this
Agreement, the Shareholder may transfer Mercury Shares to a trust established
for the benefit of the Shareholder and/or for the benefit of one or more members
of the Shareholder's family, or make a bona fide gift of Mercury Shares to one
or more members of the Shareholder's family, provided that in the case of a
transfer or gift pursuant to this Section 1, a transferee of such shares agrees
to be bound by the limitations set forth in this Agreement.
2. Beneficial Ownership of Stock. Except as set forth on the last page of
-----------------------------
this Agreement, Shareholder does not beneficially own or hold voting power over:
(i) any shares of Mercury common stock or any other equity securities of
Mercury or any options, warrants or other rights to acquire any equity
securities of Mercury; or (ii) any capital shares of Conduct or any options,
warrants or other rights to acquire any equity securities of Conduct.
3. Notices. Any notice or other communication required or permitted to be
-------
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
-2-
(a) if to Mercury :
Mercury Interactive Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
--------------
General Counsel Associates LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Shareholder, to the address set forth below the
Shareholder's signature on the last page of this Agreement.
4. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
5. Entire Agreement. This Agreement, the Exchange Agreement, the
----------------
Exhibits thereto and any other document delivered in connection therewith
contain the entire understanding of the parties hereto in respect of the subject
matter hereof, and supersede all prior negotiations and understandings, oral or
written, between the parties with respect to the subject matter hereof.
6. Attorney's Fees. In the event of any legal action or proceeding
---------------
to enforce or interpret the provisions of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, whether or not the proceeding
results in a final judgment.
7. Successors and Assigns. This Agreement shall be enforceable by,
----------------------
and shall inure to the benefit of and be binding upon, the parties and their
respective successors and assigns. As used herein, the term "successors and
assigns" shall mean, where the context so permits, heirs, executors,
administrators, trustees and successor trustees and personal and other
representatives.
8. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California applicable to contracts
made and to be performed therein.
-3-
9. Effect Of Headings. The section headings herein are for
------------------
convenience only and shall not affect the construction or interpretation of this
Agreement.
10. Third Party Reliance. Counsel to and accountants for the parties
--------------------
shall be entitled to rely upon this Agreement.
11. Effectiveness of Agreement. This Agreement shall become
--------------------------
effective at the Closing. In the event that the Exchange Agreement shall be
terminated in accordance with Section 9.1 of the Exchange Agreement, this
Agreement shall simultaneously therewith cease and terminate and be of no
further force or effect and no party hereunder shall have any rights or
obligations of any nature whatsoever hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Conduct
Affiliate Pooling Agreement to be executed and delivered as of the date first
above written.
MERCURY INTERACTIVE CORPORATION.
By:
-----------------------------
Name:
Title:
-4-
SIGNATURE PAGE TO THE
CONDUCT AFFILIATE POOLING AGREEMENT BETWEEN
MERCURY INTERACTIVE CORPORATION
AND THE SHAREHOLDER
SHAREHOLDER
---------------------------------
(Signature)
---------------------------------
(Print Name)
---------------------------------
(Print Title)*
---------------------------------
(Print Name of Company)*
---------------------------------
(Print Address)
---------------------------------
(Print Fax Number)
_____________________________
* Leave blank if individual.
Number of shares of Mercury common stock beneficially owned by Shareholder:
______________________________________________________
Number of shares of Mercury common stock subject to options beneficially owned
by Shareholder: ________________________________________
Number of shares of Conduct ordinary and/or preferred shares beneficially owned
by Shareholder: ____________________________________________
Number of shares of Conduct ordinary shares subject to options beneficially
owned
by Shareholder: __________________________________________
-5-
EXHIBIT G-2 TO THE SHARE
EXCHANGE AGREEMENT
MERCURY AFFILIATE POOLING AGREEMENT dated as of November 30, 1999,
between MERCURY INTERACTIVE CORPORATION., a Delaware corporation ("Mercury"),
and the undersigned shareholder (the "Shareholder") of MERCURY who is a
signatory hereto.
Simultaneously with the execution and delivery of this Agreement,
Mercury, Conduct, Conduct Software Technologies, Inc., a California corporation
and wholly-owned subsidiary of Conduct ("Subsidiary"), the shareholders of
Conduct (the "Conduct Shareholders") have entered into a Share Exchange
Agreement (the "Exchange Agreement"), providing for, among other things, the
Conduct Shareholders receiving newly issued shares of common stock of Mercury in
exchange for all outstanding shares of capital stock of Conduct, all outstanding
Convertible Promissory Notes and all outstanding options and warrants to
purchase shares of Conduct stock, in the manner provided in the Exchange
Agreement, after which Conduct will be a wholly-owned subsidiary of Mercury (the
"Exchange"). The transactions contemplated by the Exchange Agreement are
intended to be accounted for as a pooling of interests pursuant to Opinion No.
16 of the Accounting Principals Board. All capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Exchange
Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from the Exchange and of the mutual covenants contained in this Agreement, the
parties agree as follows:
1. Transfer Restrictions.
---------------------
(a) The Shareholder may be deemed to be an "affiliate" of Mercury
within the meaning of Rule 145 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), and Accounting Series Release No. 130, as
amended ("Release No. 130"), Accounting Series Release No. 135 and Staff
Accounting Bulletin No. 76 of the Securities and Exchange Commission (the
"Commission"), although nothing contained herein should be construed as an
admission thereof nor as a waiver of any right Shareholder may have to object to
any claim that Shareholder is such an affiliate on or after the date hereof.
(b) The Shareholder has not sold, exchanged, transferred, pledged,
disposed of or otherwise reduced his risk, relative to any shares of or options
to purchase shares of common stock, $.002 par value, of Mercury (the "Mercury
Shares") beneficially owned by the Shareholder during the 30-day period prior to
the Closing (as defined in the Exchange Agreement).
(c) The Shareholder shall not sell, exchange, transfer, pledge,
distribute, make any gift or otherwise dispose of or grant any option, establish
any "short" or put-equivalent position with respect to or enter into any similar
transaction (through derivatives or otherwise) or dispose of or otherwise reduce
his risk relative to any Mercury Shares until such time after the
Closing as financial results covering at least 30 days of the combined
operations of Conduct and Mercury after the Closing have been published, within
the meaning of Release No. 130, by Mercury in an effective registration
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q or Current
Report on Form 8-K filed with the Securities and Exchange Commission, or any
publicly disclosed quarterly earnings report or press release or other
authorized public disclosure by Mercury that includes the combined results of
operations of Mercury and Conduct. Mercury, at its discretion, may cause stop
transfer orders to be placed with its transfer agent with respect to
certificates for the Mercury Shares. Notwithstanding the foregoing, Shareholder
will not be prohibited by the foregoing from selling or disposing of shares so
long as such sale or disposition is in accordance with the "de minimis" test set
forth in SEC Staff Accounting Bulletin No. 76.
(d) During the period described in Section 1(c) above, subject to
providing written notice to Mercury and the other restrictions set forth below,
and to the extent permitted under the "pooling of interests" accounting rules
and applicable securities laws, Shareholder will be permitted to sell up to 10%
of Mercury Shares held by Shareholder or to make charitable contributions or
bona fide gifts of the Mercury Shares owned by Shareholder, subject to the same
restrictions. Such sales or other transfer shall subject to an aggregate
limitation on sales and other transfers for all affiliates of Conduct and
Mercury of not more than 1% of the number of shares of outstanding Common Stock
of Mercury. Prior to making any such sale, charitable contributions or gifts,
Shareholder will be required to obtain Mercury's prior written approval.
Shareholder shall give Mercury not less than five (5) business days notice prior
to making any sales, charitable contributions or gifts as contemplated under
this Section 1(d), Shareholder will provide any information reasonably requested
by Mercury or Mercury's accounting firm regarding such sale, charitable
contribution or give, and Shareholder will refrain from making such sales,
charitable contributions or gifts if Shareholder does not obtain Mercury's prior
written approval. Mercury may withhold such approval it it determines, after
consultation with its accounting firm, that such transaction could preclude the
Exchange from being accounted for as a "pooling of interests." The 10% of
Mercury Shares shall be calculated in accordance with SEC Accounting Series
Release No. 135 as amended by Staff Accounting Bulletin No. 76.
(e) Notwithstanding anything to the contrary contained in this
Agreement, the Shareholder may transfer Mercury Shares to a trust established
for the benefit of the Shareholder and/or for the benefit of one or more members
of the Shareholder's family, or make a bona fide gift of Mercury Shares to one
or more members of the Shareholder's family, provided that in the case of a
transfer or gift pursuant to this Section 1, a transferee of such shares agrees
to be bound by the limitations set forth in this Agreement.
2. Beneficial Ownership of Stock. Except as set forth on the last page of
-----------------------------
this Agreement, Shareholder does not beneficially own or hold voting power over
any shares of Mercury common stock or any other equity securities of Mercury or
any options, warrants or other rights to acquire any equity securities of
Mercury.
3. Notices. Any notice or other communication required or permitted to be
-------
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered,
-2-
given and received when delivered (by hand, by registered mail, by courier or
express delivery service or by facsimile) to the address or facsimile telephone
number set forth beneath the name of such party below (or to such other address
or facsimile telephone number as such party shall have specified in a written
notice given to the other parties hereto):
(a) if to Mercury :
Mercury Interactive Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
--------------
General Counsel Associates LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Shareholder, to the address set forth below the
Shareholder's signature on the last page of this Agreement.
4. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
5. Entire Agreement. This Agreement, the Exchange Agreement, the
----------------
Exhibits thereto and any other document delivered in connection therewith
contain the entire understanding of the parties hereto in respect of the subject
matter hereof, and supersede all prior negotiations and understandings, oral or
written, between the parties with respect to the subject matter hereof.
6. Attorney's Fees. In the event of any legal action or proceeding
---------------
to enforce or interpret the provisions of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, whether or not the proceeding
results in a final judgment.
7. Successors and Assigns. This Agreement shall be enforceable by,
----------------------
and shall inure to the benefit of and be binding upon, the parties and their
respective successors and assigns. As used herein, the term "successors and
assigns" shall mean, where the context so
-3-
permits, heirs, executors, administrators, trustees and successor trustees and
personal and other representatives.
8. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California applicable to contracts
made and to be performed therein.
9. Effect Of Headings. The section headings herein are for
------------------
convenience only and shall not affect the construction or interpretation of this
Agreement.
10. Third Party Reliance. Counsel to and accountants for the parties
--------------------
shall be entitled to rely upon this Agreement.
11. Effectiveness of Agreement. This Agreement shall become
--------------------------
effective at the Closing. In the event that the Exchange Agreement shall be
terminated in accordance with Section 9.1 of the Exchange Agreement, this
Agreement shall simultaneously therewith cease and terminate and be of no
further force or effect and no party hereunder shall have any rights or
obligations of any nature whatsoever hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Mercury
Affiliate Pooling Agreement to be executed and delivered as of the date first
above written.
MERCURY INTERACTIVE CORPORATION.
By:
-------------------------------------
Name:
Title:
-4-
SIGNATURE PAGE TO THE
MERCURY AFFILIATE POOLING AGREEMENT BETWEEN
MERCURY INTERACTIVE CORPORATION
AND THE SHAREHOLDER
SHAREHOLDER
--------------------------------------------------
(Signature)
--------------------------------------------------
(Print Name)
--------------------------------------------------
(Print Title)*
--------------------------------------------------
(Print Name of Company)*
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
(Print Address)
--------------------------------------------------
(Print Fax Number)
_______________________
* Leave blank if individual.
Number of shares of Mercury common stock beneficially owned by Shareholder:
______________________________________________________
Number of shares of Mercury common stock subject to options beneficially owned
by Shareholder: ________________________________________
-5-
EXHIBIT H TO SHARE
EXCHANGE AGREEMENT
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT, is made as of November 30, 1999, (the
"Agreement"), by and among, MERCURY INTERACTIVE CORPORATION a Delaware
Corporation ("Mercury") and the Conduct Shareholders (as listed on Schedule A
attached hereto) of Conduct Ltd., an Israeli corporation ("Conduct").
WHEREAS, Mercury, Conduct, Conduct Software Technologies, Inc., a
California corporation and wholly-owned subsidiary of Conduct, and the Conduct
Shareholders have entered into a Share Exchange Agreement, dated as of November
24, 1999 (the "Exchange Agreement"). Upon the consummation of the transactions
contemplated by the Exchange Agreement, the Conduct Shareholders are to receive
shares of common stock of Mercury ("Mercury Stock") in exchange for their shares
of capital stock of Conduct. Accordingly, it is contemplated that Conduct
Shareholder will receive shares of Mercury Stock at the Closing. Mercury Stock
to be so issued has not been registered under the Securities Act of 1933, as
amended ("Securities Act") in reliance upon the exemption therefrom contained in
Section 4(2) of the Securities Act.
In consideration of the premises and the mutual representations, warranties
and covenants herein contained, the parties hereto have agreed and do hereby
agree as follows:
1. Registration Rights.
-------------------
1.1 Certain Definitions. As used in this Section 1, the following
-------------------
terms shall have the following respective meanings:
(a) The term "Commission" means the Securities and Exchange
Commission;
(b) The term "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, or any similar federal statute and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
(c) The term "Form S-3" will refer to the registration statement
of the same name (including successors thereto) prepared for filing with the
Commission;
(d) The term "Holder" means any holder of outstanding Registrable
Securities who acquired such Registrable Securities in a transaction or series
of transactions not involving any public offering, including any Permitted
Transferee of the Conduct Shareholders as defined in Section 1.6 of this
Agreement;
(e) The terms "register", "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement;
(f) The term "Registrable Securities" means (i) all shares of
Mercury Stock issued to the Conduct Shareholders pursuant to the Exchange
Agreement and (ii) any other shares of capital stock issued as (or issuable upon
the exercise or conversion of any warrant, right or other security that is
issued as) a dividend, stock split, recapitalization or other distribution with
respect to, or in exchange for or replacement of, any of Mercury's Registrable
Securities; provided, however, that such shares of Common Stock referred to in
-------- -------
(i) and (ii) above shall only be treated as Registrable Securities if and so
long as they have not been (A) sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction, or (B)
sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions and restrictive legends with respect thereto are removed
upon the consummation of such sale;
(b) The term "Restricted Securities" means the securities of
---------------------
Mercury Stock being issued in the transactions contemplated by the Exchange
Agreement; and
(c) The term "Securities Act" means the Securities Act of 1933,
as amended.
1.2 Registration on Form S-3. As promptly as practicable after (and
------------------------
in any event within 45 days of)the Closing (as defined in the Exchange
Agreement), Mercury will file a registration statement to register (whether or
not required by law to do so) the Registrable Securities, under the Securities
Act and will use its best efforts to have such registration statement become
effective as promptly as practicable after it is filed and to keep such
registration statement effective for the lesser of one year or until all of the
Holders have informed Mercury in writing that the distribution of their
Registrable Securities has been completed; provided, that, each of the Conduct
-------- ----
Shareholders agree, by acquisition of the Mercury Stock, that, upon receipt of
any notice from Mercury of (i) the happening of any event which makes any
statements made in the registration statement or related prospectuses filed
pursuant to this Section 1, or any documents incorporated or deemed to be
incorporated therein by reference, untrue in any material respect or which
requires the making of any changes in such registration statement or prospectus
so that, in the case of such registration statement it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make, the statements therein not
misleading, and that in the case of the prospectus, it will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or (ii) that, in the
reasonable and good faith judgment of Mercury's Board of Directors, it is
advisable to
suspend use of the prospectus for a discrete period of time due to undisclosed
material pending corporate developments, the Conduct Shareholders will forthwith
discontinue, for a period not to exceed thirty (30) days, disposition of such
Mercury Stock covered by such registration statement or prospectus until the
Conduct Shareholders are advised in writing by Mercury that use of the
applicable prospectus may be resumed, and have received copies of any additional
or supplemental filings that are incorporated or deemed to be incorporated by
reference in such prospectus. Mercury shall use all reasonable efforts to insure
that the use of the prospectus may be resumed as soon as practicable, and in any
event shall not be entitled to require the Conduct Shareholders to suspend use
of any prospectus for more than two non-consecutive thirty (30) day periods in
any twelve month period. Mercury hereby represents that it is presently eligible
to utilize Form S-3 for the purpose of registering the resale of Registrable
Securities. Mercury agrees that it will:
(a) As promptly as practicable after it is necessary to do so, prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement, and use its best efforts to cause each such amendment to
become effective as promptly as practicable after it is filed, as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(b) A reasonable number of days prior to filing any registration
statement, prospectus or amendment or supplement thereto with the Commission,
furnish a copy of such registration statement, prospectus or amendment or
supplements to each Holder participating in such registration for such Holder's
review.
(c) Furnish to each Holder participating in the registration such
number of prospectuses, preliminary prospectuses, final prospectuses and such
other documents as such Holder may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities being sold by
such Holder.
(d) Notify each Holder, (A) of the time when such registration
statement has become effective, and (B) at any time when a prospectus is
required to be delivered under the Securities Act in connection with such
registration statement (1) of the happening of any event as a result of which
such registration statement, such prospectus, any prospectus supplement or any
document incorporated by reference in any of the foregoing contains an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading or (2) that Mercury is
in possession of material information that it deems advisable not to disclose in
a registration statement.
(e) Advise each Holder promptly after Mercury shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for such purpose and promptly use its reasonable
efforts to prevent the
issuance of any stop order or to obtain its withdrawal (at the earliest
practicable date) if such stop order should be issued.
(f) Apply for listing and use its best efforts to list the Registrable
Securities being registered on any national securities exchange on which a class
of Mercury's equity securities is listed or, if Mercury does not have a class of
equity securities listed on a national securities exchange, apply for
qualification and use its best efforts to qualify the Registrable Securities
being registered for inclusion on the automated quotation system of the National
Association of Securities Dealers, Inc.
(g) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of Mercury under the Securities
Act and the Securities Exchange Act of 1934, as amended.
(h) Cooperate when requested by Holder in the qualification of the
Mercury Stock under the blue sky laws of such jurisdiction as Holder may
designate and during the period in which the Form S-3 is effective, in keeping
such qualifications in good standing under said blue sky laws, provided,
--------
however, that Mercury shall not be obligated to file any general consent to
-------
service of process or to qualify as a foreign corporation in any jurisdiction in
which it is not so qualified.
1.3 Registration and Selling Expenses.
---------------------------------
(a) For purposes of this Section 1, "Registration Expenses" means all
expenses incurred in connection with any registration, qualification or
compliance pursuant to this Section 1, including, without limitation, all
registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for Mercury, expenses of any special audits incidental
to or required by such registration and all fees and disbursements of one
counsel to the selling Holder in connection therewith. "Selling Expenses" means
all underwriting discounts and selling commissions applicable to the sale of
Registrable Securities.
(b) All Registration Expenses incurred in connection with any
registration proceedings pursuant to Section 1.2 will be borne by Mercury.
1.4 Information by Holder. The Holder of Registrable Securities
---------------------
included in any registration will furnish to Mercury such information regarding
such Holder and the distribution proposed by such Holder as Mercury may
reasonably request in writing in connection with the registration referred to
in this Section 1. In connection with the preparation and filing of the
registration statement under the Securities Act pursuant to this Agreement,
Mercury will give Holder and its counsel and accountants, the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of Mercury with its
officers and the independent public accountants who have certified its financial
statements as shall be
necessary, in the opinion of such Holder's counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
1.5 Transfer of Registration Rights. The registration rights granted
-------------------------------
to Holder under this Section 1 are not transferable to any other person or
entity, except by operation of law or to a family member of Holder or to a trust
for the benefit of Holder or a family member of Holder or to a partner or other
affiliate of Holder (a "Permitted Transferee").
1.6 Indemnification.
---------------
(a) To the extent permitted by law, Mercury will, and does hereby
undertake to, indemnify and hold harmless each Holder, each of its heirs,
successors and assigns, any underwriter, and each person who controls Holder or
any underwriter within the meaning of Section 15 of the Securities Act, against
all expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including settlement of any litigation, commenced or threatened, to
which they may become subject under the Securities Act, the Exchange Act, or
other federal or state law, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus (preliminary or final), or other document or amendments
thereto, or arising out of or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or arising out of or any violation by Mercury of any federal,
state or common law rule or regulation applicable to Mercury and relating to
action or inaction required of Mercury in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers, directors and partners, and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that Mercury will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to Mercury by an instrument executed by such Holder or underwriter
expressly for use in connection with such registration.
(b) To the extent permitted by law, each Holder will severally (but
not jointly), indemnify and hold harmless Mercury, each of its directors and
officers, agents and employees, each underwriter, if any, of Mercury's
securities covered by such a registration statement, each person who controls
Mercury or such underwriter within the meaning of Section 15 of the Securities
Act, and each other such Holder, each of its successors and assigns, its
officers, directors and partners and each person controlling such Holder within
the meaning of Section 15 of the Securities Act, against all claims, losses,
damages and liabilities (or actions in respect thereof to which they may become
subject) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or
other document, or amendments thereto, or any omission (or alleged omission) to
state therein a material fact required to be stated therein in light of the
circumstances in which they were made, or necessary to make the statements
therein, not misleading, and will reimburse Mercury, such Holders, such
directors, officers, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, or other document in reliance upon and in conformity with
written information furnished to Mercury by an instrument executed by such
Holder expressly for use in connection with such registration; provided,
however, that the obligations of such Holders hereunder shall be limited to an
amount equal to the proceeds to each such Holder of Registrable Securities, from
the sale of such Registrable Securities as contemplated herein.
(c) Promptly after receipt by an indemnified party under this Section
1.7 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
this Section 1.7, notify the indemnifying party of the commencement thereof; but
the omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 1.7. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include both
-----------------
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 1.7 for
any legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the named parties to any such action include both the
indemnified party and the indemnifying party and the representation of both
parties by the same counsel would be inappropriate due to a conflict of interest
between or (ii) the indemnifying party does not promptly retain counsel
satisfactory to the indemnified party or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party. It is understood, however, that in connection with such
action the indemnifying party shall not be liable for the expenses of more than
one separate counsel (in addition to local counsel) in any one action or
separate but substantially similar
actions in the same jurisdiction arising out of the same general allegations or
circumstances unless the indemnified parties in good faith are advised by their
counsel that there is an actual or potential conflict of interest among the
indemnified parties. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 1.7 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Registrable Securities
or (ii) if the allocation provided by the foregoing clause (i) is not permitted
by applicable law, not only such relative benefits but also the relative fault
of the indemnifying party or parties on the one hand and the indemnified party
on the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the indemnifying party or the
indemnified party, the parties' relative intents, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
and any other equitable considerations appropriate in the circumstances. The
liability of each Holder under this Section 1.7 shall not exceed an amount equal
to the net proceeds received by such Holder from the sale of Registrable
Securities pursuant to the registration statement.
1.7 Amendments and Waivers. This Agreement may be amended, modified,
----------------------
supplemented or waived only upon the written agreement of the party against whom
enforcement of such amendment, modification, supplement or waiver is sought.
1.8 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration,
Mercury agrees to use all reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times;
(b) File with the Commission in a timely manner all reports and other
documents required of Mercury under the Securities Act and the Exchange Act; and
(c) Furnish to the Holder, so long as Holder owns any Registrable
Securities, forthwith upon request a written statement as to its compliance with
the applicable requirements of said Rule 144 and the Securities Act and the
Securities Exchange Act; Mercury shall provide forthwith upon written request a
copy of the most recent annual or quarterly report of Mercury, and such other
reports and documents of Mercury as Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing Holder to sell any
such securities without registration.
1.9 Notices. Except as otherwise provided in this Agreement, any
-------
notice or other communication required or permitted to be delivered to any party
under this Agreement shall be in writing and shall be deemed properly delivered,
given and received when delivered (by hand, by registered mail, by courier or
express delivery service or by facsimile) to the address or facsimile telephone
number set forth beneath the name of such party below (or to such other address
or facsimile telephone number as such party shall have specified in a written
notice given to the other parties hereto):
(a) if to Mercury :
Mercury Interactive Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
--------------
General Counsel Associates LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to the Conduct Shareholders:
To the address set forth beside each such Conduct Shareholder's
signature on the signature page attached hereto.
with copies to:
--------------
Conduct, Ltd.
c/o Conduct Software Technologies, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇ , Esq.
▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
1.10 Miscellaneous.
--------------
(a) Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and the
respective successors, personal representatives and assigns of the parties
hereto, whether so expressed or not. If any person or entity shall acquire
Registrable Securities from any Holder, in any manner, whether by operation of
law or otherwise, such transferee shall promptly notify Mercury and such
Registrable Securities acquired from such Holder shall be held subject to all of
the terms of this Agreement, and by taking and holding such Registrable
Securities such person shall be entitled to receive the benefits of and be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement. If the Mercury shall so request, any
such successor or assign shall agree in writing to acquire and hold the
Registrable Securities acquired from such Holder subject to all of the terms
hereof.
(b) This Agreement (with the documents referred to herein or delivered
pursuant hereto) embodies the entire agreement and understanding between the
parties hereto and supersedes all prior agreements and understandings relating
to the subject matter hereof.
(c) This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of California without giving effect to the
conflicts of law principles thereof.
(d) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof. All section
references are to this Agreement unless otherwise expressly provided.
(e) This Agreement may be executed in any number of counterparts, each
of which shall be an original, but all of which together shall constitute one
instrument.
(f) Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
(g) The parties hereto acknowledge that there would be no adequate
remedy at law if any party fails to perform any of its obligations hereunder,
and accordingly agree that each party, in addition to any other remedy to which
it may be entitled at law or in equity, shall be entitled to injunctive relief,
including specific performance, to enforce such obligations without the posting
of any bond, and, if any action should be brought in equity to enforce any of
the provisions of this Agreement, none of the parties hereto shall raise the
defense that there is an adequate remedy at law.
(h) Each party hereto shall do and perform or cause to be done and
performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(i) If any action or proceeding relating to this Agreement or the
enforcement of any provision of this Agreement is brought against any party
hereto, 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).
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date set forth above.
Mercury Interactive Corporation
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
SIGNATURE PAGE TO THE
REGISTRATION RIGHTS AGREEMENT
AMONG MERCURY INTERACTIVE CORPORATION AND THE
SHAREHOLDERS OF CONDUCT LTD.
Conduct Shareholder: ---------------------------------------------
Signature
By:
------------------------------------------
Title:
---------------------------------------
Print or Type Name:
--------------------------
Address:
-------------------------------------
-------------------------------------
SCHEDULE A
CONDUCT LTD. SHAREHOLDERS
--------------------------------------------------------------------------------
Name of Conduct Shareholder No. of Shares of Mercury Stock
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EXHIBIT I TO SHARE
EXCHANGE AGREEMENT
LEGAL OPINION OF GENERAL COUNSEL ASSOCIATES LLP
[All capitalized terms used but not defined herein shall have the meanings given
to them in the Share Exchange Agreement]
[Subject to customary qualifications and exceptions]
1. Mercury is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
2. Mercury has the corporate power and authority to enter into and perform
the Exchange Agreement, and has taken all necessary corporate action to
authorize the execution, delivery and performance of the Exchange Agreement.
3. The Exchange Agreement has been duly executed and delivered by Mercury
and constitutes the legal, valid and binding obligation of Mercury enforceable
Mercury in accordance with its terms.
4. The execution, delivery and performance of the Exchange Agreement by
Mercury and the consummation of the transactions therein contemplated do not
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, (a) any provision of Mercury's Restated Certificate
of Incorporation or Amended and Restated By-laws, or (b) to our knowledge any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Mercury, or its properties or assets.
EXHIBIT J
For: The Research Committee
The Office of the ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇.▇.▇. ▇▇▇▇
▇▇▇▇▇▇▇▇▇
---------
RELATING TO PROJECT FILE NO. 21036
SUBJECT OF RESEARCH SiteRunner (Coyote) - Network Management Software
-------------------------------------------------
Undertaking
-----------
We, the undersigned of Mercury Interactive Corporation ; having by
--------------------------------------------
an agreement on committed to buy all the outstanding shares of
-----------------
Conduct Ltd. in return for shares in Mercury Interactive Corp.
------------- ------------------------
Recognizing that Conduct Ltd. Research and Development Project, as referred
------------
to above, is currently being financially supported by the Government of the
State of Israel through the Office of the Chief Scientist under The
Encouragement of Research and Development in Industry Law 5744-1984
(hereinafter: the law) and the regulations pursuant to the law.
Recognizing that the law places strict constraints on the transfer of know-how
and/or production rights, making all such transfer subject to the absolute
discretion of the Research Committee of the Office of the Chief Scientist,
acting in accordance with the aims of the law, and requiring that any such
transfer receive the prior written approval of the Research Committee.
HEREBY UNDERTAKE,
To observe strictly all the requirements of the law as well as the regulations
issued pursuant to the law as applied to Conduct Ltd. and as directed by
------------
the Research Committee, in particular those requirements stipulated under
Section 19 of the law relating to the prohibition on the transfer of know-how
and/or production rights.
November 10, 1999 /s/
----------------- -------------------------------
Date Signature of Authorized Company
Representative and Company Seal
November 30, 1999
Conduct Ltd.
▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇
Re: Share Exchange Agreement dated as of November 24, 1999, among Mercury
---------------------------------------------------------------------
Interactive Corporation, Conduct Ltd., Conduct Software Technologies, Inc.
--------------------------------------------------------------------------
and the Conduct Shareholders.
-----------------------------
Ladies and Gentlemen:
We refer to the Share Exchange Agreement dated as of November 24, 1999 (the
"Exchange Agreement"), among Mercury Interactive Corporation, a Delaware
corporation ("Mercury"), Conduct Ltd., an Israeli corporation ("Conduct"),
Conduct Software Technologies, Inc., a California corporation and a wholly owned
subsidiary of Conduct ("Subsidiary"), and the shareholders of Conduct (the
"Conduct Shareholders"), pursuant to which the Conduct Shareholders are
exchanging all of their outstanding capital shares of Conduct for shares of
common stock of Mercury, after which Conduct will be a wholly-owned subsidiary
of Mercury. We have served as counsel to Mercury in connection with the
Exchange Agreement and the transactions contemplated thereby. Each capitalized
term used but not defined herein shall have the meaning ascribed thereto in the
Exchange Agreement.
For the purpose of rendering this opinion, we have examined, among other
documents, an original copy of the executed Exchange Agreement.
We have been furnished and we have relied in giving this opinion as to
various questions of fact material to this opinion upon (i) the Secretary's
Certificate of Mercury being delivered to you concurrently herewith, and (ii) an
Officer's Certificate of Mercury with respect to certain factual matters. As to
matters of fact relevant to this opinion, we have relied solely upon (i) our
examination of the certificates referred to in the preceding sentence, (ii) the
representations and warranties of Mercury set forth in the Exchange Agreement
and (iii) the representations and warranties made by representatives of Mercury
to us. We have made no attempt to verify the accuracy of any of such
information, representations or warranties or to determine the existence or non-
existence of any other
Conduct Ltd.
November 30, 1999
Page 2
factual matters, nor have we caused the search of any docket of any court,
tribunal, agency or any other record of any governmental agency or third party.
Whenever a statement herein is qualified by the phrases "known to us" or
"to our knowledge," or similar phrases, it is intended to indicate that, during
the course of our representation of the Company in this transaction, no
information that would give us current actual knowledge of the inaccuracy of
such statement has come to the attention of those attorneys presently in this
firm who have rendered legal services in connection with the representation
described in the introductory paragraph of this opinion letter. However, we
have not undertaken any independent investigation or review to determine the
accuracy of any such statement, and any limited inquiry undertaken by us during
the preparation of this opinion letter should not be regarded as such an
investigation or review; no inference as to our knowledge of any matters bearing
on the accuracy of any such statement should be drawn from the fact of our
representation of the Company.
This opinion is limited solely to the federal laws of the United States of
America, the laws of the State of California and the General Corporation Law of
the State of Delaware as those laws are in effect as of the date hereof, and we
express no opinion as to the laws of any other state or jurisdiction (including,
but not limited to, ordinances, regulations or practices or any county, city or
other local government agency or body within the State of California) or any
other laws of the State of Delaware.
Pursuant to Section 8.3(c) of the Exchange Agreement, and subject to the
assumptions, limitations and qualifications herein set forth, we are of the
opinion that:
1. Mercury is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
2. Mercury has the corporate power and authority to enter into and perform
the Exchange Agreement and has taken all necessary corporate action to authorize
the execution, delivery and performance of the Exchange Agreement.
3. The Exchange Agreement has been duly executed and delivered by Mercury
and constitutes the legal, valid and binding obligation of Mercury enforceable
against Mercury in accordance with its terms.
4. The execution, delivery and performance of the Exchange Agreement by
Mercury and the consummation of the transactions therein contemplated do not
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, (a) any provision of Mercury's Restated Certificate
of Incorporation or Amended and
Conduct Ltd.
November 30, 1999
Page 3
Restated By-laws, or (b) to our knowledge any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Mercury, or its properties or
assets.
For purposes of rendering the foregoing opinions, we have made, without
further inquiry as to their accuracy or completeness, the following assumptions:
(a) We have assumed the authenticity of all documents submitted to us
as originals, the genuineness of all signatures on original documents, the legal
capacity of all natural persons and the conformity with the original documents
of any copies thereof submitted to us for our examination.
(b) We have assumed the due authorization, execution and delivery of
the Exchange Agreement and all of the other instruments and agreements
contemplated thereby by the parties thereto (other than Mercury) and that such
agreement and all of the other instruments and agreements contemplated thereby
constitute the legally valid and binding obligations of the parties thereto
(other than Mercury), enforceable against such parties in accordance with their
respective terms.
(c) We have assumed compliance by you with any and all applicable laws
with which you are required to comply relating to or affecting the matters and
actions contemplated by the Exchange Agreement and all of the other instruments
and agreements contemplated thereby.
(d) We have assumed that the Exchange Agreement has not been further
amended or modified, or been terminated or revoked in any respect, and that it
remains in full force and effect as of the date hereof, and that none of the
other instruments and agreements contemplated thereby has been amended,
modified, terminated or revoked in any respect, and that each remains in full
force and effect as of the date hereof.
The opinion set forth above are subject to the following:
(a) Our opinion is subject to the effect of any applicable bankruptcy,
insolvency, fraudulent conveyance, fraudulent transfer and equitable
subordination, reorganization, moratorium or similar law affecting creditors'
rights generally, and to the effect of general principles of equity, including
(without limitation) concepts of materiality, reasonableness, estoppel, good
faith and fair dealing (regardless whether considered in a proceeding in equity
or at law). We express no opinion as to the availability of equitable remedies.
(b) Certain rights, remedies and waivers set forth in the Exchange
Agreement (including but not limited to the indemnification and severability
provisions)
Conduct Ltd.
November 30, 1999
Page 4
may be unenforceable, in whole or in part, but the inclusion of such provisions
does not affect the validity of such agreement taken as a whole.
(c) We express no opinion as to compliance with the antifraud
provisions of applicable securities laws.
This opinion is given as of the date hereof and we disclaim any obligation
to advise you of any fact, circumstance, event or changes or developments in law
or the facts that may occur after the date hereof which may affect the
conclusions reached herein. This opinion is being delivered solely for the
benefit of the persons to whom it is addressed and may not be quoted, filed with
any governmental authority or other regulatory agency or otherwise circulated or
utilized for any other purpose without our prior written consent.
Very Truly Yours,
GENERAL COUNSEL ASSOCIATES LLP