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EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
by and among
APPLIEDTHEORY CORPORATION,
APPLIEDTHEORY REEF ACQUISITION CORP.
and
CRL NETWORK SERVICES, INC.
and
▇▇▇▇▇ ▇. ▇▇▇▇▇
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December 3, 1999
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TABLE OF CONTENTS
Page
ARTICLE I THE MERGER.........................................................................1
1.1. The Merger..............................................................1
1.2. Closing; Effective Time.................................................1
1.3. Effect on Capital Stock.................................................2
1.4. Valuation of Parent Common Stock in Stock Consideration.................3
1.5. Adjustment to Merger Consideration......................................3
1.6. Escrow of Parent Common Stock; Adjustment to Merger
Consideration.......................................................4
1.7. Put Option..............................................................5
1.8. Registration Rights.....................................................5
1.9. Shares of Dissenting Stockholders.......................................5
1.10. Stock Options..........................................................5
1.11. Merger Sub Common Stock................................................5
1.12. Certificate of Incorporation...........................................5
1.13. By-Laws................................................................6
1.14. Directors and Officers.................................................6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF
STOCKHOLDER WITH RESPECT TO AUTHORITY, NO
VIOLATION, ETC...................................................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES
REGARDING THE COMPANY.............................................................7
3.1. Organization.............................................................7
3.2. Capitalization; Subsidiaries.............................................7
3.3. Authorization; Binding Agreement.........................................8
3.4. Noncontravention.........................................................8
3.5. Governmental Approvals...................................................9
3.6. No Undisclosed Liabilities...............................................9
3.7. Validity of Leases and Contracts.........................................9
3.8. Absence of Certain Changes or Events.....................................10
3.9. Litigation, Judgments, No Default, Etc...................................12
3.10. Compliance..............................................................12
3.11. Accounts Receivable.....................................................12
3.12. Tax Matters.............................................................13
3.13. Employee Benefit Plans..................................................15
3.14. Finders and Investment Bankers..........................................17
3.15. Collective Bargaining Agreements; Employment Matters....................17
3.16. Insurance...............................................................18
3.17. Related Parties.........................................................18
3.18. Proprietary Rights......................................................18
3.19. Compliance with Laws....................................................20
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3.20. Licenses and Permits...................................................20
3.21. Copies of Documents....................................................21
3.22. No Existing Discussions................................................21
3.23. Year 2000..............................................................21
3.24. Public Offering Expenses...............................................21
3.25. Company Representations and Warranties.................................22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
PARENT AND THE MERGER SUB.......................................................22
4.1. Organization...........................................................22
4.2. Capitalization.........................................................22
4.3. Authorization; Binding Agreement.......................................23
4.4. Noncontravention.......................................................23
4.5. Governmental Approvals.................................................23
4.6. SEC Filings; Financial Statements......................................24
4.7. Finders and Investment Bankers.........................................24
ARTICLE V COVENANTS........................................................................25
5.1. Conduct of Business of the Company......................................25
5.2. Covenants of Parent.....................................................26
5.3. Closing Balance Sheet...................................................27
5.4. Access and Information..................................................27
5.5. Takeover Statutes.......................................................27
5.6. No Solicitation.........................................................28
5.7. Reasonable Best Efforts; Additional Actions.............................28
5.8. Changes in Representation and Warranties; Notification of
Certain Matters.....................................................29
5.9. Non-Disclosure; Public Announcements....................................29
5.10. Indemnification of Directors and Officers..............................30
5.11. Lock-up................................................................31
5.12. Company Options........................................................32
5.13. Company Employees......................................................32
5.14. Transfer Taxes.........................................................32
5.15. Settlement of Claims Outstanding.......................................32
ARTICLE VI CONDITIONS......................................................................33
6.1. Conditions to Each Party's Obligations..................................33
6.2. Conditions to Obligation of the Parent and the Merger Sub...............33
6.3. Conditions to Obligation of the Company.................................36
6.4. Frustration of Closing Conditions.......................................37
ARTICLE VII NATURE AND SURVIVAL OF REPRESENTATIONS
AND WARRANTIES, ETC.............................................................37
7.1. Survival of Representations, Warranties, Etc............................37
7.2. Company Stockholder Agreement to Indemnify..............................38
7.3. Parent Agreement to Indemnify...........................................40
7.4. Procedures Relating to Indemnification..................................40
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ARTICLE VIII TERMINATION...................................................................41
8.1. Termination.............................................................41
8.2. Procedure for and Effect of Termination.................................42
8.3. Failure to Close by Parent..............................................42
ARTICLE IX MISCELLANEOUS...................................................................43
9.1. Certain Definitions.....................................................43
9.2. Amendment and Modification..............................................43
9.3. Waiver of Compliance; Consents..........................................44
9.4. Restrictive Legend......................................................44
9.5. Notices.................................................................44
9.6. Assignment..............................................................45
9.7. Expenses................................................................46
9.8. Governing Law...........................................................46
9.9. Counterparts............................................................46
9.10. Interpretation.........................................................46
9.11. Entire Agreement.......................................................46
9.12. No Third Party Beneficiaries...........................................46
9.13. Severability...........................................................46
Exhibit 1.6...............................................................4
Exhibit 1.7...............................................................5
Exhibit 1.8...............................................................5
Exhibit 3.6........................................................3, 9, 27
Exhibit 5.15.............................................................32
Exhibit A.................................................................9
Schedule 3.10............................................................12
Schedule 3.11............................................................12
Schedule 3.12............................................................13
Schedule 3.13(a).........................................................15
Schedule 3.13(c).........................................................16
Schedule 3.13(d).........................................................16
Schedule 3.13(e).........................................................16
Schedule 3.14............................................................17
Schedule 3.15(c).........................................................18
Schedule 3.17............................................................18
Schedule 3.18....................................................18, 19, 20
Schedule 3.2(a)...........................................................7
Schedule 3.2(b)...........................................................8
Schedule 3.23............................................................21
Schedule 3.4..............................................................8
Schedule 3.6...........................................................4, 9
Schedule 3.7......................................................9, 10, 34
Schedule 3.8.............................................................10
Schedule 3.9.............................................................12
Schedule 4.2.............................................................22
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Schedule 4.7.........................................................24, 25
Schedule 5.1.............................................................25
Schedule 5.2.............................................................26
Schedule 5.3......................................................3, 27, 34
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of December 3, 1999 (the
"Agreement"), by and among AppliedTheory Corporation, a Delaware corporation
(the "Parent"), AppliedTheory Reef Acquisition Corp., a Delaware corporation
wholly-owned by the Parent (the "Merger Sub"), CRL Network Services, Inc., a
Delaware corporation (the "Company"), and ▇▇▇▇▇ ▇. ▇▇▇▇▇ (the "Company
Stockholder").
WHEREAS, the Company Stockholder and the respective Boards of
Directors of the Parent, the Merger Sub and the Company have approved this
Agreement pursuant to which, among other things, the Company will be merged with
and into the Merger Sub (the "Merger") on the terms and conditions contained
herein and in accordance with the Delaware General Corporation Law (the "DGCL");
and
WHEREAS, the Parent, the Merger Sub and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and to prescribe various conditions to the Merger.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.2) and in accordance
with the DGCL, the Company shall be merged with and into the Merger Sub, with
the Merger Sub being the surviving corporation in the Merger (the "Surviving
Corporation"). At the Effective Time, the separate existence of the Company
shall cease and the other effects of the Merger shall be as set forth in Section
259 of the DGCL. The Merger Sub and the Company are sometimes collectively
referred to herein as the "Constituent Corporations."
1.2. Closing; Effective Time. Subject to the provisions of Article VI,
the closing of the Merger (the "Closing") shall take place in New York City at
the offices of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP, as soon as practicable but in no event
later than 10:00 a.m. New York City time on the second Business Day after the
earliest date on which each of the conditions set forth in Article VI (other
than conditions that are satisfied by the delivery of documents or the payment
of money at or prior to the Closing) have been satisfied or waived by the party
or parties entitled to the benefit of such conditions, or at such other place,
at such other time or on such other date as the Parent and the Company may
mutually agree. The date on which the Closing actually occurs is hereinafter
referred to as the "Closing Date." At the Closing, the Merger Sub and the
Company shall cause a certificate of merger (the "Certificate of Merger") to be
executed and filed with the Secretary of State of the State of
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Delaware in accordance with the DGCL. The Merger shall become effective as of
the date and time of such filing or as of such subsequent date or time as the
Parent and the Company shall agree to and shall be set forth in the Certificate
of Merger (the "Effective Time").
1.3. Effect on Capital Stock.
(a) At the Effective Time, each share of common stock, par
value $.0001 per share, of the Company (the "Company Stock") issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares (as defined in Section 1.9) and Parent Shares (as defined in Section
1.3(b)) shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into the right to receive (i) an amount in cash
(without interest), rounded to the nearest cent, equal to Ten Million Dollars
($10,000,000) (the "Cash Consideration") divided by the number of shares of
Company Stock outstanding as of the Effective Time and (ii) such number of
shares of common stock, par value $.01 per share, of Parent ("Parent Common
Stock") as shall be equal to Two Million, Thirty One Thousand, Two Hundred and
Fifty (2,031,250), divided by the number of shares of Company Stock outstanding
as of the Effective Time (the "Stock Consideration" and, together with the Cash
Consideration, the "Merger Consideration"); provided, that the Merger
Consideration shall be subject to adjustment as set forth in Section 1.5 hereof;
and provided, further that as set forth in paragraph (c) of this Section 1.3, no
fractional share of Parent Common Stock shall be delivered hereunder. Subject to
Sections 1.5 and 1.6 hereof, the Merger Consideration shall be delivered to the
holders of Company Common Stock at the Closing in exchange for certificates
representing all outstanding shares of Company Stock and any other outstanding
ownership interests in the Company. The Company Stockholder acknowledges and
agrees that the Parent Common Stock delivered to the holders of Company Stock
hereunder shall not be registered under the Securities Act of 1933, as amended,
(the "Securities Act") and that the sale or other disposition of such Parent
Common Stock shall be subject to the restrictions arising under Rule 144 of the
Securities Act until a registration statement shall have been filed for the
purposes of registering such Parent Common Stock under the Securities Act. As of
the Effective Time, all shares of Company Stock shall no longer be outstanding
and shall automatically be cancelled and retired and shall cease to exist. If,
between the date of this Agreement and the Effective Time, the shares of Parent
Common Stock shall be changed into a different number or class of shares by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or a stock dividend thereon shall be
declared with a record date within said period, the Merger Consideration per
share of Company Stock shall be adjusted accordingly.
(b) Each share of Company Stock held in the Company's
treasury immediately prior to the Effective Time, if any, and each share of
Company Stock then owned by the Parent, the Merger Sub or any other wholly-owned
subsidiary of the Parent other than any such shares held on behalf of third
parties, if any (collectively, "Parent Shares"), shall, by virtue of the Merger,
automatically be
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cancelled and retired and shall cease to exist and no consideration shall be
delivered in exchange therefor.
(c) No Fractional Shares. No certificate or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of certificates representing shares of Company Stock, and such
fractional share interests will not entitle the owner thereof to vote or to any
other rights of a stockholder of Parent. Notwithstanding any other provision of
this Agreement, each record holder of shares of Company Stock outstanding
immediately prior to the Effective Time exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a share of Parent
Common Stock (after taking into account all certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of Parent Common Stock multiplied by
the per share value of Parent Common Stock as set forth in Section 1.4 hereof.
(d) Each of Parent, Merger Sub and the Company shall be entitled
to deduct and withhold from the Merger Consideration and cash in lieu of
fractional shares (an any dividends or distributions thereon) otherwise payable
hereunder to any person such amounts as it is required to deduct and withhold
with respect to the making of such payment under any provision of federal,
state, local or foreign income tax law. To the extent that Parent, Merger Sub or
the Company so withholds those amounts, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of Company
Stock in respect of which such deduction and withholding was made by Parent,
Merger Sub or the Company, as the case may be.
1.4. Valuation of Parent Common Stock in Stock Consideration. For
purposes of this Agreement, the per share value of the Parent Common Stock
delivered to the Company Stockholder as Stock Consideration shall be Sixteen
Dollars and No Cents ($16.00).
1.5. Adjustment to Merger Consideration. The Merger Consideration
into which the Company Stock shall be converted at the Effective Time in
accordance with Section 1.3 hereof shall be subject to the following
adjustments:
(a) in the event that the annualized Run-Rate Revenue for the
Company and for the business of the Company as reported on the Closing Balance
Sheet (as defined in Section 5.3 hereof) is less than ninety-seven point five
percent (97.5%) of the annualized Run-Rate Revenue reported in the financial
statements for the Company which are attached hereto as Exhibit 3.6, the total
Merger Consideration shall be reduced by reducing the Cash Consideration and the
Stock Consideration on a pro rata basis in an aggregate amount equal to that
amount which is the difference between 97.5% of the annualized Run-Rate Revenue
as reported on Exhibit 3.6 hereof and the annualized Run-Rate Revenue as
reported on Schedule 5.3 hereof; and
(b) in the event that the Closing Balance Sheet shall report an
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increase in the difference between the total liabilities of the Company,
including capitalized lease obligations, and the actual current assets of the
Company, as compared to the difference between the total liabilities of the
Company, including capitalized lease obligations, and the actual current assets
of the Company reported on the financial statements of the Company which are
attached hereto as Schedule 3.6, the total Merger Consideration shall be reduced
by reducing the Cash Consideration and the Stock Consideration on a pro rata
basis in an amount equal to the amount of such increase.
1.6. Escrow of Parent Common Stock; Adjustment to Merger
Consideration. The parties hereto agree that, at the Closing, a portion of the
Parent Common Stock delivered to the Company Stockholder as Stock Consideration
representing $4,250,000 (valued as provided in Section 1.4 hereof) (the "Escrow
Fund") shall be held by an escrow agent subject to an escrow agreement (the
"Escrow Agreement") by and among the Parent, the Company, the Company
Stockholder and a third party who shall be jointly selected by Parent and the
Company Stockholder prior to Closing (the "Escrow Agent"). A form of the Escrow
Agreement is attached hereto as Exhibit 1.6. The parties hereto acknowledge and
agree that the Escrow Agent shall hold the Escrow Fund as escrow agent pursuant
to the Escrow Agreement. The Company Stockholder and the Parent further
acknowledge and agree that they shall each be responsible for up to one half of
any administration and other fees charged by such a third party agent up to four
thousand dollars ($4,000) or up to two thousand dollars ($2,000) each; provided,
that the Company Stockholder shall be solely responsible for any administration
and other fees charged by such third party escrow agent in excess of four
thousand dollars ($4,000). The Escrow Fund shall be subject to the Escrow
Agreement, provided, that, as further described in the Escrow Agreement, during
the term of the Escrow Agreement, the Company Stockholder shall be deemed the
owner of and shall have voting power over all Parent Common Stock in the Escrow
Fund, provided, further that any dividends or other distributions on the Parent
Common Stock that are made in the form of cash or any other form of property,
except for ownership rights in the Company or any Subsidiary thereof, shall be
distributed to the Company Stockholder, provided, further that any dividends or
other distributions on the Parent Common Stock that are made in the form of
capital stock or of any other form of ownership interest in the Company or any
of its Subsidiaries shall remain in the Escrow Fund until the end of the term of
the Escrow Agreement. As further provided in the Escrow Agreement, if during the
term of the Escrow Agreement the Parent shall suffer a Loss in accordance with
Section 7.2 hereof, Parent shall be entitled to receive for its own account
payment out of the Escrow Fund of that number of shares of Parent Common Stock,
valued as set forth in Section 1.4, as is required to reimburse Parent for such
Loss and satisfy Parent's right to indemnification under Section 7.2. Any claims
for payment in respect of Losses (as defined in Section 7.2 hereof) which are
made by Parent under Section 7.2 hereof during the period between the Closing
and the one-year anniversary of the Closing (the "Escrow Release Date") shall be
satisfied out of the Escrow Fund unless and until the Escrow Fund shall be
depleted, in which case Parent shall be entitled to payment directly from the
Company Stockholder in satisfaction of any Losses; provided, that the Parent's
right to payment for Losses is in all cases, in addition to
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and not in substitution of any other rights or remedies available to Parent
under this Agreement, any other agreement in respect of the transactions
contemplated by this Agreement, or by operation of law or in equity, including
the right to specific performance or injunctive relief. On the Escrow Release
Date, any shares of Parent Common Stock remaining in the Escrow Fund shall be
released to the Company Stockholder, subject to the provisions of the Escrow
Agreement.
1.7. Put Option. The Parent Common Stock to be delivered to the
holders of Company Stock as Merger Consideration shall be subject to a put
option agreement between the Parent and such holders of Company Stock who
execute such agreement in the form attached hereto as Exhibit 1.7 (the "Put
Option Agreement").
1.8. Registration Rights. The Parent Common Stock to be delivered to
the holders of Company Stock as Stock Consideration shall have the benefit of a
registration rights agreement between the Company and such holders of Company
Stock who execute such agreement the Parent in the form attached hereto as
Exhibit 1.8 (the "Registration Rights Agreement").
1.9. Shares of Dissenting Stockholders. Notwithstanding anything in
this Agreement to the contrary, any shares of Company Stock that are issued and
outstanding immediately prior to the Effective Time and that are held by a
stockholder who has properly exercised and perfected his appraisal rights under
Section 262 of the DGCL ("Dissenting Shares") shall not be converted into or
exchangeable for the right to receive the Common Stock Consideration but shall
entitle the holder thereof to receive payment therefor as shall be determined
pursuant to Section 262 of the DGCL; provided, however, that if such holder
shall have failed to perfect or shall have effectively withdrawn or lost his
right to appraisal and payment under the DGCL, each share of Company Stock of
such holder shall thereupon be deemed to have been converted into and to have
become exchangeable for, as of the Effective Time, the right to receive the
Merger Consideration without any interest thereon, in accordance with Section
1.3, and such shares shall no longer be Dissenting Shares.
1.10. Stock Options. At the Closing, each option, subscription, put,
call, warrant, stock appreciation right or other right to issue or any
obligation to redeem or purchase, any of the Company's authorized capital stock
or any other ownership interests in the Company (each a "Company Option") which
is outstanding and unexercised immediately prior thereto shall cease to
represent a right to acquire shares of Company Stock, shall be automatically
cancelled and retired and shall cease to exist and no consideration shall be
delivered in exchange therefor.
1.11. Merger Sub Common Stock. Each share of the common stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into one share of Common Stock of the Surviving
Corporation.
1.12. Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of the Merger Sub, as in effect at the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation.
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1.13. By-Laws. At the Effective Time, the By-Laws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation until thereafter amended in accordance with applicable
law.
1.14. Directors and Officers. The directors and officers of Merger Sub
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-Laws of the Surviving Corporation until
their respective successors are duly elected or appointed and qualified.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
WITH RESPECT TO AUTHORITY, NO VIOLATION, ETC.
The Company Stockholder hereby represents and warrants to Parent as
follows:
(a) No Other Agreements to Sell the Company Stock or the Business
of the Company. The Company Stockholder has no obligation, absolute or
contingent, to any other Person to (i) sell his or its Company Stock (other than
the sales contemplated hereby), (ii) sell any assets of the Company (other than
sales of inventory in the ordinary course of the Company's business), (iii)
issue, sell or otherwise transfer any capital stock or any security convertible
into or exchangeable for capital stock of the Company (other than the sales
contemplated hereby), (iv) effect any merger, consolidation or other
reorganization of the Company (other than the Merger contemplated hereby) or (v)
enter into any agreement with respect to the foregoing (other than this
Agreement).
(b) Ownership of Company Stock. The Company Stockholder is the
beneficial and record owner of his shares of Company Stock, free and clear of
any Liens (as hereinafter defined) of any nature whatsoever and, at the Closing,
will transfer to Parent good and indefeasible title to such shares of Company
Stock, free and clear of any Lien.
(c) Litigation. There is no action, claim, suit or proceeding
pending or, to the knowledge of the Company Stockholder, threatened by or
against or affecting the Company Stockholder or his Company Stock and, to the
knowledge of the Company Stockholder, there is no investigation pending or
threatened against or affecting the Company Stockholder or his Company Stock, in
each case before any court or governmental or regulatory authority or body, that
could reasonably be expected to have an effect on the consummation of the
transactions contemplated by this Agreement or his Company Stock following the
Closing. There are no writs, decrees, injunctions or orders of any court or
governmental or regulatory agency, authority or body outstanding against such
Stockholder with respect to his Company Stock.
(d) Authority; Execution and Delivery. The Company Stockholder
has the power, capacity and authority to enter into this Agreement and
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to perform fully his obligations hereunder. This Agreement has been duly
executed and delivered by the Company Stockholder and constitutes the legal,
valid and binding obligation of the Company Stockholder, enforceable against the
Company Stockholder in accordance with its terms, except as the enforcement
hereof (or thereof) may be limited by bankruptcy, insolvency, or other similar
laws affecting the enforcement of creditors' rights in general or by general
principles of equity.
(e) Knowledge. The Company Stockholder has no knowledge that the
representations and warranties in this Article II are not also accurate as
regards the other holders of Company Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
REGARDING THE COMPANY
The Company and the Company Stockholder hereby jointly and severally
represent and warrant to the Parent as follows:
3.1. Organization. The Company and each of its Subsidiaries (as
defined in Section 9.1) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization and has
all requisite power and authority to own, lease and operate its properties and
to carry on its business as now being conducted. The Company and each of its
Subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that, individually or in the aggregate, would not have a Material
Adverse Effect (as defined in Section 9.1) on the Company. The Company has
previously delivered or made available to the Parent correct and complete copies
of the certificates of incorporation and by-laws (or equivalent governing
instruments), as currently in effect, of the Company and each of its
Subsidiaries.
3.2. Capitalization; Subsidiaries.
(a) The authorized capital stock of the Company consists of
70,000,000 shares of Company Stock, of which 19,038,832 shares of Company Stock
are issued and outstanding and 5,000,000 shares of preferred stock, par value
$.0001 per share, none of which are issued or outstanding. Except as set forth
on Schedule 3.2(a), no other shares of capital stock of the Company are
authorized, reserved for issuance or issued and outstanding and there are no
outstanding Company Options. All issued and outstanding shares of Company Stock
have been duly authorized and are validly issued, fully paid, nonassessable and
free of preemptive rights. Except as set forth in Schedule 3.2(a), the Company
does not have outstanding any subscription, option, put, call, warrant or other
right or commitment to issue or any obligation or commitment to redeem or
purchase, any of its authorized capital stock or any securities convertible into
or exchangeable for any of its authorized capital stock. Except as disclosed on
Schedule 3.2(a), there are no
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shareholder agreements, voting agreements, voting trusts or other similar
arrangements to which the Company is a party which have the effect of
restricting or limiting the transfer, voting or other rights associated with the
capital stock of the Company.
(b) Except as disclosed on Schedule 3.2(b) and except for its
interest in its Subsidiaries, the Company does not own, directly or indirectly,
any material equity interest in any person, domestic or foreign. All of the
outstanding shares of capital stock of each of the Company's Subsidiaries are
owned by the Company or any other Subsidiary of the Company (collectively, the
"Company Subsidiary Shares"), have been duly authorized and are validly issued,
fully paid and nonassessable and free of preemptive rights. There are no
irrevocable proxies or similar obligations with respect to any of the Company
Subsidiary Shares and all of the Company Subsidiary Shares are owned by the
Company free and clear of all liens, claims, pledges, charges, claims,
encumbrances, third party rights, security interests or other restrictions
(collectively, "Liens") with respect thereto. No Subsidiary of the Company has
outstanding any subscription, option, put, call, warrant or other right or
commitment to issue, nor any obligation or commitment to redeem or purchase, any
of its authorized capital stock, or any securities convertible into or
exchangeable for any of its authorized capital stock.
3.3. Authorization; Binding Agreement. The Company has the full legal
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of the Company.
This Agreement has been duly and validly executed and delivered by the Company
and (assuming the accuracy of the representations and warranties in Section 4.3)
constitutes a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as enforcement may be
limited by general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
3.4. Noncontravention. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
conflict with or result in any breach of any provision of the certificate of
incorporation or by-laws of the Company or the equivalent governing instruments
of any of its Subsidiaries, (b) except as set forth on Schedule 3.4, require any
consent or approval under or conflict with or result in a violation or breach
of, or constitute (with or without notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under,
any of the terms, conditions or provisions of any Real Property Lease (as
hereinafter defined), Contract (as hereinafter defined), Future Contract (as
hereinafter defined), Indebtedness (as hereinafter defined) or any other note,
bond, mortgage, indenture, license, agreement or other instrument or obligation
(the "Other Agreements") to which the Company or any of its Subsidiaries is a
party or by which any of them or any portion of their properties or assets may
be bound or (c) violate any order, judgment, writ,
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injunction, determination, award, decree, law, statute, rule or regulation
(collectively, "Legal Requirements") applicable to the Company or any of its
Subsidiaries or any portion of their properties or assets; provided, however,
that no representation or warranty is made in the foregoing clauses (b) and (c)
with respect to matters that, individually or in the aggregate, would not have a
Material Adverse Effect on the Company.
3.5. Governmental Approvals. No consent, approval or authorization of
or declaration or filing with any foreign, federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
(each, a "Government Entity") on the part of the Company or any of its
Subsidiaries that has not been obtained or made is required in connection with
the execution or delivery by the Company of this Agreement or the consummation
by the Company of the transactions contemplated hereby, other than (a) the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware, (b) the obtaining of a tax clearance certificate for the Company from
the California Franchise Tax Board, (c) the filing of a certified copy of the
Certificate of Merger with the California Secretary of State, and (d) consents,
approvals, authorizations, declarations or filings that, if not obtained or
made, would not, individually or in the aggregate, have a Material Adverse
Effect on the Company or prevent the Company from consummating the transactions
contemplated hereby.
3.6. No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) which are not reflected in the financial statements for
the Company as of September 30, 1999 which are attached as Exhibit A to that
certain letter agreement dated as of October 19, 1999 between Parent, the
Company and the Company Stockholder on behalf of all holders of Company Stock
and attached hereto as Exhibit 3.6, except for (i) liabilities and obligations
incurred in the ordinary course of business since September 30, 1999 relating to
the period after September 30, 1999, none of which, individually or in the
aggregate, has had a Material Adverse Effect on the Company, (ii) liabilities or
obligations arising as a result of the transactions contemplated hereby, or
(iii) liabilities or obligations disclosed on Schedule 3.6.
3.7. Validity of Leases and Contracts. Neither the Company nor any of
its Subsidiaries owns any real property. Attached hereto as Schedule 3.7 is a
list of every (a) lease of real property and all other leased interests in real
property that are used by the Company (a "Real Property Lease"), (b) all
material leases, licenses, contracts, agreements, purchase or sales orders,
employee secrecy or confidentiality agreements, undertakings, indentures and
commitments, written or oral, to which the Company is a party or by which any of
the assets of the Company are then bound, including all ongoing agreements,
licenses, commitments or other engagements and other instruments of any kind,
including all agreements and understandings by any person or entity with the
Company with respect to non-competition or non-disclosure that relate to the
Company or any of its assets, but excluding Company Plans (as hereinafter
defined), (the "Contracts"), (c) any written proposal, quotation or bid made or
received by the Company in connection with its
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business that, if accepted, would lead to a contract for the provision of
services by the Company (a "Future Contract") and (d) all material agreements or
undertakings, whether written or oral, providing for the borrowing or lending of
money by, pledging the credit of, or guaranteeing of any indebtedness of others
by the Company or any of its Subsidiaries (collectively "Indebtedness"). Except
as disclosed on Schedule 3.7, each Real Property Lease or Contract pursuant to
which the Company leases real or personal property and each other Contract,
Future Contract or Indebtedness, is valid and enforceable in accordance with its
terms and neither the Company nor any of its Subsidiaries is in default under
any material provision of any such lease or contract. To the best of the
Company's knowledge, upon the completion of the transactions contemplated under
this Agreement, each such agreement will be valid and binding and enforceable by
the Surviving Corporation in accordance with its terms. To the best of the
Company's knowledge, any party from whom the Company leases real property or
which is a party to any Contract, Future Contract or Indebtedness, is not, and
will not be with due notice or lapse of time or both, in material default under
any provision of any such Real Property Lease, Contract, Future Contract or
Indebtedness.
3.8. Absence of Certain Changes or Events. Since September 30, 1999,
except as disclosed on Schedule 3.8, the Company and its Subsidiaries have
conducted business in the ordinary and usual course and, without limiting the
generality of the foregoing:
(a) There have been no changes, developments, events, conditions
or state of affairs (other than general economic or industry conditions or
similar matters not specific to the Company) which, individually or in the
aggregate, have had or are reasonably likely to have a Material Adverse Effect
on the Company.
(b) There have not been any changes in the capital stock
outstanding of the Company, any issuance of any security convertible into the
capital stock of the Company or any of its Subsidiaries or any declaration,
setting side or payment of any dividend or other distribution (whether in cash,
securities, property or otherwise) in respect of the capital stock of the
Company or any of its Subsidiaries.
(c) Neither the Company nor any of its Subsidiaries has
purchased, redeemed or otherwise acquired or committed itself to acquire,
directly or indirectly, any of the capital stock of the Company or any of its
Subsidiaries; provided, however, that the foregoing shall not prohibit mergers
between the Company's Subsidiaries.
(d) Neither the Company nor any of its Subsidiaries has sold,
assigned, conveyed or otherwise transferred any Proprietary Right (as defined in
Section 3.18), except that the foregoing shall not prohibit the transfer of any
Proprietary Right between the Company's Subsidiaries.
(e) Neither the Company nor any of its Subsidiaries has sold,
assigned, conveyed or otherwise transferred any material asset of the Company or
any of its Subsidiaries.
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(f) Neither the Company nor any of its Subsidiaries has
mortgaged, pledged or subjected to any Lien any assets of the Company or any of
its Subsidiaries.
(g) Neither the Company nor any of its Subsidiaries has
cancelled, terminated, entered into or modified any material Contract or Real
Property Lease.
(h) Neither the Company nor any of its Subsidiaries has waived
any material right of the Company with respect to the business of the Company,
whether or not in the ordinary course of business.
(i) Neither the Company nor any of its Subsidiaries has incurred
any material liability or loss with respect to any of the assets or operations
of the Company, except for liabilities incurred in the ordinary course of
business, consistent with past practices, which do not result in a Material
Adverse Effect.
(j) Neither the Company nor any of its Subsidiaries has incurred
any capital expenditure or executed any lease or other agreement with the
respect to any assets of the Company or any aspect of the business of the
Company, or incurred any liability therefor, requiring any payment or payments
in excess of $25,000 individually or $250,000 in the aggregate.
(k) There have not been any material cancellations or any threats
of material cancellations by any supplier, customer or contractor of the Company
or any of its Subsidiaries with respect to the business of the Company.
(l) Neither the Company nor any of its Subsidiaries has effected
any amendment or supplement to, or extension of, any Company Plan (as defined in
3.12(a)), excluding administrative or similar amendments that do not increase
the liability of the Company or any of its Subsidiaries under any such Company
Plan (other than immaterial adjustments).
(m) Neither the Company nor any of its Subsidiaries has paid to
or for the benefit of any of its directors, officers or employees any
compensation of any kind other than wages, salaries, bonuses and benefits at
times and rates in effect on or prior to December 31, 1998, other than scheduled
increases and increases in the ordinary course of business consistent with past
practice.
(n) Neither the Company nor any of its Subsidiaries has effected
any amendment or modification to its certificate of incorporation or by-laws (or
equivalent governing documents), except that the foregoing shall not prohibit
mergers between the Subsidiaries.
(o) Neither the Company nor any of its Subsidiaries has made any
material change, and the Company has no knowledge of any change, in accounting
methods or principles used for financial or regulatory reporting purposes,
except for changes which are required of all companies conducting a business
similar to that conducted by the Company.
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(p) Neither the Company nor any of its Subsidiaries has entered
into any agreement or arrangement or otherwise agreed to do any of the
foregoing.
3.9. Litigation, Judgments, No Default, Etc.
(a) Except as described on Schedule 3.9, (a) there is no action
or proceeding pending or, to the best knowledge of the Company, threatened
before any federal or state court or agency or similar forum to which the
Company or any of its Subsidiaries is a party, the outcome of which individually
or in the aggregate would have a Material Adverse Effect on the Company, (b)
there is no judgment, decree, injunction, rule or order (collectively "Orders")
of any court, arbitrator or Government Entity outstanding against the Company or
any of its Subsidiaries, and (c) to the best knowledge of the Company, there are
no facts that would result in any such action or proceeding which would have a
Material Adverse Effect on the Company.
(b) Except as set forth on Schedule 3.9, the claims asserted in
the action entitled ▇▇▇▇▇▇ ▇▇▇ v. CRL Network Services, Inc., ▇▇▇▇ ▇▇▇▇▇▇▇▇, et
al., Case No. 301458 in the Superior Court of California, County of San
Francisco have been settled and disposed of and the Surviving Corporation shall
not bear any responsibility or liability in respect thereof, including
responsibility for any legal fees, settlement expenses or other expenses
incurred in respect of such claim. There are no other actions or proceedings
pending or threatened before any federal or state court or agency or forum in
respect of the subject matter of such claim or any similar circumstances or
facts, nor do any facts or circumstances exist which could give rise to such
actions or proceedings.
3.10. Compliance. Except as disclosed on Schedule 3.10, neither the
Company nor any of its Subsidiaries is in default or violation of any term,
condition or provision of (a) its certificate of incorporation or by-laws (or
equivalent governing instruments), or (b) any Real Property Lease, Contract,
Future Contract, Indebtedness and Other Agreements to which the Company or any
of its Subsidiaries is a party or by which any of them or any portion of their
properties or assets may be bound; provided, however, that no representation or
warranty is made in the foregoing clause (b) with respect to matters that,
individually or in the aggregate, have not had and would not have a Material
Adverse Effect on the Company.
3.11. Accounts Receivable. Attached hereto as Schedule 3.11 is a
complete list of the accounts receivable of the Company and any of its
Subsidiaries as at September 30, 1999. Except as set forth on such schedule, the
accounts receivable of the Company arose out of the ordinary course of business
of the Company, have been billed or invoiced in the ordinary course of business
in accordance with all applicable laws, regulations and administrative rulings
and procedures, represent bona fide indebtedness of the applicable debtor of the
Company or any of its Subsidiaries, not subject to defense, set-off or
counterclaim and are collectible in full, net of the reserves set forth in the
books of the Company.
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3.12. Tax Matters. "Taxes", as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies, or other
assessments, including, without limitation, all net income, gross income, sales
and use, ad valorem, transfer, gains, profits, excise, franchise, real and
personal property, gross receipt, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated, stamp, custom
duties, alternative minimum, severance or withholding taxes or charges imposed
by any governmental entity, whether foreign or domestic, and includes any
additions to tax, interest and penalties (civil or criminal), and any expenses
incurred in connection with the determination, settlement or litigation of any
liability for any of the foregoing. "Tax Return", as used in this Agreement,
means a report, return or other information required to be supplied to a
governmental entity with respect to Taxes including, where permitted or
required, combined or consolidated returns for any group of entities that
includes the Company or any of its Subsidiaries.
Except as disclosed on Schedule 3.12:
(a) Filing of Timely Tax Returns. All Tax Returns required to be
filed by the Company and each of its Subsidiaries under applicable law have been
filed on a timely basis. All such Tax Returns were and are true, complete and
correct.
(b) Payment of Taxes. The Company and each of its Subsidiaries
have, within the time and in the manner prescribed by law, paid all Taxes that
are currently due and payable except for those being contested in good faith. No
written claim (and, to the Company's knowledge, no other claim) has ever been
made by an authority in a jurisdiction where any of the Company or its
Subsidiaries does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction.
(c) Tax Reserves. Except as previously disclosed by the Company
to the Parent, the Company and its Subsidiaries have established (and until the
Closing Date will maintain) on their books and records (i) reserves adequate to
pay all Taxes and all deficiencies in Taxes asserted, proposed or threatened
against the Company or its Subsidiaries and (ii) reserves for deferred income
taxes, in each case in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of the
Company or any of its Subsidiaries except liens for Taxes not yet due.
(e) Withholding Taxes. The Company and each of its Subsidiaries
have complied in all respects with the provisions of the Internal Revenue Code
of 1986, as amended (the "Code") relating to the withholding of Taxes,
including, without limitation, the withholding and reporting requirements under
Sections 1441 through 1464, 3401 through 3406, and 6041 through 6049 of the
Code, as well as any similar provisions under any other laws, and have, within
the time and in the manner prescribed by law, withheld from employee wages and
paid over to the proper governmental authorities all amounts required.
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(f) Extensions of Time for Filing Tax Returns. Neither the
Company nor any of its Subsidiaries has requested any extension of time within
which to file any Tax Return, which Tax Return has not since been filed.
(g) Waivers of Statute of Limitations. Neither the Company nor
any of its Subsidiaries has executed any outstanding waivers or comparable
consents regarding the application of the statute of limitations with respect to
any Taxes or Tax Returns.
(h) Expiration of Statute of Limitations. The statute of
limitations for the assessment of all Taxes has expired for all applicable Tax
Returns of the Company and each of its Subsidiaries or those Tax Returns have
been examined by the appropriate taxing authorities for all periods through the
date hereof, and no deficiency for any Taxes has been proposed, asserted,
assessed or, to the Company's knowledge, threatened against the Company or any
of its Subsidiaries that has not be resolved and paid in full or previously
disclosed by the Company to the Parent.
(i) Audit, Administrative and Court Proceedings. No audits or
other administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of the Company or any of its Subsidiaries.
Neither the Company nor any of its Subsidiaries has any knowledge of any
threatened action, audit or administrative or court proceeding with respect to
any such Taxes or Tax Returns. Further, to the best of the knowledge of the
Company and the Company Stockholder, no state of facts exists or has existed
which would constitute grounds for the assessment of any liability for Taxes
with respect to the periods which have not been audited by the Internal Revenue
Service (the "IRS") or other taxing authority.
(j) Tax Rulings. Neither the Company nor any of its Subsidiaries
has received a Tax Ruling (as defined below) or entered into a Closing Agreement
(as defined below) with any taxing authority that could have a continuing
adverse effect after the Closing Date. "Tax Ruling", as used in this Agreement,
shall mean a written ruling of a taxing authority relating to Taxes. "Closing
Agreement", as used in this Agreement, shall mean a written and legally binding
agreement with a taxing authority relating to Taxes.
(k) Availability of Tax Returns. To the extent not previously
provided, as soon as practicable after the date hereof, the Company and its
Subsidiaries will make available to the Parent complete and accurate copies of
such of the following materials as the Parent may reasonably request: (i) Tax
Returns, and any amendments thereto, filed by the Company or any of its
Subsidiaries since the Company's incorporation, (ii) audit reports received from
any taxing authority relating to any Tax Return filed by the Company or any of
its Subsidiaries and (iii) Closing Agreements entered into by the Company or any
of its Subsidiaries with any taxing authority.
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(l) Tax Sharing Agreements. Neither the Company nor any of its
Subsidiaries is a party to any Tax allocation or sharing or similar agreement or
arrangement with any person other than the Company and its Subsidiaries.
(m) Affiliated Groups; Liability for Others. Neither the Company
nor any of its Subsidiaries has ever been a member of an affiliated group of
corporations filing consolidated, combined or unitary Tax Returns other than an
affiliated group in which the Company was the parent. Neither the Company nor
any of its Subsidiaries has any liability for Taxes of any person other than the
Company and its Subsidiaries under Treasury Regulations Section 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract or otherwise.
(n) Section 341(f). Neither the Company nor any of its
Subsidiaries has filed a consent pursuant to Section 341(f) of the Code or has
agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as that term is defined in Section 341(f)(4) of the Code)
owned by the Company or any of its Subsidiaries.
(o) Section 168. No property of the Company or any of its
Subsidiaries is property that the Company or any such Subsidiary or any party to
this transaction is or will be required to treat as being owned by another
person pursuant to the provisions of Section 168(f)(8) of the Code (as in effect
prior to its amendment by the Tax Reform Act of 1986) or is "tax-exempt use
property" within the meaning of Section 168 of the Code.
(p) Section 481 Adjustments. Neither the Company nor any of its
Subsidiaries is required to include in income any adjustment pursuant to Section
481(a) of the Code by reason of a voluntary change in accounting method
initiated by the Company or any of its Subsidiaries, and to the best of the
knowledge of the Company, the IRS has not proposed any such adjustment or change
in accounting method.
(q) Section 280G. Neither the Company nor any of its Subsidiaries
is a party to any agreement, contract, or arrangement that could result, either
directly or indirectly, on account of the transactions contemplated hereunder,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(r) Real Property Holding Corporation. The Company has not been a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii).
3.13. Employee Benefit Plans.
(a) Schedule 3.13(a) sets forth a true and correct list of each
deferred compensation plan, incentive compensation plan, equity compensation
plan, "welfare plan" (within the meaning of section 3(1) of the Employee
Retirement
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Income Security Act of 1974, as amended ("ERISA")); "pension plan" (within the
meaning of section 3(2) of ERISA); each employment, termination or severance
agreement; and each other employee benefit plan, fund, program, agreement or
arrangement, in each case, that is sponsored, maintained or contributed to or
required to be contributed to by the Company, any of its Subsidiaries or by any
trade or business, whether or not incorporated, which together with the Company
would be deemed a "single employer" within the meaning of Section 4001 of ERISA
(an "ERISA Affiliate") for the benefit of any employee or former employee of the
Company or any of its Subsidiaries. Such plans are referred to collectively
herein as the "Company Plans".
(b) The Company has heretofore made available to Parent with
respect to each of the Company Plans true and correct copies of each of the
following documents if applicable: (i) the Company Plan document; (ii) the
actuarial report for such Company Plan for each of the last two years, (iii) the
most recent determination letter from the Internal Revenue Service for such
Plan, (iv) the most recent summary plan description and related summaries of
material modifications and (v) the Form 5500 tax forms for each of the last two
years.
(c) Except as set forth in Schedule 3.13(c), each of the Company
Plans is in material compliance with its terms and the applicable provisions of
the Code and ERISA; each of the Company Plans intended to be "qualified" within
the meaning of section 401(a) of the Code has received a determination letter
from the Internal Revenue Service that the Company Plan is qualified and the
Company knows of no condition or event that could reasonably be expected to
adversely affect such status; neither the Company, its Subsidiaries, nor any
ERISA Affiliate has or at any time in the past has had (i) any liability,
contingent or otherwise, under Title IV of ERISA or Section 412 of the Code,
(ii) an obligation to contribute to any "multiemployer plan" (as defined in
Section 3(37) of ERISA); and there are no pending, or to the knowledge of the
Company, threatened or anticipated disputes, law suits, investigations, audits,
complaints or claims (other than routine claims for benefits) by, on behalf of
or against any of the Company Plans or any trusts related thereto.
(d) Except as set forth on Schedule 3.13(d), neither the Company
nor any Subsidiaries has any current or projected liability in respect of
post-employment or post-retirement health or medical or life insurance benefits
for retired, former or current employees of the Company, except as required to
avoid excise tax under Section 4980B of the Code and to comply with Section 601
of ERISA.
(e) Except as described in Schedule 3.13(e), the execution of,
and performance of the transactions contemplated in this Agreement will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Company Plan, trust or loan that will or may
result in any material payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation
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to fund benefits with respect to any current or former employee, executive or
director of the Company or any of its Subsidiaries.
(f) With respect to each Company Plan, there has not occurred,
and no person or entity is contractually bound to enter into, any nonexempt
"prohibited transaction" within the meaning of Section 4975 of the Code or
Section 406 of ERISA, nor any transaction that would result in a civil penalty
being imposed under Section 409 or 502(i) of ERISA, except for any such
transactions which, individually or in the aggregate, would not be reasonably
likely to have a Material Adverse Effect on the Company.
(g) The Company and each of its Subsidiaries is in compliance
with all applicable federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment,
wages, hours and withholding except as would not be reasonably likely to have a
Material Adverse Effect on the Company.
3.14. Finders and Investment Bankers. Neither the Company nor any of
its officers or directors has employed any investment banker, financial advisor,
broker or finder in connection with the transactions contemplated by this
Agreement, except as disclosed on Schedule 3.14, or incurred any liability for
any investment banking, business consultancy, financial advisory, brokerage or
finders' fees or commissions in connection with the transactions contemplated
hereby, except for fees payable to the party or parties identified on Schedule
3.14 by the Company in accordance with an agreement between the Company and
▇▇▇▇▇▇▇ & Associates, L.P., a copy of which has been made available to the
Parent.
3.15. Collective Bargaining Agreements; Employment Matters.
(a) Neither the Company nor any of its Subsidiaries is a party to
or subject to any collective bargaining agreement with any labor union. There
are no labor controversies pending or, to the best knowledge of the Company,
threatened against the Company or any of its Subsidiaries which would have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(b) There are no pending collective bargaining negotiations
relating to the employees of the Company. There are no agreements with, or
pending petitions for recognition of, a labor union or association as the
exclusive bargaining agent for any or all of the employees of the Company, no
such petitions have been pending within the past five years and, to the
knowledge of the Company, there has not been any general solicitation of
representation cards by any union seeking to represent the employees of the
Company as their exclusive bargaining agent at any time within the past five
years. There is no unfair labor practice, charge or complaint or other
proceeding pending or, to the knowledge of the Company, threatened, against the
Company before the National Labor Relations Board or any other governmental
entity. There is no labor strike, slowdown or stoppage pending or, to the
knowledge of the Company, threatened, against or affecting the Company, nor has
there been any such activity within the past two years.
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(c) Except as set forth on Schedule 3.15(c) hereto, there are no
pending claims by any current or former personnel against the Company or any of
its Subsidiaries, there are no pending claims against the Company or any of its
Subsidiaries arising out of any statute, ordinance or regulation relating to
employment practices or occupational or safety and health standards.
3.16. Insurance. Each of the Company and the Subsidiaries carries
insurance with insurers that, to the knowledge of the Company, are solvent, in
amount and types of coverage which are customary in the industry and against
risks and losses which are usually insured against by persons holding or
operating similar properties and similar businesses. No material claims have
been asserted under any of such insurance policies or relating to the
properties, assets or operations of the Company or any of its Subsidiaries since
December 31, 1998.
3.17. Related Parties. Except as set forth on Schedule 3.17, (a) no
officer or director of the Company or any of its Subsidiaries, or any Affiliate
of any such person, has, either directly or indirectly, a beneficial interest,
or alleges a claim of beneficial interest, in any contract or agreement to which
the Company or any of its Subsidiaries may be bound (excluding any insurance
policies and any annuities or other investment products under which any officer
or director may be a policyholder or beneficiary) and (b) no officer or director
of the Company or any of its Subsidiaries has, either directly or indirectly, an
interest in any corporation, partnership, firm or other person or entity which
furnishes or sells services or products which are similar to those furnished or
sold by the Company or any of its Subsidiaries other than shares of publicly
held companies not in excess of 1% of such companies' outstanding shares.
3.18. Proprietary Rights.
(a) "Intellectual Property" shall mean all domestic and foreign
industrial and intellectual property rights, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service ▇▇▇▇ applications, copyrights, copyright
applications, franchises, licenses, databases, "URL's" and Internet domain names
and applications thereof (and all interest therein), computer programs and other
computer software), user interfaces, know-how, trade secrets, customer lists,
proprietary technology, processes and formulae, source code, object code,
algorithms, architecture, structure, display screens, layouts, development
tools, instructions, templates, marketing materials, inventions, trade dress,
logos and designs and all documentation and media constituting, describing or
relating to the foregoing.
(b) Schedule 3.18 is a true, correct and complete list of
material patents, patent applications, trademarks, trademark registrations,
applications for trademark registrations, service marks, service ▇▇▇▇
registrations, applications for service ▇▇▇▇ registrations, trade names,
copyright registrations or applications for copyright registrations
(collectively referred to as "Proprietary Rights") owned by the Company or the
Subsidiaries in their respective businesses. To the best of the Company's
knowledge, the Company owns, free and clear of any
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claims, liens, encumbrances, obligations and liabilities, of, or has and will
have a valid license, without the payment of any royalty except with respect to
off-the-shelf software and otherwise on commercially reasonable terms, to, use,
sell, license (or sublicense) transmit, broadcast, deliver (electronically or
otherwise) and dispose of all Intellectual Property in each case to the extent
necessary for the Company to conduct its business as now conducted and as
contemplated to be conducted. With respect to all agreements for the lease or
license of Intellectual Property, the Company has obtained such consents or
taken such other actions required for the consummation of this Agreement. To the
best of the Company's knowledge, the Company will have the right to bring
actions for the infringement of its Proprietary Rights.
(c) The execution, delivery and performance of this Agreement
will not breach, violate or conflict with any instrument or agreement governing
any Proprietary Rights, and will not cause the forfeiture or termination or give
rise to a right of forfeiture or termination of any Proprietary Right or in any
way impair the right of the Company to use, sell, license (or sublicense),
transmit, broadcast, deliver (electronically or otherwise) or dispose of or to
bring any action for the infringement of, any Proprietary Right or portion
thereof.
(d) To the best of the Company's knowledge, except as set forth
on Schedule 3.18, there are no royalties, honoraria, fees or other payments
payable by the Company to any person by reason of the ownership, use, license
(or sublicense), sale, transmission, broadcast, delivery (electronically or
otherwise) or disposition of the Proprietary Rights, other than sales
commissions paid in the ordinary course of business.
(e) To the best of the Company's knowledge, neither the
manufacture, marketing, license, sale, transmission, broadcast, delivered
(electronically or otherwise) or use of any product or service currently or
currently proposed to be licensed, sold, marketed, transmitted, broadcast,
delivered (electronically or otherwise) or used by the Company or currently
under development by the Company, violates any license or agreement of the
Company with any third party or infringes any common law or statutory rights of
any other party, including, without limitation, rights relating to defamation,
contractual rights, Intellectual Property rights and rights of privacy or
publicity; nor, to the best of the Company's knowledge, is any third party
infringing upon, or violating any license or agreement with the Company relating
to, any Proprietary Right; and there is no pending or, to the best of the
Company's knowledge, threatened claim or litigation contesting the validity,
ownership or right to use, sell, license, transmit, broadcast, deliver
(electronically or otherwise) or dispose of any Proprietary Right, nor, to the
best of the Company's knowledge, is there a basis for any such claim, nor has
the Company received any notice asserting that any Proprietary Right or the
proposed use, manufacture, sale, license, transmission, broadcast, delivery
(electronically or otherwise) or disposition thereof conflicts or will conflict
with the rights of any other party, nor, to the knowledge of the Company is
there any basis for any such assertion.
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(f) All current and former officers, employees and consultants
of or to the Company have executed and delivered to and in favor of the Company
an agreement regarding the protection of confidential and proprietary
information and the assignment to the Company of all Intellectual Property
arising from the services performed for the Company by such persons. The Company
has made commercially reasonable efforts to safeguard and maintain (i) its
proprietary rights in all Proprietary Rights and (ii) the secrecy and
confidentiality of the Proprietary Rights.
(g) To the best of the Company's knowledge, any programs,
modifications, enhancements or other inventions, improvements, discoveries,
methods or works of authorship included in the Proprietary Rights of the Company
that were created, prepared or delivered by employees of the Company during the
regular course of such employee's employment with the Company, or by
consultants, independent contractors or other third parties for or on behalf of
the Company (including any materials and elements created, prepared or delivered
by such parties in connection therewith) are intended to constitute "works made
for hire" specially ordered or commissioned by the Company, within the meaning
of United States' copyright law, and all right, title and interest therein
(including any materials and elements created, prepared or delivered by such
parties in connection therewith) have been assigned to the Company.
(h) Schedule 3.18 contains a true and complete list of all (i)
of the Company's patents, patent applications, trademarks, trademark
applications, trade names, service marks, service ▇▇▇▇ applications, registered
copyrights, copyright applications, domain names and domain name applications
and (ii) other filings and formal actions made or taken pursuant to Federal,
state, local and foreign laws by the Company to perfect or protect its interest
therein. The Company has previously furnished to each of the Parents evidence of
ownership by the Company of its Intellectual Property.
3.19. Compliance with Laws. The businesses of the Company and each
Subsidiary have been conducted in all material respects in accordance with all
Legal Requirements applicable to the Company or any of its Subsidiaries
(excluding ERISA, which is covered by Section 3.13); provided, however, that no
representation or warranty is made in this sentence with respect to conduct not
in accordance with any of the foregoing that, individually or in the aggregate,
would not have a Material Adverse Effect on the Company. Neither the Company nor
any of its Subsidiaries has received any written notice of alleged material
violations of any of the foregoing, and there are no presently existing
circumstances which would result or be likely to result in violations of any of
the foregoing, nor are there any pending or, to the best knowledge of the
Company, threatened hearings or investigations with respect to alleged material
violations of any of the foregoing.
3.20. Licenses and Permits. Each of the Company and its Subsidiaries
has obtained, and is in compliance in all material respects with, all necessary
licenses, permits, consents, approvals, orders, certificates, authorizations,
declarations and filings required by all Government Entities and all courts and
other
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tribunals for the conduct of the businesses and operations of the Company and
its Subsidiaries as now conducted (collectively, the "Required Licenses"), and
there are no proceedings pending or, to the best knowledge of the Company,
threatened which may result in the revocation, cancellation or suspension, or
any materially adverse modification, of any such Required License; provided,
however, that no representation or warranty is made in this Section 3.20 with
respect to revocations, cancellations, suspensions or modifications of Required
Licenses that, individually or in the aggregate, would not have a Material
Adverse Effect on the Company.
3.21. Copies of Documents. The Company has previously delivered to
Parent true and complete copies of (or, in the case of any oral agreements or
arrangements, true and complete written summaries thereof) all of the
agreements, arrangements or other documents in respect of items identified on
any schedule to this Agreement which is prepared by or for the Company, as well
as:
(a) all Required Licenses; and
(b) all written results of any examinations of the Company or
any of its Subsidiaries or any of their businesses by any governmental agency,
whether federal, state or local, in the past five years.
All books of account, financial and accounting records and other data
of the Company relating to the Company, any of its Subsidiaries or any of their
businesses, including customers' and suppliers' lists, all payroll, personnel
and other employee records and any minute books have been maintained in all
material respects in accordance with good business practices and, as applicable,
in accordance with GAAP consistently applied.
3.22. No Existing Discussions. As of the date hereof, the Company is
not engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to a Takeover Proposal (as defined in Section 5.6(b)
hereof).
3.23. Year 2000. Except as set forth on Schedule 3.23, all internal
computer systems that are material to the business, finances or operations of
the Company ("Material Systems") are (i) able to receive, record, store,
process, calculate, manipulate and output dates from and after January 1, 2000,
time periods that include January 1, 2000 and information that is dependent on
or relates to such dates or time periods, in the same manner and with the same
accuracy, functionality, data integrity and performance as when dates or time
periods prior to January 1, 2000 are involved and (ii) able to store and output
date information in a manner that is unambiguous as to century ("Year 2000
Compliant") or can be freely modified to be made Year 2000 Compliant without
breaching any third party license agreements or otherwise infringing any
intellectual property rights of any third party. All Material Systems that are
not Year 2000 Compliant as of the date of this Agreement are set forth in
Schedule 3.23.
3.24. Public Offering Expenses. The Company has paid all legal,
accounting, printing, registration and other professional expenses ("IPO Fees")
incurred with respect to the Company's attempted initial public offering
(evidence of
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which is the Company's registration statement on Form S-1, Securities and
Exchange Commission File No. 333-74793) except for IPO Fees equal in the
aggregate to Six Hundred and Ninety Thousand Dollars ($690,000), and there are
no other IPO Fees outstanding nor will any additional claims for IPO Fees be
made by any party after the date hereof.
3.25. Company Representations and Warranties. All references to the
Company in this Agreement shall be deemed to include any Subsidiaries of the
Company and, in making any representations or warranties in or under this
Agreement, the Company shall also be deemed to be making such representations or
warranties on behalf of any Subsidiaries of the Company; provided, that the
preceding clause of this sentence shall not apply in those instances where, in
light of the language and context of the applicable provision, the result would
be to give rise to an inconsistency.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PARENT AND THE MERGER SUB
The Parent and the Merger Sub represent and warrant to the Company as
follows:
4.1. Organization. Each of the Parent and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The Parent and each of its Subsidiaries is duly
qualified and licensed to do business and is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it make such qualification or licensing necessary,
except for such failures to be so duly qualified or licensed and in good
standing that, individually or in the aggregate, would not have a Material
Adverse Effect on the Parent. The Merger Sub is a newly formed, wholly-owned
subsidiary of the Parent and, except for activities incident to the acquisition
of the Company, the Merger Sub has not engaged in any business activities of any
type or kind whatsoever.
4.2. Capitalization. The authorized capital stock of Parent consists
of 90,000,000 shares of Parent Common Stock and 1,000,000 shares of preferred
stock, par value $.01 per share ("Parent Common Stock"). At the close of
business on December 2, 1999, there were 21,346,939 shares of Parent Common
Stock outstanding and no shares of Parent Preferred Stock issued and
outstanding. Except as set forth on Schedule 4.2, no other shares of capital
stock of the Parent are authorized, reserved for issuance or issued and
outstanding and there are no outstanding Company Options. All issued and
outstanding shares of Parent Common Stock have been duly authorized and are
validly issued, fully paid, nonassessable and free of preemptive rights. Except
as set forth in Schedule 4.2, the Parent does not have outstanding any
subscription, option, put, call, warrant or other
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right or commitment to issue or any obligation or commitment to redeem or
purchase, any of its authorized capital stock or any securities convertible into
or exchangeable for any of its authorized capital stock. Except as disclosed in
the Parent SEC Filings (as hereinafter defined), there are no shareholder
agreements, voting agreements, voting trusts or other similar arrangements to
which the Parent is a party which have the effect of restricting or limiting the
transfer, voting or other rights associated with the capital stock of the
Parent. The shares of Parent Common Stock to be issued pursuant to the Merger
will be duly authorized and validly issued and, at the Effective Time, all such
shares will be fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof.
4.3. Authorization; Binding Agreement. Each of the Parent and the
Merger Sub has the full legal power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement, the issuance of the shares of Parent Common
Stock pursuant hereto (the "Stock Issuance") and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of each of the Parent and the Merger Sub.
This Agreement has been duly and validly executed and delivered by each of the
Parent and the Merger Sub and (assuming the accuracy of the representations and
warranties in Section 3.4) constitutes a legal, valid and binding agreement of
each of the Parent and the Merger Sub, enforceable against each of them in
accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
4.4. Noncontravention. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
conflict with or result in any breach of any provision of the certificate of
incorporation or by-laws (or equivalent governing instruments) of the Parent or
any of its Subsidiaries, (b) require any consent, approval or notice under or
conflict with or result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any Contracts and Other Agreements to which the Parent or any
of its Subsidiaries is a party or by which any of them or any portion of their
properties or assets may be bound or (c) violate any Legal Requirements
applicable to the Parent or any of its Subsidiaries or any portion of their
properties or assets; provided, however, that no representation or warranty is
made in the foregoing clauses (b) and (c) with respect to matters that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Parent.
4.5. Governmental Approvals. No consent, approval or authorization of,
or declaration or filing with, any Governmental Entity on the part of the Parent
or any of its Subsidiaries that has not been obtained or made is required in
connection with the execution or delivery by the Parent or the Merger Sub of
this Agreement or the consummation by the Parent or the Merger Sub of the
transactions contemplated hereby, other than (a) the filing of the Certificate
of Merger with the
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Secretary of State of the State of Delaware, (b) filings and other applicable
requirements under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (c) such filings and approvals as are required to be made or
obtained under the securities or "Blue Sky" laws of various states in connection
with the Stock Issuance, and (d) consents, approvals, authorizations,
declarations or filings that, if not obtained or made would not, individually or
in the aggregate, result in a Material Adverse Effect on the Parent or prevent
the Parent or the Merger Sub from consummating the transactions contemplated
hereby.
4.6. SEC Filings; Financial Statements. The Parent has made all
filings required to be made with the Securities and Exchange Commission (the
"SEC") since April 30, 1999 and has delivered or made available to the Company
true, correct and complete copies of Parent's prospectus filed with the SEC on
April 30, 1999 (the "Parent Prospectus") and all of Parent's reports, statements
and registration statements (including Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K) filed by the Parent with the SEC since April 30,
1999 (collectively, including the Parent Prospectus, and in each case including
all exhibits and schedules thereto and documents incorporated by reference
therein, the "Parent SEC Filings"). As of their respective dates, the Parent SEC
Filings did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that information as of a later date shall be deemed to
modify information as of an earlier date. The financial statements of the Parent
and its Subsidiaries included or incorporated by reference in the Parent
Prospectus or the Parent's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 (the "Parent 1999 Third Quarter Form 10-Q") have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes to such financial
statements) and fairly present in all material respects the consolidated
financial position of the Parent and its Subsidiaries at the respective dates
thereof and the consolidated results of operations and cash flows for the
respective periods then ended (subject, in the case of unaudited interim
financial statements, to normal year-end adjustments). Except as disclosed in
writing to the Company or otherwise publicly disclosed by the Parent, (i) since
the date of the balance sheet contained in the Parent 1999 Third Quarter Form
10-Q, there has not been any material adverse change in the business,
operations, properties, prospects, liabilities, results of operations, assets or
condition (financial or otherwise) of the Parent and no event has occurred or
circumstances exist that could reasonably be expected to result in a material
adverse effect on the Parent, and (ii) there is no fact known to the Parent
which has specific application to the Parent (other than general economic or
industry conditions) and which materially adversely affects or, so far as the
Parent can reasonably foresee, materially threatens, the business or financial
condition of the Parent.
4.7. Finders and Investment Bankers. None of the Parent or any of its
Subsidiaries or any of their respective officers or directors has employed any
investment banker, financial advisor, broker or finder in connection with the
transactions contemplated by this Agreement, except as disclosed on Schedule 4.7
or
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incurred any liability for any investment banking, business consultancy,
financial advisory, brokerage or finders' fees or commissions in connection with
the transactions contemplated hereby, except for fees payable to the party or
parties identified on Schedule 4.7, all of which fees have been or will be paid
by the Parent.
ARTICLE V
COVENANTS
5.1. Conduct of Business of the Company. Except as contemplated by
this Agreement, during the period commencing on the date hereof and ending at
the Effective Time, the Company shall, and shall cause each of its Subsidiaries
to, conduct its operations according to its ordinary course of business
consistent with past practice, and the Company shall, and shall cause each of
its Subsidiaries to, use all reasonable efforts to preserve intact its business
organization and to maintain satisfactory relationships with its customers,
suppliers and employees and others with which it has business relationships.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement or as set forth on Schedule 5.1, prior to
the Effective Time, neither the Company nor any of its Subsidiaries will,
without the prior written consent of the Parent:
(a) amend or propose to amend its certificate of incorporation
or by-laws (or equivalent governing instruments) (other than in connection with
mergers between Subsidiaries of the Company);
(b) authorize for issuance, issue, sell, pledge, deliver or
agree or commit to issue, sell, pledge or deliver (whether through the issuance
or granting of any options, warrants, calls, subscriptions, stock appreciation
rights or other rights or other agreements) any capital stock of any class or
any securities convertible into or exchangeable for shares of capital stock of
any class of the Company, other than shares of Company Stock issuable upon
exercise of Company Options outstanding on the date of this Agreement in
accordance with the present terms thereof;
(c) split, combine or reclassify any shares of Company Stock or
declare, pay or set aside for payment any dividend or other distribution in
respect of any Company Stock, or redeem, purchase or otherwise acquire any
shares of Company Stock;
(d) increase or establish any Plan or otherwise increase in any
manner the compensation payable or to become payable by the Company or any of
its Subsidiaries to any of their respective directors, officers or employees,
other than in the ordinary course of business or as required under any existing
employment agreement or other Plan, or enter into any employment or severance
agreement with or grant any severance or termination pay to any director,
officer or employee of the Company or any of its Subsidiaries, grant any Company
Options, make any similar award, or accelerate, amend or change the period of
exercisability of Company Options or restricted stock granted under any employee
stock plan or authorize cash payments in exchange for any such options or
shares;
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(e) enter into any other agreements, commitments or contracts
that are material to the Company and its Subsidiaries taken as a whole, other
than in the ordinary course of business consistent with past practice;
(f) except as contemplated by this Agreement, without the prior
written consent of the Parent, otherwise take or cause to be taken any action
described in clauses (b) through (g) of Section 3.8 between the date of this
Agreement and the Effective Time;
(g) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or by
any other means, any business or any corporation, partnership, joint venture,
association, or other business organization or division thereof or;
(h) incur, assume or draw down any indebtedness for borrowed
money, except for borrowings in the ordinary course of business;
(i) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, or in any of the conditions to the
Merger set forth in Article VI not being satisfied;
(j) change its methods of accounting in effect at September 30,
1999, except as required by changes in GAAP or SAP as concurred to by the
Company's independent auditors;
(k) make or rescind any material election with respect to Taxes,
make a request for a Tax Ruling or enter into a Closing Agreement with respect
to Taxes, settle or compromise any material Tax matter, or, with respect to any
material Tax matter, change any method of accounting or reporting; or
(l) agree, commit or arrange to do any of the foregoing.
5.2. Covenants of Parent. Except as set forth on Schedule 5.2 or as
otherwise contemplated by this Agreement or consented to in writing by the
Company, Parent shall not, and shall not permit any of its Subsidiaries to:
(a) solely in the case of Parent, declare or pay any dividends
on or make any other distributions in respect of any of its capital stock;
(b) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, or in any of the conditions to the
Merger set forth in Article VI not being satisfied;
(c) take any action or enter into any agreement that could
reasonably be expected to jeopardize or materially delay the receipt of any
Requisite Regulatory Approval (as defined in Section 6.1(e));
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(d) change its methods of accounting in effect at September 30,
1999, except in accordance with changes in GAAP or SAP as concurred to by
Parent's independent auditors; or
(e) agree, commit or arrange to do any of the foregoing.
5.3. Closing Balance Sheet. The Company Stockholder and the Company
shall prepare financial statements for the Company for the period ending on the
month-end prior to the Closing and closest to the Closing (the "Closing Balance
Sheet"), which financial statements shall be attached hereto as Schedule 5.3 and
shall identify the Run-Rate Revenue for such period according to the same
principles as used by the Company in the financial statements attached hereto as
Exhibit 3.6. The Closing Balance Sheet (a) shall have been prepared in
accordance with the books and records of the Company, in accordance with GAAP
consistently applied throughout the period covered thereby, (b) shall fairly
present the financial condition and results of operations of the Company as of
the date thereof and for the period covered therein and (d) contain and reflect
all necessary adjustments and accruals for a fair presentation of the financial
condition and the results of operations of the Company as of the date thereof
and for the period covered therein. In addition, Schedule 5.3 shall identify the
number of shares of Company Stock which shall have been issued following the
date hereof and prior to the Closing pursuant to exercises of Company Options.
5.4. Access and Information. Between the date of this Agreement and
the Effective Time, the Company shall, and shall cause its Subsidiaries to,
afford the Parent and its authorized representatives (including its accountants,
financial advisors and legal counsel) reasonable access during normal business
hours to the properties, personnel, Contracts and Other Agreements, any
documents relating to Tax Returns of the Company and its Subsidiaries and other
books and records of such party and its Subsidiaries and shall promptly deliver
or make available to the other party (a) a copy of each report, schedule and
other document filed by such party pursuant to the requirements of federal
securities laws and (b) all other information concerning the business,
properties, assets and personnel of such party and its Subsidiaries as the other
party may from time to time reasonably request, including access to outside
counsel of such party or any of its Subsidiaries in connection with the review
of any claim, dispute, action, proceeding, suit, appeal, investigation or
inquiry pending or threatened against such party or any of its Subsidiaries. The
receiving party shall hold, and shall cause its representatives to hold all
evaluation material in confidence and shall not disclose or make use of such
evaluation material except to evaluate the Company, as otherwise provided for in
this Agreement and as required under the Securities Act, the Exchange Act and
any other applicable laws.
5.5. Takeover Statutes. If any "fair price", "moratorium", "control
share acquisition" or other form of antitakeover statute or regulation shall
become applicable to the transactions contemplated hereby, the parties hereto
and the members of their respective Boards of Directors shall grant such
approvals and take such actions as are reasonably necessary so that the
transactions contemplated hereby
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may be consummated as promptly as practicable on the terms contemplated hereby
and otherwise act to eliminate or minimize the effects of such statute or
regulation on the transactions contemplated hereby.
5.6. No Solicitation.
(a) The Company shall not authorize or permit any of its
officers, directors, employees, representatives or agents (collectively,
"Representatives") to directly or indirectly solicit, initiate or encourage any
inquiries relating to or that may reasonably be expected to lead to, or the
making of any proposal which constitutes, a Takeover Proposal (as defined
below), or recommend or endorse any Takeover Proposal, or participate in any
discussions or negotiations, or provide third parties with any nonpublic
information, relating to any such inquiry or proposal or otherwise facilitate
any effort or attempt to make or implement a Takeover Proposal. The Company
shall (i) advise Parent orally (within one day) and in writing (as promptly as
practicable) of the receipt of any such inquiry or proposal by it or by any of
its Subsidiaries or any of its Representatives and (ii) inform Parent orally and
in writing, as promptly as practicable after the receipt thereof, of the
material terms and conditions of any such inquiries or proposals (including the
identity of the party making such inquiry or proposal) and shall keep the other
party informed of the status thereof. The Company will immediately cease and
cause to be terminated any activities, discussions or negotiations conducted
prior to the date of this Agreement with any parties other than Parent with
respect to any of the foregoing and require the return (or if permitted by the
terms of the applicable confidentiality agreement, the certified destruction) of
all confidential information previously provided to such parties.
(b) For purposes of this Agreement, "Takeover Proposal" shall
mean, with respect to any person, any tender or exchange offer, proposal for a
merger, consolidation or other business combination involving the Company or any
of its Subsidiaries or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of the
Company or any of its respective Subsidiaries, other than the transactions
contemplated or permitted by this Agreement.
5.7. Reasonable Best Efforts; Additional Actions.
(a) Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto shall cooperate and shall use its
reasonable best efforts to take, or cause to be taken, all action, and to do or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including using its reasonable best efforts to (a) obtain all consents,
amendments to or waivers under the terms of any of the Company's and the
Parent's borrowing or other contractual arrangements required by the transaction
contemplated by this Agreement, (b) effect promptly all necessary or appropriate
registrations and filings with Governmental Entities, including filings and
submissions pursuant to the Exchange Act and the DGCL, (c) effect promptly
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and prosecute diligently (including responding to all reasonable requests for
supplemental information) all approvals, filings and/or notices required under
any applicable insurance laws for the consummation of the transactions
contemplated by this Agreement, (d) defend any lawsuit or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transaction contemplated hereby and (e) fulfill or cause
the fulfillment of the conditions to Closing set forth in Article VI. Without
limiting the generality of the foregoing, Parent shall file all filings,
applications and notices contemplated by clause (c) of this Section 5.7(a) not
later than ten (10) Business Days after the date of this Agreement.
(b) If, at any time after the Effective Time, the Surviving
Corporation shall determine or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation the right, title or interest in, to or under any of the rights,
properties or assets of either of the Constituent Corporations acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of each of the Constituent Corporations or otherwise, all
such deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of each of the Constituent Corporations or otherwise, all
such other actions and things as may be necessary or desirable to vest, perfect
or confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out this
Agreement.
5.8. Changes in Representation and Warranties; Notification of Certain
Matters.
(a) Between the date of this Agreement and the Closing Date, the
Company shall not enter into any transaction, take any action, or by inaction
permit an event to occur, which would result in any of the representations and
warranties of the Company herein contained not being true and correct at and as
of (a) the time immediately following the occurrence of such transaction or
event or (b) the Closing Date.
(b) The Company shall give notice to the Parent, and the Parent
and the Merger Sub shall give notice to the Company, promptly upon becoming
aware of (a) any occurrence, or failure to occur, of any event, which occurrence
or failure to occur has caused or could reasonably be expected to cause any
representation or warranty in this Agreement to be untrue or inaccurate in any
material respect at any time after the date hereof and prior to the Effective
Time and (b) any material failure on its part to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.8 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
5.9. Non-Disclosure; Public Announcements.
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(a) Neither the Company nor the Company Stockholder will at any
time from and after the date of this Agreement divulge, furnish or make
accessible to anyone any information or documentation regarding the transaction
contemplated by this Agreement, any confidential or secret aspects of the
Company or the Surviving Corporation or any financial or other information about
the Company or the Surviving Corporation except as required by law and except
for the release contemplated by Section 5.9(b) hereof. Any information which at
or prior to the time of disclosure was generally available to the public through
no breach of this covenant shall not be deemed confidential information for
purposes hereof, and the undertakings in this covenant with respect to
confidential information shall not apply thereto.
(b) The initial press release or releases with respect to the
transactions contemplated by this Agreement shall be in the form agreed to by
the Parent and the Company. Thereafter, for as long as this Agreement is in
effect, the Parent and the Merger Sub, on the one hand, and the Company, on the
other hand, shall not, and shall cause their Subsidiaries and Affiliates not to,
issue or cause the publication of any press release or any other announcement
(including without limitation announcements to employees, agents or
policyholders) with respect to the Merger, this Agreement or the other
transactions contemplated hereby without the consent of the other, except where
such release or announcement is required by applicable law or pursuant to any
listing agreement with, or the rules or regulations of, any securities exchange
or any other regulatory requirements, in which case the parties will consult
with each other regarding the form of the release or announcement.
5.10. Indemnification of Directors and Officers.
(a) The certificate of incorporation and by-laws (or equivalent
governing instruments) of the Surviving Corporation and each of its Subsidiaries
shall contain provisions no less favorable with respect to indemnification than
are set forth in the certificate of incorporation and by-laws, as amended to
date, of the Company and its Subsidiaries, which provisions shall not be
amended, repealed or otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at or prior to the Effective Time were directors, officers,
agents or employees of the Company or any of its Subsidiaries or who were
otherwise entitled to indemnification pursuant to the certificate of
incorporation and by-laws (or equivalent governing instruments) of the Company
or any of its Subsidiaries.
(b) The Surviving Corporation shall indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date of
this Agreement or who becomes prior to the Effective Time, a director or officer
of the Company or any of its Subsidiaries (individually, an "Indemnified Person"
and collectively, the "Indemnified Persons") against (i) all losses, claims,
damages, costs, expenses, liabilities or judgements arising out of or relating
to, or amounts that are paid in settlement (with the approval of the
indemnifying party, which approval shall not be unreasonably withheld) of, or in
connection with, any claim, action, suit,
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proceeding or investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director or officer of the
Company or any of its Subsidiaries, whether pertaining to any matter existing or
occurring at or prior to the Effective Time and whether asserted or claimed
prior to or at or after, the Effective Time ("Indemnifiable Claims") and (ii)
all Indemnifiable Claims based in whole or in part on, or arising in whole or in
part out of, or pertaining to this Agreement, the Merger or any other
transaction contemplated hereby or thereby, in each case to the full extent a
corporation is permitted under the DGCL to indemnify its own directors or
officers, as the case may be (and the Surviving Corporation will pay expenses in
advance of the final disposition of any such claim, action, suit, proceeding or
investigation to each Indemnified Person to the full extent permitted by law,
subject to receipt of a written undertaking from such Indemnified Person to
repay all amounts advanced in the event a final and non-appealable judicial
determination is made that such person was not entitled to indemnification under
DGCL). Any Indemnified Person wishing to claim indemnification under this
Section 5.10(b), upon learning of any such claim, action, suit, proceeding or
investigation, shall notify the Surviving Corporation (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 5.10(b) except to the extent such failure prejudices
such party). Indemnified Persons as a group may retain only one law firm to
represent them with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties.
(c) Notwithstanding the provisions of this Section 5.10, the
right to indemnification under this provision shall not extend to the Company
Stockholder with respect to his obligation to indemnify for Losses (as
hereinafter defined) under Section 7.2 of this Agreement.
(d) The provisions of this Section 5.10 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Person and, his or
her heirs and representatives.
5.11. Lock-up. The Company Stockholder hereby covenants and agrees
with the Parent that during the period between the Closing Date and ending 180
days following the Closing Date, except as provided in, and pursuant to, the
Registration Rights Agreement, he shall not sell, transfer, assign or otherwise
dispose of the Parent Common Stock which the Company Stockholder shall have
received as Stock Consideration without the prior written consent of the Parent,
which consent the Parent shall be entitled to withhold in its full discretion.
The Company Stockholder further covenants and agrees with the Parent that during
the period between 180 days following the Closing Date and 365 days following
the Closing Date, the Company Stockholder shall not sell, transfer, assign or
otherwise dispose of more than fifty percent (50%) of the Parent Common Stock
which he shall have received as Stock Consideration without the prior written
consent of the Parent, which consent the Parent shall be entitled to withhold in
its full discretion (the restrictions hereof being referred to as the
"Lock-up").
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5.12. Company Options. The Company and the Company Stockholder shall
take all actions necessary or appropriate so that, prior to the Closing, all
Company Options shall be cancelled and retired and shall cease to exist,
including, but not limited to, obtaining all necessary consents from the holders
of Company Options and providing (in a form and on terms acceptable to Parent)
any required notices to such holders of Company Options.
5.13. Company Employees. The Company and the Company Stockholder shall
offer certain bonus payments to its employees in exchange for their waiving
their rights with respect to any Company Options cancelled, retired or
terminated prior to or upon the Closing of this Agreement. In the event that the
Parent or the Surviving Corporation shall suffer any Losses (as hereinafter
defined) pursuant to claims by any employee of the Company for any bonus,
severance, change of control or similar payment from the Company, whether as a
result of a Company Plan or pursuant to any agreements, statements, writings or
promises to any employee of the Company as a result of the transactions
contemplated by this Agreement, as a result of the Merger or otherwise the
Company Stockholder shall indemnify the Parent or the Surviving Corporation, as
the case may be, as further provided in Section 7.2(d).
5.14. Transfer Taxes. Parent, on the one hand, and the Company
Stockholder, on the other hand, hereby covenant and agree that each of them
shall be responsible for one half of any transfer taxes or similar taxes which
arise in connection with the consummation of the transactions contemplated by
this Agreement.
5.15. Settlement of Claims Outstanding. Parent, the Company and the
Company Stockholder agree that, as further provided in the assignment and
assumption agreement between them (the "Assignment Agreement"), a form of which
is attached hereto as Exhibit 5.15, the Company Stockholder shall be assigned
and shall assume the defense of any pending or threatened claim (i) brought by
▇▇▇▇▇▇ ▇. ▇▇▇▇ in respect of the termination of ▇▇. ▇▇▇▇'▇ employment with the
Company, (ii) brought by ▇▇▇▇▇▇ ▇▇▇▇▇ and/or ▇▇▇▇.▇▇▇, Inc. in connection with
the subject matter of the action entitled ▇▇▇▇.▇▇▇, Inc. v. CRL Network
Services, Inc., ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and Does 1 through 50, Case
No. 307040 in the Superior Court of California, (iii) brought by ▇▇▇▇▇▇ ▇▇▇ in
the action entitled ▇▇▇▇▇▇ ▇▇▇ v. CRL Network Services, Inc., ▇▇▇▇ ▇▇▇▇▇▇▇▇, et
al., Case No. 301458 in the Superior Court of California, County of San
Francisco, (iv) brought in respect of the subject matter of the action entitled
CRL Network Services, Inc. ▇. ▇▇▇▇▇ Market Investment Company, Ltd., Case No.
305618 in the Superior Court of California, County of San Francisco, and (v)
arising from or related to the subject matter of the preceding clauses (i),
(ii), (iii) and (iv) (the "Assumed Claims"); provided, that the Company
Stockholder shall be solely responsible for any and all fees and expenses
incurred at any time subsequent to the Closing with respect to the defense of
the Assumed Claims and, as further described in Section 7.2 hereof and in the
Assignment Agreement, shall fully indemnify Parent, the Surviving Corporation
and any Affiliates thereof in respect of any and all fees, expenses and Losses
relating to or arising from the Assumed Claims.
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5.16. Non-Competition and Non-Disclosure. Company Stockholder hereby
covenants and agrees that he shall fully perform and satisfy his obligations and
covenants under the non-competition and non-disclosure agreement (the
"Non-Competition Agreement") which is attached hereto as Exhibit 5.16 and which
shall be executed prior to the Closing. In addition, Company Stockholder agrees
that following his execution of the Non-Competition Agreement, such agreement
shall be incorporated into, and form part of, this Section 5.16 and that, in the
event of any conflict between this Agreement and the Non-Competition Agreement,
the provisions of the Non-Competition Agreement shall take precedence.
ARTICLE VI
CONDITIONS
6.1. Conditions to Each Party's Obligations. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Time of the following
conditions:
(a) no Legal Requirements shall have been enacted, entered,
promulgated or enforced by any court or Governmental Entity that prohibit or
prevent the consummation of the Merger; and
(b) all consents, authorizations, orders and approvals of (or
filings or registrations with) any Governmental Entity required in connection
with the execution, delivery and performance of this Agreement shall have been
obtained or made (as the case may be), except for filings in connection with the
Merger and any other documents required to be filed after the Effective Time and
except where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have a Material
Adverse Effect on the Surviving Corporation (all such consents, authorizations,
orders, approvals, filings and registrations being referred to herein as the
"Requisite Regulatory Approvals").
6.2. Conditions to Obligation of the Parent and the Merger Sub. The
obligation of the Parent and the Merger Sub to effect the Merger shall be
subject to the fulfillment or waiver at the Effective Time of the following
additional conditions:
(a) the Company shall have performed in all material respects the
covenants and obligations required to be performed by it under this Agreement at
or prior to the Effective Time;
(b) the representations and warranties of the Company and the
Company Stockholder contained in this Agreement shall be true and correct in all
material respects at and as of the Effective Time as if made on and as of such
date (except to the extent that any such representation or warranty had by its
terms been made as of a specific date, in which case such representation or
warranty shall have been true and correct as of such specific date and except
for the representations and warranties provided in Section 3.2 hereof which, as
modified by the information on
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Schedule 5.3 hereof, shall be true and correct in all material respects as of
the Effective Time as if made on and as of such date.);
(c) there shall not have occurred any damage or destruction of,
or loss to, any of the material assets of the Company, whether or not covered by
insurance, which has had or is reasonably likely to have, a Material Adverse
Effect, nor shall there have occurred any other event or condition which has
had, or is reasonably likely to have, a Material Adverse Effect, including,
without limitation, any change in applicable federal or state laws, regulations
or practices which would have a Material Adverse Effect.
(d) ▇▇▇▇▇ ▇. ▇▇▇▇▇ and the Parent or the Merger Sub shall have
executed the Non-Competition Agreement;
(e) the Parent shall have received a certificate signed by an
executive officer of the Company to the effect of Sections 6.2(a), (b) and (c);
(f) the Company Stockholder shall have executed the Assignment
Agreement;
(g) the Company shall have provided Parent with evidence
satisfactory to Parent that the Company has obtained all consents, waivers or
approvals required for the assignment or transfer of all agreements and
instruments identified on Schedule 3.7 hereto;
(h) the Company shall have furnished Parent with an opinion,
dated the Closing Date, of Sheppard, Mullin, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, counsel to
the Company (the "Company's Counsel"), in form and substance satisfactory to
Parent and its counsel, to the effect that among other items:
(i) the Company is a corporation duly incorporated, validly
existing and in corporate good standing under the laws of the State of
Delaware;
(ii) each of the Company's Subsidiaries is a corporation
duly incorporated, validly existing and in good standing under the laws of
its jurisdiction of incorporation;
(iii) the Company and each of its Subsidiaries has the
corporate power to carry on its businesses as they are being conducted on
the Closing Date;
(iv) immediately prior to the Effective Time, the authorized
and the issued and (to the knowledge of such counsel) outstanding capital
stock of the Company consists of the shares specified in Section 3.2
(except as the same may have changed after the date hereof in compliance
with this Agreement), and such issued and outstanding shares are validly
issued and outstanding, fully paid and non-assessable;
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(v) the Company has taken all required corporate action to
approve and adopt this Agreement and the Merger and this Agreement is a
valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, subject as to enforcement to bankruptcy,
reorganization, moratorium, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles;
(vi) the execution and delivery of this Agreement by the
Company do not, and the consummation of the transactions contemplated by
this Agreement by the Company will not, constitute (i) a breach or
violation of, or a default under, the certificate of incorporation or
by-laws of the Company or any of its Subsidiaries, or (ii) to the knowledge
of such counsel, a breach, violation or impairment of, of a default under,
any judgment, decree, order, statute, law, ordinance, rule or regulation
then in effect known to such counsel to be applicable to the Company or any
of its Subsidiaries or its respective properties, or any material
agreement, indenture, mortgage, lease or other instrument of the Company or
any of its Subsidiaries or to which the Company or any of its Subsidiaries
is subject and in each case know to such counsel;
(vii) all filings required to be made by the Company prior
to the Effective Time with, and all consents, approvals, permits or
authorizations required to be obtained by the Company prior to the
Effective Time from, governmental and regulatory authorities of the United
States and the State of Delaware in connection with the execution and
delivery of this Agreement by the Company and the consummation of the
transactions contemplated by this Agreement by the Company, have been so
made or obtained, as the case may be.
(i) the Company Stockholder and the Company shall have provided
the Parent with a certified statement, pursuant to Section 1.1445-2(c)(3) of the
Treasury Regulations, that the Company is not, and has not been within the last
five years, a "United States real property holding corporation".
(j) no claim, action, suit, investigation or other proceeding
shall be pending or threatened by any third party (including any governmental
agency) before any court or administrative agency or otherwise relating to the
transactions provided for herein or which may effect the Parent or the Company
in a manner which is materially adverse;
(k) the Company Stockholder shall have executed the Escrow
Agreement; and
(l) the Company shall have furnished the Parent with all other
documents, certificates and other instruments reasonably requested by Parent.
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6.3. Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger shall be subject to the fulfillment or waiver at
the Effective Time of the following additional conditions:
(a) the Parent and the Merger Sub shall have performed in all
material respects the covenants and obligations required to be performed by them
under this Agreement at or prior to the Effective Time;
(b) the representations and warranties of the Parent and the
Merger Sub contained in this Agreement shall be true and correct in all material
respects at and as of the Effective Time as if made on and as of such date
(except to the extent that any such representation or warranty had by its terms
been made as of a specific date, in which case such representation or warranty
shall have been true and correct as of such specific date);
(c) the Company shall have received a certificate signed by an
executive officer of each of the Parent and Merger Sub to the effect of Sections
6.3(a) and (b); and
(d) Parent shall have furnished the Company with an opinion,
dated the Closing Date, of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP, counsel to the Parent
("Parent's Counsel"), in form and substance satisfactory to the Company and its
counsel, to the effect that:
(i) Parent is a corporation duly incorporated, validly
existing and in corporate good standing under the laws of the State of
Delaware;
(ii) each of Parent's Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation;
(iii) Parent and each of its subsidiaries has the corporate
power to carry on its businesses as they are being conducted on the Closing
Date;
(iv) immediately prior to the Effective Time, the authorized
and the issued and (to the knowledge of such counsel) outstanding capital
stock of the Parent consists of the shares specified in Section 4.2 (except
as the same may have changed after the date hereof in compliance with this
Agreement), and such issued and outstanding shares are validly issued and
outstanding, fully paid and non-assessable;
(v) Parent has taken all required corporate action to
approve and adopt this Agreement and the Merger and this Agreement is a
valid binding obligation of Parent enforceable against Parent in accordance
with its terms, subject as to enforcement to bankruptcy, reorganization,
moratorium, insolvency and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles;
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(vi) the execution and delivery of this Agreement by Parent
do not, and the consummation of the transactions contemplated by this
Agreement by Parent will not, constitute (i) a breach or violation of, or a
default under, the Charter or by-laws of Parent or any of its Subsidiaries,
or (ii) to the knowledge of such counsel, a breach, violation or impairment
of, or a default under, any judgment, decree, order, statute, law,
ordinance, rule or regulation then in effect known to such counsel to be
applicable to Parent or any of its Subsidiaries or its respective
properties, or any material agreement, indenture, mortgage, lease or other
instrument of Parent or any of its Subsidiaries or to which Parent or any
of its Subsidiaries is subject and in each case known to such counsel;
(vii) all filings required to be made by Parent prior to the
Effective Time with, and all consents, approvals, permits or authorizations
required to be obtained by Parent prior to the Effective Time from,
governmental and regulatory authorities of the United States and the State
of Delaware in connection with the execution and delivery of this Agreement
by Parent and the consummation of the transactions contemplated by this
Agreement by Parent, have been so made or obtained, as the case may be.
(e) Parent shall have executed the Escrow Agreement, the Put
Option Agreement, the Registration Rights Agreement and the Assignment
Agreement.
6.4. Frustration of Closing Conditions. Neither the Company nor the
Parent may rely on the failure of any condition set forth in Section 6.1, 6.2 or
6.3, as the case may be, to be satisfied if such failure was caused by such
party's failure to use its reasonable best efforts to consummate the Merger and
the other transactions contemplated by this Agreement.
ARTICLE VII
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES,
ETC.
All statements contained in any Exhibit or Schedule hereto or in any
certificate or instrument of conveyance delivered by or on behalf of the parties
pursuant to this Agreement or in connection with the transactions contemplated
hereby shall be deemed representations and warranties by the parties hereunder.
7.1. Survival of Representations, Warranties, Etc. Except as otherwise
provided herein, the representations and warranties contained in Articles II,
III and IV of this Agreement shall survive the Closing for a period of twelve
(12) months after the Closing Date; provided, however, that: (i) the
representations and warranties contained in Section 3.12 hereof shall survive
the Closing Date until thirty (30) days after the expiration of the applicable
statutes of limitations for the assessment of Taxes; (ii) if the giving of any
representation or warranty contained in Articles II, III or IV is made with
willful or knowing fraud, it shall survive the
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Closing Date for an unlimited period of time; and (iii) any specific claim or
action of which specific written notice setting forth with particularity the
facts underlying such claim or action is given to the party which made such
representation or warranty prior to the date on which such representation or
warranty otherwise terminates as provided herein, may continue to be asserted
and shall be indemnified against pursuant to this Article VII.
7.2. Company Stockholder Agreement to Indemnify.
(a) Subject to paragraphs (b), (c), (d), (e) and (f) of this Section
7.2, the Company Stockholder shall fully indemnify, defend and hold harmless, on
an after-tax basis, the Parent, its officers, directors, employees, agents,
representatives, and Affiliates and their successors and assigns against and in
respect of any and all liabilities, losses, damages, claims, penalties, actions,
fines, deficiencies, costs, taxes, loss of deductions or expenses (including,
without limitation, the reasonable fees, expenses and disbursements of counsel)
(collectively, "Losses") regardless of whether an action has been filed or
asserted against the Parent after the Closing Date, arising from, in connection
with or resulting from any misrepresentation, inaccuracy or breach of
representation, warranty, covenant or agreement by the Company or the Company
Stockholder made in this Agreement (including, without limitation, the Schedules
and Exhibits hereto and the certificates delivered hereunder) or as provided
herein; provided, however, that no obligation to indemnify, defend and hold
harmless the Parent under this clause shall arise unless and until the amount of
Losses incurred exceeds $250,000 in the aggregate; and provided, further, that
in the case of aggregate Losses in excess of $250,000, the Company Stockholder
shall be liable for the entire amount of such Loss or Losses; and provided,
further, that the Company Stockholder shall not be liable under this Article VII
for an aggregate amount in excess of fifty percent (50%) of the value of the
Merger Consideration received by the Company Stockholder, including amounts
placed in the Escrow Fund, with the Parent Common Stock being valued as set
forth in Section 1.4 hereof; and provided, further, that the Company Stockholder
shall have no liability hereunder for any breach of any representation or
warranty contained in Articles II and III of this Agreement unless specific
written notice setting forth with particularity the facts constituting the
alleged breach is given to the party which made such representation or warranty
prior to the expiration of the period of survival of such representation and
warranty as set forth in Section 7.1 above.
(b) Notwithstanding the provisions of the foregoing Section 7.2(a) and
subject to Section 7.2(c), the Company Stockholder shall have no obligation to
indemnify, defend or hold harmless, the Parent, its officers, directors,
employees, agents, representatives, and Affiliates and their successors and
assigns against and in respect Losses arising from, in connection with or
resulting from any misrepresentation, inaccuracy or breach with respect to
Section 3.6 of this Agreement by the Company or the Company Stockholder
(including, without limitation, the Schedules provided thereunder) unless and
until the amount of Losses incurred with respect to such matters exceeds
$250,000 in the aggregate; provided, however, that in the case of aggregate
Losses with respect to such matters in excess
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of $250,000, the Company Stockholder shall be liable for the entire amount of
such Loss or Losses subject to the limitations set forth in Section 7.2(a).
(c) In the event that the Parent, its officers, directors, agents,
representatives and Affiliates and their successors and assigns shall suffer
Losses which are subject to Sections 7.2(a) and 7.2(b) hereof and are valued in
the aggregate in excess of $500,000, the Company Stockholder shall be liable for
the entire amount of such Losses subject to the limitations set forth in Section
7.2(a) except that the first proviso of Section 7.2(a) and the whole of Section
7.2(b) shall no longer apply.
(d) Notwithstanding Section 7.1 hereof, the representations and
warranties provided in Sections 3.9(b) and hereof shall survive the Closing for
a period of eighteen (18) months after the Closing Date. In addition,
notwithstanding the provisions of the foregoing Sections 7.2(a), 7.2(b) and
7.2(c), the Company Stockholder shall fully indemnify, defend and hold harmless
on an after-tax basis the Parent, the Surviving Corporation, any of their
Affiliates and their successors and assigns against and in respect of any and
all Losses (including any fees, expenses and disbursements of counsel and other
agents) arising from, in connection with or resulting from the Assumed Claims or
from any misrepresentation, inaccuracy or breach with respect to Sections
3.9(b), 3.12, 3.24, 5.13, and 5.15, and the first, second and third provisos of
Section 7.2(a) hereof shall not apply to limit the obligations of the Company
Stockholder under this Section 7.2(d).
(e) In addition to the foregoing provisions of Section 7.2, the
Company Stockholder agrees that it shall not be necessary or required that the
Parent exercise any right, assert any claim or demand or enforce any remedy
whatsoever against the Company before or as a condition to the obligations of
the Company Stockholder hereunder. The indemnification liability of the Company
Stockholder under the foregoing provisions of Section 7.2 shall be absolute and
unconditional as if the Company Stockholder rather than the Company have made
the representations and warranties herein irrespective of any right of set-off
or counterclaim which may at any time be available to or asserted by the Company
Stockholder against the Parent or any Affiliates thereof.
(f) In addition, the Company Stockholder will indemnify the Parent for
the costs of curing, on an emergency expedited basis, any failure of the
equipment, hardware, software or systems used or intended to be used for or in
connection with the Company's business (the "Equipment") and each component
thereof to handle date information before, during and after January 1, 2000,
including accepting date input, providing date output and performing
calculations on dates or portions of dates, functioning accurately and without
interruption before, during and after January 1, 2000, without any change in
operations associated with the advent of the year 2000 and the new century,
responding to two-digit year input in a way that resolves the ambiguity as to
century in a disclosed, defined and predetermined manner, recognizing the year
2000 as a leap year, processing two-digit year date information in ways that are
similarly unambiguous as to century, and storing and provide output of date
information in ways that are similarly unambiguous as to century.
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7.3. Parent Agreement to Indemnify.
(a) Subject to Section 7.3(b) hereof, the Parent shall fully
indemnify, defend and hold harmless, on an after-tax basis, the Company
Stockholder against and in respect of any and all Losses resulting from any
misrepresentation or breach of any representation, warranty, covenant or
agreement by the Parent in this Agreement (including, without limitation, the
Exhibits and certificates delivered hereunder) or as provided herein; provided,
however, that no obligation to indemnify, defend and hold harmless the Company
Stockholder under this clause shall arise unless and until the amount of Losses
incurred exceeds $250,000 in the aggregate; and provided, further, that in the
case of aggregate Losses in excess of $250,000, the Parent shall be liable for
the entire amount of such Loss or Losses and provided, further, that the Parent
shall be liable under this Article VII for an aggregate amount equal to the
value of the Merger Consideration received by the Company Stockholder, including
amounts placed in the Escrow Fund, with the Parent Common Stock being valued as
set forth in Section 1.4 hereof; and provided, further, that the Parent shall
have no liability hereunder for any breach of any representation or warranty
contained in Article IV of this Agreement unless specific written notice setting
forth with particularity the facts constituting the alleged breach is given to
the party which made such representation or warranty prior to the expiration of
the period of survival of such representation and warranty as set forth in
Section 7.1 above.
(b) Notwithstanding the foregoing Section 7.3(a) hereof, the Parent
shall fully indemnify, defend and hold harmless, on an after-tax basis, the
Company Stockholder against and in respect of any and all Losses that are
incurred by the Company Stockholder pursuant to his written agreement to
guarantee the obligations of the Company under certain agreements to which the
Company is a party; provided, however that the Parent shall have no liability
under this Section 7.3(b) unless and until specific written notice setting forth
with particularity the facts constituting the basis of the applicable Loss or
Losses is given to the Parent.
7.4. Procedures Relating to Indemnification. Promptly after the
receipt by any party hereto of notice of any claim, action, suit or proceeding
of any third party which is subject to indemnification hereunder, such party or
parties (the "Indemnified Party") shall give written notice of such claim (a
"Notice of Claim") to the party or parties obligated to provide indemnification
hereunder (collectively, the "Indemnifying Party"), stating the nature and basis
of such claim and the amount thereof, to the extent known. The failure of the
Indemnified Party to so notify the Indemnifying Party shall not impair the
Indemnified Party's ability to seek indemnification from the Indemnifying Party.
The Indemnifying Party shall be entitled to participate in the defense or
settlement of such matter and the parties agree to cooperate in any such defense
or settlement and to give each other full access to all information relevant
thereto. The Indemnifying Party shall not be obligated to indemnify an
Indemnified Party hereunder for any settlement entered into without the
Indemnifying Party's prior written consent, which consent shall not be
unreasonably withheld, conditioned or delayed. If any Notice of Claim relates to
a claim by a person or persons (other than by federal, state or local income tax
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authorities or by the Parent), and the amount of such claim is acknowledged by
the Company Stockholder to be fully covered by the foregoing indemnity, as
limited herein, the Company Stockholder may elect to defend against such claim
at their expense, in lieu of the Parent assuming such defense; provided, that
the Parent shall be entitled to participate in or monitor such defense at its
expense and the Company Stockholder will fully cooperate with the Parent and
their counsel with respect thereto. If the Company Stockholder so elects to
assume such defense, he shall retain counsel reasonably satisfactory to the
Parent. No compromise or settlement of such claim may be effected by either
party without the other party's consent (which shall not be unreasonably
withheld) unless (i) there is no finding or admission of any violation of law
and no effect on any other claims that may be made against such other party and
(ii) the sole relief provided is monetary damages that are paid in full by the
party seeking the settlement.
ARTICLE VIII
TERMINATION
8.1. Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
whether before or after the Stockholder Approvals:
(a) By the mutual written consent of the Parent, the Merger Sub
and the Company;
(b) By the Parent or the Company at any time on or after the
later to occur of:
(i) 60 days after the date on which any request or application
for a Requisite Regulatory Approval shall have been denied or withdrawn at
the request or recommendation of the Governmental Entity which must grant
such Requisite Regulatory Approval, unless within the 60-day period
following such denial or withdrawal a petition for rehearing or an amended
application has been filed with the applicable Governmental Entity,
provided, however, that no party shall have the right to terminate this
Agreement pursuant to this Section 8.1(b)(i) if such denial or request or
recommendation for withdrawal shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the covenants and
agreements of such party set forth herein; and
(ii) January 31, 2000, if the Effective Time shall not have
occurred on or before that date and if any of the conditions to the
obligation of the terminating party to close the Merger has not, at that
time, been fulfilled; provided, however, that the right to terminate this
Agreement under this Section 8.1(b)(ii) shall not be available to any party
whose failure to fulfill materially any covenant or obligation under this
Agreement has been the cause of, or resulted in, either the failure of the
Effective Time to occur on or before such date or the failure of
fulfillment before such date of any of the conditions to such terminating
party's obligation to close the Merger;
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or at such time as a court of competent jurisdiction or other Governmental
Entity shall have issued an Order or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such Order
or other action shall have become final and nonappealable;
(c) By the Parent or the Company (provided that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein), if there shall have been a material breach
of any of the representations or warranties set forth in this Agreement on the
part of the other party, which breach is not cured within thirty (30) days
following written notice to the party committing such breach, or which breach,
by its nature, cannot be cured prior to the Closing; provided, however, that
neither party shall have the right to terminate this Agreement pursuant to this
Section 8.1(c) unless the breach of representation or warranty would entitle the
terminating party not to consummate the transactions contemplated hereby under
Section 6.2(b) (in the case of a breach of representation or warranty by the
Company) or Section 6.3(b) (in the case of a breach of representation or
warranty by Parent); or
(d) By the Parent or the Company (provided that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein), if there shall have been a material breach
of any of the covenants or agreements set forth in this Agreement on the part of
the other party, which breach shall not have been cured within thirty days
following receipt by the breaching party of written notice of such breach from
the other party hereto, or which breach, by its nature, cannot be cured prior to
the Closing.
8.2. Procedure for and Effect of Termination. In the event that this
Agreement is terminated and the Merger is abandoned by the Parent or the Merger
Sub, on the one hand, or by the Company, on the other hand, pursuant to Section
8.1, written notice of such termination and abandonment shall forthwith be given
to the other parties and this Agreement shall terminate and the Merger shall be
abandoned without any further action. If this Agreement is terminated as
provided herein, no party hereto shall have any liability or further obligation
to any other party under the terms of this Agreement except (i) with respect to
the willful breach by any party hereto, and (ii) that this Section 8.2, the last
sentence of Section 5.4, Section 8.3, Section 9.2 and Section 9.3 shall survive
the termination of this Agreement.
8.3. Failure to Close by Parent. In the event that the Parent shall
fail to close the transactions contemplated by this Agreement for any reason
except those reasons set forth in Sections 8.1(a) and 8.1(b)(i) and except for
terminations hereof by the Parent as provided in Sections 8.1(b)(ii), 8.1(c) and
8.1(d), the Parent shall be responsible for and shall reimburse the Company for
all reasonable legal fees and expenses incurred by the Company in connection
with the transactions contemplated by this Agreement.
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ARTICLE IX
MISCELLANEOUS
9.1. Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings ascribed to them in this Section 9.1:
(a) "Affiliate", with respect to any person, shall mean any
person controlling, controlled by or under common control with such person;
(b) "Business Day" shall mean each day on which banking
institutions in New York, NY are not authorized or required to close;
(c) "including" shall, unless the context clearly requires
otherwise, mean including but not limited to the items or things following such
term;
(d) "knowledge", "to the knowledge of", "best knowledge" and any
similar language shall mean, with respect to the Company or any of its
Subsidiaries, the actual knowledge, after due inquiry, of the Company
Stockholder and of any other person who, on the date hereof, is an officer of
the Company or any such Subsidiary;
(e) "Material Adverse Effect", with respect to any person, shall
mean a material adverse effect on the business, financial condition or results
of operations of such person and its Subsidiaries taken as a whole, other than
any such effect attributable to or resulting from (i) the transactions
contemplated hereby or the public announcement thereof, (ii) any change in
general economic conditions or (iii) with respect to the Company, any action
taken by the Company or any of its Subsidiaries at the specific request of the
Parent.
(f) "person" shall mean and include an individual, a partnership,
a joint venture, a limited liability company, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof; and
(g) "Subsidiary", with respect to any corporation or other
person, shall mean any corporation 50% or more of the outstanding voting power
of which, or any partnership, joint venture, limited liability company or other
entity 50% or more of the total equity interest of which is directly or
indirectly owned by such person, and any other entity over which such
corporation or other person has control as a result of ownership interests, any
contract or other arrangement, or through any other means. For purposes of this
Agreement, all references to "Subsidiaries" of a person shall be deemed to mean
"Subsidiary" if such person has only one Subsidiary.
9.2. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented, whether before or after the
Stockholder Approvals, only by a written agreement signed by each of the parties
hereto at any time prior to the Effective Time with respect to any of the terms
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contained herein; provided, however, that after this Agreement is adopted by the
Company's Stockholders, no such amendment or modification shall (a) alter or
change the amount or kind of the consideration to be delivered to the
stockholders of the Company, (b) alter or change any term of the certificate of
incorporation of the Surviving Corporation to be effected by the Merger or (c)
alter or change any of the terms or conditions of this Agreement if such
alteration or change would adversely affect the stockholders of the Company.
9.3. Waiver of Compliance; Consents. Any failure of the Parent or the
Merger Sub, on the one hand, or the Company, on the other hand, to comply with
any obligation, covenant, agreement or condition herein may be waived by the
Parent, the Merger Sub or the Company, respectively, only by a written
instrument signed by the party granting such waiver, but such waiver or failure
to insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits consent
by or on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 9.3.
9.4. Restrictive Legend. Each certificate representing Parent Common
Stock to be delivered to the holders of Company Stock hereunder shall, except as
otherwise provided in this Section 9.4, be stamped or otherwise imprinted with a
legend substantially in the following form:
"THIS SECURITY IS SUBJECT TO RESTRICTIONS REGARDING THE SALE
THEREOF UNDER AN AGREEMENT AND PLAN OF MERGER DATED DECEMBER
__, 1999 BETWEEN THE HOLDER THEREOF AND PARENT CORPORATION,
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT
HAS BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company the securities being sold thereby may be publicly
sold without registration under the Securities Act.
9.5. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given when delivered in person,
by telecopier (with a confirmed receipt thereof) or registered or certified mail
(postage prepaid, return receipt requested), and on the next Business Day when
sent by overnight courier service, to the parties at the following addresses (or
at such other address for a party as shall be specified by like notice):
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(1) if to the Parent or the Merger Sub, to:
AppliedTheory Corporation
▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
President & C.O.O.
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
(2) if to the Company, to:
CRL Network Services, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with copies to:
Sheppard, Mullin, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: A. ▇▇▇▇ ▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
(3) if to the Company Stockholder:
▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇
9.6. Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, administrators, executors, representatives, affiliates,
subsidiaries, successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto without the prior written consent of the other parties.
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9.7. Expenses. Whether or not the Merger is consummated, except as
provided in Section 5.15 and Section 8.3 hereof, all fees, charges and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such fees, charges or expenses.
9.8. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to agreements
made and to be performed entirely within such State, without regard to the
choice of law principles thereof.
9.9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.10. Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
9.11. Entire Agreement. This Agreement (including the schedules,
exhibits, documents or instruments referred to herein) and the Confidentiality
Agreement embody the entire agreement and understanding of the parties hereto in
respect of the subject matter hereof and thereof and supersede all prior
agreements and understandings, both written and oral, among the parties, or
between any of them, with respect to the subject matter hereof and thereof.
9.12. No Third Party Beneficiaries. Except as provided in Section
5.10(b), this Agreement is not intended to, and does not, create any rights or
benefits of any party other than the parties hereto.
9.13. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that 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. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
CRL NETWORK SERVICES, INC.
By
-----------------------------
Name:
Title:
APPLIEDTHEORY CORPORATION
By
-----------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President - Corporate
Development and Western
Operations
APPLIEDTHEORY REEF ACQUISITION CORP.
By
-----------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President - Corporate
Development and Western
Operations
-----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇