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ACQUISITION AGREEMENT
BY AND AMONG
VSOURCE INC.
AND
NETCEL360 HOLDINGS LIMITED
FOR
ASSETS OF
NETCEL360 HOLDINGS LIMITED
DATED AS OF
MAY 24, 2001
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TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS 1
SECTION 1.1 Specific Definitions 1
SECTION 1.2 Other Terms 6
SECTION 1.3 Other Definitional Provisions 6
ARTICLE II CLOSING; DELIVERY AND PAYMENT 7
SECTION 2.1 Acquisition of Assets 7
SECTION 2.2 Aggregate Consideration 7
SECTION 2.3 Payment of Consideration 7
SECTION 2.4 Company Assets 7
SECTION 2.5 Closing 8
SECTION 2.6 Assumption of Liabilities 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY 8
SECTION 3.1 Organization and Good Standing, Company Subsidiaries 9
SECTION 3.2 Shareholders 10
SECTION 3.3 Authority 12
SECTION 3.4 Consents and Approvals 12
SECTION 3.5 No Violations 12
SECTION 3.6 Financial Statements 14
SECTION 3.7 Absence of Certain Changes and Events 15
SECTION 3.8 Litigation; Orders 15
SECTION 3.9 Taxes 16
SECTION 3.10 Employee Benefits 17
SECTION 3.11 Labor Matters 18
SECTION 3.12 Compliance with Laws; Governmental Authorizations 19
SECTION 3.13 Title to Properties 19
SECTION 3.14 Contracts, Leases and Agreements; No Default 20
SECTION 3.15 Insurance 23
SECTION 3.16 Brokers and Finders 23
SECTION 3.17 No Undisclosed Liabilities 23
SECTION 3.18 Accounts Receivable 23
SECTION 3.19 Employees 24
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TABLE OF CONTENTS
(continued)
SECTION 3.20 Intellectual Property 24
SECTION 3.21 Certain Payments 27
SECTION 3.22 Company Assets 27
SECTION 3.23 Customers and Suppliers 27
SECTION 3.24 Takeover Statutes 28
SECTION 3.25 Shares to be Received by Company Shareholders 28
SECTION 3.26 No other Representation or Warranty 28
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR 28
SECTION 4.1 Organization and Good Standing; the Acquiror Subsidiaries 28
SECTION 4.2 Capitalization 29
SECTION 4.3 Corporate Authority 30
SECTION 4.4 Consents and Approval 30
SECTION 4.5 No Violations 30
SECTION 4.6 SEC Filings 31
SECTION 4.7 Financial Statements 31
SECTION 4.8 Absence of Certain Changes and Events 32
SECTION 4.9 Litigation; Orders 33
SECTION 4.10 Brokers and Finders 33
SECTION 4.11 No Undisclosed Liabilities 33
SECTION 4.12 Intellectual Property 33
SECTION 4.13 Certain Payments 35
SECTION 4.14 Takeover Statutes 35
SECTION 4.15 No Other Representation or Warranty 35
SECTION 4.16 Certain Contracts 35
ARTICLE V COVENANTS 36
SECTION 5.1 Company Conduct of Business 36
SECTION 5.2 Acquiror Conduct of Business 36
SECTION 5.3 Access 37
SECTION 5.4 Required Approvals 38
SECTION 5.5 Publicity 38
SECTION 5.6 Confidentiality 39
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TABLE OF CONTENTS
(continued)
SECTION 5.7 Expenses 40
SECTION 5.8 Further Assurances 40
SECTION 5.9 Notification 40
SECTION 5.10 New Options 41
SECTION 5.11 Intercompany Liabilities 41
SECTION 5.12 Company Shareholders Meeting 41
SECTION 5.13 Shareholder Representation Letters 42
SECTION 5.14 Additional Representation Letters 42
SECTION 5.15 Nasdaq Listing of Additional Shares 42
SECTION 5.16 Exclusivity 42
SECTION 5.17 Name 43
ARTICLE VI CONDITIONS TO CLOSING 43
SECTION 6.1 Conditions to Obligations of the Acquiror 43
SECTION 6.2 Conditions to Obligations of the Company 45
ARTICLE VII TERMINATION 47
SECTION 7.1 Termination 47
SECTION 7.2 Effect of Termination; Survival 48
SECTION 7.3 Indemnification by the Company 49
SECTION 7.4 Notice and Payment of Claims 50
SECTION 7.5 Procedure for Indemnification - Third Party 51
SECTION 7.6 Procedure for Indemnification - Third Party, No Recourse
against the Company Subsidiaries 52
SECTION 7.7 Limited Liability of the Acquiror 52
SECTION 7.8 Indemnity and Liability Baskets 52
SECTION 7.9 Payment by Stock 53
ARTICLE VIII REGISTRATION RIGHTS 53
SECTION 8.1 Definitions 53
SECTION 8.2 Registration Procedures 53
SECTION 8.3 Registration Expenses 54
SECTION 8.4 Indemnification 55
SECTION 8.5 Lockup Agreement 57
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TABLE OF CONTENTS
(continued)
SECTION 8.6 Assignment of Registration Rights 57
SECTION 8.7 Reports Under Exchange Act 57
SECTION 8.8 Termination 58
ARTICLE IX MISCELLANEOUS 58
SECTION 9.1 Assignments; Successors, No Third Party Rights 58
SECTION 9.2 Entire Agreement 58
SECTION 9.3 Waiver; Amendment or Modification 59
SECTION 9.4 Notices 59
SECTION 9.5 GOVERNING LAW 60
SECTION 9.6 CONSENT TO JURISDICTION, WAIVER OF JURY TRIAL 61
SECTION 9.7 Actions of the Company Subsidiaries 61
SECTION 9.8 Descriptive Headings 62
SECTION 9.9 Counterparts 62
SECTION 9.10 Knowledge 62
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ACQUISITION AGREEMENT (the "Agreement"), dated as of May 24, 2001
by and among Vsource Inc., a Delaware corporation (the "Acquiror") and NetCel360
Holdings Limited, a Cayman Islands company (the "Company").
WHEREAS, the Acquiror is engaged in the business of providing private
exchanges and marketplaces (the "Acquiror Business");
WHEREAS, the Company and the Company Subsidiaries (as defined in
Section 3.1(c) hereof) are engaged in the business of providing business process
outsourcing and technology services;
WHEREAS, the Acquiror desires to acquire the Company Assets in
consideration of the issuance of shares of the Acquiror's Common Stock, par
value $0.01 per share (the "Acquiror Common Stock");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements, undertakings and obligations
set forth herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Specific Definitions. As used in this Agreement,
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the following terms shall have the meaning set forth or as represented below:
"Acquiror" shall have the meaning set forth in the preamble of this
document.
"Acquiror Accountants" shall mean ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLC.
"Acquiror Advisors" shall have the meaning set forth in Section
5.4(a).
"Acquiror Balance Sheet" means the balance sheet of the Acquiror as
of January 31, 2001 included in the Acquiror Form 10-K.
"Acquiror Business" shall have the meaning set forth in the recitals
of this Agreement.
"Acquiror Common Stock" shall have the meaning set forth in the
recitals of this Agreement.
"Acquiror Domain Names" shall have the meaning set forth in Section
4.12.
"Acquiror Financial Statements" shall have the meaning set forth in Section
4.7(a).
"Acquiror Form 10-K" means the Acquiror's Annual Report on Form
10-KSB for the fiscal year end January 31, 2001, as filed with the SEC on May
16, 2001.
"Acquiror Indemnified Persons" shall have the meaning set forth in
Section 7.3.
"Acquiror Intellectual Property Assets" shall have the meaning set
forth in Section 4.12.
"Acquiror Marks" shall have the meaning set forth in Section 4.12.
"Acquiror Material Adverse Effect" shall have the meaning set forth
in Article IV.
"Acquiror's Organizational Documents" shall have the meaning set
forth in Section 4.1(b).
"Acquiror Subsidiary" shall have the meaning set forth in Section
4.1(c).
"Acquiror Trade Secrets" shall have the meaning set forth in Section
4.12.
"Acquisition" shall have the meaning set forth in Section 2.1.
"Actions" shall have the meaning set forth in Section 3.8(a).
"Aggrieved Party" shall have the meaning set forth in Section 7.8.
"Agreement" shall have the meaning set forth in the preamble of this
document.
"Amended and Restated Bridge Loan Agreement" means the Amended and
Restated Bridge Loan Agreement dated May 24, 2001 among ▇▇▇▇▇▇▇▇▇.▇▇▇ Ltd.,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ Sdn Bhd and the Lenders party thereto.
"Bankruptcy Exception" shall have the meaning set forth in Section
3.3.
"Bridge Loan Liens" shall mean the security interests granted to the
Lenders under the Amended and Restated Bridge Loan Agreement and the related
Debenture.
"Closing" shall have the meaning set forth in Section 2.5.
"Closing Date" shall have the meaning set forth in Section 2.5.
"Code" shall have the meaning set forth in Section 3.9(e).
"Company" shall have the meaning set forth in the recitals of this
Agreement.
"Company Accountants" shall mean Ernst & Young.
"Company Accounts Receivable" shall have the meaning set forth in
Section 3.18(a).
"Company Applicable Contract" shall have the meaning set forth in
Section 3.5(c).
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"Company Assets" means all right, title and interest in and to (a)
all of the assets, properties, rights and claims owned by the Company, and (b)
any other assets, properties, rights and claims used in, relating to or arising
from the conduct of the Company Business (including but not limited to the
assets described in or referred to in Section 3.22), but excluding the Excluded
Assets.
"Company Balance Sheet" shall have the meaning set forth in Section
3.6(a).
"Company Bank Accounts" shall have the meaning set forth in Section
3.13(b).
"Company Benefit Plans" shall have the meaning set forth in Section
3.10(a).
"Company Business" shall mean the business of providing business
process outsourcing and technology services conducted and intended to be
conducted by the Company and the Company Subsidiaries as of the date hereof.
"Company Common Shares" shall have the meaning set forth in the
recitals of this Agreement.
"Company Copyrights" shall have the meaning set forth in Section
3.20(a)(iii).
"Company Domain Names" shall have the meaning set forth in Section
3.20(a)(v).
"Company ERISA Plans" shall have the meaning set forth in Section 3.
1 0(b).
"Company Financial Statements" shall have the meaning set forth in
Section 3.6(a).
"Company Governmental Authorizations" shall have the meaning set
forth in Section 3.12.
"Company Intellectual Property Assets" shall have the meaning set
forth in Section 3.20(a).
"Company Interim Balance Sheet" shall have the meaning set forth in
Section 3.6(a).
"Company Investments" shall have the meaning set forth in Section
3.1(c).
"Company Leased Property" shall have the meaning set forth in Section
3.13(a).
"Company Marks" shall have the meaning set forth in Section
3.20(a)(i).
"Company Material Adverse Effect" shall have the meaning set forth in
Article III.
"Company Non-ERISA Benefit Plans" shall have the meaning set forth in
Section 3.10(d).
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"Company Obligations" shall mean the obligations of the Company set
forth on Schedule 2.6 of the Company's Disclosure Schedules.
"Company Organizational Documents" shall have the meaning set forth
in Section 3.1(b).
"Company Owned Property" shall have the meaning set forth in Section
3.13(a).
"Company Patents" shall have the meaning set forth in Section
3.20(a)(ii).
"Company Proxy Statement" shall have the meaning set forth in Section
5.12(a).
"Company Shareholder" shall have the meaning set forth in Section
3.2(a).
"Company Shareholders' Meeting" shall have the meaning set forth in
Section 5.15(b).
"Company Subsidiary" shall have the meaning set forth in Section
3.1(c).
"Company Trade Secrets" shall have the meaning set forth in Section
3.20(a)(iv).
"Confidentiality Agreement" shall have the meaning set forth in
Section 7.2(a).
"Contract" shall have the meaning set forth in Section 3.5(c).
"Damages" shall have the meaning set forth in Section 7.3.
"ERISA" shall have the meaning set forth in Section 3.10(a).
"Exchange Act" shall mean the United States Securities Exchange Act
of 1934, as amended.
"Excluded Assets" means those assets set forth on Exhibit 1.
"Fair Market Value" shall mean, in respect of any securities listed
on a national securities exchange in the United States, the average of the
closing price of such securities on such national securities exchange for the
ten (10) trading days prior to the date of determination.
"finally determined" shall have the meaning set forth in Section
7.4(b).
"Governmental Authorization" shall have the meaning set forth in
Section 3.5(g).
"Governmental Equity" shall have the meaning set forth in Section
3.4.
"Indemnified Party" shall have the meaning set forth in Section
7.4(a).
"Indemnifying Party" shall have the meaning set forth in Section
7.4(a).
"knowledge" shall have the meaning set forth in Section 9.10.
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"Law" shall have the meaning set forth in Section 3.1(e).
"Liability" shall mean any debt, liability, commitment or obligation
of any kind, character or nature whatsoever, whether known or unknown, ▇▇▇▇▇▇ or
inchoate, secured or unsecured, accrued, fixed, absolute, contingent or
otherwise, and whether due or to become due.
"Liens" shall mean any charges, claims, community property interests,
conditions, conditional sale or other title retention agreements, covenants,
easements, encumbrances, equitable interests, exceptions, liens, mortgages,
options, pledges, reservations, rights of first refusal, building use
restrictions, rights of way, security interests, servitudes, statutory liens,
variances, warrants, or restrictions of any kind, including any restrictions on
use, voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"material" shall have the meanings set forth in Article III and
Article IV, as applicable.
"Order" shall have the meaning set forth in Section 3.1(e).
"Ordinary Course of Business" shall have the meaning set forth in
Section 3.7.
"Person" shall mean any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, Governmental Entity, joint venture, estate, trust, association,
organization or other entity of any kind or nature.
"Proprietary Rights Agreement" shall have the meaning set forth in
Section 3.19(b).
"Related Person" shall mean, with respect to any Person, (a) any
Person which, directly or indirectly, controls, is controlled by, or is under
common control with, such Person, (b) each Person that serves as a director,
officer, partner, executor, or trustee of such Person (or in any other similar
capacity), (c) any Person with respect to which such Person serves as a general
partner or trustee (or in any other similar capacity), (d) any Person that has
direct or indirect beneficial ownership (as defined in Rule 13d-3 of the
Exchange Act) of voting securities or other voting interests representing at
least 20% of the outstanding voting power or equity securities or other equity
interests representing at least 20% of the outstanding equity interests (a
"Material Interest") in such Person and (e) any Person in which such Person
holds a Material Interest.
"Representatives" shall have the meaning set forth in Section 5.3.
"SEC" shall mean the United States Securities and Exchange
Commission.
"Securities Act" shall mean the United States Securities Act of 1933,
as amended.
"Shares" shall have the meaning set forth in Section 2.2.
"Subsidiary" shall have the meaning set forth in Section 3.1(c).
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"Takeover Statute" shall have the meaning set forth in Section 3.24.
"Tax" shall mean any foreign, U.S. Federal, state or local income,
gross receipts, license, severance, occupation, capital gains, premium,
environmental (including taxes under Section 59A of the Code), customs, duties,
profits, disability, registration, alternative or add-on minimum, estimated,
withholding, payroll, employment, unemployment insurance, social security (or
similar), excise, production, sales, use, value-added, occupancy, franchise,
real property, personal property, business and occupation, mercantile, windfall
profits, capital stock, stamp, transfer, workmen's compensation or other tax,
fee or imposition of any kind whatsoever, including any interest, penalties,
additions, assessments or deferred liability with respect thereto, and any
interest in respect of such penalties, additions, assessments or deferred
liability, whether disputed or not.
"Tax Returns" shall mean any return, report, notice, form,
declaration, claim for refund, estimate, election, or information statement or
other document relating to any Tax, including any Schedule or attachment
thereto, and any amendment thereof.
"Third Party Claim" shall have the meaning set forth in Section
7.5(a).
"Transfer", shall have the meaning set forth in Section 3.2(b).
"U.S. GAAP" shall have the meaning set forth in Section 3.6(b).
"Vitria Litigation" shall have the meaning set forth in Section
4.9(a).
"Voting Debt" shall mean bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of the issuer of such bonds, debentures, notes or other
obligations.
SECTION 1.2 Other Terms. Other terms may be defined
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elsewhere in the text of this Agreement and, unless otherwise indicated, shall
have such meaning throughout this Agreement.
SECTION 1.3 Other Definitional Provisions.
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(a) The words "hereof", "herein", "hereby" and "hereunder"
and words of similar import, when used in this Agreement, shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "US$", "dollars" and "$" shall mean United States
of America dollars.
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(d) Words of inclusion shall not be construed as terms of
limitation herein, so that references to "included" matters shall be regarded as
non-exclusive, non-characterizing illustrations.
(e) Whenever reference is made in this Agreement to any Article,
Annex, Exhibit, Section or Schedule, such reference shall be deemed to apply to
the specified Article or Section of this Agreement or the specified Annex,
Exhibit or Schedule to this Agreement.
(f) Words importing gender include both genders.
ARTICLE II
CLOSING; DELIVERY AND PAYMENT
SECTION 2.1 Acquisition of Assets. Upon the terms and
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subject to the conditions set forth in this Agreement and on the basis of the
representations, warranties, covenants, agreements, undertakings and obligations
contained herein, at the Closing, the Company shall transfer, convey and assign
to the Acquiror, and the Acquiror shall acquire from the Company, all of the
Company Assets, free and clear of any and all Liens (except for the Bridge Loan
Liens), for the consideration specified in this Article II (the "Acquisition").
SECTION 2.2 Aggregate Consideration. In consideration for
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all of the Company Assets, the Acquiror shall issue and deliver a total of
3,709,729 shares (the "Shares") of the Acquiror Common Stock to the Company in
accordance with Sections 2.3 and 2.4 hereof.
SECTION 2.3 Payment of Consideration. At the Closing, the
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Acquiror shall issue and deliver to the Company a certificate in the name of the
Company representing 2,959,729 Shares. On or prior to the date which is six
months from the Closing Date, the Acquiror shall issue and deliver to the
Company a certificate in the name of the Company representing 750,000 Shares
(such shares are the "Deferred Shares"). If at any time prior to the date which
is six months after the Closing Date the Acquiror changes the number of shares
of Acquiror Common Stock outstanding, without consideration, as a result of a
stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction, the number of Deferred Shares to be issued shall be
appropriately adjusted.
SECTION 2.4 Company Assets. At the Closing the Company shall
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deliver all of the documents necessary to transfer full right and title in and
to the Company Assets to the Acquiror, including:
(a) Certificates representing 100% of the outstanding capital in
each of the Company Subsidiaries included in the Company Assets, duly endorsed
for transfer or together with any necessary duly executed transfer and/or sold
notes to the Acquiror with all necessary stamp or other indications of the
payment of necessary transfer or stamp taxes duly attached;
(b) Deeds, bills of sale or other appropriate documentation of
transfer, transferring the Company Owned Property included in the Company Assets
to the Acquiror;
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(c) Assignments assigning to the Acquiror full right, title and
interest in and to the Company's interest in the Company Intellectual Property
included in the Company Assets;
(d) Assignments assigning to the Acquiror all of the Company's
interest in and to the Company Leased Property included in the Company Assets;
(e) Assignment and assumption agreements, assigning to the
Acquiror all rights of the Company in and to all Company Contracts included in
the Company Assets;
(f) Waivers waiving all breaches, or granting all necessary
consents, for each Company Applicable Contract set forth in Schedule 3.5 of the
Company Disclosure Schedule to the extent related to a Company Asset;
(g) Evidence of the assignment to the Acquiror or the reissuance
in the Acquiror's name, or such other name designated by the Acquiror, all
Company Governmental Authorizations and any Governmental Authorizations listed
in Schedule 3.5 to the Company Disclosure Schedule;
(h) Evidence of the assignment or transfer of all Company
Investments included in the Company Assets to the Acquiror; and
(i) Assignments assigning to the Acquiror all Company Accounts
Receivable included in the Company Assets outstanding on the Closing Date and
not receivable solely by a Company Subsidiary.
SECTION 2.5 Closing. The closing of the sale and purchase (the
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"Closing" shall take place (i) at the offices of ▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇ at
10:00 a.m. on the first business day on which the last to be fulfilled or waived
of the conditions set forth in Article VI (other than those conditions that by
their nature are to be satisfied at the Closing, but subject to the fulfillment
or waiver of those conditions) shall be satisfied or waived in accordance with
this Agreement or (ii) at such other place and time and/or on such other date as
the Acquiror and Company may agree in writing (the "Closing Date").
SECTION 2.6 Assumption of Liabilities. Subject to the terms and
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conditions herein, upon the transfer of the Company Assets, the Acquiror shall
assume the Company Obligations. Except for the Company Obligations, the
Acquiror shall not assume and shall not be liable or responsible for any of the
Company's debts, obligations or liabilities, whether known or unknown,
contingent, absolute or otherwise, all of which shall be retained by the
Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As used herein, (i) any reference to any event, change or effect being
"material" with respect to the Company or any Company Subsidiary means an event,
change or effect which is material in relation to the financial condition,
properties, business, operations, assets, liabilities or results of operations
of the Company and each Company Subsidiary, taken as a whole, and (ii) the term
"Company Material Adverse Effect" means, in respect of any effect prior to the
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Closing, a material adverse effect on the financial condition, properties,
business, operations, assets, liabilities or results of operations of the
Company and each Company Subsidiary, taken as a whole, and in respect of any
effect subsequent to the Closing, a material adverse effect on the financial
condition, properties, business, operations, assets, liabilities or results of
operations of the Company Business, taken as whole.
The Company hereby represents and warrants to the Acquiror as follows:
SECTION 3.1 Organization and Good Standing, Company Subsidiaries.
(a) Each of the Company and each Company Subsidiary is duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation, with requisite power and authority to
conduct its business as it is now being conducted, to own or use the properties
or assets that it purports to own or use, and to perform all of its respective
obligations under all Company Applicable Contracts. Each of the Company and the
Company Subsidiaries (as defined below) is duly qualified or licensed to do
business as a foreign corporation and is in good standing as a foreign
corporation in each jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such licensing, qualification or good standing. The Company is not an
"investment company" within the meaning of the Investment Company Act of 1940.
(b) The Company has made available or delivered to the
Acquiror a true, complete and correct copy of the Company's and each Company
Subsidiary's memorandum of association and articles of association or
certificate of incorporation and by laws, as applicable, each as amended to date
(collectively, the "Company Organizational Documents"). The Company's
Organizational Documents so delivered are in full force and effect.
(c) Schedule 3.1(c) of the Company Disclosure Schedule sets forth
a true, complete and correct list of the subsidiaries of the Company
(hereinafter referred to individually as a "Company Subsidiary" and collectively
as the "Company Subsidiaries"). Schedule 3.1(c) of the Company Disclosure
Schedule states, with respect to each Company Subsidiary, its jurisdiction of
incorporation or organization, authorized capital stock, outstanding and issued
shares of such capital stock, the Company's ownership interest and jurisdictions
in which it is qualified to do business. Schedule 3.1(c) also sets forth a
true, complete and correct list of any other investments of the Company (whether
in the form of loans, capital contributions, equity interests or otherwise) in
any other Person (collectively, the "Company Investments").
(d) The Company or a Company Subsidiary is and shall be on the
Closing Date the sole record and beneficial owner and holder of all of the
issued and outstanding shares of capital stock of each Company Subsidiary, free
and clear of all Liens (except for the Bridge Loan Liens). Except as set forth
in Schedule 3.1(d) of the Company Disclosure Schedule, there are no shares of
capital stock or other securities of any Company Subsidiary (i) reserved for
issuance or (ii) subject to preemptive rights and there are no outstanding
subscriptions, options, warrants, calls, rights, convertible securities or other
agreements or other instruments outstanding or in effect giving any Person the
right to acquire any shares of capital stock or other securities of any Company
Subsidiary or any commitment of any character relating to the issued or unissued
capital stock or other securities of any Company Subsidiary.
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(e) Except as set forth in Schedule 3.1(d) of the Company
Disclosure Schedule, no legend or other reference to any purported Lien appears
upon any certificate representing the shares of capital stock of any Company
Subsidiary. None of the shares of capital stock of any Company Subsidiary was
issued in violation of (i) the Securities Act, the securities laws of any state
or any other federal, state, local, municipal, foreign, international,
multinational, or other constitution, law, rule, requirement, administrative
ruling, order, ordinance, principle of common law, code, regulation, statute,
treaty or process ("Law") or (ii) any award, decision, injunction, judgment,
decree, settlement, order, process, ruling, subpoena or verdict (whether
temporary, preliminary or permanent) entered, issued, made or rendered by any
court, administrative agency, arbitrator, Governmental Entity or other tribunal
of competent jurisdiction ("Order").
SECTION 3.2 Shareholders.
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(a) Schedule 3.2 of the Company Disclosure Schedule sets forth
for all registered holders of the Company's shares, each holder's name (each a
"Company Shareholder"), registered address, number of shares of each class held
and percentage of total outstanding of each class held. If all of the Acquiror
Common Stock were received by the Company as of the date hereof and distributed
to all of its registered shareholders as of the date hereof in accordance with
their respective fully diluted ownership interests in the Company and without
any deductions, no Company Shareholder would receive greater than 1,446,794
shares of Acquiror Common Stock.
(b) The Company has delivered to the Acquiror duly executed
Representation Letters in the form set forth in Exhibit 3.2(b)-1 hereto and duly
executed irrevocable proxies in the form set forth in Exhibit 3.2(b)-2 hereto
from ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇.
(c) The Company represents and warrants that:
(i) it is an accredited investor, as defined in the
Securities Act of 1933, as amended, and will acquire the Acquiror Common Stock
to be acquired by it for its own account, and with no intention of distributing
or reselling such securities in any transaction or scheme of transactions;
(ii) it acknowledges that the Acquiror Common Stock to be
delivered at the Closing have not been registered under the Securities Act or
any securities laws of any territory, possession or state thereof or the
District of Columbia and that each certificate representing shares of the
Acquiror Common Stock issued pursuant to this Agreement or any other securities
issued in respect of them upon any stock split, stock dividend, reverse stock
split, recapitalization, merger, consolidation or similar event, shall bear the
following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES. THEY MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO ANY
UNITED STATES PERSON EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
-10-
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT. THE COMPANY AND ITS TRANSFER
AGENT SHALL NOT PERMIT TRANSFER OR RECORDATION OF TRANSFER OF THE
SECURITIES REPRESENTED HEREBY UNLESS THE COMPANY SHALL HAVE RECEIVED
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT SUCH TRANSFER COMPLIES WITH THE FOREGOING PROVISIONS. UPON
TRANSFER OF THE SECURITIES REPRESENTED HEREBY ACCOMPANIED BY AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE
TRANSFER HAS BEEN PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
IN A TRANSACTION PURSUANT TO RULE 144 UNDER THE SECURITIES ACT, THE
COMPANY AND THE TRANSFER AGENT SHALL PROMPTLY REMOVE THIS LEGEND FROM
THE SECURITIES REPRESENTED HEREBY.
(iii) it acknowledges that it is capable of conducting its
own investigation of the Acquiror and can form an independent judgement
concerning the Acquiror and the Acquiror Subsidiaries and has conducted such an
investigation and formed such an independent judgment.
(iv) it has such knowledge, sophistication and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Acquiror and can form an independent judgment
concerning Acquiror and its subsidiaries. It has received and reviewed copies of
the Acquiror Form 10-K, and this Agreement and related agreements. It is
familiar with the business and financial condition, properties, operations and
prospects of the Acquiror and its subsidiaries and have had, during the course
of the transactions contemplated by this Agreement, the opportunity (i) to ask
questions of, and receive answers from, the Acquiror concerning the Acquiror and
its subsidiaries and (ii) to obtain additional information (to the extent the
Acquiror possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information furnished
to it or to which it has had access.
(v) It has made such independent investigation of the
Acquiror as it deems to be necessary or advisable in connection with the
transactions contemplated by this Agreement.
(vi) that by reason of its, or its management's, business or
financial experience, it has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement.
(vii) it waives all claims, however arising, it may have
against any of the Acquiror, its Related Persons, the Acquiror Subsidiaries, the
Company Subsidiaries or any of their directors, officers, employees, agent,
stockholders, consultants, affiliates, investment bankers, attorneys or
representatives, except for any claims against the Acquiror based upon the
breach of any representations and warranties or covenants or other agreements
contained within this Agreement pursuant to the terms of this Agreement.
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(viii) it will only transfer the Acquiror Common Stock (x)
in an "offshore transaction", as defined in Rule 902 under the Securities Act to
a person that is not a "U.S. person", as defined in Rule 902 under the
Securities Act or (y) to a person that is an "accredited investor" as defined in
the Securities Act.
SECTION 3.3 Authority. The Company has the full legal right,
---------
requisite corporate power and authority and has taken all action necessary in
order to execute, deliver and perform fully its obligations under this Agreement
and to consummate the transactions contemplated herein. This Agreement has been
duly executed and delivered by the Company and constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles (the "Bankruptcy
Exception").
SECTION 3.4 Consents and Approvals. Except as set forth in
------------------------
Schedule 3.4 of the Company Disclosure Schedule, no notices, reports or other
filings are required to be made by the Company with, nor are any consents,
registrations, approvals, declarations, permits, expiration of any applicable
waiting periods or authorizations required to be obtained by the Company from,
any foreign, federal, state, local, municipal, county or other governmental,
quasi-governmental, administrative or regulatory authority, body, agency, court,
tribunal, commission or other similar entity (including any branch, department
or official thereof) ("Governmental Entity"), in connection with the execution
or delivery of this Agreement by the Company, the performance by the Company of
its obligations hereunder or the consummation by the Company of the transactions
contemplated herein except for any such notices, reports, filings,
registrations, approvals, declarations, permits, or authorizations the failure
to make or obtain any or all of which is not reasonably likely to prevent,
materially burden or materially delay the consummation of the transactions
contemplated in this Agreement or materially impair the Acquiror's ability to
use, operate and realize the benefits of any Company Asset.
SECTION 3.5 No Violations. Assuming the making of the filings set
-------------
forth in Schedule 3.4 of the Company Disclosure Schedule and the obtaining of
the consents described in Schedule 3.5 of the Company Disclosure Schedule, the
execution and delivery of this Agreement by the Company does not, and the
performance and consummation by the Company of any of the transactions
contemplated herein will not, with respect to each of the Company and each
Company Subsidiary, directly or indirectly (with or without the giving of notice
or the lapse of time or both):
(a) contravene, conflict with, or constitute or result in a
breach or violation of, or a default under (i) any provision of the Company's
Organizational Documents or (ii) any resolution adopted by the Board of
Directors (or similar governing body) or the shareholders of the Company or any
Company Subsidiary;
(b) contravene, conflict with, or constitute or result in a
breach or violation of, or a default under, or the acceleration of, or the
triggering of any payment or other obligations pursuant to, any existing Company
Benefit Plan or Company Applicable Contract or any grant or award made under any
of the foregoing;
-12-
(c) contravene, conflict with, or constitute or result in a
breach or violation of, or a default under, or the cancellation, modification or
termination of, or the acceleration of, or the creation of a Lien on any
properties or assets owned or used by the Company or any Company Subsidiary
pursuant to, any provision of any agreement, license, lease, understanding,
contract, loan, note, mortgage, indenture, promise, undertaking or other
commitment or obligation (whether written or oral and express or implied) (a
"Contract"), under which the Company or any Company Subsidiary is or may become
bound or is or may become subject to any obligation or Liability or by which any
of their respective assets owned or used are or may become bound (a "Company
Applicable Contract"), in each case other than as set forth in Schedule 3.5 of
the Company Disclosure Schedule;
(d) require the Company or any Company Subsidiary to obtain the
consent, waiver, authorization or approval of, or give notice to, any Person
under any Company Applicable Contract, in each case other than as set forth in
Schedule 3.5 of the Company Disclosure Schedule;
(e) contravene, conflict with, or constitute or result in a
breach or violation of, any Law or any Order or give any Governmental Entity or
any other Person the right to challenge any of the transactions contemplated
herein or to exercise any remedy or obtain any relief under, any Law or any
Order to which the Company or any Company Subsidiary, or any of the assets owned
or used by the Company or any Company Subsidiary, are subject;
(f) require any filing by the Company or any Company Subsidiary
with, or approval or consent or other action by, any Governmental Entity or any
other Person;
(g) contravene, conflict with, or constitute or result in a
breach or violation of, or a default under, any provision of, or give any
Governmental Entity the right to revoke, withdraw, suspend, cancel, terminate or
modify, any approval, franchise, certificates of authority, order, consent,
judgment, decree, license, permit, waiver or other authorization issued,
granted, given or otherwise made available by or under the authority of any
Governmental Entity or pursuant to any Law ("Governmental Authorization') that
is held by the Company or any Company Subsidiary or that otherwise relates to
the Company Business or any of the Company Assets;
(h) cause the Acquiror or the Company or any Company Subsidiary
to become subject to, or to become liable for the payment of, any Tax; or
(i) cause any of the assets owned by the Company or any Company
Subsidiary to be reassessed or revalued by any taxing authority or other
Governmental Entity;
(j) Schedule 3.5 of the Company Disclosure Schedule sets forth a
true, complete and correct list of any consents, waivers, authorizations or
approvals required to be obtained under any Company Applicable Contract in
connection with the execution, delivery and performance of this Agreement by the
Company or the consummation of the transactions contemplated herein.
-13-
SECTION 3.6 Financial Statements.
---------------------
(a) Schedule 3.6 of the Company Disclosure Schedule contains the
following financial statements (collectively, the "Company Financial
Statements"): (i) audited consolidated balance sheet of the Company
(consolidating each Company Subsidiary in existence at such time) as at December
31, 1999 (including the related notes and schedules thereto) and the related
audited consolidated statements of income, changes in shareholders' equity and
cash flow for the fiscal year then ended, together with the report thereon of
the Company Accountants, (ii) audited consolidated balance sheet of the Company
(consolidating each Company Subsidiary in existence at such time) as at December
31, 2000 (including the related notes and schedules thereto) (the "Company
Balance Sheet"), and the related audited consolidated statements of income,
changes in shareholders' equity and cash flow for the fiscal year then ended,
together with the report thereon of the Company's Accountants, and (iii) an
unaudited consolidated balance sheet of the Company (consolidating each Company
Subsidiary in existence at such time) as at March 31, 2001 (the "Company Interim
Balance Sheet") and the related unaudited consolidated statements of income,
changes in stockholders' equity and cash flow for the three months then ended.
(b) The Company Financial Statements and notes fairly present the
consolidated financial condition and the consolidated results of operations,
changes in shareholders' equity and cash flow of the Company and each Company
Subsidiary as at the respective dates of and for the periods referred to in such
financial statements, all in accordance with generally accepted United States
accounting principles ("U.S. GAAP") except, in the case of the Company Interim
Balance Sheet and related statements of income, changes in shareholders equity
and cash flow, for the absence of notes and subject to normal year end audit
adjustments consistent with past practices. The Company Financial Statements
reflect the consistent application of such accounting principles throughout the
periods involved. As of their respective dates, the Company Financial Statements
did not, and any Company Financial Statements subsequent to the date hereof will
not, contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading.
No financial statements of any Person other than the Company and each Company
Subsidiary are required by U.S. GAAP to be included in the consolidated
financial statements of the Company. The Company Financial Statements
constitute all of the financial statements that would be required to be included
in a Registration Statement on Form S-1 filed by the Company pursuant to the
Securities Act.
(c) The Company Financial Statements were compiled from and are
in accordance with the books and records of the Company and each Company
Subsidiary. The books and records (including the books of account, minute books,
share record books and other records) of the Company and each Company
Subsidiary, all of which have been made available to the Acquiror, are true,
complete and correct and have been maintained in accordance with sound business
practices and the requirements of Section 13(b)(2) of the Exchange Act
(regardless of whether or not the Company or any Company Subsidiary is subject
to such Section), including the maintenance of an adequate system of internal
controls. The minute books of the Company and each Company Subsidiary contain
-14-
true, complete and correct records of all meetings held of, and corporate action
taken by, the shareholders, the Board of Directors, and committees of the Board
of Directors of the Company and each Company Subsidiary, and no meeting of any
such stockholders, Board of Directors or committee has been held for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of those books and records shall be in the possession of the
Company and each Company Subsidiary.
(d) All of the assets and liabilities reflected on the Company
Balance Sheet and the Company Interim Balance Sheet were related to the Company
Business and arose out of or were incurred in the conduct of the Company
Business.
SECTION 3.7 Absence of Certain Changes and Events. Except as
-------------------------------------
set forth in Schedule 3.7 of the Company Disclosure Schedule, since the date of
the Company Balance Sheet, the Company and each Company Subsidiary has conducted
the Company Business only in, and has not engaged in any material transaction
other than according to, the ordinary and usual course of such business
("Ordinary Course of Business"), and there has not been:
(a) any change in the financial condition, properties, business
or results of operations of the Company and the Company Subsidiaries, except
those changes that, individually or in the aggregate, are not reasonably likely
to have a Company Material Adverse Effect;
(b) any material damage, destruction or other casualty loss with
respect to any material asset or property owned, leased or otherwise used by the
Company or any Company Subsidiary, whether or not covered by insurance;
(c) any declaration, setting aside or payment of any dividend or
other distribution in respect of the issued share capital of the Company, or
(d) any change by the Company in accounting principles, practices
or methods.
(e) any increase in the compensation payable or that could become
payable by the Company or any Company Subsidiary to any of their respective
current or former directors, officers or key employees or any amendment of any
of the Company Benefit Plans other than increases or amendments in the Ordinary
Course of Business or increases pursuant to the terms of the existing employment
agreements and no employment agreements with any directors, employees or
officers of Company or any Company Subsidiaries, other than renewals of
employment agreements in accordance with their terms, have been entered into by
the Company or any Company Subsidiary.
SECTION 3.8 Litigation; Orders.
-------------------
(a) Except as set forth in Schedule 3.8(a) of the Company
Disclosure Schedule, there are no civil, criminal, administrative, investigative
or informal actions, audits, demands, suits, claims, arbitrations, hearings,
litigations, disputes, investigations or other proceedings of any kind or nature
("Actions") pending or, to the knowledge of the Company, threatened, anticipated
or contemplated against, by or affecting the Company or any Company Subsidiary
or any of their respective assets, at law, in equity or otherwise, in, before,
-15-
by, or otherwise involving, any Governmental Entity, arbitrator or other Person.
The Actions described on Schedule 3.8(a) are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on the Company.
None of the Actions described on Schedule 3.8(a) question, challenge the
validity of, or have the effect of preventing, delaying, making illegal or
otherwise interfering with, this Agreement, the transactions contemplated herein
or any action taken or proposed to be taken by Company Shareholder or the
Company or any Company Subsidiary pursuant hereto or in connection with the
transactions contemplated herein. To the knowledge of the Company, except as set
forth in Schedule 3.8(a) of the Company Disclosure Schedule, no event has
occurred or circumstance exists that is reasonably likely to give rise to or
serve as a basis for the commencement of any such Action. The Company has
delivered or made available to the Acquiror copies of all pleadings,
correspondence and other documents relating to each Action listed in Schedule
3.8(a) of the Company Disclosure Schedule.
(b) Neither the Company, any Company Subsidiaries, any assets
owned or used by the Company or any Company Subsidiary, nor any officers or
employees of the Company are subject to any Order relating to the Company
Business.
SECTION 3.9 Taxes.
-----
(a) Each of the Company and the Company Subsidiaries has filed or
caused to be filed (on a timely basis since February 1999) all Tax Returns that
are or were required to be filed by or with respect to any of them, either
separately or as a member of a group of corporations, pursuant to applicable
Law. The Company has delivered or made available to the Acquiror copies of, and
Schedule 3.9(a) of the Company Disclosure Schedule contains a true, complete and
correct list of all such Tax Returns filed since February 1999. Each of the
Company and the Company Subsidiaries has paid, or made provision for the payment
of, all Taxes that have or is reasonably likely to have become due pursuant to
those Tax Returns or otherwise, or pursuant to any assessment received by the
Company or any Company Subsidiary. To the knowledge of the Company, there does
not exist any actual or proposed additional Tax assessment against the Company
or any Company Subsidiary which, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect on the Company.
(b) No waivers of statutes of limitations as to any Tax matters
relating to the Company or any Company Subsidiary have been given by or
requested from the Company or any Company Subsidiary and are currently
outstanding. To the knowledge of the Company, no audits or investigations by any
relevant Government Authorities have been, or are being, conducted of any Tax
Returns of the Company or any Company Subsidiary, and the Company has no reason
to believe that any audit or investigation will be conducted in the future.
(c) The charges, accruals and reserves with respect to Taxes
provided in the Company Balance Sheet and the Company Interim Balance Sheet are
adequate (determined in accordance with U.S. GAAP) and are at least equal to the
Company's and the Company Subsidiaries' liability for Taxes. There exists no
proposed Tax assessment against the Company or any Company Subsidiary except as
disclosed in the Balance Sheet. All Taxes that the Company or any Company
Subsidiary is or was required by Law to withhold or collect have been duly
withheld or collected and have been paid to the proper Governmental Entity or
other Person, or adequate reserves equal to such amounts have been set aside for
such payments.
-16-
(d) All Tax Returns filed by (or that include on a consolidated
basis) the Company or any Company Subsidiary are true, complete and correct.
There is no Tax sharing agreement that would require any payment by the Company
or any Company Subsidiary after the date of this Agreement.
(e) As a result of the Acquiror's acquisition of the Company
Assets, neither the Company nor the Acquiror nor any Company Subsidiary will be
obligated to make a payment to a Person that could be a "parachute payment" to a
"disqualified individual" as those terms are defined in Section 280G of the
United States Internal Revenue Code of 1986, as amended (the "Code"), without
regard to whether such payment is reasonable compensation for personal services
performed or to be performed in the future.
(f) There are no Liens relating or attributable to Taxes with
respect to, or in connection with, the assets of the Company or any Company
Subsidiary, except for Liens in respect of Taxes not yet due and payable. To the
knowledge of the Company, there is no basis for the assertion of any claims for
Taxes.
(g) No tax is required to be withheld pursuant to Section 1445 of
the Code as a result of the transfers contemplated by this Agreement.
(h) No closing agreements, private letter rulings, technical
advice memoranda or similar agreement or rulings have been entered into or
issued by any taxing authority with respect to the Company or any affiliate with
respect to the Company Assets.
SECTION 3.10 Employee Benefits.
------------------
(a) The Company has delivered or otherwise made available to the
Acquiror a true, complete and correct copy of, and Schedule 3.10(a) of the
Company Disclosure Schedule sets forth a true, complete and correct list of,
each profit-sharing, pension, severance pay, thrift, savings, employee stock
ownership, incentive, change of control, employment, retirement, bonus, deferred
compensation, stock option, stock purchase, restricted stock, stock bonus,
medical, health, disability, death benefit and other employee benefit plan,
agreement, arrangement or commitment, including any such plan, agreement,
arrangement or commitment or any other plan or program which constitutes an
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), which provides benefits for
or pertains to any employee of the Company or any Company Subsidiary or to which
the Company or any Company Subsidiary is otherwise bound or affected (all of
which are hereinafter referred to as the "Company Benefit Plans").
(b) All Company Benefit Plans maintained in the United States
(the "Company ERISA Plans") which are subject to ERISA are in substantial
compliance with ERISA. Each Company ERISA Plan which is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA and which is intended
to be qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service with respect to such
qualification and the Company is not aware of any circumstances likely to result
in revocation of any such favorable determination letter. There is no material
-17-
pending or, to the knowledge of the Company threatened, litigation relating to
the Company ERISA Plans. Neither the Company nor any of the Company Subsidiaries
has engaged in a transaction with respect to any Company ERISA Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
could subject the Company or any Company Subsidiary to a tax or penalty imposed
by either Section 4975 of the Code or Section 502(f) of ERISA in an amount that
would be material.
(c) Neither the Company nor any entity which is considered an
employer with the Company under Section 4001 of ERISA or Section 414 of the Code
has ever maintained or contributed to any employee benefit plan subject to Title
IV of ERISA. All contributions required to be made under the terms of any
Company ERISA Plan have been timely made or have been reflected on the Company
Financial Statements.
(d) Except as set forth in Schedule 3.10(d) of the Company
Disclosure Schedule, each Company Benefit Plan which is not subject to Title I
of ERISA (the "Company Non-ERISA Benefit Plans") has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all applicable Laws (including any special provisions relating to
qualified plans where such Company Non-ERISA Benefit Plan was intended to so
qualify) and has been maintained in good standing with applicable regulatory
authorities. The fair market value of the assets of each funded Company
Non-ERISA Benefit Plan (or the liability of each funded Company Non-ERISA
Benefit Plan funded through insurance) is sufficient to procure or provide for
the benefits accrued thereunder through the Closing Date according to the
actuarial assumptions and valuations most recently used to determine employer
contributions to the Company Non-ERISA Benefit Plan.
(e) Consummation of the purchase of the Company Assets and the
other transactions contemplated herein will not (i) entitle any directors,
officers or employees of the Company or any Company Subsidiary to any severance
pay, (ii) accelerate the time of payment or vesting or trigger any payment or
funding of compensation or benefits under, increase the amount payable or
trigger any other material obligation pursuant to, any of the Company Benefit
Plans or any Company Applicable Contract or (iii) result in any breach or
violation of, or default under, any of the Company Benefit Plans or any Company
Applicable Contract.
SECTION 3.11 Labor Matters.
--------------
(a) Neither the Company nor any Company Subsidiary is a party to
or otherwise bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization; nor is the
Company or any Company Subsidiary the subject of any material proceeding
asserting that the Company or any such Company Subsidiary has committed an
unfair labor practice or is seeking to compel it to bargain with any labor union
or labor organization; nor is there pending or, to the knowledge of the Company,
threatened, nor has there ever occurred, any labor strike, organized dispute,
walkout, work stoppage, slow-down or lockout involving the Company or any
Company Subsidiary.
(b) Neither the Company nor any Company Subsidiary is delinquent
in payments to any employees for any wages, salaries, commissions, bonuses or
other compensation for any services performed by them or amounts required to be
reimbursed to such employees.
-18-
SECTION 3.12 Compliance with Laws; Governmental Authorizations.
---------------------------------------------------
The businesses of each of the Company and the Company Subsidiaries have not
been, and are not being, conducted in violation of any applicable Law except for
violations or possible violations that, individually or in the aggregate, are
not reasonably likely to have a Material Adverse Effect or prevent or materially
burden or materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement. No investigation or review by any
Governmental Entity with respect to the Company or any Company Subsidiary is
pending or, to the knowledge of the Company, threatened, nor has any
Governmental Entity indicated an intention to conduct the same. To the knowledge
of the Company, no material change is required in the Company's or any Company
Subsidiary's processes, properties or procedures in connection with any such
Laws, and the Company has not received any notice or communication of any
material noncompliance with any such Laws that has not been cured as of the date
hereof. The Company and the Company Subsidiaries each has all Governmental
Authorizations necessary to conduct its business as presently conducted except
where the failure to have such Governmental Authorization would not be
reasonably likely individually or in the aggregate to have a Company Material
Adverse Effect. Schedule 3.12 of the Company Disclosure Schedule sets forth a
complete list of all Governmental Authorizations (the "Company Governmental
Authorizations") that are held or issued in the name of the Company or a Company
Subsidiary.
SECTION 3.13 Title to Properties.
---------------------
(a) Except as set forth in Schedule 3.13(a)(i) of the Company
Disclosure Schedule, the Company and the Company Subsidiaries have good and
marketable title (or good and valid title in the case of assets other than real
property) to all Company Assets owned by them, in each case free from all Liens
that would materially affect the value thereof or materially interfere with the
use made or currently intended to be made thereof by them; and the Company and
the Company Subsidiaries hold all leased real or personal property under valid
and enforceable leases with no exception that would materially interfere with
the use made or currently intended to be made thereof by them. Schedule
3.13(a)(ii) of the Company Disclosure Schedule sets forth a complete list of all
real and personal properties owned by the Company and each Company Subsidiary
("Company Owned Property") and Schedule 3.13(a)(iii) sets forth a complete list
of each real and personal property with an annual value of more than $50,000
leased by the Company and each Company Subsidiary ("Company Leased Property").
At the Closing, the Acquiror will obtain good and marketable title to all of the
Company Assets, free and clear of any Liens other than the Bridge Loan Liens.
(b) Schedule 3.13(b) sets forth a complete list of all bank
accounts ("Company Bank Accounts") held in the name of the Company or a Company
Subsidiary or on which the Company, a Company Subsidiaries or any of their
employees is authorized to withdraw money, either by way of direct withdrawal or
by check.
SECTION 3.14 Contracts, Leases and Agreements; No Default.
-------------------------------------------------
(a) Except as set forth in Schedule 3.14(a) of the Company
Disclosure Schedule, neither the Company or any Company Subsidiary is a party to
or bound by any Contract:
-19-
(i) evidencing indebtedness for borrowed money or pursuant
to which the Company or any Company Subsidiary has guaranteed (including
guarantees by way of acting as surety, co-signer, endorser, co-maker, indemnitor
or otherwise) any obligation of any other Person;
(ii) prohibiting or limiting the ability of the Company or
any Company Subsidiary (A) to engage in any line of business, (B) to compete
with any Person, (C) to carry on or expand the nature or geographical scope of
the Company Business anywhere in the world or (D) to disclose any confidential
information in the possession of the Company or any Company Subsidiary (and not
otherwise generally available to the public), other than, in the case of (ii)(D)
only, any Contract for the sale or purchase of goods or services or any
non-disclosure agreement entered into in connection with the possible or actual
sale or purchase of goods or services, in each case that was entered into in the
ordinary course of business and that does not meet any other of the criteria set
forth in this Section 3.14(a);
(iii) with any stockholder, director or officer of the
Company or any Company Subsidiary (or any of their respective family members or
Related Persons) or with any employee, agent, consultant, advisor, leased
employee or representative for employment or for consulting or similar services
or containing any severance or termination pay obligations other than such
Contracts which may be terminated upon no more than ninety (90) days' notice by,
and in any case without penalty or cost to, the Company or any Company
Subsidiary other than for services rendered or costs incurred through the date
of termination;
(iv) with any Related Person (excluding employment contracts
using the Company's standard form employment agreement);
(v) pursuant to which it (A) leases from or to any other
Person any tangible personal property or (B) purchases materials, supplies or
equipment and which in the case of clauses (A) and (B), calls for future
payments in excess of $100,000 in any year;
(vi) which is a partnership, joint venture, marketing
agreement or other Contract (however named) involving a sharing of profits,
losses, costs or Liabilities by the Company or any Company Subsidiary with any
other Person;
(vii) providing for the possible acquisition or disposition
after the date of this Agreement of any portion of the Company Business or
assets (except for sales of inventory in the Ordinary Course of Business) of the
Company or any Company Subsidiary other than in the Ordinary Course of Business;
(viii) providing for a power of attorney on behalf of the
Company or any Company Subsidiary;
(ix) involving a payment by the Company or any Company
Subsidiary after the date hereof of an amount of money in excess of $100,000
annually;
(x) relating to product warranties, guaranties, and/or other
similar undertakings with respect to contractual performance extended by the
Company or any Company Subsidiary other than in the Ordinary Course of Business;
-20-
(xi) involving capital expenditures or the acquisition of
fixed assets which requires annual payments by the Company or any Company
Subsidiary in excess of $100,000;
(xii) relating to a lease or similar agreement under which
the Company or any Company Subsidiary is a lessor or sublessor of, or makes
available for use by any third party, any owned real property or leasehold or
any portion of premises otherwise occupied by the Company or any Company
Subsidiary;
(xiii) relating to a license, royalty Contract or other
agreement relating, in whole or in part, to Company Intellectual Property Assets
with a value in excess of $100,000, including Contracts with current or former
employees, consultants, or contractors regarding the appropriation or the
non-disclosure of any of the Company Intellectual Property Assets;
(xiv) with any Governmental Entity;
(xv) involving the grant to any Person of any preferential
right to, purchase any rights, assets or property of the Company or any Company
Subsidiary;
(xvi) relating to a mortgage, pledge, security agreement,
deed of trust or other document granting a Lien over any material property, real
or personal, owned by the Company or any Company Subsidiary;
(xvii) involving the performance of services or delivery of
goods or materials by or to the Company or any Company Subsidiary of any amount
or value in excess of $100,000;
(xviii) that was not entered into in the Ordinary Course of
Business;
(xix) affecting the ownership of, title to, use of, or any
leasehold or other interest in, any real property or personal property (except
personal property leases and installment and conditional sales agreements having
a value per item or aggregate payments of less than $100,000 and with terms of
less than one year);
(xx) providing for payments to or by any Person based on
sales, purchases, or profits, other than direct payments for goods and other
than barter transactions carried on in the Ordinary Course of Business
comprising in the aggregate less than 5% of the Company's consolidated net
revenue for the year ended December 31, 2000;
(xxi) that contains or provides for an express undertaking
by the Company or any Company Subsidiary to be responsible for consequential
damages, other than those entered in the Ordinary Course of Business;
(xxii) providing for any franchise, broker or similar
license agreement between the Company or any Company Subsidiary and any other
Person; or
(xxiii) under which the Company or any Company Subsidiary
provides goods or services to a client.
-21-
The Company has delivered or made available to the Acquiror a true, complete and
correct copy of each Contract identified or required to be identified in
Schedule 3.14(a) of the Company Disclosure Schedule and each such Contract is in
full force and effect and is valid and enforceable in accordance with its terms,
subject to the Bankruptcy Exception.
(b) Except as set forth in Schedule 3.14(b) of the Company
Disclosure Schedule,
(i) the Company and the Company Subsidiaries each is, and at
all times since organization or incorporation has been, in substantial
compliance with all applicable terms and requirements of each Contract
identified or required to be identified in Schedule 3.14(a) of the Company
Disclosure Schedule;
(ii) to the knowledge of the Company, each other Person that
has any obligation or Liability under any Company Applicable Contract is in
compliance in all material respects with all applicable terms and requirements
of each Contract identified or required to be identified in Schedule 3.14(a) of
the Company Disclosure Schedule;
(iii) to the knowledge of the Company, no event has occurred
or circumstance exists that is reasonably likely to (with or without the giving
of notice or the lapse of time or both) contravene, conflict with, or result in
a violation or breach of, or give the Company or any Company Subsidiary or other
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Contract identified or required to be identified in Schedule 3.14(a) of the
Company Disclosure Schedule;
(iv) neither the Company nor any Company Subsidiary has
given to or received from any other Person, at any time since organization or
incorporation, any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation or breach of, or
default under, any Contract identified or required to be identified in Schedule
3.14(a) of the Company Disclosure Schedule; and
(v) each Contract identified or required to be identified in
Schedule 3.14(a) of the Company Disclosure Schedule is in full force and effect,
is valid and enforceable in accordance with its terms, subject to the Bankruptcy
Exception, and was entered into in the Ordinary Course and without the
commission of any act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or is reasonably likely to
be in violation of any Law.
(c) There are no renegotiations of or outstanding rights to
renegotiate any amounts paid or payable to the Company or any Company Subsidiary
under any current or completed Contract identified or required to be identified
in Schedule 3.14(a) of the Company Disclosure Schedule with any other Person
having the contractual or statutory right to demand or require such
renegotiation and, to the knowledge of the Company, no such Person has made
written demand for such renegotiation.
SECTION 3.15 Insurance. Schedule 3.15 of the Company Disclosure
---------
Schedule sets forth a complete list of all insurance policies maintained by or
-22-
on behalf of the Company or any Company Subsidiaries and a list of all claims,
either pending or asserted, in excess of $50,000 in the aggregate since December
31, 2000. All premiums in respect of such policies due or coming due prior to
the Closing Date have been paid or shall have been paid prior to the Closing
Date.
SECTION 3.16 Brokers and Finders. No agent, broker, investment
---------------------
banker, intermediary, finder, Person or firm acting on behalf of the Company or
any Company Subsidiary or which has been retained by or is authorized to act on
behalf of the Company or any Company Subsidiary is or would be entitled to any
broker's or finder's fee or any other commission or similar fee, directly or
indirectly, from any of the parties hereto in connection with the execution of
this Agreement or upon consummation of the transactions contemplated herein.
SECTION 3.17 No Undisclosed Liabilities. Except for Liabilities
--------------------------
set forth on Schedule 3.17 of the Company Disclosure Schedule, neither the
Company nor any Company Subsidiary has any Liabilities or obligations of any
nature (and, to the knowledge of the Company, there is no basis for any present
or future Action against it giving rise to any Liability) except for (i)
Liabilities or obligations reflected or reserved against in the Balance Sheet or
the Interim Balance Sheet and (ii) current Liabilities incurred in the Ordinary
Course of Business (none of which results from, arises out of, relates to, is in
the nature of, or was caused by any breach of contract, breach of warranty,
tort, infringement, or violation of Law) since the respective dates thereof.
SECTION 3.18 Accounts Receivable. All accounts receivable of
--------------------
the Company and each Company Subsidiary that are reflected on the Balance Sheet
or the Interim Balance Sheet or on the accounting records of the Company and
each Company Subsidiary as of the Closing Date (collectively, the "Company
Accounts Receivable") represent or will represent valid obligations arising from
sales actually made or services actually performed in the Ordinary Course of
Business. Unless paid prior to the Closing Date, the Company Accounts Receivable
are or will be as of the Closing Date current and collectible net of the
respective reserves shown on the Balance Sheet or the Interim Balance Sheet or
on the accounting records of the Company and each Company Subsidiary as of the
Closing Date (which reserves are adequate and calculated consistent with past
practice and, in the case of the reserves as of the Closing Date, will not
represent a greater percentage of the Company Accounts Receivable as of the
Closing Date than the reserves reflected in the Interim Balance Sheet
represented of the Company Accounts Receivable reflected therein and will not
represent a material adverse change in the composition of such Company Accounts
Receivable in terms of aging). Except as set forth in Schedule 3.18 of the
Company Disclosure Schedule, subject to such reserves, each of the Company
Accounts Receivable either has been or will be collected in full, without any
set-off, within ninety (90) days after the day on which it first becomes due and
payable. There is no contest, claim, or right of set-off, other than returns in
the Ordinary Course of Business, under any Contract with any maker of Company
Accounts Receivable relating to the amount or validity of such Company Accounts
Receivable. Schedule 3.18 of the Company Disclosure Schedule contains a true,
complete and correct list of all Company Accounts Receivable as of the date of
the Interim Balance Sheet, which list sets forth the aging of such Accounts
Receivable.
-23-
SECTION 3.19 Employees.
---------
(a) Schedule 3.19 of the Company Disclosure Schedule contains a
true, complete and correct list of the following information for each employee
or director of the Company and each Company Subsidiary, including each employee
on leave of absence or layoff status: employer; name; job title; vacation
accrued; and service credited for purposes of vesting and eligibility to
participate under any of the Company's Benefit Plans. The Company has delivered
to Acquiror a list of the current compensation paid or payable to all of its
employees and any change in their compensation since December 31, 2000.
(b) To the knowledge of the Company, no former or current
employee of the Company or any Company Subsidiary or any current or former
director of the Company or any Company Subsidiary is a party to, or is otherwise
bound by, any Contract, between such employee or director and any other Person
(a "Proprietary Rights Agreement") that in any way affects or would affect (i)
the performance of his duties as an employee or director of the Company or such
Company Subsidiary or (ii) the ability of the Company or any Company Subsidiary
to conduct the Company Business, including any Proprietary Rights Agreement with
the Company or any Company Subsidiary by any such employee or director. To the
knowledge of the Company, no director, officer, or other key employee of the
Company or any Company Subsidiary intends to terminate his employment with the
Company or such Company Subsidiary, as the case may be.
SECTION 3.20 Intellectual Property.
----------------------
(a) Intellectual Property Assets. The term "Company Intellectual
------------------------------
Property Assets" includes:
(i) the name NetCel360, all fictional business names,
trading names, registered and unregistered trademarks, service marks, and
applications (collectively, "Company Marks");
(ii) all patents and patent applications (collectively,
"Company Patents")
(iii) all copyrights in both published works and unpublished
works (collectively, "Company Copyrights")
(iv) all know-how, trade secrets, confidential information,
software, technical information, process technology, plans, drawings, and blue
prints (collectively, "Company Trade Secrets");
(v) all domain names and url addresses for websites on the
internet or the world wide web ("Company Domain Names");
owned, used, or licensed by the Company or any Company Subsidiary as licensee or
licensor.
(b) Agreements. Schedule 3.20(b) of the Company Disclosure
Schedule contains a true, complete and correct list and summary description,
including any royalties paid or received by the Company or any Company
-24-
Subsidiary, of all agreements relating to the Company Intellectual Property
Assets to which the Company or any Company Subsidiary is a party or by which the
Company or any Company Subsidiary is bound, except for any license implied by
the sale of a product and any agreements relating to software programs, that can
be replaced for less than $100,000. There are no outstanding or, to the
knowledge of the Company, threatened disputes or disagreements with respect to
any such agreement.
(c) Intellectual Property Necessary for the Company Business.
(i) The Company Intellectual Property Assets are all those
necessary for the operation of the Company Business as it is currently
conducted. The Company and/or one or more Company Subsidiary is the owner of all
right, title, and interest in and to, or has the right to use, each of the
Company Intellectual Property Assets, free and clear of all Liens (except for
the Bridge Loan Liens), and other adverse claims and has the right to use,
without payment to any third party in excess of $50,000 per year, all of the
Company Intellectual Property Assets.
(ii) All employees of the Company and each Company
Subsidiary have executed written agreements with the Company or the relevant
Company Subsidiary that assign to the Company or the relevant Company Subsidiary
all rights to any inventions, improvements, discoveries, or proprietary
information relating to the Company Business. Except as set forth in Schedule
3.20(c) of the Company Disclosure Schedule, the Company has not caused any
employee to enter into, and to the knowledge of the Company no employee of the
Company or any Company Subsidiary has entered into, any agreement that restricts
or limits in any way the scope or type of work in which the employee may be
engaged or requires the employee to transfer, assign, or disclose information
concerning his work to anyone other than the Company and each Company
Subsidiary.
(d) Patents. There are no Company Patents.
-------
(e) Trademarks.
----------
(i) Schedule 3.20(e) of Company Disclosure Schedule contains
a true, complete and correct list and summary description of all Company Marks
and the status of the registration applications for each such Company Marks in
the jurisdictions in which applications have been submitted. The Company and/or
one or more of the Company Subsidiaries is the owner, licensor or licensee of
all right, title, and interest in and to each of the Company Marks, free and
clear of all Liens, and other adverse claims.
(ii) No Company ▇▇▇▇ has been or is now involved in any
opposition, invalidation, or cancellation and, to the knowledge of the Company,
no such action is threatened with respect to any of the Company Marks.
(iii) To the knowledge of the Company, there is no trademark
or trademark application of any third party which potentially interferes with
any of the Company Marks.
(iv) No Company ▇▇▇▇ is infringed or, to the knowledge of
the Company, has been challenged or threatened in any way by any other Person.
To the knowledge of the Company, none of the Company Marks used by the Company
-25-
or any Company Subsidiary infringes or is alleged to infringe any trade name,
trademark, or service ▇▇▇▇ of any third party.
(f) Copyrights.
----------
(i) Schedule 3.20(f) of the Company Disclosure Schedule
contains a true, complete and correct list and summary description of all
Company Copyrights with a value in excess of $100,000 (including proprietary
software and related documentation, customer and user manuals, databases and
websites) necessary or materially beneficial to the Company Business. The
Company and/or one or more of the Company Subsidiaries is the owner, licensor or
licensee of all right, title, and interest in and to each of the Company
Copyrights necessary or materially beneficial to the Company Business, free and
clear of all Liens (other than the Bridge Loan Liens), and other adverse claims.
(ii) No Company Copyright is infringed by any other Person
or, to the knowledge of the Company, has been challenged or threatened in any
way by any other Person. To the knowledge of the Company none of the subject
matter of any of the Company Copyrights infringes or is alleged to infringe any
copyright of any third party.
(g) Trade Secrets.
--------------
(i) With respect to each material Company Trade Secret, the
documentation relating to such Company Trade Secret is current, accurate, and
sufficient in detail and content to identify and explain it and to allow its
full and proper use without reliance on the special knowledge or memory of
others.
(ii) The Company and each Company Subsidiary have taken all
reasonable precautions to protect the secrecy, confidentiality, and value of
their Company Trade Secrets.
(iii) The Company and/or one or more of the Company
Subsidiaries has good title and an absolute (but not necessarily exclusive)
right to use the Company Trade Secrets. To the knowledge of the Company, the
Company Trade Secrets are not part of the public knowledge or literature, and,
to the knowledge of the Company, have not been used, divulged, or appropriated
either for the benefit of any Person (other than the Company or any Company
Subsidiary or pursuant to a non-disclosure agreement), or to the detriment of
the Company or any Company Subsidiary. No Company Trade Secret is subject to any
adverse claim or, to the knowledge of the Company has been challenged or
threatened in any way.
(h) Domain Names.
-------------
(i) Schedule 3.20(h) sets forth a complete list of all
Company Domain Names. The Company and/or one or more Company Subsidiaries is the
owner of all right, title, and interest in and to each of the Company Domain
Names, free and clear of all Liens, and other adverse claims. Such Company
Domain Names are properly registered with Network Solutions or such other agency
or company duly authorized by relevant Governmental Entities to maintain such
registry, and all fees due in respect of such registrations have been.
-26-
(ii) No Company Domain Name is infringed, or to the
knowledge of the Company, has been challenged or threatened in any way by any
other Person. None of the Company Domain Names infringes on any Copyrights of
any Person.
SECTION 3.21 Certain Payments. Since their incorporation or
-----------------
organization, neither the Company nor any Company Subsidiary has nor has any
Representative of the Company or any Company Subsidiary, or to the knowledge of
or the Company any other Person associated with or acting for or on behalf of
the Company or any Company Subsidiary, directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, or (iii) to obtain
special concessions or for special concessions already obtained, for or in
respect of the Company or any Company Subsidiary or (b) established or
maintained any fund or asset that has not been recorded in the books and records
of the Company or any Company Subsidiary.
SECTION 3.22 Company Assets. The Company Owned Property, the
---------------
Company Leased Property, the Company Account Receivables, the Company's interest
in the Company Intellectual Property, the Company Governmental Authorizations,
the Company Bank Accounts, the capital stock of the Company Subsidiaries and the
Company Investments constitute all of the assets held directly by the Company
and represent all of the assets necessary or beneficial for the Acquiror to
conduct the Company Business after Closing to the same extent as conducted by
the Company immediately prior to Closing. The Excluded Assets in the aggregate
have a fair market value (after taking into account any related liabilities and
obligations) of less than $50,000.
SECTION 3.23 Customers and Suppliers. Schedule 3.23 of the
-------------------------
Company Disclosure Schedule sets forth the aggregate amount of sales to each of
the 20 largest customers of the Company Business for the twelve months ended
March 31, 2001 and the aggregate amount of purchases from each of the ten
largest providers of goods or services to the Company Business during this same
period. To the knowledge of the Company, no customer or material supplier of
the Company Business will cease or substantially reduce the business conducted
with the Company or any Company Subsidiary after, or as a result of, the
Closing. Schedule 3.14 of the Company Disclosure Schedule sets forth customer
contracts entered into by NetCel360 Pte Ltd which the Company and NetCel360 Pte
Ltd are currently restricted from transferring to the Acquiror as part of the
Company Assets (the "Company Singapore Contracts"). The Company hereby agrees
to use commercially reasonable efforts to cause NetCel360 Pte Ltd to transfer
the Company Singapore Contracts to the Acquiror or one of the Company
Subsidiaries promptly after such restrictions have expired.
SECTION 3.24 Takeover Statutes. No "fair price", "moratorium",
------------------
"control share acquisition" or other similar anti-takeover statute or regulation
(each a "Takeover Statute") or any applicable anti-takeover provision in the
Company's memorandum of association and articles of association or certificate
of incorporation and bylaws, as applicable, is, or at the Closing will be,
applicable to the transactions contemplated in this Agreement.
-27-
SECTION 3.25 Shares to be Received by Company Shareholders.
---------------------------------------------------
Exhibit 3.25 sets forth the number of shares of Acquiror Common Stock to be
received by each Company Shareholder if all Shares were received by the Company
as of the date hereof and distributed to the Company Shareholders in accordance
with their respective fully diluted ownership interests in the Company. For the
purposes of this Section 3.25, it is assumed that (i) all shares of Company
Common Shares that may be issued subsequent to the date hereof have been issued
and (ii) Total E-commerce Limited has distributed all of the Shares that it
receives, to its two Shareholders.
SECTION 3.26 No other Representation or Warranty. Except for
-------------------------------------
the representations and warranties contained in this Article III, neither the
Company nor any Company Subsidiary makes any other express or implied
representation or warranty on behalf of the Company or any Company Subsidiary.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
As used herein, (i) any reference to any event, change or effect being
"material" with respect to the Acquiror or any Acquiror Subsidiary means an
event, change or effect which is material in relation to the financial
condition, properties, business, operations, assets or results of operations of
the Acquiror and each Acquiror Subsidiary, taken as a whole, and (ii) the term
"Acquiror Material Adverse Effect" on the Acquiror means a material adverse
effect on the financial condition, properties, business, operations, assets or
results of operations of the Acquiror and each Acquiror Subsidiary, taken as a
whole.
The Acquiror hereby represents and warrants to the Company as follows:
SECTION 4.1 Organization and Good Standing; the Acquiror
-------------------------------------------------
Subsidiaries.
------------
(a) Each of the Acquiror and each Acquiror Subsidiary is duly
incorporated, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation, with requisite power and authority to
conduct its business as it is now being conducted, to own or use the properties
or assets that it purports to own or use, and to perform all of its respective
obligations under all Acquiror Applicable Contracts. Each of the Acquiror and
Acquiror Subsidiaries (as defined below) is duly qualified or licensed to do
business as a foreign corporation and is in good standing as a foreign
corporation in each jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such licensing, qualification or good standing. The Acquiror is not
required to register as an "investment company" within the meaning of the
Investment Company Act of 1940.
(b) The Acquiror has made available or delivered to the Company a
true, complete and correct copy of the Acquiror's and each Acquiror Subsidiary's
certificate of incorporation and bylaws, as applicable, each as amended to date
(collectively, the "Acquiror's Organizational Documents"). The Acquiror's
Organizational Documents so delivered are in full force and effect.
-28-
(c) Schedule 4.1(c) of the Acquiror Disclosure Schedule sets
forth a true, complete and correct list of all Subsidiaries of the Acquiror
(hereinafter referred to individually as an "Acquiror Subsidiary" and
collectively as the "Acquiror Subsidiaries"). Schedule 4.1(c) of the Acquiror
Disclosure Schedule states, with respect to each Acquiror Subsidiary, its
jurisdiction of incorporation or organization and the Acquiror's ownership
interest.
(d) Except for each Acquiror Subsidiary and as contemplated under
this Agreement, the Acquiror does not and on the Closing Date will not have any
Subsidiaries or own of record or beneficially, or has any Contract to acquire,
any capital stock or equity interest, investment or other securities of any
Person or any direct or indirect equity or ownership interest in any other
business.
SECTION 4.2 Capitalization.
(a) The authorized capital stock of the Acquiror is set forth in
the Acquiror Form 10-K. All of the issued and outstanding shares of capital
stock of the Acquiror and each Acquiror Subsidiary have been duly authorized and
are validly issued, fully paid and nonassessable.
(b) The Acquiror or an Acquiror Subsidiary is and shall be on the
Closing Date the sole record and beneficial owner and holder of all of the
issued and outstanding shares of capital stock of each Acquiror Subsidiary, free
and clear of all Liens.
(c) Except as described in the Acquiror Form 10-K, there are no
shares of capital stock or other securities of the Acquiror or any Acquiror
Subsidiary (i) reserved for issuance or (ii) subject to preemptive rights or any
outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or other instruments outstanding or in effect
giving any Person the right to acquire any shares of capital stock or other
securities of the Acquiror or any Acquiror Subsidiary or any commitments of any
character relating to the issued or unissued capital stock or other securities
of the Acquiror or any Acquiror Subsidiary. The Acquiror does not have
outstanding any Voting Debt.
(d) Except for each Acquiror Subsidiary, the Acquiror does not
and on the Closing Date will not have any Subsidiaries or own of record or
beneficially, or has any Contract to acquire, any capital stock or equity
interest, investment or other securities of any Person or any direct or indirect
equity or ownership interest in any other business.
(e) All of the Shares have been duly authorized and, when issued
in accordance with this Agreement, shall be validly issued, fully paid,
nonassessable and free and clear of all Liens
SECTION 4.3 Corporate Authority. The Acquiror has the full
--------------------
legal right, requisite corporate power and authority and has taken all action
necessary in order to execute, deliver and perform fully its obligations under
this Agreement and to consummate the transactions contemplated herein. This
Agreement has been duly executed and delivered by the Acquiror and constitutes a
valid and binding agreement of the Acquiror, enforceable against the Acquiror in
accordance with its terms, subject to the Bankruptcy Exception.
-29-
SECTION 4.4 Consents and Approval. Except for the filing with
----------------------
the Nasdaq stock Market of a supplemental listing application in respect of the
Shares, and except as set forth in Schedule 4.4 of the Acquiror Disclosure
Schedule, no notices, reports or other filings are required to be made by the
Acquiror with, nor are any consents, registrations, approvals, declarations,
permits, expiration of any applicable waiting periods or authorizations required
to be obtained by the Acquiror from, any Governmental Entity in connection with
the execution or delivery of this Agreement by the Acquiror, the performance by
the Acquiror of its obligations hereunder or the consummation by the Acquiror of
the transactions contemplated herein except for any such notices, reports,
filings, registrations, approvals, declarations, permits, or authorizations the
failure to make or obtain any or all of which is not reasonably likely to
prevent, materially burden or materially delay the consummation by the Acquiror
of the transactions contemplated in this Agreement.
SECTION 4.5 No Violations. Assuming the making of the filings
--------------
set forth in Schedule 4.4 of the Acquiror Disclosure Schedule, the execution and
delivery of this Agreement by the Acquiror does not, and the performance and
consummation by the Acquiror of any of the transactions contemplated herein will
not, with respect to each of the Acquiror and each Acquiror Subsidiary, directly
or indirectly (with or without the giving of notice or the lapse of time or
both):
(a) contravene, conflict with, or constitute or result in a
breach or violation of, or a default under (i) any provision of the Acquiror
Organizational Documents or (ii) any resolution adopted by the Board of
Directors (or similar governing body) or the stockholders of the Acquiror or any
Acquiror Subsidiary;
(b) contravene, conflict with, or constitute or result in a
breach or violation of, or a default under, or the acceleration of, or the
triggering of any payment or other obligations pursuant to, any existing benefit
plan maintained by Acquiror or any Acquiror Applicable Contract or any grant or
award made under any of the foregoing;
(c) contravene, conflict with, or constitute or result in a
breach or violation of, or a default under, or the cancellation, modification or
termination of, or the acceleration of, or the creation of a Lien on any
properties or assets owned or used by the Acquiror or any Acquiror Subsidiary
pursuant to, any provision of any Contract, under which the Acquiror or any
Acquiror Subsidiary is or may become bound or is or may become subject to any
obligation or Liability or by which any of their respective assets owned or used
are or may become bound (an "Acquiror Applicable Contract");
(d) contravene, conflict with, or constitute or result in a
breach or violation of, any Law or any Order or give any Governmental Entity or
any other Person the right to challenge any of the transactions contemplated
herein or to exercise any remedy or obtain any relief under, any Law or any
Order to which the Acquiror or any Acquiror Subsidiary, or any of the assets
owned or used by the Acquiror or any Acquiror Subsidiary, are subject;
(e) require any filing by the Acquiror or any Acquiror Subsidiary
with, or approval or consent or other action by, any Governmental Entity or any
other Person;
-30-
(f) contravene, conflict with, or constitute or result in a
breach or violation of, or a default under, any provision of, or give any
Governmental Entity the right to revoke, withdraw, suspend, cancel, terminate or
modify, any Governmental Authorization that is held by the Acquiror or any
Acquiror Subsidiary or that otherwise relates to the Acquiror Business, or any
of the assets owned or used by the Acquiror or any Acquiror Subsidiary; or
(g) cause any of the assets owned by the Acquiror or any Acquiror
Subsidiary as of the date hereof to be reassessed or revalued by any taxing
authority or other Governmental Entity.
SECTION 4.6 SEC Filings. The Acquiror Form 10-K (including any
------------
financial statements or schedules included therein) (i) complied with the
requirements of the Securities Act, or the Exchange Act, as the case may be, in
all material respects, and (ii) did not at the time of filing (or if amended,
supplemented or superseded by a filing prior to the date hereof, on the date of
that filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
SECTION 4.7 Financial Statements.
---------------------
(a) The Acquiror Form 10-K contains the audited consolidated
balance sheet of the Acquiror as at January 31, 2000 and January 31, 2001, and
the related audited consolidated statements of income, changes in stockholders'
equity and cash flow for each of the fiscal years then ended, together with the
report thereon of the Acquiror Accountants (collectively, the "Acquiror
Financial Statements").
(b) The Acquiror Financial Statements and notes fairly present
the consolidated financial condition and the consolidated results of operations,
changes in stockholders' equity and cash flow of the Acquiror and each Acquiror
Subsidiary as at the respective dates of and for the periods referred to in such
financial statements, all in accordance with U.S. GAAP except, in the case of
the Acquiror Interim Balance Sheet and related statements of income, changes in
shareholders equity and cash flow, for the absence of notes and subject to
normal year end audit adjustments. The Acquiror Financial Statements reflect
the consistent application of such accounting principles throughout the periods
involved. As of their respective dates, the Acquiror Financial Statements 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 made
therein, in light of the circumstances in which they were made, not misleading.
No financial statements of any Person other than the Acquiror and each Acquiror
Subsidiary are required by U.S. GAAP to be included in the consolidated
financial statements of the Acquiror. As of April 30, 2001 the Acquiror had
cash and cash equivalents of at least $3.4 million (including amounts subject to
a writ of attachment filed by Vitria).
(c) The Acquiror Financial Statements were compiled from and will
be in accordance with the books and records of the Acquiror and each Acquiror
Subsidiary. The books and records (including the books of account, minute books,
stock record books and other records) of the Acquiror and each Acquiror
Subsidiary, all of which have been made available to the Acquiror, are true,
complete and correct and have been maintained in accordance with sound business
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practices and the requirements of Section 13(b)(2) of the Exchange Act
(regardless of whether or not the Acquiror or any Acquiror Subsidiary is subject
to such Section), including the maintenance of an adequate system of internal
controls. The minute books of the Acquiror and each Acquiror Subsidiary contain
true, complete and correct records of all meetings held of, and corporate action
taken by, the stockholders, the Board of Directors, and committees of the Board
of Directors of the Acquiror and each Acquiror Subsidiary, and no meeting of any
such stockholders, Board of Directors or committee has been held for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of those books and records shall be in the possession of the
Acquiror and each Acquiror Subsidiary.
SECTION 4.8 Absence of Certain Changes and Events. Except as set
-------------------------------------
forth in Schedule 4.8 of the Acquiror Disclosure Schedule or as described or
referred to in the Acquiror Form 10-K or the Acquiror's Form 8-K dated March 20,
2001, since January 31, 2001, the Acquiror and each Acquiror Subsidiary has
conducted the Acquiror Business only in, and has not engaged in any material
transaction other than according to, the Ordinary Course of Business, and there
has not been:
(a) any change in the financial condition, properties, business
or results of operations of the Acquiror and the Acquiror Subsidiaries, to the
knowledge of the Acquiror, except those changes that, individually or in the
aggregate, are not reasonably likely to have an Acquiror Material Adverse
Effect;
(b) any material damage, destruction or other casualty loss with
respect to any material asset or property owned, leased or otherwise used by the
Acquiror or any Acquiror Subsidiary, whether or not covered by insurance;
(c) any declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of the Acquiror, except for
dividends or other distributions on its capital stock publicly announced prior
to the date hereof,
(d) any change by the Acquiror in accounting principles,
practices or methods; or
(e) any increase in the compensation payable or that could become
payable by the Acquiror or any Acquiror Subsidiary to any of their respective
current or former directors, officers or key employees or any amendment of any
of the Acquiror Benefit Plans, other than increases or amendments in the
Ordinary Course of Business or increases pursuant to the terms of the existing
employment agreements, and no employment agreements with any directors,
employees or officers of the Acquiror or any Acquiror Subsidiaries, other than
renewals of employment agreements in accordance with their terms, have been
entered into by the Acquiror or any Acquiror Subsidiary.
SECTION 4.9 Litigation; Orders.
-------------------
(a) Except for the Acquiror's litigation with Vitria Technology
Inc. (the "Vitria Litigation") and as set forth in Schedule 4.9(a) of the
Acquiror Disclosure Schedule, there are no Actions pending or, to the knowledge
of the Acquiror, threatened, anticipated or contemplated against, by or
affecting the Acquiror or any Acquiror Subsidiary or any of their respective
assets, at law, in equity or otherwise, in, before, by, or otherwise involving,
any Governmental Entity, arbitrator or other Person. None of the Actions
described above are reasonably likely to (i) have a Material Adverse Effect on
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the Acquiror or (ii) question, challenge the validity of, or have the effect of
preventing, delaying, making illegal or otherwise interfering with, this
Agreement, the transactions contemplated herein or any action taken or proposed
to be taken by the Acquiror or any Acquiror Subsidiary pursuant hereto or in
connection with the transactions contemplated herein. Except as set forth in
Schedule 4.9(a) of the Acquiror Disclosure Schedule, to the knowledge of the
Acquiror, no event has occurred or circumstance exists that is reasonably likely
to give rise to or serve as a basis for the commencement of any such Action. The
Acquiror has delivered or made available to the Acquiror copies of all
pleadings, correspondence and other documents relating to each Action listed in
Schedule 4.9(a) of the Acquiror Disclosure Schedule.
(b) Neither the Acquiror, any Acquiror Subsidiaries, any assets
owned or used by the Acquiror or any Acquiror Subsidiary, nor any officers or
employees of the Acquiror are subject to any Order relating to the Acquiror
Business.
SECTION 4.10 Brokers and Finders. No agent, broker, investment
---------------------
banker, intermediary, finder, Person or firm acting on behalf of the Acquiror or
any Acquiror Subsidiary or which has been retained by or is authorized to act on
behalf of the Acquiror or any Acquiror Subsidiary is or would be entitled to any
broker's or finder's fee or any other commission or similar fee, directly or
indirectly, from any of the parties hereto in connection with the execution of
this Agreement or upon consummation of the transactions contemplated herein.
SECTION 4.11 No Undisclosed Liabilities. Except for any
----------------------------
Liabilities in connection with the Vitria Litigation, potential Liabilities
referred to in the Acquiror Form 10-K or as set forth on Schedules 4.9(a) and
4.11 of the Acquiror Disclosure Schedule, neither the Acquiror nor any Acquiror
Subsidiary has any Liabilities or obligations of any nature (and, to the
knowledge of the Acquiror, there is no basis for any present or future Action
against it giving rise to any Liability) except for (i) Liabilities or
obligations reflected or reserved against in the Acquiror Balance Sheet and (ii)
current Liabilities incurred in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
Law) since the respective dates thereof.
SECTION 4.12 Intellectual Property.
----------------------
(a) Intellectual Property Assets. The term "Acquiror
------------------------------
Intellectual Property Assets" includes:
(i) the name Vsource and all registered trademarks, service
marks, and applications (collectively, "Acquiror Marks");
(ii) all know-how, trade secrets, confidential information,
software, technical information, process technology, plans, drawings, and blue
prints (collectively, "Acquiror Trade Secrets"); and
(iii) all domain names and URL addresses for websites on the
internet or the world wide web ("Acquiror Domain Names");
owned, used, or licensed by the Acquiror or any Acquiror Subsidiary as licensee
or licensor.
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(b) Intellectual Property Necessary for the Acquiror Business.
------------------------------------------------------------
The Acquiror Intellectual Property Assets are all those necessary for the
operation of the Acquiror Business as it is currently conducted. Except as set
forth in Schedule 4.12(b) of the Acquiror Disclosure Schedule, the Acquiror
and/or one or more of the Acquiror Subsidiaries is the owner of all right,
title, and interest in and to, or has the right to use, each of the Acquiror
Intellectual Property Assets, free and clear of all Liens, and other adverse
claims and has the right to use, without any payment to any third party in
excess of $50,000 per year, all of the Acquiror Intellectual Property Assets.
(c) Trademarks.
----------
(i) The Acquiror Form 10-K contains a true, complete and
correct list and summary description of all Acquiror Marks. To the knowledge of
the Acquiror, the Acquiror and/or one or more the Acquiror Subsidiary is the
owner, licensor or licensee of all right, title, and interest in and to each of
the Acquiror Marks, free and clear of all Liens, and other adverse claims.
(ii) No Acquiror ▇▇▇▇ has been or is now involved in any
opposition, invalidation, or cancellation and, to the knowledge of the Acquiror,
no such action is threatened with respect to any of the Acquiror Marks.
(iii) To the knowledge of the Acquiror, there is no
trademark or trademark application of any third party which potentially
interferes with any of the Acquiror Marks.
(iv) No Acquiror ▇▇▇▇ is infringed or, to the knowledge of
the Acquiror, has been challenged or threatened in any way by any other Person.
To the knowledge of the Acquiror, none of the Acquiror Marks used by the
Acquiror or any Acquiror Subsidiary infringes or is alleged to infringe any
trade name, trademark, or service ▇▇▇▇ of any third party.
(d) Trade Secrets. To the knowledge of the Acquiror, the
--------------
Acquiror and/or one or more of the Acquiror Subsidiaries has good title and an
absolute (but not necessarily exclusive) right to use the Acquiror Trade
Secrets. To the knowledge of the Acquiror, the Acquiror Trade Secrets are not
part of the public knowledge or literature, and, to the knowledge of the
Acquiror, have not been used, divulged, or appropriated either for the benefit
of any Person (other than the Acquiror or any Acquiror Subsidiary or pursuant to
a non-disclosure agreement), or to the detriment of the Acquiror or any Acquiror
Subsidiary. No Acquiror Trade Secret is subject to any adverse claim or, to the
knowledge of the Acquiror or any Acquiror Subsidiary, has been challenged or
threatened in any way.
(e) Domain Names. Schedule 4.12(e) of the Acquiror Disclosure
-------------
Schedule sets forth a complete list of all Acquiror Domain Names used in the
conduct of the Acquiror's Business. The Acquiror and/or one or more Acquiror
Subsidiaries is the owner of all right, title, and interest in and to each of
the Acquiror Domain Names, free and clear of all Liens. Such Acquiror Domain
Names are properly registered with Network Solutions or such other agency or
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company duly authorized by relevant Governmental Entities to maintain such
registry, and all fees due in respect of such registrations have been paid
SECTION 4.13 Certain Payments. Since their incorporation or
-----------------
organization, neither the Acquiror nor any Acquiror Subsidiary has nor has any
Representative of the Acquiror or any Acquiror Subsidiary, or to the knowledge
of the Acquiror or any other Person associated with or acting for or on behalf
of the Acquiror or any Acquiror Subsidiary, directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment to any Person, private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, or (iii) to obtain
special concessions or for special concessions already obtained, for or in
respect of the Acquiror or any Acquiror Subsidiary or (b) established or
maintained any fund or asset that has not been recorded in the books and records
of the Acquiror or any Acquiror Subsidiary.
SECTION 4.14 Takeover Statutes. No Takeover Statute or any
------------------
applicable anti-takeover provision in the Acquiror's Organizational Documents
is, or at the Closing will be, applicable to the transactions contemplated in
this Agreement.
SECTION 4.15 No Other Representation or Warranty. Except for the
-----------------------------------
representations and warranties contained in this Article IV, neither the
Acquiror nor any Acquiror Subsidiary makes any other express or implied
representation or warranty on behalf of the Acquiror or any Acquiror Subsidiary.
SECTION 4.16 Certain Contracts. Except as set forth in Schedule
------------------
4.16 of the Acquiror Disclosure Schedule, neither the Acquiror nor any Acquiror
Subsidiary is a party to or bound by any Contract prohibiting or limiting the
ability of the Acquiror or any Acquiror Subsidiary (i) to engage in any line of
business, (ii) to compete with any Person, (iii) to carry on or expand the
nature or geographical scope of the Acquiror Business anywhere in the world or
(iv) to disclose any confidential information in the possession of the Acquiror
or any Acquiror Subsidiary (and not otherwise generally available to the
public), other than, in the case of (iv) only, any Contract for the sale or
purchase of goods or services or any non-disclosure agreement entered into in
connection with the possible or actual sale or purchase of goods or services in
the ordinary course of business that does not meet any other of the criteria set
forth in this Section 4.16.
ARTICLE V
COVENANTS
SECTION 5.1 Company Conduct of Business. The Company covenants
-----------------------------
and agrees that after the date hereof and prior to the Closing, except as
requested or consented to by the Acquiror in writing (such consent not to be
unreasonably withheld or delayed) and except as otherwise expressly contemplated
in this Agreement, the Company and each Company Subsidiary shall:
(a) conduct the Company Business only in the Ordinary Course of
Business;
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(b) except as set forth on Schedule 5.1(b) of the Company
Disclosure Schedule, use their respective reasonable efforts to preserve intact
the current business organization of the Company and each Company Subsidiary
(including all material supply, license, franchise and similar relationships of
such business), keep available the services of the current officers, employees,
and agents of the Company and each Company Subsidiary, and maintain the
relationships and goodwill with all material suppliers, distributors, sales
representatives, customers, clients, landlords, lessors, creditors, employees,
agents, and others having business relationships with the Company and each
Company Subsidiary, in each case to the extent not included in the Excluded
Assets;
(c) not take any affirmative action, or fail to take any action
within their or its control, as a result of which any of the changes or events
listed in Section 3.7 is reasonably likely to occur;
(d) not settle any audit, make or change any Tax election, file
any amended Tax Return or take any other action with respect to Taxes that is
outside the Ordinary Course of Business or inconsistent with past practice;
(e) confer with the Acquiror concerning operational matters of a
material nature; provided, however that the officers and directors of the
Company shall retain sole and exclusive decision-making authority regarding such
matters; and
(f) otherwise report periodically to the Acquiror concerning the
status of the Company Business and the status of the operations, and finances of
the Company and each Company Subsidiary.
SECTION 5.2 Acquiror Conduct of Business. The Acquiror covenants
----------------------------
and agrees as to itself and each Acquiror Subsidiary to use reasonable efforts
to ensure that after the date hereof and prior to the Closing, except as
requested or consented to by the Company in writing (such consent not to be
unreasonably withheld or delayed) and except as otherwise expressly contemplated
in this Agreement, the Acquiror and each Acquiror Subsidiary shall:
(a) conduct the Acquiror Business only in the Ordinary Course of
Business;
(b) use its best efforts to preserve intact the current business
organization of the Acquiror and each Acquiror Subsidiary (including all supply,
license, franchise and similar relationships of such business), keep available
the services of the current officers, employees, and agents of the Acquiror and
each Acquiror Subsidiary, and maintain the relationships and goodwill with
suppliers, distributors, sales representatives, customers, clients, landlords,
lessors, creditors, employees, agents, and others having business relationships
with the Acquiror and each Acquiror Subsidiary;
(c) not take any affirmative action, or fail to take any action
within its control, as a result of which any of the changes or events listed in
Section 4.8 is reasonably likely to occur;
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(d) not settle any audit, make or change any Tax election, file
any amended Tax Return or take any other action with respect to Taxes that is
outside the Ordinary Course of Business or inconsistent with past practice;
(e) confer with the Company concerning operational matters of a
material nature; provide however that the officers and directors of the Acquiror
shall retain sole and exclusive decision-making authority regarding such
matters; and
(f) otherwise report periodically to Company concerning the
status of the Acquiror Business and the status of the operations and finances of
the Acquiror and each Acquiror Subsidiary.
SECTION 5.3 Access. Between the Date of this Agreement and the
------
Closing Date:
(a) The Company shall, and the Company shall cause the Company
Subsidiaries and each of their respective Representatives to, (i) afford the
Acquiror and its Representatives and the Acquiror's prospective lenders and
their Representatives (collectively, the "Acquiror Advisors") access to the
Company's and each Company Subsidiary's personnel, customers, assets, premises,
properties, Contracts, books and records, and other documents and data during
normal business hours and at such other times as the parties may agree, (ii)
furnish Acquiror and the Acquiror Advisors with copies of all such Contracts,
books and records, and other existing documents and data as the Acquiror may
reasonably request, (iii) furnish the Acquiror and the Acquiror Advisors with
such additional financial, operating, and other data and information as the
Acquiror may reasonably request and (iv) otherwise cooperate with any
investigation by the Acquiror and the Acquiror's Advisors, and the Company and
each Company Subsidiary shall authorize the Company Accountants to permit the
Acquiror and the Acquiror Accountants to examine all accounting records and
working papers pertaining to the Company Financial Statements. No investigation
pursuant to this Section 5.3(a) shall affect or be deemed to modify any
representation or warranty made by the Company. The foregoing shall not require
the Company to permit or cause to permit any inspection, or to disclose or cause
to disclose any information, that in the reasonable judgment of the Company is
reasonably likely to result in the violation of any Law or Order or disclosure
of any trade secrets of third parties or violate any of its obligations with
respect to confidentiality if the Company shall have used reasonable efforts to
obtain the consent of such third party to such inspection or disclosure. All
requests for information made pursuant to this Section 5.3(a) shall be directed
to an executive officer of the Company or such person as may be designated by
such officer of the Company; and
(b) The Acquiror shall, and shall cause the Acquiror Subsidiaries
and Related Persons and each of their respective Representatives to, (i) afford
the Company and its Representatives access to the Acquiror's and each Acquiror
Subsidiary's personnel, premises, properties, Contracts, books and records, and
other documents and data, (ii) furnish the Company and its Representatives with
copies of all such Contracts, books and records, and other existing documents
and data as they may reasonably request, (iii) afford the Company and its
Representatives with such additional financial, operating, and other data and
information as the Company and its Representatives may reasonably request and
(iv) otherwise cooperate with any investigation by the Company and its
Representatives, and the Acquiror and each Acquiror Subsidiary shall authorize
the Acquiror's Accountants to permit the Company and the Company Accountants to
examine all accounting records and working papers pertaining to the Acquiror
Financial Statements. No investigation pursuant to this Section 5.3(b) shall
affect or be deemed to modify any representation or warranty made by the
Acquiror. The foregoing shall not require the Acquiror to permit any
-37-
inspection, or to disclose any information, that in the reasonable judgment of
the Acquiror is reasonably likely to result in the disclosure of any trade
secrets of third parties or violate any of its obligations with respect to
confidentiality if the Acquiror shall have used reasonable efforts to obtain the
consent of such third party to such inspection or disclosure. All requests for
permit made pursuant to this Section 5.3(a) shall be directed to an executive
officer of the Acquiror or such person as may be designated by such officer.
SECTION 5.4 Required Approvals. Each party hereto hereby agrees
-------------------
to cooperate with each other party and use reasonable efforts to promptly
prepare and file all necessary documentation to the extent reasonably necessary
and as required by applicable Laws, to effect all necessary applications,
notices, petitions, filings and other documents and to obtain as promptly as
practicable all necessary permits, consents, approvals and authorizations of all
third parties and Governmental Entities necessary to consummate the transactions
contemplated herein. Each party shall have the right to review in advance, and
to the extent practicable each will consult the other on, in each case subject
to applicable Laws relating to the exchange of information, all the information
relating to such party or its Subsidiaries, that appear in any filing made with,
or written materials submitted to, all third parties and Governmental Entities
in connection with the transactions contemplated in this Agreement. In
exercising the foregoing right, each of the parties shall act reasonably and as
promptly as practicable. The Acquiror and the Company agree that they will keep
the other apprised of the status of matters relating to completion of the
transactions contemplated herein, including promptly furnishing the other with
copies of notice or other communications received by the Acquiror, the Company
or any Company Subsidiary, from all third parties and Governmental Entities with
respect to the transactions contemplated herein. The Company shall give prompt
notice to the Acquiror of any change that is reasonably likely to result in a
Company Material Adverse Effect. The Acquiror shall give prompt notice to the
Company of any change that is reasonably likely to result in an Acquiror
Material Adverse Effect.
SECTION 5.5 Publicity. The initial press release announcing the
---------
transactions contemplated herein shall be released jointly after consultation
between the parties hereto and thereafter the parties hereto shall consult with
each other prior to issuing any press releases or otherwise making public
announcements with respect to the transactions contemplated herein and prior to
making any filings with any Governmental Entity or with any national securities
exchange interdealer quotation service with respect thereto, except as may be
required by Law or by obligations pursuant to any listing agreement with or
rules of any national securities exchange or interdealer quotation service. All
press releases and public announcements shall comply with either or both Rules
135c and Rule 135e under the Securities Act, if applicable.
SECTION 5.6 Confidentiality.
---------------
(a) Notwithstanding anything herein to the contrary, the Company
shall, and shall use reasonable efforts to, cause the Company Subsidiaries and
each of their respective Representatives to, maintain in confidence and not use
to the detriment of the Acquiror or any Acquiror Subsidiary any written, oral or
other information relating to or obtained from the Acquiror, the Acquiror
Subsidiaries or Related Persons or any of their Representatives in connection
with this Agreement or the transactions contemplated herein, except to the
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extent (i) any such information is or becomes generally available to the public
other than as a result of disclosure by the Company, their Subsidiaries and
Related Persons or any of their respective Representatives, (ii) any such
information is required to be disclosed by Law or a court or Governmental Entity
of competent jurisdiction, (iii) any such information was or becomes available
to the Company on a non-confidential basis and from a source (other than a party
to this Agreement or any Representative of such party) that is not bound by a
confidentiality agreement or (iv) that use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated herein, and the Company
shall instruct its Representatives having access to such information of such
obligation of confidentiality. The Acquiror shall, and shall cause the Acquiror
Subsidiaries and Related Persons and each of their respective Representatives
to, maintain in confidence and not use to the detriment of the Company or any
Company Subsidiary any written, oral or other information relating to or
obtained from the Company, the Company Subsidiaries or Related Persons or any of
their Representatives in connection with this Agreement or the transactions
contemplated herein, except to the extent (i) any such information is or becomes
generally available to the public other than as a result of disclosure by the
Acquiror, its Subsidiaries and Related Persons or any of their respective
Representatives, (ii) any such information is required to be disclosed by Law or
a court or Governmental Entity of competent jurisdiction, (iii) any such
information was or becomes available to the Acquiror on a non-confidential basis
and from a source (other than a party to this Agreement or any Representative of
such party) that is not bound by a confidentiality agreement or (iv) that use of
such information is necessary or appropriate in making any filing or obtaining
any consent or approval required for the consummation of the transactions
contemplated herein, and the Acquiror shall instruct its Representatives having
access to such information of such obligation of confidentiality.
(b) If for any reason this Agreement is terminated, or the
transactions contemplated herein are abandoned, the Company shall promptly
return to the Acquiror or, at the Acquiror's option, destroy all copies of
material containing confidential or proprietary information disclosed to the
Company by the Acquiror, any Acquiror Subsidiary or Related Persons or any of
their Representatives, and the Acquiror shall promptly return to the Company or
at their request destroy all copies of materials containing confidential or
proprietary information disclosed to the Acquiror by the Company. The redelivery
or destruction of such confidential material by a party shall not relieve any
party of its obligations regarding confidentiality.
(c) The provisions in this Section 5.6 supersede and replace the
provisions of the Non Disclosure Agreement between the Company and the Acquiror.
SECTION 5.7 Expenses. Subject to Section 7.2(b) and except as
--------
otherwise expressly provided herein, whether or not the transactions
contemplated herein are consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated herein shall be
paid by the party incurring such expense. Without limiting the generality of
the foregoing, each party shall pay all legal, accounting and investment banking
-39-
fees, and other fees to consultants and advisors incurred by it, relating to
this Agreement and the transactions contemplated herein. In the event of
termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by another party. The Company and the Acquiror shall each be
liable for 50% of all stamp or transfer taxes arising from the transfer of the
share capital of any Company Subsidiary or other Company Assets.
SECTION 5.8 Further Assurances. At any time and from time to time
------------------
after the Closing Date, the parties hereto agree to (a) furnish upon request to
each other such further assurances, information, documents, instruments of
transfer or assignment, files and books and records, (b) promptly execute,
acknowledge, and deliver any such further assurances, documents, instruments of
transfer or assignment, files and books and records, and (c) do all such further
acts and things, all as such other party may reasonably request for the purpose
of carrying out the intent of this Agreement and the documents referred to
herein.
SECTION 5.9 Notification. Between the date of this Agreement and
------------
the Closing Date:
(a) The Company shall promptly notify the Acquiror in writing if
the Company or any Company Subsidiary becomes aware of any fact or condition
that causes or constitutes a material breach of any of the Company's
representations and warranties as of the date of this Agreement, or if the
Company or any Company Subsidiary becomes aware of the occurrence after the date
of this Agreement of any fact or condition that could (except as expressly
contemplated herein) cause or constitute a material breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Company Disclosure Schedule if the
Company Disclosure Schedule were dated the date of the occurrence or discovery
of any such fact or condition, the Company shall promptly deliver to the
Acquiror a supplement to the Company Disclosure Schedule specifying such change.
During the same period, the Company shall promptly notify the Acquiror of the
occurrence of any breach of any covenant, agreement, undertaking or obligation
of the Company in this Article V or of the occurrence of any event that may make
the satisfaction of the conditions in Section 6.1 impossible or not reasonably
likely; and
(b) The Acquiror shall promptly notify the Company in writing if
the Acquiror or any Acquiror Subsidiary becomes aware of any fact or condition
that causes or constitutes a material breach of any of the Acquiror's
representations and warranties as of the date of this Agreement, or if the
Acquiror or any Acquiror Subsidiary becomes aware of the occurrence after the
date of this Agreement of any fact or condition that could (except as expressly
contemplated herein) cause or constitute a material breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Acquiror Disclosure Schedule if the
Acquiror Disclosure Schedule were dated the date of the occurrence or discovery
of any such fact or condition, the Acquiror shall promptly deliver to the
Company a supplement to the Acquiror Disclosure Schedule specifying such change.
-40-
During the same period, the Acquiror shall promptly notify the to the Company of
the occurrence of any breach of any covenant, agreement, undertaking or
obligation of the Acquiror in this Article V or of the occurrence of any event
that may make the satisfaction of the conditions in Section 6.2 impossible or
not reasonably likely.
(c) Neither the delivery nor the failure to deliver any notice
required under this Section 5.9 shall constitute a waiver of any defense that
may be validly asserted to any claim related to the contents (not the failure to
deliver) of the notice delivered or failed to be delivered.
SECTION 5.10 New Options. Promptly after Closing, subject to
------------
applicable Law, the Acquiror shall grant to the then employees of the Company
Subsidiaries and the previous employees of the Company that are after Closing
direct employees or officers of the Acquiror or Acquiror Subsidiaries options to
purchase shares of Acquiror Common Stock pursuant to the terms of the Stock
Option Plan of the Acquiror and in an amount determined by the Board of
Directors or the Compensation Committee of the Acquiror.
SECTION 5.11 Intercompany Liabilities. At or prior to the Closing
------------------------
the Company shall take all actions necessary so that (i) the Company and each
Company Subsidiary shall have no Liability to any Company Shareholder or any
Related Person of any Company Shareholder after the Closing, including the
obligation to pay a dividend to any Company Shareholder or any Related Person of
any Company Shareholder other than pursuant to the Amended and Restated Bridge
Loan Agreement (ii) each Company Subsidiary, other than any Company Subsidiary
that is an Excluded Asset, shall have no Liability to the Company, and (iii) the
Company shall have no Liability to any Company Subsidiary, other than any
Company Subsidiary that is an Excluded Asset.
SECTION 5.12 Company Shareholders Meeting.
------------------------------
(a) The Company agrees, promptly after the date hereof, to take
all action necessary in accordance with the laws of the Cayman Islands and the
Company's Organizational Documents to convene a meeting of the shareholders of
the Company (the "Company Shareholders' Meeting") to consider approval and
adoption of this Agreement and the transactions contemplated herein. The Company
will use reasonable efforts to solicit from its shareholders proxies in favor of
approval and adoption of this Agreement and the transactions contemplated herein
and will take all other action necessary or advisable to secure the vote or
consent of its shareholders as required by the law of the Cayman Islands and the
Company Organizational Documents. Notwithstanding anything to the contrary
contained in this Agreement, the Company may adjourn or postpone the Company
Shareholders' Meeting, but only to the extent necessary to ensure that any
necessary supplement or amendment to any proxy statement provided to the
shareholders of the Company in advance of a vote on the approval and adoption of
this Agreement and the transactions contemplated herein or, if as of the time
for which Company Shareholders' Meeting is originally scheduled (as set forth in
the Company Proxy Statement) there are insufficient shares of capital stock of
the Company represented (either in person or by proxy) to constitute a quorum
necessary to conduct the business of the Company Shareholders' Meeting. The
Company shall ensure that the Company Shareholders' Meeting is called, noticed,
convened, held and conducted, and that all proxies solicited by the Company in
connection with the Company Shareholders' Meeting are solicited, in compliance
with the law of the Caymans Islands, the Company Organizational Documents, and
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all other applicable legal requirements. The Company's obligation to call, give
notice of, convene and hold the Company Shareholders' Meeting in accordance with
this Section 5.12(a) shall not be limited to or otherwise affected by the
commencement, disclosure, announcement or submission to the Company or any
Company Shareholder of any acquisition proposal by a third party, or by any
withdrawal, amendment or modification of the recommendation of the Board of
Directors of the Company with respect to this Agreement or the transactions
contemplated hereby.
(b) The Company agrees, as to itself and the Company Subsidiaries
that none of the information regarding the Company and the Company Subsidiaries
to be provided to the Acquiror to be included or incorporated by reference in
the Acquiror Proxy Statement will, at the time the Acquiror Proxy Statement is
published and mailed to the Acquiror's stockholders, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 5.13 Shareholder Representation Letters. The Company
------------------------------------
shall use its best efforts to deliver to Acquiror prior to Closing duly executed
Representation Letters, in the form set forth in Exhibit 3.2(b)-1 hereto from
each Company Shareholder that has not otherwise duly executed and delivered to
the Acquiror a Representation Letter on or prior to Closing.
SECTION 5.14 Additional Representation Letters. The Company shall
---------------------------------
not distribute, by liquidation, repurchase of securities issued by the Company
or one its Related Persons or otherwise, any Acquiror Common Stock to any Person
that has not delivered a Representation Letter, unless prior to such
distribution the Company shall have received a letter from such Person agreeing
and representing to the same extent as provided in the Representation Letter.
SECTION 5.15 Nasdaq Listing of Additional Shares. Promptly after
-----------------------------------
the date hereof, the Acquiror shall file with the Nasdaq Stock Market a
Notification Form for the Listing of Additional Shares in respect of the Shares.
SECTION 5.16 Exclusivity. The Company will not (and will not
-----------
cause or permit any of the Company Subsidiaries or any of their directors,
officers, employees, or agents to) (i) directly or indirectly, through any
representative or otherwise, solicit or entertain offers from, negotiate with or
in any manner encourage, discuss, accept, or consider any proposal of any other
Person relating to the acquisition of any shares of stock of the Company or any
Company Subsidiary, any of their assets or business, in whole or in part,
whether through direct purchase, merger, consolidation, or other business
combination (other than sales of inventory in the ordinary course), or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. The Company will notify the Buyer immediately if any Person makes
any proposal, offer, inquiry, or contact with respect to any of the foregoing.
SECTION 5.17 Name. Promptly after the Closing the Company will
----
change its name to a name that is dissimilar to NetCel360.
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ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.1 Conditions to Obligations of the Acquiror. The
----------------------------------------------
obligation of the Acquiror to consummate the Acquisition and to take the other
actions to be taken by the Acquiror at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived in whole or in part by the Acquiror):
(a) Representations and Warranties. All of the representations
--------------------------------
and warranties of the Company set forth in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date, with the same effect as though
such representations and warranties had been made on and as of the Closing Date,
without giving effect to any supplement to the Company Disclosure Schedule
(delivered to the Acquiror in accordance with Section 5.9(a) hereof), except
that such representations and warranties that are made as of a specific date
need only be true in all material respects as of such date; provided, however,
that the entering into of additional Contracts by the Company or any Company
Subsidiary subsequent to the date hereof and prior to the Closing Date shall not
cause the representation contained in Section 3.14 hereof not to be materially
true as of the Closing if such additional Contracts are entered into in the
Ordinary Course of Business.
(b) Covenants. All of the covenants, agreements, undertakings
---------
and obligations that the Company is required to perform or to comply with
pursuant to this Agreement at or prior to the Closing (considered collectively),
and each of these covenants, agreements, undertakings and obligations
(considered individually), shall have been duly performed and substantially
complied with. The Company must have delivered to the Acquiror each of the
documents required to be delivered by Company pursuant to Sections 2.4 or 6.1
hereof and each of the covenants, agreements, undertakings and obligations in
Sections 5.4 and 5.12 hereof must have been fully complied with.
(c) Shareholder Approval. The consummation of the transactions
---------------------
contemplated herein shall have been approved by the appropriate resolutions of
Company Shareholders.
(d) Officer's Certificate. The Acquiror shall have received a
----------------------
certificate, dated as of the Closing Date and signed by a senior executive
officer or officers of the Company, representing that the conditions referred to
in Sections 6.1(a), 6.1(b) and 6.1(c) hereof (regarding the Company) have been
satisfied and the changes set forth in 6.1(k) hereof have not occurred.
(e) Secretary's Certificate. The Acquiror shall have received
------------------------
copies of the resolutions of the Board of Directors (or other similar governing
body) of the Company, authorizing the execution, delivery and performance of
this Agreement and certificates of the secretaries or assistant secretaries of
such corporations dated as of the Closing Date, to the effect that such
resolutions were duly adopted and are in full force and effect, together with
copies of the memorandum of association and articles of association (or
equivalent documents) of each such corporation certified by such officers.
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(f) No Prohibition. Neither the consummation nor the performance
--------------
of any of the transactions contemplated herein will, directly or indirectly
(with or without the giving of notice or the lapse of time or both), contravene,
or conflict with, or result in a violation of, or cause the Acquiror or any
Related Person of the Acquiror to suffer any adverse consequences under, (i) any
applicable Law or Order, or (ii) any Law or Order that has been published,
introduced, or otherwise proposed by or before any Governmental Entity.
(g) No Action. No Action or Order shall be pending or threatened
---------
which (i) involves a challenge to or seeks to prohibit, delay or restrict the
consummation of any of the transactions contemplated herein, (ii) questions the
validity or legality of any of the transactions contemplated herein, or (iii)
could adversely affect the right of the Acquiror to own any of the Company
Assets or operate the Company Business.
(h) Receipt of Company Assets. The Acquiror shall have received
--------------------------
from the Company all documents transferring the Company Assets, as provided in
Section 2.4 and otherwise as reasonably requested by the Acquiror. There shall
not have been made or threatened by any Person any claim asserting that such
Person is the rightful owner of any Company Assets or is entitled to any of the
consideration being paid by the Acquiror for the Company Assets.
(i) Consents. Each of the consents, registrations, approvals,
--------
declarations, permits or authorizations set forth in Schedules 3.4 and 3.5 of
the Company Disclosure Schedule shall have been obtained and must be in full
force and effect.
(j) Opinion of Counsel. The Company shall have caused ▇▇▇▇▇▇ and
------------------
Calder Asia, Cayman Islands counsel for the Company, to issue to the Acquiror an
opinion, dated as of the Closing Date, in substantially the form as Exhibit
6.1(j) hereto.
(k) No Material Adverse Effect. There shall not have occurred
-----------------------------
any change in the business, operations, properties, prospects, assets, or
condition of the Company or any Company Subsidiary since the date hereof is
reasonably likely to constitute a Company Material Adverse Effect on the
Company, and no event has occurred or circumstance exists that is reasonably
likely to result in such a Company Material Adverse Effect.
(l) No Damage. There shall not have occurred any damage to or
----------
destruction of any assets or properties of the Company or any Company
Subsidiary, the cost of the repair or replacement of which could be more than
$50,000 in excess of insurance proceeds (whether or not received) with respect
thereto.
(m) Employment Agreements. ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ shall
----------------------
have entered into employment agreements with the Acquiror with mutually
satisfactory terms.
(n) Termination of Agreements. All agreements, understandings
---------------------------
and contracts between the Company and any Company Subsidiary that is not an
Excluded Asset shall have been terminated and any liability of such Company
Subsidiaries thereunder shall have been waived.
(o) Nasdaq Listing of Additional Shares. Fifteen days shall have
-----------------------------------
passed since the filing with the Nasdaq Stock Market of a Notification Form for
the Listing of Additional Shares, unless the Acquiror shall have received from
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the Nasdaq Stock Market a waiver of the 15-day prior notification requirement
under Nasdaq Stock Market Rule 4320(e)(15)(D).
(p) Due Diligence. The Acquiror shall have completed its due
--------------
diligence investigation of the Company and the Company Business and the results
of such investigation shall be reasonably satisfactory to Acquiror.
(q) Fairness Opinion. The Acquiror shall have received a written
----------------
opinion, in form and substance reasonable satisfactory to the Acquiror, from
▇▇▇▇▇▇▇▇ & Co. ("▇▇▇▇▇▇▇▇"), stating that in ▇▇▇▇▇▇▇▇' opinion the transactions
contemplated by this Agreement are fair from a financial point of view to the
stockholders of the Acquiror.
(r) Loan Agreement. The Acquiror shall have entered into a
---------------
binding loan agreement providing for a loan of at least $2.0 million, with terms
at least as favorable to the Acquiror as those contained in the Commitment
Letter, dated the date hereof, among Mercantile Capital Partners I, LP, ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ and the Acquiror.
(s) Fairness Opinion. The Acquiror shall have received a written
----------------
opinion, in form and substance satisfactory to the Acquiror, from ▇▇▇▇▇▇▇▇,
stating that the financing described in clause (r) of this Section 6.1 is fair
from a financial point of view to the stockholders of the Acquiror.
SECTION 6.2 Conditions to Obligations of the Company. The
---------------------------------------------
obligation of the Company to consummate the sale of the Company Assets and to
take the other actions to be taken by Company at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived in whole or in part by Company):
(a) Representations and Warranties. All of the representations
--------------------------------
and warranties of the Acquiror set forth in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date, with the same effect as though
such representations and warranties had been made on and as of the Closing Date,
without giving effect to any supplement to the Acquiror Disclosure Schedule
(delivered to the Company in accordance with Section 5.9(b) hereof), except that
such representations and warranties that are made as of a specific date need
only be true in all material respects as of such date; provided however, that
any representation or warranty that is qualified by materiality or by reference
to an Acquiror Material Adverse Effect shall be true and correct in all respects
as of the Closing Date or as of such earlier date, as the case may be.
(b) Covenants. All of the covenants, agreements, undertakings
---------
and obligations that the Acquiror is required to perform or to comply with
pursuant to this Agreement at or prior to the Closing (considered collectively),
and each of these covenants, agreements, undertakings and obligations
(considered individually), shall have been duly performed and substantially
complied with. The Acquiror must have delivered to Company each of the documents
required to be delivered by the Acquiror pursuant to Section 6.2 hereof.
(c) Shareholder Approval. The consummation of the transactions
---------------------
contemplated herein shall have been approved by the appropriate resolutions of
Company Shareholders.
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(d) Officer's Certificate. The Company shall have received from
----------------------
the Acquiror a certificate, dated as of the Closing Date and signed by a senior
executive officer or officers of the Acquiror, representing that the conditions
referred to in Sections 6.2(a) and 6.2(b) hereof have been satisfied.
(e) Secretary's Certificate. The Company shall have received
------------------------
copies of the resolutions of the Board of Directors (or other similar governing
body) of the Acquiror authorizing the execution, delivery and performance of
this Agreement and certificates of the secretaries or assistant secretaries of
the Acquiror dated as of the Closing Date, to the effect that such resolutions
were duly adopted and are in full force and effect, together with copies of the
memorandum of association and articles of association (or equivalent documents)
of the Acquiror certified by such officers.
(f) No Prohibition. There is no Law or Order in effect that
---------------
prohibits the sale of the Company Assets by the Company to the Acquiror.
(g) No Action. No Action or Order shall be pending or threatened
---------
which (i) involves a challenge to or seeks to prohibit, delay or restrict the
consummation of any of the transactions contemplated herein or (ii) questions
the validity or legality of any of the transactions contemplated herein.
(h) Receipt of Purchase Price. The Company shall have received
---------------------------
from the Acquiror the Shares to be issued pursuant to Section 2.3(a).
(i) Consents. Each of the consents, registrations, approvals,
--------
declarations, permits or authorizations set forth in Schedule 4.5 of the
Acquiror Disclosure Schedule, shall have been obtained and must be in full force
and effect.
(j) Opinion of Counsel. The Acquiror shall have caused
--------------------
▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇, United States counsel for the Acquiror, to issue to the
Company an opinion, dated as of the Closing Date, relating to the Acquiror good
standing, due authorization and execution of this Agreement, the valid and
binding nature of this Agreement, appropriate authorization to issue the Shares,
with standard assumptions and qualifications and otherwise in form and substance
reasonably satisfactory to the Company.
(k) No Material Adverse Effect. There shall not have occurred
-----------------------------
any change in the assets or liabilities of the Acquiror or any Acquiror
Subsidiary since the date hereof that is reasonably likely to constitute an
Acquiror Material Adverse Effect, and no event has occurred or circumstance
exists that is reasonably likely to result in such an Acquiror Material Adverse
Effect.
(l) Board Representation. The Acquiror shall have taken such
---------------------
actions as may be necessary to appoint ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ to the
Acquiror's board of directors.
ARTICLE VII
TERMINATION
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SECTION 7.1 Termination. Notwithstanding anything in this
-----------
Agreement to the contrary, this Agreement and the transactions contemplated
herein may, by written notice given at any time prior to the Closing, be
terminated:
(a) by either the Acquiror or the Company, upon their mutual
written consent;
(b) by either the Acquiror or the Company if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to fully comply with its obligations hereunder) on or before June 30,
2001;
(c) by either the Acquiror or the Company, if any Governmental
Entity shall have issued, enacted, entered, promulgated or enforced any Order,
or taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated herein and such Order, or other action shall have
become final and non-appealable, provided, however, that the right to terminate
this Agreement pursuant to this Section 7.1(d) shall not be available to any
party that has failed to fully comply with its obligations hereunder in any
manner that shall have proximately contributed to the occurrence of such Order;
(d) by the Acquiror, if (x) the Company has breached any
representation, warranty or covenant contained in this Agreement in any material
respect, or (y) if satisfaction of the conditions set forth in Section 6.1 is or
becomes impossible (other than through the failure of the Acquiror to fully
comply with its obligations hereunder) and the Acquiror has not waived such
condition on or before the Closing Date; or
(e) by the Company, if (x) the Acquiror has breached any
representation, warranty or covenant contained in this Agreement in any material
respect, or (y) if satisfaction of the conditions set forth in Section 6.02 is
or becomes impossible (other than through the failure of the Company to fully
comply with its obligations hereunder) and the Company has not waived such
condition on or before the Closing Date.
(f) by either the Acquiror or the Company if the required
approval of the Company Shareholders has not been obtained by reason of the
failure to obtain the required vote at the Company Shareholders' Meeting;
provided, however that the right to terminate this Agreement pursuant to this
Section 7.1(f) shall not be available to the Company if the failure to obtain
approval and adoption of this Agreement and the transactions contemplated herein
at the Company Shareholders' Meeting shall have been caused by the action or
failure to act of the Company and such action or failure to act constitutes a
material breach by the Company of this Agreement.
SECTION 7.2 Effect of Termination; Survival.
----------------------------------
(a) In the event of the termination and abandonment of this
Agreement pursuant to Section 7.1 herein, this Agreement (other than Section 5.6
(Confidentiality), Section 5.7 (Expenses), Section 9.5 (Governing Law) and
Section 9.6 (Consent to Jurisdiction; Waiver of Jury Trial), which shall remain
in full force and effect) shall forthwith become null and void and no party
hereto (or any of their respective Representatives or stockholders) shall have
any Liability or further obligation to any other party hereto, except as
provided in this Section 7.2; provided, however that if this Agreement is
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terminated by the Acquiror or the Company because of the breach of this
Agreement by the Acquiror or the Company because one or more of the conditions
to the Acquiror's or the Company's obligations under this Agreement is not
satisfied as a result of the Acquiror's or the Company's failure to fully comply
with its obligations under this Agreement, the terminating party's rights to
pursue all legal remedies will survive such termination unimpaired.
(b) If the transaction contemplated herein has not been approved
by the appropriate resolutions of Company Shareholders on or before June 7,
2001, then the Company shall reimburse the Acquiror for the reasonable fees and
disbursements of the Acquiror's legal, accounting and other professional
advisors incurred in connection with the Acquiror's attempt to complete the
transactions contemplated by this Agreement.
(c) If (i) the Acquiror terminates this Agreement pursuant to
Section 7.1(d)(x) or 7.1(f), and (ii) the Company sells a substantial portion of
the Company Business within 120 days of such termination (whether through a sale
of assets, merger, stock exchange, or otherwise), then the Company shall
promptly pay $1.0 million in cash to the Acquiror.
(d) If (i) the Company terminates this Agreement pursuant to
Section 7.1(e)(x), and (ii) the Acquiror purchases another company (for
consideration with a fair market value in excess of $2.0 million) within 120
days from the date of such termination, then the Acquiror shall promptly pay to
the Company $1.0 million in cash.
(e) Notwithstanding (i) the making of this Agreement, (ii) any
investigation or examination conducted with respect to, or any knowledge
acquired (or capable of being acquired) about the accuracy or inaccuracy of or
compliance with, any representation, warranty, covenant, agreement, undertaking
or obligation made by or on behalf of the parties hereto, (iii) the waiver of
any condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant, agreement, undertaking or
obligation, and (iv) the Closing hereunder:
(i) All of the representations and warranties of the
parties contained in Article III of this Agreement, the Company Disclosure
Schedule, any supplements to the Company Disclosure Schedule (delivered to the
Acquiror in accordance with Section 5.9(a) hereof), and any other certificate or
document delivered to the Acquiror pursuant to this Agreement shall survive the
Closing until the date 90 days after the release of the audited financial
statements of the Acquiror for the year ended January 31, 2002.
(ii) All of the representations or warranties of the
Acquiror contained in Article IV of this Agreement, the Acquiror Disclosure
Schedule, any supplements to the Acquiror Disclosure Schedule (delivered to the
Company in accordance with Section 5.9(b) hereof) and any other certificate or
document delivered to the Company or the Company Shareholders pursuant to this
Agreement shall survive the Closing until 90 days after the date the Acquiror
releases audited consolidated financial statements for the year ended January
31, 2002 in accordance U.S. GAAP.
(iii) All of the covenants, agreements, undertakings and
obligations of the parties contained in this Agreement and any other certificate
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or document delivered pursuant to this Agreement shall survive until fully
performed or fulfilled, unless non-compliance with such covenants, agreements,
undertakings or obligations is waived in writing by the party or parties
entitled to such performance.
No claim for indemnification, reimbursement or any other remedy pursuant to
Sections 7.3 and 7.4 hereof may be brought with respect to breaches of
representations or warranties contained in Article IV herein, no claim pursuant
to statutory, common law or other remedy may be brought with respect to any
breaches of representations and warranties made by the Acquiror after the
applicable expiration date set forth in clause (e)(ii) of this Section 7.2 and
no claim for indemnification, reimbursement or any other remedy pursuant to
Sections 7.3 and 7.4 hereof may be brought after the applicable expiration date
set forth in clause (e)(i) of this Section 7.2 with respect to breaches of
representations or warranties made by the Company; provided, however that if,
prior to such applicable date, Acquiror shall have notified the Company in
writing of a claim for indemnification under this Article VII (whether or not
formal legal action shall have been commenced based upon such claim), such claim
shall continue to be subject to indemnification in accordance with this Article
VII notwithstanding such expiration date.
SECTION 7.3 Indemnification by the Company. The Company shall
---------------------------------
indemnify and hold harmless the Acquiror, each Company Subsidiary, and their
respective successors, assigns, stockholders, controlling persons, Related
Persons and Representatives (collectively, the "Acquiror Indemnified Persons")
from and against, and shall reimburse the Acquiror Indemnified Persons for, any
and all losses, Liabilities, Actions, deficiencies, diminution of value,
expenses (including costs of investigation and defense and reasonable attorneys'
and accountants' fees), or damages of any kind or nature whatsoever, whether or
not involving a third-party claim (collectively, "Damages"), incurred thereby or
caused thereto, directly or indirectly, based on, arising out of, resulting
from, relating to, or in connection with:
(a) Any breach of or inaccuracy in any representation or warranty
made by the Company in this Agreement (without giving effect to any supplement
to the Company Disclosure Schedule), the Company Disclosure Schedule, the
supplements to the Company Disclosure Schedule (delivered to the Acquiror in
accordance with Section 5.9(a) hereof), or any other certificate or document
delivered pursuant to this Agreement, other than those, if any, that have been
waived in writing by the Acquiror.
(b) Any breach or violation of or failure to fully perform any
covenant, agreement, undertaking or obligation of the Company set forth in this
Agreement, other than those, if any, that have been waived in writing by the
Acquiror.
(c) Any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with the Company, or any Company
Subsidiary (or any Person acting on their behalf) in connection with any of the
transactions contemplated herein.
(d) Any liabilities of the Company not expressly assumed, by
assignment of contract or otherwise, by the Acquiror herein.
-49-
The indemnity obligations under this Article VII can be satisfied either through
the delivery of cash or through delivery of the Acquiror Common Stock having a
Fair Market Value equal to the amount of the Damages for which indemnification
or payment is being made. The Company shall not be obligated to indemnify for
any Damages (exclusive of reasonable attorneys fees and expenses) to the extent
that such Damages, together with all other Damages (exclusive of reasonable
attorneys fees and expenses) previously indemnified or reimbursed pursuant to
this Article VII exceeds the greater of (i) the Fair Market Value of 3,709,729
shares of Acquiror Common Stock at Closing and (ii) the Fair Market Value of
such number of shares of Acquiror Common Stock at the time payment is due for
any Damages to be paid pursuant to this Article VII.
SECTION 7.4 Notice and Payment of Claims.
--------------------------------
(a) Notice. The party entitled to indemnification pursuant to
------
this Article VII (the "Indemnified Party") shall notify the party liable for
indemnification pursuant to this Article VII (the "Indemnifying Party") within
five (5) days after becoming aware of, and shall provide to the Indemnifying
Party as soon as practicable thereafter all information and documentation
necessary to support and verify, any Damages that the Indemnified Party shall
have determined to have given or is reasonably likely to give rise to a claim
for indemnification hereunder, and the Indemnifying Party shall be given access
to all books and records in the possession or under the control of the
Indemnified Party which the Indemnifying Party reasonably determines to be
related to such claim. Notwithstanding the foregoing, the failure to so notify
the Indemnifying Party shall not relieve the Indemnifying Party of any Liability
that it may have to any Indemnified Party, except to the extent that the
Indemnifying Party demonstrates that it is prejudiced by the Indemnified Party's
failure to give such notice.
(b) Payment. In the event an action for indemnification under
-------
this Article VII shall have been finally determined, such final determination
shall be paid to the Acquiror on demand in immediately available funds in U.S.
dollars. An action, and the liability for and amount of Damages therefor, shall
be deemed to be "finally determined" for purposes of this Article VII when the
parties to such action have so determined by mutual agreement or, if disputed,
when a final non-appealable Order shall have been entered.
(c) Interest. Any amounts not paid when due pursuant to this
--------
Article VII shall bear interest from the date thereof until the date paid at a
rate equal to 5.0% per annum calculated on the basis of a 360 day year and the
actual number of day elapsed or the highest legal rate permitted by applicable
Law.
SECTION 7.5 Procedure for Indemnification - Third Party.
------------------------------------------------
(a) Upon receipt by an Indemnified Party of notice of the
commencement of any Action by a third party (a "Third Party Claim") against it,
such Indemnified Party shall, if a claim is to be made against an Indemnifying
Party under this Article VII, give notice to the Indemnifying Party of the
commencement of such Third Party Claim as soon as practicable, but in no event
later than five (5) days after the Indemnified Party shall have been served, but
the failure to so notify the Indemnifying Party shall not relieve the
Indemnifying Party of any Liability that it may have to any Indemnified Party,
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except to the extent that the Indemnifying Party demonstrates that the defense
of such Third Party Claim is prejudiced by the Indemnified Party's failure to
give such notice.
(b) If a Third Party Claim is brought against an Indemnified
Party and it gives proper notice to the Indemnifying Party of the commencement
of such Third Party Claim, the Indemnifying Party will, unless the claim
involves Taxes, be entitled to participate in such Third Party Claim and, to the
extent that it wishes (unless (i) the Indemnifying Party is also a party to such
Third Party Claim and the Indemnified Party determines in good faith that joint
representation would be inappropriate, or (ii) the Indemnifying Party fails to
provide reasonable assurance to the Indemnified Party of its financial capacity
to defend such Third Party Claim and provide indemnification with respect to
such Third Party Claim) to assume the defense of such Third Party Claim with
counsel satisfactory to the Indemnified Party and, after notice from the
Indemnifying Party to the Indemnified Party of its election to assume the
defense of such Third Party Claim, the Indemnifying Party shall not, as long as
it legitimately conducts such defense, be liable to the Indemnified Party under
this Article VII for any fees of other counsel or any other expenses with
respect to the defense of such Third Party Claim in each case subsequently
incurred by the Indemnified Party in connection with the defense of such Third
Party Claim, other than reasonable costs of investigation.
If the Indemnifying Party assumes the defense of a Third Party Claim,
(i) it shall be conclusively established for purposes of this Agreement that the
claims made in such Third Party Claim are within the scope of and subject to
indemnification; (ii) no compromise, discharge or settlement of, or admission of
Liability in connection with, such claims may be effected by the Indemnifying
Party without the Indemnified Party's written consent (which consent shall not
be unreasonably withheld or delayed) unless (A) there is no finding or admission
of any violation of Law or any violation of the rights of any Person and no
effect on any other claims that may be made against the Indemnified Party, and
(B) the sole relief provided is monetary damages that are paid in full by the
Indemnifying Party; (iii) the Indemnifying Party shall have no Liability with
respect to any compromise or settlement of such claims effected without its
written consent; and (iv) the Indemnified Party shall cooperate in all
reasonable respects with the Indemnifying Party in connection with such defense,
and shall have the right to participate, at the Indemnified Party's sole
expense, in such defense, with counsel selected by it.
If proper notice is given to an Indemnifying Party of the commencement
of any Third Party Claim and the Indemnifying Party does not, within ten (10)
days after the Indemnified Party's notice is given, give notice to the
Indemnified Party of its election to assume the defense of such Third Party
Claim, the Indemnifying Party shall be bound by any determination made in such
Third Party Claim or any compromise or settlement effected by the Indemnified
Party.
(c) Notwithstanding the foregoing, if an Indemnified Party
determines in good faith that there is a reasonable probability that a Third
Party Claim may adversely affect it or its Related Persons other than as a
result of monetary damages for which it could be entitled to indemnification
under this Agreement, the Indemnified Party may, by notice to the Indemnifying
Party, assume the exclusive right to defend, compromise, or settle such Third
Party.
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(d) The Indemnifying Party hereby consents to the non-exclusive
jurisdiction of any court in which a Third Party Claim is brought against the
Indemnified Party for purposes of any claim that the Indemnified Party may have
under this Agreement with respect to such Third Party Claim or the matters
alleged therein, and agree that process may be served on the Indemnifying Party
with respect to such a claim anywhere in the world.
SECTION 7.6 Procedure for Indemnification - Third Party, No
-----------------------------------------------------
Recourse against the Company Subsidiaries. Effective upon Closing, the Company
------------------------------------------
hereby irrevocably waives any and all rights that it may have against any
Company Subsidiary in respect of any claims or causes of actions, for monetary
damages, specific performance or otherwise, arising prior to Closing, including
any claims arising out of any breach or alleged breach by the Company or any
Company Subsidiary of any representations and warranties, covenants or other
agreements contained in this Agreement or any other agreements or documents
executed or to be executed by the parties hereto in order to consummate the
transactions contemplated by this Agreement. Without limiting the foregoing, the
Company shall not be entitled to contribution from, subrogation to or recovery
against, any Company Subsidiary with respect to any liability of the Company
that may arise under or pursuant to this Agreement or any of other agreements or
documents executed or to be executed by the parties hereto in order to
consummate the transactions contemplated by this Agreement.
SECTION 7.7 Limited Liability of the Acquiror. The liability of
----------------------------------
the Acquiror with respect to any breaches of this Agreement together with all
other Damages (exclusive of reasonable attorney fees and expenses) previously
compensated or reimbursed pursuant to a claim for breach of representations or
warranties shall not exceed the greater of (i) the Fair Market Value of
3,709,729 shares of Acquiror Common Stock at Closing and (ii) the Fair Market
Value of such number of shares of Acquiror Common Stock at the time payment is
due for any Damages to be paid pursuant to this Article VII.
SECTION 7.8 Indemnity and Liability Baskets. Any party entitled
--------------------------------
to make a claim under Section 7.3 herein or arising from the breach of
representations or warranties contained in Article IV herein (the "Aggrieved
Party") shall not have the right to indemnification or compensation thereunder
unless and until the Aggrieved Party shall have incurred on a cumulative basis,
since the Closing Date, Damages, to which it otherwise is entitled to
indemnification or compensation under Section 7.3 or as a result of the breach
of representations or warranties contained in Article IV herein, which in an
aggregate equals or exceeds $50,000. If such Damages should equal or exceed
$50,000, the Aggrieved Party shall be entitled to indemnification or
compensation, as the case may be, for the entire amount of the Damages, up to
the maximum set forth in Section 7.3 herein, in the case of a claim for
indemnification hereunder, or as set forth in Section 7.7 herein, in the case of
a claim arising from the breach of representations of warranties of the
Acquiror.
SECTION 7.9 Payment by Stock. Acquiror may obtain satisfaction of
----------------
any indemnification under this Article VII through the withholding of shares of
Deferred Stock, valuing such shares at their then current Fair Market Value.
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ARTICLE VIII
REGISTRATION RIGHTS
SECTION 8.1 Definitions. The following terms when used in this
-----------
Article VIII shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"Holder" shall mean the Company and any stockholder of the Company to
------
which the Registrable Securities have been transferred pursuant to Section 8.6.
"Registrable Securities" shall mean any Shares held by a Holder and
-----------------------
any equity securities of Acquiror issued or issuable with respect to Shares by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization and held
by a Holder; provided, however, that any share of such securities shall cease to
-------- -------
be a Registrable Security when (i) a registration statement covering such
Registrable Security has been declared effective by the SEC and such securities
have been disposed of pursuant to such effective registration statement or (ii)
such securities are distributed to the public pursuant to Rule 144 (or any
similar or successor provision then in force) under the Securities Act.
SECTION 8.2 Registration Procedures. Acquiror shall:
------------------------
(a) Prepare and file with the SEC a registration statement with
respect to the Registrable Securities (which registration statement may also
include securities held by other holders of Acquiror Common Stock) within six
(6) months after the Closing, and use its reasonable efforts to (A) have such
registration statement declared effective within eight (8) months after the
Closing, and (B) cause the registration statement to remain effective until the
earlier of (i) the date when all Registrable Securities have been sold, or (ii)
one (1) year after such registration statement is declared effective (unless the
Acquiror is, and remains, eligible to use Form S-3 or any successor short-form
registration statement, in which case the period shall be 2 years) provided
--------
however, that such 1-year period (or 2-year period as the case may be) shall be
-------
extended for a period of time equal to the period the Holders refrain from
selling any securities included in such registration at the request of an
underwriter of Acquiror Common Stock (or other securities of Acquiror) pursuant
to Section 8.5 and for a period of time equal to the period during which
Registrable Securities could not be sold pursuant to a notice delivered by
Acquiror pursuant to Section 8.2(d);
(b) Use its reasonable efforts to prepare and file with the SEC
such amendments and supplements (including post-effective amendments) to such
registration statements and the prospectuses used in connection therewith as may
be necessary to keep the registration statements effective for the period
referred to in clause (a) and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by the registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in the registration statement;
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(c) Furnish to each Holder of Registrable Securities such number
of copies of the registration statement, each amendment and supplement thereto
(including post-effective amendments), the prospectus included in the
registration statement (including each preliminary prospectus) and such other
documents as such Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Holder;
(d) Notify each Holder of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and promptly prepare and file a supplement or amendment
(including post-effective amendments) to the prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
(e) Cause all such Registrable Securities registered pursuant to
this Agreement to be listed on each securities exchange or market on which
similar securities issued by the Acquiror are then listed, if any;
(f) Use reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that (a) if the Acquiror's shares are no longer listed on a national
--------
securities exchange or traded on the Nasdaq national market then the Holders may
only request such registration and qualification in up to 10 jurisdictions and
(b) Acquiror shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions unless Acquiror is already subject
to service in such jurisdiction and except as may be required by the Securities
Act; and
(g) Advise each seller of such Registrable Securities, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the SEC suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for such purpose
and promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal if such stop order should be issued.
SECTION 8.3 Registration Expenses.
----------------------
(a) All expenses incident to Acquiror's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for Acquiror, reasonable fees and disbursements of one
counsel for the Holders and all independent certified public accountants, and
other Persons retained by Acquiror (all such expenses being herein called
"Registration Expenses"), shall be borne by Acquiror, and Acquiror shall pay its
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit or quarterly review, the expense of any liability insurance
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and the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by Acquiror are then
listed or on the NASD automated quotation system if the Common Stock is listed
on any such exchange or system.
(b) To the extent Registration Expenses are not required to be
paid by Acquiror, each Holder of securities included in any registration
hereunder shall pay those Registration Expenses allocable to the registration of
the Holder's securities so included, and any Registration Expenses not so
allocable shall be borne by all sellers of securities included in the
registration
SECTION 8.4 Indemnification.
---------------
(a) Acquiror agrees to indemnify, to the extent permitted by law,
each Holder of Registrable Securities, its affiliates and their respective
officers, directors, employees and agents, as the case may be, and each Person
who controls the Holder (within the meaning of the Securities Act), against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement under which Registrable Securities were registered, any prospectus or
preliminary prospectus contained therein or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any information
furnished in writing to Acquiror by such Holder expressly for use therein as
provided in Section 8.4(b) below.
(b) In connection with any registration statement in which a
Holder of Registrable Securities is participating, each Holder shall furnish to
Acquiror in writing such information and affidavits as Acquiror reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify Acquiror, its
directors and officers and each Person who controls Acquiror (within the meaning
of the Securities Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by the Holder; provided, however, that such Holder shall not be
liable in any such case to the extent that any alleged losses or damages result
from the failure of Acquiror to promptly amend or take action to correct or
supplement any such registration statement or prospectus on the basis of
corrected or supplemental information provided in writing by such Holder to
Acquiror expressly for such purpose; provided, further, that the obligation to
indemnify shall be individual to each Holder and shall be limited to the net
amount of proceeds received by the Holder from the sale of Registrable
Securities pursuant to the registration statement.
(c) Any Person entitled to indemnification hereunder shall (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification (provided, however, that the failure of any
indemnified party to give notice shall not relieve the indemnifying party of its
obligations under this Section 8.4, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice) and (ii) permit the
indemnifying party to assume and undertake the defense of such claim with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party of its election to undertake and assume the defense thereof,
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the indemnifying party shall not be liable to such indemnified party for any
legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof. The indemnifying party shall not be subject to any
liability for any settlement made by the indemnified party without the
indemnifying party's advance written consent (but such consent shall not be
unreasonably withheld). The indemnifying party shall not consent to a
settlement of, or the entry of any judgment arising from, any third party claim,
unless (i) the settlement or judgment is solely for money damages and the
indemnifying party admits in writing its liability to hold the indemnified party
harmless from and against any losses, damages, expenses and liabilities arising
out of such settlement or judgment or (ii) the indemnified party consents
thereto, which consent shall not be unreasonably withheld. An indemnifying
party who elects not to assume the defense of a claim shall not be obligated to
pay the fees and expenses of more than one counsel for all parties indemnified
by the indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party, a conflict of interest may exist between the
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and shall survive the transfer of securities.
Acquiror also agrees to make such provisions as are reasonably requested by any
indemnified party for contribution to the party in the event Acquiror's
indemnification is unavailable for any reason.
(e) If the indemnification provided for in paragraphs (a) and (b)
of this Section 8.4 is unavailable or insufficient to hold harmless an
indemnified party under such paragraphs in respect of any losses, claims,
damages, liabilities and expenses in respect thereof referred to therein, then
each indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a result
of such losses, losses, claims, damages, liabilities or expenses in such
proportion as appropriate to reflect the relative fault of Acquiror, on the one
hand, and the sellers of such Registrable Securities on the other, in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations,
including the failure to give any notice under paragraph (c) of this Section
8.4. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
relates to information supplied by Acquiror, on the one hand, or the sellers of
such Registrable Securities on the other hand, and to the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. Acquiror and the sellers of Registrable Securities
agree that it would not be just and equitable if contributions pursuant to this
paragraph were determined by pro rata allocation (even if all of the sellers of
such Registrable Securities were treated as one entity for such purpose) or by
any other method of allocation which did not take account of the equitable
considerations referred to above in this paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
-56-
or action in respect thereof, referred to above in this paragraph, shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph, no seller of such
Registrable Securities shall be required to contribute any amount in excess of
the total proceeds received from the sale of such seller's Registrable
Securities.
SECTION 8.5 Lockup Agreement. Each Holder agrees in connection
------------------
with any underwritten public sale or distribution of the Common Stock by
Acquiror pursuant to a registration statement filed with the SEC, that upon the
request of Acquiror, such Holder shall not sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Registrable
Securities without the prior written consent of Acquiror, for such period of
time (not to exceed 180 days after the effective date of such registration
statement) as Acquiror may reasonably request, provided, that all officers and
directors of Acquiror, all securityholders who hold at least one percent of the
Acquiror Common Stock, on a fully-diluted basis, and all other persons with
registration rights (whether or not pursuant to this Agreement) enter into
similar agreements. Notwithstanding the foregoing, the obligations described in
this Section 8.5 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
SECTION 8.6 Assignment of Registration Rights. The rights granted
---------------------------------
to the Company hereunder may only be assigned by the Company to a current
stockholder of the Company that acquires Registrable Securities in liquidation
or other distribution of the Company's assets. Upon such transfer or
assignment, such transferee or assignee shall be deemed a "Holder" under this
Agreement, provided, that at least 30 days prior to such transfer, Acquiror is
furnished with a written agreement executed by such proposed assignee (in form
and substance satisfactory to Acquiror) pursuant to which such proposed assignee
agrees to be bound by the terms of this Article VIII.
SECTION 8.7 Reports Under Exchange Act. With a view to making
----------------------------
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
period a Holder to sell securities of Acquiror to the public without
registration or pursuant to a registration on Form ▇-▇, ▇▇▇▇▇▇▇▇ agrees to use
its reasonable efforts to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, so long as Acquiror remains subject
to the periodic reporting requirements under Sections 13 or 15(d) of the
Exchange Act;
(b) take such action as is necessary to enable the Holders to
utilize Form S-3 for the sale of their Registrable Securities;
(c) file with the SEC in a timely manner all reports and other
documents required of Acquiror under the Securities Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by
Acquiror as to whether it has complied with the reporting requirements of SEC
Rule 144, the Securities Act and the Exchange Act, or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3, (ii) a copy of
-57-
the most recent annual or quarterly report of Acquiror and such other reports
and documents so filed by Acquiror , and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration or
pursuant to such form.
SECTION 8.8 Termination. Except for Section 8.4 which shall
-----------
survive indefinitely, the provisions of this Article VIII shall terminate with
respect to each Holder of Registrable Securities on the earlier of (a) the date
that there are no longer any Registrable Securities, and (b) the date when no
shares of the Acquiror's Common Stock are registered under the Exchange Act and
Acquiror is no longer required to make any filings under the Exchange Act.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Assignments; Successors, No Third Party Rights.
---------------------------------------------------
Except as set forth in Section 8.6, no party may assign any of its rights under
this Agreement without the prior written consent of the other parties hereto
(which may not be unreasonably withheld or delayed), and any purported such
assignment without such consent shall be void, provided, however, that the
Acquiror may assign any or all of its rights and obligations under this
Agreement to a wholly-owned subsidiary of the Acquiror without the prior consent
of the Company. Subject to the foregoing, this Agreement and all of the
provisions hereof shall apply to, be binding upon, and inure to the benefit of
the parties hereto and their successors and permitted assigns and the parties
indemnified pursuant to Article VII. Nothing in this Agreement, express or
implied, is intended to confer upon any Person other than the parties hereto any
rights or remedies of any nature whatsoever under or by reason of this Agreement
or any provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and permitted assigns.
SECTION 9.2 Entire Agreement. This Agreement, including the
-----------------
Company Disclosure Schedule, the Acquiror Disclosure Schedule and the Exhibits
hereto and the other agreements and written understandings referred to herein or
otherwise entered into by the parties hereto on the date hereof, and the
Confidentiality Agreement constitute the entire agreement and understanding and
supersede all other prior covenants, agreements, undertakings, obligations,
promises, arrangements, communications, representations and warranties, whether
oral or written, by any party hereto or by any director, officer, employee,
agent, Related Person or Representative of any party hereto.
SECTION 9.3 Waiver; Amendment or Modification.
------------------------------------
(a) Any provisions of this Agreement may be amended if the
amendment is in writing signed by the Acquiror and the Company.
(b) Subject to Clause 9.3(c) hereof, compliance with any
provision or term of this Agreement may be waived, if and only if, such waiver
is signed by the party against whom the waiver is to be effective.
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(c) No claim or right arising out of this Agreement or the
documents referred to in this Agreement can be discharged by one party, in whole
or in part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party, and no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and no notice
to or demand on one party will be deemed to be a waiver of any obligation of
such party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement or the
documents referred to in this Agreement.
(d) The rights and remedies of the parties hereto are cumulative
and not alternative. Except where a specific period for action or inaction is
provided herein, neither the failure nor any delay on the part of any party in
exercising any right, power or privilege under this Agreement or the documents
referred to in this Agreement shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any such right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, preclude any
other or further exercise thereof or the exercise of any other such right, power
or privilege. The failure of a party to exercise any right conferred herein
within the time required shall cause such right to terminate with respect to the
transaction or circumstances giving rise to such right, but not to any such
right arising as a result of any other transactions or circumstances.
SECTION 9.4 Notices. All notices, requests, instructions, claims,
-------
demands, consents and other communications required or permitted to be given
hereunder shall be in writing and shall be deemed to have been duly given on the
date delivered by hand or by courier service such as Federal Express, or by
other messenger (or, if delivery is refused, upon presentment) or upon receipt
of an electronic confirmation of successful facsimile transmission (if such
successful delivery is promptly confirmed by telephone or in person with the
person to whom it is being sent), or upon delivery by registered or certified
mail (return receipt requested), postage prepaid, to the parties at the
following addresses:
(a) If to the Acquiror:
Vsource Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
With a Copy to:
▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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(b) If to the Company:
NetCel360 Holdings Limited
▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇
Telephone: ▇▇▇-▇▇▇▇-▇▇▇▇
Facsimile:
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇
or to such other persons or addresses as the person to whom notice is given may
have previously furnished to the other in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 9.5 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO
-------------
BE MADE IN, AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY
AND IN ACCORDANCE WITH THE LAWS OF, THE STATE OF DELAWARE WITHOUT REGARD TO THE
CONFLICT OF LAW PRINCIPLES THEREOF.
SECTION 9.6 CONSENT TO JURISDICTION, WAIVER OF JURY TRIAL.
---------------------------------------------------
(a) THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND THE FEDERAL COURTS OF
THE UNITED STATES OF AMERICA LOCATED IN THE STATE OF DELAWARE SOLELY IN RESPECT
OF THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT AND OF
THE DOCUMENTS REFERRED TO IN THIS AGREEMENT, AND IN RESPECT OF THE TRANSACTIONS
CONTEMPLATED HEREIN, AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN
ANY ACTION FOR THE INTERPRETATION OR ENFORCEMENT HEREOF OR OF ANY SUCH DOCUMENT,
THAT IT IS NOT SUBJECT THERETO OR THAT SUCH ACTION MAY NOT BE BROUGHT OR IS NOT
MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE OR
THAT THIS AGREEMENT OR ANY SUCH DOCUMENT MAY NOT BE ENFORCED IN OR BY SUCH
COURTS, AND THE PARTIES HERETO IRREVOCABLY AGREE THAT ALL CLAIMS WITH RESPECT TO
SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH A DELAWARE STATE
OR FEDERAL COURT. THE PARTIES HEREBY CONSENT TO AND GRANT ANY SUCH COURT
JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF SUCH
DISPUTE AND AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY
SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 9.4 HEREOF OR IN
SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT
SERVICE THEREOF.
(b) EACH PARTY HERETO HEREBY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
-60-
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (ii) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF
THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH
SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.6.
SECTION 9.7 Actions of the Company Subsidiaries. Whenever this
-------------------------------------
Agreement requires any Company Subsidiary to take any action, such requirement
shall be deemed to involve, with respect to actions to be taken at or prior to
the Closing, an undertaking on the part of the Company to use reasonable effects
to cause such Company Subsidiary to take such action.
SECTION 9.8 Descriptive Headings. The descriptive headings herein
--------------------
are inserted for convenience of reference only and are not intended to be part
of, or to affect the meaning, construction or interpretation of, this Agreement.
SECTION 9.9 Counterparts. For the convenience of the parties
------------
hereto, this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
SECTION 9.10 Knowledge. When references are made in this
---------
agreement of information being "to the knowledge" of a party, such Person shall
be deemed to have "knowledge" of a particular fact or other matter if (a) such
individual is actually aware of such fact or other matter; or (b) a prudent
individual could be expected to discover or otherwise become aware of such fact
or other matter after due and careful inquiry.
-61-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers duly authorized as of the date first written
above.
VSOURCE INC.
By: _________________________________
Name:
Title:
NETCEL360 HOLDINGS LIMITED
By: _________________________________
Name:
Title:
-62-
EXHIBIT 1
EXCLUDED ASSETS
---------------
EXHIBIT 3.2(B)(I)
FORM OF REPRESENTATION LETTER
REPRESENTATION LETTER OF
_______________________________
[INSERT NAME OF NETCEL360 SHAREHOLDER]
__________, 2001
TO: [Acquiror]
In connection with the issuance by Vsource Inc. (the "Acquiror") of
shares of its common stock (the "Acquiror Common Stock") to NetCel360 Holdings
Limited (the "Company") pursuant to the Acquisition Agreement, dated as of May
__, 2001, among the Acquiror and the Company (the "Acquisition Agreement"), the
undersigned hereby represents and warrants as follows:
1. I/We understand that the shares of Acquiror Common Stock
to be delivered at the Closing have not been registered under the United States
Securities Act of 1933, as amended (the "Securities Act"), or any securities
laws of any territory, possession or state or the District of Columbia and that
each certificate representing shares of the Acquiror Common Stock issued
pursuant to the Acquisition Agreement or any other securities issued in respect
of them upon any stock split, stock dividend, reverse stock split,
recapitalization, merger, consolidation or similar event, shall bear the
following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES. THEY MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO ANY
UNITED STATES PERSON EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT. THE COMPANY AND ITS TRANSFER
AGENT SHALL NOT PERMIT TRANSFER OR RECORDATION OF TRANSFER OF THE
SECURITIES REPRESENTED HEREBY UNLESS THE COMPANY SHALL HAVE RECEIVED
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT SUCH TRANSFER COMPLIES WITH THE FOREGOING PROVISIONS. UPON
TRANSFER OF THE SECURITIES REPRESENTED HEREBY ACCOMPANIED BY AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE
TRANSFER HAS BEEN PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
-2-
IN A TRANSACTION PURSUANT TO RULE 144 UNDER THE SECURITIES ACT, THE
COMPANY AND THE TRANSFER AGENT SHALL PROMPTLY REMOVE THIS LEGEND FROM
THE SECURITIES REPRESENTED HEREBY.
2. I am/We are an "accredited investor" within the meaning of
subparagraph (a)(3) of Rule 501 under the Securities Act who in the normal
course of business make investments in securities or other instruments similar
to the Acquiror Common Stock, and will acquire the Acquiror Common Stock to be
acquired by me/us in any liquidation of the Company for my/our own account, with
no intention of distributing or reselling such securities in any transaction or
scheme of transactions.
3. I/We have such knowledge, sophistication and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Acquiror and can form an independent judgment
concerning Acquiror and its subsidiaries. I/We have received and reviewed copies
of the Acquiror's Annual Report on Form 10-KSB for the fiscal year ended January
31, 2001, filed with the Securities and Exchange Commission on May 16, 2001, and
drafts of the Acquisition Agreement and related agreements. I am/We are
familiar with the business and financial condition, properties, operations and
prospects of the Acquiror and its subsidiaries and have had, during the course
of the transactions contemplated by the Acquisition Agreement and prior to the
delivery of shares of Acquiror Common Stock at the Closing, the opportunity (i)
to ask questions of, and receive answers from, the Acquiror concerning the
Acquiror and its subsidiaries and the terms and conditions of the transactions
contemplated by the Acquisition Agreement and (ii) to obtain additional
information (to the extent the Acquiror possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to me/us or to which I/we have had access.
4. I/We have made such independent investigation of the Acquiror
as I/we deem to be necessary or advisable in connection with the transactions
contemplated by the Acquisition Agreement.
5. I/We by reason of my/our, or my/our management's, business or
financial experience, I/we have the capacity to protect my/our own interests in
connection with the transactions contemplated in the Acquisition Agreement.
6. I/We waive all claims I/we may have against any of the
Acquiror, its Related Persons, the Acquiror's subsidiaries, or any of their
directors, officers, employees, agent, stockholders, consultants, affiliates,
investment bankers, attorneys or representatives, except for any claims against
the Acquiror based upon the breach of any representations and warranties or
covenants or other agreements contained within the Acquisition Agreement
pursuant to the terms of the Acquisition Agreement.
7. Any transfer of Acquiror Common Stock to me/us will occur in
(i) an "offshore transaction", as defined in Rule 902 under the Securities Act,
to a person that is not a "U.S. person", as defined in Rule 902 under the
Securities Act or (ii) to a person that is an "accredited investor" as defined
in the Securities Act.
-3-
The representations and warranties contained in this letter are in
addition to the express written or implied representations and warranties, if
any, which I/we otherwise may make in connection with the issuance of the
Acquiror Common Stock pursuant to the Acquisition Agreement.
Capitalized terms used but not otherwise defined herein shall have the
meanings set forth in the Acquisition Agreement.
Counsel for the Acquiror may rely upon the representations and
information in this letter for purposes of rendering a legal opinion in
connection with the issuance of the Securities.
By: _________________________________
Name:
Title:
-4-
EXHIBIT 3.2(B)-2
FORM OF IRREVOCABLE PROXY
-------------------------
THIS IRREVOCABLE PROXY (this "Agreement") is made as of this
_____ day of May, 2001, by the undersigned stockholder (the "Stockholder") of
NetCel360 Holdings Limited (the "Company") for the benefit of Vsource, Inc. (the
"Acquiror").
WITNESSETH:
WHEREAS, the Acquiror and the Company have entered into an
Acquisition Agreement (as such agreement may be amended from time to time, the
"Acquisition Agreement", capitalized terms used and not defined herein have the
respective meanings assigned to them in the Acquisition Agreement) pursuant to
which the Acquiror will purchase certain assets of the Company (the
"Acquisition");
WHEREAS, the Stockholder owns, of record and beneficially, the shares
of stock of the Company set forth on Schedule 1 to this Proxy (the "Shares");
WHEREAS, in order to induce Acquiror and the Company to execute the
Acquisition Agreement, the Stockholder has agreed to grant to Acquiror the Proxy
(as hereinafter defined);
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Irrevocable Proxy.
------------------
(a) Grant of Proxy. The Stockholder hereby constitutes
and appoints I. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇, and each of them (the
"Proxyholders"), each with the power of substitution, as the lawful proxies for
the Stockholder to vote all of the Shares which the Stockholder is entitled to
vote, for and in the name, place and stead of the Stockholder, at any annual,
special or other meeting of the stockholders of the Company and at any
adjournment thereof, or pursuant to any consent in lieu of a meeting, at which
meeting or in connection with which consent action shall be taken (i) in favor
of the Acquisition, the execution and delivery by the Company of the Acquisition
Agreement and the approval of the terms thereof and each of the other actions
contemplated by the Acquisition Agreement and any actions required in
furtherance thereof; (ii) against any action or agreement that would result in a
breach in any respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Acquisition Agreement; and
(iii) against the following actions (other than the Acquisition and the
transactions contemplated by the Acquisition Agreement): (A) any extraordinary
corporation transaction, such as a merger, consolidation or other business
combination involving the Company or its subsidiaries; (B) a sale, lease or
-5-
transfer of a material amount of assets of the Company or its subsidiaries, or a
reorganization, recapitalization, dissolution or liquidation of the Company or
its subsidiaries; (C)(1) any change in a majority of the persons who constitute
the board of directors of the Company; (2) any change in the Bylaws of the
Company; (3) any other material change in the Company's corporate structure or
business; or (4) any other action involving the Company or its subsidiaries
which is intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, or materially adversely affect the Acquisition and the
transactions contemplated by the Acquisition Agreement (the "Proxy"). The
Stockholder shall not enter into any agreement or understanding the effect of
which would be to violate the provisions and agreements contained in this
Section 1(a).
(b) Irrevocability of Proxy. The Proxy granted by the
-------------------------
preceding paragraph (a) is coupled with an interest and it is therefore not
revocable by the Stockholder without the consent of the Acquiror.
Notwithstanding the foregoing, such Proxy shall terminate upon the termination
of the Acquisition Agreement.
2. Restrictions on Grants of Proxies and Non-Interference. During
------------------------------------------------------
the term of this Agreement, the Stockholder shall not (i) except as contemplated
by this Agreement, grant any proxies or powers of attorney, deposit any Shares
into a voting trust or enter into a voting agreement with respect to any Shares;
or (ii) take any action that would have the effect of preventing or disabling
the Stockholder from performing the Stockholder's obligations under this
Agreement.
3. Approval of Acquisition. The Stockholder agrees that, if
-------------------------
requested by the Proxyholders, the Stockholder will vote or cause to be voted
all the Shares in favor of the Acquisition and the Acquisition Agreement (and
the documents and transactions related thereto) at any meeting of the
shareholders of the Company held for the purpose of approving the Acquisition
Agreement and the Acquisition.
4. Further Assurance and Adjustments. The Stockholder shall, upon
---------------------------------
the reasonable request of the Acquiror, execute and deliver any additional
documents necessary or desirable to effect any of the terms and provisions of
this Agreement. If at any time the Shares are changed into a different number
of Shares or a different class by reason of any reclassification,
recapitalization, split-up, combination, exchange of Shares or readjustment of
the Company's capital stock or if a stock dividend thereon is declared with a
record date prior to the termination of this Agreement, then the number of
Shares subject to the Proxy granted hereby and the voting rights to be exercised
upon exercise thereof shall be appropriately adjusted.
5. Specific Performance. The parties hereto agree that if for any
--------------------
reason the Stockholder failed to perform any of the Stockholder's obligations
under this Agreement, then the Acquiror would be irreparably damaged and money
damages would not constitute an adequate remedy. Accordingly, the Acquiror
shall be entitled to specific performance and injunctive and other equitable
relief to enforce the performance of such obligations by the Stockholder. This
provision is without prejudice to any other rights the Acquiror may have against
the Stockholder for failure to perform any of the Stockholder's obligations
under this Agreement.
6. Term. The Proxy shall terminate upon termination of the
----
Acquisition Agreement in accordance with its terms.
-6-
7. Binding Agreement. All authority and rights herein conferred
------------------
or agreed to be conferred by the Stockholder shall survive the death or
incapacity of the Stockholder. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns.
8. Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9. Entire Agreement. This Agreement (including the documents and
-----------------
the instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof.
10. Governing Law. This Agreement shall be governed and construed
-------------
in accordance with the laws of the State of Delaware without giving effect to
the principles of conflicts of law thereof.
11. No Prejudice. This Agreement has been jointly prepared by the
------------
parties hereto and the terms hereof shall not be construed in favor of or
against any party on account of its participation in such preparation.
12. Headings. The Article, Section and paragraph headings herein
--------
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
IN WITNESS WHEREOF, the Acquiror and the Stockholder have caused this
Agreement to be duly executed as of the day and year first written above.
VSOURCE, INC. SHAREHOLDER
------------------------------------ -------------------------------------
Name: Name:
Title: Title:
-7-
EXHIBIT 6.1(J)
FORM OF OPINION TO BE ISSUED BY ▇▇▇▇▇▇ AND ▇▇▇▇▇▇ ASIA
[Company]
[Address]
[Address]
Dear Sirs
We have acted as special Cayman Islands legal advisers to the
Company in connection with the Acquisition Agreement referred to below dated as
of [ ] April, 2001 made between inter alios the Company and the Acquiror.
For the purposes of this opinion, we have reviewed only originals,
copies or final drafts of the following documents:
(a) the certificate of incorporation of the Company (dated 25
August, 1999) and the memorandum and articles of association of the Company as
adopted by Special Resolution passed on 11 April, 2001 (the "MEMORANDUM AND
ARTICLES");
(b) a certificate of good standing for the Company dated 6 April,
2001 issued by the Registrar of Companies in the Cayman Islands (the
"CERTIFICATE OF GOOD STANDING");
(c) unanimous written resolutions of the board of the directors
of the Company held on [6] April, 2001;
(d) a certificate from a director of the Company dated [ ]
April, 2001 a copy of which is attached hereto (the "DIRECTOR'S CERTIFICATE");
(e) the Acquisition Agreement together with the signature pages
thereto executed on behalf of the Company; and
(f) the Company's Stockholder Agreement.
Terms used herein shall bear the same meaning as in the Acquisition Agreement
unless the context otherwise requires.
Save as aforesaid we have not been instructed to undertake and have not
undertaken any further enquiry or due diligence in relation to the transaction
the subject of this opinion and the following opinions are given only as to and
based on circumstances and matters of fact existing at the date hereof and of
which we are aware consequent upon the instructions we have received in relation
to the matter the subject of this opinion and as to the laws of the Cayman
Islands as the same are in force at the date hereof. In giving this opinion, we
have relied upon the completeness and accuracy (and assumed the continuing
completeness and accuracy as at the date hereof) of the Director's Certificate
and the Certificate of Good Standing without further verification and have
relied upon the following assumptions, which we have not independently verified:
-8-
(i) The Acquisition Agreement has been or will be duly
authorized, executed and delivered by or on behalf of all relevant
parties (other than the Company).
(ii) These are, or will be, legal, valid, binding and enforceable
against all relevant parties in accordance with the laws of the State
of Delaware and all other relevant laws (other than, with respect to
the Company, the laws of the Cayman Islands).
(iii) The power, authority and legal right of all parties under
all relevant laws and regulations (other than, with respect to the
Company, the laws of the Cayman Islands) to enter into, execute and
perform their respective obligations under the Acquisition Agreement.
(iv) The choice of the laws of the State of Delaware as the
governing law of the Acquisition Agreement and the agreement to submit
to the jurisdiction of the courts of the State of Delaware have been
made by all parties in good faith and would be regarded as a valid and
binding selection and submission respectively which will be upheld by
the State of Delaware courts as a matter of the laws of the State of
Delaware and by all other courts under all other relevant laws (other
than the laws of the Cayman Islands).
(v) Copy documents or drafts of documents provided to us are true
and complete copies of, or in the final forms of, the originals.
(vi) The genuineness of all signatures and seals.
(vii) All conditions precedent in the Acquisition Agreement
(other than obtaining the approval of the Company's stockholders) have
been satisfied or duly waived and there has been no breach of the
terms of the Acquisition Agreement at the date hereof.
(viii) There is no contractual or other prohibition (other than
as may arise by virtue of the laws of the Cayman Islands) binding on
the Company or on any other party prohibiting it from entering into
and performing its obligations under the Acquisition Agreement.
The following opinions are given only as to matters of Cayman Islands
law and we have assumed that there is nothing under any other law that would
affect or vary the following opinions. Specifically we have made no
investigation of the laws of the State of Delaware or Hong Kong and we offer no
opinion in relation thereto.
Based upon the foregoing and subject to the qualifications set out
below and having regard to such legal considerations as we deem relevant, we are
of the opinion that:
1. The Company has been duly incorporated as an exempted company with limited
liability for an unlimited duration and is validly existing under the laws
of the Cayman Islands with full and requisite corporate power and authority
-9-
to own its property and assets and to carry on its business in accordance
with its Memorandum and Articles and to enter into and execute and perform
its obligations under the Acquisition Agreement.
2. The execution and delivery of the Acquisition Agreement by the Company and
the performance of its obligations thereunder has been duly authorized and
approved by all necessary corporate action of the Company and has been duly
executed and does not violate or result in a breach of any of the terms or
provisions of the Memorandum and Articles or any law, public rule or
regulation applicable to the Company in the Cayman Islands currently in
force and do not violate, conflict with or result in a breach of any
existing order or decree of any governmental authority or agency or any
official body in the Cayman Islands.
3. The Acquisition Agreement constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their terms
except and in so far as such enforcement may be limited as hereinafter set
forth.
4. No authorizations, consents, orders, permissions or approvals are required
from any governmental authorities or agencies or other official bodies in
the Cayman Islands and no notice to, registrations with, or other filing
with or action by any Cayman Islands governmental authority or regulatory
body is required in connection with:
(1) the execution and delivery of the Acquisition Agreement;
(2) the performance of any obligation under the Acquisition Agreement;
or
(3) the validity, enforceability or admissibility in evidence of the
Acquisition Agreement.
5. It is not necessary to ensure the legality, validity, enforceability or
admissibility in evidence of the Acquisition Agreement that they or any
other instrument be notarized, legalized, filed, recorded or enrolled with
any governmental department, agency or other authority in the Cayman
Islands.
6. The Company is in good standing with the Registrar of Companies in the
Cayman Islands.
7. No stamp duties or other similar taxes or charges are payable under the
laws of the Cayman Islands in respect of the execution or delivery of the
Acquisition Agreement or its performance or enforcement, unless it is
executed in or thereafter brought within the jurisdiction of the Cayman
Islands (e.g. for the purposes of enforcement) in which case stamp duty of
CI$2.00 (US$2.44) on such Acquisition Agreement may be payable.
8. There are currently no taxes or other charges or deductions payable (by
withholding or otherwise) to the Cayman Islands Government or any taxing
authority thereof either (i) on or by virtue of the execution, delivery or
enforcement of the Acquisition Agreement or (ii) on any payment of any
-10-
nature to be made by the Company under the Acquisition Agreement. The
Cayman Islands currently have no income, corporate or capital gains tax and
no estate duty, inheritance tax or gift tax.
9. The choice of the law of the State of Delaware to govern the Acquisition
Agreement will be upheld as a valid choice of law under the laws of the
Cayman Islands and the courts of the Cayman Islands would uphold such
choice of law in a suit on the Acquisition Agreement brought in the courts
of the Cayman Islands, assuming it is so pleaded.
10. The submission in the Acquisition Agreement to submit to the jurisdiction
of the courts of the State of Delaware is legal, valid and binding on the
Company.
11. Although there is no statutory enforcement in the Cayman Islands of
judgments obtained in the State of New York, the courts of the Cayman
Islands will recognize and enforce a judgment of a foreign court of
competent jurisdiction without retrial on the merits based on the principle
that a judgment of a competent foreign court imposes upon the judgment
debtor an obligation to pay the sum for which judgment has been given
provided that such judgment is final and conclusive, for a liquidated sum,
not in respect of taxes or a fine or penalty, is not inconsistent with a
Cayman Islands judgment in respect of the same matter, and was not obtained
in a manner and is not of a kind the enforcement of which is contrary to
the public policy of the Cayman Islands. A Cayman Islands court may stay
proceedings if concurrent proceedings are being brought elsewhere. A
foreign judgment may be final and conclusive even if subject to appeal.
However, if appealable, a Cayman Islands court may stay enforcement until
such appeal has been heard. A judgment with respect to a debt (including
interest) which is lawfully due is not normally of a kind the enforcement
of which the Cayman Islands courts would consider to be contrary to the
public policy of the Cayman Islands.
12. An original action may be commenced against the Company in the Cayman
Islands under the Acquisition Agreement or without first commencing
proceedings or obtaining a judgment in the State of New York.
13. Based on our review of the Register of Writs and other Originating Process,
there are no actions pending against the Company in the Grand Court of the
Cayman Islands on [ ] April, 2001. A search at the Companies Registry in
the Cayman Islands would not reveal any order or resolution for the winding
up of the Company because under Cayman Islands law the records kept by the
Registrar of Companies are not documents of public record. The inquiries
referred to above which we have made at the Grand Court of the Cayman
Islands have revealed no record of the presentation of any winding up
petition in respect of the Company. We assume that there has been no change
in this position since the date on which the inquiries were made.
14. There is no exchange control legislation under Cayman Island's law and
accordingly there are no exchange control regulations imposed under Cayman
Island's law.
15. Neither the Company nor any of its assets is entitled to immunity from
service of process, jurisdiction suit or enforcement of a judgement on the
-11-
ground of sovereignty in the courts of Cayman Islands in respect of
proceedings against it in relation to the Acquisition Agreement.
This opinion is subject to the following qualifications and limitations:
(1) The term "enforceable" as used above means that the obligations assumed by
the Company under the relevant instrument are of a type and nature which
the courts of the Cayman Islands enforce. It does not mean that those
obligations will necessarily be enforced in all circumstances in accordance
with their terms. In particular:
(a) enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, readjustment of debts or moratorium or other laws of
general application relating to or affecting the rights of creditors;
(b) enforcement may be limited by general principles of equity - for
example, equitable remedies such as specific performance may not be
available, inter alia, where damages are considered to be an adequate
remedy;
(c) claims may become barred under the statutes of limitation or may be or
become subject to defenses of set-off, counterclaim, laches, estoppel
and similar defenses;
(d) where obligations are to be performed in a jurisdiction outside the
Cayman Islands, they may not be enforceable in the Cayman Islands to
the extent that performance would be illegal under the laws of that
jurisdiction;
(e) provisions, for example, for the payment of additional interest in
certain circumstances, may be unenforceable to the extent a court of
the Cayman Islands determines such a provision to be a penalty; and
(f) enforcement may be limited by the principle of forum non conveniens or
analogous principles notwithstanding any purported waiver of such
principle by any of the parties.
(2) With respect to winding up proceedings, Cayman Islands law may require that
all claims or debts of the Company are converted into their functional
currency of account at the exchange rate ruling at the date of commencement
of the winding up.
(3) A certificate, determination, calculation or designation of any party to
the Acquisition Agreement as to any matter provided in the Acquisition
Agreement might be held by a Cayman Islands court not to be conclusive,
final and binding if, for example, it could be shown to have an
unreasonable or arbitrary basis or in the event of manifest error.
(4) Pursuant to the Grand Court Rules, 1995, Order 62, rule 2, the Grand Court
of the Cayman Islands will award costs in litigation in accordance with
contractual provisions in this regard but we have reservations as to the
way this rule of court will apply in practice. While it is clear that the
legal fees and expenses incurred before judgment in enforcing a contract
-12-
can be recovered in accordance with the terms of that contract, it is
likely that any legal fees and expenses incurred after judgment will be
recoverable, if at all, in accordance with the rules laid down in the Grand
Court (Taxation of Costs) Rules, 1995.
(5) We have reservations as to the ability of a party to obtain a judgment for
payment of interest at default rates (as against prescribed court rates)
after judgment in the courts of the Cayman Islands.
(6) If any provision of a document is held to be illegal, invalid or
unenforceable, severance of such provision will be subject to the
discretion of the Cayman Islands courts notwithstanding any express
contractual provisions in this regard.
(7) In certain circumstances provisions (if any) in the Acquisition Agreement
that (i) the election of a particular remedy does not preclude recourse to
one or more others, or (ii) delay or failure to exercise a right or remedy
will not operate as a waiver of any such right or remedy, may not be
enforceable.
(8) A Cayman Islands court may set aside transactions which are not entered
into on behalf of a company bona fide and in its interests and where
another party to the transaction exhibits the requisite bad faith. In
circumstances where the court finds that the directors of a company have
acted in breach of their fiduciary duties to the company, the court may
find such directors liable in damages for loss sustained by such company or
its creditors as a result.
(9) Whilst parties to an agreement may agree inter se that respective rights
and obligations take effect "as of" a date prior to the date of execution
and delivery, the rights of third parties, to the extent that the same may
be available thereunder, only take effect from the date of actual execution
and delivery.
(10) Any term of the Acquisition Agreement may be amended orally by the parties
thereto notwithstanding provisions to the contrary contained therein.
(11) Based on principles of privity of contract, any indemnity or other
provision of the Acquisition Agreement (not being in the form of a deed)
which is expressed to be in favor of persons who are not parties to the
Acquisition Agreement may not be enforceable by such persons in the absence
of a trust in their favor.
(12) The power of the courts in the Cayman Islands to order specific performance
of an obligation or to order any other equitable remedy is discretionary,
and accordingly, a court in the Cayman Islands might make an award of
damages where specific performance of an obligation or any other equitable
remedy was sought.
(13) All payments due from the Company under the Acquisition Agreement may be
made free and clear of, and without deduction or withholding for or on
account of any present taxes imposed, assessed or levied under the laws of
the Cayman Islands;
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(14) Cayman Islands laws do not prohibit financial assistance (meaning financial
assistance given either directly or indirectly by a company or any of its
subsidiaries to a person proposing to acquire shares in such company,
either prior to or at the time of such acquisition). Accordingly, the
Guarantor may provide financial assistance if the Directors of the
Guarantor consider, in discharging their duties of care and to act in good
faith, for a proper purpose and in the interests of the Guarantor, that
such assistance can properly be given. Such assistance should be on an
arm's-length basis.
(15) Under the Fraudulent Dispositions Law (1996 Revision) every disposition of
property made with an intent to defraud (which means an intention willfully
to defeat an obligation owed to another creditor) and at an undervalue
shall be voidable at the instance of the creditor thereby prejudiced.
Except as specifically stated herein, we make no comment with respect to the
accuracy or completeness of any representations and warranties which may be made
by or with respect to the Company in the Acquisition Agreement or otherwise with
respect to the commercial terms of the transactions the subject of this opinion.
This opinion, although addressed to you, may be relied upon by your respective
legal counsel (but in that capacity only). It may not be relied upon by any
other person without our prior written consent.
Yours faithfully,
▇▇▇▇▇▇ AND ▇▇▇▇▇▇ ASIA
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SCHEDULE 4.1(C)
ACQUIROR SUBSIDIARIES
---------------------
Name Jurisdiction Ownership
---- ------------ ---------
Virtual Source, Inc. Nevada 100% by Vsource Inc.
▇▇▇ Acquisition Corp. California 100% by Vsource Inc.
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SCHEDULE 4.4
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1. The Acquiror will be required to file a Form 8-K with the Commission in
connection with this transaction.
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SCHEDULE 4.9
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1. eQuest, a software vendor to Acquiror, has claimed that it is owed an
additional $61,000 from Acquiror pursuant to an agreement between Acquiror and
eQuest. Acquiror contends that the work performed by eQuest pursuant to that
agreement was deficient and that it has a right to reimbursement of amounts
previously paid to eQuest. Acquiror has offered a mutual release of these
claims in settlement of this dispute. eQuest has retained a collection agency,
which has contacted Acquiror.
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SCHEDULE 4.11
-------------
1. Acquiror expects to incur restructuring costs of approximately $400,000 in
the first quarter.
2. Ongoing lease liabilities of approximately $440,000 in total through
October 21, 2002.
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SCHEDULE 4.12
INTELLECTUAL PROPERTY
---------------------
e. ▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇.▇▇▇
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