EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
NETIQ CORP.,
PLANET ACQUISITION CORP.
AND
MISSION CRITICAL SOFTWARE INC.
Dated as of February 26, 2000
TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER...................................................... 2
1.1 The Merger.................................................. 2
1.2 Effective Time; Closing..................................... 2
1.3 Effect of the Merger........................................ 2
1.4 Formation of Merger Sub; Certificate of Incorporation and
Bylaws of Surviving Corporation............................. 2
1.5 Board of Directors; Officers................................ 3
1.6 Headquarters................................................ 3
1.7 Effect on Capital Stock..................................... 5
1.8 Surrender of Certificates................................... 5
1.9 No Further Ownership Rights in MCS Common Stock............. 6
1.10 Lost, Stolen or Destroyed Certificates...................... 8
1.11 Tax Consequences............................................ 8
1.12 Taking of Necessary Action; Further Action.................. 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF MCS.......................... 9
2.1 Organization of MCS......................................... 9
2.2 MCS Capital Structure....................................... 9
2.3 Obligations With Respect to Capital Stock................... 10
2.4 Authority................................................... 10
2.5 SEC Filings; MCS Financial Statements....................... 11
2.6 Absence of Certain Changes or Events........................ 12
2.7 Taxes....................................................... 13
2.8 MCS Intellectual Property................................... 14
2.9 Compliance; Permits; Restrictions........................... 17
2.10 Litigation.................................................. 17
2.11 Brokers' and Finders' Fees.................................. 17
2.12 Employee Benefit Plans...................................... 17
2.13 Absence of Liens and Encumbrances........................... 20
2.14 Environmental Matters....................................... 20
2.15 Labor Matters............................................... 20
2.16 Agreements, Contracts and Commitments....................... 20
2.17 Statements; Proxy Statement/Prospectus...................... 22
2.18 Board Approval.............................................. 23
2.19 State Takeover Statutes..................................... 23
2.20 Fairness Opinion............................................ 23
ARTICLE III REPRESENTATIONS AND WARRANTIES OF NETIQ AND MERGER
SUB.................................................................. 23
3.1 Organization of NetIQ....................................... 23
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TABLE OF CONTENTS
(continued)
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3.2 NetIQ Capital Structure..................................... 24
3.3 Obligations With Respect to Capital Stock................... 24
3.4 Authority................................................... 25
3.5 SEC Filings; NetIQ Financial Statements..................... 26
3.6 Absence of Certain Changes or Events........................ 27
3.7 Taxes 27
3.8 NetIQ Intellectual Property................................. 28
3.9 Compliance; Permits; Restrictions........................... 30
3.10 Litigation.................................................. 31
3.11 Brokers' and Finders' Fees.................................. 31
3.12 Employee Benefit Plans...................................... 31
3.13 Absence of Liens and Encumbrances........................... 33
3.14 Environmental Matters....................................... 33
3.15 Labor Matters............................................... 34
3.16 Agreements, Contracts and Commitments....................... 34
3.17 Statements; Proxy Statement/Prospectus...................... 35
3.18 Board Approval.............................................. 36
3.19 State Takeover Statutes..................................... 36
3.20 Fairness Opinion............................................ 36
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................ 36
4.1 Conduct of Business......................................... 36
ARTICLE V ADDITIONAL AGREEMENTS........................................... 40
5.1 Proxy Statement/Prospectus; Registration Statement; Other
Filings..................................................... 40
5.2 Meetings of Stockholders.................................... 42
5.3 Access to Information; Confidentiality...................... 43
5.4 No Solicitation............................................. 44
5.5 Public Disclosure........................................... 47
5.6 Legal Requirements.......................................... 47
5.7 Third Party Consents........................................ 47
5.8 FIRPTA...................................................... 47
5.9 Notification of Certain Matters............................. 47
5.10 Commercially Reasonable Efforts and Further Assurances...... 48
5.11 Stock Options; Employee Stock Purchase Plans................ 48
5.12 Form S-8.................................................... 49
5.13 Service Credit.............................................. 49
5.15 Tax-Free Reorganization..................................... 49
5.16 Nasdaq Listing.............................................. 49
5.17 Action by Boards of Directors............................... 49
5.18 MCS Affiliate Agreement..................................... 50
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TABLE OF CONTENTS
(continued)
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5.19 Regulatory Filings; Reasonable Efforts...................... 50
5.20 Rights Under the LOI........................................ 50
ARTICLE VI CONDITIONS TO THE MERGER....................................... 51
6.1 Conditions to Obligations of Each Party to Effect the Merger 51
6.2 Additional Conditions to Obligations of MCS................. 51
6.3 Additional Conditions to the Obligations of NetIQ and
Merger Sub.................................................. 52
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER............................. 53
7.1 Termination................................................. 53
7.2 Notice of Termination; Effect of Termination................ 55
7.3 Fees and Expenses........................................... 55
7.4 Amendment................................................... 57
7.5 Extension; Waiver........................................... 57
ARTICLE VIII GENERAL PROVISIONS........................................... 58
8.1 Non-Survival of Representations and Warranties.............. 58
8.2 Notices..................................................... 58
8.3 Interpretation; Knowledge................................... 59
8.4 Counterparts................................................ 60
8.5 Entire Agreement............................................ 60
8.6 Severability................................................ 60
8.7 Other Remedies; Specific Performance........................ 60
8.8 Governing Law............................................... 60
8.9 Rules of Construction....................................... 60
8.10 Assignment.................................................. 61
8.11 WAIVER OF JURY TRIAL........................................ 61
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INDEX OF EXHIBITS
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Exhibit A NetIQ Stock Option Agreement
Exhibit B MCS Stock Option Agreement
Exhibit C NetIQ Voting Agreement
Exhibit D MCS Voting Agreement
Exhibit E MCS Affiliate Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of February 26, 2000 among NetIQ Corp., a Delaware corporation
("NetIQ"), Planet Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of NetIQ ("Merger Sub"), and Mission Critical Software Inc., a
Delaware corporation ("MCS").
RECITALS
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A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law ("Delaware Law"), NetIQ and
MCS will enter into a business combination transaction pursuant to which Merger
Sub will merge with and into MCS (the "Merger").
B. The Board of Directors of NetIQ (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of NetIQ
and fair to, advisable and in the best interests of, NetIQ and its stockholders,
(ii) has approved this Agreement, the Merger and the other transactions
contemplated by this Agreement and (iii) has determined to recommend that the
stockholders of NetIQ vote to approve the issuance of shares of NetIQ Common
Stock (as defined below) to the stockholders of MCS pursuant to the terms of the
Merger.
C. The Board of Directors of MCS (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of MCS and
fair to, advisable and in the best interests of, MCS and its stockholders, (ii)
has approved this Agreement, the Merger and the other transactions contemplated
by this Agreement and (iii) has determined to recommend the approval of this
Agreement and the Merger by the stockholders of MCS.
D. Concurrently with the execution of this Agreement, and as a condition
and inducement to NetIQ's and MCS's willingness to enter into this Agreement,
NetIQ shall execute and deliver a Stock Option Agreement in favor of MCS in
substantially the form attached hereto as Exhibit A (the "NetIQ Stock Option
---------
Agreement") and MCS shall execute and deliver a Stock Option Agreement in favor
of NetIQ in substantially the form attached hereto as Exhibit B (the "MCS Stock
---------
Option Agreement" and, together with the NetIQ Stock Option Agreement, the
"Stock Option Agreements"). The Board of Directors of NetIQ and MCS have each
approved the Stock Option Agreements.
E. Concurrently with the execution of this Agreement, and as a condition
and inducement to NetIQ's and MCS's willingness to enter into this Agreement,
certain affiliates of NetIQ shall enter into a Voting Agreement in substantially
the form attached hereto as Exhibit C (the "NetIQ Voting Agreements"), and
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certain affiliates of MCS shall enter into a Voting Agreement in substantially
the form attached hereto as Exhibit D (the "MCS Voting Agreements" and,
---------
collectively with the NetIQ Voting Agreements, the "Voting Agreements").
F. NetIQ, MCS and Merger Sub desire to make certain representations and
warranties and other agreements in connection with the Merger.
G. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
H. MCS is contemporaneously entering into a letter of intent (the "LOI"),
which contemplates MCS's acquisition of Gannymede Software, Inc. The Board of
Directors of MCS has determined that the transactions contemplated by the LOI
are consistent with and in furtherance of its long-term business strategy.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and into
MCS, the separate corporate existence of Merger Sub shall cease and MCS shall
continue as the surviving corporation. MCS as the surviving corporation after
the Merger is hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
-----------------------
the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger (the "Certificate of Merger") with the Secretary of State
of Delaware in accordance with the relevant provisions of Delaware Law (the time
of such filing (or such later time as may be agreed in writing by the parties
and specified in the Certificate of Merger) being the "Effective Time") as soon
as practicable on or after the Closing Date (as herein defined). The closing of
the Merger (the "Closing") shall take place at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation, at a time and date to be specified
by the parties, which shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in Article VI, or at such
other time, date and location as the parties hereto agree in writing (the
"Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
--------------------
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of MCS and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of MCS and Merger Sub shall become the debts, liabilities
and duties of the Surviving Corporation.
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1.4 Formation of Merger Sub; Certificate of Incorporation and Bylaws of
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Surviving Corporation.
---------------------
(a) Prior to the Effective Time, MCS and NetIQ agree to take such
action as is necessary to amend this Agreement to add Merger Sub as a party.
NetIQ agrees to take such action as is necessary to cause Merger Sub to perform
the various covenants and agreements contained herein which are contemplated
herein to be performed by Merger Sub. Any covenants or agreements of Merger Sub
contained herein shall be binding on such entity as of the time such entity
becomes a party to this Agreement.
(b) The Certificate of Incorporation of Merger Sub as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation; provided, however, that the name
of the Surviving Corporation shall be changed to Mission Critical Software Inc.
(c) The Bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until thereafter
amended.
(d) At the Effective Time, NetIQ shall take all necessary actions to
change its name to such name as shall be agreed by MCS and NetIQ.
1.5 Board of Directors; Officers.
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(a) At or prior to the Effective Time, each of MCS and NetIQ agrees
to take such action as is necessary to cause the number of directors comprising
the full Board of Directors of NetIQ to be nine (9) persons, including (i) four
of the current members of NetIQ's Board of Directors (or, if fewer than four of
the current members of NetIQ's Board of Directors are available or willing to
serve as a director of NetIQ after the Effective Time, such replacement
directors as may be nominated by the remaining members of NetIQ's Board of
Directors in accordance with the Bylaws of NetIQ) (the "NetIQ Designees"), (ii)
four of MCS's current directors nominated by MCS (or, if fewer than four of the
current members of MCS's Board of Directors are available or willing to serve as
a director of NetIQ after the Effective Time, such replacement directors as may
be nominated by the remaining directors of MCS) (the "MCS Designees") and (iii)
one additional independent director either (A) mutually selected by the Chairman
of MCS and the Chief Executive Officer of NetIQ at or prior to the Effective
Time or (B) selected by the Committee (as defined in Section 1.5(b)) after the
Effective Time (the "Joint Designee").
(b) At the Effective Time, NetIQ's Board of Directors shall
constitute a Compensation and Nominating committee (the "Committee"), which
shall include four members, of whom two shall be MCS Designees (who shall be
designated by Mr. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as Chairman of NetIQ after the Effective Time)
and two shall be NetIQ Designees (who shall be designated by ▇▇. ▇▇▇▇▇-▇▇ ▇▇▇▇▇
as Chief Executive Officer of NetIQ after the Effective Time). The Committee
shall have the customary responsibilities of the compensation committee of a
publicly
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owned company, and shall in addition have the responsibility for recommending to
the NetIQ Board of Directors the renomination of incumbent directors and the
nomination of new candidates.
(c) At or prior to the Effective Time, NetIQ shall take all necessary
action to assure that the MCS Designees and the Joint Designee, if then
designated, shall be appointed to the Board of Directors of NetIQ, and shall be
directors of NetIQ as of the Effective Time.
(d) The NetIQ Board of Directors shall be classified so that each of
the three classes contains at least one MCS Designee and at least one NetIQ
Designee, and so that the Joint Designee is in the class to be elected at the
next annual meeting of NetIQ.
(e) From and after the Effective Time, until successors are duly
elected or appointed and qualified in accordance with applicable law, (i) the
directors of the Surviving Corporation shall be the same as those of NetIQ, and
(ii) the directors of subsidiaries of NetIQ and MCS shall be such persons who
were serving in such capacities immediately prior to the Effective Time.
(f) From and after the Effective Time, and until successors are duly
elected or appointed and qualified in accordance with applicable law, the
following persons shall hold the titles indicated at NetIQ and shall serve at
the pleasure of the Board of Directors of NetIQ:
Executive Chairman ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Chief Executive Officer Ching-▇▇ ▇▇▇▇▇
Chief Operating Officer ▇▇▇▇▇ ▇▇▇▇
Chief Financial Officer ▇▇▇▇▇ ▇▇▇▇▇
Chief Technical Officer ▇▇▇ ▇▇▇▇▇▇▇▇▇
These persons shall also hold the same offices in the Surviving
Corporation. Other management positions of NetIQ shall be determined by
agreement between ▇▇. ▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇ in consultation with their
respective boards of directors. In the absence of such agreement, the positions
will be filled by the Board of Directors of NetIQ after the Effective Time.
(g) At or prior to the Effective Time, NetIQ will amend its Bylaws to
delineate the responsibilities associated with the positions described in the
prior paragraph in accordance with the joint recommendation of ▇▇. ▇▇▇▇▇▇▇ and
▇▇. ▇▇▇▇▇. In particular, the description of the role of Executive Chairman
shall reflect the parties' agreement that it shall be a full-time position with
active operational responsibilities determined from time to time by the Board of
Directors in consultation with the Chief Executive Officer.
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(h) From and after the Effective Time, the existing officers of the
subsidiaries of NetIQ and MCS shall continue to serve in such capacities at
the pleasure of their respective boards of directors.
(i) The Board of Directors of NetIQ after the Effective Time shall
use its best efforts to preserve the proportion and classification of NetIQ and
MCS Designees on the Board of Directors of NetIQ and the Committee as described
in this Section 1.5 for a period of three years from the Effective Time.
1.6 Headquarters. Following the Effective Time, the headquarters of NetIQ
------------
and the Surviving Corporation shall be maintained at the current headquarters of
NetIQ.
1.7 Effect on Capital Stock. Subject to the terms and conditions of this
-----------------------
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, MCS or the holders of any of the following
securities, the following shall occur:
(a) Conversion of MCS Common Stock. Each share of Common Stock,
------------------------------
$0.001 par value per share, of MCS (the "MCS Common Stock") issued and
outstanding immediately prior to the Effective Time (other than any shares of
MCS Common Stock to be canceled pursuant to Section 1.7(b)) will be canceled and
extinguished and automatically converted (subject to Sections 1.7(e) and (f))
into the right to receive 0.9413 (the "Exchange Ratio") shares of Common Stock,
par value $0.001 per share, of NetIQ (the "NetIQ Common Stock") upon surrender
of the certificate representing such share of MCS Common Stock in the manner
provided in Section 1.8 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the manner
provided in Section 1.10).
(b) Cancellation of NetIQ-Owned Stock. Each share of MCS Common
---------------------------------
Stock held in the treasury of MCS or owned by Merger Sub, NetIQ or any direct or
indirect wholly-owned subsidiary of MCS or of NetIQ immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) Stock Options; Employee Stock Purchase Plan. At the Effective
-------------------------------------------
Time, all options to purchase MCS Common Stock then outstanding under MCS's 1997
Stock Option Plan and 1999 Director Option Plan (collectively, the "MCS Stock
Option Plans") shall be assumed by NetIQ in accordance with Section 5.11 hereof.
At the Effective Time, in accordance with the terms of MCS's 1999 Employee Stock
Purchase Plan (the "MCS ESPP"), all rights to purchase shares of MCS Common
Stock under the MCS ESPP shall be converted (in accordance with the Exchange
Ratio) into rights to purchase shares of NetIQ Common Stock (with the number of
shares rounded down to the nearest whole share and the purchase price rounded up
to the nearest whole cent) and all such converted rights shall be assumed by
NetIQ and the offering periods in effect under the MCS ESPP immediately prior to
the Effective Time shall be continued substantially in accordance with the terms
of the MCS ESPP until the end of the offering periods in effect as of the
Effective Time.
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(d) Capital Stock of Merger Sub. Each share of Common Stock, $0.001
---------------------------
par value per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of Common Stock, $0.001 par value, of the
Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership
of any such shares shall continue to evidence ownership of such shares of
capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
-----------------------------
adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into NetIQ Common Stock or MCS Common Stock), extraordinary cash
dividends, reorganization, recapitalization, reclassification, combination,
exchange of shares or other like change with respect to NetIQ Common Stock or
MCS Common Stock occurring on or after the date hereof and prior to the
Effective Time.
(f) Fractional Shares. No fraction of a share of NetIQ Common Stock
-----------------
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of MCS Common Stock who would otherwise be entitled to a fraction of a
share of NetIQ Common Stock (after aggregating all fractional shares of NetIQ
Common Stock to be received by such holder) shall receive from NetIQ an amount
of cash (rounded to the nearest whole cent), without interest, equal to the
product of (i) such fraction, multiplied by (ii) the average closing price of
one share of NetIQ Common Stock for the five (5) most recent days that NetIQ
Common Stock has traded ending on the trading day immediately prior to the
Effective Time, as reported on the Nasdaq National Market System ("Nasdaq").
1.8 Surrender of Certificates.
-------------------------
(a) Exchange Agent. NetIQ shall select an institution reasonably
--------------
satisfactory to MCS to act as the exchange agent (the "Exchange Agent") in the
Merger.
(b) NetIQ to Provide Common Stock. Promptly after the Effective
-----------------------------
Time, NetIQ shall make available to the Exchange Agent for exchange in
accordance with this Article I, the shares of NetIQ Common Stock issuable
pursuant to Section 1.7 in exchange for outstanding shares of MCS Common Stock,
and cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 1.7(f) and any dividends or distributions to which holders
of shares of MCS Common Stock may be entitled pursuant to Section 1.8(d).
(c) Exchange Procedures. Promptly after the Effective Time, NetIQ
-------------------
shall cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "Certificates") which
immediately prior to the Effective Time represented outstanding shares of MCS
Common Stock whose shares were converted into the right to receive shares of
NetIQ Common Stock pursuant to Section 1.7, cash in lieu of any fractional
shares pursuant to Section 1.7(f) and any dividends or other distributions
pursuant to Section 1.8(d), (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to
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the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as NetIQ
may reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates representing shares of NetIQ
Common Stock, cash in lieu of any fractional shares pursuant to Section 1.7(f)
and any dividends or other distributions pursuant to Section 1.8(d). Upon
surrender of Certificates for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by NetIQ, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holders of such Certificates shall be entitled to
receive in exchange therefor certificates representing the number of whole
shares of NetIQ Common Stock, payment in lieu of fractional shares which such
holders have the right to receive pursuant to Section 1.7(f) and any dividends
or distributions payable pursuant to Section 1.8(d), and the Certificates so
surrendered shall forthwith be canceled. Until so surrendered, outstanding
Certificates will be deemed from and after the Effective Time, for all corporate
purposes, subject to Section 1.8(d) as to the payment of dividends, to evidence
the ownership of the number of full shares of NetIQ Common Stock into which such
shares of MCS Common Stock shall have been so converted and the right to receive
an amount in cash in lieu of the issuance of any fractional shares in accordance
with Section 1.7(f) and any dividends or distributions payable pursuant to
Section 1.8(d).
(d) Distributions With Respect to Unexchanged Shares. No dividends
------------------------------------------------
or other distributions declared or made after the date of this Agreement with
respect to NetIQ Common Stock with a record date after the Effective Time will
be paid to the holders of any unsurrendered Certificates with respect to the
shares of NetIQ Common Stock represented thereby until the holders of record of
such Certificates shall surrender such Certificates. Subject to applicable law,
following surrender of any such Certificates, the Exchange Agent shall deliver
to the record holders thereof, without interest, certificates representing whole
shares of NetIQ Common Stock issued in exchange therefor along with payment in
lieu of fractional shares pursuant to Section 1.7(f) hereof and the amount of
any such dividends or other distributions with a record date after the Effective
Time payable with respect to such whole shares of NetIQ Common Stock.
(e) Transfers of Ownership. If certificates for shares of NetIQ
----------------------
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to NetIQ or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
for shares of NetIQ Common Stock in any name other than that of the registered
holders of the Certificates surrendered, or established to the satisfaction of
NetIQ or any agent designated by it that such tax has been paid or is not
payable.
(f) No Liability. Notwithstanding anything to the contrary in this
------------
Section 1.8, neither the Exchange Agent, NetIQ, the Surviving Corporation nor
any party hereto shall be liable to a holder of shares of NetIQ Common Stock or
MCS Common Stock for any amount properly paid to a public official pursuant to
any applicable abandoned property, escheat or similar law.
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1.9 No Further Ownership Rights in MCS Common Stock. All shares of NetIQ
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Common Stock issued in accordance with the terms hereof (including any cash paid
in respect thereof pursuant to Section 1.7(f) and 1.8(d)) shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
MCS Common Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of MCS Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.10 Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of NetIQ
Common Stock, cash for fractional shares, if any, as may be required pursuant to
Section 1.7(f) and any dividends or distributions payable pursuant to Section
1.8(d); provided, however, that NetIQ may, in its discretion and as a condition
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precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against NetIQ or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
1.11 Tax Consequences. It is intended by the parties hereto that the
----------------
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations.
1.12 Taking of Necessary Action; Further Action. If, at any time after
------------------------------------------
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of MCS and Merger Sub, the officers and directors of MCS and
Merger Sub will take all such lawful and necessary action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MCS
MCS represents and warrants to NetIQ and Merger Sub, subject to the
exceptions specifically disclosed in writing in the disclosure letter supplied
by MCS to NetIQ (the "MCS Schedules"), as follows:
2.1 Organization of MCS.
-------------------
(a) MCS and each of its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation; has the corporate power and authority to own, lease and operate
its assets and property and to carry on its business as now being conducted and
as proposed to be conducted; and is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a Material Adverse Effect (as defined in Section 8.3)
on MCS.
(b) MCS has delivered to NetIQ a true and complete list of all of
MCS's subsidiaries, indicating the jurisdiction of incorporation of each
subsidiary and MCS's equity interest therein.
(c) MCS has delivered or made available to NetIQ a true and correct
copy of the Certificate of Incorporation and Bylaws of MCS and similar governing
instruments of each of its material subsidiaries, each as amended to date, and
each such instrument is in full force and effect. Neither MCS nor any of its
subsidiaries is in violation of any of the provisions of its Certificate of
Incorporation or Bylaws or equivalent governing instruments.
2.2 MCS Capital Structure. The authorized capital stock of MCS
---------------------
consists of 50,000,000 shares of Common Stock, par value $0.001 per share, of
which there were 17,088,809 shares issued and outstanding as of February 22,
2000, and 5,000,000 shares of Preferred Stock, par value $0.001 per share, of
which no shares are issued or outstanding. All outstanding shares of MCS Common
Stock are duly authorized, validly issued, fully paid and nonassessable and are
not subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of MCS or any agreement or document to which MCS is a
party or by which it is bound. As of February 22, 2000, MCS had reserved an
aggregate of 7,273,370 shares of MCS Common Stock, net of exercises, for
issuance to employees, consultants and non-employee directors pursuant to the
MCS Stock Option Plans, under which options are outstanding for an aggregate of
4,176,392 shares and under which 3,096,978 shares are available for grant as of
February 22, 2000. All shares of MCS Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. Section 2.2 of the MCS Schedules
lists each outstanding option to acquire shares of MCS Common Stock at February
22, 2000, the name of the holder of such option, the number of shares subject to
such option, the exercise price of such option, the number of shares as to which
such option will have vested at such date, the vesting schedule for such option
and whether the
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exercisability of such option will be accelerated in any way by the transactions
contemplated by this Agreement or for any other reason, and indicates the extent
of acceleration, if any.
2.3 Obligations With Respect to Capital Stock. Except as set forth in
------------------------------------------
Section 2.2, there are no equity securities, partnership interests or similar
ownership interests of any class of MCS, or any securities exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests issued, reserved for issuance or
outstanding. Except for securities MCS owns, directly or indirectly through one
or more subsidiaries, there are no equity securities, partnership interests or
similar ownership interests of any class of any subsidiary of MCS, or any
security exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests issued,
reserved for issuance or outstanding. Except as set forth in Section 2.2, there
are no options, warrants, equity securities, partnership interests or similar
ownership interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which MCS or any of its subsidiaries is a party
or by which it is bound obligating MCS or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem
or otherwise acquire, or cause the repurchase, redemption or acquisition, of any
shares of capital stock of MCS or any of its subsidiaries or obligating MCS or
any of its subsidiaries to grant, extend, accelerate the vesting of or enter
into any such option, warrant, equity security, partnership interest or similar
ownership interest, call, right, commitment or agreement. There are no
registration rights and, to the knowledge of MCS there are no voting trusts,
proxies or other agreements or understandings with respect to any equity
security of any class of MCS or with respect to any equity security, partnership
interest or similar ownership interest of any class of any of its subsidiaries.
2.4 Authority
---------
(a) MCS has all requisite corporate power and authority to enter into
this Agreement and the Stock Option Agreements and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, and the
execution and delivery of the Stock Option Agreements and the consummation of
the transactions contemplated thereby, have been duly authorized by all
necessary corporate action on the part of MCS, subject only to the approval and
adoption of this Agreement and the approval of the Merger by MCS's stockholders
and the filing and recordation of the Certificate of Merger pursuant to Delaware
Law. A vote of the holders of at least a majority of the outstanding shares of
the MCS Common Stock is required for MCS's stockholders to approve and adopt
this Agreement and approve the Merger. This Agreement and the MCS Stock Option
Agreements have been duly executed and delivered by MCS and, assuming the due
authorization, execution and delivery by NetIQ and, if applicable, Merger Sub,
constitute the valid and binding obligations of MCS, enforceable in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement and the Stock Option Agreements by MCS
do not, and the performance of this Agreement and the Stock Option Agreements by
MCS will not, (i) conflict
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with or violate the Certificate of Incorporation or Bylaws of MCS or the
equivalent organizational documents of any of its subsidiaries, (ii) subject to
obtaining the approval and adoption of this Agreement and the approval of the
Merger by NetIQ's stockholders as contemplated in Section 5.2 and compliance
with the requirements set forth in Section 2.4(b) below, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to MCS
or any of its subsidiaries or by which its or any of their respective properties
is bound or affected, or (iii) result in any breach of, or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or impair MCS's rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of MCS or any of its subsidiaries
pursuant to, any material note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which MCS
or any of its subsidiaries is a party or by which MCS or any of its subsidiaries
or its or any of their respective properties are bound or affected, except to
the extent such conflict, violation, breach, default, impairment or other effect
could not, in the case of clause (ii) or (iii), individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on MCS.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to MCS in connection with the execution and delivery
of this Agreement and the Stock Option Agreements or the consummation of the
transactions contemplated hereby or thereby, except for (i) the filing of a Form
S-4 Registration Statement (the "Registration Statement") with the Securities
and Exchange Commission ("SEC") in accordance with the Securities Act of 1933,
as amended (the "Securities Act"), (ii) the filing of the Certificate of Merger
with the Secretary of State of Delaware, (iii) the filing of the Proxy Statement
(as defined in Section 2.18) with the SEC in accordance with the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (iv) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and the ▇▇▇▇-
▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR Act") and
the laws of any foreign country and (v) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
be material to MCS or NetIQ or have a material adverse effect on the ability of
the parties to consummate the Merger.
2.5 SEC Filings; MCS Financial Statements.
-------------------------------------
(a) MCS has filed all forms, reports and documents required to be
filed with the SEC since August 5, 1999, and has made available to NetIQ such
forms, reports and documents in the form filed with the SEC. All such required
forms, reports and documents (including those that MCS may file subsequent to
the date hereof) are referred to herein as the "MCS SEC Reports." As of their
respective dates, the MCS SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and
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regulations of the SEC thereunder applicable to such MCS SEC Reports, and (ii)
did not at the time they were filed (or if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing) contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of MCS's subsidiaries is required to file any forms, reports or
other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the MCS SEC Reports (the "MCS
Financials"), including any MCS SEC Reports filed after the date hereof until
the Closing, (i) complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, (ii) was prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited interim financial statements, as
may be permitted by the SEC on Form 10-Q under the Exchange Act) and (iii)
fairly presented the consolidated financial position of MCS and its subsidiaries
at the respective dates thereof and the consolidated results of its operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not, or are not expected to be, material in amount. The
balance sheet of MCS contained in the MCS SEC Reports as of December 31, 1999 is
hereinafter referred to as the "MCS Balance Sheet." Except as disclosed in the
MCS Financials, neither MCS nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are, individually or
in the aggregate, material to the business, results of operations or financial
condition of MCS and its subsidiaries taken as a whole, except liabilities (i)
provided for in the MCS Balance Sheet, or (ii) incurred since the date of the
MCS Balance Sheet in the ordinary course of business consistent with past
practices and immaterial in the aggregate.
(c) MCS has heretofore furnished to NetIQ a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by MCS with the SEC pursuant to the
Securities Act or the Exchange Act.
2.6 Absence of Certain Changes or Events. Since the date of the MCS
------------------------------------
Balance Sheet, there has not been: (i) any Material Adverse Effect on MCS, (ii)
any material change by MCS in its accounting methods, principles or practices,
except as required by concurrent changes in GAAP, or (iii) any revaluation by
MCS of any of its assets, including, without limitation, writing down the value
of capitalized inventory or writing off notes or accounts receivable other than
in the ordinary course of business.
-12-
2.7 Taxes.
-----
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or
"Taxes" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits.
----------------------
(i) MCS and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information statements and
reports ("Returns") relating to Taxes required to be filed by MCS and each of
its subsidiaries with any Tax authority, except such Returns which are not
material to MCS. MCS and each of its subsidiaries have paid all Taxes shown to
be due on such Returns.
(ii) MCS and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state income
taxes, Taxes pursuant to the Federal Insurance Contribution Act, Taxes pursuant
to the Federal Unemployment Tax Act and other Taxes required to be withheld,
except such Taxes which are not material to MCS.
(iii) Neither MCS nor any of its subsidiaries has been
delinquent in the payment of any material Tax nor is there any material Tax
deficiency outstanding, proposed or assessed against MCS or any of its
subsidiaries, nor has MCS or any of its subsidiaries executed any unexpired
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(iv) No audit or other examination of any Return of MCS or any
of its subsidiaries by any Tax authority is presently in progress, nor has MCS
or any of its subsidiaries been notified of any request for such an audit or
other examination.
(v) No adjustment relating to any Returns filed by MCS or any
of its subsidiaries has been proposed in writing formally or informally by any
Tax authority to MCS or any of its subsidiaries or any representative thereof.
(vi) Neither MCS nor any of its subsidiaries has any liability
for any material unpaid Taxes which has not been accrued for or reserved on MCS
Balance Sheet in accordance with GAAP, whether asserted or unasserted,
contingent or otherwise, which is material to MCS, other than any liability for
unpaid Taxes that may have accrued since December 31, 1999 in connection with
the operation of the business of MCS and its subsidiaries in the ordinary
course.
-13-
(vii) There is no contract, agreement, plan or arrangement to
which MCS or any of its subsidiaries is a party as of the date of this
Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of MCS or any of its subsidiaries that,
individually or collectively, would reasonably be expected to give rise to the
payment of any amount that would not be deductible pursuant to Sections 280G,
404 or 162(m) of the Code. There is no contract, agreement, plan or arrangement
to which MCS is a party or by which it is bound to compensate any individual for
excise taxes paid pursuant to Section 4999 of the Code.
(viii) Neither MCS nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by MCS or any of its
subsidiaries.
(ix) Neither MCS nor any of its subsidiaries is party to or has
any obligation under any tax-sharing, tax indemnity or tax allocation agreement
or arrangement.
(x) None of MCS's or its subsidiaries' assets are tax exempt
use property within the meaning of Section 168(h) of the Code.
2.8 MCS Intellectual Property. For the purposes of this Agreement, the
-------------------------
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and continuations-
in-part thereof; (ii) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information, know how,
technology, technical data and customer lists, and all documentation relating to
any of the foregoing; (iii) all copyrights, copyrights registrations and
applications therefor, and all other rights corresponding thereto throughout the
world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, common law trademarks
and service marks, trademark and service ▇▇▇▇ registrations and applications
therefor throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; (vii) all moral and economic rights of
authors and inventors, however denominated, throughout the world, and (viii) any
similar or equivalent rights to any of the foregoing anywhere in the world.
"MCS Intellectual Property" shall mean any Intellectual Property that is
owned by, or exclusively licensed to, MCS.
"Registered Intellectual Property" means all United States, international
and foreign: (i) patents and patent applications (including provisional
applications); (ii) registered trademarks, applications to register trademarks,
intent-to-use applications, or other registrations or applications related to
trademarks; (iii) registered copyrights and applications for copyright
registration; and
-14-
(iv) any other Intellectual Property that is the subject of an application,
certificate, filing, registration or other document issued, filed with, or
recorded by any state, government or other public legal authority.
"MCS Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, MCS or any of its
subsidiaries.
(a) Section 2.8(a) of the MCS Schedules is a complete and accurate
list of all MCS Registered Intellectual Property and specifies, where
applicable, the jurisdictions in which each such item of MCS Registered
Intellectual Property has been issued or registered.
(b) No MCS Intellectual Property or product or service of MCS or any
of its subsidiaries is subject to any proceeding or outstanding decree, order,
judgment, contract, license, agreement, or stipulation restricting in any manner
the use, transfer, or licensing thereof by MCS or any of its subsidiaries, or
which may affect the validity, use or enforceability of such MCS Intellectual
Property.
(c) MCS owns and has good and exclusive title to, or has license
(sufficient for the conduct of its business as currently conducted and as
proposed to be conducted), each material item of MCS Intellectual Property or
other Intellectual Property used by MCS free and clear of any lien or
encumbrance (excluding licenses and related restrictions); and MCS is the
exclusive owner of all trademarks and trade names used in connection with the
operation or conduct of the business of MCS and its subsidiaries, including the
sale of any products or the provision of any services by MCS and its
subsidiaries.
(d) MCS owns exclusively, and has good title to, all copyrighted
works that are MCS products or which MCS or any of its subsidiaries otherwise
expressly purports to own.
(e) To the extent that any material Intellectual Property has been
developed or created by a third party for MCS or any of its subsidiaries, MCS
has a written agreement with such third party with respect thereto and MCS
thereby either (i) has obtained ownership of, and is the exclusive owner of, or
(ii) has obtained a license (sufficient for the conduct of its business as
currently conducted and as proposed to be conducted) to all such third party's
Intellectual Property in such work, material or invention by operation of law or
by valid assignment, to the fullest extent it is legally possible to do so.
(f) Neither MCS nor any of its subsidiaries has transferred ownership
of, or granted any exclusive license with respect to, any Intellectual Property
that is or was material MCS Intellectual Property, to any third party.
(g) To the knowledge of MCS, the operation of the business of MCS and
its subsidiaries as such business currently is conducted, including MCS's and
its subsidiaries' design, development, manufacture, marketing and sale of the
products or services of MCS and its
-15-
subsidiaries (including products currently under development) has not, does not
and will not infringe or misappropriate the Intellectual Property of any third
party or, to its knowledge, constitute unfair competition or trade practices
under the laws of any jurisdiction.
(h) Neither MCS nor any of its subsidiaries has received notice from
any third party that the operation of the business of MCS or any of its
subsidiaries or any act, product or service of MCS or any of its subsidiaries,
infringes or misappropriates the Intellectual Property of any third party or
constitutes unfair competition or trade practices under the laws of any
jurisdiction.
(i) To the knowledge of MCS, no person has or is infringing or
misappropriating any MCS Intellectual Property.
(j) MCS and each of its subsidiaries has taken reasonable steps to
protect MCS's and its subsidiaries' rights in MCS's confidential information and
trade secrets that it wishes to protect or any trade secrets or confidential
information of third parties provided to MCS or any of its subsidiaries, and,
without limiting the foregoing, each of MCS and its subsidiaries has and
enforces a policy requiring each employee and contractor to execute a
proprietary information/confidentiality agreement substantially in the form
provided to NetIQ and all current and former employees and contractors of MCS
and any of its subsidiaries have executed such an agreement, except where the
failure to do so is not reasonably expected to be material to MCS.
(k) All of MCS's and its subsidiaries' products (including products
currently under development) (i) will record, store, process, calculate and
present calendar dates falling on and after (and if applicable, spans of time
including) January 1, 2000, and will calculate any information dependent on or
relating to such dates in the same manner, and with the same functionality, data
integrity and performance, as the products record, store, process, calculate and
present calendar dates on or before December 31, 1999, or calculate any
information dependent on or relating to such dates (collectively, "Year 2000
Compliant"), (ii) will lose no functionality with respect to the introduction of
records containing dates falling on or after January 1, 2000, and (iii) will be
interoperable with other products used and distributed by NetIQ that may
reasonably deliver records to MCS's or any of its subsidiaries' products or
receive records from MCS's or any of its subsidiaries' products, or interact
with MCS's or any of its subsidiaries' products. All of MCS's or its
subsidiaries' Information Technology (as defined below) is Year 2000 Compliant,
and will not cause an interruption in the ongoing operations of MCS's or any of
its subsidiaries' business on or after January 1, 2000. For purposes of the
foregoing, the term "Information Technology" shall mean and include all
software, hardware, firmware, telecommunications systems, network systems,
embedded systems and other systems, components and/or services (other than
general utility services including gas, electric, telephone and postal) that are
owned or used by MCS or any of its subsidiaries in the conduct of their
business, or purchased by MCS or any of its subsidiaries from third-party
suppliers.
-16-
2.9 Compliance; Permits; Restrictions.
---------------------------------
(a) Neither MCS nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or violation of (i) any law, rule,
regulation, order, judgment or decree applicable to MCS or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected, or (ii) any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which MCS or any of its subsidiaries is a party or by which MCS or any of its
subsidiaries or its or any of their respective properties is bound or affected.
To the knowledge of MCS, no investigation or review by any Governmental Entity
is pending or threatened against MCS or its subsidiaries, nor has any
Governmental Entity indicated an intention to conduct the same. There is no
material agreement, judgment, injunction, order or decree binding upon MCS or
any of its subsidiaries which has or could reasonably be expected to have the
effect of prohibiting or materially impairing any business practice of MCS or
any of its subsidiaries, any acquisition of material property by MCS or any of
its subsidiaries or the conduct of business by MCS as currently conducted.
(b) MCS and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to the operation of the business of MCS (collectively, the "MCS
Permits"). MCS and its subsidiaries are in compliance in all material respects
with the terms of the MCS Permits.
2.10 Litigation. As of the date of this Agreement, there is no action,
----------
suit, proceeding, claim, arbitration or investigation pending, or as to which
MCS or any of its subsidiaries has received any notice of assertion nor, to
MCS's knowledge, is there a threatened action, suit, proceeding, claim,
arbitration or investigation against MCS or any of its subsidiaries which
reasonably would be likely to be material to MCS, or which in any manner
challenges or seeks to prevent, enjoin, alter or delay any of the transactions
contemplated by this Agreement.
2.11 Brokers' and Finders' Fees. Except for fees payable to Chase
---------------------------
Securities Inc. pursuant to engagement letters dated December 7, 1999 and
February 21, 2000, copies of which have been provided to NetIQ, MCS has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
2.12 Employee Benefit Plans.
----------------------
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments, agreements or other arrangements (whether or
not set forth in a written document and including, without limitation, all
"employee benefit plans" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) covering any
active or former employee, director or consultant of MCS ("MCS Employee" which
shall for this purpose mean an employee of MCS or an Affiliate (as defined
below)), any subsidiary of MCS or any trade or business (whether or not
incorporated) which is a member of a controlled
-17-
group or which is under common control with MCS within the meaning of Section
414 of the Code (an "Affiliate"), or with respect to which MCS has or, to its
knowledge, may in the future have liability, are listed in Section 2.12(a) of
the MCS Schedules (the "MCS Plans"). MCS has provided or will make available to
NetIQ: (i) correct and complete copies of all documents embodying each MCS Plan
including (without limitation) all amendments thereto, all related trust
documents, and all material written agreements and contracts relating to each
such MCS Plan; (ii) the most recent annual reports (Form Series 5500 and all
schedules and financial statements attached thereto), if any, required under
ERISA or the Code in connection with each MCS Plan; (iii) the most recent
summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each MCS
Plan; (iv) all IRS determination, opinion, notification and advisory letters;
(v) all material correspondence to or from any governmental agency relating to
any MCS Plan; (vi) all forms and related notices required under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"); (vii) the most
recent discrimination tests for each MCS Plan; (viii) the most recent actuarial
valuations, if any, prepared for each MCS Plan; (ix) if the MCS Plan is funded,
the most recent annual and periodic accounting of the MCS Plan assets; and (x)
all communication to MCS Employees relating to any MCS Plan and any proposed MCS
Plan, in each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules, or other events which would result in any material liability to MCS
or any Affiliate.
(b) Each MCS Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (foreign or
domestic), including but not limited to ERISA and the Code, which are applicable
to such MCS Plans. No suit, action or other litigation (excluding claims for
benefits incurred in the ordinary course of MCS Plan activities) has been
brought, or to the knowledge of MCS, is threatened, against or with respect to
any such MCS Plan. There are no audits, inquiries or proceedings pending or, to
the knowledge of MCS, threatened by the Internal Revenue Service (the "IRS") or
Department of Labor (the "DOL") with respect to any MCS Plans. All
contributions, reserves or premium payments required to be made or accrued as of
the date hereof to the MCS Plans have been timely made or accrued. Any MCS Plan
intended to be qualified under Section 401(a) of the Code and each trust
intended to qualify under Section 501(a) of the Code (i) has either obtained a
favorable determination, notification, advisory and/or opinion letter, as
applicable, as to its qualified status from the IRS or still has a remaining
period of time under applicable Treasury Regulations or IRS pronouncements in
which to apply for such letter and to make any amendments necessary to obtain a
favorable determination, and (ii) incorporates or has been amended to
incorporate all provisions required to comply with the Tax Reform Act of 1986
and subsequent legislation. To the knowledge of MCS, no condition or
circumstance exists giving rise to a material likelihood that any such MCS Plan
would not be treated as qualified by the IRS. MCS does not have any plan or
commitment to establish any new MCS Plan, to modify any MCS Plan (except to the
extent required by law or to conform any such MCS Plan to the requirements of
any applicable law, in each case as previously disclosed to NetIQ in writing, or
as required by the terms of any MCS Plan or this Agreement), or to enter into
any new MCS Plan. Each MCS Plan can be amended,
-18-
terminated or otherwise discontinued after the Effective Time in accordance with
its terms, without liability to NetIQ, MCS or any of its Affiliates (other than
ordinary administration expenses).
(c) Neither MCS, any of its subsidiaries, nor any of their
Affiliates has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan subject to Title IV of ERISA or Section 412 of
the Code and at no time has MCS contributed to or been requested to contribute
to any "multiemployer plan," as such term is defined in ERISA. Neither MCS, any
of its subsidiaries, nor any officer or director of MCS or any of its
subsidiaries is subject to any material liability or penalty under Section 4975
through 4980B of the Code or Title I of ERISA. No "prohibited transaction,"
within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA,
and not otherwise exempt under Section 4975 of the Code and Section 408 of
ERISA, has occurred with respect to any MCS Plan which could subject MCS or its
Affiliates to material liability.
(d) None of the MCS Plans promises or provides retiree medical or
other retiree welfare benefits to any person except as required by applicable
law, and neither MCS nor any of its subsidiaries has represented, promised or
contracted (whether in oral or written form) to provide such retiree benefits to
any MCS Employee, former employee, director, consultant or other person, except
to the extent required by statute.
(e) Except as would not have a material effect, MCS is in compliance
in all material respects with all applicable material foreign, federal, state
and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours.
(f) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any stockholder, director or MCS Employee or any
of its subsidiaries under any MCS Plan or otherwise, (ii) materially increase
any benefits otherwise payable under any MCS Plan, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
(g) Each MCS International Employee Plan (as defined below) has been
established, maintained and administered in compliance with its terms and
conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such MCS International Employee Plan.
Furthermore, no MCS International Employee Plan has unfunded liabilities that,
as of the Effective Time, will not be offset by insurance or fully accrued.
Except as required by law, no condition exists that would prevent MCS or NetIQ
from terminating or amending any MCS International Employee Plan at any time for
any reason. For purposes of this Section "MCS International Employee Plan" shall
mean each MCS Plan that has been adopted or maintained by MCS or any of its
subsidiaries, whether informally or formally, for the benefit of current or
former employees of MCS or any of its subsidiaries outside the United States.
-19-
2.13 Absence of Liens and Encumbrances. MCS and each of its subsidiaries
---------------------------------
has good and valid title to, or, in the case of leased properties and assets,
valid leasehold interests in, all of its material tangible properties and
assets, real, personal and mixed, used in its business, free and clear of any
liens or encumbrances except as reflected in the MCS Financials and except for
liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which would not be material to MCS.
2.14 Environmental Matters.
---------------------
(a) Hazardous Materials Activities. Except as would not reasonably
------------------------------
be likely to result in a material liability to MCS (in any individual case or in
the aggregate), (i) neither MCS nor any of its subsidiaries has transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to pollutants, contaminants, wastes, any toxic, radioactive or otherwise
hazardous materials ("Hazardous Materials") in violation of any law in effect on
or before the Closing Date, and (ii) neither MCS nor any of its subsidiaries has
disposed of, transported, sold, used, released, exposed its employees or others
to or manufactured any product containing a Hazardous Material (collectively,
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(b) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending, or to
MCS's knowledge, threatened concerning any MCS Permit relating to any
environmental matter, Hazardous Material or any Hazardous Materials Activity of
MCS or any of its subsidiaries. MCS is not aware of any fact or circumstance
which could involve MCS or any of its subsidiaries in any environmental
litigation or impose upon MCS or any of its subsidiaries any environmental
liability.
2.15 Labor Matters. (i) There are no controversies pending or, to the
-------------
knowledge of each of MCS and its respective subsidiaries, threatened, between
MCS or any of its subsidiaries and any of their respective employees; (ii) as of
the date of this Agreement, neither MCS nor any of its subsidiaries is a party
to any collective bargaining agreement or other labor union contract applicable
to persons employed by MCS or its subsidiaries nor does MCS or its subsidiaries
know of any activities or proceedings of any labor union to organize any such
employees; and (iii) as of the date of this Agreement, neither MCS nor any of
its subsidiaries has any knowledge of any strikes, slowdowns, work stoppages or
lockouts, or threats thereof, by or with respect to any employees of MCS or any
of its subsidiaries.
2.16 Agreements, Contracts and Commitments. Neither Company nor any
-------------------------------------
of its subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment
with any officer or director or higher level employee or member of MCS's Board
of Directors, other than
-20-
those that are terminable by MCS or any of its subsidiaries on no more than
thirty (30) days' notice without liability or financial obligation to MCS;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(c) any agreement of indemnification or any guaranty other than any
agreement of indemnification entered into in connection with the sale or license
of software products in the ordinary course of business;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of MCS or any of its subsidiaries to engage in
any line of business or to compete with any person or granting any exclusive
distribution rights;
(e) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by MCS or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which MCS has any material ownership
interest in any corporation, partnership, joint venture or other business
enterprise other than MCS's subsidiaries;
(f) any dealer, distributor, joint marketing or development
agreement currently in force under which MCS or any of its subsidiaries have
continuing material obligations to jointly market any product, technology or
service and which may not be canceled without penalty upon notice of ninety (90)
days or less, or any material agreement pursuant to which MCS or any of its
subsidiaries have continuing material obligations to jointly develop any
intellectual property that will not be owned, in whole or in part, by MCS or any
of its subsidiaries and which may not be canceled without penalty upon notice of
ninety (90) days or less;
(g) any agreement, contract or commitment currently in force to
provide source code to any third party for any product or technology that is
material to MCS and its subsidiaries taken as a whole;
(h) any agreement, contract or commitment currently in force to
license any third party to manufacture or reproduce any MCS product, service or
technology or any agreement, contract or commitment currently in force to sell
or distribute any MCS products, service or technology except agreements with
distributors or sales representative in the normal course of business cancelable
without penalty upon notice of ninety (90) days or less and substantially in the
form previously provided to NetIQ;
-21-
(i) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit;
(j) any settlement agreement entered into within five (5) years prior
to the date of this Agreement; or
(k) any other agreement, contract or commitment that has a value of
$2,000,000 or more individually, other than the transactions contemplated by the
LOI.
Neither MCS nor any of its subsidiaries, nor to MCS's knowledge any other
party to a MCS Contract (as defined below), is in breach, violation or default
under, and neither MCS nor any of its subsidiaries has received written notice
that it has breached, violated or defaulted under, any of the material terms or
conditions of any of the agreements, contracts or commitments to which MCS or
any of its subsidiaries is a party or by which it is bound that are required to
be disclosed in the MCS Schedules (any such agreement, contract or commitment, a
"MCS Contract") in such a manner as would permit any other party to cancel or
terminate any such MCS Contract, or would permit any other party to seek
material damages or other remedies (for any or all of such breaches, violations
or defaults, in the aggregate).
2.17 Statements; Proxy Statement/Prospectus. None of the information
--------------------------------------
supplied or to be supplied by MCS for inclusion or incorporation by reference in
(i) the Registration Statement (as defined in Section 2.4(b)) will at the time
it becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading and (ii) the
proxy statement/prospectus to be sent to the stockholders of MCS and
stockholders of NetIQ in connection with the meeting of MCS's stockholders to
consider the approval and adoption of this Agreement and the approval of the
Merger (the "MCS Stockholders' Meeting") and in connection with the meeting of
NetIQ's stockholders to consider the approval of the issuance of shares of NetIQ
Common Stock pursuant to the terms of the Merger (the "NetIQ Stockholders'
Meeting") (such proxy statement/prospectus as amended or supplemented is
referred to herein as the "Proxy Statement") shall not, on the date the Proxy
Statement is first mailed to MCS's stockholders and NetIQ's stockholders, at the
time of the MCS Stockholders' Meeting or the NetIQ Stockholders' Meeting and at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the MCS Stockholders' Meeting or the NetIQ
Stockholders' Meeting which has become false or misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder. If at any time prior to
the Effective Time, any event relating to MCS or any of its affiliates, officers
or directors should be discovered by MCS which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
MCS shall promptly inform NetIQ.
-22-
Notwithstanding the foregoing, MCS makes no representation or warranty with
respect to any information supplied by NetIQ or Merger Sub which is contained in
any of the foregoing documents.
2.18 Board Approval. The Board of Directors of MCS has, as of the date of
--------------
this Agreement, (i) determined that the Merger is fair to, advisable and in the
best interests of MCS and its stockholders, (ii) determined to recommend that
the stockholders of MCS approve this Agreement and (iii) duly approved the
Merger, this Agreement and the transactions contemplated hereby.
2.19 State Takeover Statutes. The Board of Directors of MCS has approved
-----------------------
the Merger, this Agreement, the Stock Option Agreements, the NetIQ Voting
Agreement and the transactions contemplated hereby and thereby, and such
approval is sufficient to render inapplicable to the Merger, this Agreement, the
Stock Option Agreements, the NetIQ Voting Agreement and the transactions
contemplated hereby and thereby the provisions of Section 203 of Delaware Law to
the extent, if any, such section is applicable to the Merger, this Agreement,
the Stock Option Agreements, the NetIQ Voting Agreement and the transactions
contemplated hereby and thereby. No other state takeover statute or similar
statute or regulation applies to or purports to apply to the Merger, this
Agreement, the Stock Option Agreements, the NetIQ Voting Agreement or the
transactions contemplated hereby and thereby.
2.20 Fairness Opinion. MCS has received a written opinion from Chase
----------------
Securities Inc., dated as of the date hereof, to the effect that as of the date
hereof, the Exchange Ratio is fair to MCS's stockholders from a financial point
of view and has delivered to NetIQ a copy of such opinion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NETIQ AND MERGER SUB
NetIQ and Merger Sub represent and warrant to MCS, subject to the
exceptions specifically disclosed in the disclosure letter supplied by NetIQ to
MCS (the "NetIQ Schedules"), as follows:
3.1 Organization of NetIQ.
---------------------
(a) NetIQ and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to own,
lease and operate its assets and property and to carry on its business as now
being conducted and as proposed to be conducted; and is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect (as
defined in Section 8.3) on NetIQ.
(b) NetIQ has delivered to MCS a true and complete list of all of
NetIQ's subsidiaries, indicating the jurisdiction of incorporation of each
subsidiary and NetIQ's equity interest therein.
-23-
(c) NetIQ has delivered or made available to MCS a true and correct
copy of the Certificate of Incorporation and Bylaws of NetIQ and similar
governing instruments of each of its material subsidiaries, each as amended to
date, and each such instrument is in full force and effect. Neither NetIQ nor
any of its subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation or Bylaws or equivalent governing instruments.
3.2 NetIQ Capital Structure. The authorized capital stock of NetIQ
-----------------------
consists of 100,000,000 shares of Common Stock, par value $0.001 per share, of
which 17,609,978 shares are issued and outstanding as of February 24, 2000 and
5,000,000 shares of Preferred Stock, par value $0.001 per share, of which no
shares are issued or outstanding. The authorized capital stock of Merger Sub
consists of 1,000 shares of Common Stock, par value $0.001 per share, all of
which, as of the date hereof, are issued and outstanding and are held by NetIQ.
All outstanding shares of NetIQ Common Stock are duly authorized, validly
issued, fully paid and non-assessable and are not subject to preemptive rights
created by statute, the Certificate of Incorporation or Bylaws of NetIQ or any
agreement or document to which NetIQ is a party or by which it is bound. As of
February 24, 2000, NetIQ had reserved an aggregate of 3,614,938 shares of NetIQ
Common Stock, net of exercises, for issuance to employees, consultants and non-
employee directors pursuant to NetIQ's 1995 Stock Plan (the "NetIQ Stock Option
Plan"), under which options are outstanding for 2,638,531 shares and under which
976,407 shares are available for grant as of February 24, 2000. All shares of
NetIQ Common Stock subject to issuance as aforesaid, upon issuance on the terms
and conditions specified in the instruments pursuant to which they are issuable,
would be duly authorized, validly issued, fully paid and nonassessable. Section
3.2 of NetIQ Schedules lists each outstanding option to acquire shares of NetIQ
Common Stock at February 24, 2000, the name of the holder of such option, the
number of shares subject to such option, the exercise price of such option, the
number of shares as to which such option will have vested at such date, the
vesting schedule for such option and whether the exercisability of such option
will be accelerated in any way by the transactions contemplated by this
Agreement or for any other reason, and indicates the extent of acceleration, if
any.
3.3 Obligations With Respect to Capital Stock. Except as set forth in
-----------------------------------------
Section 3.2, there are no equity securities, partnership interests or similar
ownership interests of any class of NetIQ, or any securities exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests issued, reserved for issuance or
outstanding. Except for securities NetIQ owns, directly or indirectly through
one or more subsidiaries, there are no equity securities, partnership interests
or similar ownership interests of any class of any subsidiary of NetIQ, or any
security exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests issued,
reserved for issuance or outstanding. Except as set forth in Section 3.2, there
are no options, warrants, equity securities, partnership interests or similar
ownership interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which NetIQ or any of its subsidiaries is a party
or by which it is bound obligating NetIQ or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem
or otherwise acquire, or cause the repurchase, redemption or
-24-
acquisition, of any shares of capital stock of NetIQ or any of its subsidiaries
or obligating NetIQ or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, partnership
interest or similar ownership interest, call, right, commitment or agreement.
There are no registration rights and, to the knowledge of NetIQ there are no
voting trusts, proxies or other agreements or understandings with respect to any
equity security of any class of NetIQ or with respect to any equity security,
partnership interest or similar ownership interest of any class of any of its
subsidiaries.
3.4 Authority.
---------
(a) NetIQ has all requisite corporate power and authority to enter
into this Agreement and the Stock Option Agreements and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby, and the execution and delivery of the Stock Option Agreements and
the consummation of the transactions contemplated thereby, have been duly
authorized by all necessary corporate action on the part of NetIQ, subject
only to the approval and adoption of this Agreement and the approval or the
Merger by NetIQ's stockholders and the filing and recordation of the
Certificate of Merger pursuant to Delaware Law. A vote of the holders of at
least a majority of the outstanding shares of the NetIQ Common Stock is
required for NetIQ's stockholders to approve and adopt this Agreement and
approve the Merger. This Agreement and the Stock Option Agreements have
been duly executed and delivered by NetIQ and, assuming the due
authorization, execution and delivery by MCS and, if applicable, Merger
Sub, constitute the valid and binding obligations of NetIQ, enforceable in
accordance with their respective terms, except as enforceability may be
limited by bankruptcy and other similar laws and general principles of
equity. The execution and delivery of this Agreement and the Stock Option
Agreements by NetIQ do not, and the performance of this Agreement and the
Stock Option Agreements by NetIQ will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws of NetIQ or the equivalent
organizational documents of any of its subsidiaries, (ii) subject to
obtaining the approval and adoption of this Agreement and the approval of
the Merger by NetIQ's stockholders as contemplated in Section 5.2 and
compliance with the requirements set forth in Section 3.4(b) below,
conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to NetIQ or any of its subsidiaries or by which its or
any of their respective properties is bound or affected, or (iii) result in
any breach of, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or impair NetIQ's
rights or alter the rights or obligations of any third party under, or give
to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any
of the properties or assets of NetIQ or any of its subsidiaries pursuant
to, any material note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to
which NetIQ or any of its subsidiaries is a party or by which NetIQ or any
of its subsidiaries or its or any of their respective properties are bound
or affected, except to the extent such conflict, violation, breach,
default, impairment or other effect could not, in the case of clause (ii)
or (iii), individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect on NetIQ.
-25-
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with any Governmental Entity is
required by or with respect to NetIQ in connection with the execution and
delivery of this Agreement and the Stock Option Agreements or the
consummation of the transactions contemplated hereby or thereby, except for
(i) the filing of a Registration Statement with the SEC in accordance with
the Securities Act, (ii) the filing of the Certificate of Merger with the
Secretary of State of Delaware, (iii) the filing of the Proxy Statement
with the SEC in accordance with the Exchange Act, (iv) such consents,
approvals, orders, authorizations, registrations, declarations and filings
as may be required under applicable federal and state securities laws and
the HSR Act and the laws of any foreign country and (v) such other
consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not be material to NetIQ or MCS or have a
material adverse effect on the ability of the parties to consummate the
Merger.
3.5 SEC Filings; NetIQ Financial Statements.
---------------------------------------
(a) NetIQ has filed all forms, reports and documents required to
be filed with the SEC since July 30, 1999, and has made available to MCS
such forms, reports and documents in the form filed with the SEC. All such
required forms, reports and documents (including those that NetIQ may file
subsequent to the date hereof) are referred to herein as the "NetIQ SEC
Reports." As of their respective dates, the NetIQ SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such NetIQ SEC Reports, and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
None of NetIQ's subsidiaries is required to file any forms, reports or
other documents with the SEC.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the NetIQ SEC Reports
(the "NetIQ Financials"), including any NetIQ SEC Reports filed after the
date hereof until the Closing, (i) complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, (ii) was prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the
notes thereto or, in the case of unaudited interim financial statements, as
may be permitted by the SEC on Form 10-Q under the Exchange Act) and (iii)
fairly presented the consolidated financial position of NetIQ and its
subsidiaries at the respective dates thereof and the consolidated results
of its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not, or are not expected to be,
material in amount. The balance sheet of NetIQ contained in the NetIQ SEC
Reports as of December 31, 1999 is hereinafter referred to as the "NetIQ
Balance Sheet." Except as disclosed in the NetIQ Financials, neither NetIQ
nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise) of a nature required to be disclosed on a balance
sheet or in the related notes to the consolidated financial statements
prepared
-26-
in accordance with GAAP which are, individually or in the aggregate,
material to the business, results of operations or financial condition of
NetIQ and its subsidiaries taken as a whole, except liabilities (i)
provided for in the NetIQ Balance Sheet, or (ii) incurred since the date of
the NetIQ Balance Sheet in the ordinary course of business consistent with
past practices and immaterial in the aggregate.
(c) NetIQ has heretofore furnished to MCS a complete and correct
copy of any amendments or modifications, which have not yet been filed with
the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by NetIQ with the SEC
pursuant to the Securities Act or the Exchange Act.
3.6 Absence of Certain Changes or Events. Since the date of the NetIQ
------------------------------------
Balance Sheet, there has not been: (i) any Material Adverse Effect on
NetIQ, (ii) any material change by NetIQ in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP,
or (iii) any revaluation by NetIQ of any of its assets, including, without
limitation, writing down the value of capitalized inventory or writing off
notes or accounts receivable other than in the ordinary course of business.
3.7 Taxes.
-----
(a) NetIQ and each of its subsidiaries have timely filed all
Returns relating to Taxes required to be filed by NetIQ and each of its
subsidiaries with any Tax authority, except such Returns which are not
material to NetIQ. NetIQ and each of its subsidiaries have paid all Taxes
shown to be due on such Returns.
(b) NetIQ and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state
income taxes, Taxes pursuant to the Federal Insurance Contribution Act,
Taxes pursuant to the Federal Unemployment Tax Act and other Taxes required
to be withheld, except such Taxes which are not material to NetIQ.
(c) Neither NetIQ nor any of its subsidiaries has been delinquent
in the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against NetIQ or any of its subsidiaries,
nor has NetIQ or any of its subsidiaries executed any unexpired waiver of
any statute of limitations on or extending the period for the assessment or
collection of any Tax.
(d) No audit or other examination of any Return of NetIQ or any
of its subsidiaries by any Tax authority is presently in progress, nor has
NetIQ or any of its subsidiaries been notified of any request for such an
audit or other examination.
(e) No adjustment relating to any Returns filed by NetIQ or any
of its subsidiaries has been proposed in writing formally or informally by
any Tax authority to NetIQ or any of its subsidiaries or any representative
thereof.
-27-
(f) Neither NetIQ nor any of its subsidiaries has any liability
for any material unpaid Taxes which has not been accrued for or reserved on
NetIQ Balance Sheet in accordance with GAAP, whether asserted or
unasserted, contingent or otherwise, which is material to NetIQ, other than
any liability for unpaid Taxes that may have accrued since December 31,
1999 in connection with the operation of the business of NetIQ and its
subsidiaries in the ordinary course.
(g) There is no contract, agreement, plan or arrangement to which
NetIQ or any of its subsidiaries is a party as of the date of this
Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of NetIQ or any of its
subsidiaries that, individually or collectively, would reasonably be
expected to give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code. There is
no contract, agreement, plan or arrangement to which NetIQ is a party or by
which it is bound to compensate any individual for excise taxes paid
pursuant to Section 4999 of the Code.
(h) Neither NetIQ nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by NetIQ or any
of its subsidiaries.
(i) Neither NetIQ nor any of its subsidiaries is party to or has
any obligation under any tax-sharing, tax indemnity or tax allocation
agreement or arrangement.
(j) None of NetIQ's or its subsidiaries' assets are tax exempt
use property within the meaning of Section 168(h) of the Code.
3.8 NetIQ Intellectual Property. For the purposes of this Agreement,
---------------------------
the following terms have the following definitions:
"NetIQ Intellectual Property" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, NetIQ.
"NetIQ Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, NetIQ or any of
its subsidiaries.
(a) Section 3.8(a) of the NetIQ Schedules is a complete and
accurate list of all NetIQ Registered Intellectual Property and specifies,
where applicable, the jurisdictions in which each such item of NetIQ
Registered Intellectual Property has been issued or registered.
(b) No NetIQ Intellectual Property or product or service of NetIQ
or any of its subsidiaries is subject to any proceeding or outstanding
decree, order, judgment, contract, license, agreement, or stipulation
restricting in any manner the use, transfer, or licensing thereof by NetIQ
or
-28-
any of its subsidiaries, or which may affect the validity, use or
enforceability of such NetIQ Intellectual Property.
(c) NetIQ owns and has good and exclusive title to, or has
license (sufficient for the conduct of its business as currently conducted
and as proposed to be conducted), each material item of NetIQ Intellectual
Property or other Intellectual Property used by NetIQ free and clear of any
lien or encumbrance (excluding licenses and related restrictions); and
NetIQ is the exclusive owner of all trademarks and trade names used in
connection with the operation or conduct of the business of NetIQ and its
subsidiaries, including the sale of any products or the provision of any
services by NetIQ and its subsidiaries.
(d) NetIQ owns exclusively, and has good title to, all
copyrighted works that are NetIQ products or which NetIQ or any of its
subsidiaries otherwise expressly purports to own.
(e) To the extent that any material Intellectual Property has
been developed or created by a third party for NetIQ or any of its
subsidiaries, NetIQ has a written agreement with such third party with
respect thereto and NetIQ thereby either (i) has obtained ownership of, and
is the exclusive owner of, or (ii) has obtained a license (sufficient for
the conduct of its business as currently conducted and as proposed to be
conducted) to all such third party's Intellectual Property in such work,
material or invention by operation of law or by valid assignment, to the
fullest extent it is legally possible to do so.
(f) Neither NetIQ nor any of its subsidiaries has transferred
ownership of, or granted any exclusive license with respect to, any
Intellectual Property that is or was material NetIQ Intellectual Property,
to any third party.
(g) To the knowledge of NetIQ, the operation of the business of
NetIQ and its subsidiaries as such business currently is conducted,
including NetIQ's and its subsidiaries' design, development, manufacture,
marketing and sale of the products or services of NetIQ and its
subsidiaries (including products currently under development) has not, does
not and will not infringe or misappropriate the Intellectual Property of
any third party or, to its knowledge, constitute unfair competition or
trade practices under the laws of any jurisdiction.
(h) Neither NetIQ nor any of its subsidiaries has received notice
from any third party that the operation of the business of NetIQ or any of
its subsidiaries or any act, product or service of NetIQ or any of its
subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the
laws of any jurisdiction.
(i) To the knowledge of NetIQ, no person has or is infringing or
misappropriating any NetIQ Intellectual Property.
(j) NetIQ and each of its subsidiaries has taken reasonable steps
to protect NetIQ's and its subsidiaries' rights in NetIQ's confidential
information and trade secrets that it
-29-
wishes to protect or any trade secrets or confidential information of third
parties provided to NetIQ or any of its subsidiaries, and, without limiting
the foregoing, each of NetIQ and its subsidiaries has and enforces a policy
requiring each employee and contractor to execute a proprietary
information/confidentiality agreement substantially in the form provided to
MCS and all current and former employees and contractors of NetIQ and any
of its subsidiaries have executed such an agreement, except where the
failure to do so is not reasonably expected to be material to NetIQ.
(k) All of NetIQ's and its subsidiaries' products (including
products currently under development) (i) are Year 2000 Compliant, (ii)
will lose no functionality with respect to the introduction of records
containing dates falling on or after January 1, 2000, and (iii) will be
interoperable with other products used and distributed by MCS that may
reasonably deliver records to NetIQ's or any of its subsidiaries' products
or receive records from NetIQ's or any of its subsidiaries' products, or
interact with NetIQ's or any of its subsidiaries' products. All of NetIQ's
or its subsidiaries' Information Technology (as defined below) is Year 2000
Compliant, and will not cause an interruption in the ongoing operations of
NetIQ's or any of its subsidiaries' business on or after January 1, 2000.
For purposes of the foregoing, the term "Information Technology" shall mean
and include all software, hardware, firmware, telecommunications systems,
network systems, embedded systems and other systems, components and/or
services (other than general utility services including gas, electric,
telephone and postal) that are owned or used by NetIQ or any of its
subsidiaries in the conduct of their business, or purchased by NetIQ or any
of its subsidiaries from third-party suppliers.
3.9 Compliance; Permits; Restrictions.
---------------------------------
(a) Neither NetIQ nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or violation of (i) any law, rule,
regulation, order, judgment or decree applicable to NetIQ or any of its
subsidiaries or by which its or any of their respective properties is bound
or affected, or (ii) any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which NetIQ or any of its subsidiaries is a party or by
which NetIQ or any of its subsidiaries or its or any of their respective
properties is bound or affected. To the knowledge of NetIQ, no
investigation or review by any Governmental Entity is pending or threatened
against NetIQ or its subsidiaries, nor has any Governmental Entity
indicated an intention to conduct the same. There is no material agreement,
judgment, injunction, order or decree binding upon NetIQ or any of its
subsidiaries which has or could reasonably be expected to have the effect
of prohibiting or materially impairing any business practice of NetIQ or
any of its subsidiaries, any acquisition of material property by NetIQ or
any of its subsidiaries or the conduct of business by NetIQ as currently
conducted.
(b) NetIQ and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from governmental authorities
which are material to the operation of the business of NetIQ (collectively,
the "NetIQ Permits"). NetIQ and its subsidiaries are in compliance in all
material respects with the terms of the NetIQ Permits.
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3.10 Litigation. As of the date of this Agreement, there is no
----------
action, suit, proceeding, claim, arbitration or investigation pending, or
as to which NetIQ or any of its subsidiaries has received any notice of
assertion nor, to NetIQ's knowledge, is there a threatened action, suit,
proceeding, claim, arbitration or investigation against NetIQ or any of its
subsidiaries which reasonably would be likely to be material to NetIQ, or
which in any manner challenges or seeks to prevent, enjoin, alter or delay
any of the transactions contemplated by this Agreement.
3.11 Brokers' and Finders' Fees. Except for fees payable to Credit
--------------------------
Suisse First Boston Corporation pursuant to an engagement letter dated
February 1, 2000, a copy of which has been provided to MCS, NetIQ has not
incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.12 Employee Benefit Plans.
----------------------
(a) All employee compensation, incentive, fringe or benefit
plans, programs, policies, commitments, agreements or other arrangements
(whether or not set forth in a written document and including, without
limitation, all "employee benefit plans" within the meaning of Section 3(3)
of ERISA) covering any active or former employee, director or consultant of
NetIQ ("NetIQ Employee" which shall for this purpose mean an employee of
MCS or any Affiliate (as defined below)), any subsidiary of NetIQ or any
trade or business (whether or not incorporated) which is an Affiliate, or
with respect to which NetIQ has or, to its knowledge, may in the future
have liability, are listed in Section 3.12(a) of the NetIQ Schedules (the
"NetIQ Plans"). NetIQ has provided or will make available to MCS: (i)
correct and complete copies of all documents embodying each NetIQ Plan
including (without limitation) all amendments thereto, all related trust
documents, and all material written agreements and contracts relating to
each such NetIQ Plan; (ii) the most recent annual reports (Form Series 5500
and all schedules and financial statements attached thereto), if any,
required under ERISA or the Code in connection with each NetIQ Plan; (iii)
the most recent summary plan description together with the summary(ies) of
material modifications thereto, if any, required under ERISA with respect
to each NetIQ Plan; (iv) all IRS determination, opinion, notification and
advisory letters; (v) all material correspondence to or from any
governmental agency relating to any NetIQ Plan; (vi) all forms and related
notices required by COBRA; (vii) the most recent discrimination tests for
each NetIQ Plan; (viii) the most recent actuarial valuations, if any,
prepared for each NetIQ Plan; (ix) if the NetIQ Plan is funded, the most
recent annual and periodic accounting of the NetIQ Plan assets; and (x) all
communication to NetIQ Employees relating to any NetIQ Plan and any
proposed NetIQ Plan, in each case relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of
payments or vesting schedules, or other events which would result in any
material liability to NetIQ or any Affiliate.
(b) Each NetIQ Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (foreign
or domestic), including but not limited to ERISA and the Code,
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which are applicable to such NetIQ Plans. No suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course
of NetIQ Plan activities) has been brought, or to the knowledge of NetIQ,
is threatened, against or with respect to any such NetIQ Plan. There are no
audits, inquiries or proceedings pending or, to the knowledge of NetIQ,
threatened by the IRS or the DOL with respect to any NetIQ Plans. All
contributions, reserves or premium payments required to be made or accrued
as of the date hereof to the NetIQ Plans have been timely made or accrued.
Any NetIQ Plan intended to be qualified under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code (i) has
either obtained a favorable determination, notification, advisory and/or
opinion letter, as applicable, as to its qualified status from the IRS or
still has a remaining period of time under applicable Treasury Regulations
or IRS pronouncements in which to apply for such letter and to make any
amendments necessary to obtain a favorable determination, and (ii)
incorporates or has been amended to incorporate all provisions required to
comply with the Tax Reform Act of 1986 and subsequent legislation. To the
knowledge of NetIQ, no condition or circumstance exists giving rise to a
material likelihood that any such NetIQ Plan would not be treated as
qualified by the IRS. NetIQ does not have any plan or commitment to
establish any new NetIQ Plan, to modify any NetIQ Plan (except to the
extent required by law or to conform any such NetIQ Plan to the
requirements of any applicable law, in each case as previously disclosed to
MCS in writing, or as required by the terms of any NetIQ Plan or this
Agreement), or to enter into any new NetIQ Plan. Each NetIQ Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to MCS, NetIQ or any of its
Affiliates (other than ordinary administration expenses).
(c) Neither NetIQ, any of its subsidiaries, nor any of their
Affiliates has at any time ever maintained, established, sponsored,
participated in, or contributed to any plan subject to Title IV of ERISA or
Section 412 of the Code and at no time has NetIQ contributed to or been
requested to contribute to any "multiemployer plan," as such term is
defined in ERISA. Neither NetIQ, any of its subsidiaries, nor any officer
or director of NetIQ or any of its subsidiaries is subject to any material
liability or penalty under Section 4975 through 4980B of the Code or Title
I of ERISA. No "prohibited transaction," within the meaning of Section 4975
of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt
under Section 4975 of the Code and Section 408 of ERISA, has occurred with
respect to any NetIQ Plan which could subject NetIQ or its Affiliates to
material liability.
(d) None of the NetIQ Plans promises or provides retiree medical
or other retiree welfare benefits to any person except as required by
applicable law, and neither NetIQ nor any of its subsidiaries has
represented, promised or contracted (whether in oral or written form) to
provide such retiree benefits to any NetIQ Employee, former employee,
director, consultant or other person, except to the extent required by
statute.
(e) Except as would not have a material effect, NetIQ is in
compliance in all material respects with all applicable material foreign,
federal, state and local laws, rules and
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regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours.
(f) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any stockholder, director or NetIQ
Employee or any of its subsidiaries under any NetIQ Plan or otherwise, (ii)
materially increase any benefits otherwise payable under any NetIQ Plan, or
(iii) result in the acceleration of the time of payment or vesting of any
such benefits.
(g) Each NetIQ International Employee Plan (as defined below)
has been established, maintained and administered in compliance with its
terms and conditions and with the requirements prescribed by any and all
statutory or regulatory laws that are applicable to such NetIQ
International Employee Plan. Furthermore, no NetIQ International Employee
Plan has unfunded liabilities that, as of the Effective Time, will not be
offset by insurance or fully accrued. Except as required by law, no
condition exists that would prevent NetIQ or MCS from terminating or
amending any International Employee Plan at any time for any reason. For
purposes of this Section "NetIQ International Employee Plan" shall mean
each NetIQ Plan that has been adopted or maintained by NetIQ or any of its
subsidiaries, whether informally or formally, for the benefit of current or
former employees of NetIQ or any of its subsidiaries outside the United
States.
3.13 Absence of Liens and Encumbrances. NetIQ and each of its
---------------------------------
subsidiaries has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used in its
business, free and clear of any liens or encumbrances except as reflected
in the NetIQ Financials and except for liens for taxes not yet due and
payable and such imperfections of title and encumbrances, if any, which
would not be material to NetIQ.
3.14 Environmental Matters.
---------------------
(a) Hazardous Materials Activities. Except as would not
------------------------------
reasonably be likely to result in a material liability to NetIQ (in any
individual case or in the aggregate), (i) neither NetIQ nor any of its
subsidiaries has transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in
violation of any law in effect on or before the Closing Date, and (ii)
neither NetIQ nor any of its subsidiaries has engaged in Hazardous
Materials Activities in violation of any rule, regulation, treaty or
statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(b) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending, or
to NetIQ's knowledge, threatened concerning any NetIQ Permit relating to
any environmental matter, Hazardous Material or any Hazardous Materials
Activity of NetIQ or any of its subsidiaries. NetIQ is not aware of any
fact or
-33-
circumstance which could involve NetIQ or any of its subsidiaries in any
environmental litigation or impose upon NetIQ or any of its subsidiaries
any environmental liability.
3.15 Labor Matters. (i) There are no controversies pending or, to the
-------------
knowledge of each of NetIQ and its respective subsidiaries, threatened,
between NetIQ or any of its subsidiaries and any of their respective
employees; (ii) as of the date of this Agreement, neither NetIQ nor any of
its subsidiaries is a party to any collective bargaining agreement or other
labor union contract applicable to persons employed by NetIQ or its
subsidiaries nor does NetIQ or its subsidiaries know of any activities or
proceedings of any labor union to organize any such employees; and (iii) as
of the date of this Agreement, neither NetIQ nor any of its subsidiaries
has any knowledge of any strikes, slowdowns, work stoppages or lockouts, or
threats thereof, by or with respect to any employees of NetIQ or any of its
subsidiaries.
3.16 Agreements, Contracts and Commitments. Neither Company nor any
-------------------------------------
of its subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or
commitment with any officer or director or higher level employee or member
of NetIQ's Board of Directors, other than those that are terminable by
NetIQ or any of its subsidiaries on no more than thirty (30) days' notice
without liability or financial obligation to NetIQ;
(b) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation right plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification or any guaranty other than
any agreement of indemnification entered into in connection with the sale
or license of software products in the ordinary course of business;
(d) any agreement, contract or commitment containing any
covenant limiting in any respect the right of NetIQ or any of its
subsidiaries to engage in any line of business or to compete with any
person or granting any exclusive distribution rights;
(e) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by NetIQ or any of its
subsidiaries after the date of this Agreement of a material amount of
assets not in the ordinary course of business or pursuant to which NetIQ
has any material ownership interest in any corporation, partnership, joint
venture or other business enterprise other than NetIQ's subsidiaries;
(f) any dealer, distributor, joint marketing or development
agreement currently in force under which NetIQ or any of its subsidiaries
have continuing material obligations to jointly
-34-
market any product, technology or service and which may not be canceled
without penalty upon notice of ninety (90) days or less, or any material
agreement pursuant to which NetIQ or any of its subsidiaries have
continuing material obligations to jointly develop any intellectual
property that will not be owned, in whole or in part, by NetIQ or any of
its subsidiaries and which may not be canceled without penalty upon notice
of ninety (90) days or less;
(g) any agreement, contract or commitment currently in force to
provide source code to any third party for any product or technology that
is material to NetIQ and its subsidiaries taken as a whole;
(h) any agreement, contract or commitment currently in force to
license any third party to manufacture or reproduce any NetIQ product,
service or technology or any agreement, contract or commitment currently in
force to sell or distribute any NetIQ products, service or technology
except agreements with distributors or sales representative in the normal
course of business cancelable without penalty upon notice of ninety (90)
days or less and substantially in the form previously provided to MCS;
(i) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating
to the borrowing of money or extension of credit;
(j) any settlement agreement entered into within five (5) years
prior to the date of this Agreement; or
(k) any other agreement, contract or commitment that has a value
of $2,000,000 or more individually, other than in the event of an
assignment of the LOI pursuant to Section 5.20, the transactions
contemplated by the LOI.
Neither NetIQ nor any of its subsidiaries, nor to NetIQ's knowledge any
other party to a NetIQ Contract (as defined below), is in breach, violation
or default under, and neither NetIQ nor any of its subsidiaries has
received written notice that it has breached, violated or defaulted under,
any of the material terms or conditions of any of the agreements, contracts
or commitments to which NetIQ or any of its subsidiaries is a party or by
which it is bound that are required to be disclosed in the NetIQ Schedules
(any such agreement, contract or commitment, a "NetIQ Contract") in such a
manner as would permit any other party to cancel or terminate any such
NetIQ Contract, or would permit any other party to seek material damages or
other remedies (for any or all of such breaches, violations or defaults, in
the aggregate).
3.17 Statements; Proxy Statement/Prospectus. None of the information
--------------------------------------
supplied or to be supplied by NetIQ for inclusion or incorporation by
reference in (i) the Registration Statement will at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading
and (ii) the Proxy Statement shall not, on the date the Proxy
-35-
Statement is first mailed to NetIQ's stockholders and MCS's stockholders,
at the time of the NetIQ Stockholders' Meeting or the MCS Stockholders'
Meeting and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not false or misleading, or
omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
NetIQ Stockholders' Meeting or the MCS Stockholders' Meeting which has
become false or misleading. The Proxy Statement will comply as to form in
all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder. If at any time prior to the Effective Time, any
event relating to NetIQ or any of its affiliates, officers or directors
should be discovered by NetIQ which should be set forth in an amendment to
the Registration Statement or a supplement to the Proxy Statement, NetIQ
shall promptly inform MCS. Notwithstanding the foregoing, NetIQ makes no
representation or warranty with respect to any information supplied by MCS
which is contained in any of the foregoing documents.
3.18 Board Approval. The Board of Directors of NetIQ has, as of the
--------------
date of this Agreement, (i) determined that the Merger is fair to and in
the best interests of NetIQ and its stockholders, (ii) determined to
recommend that the stockholders of NetIQ approve this Agreement and (iii)
duly approved the Merger, this Agreement and the transactions contemplated
hereby.
3.19 State Takeover Statutes. The Board of Directors of NetIQ has
-----------------------
approved the Merger, this Agreement, the Stock Option Agreements, and the
MCS Voting Agreement and the transactions contemplated hereby and thereby,
and such approval is sufficient to render inapplicable to the Merger, this
Agreement, the Stock Option Agreements, the MCS Voting Agreement and the
transactions contemplated hereby and thereby the provisions of Section 203
of Delaware Law to the extent, if any, such section is applicable to the
Merger, this Agreement, the Stock Option Agreements, the MCS Voting
Agreement and the transactions contemplated hereby and thereby. No other
state takeover statute or similar statute or regulation applies to or
purports to apply to the Merger, this Agreement, the Stock Option
Agreements, the MCS Voting Agreement or the transactions contemplated
hereby and thereby.
3.20 Fairness Opinion. NetIQ has received a written opinion from
----------------
Credit Suisse First Boston Corporation, dated as of the date hereof, to the
effect that as of the date hereof, the Exchange Ratio is fair to NetIQ's
stockholders from a financial point of view and has delivered to MCS a copy
of such opinion.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business. During the period from the date of this
-------------------
Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, MCS (which for the
purposes of this Article IV shall include MCS and each of its subsidiaries)
and NetIQ (which for the purposes of this Article IV shall include NetIQ
and each of its
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subsidiaries) agree, except (i) in the case of MCS as provided in Article
IV of the MCS Schedules and in the case of NetIQ as provided in Article IV
of the NetIQ Schedules, or (ii) to the extent that the other party shall
otherwise consent in writing, to carry on its business diligently and in
accordance with good commercial practice and to carry on its business in
the ordinary course, in substantially the same manner as heretofore
conducted and in compliance with all applicable laws and regulations, to
pay its debts and taxes when due subject to good faith disputes over such
debts or taxes, to pay or perform other material obligations when due, and
use its commercially reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, keep
available the services of its present officers and employees and preserve
its relationships with customers, suppliers, distributors, licensors,
licensees and others with which it has business dealings. In furtherance of
the foregoing and subject to applicable law, MCS and NetIQ agree to confer,
as promptly as practicable, prior to taking any material actions or making
any material management decisions with respect to the conduct of business.
In addition, except (i) in the case of MCS as provided in Article IV of the
MCS Schedules; (ii) in the case of NetIQ as provided in Article IV of the
NetIQ Schedules; and (iii) in connection with the transactions contemplated
by the LOI, without the prior written consent of the other, neither MCS nor
NetIQ shall do any of the following, and neither MCS nor NetIQ shall permit
its subsidiaries to do any of the following:
(a) Except as required by law or pursuant to the terms of a MCS
Plan or a NetIQ Plan, as the case may be, in effect as of the date hereof,
waive any stock repurchase rights, accelerate, amend or change the period
of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize
cash payments in exchange for any options granted under any of such plans;
(b) Enter into any material partnership arrangements, joint
development agreements or strategic alliances other than in the ordinary
course of business consistent with past practice;
(c) Grant any severance or termination pay to any officer or
employee except pursuant to written agreements outstanding, or policies
existing, on the date hereof and as previously disclosed in writing to the
other, or adopt any new severance plan or amend or modify or alter in any
manner any severance plan, agreement or arrangement existing on the date
hereof;
(d) Transfer or license to any person or entity or otherwise
extend, amend or modify in any material respect any rights to the MCS
Intellectual Property or the NetIQ Intellectual Property, as the case may
be, or enter into grants to transfer or license to any person future patent
rights, other than in the ordinary course of business or amend or modify or
alter in any manner any severance plan, agreement or arrangement existing
on the date hereof;
(e) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
-37-
(f) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of MCS or its subsidiaries, or NetIQ or its
subsidiaries, as the case may be, except repurchases of unvested shares at cost
in connection with the termination of the employment relationship with any
employee pursuant to stock option or purchase agreements in effect on the date
hereof;
(g) Issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing with respect to any shares of capital stock or any
securities convertible into shares of capital stock, or subscriptions, rights,
warrants or options to acquire any shares of capital stock or any securities
convertible into shares of capital stock, or enter into other agreements or
commitments of any character obligating it to issue any such shares or
convertible securities, other than (i) the issuance, delivery and/or sale of
shares of MCS Common Stock or NetIQ Common Stock, as the case may be, pursuant
to the exercise of stock options therefor outstanding as of the date of this
Agreement, (ii) the granting of options to purchase shares of MCS Common Stock
or NetIQ Common Stock, as the case may be, to be granted at fair market value in
the ordinary course of business, consistent with past practice and in accordance
with existing stock option plans in an amount not to exceed options to purchase
500,000 shares in the aggregate, (iii) shares of MCS Common Stock or NetIQ
Common Stock, as the case may be, issuable upon the exercise of the options
referred to in clause (ii), and (iv) shares of MCS Common Stock or NetIQ Common
Stock, as the case may be, issuable to participants in NetIQ's 1999 Employee
Stock Purchase Plan (the "NetIQ ESPP") or the MCS ESPP consistent with the terms
thereof;
(h) Cause, permit or propose any amendments to any charter document or
Bylaw (or similar governing instruments of any subsidiaries);
(i) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
the business of MCS or NetIQ, as the case may be, or enter into any joint
ventures, strategic partnerships or alliances, other than in the ordinary course
of business consistent with past practice;
(j) Adopt a plan of complete or partial liquidation, dissolution,
consolidation, restructuring, recapitalization or other reorganization;
(k) Sell, lease, license, encumber or otherwise dispose of any properties
or assets except sales of inventory in the ordinary course of business
consistent with past practice, except for the sale, lease or disposition (other
than through licensing) of property or assets which are not material,
individually or in the aggregate, to the business of MCS or NetIQ, as the case
may be;
(l) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other
-38-
rights to acquire any debt securities of MCS or NetIQ, as the case may be, enter
into any "keep well" or other agreement to maintain any financial statement
condition or enter into any arrangement having the economic effect of any of the
foregoing other than (i) in connection with the financing of ordinary course
trade payables consistent with past practice or (ii) pursuant to existing credit
facilities in the ordinary course of business;
(m) Adopt or amend any employee benefit plan or employee stock purchase or
employee stock option plan, or enter into any employment contract or collective
bargaining agreement (other than offer letters and letter agreements entered
into in the ordinary course of business consistent with past practice with
employees who are terminable "at will"), pay any special bonus or special
remuneration to any director or employee other than in the ordinary course of
business consistent with past practice, or increase the salaries or wage rates
or fringe benefits (including rights to severance or indemnification) of its
directors, officers, employees or consultants;
(n) Make any individual or series of related payments outside of the
ordinary course of business in excess of $1,000,000;
(o) Except in the ordinary course of business consistent with past
practice, modify, amend or terminate any material contract or agreement to which
MCS or any of its subsidiaries or NetIQ or any of its subsidiaries, as the case
may be, is a party or waive, delay the exercise of, release or assign any
material rights or claims thereunder;
(p) Enter into or materially modify any contracts, agreements or
obligations relating to the distribution, sale, license or marketing by third
parties of MCS's or NetIQ's products, as the case may be, or products licensed
by MCS or NetIQ, as the case may be;
(q) Revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
(r) Incur or enter into any agreement or commitment, other than any
agreement with a customer entered into in the ordinary course of business
consistent with past practice, in excess of $1,000,000 individually;
(s) Engage in any action that could reasonably be expected to cause the
Merger to fail to qualify as a "reorganization" under Section 368(a) of the
Code, whether or not otherwise permitted by the provisions of this Article IV;
(t) Make any tax election or settle or compromise any material tax
liability;
(u) Hire any employee with an annual compensation level in excess of
$125,000;
-39-
(v) Pay, discharge or satisfy any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business;
(w) Make any grant of exclusive rights to any third party; or
(x) Agree in writing or otherwise to take any of the actions described in
Section 4.1 (a) through (w) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings.
-----------------------------------------------------------------
(a) As promptly as practicable after the execution of this Agreement,
MCS and NetIQ will prepare and file with the SEC the Proxy Statement, and NetIQ
will prepare and file with the SEC the Registration Statement in which the Proxy
Statement will be included as a prospectus. Each of MCS and NetIQ will respond
to any comments of the SEC, will use its respective best efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing and will cause the Proxy Statement to be mailed
to its stockholders at the earliest practicable time. As promptly as practicable
after the date of this Agreement, MCS and NetIQ will prepare and file any other
filings required under the Exchange Act, the Securities Act or any other
Federal, foreign or Blue Sky laws relating to the Merger and the transactions
contemplated by this Agreement (the "Other Filings"). Each party will notify the
other promptly upon the receipt of any comments from the SEC or its staff and of
any request by the SEC or its staff or any other government officials for
amendments or supplements to the Registration Statement, the Proxy Statement or
any Other Filing or for additional information and will supply the other with
copies of all correspondence between such party or any of its representatives,
on the one hand, and the SEC, or its staff or any other government officials, on
the other hand, with respect to the Registration Statement, the Proxy Statement,
the Merger or any Other Filing. The Proxy Statement, the Registration Statement
and the Other Filings will comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Proxy Statement, the Registration Statement or any Other
Filing, MCS or NetIQ, as the case may be, will promptly inform the other party
of such occurrence and cooperate in filing with the SEC or its staff or any
other government officials, and/or mailing to stockholders of MCS or
stockholders of NetIQ, such amendment or supplement.
(b) Subject to Sections 5.2(c) and 5.2(d), the Proxy Statement will also
include the recommendations of (i) the Board of Directors of MCS in favor of
adoption and approval of this Agreement and the Merger, and (ii) the Board of
Directors of NetIQ in favor of the issuance of shares of NetIQ Common Stock in
the Merger and in favor of adoption and approval of this Agreement and the
Merger.
-40-
5.2 Meetings of Stockholders.
------------------------
(a) Promptly after the date hereof, MCS will take all action necessary
in accordance with Delaware Law and its Certificate of Incorporation and Bylaws
to convene the MCS Stockholders' Meeting to be held as promptly as practicable,
for the purpose of voting upon this Agreement. MCS will consult with NetIQ and
use its commercially reasonable efforts to hold the MCS Stockholders' Meeting on
the same day as the NetIQ Stockholders' Meeting. Promptly after the date hereof,
NetIQ will take all action necessary in accordance with Delaware Law and its
Certificate of Incorporation and Bylaws to convene the NetIQ Stockholders'
Meeting to be held as promptly as practicable for the purpose of voting upon the
issuance of shares of NetIQ Common Stock by virtue of the Merger. NetIQ will
consult with MCS and will use its commercially reasonable efforts to hold the
NetIQ Stockholders' Meeting on the same day as the MCS Stockholders' Meeting.
Subject to Sections 5.2(c) and 5.2(d), NetIQ and MCS will each use its
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the adoption and approval of this Agreement and the approval of the
Merger and will take all other action necessary or advisable to secure the vote
or consent of their respective stockholders or stockholders required by the
rules of the National Association of Securities Dealers, Inc. or Delaware Law
and all other applicable legal requirements to obtain such approvals.
(b) Subject to Sections 5.2(c) and 5.2(d): (i) the Board of Directors
of MCS shall unanimously recommend that MCS's stockholders vote in favor of and
adopt and approve this Agreement and the Merger at the MCS Stockholders'
Meeting, and the Board of Directors of NetIQ shall unanimously recommend that
NetIQ's stockholders vote in favor of and adopt and approve this Agreement and
the Merger at the NetIQ Stockholders' Meeting; (ii) the Proxy Statement shall
include a statement to the effect that the Board of Directors of MCS has
unanimously recommended that MCS's stockholders vote in favor of and adopt and
approve this Agreement and the Merger at the MCS Stockholders' Meeting, and a
statement to the effect that the Board of Directors of NetIQ has unanimously
recommended that NetIQ's stockholders vote in favor of and adopt and approve
this Agreement and the Merger at the NetIQ Stockholders' Meeting; and (iii)
neither the Board of Directors of MCS, the Board of Directors of NetIQ, nor any
committee of either shall withdraw, amend or modify, or propose or resolve to
withdraw, amend or modify in a manner adverse to the other party, the unanimous
recommendation of the Board of Directors of MCS or the Board of Directors of
NetIQ that MCS's stockholders or NetIQ's stockholders, as the case may be, vote
in favor of and adopt and approve this Agreement and approve the Merger. For
purposes of this Agreement, said recommendation of the Board of Directors shall
be deemed to have been modified in a manner adverse to the other party if said
recommendation shall no longer be unanimous.
(c) Nothing in this Agreement shall prevent the Board of Directors of
MCS from withholding, withdrawing, amending or modifying its unanimous
recommendation in favor of the Merger if (i) a MCS Superior Offer (as defined
below) is made to MCS and is not withdrawn, (ii) neither MCS nor any of its
representatives shall have violated any of the restrictions set forth in Section
5.4(a), and (iii) the Board of Directors of MCS concludes in good faith, after
consultation
-41-
with its outside counsel, that, in light of such MCS Superior Offer, the
withholding, withdrawal, amendment or modification of such recommendation is
required in order for the Board of Directors of MCS to comply with its fiduciary
obligations to MCS's stockholders under applicable law. Nothing contained in
this Section 5.2 shall limit MCS's obligation to hold and convene the MCS
Stockholders' Meeting (regardless of whether the unanimous recommendation of the
Board of Directors of MCS shall have been withdrawn, amended or modified). For
purposes of this Agreement, "MCS Superior Offer" shall mean an unsolicited, bona
fide written offer made by a third party to consummate any of the following
transactions: (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving MCS,
pursuant to which the stockholders of MCS immediately preceding such transaction
hold less than 50% of the equity interest in the surviving or resulting entity
of such transaction; (ii) a sale or other disposition by MCS of assets
(excluding inventory and used equipment sold in the ordinary course of business)
representing in excess of 50% of the fair market value of MCS's business
immediately prior to such sale, or (iii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by MCS),
directly or indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of 50% of the voting power of the
then outstanding shares of capital stock of the MCS, in each case on terms that
the Board of Directors of MCS determines, in its reasonable judgment (after
consultation with its financial advisor) to be more favorable to the MCS
stockholders from a financial point of view than the terms of the Merger;
provided, however, that any such offer shall not be deemed to be a "MCS Superior
Offer" if any financing required to consummate the transaction contemplated by
such offer is not committed and is not likely in the judgment of MCS's Board of
Directors to be obtained by such third party on a timely basis.
(d) Nothing in this Agreement shall prevent the Board of Directors of
NetIQ from withholding, withdrawing, amending or modifying its unanimous
recommendation in favor of the Merger if (i) a NetIQ Superior Offer (as defined
below) is made to NetIQ and is not withdrawn, (ii) neither NetIQ nor any of its
representatives shall have violated any of the restrictions set forth in Section
5.4(b), and (iii) the Board of Directors of NetIQ concludes in good faith, after
consultation with its outside counsel, that, in light of such NetIQ Superior
Offer, the withholding, withdrawal, amendment or modification of such
recommendation is required in order for the Board of Directors of NetIQ to
comply with its fiduciary obligations to NetIQ's stockholders under applicable
law. Nothing contained in this Section 5.2 shall limit NetIQ's obligation to
hold and convene the NetIQ Stockholders' Meeting (regardless of whether the
unanimous recommendation of the Board of Directors of NetIQ shall have been
withdrawn, amended or modified). For purposes of this Agreement, "NetIQ Superior
Offer" shall mean an unsolicited, bona fide written offer made by a third party
to consummate any of the following transactions: (i) a merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving NetIQ, pursuant to which the stockholders of NetIQ
immediately preceding such transaction hold less than 50% of the equity interest
in the surviving or resulting entity of such transaction; (ii) a sale or other
disposition by NetIQ of assets (excluding inventory and used equipment sold in
the ordinary course of business) representing in excess of 50% of the fair
market value of NetIQ's business immediately
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prior to such sale, or (iii) the acquisition by any person or group (including
by way of a tender offer or an exchange offer or issuance by NetIQ), directly or
indirectly, of beneficial ownership or a right to acquire beneficial ownership
of shares representing in excess of 50% of the voting power of the then
outstanding shares of capital stock of the NetIQ, in each case on terms that the
Board of Directors of NetIQ determines, in its reasonable judgment (after
consultation with its financial advisor) to be more favorable to the NetIQ
stockholders from a financial point of view than the terms of the Merger;
provided, however, that any such offer shall not be deemed to be a "NetIQ
-------- -------
Superior Offer" if any financing required to consummate the transaction
contemplated by such offer is not committed and is not likely in the judgment of
NetIQ's Board of Directors to be obtained by such third party on a timely basis.
5.3 Access to Information; Confidentiality.
--------------------------------------
(a) Each party will afford the other party and its accountants,
counsel and other representatives reasonable access during normal business hours
to the properties, books, records and personnel of the other party during the
period prior to the Effective Time to obtain all information concerning the
business, including the status of product development efforts, properties,
results of operations and personnel of such party, as the other party may
reasonably request. No information or knowledge obtained in any investigation
pursuant to this Section 5.3 will affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
(b) The parties acknowledge that MCS and NetIQ have previously
executed a Confidentiality Agreement, dated February 4, 2000 (the
"Confidentiality Agreement"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms.
5.4 No Solicitation.
---------------
(a) Restrictions on MCS.
-------------------
(i) From and after the date of this Agreement until the Effective
Time or termination of this Agreement pursuant to Article VII, MCS and its
subsidiaries will not, nor will they authorize or permit any of their respective
officers, directors, affiliates or employees or any investment banker, attorney
or other advisor or representative retained by any of them to, directly or
indirectly (i) solicit, initiate, encourage or induce the making, submission or
announcement of any MCS Acquisition Proposal (as defined below), (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes or may
reasonably be expected to lead to, any MCS Acquisition Proposal, (iii) engage in
discussions with any person with respect to any MCS Acquisition Proposal, except
as to the existence of these provisions, (iv) subject to Section 5.2(c),
approve, endorse or recommend any MCS Acquisition Proposal or (v) enter into any
letter of intent or similar document or any contract, agreement or commitment
contemplating or otherwise relating to any MCS Acquisition Transaction (as
defined below); provided, however, until
-------- -------
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the date on which this Agreement is approved by the required vote of the MCS
stockholders, this Section 5.4(a) shall not prohibit MCS from furnishing
nonpublic information regarding MCS and its subsidiaries to, entering into a
confidentiality agreement with or entering into discussions with, any person or
group in response to a MCS Superior Offer submitted by such person or group (and
not withdrawn) if (1) neither MCS nor any representative of MCS and its
subsidiaries shall have violated any of the restrictions set forth in this
Section 5.4(a), (2) the Board of Directors of MCS concludes in good faith, after
consultation with its outside legal counsel, that such action is required in
order for the Board of Directors of MCS to comply with its fiduciary obligations
to MCS's stockholders under applicable law, (3) (x) at least three (3) days
prior to furnishing any such nonpublic information to, or entering into
discussions or negotiations with, such person or group, MCS gives NetIQ written
notice of the identity of such person or group and of MCS's intention to furnish
nonpublic information to, or enter into discussions or negotiations with, such
person or group and (y) MCS receives from such person or group an executed
confidentiality agreement containing customary limitations on the use and
disclosure of all nonpublic written and oral information furnished to such
person or group by or on behalf of MCS and containing terms no less favorable to
the disclosing party than the terms of the Confidentiality Agreement, and (4)
contemporaneously with furnishing any such nonpublic information to such person
or group, MCS furnishes such nonpublic information to NetIQ (to the extent such
nonpublic information has not been previously furnished by MCS to NetIQ). MCS
and its subsidiaries will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any MCS Acquisition Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding two
sentences by any officer or director of MCS or any of its subsidiaries or any
investment banker, attorney or other advisor or representative of MCS or any of
its subsidiaries shall be deemed to be a breach of this Section 5.4(a) by MCS.
In addition to the foregoing, MCS shall (i) provide NetIQ with at least forty-
eight (48) hours prior notice (or such lesser prior notice as provided to the
members of MCS's Board of Directors but in no event less than eight hours) of
any meeting of MCS's Board of Directors at which MCS's Board of Directors is
reasonably expected to consider a MCS Superior Offer and (ii) provide NetIQ with
at least three (3) business days prior written notice of a meeting of MCS's
Board of Directors at which MCS's Board of Directors is reasonably expected to
recommend a MCS Superior Offer to its stockholders and together with such notice
a copy of the definitive documentation relating to such MCS Superior Offer.
(ii) For purposes of this Agreement, "MCS Acquisition Proposal"
shall mean any offer or proposal (other than an offer or proposal by NetIQ)
relating to any MCS Acquisition Transaction. For the purposes of this Agreement,
"MCS Acquisition Transaction" shall mean any transaction or series of related
transactions other than the transactions contemplated by this Agreement
involving: (A) any acquisition or purchase from MCS by any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of more than a 5% interest in the total outstanding voting
securities of MCS or any of its subsidiaries or any tender offer or exchange
offer that if consummated would result in any person or "group" (as defined
under Section 13 (d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 5% or more of the total outstanding voting
securities of MCS or any of its
-44-
subsidiaries or any merger, consolidation, business combination or similar
transaction involving MCS pursuant to which the stockholders of MCS immediately
preceding such transaction hold less than 95% of the equity interests in the
surviving or resulting entity of such transaction; (B) any sale, lease (other
than in the ordinary course of business), exchange, transfer, license (other
than in the ordinary course of business), acquisition or disposition of more
than 5% of the assets of MCS; or (C) any liquidation or dissolution of MCS.
(iii) In addition to the obligations of MCS set forth in
paragraph (i) of this Section 5.4(a), MCS as promptly as practicable, and in any
event within twenty-four (24) hours, shall advise NetIQ orally and in writing of
any request received by MCS for non-public information which MCS reasonably
believes would lead to a MCS Acquisition Proposal or of any MCS Acquisition
Proposal, the material terms and conditions of such request, MCS Acquisition
Proposal or inquiry, and the identity of the person or group making any such
request, MCS Acquisition Proposal or inquiry. MCS will keep NetIQ informed in
all material respects of the status and details (including material amendments
or proposed amendments) of any such request, MCS Acquisition Proposal or
inquiry.
(b) Restrictions on NetIQ.
---------------------
(i) From and after the date of this Agreement until the Effective
Time or termination of this Agreement pursuant to Article VII, NetIQ and its
subsidiaries will not, nor will they authorize or permit any of their respective
officers, directors, affiliates or employees or any investment banker, attorney
or other advisor or representative retained by any of them to, directly or
indirectly (i) solicit, initiate, encourage or induce the making, submission or
announcement of any NetIQ Acquisition Proposal (as defined below), (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes or may
reasonably be expected to lead to, any NetIQ Acquisition Proposal, (iii) engage
in discussions with any person with respect to any NetIQ Acquisition Proposal,
except as to the existence of these provisions, (iv) subject to Section 5.2(d),
approve, endorse or recommend any NetIQ Acquisition Proposal or (v) enter into
any letter of intent or similar document or any contract, agreement or
commitment contemplating or otherwise relating to any NetIQ Acquisition
Transaction (as defined below); provided, however, until the date on which this
Agreement is approved by the required vote of the NetIQ stockholders, this
Section 5.4(b) shall not prohibit NetIQ from furnishing nonpublic information
regarding NetIQ and its subsidiaries to, entering into a confidentiality
agreement with or entering into discussions with, any person or group in
response to a NetIQ Superior Offer submitted by such person or group (and not
withdrawn) if (1) neither NetIQ nor any representative of NetIQ and its
subsidiaries shall have violated any of the restrictions set forth in this
Section 5.4(b), (2) the Board of Directors of NetIQ concludes in good faith,
after consultation with its outside legal counsel, that such action is required
in order for the Board of Directors of NetIQ to comply with its fiduciary
obligations to NetIQ's stockholders under applicable law, (3) (x) at least three
(3) days prior to furnishing any such nonpublic information to, or entering into
discussions or negotiations with, such person or group,
-45-
NetIQ gives MCS written notice of the identity of such person or group and of
NetIQ's intention to furnish nonpublic information to, or enter into discussions
or negotiations with, such person or group and (y) NetIQ receives from such
person or group an executed confidentiality agreement containing customary
limitations on the use and disclosure of all nonpublic written and oral
information furnished to such person or group by or on behalf of NetIQ and
containing terms no less favorable to the disclosing party than the terms of the
Confidentiality Agreement, and (4) contemporaneously with furnishing any such
nonpublic information to such person or group, NetIQ furnishes such nonpublic
information to MCS (to the extent such nonpublic information has not been
previously furnished by NetIQ to MCS). NetIQ and its subsidiaries will
immediately cease any and all existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any NetIQ Acquisition
Proposal. Without limiting the foregoing, it is understood that any violation of
the restrictions set forth in the preceding two sentences by any officer or
director of NetIQ or any of its subsidiaries or any investment banker, attorney
or other advisor or representative of NetIQ or any of its subsidiaries shall be
deemed to be a breach of this Section 5.4(b) by NetIQ. In addition to the
foregoing, NetIQ shall (i) provide MCS with at least forty-eight (48) hours
prior notice (or such lesser prior notice as provided to the members of NetIQ's
Board of Directors but in no event less than eight hours) of any meeting of
NetIQ's Board of Directors at which NetIQ's Board of Directors is reasonably
expected to consider a NetIQ Superior Offer and (ii) provide MCS with at least
three (3) business days prior written notice of a meeting of NetIQ's Board of
Directors at which NetIQ's Board of Directors is reasonably expected to
recommend a NetIQ Superior Offer to its stockholders and together with such
notice a copy of the definitive documentation relating to such NetIQ Superior
Offer.
(ii) For purposes of this Agreement, "NetIQ Acquisition Proposal"
shall mean any offer or proposal (other than an offer or proposal by MCS)
relating to any NetIQ Acquisition Transaction. For the purposes of this
Agreement, "NetIQ Acquisition Transaction" shall mean any transaction or series
of related transactions other than the transactions contemplated by this
Agreement involving: (A) any acquisition or purchase from NetIQ by any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a 5% interest in the total outstanding
voting securities of NetIQ or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 5% or more of the total outstanding voting
securities of NetIQ or any of its subsidiaries or any merger, consolidation,
business combination or similar transaction involving NetIQ pursuant to which
the stockholders of NetIQ immediately preceding such transaction hold less than
95% of the equity interests in the surviving or resulting entity of such
transaction; (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 5% of the assets of NetIQ; or
(C) any liquidation or dissolution of NetIQ.
(iii) In addition to the obligations of NetIQ set forth in
paragraph (i) of this Section 5.4(b), NetIQ as promptly as practicable, and in
any event within twenty-four (24) hours,
-46-
shall advise MCS orally and in writing of any request received by NetIQ for non-
public information which NetIQ reasonably believes would lead to a NetIQ
Acquisition Proposal or of any NetIQ Acquisition Proposal, the material terms
and conditions of such request, NetIQ Acquisition Proposal or inquiry, and the
identity of the person or group making any such request, NetIQ Acquisition
Proposal or inquiry. NetIQ will keep MCS informed in all material respects of
the status and details (including material amendments or proposed amendments) of
any such request, NetIQ Acquisition Proposal or inquiry.
5.5 Public Disclosure. NetIQ and MCS will consult with each other and agree
-----------------
before issuing any press release or otherwise making any public statement with
respect to the Merger, this Agreement, a MCS Acquisition Proposal or a NetIQ
Acquisition Proposal and will not issue any such press release or make any such
public statement prior to such agreement, except as may be required by law or
any listing agreement with a national securities exchange or Nasdaq, in which
case reasonable efforts to consult with the other party will be made prior to
such release or public statement; provided, however, that no such consultation
-------- -------
or agreement shall be required if, prior to the date of such release or public
statement, either party shall have withheld, withdrawn, amended or modified its
unanimous recommendation in favor of the Merger.
5.6 Legal Requirements. Each of NetIQ, Merger Sub and MCS will take all
------------------
reasonable actions necessary or desirable to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement (including furnishing all
information required in connection with approvals of or filings with any
Governmental Entity, and prompt resolution of any litigation prompted hereby)
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon any of them or
their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement. NetIQ will use its commercially
reasonable efforts to take such steps as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable to the
issuance of NetIQ Common Stock pursuant hereto. MCS will use its commercially
reasonable efforts to assist NetIQ as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of NetIQ Common Stock pursuant hereto.
5.7 Third Party Consents. As soon as practicable following the date hereof,
--------------------
NetIQ and MCS will each use its commercially reasonable efforts to obtain all
material consents, waivers and approvals under any of its or its subsidiaries'
agreements, contracts, licenses or leases required to be obtained in connection
with the consummation of the transactions contemplated hereby.
5.8 FIRPTA. At or prior to the Closing, MCS, if requested by NetIQ, shall
------
deliver to the IRS a notice that the MCS Common Stock is not a "U.S. Real
Property Interest" as defined and in accordance with the requirements of
Treasury Regulation Section 1.897-2(h)(2).
5.9 Notification of Certain Matters. NetIQ and Merger Sub will give prompt
-------------------------------
notice to MCS, and MCS will give prompt notice to NetIQ, of the occurrence, or
failure to occur, of any
-47-
event, which occurrence or failure to occur would be reasonably likely to cause
(a) any representation or warranty contained in this Agreement to be untrue or
inaccurate at any time from the date of this Agreement to the Effective Time,
such that the conditions set forth in Section 6.2(a) or 6.3(a), as the case may
be, would not be satisfied as a result thereof, or (b) any material failure of
NetIQ and Merger Sub or MCS, as the case may be, or of any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement.
Notwithstanding the above, the delivery of any notice pursuant to this section
will not limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
5.10 Commercially Reasonable Efforts and Further Assurances. Subject to the
------------------------------------------------------
respective rights and obligations of NetIQ and MCS under this Agreement, each of
the parties to this Agreement will use its commercially reasonable efforts to
effectuate the Merger and the other transactions contemplated hereby and to
fulfill and cause to be fulfilled the conditions to closing under this
Agreement. Each party hereto, at the reasonable request of another party hereto,
will execute and deliver such other instruments and do and perform such other
acts and things as may be necessary or desirable for effecting completely the
consummation of the transactions contemplated hereby.
5.11 Stock Options; Employee Stock Purchase Plans.
--------------------------------------------
(a) Stock Options. At the Effective Time, each outstanding option to
-------------
purchase shares of MCS Common Stock (each, a "MCS Stock Option") under the MCS
Stock Option Plans, whether or not vested, shall by virtue of the Merger be
assumed by NetIQ. NetIQ shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of NetIQ Common Stock for issuance upon
exercise of all MCS Stock Options assumed in accordance with this Section 5.11.
Each MCS Stock Option so assumed by NetIQ under this Agreement will continue to
have, and be subject to, the same terms and conditions of such options
immediately prior to the Effective Time (including, without limitation, any
repurchase rights or vesting provisions), except that (i) each MCS Stock Option
will be exercisable (or will become exercisable in accordance with its terms)
for that number of whole shares of NetIQ Common Stock equal to the product of
the number of shares of MCS Common Stock that were issuable upon exercise of
such MCS Stock Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounded down to the nearest whole number of shares of NetIQ
Common Stock and (ii) the per share exercise price for the shares of NetIQ
Common Stock issuable upon exercise of such assumed MCS Stock Option will be
equal to the quotient determined by dividing the exercise price per share of MCS
Common Stock at which such MCS Stock Option was exercisable immediately prior to
the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
(b) ESPP. NetIQ agrees that from and after the Effective Time, MCS
----
employees may participate in the NetIQ ESPP, subject to the terms and
conditions of the NetIQ ESPP.
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5.12 Form S-8. NetIQ agrees to file a registration statement on Form S-8
--------
for the shares of NetIQ Common Stock issuable with respect to assumed MCS Stock
Options as soon as is reasonably practicable after the Effective Time.
5.13 Service Credit. Service of MCS Employees, as credited under the MCS
--------------
Plans, prior to the Effective Time shall be credited against all service and
waiting period requirements under NetIQ's comparable employee benefit plans.
5.14 Indemnification.
---------------
(a) From and after the Effective Time, the Surviving Corporation
will fulfill and honor in all respects the obligations of MCS pursuant to any
indemnification agreements between MCS and its directors and officers existing
prior to the date hereof. The Certificate of Incorporation and Bylaws of the
Surviving Corporation will contain the provisions with respect to
indemnification and elimination of liability for monetary damages set forth in
the Certificate of Incorporation and Bylaws of MCS, which provisions will not be
amended, repealed or otherwise modified for a period of six (6) years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who, at the Effective Time, were directors, officers, employees
or agents of MCS, unless such modification is required by law.
(b) For a period of six years after the Effective Time, NetIQ will
cause the Surviving Corporation to use its commercially reasonable efforts to
maintain in effect, if available, directors' and officers' liability insurance
covering those persons who are currently covered by MCS's directors' and
officers' liability insurance policy on terms comparable to those applicable to
the then current directors and officers of NetIQ; provided, however, that in no
-------- -------
event will NetIQ or the Surviving Corporation be required to expend in excess of
$500,000 in an annual premium for such coverage (or such coverage as is
available for such annual premium).
(c) This Section 5.13 will survive any termination of this Agreement
and the consummation of the Merger at the Effective Time and will be binding on
all successors and assigns of the Surviving Corporation.
5.15 Tax-Free Reorganization. NetIQ and MCS will each use its commercially
-----------------------
reasonable efforts to cause the Merger to be treated as a reorganization within
the meaning of Section 368 of the Code. NetIQ and MCS will each make available
to the other party and their respective legal counsel copies of all returns
requested by the other party.
5.16 Nasdaq Listing. NetIQ agrees to authorize for listing on Nasdaq the
--------------
shares of NetIQ Common Stock issuable, and those required to be reserved for
issuance, in connection with the Merger, upon official notice of issuance.
5.17 Action by Boards of Directors. Prior to the Effective Time, the board
-----------------------------
of directors of each of NetIQ and MCS shall comply as applicable with the
provisions of the SEC's no-action letter
-49-
dated January 12, 1999 addressed to Skadden, Arps, Slate, ▇▇▇▇▇▇▇ and ▇▇▇▇ LLP
relating to Rule 16b of the Exchange Act.
5.18 MCS Affiliate Agreement. Set forth on the MCS Schedules is a list of
-----------------------
those persons who may be deemed to be, in MCS's reasonable judgment, affiliates
of MCS within the meaning of Rule 145 promulgated under the Securities Act (an
"MCS Affiliate"). MCS will provide NetIQ with such information and documents as
NetIQ reasonably requests for purposes of reviewing such list. MCS will use its
best efforts to deliver or cause to be delivered to NetIQ as promptly as
practicable on or following the date hereof from each MCS Affiliate an executed
affiliate agreement in substantially the form attached hereto as Exhibit E (the
---------
"MCS Affiliate Agreement"), each of which will be in full force and effect as of
the Effective Time. NetIQ will be entitled to place appropriate legends on the
certificates evidencing any NetIQ Common Stock to be received by a MCS Affiliate
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the NetIQ Common Stock, consistent with
the terms of the MCS Affiliate Agreement.
5.19 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably
--------------------------------------
practicable, MCS and NetIQ each shall file with the United States Federal Trade
Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") Notification and Report Forms relating to the
transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any applicable jurisdiction, as agreed to by the
parties. MCS and NetIQ each shall promptly (a) supply the other with any
information which may be required in order to effectuate such filings and (b)
supply any additional information which reasonably may be required by the FTC,
the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate.
5.20 Rights Under the LOI. MCS shall proceed to conclude definitive
--------------------
agreements embodying the terms of the LOI, provided that NetIQ shall approve
(which approval shall not be unreasonably withheld) the form of such definitive
agreements. In addition, MCS will not enter into any material amendments or
waivers of the LOI or such definitive agreements without NetIQ's prior written
consent. If NetIQ and MCS determine, for tax planning or other reasons, that an
assignment to NetIQ of MCS's rights under the LOI or the definitive agreements
is appropriate, the parties shall effect such an assignment. If, after such an
assignment, NetIQ does not execute a Merger Agreement (as defined in the LOI) by
March 15, 2000 or if this Agreement shall be terminated pursuant to Article VII,
the assignment of MCS'' rights under the LOI shall be terminated and such rights
shall revert to MCS.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
--------------------
adopted, and the Merger shall have been duly approved, by the requisite vote
under applicable law by the stockholders of MCS, and the issuance of shares of
NetIQ Common Stock by virtue of the Merger shall have been duly approved by the
requisite vote under the rules of the National Association of Securities
Dealers, Inc. by the stockholders of NetIQ.
(b) Registration Statement Effective; Proxy Statement. The SEC shall
-------------------------------------------------
have declared the Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose, and no similar proceeding in respect
of the Proxy Statement shall have been initiated or threatened in writing by the
SEC.
(c) No Order; HSR Act. No Governmental Entity shall have enacted,
-----------------
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger. All
waiting periods, if any, under the HSR Act relating to the transactions
contemplated hereby will have expired or terminated early.
(d) Tax Opinions. NetIQ and MCS shall each have received
------------
substantially identical written opinions from their counsel, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation, and ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇,
respectively, in form and substance reasonably satisfactory to them, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and such opinions shall not have been withdrawn. The
parties to this Agreement agree to make reasonable representations as requested
by such counsel for the purpose of rendering such opinions.
(e) Nasdaq Listing. The shares of NetIQ Common Stock issuable to
--------------
stockholders of MCS pursuant to this Agreement and such other shares required to
be reserved for issuance in connection with the Merger shall have been
authorized for listing on Nasdaq upon official notice of issuance.
6.2 Additional Conditions to Obligations of MCS. The obligation of MCS to
-------------------------------------------
consummate and effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by MCS:
-51-
(a) Representations and Warranties. The representations and warranties
------------------------------
of NetIQ and Merger Sub contained in this Agreement shall have been true and
correct in all material respects as of the date of this Agreement, except where
the failure to be so true and correct would not, in the aggregate, have a
Material Adverse Effect on NetIQ. In addition, the representations and
warranties of NetIQ and Merger Sub contained in this Agreement shall be true and
correct in all material respects on and as of the Effective Time except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such particular date), with the same force and
effect as if made on and as of the Effective Time, except in such cases (other
than the representations in Sections 3.2 and 3.3) where the failure to be so
true and correct would not, in the aggregate, have a Material Adverse Effect on
NetIQ. MCS shall have received a certificate with respect to the foregoing
signed on behalf of NetIQ by the Chief Executive Officer and the Chief Financial
Officer of NetIQ; and
(b) Agreements and Covenants. NetIQ and Merger Sub shall have
------------------------
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and MCS shall have received a certificate to such effect
signed on behalf of NetIQ by the Chief Executive Officer and the Chief Financial
Officer of NetIQ.
6.3 Additional Conditions to the Obligations of NetIQ and Merger Sub. The
----------------------------------------------------------------
obligations of NetIQ and Merger Sub to consummate and effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, exclusively by
NetIQ:
(a) Representations and Warranties. The representations and
------------------------------
warranties of MCS in this Agreement shall have been true and correct in all
material respects as of the date of this Agreement, except where the failure to
be so true and correct would not, in the aggregate, have a Material Adverse
Effect on MCS. In addition, the representations and warranties of MCS contained
in this Agreement shall be true and correct in all material respects on and as
of the Effective Time except for changes contemplated by this Agreement and
except for those representations and warranties which address matters only as of
a particular date (which shall remain true and correct as of such particular
date), with the same force and effect as if made on and as of the Effective
Time, except in such cases (other than the representations in Sections 2.2 and
2.3)where the failure to be so true and correct would not, in the aggregate,
have a Material Adverse Effect on MCS. NetIQ shall have received a certificate
with respect to the foregoing signed on behalf of MCS by the President and the
Chief Financial Officer of MCS; and
(b) Agreements and Covenants. MCS shall have performed or complied in
------------------------
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time, and the NetIQ shall have received a certificate to such effect signed on
behalf of MCS by the President and the Chief Financial Officer of MCS.
-52-
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
-----------
Effective Time of the Merger, whether before or after approval of the Merger by
the stockholders of MCS or the approval of the issuance of NetIQ Common Stock in
connection with the Merger by the stockholders of NetIQ:
(a) by mutual written consent duly authorized by the Boards of
Directors of NetIQ and MCS;
(b) by either MCS or NetIQ if the Merger shall not have been
consummated by July 31, 2000; provided, however, that the right to terminate
-------- -------
this Agreement under this Section 7.1(b) shall not be available to any party
whose action or failure to act has been a principal cause of or resulted in the
failure of the Merger to occur on or before such date and such action or failure
to act constitutes a breach of this Agreement;
(c) by either MCS or NetIQ if a governmental entity shall have issued
an order, decree or ruling or taken any other action, in any case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, which order, decree or ruling is final and nonappealable;
(d) by either MCS or NetIQ if the required approvals of the
stockholders of MCS or the stockholders of NetIQ contemplated by this Agreement
shall not have been obtained by reason of the failure to obtain the required
vote upon a vote taken at a meeting of stockholders duly convened therefor or at
any adjournment thereof; provided, however, that the right to terminate this
-------- -------
Agreement under this Section 7.1(d) shall not be available to any party where
the failure to obtain stockholder approval of such party shall have been caused
by the action or failure to act of such party in breach of this Agreement;
(e) by MCS, upon a breach of any representation, warranty, covenant or
agreement on the part of NetIQ set forth in this Agreement, or if any
representation or warranty of NetIQ shall have become untrue, in either case
such that the conditions set forth in Section 6.2(a) or Section 6.2(b) would not
be satisfied as of the time of such breach or as of the time such representation
or warranty shall have become untrue, provided, that if such inaccuracy in
NetIQ's representations and warranties or breach by NetIQ is curable by NetIQ
through the exercise of its commercially reasonable efforts, then MCS may not
terminate this Agreement under this Section 7.1(e) for thirty (30) days after
delivery of written notice from MCS to NetIQ of such breach, provided NetIQ
continues to exercise commercially reasonable efforts to cure such breach (it
being understood that MCS may not terminate this Agreement pursuant to this
paragraph (e) if such breach by NetIQ is cured during such thirty (30)-day
period);
-53-
(f) by NetIQ, upon a breach of any representation, warranty, covenant
or agreement on the part of MCS set forth in this Agreement, or if any
representation or warranty of MCS shall have become untrue, in either case such
that the conditions set forth in Section 6.3(a) or Section 6.3(b) would not be
satisfied as of the time of such breach or as of the time such representation or
warranty shall have become untrue, provided, that if such inaccuracy in MCS's
--------
representations and warranties or breach by MCS is curable by MCS through the
exercise of its commercially reasonable efforts, then NetIQ may not terminate
this Agreement under this Section 7.1(f) for thirty (30) days after delivery of
written notice from NetIQ to MCS of such breach, provided MCS continues to
exercise commercially reasonable efforts to cure such breach (it being
understood that NetIQ may not terminate this Agreement pursuant to this
paragraph (f) if such breach by MCS is cured during such thirty (30)-day
period);
(g) by MCS if a MCS Triggering Event (as defined below) shall have
occurred; or
(h) by NetIQ if a NetIQ Triggering Event (as defined below) shall have
occurred.
For the purposes of this Agreement, a "MCS Triggering Event" shall be
deemed to have occurred if: (i) the Board of Directors of NetIQ or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to MCS its unanimous recommendation in favor of,
the adoption and approval of the Agreement or the approval of the Merger; (ii)
NetIQ shall have failed to include in the Proxy Statement the unanimous
recommendation of the Board of Directors of NetIQ in favor of the adoption and
approval of the Agreement and the approval of the Merger; (iii) Board of
Directors of NetIQ fails to reaffirm its unanimous recommendation in favor of
the adoption and approval of the Agreement and the approval of the Merger within
ten (10) business days after MCS requests in writing that such recommendation be
reaffirmed at any time following the announcement of an Acquisition Proposal;
(iv) the Board of Directors of NetIQ or any committee thereof shall have
approved or recommended any NetIQ Acquisition Proposal; (v) NetIQ shall have
entered into any letter of intent or similar document or any agreement, contract
or commitment accepting any NetIQ Acquisition Proposal; (vi) a tender or
exchange offer relating to securities of NetIQ shall have been commenced by a
person unaffiliated with MCS and NetIQ shall not have sent to its
securityholders pursuant to Rule 14e-2 promulgated under the Securities Act,
within ten (10) business days after such tender or exchange offer is first
published sent or given, a statement disclosing that NetIQ recommends rejection
of such tender or exchange offer; or (vii) NetIQ shall have breached the
provisions of Section 5.4(b) of this Agreement.
For the purposes of this Agreement, a "NetIQ Triggering Event" shall be
deemed to have occurred if: (i) the Board of Directors of MCS or any committee
thereof shall for any reason have withdrawn or shall have amended or modified in
a manner adverse to NetIQ its unanimous recommendation in favor of, the adoption
and approval of the Agreement or the approval of the Merger; (ii) MCS shall have
failed to include in the Proxy Statement the unanimous recommendation of the
Board of Directors of MCS in favor of the adoption and approval of the Agreement
and the approval of the Merger; (iii) Board of Directors of MCS fails to
reaffirm its
-54-
unanimous recommendation in favor of the adoption and approval of the Agreement
and the approval of the Merger within ten (10) business days after NetIQ
requests in writing that such recommendation be reaffirmed at any time following
the announcement of an Acquisition Proposal; (iv) the Board of Directors of MCS
or any committee thereof shall have approved or recommended any MCS Acquisition
Proposal; (v) MCS shall have entered into any letter of intent or similar
document or any agreement, contract or commitment accepting any MCS Acquisition
Proposal; (vi) a tender or exchange offer relating to securities of MCS shall
have been commenced by a person unaffiliated with NetIQ and MCS shall not have
sent to its securityholders pursuant to Rule 14e-2 promulgated under the
Securities Act, within ten (10) business days after such tender or exchange
offer is first published sent or given, a statement disclosing that MCS
recommends rejection of such tender or exchange offer; or (vii) MCS shall have
breached the provisions of Section 5.4(a) of this Agreement.
7.2 Notice of Termination; Effect of Termination. Any termination of this
--------------------------------------------
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 and Article 8 (General Provisions), each of
which shall survive the termination of this Agreement, and (ii) nothing herein
shall relieve any party from liability for any breach of this Agreement.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and
-------
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, whether
or not the Merger is consummated; provided, however, that NetIQ and MCS shall
-------- -------
share equally all fees and expenses, other than attorneys' and accountants' fees
and expenses, incurred (i) in relation to the printing and filing of the Proxy
Statement (including any preliminary materials related thereto) and the
Registration Statement (including financial statements and exhibits) and any
amendments or supplements thereto or (ii) for the pre-merger notification and
report forms under the HSR Act.
(b) MCS Payments.
------------
(i) MCS shall pay to NetIQ in immediately available funds, within
two (2) business days after demand by NetIQ, an amount equal to $53,000,000 (the
"MCS Termination Fee") if this Agreement is terminated by NetIQ pursuant to
Section 7.1(h).
(ii) MCS shall pay NetIQ in immediately available funds, within
two (2) business days after demand by NetIQ, an amount equal to the MCS
Termination Fee, if this Agreement is terminated by NetIQ or MCS, as applicable,
pursuant to Section 7.1(b) or Section 7.1(d) as a result of MCS's failure to
obtain the required approvals of the stockholders of MCS and any of the
following shall occur:
-55-
(1) if following the date hereof and prior to the
termination of this Agreement, a third party has publicly announced a MCS
Acquisition Proposal and within twelve (12) months following the termination of
this Agreement a MCS Acquisition (as defined below) is consummated; or
(2) if following the date hereof and prior to the
termination of this Agreement, a third party has announced a MCS Acquisition
Proposal and within twelve (12) months following the termination of this
Agreement MCS enters into an agreement or letter of intent providing for a MCS
Acquisition.
(iii) MCS acknowledges that the agreements contained in this
Section 7.3(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, NetIQ would not enter into this
Agreement; accordingly, if MCS fails to pay in a timely manner the amounts due
pursuant to this Section 7.3(b) and, in order to obtain such payment, NetIQ
makes a claim that results in a judgment against MCS for the amounts set forth
in this Section 7.3(b), MCS shall pay to NetIQ its reasonable costs and expenses
(including reasonable attorneys' fees and expenses) in connection with such
suit, together with interest on the amounts set forth in this Section 7.3(b) at
the prime rate of The Chase Manhattan Bank in effect on the date such payment
was required to be made. Payment of the fees described in this Section 7.3(b)
shall not be in lieu of damages incurred in the event of breach of this
Agreement. For the purposes of this Agreement, "MCS Acquisition" shall mean any
of the following transactions (other than the transactions contemplated by this
Agreement): (i) a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving MCS pursuant to which
the stockholders of MCS immediately preceding such transaction hold less than
50% of the aggregate equity interests in the surviving or resulting entity of
such transaction, (ii) a sale or other disposition by MCS of assets representing
in excess of 50% of the aggregate fair market value of MCS's business
immediately prior to such sale or (iii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by MCS),
directly or indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of 50% of the voting power of the
then outstanding shares of capital stock of MCS.
(c) NetIQ Payments.
--------------
(i) NetIQ shall pay to MCS in immediately available funds, within
two (2) business days after demand by MCS, an amount equal to $53,000,000 (the
"NetIQ Termination Fee") if this Agreement is terminated by MCS pursuant to
Section 7.1(g).
(ii) NetIQ shall pay MCS in immediately available funds, within
two (2) business days after demand by MCS, an amount equal to the NetIQ
Termination Fee, if this Agreement is terminated by MCS or NetIQ, as applicable,
pursuant to Section 7.1(b) or Section 7.1(d) as a result of NetIQ's failure to
obtain the required approvals of the stockholders of NetIQ and any of the
following shall occur:
-56-
(1) if following the date hereof and prior to the
termination of this Agreement, a third party has publicly announced a NetIQ
Acquisition Proposal and within twelve (12) months following the termination of
this Agreement a NetIQ Acquisition (as defined below) is consummated; or
(2) if following the date hereof and prior to the
termination of this Agreement, a third party has announced a NetIQ Acquisition
Proposal and within twelve (12) months following the termination of this
Agreement NetIQ enters into an agreement or letter of intent providing for a
NetIQ Acquisition.
(iii) NetIQ acknowledges that the agreements contained in this
Section 7.3(c) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, MCS would not enter into this
Agreement; accordingly, if NetIQ fails to pay in a timely manner the amounts due
pursuant to this Section 7.3(c) and, in order to obtain such payment, MCS makes
a claim that results in a judgment against NetIQ for the amounts set forth in
this Section 7.3(c), NetIQ shall pay to MCS its reasonable costs and expenses
(including reasonable attorneys' fees and expenses) in connection with such
suit, together with interest on the amounts set forth in this Section 7.3(c) at
the prime rate of The Chase Manhattan Bank in effect on the date such payment
was required to be made. Payment of the fees described in this Section 7.3(c)
shall not be in lieu of damages incurred in the event of breach of this
Agreement. For the purposes of this Agreement, "NetIQ Acquisition" shall mean
any of the following transactions (other than the transactions contemplated by
this Agreement): (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
NetIQ pursuant to which the stockholders of NetIQ immediately preceding such
transaction hold less than 50% of the aggregate equity interests in the
surviving or resulting entity of such transaction, (ii) a sale or other
disposition by NetIQ of assets representing in excess of 50% of the aggregate
fair market value of NetIQ's business immediately prior to such sale or (iii)
the acquisition by any person or group (including by way of a tender offer or an
exchange offer or issuance by NetIQ), directly or indirectly, of beneficial
ownership or a right to acquire beneficial ownership of shares representing in
excess of 50% of the voting power of the then outstanding shares of capital
stock of NetIQ.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
---------
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
-----------------
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations and
----------------------------------------------
warranties of MCS, NetIQ and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via facsimile (receipt confirmed) to the parties at
the following addresses or facsimile numbers (or at such other address or
facsimile numbers for a party as shall be specified by like notice):
(a) if to NetIQ or Merger Sub, to:
NetIQ Corp.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
and to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
-58-
(b) if to MCS, to:
Mission Critical Software Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
8.3 Interpretation; Knowledge.
-------------------------
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
The words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without" "limitation." The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. When reference is made herein to "the business of" an entity, such
reference shall be deemed to include the business of all direct and indirect
subsidiaries of such entity. Reference to the subsidiaries of an entity shall be
deemed to include all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "knowledge" means, with
respect to any matter in question, that the executive officers of MCS or NetIQ,
as the case may be, have actual knowledge of such matter.
(c) For purposes of this Agreement, the term "Material Adverse Effect"
when used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or effect that is materially adverse to the business,
assets (including intangible assets), capitalization, financial condition or
results of operations of such entity and its subsidiaries taken as a whole;
provided, however, that in no event shall (A) a decrease in such entity's stock
-------- -------
price or the failure to meet or exceed Wall Street research analysts' or such
entity's internal earnings or other estimates or projections in and of itself
constitute a Material Adverse Effect or (B) any change, event, violation,
inaccuracy, circumstance or effect that results from (x) the public announcement
or pendency of the transactions contemplated hereby, (y) changes affecting the
software industry generally or (z) changes affecting the United States economy
generally, constitute a Material Adverse Effect.
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8.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement. This Agreement and the documents and instruments and
----------------
other agreements among the parties hereto as contemplated by or referred to
herein, including the MCS Schedules and the NetIQ Schedules (a) constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, it being understood that
the Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as set forth herein.
8.6 Severability. In the event that any provision of this Agreement or the
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application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
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herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
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accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
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represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
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8.10 Assignment. No party may assign either this Agreement or any of its
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rights, interests, or obligations hereunder without the prior written approval
of the of the parties. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 WAIVER OF JURY TRIAL. EACH OF NEPTUNE, MERCURY AND MERGER SUB HEREBY
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IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF NEPTUNE, MERCURY OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
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IN WITNESS WHEREOF, NetIQ, Merger Sub and MCS have caused this Agreement to
be executed by their duly authorized respective officers, as of the date first
written above.
NETIQ CORP.
By: ______________________________
Name:_________________________
Title: ______________________
MISSION CRITICAL SOFTWARE INC.
By: ______________________________
Name:_________________________
Title:________________________
PLANET ACQUISITION CORP.
By: ______________________________
Name:_________________________
Title:________________________