EXHIBIT 10.18
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
724 SOLUTIONS INC.,
SERPENT MERGER SUB, INC.,
▇▇▇▇▇▇▇.▇▇▇, INC.
AND
THE STOCKHOLDERS OF ▇▇▇▇▇▇▇.▇▇▇, INC.
LISTED ON SCHEDULE I HERETO
DATED AS OF SEPTEMBER 12, 2000
TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
Section 1.01 Certain Defined Terms. 1
ARTICLE II
THE MERGER
Section 2.01 The Merger. 4
Section 2.02 Closing..................................................... 4
Section 2.03 Effective Time.............................................. 4
Section 2.04 Effect of the Merger........................................ 4
Section 2.05 Certificate of Incorporation; Bylaws; Directors and Officers
of Surviving Corporation.................................. 4
Section 2.06 Consideration for Parent Common Stock....................... 5
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 3.01 Conversion of Shares. 5
Section 3.02 Exchange of Shares Other than Treasury Shares............... 6
Section 3.03 Stock Transfer Books........................................ 7
Section 3.04 No Fractional Share Certificates............................ 8
Section 3.05 Certain Adjustments......................................... 8
Section 3.06 Lost, Stolen or Destroyed Certificates...................... 8
Section 3.07 Exemption from Registration................................. 8
Section 3.08 Taking of Necessary Action; Further Action.................. 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
Section 4.01 Organization and Qualification; No Subsidiaries. 9
Section 4.02 Certificate of Incorporation and Bylaws..................... 9
Section 4.03 Capitalization.............................................. 9
Section 4.04 Authority Relative to This Agreement........................ 9
Section 4.05 No Conflicts; Required Filings and Consents................. 9
Section 4.06 Permits; Compliance with Laws............................... 10
Section 4.07 Financial Statements........................................ 10
Section 4.08 Absence of Certain Changes or Events........................ 11
Section 4.09 Employee Benefit Plans; Labor Matters....................... 11
Section 4.10 Certain Tax Matters......................................... 14
Section 4.11 Contracts................................................... 14
Section 4.12 Litigation.................................................. 15
Section 4.13 Environmental Matters....................................... 15
Section 4.14 Intellectual Property....................................... 15
Section 4.15 Taxes....................................................... 17
Section 4.16 Insurance................................................... 19
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Section 4.17 Properties.................................................. 19
Section 4.18 Affiliates.................................................. 19
Section 4.19 Brokers..................................................... 20
Section 4.20 Certain Business Practices.................................. 20
Section 4.21 Section 203 of the DGCL Not Applicable...................... 20
Section 4.22 Business Activity Restriction............................... 20
Section 4.23 Accounts Receivable......................................... 20
Section 4.24 Customers and Suppliers..................................... 20
Section 4.25 Employee Matters............................................ 20
Section 4.26 Compliance with Securities Act; Stockholders................ 21
Section 4.27 Representations Complete.................................... 21
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Section 5.01 Organization and Qualification; Subsidiaries. 21
Section 5.02 Capitalization.............................................. 21
Section 5.03 Authority Relative to this Agreement........................ 22
Section 5.04 No Conflict; Required Filings and Consents.................. 22
Section 5.05 SEC Filings; Financial Statements........................... 22
Section 5.06 Absence of Certain Changes or Events........................ 23
Section 5.07 Certain Tax Matters......................................... 23
Section 5.08 Brokers..................................................... 23
Section 5.09 Representations Complete.................................... 23
ARTICLE VI
COVENANTS
Section 6.01 Conduct of Business by the Company Pending the Closing. 23
Section 6.02 Notices of Certain Events................................... 25
Section 6.03 Access to Information; Confidentiality...................... 25
Section 6.04 No Solicitation of Transactions............................. 26
Section 6.05 Tax-Free Transaction........................................ 26
Section 6.06 Further Action; Consents; Filings........................... 26
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.01 Public Announcements. 26
Section 7.02 Employee Benefit Matters.................................... 27
Section 7.03 Stockholder Investment Representations...................... 27
Section 7.04 Stock Options............................................... 28
Section 7.05 Legends..................................................... 28
Section 7.06 Other Employment Agreements................................. 28
Section 7.07 Director Indemnification.................................... 29
Section 7.08 Information Statement....................................... 29
Section 7.09 Termination of Agreements................................... 29
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ARTICLE VIII
CONDITIONS TO THE MERGER
Section 8.01 Conditions to the Obligations of Each Party to Consummate the Merger. 29
Section 8.02 Conditions to the Obligations of the Company.................... 30
Section 8.03 Conditions to the Obligations of Parent......................... 30
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.01 Termination. 31
Section 9.02 Effect of Termination........................................... 32
Section 9.03 Amendment....................................................... 32
Section 9.04 Waiver.......................................................... 32
Section 9.05 Expenses........................................................ 32
ARTICLE X
INDEMNIFICATION
Section 10.01 Indemnification. 33
Section 10.02 Damage Limitations.............................................. 33
Section 10.03 Procedures...................................................... 34
Section 10.04 Escrow Fund; Non-Exclusive Remedy............................... 34
Section 10.05 Payment of Claims............................................... 35
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 Duration of Survival of Representations and Warranties. 35
Section 11.02 Notices......................................................... 35
Section 11.03 Severability.................................................... 36
Section 11.04 Assignment; Binding Effect; Benefit............................. 36
Section 11.05 Incorporation of Exhibits....................................... 37
Section 11.06 Governing Law................................................... 37
Section 11.07 Waiver of Jury Trial............................................ 37
Section 11.08 Headings; Interpretation........................................ 37
Section 11.09 Counterparts.................................................... 37
Section 11.10 Entire Agreement................................................ 37
ANNEXES AND SCHEDULES
ANNEX A -- Form of Lock-up Agreement
ANNEX B -- Form of Escrow Agreement
ANNEX C -- Form of Employment Agreement
SCHEDULE -- Stockholders
SCHEDULE -- Exchange of Shares
SCHEDULE -- Employees
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of September 12,
2000 (as amended, supplemented or otherwise modified from time to time, this
"AGREEMENT"), among 724 SOLUTIONS INC., a corporation amalgamated under the laws
of Ontario ("PARENT"), SERPENT MERGER SUB, INC., a Delaware corporation and a
direct wholly owned subsidiary of Parent ("MERGER SUB"), ▇▇▇▇▇▇▇.▇▇▇, INC., a
Delaware corporation (the "COMPANY"), and each of the persons listed on
SCHEDULE I hereto (each, a "STOCKHOLDER" and collectively, the "STOCKHOLDERS"):
W I T N E S S E T H:
WHEREAS, the boards of directors of Parent, Merger Sub and the Company have
determined that it is advisable and in the best interests of their respective
companies and stockholders to enter into a business combination by means of the
merger of Merger Sub with and into the Company (the "MERGER") and have approved
and adopted this Agreement;
WHEREAS, by virtue of their execution of a stockholder consent, the
stockholders of the Company have approved the Merger and this Merger Agreement
in accordance with the General Corporation Law of the State of Delaware (the
"DGCL");
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the DGCL, Parent will acquire all of the common stock of the
Company through the Merger; and
WHEREAS, for United States Federal income tax purposes, it is intended that
the Merger shall qualify as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended (together with the rules and
regulations promulgated thereunder, the "CODE"), and that this Agreement shall
be, and hereby is, adopted as a plan of reorganization for purposes of Section
368 of the Code;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements set forth herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 CERTAIN DEFINED TERMS Unless the context otherwise requires,
the following terms, when used in this Agreement, shall have the respective
meanings specified below (such meanings to be equally applicable to the singular
and plural forms of the terms defined):
"AFFILIATE" shall mean, with respect to any person, any other person that
controls, is controlled by or is under common control with the first person.
"BLUE SKY LAWS" shall mean state securities or "blue sky" laws.
"BUSINESS DAY" shall mean any day on which the principal offices of the SEC
in Washington, D.C. are open to accept filings, or, in the case of determining a
date when any payment is due, any day on which banks are not required or
authorized by law or executive order to close in New York.
"COMPANY DISCLOSURE SCHEDULE" shall mean the disclosure schedule delivered
by the Company to Parent prior to the execution of this Agreement and forming a
part hereof.
"COMPANY INTELLECTUAL PROPERTY" shall mean all patents (including, without
limitation, all U.S. and foreign patents, patent applications, patent
disclosures, and any and all divisions, continuations, continuations-in-part,
reissues, re-examinations and extensions thereof), design rights, trademarks,
trade names and service marks (whether or not registered), trade dress, Internet
domain names, copyrights (whether or not registered) and any renewal rights
therefor, SUI GENERIS database rights, statistical models, technology,
inventions, supplier lists, trade secrets, know-how, computer software programs
or applications in both source and object code form, databases, technical
documentation of such software programs ("TECHNICAL DOCUMENTATION"),
registrations and applications for any of the foregoing and all
other tangible or intangible proprietary information or materials that were
material to the Company's business or are currently used in the Company's
business in any product, technology or process (i) currently being or formerly
manufactured, published or marketed by the Company or (ii) previously or
currently under development for possible future manufacturing, publication,
marketing or other use by the Company.
"COMPANY MATERIAL ADVERSE EFFECT" shall mean any change in or effect on the
business of the Company that, individually or in the aggregate (taking into
account all other such changes or effects), is, or is reasonably likely to be,
materially adverse to the business, assets, liabilities, financial condition,
results of operations or prospects of the Company.
"COMPANY STOCK PLAN" shall mean the Company's 2000 Long-Term Incentive Plan.
"COMPETING TRANSACTION" shall mean any of the following involving the
Company (other than the Merger):
(i) any merger, consolidation, share exchange, business combination or other
similar transaction;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 20% or more of the assets of the Company and its
subsidiaries, taken as a whole, in a single transaction or series of
transactions;
(iii) any tender offer or exchange offer for 20% or more of the outstanding
voting securities of the Company or the filing of a registration
statement under the Securities Act in connection therewith;
(iv) any person having acquired beneficial ownership or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under
Section 13(d) of the Exchange Act) having been formed that beneficially
owns or has the right to acquire beneficial ownership of, 20% or more
of the outstanding voting securities of the Company;
(v) any solicitation in opposition to the approval of this Agreement by the
stockholders of the Company; or
(vi) any public announcement of a proposal, plan or intention to do any of
the foregoing or any agreement to engage in any of the foregoing.
"CONFIDENTIALITY AGREEMENT" shall mean the mutual non-disclosure agreement,
dated June 16, 2000, between Parent and the Company.
"$" shall mean United States dollars.
"ENVIRONMENTAL LAW" shall mean any Law and any enforceable judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to pollution or protection of the
environment or natural resources, including, without limitation, those relating
to the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Material, as in effect as of the date hereof.
"ENVIRONMENTAL PERMIT" shall mean any permit, approval, identification
number, license or other authorization required under or issued pursuant to any
applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"EXPENSES" shall mean, with respect to any party hereto, all out-of-pocket
expenses (including, without limitation, all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a party hereto and
its Affiliates) incurred by such party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of its
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obligations pursuant to this Agreement and the consummation of the Merger, the
filings of HSR Act notice and all other matters related to the transactions
contemplated hereby and the closing of the Merger.
"GOVERNMENTAL ENTITY" shall mean any United States Federal, state or local
or any foreign governmental, regulatory or administrative authority, agency or
commission or any court, tribunal or arbitral body.
"GOVERNMENTAL ORDER" shall mean any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Entity.
"HAZARDOUS MATERIAL" shall mean (i) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (ii) any chemical, material or
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
"HSR ACT" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended, together with the rules and regulations promulgated
thereunder.
"IRS" shall mean the United States Internal Revenue Service.
"LAW" shall mean any Federal, state, foreign or local statute, law,
ordinance, regulation, rule, code, order, judgment, decree, other requirement or
rule of law of the United States or any other jurisdiction, and any other
similar act or law.
"OBCA" shall mean the Business Corporations Act (Ontario), as amended from
time to time.
"PARENT COMMON STOCK" shall mean the common shares of Parent.
"PARENT MATERIAL ADVERSE EFFECT" shall mean any change in or effect on the
business of Parent and the Parent Subsidiaries that, individually or in the
aggregate (taking into account all other such changes or effects), is, or is
reasonably likely to be, materially adverse to the business, assets,
liabilities, financial condition or results of operations of Parent and the
Parent Subsidiaries, taken as a whole; PROVIDED, HOWEVER, that any change in the
market price or trading volume of Parent's common stock from the date hereof
shall not be taken into account in determining whether there has been a Parent
Material Adverse Effect.
"PERSON" shall mean an individual, corporation, partnership, limited
partnership, limited liability company, limited liability partnership,
syndicate, person (including, without limitation, a "person" as defined in
Section 13(d)(3) of the Exchange Act), trust, association, entity or government
or political subdivision, agency or instrumentality of a government.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
"SEC" shall mean the Securities and Exchange Commission.
"SUBSIDIARY" shall mean, with respect to any person, any corporation,
partnership, limited partnership, limited liability company, limited liability
partnership, joint venture or other legal entity of which such person (either
alone or through or together with any other subsidiary of such person) owns,
directly or indirectly, a majority of the stock or other equity interests.
"TAX" shall mean (i) any and all taxes, fees, levies, duties, tariffs,
imposts and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any Governmental Entity or taxing authority, including, without
limitation, taxes or other charges on or with respect to income, franchises,
windfall or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value-added or gains taxes; license,
registration and
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documentation fees; and customers' duties, tariffs and similar charges;
(ii) any liability for the payment of any amounts of the type described in (i)
as a result of being a member of an affiliated, combined, consolidated or
unitary group for any taxable period; and (iii) any liability for the payment of
amounts of the type described in (i) or (ii) as a result of being a transferee
of, or a successor in interest to, any Person or as a result of an express or
implied obligation to indemnify any person.
"TAX RETURN" shall mean any return, statement or form (including, without
limitation, any estimated tax reports or return, withholding tax reports or
return and information report or return) required to be filed with respect to
any Taxes.
ARTICLE II
THE MERGER
SECTION 2.01 THE MERGER Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, at the Effective Time
(as defined in Section 2.03), Merger Sub shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving corporation of
the Merger as a wholly owned Subsidiary of Parent (the "SURVIVING CORPORATION").
The name of the Surviving Corporation shall be ▇▇▇▇▇▇▇.▇▇▇, Inc.
SECTION 2.02 CLOSING Unless this Agreement shall have been terminated and
the Merger herein contemplated shall have been abandoned pursuant to Section
9.01 and subject to the satisfaction or waiver of the conditions set forth in
Article VIII, the consummation of the Merger shall take place as promptly as
practicable (and in any event within three Business Days) after satisfaction or
waiver of the conditions set forth in Article VIII, at a closing (the "CLOSING")
to be held at the offices of ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, unless another date, time or place is agreed to by
Parent and the Company.
SECTION 2.03 EFFECTIVE TIME At and after the time of the Closing, the
parties shall cause the Merger to be consummated by filing a certificate of
merger (the "CERTIFICATE OF MERGER") with the Secretary of State of the State of
Delaware in such form as required by, and executed in accordance with the
relevant provisions of, the DGCL (the date and time of such filing, or such
later date and time as may be set forth therein, being the "EFFECTIVE TIME").
SECTION 2.04 EFFECT OF THE MERGER At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise provided herein, all the property, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Company as
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Company as
the Surviving Corporation.
SECTION 2.05 CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION Unless otherwise agreed by Parent and the Company
before the Effective Time, at the Effective Time:
(a) the certificate of incorporation and the bylaws of Merger Sub in effect
immediately prior to the Effective Time shall be the certificate of
incorporation and the bylaws of the Surviving Corporation, until
thereafter amended as provided by Law and such certificate of
incorporation or bylaws;
(b) the officers of Merger Sub immediately prior to the Effective Time shall
serve in their respective offices of the Surviving Corporation from and
after the Effective Time, in each case until their successors are elected
or appointed and qualified or until their resignation or removal; and
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(c) the directors of Merger Sub immediately prior to the Effective Time
shall serve as the directors of the Surviving Corporation from and after
the Effective Time, in each case until their successors are elected or
appointed and qualified or until their resignation or removal.
SECTION 2.06 CONSIDERATION FOR PARENT COMMON STOCK Merger Sub shall, in
consideration for Parent's issuance and delivery of Parent Common Stock in the
Merger and the Cash Consideration, as defined in Section 3.01(b) herein, in
accordance with this Agreement, validly issue 8,000 fully paid and
non-assessable shares of common stock of Merger Sub to Parent; provided that
such shares shall be deemed fully paid for upon Parent's issuance of the Parent
Common Stock in the Merger.
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01 CONVERSION OF SHARES By virtue of the Merger, and without any
action on the part of Parent, Merger Sub, the Company or the holders of any of
the following securities, subject to Sections 3.04 and 3.05:
(a) Each share of common stock, par value $0.01 per share, of the Company
("COMPANY COMMON STOCK") issued and outstanding immediately prior to the
Effective Time (excluding those to be canceled in accordance with
Section 3.01(d)), and all rights in respect thereof, shall forthwith
cease to exist and be converted into and become exchangeable into, in
accordance with SCHEDULE II hereto, consideration consisting of: (x) the
fraction of a share of Parent Common Stock (A) the numerator of which
shall equal such number of shares of Parent Common Stock which, when
multiplied by the Parent Stock Price (as defined below), is equivalent to
$38,000,000, and (B) the denominator of which shall be the number of
Fully Diluted Shares (as defined below); and (y) a cash payment of
$0.1720677 per share (it being understood that such amount is equal to
the quotient of $2,000,000 divided by the number of Fully Diluted
Shares), to be issued and delivered to the Stockholders as set forth
below:
(i) At the Effective Time, Parent shall issue, with respect to each
share of Company Common Stock, consideration (the "INITIAL
CONSIDERATION") consisting of: (i) the fraction of a share of Parent
Common Stock (x) the numerator of which shall equal such number of
shares of Parent Common Stock which, when multiplied by the Parent
Stock Price (as defined below), is equivalent to $5,000,000, and (y)
the denominator of which shall be the number of Fully Diluted Shares
(as defined below); and (ii) a cash payment of $0.1720677 per share.
In addition, Parent shall issue, with respect to each share of
Company Common Stock, consideration (the "FIRST ADDITIONAL
CONSIDERATION") consisting of: the fraction of a share of Parent
Common Stock (x) the numerator of which shall equal such number of
shares of Parent Common Stock which, when multiplied by the Parent
Stock Price, is equivalent to $5,000,000, and (y) the denominator of
which shall be the number of Fully Diluted Shares (as defined
below). The First Additional Consideration, along with the Second
Additional Consideration (as defined below) and the Third Additional
Consideration (as defined below) shall be subject to the Lock-Up
Agreement described in paragraph (b) below.
(ii) At the Effective Time, Parent shall issue, with respect to each
share of Company Common Stock, consideration (the "SECOND
ADDITIONAL CONSIDERATION") consisting of: the fraction of a share
of Parent Common Stock (x) the numerator of which shall equal such
number of shares of Parent Common Stock which, when multiplied by
the Parent Stock Price, is equivalent to $13,000,000, and (y) the
denominator of which shall be the number of Fully Diluted Shares.
(iii) At the Effective Time, Parent shall issue, with respect to each
share of Company Common Stock, consideration (the "THIRD ADDITIONAL
CONSIDERATION") consisting of: the
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fraction of a share of Parent Common Stock (x) the numerator of
which shall equal such number of shares of Parent Common Stock
which, when multiplied by the Parent Stock Price, is equivalent to
$15,000,000, and (y) the denominator of which shall be the number
of Fully Diluted Shares.
(b) The aggregate number of shares of Parent Common Stock to be issued
pursuant to Section 3.01(a) as Initial Consideration, First Additional
Consideration, Second Additional Consideration and Third Additional
Consideration shall be collectively referred to herein as "MERGER
SHARES". The shares of Parent Common Stock issued to the stockholders as
First Additional Consideration, Second Additional Consideration and Third
Additional Consideration shall be subject to restrictions on transfer in
accordance with the terms of the Lock-Up Agreement, substantially in the
form of ANNEX A HERETO (THE "LOCK-UP AGREEMENT"). The shares of Parent
Common Stock issued to the Stockholders as Third Additional Consideration
shall be subject to escrow pursuant to Article X hereof. The aggregate
amount of cash to be paid by Parent pursuant to Section 3.01(a) shall
equal $2,000,000 and shall be referred to herein as the "CASH
CONSIDERATION".
(c) As used herein, (i) "PARENT STOCK PRICE" shall mean the average of the
closing prices for a share of Parent Common Stock as quoted on the Nasdaq
Stock Market for the thirty (30) trading days immediately preceding the
date hereof and (ii) "FULLY DILUTED SHARES" shall mean all of the issued
and outstanding shares of Company Common Stock at the Effective Time,
plus the number of shares of Company Common Stock issuable upon exercise,
exchange or conversion of all vested and unvested options, warrants,
convertible securities or other rights or obligations of the Company
whether or not exercisable that may, at any time, require the Company to
issue shares of its capital stock.
(d) Each share of Company Common Stock held in the treasury of the Company
or owned by any wholly owned subsidiary of the Company immediately prior
to the Effective Time shall be canceled and retired and no shares of
stock or other securities of Parent, the Surviving Corporation or any
other corporation shall be issuable, and no payment of other
consideration shall be made, with respect thereto.
(e) Each issued and outstanding share of capital stock of Merger Sub shall
continue unchanged and remain outstanding as a share of capital stock of
the Surviving Corporation.
SECTION 3.02 EXCHANGE OF SHARES OTHER THAN TREASURY SHARES
(a) EXCHANGE AGENT. Parent shall act as exchange agent for the Merger (the
"EXCHANGE AGENT").
(b) PARENT TO PROVIDE COMMON SHARES AND CASH. As soon as reasonably
practicable after the Effective Time, Parent shall make available for the
benefit of the Stockholders, in accordance with SCHEDULE II hereto, (i)
certificates of Parent Common Stock ("PARENT CERTIFICATES") representing
the number of whole Merger Shares issuable to the Stockholders pursuant
to Section 3.01(a) in exchange for shares of Company Common Stock
outstanding immediately prior to the Effective Time in the amounts set
forth opposite the Stockholders' names on SCHEDULE II hereto and
(ii) the Cash Consideration in the amounts set forth opposite the
Stockholders' names on SCHEDULE II hereto.
(c) EXCHANGE PROCEDURES. After the Effective Time, each holder of record of
a certificate or certificates (the "COMPANY CERTIFICATES") which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted into the right to
receive Merger Shares pursuant to Section 3.01(a) shall surrender each
such Company Certificate for cancellation to the Exchange Agent or to
such other agent or agents as may be appointed by Parent, together with a
letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Company Certificates shall
pass, only upon receipt of the Company Certificates by the Exchange
Agent, and shall be in such
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form and have such other provisions as Parent may reasonably specify),
duly completed and validly executed, and such other documents as may be
reasonably required by Parent. The holder of such Company Certificate
shall be entitled to receive in exchange therefor, and Parent shall cause
to be delivered to such holder (or its nominee), in accordance with
SCHEDULE II hereto, (i) a certificate representing the number of whole
Merger Shares which such holder has the right to receive pursuant to
Section 3.01(a) and (ii) that portion of the Cash Consideration which
such holder has the right to receive pursuant to Section 3.01(a), and the
Company Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Company Certificate that, prior to the
Effective Time, represented shares of Company Common Stock will be deemed
from and after the Effective Time, for all corporate purposes other than
the payment of dividends, to evidence the ownership of the number of full
Merger Shares into which such shares of Company Common Stock shall have
been so converted.
(d) DISTRIBUTION WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other
distributions with respect to Parent Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
Company Certificate with respect to the Merger Shares represented thereby
until the holder of record of such Company Certificate shall surrender
such Company Certificate. Subject to the effect of applicable escheat or
similar laws, following surrender of any such Company Certificate, there
shall be paid to the record holder of the Parent Certificates issued in
exchange therefor, without interest, at the time of such surrender, the
amount of any such dividends or other distributions with a record date
after the Effective Time theretofore payable (but for the provisions of
this Section 3.02(d)) with respect to the Merger Shares theretofore
issued.
(e) TRANSFER OF OWNERSHIP. If any Parent Certificate is to be issued in a
name other than that in which the Company Certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance
thereof that the Company Certificate so surrendered will be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated
by it any transfer or other taxes required by reason of the issuance of a
Parent Certificate for Merger Shares in any name other than that of the
registered holder of the Company Certificate surrendered, or established
to the satisfaction of Parent or any agent designated by it that such tax
has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this Section
3.02, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to any person in respect of any Merger Shares
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
SECTION 3.03 STOCK TRANSFER BOOKS
(a) At the Effective Time, the stock transfer book of the Company shall be
closed, and there shall be no further registration of transfers of shares
of the Company Common Stock thereafter on the records of any such stock
transfer books. In the event of a transfer of ownership of shares of
Company Common Stock that is not registered in the stock transfer records
of the Company at the Effective Time, a certificate or certificates
representing the number of full Merger Shares into which such shares of
Company Common Stock shall have been converted shall be issued to the
transferee if the certificate or certificates representing such shares of
Company Common Stock is or are surrendered as provided in Section
3.02(c) hereof, accompanied by all documents required to evidence and
effect such transfer and by evidence of payment of any applicable stock
transfer tax.
7
SECTION 3.04 NO FRACTIONAL SHARE CERTIFICATES No scrip or fractional share
of Parent Common Stock shall be issued upon the surrender for exchange of
Company Certificates. In lieu thereof, each holder of shares of Company Common
Stock who would otherwise be entitled to a fraction of a share of Parent Common
Stock (after aggregating all fractional shares of Parent Common Stock to be
received by such holder) shall receive from Parent the nearest whole number of
shares of Parent Common Stock.
SECTION 3.05 CERTAIN ADJUSTMENTS If, between the date of this Agreement
and the Effective Time, the outstanding shares of Parent Common Stock or Company
Common Stock shall be changed into a different number of shares by reason of any
reclassification, recapitalization, split-up, combination or exchange of shares,
or any dividend payable in stock or other securities shall be declared thereon
with a record date within such period, or the number of shares of Company Common
Stock on a fully diluted basis is in excess of that specified in Section 4.03
and disclosed in Section 4.03 of the Company Disclosure Schedule (regardless of
whether such excess is a result of an additional issuance of capital stock or a
correction to such Section), then the number of Merger Shares to be issued
pursuant to the provisions of Section 3.01 shall be adjusted accordingly to
provide to Parent and the Stockholders the same economic effect as contemplated
by this Agreement prior to such reclassification, recapitalization, split-up,
combination, exchange, dividend or increase.
SECTION 3.06 LOST, STOLEN OR DESTROYED CERTIFICATES In the event any
Company Certificates shall have been lost, stolen or destroyed, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Company
Certificates, upon the making of an affidavit of that fact by the holder
thereof, such shares of Parent Common Stock as may be required pursuant to
Section 3.01; PROVIDED, HOWEVER, that Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Company Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Company Certificates alleged to have been lost, stolen or destroyed.
SECTION 3.07 EXEMPTION FROM REGISTRATION The Merger Shares will be issued
in a transaction exempt from registration under the Securities Act and may not
be re-offered or resold other than in conformity with the registration
requirements of the Securities Act and such other Laws or pursuant to an
exemption therefrom. The Parent Certificates shall be legended to the effect
described above and shall include such additional legends as necessary to comply
with applicable Law, Blue Sky Laws and other applicable restrictions, including
the requirements of The Toronto Stock Exchange (the "TSE").
SECTION 3.08 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 the Company, the officers and directors of the Company
are fully authorized in the name of their corporation or otherwise to take, and
will use good faith efforts to take, all such lawful and necessary action, so
long as such action is not inconsistent with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, severally and not jointly (except with
respect to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III, who
jointly and severally among themselves), hereby represent and warrant to Parent,
subject to the exceptions specifically disclosed in writing in the Company
Disclosure Schedule, all such exceptions to be referenced to a specific section
set forth in this Article IV, that:
8
SECTION 4.01 ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES
(a) The Company has been duly organized and is validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted. The
Company is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that could not reasonably be
expected to have, individually or in the aggregate, a Company Material
Adverse Effect.
(b) The Company does not own an equity interest in any corporation,
partnership or joint venture arrangement or other business entity.
SECTION 4.02 CERTIFICATE OF INCORPORATION AND BYLAWS True, complete and
correct copies of the Company's certificate of incorporation and bylaws, each as
amended, are included in Section 4.02 of the Company Disclosure Schedule. Such
certificate of incorporation and bylaws are in full force and effect. The
Company is not in violation of any of the provisions of its certificate of
incorporation or bylaws.
SECTION 4.03 CAPITALIZATION The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock. As of the date hereof,
11,623,331 shares of Company Common Stock are issued and outstanding, all of
which are duly authorized, validly issued, fully paid and nonassessable. Except
for the Company Common Stock, there are no shares of capital stock or other
equity securities of the Company outstanding. There are no options, warrants or
other rights, agreements, arrangements or commitments of any character to which
the Company is a party or by which the Company is bound relating to the issued
or unissued capital stock of the Company or obligating the Company to issue or
sell any shares of capital stock of, or other equity interests in, the Company.
There are no outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any shares of Company Common Stock. There are no
material outstanding contractual obligations of the Company to provide funds to,
or make any material investment (in the form of a loan, capital contribution or
otherwise) in, any other person.
SECTION 4.04 AUTHORITY RELATIVE TO THIS AGREEMENT The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (other than the
filing and recordation of the Certificate of Merger as required by the DGCL).
This Agreement has been duly and validly executed and delivered by the Company
and the Stockholders and, assuming the due authorization, execution and delivery
by the other parties hereto, constitutes legal, valid and binding obligations of
the Company and the Stockholders, enforceable against each of them in accordance
with its terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally or by general equitable principles.
SECTION 4.05 NO CONFLICTS; REQUIRED FILINGS AND CONSENTS
(a) The execution and delivery of this Agreement by the Company and the
Stockholders do not, and the performance by the Company and the
Stockholders of their respective obligations hereunder and the
consummation of the Merger will not, (i) conflict with or violate any
provision of the certificate of incorporation or bylaws of the Company,
(ii) conflict with or violate any Law applicable to the Company or by
which any property or asset of the Company is bound or affected or
(iii) result in any breach of or constitute a default (or an event which
9
with the giving of notice or lapse of time or both could reasonably be
expected to become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of the
Company or any Stockholder pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation.
(b) No filing or registration with, or notification to, and no permit,
authorization, consent or approval of, any Government Entity is necessary
for the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated by this
Agreement except, (i) the filing of the Delaware Certificate of Merger
with the Secretary of State of the State of Delaware, (ii) such filings,
registrations, notifications, permits, authorizations, consents or
approvals that result from the specific legal or regulatory status of
Parent or as a result of any other facts that specifically relate to the
business or activities in which Parent is engaged other than the business
of the Company and (iii) such other filings, registrations, notices,
permits, authorizations, consents and approvals that if not obtained,
made or given would not, individually or in the aggregate, have a Company
Material Adverse Effect or impair the Company's ability to consummate the
transactions contemplated hereby.
(c) No consent of any third party is required by reason of the transactions
contemplated by this Agreement.
SECTION 4.06 PERMITS; COMPLIANCE WITH LAWS The Company is in possession of
all franchises, grants, authorizations, licenses, establishment registrations,
product listings, permits, easements, variances, exceptions, consents,
certificates, identification and registration numbers, approvals and orders of
any Governmental Entity necessary for the Company to own, lease and operate its
properties or to offer or perform its services or to develop, produce, store,
distribute and market its products or otherwise to carry on its business as it
is now being conducted (collectively, the "COMPANY PERMITS"), and, as of the
date of this Agreement, none of the Company Permits has been suspended or
cancelled nor is any such suspension or cancellation pending or, to the
knowledge of the Company and each of the Stockholders, threatened. The Company
is not in conflict with, or in default or violation of, (i) any Law applicable
to the Company or by which any property or asset of the Company is bound or
affected or (ii) any Company Permits. Section 4.06 of the Company Disclosure
Schedule sets forth, as of the date of this Agreement, all actions, proceedings,
investigations or surveys pending or, to the knowledge of the Company and each
of the Stockholders, threatened against the Company that could reasonably be
expected to result in the suspension or cancellation of any other Company
Permit. Since January 1, 1998, the Company has not received from any
Governmental Entity any written notification with respect to possible conflicts,
defaults or violations of Laws. The Merger will not result in the suspension or
cancellation of any Company Permit.
SECTION 4.07 FINANCIAL STATEMENTS
(a) Section 4.07 of the Company Disclosure Schedule includes copies of (x)
the unaudited balance sheet of the Company at December 31, 1999, together
with the related statement of operations, stockholders' equity and cash
flows for the period ended December 31, 1999, and the notes thereto (the
"COMPANY 1999 FINANCIAL STATEMENTS"), and (y) the unaudited interim
balance sheet of the Company at August 31, 2000, together with the
related unaudited statements of operations for the nine-month period then
ended (the "COMPANY INTERIM FINANCIAL STATEMENTS" and, together with the
Company 1999 Financial Statements, the "COMPANY FINANCIAL STATEMENTS").
The Company Financial Statements, including the notes thereto: (i) were
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
covered thereby (except for the lack of notes to the financial
statements); (ii) present fairly the financial position, results of
operations and cash flows of the Company as of such dates and for the
10
periods then ended (subject, in the case of the Company Interim Financial
Statements, to normal year-end audit adjustments consistent with prior
periods); and (iii) are correct and complete in all material respects,
and can be reconciled with the books of account and records of the
Company. The Company maintains an adequate system of internal controls
established and administered in accordance with GAAP.
(b) Except as and to the extent set forth or reserved against on the balance
sheets of the Company as reported in the Company Financial Statements,
including the notes thereto, the Company does not have any liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise) that would be required to be reflected on a balance sheet or
in notes thereto prepared in accordance with GAAP, except for immaterial
liabilities or obligations incurred in the ordinary course of business.
SECTION 4.08 ABSENCE OF CERTAIN CHANGES OR EVENTS Since August 31, 2000,
the Company has conducted its business only in the ordinary course consistent
with past practice and, since such date, there has not been (i) any Company
Material Adverse Effect, (ii) any event that could reasonably be expected to
prevent or materially delay the performance of the Company's obligations
pursuant to this Agreement and the consummation of the Merger by the Company,
(iii) any change by the Company in its accounting methods, principles or
practices, (iv) any declaration, setting aside or payment of any dividend or
distribution in respect of the shares of Company Common Stock or any redemption,
purchase or other acquisition of any of the Company's securities, (v) any
increase in the compensation or benefits or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any employees, officers,
consultants or directors of the Company, (vi) any issuance or sale of any stock,
notes, bonds or other securities, or entering into any agreement with respect
thereto, (vii) any amendment to the Company's certificate of incorporation or
bylaws, (viii) other than in the ordinary course of business consistent with
past practice, any (x) purchase, sale, assignment or transfer of any material
assets, (y) mortgage, pledge or existence of any lien, encumbrance or charge on
any material assets or properties, tangible or intangible, except for liens for
Taxes not yet delinquent and such other liens, encumbrances or charges which do
not, individually or in the aggregate, have a Company Material Adverse Effect,
or (z) waiver of any rights of material value or cancellation or any material
debts or claims, (ix) any incurrence of any material liability (absolute or
contingent), except for current liabilities and obligations incurred in the
ordinary course of business consistent with past practice, (x) any incurrence of
any damage, destruction or similar loss, whether or not covered by insurance,
materially affecting the business or properties of the Company, (xi) any
entering into any transaction of a material nature other than in the ordinary
course of business, consistent with past practice, or (xii) any negotiation or
agreement by the Company to do any of the things described in the preceding
clauses (i) through (xi).
SECTION 4.09 EMPLOYEE BENEFIT PLANS; LABOR MATTERS
(a) Section 4.09 of the Company Disclosure Schedule lists each employee
benefit fund, plan, program, arrangement and contract (including, without
limitation, any "pension" plan, fund or program, as defined in
Section 3(2) of ERISA, and any "employee benefit plan", as defined in
Section 3(3) of ERISA and any plan, program, arrangement or contract
providing for severance; medical, dental or vision benefits; life
insurance or death benefits; disability benefits, sick pay or other wage
replacement; vacation, holiday or sabbatical; pension or profit-sharing
benefits; stock options or other equity compensation; bonus or incentive
pay or other material fringe benefits), whether written or not
maintained, sponsored or contributed to or required to be contributed to
by the Company (the "COMPANY BENEFIT PLANS"). With respect to each
Company Benefit Plan, the Company has delivered or made available to
11
Parent a true, complete and correct copy of (i) such Company Benefit Plan
(or, if not written, a written summary of its material terms) and the
most recent summary plan description, if any, related to such Company
Benefit Plan, (ii) each trust agreement or other funding arrangement
relating to such Company Benefit Plan, (iii) the most recent annual
report (Form 5500) filed with the IRS with respect to such Company
Benefit Plan (and, if the most recent annual report is a Form 5500R, the
most recent
Form 5500C filed with respect to such Company Benefit Plan), (iv) the
most recent actuarial report or financial statement relating to such
Company Benefit Plan and (v) the most recent determination letter, if
any, issued by the IRS with respect to such Company Benefit Plan and any
pending request for such a determination letter. Neither the Company, nor
to the knowledge of the Company and each of the Stockholders, any other
person or entity, has any express or implied commitment, whether legally
enforceable or not, to modify, change or terminate any Company Benefit
Plan, other than with respect to a modification, change or termination
required by ERISA or the Code.
(b) Each Company Benefit Plan has been administered in all material respects
in accordance with its terms and all applicable laws, including ERISA and
the Code, and contributions required to be made under the terms of any of
the Company Benefit Plans as of the date of this Agreement have been
timely made or, if not yet due, have been properly reflected on the most
recent consolidated balance sheet prior to the date of this Agreement.
With respect to the Company Benefit Plans, no event has occurred and, to
the knowledge of the Company and each of the Stockholders, there exists
no condition or set of circumstances in connection with which the Company
could be subject to any material liability (other than for routine
benefit liabilities) under the terms of, or with respect to, such Company
Benefit Plans, ERISA, the Code or any other applicable Law.
(c) The Company hereby represents that: (i) each Company Benefit Plan which
is intended to qualify under Section 401(a), Section 401(k),
Section 401(m) or Section 4975(e)(6) of the Code has received a favorable
determination letter from the IRS as to its qualified status, and each
trust established in connection with any Company which is intended to be
exempt from federal income taxation under Section 501(a) of the Code has
received a determination letter from the IRS that it is so exempt, and to
the knowledge of the Company and each of the Stockholders, no fact or
event has occurred that could adversely affect the qualified status of
any such Company Benefit Plan or the exempt status of any such trust;
(ii) to the knowledge of the Company and each of the Stockholders there
has been no prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code and other than a transaction that is
exempt under a statutory or administrative exemption) with respect to any
Company Benefit Plan that could result in liability to the Company and
(iii) each Company Benefit Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms,
without liability (other than (A) liability for ordinary administrative
expenses typically incurred in a termination event or (B) if the Company
Benefit Plan is pension benefit plan subject to Part 2 of Title I of
ERISA, liability for the accrued benefits as of the date of such
termination (if and to the extent required by ERISA) to the extent that
either there are sufficient assets set aside in a trust or insurance
contract to satisfy such liability or such liability is reflected on the
most recent balance sheet included in the Company Financial Statements
prior to the date of this Agreement). No suit, administrative proceeding,
action or other litigation has been brought, or to the knowledge of the
Company and each of the Stockholders, is threatened, against or with
respect to any such Company Benefit Plan, including any audit or inquiry
by the Internal Revenue Service or United States Department of Labor
(other than routine benefits claims).
12
(d) No Company Benefit Plan is a multiemployer pension plan (as defined in
Section 3(37) of ERISA) or other pension plan subject to Title IV of
ERISA and the Company has not sponsored or contributed to or been
required to contribute to a multiemployer pension plan or other pension
plan subject to Title IV of ERISA. No material liability under Title IV
of ERISA has been incurred by the Company that has not been satisfied in
full, and no condition exists that presents a material risk to the
Company of incurring or being subject (whether primarily, jointly or
secondarily) to a material liability thereunder. None of the assets of
the Company is or may reasonably be expected to become, the subject of
any lien arising under ERISA or Section 412(n) of the Code.
(e) With respect to each Benefit Plan required to be set forth in the
Company Disclosure Schedule that is subject to Title IV or Part 3 of
Title I of ERISA or Section 412 of the Code, (i) no reportable event
(within the meaning of Section 4043 of ERISA, other than an event that is
not required to be reported before or within 30 days of such event) has
occurred or is expected to occur, (ii) there was not an accumulated
funding deficiency (within the meaning of Section 302 of ERISA or
Section 412 of the Code), whether or not waived, as of the most recently
ended plan year of such Company Benefit Plan; and (iii) there is no
"unfunded benefit liability" (within the meaning of Section 4001(a)(18)
of ERISA).
(f) The Company has delivered to Parent true, complete and correct copies of
(i) all employment agreements with officers and all consulting agreements
of the Company, (ii) all severance plans, agreements, programs and
policies of the Company with or relating to its employees, directors or
consultants, and (iii) all plans, programs, agreements and other
arrangements of the Company with or relating to their respective
employees, directors or consultants which contain "change of control"
provisions. No payment or benefit which may be required to be made by the
Company or which otherwise may be required to be made under the terms of
any Company Benefit Plan or other arrangement will constitute a parachute
payment under Section 280(G)(1) of the Code, and the consummation of the
transactions contemplated by this Agreement will not, alone or in
conjunction with any other possible event (including termination of
employment), (i) entitle any current or former employee or other service
provider of the Company to severance benefits or any other payment,
compensation or benefit (including forgiveness of indebtedness), except
as expressly provided by this Agreement, or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation or benefit due
any such employee or service provider.
(g) The Company is not a party to, and does not have any obligations under
or with respect to, any collective bargaining or other labor union
contract applicable to persons employed by the Company and no collective
bargaining agreement is being negotiated by the Company or any person or
entity that may obligate the Company thereunder. As of the date of this
Agreement, there is no labor dispute, strike, union organizing activity
or work stoppage against the Company pending or, to the knowledge of the
Company and each of the Stockholders, threatened which may interfere with
the business activities of the Company. As of the date of this Agreement,
to the knowledge of the Company and each of the Stockholders, none of the
Company or any of its representatives or employees has committed any
unfair labor practice in connection with the operation of the businesses
of the Company, and there is no charge or complaint filed against the
Company by or with the National Labor Relations Board or any comparable
Governmental Entity pending or threatened in writing.
(h) Except as required by Law, no Company Benefit Plan provides any of the
following retiree or post-employment benefits to any person: medical,
disability or life insurance benefits. To the knowledge of the Company
and each of the Stockholders, the Company is in compliance with (i) the
requirements of the applicable health care continuation and notice
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA") and the
13
regulations (including proposed regulations) thereunder and (ii) the
applicable requirements of the Health Insurance Portability and
Accountability Act of 1996, as amended, and the regulations (including
the proposed regulations) thereunder.
SECTION 4.10 CERTAIN TAX MATTERS Neither the Company nor, to the knowledge
of the Company and each of the Stockholders, any of its Affiliates has taken or
agreed to take any action (other than actions contemplated by this Agreement)
that could be expected to prevent the Merger from constituting a
"reorganization" under Section 368(a) of the Code. Neither the Company nor any
of the Stockholders is aware of any agreement or plan to which the Company or
any of its Affiliates is a party or other circumstances relating to the Company
or any of its Affiliates that could reasonably be expected to prevent the Merger
from so qualifying as a reorganization under Section 368(a) of the Code.
SECTION 4.11 CONTRACTS Except for the contracts and agreements described
in Section 4.11 of the Company Disclosure Schedule (collectively, the "MATERIAL
CONTRACTS"), the Company is not a party to or bound by any material contract or
agreement, including without limitation:
(a) any sales, advertising or agency contract in excess of $10,000 over the
life of the contract;
(b) any continuing contract for the purchase of materials, supplies,
equipment or services involving in the case of any such contact more than
$10,000 over the life of the contract;
(c) any contract that expires or may be renewed at the option of any person
other than the Company so as to expire more than one year after the date
of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan agreement or other
contract for the borrowing of money, any currency exchange, commodities
or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP;
(e) any contract for capital expenditures in excess of $10,000 in the
aggregate;
(f) any contract limiting the freedom of the Company to engage in any line
of business or to compete with any other corporation, partnership,
limited liability company, trust, individual or other entity, or any
confidentiality, secrecy or non-disclosure contract;
(g) any contract pursuant to which the Company is a lessor of any machinery,
equipment, motor vehicles, office furniture, fixtures or other personal
property, pursuant to which payments in excess of $10,000 remain
outstanding;
(h) any contract with an Affiliate;
(i) any agreement of guarantee, support, indemnification, assumption or
endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or
otherwise) or indebtedness of any other person;
(j) any distribution contract; or
(k) any employment contract, arrangement or policy (including without
limitation any collective bargaining contract or union agreement) which
may not be immediately terminated without penalty (or any augmentation or
acceleration of benefits).
The Company has performed all of the obligations required to be performed by
it and is entitled to all benefits under, and is not alleged to be in default in
respect of any Material Contract. Each of the Material Contracts is valid and
binding and in full force and effect, and there exists no default or event of
default or event, occurrence, condition or act, with respect to the Company, or
to the knowledge of the Company and each of the Stockholders, with respect to
the other contracting party, which, with the giving of notice, the lapse of the
time or the happening of any other event or conditions, would become a default
or event of default under any Material Contract. True, correct and complete
copies of all Material Contracts have been delivered to Parent.
14
SECTION 4.12 LITIGATION There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of the Company and each
of the Stockholders, threatened against the Company or any of its properties or
any of its officers or directors (in their capacities as such). Neither the
Company nor any of the Stockholders are aware of any facts or circumstances
which could reasonably be expected to result in the denial of insurance coverage
under policies issued to the Company in respect of such suits, claims, actions,
proceedings and investigations. There is no judgment, decree or order against
the Company or, to the knowledge of the Company and each of the Stockholders,
any of its directors or officers (in their capacities as such), that could
prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Company Material Adverse Effect. Section 4.12 of the Company Disclosure Schedule
also lists all litigation that the Company has pending against other parties.
SECTION 4.13 ENVIRONMENTAL MATTERS The Company is in compliance with all
applicable Environmental Laws and all Company Permits required by Environmental
Laws. All past noncompliance, if any, of the Company with Environmental Laws or
Environmental Permits has been resolved without any pending, ongoing or future
obligation, cost or liability. The Company has not released a Hazardous Material
at, or transported a Hazardous Material to or from, any real property currently
or formerly owned, leased or occupied by the Company, in violation of any
Environmental Law.
SECTION 4.14 INTELLECTUAL PROPERTY
(a) Section 4.14(a) of the Company Disclosure Schedule contains a true,
accurate and complete list of the Company's and its Subsidiaries' United
States, foreign or international patents, patent applications, invention
registrations, and invention disclosures (collectively, "PATENTS");
trademarks and service marks (whether registered or unregistered),
trademark and service ▇▇▇▇ applications, trade names, Internet domain
names, and Internet domain name registrations and applications therefor
(collectively, "TRADEMARKS"); registered copyrights (collectively,
"COPYRIGHTS"); and any other filings or registrations made, or other
formal actions taken, pursuant to Federal, state, local, foreign or
international laws by the Company or any of its Subsidiaries to protect
their respective interests in the Company Intellectual Property.
Section 4.14(a) of the Company Disclosure Schedule includes details of
any filings or payments which must be made, or other actions which must
be taken, in respect of the Company Intellectual Property within twelve
(12) months of the Effective Time in order to protect the Company
Intellectual Property or preserve existing rights in the same.
(b) Each component of the Company Intellectual Property (including without
limitation the items set forth in Section 4.14(a) of the Company
Disclosure Schedule) is: (i) owned solely and exclusively by the Company
or its Subsidiaries, free and clear of any and all mortgages, pledges,
liens, security interests, conditional sale agreements, encumbrances or
charges of any kind; or (ii) rightfully used or otherwise enjoyed by the
Company or its Subsidiaries pursuant to a valid and enforceable license
agreement (a "LICENSE-IN AGREEMENT"). A true, accurate and complete list
of all License-In Agreements is set forth in Section 4.14(b)(2) of the
Company Disclosure Schedule. Without limiting the foregoing, the Company
and its Subsidiaries have all rights in the Company Intellectual Property
necessary to carry out the activities currently conducted, or currently
proposed or planned to be conducted, by the Company or its Subsidiaries.
(c) Neither the Company nor any of its Subsidiaries is in breach, violation
or default of any License-In Agreement or other license, sublicense,
instrument or agreement relating to the Company Intellectual Property to
which the Company or any of its Subsidiaries is a party or otherwise
bound, nor will execution or delivery of this Agreement, or performance
of the
15
Company's or its Subsidiaries' obligations hereunder, result in such a
default nor cause the diminution, termination or forfeiture of any of the
Company Intellectual Property.
(d) Neither the manufacture, use, sale, reproduction, modification,
adaptation, creation of derivative works, translation, distribution,
transmission, display, performance, or other exercise of rights under,
nor the licensure of, any of the Company Intellectual Property, nor the
conduct of the Company's or its Subsidiaries' businesses in the manner
currently conducted or currently proposed or planned to be conducted,
breaches or otherwise violates any License-In Agreement or other license
or other agreement to which the Company or a Subsidiary is a party, or
conflicts with or infringes on any intellectual property or other right
of any person anywhere in the world. No allegation of such a violation or
infringement has been made prior to the date of this Agreement, and there
is no colorable basis for any such claim. No Person has infringed,
misappropriated, or misused any of the Company Intellectual Property and
neither the Company nor any of its Subsidiaries has asserted any claim of
infringement, misappropriation, or misuse against any Person within the
past three (3) years.
(e) Section 4.14(e) of the Company Disclosure Schedule contains a true,
accurate and complete list of each agreement under which the Company or
its Subsidiaries grants rights or licenses under any of the Company
Intellectual Property (each a "LICENSE-OUT AGREEMENT").
(f) Neither the Company nor any of its Subsidiaries has entered into or is
otherwise bound by any consent, forbearance to ▇▇▇, settlement agreement
or other agreement which limits the Company's or its Subsidiaries' rights
to use, reproduce, display, perform, modify, adapt, distribute, license,
sell or otherwise exploit any of the Company Intellectual Property.
(g) All of the Company's Patents, Trademarks, Copyrights and other
registrations and applications included in the Company Intellectual
Property are (i) standing in the name of the Company or one of its
Subsidiaries, which ownership has been properly recorded where and as
required to secure or ensure full rights to the same, (ii) valid,
subsisting and in good standing without any fees or filings due with
respect thereto, and (iii) not subject to any pending or actual or
threatened interference, opposition, cancellation or other proceeding
before any court or registration authority. No facts or circumstances
exist which could render any of the Company Intellectual Property
invalid, unenforceable, unprotectable or otherwise ineffectual.
(h) The Company and its Subsidiaries have taken all reasonably necessary
steps to maintain and protect the Company Intellectual Property. In
particular, and without limiting the foregoing, all employees, agents,
consultants, contractors and other Persons who have contributed to or
participated in the creation, conception or development of the Company
Intellectual Property (the "COMPANY INTELLECTUAL PROPERTY DEVELOPMENT
PERSONNEL") have executed agreements obligating them to maintain the
Company Intellectual Property in confidence. Each of the Company
Intellectual Property Development Personnel have executed an agreement,
in a form substantially as provided in Section 4.14(h)(2) of the Company
Disclosure Schedule in all material respects, assigning to the Company or
a Subsidiary any rights or claims they may have to any Company
Intellectual Property.
(i) Section 4.14(i) of the Company Disclosure Schedule contains a true and
complete list of all computer programs, software programs and
applications (including both source and object code), modules, models,
tools, algorithms, databases and related materials currently used, or
currently proposed or planned to be used, in conducting the business of
the Company and its Subsidiaries (the "COMPANY SOFTWARE PROGRAMS").
Except as otherwise expressly stated in Section 4.14(i) of the Company
Disclosure Schedule, Section 4.14(i) of the Company Disclosure Schedule
contains a true and complete copy of each of the Licenses-In pertaining
to the Company Software Programs. Except with respect the Company
Software Programs that are licensed to the Company, as set forth
separately in Section 4.14(i) of the Company
16
Disclosure Schedule, the Company or one of its Subsidiaries is the sole
and exclusive owner of the Company Software, free and clear of all
mortgages, pledges, liens, security interests, conditional sales
agreements, encumbrances or charges of any kind. Without limiting the
foregoing, the Company and its Subsidiaries have all rights in the
Company Software Programs necessary to carry out the activities currently
conducted, or currently proposed or planned to be conducted, by the
Company or its Subsidiaries.
(j) All source code and system documentation relating to the Company
Software Programs have been maintained in strict confidence and (i) have
been disclosed by the Company only to those of their respective employees
who have a "need to know" the contents thereof in connection with the
performance of their duties to the Company or a Subsidiary and who have
executed a nondisclosure agreement with the Company or a Subsidiary
substantially in the form provided in Section 4.14(j)(1) of the Company
Disclosure Schedule, and (ii) have been disclosed only to those third
parties who have executed a nondisclosure agreement with the Company or a
Subsidiary substantially in the form provided in Section 4.14(j)(2) of
the Company Disclosure Schedule.
(k) The Company Software Programs are designed to be "Year 2000 Compliant",
meaning that each Company Software Program is designed to:
(i) correctly and unambiguously handle and process date information
before, during and after January 1, 2000. This includes, without
limitation, the ability to correctly and unambiguously accept date
input, provide date output, store and retrieve dates, and perform
calculations of dates or portions of dates;
(ii) correctly process functions that are programmed to commence and/or
end on a particular date, including, without limitation, month-end,
year-end, and leap year dates and any combination thereof,
irrespective of a change in the century identifier;
(iii) function accurately and without interruption before, during and
after January 1, 2000 without any change in operations and/or
parameters associated with the advent of the new century; and
(iv) respond to two-digit date input in a way that resolves the
ambiguity as to the century in a disclosed, defined and
predetermined manner; and to store and provide the output of date
information in a way that is unambiguous as to the century.
(l) Neither the Company nor any of its Subsidiaries owes or will owe any
royalties or fees or other payments to third parties in respect of any
Company Intellectual Property or any use thereof. All royalties, fees or
other payments that have accrued prior to the Effective Time will have
been timely paid by the Company or a Subsidiary prior to the Effective
Time.
(m) The Company Software Programs do not contain any, program, routine,
device, or other undisclosed feature that is designed to delete, disable,
deactivate, interfere with or otherwise harm the Company Software
Programs or any system in which the Company Software Programs may
operate, including without limitation a bomb, virus, software lock,
drop-dead device, malicious logic, worm, trojan horse, robot, clock,
timer, back door or trap door.
SECTION 4.15 TAXES
(a) The Company, and any consolidated, combined, unitary or aggregate group
for Tax purposes of which the Company is or has been a member, have
(i) properly completed and timely filed all Tax Returns required to be
filed by them and all such Tax Returns are true, correct and complete in
all material respects, and (ii) duly paid in full or made adequate
accruals in accordance with GAAP in the Company Financial Statements for
the payment of all Taxes that are due and payable for all periods ending
on or before the date hereof. The Company
17
does not have any material liability for unpaid Taxes accruing after the
date of the Company Financial Statements.
(b) There is (i) no material claim for Taxes that is a lien against the
property or assets of the Company or is being asserted against the
Company other than liens for Taxes not yet due and payable, (ii) no
audit, administrative proceeding or court proceeding with respect to any
Taxes or Tax Returns of the Company is being conducted or is pending and
no Governmental Entity responsible for the imposition of any Tax (a "TAX
AUTHORITY") has asserted against the Company any deficiency or claim for
Taxes; (iii) no extension of the statute of limitations on the assessment
of any Taxes granted by the Company and currently in effect, and (iv) no
agreement, contract or arrangement to which the Company is a party that
may result in the payment of any amount that would not be deductible by
reason of Sections 162(m), 280G or 404 of the Code.
(c) No claim or notice has ever been submitted by a Tax Authority in a
jurisdiction where the Company has not filed Tax Returns that any of them
is or may be subject to taxation by that jurisdiction.
(d) There has been no change in ownership of the Company that has caused the
utilization of any losses of the Company to be limited pursuant to
Section 382 of the Code, and any loss carryovers reflected on the Company
Financial Statements are properly computed and reflected.
(e) The Company has not been nor will be required to include any material
adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision
under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Merger.
(f) The Company has not filed and will not file any consent to have the
provisions of paragraph 341(f)(2) of the Code (or comparable provisions
of any state Tax laws) apply to the Company or any of its Subsidiaries.
(g) The Company is not a party to any Tax sharing or Tax allocation
agreement nor does the Company have any liability or potential liability
to another party under any such agreement, and has not incurred any
liability for Taxes of any Person under Treas. Reg. Section 1.1502.6 (or
any similar provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise.
(h) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third
party.
(i) No power of attorney has been granted by the Company with respect to any
matters relating to Taxes that is currently in effect.
(j) The Company has settled any claim, audit or administrative or court
proceeding with respect to Taxes.
(k) The Company is a cash basis taxpayer.
(l) The Company has not filed any disclosures under Section 6662 of the Code
or comparable provisions of state, local or foreign law to prevent the
imposition of penalties with respect to any Tax reporting position taken
on any Tax Return.
(m) The Company has not ever been a member of a consolidated, combined or
unitary group of which the Company was not the ultimate parent
corporation.
(n) The Company has in its possession receipts for any Taxes paid to foreign
Tax authorities. The Company has not ever been a "personal holding
company" within the meaning of Section 542
18
of the Code or a "United States real property holding corporation" within
the meaning of Section 897 of the Code.
(o) The Company has made an effective election pursuant to Section 1362 of
the Code to be an "s corporation" commencing with the Company's first
taxable year, and such election has remained and will remain valid and
effective (without termination) continually up to but not following the
Effective Time.
SECTION 4.16 INSURANCE The Company is presently insured, and since
inception has been insured, against such risks as companies engaged in a similar
business would, in accordance with good business practice, customarily be
insured. The policies of fire, theft, liability and other insurance maintained
with respect to the assets or businesses of the Company provide adequate
coverage against loss. There is no material claim pending under any of such
policies as to which coverage has been questioned, denied or disputed by the
underwriters of such policies. The Company has heretofore furnished to Parent a
complete and correct list as of the date hereof of all insurance policies
maintained by the Company, and has made available to Parent complete and correct
copies of all such policies, together with all riders and amendments thereto.
All such policies are in full force and effect and all premiums due thereon have
been paid to the date hereof. The Company has complied in all material respects
with the terms of such policies. Neither the Company nor the Stockholders has
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
SECTION 4.17 PROPERTIES The Company has good and marketable title, free
and clear of all material mortgages, liens, pledges, charges or other
encumbrances to all its properties and assets, whether tangible or intangible,
real, personal or mixed, reflected in the Company Financial Statements for the
fiscal year ended December 31, 1999, as being owned by the Company and as of the
date thereof, other than (i) any properties or assets that have been sold or
otherwise disposed of in the ordinary course of business since the date of such
financial statements, (ii) liens disclosed in the notes to such financial
statements and (iii) liens arising in the ordinary course of business after the
date of such financial statements. All properties used in the Company's
operations are reflected in the balance sheets included in the Company Financial
Statements to the extent GAAP require the same to be reflected. All buildings,
and all fixtures, equipment and other property and assets that are material to
its business on a consolidated basis, held under leases or sub-leases by the
Company are held under valid instruments enforceable in accordance with their
respective terms, subject to applicable laws of bankruptcy, insolvency or
similar laws relating to creditors' rights generally and to general principles
of equity (whether applied in a proceeding in law or equity). Substantially all
of the Company's equipment in regular use has been reasonably maintained and is
in serviceable condition, reasonable wear and tear excepted. The Company owns or
has the valid and subsisting right to use all assets and properties necessary or
advisable to operate the Company's business in the manner presently conducted.
SECTION 4.18 AFFILIATES The Company is not indebted to, nor does it owe
any contractual commitment or arrangement to, with or for the benefit of, any
director, officer, employee, Affiliate or agent of the Company (except for
amounts due as normal salaries and bonuses and in reimbursement of ordinary
expenses). No current or former director, officer, employee, Affiliate or agent
of the Company is presently or at the Effective Time shall be, or, in the last
three years has been, the direct or indirect owner of an interest in any
corporation, firm, association, or business organization which is a present (or
potential) competitor, supplier or customer of the Company. Except for normal
salaries and bonuses and reimbursement of ordinary expenses, since December 31,
1999, the Company has not made any payments, loans or advances of any kind, or
paid any dividends or distributions of any kind, to or for the benefit of the
Stockholders, or any of their respective Affiliates, associates or family
members.
19
SECTION 4.19 BROKERS No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
based upon arrangements made by or on behalf of the Company.
SECTION 4.20 CERTAIN BUSINESS PRACTICES Neither the Company nor any
directors, officers, agents or employees of the Company (in their capacities as
such) has (i) used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
unlawful payment.
SECTION 4.21 SECTION 203 OF THE DGCL NOT APPLICABLE The Board of Directors
of the Company has approved the Merger and this Agreement and such approval is
sufficient to render inapplicable to the Merger and this Agreement and the
transactions contemplated by this Agreement and the Stockholder Agreements and
the provisions of Section 203 of the DGCL. No other state takeover statute or
similar statute or regulation applies or purports to apply to the Merger, this
Agreement or the transactions contemplated by this Agreement.
SECTION 4.22 BUSINESS ACTIVITY RESTRICTION There is no non-competition or
other similar agreement, commitment, judgment, injunction, order or decree to
which the Company is a party or subject to that has or could reasonably be
expected to have the effect of prohibiting or impairing the conduct of business
by the Company. The Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any of
its technology or products to, or providing services to, customers or potential
customers or any class of customers, in any geographic area, during any period
of time or in any segment of the market or line of business.
SECTION 4.23 ACCOUNTS RECEIVABLE Subject to any reserves set forth in the
Company Financial Statements, the accounts receivable shown on the Company
Financial Statements represent and will represent bona fide claims against
debtors for sales and other charges, and are not subject to discount except for
normal cash and immaterial trade discounts. The amount carried for doubtful
accounts and allowances disclosed in the Company Financial Statements was
calculated in accordance with GAAP and in a manner consistent with prior periods
and is sufficient to provide for any losses which may be sustained on
realization of the receivables.
SECTION 4.24 CUSTOMERS AND SUPPLIERS No customer which individually
accounted for more than 1% of the Company's gross revenues during the 12-month
period preceding the date hereof has canceled or otherwise terminated, or made
any written threat to the Company to cancel or otherwise terminate or decrease
its relationship with the Company, or has decreased materially its relationship
with the Company or its usage of the services or products of the Company, as the
case may be.
SECTION 4.25 EMPLOYEE MATTERS The Company is in compliance in all material
respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and is
not engaged in any unfair labor practice. The Company has withheld all amounts
required by Law or by agreement to be withheld from the wages, salaries, and
other payments to employees; and is not liable for any arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing. The
Company is not liable for any payment to any trust or other fund or to any
Governmental Entity, with respect to unemployment compensation benefits, social
security or other benefits or obligations for employees (other than routine
payments to be made in the normal course of business and consistent with past
practice). There are no pending claims against the Company under any workers
compensation plan or policy or for long term disability. There are no
controversies pending or, to the knowledge of the Company and each of the
Stockholders, threatened, between the Company and any of its employees, which
controversies have or could reasonably be expected to result in an action, suit,
proceeding, claim, arbitration or investigation before any Governmental Entity.
The
20
Company is not a party to any collective bargaining agreement or other labor
union contract nor does the Company or any Stockholder know of any activities or
proceedings of any labor union to organize any Company employees. To the
knowledge of the Company and each of the Stockholders, no employees of the
Company are in violation of any term of any employment contract, non-disclosure
agreement, noncompetition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by the
Company because of the nature of the business conducted or presently proposed to
be conducted by the Company or to the use of trade secrets or proprietary
information of others. No employees of the Company have given notice to the
Company, nor is the Company or any Stockholder otherwise aware, that any such
employee intends to terminate his or her employment with the Company.
SECTION 4.26 COMPLIANCE WITH SECURITIES ACT; STOCKHOLDERS The Company is
aware that the Merger Shares to be issued pursuant to the Merger will constitute
"restricted securities" within the meaning of the Securities Act. Neither the
Company nor, to the knowledge of the Company, any Stockholder has been presented
with or solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general advertising or
solicitation in connection and concurrently with the Merger. No more than
thirty-five (35) stockholders of the Company are not "accredited investors" as
defined in Rule 501 of the rules and regulations promulgated under the
Securities Act.
SECTION 4.27 REPRESENTATIONS COMPLETE None of the representations or
warranties made by the Stockholders or the Company herein or in any Company
Disclosure Schedule hereto, or certificate furnished by the Stockholders or the
Company pursuant to this Agreement, when all such documents are read together in
their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent hereby represents and warrants to the Company and the Stockholders
that:
SECTION 5.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES Parent and each
directly and indirectly owned subsidiary of Parent (the "PARENT SUBSIDIARIES")
has been duly organized and is validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its incorporation or
organization, as the case may be, and has the requisite corporate power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted. Parent and
each Parent Subsidiary is duly qualified or licensed to do business, and is in
good standing (to the extent applicable), in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that could not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
SECTION 5.02 CAPITALIZATION
(a) The authorized capital stock of Parent consists of an unlimited number
of shares of Parent Common Stock, of which 36,551,258 shares were issued
and outstanding as of March 31, 2000 and an unlimited number of
preference shares, none of which were issued and outstanding as of
March 31, 2000. All of the outstanding shares of Parent Common Stock have
been validly issued and are fully paid and nonassessable and not subject
to preemptive rights.
21
(b) All of the Merger Shares, when issued in accordance with this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights or similar contractual rights granted by
Parent.
SECTION 5.03 AUTHORITY RELATIVE TO THIS AGREEMENT Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation by Parent and Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of Parent or
Merger Sub are necessary to authorize this Agreement or to consummate such
transactions (other than the filing and recordation of the Certificate of Merger
as required by the DGCL). This Agreement has been duly executed and delivered by
each of Parent and Merger Sub and, assuming the due authorization, execution and
delivery by the Company and the Stockholders, constitutes a legal, valid and
binding obligation of each of Parent and Merger Sub enforceable against Parent
and Merger Sub in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles.
SECTION 5.04 NO CONFLICT; REQUIRED FILINGS AND CONSENTS
(a) The execution and delivery of this Agreement by Parent and Merger Sub do
not, and the performance by Parent and Merger Sub of their obligations
hereunder and the consummation of the Merger will not, (i) conflict with
or violate any provision of the articles of incorporation or bylaws of
Parent or any equivalent organizational documents of any Parent
Subsidiary, (ii) conflict with or violate any Law applicable to Parent or
any other Parent Subsidiary or by which any property or asset of Parent
or any Parent Subsidiary is bound or affected or (iii) result in any
breach of or constitute a default (or an event which with the giving of
notice or lapse of time or both could reasonably be expected to become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
other encumbrance on any property or asset of Parent or any Parent
Subsidiary pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation.
(b) Assuming the accuracy of the representations and warranties of the
Company set forth in Article IV, the execution and delivery of this
Agreement by Parent and Merger Sub do not, and the performance by Parent
and Merger Sub of their obligations hereunder and the consummation of the
Merger will not, require any consent, approval, authorization or permit
of, or filing by Parent with or notification by Parent to, any
Governmental Entity, except pursuant to applicable requirements of the
Exchange Act, Blue Sky Laws, the OBCA, applicable Canadian securities
laws, if any, the rules and regulations of the TSE, if any, the
requirements of the Investment Canada Act, if any, and the requirements
of the Competition Act (Canada), if any.
SECTION 5.05 SEC FILINGS; FINANCIAL STATEMENTS
(a) Parent has timely filed all forms, reports, statements and documents
required to be filed by it with the SEC, the Nasdaq National Market and
the TSE since January 27, 2000 (collectively, together with any such
forms, reports, statements and documents Parent may file subsequent to
the date hereof until the Effective Time, the "PARENT REPORTS"). Each
Parent Report (i) was prepared in accordance with the requirements of the
Securities Act, the Exchange Act, the Nasdaq National Market or the TSE,
as the case may be, and (ii) did not at the time it was filed 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 made therein, in the light of the circumstances under which
they were made, not misleading. No Subsidiary of Parent is
22
subject to the periodic reporting requirements of the Exchange Act or
required to file any form, report or other document with the SEC, the
Nasdaq National Market, any stock exchange or any other comparable
Governmental Entity.
(b) Except as is provided in the Parent Reports, each of the consolidated
financial statements (including, in each case, any notes thereto)
contained in the Parent Reports complied as to form in all material
respects with applicable accounting requirements, was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto) and each
presented fairly, in all material respects, the consolidated financial
position of Parent and the consolidated Subsidiaries of Parent as at the
respective dates thereof and the consolidated results of operations and
cash flows of Parent and the consolidated Subsidiaries of Parent for the
respective periods indicated therein, except as otherwise noted therein
(subject, in the case of unaudited statements, to normal and recurring
year-end adjustments).
SECTION 5.06 ABSENCE OF CERTAIN CHANGES OR EVENTS Except as disclosed in
the Parent Reports filed prior to the date of this Agreement, since March 31,
2000, there has not been (a) any condition, event, occurrence or development
that has had or would reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect or which would reasonably be
expected to prevent, hinder or materially delay the ability of Parent or Merger
Sub to consummate the Merger, (b) any material change by Parent in its
accounting methods, principles or practices, or (c) any event pursuant to which
Parent has incurred any material liabilities (direct, contingent or otherwise)
or engaged in any material transaction or entered into any material agreement,
in each case, outside of the ordinary course of business which, individually or
in the aggregate, would be reasonably expected to have a Parent Material Adverse
Effect.
SECTION 5.07 CERTAIN TAX MATTERS Neither Parent nor, to the knowledge of
Parent, any of its Affiliates has taken or agreed to take any action (other than
actions contemplated by this Agreement) that could reasonably be expected to
prevent the Merger from constituting a "reorganization" under Section 368 of the
Code. Parent is not aware of any agreement, plan or other circumstance that
could reasonably be expected to prevent the Merger from so qualifying as a
reorganization under Section 368 of the Code.
SECTION 5.08 BROKERS No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
based upon arrangements made by or on behalf of Parent.
SECTION 5.09 REPRESENTATIONS COMPLETE None of the representations or
warranties made by Parent herein or in any certificate furnished by Parent
pursuant to this Agreement, when all such documents are read together in their
entirety, contains or will contain at the Effective Time any untrue statement of
a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE VI
COVENANTS
SECTION 6.01 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE CLOSING The
Company and the Stockholders agree that, between the date of this Agreement and
the Effective Time, unless Parent shall otherwise agree in writing, (x) the
businesses of the Company shall be conducted only in, and the Company shall not
take any action except in, the ordinary course of business consistent with past
practice and (y) the Company shall use all reasonable efforts to keep available
the services of such of the current officers, significant employees and
consultants of the Company and to preserve the current relationships of the
Company with such of the corporate partners, customers, suppliers and other
23
persons with which the Company has significant business relations in order to
preserve substantially intact its business organization. By way of amplification
and not limitation, the Company shall not, between the date of this Agreement
and the Effective Time, directly or indirectly, do, or agree to do, any of the
following without the prior written consent of Parent:
(a) amend or otherwise change its certificate of incorporation or bylaws or
equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee or encumber, or authorize the issuance, sale, pledge,
disposition, grant, transfer, lease, license or encumbrance of (i) any
shares of capital stock of the Company of any class, or securities
convertible into or exchangeable or exercisable for any shares of such
capital stock, or any options, warrants or other rights of any kind to
acquire any shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest), of the Company or
(ii) any property or assets of the Company except sales of inventory in
the ordinary course of business consistent with past practice;
(c) (i) acquire (including, without limitation, by merger, consolidation, or
acquisition of stock or assets) any interest in any corporation,
partnership, other business organization or person or any division
thereof; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person for
borrowed money or make any loans or advances material to the business,
assets, liabilities, financial condition or results of operations of the
Company; (iii) terminate, cancel or request any material change in, or
agree to any material change in, any Material Contract or License
Agreement; (iv) make or authorize any capital expenditure, other than
capital expenditures in the ordinary course of business consistent with
past practice that are not, in the aggregate, in excess of $25,000 for
the Company; or (v) enter into or amend any contract, agreement,
commitment or arrangement that, if fully performed, would not be
permitted under this Section 6.01(c);
(d) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock;
(e) reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock;
(f) amend the terms of, repurchase, redeem or otherwise acquire, any of its
securities or any securities or propose to do any of the foregoing;
(g) increase the compensation payable or to become payable to its directors,
officers, consultants or employees, grant any rights to severance or
termination pay to, or enter into any employment or severance agreement
which provides benefits upon a change in control of the Company that
would be triggered by the Merger with, any director, officer, consultant
or other employee of the Company who is not currently entitled to such
benefits from the Merger, establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any director, officer,
consultant or employee of the Company, except to the extent required by
applicable Law or the terms of a collective bargaining agreement, or
enter into or amend any contract, agreement, commitment or arrangement
between the Company and any of the Company's directors, officers,
consultants or employees;
(h) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course
of business and consistent with past practice of liabilities reflected or
reserved
24
against on the balance sheet of the Company dated as of August 31, 2000
previously presented to Parent and only to the extent of such reserves;
(i) make any change with respect to the Company's accounting policies,
principles, methods or procedures, including, without limitation, revenue
recognition policies, other than as required by GAAP;
(j) make any material Tax election or settle or compromise any material Tax
liability;
(k) permit any insurance policy naming it as a beneficiary or a loss payee
to be cancelled or terminated, except in the ordinary and usual course of
business;
(l) maintain the books and records of the Company in a manner not consistent
with past business practices;
(m) take any action which would materially adversely affect the goodwill of
its suppliers, customers and others with whom it has business relations;
(n) fail to pay and perform all of its debts, obligations and liabilities as
and when due and all leases, agreements, contracts and other commitments
to which it is a party in accordance with the terms and provisions
thereof;
(o) fail to comply in all material respects with all Laws that may be
applicable to its business; or
(p) authorize or enter into any formal or informal agreement or otherwise
make any commitment to do any of the foregoing or to take any action
which would make any of the representations or warranties of the Company
contained in this Agreement untrue or incorrect or prevent the Company
from performing or cause the Company not to perform its covenants
hereunder or result in any of the conditions to the Merger set forth
herein not being satisfied.
SECTION 6.02 NOTICES OF CERTAIN EVENTS Each of Parent and the Company
shall give prompt notice to the other of (i) any notice or other communication
from any person alleging that the consent of such person is or may be required
in connection with the Merger; (ii) any notice or other communication from any
Governmental Entity in connection with the Merger; (iii) any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge, threatened
against, relating to or involving or otherwise affecting Parent or the Company,
or that relate to the consummation of the Merger; (iv) the occurrence of a
default or event that, with the giving of notice or lapse of time or both, will
become a default under any Material Contract; and (v) any change that could
reasonably be expected to have a Parent Material Adverse Effect or a Company
Material Adverse Effect, or to delay or impede the ability of either Parent or
the Company to perform their respective obligations pursuant to this Agreement
and to effect the consummation of the Merger.
SECTION 6.03 ACCESS TO INFORMATION; CONFIDENTIALITY
(a) Except as required pursuant to any confidentiality agreement or similar
agreement or arrangement to which Parent or the Company or any of the
Parent Subsidiaries is a party or pursuant to applicable Law or the
regulations or requirements of any stock exchange or other regulatory
organization with whose rules a party hereto is required to comply, from
the date of this Agreement to the Effective Time, Parent and the Company
shall (i) provide to the other (and its officers, directors, employees,
accountants, consultants, legal counsel, agents and other representatives
(collectively, "REPRESENTATIVES")) access at reasonable times upon prior
notice to its officers, employees, agents, properties, offices and other
facilities and to the books and records thereof, and (ii) furnish
promptly such information concerning its business, properties, contracts,
assets, liabilities and personnel as the other party or its
Representatives may reasonably request. Except as provided in
Section 10.02(c) hereof, no investigation conducted pursuant to this
Section 6.03 shall affect or be deemed to modify any representation or
warranty made in this Agreement.
25
(b) The parties hereto shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under
the Confidentiality Agreement with respect to the information disclosed
pursuant to this Section 6.03 or pursuant to the Confidentiality
Agreement.
SECTION 6.04 NO SOLICITATION OF TRANSACTIONS The Company and the
Stockholders shall not, directly or indirectly, and shall cause the Company's
Representatives not to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing nonpublic information), any inquiries or the
making of any proposal or offer (including, without limitation, any proposal or
offer to its stockholders) that constitutes, or may reasonably be expected to
lead to, any Competing Transaction, or enter into or maintain or continue
discussions or negotiate with any person in furtherance of such inquiries or to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or permit any of the Company's Representatives to take
any such action. Any violation of the restrictions set forth in this Section
6.04 by any Representative of the Company, whether or not such Person is
purporting to act on behalf of the Company or otherwise, shall be deemed to be a
breach of this Section 6.04 by the Company. The Company shall notify Parent
promptly if any proposal or offer, or any inquiry or contact with any person
with respect thereto, regarding a Competing Transaction is made, such notice to
include the identity of the person making such proposal, offer, inquiry or
contact, and the terms of such Competing Transaction, and shall keep Parent
apprised, on a current basis, of the status of such Competing Transaction. The
Company immediately shall cease and cause to be terminated all existing
discussions or negotiations with any parties conducted heretofore with respect
to a Competing Transaction. The Company shall not release any third party from,
or waive any provision of, any confidentiality or standstill agreement to which
it is a party.
SECTION 6.05 TAX-FREE TRANSACTION From and after the date of this
Agreement, each party hereto shall use all reasonable efforts to cause the
Merger to qualify, and shall not knowingly take any actions or cause any actions
to be taken which could reasonably be expected to prevent the Merger from
qualifying as a "reorganization" under Section 368(a) of the Code.
SECTION 6.06 FURTHER ACTION; CONSENTS; FILINGS
(a) Upon the terms and subject to the conditions hereof, each of the parties
hereto shall use all reasonable efforts to (i) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the Merger, (ii) obtain from Governmental
Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Parent or the
Company in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Merger and (iii) make all
necessary filings, and thereafter make any other required or appropriate
submissions, with respect to this Agreement and the Merger required under
any applicable Laws. The parties hereto shall cooperate and consult with
each other in connection with the making of all such filings.
(b) Each of the Company and Parent will give any notices to third persons,
and use reasonable efforts to obtain any consents from third persons
necessary, proper or advisable (as determined in good faith by Parent
with respect to such notices or consents to be delivered or obtained by
the Company) to consummate the transactions contemplated by this
Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 PUBLIC ANNOUNCEMENTS Until the earlier of termination of this
Agreement or the Effective Time, Parent and Merger Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with
26
respect to the Agreement or the Merger and shall not issue any such press
release or make any such public statement that is not approved by the other
party, except as may be required by Law or the rules of the Nasdaq National
Market or the TSE, in which case the parties will make reasonable efforts to
consult with each other prior to the making of such public statement.
SECTION 7.02 EMPLOYEE BENEFIT MATTERS Unless Parent requests otherwise in
writing, the Company shall take all action necessary to terminate, or cause to
terminate, immediately before the Effective Time, any Company Benefit Plan that
is a 401(k) plan or other defined contribution retirement plan (the
"COMPANY 401(K) PLAN"). At the Closing, the Company shall provide Parent
(a) executed resolutions of the Board of Directors of the Company authorizing
such termination and (b) an executed amendment to the Company 401(k) Plan
sufficient to assure compliance with all applicable requirements of the Code and
regulations thereunder so that the tax-qualified status of the Company 401(k)
Plan will be maintained at the time of termination.
SECTION 7.03 STOCKHOLDER INVESTMENT REPRESENTATIONS
(a) Each Stockholder understands that the shares of the Parent Common Stock
issued in the Merger will not be registered under the Securities Act nor
qualified under the Blue Sky Laws of any state; and that the Parent
Common Stock is being offered and sold to the Stockholders pursuant to an
exemption from such registration and qualification based in part upon the
representations of such Stockholder contained herein.
(b) Each Stockholder represents and warrants to Parent that he or she is
either an "accredited investor," as defined in Rule 501 under the
Securities Act, or, either alone or with his or her purchaser
representative(s), has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and
risks of an investment such as the Parent Common Stock.
(c) Each Stockholder acknowledges and agrees with Parent that he or she has
received and reviewed this Agreement and has received and reviewed all
further information, if any, regarding Parent necessary to make an
informed investment decision to invest in the Parent Common Stock,
including information requested to verify other information received, and
has received, all information that he or she has requested from Parent,
and has been afforded a reasonable opportunity to ask questions about
Parent, the Parent Common Stock and the terms and conditions of this
Agreement, and has received satisfactory answers to all such questions.
(d) Each Stockholder acknowledges to Parent that he or she is fully aware of
the applicable transfer restrictions of the Parent Common Stock to be
issued in the Merger, recognizes that it may be necessary to hold the
Parent Common Stock indefinitely and can bear the economic risk of his or
her investment in the Parent Common Stock (including a complete loss of
the investment).
(e) Each Stockholder acknowledges and agrees with Parent that he or she is
acquiring the Parent Common Stock issued in the Merger for investment for
his or her own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof. Each
Stockholder agrees with Parent that he or she will not, directly or
indirectly, offer, transfer, sell, assign, pledge, hypothecate or
otherwise dispose of (hereinafter, "TRANSFER") any of the Parent Common
Stock issued in the Merger unless (i) (A) the Transfer is pursuant to an
effective registration statement under the Securities Act or (B) counsel
for such Stockholder (which counsel shall be reasonably acceptable to
Parent) shall have furnished Parent with an opinion, satisfactory in form
and substance to Parent, to the effect that no such registration is
required because of the availability of an exemption from registration
under the Securities Act and (ii) such Transfer complies with the
provisions of the Lock-up Agreement.
27
SECTION 7.04 STOCK OPTIONS The Company shall take all reasonable actions
necessary so that, immediately prior to the Effective Time, the options granted
by the Company to purchase Company Common Stock ("COMPANY STOCK OPTIONS"), which
are outstanding and unexercised immediately prior to the Effective Time, shall
be cancelled.
SECTION 7.05 LEGENDS. Each Parent Certificate shall bear the following
legends:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES
UNDER SAID ACT OR (ii) AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
Parent agrees to remove legend (a), above, from any certificate issued
pursuant to (i) or (ii), above.
(b) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE LISTED ON THE
TORONTO STOCK EXCHANGE, HOWEVER, The Said SECURITIES CANNOT BE TRADED
THROUGH THE FACILITIES OF SUCH EXCHANGE SINCE THEY ARE NOT FREELY
TRANSFERABLE, AND CONSEQUENTLY, ANY CERTIFICATE REPRESENTING SUCH
SECURITIES IS NOT "GOOD DELIVERY" IN SETTLEMENT OF SUCH TRANSACTIONS ON
THE TORONTO STOCK EXCHANGE. A NEW CERTIFICATE BEARING NO LEGEND, DELIVERY
OF WHICH WILL CONSTITUTE "GOOD DELIVERY", MAY BE OBTAINED FROM
COMPUTERSHARE INVESTOR SERVICES UPON DELIVERY OF THIS CERTIFICATE AND A
DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO COMPUTERSHARE
INVESTOR SERVICES AND THE COMPANY, TO THE EFFECT THAT THE SALE OF THE
SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH APPLICABLE
SECURITIES LAWS.".
Parent agrees to remove legend (b), above, if Parent becomes obligated to
remove or removes legend (a), above, and legend (c), below.
In addition, each Parent Certificate representing shares issued as First
Additional Consideration, Second Additional Consideration and Third Additional
Consideration shall also bear the following legend:
(c) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER PURSUANT TO A LOCK-UP AGREEMENT RELATING TO SUCH
SECURITIES, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT."
Parent agrees to remove the foregoing legend on those stock certificates
representing Parent Common Stock which are no longer subject to the transfer
restrictions contained in the Lock-up Agreement.
SECTION 7.06 OTHER EMPLOYMENT AGREEMENTS
(a) The Company will use reasonable efforts to assist Parent in causing the
employees listed on SCHEDULE III hereto to enter into employment
agreements substantially in the form attached hereto as ANNEX C.
(b) Parent agrees, and each of the Stockholders agree and acknowledge, that
the employment agreements will provide for bonuses in the aggregate
amount of $5,000,000 to certain Stockholders, which amounts will be paid
to such Stockholders in accordance with their respective Employment
Agreements.
28
SECTION 7.07 DIRECTOR INDEMNIFICATION From and after the Effective Time,
Parent and the Surviving Corporation shall indemnify and hold harmless each
present and former director and officer of the Company, against any costs or
expenses (including reasonable attorneys' fees and disbursements), judgments,
fines, losses, claims, damages or liabilities incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
relating to their service as such an officer or director existing or occurring
at or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that the Company would have been
permitted under Delaware Law and its charter documents (each as in effect on the
date hereof) to indemnify such persons.
SECTION 7.08 INFORMATION STATEMENT On or about August 31 2000, the Company
mailed or delivered an information statement to stockholders of the Company in
connection with the transactions contemplated hereby (the "INFORMATION
STATEMENT"). The Company mailed the Information Statement to all stockholders of
the Company entitled to receive such notice under the DGCL. The Information
Statement constitutes a disclosure document for the offer and issuance of the
shares of Parent Common Stock to be received by the Stockholders in the Merger
and a proxy statement for solicitation of stockholder approval of the Merger.
The Information Statement did not, at the time it was mailed to stockholders of
the Company and at all times subsequent thereto (through and including 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 were
made, not misleading. The Information Statement includes the recommendation of
the Board of Directors of the Company in favor of this Agreement and the Merger
and the conclusion of the Board of Directors that the terms and conditions of
the Merger are fair and reasonable to the Stockholders. Parent agrees that none
of the information supplied by it for inclusion or incorporation by reference in
the Information Statement or any amendment or supplement to the foregoing did,
at the time the Information Statement was first mailed to the stockholders of
the Company and at all times subsequent thereto (through and including the
Effective Time), contain any statement which, at such time and in such light of
the circumstances under which it was made, is false and misleading with respect
to any material fact, or omits to state any material fact necessary in order to
make the statements made in the Information Statement not false or misleading or
omits to state any material fact necessary to correct any statement made by
Parent in such information supplied which has become false or misleading.
SECTION 7.09 TERMINATION OF AGREEMENTS Each Stockholder who is a party to
the Stockholders Agreement dated October 9, 1999, by and among the Company and
the Stockholders named therein agrees that such agreement is hereby terminated
and of no further force or effect.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO CONSUMMATE THE
MERGER The obligations of the parties hereto to consummate the Merger are
subject to the satisfaction or, if permitted by applicable Law, waiver of the
following conditions:
(a) no court of competent jurisdiction shall have issued or entered any
order, writ, injunction or decree, and no other Governmental Entity shall
have issued any order, which is then in effect and has the effect of
making the Merger illegal or otherwise prohibiting its consummation; and
(b) all consents, approvals and authorizations legally required to be
obtained to consummate the Merger shall have been obtained from all
Governmental Entities, except where the failure to obtain any such
consent, approval or authorization could not reasonably be expected to
result in a Parent Material Adverse Effect or a Company Material Adverse
Effect.
29
SECTION 8.02 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY The obligations
of the Company to consummate the Merger, or to permit the consummation of the
Merger are subject to the satisfaction or, if permitted by applicable Law,
waiver of the following further conditions:
(a) each of the representations and warranties of Parent contained in this
Agreement shall be true, complete and correct in all material respects
(other than representations and warranties subject to "materiality" or
"material adverse effect" qualifiers, which shall be true, complete and
correct in all respects) both when made and on and as of the Effective
Time as if made at and as of the Effective Time (other than
representations and warranties which address matters only as of a certain
date which shall be so true, complete and correct as of such certain
date), and, if the Effective Time shall occur on a date other than the
date hereof, the Company shall have received a certificate of an officer
of Parent to such effect;
(b) Parent shall have performed or complied in all material respects with
all covenants required by this Agreement to be performed or complied with
by it on or prior to the Effective Time and, if the Effective Time shall
occur on a date other than the date hereof, the Company shall have
received a certificate of an officer of Parent to such effect;
(c) there shall have been no Parent Material Adverse Effect, and no event
shall have occurred which could reasonably be expected to result in a
Parent Adverse Effect, since June 30, 2000; and
(d) as of the Effective Time, the Company shall have received from Parent
and Merger Sub the following documents:
(i) a certificate of existence/status and good standing from the
province or state of incorporation as to the corporate status of
each of Parent and Merger Sub;
(ii) a true and complete copy of the resolutions, certified by the
Secretary of Parent and Merger Sub, adopted on behalf of each of
Parent and the Merger Sub authorizing the execution, delivery and
performance of this Agreement and all transactions contemplated
hereby; and
(iii) a certificate from each of Parent and Merger Sub's Secretary as to
the incumbency and signatures of any of its officers who will
execute documents at the Closing or who have executed the
Agreement.
SECTION 8.03 CONDITIONS TO THE OBLIGATIONS OF PARENT The obligations of
Parent to consummate the Merger are subject to the satisfaction or waiver of the
following further conditions:
(a) each of the representations and warranties of the Company and the
Stockholders contained in this Agreement shall be true, complete and
correct in all material respects (other than representations and
warranties subject to "materiality" or "material adverse effect"
qualifiers, which shall be true, complete and correct in all respects)
both when made and on and as of the Effective Time as if made at and as
of the Effective Time (other than representations and warranties which
address matters only as of a certain date which shall be so true,
complete and correct as of such certain date), and, if the Effective Time
shall occur on a date other than the date hereof, Parent shall have
received a certificate of the Stockholders and an officer of the Company
to such effect;
(b) the Company and the Stockholders shall have performed or complied in all
material respects with all covenants required by this Agreement to be
performed or complied with by them on or prior to the Effective Time and,
if the Effective Time shall occur on a date other than the date hereof,
Parent shall have received a certificate of the Stockholders and an
officer of the Company to such effect;
30
(c) the Stockholders shall have entered into the Lock-up Agreement;
(d) Parent shall have received a legal opinion from ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇,
counsel to the Company, in form and substance reasonably satisfactory to
Parent;
(e) there shall have been no Company Material Adverse Effect, and no event
shall have occurred which could reasonably be expected to result in a
Company Material Adverse Effect, since June 30, 2000;
(f) all consents of third parties required pursuant to the terms of any
Material Contract as a result of the Merger shall have been obtained;
(g) the employees listed on SCHEDULE III hereto shall have accepted
employment with Parent and shall have entered into employment agreements
substantially in the form of ANNEX C hereto;
(h) the Company shall have terminated the Company Stock Plan; and
(i) as of the Effective Time, the Parent shall have received from the
Company the following documents:
(i) a certificate of existence and good standing from the state of
incorporation as to the corporate status of the Company;
(ii) a true and complete copy of the certificate of incorporation of the
Company and all amendments thereto certified by the state of
incorporation of the Company;
(iii) a true and complete copy of the bylaws of the Company certified by
the Secretary of the Company;
(iv) a true and complete copy, certified by the Secretary of the
Company, of the resolutions adopted on behalf of the Company
authorizing the execution, delivery and performance of this
Agreement and all transactions contemplated hereby;
(v) a certificate from the Secretary of the Company that its certificate
of incorporation has not been amended since the date of the
certificate described in subsection (ii) above and that nothing has
occurred since the date of issuance of the good standing certificate
specified in subsection (i) above that would adversely affect its
corporate good standing;
(vi) a certificate from the Company's Secretary as to the incumbency and
signatures of any of the Company's officers who will execute
documents at the Closing or who have executed this Agreement; and
(vii) any other documents and instruments as Parent may reasonably
require or desire in order to effectuate the transactions
contemplated by this Agreement.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 TERMINATION This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite adoption and approval of this Agreement, as follows:
(a) by mutual written consent duly authorized by the boards of directors of
each of Parent and the Company;
31
(b) by either Parent or the Company, if any Governmental Order, writ,
injunction or decree preventing the consummation of the Merger shall have
been entered by any court of competent jurisdiction and shall have become
final and nonappealable;
(c) by Parent, upon a breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue,
incomplete or incorrect, in either case such that the conditions set
forth in Section 8.03 would not be satisfied (a "TERMINATING COMPANY
BREACH"); PROVIDED, HOWEVER, that if such Terminating Company Breach is
curable by the Company through the exercise of its reasonable efforts
within ten (10) days and for so long as the Company continues to exercise
such reasonable efforts, Parent may not terminate this Agreement under
this Section 9.01(c); or
(d) by the Company, upon breach of any representation, warranty, covenant or
agreement on the part of Parent set forth in this Agreement, or if any
representation or warranty of Parent shall have become untrue, incomplete
or incorrect, in either case such that the conditions set forth in
Section 8.02 would not be satisfied (a "TERMINATING PARENT BREACH");
PROVIDED, HOWEVER, that if such Terminating Parent Breach is curable by
Parent through the exercise of its reasonable efforts within ten
(10) days and for so long as Parent continues to exercise such reasonable
efforts, the Company may not terminate this Agreement under this Section
9.01(d).
The right of any party hereto to terminate this Agreement pursuant to this
Section 9.01 will remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 9.02 EFFECT OF TERMINATION Except as provided in Section 9.05, in
the event of termination of this Agreement pursuant to Section 9.01, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of any party hereto or any of its Affiliates or any of its
or their officers or directors, and all rights and obligations of each party
hereto shall cease; PROVIDED, HOWEVER, that nothing herein shall relieve any
party hereto from liability for the breach of any provisions of this Agreement
prior to its termination; and PROVIDED, FURTHER, that the provisions of Section
6.03 (CONFIDENTIALITY), this Section 9.02, Section 9.05 (EXPENSES) and
Article XI shall remain in full force and effect and survive any termination of
this Agreement.
SECTION 9.03 AMENDMENT This Agreement may be amended by Parent and the
Company by action taken by or on behalf of their respective boards of directors
at any time prior to the Effective Time; PROVIDED, HOWEVER, that, an amendment
made subsequent to the adoption of the agreement by the stockholders of any
constituent corporation shall not (i) alter or change the amount or kind of
shares, securities, cash, property and/or rights to be received in exchange for
or on conversion of the Company Common Stock, (ii) alter or change any term of
the certificate of incorporation of the surviving corporation to be effected by
the merger, or (iii) alter or change any of the terms and conditions of this
Agreement if such alteration or change would adversely affect the Stockholders.
This Agreement may not be amended except by an instrument in writing signed by
Parent and the Company.
SECTION 9.04 WAIVER At any time prior to the Effective Time, any party
hereto may (a) extend the time for or waive compliance with the performance of
any obligation or other act of any other party hereto, (b) waive any inaccuracy
in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance by the other party with any
of the agreements or conditions contained herein. Any such extension or waiver
shall be valid if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
SECTION 9.05 EXPENSES All Expenses incurred in connection with this
Agreement and the Merger shall be paid by the party incurring such Expenses,
whether or not the Merger is consummated;
32
PROVIDED, HOWEVER, that if the transactions are consummated, all Expenses up to
$100,000 incurred on behalf of the Company shall be paid by the Company. Any
Expenses incurred by the Company in excess of such $100,000 (including any fees
and expenses of legal counsel, financial advisors and accountants) shall be the
obligation of the Stockholders.
ARTICLE X
INDEMNIFICATION
SECTION 10.01 INDEMNIFICATION
(a) Subject to the limitations set forth in this Article X, the Stockholders
will, severally and not jointly (except with respect to ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III, who will jointly and
severally among themselves), indemnify and hold harmless Parent, Merger
Sub and the Surviving Corporation and each of their respective officers,
directors, advisors, Affiliates, agents, employees, and each person, if
any, who controls or may control Parent within the meaning of the
Securities Act (hereinafter referred to individually as an "INDEMNIFIED
PERSON" and collectively as "INDEMNIFIED PERSONS") from and against any
and all losses, damages, judgments, settlements, claims, liabilities,
costs and expenses , including, without limitation, Legal Expenses (as
defined below) (collectively, "DAMAGES") arising out of, based upon or
resulting from any misrepresentation or breach of or default in
connection with any representations, warranties, covenants and agreements
given by or made by any of the Stockholders or the Company in this
Agreement, the Company Disclosure Schedule or any Annex to this Agreement
or certificate delivered pursuant to this Agreement. "LEGAL EXPENSES" of
an Indemnified Person shall mean any and all reasonable out-of-pocket
fees, costs and expenses of any kind incurred by such Indemnified Person
and its counsel in investigating, preparing for, defending against or
providing evidence, producing documents or taking other action with
respect to any threatened or asserted claim of a third party or
Governmental Entity.
(b) Nothing in this Agreement shall limit the liability of the Stockholders
for any willful breach of any representation, warranty or covenant.
(c) Subject to the terms and conditions of this Article X, Parent will
indemnify and hold harmless the Stockholders from and against any and all
Damages arising out of, based upon or resulting from any
misrepresentation or breach of or default in connection with any
representations, warranties, covenants and agreements given by or made by
Parent or Merger Sub in this Agreement or any Annex to this Agreement or
certificate delivered pursuant to this Agreement.
SECTION 10.02 DAMAGE LIMITATIONS
(a) Notwithstanding the foregoing, neither an Indemnified Person nor any
Stockholder may make a claim for Damages until the aggregate amount of
claims by Indemnified Persons or the Stockholders, as the case may be,
exceeds $100,000; PROVIDED, HOWEVER, that once the aggregate amount of
Damages exceed such threshold amount, then the Indemnified Persons and
the Stockholders, as the case may be, shall have the right to recover the
full amounts due without regard to the threshold. In determining the
amount of any Damage attributable to a breach, any materiality standard
contained in a representation, warranty or covenant of the Stockholders
or the Company shall be disregarded.
(b) Except with respect to any claim based on fraud, for which there shall
be no limit, in no event shall the aggregate liability of the
Stockholders, on one hand, and Parent and Merger Sub on the other hand,
with respect to all claims of indemnification exceed the aggregate amount
of $30,000,000.
33
(c) Neither Parent nor any Indemnified Party may make a claim against any of
the Stockholders for a breach of any representation or warranty if Parent
had actual knowledge prior to the Effective Time that said representation
or warranty was untrue.
SECTION 10.03 PROCEDURES
(a) Promptly after receipt by any Indemnified Person of notice of the
commencement of any action in respect of which the Indemnified Person
will seek indemnification hereunder, the Indemnified Person shall notify
the Stockholders (the "INDEMNIFYING PARTY") thereof in writing, but any
failure to so notify an Indemnifying Party shall not relieve it from any
liability that it may have to the Indemnified Person except to the extent
the Indemnifying Party shall be materially prejudiced by such failure.
The Indemnifying Party shall be entitled to participate in the defense of
such action and to assume control of such defense with counsel reasonably
acceptable to the Indemnified Person; PROVIDED, HOWEVER, that:
(i) the Indemnified Person shall be entitled to participate in the
defense of such claim and to employ counsel at its own expense to
assist in the handling of such claim;
(ii) the Indemnifying Party shall obtain the prior written approval of
the Indemnified Person before entering into any settlement of such
claim or ceasing to defend against such claim, if, pursuant to or
as a result of such settlement or cessation, injunctive or other
equitable relief would be imposed against the Indemnified Person or
would otherwise restrict the future activity or conduct of the
Indemnified Person; and
(iii) the Indemnifying Party shall not consent to the entry of any
judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff
to each Indemnified Person of a release from all liability in
respect of such claim.
(b) After written notice by the Indemnifying Party to the Indemnified Person
of its election to assume control of the defense of any such action, the
Indemnifying Party shall not, except as otherwise provided, be liable to
such Indemnified Person hereunder for any Legal Expenses subsequently
incurred by such Indemnified Person in connection with the defense
thereof. If the Indemnifying Party does not assume control of the defense
of such claims by promptly notifying the Indemnified Person of such
assumption, the Indemnified Person shall have the right to defend such
claim in such manner as it may reasonably deem appropriate at the cost
and expense of the Indemnifying Party, and the Indemnifying Party will
promptly reimburse the Indemnified Person therefor in accordance with the
terms hereof. The reimbursement of fees, costs and expenses required by
this Section 10.03 shall be made by periodic payments during the course
of the investigation or defense, as and when bills are received or
expenses incurred.
SECTION 10.04 ESCROW FUND; NON-EXCLUSIVE REMEDY
(a) In accordance with Section 3.02 hereof, Parent shall deliver to the
Escrow Agent those Merger Shares which, in the aggregate, constitute the
Third Additional Consideration (the "ESCROW FUND"). The Escrow Fund shall
be held by the Escrow Agent under the Escrow Agreement, substantially in
the form of Annex B hereto (the "ESCROW AGREEMENT") pursuant to the terms
set forth herein. The Escrow Fund shall be available to compensate Parent
and the other Indemnified Persons pursuant to the indemnification
obligations of the Stockholders and any Damages shall be paid first out
of the Escrow Fund to the extent available therefor; provided, however,
that the parties expressly agree that the Escrow Fund is not intended to
limit the remedies or recovery of such parties in connection with any
breach of any representation, warranty, covenant or agreement made by the
Company or the Stockholders under this
34
Agreement, and recovery under the Escrow Fund shall neither be the sole
nor exclusive remedy hereunder.
(b) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III are
hereby appointed as representatives (the "STOCKHOLDERS REPRESENTATIVES")
for and on behalf of the Stockholders to take all actions necessary or
appropriate in the judgment of the Stockholders Representatives for the
accomplishment of the terms of this Agreement and the Escrow Agreement.
The holders of a majority in interest of the shares of Company Common
Stock held in the Escrow Fund may replace any Stockholders Representative
upon not less than 10 days' prior written notice to Parent. The
Stockholders Representatives shall not be liable for any act done or
omitted in such capacity while acting in good faith and in the exercise
of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The
Stockholders shall severally indemnify each Stockholders Representative
and hold him harmless against any loss, liability or expense incurred
without gross negligence or bad faith on the part of such Stockholders
Representative and arising out of or in connection with the acceptance or
administration of his duties hereunder. Any decision, act, consent or
instruction of a majority of the Stockholders Representatives shall
constitute a decision of all and shall be final, binding and conclusive
upon every Stockholder, and the
Escrow Agent and Parent may rely upon any decision, act, consent or
instruction of the Stockholders Representatives. The Escrow Agent and Parent are
hereby relieved from any liability to any person for acts done by them in
accordance with such decision, act, consent or instruction of the Stockholders
Representatives.
SECTION 10.05 PAYMENT OF CLAIMS
(a) For the purpose of compensating Parent for its Damages pursuant to this
Agreement, the value of the Parent Common Stock in the Escrow Fund (or as
provided in paragraph (b) below) shall be determined at the time of such
release based on the average closing sale price on the Nasdaq National
Market of a share of Parent Common Stock as reported in THE WALL STREET
JOURNAL or, if not available, such other authoritative publication as may
be reasonably selected by Parent, for the ten consecutive trading days
ending on and including the last trading date immediately preceding such
date of release.
(b) With respect to any claims for Damages by Parent or any Indemnified
Party in excess of the Escrow Fund, a Stockholder may elect to compensate
Parent or such Indemnified Party for its Damages through the delivery of
shares of Parent Common Stock owned by such Stockholder unless such
shares are held by such Stockholder without any restrictions on transfer.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01 DURATION OF SURVIVAL OF REPRESENTATIONS AND WARRANTIES The
representations and warranties set forth in Articles IV and V will survive until
the second anniversary of the Effective Time. This Section 11.01 shall not limit
any covenant or agreement of the parties hereto that by its terms contemplates
performance after the Effective Time.
SECTION 11.02 NOTICES All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or facsimile, by registered or certified mail (postage prepaid, return receipt
requested) or by a nationally recognized courier service to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 11.02):
35
(a) if to the Company or the Stockholders:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇ and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III
c/o ▇▇▇▇▇▇▇.▇▇▇, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Parent or Merger Sub:
724 Solutions Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attention: Vice President, Legal and
Business Affairs
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇
Royal Trust Tower, TD Centre
Toronto, Ontario M5K 1H1
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 11.03 SEVERABILITY If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Merger is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner to the fullest
extent permitted by applicable Law in order that the Merger may be consummated
as originally contemplated to the fullest extent possible.
SECTION 11.04 ASSIGNMENT; BINDING EFFECT; BENEFIT Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by
36
operation of Law or otherwise) without the prior written consent of the other
parties hereto. 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.
Notwithstanding anything contained in this Agreement to the contrary, other than
Article X, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective
successors and permitted assigns any rights or remedies under or by reason of
this Agreement.
SECTION 11.05 INCORPORATION OF EXHIBITS The Company Disclosure Schedule
and all Annexes and Schedules attached hereto and referred to herein are hereby
incorporated herein and made a part of this Agreement for all purposes as if
fully set forth herein.
SECTION 11.06 GOVERNING LAW This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware
other than conflict of laws principles thereof directing the application of any
law other than that of Delaware.
SECTION 11.07 WAIVER OF JURY TRIAL Each party hereto hereby irrevocably
waives all right to trial by jury in any proceeding (whether based on contract,
tort or otherwise) arising out of or relating to this agreement or any
transaction or agreement contemplated hereby or the actions of any party hereto
in the negotiation, administration, performance or enforcement hereof.
SECTION 11.08 HEADINGS; INTERPRETATION The descriptive headings contained
in this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement. The parties
have participated jointly in the negotiation and drafting of this Agreement. In
the event any ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement.
SECTION 11.09 COUNTERPARTS This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 11.10 ENTIRE AGREEMENT This Agreement (including the Annexes, the
Schedules and the Company Disclosure Schedule) and the Confidentiality Agreement
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
37
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
724 SOLUTIONS INC.,
by /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
SERPENT MERGER SUB, INC.
by /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Financial Officer
▇▇▇▇▇▇▇.▇▇▇, INC.
by /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: Chief Operating Officer
by /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
by /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
by /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
by /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
by /s/ ▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
▇▇▇ ▇▇▇▇▇▇▇
by /s/ ▇▇▇▇▇ ▇▇▇
------------------------------------
▇▇▇▇▇ ▇▇▇
by /s/ BRECKENRIDGE ▇▇▇▇▇
------------------------------------
Breckenridge ▇▇▇▇▇
38
by /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇▇▇ ▇▇▇▇
by /s/ ▇▇▇▇ ▇. ▇▇▇▇
------------------------------------
▇▇▇▇ ▇. ▇▇▇▇
by /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III
by /s/ ▇▇▇ ▇▇▇▇▇▇
------------------------------------
▇▇▇ ▇▇▇▇▇▇
by /s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇▇▇▇▇▇
by /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
by /s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇▇▇▇▇
by /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
by /s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇▇▇▇▇
by /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
by /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
by /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
by /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
by /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
39
STOCKHOLDER LOCK-UP AGREEMENT
SEPTEMBER , 2000
724 Solutions Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇▇
Ladies and Gentlemen:
The undersigned, a stockholder (the "STOCKHOLDER") of ▇▇▇▇▇▇▇.▇▇▇, Inc.
("SPYONIT"), understands that 724 Solutions Inc., a corporation amalgamated
under the laws of Ontario (the "COMPANY"), intends to acquire all of the
outstanding common stock of Spyonit pursuant to the terms and conditions of an
Agreement and Plan of Merger and Reorganization (the "AGREEMENT"), under which
the Stockholder will receive a combination of common shares of the Company
("COMPANY COMMON SHARES") and cash. Capitalized terms used herein but not
defined herein shall have the meanings given them in the Agreement.
In order to induce the Company to enter into the Agreement and to consummate
the transactions contemplated thereby, the Stockholder hereby agrees as follows:
Except as otherwise provided in Article X of the Agreement, the Stockholder,
without the prior written consent of the Company, agrees not to (x) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
Company Common Shares or any securities convertible into or exercisable or
exchangeable for Company Common Shares (including, without limitation, shares of
Company Common Shares or securities convertible into or exercisable or
exchangeable for Company Common Shares that may be deemed to be beneficially
owned by the Stockholder in accordance with the rules and regulations of the
Securities and Exchange Commission) or (y) enter into any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Company Common Shares (regardless of
whether any of the transactions described in clause (x) or (y) is to be settled
by the delivery of Company Common Shares, or such other securities, in cash or
otherwise), during the following periods:
(i) with respect to the First Additional Consideration, the period
commencing on the date hereof and ending on the first anniversary of the
Effective Time;
(ii) with respect to the Second Additional Consideration, the period
commencing on the date hereof and ending on the second anniversary of
the Effective Time; and
(iii) with respect to the Third Additional Consideration, the period
commencing on the date hereof and ending on the third anniversary of
the Effective Time.
The Stockholder hereby authorizes the Company to cause its transfer agent to
decline to transfer and/or to note stop transfer restrictions on the transfer
books and records of the Company with respect to any Company Common Shares and
any securities convertible into or exercisable or exchangeable for Company
Common Shares for which the Stockholder is the record holder and, in the case of
any such shares or securities for which the Stockholder is the beneficial but
not the record holder, agrees to cause the record holder to cause the transfer
agent to decline to transfer and/or to note stop transfer restrictions on such
books and records with respect to such shares or securities.
Notwithstanding the foregoing, the Stockholder may transfer any or all of
the Company Common Shares owned or held by the Stockholder without the prior
written consent of the Company, (i) by bona fide gift, will or intestacy or
(ii) to any member or members of his or her immediate family or to a trust the
beneficiaries of which are exclusively the Stockholder and/or any member or
members of his
A-1
or her immediate family; provided that prior to such transfer or distribution
each transferee or distributee shall have executed and delivered a lock-up
agreement in the form of this lock-up agreement to 724 Solutions Inc., ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇ (Attention: Vice
President, Legal and Business Affairs). For purposes of this lock-up agreement,
"immediate family" shall mean any relationship by blood, marriage or adoption,
not more remote than first cousin, and any Company Common Shares held by the
Stockholder and by any permitted transferee thereof shall be aggregated.
The Stockholder hereby represents and warrants that:
(i) The Stockholder has full legal right, power and authority to enter into,
execute and deliver the Agreement and to consummate the transactions
contemplated thereby. The Agreement has been duly executed and delivered
by the Stockholder and, assuming the due authorization and delivery
thereof by the other parties thereto, constitutes a valid and legally
binding agreement of the Stockholder, enforceable against the
Stockholder in accordance with its terms, except as such enforceability
may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors' rights generally and by general equitable principles. All
authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the Stockholder and any obligations of the
Stockholder shall be binding upon the heirs, personal representatives,
successors, and assigns of the Stockholder.
(ii) Neither the execution and delivery of the Agreement or any of the
documents to be delivered thereunder, nor compliance with the terms and
provisions hereof or thereof, will violate any statute, regulation or
ordinance of any Governmental Entity, or conflict with or result in the
breach of any term, condition or provision of any agreement, deed,
contract, mortgage, indenture, writ, order, decree, legal obligation or
instrument to which the Stockholder is a party or by which the
Stockholder is or may be bound.
(iii) Except as set forth in the Agreement, no consent, approval, order,
authorization of, or registration, qualification, designation,
declaration or filing with, any federal, state or local Governmental
Entity or any non-governmental third party on the part of the
Stockholder is required in connection with the execution, delivery and
performance by the Stockholder of the Agreement or the consummation of
the transactions contemplated thereby.
(iv) The Stockholder is the lawful owner of record and beneficially of the
number of shares of common stock of Spyonit as indicated below his or
her signature to this lock-up agreement (the "SHARES"). Such Shares
constitute all of the shares of the common stock of Spyonit owned by
the Stockholder, either directly or indirectly. No other person or
entity other than such Stockholder has or will have, as of the
effective time of the Merger contemplated by the Agreement, a
beneficial interest in or a right to acquire such Shares or any portion
of such Shares (except, with respect to Stockholders which are
partnerships, partners of such Stockholders). Such Shares are also not
subject to any lien, claim, encumbrance or restriction of any type,
kind or nature in favor of any third party or any third party
interests. The Stockholder is not a party to any option, warrant,
purchase right, voting trust, proxy or other contract, agreement or
commitment with respect to the common stock of Spyonit or the voting
thereof.
(v) The Stockholder further understands that the Company Common Shares to be
received by the Stockholder in connection with the Agreement have not
been registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or under any state securities laws, is being offered
and sold in reliance upon federal and state exemptions for transactions
not involving any public offering, and may not be resold in the absence
of registration unless such sale is exempt from registration under the
Securities Act and any applicable state securities
A-2
laws. The Stockholder has received certain information concerning the
Company and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in
holding the Company Common Shares and is able to bear the economic risk
and lack of liquidity inherent in holding the Company Common Shares. The
issuance of Company Common Shares to the Stockholder pursuant to the
Agreement is made to the Stockholder in reliance upon the Stockholder's
representations to the Company herein. The Company Common Shares to be
received by the Stockholder will be acquired for investment for the
Stockholder's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that the
Stockholder has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
lock-up agreement, the Stockholder further represents that the
Stockholder does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to
such person or to any third person, with respect to the Company Common
Shares to be received by the Stockholder. If other than an individual,
such Stockholder has not been organized for the purpose of acquiring
Company Common Shares.
(vi) The Stockholder either (1) is an "accredited investor" within the
meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect, or (2) alone or with his or her
purchaser representative, as defined in SEC Rule 501 of Regulation D,
has such knowledge or experience in financial or business matters that
he or she is capable of evaluating the merits and risks of such
Stockholder's investment in the Merger Shares.
(vii) The Stockholder will observe and comply with the Securities Act and the
general rules and regulations thereunder, as now in effect and as from
time to time amended and including those hereafter enacted or
promulgated, in connection with any offer, sale, exchange, transfer,
pledge or other disposition of Company Common Shares or any part
thereof.
(viii) The Stockholder agrees that it is solely responsible for understanding
and evaluating the tax risks and consequences of the Merger and other
transactions contemplated by the Agreement, and has either consulted
with its tax advisor or determined not to consult with its tax advisor.
This Agreement shall terminate upon any merger, consolidation or exchange
offer to which the Company is a party which results in the Company Common Shares
being exchanged for or converted into different securities and/or cash or other
property.
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IN WITNESS WHEREOF, the undersigned has executed this Stockholder Lock-Up
Agreement as of the date first above written.
Very truly yours,
-----------------------------------------------
(Name -- please print or type)
By:
------------------------------------------------
(Signature)
------------------------------------------------
(Address)
------------------------------------------------
(Address)
------------------------------------------------
(Social Security Or Taxpayer Identification No.)
------------------------------------------------
(Number of shares of Spyonit stock beneficially
held by stockholder)
A-4
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "AGREEMENT") is entered into as of
September , 2000, by and among 724 Solutions Inc., a corporation amalgamated
under the laws of Ontario ("724"), First Union National Bank (the "ESCROW
AGENT"), ▇▇▇▇▇▇▇.▇▇▇, Inc., a Delaware corporation ("SPYONIT") and the
stockholders of Spyonit (collectively, the "STOCKHOLDERS").
WHEREAS, 724, Serpent Merger Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of 724, Spyonit and the Stockholders have entered into
an Agreement and Plan of Merger and Reorganization dated as of the date hereof
(the "MERGER AGREEMENT");
WHEREAS, the Merger Agreement provides that an escrow account will be
established to secure various obligations of Spyonit and the Stockholders on the
terms and conditions set forth in the Merger Agreement and set forth herein; and
WHEREAS, 724, the Escrow Agent, Spyonit and the Stockholders (each a "PARTY"
and collectively, the "PARTIES") desire to establish the terms and conditions
pursuant to which such escrow account will be established and maintained.
NOW, THEREFORE, the Parties hereto hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used in this Agreement and not otherwise
defined shall have the meanings given them in the Merger Agreement.
2. APPOINTMENTS. First Union National Bank hereby accepts its appointment as
Escrow Agent hereunder. 724 hereby appoints the Vice President, Legal and
Business Affairs and the Vice President, Corporate Finance, to act, either
jointly or individually, on behalf of 724 for all purposes hereunder (each a
"724 REPRESENTATIVE"). Each of the Stockholders has appointed ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III as its representatives
to act on behalf of the Stockholders on all matters relating to this
Agreement (the "STOCKHOLDERS REPRESENTATIVES"). The actions of a 724
Representative or the Stockholders Representatives under or pursuant to this
Agreement shall be binding on 724 and the Stockholders, respectively.
3. CONSENT OF SPYONIT. Pursuant to the Merger Agreement, Spyonit has consented
to the establishment of this escrow to secure certain obligations under
Article X of the Merger Agreement and certain other obligations in the
manner set forth therein.
4. ESCROW AND INDEMNIFICATION.
(a) ESCROW OF COMMON SHARES OF 724. At the Effective Time (or within a
reasonable time thereafter), 724 shall deposit, on behalf of the
Stockholders, with the Escrow Agent one or more certificates representing
an aggregate of 411,162 common shares of 724 (the "ESCROW SHARES") as
specified in SCHEDULE I to the Merger Agreement, issued in the name of
the Stockholders in the respective amounts set forth on SCHEDULE A
hereto, together with executed stock powers regarding the portion of the
Escrow Shares issued in the name of the Stockholders. The Escrow Agent
agrees to accept delivery of the Escrow Shares and to hold the Escrow
Shares in an escrow account (the "ESCROW ACCOUNT"), subject to the terms
and conditions of this Agreement. The Escrow Account, unless it holds
cash, shall not be an interest bearing account. Cash, if any, held in the
Escrow Account shall be invested in a money market account mutually
acceptable to a 724 Representative and the Stockholders Representatives,
as specified in written instructions from such Representatives.
(b) DISTRIBUTIONS AND DIVIDENDS. All cash dividends and other distributions
on Escrow Shares, when and if received by the Escrow Agent, shall be
remitted and paid by the Escrow Agent directly to the Stockholders and
shall not be subject to this Agreement or any indemnification claims of
724 under this Agreement. Notwithstanding the foregoing, additional
shares of
B-1
capital stock issued on or with respect to the Escrow Shares as a result
of stock splits, stock dividends or other similar capital adjustments to,
or recapitalizations on, the Escrow Shares shall be delivered by 724 to
the Escrow Agent and retained in the Escrow Account subject to the terms
hereof and shall constitute Escrow Shares.
(c) VOTING OF SHARES. All voting rights with respect to Escrow Shares may
be exercised by the Stockholders in accordance with their proportionate
interests therein, and the Escrow Agent shall from time to time execute
and deliver to the Stockholders such proxies, consents, or other
documents as may be necessary to enable the Stockholders to exercise such
rights. In the absence of any exercise of such voting rights with respect
to Escrow Shares by the Stockholders, the Escrow Agent shall not vote any
of the Escrow Shares.
(d) TRANSFERABILITY; SALE. The interest of the Stockholders in the Escrow
Shares and any other property comprising the Escrow Account
(collectively, the "ESCROW PROPERTY") shall not be assignable or
transferable inter vivos so long as such Escrow Property is held by the
Escrow Agent hereunder; PROVIDED, HOWEVER, that the Escrow Agent may
sell, transfer, or otherwise dispose of the Escrow Property pursuant to
Section 5 and 6 hereof, and as otherwise provided in this Agreement.
5. RELEASE OF ESCROW PROPERTY.
(a) At any time, and from time to time, prior to the second anniversary
after the Effective Time (the "TERMINATION DATE"), 724 may make claims,
in the manner set forth in Section 6 hereof, for payment against the
Escrow Property if it (or any other Indemnified Person) has paid or
incurred Damages and is entitled to indemnification under Article X of
the Merger Agreement.
(b) If the Escrow Agent has either (i) not received any Claim Notice (as
such term is hereinafter defined) prior to the Termination Date or
(ii) received a Claim Notice prior to the Termination Date but has
distributed Escrow Shares to 724 for the full amount of the corresponding
Claimed Amount prior to the Termination Date, then within three business
(3) days after the Termination Date the Escrow Agent shall deliver all of
the Escrow Shares then held by the Escrow Agent (and any and all
additional shares of capital stock issued on or in respect to the Escrow
Shares and other property then held by the Escrow Agreement) to the
Stockholders whose respective names appear on the stock certificates
representing said shares or who are otherwise entitled to such other
property as a result of their ownership of said shares.
(c) If the Escrow Agent has received a Claim Notice (as such term is
hereinafter defined) prior to the Termination Date and the full amount of
the applicable Claimed Amount has not been distributed to 724 prior to
the Termination Date, then the Escrow Agent shall retain that number of
Escrow Shares which has an aggregate Fair Market Value equal to the
Claimed Amount (the "RETAINED ESCROW SHARES") and within three business
days after the Termination Date shall deliver the balance of the Escrow
Shares then held by the Escrow Agent (and any and all additional shares
of capital stock issued on or in respect to the Escrow Shares and other
property then held by the Escrow Agent) to the Stockholders whose
respective names appear on the stock certificates representing said
shares or who are otherwise entitled to such other property as result of
their ownership of said shares.
(d) The Retained Escrow Shares shall be held by the Escrow Agent until it
receives a written direction to distribute the Retained Escrow Shares
which is signed by both a 724 Representative and the Stockholder
Representatives and shall promptly distribute the remaining Escrow
Account in accordance with said joint written direction.
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6. ADMINISTRATION OF ESCROW ACCOUNT FOR INDEMNIFICATION CLAIMS. With respect
to indemnification claims, the Escrow Agent shall administer the Escrow
Account as follows:
(a) If an Indemnified Person has incurred or suffered Damages for which it
is entitled to indemnification under the Merger Agreement, the
Indemnified Person shall, prior to the Termination Date with respect to a
particular claim, give written notice of such claim (a "CLAIM NOTICE") to
the Stockholders Representatives (with a copy to the Escrow Agent). Each
Claim Notice shall state the amount of Claimed Damages (the "CLAIMED
AMOUNT") and the basis for such claim.
(b) Claims for indemnification involving a claim or legal proceeding by a
third party shall be made in accordance with the procedures set forth in
the Merger Agreement and the provisions of this Section 6. For
indemnification claims not involving any claim or legal proceeding by a
third party, the procedures herein alone shall apply. Within twenty (20)
business days of receipt by the Stockholders Representatives of a Claim
Notice, the Stockholders Representatives receiving the Claim Notice shall
provide to a 724 Representative (with a copy to the Escrow Agent) a
written response (the "RESPONSE NOTICE") in which the Stockholders
Representatives shall: (i) agree that Escrow Property having a Fair
Market Value (as computed pursuant to Section 7 below) equal to the full
Claimed Amount may be released from the Escrow Account to the Indemnified
Person, (ii) agree that Escrow Property having a Fair Market Value equal
to part, but not all, of the Claimed Amount may be released from the
Escrow Account to the Indemnified Person, or (iii) contest that any of
the Escrow Property may be released from the Escrow Account to the
Indemnified Person. If no Response Notice is delivered to, and received
by the Escrow Agent and a 724 Representative prior to twenty (20)
business days of receipt of the Claim Notice, the Stockholders
Representatives shall be deemed to have agreed that Escrow Property
having a Fair Market Value equal to all of the Claimed Amount may be
released to the Indemnified Person from the Escrow Account.
Notwithstanding any terms of this Agreement to the contrary, no Claim
Notice or Response Notice shall be deemed to have been delivered to the
Escrow Agent until it is actually received by the Escrow Agent at the
address set forth in Section 12 hereof.
(c) If the Stockholders Representatives in the Response Notice agree (or are
deemed to have agreed) that Escrow Property having a Fair Market Value
equal to all of the Claimed Amount may be released from the Escrow
Account to the Indemnified Person, the Escrow Agent shall, promptly
thereafter transfer, deliver and assign to the Indemnified Person the
Escrow Property having a Fair Market Value equal to the Claimed Amount
(or such lesser amount of Escrow Property as is then held in the Escrow
Account).
(d) If the Stockholders Representatives in the Response Notice agree (or are
deemed to have agreed) that Escrow Property having a Fair Market Value
equal to part, but not all, of the Claimed Amount (the "PARTIAL AGREED
AMOUNTS") may be released from the Escrow Account to the Indemnified
Person, the Escrow Agent promptly shall transfer, deliver and assign to
the Indemnified Person Escrow Property having a Fair Market Value equal
to the sum of all Partial Agreed Amounts (or such lesser amount of Escrow
Property as is then held in the Escrow Account).
(e) If the Stockholders Representatives in the Response Notice contest the
release of Escrow Property having a Fair Market Value equal to all or
part of the Claimed Amount (the "CONTESTED AMOUNT"), the Stockholders
Representatives and the Indemnified Person shall attempt promptly and in
good faith to agree upon the rights of the parties with respect to the
Contested Amount. If the Stockholders Representatives and the Indemnified
Person should so agree, a memorandum setting forth such agreement shall
be prepared and signed by both parties and delivered to the Escrow Agent
and, if such agreement provides that all or a
B-3
portion of the Contested Amount is to be paid to the Indemnified Person,
the Escrow Agent shall promptly transfer, assign and deliver to the
Indemnified Person from the Escrow Account an amount of Escrow Property
having a Fair Market Value equal to the amount so agreed. If no such
agreement can be reached within 30 days, the matter shall be settled by
binding arbitration in Chicago, Illinois. Notwithstanding the foregoing,
the parties may mutually agree to defer arbitration to a mutually
agreeable later date. All claims shall be settled by a single arbitrator
mutually agreeable to a 724 Representative and the Stockholders
Representatives, or if they cannot agree on a single arbitrator in 45
days, by three arbitrators, in accordance with the Commercial Arbitration
Rules then in effect of the American Arbitration Association (the "AAA
RULES"). Within 15 days after the expiration of said 45-day period, each
of the Parent and the Stockholders Representatives will select one
arbitrator and the two selected arbitrators will be instructed to choose
a third arbitrator within 10 days after the expiration of said 15-day
period. The Stockholders on the one hand, and 724, on the other hand,
shall bear equally the fees and expenses of the arbitrator (or of the
arbitrators, in the event three arbitrators decide the matter). The
arbitrator's decision shall relate solely to whether the Indemnified
Person is entitled to receive the Contested Amount (or a portion thereof)
pursuant to the applicable terms of the Merger Agreement and this
Agreement. The final decision of the arbitrator, or a majority of the
arbitrators in the case of three arbitrators, shall be furnished to the
Stockholders Representatives and a 724 Representative in writing and
shall constitute a conclusive determination of the issue in question,
binding upon the Stockholders and 724, and shall not be contested by any
of them. Such decision may be used in a court of law only for the purpose
of seeking enforcement of the arbitrator's award. Either the Stockholders
Representatives or a 724 Representative may deliver a memorandum to the
Escrow Agent setting forth such arbitrator's decision in accordance with
the second sentence of this paragraph.
7. VALUATION OF ESCROW SHARES. For purposes of this Agreement, the Fair Market
Value of each of the Escrow Shares shall be based on the average closing
sale price on the Nasdaq National Market of a share of 724's Common Stock as
reported in THE WALL STREET JOURNAL or, if not available, such other
authoritative publication as may be reasonably selected by 724, for the ten
consecutive trading days ending on and including the last trading date
immediately preceding the date the applicable Escrow Shares are distributed
by the Escrow Agent to either 724 or the Stockholders.
8. FEES AND EXPENSES OF THE ESCROW AGENT. 724 agrees to pay to the Escrow
Agent the Escrow Agent's reasonable fees and expenses, including attorneys
fees, travel expenses, postal and delivery charges, and all other
out-of-pocket expenses, in accepting and performing its appointment as
escrow agent hereunder (collectively, the "ESCROW AGENT EXPENSES").
9. GENERAL TERMS AND STANDARDS REGARDING THE ESCROW AGENT. Notwithstanding any
terms of this Agreement to the contrary, each term of this Agreement,
including without limitation each of the stated duties and responsibilities
of the Escrow Agent set forth herein, shall be subject to the following
terms and conditions:
(a) The duties, responsibilities and obligations of the Escrow Agent shall
be limited to those expressly set forth in this Agreement (and the duty
to exercise reasonable care in the physical safekeeping of any property
held in escrow hereunder), and no implied duties, responsibilities or
obligations shall be read into this Agreement against the Escrow Agent.
Without limiting the generality of the foregoing, the Escrow Agent shall
have no duty to take action to preserve or exercise rights in any
property held by it hereunder (including, without limitation, against
prior parties or otherwise).
(b) The Escrow Agent shall not be subject to, bound by, charged with notice
of or be required to comply with or interpret any agreement or document
(including without limitation the Merger
B-4
Agreement) between or among the interested parties (whether or not
reference to any such other agreement or documents is expressed herein)
other than this Agreement.
(c) The Escrow Agent shall in no instance be under any duty to give any
property held by it hereunder any greater degree of care than it gives
its own similar property. The Escrow Agent shall not be required to
invest any funds held hereunder, and shall not be obligated to pay
interest on uninvested funds. All amounts received by the Escrow Agent
(and any credits to the Escrow Account) shall be conditional upon
collection (and actual receipt by the Escrow Agent of final payment). In
no event shall the Escrow Agent have any obligation to advance funds.
(d) The Escrow Agent may rely upon, and shall be protected in acting or
refraining from acting upon, any written notice, instruction, statement,
request, waiver, order, judgement, certification, consent, receipt or
other paper or document furnished to it (not only as to genuineness, but
also as to its due execution and validity, the genuineness of signatures
appearing thereon and as to the truth and accuracy of any information
therein contained), which it in good faith believes to be genuine and
signed or presented by the proper person.
(e) Neither the Escrow Agent nor any of its directors, officers or employees
shall be liable to anyone for any error of judgment, or for any act done
or step taken or omitted to be taken by it or any of its directors,
officers or employees, or for any mistake of fact or law, or for anything
which it, or any of its directors, officers or employees, may do or
refrain from doing in connection with or in the administration of this
Agreement, unless and except to the extent the same constitutes gross
negligence, bad faith or willful misconduct on the part of the Escrow
Agent. In no event shall the Escrow Agent be liable for any indirect,
punitive, special or consequential damages, or any amount in excess of
the value of the Escrow Property (as of the date of the action or
omission giving rise to liability).
(f) The Escrow Agent shall not be deemed to have notice of any fact, claim
or demand with respect hereto unless actually known by an officer charged
with responsibility for administering this Agreement or unless in writing
received by the Escrow Agent and making specific reference to this
Agreement.
(g) No provision of this Agreement shall require the Escrow Agent to expend
or risk its own funds, or to take any legal or other action hereunder
which might in its judgement involve it in, or require it to incur in
connection with the performance of its duties hereunder, any expense or
any financial liability unless it shall be furnished with indemnification
acceptable to it.
(h) Any permissive right of the Escrow Agent to take any action hereunder
shall not be construed as duty.
(i) All indemnifications contained in this Agreement shall survive the
resignation or removal of the Escrow Agent, and shall survive the
termination of this Agreement.
(j) The Escrow Agent is not responsible for the recitals appearing in this
Agreement. The recitals shall be deemed to be statements of the
interested parties to this Agreement.
(k) The Escrow Agent has no responsibility for the sufficiency of this
Agreement for any purpose. Without limiting the foregoing, if any
security interest is referred to herein, the Escrow Agent shall have no
responsibility for, and makes no representation or warranty as to, the
creation, attachment or perfection of any such security interest or the
sufficiency of this Agreement therefor.
(l) Nothing in this Agreement shall obligate the Escrow Agent to qualify to
do business or act in any jurisdiction in which it is not presently
qualified to do business, or be deemed to impose
B-5
upon the Escrow Agent the duties of a trustee. The duties of the Escrow
Agent under this Agreement are strictly ministerial in nature.
(m) In no event shall the Escrow Agent have any liability for any failure or
inability of any of the interested Parties to perform or observe his or
its duties under the Agreement, or by reason of a breach of this
Agreement by any of the interested Parties. In no event shall the Escrow
Agent be obligated to take any action against any of the interested
Parties to compel performance hereunder.
(n) The Escrow Agent shall in no instance be obligated to commence,
prosecute or defend any legal proceedings in connection herewith. The
Escrow Agent shall be authorized and entitled, however, in any instance
to commence, prosecute or defend any legal proceedings in connection
herewith, including without limitation any proceeding it may deem
necessary to resolve any matter or dispute, to obtain a necessary
declaration of rights, or to appoint a successor upon resignation (and
after failure by the interested Parties to appoint a successor, as
provided in Section 13).
(o) Whenever the terms hereof call for any notice, payment or other action
on a day which is not a business day, such payment or action may be
taken, or such notice given, as the case may be, on the next succeeding
business day. As used herein, "BUSINESS DAY" shall mean any day other
than a Saturday or Sunday, or any other day on which the Escrow Agent is
closed for business.
(p) In the event of any ambiguity or uncertainty under this Agreement, or in
any notice, instruction, or other communication received by the Escrow
Agent hereunder, the Escrow Agent may, in its reasonable discretion,
refrain from taking action, and may retain the Escrow Property, until and
unless it receives written instruction signed by all interested parties,
or a decision by a court of competent jurisdiction which eliminates such
uncertainty or ambiguity.
(q) If at any time Escrow Agent is served with any judicial or
administrative order, judgement, decree, writ or other form of judicial
administrative process which in any way relates to or affects the Escrow
Property (including but not limited to orders of attachment or
garnishment or other forms of levies or injunctions or stays relating to
the Escrow Property), Escrow Agent is authorized to comply therewith in
any manner as it or its legal counsel reasonably deems appropriate; and
if the Escrow Agent complies with any such judicial or administrative
order, judgement, decree, writ or other form of judicial or
administrative process, Escrow Agent shall not be liable to any of the
Parties hereto or to any other person or entity notwithstanding that
though such order, judgement, decree, writ or process may be subsequently
modified, annulled, set aside, vacated, found to have been without proper
jurisdiction, or otherwise determined to have been without legal force or
effect.
(r) The Escrow Agent shall have no liability for the actions or omissions of
any transfer agent, book-entry depository, nominee, correspondent,
subagent or subcustodian, except to the extent that such action or
omission of any transfer agent, book-entry depository, nominee,
correspondent, subagent or subcustodian was caused by the Escrow Agent's
own gross negligence, bad faith or willful misconduct.
(s) The Parties understand that the Escrow Shares are not subject to an
effective registration statement at the time of this Agreement, and that
the Escrow Agent shall not be responsible for fluctuations in the market
in connection with any transfer of the shares.
INDEMNIFICATION.
10. GENERAL. Each of 724 and the Stockholders agree to indemnify the Escrow
Agent for, and to defend and hold harmless the Escrow Agent from and
against, any and every loss, liability,
B-6
damage, claim, cost and expense of any nature incurred or suffered by the
Escrow Agent and arising out of or in connection with this Agreement or the
administration of this Agreement or the performance or observance by the
Escrow Agent of its responsibilities or services under this Agreement
(including but not limited to reasonable attorneys fees and other costs and
expenses of defending or preparing to defend against any claim or
liability), unless and except to the extent such loss, liability, damage,
cost or expense shall be caused by the Escrow Agent's own willful
misconduct, bad faith or gross negligence.
11. TAX-RELATED MATTERS. Each of 724 and the Stockholders agree to assume any
and all obligations imposed now or hereafter by any applicable tax law with
respect to the payment of Escrow Property under this Agreement, and, without
limiting the generality of Section 10(a) above, hereby agree to indemnify
and hold the Escrow Agent harmless from and against any taxes, additions for
late payment, interest, penalties and other expenses, that may be assessed
against the Escrow Agent on any such payment or other activities under this
Agreement. 724 and each of the Stockholders undertake to instruct the Escrow
Agent in writing with respect to the Escrow Agent's responsibility for
withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting in connection with its acting as
Escrow Agent under this Agreement. Each of 724 and the Stockholders agree to
indemnify and hold the Escrow Agent harmless from any liability on account
of taxes, assessments or other governmental charges, including without
limitation the withholding or deduction or the failure to withhold or deduct
same, and any liability for failure to obtain proper certifications or to
properly report to governmental authorities, to which the Escrow Agent may
be or become subject in connection with or which arises out of this
Agreement, including costs and expenses (including reasonable legal fees),
interest and penalties. The interested Parties shall each promptly provide
to Escrow Agent with appropriate IRS Forms W-9 for taxpayer identification
number certifications, or Forms W-8 for nonresident alien certifications in
connection with any payments to be made to them.
12. TERMINATION. If this Agreement is not terminated pursuant to Section 5
above, this Agreement shall terminate upon the later of the Termination Date
or the distribution by the Escrow Agent of all of the Escrow Account in
accordance with this Agreement, provided that the provisions of Sections 9
and 10 above shall survive such termination.
13. NOTICES. All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom
notice is to be given, on the date of transmittal of service via telecopy to
the party to whom notice is to be given, on the first day after deposit with
a nationally recognized overnight courier, if specified for overnight
delivery, to the Party to whom notice is to be given, or on the third day
after mailing if mailed to the Party to whom notice is to be given, by first
class
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mail, registered or certified, postage prepaid, and properly addressed as
follows (or at such other address for a party as shall be specified by like
notice):
To 724 at: 724 Solutions Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attention: Vice President, Legal and Business Affairs
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇.▇ ▇▇▇ ▇▇▇
Royal Trust Tower, TD Centre
Toronto, Ontario M5K 1H1
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
To the Stockholders at: ▇▇▇▇▇▇▇.▇▇▇, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
To Escrow Agent at: First Union National Bank
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Corporate Trust Administrator
Notwithstanding anything herein to the contrary, any Party may give any
notice, request, demand, claim or other communication hereunder by personal
delivery or telecopy, but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the Party for whom it is intended. Any Party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth. Copies of any notice, request,
demand, claim or other communication hereunder by personal delivery or
telecopy given to the Escrow Agent by any Party, shall be delivered to the
other Parties as soon thereafter as practicable.
14. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes unavailable
or unwilling to continue in its capacity herewith, the Escrow Agent may
resign and be discharged from its duties or obligations hereunder by
delivering a resignation to the Parties, not less than 60 days prior to the
date when such resignation shall take effect. 724 may appoint a successor
Escrow Agent with the consent of the Stockholders Representatives, which
shall not be unreasonably withheld. If,
B-8
within such notice period, 724 provides to the Escrow Agent written
instructions with respect to the appointment of a successor Escrow Agent and
directions for the transfer of any Escrow Property then held by the Escrow
Agent to such successor, the Escrow Agent shall act in accordance with such
instructions and promptly transfer such Escrow Property to such designated
successor. Any successor Escrow Agent shall agree to be bound by the terms
of this Agreement. If no successor is so appointed, the Escrow Agent may
apply to a court of competent jurisdiction for such appointment.
15. GENERAL.
(a) GOVERNING LAW, ASSIGNS. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Illinois
without regard to conflict-of-law and choice of law principles and shall
be binding upon, and inure to the benefit of, the Parties and their
respective successors and assigns.
(b) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) ENTIRE AGREEMENT. Except for the provisions of the Merger Agreement
referenced herein, this Agreement constitutes the entire understanding
and agreement of the Parties with respect to the subject matter of this
Agreement and supersedes all prior agreements or understandings, written
or oral, between the Parties with respect to the subject matter hereof.
(d) WAIVERS. No waiver by any Party hereto of any condition or of any
breach of any provision of this Escrow Agreement shall be effective
unless in writing. No waiver by any party of any such condition or
breach, in any one instance, shall be deemed to be a further or
continuing waiver of any such condition or breach or a waiver of any
other condition or breach of any other provision contained herein.
(e) AMENDMENT. This Agreement may be amended only with the written consent
of a 724 Representative, the Escrow Agent and the Stockholders
Representatives.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
B-9
IN WITNESS WHEREOF, the Parties have duly executed this Escrow Agreement as
of the day and year first above written.
724 SOLUTIONS INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
▇▇▇▇▇▇▇.▇▇▇, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
FIRST UNION NATIONAL BANK,
AS ESCROW AGENT:
By: ____________________________________
Name: __________________________________
Title: _________________________________
STOCKHOLDER REPRESENTATIVES:
________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
________________________________________
▇▇▇▇ ▇. ▇▇▇▇
________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III
STOCKHOLDERS:
________________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
B-10
________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
________________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇
________________________________________
▇▇▇▇▇ ▇▇▇▇▇▇
________________________________________
▇▇▇ ▇▇▇▇▇▇▇
________________________________________
▇▇▇▇▇ ▇▇▇
________________________________________
Breckenridge ▇▇▇▇▇
________________________________________
▇▇▇▇▇▇▇▇▇ ▇▇▇▇
________________________________________
▇▇▇▇ ▇. ▇▇▇▇
________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III
________________________________________
▇▇▇ ▇▇▇▇▇▇
________________________________________
▇▇▇▇ ▇▇▇▇▇▇
________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
________________________________________
▇▇▇▇▇ ▇▇▇▇▇
B-11
________________________________________
▇▇▇▇▇ ▇▇▇▇▇▇
________________________________________
▇▇▇▇▇ ▇▇▇▇▇
________________________________________
▇▇▇▇▇ ▇▇▇▇▇▇
________________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇
________________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
________________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
________________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
B-12
SCHEDULE A
ESCROW SHARES
NAME OF REGISTERED HOLDER NUMBER OF SHARES
------------------------- ----------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇.............................................. 4,599
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.......................................... 94,920
▇▇▇▇▇▇ ▇▇▇▇▇▇............................................... 4,245
▇▇▇▇▇ ▇▇▇▇▇▇................................................ 7,193
▇▇▇ ▇▇▇▇▇▇▇................................................. 3,537
▇▇▇▇▇ ▇▇▇................................................... 15,529
Breckenridge ▇▇▇▇▇.......................................... 5,660
▇▇▇▇▇▇▇▇▇ ▇▇▇▇.............................................. 35
▇▇▇▇ ▇. ▇▇▇▇................................................ 94,920
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III................................... 94,920
▇▇▇ ▇▇▇▇▇▇.................................................. 3,537
▇▇▇▇ ▇▇▇▇▇▇................................................. 1,769
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇............................................ 50,467
▇▇▇▇▇ ▇▇▇▇▇................................................. 4,245
▇▇▇▇▇ ▇▇▇▇▇▇................................................ 2,122
▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇............................. 8,844
▇▇▇▇▇▇ ▇▇▇▇▇▇............................................... 4,009
▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇............................... 3,537
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇............................................. 3,537
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇............................................. 3,537
-------
Total: 411,162
=======
B-13
SCHEDULE I
STOCKHOLDERS
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III
▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
B-14
SCHEDULE II
EXCHANGE OF SHARES
1ST 2ND 3RD
COMPANY INITIAL CASH INITIAL STOCK ADDITIONAL ADDITIONAL ADDITIONAL
NAME COMMON STOCK CONSIDERATION CONSIDERATION CONSIDERATION CONSIDERATION CONSIDERATION
---- ------------- -------------- -------------- --------------- -------------- --------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇......... 130,000 $ 22,368.80 1,533 1,533 3,985 4,599
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇..... 2,683,333 $ 461,714.98 31,640 31,640 82,264 94,920
▇▇▇▇▇▇ ▇▇▇▇▇▇.......... 120,000 $ 20,648.13 1,415 1,415 3,679 4,245
▇▇▇▇▇ ▇▇▇▇▇▇........... 203,333 $ 34,987.04 2,398 2,398 6,234 7,193
▇▇▇ ▇▇▇▇▇▇▇............ 100,000 $ 17,206.77 1,179 1,179 3,066 3,537
▇▇▇▇▇ ▇▇▇.............. 439,000 $ 75,537.73 5,176 5,176 13,459 15,529
Breckenridge ▇▇▇▇▇..... 160,000 $ 27,530.83 1,887 1,887 4,905 5,660
▇▇▇▇▇▇▇▇▇ ▇▇▇▇......... 1,000 $ 172.07 12 12 31 35
▇▇▇▇ ▇. ▇▇▇▇........... 2,683,333 $ 461,714.98 31,640 31,640 82,264 94,920
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
III.................. 2,683,333 $ 461,714.98 31,640 31,640 82,264 94,920
▇▇▇ ▇▇▇▇▇▇............. 100,000 $ 17,206.77 1,179 1,179 3,066 3,537
▇▇▇▇ ▇▇▇▇▇▇............ 50,000 $ 8,603.39 590 590 1,533 1,769
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇....... 1,426,666 $ 245,483.16 16,823 16,823 43,739 50,467
▇▇▇▇▇ ▇▇▇▇▇............ 120,000 $ 20,648.13 1,415 1,415 3,679 4,245
▇▇▇▇▇ ▇▇▇▇▇▇........... 60,000 $ 10,324.06 707 707 1,839 2,122
▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇▇▇▇▇............ 250,000 $ 43,016.93 2,948 2,948 7,664 8,844
▇▇▇▇▇▇ ▇▇▇▇▇▇.......... 113,333 $ 19,500.95 1,336 1,336 3,475 4,009
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇........ 100,000 $ 17,206.77 1,179 1,179 3,066 3,537
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇........ 100,000 $ 17,206.77 1,179 1,179 3,066 3,537
▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇
▇▇▇▇▇................ 100,000 $ 17,206.77 1,179 1,179 3,066 3,537
----------- ------------- ------- ------- ------- -------
TOTAL:............. 11,623,331 $2,000,000.00 137,055 137,055 356,344 411,162
=========== ============= ======= ======= ======= =======
The parties hereto agree that the Parent Stock Price is $36.48.
SCHEDULE III
EMPLOYEES
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
B-15