EXHIBIT 2.1
-----------
CONFORMED COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
Dated as of September 4, 2001
By and Among
Precise Software Solutions Ltd.,
WQ Acquisition Corporation,
▇. ▇▇▇▇▇ Associates, Inc.
and
Certain of the Stockholders of ▇. ▇▇▇▇▇ Associates, Inc.
================================================================================
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I THE MERGER.......................................................1
1.1 THE MERGER.......................................................1
1.2 CLOSING; EFFECTIVE TIME..........................................2
1.3 EFFECT OF THE MERGER.............................................2
1.4 CHARTER; BYLAWS..................................................2
1.5 DIRECTORS AND OFFICERS...........................................3
1.6 EFFECT ON CAPITAL STOCK..........................................3
1.7 SURRENDER AND EXCHANGE OF CERTIFICATES...........................5
1.8 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK.............6
1.9 [INTENTIONALLY OMITTED]..........................................7
1.10 EXEMPTION FROM REGISTRATION......................................7
1.11 TRANSFER RESTRICTIONS; REGISTRATION RIGHTS.......................7
1.12 ADJUSTMENT OF NUMBER OF CLOSING SHARES...........................8
1.13 TREATMENT OF OPTIONS.............................................9
1.14 CONTINGENT CONSIDERATION........................................10
1.15 GAAP ACCOUNTING.................................................11
1.16 TAKING OF NECESSARY ACTION; FURTHER ACTION......................11
ARTICLE II REPRESENTATIONS AND WARRANTIES AS TO THE COMPANY................12
2.1 ORGANIZATION AND EXISTENCE......................................12
2.2 SUBSIDIARIES....................................................12
2.3 EXECUTION AND EFFECT OF AGREEMENT...............................13
2.4 FINANCIAL STATEMENTS; LIABILITIES...............................14
2.5 CAPITALIZATION..................................................14
2.6 NO MATERIAL ADVERSE CHANGE; NO DIVIDENDS........................15
2.7 ASSETS..........................................................15
2.8 TAX MATTERS.....................................................16
2.9 PRODUCTS........................................................18
2.10 INTELLECTUAL PROPERTY...........................................18
2.11 PERMITS; COMPLIANCE WITH LAW....................................21
2.12 REAL PROPERTY; LEASES OF REAL PROPERTY..........................21
2.13 INSURANCE.......................................................22
2.14 CONTRACTS.......................................................22
2.15 RESTRICTIONS....................................................23
2.16 LITIGATION; ORDERS..............................................23
2.17 THIRD PARTY AND GOVERNMENTAL CONSENTS...........................24
2.18 ENVIRONMENTAL MATTERS...........................................24
2.19 EMPLOYEES AND CONSULTANTS.......................................25
2.20 BUSINESS CONDUCT................................................26
2.21 TRANSACTIONS WITH AFFILIATES....................................27
2.22 NO BROKERS......................................................27
2.23 ACCOUNTS RECEIVABLE.............................................28
2.24 CUSTOMERS AND SUPPLIERS.........................................28
2.25 EMPLOYEE BENEFIT PLANS; ERISA...................................28
2.26 REGISTRATION RIGHTS.............................................32
2.27 DISCLOSURE......................................................32
-i-
ARTICLE III REPRESENTATIONS AND WARRANTIES OF VOTING STOCKHOLDERS
AND ADDITIONAL STOCKHOLDERS.....................................32
3.1 TITLE; AGREEMENTS...............................................33
3.2 EXECUTION AND EFFECT OF AGREEMENT...............................33
3.3 NO VIOLATION....................................................33
3.4 LITIGATION; CLAIMS..............................................33
3.5 CONSENTS........................................................34
3.6 NO BROKERS......................................................34
3.7 INVESTMENT REPRESENTATIONS......................................34
3.8 VOTING STOCKHOLDER'S ACKNOWLEDGEMENT AS TO INFORMATION..........35
3.9 DISCLOSURE......................................................35
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND
MERGER SUBSIDIARY...............................................35
4.1 ORGANIZATION AND EXISTENCE......................................35
4.2 EXECUTION AND EFFECT OF AGREEMENT...............................35
4.3 NO VIOLATION....................................................36
4.4 CONSENTS........................................................36
4.5 NO BROKERS......................................................36
4.6 CAPITAL STRUCTURE...............................................36
4.7 SECURITIES AND EXCHANGE COMMISSION FILINGS; FINANCIALS..........37
4.8 LITIGATION......................................................37
4.9 FINANCING.......................................................37
4.10 TAX MATTERS.....................................................37
4.11 DISCLOSURE......................................................39
ARTICLE V COVENANTS.......................................................40
5.1 FILINGS AND OTHER ACTIONS.......................................40
5.2 ACCESS AND COOPERATION..........................................40
5.3 SPECIAL MEETING.................................................40
5.4 SECURITIES LAWS.................................................41
5.5 CONDUCT OF BUSINESS PENDING CLOSING.............................41
5.6 NO SHOP.........................................................43
5.7 NOTIFICATION OF CERTAIN MATTERS.................................43
5.8 EMPLOYEE BENEFIT MATTERS........................................43
5.9 BUDGET AND OPERATING TERMS......................................44
5.10 TERMINATION OF STOCKHOLDER GUARANTEES...........................44
5.11 TAX MATTERS.....................................................45
5.12 FURTHER ASSURANCES..............................................45
ARTICLE VI CONDITIONS TO THE MERGER........................................45
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER....45
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY.................46
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ACQUIROR AND
MERGER SUBSIDIARY...............................................47
ARTICLE VII REMEDIES........................................................49
7.1 SURVIVAL........................................................49
7.2 OBLIGATIONS OF THE VOTING STOCKHOLDERS AND ADDITIONAL
STOCKHOLDERS....................................................49
7.3 OBLIGATIONS OF THE ACQUIROR.....................................49
-ii-
7.4 PROCEDURE FOR THIRD PARTY CLAIMS................................50
7.5 ESCROW FUND.....................................................51
7.6 RIGHT TO SET-OFF................................................51
7.7 LIMITATIONS.....................................................51
7.8 STOCKHOLDERS' AGENTS............................................52
7.9 ACTIONS OF THE STOCKHOLDERS' AGENTS.............................53
7.10 REMEDIES........................................................53
7.11 DISPUTES........................................................53
ARTICLE VIII TERMINATION.....................................................54
8.1 TERMINATION.....................................................54
8.2 CONSEQUENCES OF TERMINATION.....................................54
ARTICLE IX GENERAL PROVISIONS..............................................55
9.1 COOPERATION.....................................................55
9.2 PRESS RELEASES; CONFIDENTIALITY.................................55
9.3 EXPENSES........................................................56
9.4 AMENDMENTS AND WAIVERS..........................................57
9.5 SUCCESSORS AND ASSIGNS..........................................57
9.6 NO THIRD PARTY BENEFICIARIES....................................57
9.7 CHOICE OF LAW...................................................57
9.8 NOTICES.........................................................57
9.9 SEVERABILITY....................................................58
9.10 ENTIRE AGREEMENT................................................58
9.11 CONSTRUCTION....................................................59
9.12 TITLES AND SUBTITLES............................................59
9.13 COUNTERPARTS....................................................59
SCHEDULES *
---------
Company Disclosure Schedule
EXHIBITS *
--------
Exhibit A Articles of Merger
Exhibit B Certificate of Merger
Exhibit C Escrow Agreement
Exhibit D Stockholder Agreement
Exhibit E Transfer Restrictions
Exhibit F Registration Rights Agreement
Exhibit G Budget and Operating Terms
Exhibit H Legal Opinion of ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
Exhibit I Employment Agreement
Exhibit J Tax Certificates
Exhibit K Legal Opinion of ▇▇▇▇ and ▇▇▇▇ LLP
-----------
* The Schedules and Exhibits to this Agreement and Plan of Merger have been
omitted in reliance upon the rules of the Securities and Exchange
Commission. The Schedules contain exceptions to the Company's
representations and warranties in the Agreement and Plan of Merger. A copy
will be delivered to the Securities and Exchange Commission upon request.
-iii-
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of September 4, 2001 by and among Precise Software Solutions
Ltd., an Israeli corporation (the "Acquiror"), WQ Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of the Acquiror (the "Merger
Subsidiary"), ▇. ▇▇▇▇▇ Associates, Inc., a Virginia corporation (the "Company"),
each of the holders of the Company's voting common stock (the "Voting
Stockholders") and, for the limited purposes described below, certain of the
holders of the Company's non-voting common stock (the "Additional
Stockholders").
RECITALS
The Acquiror, the Merger Subsidiary and the Company believe it is in
the best interests of their respective companies and the stockholders of their
respective companies that the Company and the Merger Subsidiary combine into a
single company through the statutory merger of the Company with and into the
Merger Subsidiary (the "Merger").
Pursuant to the Merger, among other things, each outstanding share of
the common stock of the Company, shall be converted into cash and ordinary
shares of the Acquiror, par value 0.03 NIS per share (the "Acquiror Stock"), to
be delivered to the Voting Stockholders and the holders of the Company's
non-voting common stock (the "Non-Voting Stockholders"), on the terms set forth
herein. The Voting Stockholders and the Non-Voting Stockholders (including the
Additional Stockholders) are collectively referred to as the "Stockholders".
The Acquiror, the Merger Subsidiary, the Company, the Voting
Stockholders and the Additional Stockholders desire to make certain
representations and warranties and other agreements in connection with the
Merger.
The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) 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, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
----------
1.1 The Merger.
----------
At the Effective Time (as defined below) and subject to and upon the
terms and conditions of this Agreement, the Articles of Merger attached hereto
as Exhibit A (the "Articles
-1-
of Merger"), the Certificate of Merger attached hereto as Exhibit B (the
"Certificate of Merger") and the applicable provisions of the Virginia Stock
Corporation Act ("Virginia Law") and the Delaware General Corporation Law
("Delaware Law"), the Company shall be merged with and into the Merger
Subsidiary, the separate corporate existence of the Company shall cease and the
Merger Subsidiary shall continue as the surviving corporation. The Merger
Subsidiary as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time.
-----------------------
The closing of the transactions contemplated hereby (the "Closing")
shall take place at the offices of ▇▇▇▇ and ▇▇▇▇ LLP, ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, commencing at 4:01 p.m. local time on September 4,
2001 (the date on which the Closing shall occur being the "Closing Date"), or,
if all of the conditions to the obligations of the parties to consummate the
transactions contemplated hereby have not been satisfied or waived by such date,
on such later date as soon as practicable after the satisfaction or waiver of
all conditions to the obligations of the parties to consummate the transactions
contemplated hereby. On or after the Closing Date, the parties shall cause the
Merger to be consummated by (a) filing the Articles of Merger with the State
Corporation Commission of Virginia in accordance with the relevant provisions of
Virginia Law and (b) filing the Certificate of Merger with the Delaware
Secretary of State in accordance with the relevant provisions of Delaware Law
(the time and date of the later of such filings, or such later time and date as
may be set forth therein, being the "Effective Time" and the "Effective Date,"
respectively; PROVIDED that the parties agree that upon the first of such
filings, (A) irrevocable instructions for the second of such filings shall for
all purposes be deemed made, (B) the second of such filings shall be made as
soon as practicable thereafter and (C) the right of the Stockholders to the
consideration provided in Section 1.6(d) shall be final and not subject to any
further conditions or requirements).
1.3 Effect of the Merger.
--------------------
At the Effective Time, the effect of the Merger shall be as provided
in this Agreement, the Articles of Merger, the Certificate of Merger and the
applicable provisions of Virginia Law and Delaware Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of the Company and the
Merger Subsidiary shall vest in the Merger Subsidiary as the Surviving
Corporation, and all debts, liabilities and duties of the Company and the Merger
Subsidiary shall become the debts, liabilities and duties of the Merger
Subsidiary as the Surviving Corporation.
1.4 Charter; Bylaws.
---------------
At the Effective Time, the Certificate of Incorporation of the Merger
Subsidiary, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation. The
Bylaws of the Merger Subsidiary, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter amended.
In connection with the Merger, the Surviving Corporation shall change its name
-2-
to "▇. ▇▇▇▇▇, Inc." and, during the Measuring Period (as defined in Section
1.14), shall operate as "▇. ▇▇▇▇▇, Inc., a Precise Software Solutions company,"
or such other name as mutually agreed between the Acquiror and the Stockholders'
Agents (as defined in Section 7.8(a)).
1.5 Directors and Officers.
----------------------
At the Effective Time, the directors of the Merger Subsidiary
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, to hold office until such time as such directors resign, are
removed or their respective successors are duly elected or appointed and
qualified. The officers of the Merger Subsidiary immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, to hold
office until such time as such officers resign, are removed or their respective
successors are duly elected or appointed and qualified.
1.6 Effect on Capital Stock.
-----------------------
(a) On the Effective Date, each share of the Company's issued and
outstanding capital stock (the "Company Capital Stock") immediately prior to the
Effective Date, shall, without any action on the part of the holder thereof, be
canceled and converted into cash and shares of Acquiror Stock having an
aggregate value of $35,400,000, less the Company Cash Consideration (as defined
below) paid to the Company.
(b) Certain Definitions. For purposes of this Agreement, the
following terms have the following meanings:
"Aggregate Common Number" means the sum of (i) the number of shares
of voting common stock, without par value, of the Company (the "Voting Common
Stock") that are issued and outstanding immediately prior to the Effective Time
and (ii) the number of shares of non-voting common stock, without par value, of
the Company (the "Non-Voting Common Stock") that are issued and outstanding
immediately prior to the Effective Time.
"Cash Consideration" means $20,150,000.
"Cash Exchange Rate" means the amount of cash to be delivered to the
Stockholders in connection with the Merger in respect of each share of Company
Capital Stock, which shall equal the quotient obtained by dividing the
Stockholders' Cash Consideration by the Aggregate Common Number.
"Closing Shares" means the number of shares of Acquiror Stock to be
delivered at the Closing in connection with the Merger, which number shall equal
the quotient obtained by dividing (i) $35,400,000 LESS the amount of the Cash
Consideration by (ii) the Closing Stock Price determined as of the third trading
day preceding the date of this Agreement.
"Closing Stock Exchange Rate" means the number of shares of Acquiror
Stock to be delivered or reserved for issuance at the Closing in connection with
the Merger in respect of each share of Company Capital Stock, which shall be
equal to the quotient obtained by dividing the number of Closing Shares by the
Aggregate Common Number.
-3-
"Closing Stock Price" as of a date means the quotient obtained by
dividing (i) the sum of the last sale price per share of Acquiror Stock as
reported on the Nasdaq National Market for each of the 20 consecutive trading
days preceding the determination date by (ii) 20.
"Company Cash Consideration" means the amount of the Cash
Consideration payable by the Acquiror to the Company, as directed by the
Stockholders' Agents pursuant to Section 1.6(c), to permit the Company to make
payments in respect of (i) the cancellation of outstanding Company Options
pursuant to Section 1.13, (ii) the repayment of any indebtedness of the Company
for borrowed money pursuant to Section 6.3(i) and (iii) the fees and expenses
payable by the Company in connection with the transactions contemplated by this
Agreement.
"Dollars" or numbers preceded by the symbol "$" means amounts in
United States Dollars.
"Stockholders' Cash Consideration" means the amount of the Cash
Consideration LESS the amount of the Company Cash Consideration.
(c) Company Cash Consideration. Prior to the Closing, the
Stockholders' Agents shall notify the Acquiror in writing of the allocation
between the Company Cash Consideration and the Stockholders' Cash Consideration.
The Stockholders' Agents will work with the Company's management to determine
the amount of the Company Cash Consideration necessary to permit the Company to
make payments in respect of (i) the cancellation of outstanding Company Options
pursuant to Section 1.13, (ii) the repayment of any indebtedness of the Company
for borrowed money pursuant to Section 6.3(i) and (iii) the fees and expenses
payable by the Company in connection with the transactions contemplated by this
Agreement. As soon as practicable after the Closing, the Acquiror shall deliver
the Company Cash Consideration to the Company by wire transfer of immediately
available funds.
(d) Capital Stock of the Company. At the Closing, by virtue of the
Merger and without any further action on the part of the Acquiror, the Merger
Subsidiary or the Company or any Stockholder, each share of Company Capital
Stock issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive, subject to the terms of this Agreement, (i)
a number of shares of Acquiror Stock equal to the Closing Stock Exchange Rate
and (ii) an amount of cash equal to the Cash Exchange Rate.
(e) Capital Stock of the Merger Subsidiary. At the Closing, each
share of common stock, par value $0.01 per share, of the Merger Subsidiary
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $0.01 per share, of the Surviving
Corporation. Each stock certificate of the Merger Subsidiary evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
(f) Fractional Shares. No fraction of a share of Acquiror Stock will
be issued, but in lieu thereof each holder of shares of Company Capital Stock
who would otherwise be entitled to a fraction of a share of Acquiror Stock
-4-
(after aggregating all fractional shares of Acquiror Stock to be received by
such holder) shall receive from the Acquiror an amount of cash (rounded to the
nearest whole cent) equal to the product of (i) such fraction multiplied by (ii)
the Closing Stock Price determined as of the third trading day preceding the
date of this Agreement.
1.7 Surrender and Exchange of Certificates.
--------------------------------------
(a) Availability of Consideration. At the Effective Time, Acquiror
shall make available (i) the Closing Shares, LESS the Escrow Shares (as defined
below) to be deposited into an escrow fund (the "Escrow Fund") pursuant to the
requirements of Section 1.7(c), Article VII and the Escrow Agreement in the form
attached hereto as Exhibit C (the "Escrow Agreement"), (ii) the Stockholders'
Cash Consideration, less the Escrow Cash (as defined below) to be deposited into
the Escrow Fund pursuant to the requirements of Section 1.7(c), Article VII and
the Escrow Agreement and (iii) cash in an amount sufficient to permit payment of
cash in lieu of fractional shares.
(b) Exchange Procedure. Each of the Stockholders will deliver to the
Acquiror on the Closing Date (i) the original certificates or appropriate
affidavits of loss therefor (the "Certificates") representing all of his, her or
its shares of Company Capital Stock, duly endorsed in blank or, in lieu thereof,
accompanied by stock powers duly executed in blank and (ii) in the case of the
Non-Voting Stockholders, an executed Stockholder Agreement in the form attached
hereto as Exhibit D (the "Stockholder Agreement") which, among other things,
appoints the Stockholders' Agents and consents to certain restrictions on
transfer of the Closing Shares. Upon surrender of a Certificate and delivery of
a Stockholder Agreement, if required, the Acquiror shall (A) instruct (and shall
not revoke such instruction to) its transfer agent to deliver promptly after the
Closing to the holder of such Certificate in exchange therefor a certificate
representing the number of whole shares of Acquiror Stock into which such
Company Capital Stock is converted (less the number of shares of Acquiror Stock
to be deposited into the Escrow Fund on such holder's behalf pursuant to Article
VII), (B) deliver cash in immediately available funds to an account designated
by the Stockholders' Agents in an amount equal to the amount of the Stockholder
Cash Consideration into which such Company Capital Stock is converted (less the
cash to be deposited into the Escrow Fund with respect to such Stockholder's
Company Capital Stock pursuant to Article VII) and (C) deliver cash in
immediately available funds to an account designated by the Stockholders' Agents
in lieu of fractional shares.
(c) Escrow. For purposes of this Agreement, "Escrow Shares" means the
number of shares of Acquiror Stock equal to 15% of the Closing Shares (rounded
to the nearest whole share) and "Escrow Cash" means the amount of cash equal to
15% of the Stockholders' Cash Consideration (rounded to the nearest whole cent).
Promptly after the Effective Time and subject to and in accordance with the
provisions of Section 7.2, the Acquiror shall cause to be delivered to the
Escrow Agent (as defined in the Escrow Agreement) (i) a certificate or
certificates representing the Escrow Shares, which shall be registered in the
name of the Escrow Agent for the Stockholders and (ii) the Escrow Cash. The
Escrow Shares shall be beneficially owned by the Stockholders. The Escrow Shares
and Escrow Cash shall be held in escrow for a period of 18 months from the
Closing Date and shall be available to make any adjustments pursuant to Section
1.12 or to satisfy claims of the Acquiror as provided in Article VII. To the
-5-
extent not used for such purposes, such Escrow Shares and Escrow Cash shall be
released, all as provided in the Escrow Agreement. Subject to the terms of the
Escrow Agreement, any amount of Escrowed Cash which is released shall bear
interest at a rate of 3% from the Effective Time until such amount is released
from the Escrow Fund, with such interest to be paid as provided in the Escrow
Agreement.
(d) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Acquiror Stock with a record date after the
Effective Date shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Acquiror Stock represented thereby until the holder of
record of such Certificate surrenders such Certificate. Subject to applicable
law, following surrender of any such Certificate, there shall be paid to the
record holder of the certificates representing whole shares of Acquiror Stock
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 Date which would have been previously payable (but for the
provisions of this Section 1.7(d)) with respect to such shares of Acquiror
Stock.
(e) Transfers of Ownership. If any certificate for shares of Acquiror
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that (i) the Certificate so surrendered is properly endorsed
and otherwise in proper form for transfer, (ii) the Person requesting such
exchange will have paid to the Acquiror any transfer or other Taxes (as defined
in Section 2.8) required by reason of the issuance of a certificate for shares
of Acquiror Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of the Acquiror that
such Tax has been paid or is not payable and (iii) the Person requesting such
exchange will have provided to the Acquiror an opinion of counsel satisfactory
to the Acquiror that such exchange complies with all applicable federal and
state securities laws. For purposes of this Agreement, "Person" means any
natural person, corporation, partnership, limited liability company,
proprietorship, other business organization, trust, union, association or
Governmental Authority
(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.7, no party hereto or any of their respective agents shall be liable
to any Person for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Company Capital Stock.
----------------------------------------------------
All shares of Acquiror Stock issued and cash paid upon the surrender
of Certificates for Company Capital Stock in accordance with the terms hereof
shall be deemed to have been issued and paid in full satisfaction of all rights
pertaining to such shares of Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Capital Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be cancelled and exchanged as
provided in this Article I.
-6-
1.9 [Intentionally Omitted].
-----------------------
1.10 Exemption from Registration.
---------------------------
The shares of Acquiror Stock to be issued in connection with the
Merger will be issued in a transaction exempt from registration under (a) the
Securities Act of 1933, as amended (the "Securities Act"), by reason of Rule 506
promulgated thereunder, and (b) applicable state securities laws.
1.11 Transfer Restrictions; Registration Rights.
------------------------------------------
(a) Restrictions on Transfer. From and after the Effective Time, all
of the shares of Acquiror Stock issued in exchange for the outstanding shares of
Company Capital Stock at or immediately following the Effective Time will be
subject to the restrictions upon transfer of such shares as imposed on
unregistered shares by the rules of the Securities and Exchange Commission. The
Acquiror Stock issued in connection with the Merger will be "restricted
securities" under the Securities Act and Rule 144 promulgated thereunder and may
only be sold or otherwise transferred pursuant to an effective registration
statement under the Securities Act and applicable state securities laws or
pursuant to an exemption from the registration requirements of the Securities
Act and applicable state securities laws.
(b) Transfer Restrictions on Closing Shares. Each Voting Stockholder
agrees, and each Non-Voting Stockholder will agree in the Stockholder Agreement,
to the restrictions on transfer of the Closing Shares set forth on Exhibit E
attached hereto. Upon request of an underwriter of the Acquiror's securities,
each Stockholder shall execute a letter to such underwriter in form and
substance acceptable to such underwriter confirming its obligations under this
paragraph.
(c) Registration Rights Agreement. From and after the Effective Time,
the holders of the shares of Acquiror Stock issued in exchange for the
outstanding shares of Company Capital Stock at the Effective Time shall have the
rights set forth in the Registration Rights Agreement attached hereto as Exhibit
F (the "Registration Rights Agreement").
(d) Legends. Each certificate representing shares of Acquiror Stock
issued in connection with the Merger shall bear a legend describing the
restrictions described in Section 1.11(a). Each certificate shall also bear the
following legend: "The shares represented by this certificate are subject to the
restrictions on transfer described in the Agreement and Plan of Merger dated as
of September 4, 2001 and may not be sold, mortgaged, pledged, hypothecated or
otherwise transferred except in accordance therewith."
(e) Acquiror Trading Policies. Stockholders that are employees of
the Acquiror or the Surviving Corporation will also be subject to the Acquiror's
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ policies, as in effect from time to time, and the black-out
periods described therein.
-7-
1.12 Adjustment of Number of Closing Shares.
--------------------------------------
(a) Adjustment Amount. If the Net Working Capital of the Company as
of the Closing Date is less than $575,000, the "Adjustment Amount" shall be
equal to the Net Working Capital of the Company as of the Closing Date MINUS
$575,000. If the Net Working Capital of the Company as of the Closing Date is
greater than $800,000, the "Adjustment Amount" shall be equal to the Net Working
Capital of the Company as of the Closing Date MINUS $800,000. If the Net Working
Capital of the Company as of the Closing Date is greater than or equal to
$575,000 and less than or equal to $800,000, the "Adjustment Amount" shall be
deemed to be zero. For purposes of this Agreement, "Net Working Capital" means
current assets MINUS current liabilities, including the effect of appropriate
accruals for current liabilities and allowances and reserves for the Company's
accounts receivable under GAAP as of the Closing Date (and including adjustments
typically made in year end financial statements), but excluding (i) the effect
of the Company's normal quarterly bonus payments described on Item 16 of
Schedule 2.6, and (ii) the Company Cash Consideration and any obligation to the
extent discharged with any Company Cash Consideration. Net Working Capital will
be determined in accordance with the methodology and approach set forth on
Schedule 1.12.
(b) Adjustment Procedures. The Acquiror will prepare an unaudited
balance sheet (the "Closing Balance Sheet") of the Company as of the Closing
Date, including a computation of the Net Working Capital as of the Closing Date.
The Acquiror will deliver the Closing Balance Sheet to the Stockholders' Agents
within 45 days after the Closing Date. If within 15 days following delivery of
the Closing Balance Sheet, the Stockholders' Agents have not given the Acquiror
notice of an objection to the Closing Balance Sheet (such notice must contain a
statement of the basis of the objections) (a "Qualifying Objection"), then the
Net Working Capital reflected in the Closing Balance Sheet will be used in
computing the Adjustment Amount. If the Stockholders' Agents give notice of a
Qualifying Objection (the date of such notice the "Objection Date"), then the
chief financial officer of the Acquiror and the Stockholders' Agents shall
attempt to resolve the dispute and to agree in writing upon the Net Working
Capital within 20 days after the Objection Date. If the dispute has not been
resolved within such 20-day period, the issues in dispute will be submitted to
KPMG LLP, or another mutually acceptable certified public accountant which has
not been retained by either the Acquiror or the Company within the preceding
three calendar years (the "Accountants"), for resolution within 50 days after
the Objection Date. If issues in dispute are submitted to the Accountants for
resolution, (i) each party will furnish the Accountants with such workpapers and
other documents and information relating to the disputed issues as the
Accountants may request and are available to that party (or its independent
public accountants), and will be afforded the opportunity to present to the
Accountants any material relating to the determination and to discuss the
determination with the Accountants, (ii) the determination by the Accountants,
as set forth in a notice delivered to both parties by the Accountants, will be
binding and conclusive on the parties and (iii) the Acquiror and the
Stockholders' Agents shall share the fees and expenses of the Accountants based
upon what portion of the changes called for in the Stockholders' Agents'
Qualifying Objection are reflected in the final determination of the Net Working
Capital by the Accountants, as follows: (1) the Stockholders' Agents shall be
responsible for an amount equal to the total amount of such fees and expenses
multiplied by a fraction, the numerator of
-8-
which is the excess (if any) of (A) the Net Working Capital as shown on the
Closing Balance Sheet (after adjusting the Closing Balance Sheet to reflect all
of the changes called for in the Qualifying Objection) over (B) the Net Working
Capital as finally determined by the Accountants, and the denominator of which
is the excess of (C) the Net Working Capital as shown on the Closing Balance
Sheet (after adjusting the Closing Balance Sheet to reflect all of the changes
called for in the Qualifying Objection) over (D) the Net Working Capital as
shown on the Closing Balance Sheet; and (2) the Acquiror shall be responsible
for the balance of such fees and expenses.
(c) Payment of Adjustment Amount. Within five business days following
the final determination of the Adjustment Amount, (i) if the Adjustment Amount
is positive, the Acquiror will pay to the Stockholders (pro rata) such amount in
cash and Acquiror Stock (based on the Closing Stock Price determined as of the
third trading day preceding the date of this Agreement) in the same proportion
as the value of the Closing Shares bears to the value of the Stockholders' Cash
Consideration and (ii) if the Adjustment Amount is negative, the Escrow Agent
will release to the Acquiror such amount in cash and Acquiror Stock from the
Escrow Fund in the same proportion as the value of the Closing Shares (based on
the Closing Stock Price determined as of the third trading day preceding the
date of this Agreement) bears to the value of the Stockholders' Cash
Consideration.
1.13 Treatment of Options.
--------------------
(a) All options to purchase common stock of the Company which are
outstanding prior to the Effective Time (the "Company Options"), whether granted
under the ▇. ▇▇▇▇▇ Associates, Inc. Stock Option Plan (the "Company Stock Option
Plan") or otherwise, shall be canceled and terminated effective immediately
prior to the Effective Time. The Voting Stockholders and Additional Stockholders
shall indemnify and hold harmless the Acquiror and the Surviving Corporation
against any claims arising from such cancellation or termination in accordance
with Section 7.2(b).
(b) The cancellation and termination of the Company Options granted
under the Company Stock Option Plan shall be effected and evidenced by
resolutions of the Board of Directors of the Company and such resolutions shall
confirm that the terms of such cancellation and termination, including the
consideration payable to the option holders, are appropriate and equitable to
effectuate the purposes of the Company Stock Option Plan and to protect such
holders.
(c) As soon as practicable following the Closing, the Voting
Stockholders shall obtain the written release of each holder of a Company
Option, whether granted under the Company Stock Option Plan or otherwise,
pursuant to which such holder will acknowledge the cancellation and termination
of their Company Options as provided in this Section 1.13 and release the
Company, the Acquiror, the Merger Subsidiary, the Surviving Corporation and all
employees, officers, directors and stockholders of each such entity respecting
the Company Options with respect to any claims relating to such Company Options.
-9-
1.14 Contingent Consideration.
------------------------
(a) If the revenue recognized by the Acquiror and/or the Company from
license, maintenance, training and service fees for the Company's products or
services calculated under Section 1.14(c) (the "Company Revenue") exceeds
$10,000,000 for the period from the Closing Date to the first anniversary of the
Closing Date (the "Measuring Period"), then the Acquiror shall deliver to the
Stockholders, as set forth in Section 1.14(d), contingent consideration in an
amount (the "Contingent Consideration") equal to the sum of (i) 1.625 MULTIPLIED
BY the amount by which the Company Revenue exceeds $10,000,000 (up to and
including a maximum of $18,000,000 in Company Revenue) PLUS (ii) 1.5 MULTIPLIED
BY the amount by which the Company Revenue exceeds $18,000,000 (up to and
including a maximum of $21,000,000 in Company Revenue). For purposes of this
Agreement, "Contingent Shares" means the number of shares of Acquiror Stock to
be delivered in connection with the Contingent Consideration, which number shall
equal the quotient obtained by DIVIDING (A) the Contingent Consideration by (B)
the Closing Stock Price determined as of the third trading day preceding the
date of payment of the Contingent Consideration. For purposes of this Agreement,
"Contingent Consideration Exchange Rate" means the number of shares of Acquiror
Stock to be delivered in connection with the Contingent Consideration in respect
of each share of Company Capital Stock, which shall be equal to the quotient
obtained by DIVIDING (1) the number of Contingent Shares by (2) the Aggregate
Common Number. Notwithstanding the forgoing, in no event shall the number of
Contingent Shares together with the number of Closing Shares exceed 19.9% of the
Acquiror Stock then outstanding; PROVIDED that if the number of Contingent
Shares would cause such percentage to be exceeded, the Acquiror shall issue the
maximum permitted number of Contingent Shares and pay the balance of the
Contingent Consideration in cash (the "Cash Contingent Consideration"); PROVIDED
FURTHER that to the extent any Contingent Consideration is paid, any and all
imputed interest with respect to the Contingent Consideration pursuant to
Section 483 or Section 1274 of the Code shall be deemed paid, to the maximum
extent possible, from such Cash Contingent Consideration.
(b) The Acquiror will prepare a summary of the Company Revenue and a
calculation of the Contingent Consideration (the "Contingent Consideration
Statement") and deliver the Contingent Consideration Statement to the
Stockholders' Agents within 30 days after the end of the Measuring Period. If
within 15 days following delivery of the Contingent Consideration Statement, the
Stockholders' Agents have not given the Acquiror notice of their objection to
the Contingent Consideration Statement (such notice must contain a statement of
the basis of the objection), then the Company Revenue reflected in the
Contingent Consideration Statement will be used in computing the Contingent
Consideration. If the Stockholders' Agents give notice of objection, then the
issues in dispute will be submitted to the Accountants for resolution within 30
days. If issues in dispute are submitted to the Accountants for resolution, (i)
each party will furnish the Accountants with such workpapers and other documents
and information relating to the disputed issues as the Accountants may request
and are available to that party (or its independent public accountants), and
will be afforded the opportunity to present to the Accountants any material
relating to the determination and to discuss the determination with the
Accountants, (ii) the determination by the Accountants, as set forth in a notice
delivered to both parties by the Accountants, will be binding and conclusive on
the parties and (iii) the Acquiror
-10-
and the Stockholders' Agents shall share the fees and expenses of the
Accountants based upon what portion of the changes called for in the
Stockholders' Agents notice of objection are reflected in the final
determination of the Contingent Consideration by the Accountants, as follows:
(1) the Stockholders' Agents shall be responsible for an amount equal to the
total amount of such fees and expenses multiplied by a fraction, the numerator
of which is the excess (if any) of (A) the Contingent Consideration as shown on
the Contingent Consideration Statement (after adjusting the Contingent
Consideration Statement to reflect all of the changes called for in the notice
of objection) over (B) the Contingent Consideration as finally determined by the
Accountants, and the denominator of which is the excess of (C) the Contingent
Consideration as shown on the Contingent Consideration Statement (after
adjusting the Contingent Consideration Statement to reflect all of the changes
called for in the notice of objection) over (D) the Contingent Consideration as
shown on the Contingent Consideration Statement; and (2) the Acquiror shall be
responsible for the balance of such fees and expenses.
(c) The Company Revenue will be calculated in accordance with the
pricing assumptions, qualifications, methodologies and allocations set forth on
the Budget and Operating Terms attached hereto as Exhibit G (the "Budget and
Operating Terms") and generally accepted accounting principles in the United
States as in effect from time to time ("GAAP") as applied by the Acquiror;
PROVIDED that the amount of Company Revenue from training and service fees shall
not exceed $500,000.
(d) Subject to Section 7.6, each share of Company Capital Stock
outstanding immediately prior to the Effective Time shall entitle the
Stockholder to receive a number of shares of Acquiror Stock equal to the
Contingent Consideration Exchange Rate (rounded up to the nearest whole share)
(and a pro rata portion of the Contingent Cash Consideration, if applicable).
Within five days after final determination of the amount of the Company Revenue,
the Acquiror shall make available the Contingent Shares (and the Contingent Cash
Consideration, if applicable). The Acquiror shall deliver such Contingent Shares
and the Contingent Cash Consideration in immediately available funds, if
applicable, to the Stockholders' Agents for distribution to the Stockholders.
1.15 GAAP Accounting.
---------------
Unless otherwise noted, Net Working Capital, Company Revenue and all
other financial measures used in this Agreement will be determined in accordance
with GAAP.
1.16 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 and the
Merger Subsidiary, the officers and directors of the Company and the Merger
Subsidiary are fully authorized in the name of their respective corporations or
otherwise to take, and shall take, all such lawful and necessary action, so long
as such action is not inconsistent with this Agreement.
-11-
ARTICLE II
REPRESENTATIONS AND WARRANTIES AS TO THE COMPANY
------------------------------------------------
The Company hereby represents and warrants to the Acquiror that,
except as otherwise set forth in the schedules referred to in this Agreement
(the "Disclosure Schedule"), the following representations and warranties are,
as of the date hereof, and will be, as of the Closing Date, true and correct.
The disclosures in any section of the Disclosure Schedule shall qualify the
corresponding section of this Agreement and other sections of this Agreement to
the extent (notwithstanding the absence of a specific cross reference) that
Acquiror reasonably could be expected to conclude that such disclosure logically
relates to such other sections, based solely upon a review of the Disclosure
Schedule and without independent investigation of the underlying documents
referenced therein. For purposes of this Agreement, the term "Company's
Knowledge" shall mean the actual knowledge of the Voting Stockholders and the
persons listed on Schedule 2.0, after reasonable inquiry. If reasonable inquiry
is not made, the term "Company's Knowledge" shall also include knowledge that
would have been known to a reasonable Person under similar circumstances after
reasonable inquiry.
2.1 Organization and Existence.
--------------------------
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Virginia, and is duly
authorized and qualified to do business under all applicable laws, regulations,
ordinances and orders of any Governmental Authority to carry on its business in
the places and in the manner as now conducted, to own or hold under lease the
properties and assets it now owns or holds under lease and to perform all of its
obligations under this Agreement, except where the failure to be so authorized,
qualified or in good standing would not be reasonably likely to result in a
material adverse effect on the business, operations, assets or financial
condition of the Company and its Subsidiaries (as defined below) taken as a
whole (a "Material Adverse Effect"). The minute books and records of the
Company, as heretofore delivered to the Acquiror, are true, correct and
complete. True and complete copies of the Company's Charter and Bylaws, each as
amended to date, have been provided to the Acquiror. For purposes of this
Agreement, "Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, Federal, state, local, foreign or otherwise.
2.2 Subsidiaries.
------------
(a) Each Subsidiary of the Company is a corporation or other legal
entity duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization, has all corporate, partnership or other
similar powers required to carry on its business as now conducted and is duly
authorized and qualified to do business under all applicable laws, regulations,
ordinances and orders of any Governmental Authority to carry on its business in
the places and in the manner as now conducted, to own or hold under lease the
properties and assets it now owns or holds under lease, except where the failure
to be so authorized, qualified or in
-12-
good standing would not be reasonably likely to result in a Material Adverse
Effect. Schedule 2.2 lists all Subsidiaries of the Company and their respective
jurisdictions of organization and identifies the Company's (direct or indirect)
percentage ownership interest therein.
(b) Except as set forth on Schedule 2.2(a), all of the outstanding
capital stock of, or other voting securities or ownership interests in, each
Subsidiary of the Company, is owned by the Company or a Subsidiary of the
Company, directly or indirectly, free and clear of any Encumbrance (as defined
in Section 2.7) and free of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other voting securities or ownership interests).
(c) Other than the Company Options, there are no outstanding
subscriptions, options, warrants, rights or convertible or exchangeable
securities issued by the Company or any Subsidiary of the Company or other
agreements or commitments of any character relating to the issued or unissued
capital stock or other securities or partnership interests or membership
interests of any Subsidiary of the Company, including, without limitation, any
agreement or commitment obligating the Company or any Subsidiary of the Company
to issue, deliver or sell, or cause to be issued, delivered or sold, shares of
capital stock, other securities, partnership interests or membership interests
of any Subsidiary of the Company or obligating any of the Company or any
Subsidiary of the Company to grant, extend or enter into any subscription,
option, warrant, right or convertible or exchangeable security or other similar
agreement or commitment with respect to any Subsidiary of the Company, or
obligating any Subsidiary of the Company to make any payments pursuant to any
stock based or stock related plan or award. Neither the Company nor any
Subsidiary of the Company is subject to any obligation or requirement to provide
funds for or to make any investment (in the form of a loan, capital contribution
or otherwise) to or in any Person.
(d) For purposes of this Agreement, "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, the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of such
corporation or other legal entity.
2.3 Execution and Effect of Agreement.
---------------------------------
The Company has the power and authority to execute and deliver this
Agreement and to perform its obligations hereunder, and to consummate the
transactions contemplated hereby, subject to approval of this Agreement by the
holders of the Company Capital Stock. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by the Company and no other
proceeding on the part of the Company is necessary to authorize the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid
-13-
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity) (collectively, the "Bankruptcy and Equity
Exceptions").
2.4 Financial Statements; Liabilities.
---------------------------------
Copies of each of (a) the audited consolidated financial statements
of the Company for the years ended December 31, 2000 and December 31, 1999, (b)
the reviewed unaudited consolidated financial statements of the Company for the
year ended December 31, 1998, (c) the unaudited financial statements of the
Company for the years ended December 31, 1997 and December 31, 1996 and (d) the
reviewed unaudited consolidated financial statements of the Company for the
three months ended March 31, 2001 and the six months ended June 30, 2001
(collectively, the "Financial Statements") have been provided to the Acquiror.
Except as set forth on Schedule 2.4, each of the Financial Statements (including
the footnotes thereto) is in accordance with the books and records of the
Company, presents fairly and accurately the financial position, assets and
liabilities and results of operations and cash flows of the Company and its
Subsidiaries at the dates and for the periods indicated and has been prepared in
accordance with GAAP. Any interim Financial Statements or unaudited Financial
Statements have been prepared on a basis consistent with the audited Financial
Statements, subject only to normal and immaterial year-end adjustments and
footnote disclosure. The Financial Statements contain appropriate allowances and
reserves for the Company's and its Subsidiaries' accounts receivable and other
accruals. As of June 30, 2001 (the "Balance Sheet Date"), the Company and its
Subsidiaries had no indebtedness or other liability (whether accrued, absolute,
contingent or otherwise, and whether due or to become due) which is not
disclosed in the Financial Statements (including the footnotes thereto). Except
as set forth on Schedule 2.4, neither the Company nor any of its Subsidiaries
has incurred since the Balance Sheet Date any indebtedness or liability (whether
accrued, absolute, contingent or otherwise, and whether due or to become due),
other than those incurred since the Balance Sheet Date in the ordinary course of
business.
2.5 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of 9,300,000
shares of common stock, without par value, of which 4,400,000 shares have been
classified as Voting Common Stock and 4,900,000 shares have been classified as
Non-Voting Common Stock. As of the date hereof, and after giving effect to the
grants of restricted stock and the exercise of Company Options described on
Schedule 2.5(a), (i) 4,400,000 shares of Voting Common Stock will be issued and
outstanding, (ii) 4,900,000 shares of Non-Voting Common Stock will be issued and
outstanding and (iii) all of the issued and outstanding shares of capital stock
of the Company will be owned by the Stockholders in the amounts set forth on
Schedule 2.5(a).
(b) As of the Closing Date (after giving effect to the actions
required pursuant to Section 1.13), there will be no outstanding options, rights
(preemptive or otherwise), warrants,
-14-
calls, convertible securities or commitments or any other arrangements to which
the Company is a party requiring or restricting the issuance, sale or transfer
of any equity securities of the Company or any securities convertible directly
or indirectly into equity securities of the Company, or evidencing the right to
subscribe for any equity securities of the Company, or giving any Person any
rights with respect to the capital stock of the Company. Except as set forth on
Schedule 2.5(b), there are no voting agreements, voting trusts, other agreements
(including cumulative voting rights), commitments or understandings with respect
to the Company Capital Stock. All of the issued and outstanding shares of the
Company Capital Stock have been duly authorized and validly issued, are fully
paid and nonassessable.
2.6 No Material Adverse Change; No Dividends.
----------------------------------------
Since the Balance Sheet Date, there has been no material adverse
change in the business of the Company or any of its Subsidiaries as presently
conducted, or the financial condition or results of operations of the Company or
any of its Subsidiaries. Since the Balance Sheet Date (a) except as set forth on
Schedule 2.6, no dividends or distributions have been declared or paid on or
made with respect to any equity interests of the Company nor have any such
interests been repurchased or redeemed, and (b) except as set forth on Schedule
2.6, neither the Company nor any of its Subsidiaries has taken any action which
would have violated Section 5.5 if this Agreement had been dated as of the
Balance Sheet Date and such covenants had been binding and applicable from and
after such date.
2.7 Assets.
------
Schedule 2.7 sets forth an accurate list of: (a) all personal
property which is included (or that will be included) in "property and
equipment" (or similarly named line item) on the Financial Statements with a
value individually in excess of $5,000, (b) all other personal property owned by
the Company or any of its Subsidiaries with a value individually in excess of
$10,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (c) all leases and agreements in respect of personal property
with a value individually in excess of $10,000 (or in an aggregate amount in
excess of $50,000), and, in the case of (c), true, complete and correct copies
of all such leases which have been provided to the Acquiror. All personal
property used by the Company or any of its Subsidiaries is either owned by the
Company (or such Subsidiary, as applicable) or leased by the Company (or such
Subsidiary, as applicable) pursuant to a lease included on Schedule 2.7. All of
the personal property listed on Schedule 2.7 is in good working order and
condition, ordinary wear and tear excepted. All leases and agreements included
on Schedule 2.7 are in full force and effect and constitute valid and binding
agreements of the Company (or such Subsidiary, as applicable) and, to the
Company's Knowledge, of the other parties thereto in accordance with their
respective terms, except as limited by the Bankruptcy and Equity Exceptions.
Except as set forth on Schedule 2.7, the Company (or such Subsidiary, as
applicable) has good title to all of the properties and assets shown as owned on
Schedule 2.7, free and clear of any lien, security interest, mortgage, pledge,
hypothecation, charge, preemptive right, voting trust, imposition, covenant,
condition, right of first refusal, easement or conditional sale or other title
retention agreement or other restriction (an "Encumbrance"), other than other
than a Permitted Encumbrance. "Permitted Encumbrance"
-15-
means (i) any Encumbrance with respect to Taxes (A) that are not yet due and
payable or (B) that are being contested in good faith and by appropriate
proceedings and are identified on Schedule 2.7, (ii) Encumbrances of landlords,
carriers, warehousemen, mechanics and materialmen and the like (A) that are
incurred in the ordinary course of business for amounts not yet due and payable
or (B) that are being diligently contested in good faith by appropriate
proceedings and (iii) easements, rights-of-way, reservations, zoning and other
restrictions and similar encumbrances that do not interfere in any material
respect with the ordinary course of the Company's business.
2.8 Tax Matters.
-----------
Except as disclosed on Schedule 2.8:
(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 timely
(taking into account extensions of time to file) filed all Tax Returns (as
defined below) required to be filed by them, and all such Tax Returns were true,
correct and complete in all material respects. The Company and each such group
have paid all Taxes shown thereon or otherwise due. The Company has provided
adequate accruals in accordance with GAAP in the Financial Statements for any
Taxes that have not been paid, whether or not shown as being due on any Tax
Returns. Other than Taxes incurred in the ordinary course of business, the
Company has no liability for unpaid Taxes accruing after the Balance Sheet Date,
except where the liability for unpaid Taxes would not be reasonably expected to
have a Material Adverse Effect.
(b) No property of the Company is subject to any liens for Taxes,
other than liens for Taxes not yet due and payable.
(c) No audit of any Tax Return of the Company is being conducted or,
to the Company's Knowledge, threatened, by a Tax Authority.
(d) No extension of the statute of limitations on the assessment of
any Taxes has been granted by the Company and is currently in effect or has been
requested.
(e) No agreement, contract or arrangement to which the Company is a
party may result in the payment of any amount that would not be deductible by
reason of Section 280G or Section 404 of the Code.
(f) There has been no change in ownership of the Company that has
caused the utilization of any losses of such entities to be limited pursuant to
Section 382 of the Code, and any loss carryovers reflected on the Financial
Statements are properly computed and reflected.
(g) The Company has not been and will not be required by reason of
the Merger to include any adjustment in Taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Merger.
(h) The Company is not and never has been a party to any Tax sharing
or Tax
-16-
allocation agreement nor does the Company have any liability or potential
liability to another party under any such agreement.
(i) 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.
(j) The Company has not ever been a "United States real property
holding corporation" within the meaning of Section 897 of the Code.
(k) No taxing authority has raised any issue with respect to Taxes
which, by application of similar principles, could result in the issuance of a
notice of deficiency or similar notice of intention to assess Taxes by any Tax
Authority.
(l) Pursuant to the Merger, the Merger Subsidiary will acquire at
least ninety percent (90%) of the fair market value of the Company's net assets
and at least seventy percent (70%) of the fair market value of the Company's
gross assets held immediately prior to the Merger. For purposes of this
representation, amounts paid by the Company to dissenters, amounts paid by the
Company to Stockholders who receive cash or other property, amounts used by the
Company to pay Merger expenses, amounts paid by the Company to redeem stock,
securities, warrants or options of the Company as part of any overall plan of
which the Merger is part, and amounts distributed by the Company to its
Stockholders (except for regular, normal dividends) as part of an overall plan
of which the Merger is a part, in each case will be treated as constituting
assets of the Company immediately prior to the Effective Time.
(m) The business currently carried on by the Company is its "historic
business" within the meaning of Treasury Regulation Section 1.368-1(d) and no
assets of the Company have been sold, transferred or disposed which would
prevent the Company from using a "significant portion" of its "historic business
assets" in a business following the Merger, as such terms are used in Treasury
Regulations 1.368-1(d).
(n) For purposes of this Agreement "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") means (i) any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom duty or other tax, Governmental Authority fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed by any Governmental
Authority (a "Tax Authority") responsible for the imposition of any such tax
(domestic or foreign), (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,
consolidated, combined, unitary or aggregate group for any Taxable period, and
(iii) any liability for the payment of any amounts of the type described in (i)
or (ii) as a result of being a transferee of or successor to any Person or as a
result of any express or implied obligation to indemnify any other Person. For
purposes of this Agreement, "Tax Return" means any return, statement, report or
form (including, without limitation, estimated tax returns and reports,
withholding tax returns and reports and information returns and reports)
required to be filed with respect to Taxes. As used in this Section, the
"Company" means the Company and any entity included in, or required under GAAP
to be included in, any of the Financial Statements.
-17-
2.9 Products.
--------
The Company's (and any of the Company's Subsidiaries') commercially
available software products ("Products") operate substantially as represented in
the Company's (or such Subsidiary's, as applicable) documentation,
specifications, manuals and user guides for the Products. Schedule 2.9 sets
forth a list of all material defects ("bugs") in the Products. There have been
no material warranty claims with respect to the Products within the past three
years and, to the Company's Knowledge, there are no material warranty claims
pending or threatened. The Products do not infringe upon or misappropriate any
rights of third parties, and none of the Voting Stockholders or the directors
and officers (and employees with responsibility for Product matters) of the
Company or any of its Subsidiary has ever received any written charge,
complaint, claim, demand or notice alleging any such infringement or
misappropriation (including any claim that the Company or any Subsidiary must
license or refrain from using all or any portion of the Products).
2.10 Intellectual Property.
---------------------
(a) The Company and each of its Subsidiaries owns or has the right to
use pursuant to license, sublicense, agreements or permission all Intellectual
Property (as defined below) necessary for the operation of the business of the
Company (or such Subsidiary) as presently conducted. For purposes of this
Agreement, "Intellectual Property" means any intangible property rights,
including but not limited to inventions, discoveries, technology, software,
functionality, source code, design, trade secrets, processes, formulas and
know-how, in whatever form or medium, U.S. and foreign patents, pending or
granted, if any, patent applications, trade names, trademarks, trademark
registrations, applications for trademark registrations, copyrights, copyright
registrations and all licenses (except for shrink-wrap licenses for commercially
available products) and other agreements to which the Company or any of its
Subsidiaries is a party (as licensor, licensee or otherwise) relating to any of
the foregoing kinds of Intellectual Property.
(b) None of the Voting Stockholders or the directors and officers
(and employees with responsibility for Intellectual Property matters) of the
Company or any of its Subsidiaries has ever received any written charge,
complaint, claim, demand or notice alleging any such infringement or
misappropriation (including any claim that the Company or any Subsidiary must
license or refrain from using any Intellectual Property rights of any third
party). Except as set forth on Schedule 2.10(b), to the Company's Knowledge, no
third party has infringed upon or misappropriated any Intellectual Property
rights of the Company or any Subsidiary.
(c) Schedule 2.10(c) identifies (i) any and each patent or
registration which has been issued to the Company or any Subsidiary with respect
to any of its Intellectual Property, (ii) any and each pending patent
application or application for registration which the Company or any Subsidiary
has made with respect to any of its Intellectual Property, (iii) any registered
copyright issued to the Company or any Subsidiary, (iv) trademarks and trade
names (registered and
-18-
unregistered) used by the Company or any Subsidiary in connection with its
business and (v) any and each license, agreement, or other permission which the
Company or any Subsidiary has granted to any third party with respect to any of
its Intellectual Property (together with any exceptions). The Company has
delivered to the Acquiror correct and complete copies of any and all such
patents, registrations, applications, licenses, agreements, and permissions (as
amended to date). With respect to each item of Intellectual Property required to
be identified on Schedule 2.10(c):
(i) for clauses (i) through (iv) above, the Company (and its
Subsidiaries, as applicable) possesses all right, title, and interest in and to
the item, free and clear of any Encumbrance, license, or other restriction;
(ii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling or charge;
(iii) to the Company's Knowledge, no action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand is pending or, to the
Company's Knowledge, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(iv) other than indemnities contained in the Company's customer
license agreements or other license agreements entered into in the ordinary
course, neither the Company nor any of its Subsidiaries is obligated to
indemnify any Person for or against infringement or misappropriation with
respect to the item.
(d) Schedule 2.10(d) identifies each item of Intellectual Property
that any third party owns and that the Company or any of its Subsidiaries use
pursuant to any license, sublicense, agreement or permission (except for
shrink-wrap licenses of commercially available products). The Company has
delivered to the Acquiror correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date). With respect to
each item of Intellectual Property required to be identified in Schedule 2.10(d)
and except as set forth on Schedule 2.10(d):
(i) the license, sublicense, agreement or permission covering
the item is legal, valid, binding, enforceable, and in full force and effect,
subject to the Bankruptcy and Equity Exceptions;
(ii) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby, subject to the Bankruptcy and Equity Exceptions;
(iii) no party to the license, sublicense, agreement, or
permission is in material breach or default, and , to the Company's Knowledge,
no event has occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or acceleration
thereunder;
-19-
(iv) no party to the license, sublicense, agreement or
permission has repudiated any provision thereof;
(v) with respect to each sublicense, the representations and
warranties set forth in clauses (i) through (iv) above are true and correct with
respect to the underlying license;
(vi) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling or charge;
(vii) to the Company's Knowledge, no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand is pending or
threatened which challenges the legality, validity, or enforceability of the
underlying item of Intellectual Property; and
(viii) neither the Company nor any of its Subsidiaries has
granted any unauthorized sublicenses or similar rights with respect to the
license, sublicense, agreement or permission.
(e) Except as set forth on Schedule 2.10(e), each item of
Intellectual Property owned or used by the Company or any of its Subsidiaries
immediately prior to the Closing will be owned or available for use by the
Surviving Corporation on identical terms and conditions immediately after the
Merger. The transactions contemplated by this Agreement will not result in (i)
the infringement or misappropriation by the Company or any of its Subsidiaries
of any Intellectual Property right of any other Person, (ii) a default under or
a breach or violation of, or adversely affect the rights and benefits afforded
to the Company or any of its Subsidiaries by any contracts involving the grant
to the Company or any of its Subsidiaries of any rights relating to the
Intellectual Property of any third party or (iii) the requirement that the
Company or any of its Subsidiaries obtain the consent of any third party or
Governmental Authority, which consent has not been previously obtained.
(f) The Company and its Subsidiaries have used commercially
reasonable efforts to prevent disclosure of such Intellectual Property that is
owned by the Company or any of its Subsidiaries and that derives its value from
being kept in confidence ("Confidential Information"), consistent with those
efforts customarily used by similarly-situated software companies and consistent
with the importance of the Confidential Information; notwithstanding the
foregoing, the Company has disclosed previously Confidential Information without
restriction for reasonable business purposes, including without limitation, for
patent applications and marketing and sales purposes. For the period during
their employment or consultation with the Company or any of its Subsidiaries,
all former and current members of management and key personnel of the Company or
any of its Subsidiaries, including all former and current employees, agents,
consultants and independent contractors who have contributed to or participated
in the conception and development of any of such Intellectual Property
(collectively, "Personnel"), have executed and delivered to the Company (or its
Subsidiaries, as applicable) a proprietary information agreement restricting
such Person's right to disclose proprietary information of the Company, its
Subsidiaries or any of their respective clients. All former and current
Personnel, either (i) have been party to a "work-for-hire" arrangement or
agreement with the Company, in accordance with applicable federal and state law,
that has accorded the Company full, effective
-20-
and exclusive ownership of all Intellectual Property thereby arising or (ii)
have executed appropriate instruments of assignment in favor of the Company as
assignee that have conveyed to the Company full, effective and exclusive
ownership of all tangible and intangible property arising thereby. No former or
current Personnel have asserted any claim against the Company or any of its
Subsidiaries in connection with such Person's involvement in the conception and
development of any Intellectual Property and, to the Company's Knowledge, no
such claim has been threatened. None of the current officers and employees of
the Company or any of its Subsidiaries have any patents issued or applications
pending for any device, process, design or invention of any kind now used or
needed by the Company or any of its Subsidiaries in the furtherance of their
respective business operations, which patents or application (other than
provisional applications) have not been assigned to the Company, with such
assignment duly recorded in the United States Patent Office.
2.11 Permits; Compliance with Law.
----------------------------
The Company and each of its Subsidiaries is in compliance with all
applicable national, state, local and foreign laws, rules and regulations,
except where the failure to so comply would not be reasonably likely to result
in a Material Adverse Effect. The Company has delivered to the Acquiror an
accurate list and summary description (which is set forth on Schedule 2.11) of
all licenses, franchises, permits and other governmental authorizations (a list
of all environmental permits and other environmental approvals is set forth on
Schedule 2.18). The licenses, franchises, permits and other governmental
authorizations listed on Schedules 2.11 and 2.18 are valid and in effect, and
neither the Company nor any of its Subsidiaries has received any notice that any
Governmental Authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The Company and
each of its Subsidiaries has conducted and is conducting its respective
businesses in compliance with the requirements, standards, criteria and
conditions set forth in the licenses, franchises, permits and other
authorizations listed on Schedules 2.11 and 2.18, except where the failure to so
comply would not be reasonably likely to result in a Material Adverse Effect.
The transactions contemplated by this Agreement will not result in a default
under or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company (or its Subsidiaries, as applicable) by, any licenses,
franchises, permits or authorizations listed on Schedules 2.11 or 2.18.
2.12 Real Property; Leases of Real Property.
--------------------------------------
(a) Neither the Company nor any of its Subsidiaries owns any interest
in any real property.
(b) Schedule 2.12 contains a complete and correct list of all written
(and a summary description of all oral) leases, subleases, license agreements or
other rights of possession or occupancy of real property to which the Company or
any of its Subsidiaries is a party (as tenant, occupier or possessor) (each a
"Lease" and collectively the "Leases"). A complete and correct copy of each
Lease has been furnished to the Acquiror. Except as disclosed on Schedule 2.12,
no consent is required of any landlord or other third party to any Lease to
consummate the
-21-
transactions contemplated hereby. Neither the Company nor any of its
Subsidiaries is in default in any respect beyond any applicable notice or grace
period or has received written notice of any such default still outstanding on
the date hereof under any Lease, and on the date hereof there exists no uncured
default thereunder by any other party. All Leases are in full force and effect
and are enforceable against the parties thereto in accordance with their terms
except as limited by the Bankruptcy and Equity Exceptions. The real property
described on Schedule 2.12 constitutes all the real property necessary for the
operation of the business of the Company and its Subsidiaries as presently
conducted.
2.13 Insurance.
---------
Schedule 2.13 contains a complete and correct list of all policies of
insurance of any kind or nature covering the Company or any of its Subsidiaries;
including, without limitation, policies of life, fire, theft, employee fidelity,
directors' and officers' and other casualty and liability insurance, and such
policies are in full force and effect. Complete and correct copies of each such
policy have been provided to the Acquiror. No notice of cancellation has been
received by the Company or any of its Subsidiaries with respect to any of its
insurance policies, and no such policies are subject to any retroactive rate or
audit adjustments or coinsurance arrangements.
2.14 Contracts.
---------
(a) Schedule 2.14 lists the following agreements (excluding
shrink-wrap licenses for the Company's products or commercially available
products licensed by the Company) to which the Company or any of its
Subsidiaries is a party: (i) any agreement (or group of related agreements) for
the lease of personal property with a value individually in excess of $10,000
(or in an aggregate amount in excess of $50,000) to or from any Person; (ii) any
agreement (or group of related agreements) for the purchase or sale of raw
materials, commodities, supplies, products or other personal property, or for
the furnishing or receipt of services, the performance of which will extend over
a period of more than one year (and involve consideration paid or received of
more than $15,000), result in a loss to the Company (or any of its
Subsidiaries), or involve consideration paid or received in excess of $25,000;
(iii) any agreement concerning a partnership or joint venture; (iv) any
agreement (or group of related agreements) under which the Company or any of its
Subsidiaries has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of $25,000 or
under which the Company or any Subsidiary has imposed an Encumbrance on any of
its assets, tangible or intangible, other than a Permitted Encumbrance; (v) any
agreement concerning confidentiality or non-competition; (vi) any agreement
involving any of the Stockholders or their affiliates; (vii) any profit sharing,
stock option, stock purchase, stock appreciation, deferred compensation,
severance, or other plan or arrangement for the benefit of its current or former
directors, officers, stockholders or employees; (viii) any collective bargaining
agreement or other agreement with labor unions or their representatives; (ix)
any agreement for the employment or retention as an independent contractor of
any individual on a full-time, part-time, consulting, or other basis; (x) any
agreement under which it has advanced or loaned any amount to any of its
directors, officers, stockholders or employees outside the ordinary course of
business; (xi) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect; or (xii)
-22-
any other agreement (or group of related agreements) the performance of which
involves consideration in excess of $25,000. Complete and correct copies of each
such agreement have been provided to the Acquiror.
(b) Each of the Company and its Subsidiaries has performed all of
their respective obligations required to be performed by it to date and is not
in default in any respect under any agreement set forth on Schedule 2.14. To the
Company's Knowledge, no party with whom the Company or any of its Subsidiaries
has such an agreement is in default thereunder. All of the agreements set forth
on Schedule 2.14 are in full force and effect and enforceable against the
parties thereto in accordance with their terms, except as limited by the
Bankruptcy and Equity Exceptions. Neither the Company nor any Subsidiary has
been notified or is aware that any party to any agreement set forth on Schedule
2.14 intends to cancel, terminate, not renew or exercise an option, or
materially diminish the services provided under any such agreement, whether in
connection with the transactions contemplated hereby or otherwise. Neither the
Company nor any of its Subsidiaries has been the subject of any warranty claim,
indemnification claim or any other claim whatsoever arising out of or relating
to any agreement set forth on Schedule 2.14 and, to the Company's Knowledge, no
such claims have been or are presently threatened. Except as set forth on
Schedule 2.14, one of the Company's or any of its Subsidiaries' agreements with
any reseller or distributor requires or provides for the payment of any rebate
to any such reseller or distributor in an amount in excess of $5,000 (or $25,000
in the aggregate).
2.15 Restrictions.
------------
Except as set forth on Schedule 2.15, neither the execution or
delivery of this Agreement by the Company nor the consummation by the Company of
the transactions contemplated hereby, will violate any statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge or restriction of any
Governmental Authority, or court to which the Company or any of its Subsidiaries
is a party or to which any of them are bound or subject, conflict with or result
in a breach of, or give rise to a right of termination of, or accelerate the
performance required by, any terms of any agreement or contract listed on
Schedule 2.14, or constitute a default in any respect thereunder, or result in
the creation of any Encumbrance upon any of the Company's or its Subsidiaries'
assets, nor will it violate any of the provisions of the Company's Articles of
Incorporation or Bylaws, or any of the organizational documents of any of its
Subsidiaries, or violate any judgment or decree by which it or any of its
Subsidiaries is bound.
2.16 Litigation; Orders.
------------------
There is no pending action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted, heard by or before, or
otherwise involving, any court, Governmental Authority, arbitrator or other
third party, whether at law or in equity (a "Proceeding"), that (a) has been
commenced by or against the Company or any of its Subsidiaries or that otherwise
relates to or may affect the business or assets of the Company or any of its
Subsidiaries or (b) challenges or may have the effect of preventing, delaying,
making illegal, or otherwise interfering with the
-23-
Merger or the other transactions contemplated hereby. To the Company's
Knowledge, no such Proceeding has been threatened and, with respect to clause
(b), no event has occurred or circumstances exist that may give rise to or serve
as a basis for commencement of any such Proceeding. Copies of all pleadings,
correspondence and other documents relating to each Proceeding listed on
Schedule 2.16 have been delivered or made available to the Acquiror. Neither the
Company nor any of its Subsidiaries is subject to or limited by any order of any
Governmental Authority.
2.17 Third Party and Governmental Consents.
-------------------------------------
Except as set forth in Schedule 2.17, no consent, waiver, approval,
permit, authorization of, declaration to or filing with any third party or
Governmental Authority on the part of the Company or any of its Subsidiaries is
required in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (a) the filing
of the Articles of Merger and the Certificate of Merger and (b) any filings as
may be required under applicable federal and state securities laws. Any consents
set forth on Schedule 2.17 are referred to collectively as the "Consents."
2.18 Environmental Matters.
---------------------
(a) Except as disclosed in Schedule 2.18, (i) the operations of the
Company and its Subsidiaries are now and have been in compliance in all material
respects with applicable Environmental Laws, (ii) neither the Company nor any of
its Subsidiaries is subject to any pending or, to the Company's Knowledge,
threatened judicial or administrative proceeding alleging the violation of any
Environmental Law or alleging responsibility for environmental conditions at any
property, (iii) neither the Company nor any of its Subsidiaries has received any
written notice that it is potentially responsible for environmental conditions
at any property; (iv) neither the Company nor any of its Subsidiaries has
received a written request for information under any Environmental Law; (v) to
the Company's Knowledge, neither the Company nor any of its Subsidiaries has
disposed of or released Hazardous Materials nor are underground storage tanks
present on, in, at or under any real property currently owned or leased by the
Company or any of its Subsidiaries; (vi) neither the Company nor any of its
Subsidiaries has disposed of or released any Hazardous Materials in or at any
other real property; (vii) the Company and its Subsidiaries have all permits and
approvals required by Environmental Laws to conduct their existing business
operations; (viii) neither the Company nor any of its Subsidiaries has agreed to
indemnify any predecessor or other party, including a buyer, seller, landlord or
tenant, with respect to any environmental liability; (ix) the transactions
contemplated by this Agreement are not subject to any environmental transfer
laws and no governmental approval, clearance or consent is required under any
Environmental Law for the consummation of the transactions contemplated hereby;
(x) to the Company's Knowledge, no other Person has released Hazardous Materials
at any property now or formerly owned or operated by the Company or any of its
Subsidiaries or in a location that would threaten or contaminate such
properties; and (xi) the Company has delivered to the Acquiror copies of all
environmental reports, permits, suits, information requests, orders, notices of
violation, closure letters, site status letters and similar documentation that
are in the Company's possession or control and has disclosed its waste practices
and its use of Hazardous Materials, if any.
-24-
(b) For purposes of this Agreement, "Environmental Laws" shall mean
any national, local or foreign law, ordinance, regulation, order or permit
pertaining to the environment, natural resources or public health or safety as
presently in effect or as amended as of the Closing Date.
(c) For purposes of this Agreement, "Hazardous Materials" shall mean
hazardous wastes as presently defined by the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. ss. 6901 et. seq., as amended, and regulations
promulgated thereunder and hazardous substances as presently defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. ss. 9601 et seq., as amended ("CERCLA" or "Superfund") and regulations
promulgated thereunder, and shall also include any substance, material or waste
(regardless of physical form or concentration) that is regulated, listed or
identified under any Environmental Law which is or was applicable to the
operations of the Company and any other substance, material or waste (regardless
of physical form or concentration) which is or may become hazardous or toxic to
living things or the environment.
2.19 Employees and Consultants.
-------------------------
(a) The Company has provided the Acquiror with a true and complete
list of all Persons presently employed by the Company or its Subsidiaries, all
Persons who presently perform work for the Company or any of its Subsidiaries
pursuant to any agreement(s) between the Company (or any of its Subsidiaries, as
applicable) and any employment agency, and all currently-engaged independent
contractors and consultants (collectively, the "Independent Contractors") of the
Company or any of its Subsidiaries, and the position and total compensation,
including base salary or wages, bonus, commissions, and all other available
forms of compensation, payable to each such individual during the 2001 calendar
year.
(b) Schedule 2.19 lists all current written employment agreements,
independent contractor agreements, consulting agreements or severance agreements
to which the Company or any of its Subsidiaries is a party. This Agreement and
the transactions contemplated hereby do not and will not violate any such
employment agreements or independent contractor or consulting agreements. The
Company and its Subsidiaries are in compliance in all material respects with all
currently applicable federal, state, and local laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and,
to the Company's Knowledge, neither the Company nor any of its Subsidiaries is
engaged in any unfair labor practice.
(c) The Company and its Subsidiaries have 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. Neither
the Company nor or any of its Subsidiaries is liable for any payment to any
trust or other fund or to any governmental or administrative authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for
-25-
employees, except for such payments as would not be reasonably likely to result
in a Material Adverse Effect. There are no pending claims against the Company or
any of its Subsidiaries under any workers compensation plan or policy or for
long term disability, except for such payments as would not be reasonably likely
to result in a Material Adverse Effect. There are no claims or controversies
pending or, to the Company's Knowledge, threatened, between Company or any of
its Subsidiaries and any of their respective employees or Independent
Contractors, which claims of controversies have or will result in an action,
suit, proceeding, claim, arbitration or investigation before any agency, court
or tribunal, foreign or domestic.
(d) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or other labor union contract and the Company
has no Knowledge of any activities or proceedings of any labor union to organize
any such employees. To the Company's Knowledge, no employees or Independent
Contractors of the Company or any of its Subsidiaries are in violation of any
term of any employment contract, patent disclosure agreement, enforceable
non-competition agreement, or any enforceable restrictive covenant to a former
employer or customer relating to the right of any such employee or Independent
Contractor to be employed by the Company or any of its Subsidiaries because of
the nature of the business conducted or presently proposed to be conducted by
the Company or any of its Subsidiaries or to the use of trade secrets or
proprietary information of others.
(e) No employees or Independent Contractors of the Company or any of
its Subsidiaries have given notice and, to the Company's Knowledge, no such
employee or Independent Contractor intends to terminate his or her employment or
contractor or consulting relationship with the Company (or its Subsidiaries, as
applicable).
2.20 Business Conduct.
----------------
Except as set forth on Schedule 2.20 or as contemplated by this
Agreement, since the Balance Sheet Date the Company and its Subsidiaries have
conducted their business only in the ordinary course consistent with past custom
and practices and has incurred no liabilities other than in the ordinary course
of business consistent with past custom and practices. Except as set forth on
Schedule 2.20, since the Balance Sheet Date there has not been any:
(a) Material Adverse Effect;
(b) loan or advance by the Company or any of its Subsidiaries to any
Person other than sales to customers on credit in the ordinary course of
business consistent with past custom and practices;
(c) declaration, setting aside, or payment of any dividend or other
distribution in respect of any equity interest in the Company or any of its
Subsidiaries, or any direct or indirect redemption, purchase, or other
acquisition of such equity interest;
(d) incurrence of any debts, liabilities or obligations except
current liabilities incurred in connection with or for services rendered or
goods supplied in the ordinary course of business consistent with past custom
and practices, liabilities on account of Taxes and governmental charges but not
penalties, interest or fines in respect thereof;
-26-
(e) issuance by the Company or any of its Subsidiaries of any notes,
bonds, or other debt securities or any equity securities or securities
convertible into or exchangeable for any equity securities;
(f) cancellation, waiver or release by the Company or any of its
Subsidiaries of any debts, rights or claims, except in each case in the ordinary
course of business consistent with past custom and practices or in an amount not
in excess of $7,500;
(g) change in accounting principles, methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) utilized by the Company or any of its Subsidiaries;
(h) negotiation, sale, lease, transfer or conveyance by the Company
or any of its Subsidiaries of any assets other than in the ordinary course of
business or in an amount not in excess of $7,500;
(i) capital expenditures or commitments therefor by the Company or
any of its Subsidiaries in excess of $10,000;
(j) creation of any lien or Encumbrance on any asset of the Company
or any of its Subsidiaries, except for Permitted Encumbrances;
(k) adoption, amendment or termination of any employee benefit plan;
(l) increase in the benefits provided under any employee benefit
plan; or
(m) an occurrence or event not included in clauses (a) through (l)
that is reasonably likely to have a Material Adverse Effect.
2.21 Transactions with Affiliates.
----------------------------
Except as set forth on Schedule 2.21, neither the Company nor or any
of its Subsidiaries is a party to any contract, agreement or other arrangement
(other than those relating to employment and listed on Schedule 2.19 or in an
aggregate amount not in excess of $2,000) with (a) any current or former
officer, director, employee or stockholder; (b) any parent, spouse, child,
brother, sister or other family relation of any such officer, director, employee
or stockholder; (c) any corporation, partnership or other entity of which any
such officer, director, employee or stockholder or any such family relation is
an officer, director, employee, partner or greater than 10% owner (based on
percentage ownership of voting interest); or (d) any trust with respect to which
any such entity is a trustee or beneficiary.
2.22 No Brokers.
----------
Neither the Company nor any Person acting on behalf of the Company
has agreed to pay
-27-
a commission, finder's or investment banking fee, or similar payment in
connection with this Agreement or any matter related hereto to any Person, nor
has any such Person taken any action on which a claim for any such payment could
be based, except for a fee payable to Broadview International LLC (which will be
paid out of the Company Cash Consideration) for which fee neither the Acquiror
nor the Company will be responsible.
2.23 Accounts Receivable.
-------------------
Except as set forth on Schedule 2.23, all accounts, accounts
receivable, notes and notes receivable, including all rights of the Company or
any of its Subsidiaries to payment for goods sold or for services rendered which
are payable to the Company or any of its Subsidiaries, including any security
held for the payment thereof (collectively, the "Accounts Receivable") are
reflected properly on its books and records, are valid receivables subject to no
setoffs or counterclaims, are current and collectible in accordance with their
terms at their recorded amounts, subject to any reserve for bad debts set forth
on the face of the Financial Statements (rather than in any notes thereto).
2.24 Customers and Suppliers.
-----------------------
Schedule 2.24 contains a complete and accurate list of each of
Company's and any of its Subsidiaries' suppliers (in excess of $20,000 of
expense per year) and each of the Company's and any of its Subsidiaries'
customers (in excess of $25,000 of revenue per year) during the period from
January 1, 2001 through the Balance Sheet Date (in the case of suppliers) and
January 1, 2000 through the Balance Sheet Date (in the case of customers).
Except as set forth in Schedule 2.24, none of the Company, its Subsidiaries or
any Voting Stockholder has received written notice that, or has reason to
believe that, any such supplier or any customer does not plan to continue to do
business with the Acquiror, or plans to reduce its supplies to or volume of
orders from the Acquiror or will not do business on substantially the same terms
and conditions with the Acquiror subsequent to the Closing Date as such supplier
or customer did with the Company (or its Subsidiaries, as applicable) before the
Closing Date. All of the Company's and its Subsidiaries' relationships with
their customers (a) are described in written agreements, copies of which have
been provided to the Acquiror, (b) have not been orally modified and (c) require
no performance by the Company (or its Subsidiaries, as applicable) beyond the
written terms thereof.
2.25 Employee Benefit Plans; ERISA.
-----------------------------
(a) Definitions. For purposes of this Agreement, the following terms
have the following meanings:
"Benefit Plans" means all employee benefit plans as defined in
Section 3(3) of ERISA and all other employee benefit arrangements, obligations,
customs, or practices (including but not limited to a payroll practice), whether
or not legally enforceable, to provide benefits, other than salary, as
compensation for services rendered, to current or former directors, employees or
agents of the Company or an ERISA Affiliate, including, without limitation,
employment agreements, severance agreements, executive compensation
arrangements, incentive programs or
-28-
arrangements, sick leave, vacation pay, severance pay policies, plant closing
benefits, salary continuation for disability, consulting or other compensation
arrangements, workers' compensation, deferred compensation, bonus, stock option
or purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs, any plans providing benefits or payments
in the event of a change of control, change in ownership, or sale of a
substantial portion (including all or substantially all) of the assets of any
business of the Company, other than Multiemployer Plans, maintained by the
Company or an ERISA Affiliate or to which the Company or an ERISA Affiliate has
contributed or is or was obligated to make payments, in each case with respect
to any current or former employees, directors or agents of the Company or an
ERISA Affiliate, in the six-year period before the date of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any trade or business the employees of which,
together with the employees of the Company, are treated as employed by a single
employer under Section 414(b), (c), (m) or (o) of the Code.
"Multiemployer Plan" means any multiemployer plan as defined in
Section 3(37) of ERISA to which the Company or an ERISA Affiliate has
contributed or is or was obligated to make payments, in each case with respect
to any current or former employees of the Company or an ERISA Affiliate before
the Closing Date.
"Multiple Employer Plan" means a Benefit Plan that is a multiple
employer plan subject to Sections 4063 and 4064 of ERISA or Section 413(c) of
the Code.
"Pension Plan" means a Benefit Plan that is an employee pension
benefit plan as defined in Section 3(2) of ERISA.
"VEBA" means an association that is or is intended to be a voluntary
employees' beneficiary association under Section 501(c)(9) of the Code, whose
members include current or former employees of the Company or an ERISA
Affiliate, maintained at any time during the six-year period before the date of
this Agreement.
"Welfare Plan" means a Benefit Plan that is an employee welfare
benefit plan as defined in Section 3(1) of ERISA.
(b) Employee Benefit Representations.
(i) List of Plans. Schedule 2.25 provides complete and correct
lists of: (A) Pension Plans, identifying among them plans that are intended to
qualify under Section 401(a) of the Code, (B) Welfare Plans, identifying among
them plans that provide benefits after a participant's retirement or other
termination of employment, other than benefits in the form of continuation
coverage under a group health plan as required by Section 4980B of the Code or
Sections 601 through 608 of ERISA if paid 100% by the participant or
beneficiary; (C) Multiemployer Plans; (D) all other Benefit Plans not listed
pursuant to (A) through (C), above. The Company has no Pension Plans subject to
Title IV of ERISA, no Multiple Employer Plans and no VEBAs;
-29-
(ii) Documents Regarding Plans. Except as disclosed in Schedule
2.25 the Company has provided to the Acquiror correct and complete copies of the
following:
(A) With respect to each Benefit Plan: (1) all documents
that set forth the terms of the Benefit Plan, including without limitation plan
documents, summary plan descriptions, employee handbooks and all amendments
thereto; (2) all agreements relating to the funding of the Benefit Plan,
including without limitation trust agreements and insurance policies; (3) all
agreements concerning the administration or management of the Benefit Plan,
including without limitation agreements for consulting, administrative or
investment advisory, management or custodial services; (4) written descriptions
of all material non-written agreements relating to the Benefit Plan; (5) all
reports submitted within the three years preceding the date of this Agreement by
plan administrators, actuaries, investment managers, consultants or other
independent contractors; (6) all notices within the three years preceding the
date of this Agreement received from any governmental agency or entity; and (7)
all filings with a governmental agency or entity within the three years
preceding the date of this Agreement, including without limitation compliance
program applications and registration statements;
(B) With respect to each Pension Plan, in addition to the
documents required for a Benefit Plan as set forth above: (1) IRS Forms 5500,
including all schedules attached thereto, for the last three plan years for
which the filing of such Forms have become due before the date of this Agreement
and (2) if the Pension Plan is or is intended to qualify under Section 401(a) of
the Code, the most recently issued Internal Revenue Service determination letter
and the last application submitted to Internal Revenue Service to request for a
determination letter; and
(C) With respect to each Welfare Plan, in addition to the
documents required for a Benefit Plan as set forth above, the IRS Forms 5500,
including all schedules attached thereto, for the last three plan years for
which the filing of such Forms have become due before the date of this
Agreement.
(iii) Benefit Plans In General. Except as disclosed in
Schedule 2.25:
(A) Each Benefit Plan has been administered in accordance
with the terms of the plan documents and has been maintained, in form and in
operation, in accordance with applicable laws, regulations and published rules
and guidance by governmental authorities, except for such violations of
applicable laws, regulations and published rules and guidance by governmental
authorities which, in the aggregate, would not have a Material Adverse Effect;
(B) Each Benefit Plan intended to qualify under Section
401(a) of the Code is so qualified and each trust for such Benefit Plan is
tax-exempt under Section 501(a) of the Code, and no event has occurred or
circumstance exists that will or could give rise to the disqualification of the
Benefit Plan or loss of tax-exempt status of the trust, except as would not be
reasonably likely to result in a Material Adverse Effect;
-30-
(C) No material pending claim or lawsuit which has been
asserted or instituted by or against a Benefit Plan, against the assets of a
trust under a Benefit Plan or by or against the plan sponsor, plan
administrator, or any fiduciary of a Benefit Plan (other than routine claims for
benefits), and the Company and the ERISA Affiliates have no Knowledge of any
fact which could reasonably form the basis for any such claim or lawsuit;
(D) No event has occurred and no condition exists with
respect to any Benefit Plan that would subject the Company or the Acquiror to
any tax under Chapter 43 of the Code or Section 502(c) of ERISA, except for such
taxes as would not be reasonably likely to result in a Material Adverse Effect;
(E) No transaction or arrangement has occurred with respect
to a Benefit Plan that is prohibited under Section 406 of ERISA or is a
"prohibited transaction" under Section 4975 of the Code, except exempt
transactions and arrangements that would not be reasonably likely to result in a
Material Adverse Effect;
(F) Each Benefit Plan (including without limitation a
Benefit Plan covering retirees of the Company or an ERISA Affiliate or the
beneficiaries of such retirees) may be terminated or amended by the plan
sponsor, in any manner and at any time, without the consent of any Person
covered thereunder and may be terminated without any further liability for
benefits that may be accrued or expenses that may be incurred after the date of
such termination;
(G) No Benefit Plan has any provisions that would prohibit
the transactions contemplated by this Agreement, or give rise to or accelerate
any liability under such Benefit Plan (including without limitation any
acceleration in benefits vesting or distribution) as a result of the
transactions contemplated by this Agreement;
(H) No payment that is owed or may become due any director,
officer, employee, or agent of the Company in connection with a Benefit Plan
will be non-deductible to the payor under Section 280G of the Code or will
subject to tax under Section 4999 of the Code; nor will the Company or the
Acquiror be required to "gross up" or otherwise compensate any Person in
connection with a Benefit Plan because of the imposition of any excise tax under
Section 4999 of the Code;
(I) The Company and the ERISA Affiliates have no Knowledge
of any oral or written statement made by the Company, an ERISA Affiliate or any
officer, employee or agent thereof, regarding the Benefit Plan that was not in
accordance with the Benefit Plan and that could have an adverse economic
consequence to the Company; and
(J) The Company has no liability (whether actual or
contingent) with respect to any Benefit Plan sponsored or maintained by an ERISA
Affiliate.
(iv) Welfare Plans. Except as disclosed in Schedule 2.25:
-31-
(A) Each Welfare Plan intended to meet the requirements of
tax-favored treatment under Subchapter B of Chapter 1 of the Code meets such
requirements except for such failures as would not be reasonably likely to
result in a Material Adverse Effect;
(B) There is no disqualified benefit (as defined in Section
4976(b) of the Code) under a Welfare Plan which would subject the Company or the
Acquiror to tax under Section 4976(a) of the Code;
(C) Each Welfare Plan that is a group health plan as
defined in Section 5000(b)(1) of the Code has been operated in compliance with
the group health plan continuation coverage requirements of Section 4980B of the
Code and Sections 601 through 608 of ERISA, Title XXII of the Public Health
Service Act, the provisions of the Social Security Act, and the health insurance
portability and accountability requirements of sections 9801 through 9806 of the
Code and sections 731 through 734 of ERISA, to the extent such requirements are
applicable, except for such noncompliance which, in the aggregate, would not
have a Material Adverse Effect; and
(D) Each Welfare Plan subject to Section 1862(b)(1) of the
Social Security Act has been operated in compliance with the secondary payor
requirements of that Section except for such noncompliance as would not be
reasonably likely to result in a Material Adverse Effect.
2.26 Registration Rights.
-------------------
Except as set forth on Schedule 2.26, there is no agreement of the
Company to register under the Securities Act any shares of Company Capital Stock
or any shares of Company Capital Stock issuable upon the exercise of Company
Options.
2.27 Disclosure.
----------
None of the representations and warranties set forth in this
Agreement, the schedules, certificates, and the other documents furnished by the
Company to the Acquiror pursuant hereto, contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VOTING STOCKHOLDERS
-----------------------------------------------------
AND ADDITIONAL STOCKHOLDERS
---------------------------
Each of the Voting Stockholders and, solely with respect to Sections
3.2 and 3.3, each of the Additional Stockholders, hereby severally represents
and warrants to the Acquiror, solely as to himself or itself and not with
respect to any other Stockholder, that except as set forth in the Disclosure
Schedule, the following representations and warranties are, as of the date
hereof, and will be, as of the Closing Date, true and correct. The disclosures
in any section of the Disclosure
-32-
Schedule shall qualify the corresponding section of this Agreement and other
sections of this Agreement to the extent (notwithstanding the absence of a
specific cross reference) that Acquiror reasonably could be expected to conclude
that such disclosure logically relates to such other sections, based solely upon
a review of the Disclosure Schedule and without independent investigation of the
underlying documents referenced therein.
3.1 Title; Agreements.
-----------------
Except as set forth on Schedule 3.1, such Voting Stockholder (a)
holds of record and holds beneficially the ownership interest in the Company set
forth opposite his or her name on Schedule 2.5, free and clear of any and all
Encumbrances other than Permitted Encumbrances, (b) is not a party to any voting
trust, proxy or other agreement or understanding with respect to any capital
stock of the Company and (c) owns no other, and has no other right to purchase,
any equity interests in Company that is not disclosed in the Disclosure
Schedule.
3.2 Execution and Effect of Agreement.
---------------------------------
Such Stockholder has the full right, power and authority to execute
and deliver this Agreement and to perform his or her obligations hereunder, and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by such Stockholder, and the consummation by such Stockholder
of the transactions contemplated hereby have been duly authorized by all
necessary action and no other proceeding on the part of such Stockholder is
necessary to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby. This Agreement has been duly executed
and delivered by such Stockholder and constitutes the legal, valid and binding
obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms, except as limited by the Bankruptcy and Equity
Exceptions.
3.3 No Violation.
------------
Neither the execution or delivery of this Agreement by such
Stockholder nor the consummation of the transactions contemplated hereby (a)
will violate any statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge or restriction of any government, Governmental Authority, or
court to which such Stockholder is a party or to which such Stockholder is bound
or subject or (b) will conflict with or result in a breach of, or give rise to a
right of termination of, or accelerate the performance required by, any terms of
any agreement to which such Stockholder is a party, or constitute a default
thereunder, except for any such violation, conflict, breach, right to terminate
or acceleration that would not be reasonably likely to result in a Material
Adverse Effect or result in the creation of any Encumbrance, other than a
Permitted Encumbrance.
3.4 Litigation; Claims.
------------------
There is no litigation, claim, proceeding or government investigation
pending or threatened against such Voting Stockholder which could reasonably be
expected to have a Material Adverse Effect or a material adverse effect on the
transactions contemplated by this Agreement.
-33-
3.5 Consents.
--------
Except as set forth in Schedule 3.5, no consent, approval, permit,
authorization of, declaration to or filing with any third party or Governmental
Authority on the part of such Voting Stockholder is required in connection with
the execution and delivery by such Voting Stockholder of this Agreement or the
consummation of the transactions contemplated hereby.
3.6 No Brokers.
----------
Neither the Voting Stockholder nor any Person acting on behalf of
such Voting Stockholder has agreed to pay a commission, finder's or investment
banking fee, or similar payment in connection with this Agreement or any matter
related hereto to any Person, nor has any such Person taken any action on which
a claim for any such payment could be based, except for a fee payable to
Broadview International LLC (which will be paid out of the Company Cash
Consideration) for which fee neither the Acquiror nor the Company will be
responsible.
3.7 Investment Representations.
--------------------------
(a) Such Voting Stockholder has knowledge and experience in financial
and business matters sufficient to enable it to evaluate the merits and risks of
an investment in the Acquiror and was not formed for the purpose of investing in
the Acquiror Stock. Except as set forth on Schedule 3.7, such Voting Stockholder
has assets sufficient to enable it to bear the economic risk of its investment
in the Acquiror Stock and either (i) if it is a trust, has assets in excess of
$5,000,000 and the purchase of the Acquiror Stock is directed by a Person who
has such knowledge and sophistication in financial and business matters that he
is capable of evaluating the merits and risks of investing in the Acquiror
Stock, (ii) with respect to a natural Person, has sufficient income and/or net
worth to meet the requirements of an "accredited investor" as defined in Rule
501 under the Securities Act, (iii) with respect to a partnership, has only
"accredited investors", as defined in Rule 501 under the Securities Act, as
partners. Such Voting Stockholder is acquiring the Acquiror Stock for its own
account, and not with a view to, or for sale in connection with, any
distribution thereof.
(b) Such Voting Stockholder understands that the Acquiror Stock has
not been registered under the Securities Act by reason of its issuance in a
transaction exempt from the registration requirements of the Securities Act
pursuant to the exemption provided in Section 4(2) thereof, that the Acquiror
Stock has not been registered under applicable state securities laws by reason
of their issuance in a transaction exempt from such registration requirements,
and that the Acquiror Stock may not be sold or otherwise disposed of unless
registered under the Securities Act and applicable state securities laws, or
exempted from registration, and that the certificates representing the Acquiror
Stock will bear the legends required by applicable securities and blue sky laws.
Such Voting Stockholder further understands that the exemption from registration
afforded by Rule 144 promulgated under the Securities Act is not presently
available with respect to the Acquiror Stock.
-34-
3.8 Voting Stockholder's Acknowledgement as to Information.
------------------------------------------------------
Such Voting Stockholder or representatives of such Voting Stockholder
have received from the Acquiror or the Acquiror has made available such
information, including the Acquiror's Annual Report on Form 10-K for the year
ended December 31, 2000, as amended, and Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, 2001 and June 30, 2001, as they have requested
with respect to the Acquiror as such Voting Stockholder has deemed necessary and
relevant in connection with the transactions contemplated by this Agreement, and
such Voting Stockholder has had the opportunity, directly or through such
representatives, to ask questions of and receive answers from Persons acting on
behalf of the Acquiror necessary to verify the information so obtained.
3.9 Disclosure.
----------
None of the representations and warranties set forth in this
Agreement, the schedules, certificates, and the other documents furnished by
such Voting Stockholder to the Acquiror pursuant hereto, contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUBSIDIARY
----------------------------------------------------------------
Each of the Acquiror and the Merger Subsidiary hereby jointly and
severally represents and warrants to Company that the following representations
and warranties are, as of the date hereof, and will be, as of the Closing Date,
true and correct.
4.1 Organization and Existence.
--------------------------
The Acquiror is a corporation duly organized and validly existing
under the laws of Israel. The Acquiror has full corporate power and authority to
own its properties and carry on its business as it is now being conducted. The
Merger Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and is a direct wholly-owned
subsidiary of the Acquiror.
4.2 Execution and Effect of Agreement.
---------------------------------
Each of the Acquiror and the Merger Subsidiary has the corporate
power and authority to enter into this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by each of the Acquiror and the Merger Subsidiary
and the consummation by each of the Acquiror and the Merger Subsidiary of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Acquiror and the Merger Subsidiary, and no
other proceeding on the part of the Acquiror or the Merger Subsidiary is
necessary to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby. This Agreement has been duly executed
and delivered by each of the Acquiror and the
-35-
Merger Subsidiary and constitutes the legal, valid and binding obligation of
each of the Acquiror and the Merger Subsidiary, enforceable against it in
accordance with their respective terms, except as limited by the Bankruptcy and
Equity Exceptions.
4.3 No Violation.
------------
Neither the execution or delivery of this Agreement by the Acquiror
or the Merger Subsidiary nor the consummation of the transactions contemplated
hereby will violate any statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or restriction of any Governmental Authority, or court to
which the Acquiror or the Merger Subsidiary is a party or to which any of them
is bound or subject, or the provisions of (a) the Memorandum of Association or
Articles of Association of the Acquiror or (b) the Certificate of Incorporation
or Bylaws of the Merger Subsidiary.
4.4 Consents.
--------
No consent, waiver, approval, permit, authorization of, declaration
to or filing with any third party or Governmental Authority on the part of the
Acquiror or the Merger Subsidiary is required in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (a) the filing of the Articles of Merger and the
Certificate of Merger, (b) any filings as may be required under applicable
federal and state securities laws and (c) the approval of the Research Committee
of the Office of Chief Scientist and the Investment Center of the State of
Israel.
4.5 No Brokers.
----------
Neither the Acquiror, the Merger Subsidiary nor any Person acting on
behalf of the Acquiror or the Merger Subsidiary has agreed to pay a commission,
finder's or investment banking fee, or similar payment in connection with this
Agreement or any matter related hereto to any Person, nor has any such Person
taken any action on which a claim for any such payment could be based, other
than fees for which neither the Company nor the Stockholders will be
responsible.
4.6 Capital Structure.
-----------------
The authorized capital stock of the Acquiror consists of 70,000,000
ordinary shares, par value 0.03 NIS per share, of which 26,780,555 shares were
issued and outstanding as of the close of business on August 30, 2001. The
authorized capital stock of the Merger Subsidiary consists of 1,000 shares of
common stock, par value $0.01 per share, of which 100 shares are issued and
outstanding and held by the Acquiror. The shares of the Acquiror Stock to be
issued pursuant to the Merger will be duly authorized, validly issued, fully
paid and nonassessable, and no stockholder of Acquiror will have any preemptive
right of subscription or purchase in respect thereof.
-36-
4.7 Securities and Exchange Commission Filings; Financials.
------------------------------------------------------
(a) The Acquiror has timely filed all forms, reports, statements and
documents required to be filed by the Acquiror with the SEC (collectively, the
"Acquiror SEC Reports"), each of which has complied in all material respects
with the applicable requirements of the Securities Act or the Exchange Act, as
applicable, each as in effect on the date so filed.
(b) As of the date hereof, Acquiror meets the "registrant
eligibility" requirements set forth in the general instructions applicable to
registration statements on Form S-3 covering the resale of the Acquiror Stock
issuable pursuant to this Agreement.
(c) Each of the financial statements contained in the Acquiror SEC
Reports has been prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may otherwise be indicated in the
notes thereto), and each presents fairly, in all material respects, the
financial position of the Acquiror as of the respective dates thereof and the
results of its operations and cash flow position for the periods indicated.
(d) Except as and to the extent set forth or reserved against on the
balance sheet of the Acquiror as of June 30, 2001, Acquiror does not have any
liabilities or obligations, whether or not accrued, contingent or otherwise,
that would be required to be included on a balance sheet prepared in accordance
with GAAP, except for liabilities or obligations incurred in the ordinary course
of business since June 30, 2001, none of which would have a material adverse
effect on the business, operations, assets or financial condition of the
Acquiror (an "Acquiror Material Adverse Effect").
4.8 Litigation.
----------
There are no suits or actions, or administrative, arbitration or
other proceedings or governmental investigations, pending, or to the Acquiror's
knowledge, threatened, against or relating to the Acquiror which, if decided
against the Acquiror, would have an Acquiror Material Adverse Effect. There are
no judgments, orders, stipulations, injunctions, decrees or awards in effect
which relate to the Acquiror or the operation of the Acquiror which, if decided
against the Acquiror, would have an Acquiror Material Adverse Effect.
4.9 Financing.
---------
As of the date of this Agreement and at the Closing, the Acquiror and
the Merger Subsidiary will have available the funds required to pay the Cash
Consideration and to pay all fees and expenses payable by the Acquiror or the
Merger Subsidiary related to the transactions contemplated by this Agreement.
4.10 Tax Matters.
-----------
(a) Prior to the Merger and through the Effective Time, the Acquiror
will be in Control of the Merger Subsidiary. As used herein, "Control" shall
mean ownership of stock possessing at least eighty percent (80%) of the total
combined voting power of all classes of
-37-
stock entitled to vote and at least eighty percent (80%) of the total number of
shares of each class of non-voting stock of the corporation. For purposes of
determining Control, a person shall not be considered to own voting stock if
rights to vote such stock (or to restrict or otherwise control the voting of
such stock) are held by a third party (including a voting trust) other than an
agent of such person.
(b) The Acquiror has no present plan or intention (i) to cause the
Surviving Corporation to issue, after the Merger, additional shares of stock (or
rights to acquire shares of the Surviving Corporation's stock) that would result
in the Acquiror losing Control of the Surviving Corporation or (ii) otherwise to
take any action that could result in the Acquiror losing control of the
Surviving Corporation following the Merger, other than a transfer of the stock
of the Surviving Corporation to a corporation controlled by the Acquiror in a
manner consistent with Revenue Ruling 2001-24.
(c) Neither the Acquiror (or any agent of the Acquiror) nor any
"related person" with respect to the Acquiror within the meaning of Section
1.368-1(e)(3) of the Treasury Regulations (i) has purchased or will purchase any
stock of the Company in connection with or in contemplation of the Merger or
(ii) has purchased or has a current plan or intention to purchase any shares of
Acquiror Stock issued in the Merger or make any extraordinary distribution in
respect of such shares of Acquiror Stock, except that the Acquiror may from time
to time repurchase its stock if such repurchases are made pursuant to an
open-market repurchase program that satisfies the requirements of Revenue Ruling
99-58 and that is not directed specifically to the former stockholders of the
Company. After the Merger, no dividends or distributions will be made to the
former stockholders of the Company by the Acquiror other than regular, normal
dividends or distributions made to all holders of Acquiror Stock.
(d) Except for transfers described in Section 368(a)(2)(C) of the
Code, Section 1.368-2(k)(2) of the Treasury Regulations, the Acquiror has no
present plan or intention to: (i) cause the Surviving Corporation to sell,
transfer or otherwise dispose of any of its assets or of any of the assets
acquired from the Company except for dispositions made in the ordinary course of
business; (ii) liquidate the Surviving Corporation; (iii) merge the Surviving
Corporation with or into another corporation, including the Acquiror or its
affiliates; or (iv) sell, distribute or otherwise dispose of the stock of the
Surviving Corporation, other than a transfer described Revenue Ruling 2001-24.
(e) In reliance upon, and assuming the accuracy of, the
representations of the Company contained in Section 2.8(m) concerning the
historic business of the Company, following the Merger, the Acquiror will cause
the Surviving Corporation to continue the historic business of the Company or
use a significant portion of the Company's historic business assets in a
business.
(f) Neither the Acquiror nor the Merger Subsidiary is or will be at
the Effective Time an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
-38-
(g) The Acquiror has been engaged in an active trade or business
outside the United States (within the meaning of Section 1.367(a)-2T(b)(2) and
(3) of the Treasury Regulations) for the entire 36-month period ending at the
Effective Time. The Acquiror has no intention to substantially dispose of or
discontinue such trade or business. At the Effective Time, the fair market value
of the Acquiror (as determined in accordance with Section
1.367(a)-3(c)(3)(iii)(B) of the Treasury Regulations) will be at least equal to
the fair market value of the Company. For this purpose:
(i) The value of the Acquiror shall include assets acquired
outside the ordinary course of business within the 36-month period
prior to the Merger only if either of the following requirements are
satisfied: (i) both (x) at the time of the Merger such assets or, as
applicable, the proceeds thereof, do not produce, and are not held
for the production of, passive income as defined in Section 1296(b)
of the Code and (y) such assets are not acquired for the principal
purpose of satisfying the substantiality test, and (ii) such assets
consist of the stock of a qualified subsidiary;
(ii) The value of the Acquiror shall not include the value
of the stock of any qualified subsidiary to the extent the value is
attributable to assets acquired by such qualified subsidiary outside
the ordinary course of business and within the 36-month period
preceding the Merger unless those assets satisfy the requirements of
clause (a) immediately above; and
(iii) The value of the Acquiror shall not include the value
of assets received within the 36-month period preceding the Merger,
notwithstanding clause (a) above, if such assets were owned by the
Company or an affiliate of the Company at any time during such
36-month period.
(iv) The activities of any qualified subsidiary of the
Acquiror (as defined in Section 1.367(a)-3(c)(5)(vii) of the Treasury
Regulations) or any qualified partnership owned by the Acquiror (as
defined in Section 1.367(a)-3(c)(5)(viii) of the Treasury
Regulations), may be considered the activities of the Acquiror.
4.11 Disclosure.
----------
None of the Acquiror SEC Reports and none of the representations and
warranties set forth in this Agreement, the schedules, certificates, and the
other documents furnished by the Acquiror or the Merger Subsidiary to the
Company or the Stockholders pursuant hereto, contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
-39-
ARTICLE V
COVENANTS
---------
5.1 Filings and Other Actions.
-------------------------
Upon the terms and subject to the conditions contained herein, each
of the parties hereto agrees: (a) to cooperate with one another in determining
whether any filings are required to be made with, or consents or permits are
required to be obtained from, any Governmental Authority in any jurisdiction or
any lender, lessor or other third party in connection with the consummation of
the transactions contemplated hereby and cooperate in making any such filings
promptly and in seeking timely to obtain any such consents and permits; (b) to
use their reasonable best efforts to defend all actions challenging this
Agreement or the consummation of the transactions contemplated hereby and use
their reasonable best efforts to lift or rescind any injunction or restraining
order or other court order adversely affecting the ability of the parties to
consummate the transactions contemplated hereby; and (c) to use reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective the transactions contemplated hereby.
5.2 Access and Cooperation.
----------------------
(a) Between the date of this Agreement and the Closing Date, the
Company will afford to the representatives of the Acquiror access to all of the
Company's and its Subsidiaries' sites, properties, books and records and will
furnish the Acquiror with such additional financial and operating data and other
information as to the business and properties of the Company as the Acquiror may
from time to time request. The Company will cooperate with the Acquiror and its
representatives, including the Acquiror's auditors and counsel, in the
preparation of any documents or other material which may be required in
connection with the transactions contemplated by this Agreement.
(b) The Acquiror, the Voting Stockholders and the Company will treat
all information obtained in connection with the negotiation and performance of
this Agreement or the due diligence investigations conducted as confidential in
accordance with the provisions of Section 9.2 hereof. The parties and their
respective representatives will take such reasonable steps as are necessary to
ensure that they maintain the confidentiality of the transactions contemplated
by this Agreement until the Closing Date.
5.3 Special Meeting.
---------------
(a) The Company shall hold as promptly as practicable a special
meeting of Stockholders (the "Company Special Meeting") to vote in favor of the
adoption of this Agreement and the approval of the Merger in accordance with
Virginia Law. In lieu of the Company calling a Company Special Meeting of the
Stockholders, the Company may circulate for execution a written consent in lieu
of special meeting.
-40-
(b) The Company will promptly provide all information relating to its
business or operations necessary for inclusion in the materials to be delivered
to the Stockholders to satisfy all requirements of applicable state and federal
securities laws. The Acquiror will deliver to the Company, and the Company will
promptly provide to the Stockholders, the Acquiror's Annual Report on Form 10-K
for the year ended December 31, 2000, as amended, and Quarterly Reports on Form
10-Q for the quarterly periods ended March 31, 2001 and June 30, 2001. The
Company shall comply with all applicable provisions of Virginia Law in the
preparation, filing and distribution of any stockholder materials, the
solicitation of proxies thereunder, and the calling and holding of the Company
Special Meeting.
(c) The Company, acting through its Board of Directors, shall include
in any stockholder materials the recommendation of its Board of Directors that
the Stockholders vote in favor of the adoption of this Agreement and the
approval of the Merger, and shall otherwise use its best efforts to obtain the
requisite approval of the Stockholders. Each of the Voting Stockholders and
Additional Stockholders shall vote in favor of adoption of this Agreement and
the approval of the Merger and sign any written consents of Stockholders in
connection therewith.
5.4 Securities Laws.
---------------
(a) Prior to the Closing, the Company and the Voting Stockholders
shall not take any action that would cause the number of the Stockholders who
are not "accredited investors" pursuant to Regulation D promulgated under the
Securities Act to increase to more than 35 during the term of this Agreement or
that would cause any Person who does not meet the standards of Regulation D
required for "purchasers" under Regulation D to become a stockholder.
(b) The Acquiror shall take such steps as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
to the issuance of the Acquiror Stock in connection with the Merger. The Company
shall use its best efforts, to the extent commercially reasonable, to assist the
Acquiror as may be necessary to comply with such securities and blue sky laws.
5.5 Conduct of Business Pending Closing.
-----------------------------------
Except as otherwise provided in this Agreement, between the date of
this Agreement and the Closing Date, the Company, its Subsidiaries and the
Voting Stockholders shall:
(a) carry on the Company's and its Subsidiaries' business in the
ordinary course substantially as conducted heretofore;
(b) take any reasonable steps necessary to preserve existing
relationships with Persons related to the Company's (or its Subsidiaries')
business, retain the services of its present employees and preserve the goodwill
of its customers and suppliers;
(c) not amend or terminate any material agreements or contracts to
which it is a party;
-41-
(d) inform the Acquiror of the occurrence of any event which may
result in a material change in the Company's (or its Subsidiaries') business,
financial condition or operations or any of the information previously provided
to the Acquiror.
(e) not enter into any single or series of contracts, agreements or
commitments relating to the Company's (or its Subsidiaries') business which have
an aggregate value in excess of $25,000 without the prior written consent of the
Acquiror;
(f) not negotiate, sell lease, transfer or convey any assets with a
value in excess of $7,500 other than in the ordinary course of business;
(g) not cause any Material Adverse Effect;
(h) not make any loan or advance to any Person other than sales to
customers on credit in the ordinary course of business consistent with past
custom and practices;
(i) not declare, set aside, or pay any dividend or other distribution
in respect of any equity interest in the Company (or its Subsidiaries), or
directly or indirectly redeem, purchase, or otherwise acquire such equity
interest;
(j) not incur any debts, liabilities or obligations except current
liabilities incurred in connection with or for services rendered or goods
supplied in the ordinary course of business consistent with past custom and
practices, liabilities on account of Taxes and governmental charges but not
penalties, interest or fines in respect thereof, and obligations or liabilities
incurred by virtue of the execution of this Agreement;
(k) not issue any notes, bonds, or other debt securities or any
equity securities or securities convertible into or exchangeable for any equity
securities;
(l) not cancel, waive or release any debts, rights or claims in
excess of $7,500, except in each case in the ordinary course of business
consistent with past custom and practices;
(m) not amend the Company's Charter or Bylaws or the organizational
documents of any of its Subsidiaries;
(n) not change the accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the Company, unless required by GAAP;
(o) not make capital expenditures or commitments therefor in excess
of $10,000;
(p) not create or allow the creation of any lien or Encumbrance on
any asset of the Company or any of its Subsidiaries, except for Permitted
Encumbrances;
(q) not hire any additional employees;
(r) not adopt, amend or terminate any employee benefit plan;
-42-
(s) not increase the benefits provided under any employee benefit
plan; and
(t) not take any action which would give rise to a breach of any of
the representations and warranties set forth in Article II or Article III
hereof;
5.6 No Shop.
-------
In consideration of the substantial expenditure of time, effort and
expense undertaken by the Acquiror in connection with its due diligence review
and the preparation and execution of this Agreement, the Company and the Voting
Stockholders agree that neither they nor their representatives will, after the
execution of this Agreement until the Closing Date or the earlier termination of
this Agreement, directly or indirectly, solicit, encourage, negotiate or discuss
with any third party (including by way of furnishing any information concerning
the Company) any acquisition proposal relating to or affecting the Company or
any part of it, or any direct or indirect interests in the Company, whether by
purchase of assets or interests, merger or other transaction, and that the
Company will promptly advise the Acquiror of the terms of any communications any
of the Voting Stockholders or the Company may receive or become aware of
relating to any bid for all or any part of the Company.
5.7 Notification of Certain Matters.
-------------------------------
Between the date of this Agreement and the Closing Date or the
earlier termination of this Agreement, the Voting Stockholders and the Company
shall give prompt notice to the Acquiror of (a) the occurrence or non-occurrence
of any event, the occurrence or non-occurrence of which, would cause any
representation or warranty of the Company or the Voting Stockholders contained
herein to be untrue or inaccurate in any respect at or prior to the Closing and
(b) any failure of any Voting Stockholder or the Company to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
such Person hereunder. Between the date of this Agreement and the Closing Date
or the earlier termination of this Agreement, the Acquiror shall give prompt
notice to the Company of (a) the occurrence or nonoccurrence of any event, the
occurrence or non-occurrence of which, would cause any representation or
warranty of the Acquiror contained herein to be untrue or inaccurate in any
respect at or prior to the Closing and (b) any failure of the Acquiror to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
5.7 shall not be deemed to (a) modify the representations or warranties
hereunder of the party delivering such notice, (b) modify the conditions set
forth in Articles VI and VII, or (c) limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
5.8 Employee Benefit Matters.
------------------------
(a) The Company shall terminate, effective immediately prior to the
Effective Time, the ▇. ▇▇▇▇▇ Associates, Inc. Age Weighted Profit Sharing and
401(k) Plan. Such termination shall be effected by resolutions of the Board of
Directors of the Company in such form as reasonably acceptable to the Acquiror.
-43-
(b) The Acquiror shall permit each Person who is an employee of the
Company as of the Effective Time (an "Employee") to participate (i) in any
holiday, sick leave, vacation pay, leave of absence or similar policy of the
Acquiror in which similarly situated employees of the Acquiror are generally
eligible to participate and (ii) in the Acquiror's employee benefit plans,
except as provided in this Section 5.8(b), to the same extent as similarly
situated employees of the Acquiror, all subject to the terms of such plans and
policies. The Acquiror will permit employees to participate in the foregoing
plans as soon as reasonably practicable following the Closing Date, subject to
the terms of such plans. In addition, for purposes of coverage under a group
health plan and under basic company-provided life insurance and disability
benefit plans of the Acquiror, the Acquiror shall use its best efforts in good
faith to cause such plans to waive any pre-existing condition exclusions and any
waiting period or similar requirements respecting the Employees, to the extent
the they were covered by a similar Benefit Plan before the Closing Date. The
Acquiror shall provide each such Employee with credit for any co-payments or
deductible amounts previously paid during 2001. For purposes of eligibility to
participate in any such plan or policy of the Acquiror as of the Closing Date
for which an Employee may be eligible after the Closing, the Acquiror shall
treat service by such Employee with the Company as though it had been service
for the Acquiror, so long as this crediting of service does not violate
applicable laws. Notwithstanding the foregoing, the Acquiror may defer the
Employees' coverage under the Acquiror's Code section 401(k) retirement plan
until January 1, 2002 and, until such time as the Employees become covered under
such plan, the Acquiror shall permit the Employees to participate in a Code
section 401(k) plan effective as soon as reasonably possible after the Closing
Date. Nothing herein shall be construed to require the Acquiror or the Surviving
Corporation to continue the employment of any Employee or to prohibit the
Acquiror or the Surviving Corporation from altering the terms of such
employment.
(c) The Acquiror hereby covenants and agrees that, at the next
regularly scheduled meeting of its Board of Directors, the Acquiror will reserve
300,000 shares of Acquiror Stock for issuance on exercise of options to be
granted to the employees of the Surviving Corporation, all subject to approval
by the Acquiror's Board of Directors, the terms of the Acquiror's Amended and
Restated 1998 Share Option and Incentive Plan and the terms of the applicable
grant agreements with respect thereto. The Acquiror agrees to consult in good
faith with the Stockholders' Agents as to the appropriate allocation of the
forgoing options among the employees of the Surviving Corporation.
5.9 Budget and Operating Terms.
--------------------------
During the Measuring Period, the Acquiror shall (a) permit the
Surviving Corporation to incur the expenses and capital expenditures set forth
in the Budget and Operating Terms, subject to the terms and conditions contained
therein, and (b) comply, and cause the Surviving Corporation to comply, with the
covenants described in the Budget and Operating Terms subject to the terms and
conditions contained therein. Any breach of this Section by the Acquiror will
entitle the non-breaching parties to the remedies described in Section 7.10.
-44-
5.10 Termination of Stockholder Guarantees.
-------------------------------------
The Acquiror hereby covenants and agrees that, prior to, or as
promptly as practicable following the Closing, the Acquiror shall use its best
efforts to arrange for the release of the Stockholders with respect to all of
the personal guarantees ("Stockholder Guarantees") as of the Closing Date set
forth on Schedule 5.10. Such replacement arrangements shall include a full and
complete release of the Stockholders from all such obligations. In the event
that the Acquiror is unable to secure the release of the Stockholders from any
of the Stockholder Guarantees, then the Acquiror shall indemnify the
Stockholders and hold them harmless from any liability arising under the
Stockholder Guarantees from and after the Closing and such indemnification shall
be made on a dollar-for-dollar basis without any deductible or threshold.
5.11 Tax Matters.
-----------
Each of the Acquiror and the Company acknowledge that it intends the
Merger to be a reorganization under Section 368(a) of the Code and that each has
consulted with and relied upon its own professional tax advisors. None of the
Acquiror, the Merger Subsidiary or the Company will adopt any position on any
Tax Return that is inconsistent with the treatment of the Merger as a
reorganization under Section 368 of the Code. None of the Acquiror, the Merger
Subsidiary or the Company has taken any action, or will take or fail to take any
action that is inconsistent with the representations set forth in, with respect
to the Acquiror and the Merger Subsidiary, the Acquiror's tax representation
certificate to be delivered at the Closing and, with respect to the Company, the
Company's tax representation certificate to be delivered at the Closing, to the
extent such action could reasonably be expected to prevent the Merger from
qualifying as a reorganization under Section 368(a) of the Code.
5.12 Further Assurances.
------------------
The parties hereto agree to execute and deliver, or cause to be
executed and delivered, such further instruments or documents or take such other
action as may be reasonably necessary or convenient to carry out the
transactions contemplated hereby. The parties hereto agree to seek diligently to
cause the conditions to Closing which reasonably are within their control to be
satisfied on or before the Closing Date.
ARTICLE VI
CONDITIONS TO THE MERGER
------------------------
6.1 Conditions to Obligations of Each Party to Effect the Merger.
------------------------------------------------------------
The respective obligations of each party to this Agreement to
consummate the Merger shall be subject to the satisfaction or waiver of each of
the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding, seeking any of the foregoing be pending; nor shall there
be any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or
-45-
deemed applicable to the Merger, which makes the consummation of the Merger
illegal. In the event an injunction or other order shall have been issued, or a
proceeding for such an injunction or order be pending, each party agrees to use
its reasonable diligent efforts to have such injunction or other order lifted or
such proceeding terminated.
(b) Escrow Agreement. The Acquiror, the Escrow Agent and the
Stockholders' Agents shall have entered into the Escrow Agreement.
(c) Registration Rights Agreement. The Acquiror, the Voting
Stockholders and the Stockholders' Agents shall have entered into the
Registration Rights Agreement.
6.2 Additional Conditions to Obligations of Company.
-----------------------------------------------
The obligations of Company to consummate the Merger shall be subject
to the satisfaction or waiver of each of the following conditions:
(a) Representations and Warranties. All the representations and
warranties of the Acquiror and the Merger Subsidiary contained in this Agreement
shall be true and correct in all material respects (other than representations
and warranties subject to "materiality" qualifiers, which shall be true and
correct as written) as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date; and each of
the Acquiror and the Merger Subsidiary shall have delivered to the Company a
certificate dated the Closing Date and signed by it to such effect.
(b) Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the Acquiror or
the Merger Subsidiary on or before the Closing Date shall have been duly
complied with and performed in all material respects on or before the Closing
Date; and each of the Acquiror and the Merger Subsidiary shall have delivered to
the Company a certificate dated the Closing Date and signed by it to such
effect.
(c) Legal Opinion. Company shall have received a legal opinion from
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, Acquiror's legal counsel, substantially in
the form attached as Exhibit H hereto, which legal opinion may rely upon the
legal opinion of Volovelsky, ▇▇▇▇▇▇▇▇, ▇▇▇▇ & Co. as to all matters arising
under the laws of the State of Israel.
(d) Employment Matters. The Surviving Corporation shall have entered
into an employment agreement with Najaf ▇▇▇▇▇▇, in the form attached hereto as
Exhibit I (the "Employment Agreement"), pursuant to which Najaf ▇▇▇▇▇▇ shall
have been appointed general manager of the Surviving Corporation, effective
immediately after the Effective Time.
(e) Secretary Certificate; Corporate Documents. The Company shall
have received a certificate or certificates, dated the Closing Date, and signed
by the secretary of each of the Acquiror and the Merger Subsidiary certifying
the truth and correctness of attached copies of the Acquiror's Memorandum of
Association and Articles of Association (including amendments thereto) and the
Merger Subsidiary's Articles of Incorporation and Bylaws, and resolutions of the
Boards of Directors of the Acquiror and the Merger Subsidiary approving such
companies' entering into this Agreement, the Merger and the consummation of the
transactions contemplated hereby and thereby.
-46-
(f) No Material Adverse Effect. As of the Closing Date, no event or
circumstance shall have occurred which would be reasonably likely to result in
an Acquiror Material Adverse Effect, and the Acquiror shall not have suffered
any material loss or damages to any of its properties or assets whether or not
covered by insurance, which change, loss or damage materially affects or impairs
the ability of the Acquiror to conduct its business. The Acquiror shall not have
been adversely affected in any material way by any act of God, fire, flood, war,
labor disturbance, legislation or other event or occurrence, and there shall
have been no change in the Acquiror, its financial condition or prospects which
would have an Acquiror Material Adverse Effect.
(g) Tax Opinion. The Company shall have received an opinion from ▇▇▇▇
and ▇▇▇▇ LLP, in a form reasonably satisfactory to the Company, dated the
Closing Date, to the effect that the Merger will constitute a reorganization for
federal income tax purposes within the meaning of Section 368(a) of the Code.
Each of the Acquiror and the Company shall have delivered to ▇▇▇▇ and ▇▇▇▇ LLP
certificates substantially in the form attached hereto as Exhibit J.
6.3 Additional Conditions to the Obligations of Acquiror and
Merger Subsidiary.
--------------------------------------------------------
The obligations of each of the Acquiror and the Merger Subsidiary to
consummate the Merger shall be subject to the satisfaction or waiver of each of
the following conditions:
(a) Representations and Warranties. All the representations and
warranties of the Voting Stockholders and the Company contained in this
Agreement shall be true and correct in all material respects (other than
representations and warranties subject to "materiality" qualifiers, which shall
be true and correct as written) as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date;
and the Company and the Voting Stockholders shall have delivered to the Acquiror
certificates dated the Closing Date and signed by them to such effect.
(b) Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the Voting
Stockholders and the Company on or before the Closing Date shall have been duly
complied with and performed in all material respects on or before the Closing
Date; and the Company and the Voting Stockholders shall have delivered to the
Acquiror certificates dated the Closing Date and signed by them to such effect.
(c) Secretary Certificate; Corporate Documents. The Acquiror shall
have received a certificate or certificates, dated the Closing Date and signed
by the secretary of the Company, certifying the truth and correctness of
attached copies of the Company's Articles of Incorporation (including amendments
thereto), Bylaws (including amendments thereto), and resolutions of the Board of
Directors and Stockholders (and any Voting Stockholder that is a corporation)
approving the Company's entering into this Agreement, the Merger and the
consummation of the transactions contemplated hereby and thereby. The Company
-47-
shall have delivered to the Acquiror certificates, dated as of a date no earlier
than ten days prior to the Closing Date, duly issued by the applicable
Governmental Authority in all jurisdictions in which the conduct of the
Company's business or activities or its ownership of assets requires or has
required qualification under applicable law, showing that the Company, as the
case may be, is in good standing and authorized to do business in such
jurisdiction.
(d) No Material Adverse Effect. As of the Closing Date, no event or
circumstance shall have occurred which would have a Material Adverse Effect, and
the Company shall not have suffered any material loss or damages to any of its
properties or assets whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of the Company to conduct its
business. The Company shall not have been adversely affected in any material way
by any act of God, fire, flood, war, labor disturbance, legislation or other
event or occurrence, and there shall have been no change in the Company, its
financial condition or prospects which would constitute a Material Adverse
Effect.
(e) Legal Opinion. The Acquiror shall have received a legal opinion
from ▇▇▇▇ and ▇▇▇▇ LLP, the Company's legal counsel, in substantially the form
attached hereto as Exhibit K.
(f) Resignation of Directors and Officers. The directors and officers
of the Company in office immediately prior to the Effective Time shall have
resigned from their positions with the Company and executed appropriate releases
of the Company effective as of the Effective Time.
(g) Employment Matters. The employees of the Company listed on
Schedule 6.3 shall have entered into non-competition and inventions agreements
acceptable to the Acquiror. Each employee of the Company who is to become an
employee of the Surviving Corporation shall also have entered into the
Acquiror's standard documentation for new hires, including a standard
confidentiality agreement.
(h) Stockholder Agreement. Each of the Non-Voting Stockholders shall
have entered into a Stockholder Agreement which appoints the Stockholders'
Agents and consents to certain restrictions on the transfer of the Closing
Shares.
(i) Repayment of Indebtedness. All of the Company's indebtedness
(other than ordinary course trade payables) shall have been satisfied or
discharged and the Company's line of credit shall have been cancelled, effective
as of the Closing.
(j) Governmental Approvals. The Voting Stockholders shall have
executed an undertaking to the Research Committee of the Office of Chief
Scientist in form and substance reasonably satisfactory to the Acquiror and the
Voting Stockholders, and the Research Committee of the Office of Chief Scientist
of the State of Israel shall have approved the Merger and the other transactions
contemplated hereby. The transactions contemplated hereby shall have been
approved by the Investment Center of the State of Israel.
-48-
ARTICLE VII
REMEDIES
--------
7.1 Survival.
--------
The representations, warranties, covenants and agreements made by the
parties in this Agreement, including the indemnification obligations of the
Voting Stockholders, the Additional Stockholders and the Acquiror set forth in
this Article VII, shall survive the Closing and shall continue in full force and
effect without limitation after the Closing for a period of 18 months following
the Closing Date, except that (a) claims related to fraud or willful misconduct
shall survive indefinitely, (b) claims relating to environmental matters shall
survive for a period of seven years after the Closing Date and (c) claims
arising from the breach of the representations and warranties contained in
Sections 2.3 (authority), 2.8 (Taxes), 2.25 (ERISA), 3.1 (title to stock) and
3.2 (authority) shall survive until the expiration of 10 business days following
the date on which the statute of limitations otherwise applicable to claims
relating to the subject matter of such representations has expired.
7.2 Obligations of the Voting Stockholders and
Additional Stockholders.
------------------------------------------
In partial consideration of the commitment of the Acquiror hereunder
and subject to Section 7.7, each Voting Stockholder and Additional Stockholder
severally agrees to indemnify, reimburse and hold harmless on an after-Tax basis
the Acquiror and any of its affiliates (including the Surviving Corporation),
directors, officers, agents and employees and each other Person, if any,
controlling the Acquiror (each an "Acquiror Indemnified Person") from and
against any liability, obligation, loss or expense (or actions or claims in
respect thereof) to which such Acquiror Indemnified Person may become subject as
a result of, or based upon or arising out of, directly or indirectly, (a) any
inaccuracy in, breach or nonperformance of, any of the representations,
warranties, covenants or agreements made by the Company or the Voting
Stockholders in or pursuant to this Agreement, (b) the cancellation or
termination of the Company Options pursuant to Section 1.13, and (c) the
employment matters described on Schedule 7.2, and in each case will reimburse
any Acquiror Indemnified Person for all reasonable expenses (including the
reasonable fees of counsel) as they are incurred by any such Acquiror
Indemnified Person in connection with defending any such action or claim pending
or threatened, whether or not such Acquiror Indemnified Person is a party
hereto.
7.3 Obligations of the Acquiror.
---------------------------
In partial consideration of the commitment of the Voting Stockholders
and the Additional Stockholders hereunder, the Acquiror agrees to indemnify,
reimburse and hold harmless on an after-Tax basis the Voting Stockholders and
the Additional Stockholders and any of their respective affiliates, directors,
officers, agents and employees and each other Person, if any, controlling the
Voting Stockholders, the Additional Stockholders or any of their respective
affiliates (each a "Stockholder Indemnified Person") from and against any
liability, obligation, loss or expense (or actions or claims in respect thereof)
to which such Stockholder Indemnified
-49-
Person may become subject as a result of, or based upon or arising out of,
directly or indirectly, (a) any inaccuracy in, breach or nonperformance of, any
of the representations, warranties, covenants or agreements made by the Acquiror
in or pursuant to this Agreement and (b) any claim or action by the Office of
Chief Scientist of the State of Israel or any other Israeli government entity
under the Encouragement of Research & Development in Industry Law 5744-1984 (the
"Law"), the regulations pursuant of the Law (the "Regulations") or the specific
terms pursuant to the Law as applied to the Acquiror (the "Terms") arising out
of any breach of the Law, the Regulations or the Terms by the Acquiror, its
directors or officers (other than any Stockholder Indemnified Person), and in
each case will reimburse any Stockholder Indemnified Person for all reasonable
expenses (including the reasonable fees of counsel) as they are incurred by any
such Stockholder Indemnified Person in connection with defending any such action
or claim pending or threatened, whether or not such Stockholder Indemnified
Person is a party hereto.
7.4 Procedure for Third Party Claims.
--------------------------------
Any Acquiror Indemnified Person and any Stockholder Indemnified
Person shall each be referred to collectively herein as an "Indemnified Person."
If any claim, demand, liability or obligation is asserted by any third party
against any Indemnified Person, the Person from whom indemnification is sought
(each, an "Indemnifying Person") shall have the right, unless otherwise
precluded by applicable law, to conduct and control the defense, compromise or
settlement of any action or threatened action brought against the Indemnified
Person in respect of matters addressed by the indemnity set forth in this
Article VII (an "Action"). The Indemnified Person shall have the right to employ
counsel separate from counsel employed by the Indemnifying Person in connection
with any such Action or threatened Action and to participate in the defense
thereof, but the fees and expenses of such counsel employed by the Indemnified
Person shall be at the sole expense of the Indemnified Person, UNLESS (a) the
Indemnifying Person shall have elected not, or, after reasonable written notice
of any such Action or threatened Action, shall have failed, to assume or
participate in the defense thereof, (b) the employment thereof has been
specifically authorized by the Indemnifying Person in writing, or (c) the
parties to any such Action or threatened Action (including any impleaded
parties) include both the Indemnifying Person and the Indemnified Person and the
Indemnifying Person shall have been advised in writing by counsel for the
Indemnified Person that there may be one or more defenses available to the
Indemnified Person that are not available to the Indemnifying Person or legal
conflicts of interest pursuant to applicable rules of professional conduct
between the Indemnifying Person and the Indemnified Person (in any such case,
the Indemnifying Person shall not have the right to assume the defense of such
Action on behalf of the Indemnified Person), in either of which events referred
to in clauses (a), (b) and (c) the fees and expenses of one such separate
counsel employed by the Indemnified Person shall be at the expense of the
Indemnifying Person. The Indemnifying Person shall not, without the written
consent of the Indemnified Person, settle or compromise any such Action or
threatened Action or consent to the entry of any judgment which does not include
as an unconditional term thereof the giving by the claimant or the plaintiff to
the Indemnified Person a release from all liability in respect of such Action or
threatened Action. Unless the Indemnifying Person shall have elected not, or
shall have after reasonable written notice of any such Action or threatened
Action failed, to assume or participate in the defense
-50-
thereof, the Indemnified Person may not settle or compromise any Action or
threatened Action without the written consent of the Indemnifying Person. If,
after reasonable written notice of any such Action or threatened Action, the
Indemnifying Person neglects to defend the Indemnified Person, a recovery
against the latter for damages suffered by it in good faith, is conclusive in
its favor against the Indemnifying Person; provided, however, that no such
conclusive presumption shall be made if the Indemnifying Person has not received
reasonable written notice of the Action against the Indemnified Person.
7.5 Escrow Fund.
-----------
Any indemnification to which any Acquiror Indemnified Person is
entitled or other claim by the Acquiror for a breach of a representation or
warranty contained in this Agreement may be satisfied from the Escrow Fund
payable to the Stockholders, but only in accordance with the terms of the Escrow
Agreement.
7.6 Right to Set-Off.
----------------
(a) Any indemnification to which any Acquiror Indemnified Person is
entitled or other claim by the Acquiror for a breach of a representation or
warranty contained in this Agreement may be satisfied through set-off by
notifying the Stockholders' Agents that the Acquiror is reducing the amount of
the Contingent Consideration payable to the Stockholders.
(b) Prior to any such set-off, the Acquiror shall submit a notice to
the Stockholder's Agent of any claim for which it is entitled to payment,
specifying in reasonable detail (i) the nature of the claim and (ii) the amount
of the claimed liability in respect of each such claim. If within 15 business
days after receipt of such claim no notice of objection has been filed by the
Stockholders' Agents, the Acquiror may offset the amount of such claimed
liability against the Contingent Consideration. In the event of any objection
notice with respect to such claim, the amount of such claim shall be withheld by
the Acquiror from any payment of Contingent Consideration otherwise required and
the amount of such payment shall be deposited with the Escrow Agent until such
claim is resolved by the parties.
(c) This right of set-off shall expire immediately after the
Contingent Consideration is paid, except to the extent amounts have been
properly withheld prior to payment in accordance with Section 7.6(b).
7.7 Limitations.
-----------
(a) Except for claims arising under Section 7.2(b), the Acquiror may
make no claims against the Escrow Fund, no set-off against the Contingent
Consideration and no claim for indemnification by the Voting Stockholders until
the aggregate amount of all such claims exceeds $200,000, in which case the
Acquiror may recover for the full amount of all such claims.
(b) Except for claims arising under Section 7.2(b), claims related to
fraud or willful misconduct or claims arising from the breach of the
representations and warranties contained in Section 3.1 (title to stock), no
Voting Stockholder or Additional Stockholder shall be required to make any
-51-
indemnification payment under this Article VII in excess of 80% the value of the
aggregate consideration received by such Voting Stockholder in connection with
the Merger (including consideration received in respect of both Voting Common
Stock and Non-Voting Common Stock). The foregoing percentage shall be reduced to
53% upon the first anniversary of the Closing Date.
7.8 Stockholders' Agents.
--------------------
(a) ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇. and Najaf ▇▇▇▇▇▇ shall be jointly constituted
and appointed as agents (the "Stockholders' Agents") for and on behalf of the
Stockholders to act on their behalf under the Escrow Agreement, to give and
receive notices and communications, to authorize delivery to the Acquiror of
Acquiror Stock or other property from the Escrow Fund in satisfaction of claims
by the Acquiror, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of the Stockholders'
Agents for the accomplishment of the foregoing. Such agency may be changed by
the holders of a majority in interest of the Escrow Fund from time to time upon
not less than 15 days' prior written notice to the Acquiror, the Stockholders'
Agents and the Escrow Agent. No bond shall be required of the Stockholders'
Agents, and the Stockholders' Agents shall receive no compensation for their
services. Notices or communications to or from the Stockholders' Agents shall
constitute notice to or from each Stockholder.
(b) The Stockholders' Agents shall not be liable for any act done or
omitted hereunder as Stockholders' Agents 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 the Stockholders' Agents and hold each
harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholders' Agents and arising out
of or in connection with the acceptance or administration of their duties
hereunder.
(c) The Stockholders' Agents shall have reasonable access to
information about the Surviving Corporation and the reasonable assistance of the
Surviving Corporation's officers and employees for purposes of performing their
duties and exercising their rights hereunder, provided that the Stockholders'
Agents shall treat confidentially and not disclose any nonpublic information
from or about the Surviving Corporation to anyone (except on a need to know
basis to individuals who agree to treat such information confidentially). The
Stockholders' Agents will not be entitled to receive any compensation from the
Acquiror or the Stockholders in connection with this Agreement. Any fees and
expenses incurred by the Stockholders' Agents in connection with actions taken
pursuant to the terms of this Agreement will be paid by the Stockholders to the
Stockholders' Agents. Such fees and expenses shall first be satisfied from any
Escrow Cash or Escrow Shares not subject to a Claim (as defined in the Escrow
Agreement) by the Acquiror and remaining available for release to the
Stockholders on the final release date. Prior to any payment to the
Stockholders' Agents for such fees and expenses from the Escrow Fund, the
Stockholders' Agents shall deliver to the Escrow Agent a written statement of
such fees and expenses.
-52-
7.9 Actions of the Stockholders' Agents.
-----------------------------------
A decision, act, consent or instruction of the Stockholders' Agents
shall constitute a decision of all Stockholders for whom shares of Acquiror
Stock otherwise issuable to them are deposited in the Escrow Fund and shall be
final, binding and conclusive upon each such Stockholder. The Escrow Agent and
the Acquiror may rely upon any decision, act, consent or instruction of the
Stockholders' Agents as being the decision, act, consent or instruction of each
and every such Stockholder. The Escrow Agent and the Acquiror are hereby
relieved from any liability to any Person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholders'
Agents.
7.10 Remedies.
--------
(a) Each party hereto acknowledges that because of the difficulty of
measuring economic losses as a result of the breach of certain key provisions of
this Agreement, and because of the immediate and irreparable damage that would
be caused for which they would have no other adequate remedy, the parties hereto
agree that, in the event of a breach by any of them of (i) their respective
rights and obligations to complete the Merger, (ii) their respective rights and
obligations under Section 9.2 or (iii) the obligations of the Acquiror under
Section 5.9 and the Budget and Operating Terms, the applicable provisions may be
enforced by a decree of specific performance issued by any court of competent
jurisdiction, and appropriate injunctive relief may be applied for and granted
in connection therewith. Each party hereto agrees to waive the defense that a
remedy at law would be adequate in any action for specific performance
hereunder.
(b) Except as otherwise provided herein, no delay of or omission in
the exercise of any right, power or remedy accruing to any party as a result of
any breach or default by any other party under this Agreement shall impair any
such right, power or remedy, nor shall it be construed as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be deemed
a waiver of any other breach or default occurring before or after that waiver.
(c) All costs and expenses, including reasonable counsel fees and
expenses, incurred in any action to obtain relief with respect to a breach of
the Acquiror's obligations contained in Section 5.9 and the Budget and Operating
Terms shall be borne by the party which is not the prevailing party in such
action.
(d) The foregoing remedies shall be cumulative and not exclusive and
shall be in addition to any other remedies which any party may have under this
Agreement or otherwise, whether at law or in equity, and the exercise of one or
more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies.
-53-
7.11 Disputes.
--------
Notwithstanding anything in this Agreement to the contrary, prior to
(a) making any claim under Article VII or (b) bringing any legal action arising
out of a dispute under this Agreement, the party seeking to take such action
shall first attempt to resolve the dispute. If the parties are unable to resolve
their differences within five business days, then the party seeking to take such
action shall bring the matter to the attention of the Board of Directors of the
Surviving Corporation. The Board of Directors of the Surviving Corporation shall
either (a) resolve the issue by unanimous consent or (b) appoint two
individuals, one representative from the Acquiror and one representative of the
Stockholders' Agents, to resolve the issue. If these representative are unable
to resolve the dispute within 10 business days of submission of such dispute to
the Board of Directors of the Surviving Corporation, then each of the parties
shall be free to pursue any additional remedies available under this Agreement.
ARTICLE VIII
TERMINATION
-----------
8.1 Termination.
-----------
This Agreement may be terminated at any time prior to the Closing
Date solely:
(a) by mutual written consent of the Company and the Acquiror;
(b) by the Company, on the one hand, or by the Acquiror, on the other
hand, if the transactions contemplated by this Agreement to take place at the
Closing shall not have been consummated by September 30, 2001, unless the
failure of such transactions to be consummated is due to the willful failure of
the party seeking to terminate this Agreement to perform any of its obligations
under this Agreement to the extent required to be performed by it prior to or on
the Closing Date; or
(c) by the Company, on the one hand, or by the Acquiror, on the other
hand, if a material breach or default shall be made by the other party in the
observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein, and such default shall not have been
cured on or before the Closing Date.
8.2 Consequences of Termination.
---------------------------
In the event that this Agreement shall be terminated pursuant to this
Article VIII, (a) each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same, and (b) all further obligations of the parties under this
Agreement shall terminate without further liability of any party to any other
party (except that each party shall remain liable for any breach or default by
such party of any representation, warranty, covenant or agreement contained
herein, as to which all remedies shall remain available, including, but not
limited to, the availability of specific performance or other injunctive relief
and reasonable legal and audit costs and out of pocket expenses); provided,
however, that the confidentiality provisions contained in Section 9.2 shall
survive such termination.
-54-
ARTICLE IX
GENERAL PROVISIONS
------------------
9.1 Cooperation.
-----------
The Company, the Voting Stockholders and the Acquiror shall each
deliver or cause to be delivered to the other on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
the transactions contemplated by this Agreement. The Voting Stockholders will
cooperate and use their reasonable efforts to have the present officers,
directors and employees of the Company cooperate with the Acquiror on and after
the Closing Date in furnishing information, evidence, testimony and other
assistance in connection with any Tax Return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Closing Date.
9.2 Press Releases; Confidentiality.
-------------------------------
(a) Prior to the Closing and thereafter, none of the Acquiror, the
Company or the Voting Stockholders shall make any press release or public
announcement in connection with the transactions contemplated hereby without the
prior written consent of the other parties or, if required by law, without prior
consultation with the other parties.
(b) The Acquiror agrees to keep non-public information regarding the
Company confidential until the Closing Date and agrees that the Acquiror will
only use such information in connection with the transactions contemplated by
this Agreement and not disclose any of such information other than (i) to the
Acquiror's representatives who are involved with the transactions contemplated
by this Agreement, (ii) to the extent such information presently is or hereafter
becomes available, on a non-confidential basis, from a source other than the
Stockholders or the Company, and (iii) to the extent disclosure is required by
law, regulation or judicial order by any Governmental Authority.
(c) The Company and the Stockholders agree to keep non-public
information regarding the Acquiror, and the Voting Stockholders agree to keep
non-public information regarding the Company confidential and agree that they
will only use such information in connection with the transactions contemplated
by this Agreement and not disclose any of such information other than (i) to the
Voting Stockholders' and the Company's respective representatives who are
involved with the transactions contemplated by this Agreement, (ii) to the
extent such information presently is or hereafter becomes available, on a
non-confidential basis, from a source other than the Acquiror and (iii) to the
extent disclosure is required by law, regulation or judicial order by any
Governmental Authority.
(d) Prior to any disclosure required by law, regulation or judicial
order, the Acquiror,
-55-
the Company or the Voting Stockholders, as the case may be, shall advise each of
the others of such requirement so that it may seek a protective order.
(e) The Voting Stockholders recognize and acknowledge that they had
in the past, currently have, and in the future may have, access to certain
confidential information of the Company and/or the Acquiror, such as operational
policies, software, source code, design, configuration and related intellectual
property, pricing and cost policies that are valuable, special and unique assets
of the Company's and/or the Acquiror's respective businesses. The Voting
Stockholders agree that they will not disclose such confidential information to
any Person for any purpose or reason whatsoever, EXCEPT (i) to authorized
representatives of the Acquiror who need to know information in connection with
the transactions contemplated hereby, who have been informed of the confidential
nature of such information and who have agreed to keep such information
confidential as provided hereby, (ii) following the Closing, such information
may be disclosed by the Voting Stockholders as is required in the course of
performing their duties for the Acquiror or the Company and (iii) to the
Stockholders' Agents, to counsel and other advisors, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section,
UNLESS (A) such information becomes known to the public generally through no
fault of any such Voting Stockholders, (B) disclosure is required by law or the
order of any Governmental Authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (B), the Voting Stockholders
shall, if possible, give prior written notice thereof to the Acquiror and
provide the Acquiror with the opportunity to contest such disclosure, or (C) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the Voting Stockholders of the
provisions of this Section, the Acquiror shall be entitled to an injunction
restraining such Voting Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Acquiror from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages. In the event the transactions
contemplated by this Agreement are not consummated, the Voting Stockholders
shall have none of the above-mentioned restrictions on their ability to
disseminate confidential information with respect to the Company.
(f) The obligations of the parties under this Section shall survive
the Closing and any termination of this Agreement.
9.3 Expenses.
--------
Whether or not the transactions contemplated hereby are consummated,
(a) the Acquiror shall pay all of its and Merger Subsidiary's legal, accounting
and other out-of-pocket expenses incident to the transactions contemplated
hereby, (b) the Stockholders shall pay all of their own legal, accounting and
other out-of-pocket expenses incident to the transactions contemplated hereby,
and (c) pursuant to Section 1.6(c), the Company shall pay the Company's legal,
accounting and other out-of-pocket expenses ("Transaction Fees") incident to the
transactions contemplated hereby, including but not limited to any fees payable
to Broadview International LLC, ▇▇▇▇ and ▇▇▇▇ LLP and ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, P.C.
-56-
9.4 Amendments and Waivers.
----------------------
Any term of this Agreement may be amended, supplemented or modified,
only with the written consent of each of the parties hereto, and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the party against whom the waiver is sought to be enforced,
including, in the case of the Voting Stockholders, Voting Stockholders holding
at least a majority of the Voting Common Stock at the time such enforcement is
sought. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
9.5 Successors and Assigns.
----------------------
This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Agreement and all rights and obligations hereunder may not be assigned or
transferred without the prior written consent of the other parties hereto,
except that the Acquiror and the Merger Subsidiary may assign their respective
rights hereunder to a wholly owned subsidiary of the Acquiror. Nothing in this
Agreement, express or implied, is intended to confer upon any Person other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement.
9.6 No Third Party Beneficiaries.
----------------------------
The rights created by this Agreement are only for the benefit of the
parties hereto, and no Person (other than parties to this Agreement or their
respective successors or permitted assigns) shall have or be construed to have
any legal or equity right, remedy or claim under or in respect of or by virtue
of this Agreement or any provision herein contained; PROVIDED, HOWEVER, that the
provisions of Article VII above concerning indemnification are intended for the
benefit of the individuals specified therein, and their respective legal
representatives, successors and assigns.
9.7 Choice of Law.
-------------
This Agreement shall be governed by and construed under and the
rights of the parties determined in accordance with the laws of the State of
Delaware (without reference to the choice of law provisions of the State of
Delaware) except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the subject of
this Agreement, and as to those matters the law of the jurisdiction under which
the respective entity derives its powers shall govern.
9.8 Notices.
-------
Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
upon the earlier of (a) personal delivery to the party to be notified, (b)
receipt after deposit with the United States Post Office, by
-57-
registered or certified mail, postage prepaid return receipt requested, (c) the
next business day after dispatch via nationally recognized overnight courier or
(d) confirmation of transmission by facsimile (provided such transmission is
also contemporaneously sent via one of the methods specified in clauses (a), (b)
or (c)), all addressed to the party to be notified at the address indicated for
such party below, or at such other address as such party may designate by ten
(10) business days' advance written notice to the other parties. Notices should
be provided in accordance with this Section at the following addresses:
If to the Acquiror, to: With a copy to (which shall not
constitute notice):
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: J. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
If to the Company, to: With a copy to (which shall not
constitute notice):
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇ LLP
Suite 105 11951 Freedom Drive, Suite 1400
Reston, VA 20191 ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: President Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
If to the Voting Stockholders, to: And to:
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇. Najaf ▇▇▇▇▇▇
4417 Wood Edge Court ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
9.9 Severability.
------------
If one or more provisions of this Agreement shall be held invalid,
illegal or unenforceable, such provision shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as to most
nearly retain the intent of the parties, and if such modification is not
possible, such provision shall be severed from this Agreement. In either case,
the balance of this Agreement shall be interpreted as if such provision were so
modified or excluded, as the case may be, and shall be enforceable in accordance
with its terms.
9.10 Entire Agreement.
----------------
This Agreement, together with the exhibits and schedules hereto,
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior understandings and agreements, whether
written or oral, and no party shall be liable or bound to
-58-
any other party in any manner by any warranties, representations or covenants
except as specifically set forth herein.
9.11 Construction.
------------
The parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an 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 authorship of any provision of this
Agreement.
9.12 Titles and Subtitles.
--------------------
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
9.13 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.
-59-
Signature Page to Merger Agreement
IN WITNESS WHEREOF, the Acquiror, the Merger Subsidiary, the Company,
the Voting Stockholders and the Additional Stockholders have caused this
Agreement to be executed and delivered, all as of the date first written above.
PRECISE SOFTWARE SOLUTIONS LTD.
By: /s/ J. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇
-------------------------------
Name: J. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇
Title: Chief Financial Officer
WQ ACQUISITION CORPORATION
By: /s/ J. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇
-------------------------------
Name: J. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇
Title: Vice President
▇. ▇▇▇▇▇ ASSOCIATES, INC.
By: /s/ Najaf ▇▇▇▇▇▇
-------------------------------
Name: Najaf ▇▇▇▇▇▇
Title: President
-60-
Signature Page to Merger Agreement
VOTING STOCKHOLDERS:
WPMP LIMITED PARTNERSHIP
By: WPMP Management Trust
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇.
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇.
Title: Trustee
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Trustee
NAJAF ▇▇▇▇▇▇ LIVING TRUST
By: /s/ Najaf ▇▇▇▇▇▇
-------------------------------
Name: Najaf ▇▇▇▇▇▇
Title: Trustee
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-61-
Signature Page to Merger Agreement
ADDITIONAL STOCKHOLDERS (solely for
purposes of Sections 3.2, 3.3,
5.3(c) and Article VII):
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇.
-----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇.
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ Najaf ▇▇▇▇▇▇, attorney-in-fact
-----------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇ ▇▇▇▇▇
-----------------------------------
▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-62-