ASSET PURCHASE AGREEMENT
BY AND AMONG
CONCENTRIC NETWORK CORPORATION,
9NET AVENUE, INC.
AND
THE PRINCIPAL STOCKHOLDERS NAMED HEREIN
Dated as of October 1, 1999
TABLE OF CONTENTS
Page
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ARTICLE I PURCHASE AND SALE TRANSACTION................................................. 2
1.1 Purchase and Sale of Assets..................................................... 2
1.2 Assumption of Liabilities....................................................... 3
1.3 Purchase Price.................................................................. 3
1.4 Sales Tax....................................................................... 3
1.5 [Reserved]...................................................................... 4
1.6 The Closing..................................................................... 4
1.7 Deliveries at the Closing....................................................... 4
1.8 Certain Definitions............................................................. 5
1.9 Taking of Necessary Action; Further Action...................................... 7
1.10 Tax Consequences................................................................ 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE PRINCIPAL STOCKHOLDERS.. 7
2.1 Organization of the Seller...................................................... 7
2.2 Subsidiaries.................................................................... 8
2.3 Seller Capital Structure........................................................ 8
2.4 Authority....................................................................... 8
2.5 No Conflict..................................................................... 9
2.6 Consents........................................................................ 9
2.7 Seller Financial Statements..................................................... 9
2.8 No Undisclosed Liabilities...................................................... 10
2.9 No Changes...................................................................... 10
2.10 Tax Matters..................................................................... 12
2.11 Restrictions on Business Activities............................................. 13
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment.. 14
2.13 Intellectual Property........................................................... 14
2.14 Agreements, Contracts and Commitments........................................... 17
2.15 Interested Party Transactions................................................... 19
2.16 Governmental Authorization...................................................... 19
2.17 Litigation...................................................................... 19
2.18 Accounts Receivable; Inventory.................................................. 20
2.19 Minute Books.................................................................... 20
2.20 Environmental Matters........................................................... 20
2.21 Brokers' and Finders' Fees; Third Party Expenses................................ 21
2.22 Employee Benefit Plans and Compensation......................................... 21
2.23 Insurance....................................................................... 24
2.24 Compliance with Laws............................................................ 24
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TABLE OF CONTENTS
(continued)
Page
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2.25 Warranties; Indemnities......................................................... 24
2.26 Complete Copies of Materials.................................................... 24
2.27 Bulk Sales...................................................................... 24
2.28 Investment Representations...................................................... 24
2.29 Legends......................................................................... 25
2.30 Securities representations...................................................... 26
2.31 Hart-Scott-Rodino Compliance.................................................... 26
2.32 Representations Complete........................................................ 26
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER..................................... 26
3.1 Organization, Standing and Power................................................ 26
3.2 Authority....................................................................... 27
3.3 No Conflict..................................................................... 27
3.4 Consents........................................................................ 27
3.5 Capital Structure............................................................... 27
3.6 Brokers' and Finders' Fees...................................................... 28
3.7 Securities Matters.............................................................. 28
ARTICLE IV CONDUCT PRIOR TO THE CLOSING................................................. 29
4.1 Conduct of Business of the Seller............................................... 29
4.2 No Solicitation................................................................. 31
ARTICLE V ADDITIONAL AGREEMENTS......................................................... 32
5.1 Issuance of Restricted Shares; Stockholder Matters.............................. 32
5.2 Access to Information........................................................... 33
5.3 Confidentiality................................................................. 33
5.4 Expenses........................................................................ 33
5.5 Public Disclosure............................................................... 33
5.6 Consents........................................................................ 33
5.7 FIRPTA Compliance............................................................... 34
5.8 Reasonable Efforts.............................................................. 34
5.9 Notification of Certain Matters................................................. 34
5.10 Additional Documents and Further Assurances..................................... 34
5.11 Employee Plans.................................................................. 34
5.12 Employee Benefits............................................................... 34
5.13 COBRA Liability................................................................. 35
5.14 No Actions Inconsistent With Tax-Free Reorganization............................ 35
5.15 Net Assets...................................................................... 35
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TABLE OF CONTENTS
(continued)
Page
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5.16 Voting Agreements............................................................... 35
5.17 Non-Competition and Non-Solicitation Agreements................................. 35
5.18 Continuity of Business Enterprise............................................... 36
ARTICLE VI CONDITIONS TO THE ACQUISITION................................................ 36
6.1 Conditions to Obligations of Each Party to Effect the Acquisition............... 36
6.2 Conditions to Obligations of Seller and the Principal Stockholders.............. 36
6.3 Conditions to the Obligations of Buyer.......................................... 37
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION................. 39
7.1 Survival of Representations and Warranties...................................... 39
7.2 Indemnification................................................................. 39
7.3 Escrow Arrangements............................................................. 40
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................................... 46
8.1 Termination..................................................................... 46
8.2 Effect of Termination........................................................... 47
8.3 Amendment....................................................................... 47
8.4 Extension; Waiver............................................................... 47
ARTICLE IX GENERAL PROVISIONS........................................................... 47
9.1 Notices......................................................................... 47
9.2 Interpretation.................................................................. 49
9.3 Counterparts.................................................................... 49
9.4 Entire Agreement; Assignment.................................................... 49
9.5 Severability.................................................................... 49
9.6 Other Remedies; Specific Performance............................................ 50
9.7 Governing Law................................................................... 50
9.8 Rules of Construction........................................................... 50
9.9 Attorneys Fees.................................................................. 50
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TABLE OF CONTENTS
(continued)
INDEX OF EXHIBITS AND SCHEDULES
Exhibit Description Page
------- ----------- ----
Exhibit A Form of Voting Agreements
Exhibit B Form of Noncompetition Agreement
Exhibit B-1 Form of Nonsolicitation Agreement
Exhibit C Assignment and Assumption Agreement
Exhibit D Bill of Sale
Exhibit E Trademark Assignments
Exhibit F Disclosure Schedules
Exhibit G Form of Legal Opinion of Counsel to the Seller
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into as
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of October 1, 1999 among Concentric Network Corporation, a Delaware corporation
("Buyer"), 9Net Avenue, Inc., a New Jersey corporation (the "Seller"), and, BT
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Bautex AG, Vasiliy Salygin, individually and as trustee of the Vasiliy Salygin
Family Trust and as trustee of the Vasiliy and Natalia Family Insurance Trust,
Natalia Salygin, individually and as trustee of the Natalia Salygin Family
Insurance Trust, and Mikhail Kofman (collectively the "Principal Stockholders")
----------------------
and with respect to Article VII only, Karina Gradus (the "Securityholder Agent")
--------------------
and U.S. Bank Trust, National Association (the "Escrow Agent").
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RECITALS
A. The Boards of Directors of each of the Buyer and Seller believe it is
in the best interests of each company and their respective stockholders that
Buyer, in consideration for the purchase price as set forth herein, acquire all
of the assets and certain of the liabilities of the Seller as further set forth
herein (the "Acquisition") and, in furtherance thereof, have approved the
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Acquisition.
B. The Seller and the Principal Stockholders, on the one hand, and Buyer,
on the other hand, desire to make certain representations, warranties, covenants
and other agreements in connection with the Acquisition.
C. Concurrent with the execution of this Agreement, as a material
inducement to Buyer to enter into this Agreement, the Principal Stockholders are
entering into Voting Agreements in the form of Exhibit A hereto with Buyer (the
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"Voting Agreements"), and certain of the Principal Stockholders are entering
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into agreements not to compete with Buyer (the "Noncompetition Agreements") in
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the form of Exhibit B hereto and certain of the Key Employees (as defined below)
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are entering into Nonsolicitation Agreements with Buyer in the form of Exhibit
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B-1 hereto (the "Nonsolicitation Agreements").
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D. This Agreement contemplates a tax-free sale of the Seller's assets
under Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the
"Code"), and a liquidation of the Seller immediately following the tax-free
exchange of its assets.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
1
ARTICLE I
PURCHASE AND SALE TRANSACTION
1.1 Purchase and Sale of Assets. On the terms and subject to the
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conditions set forth in this Agreement at the Closing, Seller will sell, convey,
transfer, assign and deliver to Buyer, and Buyer will purchase and acquire from
Seller on the Closing Date, all right, title and interest in and to all assets
and properties of the Seller free and clear of all Liens (as defined below)
including but not limited to the physical assets set forth in Schedule 1.1(a)
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and the following (collectively the "Acquired Assets") (provided, however, that
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the Acquired Assets shall not include any Excluded Assets set forth on
Schedule 1.1(b)):
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(a) all real property, improvements, fixtures and fittings thereon,
easements, rights-of way, and other appurtenant rights thereto (such as
appurtenant rights in and to public streets), if any;
(b) all tangible personal property (such as machinery, equipment,
inventories, raw materials, supplies, manufactured and purchased parts, works in
progress, finished goods, furniture, automobiles and tools);
(c) all Cash;
(d) all notes receivables, prepaid expenses, accounts receivable and
other similar current assets;
(e) all securities;
(f) all rights with respect to leasehold interests and subleases and
rights thereunder relating to the real and personal property;
(g) all licenses, permits, authorizations, orders, registrations,
certificates, variances, approvals, consents and franchises and similar rights
obtained from governments and governmental agencies or any pending applications
relating to any of the foregoing;
(h) all Intellectual Property, goodwill associated therewith,
licenses and sublicenses granted in respect thereto and rights thereunder,
remedies against infringements thereof and rights to protection of interest
therein, including without limitation the Intellectual Property described on
Schedule 2.13;
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(i) all agreements, contracts, indentures, mortgages, instruments,
guarantees, or other similar agreements, and rights thereunder, including
without limitation, the Contracts set forth on Schedule 2.14;
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(j) all customer, distribution, supplier and mailing lists;
(k) all claims, deposits, prepayments, refunds, causes of action,
choses in action, rights of recovery, rights of set off and rights of recoupment
(other than any such refund or similar item relating to the payment of Taxes (as
defined in Section 2.10)) relating to any right, property or asset included in
the Acquired Assets, or against any party to a Contract, including without
limitation, unliquidated rights under manufacturers' and vendors' warranties and
guaranties; and
(l) all business and financial records, books, ledgers, files, plans,
documents, correspondence, lists, plats, architectural plans, drawings,
notebooks, specifications, creative materials, advertising and promotional
materials, marketing materials, studies, reports, equipment repair, maintenance
or service records of the Seller, whether written or electronically stored or
otherwise recorded.
1.2 Assumption of Liabilities. The Buyer shall assume, on the terms and
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subject to the conditions set forth herein, from and after the Closing, only the
following Liabilities and obligations of the Seller (the "Assumed Liabilities")
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(provided however, that the Assumed Liabilities shall not include any Liability
set forth on Schedule 1.2(b), including without limitation Third Party Expenses
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of Seller):
(a) all GAAP Liabilities of the Seller which are set forth on the
Estimated Closing Balance Sheet; and
(b) all Liabilities of the Seller under the Contracts listed in
Schedule 2.14 to the extent such Contracts are assumed by the Buyer at the
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Closing pursuant to Section 1.1.
1.3 Purchase Price. As the purchase price for the Assumed Assets and in
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addition to assuming the Assumed Liabilities, Buyer agrees to pay to the Seller
on the Closing Date the Total Consideration (as defined below) as follows:
(a) Capital Stock Consideration. At the Closing, Buyer shall deliver
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to Seller the Capital Stock Consideration minus the Capital Stock Escrow Amount.
(b) Cash Consideration. At the Closing, Buyer shall pay cash to
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Seller by wire transfer upon such wire instructions delivered by Seller to the
Buyer at least two (2) business days prior to the Closing in an amount equal to
the Cash Consideration minus the Cash Escrow Amount.
(c) Escrow Amount. At the Closing, the Capital Stock Escrow Amount
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and the Cash Escrow Amount shall be placed by the Buyer into the Escrow Fund, to
be held in escrow pursuant to the provisions of Article VII.
1.4 Sales Tax. Buyer shall bear and pay any stamp duty, value added tax,
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sales tax, documentation charges, recording fees or similar charges, fees or
expenses contemplated by this Agreement (collectively, "Sales Taxes") that may
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become payable in connection with the sale of the
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Acquired Assets and the assumption of the Assumed Liabilities by Buyer.
Notwithstanding the foregoing, the amount of the consideration payable hereunder
is exclusive of any Sales Taxes which may be determined to be payable in respect
thereof and which, if so determined, shall be paid by the Buyer upon delivery of
an appropriate value added tax invoice. Buyer and Seller shall cooperate with
one another to the extent reasonably requested and legally permitted to minimize
any such Sales Taxes.
1.5 [Reserved].
1.6 The Closing. The closing of the transactions contemplated by this
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Agreement (the "Closing") shall take place at the offices of Wilson Sonsini
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Goodrich & Rosati, Professional Corporation, in Palo Alto, California commencing
at 10:00 a.m., P.T., two business days following the satisfaction or written
waiver of the last of the conditions of Closing as set forth in Article VI
hereof, or such other date as the Buyer and Seller may mutually determine (the
"Closing Date").
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1.7 Deliveries at the Closing. At the Closing, the following shall occur:
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(i) Buyer will deliver to the Seller the various certificates,
instruments and documents referred to in Section 6.2;
(ii) the Seller will deliver to the Buyer the various
certificates, instruments, and documents referred to in Section 6.3;
(iii) the Seller will use its best efforts and take all action
as may be reasonably necessary to put the Buyer in ownership, possession, and
operating control of the Acquired Assets.
(iv) the Seller will execute, acknowledge (if appropriate), and
deliver to the Buyer: (A) the deeds, if any, relating to any of the Acquired
Assets, properly endorsed; (B) assignments of the Seller' permits, leases,
Intellectual Property and Contracts (including Intellectual Property transfer
documents) and any third party consents necessary, or requested by the Buyer, to
such assignments described in (B); (C) the Transfer Documents; and (D) such
other instruments of sale, transfer, conveyance, and assignment as the Buyer and
their counsel may reasonably request;
(v) the Seller will execute or acknowledge (where appropriate),
and deliver to the Buyer the Transfer Documents;
(vi) the Buyer will deliver to the Seller the Total
Consideration less the Escrow Amount and the Escrow Amount to the Escrow Agent
as specified in Section 1.3; and
(vii) the Buyer and the Seller shall deliver or cause to be
delivered to one another such other instruments and documents necessary or
appropriate to evidence the due execution, delivery and performance of this
Agreement.
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At any time, and from time to time after the Closing, at the reasonable
request of the Buyer and without further consideration, the Seller will execute
and deliver such other instruments of sale, transfer, conveyance, assignment and
confirmation and take such action as Buyer may reasonably determine is necessary
to transfer, convey and assign to the Buyer, and to confirm the Buyer' title to
or interest in the Acquired Assets, to put the Buyer in actual possession and
operating control thereof and to assist the Buyer in exercising all rights with
respect thereto.
At any time, and from time to time after the Closing, at the reasonable
request of the Seller and without further consideration, the Buyer will execute
and deliver such other instruments of assumption and confirmation and take such
action as Seller may reasonably determine is necessary to assume the Assumed
Liabilities and all obligations with respect thereto.
1.8 Certain Definitions. For all purposes of this Agreement, the
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following terms shall have the following meanings:
"Buyer Common Stock" shall mean shares of the common stock, par
------------------
value $.0001, of Buyer.
"Capital Stock Consideration" shall mean that number of shares of
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Buyer Common Stock equal to the quotient obtained by dividing "X" where X is the
Total Consideration minus the Cash Consideration by "Y" where Y is the Trading
Price.
"Capital Stock Escrow Amount" shall mean Buyer Common Stock equal
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in value to 10% of the shares of Capital Stock Consideration.
"Cash" shall mean cash and cash equivalents within the meaning of
----
GAAP.
"Cash Consideration" shall mean cash equal to (i) 19% of the sum
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of Total Consideration and the amount of the Assumed Liabilities minus (ii) the
Assumed Liabilities.
"Cash Escrow Amount" shall mean 10% of the Cash Consideration.
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"Escrow Amount" shall mean 10% of the Total Consideration and
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shall consist of the aggregate of the Capital Stock Escrow Amount and the Cash
Escrow Amount.
"Estimated Balance Sheet" shall mean the estimated unaudited
-----------------------
balance sheet of the Seller dated the Closing Date which shall be (i) prepared
in accordance with GAAP (except that such unaudited balance sheet need not
contain the footnotes required by GAAP) and prepared in good faith and based on
reasonable assumptions and (ii) approved by Buyer, which approval shall not be
withheld unreasonably.
"Estimated Net Assets" shall mean the amount by which current
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assets of the Seller as determined in accordance with GAAP ("Current Assets")
--------------
exceeds total liabilities of the
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Seller as determined in accordance with GAAP ("Total Liabilities"), each as
-----------------
reflected in the Estimated Balance Sheet.
"Estimated Third Party Expenses" shall mean Third Party Expenses
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(as defined in Section 5.4) of the Seller on the Closing Date as estimated by
the Seller and the Principal Stockholders in good faith and based on reasonable
assumptions.
"Excluded Liabilities" shall mean all liabilities of Seller which
--------------------
are not Assumed Liabilities including, without limitation, those liabilities set
forth on Schedule 1.2(b).
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"GAAP" shall mean U.S. generally accepted accounting principles
----
consistently applied.
"Key Employees" shall mean those employees of the Seller listed
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on Schedule 1.8 hereto.
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"Knowledge" shall mean what would be within the actual knowledge
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of a prudent person after reasonable investigation.
"Liability" or "Liabilities" shall mean any liability or
--------- -----------
obligation (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, whether incurred or consequential and whether due to or to become
due), including any liability for Taxes.
"Net Assets" shall mean the amount equal to Current Assets of the
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Seller minus Total Liabilities of the Seller as of the Closing Date.
"Person" shall mean an individual, a partnership, a corporation,
------
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, a governmental entity (or any department, agency or
political subdivision thereof) or any other entity.
"Seller Capital Stock" shall mean shares of Seller Common Stock
--------------------
and shares of any other capital stock of the Seller.
"Seller Common Stock" shall mean shares of common stock of the
-------------------
Seller.
"Stockholder" shall mean each holder of any Seller Capital Stock
-----------
immediately prior to the Closing.
"Total Consideration" shall mean an amount equal to $54,000,000
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(i) plus or minus the amount by which Estimated Net Assets (excluding Estimated
Third Party Expenses reflected on the Estimated Balance Sheet) are more or less
than ($7,400,000); and (ii) minus the amount of principal and accrued interest
outstanding on the date of the Closing pursuant to that
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certain Secured Promissory Note, dated August 26, 1999, issued by the Seller to
the Buyer (the "Bridge Note").
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"Trading Price" shall mean the average closing sales price of the
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Buyer Common Stock as reported on the Nasdaq National Market for the five (5)
consecutive trading days ending three (3) business days prior to but not
including the Closing Date.
"Transfer Documents" shall mean the Assignment and Assumption
------------------
Agreement in substantially the form attached hereto as Exhibit C, the Bill of
---------
Sale in substantially the form attached hereto as Exhibit D and the Trademark
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Assignment in substantially the form attached hereto as Exhibit E.
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1.9 Taking of Necessary Action; Further Action. If, at any time after the
------------------------------------------
Closing, any further action is necessary or desirable to carry out the purposes
of this Agreement and to vest the Buyer with full right, title and possession to
the Acquired Assets, the officers and directors of the Seller and Buyer are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action.
1.10 Tax Consequences. It is intended by the parties hereto that the
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Acquisition shall constitute a reorganization within the meaning of Section
368(a)(i)(c) of the Code. Each party has consulted with its own tax advisors as
to the tax consequences of the Acquisition and no party makes any
representations as to the tax consequences of the Acquisition. Except as
provided in this Agreement, neither party is relying on any representations of
the other in evaluating its decisions on the tax consequences of the
transaction.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE PRINCIPAL STOCKHOLDERS
Each of the Seller and the Principal Stockholders hereby, jointly and
severally, represents and warrants to Buyer, subject to such exceptions as are
specifically disclosed in the disclosure schedule (referencing the appropriate
Section and paragraph numbers) supplied by the Seller and the Principal
Stockholders to Buyer and attached hereto as Exhibit F (the "Disclosure
--------- ----------
Schedule"), that on the date hereof and as of the Closing as though made at the
--------
Closing as follows:
2.1 Organization of the Seller. The Seller is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the State of
New Jersey. The Seller has the corporate power to own its properties and to
carry on its business as now being conducted. The Seller is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified could have a Seller Material Adverse
Effect. For all purposes of this Agreement, the term "Seller Material Adverse
-----------------------
Effect" means any change, event or effect that is materially adverse to the
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business, assets (including intangible assets), condition (financial or
otherwise), results of operations or prospects of the Seller. The Seller has
delivered a true and
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correct copy of its Articles
of Incorporation and Bylaws, each as amended to date, to Buyer. Section 2.1 of
the Disclosure Schedule lists the directors and officers of the Seller. The
operations now being conducted by the Seller have not been conducted under any
other name.
2.2 Subsidiaries. The Seller does not have, and has never had, any
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subsidiaries or affiliated companies and does not otherwise own, and has not
otherwise owned, any shares in the capital of or any interest in, or control,
directly or indirectly, any corporation, partnership, association, joint venture
or other business entity.
2.3 Seller Capital Structure.
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(a) The authorized Seller Capital Stock consists of two hundred (200)
shares of authorized Seller Common Stock, no par value, of which two hundred
(200) shares are issued and outstanding as of the date hereof. The Seller
Capital Stock at the time of the Closing will be held by the persons, with the
domicile addresses and in the amounts set forth in Section 2.3(b) of the
Disclosure Schedule. All outstanding shares of Seller Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws of
the Seller or any agreement to which the Seller is a party or by which it is
bound and have been issued in compliance with federal and state securities laws.
There are no declared or accrued unpaid dividends with respect to any shares of
the Seller's Capital Stock. The Seller has no other capital stock authorized,
issued or outstanding.
(b) The Seller has never adopted or maintained any stock option plan
or other plan providing for equity compensation of any person. The Seller has
reserved no shares of Seller Common Stock for issuance to employees and
consultants, and no shares of Capital Stock are subject to outstanding
unexercised options as of the date hereof. There is no outstanding Seller
Capital Stock which is subject to vesting. Except as set forth on Section 2.3(b)
of the Disclosure Schedule, there are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which the Seller
is a party or by which it is bound obligating the Seller to issue, deliver,
sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of the capital stock of the Seller or obligating the
Seller to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or other similar rights with respect to the Seller.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting stock of the Seller.
2.4 Authority. Each of the Seller and the Principal Stockholders has all
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requisite power and authority to enter into this Agreement and any Related
Agreements (as hereinafter defined) to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and any Related Agreements to which it is a party and the consummation
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of the Seller, and no further action
is required on the part of the Seller or the Principal Stockholders to authorize
the Agreement, any Related Agreements to which it is a party and the
transactions contemplated hereby and thereby, subject only to the
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approval of this Agreement by the Stockholders. This Agreement and the
Acquisition have been unanimously approved by the Board of Directors of the
Seller. This Agreement and any Related Agreements to which the Seller or the
Principal Stockholders is a party have been duly executed and delivered by the
Seller or the Principal Stockholders, as the case may be, and, assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute the valid and binding obligation of the Seller and the Principal
Stockholders, as the case may be, enforceable in accordance with their
respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and to rules of law governing
specific performance, injunctive relief or other equitable remedies. The
"Related Agreements" shall mean all such ancillary agreements required in this
------------------
Agreement to be executed and delivered in connection with the transactions
contemplated hereby, including the Noncompetition Agreements, the Assignment and
Assumption Agreement, the Trademark Assignments, the Bill of Sale and the Voting
Agreements.
2.5 No Conflict. The execution and delivery of this Agreement and any
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Related Agreements to which the Seller or the Principal Stockholders are a party
by either the Seller or the Principal Stockholders do not, and, the consummation
of the transactions contemplated hereby and thereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation,
modification or acceleration of any obligation or loss of any material benefit
under (any such event, a "Conflict") (i) any provision of the Articles of
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Incorporation and Bylaws of the Seller, (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise or
license to which the Seller or the Principal Stockholders or any of their
respective properties or assets (including intangible assets) are subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Seller or the Principal Stockholders or their respective
properties or assets.
2.6 Consents. No consent, waiver, approval, order or authorization of, or
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registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
-------------------
third party, including a party to any agreement with the Seller (so as not to
trigger any Conflict), is required by or with respect to the Seller or the
Principal Stockholders in connection with the execution and delivery of this
Agreement and any Related Agreements to which the Seller or the Principal
Stockholders is a party or the consummation of the transactions contemplated
hereby and thereby, except for such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable securities laws. Section 2.6 of the Disclosure Schedule sets forth a
true, correct and complete list of the identities with any Person whose consent
or approval is required and the matter, agreement or contract to which such
consent relates.
2.7 Seller Financial Statements. Section 2.7 of the Disclosure Schedule
---------------------------
sets forth the Seller's audited balance sheets as of December 31, 1998 and
December 31, 1997 and the related audited statements of income and cash flow for
the twelve-month periods ended December 31, 1998 and December 31, 1997 (the
"Year-End Financials") and the Seller's audited balance sheets for the six
-------------------
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months ended as of June 30, 1999,
and the related audited statements of income and cash flow for the six months
then ended (the "Interim Financials"). The Year-End Financials and the Interim
------------------
Financials are correct in all material respects and have been prepared in
accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other. The Year-End Financials and Interim
Financials present fairly the financial condition and operating results of the
Seller as of the dates and during the periods indicated therein, subject in the
case of the Interim Financials, to normal year-end adjustments, which will not
be material in amount or significance. The Seller's audited balance sheet as of
June 30, 1999 shall be hereinafter referred to as the "Current Balance Sheet."
----------------------
2.8 No Undisclosed Liabilities. The Seller does not have any liability,
--------------------------
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, whether accrued, absolute, contingent, matured, unmatured or other,
which individually or in the aggregate (i) has not been reflected in the Current
Balance Sheet, or (ii) has not arisen in the ordinary course of business
consistent with past practices since June 30, 1999, none of which is material to
the business, results of operations or condition (financial or otherwise) of the
Seller.
2.9 No Changes. Since June 30, 1999, there has not been, occurred or
----------
arisen any:
(a) amendments or changes to the Articles of Incorporation or Bylaws
of the Seller;
(b) capital expenditure or commitment by the Seller, exceeding
$20,000 individually or $50,000 in the aggregate;
(c) destruction of, damage to or loss of any material assets,
business or customer of the Seller (whether or not covered by insurance);
(d) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(e) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Seller;
(f) revaluation by the Seller of any of its assets;
(g) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Seller or any direct or
indirect redemption, purchase or other acquisition by the Seller of its capital
stock;
(h) increase in the salary or other compensation payable or to become
payable by the Seller to any of its officers, directors, employees or advisors,
or the declaration, payment or commitment or obligation of any kind for the
payment, by the Seller of a bonus or other additional salary or compensation to
any such person;
-10-
(i) material agreement, contract, covenant, instrument, lease,
license or commitment to which the Seller is a party or by which it or any of
its assets (including intangible assets) are bound or any termination,
extension, amendment or modification the terms of any agreement, contract,
covenant, instrument, lease, license or commitment to which the Seller is a
party or by which it or any of its assets are bound other than agreements with
customers or suppliers entered into in the ordinary course of business and
consistent with past practice;
(j) material sale, lease, license or other disposition of any of the
assets or properties of the Seller or any creation of any security interest in
such assets or properties;
(k) loan by the Seller to any person or entity, incurring by the
Seller of any indebtedness, guaranteeing by the Seller of any indebtedness,
issuance or sale of any debt securities of the Seller or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practice;
(l) waiver or release of any material right or claim of the Seller
including any write-off or other compromise of any material account receivable
of the Seller;
(m) the commencement or notice or threat or reasonable basis therefor
of any lawsuit or, to the Seller's or the Principal Stockholders' Knowledge,
proceeding or investigation against the Seller or its affairs;
(n) Knowledge of any claim or potential claim of ownership by any
Person other than the Seller of the Seller Intellectual Property (as defined in
Section 2.13) or of infringement by the Seller of any other person's
Intellectual Property (as defined in Section 2.13);
(o) issuance or sale, or contract to issue or sell, by the Seller of
any shares of its capital stock or securities exchangeable, convertible or
exercisable therefor, or any securities, warrants, options or rights to purchase
any of the foregoing;
(p) (i) sale or license of any Seller Intellectual Property or
entering into of any agreement with respect to the Seller Intellectual Property
with any person or entity or with respect to the Intellectual Property of any
person or entity or (ii) purchase or license of any Intellectual Property or
entering into of any agreement with respect to the Intellectual Property of any
person or entity or (iii) change in pricing or royalties set or charged by the
Seller to its customers or licensees or in pricing or royalties set or charged
by persons who have licensed Intellectual Property to the Seller;
(q) event or condition of any character that has had or is reasonably
likely to have a Seller Material Adverse Effect;
(r) transaction by the Seller except in the ordinary course of
business as conducted on that date and consistent with past practices; or
-11-
(s) negotiation or agreement by the Seller or any officer or employee
thereof to do any of the things described in the preceding clauses (a) through
(r) (other than negotiations with Buyer and its representatives regarding the
transactions contemplated by this Agreement).
2.10 Tax Matters.
-----------
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
------------------- ---
or, collectively, "Taxes," means (i) any and all federal, state, local and
-----
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts; (ii) any liability for the payment of any amounts of
the type described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for Taxes of a
predecessor entity.
(b) Tax Returns and Audits.
----------------------
(i) As of the Closing, the Seller will have prepared or caused
to be prepared and timely filed or caused to be filed all required federal,
state, local and foreign returns, estimates, information statements and reports
("Returns") due on or before the Closing relating to any and all Taxes
---------
concerning or attributable to the Seller or its operations and, to the extent
Buyer would be adversely affected, such Returns are true and correct and have
been completed in accordance with applicable law.
(ii) As of the Closing, the Seller (A) will have paid or accrued
all Taxes it is required to pay or accrue and will have withheld or caused to be
withheld with respect to its employees all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld, and (B) will have accrued on the
Current Balance Sheet all Taxes attributable to the periods covered by the
Current Balance Sheet and will not have incurred any liability for Taxes for the
period prior to the Closing other than in the ordinary course of business.
(iii) The Seller has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, assessed or proposed against
the Seller, nor has the Seller executed any waiver of any statute of limitations
on or extending the period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the Seller
is presently in progress, nor has the Seller been notified of any request for
such an audit or other examination.
-12-
(v) The Seller has no liabilities for unpaid federal, state,
local and foreign Taxes which have not been accrued or reserved against on the
Current Balance Sheet, whether asserted or unasserted, contingent or otherwise.
(vi) The Seller has made available to Buyer or its legal
counsel, copies of all foreign, federal and state income and all state sales and
use Returns for the Seller filed for all periods since its inception.
(vii) There are (and immediately following the Closing there
will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Liens") on the assets of the Seller relating to or attributable to Taxes other
-----
than Liens for Taxes not yet due and payable.
(viii) Neither the Seller nor the Principal Stockholders has
Knowledge of any basis for the assertion of any claim relating or attributable
to Taxes which, if adversely determined, would result in any Lien on the assets
of the Seller.
(ix) None of the Seller's assets are treated as "tax-exempt use
---------------
property", within the meaning of Section 168(h) of the Code.
--------
(x) There is no contract, agreement, plan or arrangement to
which the Seller is a party as of the date of this Agreement, including but not
limited to the provisions of this Agreement, covering any employee or former
employee of Seller, individually or collectively, that could give rise to the
payment of any amount that would not be deductible pursuant to Sections 280G,
404 or 162(m) of the Code.
(xi) The Seller has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Seller.
(xii) The Seller is not a party to any tax sharing,
indemnification or allocation agreement nor does the Seller owe any amount under
any such agreement, other than this Agreement.
(xiii) No adjustment relating to any Return filed by the Seller
has been proposed formally or, to the Knowledge of the Seller or the Principal
Stockholders, informally by any tax authority to the Seller or any
representative thereof.
2.11 Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Seller is a party or otherwise binding upon the Seller which has or
may have the effect of prohibiting or impairing any business practice of the
Seller, any acquisition of property (tangible or intangible) by the Seller or
the conduct of business by the Seller. Without limiting the foregoing, the
Seller has not entered into any agreement under which it is restricted from
selling, licensing or otherwise distributing any of its
-13-
technology or products to or providing services to, customers or potential
customers or any class of customers, in any geographic area, during any period
of time or in any segment of the market.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
--------------------------------------------------------------------
Equipment.
---------
(a) The Seller does not own any real property, nor has it ever owned
any real property. Section 2.12(a) of the Disclosure Schedule sets forth a list
of all real property currently leased by the Seller, the name of the lessor, the
date of the lease and each amendment thereto and, with respect to any current
lease, the aggregate annual rental and/or other fees payable under any such
lease. All such current leases are in full force and effect, are valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default).
(b) The Seller has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of their respective
tangible properties and assets, real, personal and mixed, used or held for use
in its business, including without limitation the Acquired Assets, free and
clear of any Liens, except as reflected in the Current Balance Sheet and except
for Liens for Taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not detract from the value, or interfere with the present use, of the
property subject thereto or affected thereby.
(c) Section 2.12(c) of the Disclosure Schedule lists all material
items of equipment (the "Equipment") owned or leased by the Seller and such
---------
Equipment is, (i) adequate for the conduct of the business of the Seller as
currently conducted and (ii) in good operating condition, regularly and properly
maintained, subject to normal wear and tear.
(d) The Seller has sole and exclusive ownership, free and clear of
any Liens, of all customer files and other customer information relating to
customers of the Seller's current and former customers (the "Customer
---------
Information"). No person other than the Seller possesses any claims or rights
-----------
with respect to use of the Customer Information.
(e) As a result of the Acquisition, good and valid title to, or in
the case of leased properties and assets, valid leasehold interests in, all of
the Acquired Assets will be held by Buyer.
2.13 Intellectual Property.
---------------------
(a) For the purposes of this Agreement, the following terms have the
following definitions:
"Intellectual Property" shall mean any or all of the following
---------------------
(i) works of authorship including, without limitation, computer programs, source
code and executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, records, data and mask works, (ii) inventions
(whether or not patentable), improvements, and technology, (iii) proprietary and
confidential information, trade secrets and know how, (iv) databases, data
-14-
compilations and collections and technical data, (v) logos, trade names, trade
dress, trademarks and service marks, (vi) domain names, web addresses and sites,
(vii) tools, methods and processes, and (viii) all instantiations of the
foregoing in any form and embodied in any media.
"Intellectual Property Rights" shall mean worldwide common law
----------------------------
and statutory rights associated with (i) patents and patent applications, (ii)
copyrights, copyrights registrations and copyrights applications and "moral"
rights, (iii) the protection of trade and industrial secrets and confidential
information, (iv) other proprietary rights relating to intangible intellectual
property, (v) trademarks, trade names and service marks, (vi) analogous rights
to those set forth above, and (vii) divisions, continuations, renewals,
reissuances and extensions of the foregoing (as applicable) now existing or
hereafter filed, issued or acquired.
"Seller Intellectual Property" shall mean any Intellectual
----------------------------
Property and Intellectual Property Rights that are owned by or exclusively
licensed to the Seller.
"Registered Intellectual Property Rights" shall mean
---------------------------------------
Intellectual Property Rights that have been registered, filed, certified or
otherwise perfected by recordation with any state, government or other public
legal authority.
(b) Section 2.13(b) of the Disclosure Schedule lists all Registered
Intellectual Property owned by, or filed in the name of, the Seller (the "Seller
-------
Registered Intellectual Property") and lists any proceedings or actions before
---------------------------------
any court, tribunal (including the United States Patent and Trademark Office
(the "PTO") or equivalent authority anywhere in the world) related to any of the
---
Seller Registered Intellectual Property Rights.
(c) Each item of Seller Intellectual Property, including all Seller
Registered Intellectual Property listed in Section 2.13(b) of the Disclosure
Schedule and all Intellectual Property licensed to the Seller, is free and clear
of any Liens or other encumbrances. The Seller is the exclusive owner of all
Seller Intellectual Property (other than Seller Intellectual Property which is
Intellectual Property exclusively licensed to the Seller).
(d) To the extent that any Intellectual Property has been developed
or created independently or jointly by any person other than the Seller for
which the Seller has, directly or indirectly, paid the Seller has a written
agreement with such person with respect thereto, and the Seller thereby has
obtained ownership of, and is the exclusive owner of, all such Intellectual
Property and associated Intellectual Property Rights by operation of law or by
valid assignment.
(e) The Seller has not transferred ownership of or granted any
license of or right to use or authorized the retention of any rights to use any
Intellectual Property or Intellectual Property Rights that is or was Seller
Intellectual Property, to any other person.
(f) The Seller Intellectual Property constitutes all the Intellectual
Property and Intellectual Property Rights used in and/or necessary to the
conduct of the business of the Seller as it currently is conducted, planned or
is reasonably contemplated to be conducted, including, without
-15-
limitation, the design, development, manufacture, use, import and sale of
products, technology and services (including products, technology or services
currently under development).
(g) Other than "shrink-wrap" and similar widely available commercial
-----------
end-user licenses, the contracts, licenses and agreements listed in Section
2.13(g) of the Disclosure Schedule include all contracts, licenses and
agreements to which the Seller is a party with respect to any Intellectual
Property and Intellectual Property Rights. No person who has licensed
Intellectual Property or Intellectual Property Rights to the Seller has
ownership rights or license rights to improvements made by the Seller in such
Intellectual Property which has been licensed to the Seller.
(h) Section 2.13(h) of the Disclosure Schedule lists all contracts,
licenses and agreements between the Seller and any other person wherein or
whereby the Seller has agreed to, or assumed, any obligation or duty to warrant,
indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any
obligation or liability or provide a right of rescission with respect to the
infringement or misappropriation by the Seller or such other person of the
Intellectual Property Rights of any person other than the Seller.
(i) The operation of the business of the Seller as it currently is
conducted or is reasonably contemplated to be conducted, including but not
limited to the design, development, use, import, manufacture and sale of the
products, technology or services (including products, technology or services
currently under development) of the Seller does not infringe or misappropriate
the Intellectual Property Rights of any person, violate the rights of any person
(including rights to privacy or publicity), or constitute unfair competition or
trade practices under the laws of any jurisdiction, and the Seller has not
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Seller infringes or misappropriates the
Intellectual Property Rights of any person or constitutes unfair competition or
trade practices under the laws of any jurisdiction (nor is the Seller or the
Principal Stockholders aware of any basis therefor).
(j) Each item of Seller Registered Intellectual Property is valid and
subsisting, and all necessary registration, maintenance and renewal fees in
connection with such Seller Registered Intellectual Property have been paid and
all necessary documents and certificates in connection with such Seller
Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property. There are no actions that must be taken by the
Seller within sixty (60) days of the Closing Date, including the payment of any
registration, maintenance or renewal fees or the filing of any documents,
applications or certificates for the purposes of maintaining, perfecting or
preserving or renewing any Registered Intellectual Property. For each product,
technology or service of the Seller that constitutes or includes a copyrightable
work, the Seller has registered the copyright in the latest version of such work
with the U.S. Copyright Office. In each case in which the Seller has acquired
any Intellectual Property rights from any person, the Seller has obtained a
valid and enforceable assignment sufficient to irrevocably transfer all rights
in such Intellectual Property and the associated
-16-
Intellectual Property Rights (including the right to seek past and future
damages with respect thereto) to the Seller and, to the maximum extent provided
for by, and in accordance with, applicable laws and regulations, the Seller has
recorded each such assignment with the relevant governmental authorities,
including the PTO, the U.S. Copyright Office, or their respective equivalents in
any relevant foreign jurisdiction, as the case may be.
(k) There are no contracts, licenses or agreements between the Seller
and any other person with respect to Seller Intellectual Property under which
there is any dispute known to the Seller or the Principal Stockholders regarding
the scope of such agreement, or performance under such agreement including with
respect to any payments to be made or received by the Seller thereunder.
(l) To the Knowledge of the Seller and the Principal Stockholders, no
person is infringing or misappropriating any Seller Intellectual Property.
(m) The Seller has taken all reasonable steps that are required to
protect the Seller's rights in confidential information and trade secrets of the
Seller or provided by any other person to the Seller. Without limiting the
foregoing, the Seller has, and enforces, a policy requiring each employee,
consultant and contractor to execute proprietary information, confidentiality
and assignment agreements substantially in the Seller's standard forms, and all
current and former employees, consultants and contractors of the Seller have
executed such an agreement.
(n) No Seller Intellectual Property, Intellectual Property Rights or
service of the Seller is subject to any proceeding or outstanding decree, order,
judgment, agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by the Seller or may affect the validity, use or
enforceability of such Seller Intellectual Property.
(o) No (i) product, technology, service or publication of the Seller,
(ii) material published or distributed by the Seller or (iii) conduct or
statement of Seller constitutes obscene material, a defamatory statement or
material, false advertising or otherwise violates any law or regulation.
(p) All of the Seller's products (including products currently under
development) will record, store, process, calculate and present calendar dates
falling on and after (and if applicable, spans of time including) January 1,
2000, and will calculate any information dependent on or relating to such dates
in the same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, "Year 2000 Compliant").
-------------------
All of the Seller's products will lose no functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000.
All of the Seller's internal computer and technology products and systems are
Year 2000 Compliant.
2.14 Agreements, Contracts and Commitments.
-------------------------------------
-17-
(a) Schedule 2.14(a) of the Disclosure Schedule sets forth the
following contracts or agreements (whether written or oral) to which the Seller
is a party or bound by:
(i) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(ii) any agreement concerning confidentiality,
(iii) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement,
(iv) any fidelity or surety bond or completion bond,
(v) any lease of personal property having an annual value
individually in excess of $10,000 or $50,000 in the aggregate,
(vi) any agreement, contract or commitment containing any
covenant limiting the freedom of the Seller to engage in any line of business or
to compete with any person,
(vii) any agreement, contract or commitment relating to capital
expenditures and involving future annual payments in excess of $10,000
individually or $50,000 in the aggregate,
(viii) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Seller's business,
(ix) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit,
(x) any purchase order or contract for the purchase of materials
involving annually in excess of $10,000 individually or $50,000 in the
aggregate,
(xi) any construction contracts,
(xii) any dealer, distribution, joint marketing or development
agreement,
(xiii) any sales representative, original equipment
manufacturer, value added, remarketer, reseller or independent software vendor
or other agreement for use or distribution of the Seller's products, technology
or services, or
-18-
(xiv) any other agreement, contract or commitment that involves
annual payments of $10,000 individually or $50,000 in the aggregate or more or
is not cancelable without penalty within thirty (30) days.
(b) The Seller is in compliance with and has not breached, violated
or defaulted under, or received notice that it has breached, violated or
defaulted under, any of the terms or conditions of any material agreement,
contract, covenant, instrument, lease, license or commitment to which it is a
party or by which it is bound (each, a "Contract"), nor is the Seller or the
--------
Principal Stockholders aware of any event that would constitute such a breach,
violation or default with the lapse of time, giving of notice or both. Each
Contract is in full force and effect and is not subject to any default
thereunder by any party obligated to the Seller pursuant thereto. The Seller has
obtained, or will obtain prior to the Closing Date, all necessary consents,
waivers and approvals of parties to any Contract as are required thereunder in
connection with the Acquisition or for such Contracts to remain in effect
without modification after the Closing. Following the Closing, Buyer will be
permitted to exercise all of the rights of Seller under the Contracts without
the payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which the Seller would otherwise be required to pay had
the transactions contemplated by this Agreement not occurred.
2.15 Interested Party Transactions. No officer, director or Stockholder
-----------------------------
(nor any ancestor, sibling, descendant or spouse of any of such persons, or any
trust, partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) an interest in any entity
which furnished or sold, or furnishes or sells, services, products or technology
that the Seller furnishes or sells, or proposes to furnish or sell, or (ii) any
interest in any entity that purchases from or sells or furnishes to the Seller
any goods or services or (iii) a beneficial interest in any Contract; provided,
--------
that ownership of no more than one percent (1%) of the outstanding voting stock
of a publicly traded corporation shall not be deemed an "interest in any entity"
----------------------
for purposes of this Section 2.15.
2.16 Governmental Authorization. Section 2.16 of the Disclosure Schedule
--------------------------
accurately lists each consent, license, permit, grant or other authorization
issued to the Seller by a Governmental Entity (i) pursuant to which the Seller
currently operates or holds any interest in any of its properties or (ii) which
is required for the operation of its business or the holding of any such
interest (herein collectively called "Seller Authorizations"). The Seller
---------------------
Authorizations are in full force and effect and constitute all Seller
Authorizations required to permit the Seller to operate or conduct its business
or hold any interest in its properties or assets.
2.17 Litigation. There is no action, suit, claim or proceeding of any
----------
nature pending, or, to the Seller's or the Principal Stockholders' Knowledge,
threatened, against the Seller, its properties (tangible or intangible) or any
of its officers or directors, nor, to the Knowledge of the Seller or the
Principal Stockholders, is there any reasonable basis therefor. To the Seller's
or the Principal Stockholders' Knowledge, there is no investigation pending or
threatened against the Seller, its properties or any of its officers or
directors (nor, to the best Knowledge of the Seller or the Principal
-19-
Stockholders, is there any reasonable basis therefor) by or before any
Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of the Seller to conduct its operations as presently
or previously conducted.
2.18 Accounts Receivable; Inventory.
------------------------------
(a) The Seller has made available to Buyer a list of all accounts
receivable of the Seller as of September 30, 1999 along with a range of days
elapsed since invoice.
(b) All accounts receivable arose in the ordinary course of business,
are carried at values determined in accordance with GAAP consistently applied
and are collectible except to the extent of reserves therefor set forth in the
Current Balance Sheet. No person has any Lien on any of such Accounts Receivable
and no request or agreement for deduction or discount has been made with respect
to any of such Accounts Receivable.
(c) All of the inventories of the Seller that are among the Acquired
Assets were purchased, acquired or produced in the ordinary and regular course
of business and in a manner consistent with the Seller's regular inventory
practices and are set forth on the Seller's books and records in accordance with
the practices and principles of the Seller consistent with the method of
treating said items in prior periods. None of the inventory of the Seller that
is among the Acquired Assets (in either case net of the reserve therefor) is
obsolete, defective or in excess of the needs of the business of the Seller
reasonably anticipated for the normal operation of the business consistent with
past practices and outstanding customer contracts. The presentation of inventory
on the Seller Financials conforms to GAAP and such inventory is stated at the
lower of cost (determined using the first-in, first-out method) or market value.
2.19 Minute Books. The minutes of the Seller made available to counsel
------------
for Buyer are the only minutes of the Seller and contain a reasonably accurate
summary of all meetings of the Board of Directors (or committees thereof) of the
Seller and their respective shareholders or actions by written consent since the
time of incorporation of the Seller.
2.20 Environmental Matters.
---------------------
(a) Hazardous Material. The Seller has not: (i) operated any
------------------
underground storage tanks at any property that the Seller has at any time owned,
operated, occupied or leased; or (ii) illegally released any material amount of
any substance that has been designated by any Governmental Entity or by
applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, and urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to such laws (a
"Hazardous Material"), but excluding office and janitorial supplies properly and
------------------
safely maintained. No Hazardous Materials are present as a result of the
deliberate actions of the Seller or, to the Seller's or
-20-
the Principal Stockholders' Knowledge, as a result of any actions of any other
person or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Seller has at any
time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Seller has not transported,
------------------------------
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Closing, nor has it disposed of, transported, sold, or manufactured any product
containing a Hazardous Material (any or all of the foregoing being collectively
referred to as "Hazardous Materials Activities") in violation of any rule,
------------------------------
regulation, treaty or statute promulgated by any Governmental Entity in effect
prior to or as of the date hereof to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
(c) Permits. The Seller currently holds all environmental approvals,
-------
permits, licenses, clearances and consents (the "Environmental Permits") if any,
---------------------
necessary for the conduct of the Seller's Hazardous Material Activities,
respectively, and other businesses of the Seller as such activities and
businesses are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Seller's or the Principal Stockholders' Knowledge, threatened concerning any
Environmental Permit, Hazardous Material or any Hazardous Materials Activity of
the Seller. Neither the Seller nor the Principal Stockholders is aware of any
fact or circumstance which could involve the Seller in any environmental
litigation or impose upon the Seller any environmental liability.
2.21 Brokers' and Finders' Fees; Third Party Expenses. The Seller has not
------------------------------------------------
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with the Agreement or any transaction contemplated hereby. Section 2.21 of the
Disclosure Schedule sets forth the Seller's current reasonable estimate of all
Third Party Expenses (as defined in Section 5.4) expected to be incurred by the
Seller in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby.
2.22 Employee Benefit Plans and Compensation.
---------------------------------------
(a) The following terms shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
---------
common control with the Seller within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations issued thereunder;
(ii) "Employee Plan" shall mean any plan, program, policy,
-------------
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written, unwritten or otherwise, funded or
-21-
unfunded, including without limitation, each "employee benefit plan," within the
meaning of Section 3(3) of ERISA which is or has been maintained, contributed
to, or required to be contributed to, by the Seller or any Affiliate for the
benefit of any Employee, or with respect to which the Seller or any Affiliate
has or may have any liability or obligation;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
-----
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
---
(v) "Employee" shall mean any current or former employee,
--------
consultant or director of the Seller or any Affiliate;
(vi) "Employee Agreement" shall mean each management,
------------------
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or other agreement, contract or understanding between the Seller or
any Affiliate and any Employee ;
(vii) "ERISA" shall mean the Employee Retirement Income Security
-----
Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993,
----
as amended;
(ix) "IRS" shall mean the Internal Revenue Service;
---
(x) "PBGC" shall mean the Pension Benefit Guaranty Corporation;
----
and
(xi) "Pension Plan" shall mean each Employee Plan which is an
------------
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) Schedule. Schedule 2.22(b) contains an accurate and complete
--------
list of each Employee Plan and each Employee Agreement. The Seller does not have
any plan or commitment to establish any new Employee Plan or Employee Agreement,
to modify any Employee Plan or Employee Agreement (except to the extent required
by law or to conform any such Employee Plan or Employee Agreement to the
requirements of any applicable law, in each case as previously disclosed to
Buyer in writing, or as required by this Agreement), or to enter into any
Employee Plan or Employee Agreement.
(c) Buyer shall assume no obligations, liabilities or
responsibilities, relating to, arising out of, or resulting from any of the
Employee Plans. [Note: should be listed on Excluded Liabilities list]
(d) No Pension Plans. Neither the Seller nor any Affiliate has ever
----------------
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan.
-22-
(e) [Reserved]
(f) Health Care Compliance. Neither the Seller nor any Affiliate
----------------------
has, prior to the Closing, violated any of the health care continuation
requirements of COBRA, the requirements of FMLA, the requirements of the Health
Insurance Portability and Accountability Act of 1996, the requirements of the
Women's Health and Cancer Rights Act, the requirements of the Newborns' and
Mothers' Health Protection Act of 1996, or any amendment to each such Act, or
any similar provisions of state law applicable to its Employees.
(g) Effect of Transaction. The execution of this Agreement and the
---------------------
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Employee Plan, Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or other-wise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(h) Employment Matters. The Seller: (i) is in compliance with all
------------------
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has withheld
and reported all amounts required by law or by agreement to be withheld and
reported with respect to wages, salaries and other payments to Employees; (iii)
is not liable for any arrears of wages or any taxes or any penalty for failure
to comply with any of the foregoing; and (iv) is not liable for any payment to
any trust or other fund governed by or maintained by or on behalf of any
governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending or, to the knowledge of the Seller or the
Principal Stockholders, threatened or reasonably anticipated claims or actions
against the Seller under any worker's compensation policy or long-term
disability policy.
(i) Labor. No work stoppage or labor strike against the Seller is
-----
pending, or to the knowledge of the Seller or the Principal Stockholders,
threatened or reasonably anticipated. The Seller does not know of any activities
or proceedings of any labor union to organize any Employees. There are no
actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of the Seller or the Principal Stockholders, threatened or reasonably
anticipated relating to any labor, safety or discrimination matters involving
any Employee, including, without limitation, charges of unfair labor practices
or discrimination complaints. The Seller has not engaged in any unfair labor
practices within the meaning of the National Labor Relations Act. The Seller is
not presently, nor has it been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to Employees and
no collective bargaining agreement is being negotiated by the Seller.
(j) No Interference or Conflict. To the Knowledge of the Seller and
---------------------------
the Principal Stockholders, no shareholder, officer, employee or consultant of
the Seller is obligated under any contract or agreement subject to any judgment,
decree or order of any court or administrative agency
-23-
that would interfere with such person's efforts to promote the interests of the
Seller or that would interfere with the Seller's business. Neither the execution
nor delivery of this Agreement, nor the carrying on of the Seller's business as
presently conducted or presently proposed to be conducted nor any activity of
such officers, directors, employees or consultants in connection with the
carrying on of the Seller's business as presently conducted or currently
proposed to be conducted, will, to the Seller's and the Principal Stockholders'
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract or agreement under
which any of such officers, directors, employees or consultants is now bound.
2.23 Insurance. Section 2.23 of the Disclosure Schedule lists all
---------
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Seller. There
is no claim by the Seller pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid, and the Seller is otherwise in compliance with the terms
of such policies and bonds (or other policies and bonds providing substantially
similar insurance coverage). Neither the Seller nor the Principal Stockholders
has Knowledge of any threatened termination of, or premium increase with respect
to, any of such policies.
2.24 Compliance with Laws. The Seller has complied with, is not in
--------------------
violation of, and has not received any notices of violation with respect to, any
material foreign, federal, state or local statute, law or regulation.
2.25 Warranties; Indemnities. Except for the warranties and indemnities
-----------------------
contained in (i) those contracts and agreements set forth in Section 2.13(g) of
the Disclosure Schedule and (ii) the Seller's shrink wrap license agreements
substantially in the form set forth in Section 2.13(d) of the Disclosure
Schedule, the Seller has not given any warranties or indemnities relating to
products or technology sold or licensed or services rendered by the Seller.
2.26 Complete Copies of Materials. The Seller has delivered or made
----------------------------
available true and complete copies of each document (or summaries of same) that
has been requested by Buyer or its counsel.
2.27 Bulk Sales. Neither Seller nor the transactions contemplated by this
----------
Agreement are subject to the provisions of Article 6 of the Uniform Commercial
Code concerning bulk sales or any similar law.
2.28 Investment Representations. Seller understands, acknowledges and
--------------------------
agrees to the following:
(a) Purchase for Own Account. The Buyer Common Stock to be received
------------------------
by Seller hereunder will be acquired for investment for Seller's own account,
not as a nominee or agent, and not with a view to the public resale or
distribution thereof within the meaning of the Securities Act of 1933, as
amended, (the "Securities Act"), and Seller has no present intention of
--------------
-24-
selling, granting any participation in, or otherwise distributing the same.
Seller also represents that it has not been formed for the specific purpose of
acquiring the Buyer Common Stock.
(b) Disclosure of Information. Seller has received or has had full
-------------------------
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Buyer Common Stock to be
received under this Agreement. Seller further has had an opportunity to ask
questions and receive answers from Buyer regarding Buyer's business and to
obtain additional information (to the extent Buyer possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to Seller or to which Seller had access.
(c) Restricted Securities. Seller understands that the shares of
---------------------
Buyer Common Stock are characterized as "restricted securities" under the
Securities Act inasmuch as they are being acquired from Buyer in a transaction
not involving a public offering and that under the Securities Act and applicable
regulations thereunder such securities may be resold without registration under
the Securities Act only in certain limited circumstances. In this connection,
Seller represents that it is familiar with Rule 144 of the U.S. Securities and
Exchange Commission (the "SEC"), as presently in effect, and understands the
---
resale limitations imposed thereby and by the Securities Act. Seller understands
that Buyer is under no obligation to register any of the securities sold
hereunder.
(d) Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, Seller further agrees not to make any
disposition of all or any portion of the Buyer Common Stock unless and until:
(i) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) Seller shall furnish Buyer with an opinion of counsel,
reasonably satisfactory to Buyer, that such disposition will not require
registration of such securities under the Securities Act.
2.29 Legends. It is understood that the certificates evidencing the Buyer
-------
Common Stock will bear the legends set forth below:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR UNDER THE SECURITIES
LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT
TO REGISTRATION OR EXAMINATION THEREFROM. THE HOLDER OF THE SECURITIES
REPRESENTED HEREBY SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR
OFFICIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
-25-
The legend set forth above shall be removed by Buyer from any certificate
evidencing Buyer Common Stock upon delivery to Buyer of an opinion by counsel,
reasonably satisfactory to Buyer, that a registration statement under the
Securities Act is at that time in effect with respect to the legended security
or that such security can be freely transferred in a public sale without such a
registration statement being in effect and that such transfer will not
jeopardize the exemption or exemptions from registration pursuant to which Buyer
issued the Buyer Common Stock.
2.30 Securities representations. Seller further represents and warrants
--------------------------
to Buyer that the following are true and correct as of the Closing:
(a) At least ninety-five percent (95%) of the outstanding Seller's
capital stock, on an as-converted basis, entitled to vote on this Agreement and
the transactions contemplated hereby voted in favor of the Agreement and such
transactions; and
(b) All holders of outstanding capital stock of Seller entitled to
vote on this Agreement and the transactions contemplated hereby have, and have
been properly informed of, their dissenters' rights under applicable federal or
state law.
2.31 Hart-Scott-Rodino Compliance. Vasiliy Salygin, along with his wife,
----------------------------
minor children (if any), the Company and any other entities controlled by or
under common control with Vasiliy Salygin and/or his wife or minor children,
does not quality as a $10 million person within the meaning of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, and its implementing
regulations.
2.32 Representations Complete. None of the representations or warranties
------------------------
made by the Seller or the Principal Stockholders (as modified by the Disclosure
Schedule), nor any statement made in any Schedule or certificate furnished by
the Seller or the Principal Stockholders pursuant to this Agreement contains or
will contain at the Closing, any untrue statement of a material fact, or omits
or will omit at the Closing to state any material fact necessary in order to
make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Seller and the Principal Stockholders
that on the date hereof, and as of the Closing as though made on the date
hereof, as follows:
3.1 Organization, Standing and Power. Buyer is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has the corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
would have a Buyer Material Adverse Effect on the ability of Buyer to consummate
the transactions
-26-
contemplated hereby. Buyer has made available a true and correct copy of the
Certificate of Incorporation and Bylaws of Buyer, as amended to date, to counsel
for the Seller. For all purposes of this Agreement, the term "Buyer Material
--------------
Adverse Effect" means any change, event or effect that is materially adverse to
--------------
the business, assets (including intangible assets), financial condition, or
results of operations of Buyer and its subsidiaries taken as a whole.
3.2 Authority. The Buyer has all requisite corporate power and authority
---------
to enter into this Agreement and any Related Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and any Related Agreements to which it
is a party and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of Buyer. This Agreement and any Related Agreements to which Buyer is a party
have been duly executed and delivered by Buyer and constitutes the valid and
binding obligations of Buyer, enforceable in accordance with their terms, except
as such enforceability may be limited by principles of public policy and subject
to the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies.
3.3 No Conflict. The execution and delivery of this Agreement and any
-----------
Related Agreements to which it is a party do not, and, the consummation of the
transactions contemplated hereby will not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a Conflict under (i) any provision of the Certificate
of Incorporation, as amended, and Bylaws of Buyer, (ii) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise
or license to which Buyer or any of its respective properties or assets are
subject and which has been filed as an exhibit to Buyer's filings under the
Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act") or (iii) any judgment, order, decree, statute, law, ordinance, rule or
---
regulation applicable to Buyer or its properties or assets, except where such
Conflict will not have a Buyer Material Adverse Effect.
3.4 Consents. No consent, waiver, approval, order or authorization of, or
--------
registration, declaration or filing with, any Governmental Entity, or any third
party is required by or with respect to Buyer or Seller in connection with the
execution and delivery of this Agreement and any Related Agreements to which it
is a party or the consummation of the transactions contemplated hereby and
thereby, except for such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
securities laws and the HSR Act and such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings which, if not obtained
or made, would not have a Buyer Material Adverse Effect.
3.5 Capital Structure.
-----------------
(a) The authorized stock of Buyer consists of 100,000,000 shares of
Common Stock, $.0001 par value, of which 41,814,905 shares were issued and
outstanding as of September 30, 1999, and 10,000,000 shares of Preferred Stock,
$.0001 par value, of which 176,589
-27-
shares of Series B Preferred Stock and 50,593 shares of Series C Preferred Stock
were issued and outstanding as of September 30, 1999. All such shares of Buyer
have been duly authorized, and all such issued and outstanding shares have been
validly issued, are fully paid and nonassessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof. Buyer has also reserved an aggregate of 9,572,700 shares of
Common Stock for issuance pursuant to its employee stock option and stock
purchase plans. Except as set forth in Section 3.5 of the Buyer Disclosure
Schedule, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Buyer is a party or by which it is bound
obligating Buyer to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of Buyer or obligating Buyer to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement.
(b) The shares of Buyer Common Stock to be issued pursuant to the
Acquisition will be duly authorized, validly issued, fully paid, non-assessable,
free of any liens or encumbrances and not subject to any preemptive rights or
rights of first refusal created by statute or the Articles of Incorporation or
Bylaws of Buyer or any agreement to which Buyer is a party or is bound.
3.6 Brokers' and Finders' Fees. The Buyer has not incurred, nor will it
--------------------------
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.7 Securities Matters.
------------------
(a) All registration statements, annual, quarterly and other reports
or forms, and any amendments to any thereof, required to be filed by Buyer with
the SEC (the "SEC Filings") have been timely filed pursuant to the Securities
Act or the Exchange Act (as each such term in hereinafter defined), as
applicable.
(b) The SEC Filings complied as to form in all material respects with
the requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as applicable, in effect on the respective dates thereof. None of the SEC
Filings, when filed pursuant to the Securities Act or the Exchange Act, as
applicable, contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) The financial statements included in the SEC Filings comply as to
form in all material respects with the applicable accounting requirements of the
Securities and Exchange Commission with respect thereto, were prepared in
accordance with GAAP (except as stated in the SEC Filings and, in the case of
unaudited interim financials, subject to year-end adjustments and the deletion
of complete notes thereto) and fairly present in all material respects the
consolidated financial condition of Buyer and its subsidiaries as of the dates
thereof and the consolidated results of their operations for the periods ended
on such dates. Since the latest date of the financial
-28-
statements included in the SEC Filings, there has been no Buyer Material Adverse
Effect with respect to Buyer and its subsidiaries, taken as a whole.
ARTICLE IV
CONDUCT PRIOR TO THE CLOSING
4.1 Conduct of Business of the Seller. During the period from the date of
---------------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing, each of the Seller and the Principal Stockholders
agree (except to the extent that Buyer shall otherwise consent in writing), to
carry on the Seller's business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay the debts (other
than trade obligations) and Taxes of the Seller when due, to pay or perform
other obligations (including trade obligations) when due or consistent with past
practice, and, to the extent consistent with such business, use their reasonable
best efforts consistent with past practice and policies to preserve intact the
Seller's present business organizations, keep available the services of the
Seller's present officers and key employees and preserve the Seller's
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired the Acquired Assets, the Seller's goodwill and ongoing businesses at
the Closing. The Seller shall promptly notify Buyer of any event or occurrence
or emergency not in the ordinary course of business of the Seller and any
material event involving the Seller. Except as expressly contemplated by this
Agreement as set forth in Section 4.1 of the Disclosure Schedule, the Seller
shall not, without the prior written consent of Buyer:
(a) Make any expenditures or enter into any commitment or transaction
exceeding $10,000 individually or $50,000 in the aggregate or any commitment or
transaction of the type described in Section 2.9 hereof;
(b) (i) Sell any Seller Intellectual Property or enter into any
agreement with respect to the Seller Intellectual Property with any person or
entity or with respect to the Intellectual Property of any person or entity,
(ii) buy any Intellectual Property or enter into any agreement with respect to
the Intellectual Property of any person or entity, (iii) enter into any
agreement with respect to development of any Intellectual Property with a third
party;
(c) Transfer to any person or entity any rights to the Seller
Intellectual Property;
(d) Enter into or amend any Contract pursuant to which any other
party is granted marketing, distribution, development or similar rights of any
type or scope with respect to any products, service or technology of the Seller;
(e) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or materially violate the terms of, any of the
Contracts set forth or described in the Disclosure Schedule;
-29-
(f) Commence or settle any litigation;
(g) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Seller, or repurchase, redeem
or otherwise acquire, directly or indirectly, any shares of the capital stock of
the Seller (or options, warrants or other rights exercisable therefor);
(h) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue or purchase any such shares
or other convertible securities.
(i) Cause or permit any amendments to its Articles of Incorporation
or Bylaws;
(j) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Seller's
business;
(k) Sell, lease, license or otherwise dispose of any of its
properties or assets, except properties or assets which are not Intellectual
Property in the ordinary course of business and consistent with past practices;
(l) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(m) Grant any loans to others or purchase debt securities of others
or amend the terms of any outstanding loan agreement;
(n) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof and disclosed in the
Disclosure Schedule;
(o) Adopt any employee benefit plan, or enter into any employment
contract, pay or agree to pay any special bonus or special remuneration to any
director or employee, or increase the salaries or wage rates of its employees;
(p) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
-30-
(q) Pay, discharge or satisfy, in an amount in excess of $10,000 in
any one case or $50,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
(i) the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Current Balance Sheet or (ii)
as otherwise set forth on Schedule 4.1(q);
(r) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(s) Enter into any strategic alliance or joint marketing arrangement
or agreement;
(t) Other than as specifically requested in writing by Buyer,
accelerate the vesting schedule of any of the outstanding Seller Options or
Seller Capital Stock;
(u) Hire or terminate employees or encourage employees to resign; or
(v) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (v) above, or any other action that
would prevent the Seller from performing or cause the Seller not to perform its
covenants hereunder.
4.2 No Solicitation. Until the earlier of the Closing or the date of
---------------
termination of this Agreement pursuant to the provisions of Section 8.1 hereof,
neither the Seller nor any of the Principal Stockholders will (nor will the
Seller nor any of the Principal Stockholders permit any of their respective
officers, directors, agents, representatives or affiliates, as applicable, to
directly or indirectly, take any of the following actions with any party other
than Buyer and its designees): (a) solicit, encourage, initiate or participate
in any negotiations or discussions with respect to, any offer or proposal to
acquire all, substantially all or a significant portion of the Seller's
business, properties or technologies or any portion of the Seller's capital
stock (whether or not outstanding) whether by acquisition, purchase of assets,
tender offer or otherwise, or effect any such transaction, (b) disclose any
information not customarily disclosed to any person concerning the Seller's
business, technologies or properties or afford to any person or entity access to
its properties, technologies, books or records, (c) assist or cooperate with any
person to make any proposal to purchase all or any part of the Seller's capital
stock or assets, or (d) enter into any agreement with any person providing for
the acquisition of all or any significant portion of the Seller (whether by way
of Acquisition, purchase of assets, tender offer or otherwise). In addition to
the foregoing, if the Seller or any of the Principal Stockholders receives,
prior to the Closing or the termination of this Agreement, any offer, proposal,
or request relating to any of the above, the Seller or the Principal
Stockholders, as applicable, shall immediately notify Buyer thereof, including
information as to the identity of the offeror or the party making any such offer
or proposal and the specific terms of such offer or proposal, as the case may
be, and such other information related thereto as Buyer may reasonably request.
The parties hereto agree that irreparable damage would occur in the event that
the provisions of this Section 4.2 were not performed in accordance with their
specific terms or were
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otherwise breached. It is accordingly agreed by the parties that Buyer shall be
entitled to seek an injunction or injunctions to prevent breaches of the
provisions of this Section 4.2 and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which Buyer may be
entitled at law or in equity.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Issuance of Restricted Shares; Stockholder Matters.
--------------------------------------------------
(a) Issuance of Shares. The parties hereto acknowledge and agree
------------------
that the shares of Buyer Common Stock issuable to the stockholders pursuant to
Section 1.3 hereof, shall constitute "restricted securities" within the meaning
of the Securities Act. The certificates for shares of Buyer Common Stock to be
issued in the Acquisition shall bear appropriate legends to identify such
privately placed shares as being restricted under the Securities Act, to comply
with applicable state securities laws. It is acknowledged and understood that
Buyer is relying upon certain written representations made by the Seller.
(b) Seller Stockholder Approval. As promptly as practicable after
---------------------------
the execution of this Agreement, the Seller shall submit this Agreement and the
transactions contemplated hereby to its Stockholders for approval and adoption
as provided by New Jersey Law and its Articles of Incorporation and Bylaws. The
Seller shall use its best efforts to solicit and obtain the written consent of
its stockholders to approve the Acquisition and this Agreement and to enable the
Closing to occur as promptly as practicable. In connection with such Stockholder
approval and as soon as practicable after the execution of this Agreement, the
Seller shall prepare, with the cooperation of Buyer, an information statement
for purposes of soliciting such written consent of the stockholders. The
information statement shall include a summary of the material terms of the
transaction in a form reasonably acceptable to the Buyer, a copy of the
Agreement, copies of the Buyer's most recent Annual Report on Form 10-K and
Quarterly Report on Form 10-Q and a copy of that certain press release
describing the terms of Buyer's proposed acquisition of Internet Technology
Group, plc. The Seller shall use its commercially reasonable efforts, with the
cooperation of Buyer, to cause such information statement to be distributed to
the Seller's stockholders no later than October 5, 1999. Buyer and the Seller
shall each use its best efforts to cause the information statement to comply
with all applicable federal and state securities laws requirements. Each of the
parties hereto will promptly advise the other parties in writing if at any time
prior to the Effective Time either the Seller or Buyer shall obtain knowledge of
any facts that might make it necessary or appropriate to amend or supplement the
information statement in order to make the statements contained or incorporated
by reference therein not misleading or to comply with applicable law. The
information statement shall contain the unanimous recommendation of the Board of
Directors of the Seller that the Seller stockholders approve the Acquisition and
this Agreement. Anything to the contrary contained herein
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notwithstanding, the Seller shall not include in the information statement any
information with respect to Buyer or its affiliates or associates, the form and
content of which information shall not have been approved by Buyer prior to such
inclusion.
(c) Additional Assurances. At the request of Buyer, the Seller shall
---------------------
use its commercially reasonable efforts to cause the Seller's stockholders to
execute and deliver to Buyer such instruments and do and perform such reasonable
acts and things as may be necessary or desirable for complying with all
applicable securities laws and state corporate law.
5.2 Access to Information. The Seller shall afford Buyer and its
---------------------
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Closing to (a) all of the Seller's
properties, books, contracts, commitments and records, (b) all other information
concerning the business, properties and personnel (subject to restrictions
imposed by applicable law) of the Seller as Buyer may reasonably request and (c)
all key employees of the Seller as identified by Buyer. The Seller agrees to
provide to Buyer and its accountants, counsel and other representatives copies
of internal financial statements (including by returns and supporting
documentation) promptly upon request. Buyer shall provide the Seller with copies
of such publicly available information about Buyer as the Seller may request. No
information or knowledge obtained in any investigation pursuant to this Section
5.2 shall affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
Acquisition.
5.3 Confidentiality. Each of the parties hereto hereby agrees that the
---------------
information obtained in any investigation pursuant to Section 5.2, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transaction contemplated hereby shall be governed by the terms of the
Confidential Disclosure Agreement effective as of on or about April 12, 1999
between the Seller and Buyer.
5.4 Expenses. Whether or not the Acquisition is consummated, all fees
--------
and expenses incurred in connection with the Acquisition including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties ("Third Party Expenses") incurred by a party
--------------------
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective party incurring such fees and expenses.
5.5 Public Disclosure. Unless otherwise required by law, prior to the
-----------------
Closing, no disclosure (whether or not in response to an inquiry) of the subject
matter of this Agreement shall be made by any party hereto unless approved by
Buyer regarding the subject matter of this Agreement prior to release. Any
public announcement by Buyer regarding the subject matter of this Agreement
shall be delivered to the Seller prior to release.
5.6 Consents. The Seller shall use its best efforts to obtain the
--------
consents, waivers, assignments and approvals under any of the Contracts as may
be required in connection with the
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Acquisition (all of such consents, waivers and approvals are set forth in the
Disclosure Schedule) so as to preserve all rights of, and benefits to, the
Seller thereunder.
5.7 FIRPTA Compliance. On the Closing Date, the Seller shall deliver to
-----------------
Buyer a properly executed statement in a form reasonably acceptable to Buyer for
purposes of satisfying Buyer's obligations under Treasury Regulation Section
1.1445-2(b)(2).
5.8 Reasonable Efforts. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement;
provided that Buyer shall not be required to agree to any divestiture by Buyer
or the Seller or any of Buyer's subsidiaries or affiliates of shares of capital
stock or of any business, assets or property of Buyer or its subsidiaries or
affiliates or of the Seller, its affiliates, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock.
5.9 Notification of Certain Matters. The Seller and the Principal
-------------------------------
Stockholders shall give prompt notice to Buyer of (i) the occurrence or non-
occurrence of any event, the occurrence or non-occurrence of which is likely to
cause any representation or warranty of the Seller or the Principal
Stockholders, respectively, contained in this Agreement to be untrue or
inaccurate at or prior to the Closing and (ii) any failure of the Seller or the
Principal Stockholders, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.9 shall not limit or otherwise affect any remedies available to the
party receiving such notice. No disclosure by the Seller or the Principal
Stockholders pursuant to this Section 5.9, however, shall be deemed to amend or
supplement the Disclosure Schedule or prevent or cure any misrepresentations,
breach of warranty or breach of covenant.
5.10 Additional Documents and Further Assurances. Each party hereto, at
-------------------------------------------
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.11 Employee Plans. Seller will terminate each of the employee plans
--------------
listed on Schedule 5.11 prior to Closing, provided, however, that if notice
period is required, Seller will provide such notice prior to the Closing and
terminate such plan as soon as possible thereafter.
5.12 Employee Benefits. Each employee of the Seller who remains an
-----------------
employee of Buyer after the Closing shall be eligible, upon completion of
Buyer's standard employee background and
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reference check, upon proof of appropriate employment authorization from the
U.S. Immigration and Naturalization Service or the U.S. Department of State
reflecting a right to work in the United States, to receive salary and benefits
(such as medical benefits, bonuses, 401(k) and stock options) consistent with
Buyer's standard human resource policies.
5.13 COBRA Liability. To the extent Seller retains any employees and
---------------
continues to maintain group health plans after the Closing Date, the Seller
agrees to provide any M&A Qualified Beneficiary (as defined in Proposed Treasury
Regulation (S) 54.4980B-10 QA 4(a)) and any COBRA qualified beneficiary,
currently receiving COBRA benefits, with required COBRA benefits.
5.14 No Actions Inconsistent With Tax-Free Reorganization. The Seller and
----------------------------------------------------
Buyer shall (and, following the Closing, the Principal Stockholders shall cause
the Seller to) take no action with respect to the Capital Stock, assets or
liabilities of the Seller that would cause the Acquisition to fail to qualify as
a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code.
--------------
5.15 Net Assets. Buyer shall have ninety (90) days from the Closing Date
----------
during which it may review the Estimated Balance Sheet. Following completion of
its review of the Estimated Balance Sheet, Buyer shall deliver to Seller a
written notice (the "Buyer Closing Adjustment Notice") stating either (i) that
-------------------------------
Buyer agrees with the calculation of the Net Assets set forth in the Estimated
Balance Sheet or (ii) that Buyer does not agree with such calculation and
providing Buyer's calculation of the Net Assets (it being understood that both
Seller and Buyer will have the opportunity to review and dispute any portion of
the Estimated Closing Balance Sheet in the event that Buyer delivers a Buyer
Closing Adjustment Notice). The parties shall in good faith attempt to resolve
any differences between Seller's calculation of Net Assets and Buyer's
calculation of Net Assets. If the parties cannot resolve any such differences
within thirty (30) days of the delivery of the Buyer's Closing Adjustment
Notice, the dispute shall be submitted to binding arbitration pursuant to 7.3(f)
of this Agreement. The Seller and the Principal Stockholders agree that if Net
Assets as of the Closing Date are less than the lesser of (i) Estimated Net
Assets or (ii) $(7,400,000), Buyer shall be entitled to recover the amount of
such shortfall from the Escrow Fund as a Loss in accordance with the procedures
set forth in Section 7.3. If, upon review of Buyer's Closing Adjustment Notice,
it is finally determined that Net Assets are greater than the lesser of (i)
Estimated Net Assets or (ii) $(7,400,000), Buyer shall pay Seller the difference
between such amounts (in such proportion of cash and capital stock of Buyer as
the parties shall mutually agree) as soon as reasonably practical.
5.16 Voting Agreements. The Seller shall deliver or cause to be delivered
-----------------
to Buyer, concurrently with the execution of this Agreement, from each person
listed on Schedule 5.16, an executed Voting Agreement in the form attached
-------------
hereto as Exhibit A, agreeing, among other things, to vote in favor of the
---------
Acquisition.
5.17 Non-Competition and Non-Solicitation Agreements. The Seller shall
-----------------------------------------------
deliver or cause to be delivered to Buyer an executed Non-Competition Agreement
in substantially the form attached hereto as Exhibit B concurrently with the
---------
execution of this Agreement from each of the persons listed on Schedule 5.17(a)
----------------
and a Non-Solicitation Agreement in substantially the form attached
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hereto as Exhibit B-1 concurrently with the execution of this Agreement from
-----------
each of the persons listed on Schedule 5.17(b).
----------------
5.18 Continuity of Business Enterprise. Buyer intends to continue at least
---------------------------------
one significant historic business line of the Seller or use at least a
significant portion of the Seller's historic business assets in a business, in
each case within the meaning of Treasury Regulations Section 1. 368-1(d).
ARTICLE VI
CONDITIONS TO THE ACQUISITION
6.1 Conditions to Obligations of Each Party to Effect the Acquisition.
-----------------------------------------------------------------
The respective obligations of the Seller and Buyer to effect the Acquisition
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) No Order. No Governmental Entity shall have enacted, issued,
--------
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Acquisition illegal or
otherwise prohibiting consummation of the Acquisition.
6.2 Conditions to Obligations of Seller and the Principal Stockholders. The
------------------------------------------------------------------
obligations of the Seller and the Principal Stockholders to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived, in writing, exclusively by the Seller:
(a) Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of Buyer in this Agreement shall be true and correct in all material
respects on and as of the Closing as though such representations and warranties
were made on and as of such time and each of Buyer shall have performed and
complied in all material respects with all covenants and obligations of this
Agreement required to be performed and complied with by it as of the Closing.
(b) 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 restraint or prohibition preventing the
consummation of the Acquisition shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, 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 deemed applicable to the
Acquisition, which makes the consummation of the Acquisition illegal.
(c) No Material Adverse Change. There shall not have occurred any
--------------------------
Buyer Material Adverse Effect since the date of this Agreement.
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(d) Certificate of the Buyer. Seller shall have been provided with a
------------------------
certificate executed on behalf of Buyer by a Vice President to the effect
that, as of the Closing:
(i) all representations and warranties made by Buyer in this
Agreement are true and correct in all material respects on and as of the Closing
as though such representations and warranties were made on and as of such time;
and
(ii) all covenants and obligations of this Agreement to be
performed by Buyer on or before such date have been so performed in all material
respects.
(e) Assignment and Assumption Agreement. The Buyer shall have executed
-----------------------------------
and delivered an Assignment and Assumption Agreement in substantially the form
attached hereto as Exhibit C.
(f) Bridge Note. Buyer shall have cancelled the Bridge Note.
-----------
6.3 Conditions to the Obligations of Buyer. The obligations of Buyer to
--------------------------------------
consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Closing of each of the
following conditions, any of which may be waived, in writing, exclusively by
Buyer:
(a) Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Seller and the Principal Stockholders in this Agreement shall
be true and correct in all material respects on and as of the Closing as though
such representations and warranties were made on and as of the Closing and the
Seller and the Principal Stockholders shall have performed and complied in all
material respects with all covenants and obligations of this Agreement required
to be performed and complied with by them as of the Closing.
(b) 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 restraint or prohibition preventing the
consummation of the Acquisition shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, 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 deemed applicable to the
Acquisition, which makes the consummation of the Acquisition illegal.
(c) Claims. There shall not have occurred any claims (whether or not
asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Seller
Material Adverse Effect. There shall be no bona fide action, suit, claim or
proceeding of any nature pending, or overtly threatened, against the Buyer or
the Seller, their respective properties or any of their officers or directors,
arising out of, or in any way connected with, the Acquisition or the other
transactions contemplated by the terms of this Agreement.
-37-
(d) Third Party Consents. Any and all consents, waivers, assignments
--------------------
and approvals listed in Section 2.6 of the Disclosure Schedule shall have been
obtained.
(e) Legal Opinion. Buyer shall have received a legal opinion from
-------------
Kelley Drye and Warren LLP, legal counsel to the Seller, substantially in the
form of Exhibit H hereto.
(f) Noncompetition Agreements; At-Will Employment. Each of the
---------------------------------------------
Principal Stockholders set forth on Schedule 5.17(a) shall have executed and
----------------
delivered to Buyer a Noncompetition Agreement in the form attached hereto as
Exhibit B and all of such Noncompetition Agreements shall be in full force and
---------
effect. Each of the Key Employees set forth on Schedule 5.17(b) shall have
----------------
executed and delivered to Buyer a Nonsolicitation Agreement in the form attached
hereto as Exhibit B-1 and all of such Nonsolicitation Agreement shall be in full
-----------
force and effect. In addition each of the Key Employees shall have entered into
"at-will" employment arrangements reasonably satisfactory to Buyer, upon proof
of appropriate employment authorization from the U.S. Immigration and
Naturalization Service or the U.S. Department of State reflecting a right to
work in the United States, and subject to and in compliance with Buyer's
standard human resources policies and procedures.
(g) No Material Adverse Changes; Complete Due Diligence. There shall
---------------------------------------------------
not have occurred any event or condition of any character that has had or is
reasonably likely to have a Seller Material Adverse Effect since the date of
this Agreement. Buyer shall have completed and approved, to its reasonable
satisfaction, due diligence reports on the management and Stockholders of the
Seller.
(h) Estimated Balance Sheet. Buyer shall have received from the Seller
-----------------------
at least three business days prior to the Closing Date the Estimated Balance
Sheet of the Seller as of the Closing Date certified as to correctness by the
Seller and the Principal Stockholders and in a form reasonably satisfactory to
Buyer.
(i) Stockholder Approval; Dissenters. Stockholders holding at least
--------------------------------
ninety-five percent (95%) of the Seller's Capital Stock shall have approved this
Agreement, the Acquisition and the transactions contemplated hereby and thereby.
No stockholder shall have exercised or given notice of their intent to exercise
appraisal rights in accordance with New Jersey Law.
(j) Certificate of the Seller and Principal Stockholders. Buyer shall
----------------------------------------------------
have been provided with a certificate executed by the Principal Stockholders and
executed on behalf of the Seller by its Chief Executive Officer to the effect
that, as of the Closing:
(i) all representations and warranties made by the Seller and the
Principal Stockholders in this Agreement are true and correct in all material
respects on and as of the Closing as though such representations and warranties
were made on and as of such time;
(ii) all covenants and obligations of this Agreement to be
performed by the Seller on or before such date have been so performed in all
material respects; and
-38-
(iii) the provisions set forth in Sections 6.3 (a), (c), (d), (g)
and (i) have been satisfied.
(k) Notes Receivables. Simultaneous with the Closing, Buyer shall have
-----------------
received in immediately available funds the amount indicated on the Estimated
Balance Sheet under the line item "Estimated Related Party Balance Sheet Item."
Buyer shall have received evidence of receipt of such funds to its satisfaction,
in its sole and absolute discretion.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
7.1 Survival of Representations and Warranties. The Seller's and the
------------------------------------------
Principal Stockholders' representations and warranties in this Agreement or in
any instrument delivered pursuant to this Agreement shall terminate on the
second anniversary of the Closing Date; provided, however, that the
representations and warranties set forth in Section 2.3, Section 2.6, and
Section 2.12(e) shall survive the Closing and continue in perpetuity and the
representations and warranties relating or pertaining to any Tax or Returns
related to such Tax set forth in Section 2.10 hereof, shall survive until the
expiration of all applicable statutes of limitations, or extensions thereof,
governing each Tax or Returns related to such Tax. All of the Buyer's
representations and warranties contained herein or in any instrument delivered
pursuant to this Agreement shall terminate at the Closing.
7.2 Indemnification.
---------------
(a) The Seller and the Principal Stockholders agree jointly and
severally (except for Mikhail Kofman who shall be liable for indemnification
only for amounts up to the consideration he received as a result of the
transactions contemplated hereby) to indemnify and hold Buyer and its officers,
directors and affiliates harmless against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses of investigation and defense (hereinafter individually a "Loss" and
----
collectively "Losses") incurred by Buyer, its officers, directors, or affiliates
------
directly or indirectly as a result of (i) any inaccuracy or breach of a
representation or warranty of the Seller or the Principal Stockholders contained
in this Agreement or (ii) any failure by the Seller or the Principal
Stockholders to perform or comply with any covenant contained in this Agreement.
(b) Notwithstanding anything herein to the contrary, Buyer shall be
entitled to seek indemnity from the Escrow Fund under this Section 7.2, only
when the aggregate amount of all Losses with respect to which the Buyer would
otherwise be entitled to indemnification exceed $250,000 (the "Basket Amount")
and, in such event, the Buyer shall be entitled to recover all Losses from the
Escrow Fund, including the Basket Amount. In no event shall the aggregate amount
for all
-39-
Losses payable by the Seller and the Principal Stockholders exceed the Total
Consideration, other than in the case of fraud or willful misrepresentation.
7.3 Escrow Arrangements
-------------------
(a) Escrow Fund. As security for the indemnity provided for in
-----------
Section 7.2 hereof and by virtue of this Agreement, the Seller will be deemed to
have received and deposited with the Escrow Agent (as defined below) the Escrow
Amount (as defined above) (plus any additional shares as may be issued upon any
stock split, stock dividend or recapitalization effected by Buyer after the
Closing with respect to the Escrow Amount) without any act of the Seller or any
Stockholders. As soon as practicable after the Closing, the Escrow Amount,
without any act of the Seller or any Stockholders, will be deposited with the
Escrow Agent (or other institution acceptable to Buyer and the Securityholder
Agent (as defined in Section 7.3(g) below)) as escrow agent, such deposit to
constitute an escrow fund (the "Escrow Fund") to be governed by the terms set
-----------
forth herein. The Escrow Agent may execute this Agreement following the date
hereof and prior to the Closing, and such latter execution shall not affect the
binding nature of this Agreement as of the date hereof among the signatories
hereto. Nothing herein shall limit the liability of the Seller or the Principal
Stockholders for any breach of any representation, warranty, or covenant
contained in this Agreement if the Acquisition does not close.
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
--------------------------------------------------------------
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Closing and shall terminate at 5:00 p.m., P.T., on the
date thirty (30) days after the one year anniversary of the Closing Date (the
"Escrow Period"); provided that the Escrow Period shall not terminate with
-------------
respect to such remaining portion of the Escrow Fund (or some portion thereof)
that in the reasonable judgement of Buyer, subject to the objection of the
Securityholder Agent (as defined below) and the subsequent arbitration of the
matter in the manner provided in Section 7.3(f) hereof, is necessary to satisfy
(x) any then pending unsatisfied claims specified in any Officer's Certificate
delivered to the Escrow Agent prior to the termination of the Escrow Period and
(y) any unsatisfied claims specified in any Officer's Certificate delivered to
the Escrow Agent prior to termination of the Escrow Period with respect to facts
and circumstances existing prior to the termination of such Escrow Period. As
soon as all such claims have been resolved and all Third Party Expenses have
been paid pursuant to Section 5.4 hereof, the Escrow Agent shall deliver to the
Seller the remaining portion of the Escrow Fund not required to satisfy such
claims and Third Party Expenses.
(c) Protection of Escrow Fund.
-------------------------
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of Buyer and shall hold
and dispose of the Escrow Fund only in accordance with the terms hereof.
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(ii) Any shares of Buyer Common Stock or other equity securities
issued or distributed by Buyer (including shares issued upon a stock split)
("New Shares") in respect of Buyer Common Stock in the Escrow Fund which have
----------
not been released from the Escrow Fund shall be added to the Escrow Fund and
become a part thereof. New Shares issued in respect of shares of Buyer Common
Stock which have been released from the Escrow Fund shall not be added to the
Escrow Fund but shall be distributed to the record holders thereof. Cash
dividends on Buyer Common Stock, if any, shall not be added to the Escrow Fund
but shall be distributed to the record holders thereof.
(iii) Seller shall have voting rights and the right to
distributions of dividends with respect to the shares of Buyer Common Stock
contributed to the Escrow Fund by Seller (and on any voting securities added to
the Escrow Fund in respect of such shares of Buyer Common Stock). As the record
holder of such shares, the Escrow Agent shall vote such shares in accordance
with the instructions of the Seller having the beneficial interest therein and
shall promptly deliver copies of all proxy solicitation materials to Seller.
Buyer shall show the Buyer Common Stock contributed to the Escrow Fund as issued
and outstanding on its balance sheet.
(d) Claims Upon Escrow Fund.
-----------------------
(i) Upon receipt by the Escrow Agent at any time on or before the
last day of the Escrow Period of a certificate signed by any officer of Buyer
(an "Officer's Certificate"): (A) stating that Buyer has paid or properly
---------------------
accrued or reasonably anticipates that it will have to pay or accrue Losses, and
(B) specifying in reasonable detail the individual items of Losses included in
the amount so stated, the date each such item was paid or properly accrued, or
the basis for such anticipated liability, and the nature of the
misrepresentations, breach of warranty or covenant to which such items is
related, the Escrow Agent shall, subject to the provisions of Section 7.3(e),
deliver to Buyer out of the Escrow Fund as promptly as practicable, shares of
Buyer Common Stock held in the Escrow Fund in an amount equal to such Losses.
(ii) For the purposes of determining the number of shares of
Buyer Common Stock to be delivered to Buyer out of the Escrow Fund as indemnity
pursuant to Section 7.3(b) and 7.3(d)(i) hereof, the shares of Buyer Common
Stock shall be valued at the Trading Price.
(e) Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent and for a period of thirty (30) days after
such delivery, the Escrow Agent shall make no delivery to Buyer of any Escrow
Amounts pursuant to Section 7.3(d) hereof unless the Escrow Agent shall have
received written authorization from the Securityholder Agent to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of shares of Buyer Common Stock from the Escrow Fund in
accordance with Section 7.3(d) hereof, provided that no such payment or delivery
may be made if the Securityholder Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such thirty (30) day
period.
-41-
(f) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case the Securityholder Agent shall so object in writing
to any claim or claims made in any Officer's Certificate, the Securityholder
Agent and Buyer shall attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If the Securityholder
Agent and Buyer should so agree, a memorandum setting forth such agreement shall
be prepared and signed by both parties and shall be furnished to the Escrow
Agent. The Escrow Agent shall be entitled to rely on any such memorandum and
distribute shares of Buyer Common Stock from the Escrow Fund in accordance with
the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Buyer or the Securityholder Agent may demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration conducted by one
arbitrator mutually agreeable to Buyer and the Securityholder Agent. In the
event that within forty-five (45) days after submission of any dispute to
arbitration, Buyer and the Securityholder Agent cannot mutually agree on one
arbitrator, Buyer and the Securityholder Agent shall each select one arbitrator,
and the two arbitrators so selected shall select a third arbitrator. The
arbitrator or arbitrators, as the case may be, shall set a limited time period
and establish procedures designed to reduce the cost and time for discovery
while allowing the parties an opportunity, adequate in the sole judgement of the
arbitrator or majority of the three arbitrators, as the case may be, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrator or a majority of the three arbitrators, as the case may
be, shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys' fees and costs, to the
extent as a court of competent law or equity, should the arbitrator or a
majority of the three arbitrators, as the case may be, determine that discovery
was sought without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of a the arbitrator
or a majority of the three arbitrators, as the case may be, as to the validity
and amount of any claim in such Officer's Certificate shall be binding and
conclusive upon the parties to this Agreement, and notwithstanding anything in
Section 7.3(e) hereof, the Escrow Agent shall be entitled to act in accordance
with such decision and make or withhold payments out of the Escrow Fund in
accordance therewith. Such decision shall be written and shall be supported by
written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s) may
be entered in any court having jurisdiction. Any such arbitration shall be held
in Santa Clara County, California under the rules then in effect of the American
Arbitration Association. The arbitrator(s) shall determine how all expenses
relating to the arbitration shall be paid, including without limitation, the
respective expenses of each party, the fees of each arbitrator and the
administrative fee of the American Arbitration Association.
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(g) Securityholder Agent of the Seller; Power of Attorney.
-----------------------------------------------------
(i) In the event that the Acquisition is approved, effective upon
such vote, and without further act of the Seller, Karina Gradus shall be
Securityholder Agent and as such, shall be appointed as agent and attorney-in-
fact for the Seller, for and on behalf of Seller, to give and receive notices
and communications, to authorize delivery to Buyer of shares of Buyer Common
Stock from the Escrow Fund in satisfaction of claims by Buyer, 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 Securityholder Agent for the accomplishment of
the foregoing. Such agency may be changed by the Seller from time to time upon
not less than thirty (30) days prior written notice to Buyer; provided that the
Securityholder Agent may not be removed unless the Seller agrees to such removal
and to the identity of the substituted agent. No bond shall be required of the
Securityholder Agent, and the Securityholder Agent shall not receive
compensation for his or her services. Notices or communications to or from the
Securityholder Agent shall constitute notice to or from Seller.
(ii) The Securityholder Agent shall not be liable for any act
done or omitted hereunder as Securityholder Agent while acting in good faith and
in the exercise of reasonable judgment. The Seller on whose behalf the Escrow
Amount was contributed to the Escrow Fund shall indemnify the Securityholder
Agent and hold the Securityholder Agent harmless against any loss, liability or
expense incurred without negligence or bad faith on the part of the
Securityholder Agent and arising out of or in connection with the acceptance or
administration of the Securityholder Agent's duties hereunder, including the
reasonable fees and expenses of any legal counsel retained by the Securityholder
Agent.
(h) Actions of the Securityholder Agent. A decision, act, consent or
-----------------------------------
instruction of the Securityholder Agent shall constitute a decision of the
Seller for whom a portion of the Escrow Amount otherwise issuable to them are
deposited in the Escrow Fund and shall be final, binding and conclusive upon the
Seller, and the Escrow Agent and Buyer may rely upon any such decision, act,
consent or instruction of the Securityholder Agent as being the decision, act,
consent or instruction of Seller. The Escrow Agent and Buyer 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 Securityholder Agent.
(i) Third-Party Claims. In the event Buyer becomes aware of a third-
------------------
party claim which Buyer believes may result in a demand against the Escrow Fund,
Buyer shall notify the Securityholder Agent of such claim, and the
Securityholder Agent and the Seller shall be entitled, at their expense, to
participate in any defense of such claim. Buyer shall have the right in its sole
discretion to settle any such claim; provided, however, that except with the
consent of the Securityholder Agent, no settlement of any such claim with third-
party claimants shall be determinative of the amount of any claim against the
Escrow Fund. In the event that the Securityholder Agent has consented to any
such settlement, the Securityholder Agent shall have no
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power or authority to object under any provision of this Article VII to the
amount of any claim by Buyer against the Escrow Fund with respect to such
settlement.
(j) Escrow Agent's Duties.
---------------------
(i) The Escrow Agent shall be obligated only for the performance
of such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Agreement which are signed by an officer of Buyer and the
Securityholder Agent, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and
to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any act done or omitted hereunder as Escrow Agent
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.
(ii) The Escrow Agent is hereby expressly authorized to disregard
any and all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such order, judgment or decree
of any court, the Escrow Agent shall not be liable to any of the parties hereto
or to any other person by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow
Agent shall not be liable to any party for damages, losses, or expenses, except
for negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent shall not incur any such liability for (A) any act or failure to act made
or omitted in good faith, or (B) any action taken or omitted in reliance upon
any instrument, including any written statement of affidavit provided for in
this Agreement that the Escrow Agent shall in good faith believe to be genuine,
nor will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Escrow Agent may consult with the legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by him/her in good faith in accordance with
the advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
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(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents, cash and shares of Buyer Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damages.
Furthermore, the Escrow Agent may at its option, file an
action of interpleader requiring the parties to answer and litigate any claims
and rights among themselves. The Escrow Agent is authorized to deposit with the
clerk of the court all documents and shares of Buyer Common Stock held in
escrow, except all cost, expenses, charges and reasonable attorney fees incurred
by the Escrow Agent due to the interpleader action and which the parties jointly
and severally agree to pay. Upon initiating such action, the Escrow Agent shall
be fully released and discharged of and from all obligations and liability
imposed by the terms of this Agreement.
(vii) The parties and their respective successors and assigns
agree jointly and severally to indemnify and hold Escrow Agent harmless against
any and all losses, claims, damages, liabilities, and expenses, including
reasonable costs of investigation, counsel fees, including allocated costs of
in-house counsel and disbursements that may be imposed on Escrow Agent or
incurred by Escrow Agent in connection with the performance of his/her duties
under this Agreement, including but not limited to any litigation arising from
this Agreement or involving its subject matter other than arising out of its
negligence or willful misconduct.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to Buyer and the Securityholder Agent;
provided, however, that no such resignation shall become effective until the
appointment of a successor escrow agent which shall be accomplished as follows:
the parties shall use their best efforts to mutually agree on a successor escrow
agent within thirty (30) days after receiving such notice. If the parties fail
to agree upon a successor escrow agent within such time, the Escrow Agent shall
have the right to appoint a successor escrow agent authorized to do business in
the state of California. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers, and duties of the
predecessor escrow agent as if originally named as escrow agent. Upon
appointment of a successor escrow agent, the Escrow Agent shall be discharged
from any further duties and liability under this Agreement.
(k) Fees. All fees of the Escrow Agent for performance of its duties
----
hereunder shall be paid by Buyer in accordance with the standard fee schedule of
the Escrow Agent. It is understood that the fees and usual charges agreed upon
for services of the Escrow Agent shall be considered compensation for ordinary
services as contemplated by this Agreement. In the event that the conditions of
this Agreement are not promptly fulfilled, or if the Escrow Agent renders any
service not provided for in this Agreement, or if the parties request a
substantial modification of its
-45-
terms, or if any controversy arises, or if the Escrow Agent is made a party to,
or intervenes in, any litigation pertaining to the Escrow Fund or its subject
matter, the Escrow Agent shall be reasonably compensated for such extraordinary
services and reimbursed for all costs, attorney's fees, including allocated
costs of in-house counsel, and expenses occasioned by such default, delay,
controversy or litigation. The Buyer promises to pay these sums upon demand.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2, this Agreement may be
-----------
terminated and the Acquisition abandoned at any time prior to the Closing:
(a) by mutual consent of the Seller and Buyer;
(b) by Buyer or the Seller if: (i) the Closing has not occurred by
November 15, 1999, provided, however, that the right to terminate this Agreement
-------- -------
under this Section 8.1(b)(i) shall not be available to any party whose action or
failure to act has been a principal cause of or resulted in the failure of the
Acquisition to occur on or before such date and such action or failure to act
constitutes a breach of this Agreement or results in the failure of a condition
to closing set forth in Section 6.2 to be met; (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Acquisition; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Acquisition by any Governmental Entity that would make consummation of the
Acquisition illegal;
(c) by Buyer if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Acquisition by any Governmental Entity, which would: (i) prohibit Buyer's
ownership or operation of any portion of the business of the Seller or (ii)
compel Buyer or the Seller to dispose of or hold separate all or a portion of
the business or assets of the Seller or Buyer as a result of the Acquisition;
(d) by Buyer if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Seller or the Principal Stockholders and such breach has not been cured within
ten (10) calendar days after written notice to the Seller; provided, however,
that, no cure period shall be required for a breach which by its nature cannot
be cured;
(e) by the Seller if neither it nor any Principal Stockholder nor any
Key Employee is in material breach of their respective obligations under this
Agreement and there has been a material breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of Buyer and such
breach has not been cured within ten (10) calendar days after written notice to
Buyer; provided, however, that no cure period shall be required for a breach
which by its nature cannot be cured; or
-46-
(f) by Buyer if an event having a Seller Material Adverse Effect shall
have occurred after the date of this Agreement.
8.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Buyer or the Seller, or their
respective officers, directors or stockholders, provided that each party shall
remain liable for any breaches of this Agreement prior to its termination;
provided further that, the provisions of Sections 5.3, 5.4 and 5.5, Article IX
and this Section 8.2 shall remain in full force and effect and survive any
termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto at any
---------
time by execution of an instrument in writing signed on behalf of Buyer, the
Seller and the Principal Stockholders.
8.4 Extension; Waiver. At any time prior to the Closing, Buyer, on the
-----------------
one hand, and the Seller and the Principal Stockholders, on the other hand, may,
to the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice), provided, however,
-------- -------
that notices sent by mail will not be deemed given until received:
(a) if to Buyer, to:
Concentric Network Corporation
10590 Tantau Avenue
Cupertino, California 95014
Attn: Michael Anthofer
Telephone No.: (408) 342-2800
Facsimile No.: (408) 342-2876
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with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: David J. Segre, Esq.
Paul Bradley Shinn, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to the Seller, to
9Net Avenue, Inc.
110 Meadowlands Parkway
Secaucus, NJ 07094
Attn: Karina Gradus, Esq.
Telephone No.: (201) 902-9300
Facsimile No.: (201) 902-9122
with a copy to:
Kelley Drye & Warren LLP
101 Park Avenue
New York, NY 10178
Attention: Jack Miles, Esq.
Jeff Katz, Esq.
Telephone No.: (212) 808-7574
Facsimile No.: (212) 808-7897
(c) if to the Principal Stockholders, to:
9Net Avenue, Inc.
110 Meadowlands Parkway
Secaucus, NJ 07094
Attn: Karina Gradus, Esq.
Telephone No.: (201) 902-9300
Facsimile No.: (201) 902-9122
-48-
(d) If to the Escrow Agent, to:
U.S. Bank Trust, N.A.
One California Street, 4th Floor
San Francisco, CA 94111
Attention: Ann Gadsby
Telephone No.: (415) 273-4532
Facsimile No.: (415) 273-4593
(e) If to the Securityholder Agent, to:
9Net Avenue, Inc.
110 Meadowlands Parkway
Secaucus, NJ 07094
Attn: Karina Gradus, Esq.
Telephone No.: (201) 902-9300
Facsimile No.: (201) 902-9122
9.2 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto, the
----------------------------
Confidential Disclosure Agreement, dated April 12, 1999, between the Seller and
Buyer and the documents and instruments and other agreements among the parties
hereto referenced herein: (a) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings both written and oral, among the parties with respect to the
subject matter hereof; (b) are not intended to confer upon any other person any
rights or remedies hereunder; and (c) shall not be assigned (other than by
operation of law), except that Buyer and Seller may assign their respective
rights and delegate their respective obligations hereunder to their respective
affiliates.
9.5 Severability. In the event that any provision of this Agreement or the
------------
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
-49-
9.6 Other Remedies; Specific Performance. Any and all remedies herein
------------------------------------
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to seek an injunction
or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
9.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within Santa Clara County, State of California, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction, venue and such process; provided, however,
that upon termination of this Agreement in accordance with Section 8.1, the
parties hereto only consent to the exclusive jurisdiction and venue of any court
within Santa Clara County, State of California, with respect to those items set
forth in Section 8.2 hereof which survive termination of this Agreement. Each of
Buyer and Seller hereby irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this agreement or the actions of Buyer
or Seller in the negotiation, administration, performance and enforcement
hereof.
9.8 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.9 Attorneys Fees. If any action or other proceeding relating to the
--------------
enforcement of any provision of this Agreement is brought by any party hereto,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
costs and disbursements (in addition to any other relief to which the prevailing
party may be entitled).
-50-
IN WITNESS WHEREOF, Buyer, the Seller and the Principal Stockholders have
caused this Agreement to be signed, all as of the date first written above.
CONCENTRIC NETWORK 9NET AVENUE, INC.
CORPORATION
By: /s/ Henry R. Nothhaft By: /s/ Natalia Salygin
---------------------- ------------------------
Name: Henry R. Nothhaft Name: Natalia Salygin
-------------------- ----------------------
Title: President & CEO Title: President
------------------- ---------------------
ESCROW AGENT: PRINCIPAL STOCKHOLDERS:
By: /s/ Ann Gadsby By: /s/ Vasiliy Salygin
---------------------- ------------------------
Name: Ann Gadsby Name: Vasiliy Salygin, individually
-------------------- and as trustee
----------------------
Title: Vice President By: /s/ Natalia Salygin
------------------- -----------------------
Name: Natalia Salygin, individually
and as trustee
---------------------
SECURITYHOLDER AGENT:
By: /s/ Karina Gradus By: /s/ Luca Vanetta
---------------------- ----------------------------
Name: Karina Gradus Name: BT Bautex, by Luca Vanetta,
-------------------- director
--------------------------
By: /s/ Mikhail Kofman
----------------------------
Name: Mikhail Kofman
-------------------------
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