\nExhibit A Form of Voting Agreements<\/p>\nExhibit B Form of Noncompetition Agreement<\/p>\n
Exhibit B-1 Form of Nonsolicitation Agreement<\/p>\n
Exhibit C Assignment and Assumption Agreement<\/p>\n
Exhibit D Bill of Sale<\/p>\n
Exhibit E Trademark Assignments<\/p>\n
Exhibit F Disclosure Schedules<\/p>\n
Exhibit G Form of Legal Opinion of Counsel to the Seller
\n<\/c><\/s><\/c><\/caption>\n<\/table>\n
-iv-<\/p>\n
ASSET PURCHASE AGREEMENT<\/p>\n
This ASSET PURCHASE AGREEMENT (the “Agreement”) is made and entered into as
\n ———
\nof October 1, 1999 among Concentric Network Corporation, a Delaware corporation
\n(“Buyer”), 9Net Avenue, Inc., a New Jersey corporation (the “Seller”), and, BT
\n —– ——
\nBautex AG, Vasiliy Salygin, individually and as trustee of the Vasiliy Salygin
\nFamily Trust and as trustee of the Vasiliy and Natalia Family Insurance Trust,
\nNatalia Salygin, individually and as trustee of the Natalia Salygin Family
\nInsurance Trust, and Mikhail Kofman (collectively the “Principal Stockholders”)
\n ———————-
\nand with respect to Article VII only, Karina Gradus (the “Securityholder Agent”)
\n ——————–
\nand U.S. Bank Trust, National Association (the “Escrow Agent”).
\n ———— <\/p>\n
RECITALS<\/p>\n
A. The Boards of Directors of each of the Buyer and Seller believe it is
\nin the best interests of each company and their respective stockholders that
\nBuyer, in consideration for the purchase price as set forth herein, acquire all
\nof the assets and certain of the liabilities of the Seller as further set forth
\nherein (the “Acquisition”) and, in furtherance thereof, have approved the
\n ———–
\nAcquisition.<\/p>\n
B. The Seller and the Principal Stockholders, on the one hand, and Buyer,
\non the other hand, desire to make certain representations, warranties, covenants
\nand other agreements in connection with the Acquisition.<\/p>\n
C. Concurrent with the execution of this Agreement, as a material
\ninducement to Buyer to enter into this Agreement, the Principal Stockholders are
\nentering into Voting Agreements in the form of Exhibit A hereto with Buyer (the
\n ———
\n“Voting Agreements”), and certain of the Principal Stockholders are entering
\n —————–
\ninto agreements not to compete with Buyer (the “Noncompetition Agreements”) in
\n ————————-
\nthe form of Exhibit B hereto and certain of the Key Employees (as defined below)
\n ———
\nare entering into Nonsolicitation Agreements with Buyer in the form of Exhibit
\n ——-
\nB-1 hereto (the “Nonsolicitation Agreements”).
\n— <\/p>\n
D. This Agreement contemplates a tax-free sale of the Seller’s assets
\nunder Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the
\n“Code”), and a liquidation of the Seller immediately following the tax-free
\nexchange of its assets.<\/p>\n
NOW, THEREFORE, in consideration of the covenants, promises and
\nrepresentations set forth herein, and for other good and valuable consideration,
\nthe parties agree as follows:<\/p>\n
1<\/p>\n
ARTICLE I<\/p>\n
PURCHASE AND SALE TRANSACTION<\/p>\n
1.1 Purchase and Sale of Assets. On the terms and subject to the
\n —————————
\nconditions set forth in this Agreement at the Closing, Seller will sell, convey,
\ntransfer, assign and deliver to Buyer, and Buyer will purchase and acquire from
\nSeller on the Closing Date, all right, title and interest in and to all assets
\nand properties of the Seller free and clear of all Liens (as defined below)
\nincluding but not limited to the physical assets set forth in Schedule 1.1(a)
\n —————
\nand the following (collectively the “Acquired Assets”) (provided, however, that
\n —————
\nthe Acquired Assets shall not include any Excluded Assets set forth on
\nSchedule 1.1(b)):
\n————— <\/p>\n
(a) all real property, improvements, fixtures and fittings thereon,
\neasements, rights-of way, and other appurtenant rights thereto (such as
\nappurtenant rights in and to public streets), if any;<\/p>\n
(b) all tangible personal property (such as machinery, equipment,
\ninventories, raw materials, supplies, manufactured and purchased parts, works in
\nprogress, finished goods, furniture, automobiles and tools);<\/p>\n
(c) all Cash;<\/p>\n
(d) all notes receivables, prepaid expenses, accounts receivable and
\nother similar current assets;<\/p>\n
(e) all securities;<\/p>\n
(f) all rights with respect to leasehold interests and subleases and
\nrights thereunder relating to the real and personal property;<\/p>\n
(g) all licenses, permits, authorizations, orders, registrations,
\ncertificates, variances, approvals, consents and franchises and similar rights
\nobtained from governments and governmental agencies or any pending applications
\nrelating to any of the foregoing;<\/p>\n
(h) all Intellectual Property, goodwill associated therewith,
\nlicenses and sublicenses granted in respect thereto and rights thereunder,
\nremedies against infringements thereof and rights to protection of interest
\ntherein, including without limitation the Intellectual Property described on
\nSchedule 2.13;
\n————-<\/p>\n
(i) all agreements, contracts, indentures, mortgages, instruments,
\nguarantees, or other similar agreements, and rights thereunder, including
\nwithout limitation, the Contracts set forth on Schedule 2.14;
\n ————-<\/p>\n
-2-<\/p>\n
(j) all customer, distribution, supplier and mailing lists;<\/p>\n
(k) all claims, deposits, prepayments, refunds, causes of action,
\nchoses in action, rights of recovery, rights of set off and rights of recoupment
\n(other than any such refund or similar item relating to the payment of Taxes (as
\ndefined in Section 2.10)) relating to any right, property or asset included in
\nthe Acquired Assets, or against any party to a Contract, including without
\nlimitation, unliquidated rights under manufacturers’ and vendors’ warranties and
\nguaranties; and<\/p>\n
(l) all business and financial records, books, ledgers, files, plans,
\ndocuments, correspondence, lists, plats, architectural plans, drawings,
\nnotebooks, specifications, creative materials, advertising and promotional
\nmaterials, marketing materials, studies, reports, equipment repair, maintenance
\nor service records of the Seller, whether written or electronically stored or
\notherwise recorded.<\/p>\n
1.2 Assumption of Liabilities. The Buyer shall assume, on the terms and
\n ————————-
\nsubject to the conditions set forth herein, from and after the Closing, only the
\nfollowing Liabilities and obligations of the Seller (the “Assumed Liabilities”)
\n ——————-
\n(provided however, that the Assumed Liabilities shall not include any Liability
\nset forth on Schedule 1.2(b), including without limitation Third Party Expenses
\n —————
\nof Seller):<\/p>\n
(a) all GAAP Liabilities of the Seller which are set forth on the
\nEstimated Closing Balance Sheet; and<\/p>\n
(b) all Liabilities of the Seller under the Contracts listed in
\nSchedule 2.14 to the extent such Contracts are assumed by the Buyer at the
\n————-
\nClosing pursuant to Section 1.1.<\/p>\n
1.3 Purchase Price. As the purchase price for the Assumed Assets and in
\n ————–
\naddition to assuming the Assumed Liabilities, Buyer agrees to pay to the Seller
\non the Closing Date the Total Consideration (as defined below) as follows:<\/p>\n
(a) Capital Stock Consideration. At the Closing, Buyer shall deliver
\n —————————
\nto Seller the Capital Stock Consideration minus the Capital Stock Escrow Amount.<\/p>\n
(b) Cash Consideration. At the Closing, Buyer shall pay cash to
\n ——————
\nSeller by wire transfer upon such wire instructions delivered by Seller to the
\nBuyer at least two (2) business days prior to the Closing in an amount equal to
\nthe Cash Consideration minus the Cash Escrow Amount.<\/p>\n
(c) Escrow Amount. At the Closing, the Capital Stock Escrow Amount
\n ————-
\nand the Cash Escrow Amount shall be placed by the Buyer into the Escrow Fund, to
\nbe held in escrow pursuant to the provisions of Article VII.<\/p>\n
1.4 Sales Tax. Buyer shall bear and pay any stamp duty, value added tax,
\n ———
\nsales tax, documentation charges, recording fees or similar charges, fees or
\nexpenses contemplated by this Agreement (collectively, “Sales Taxes”) that may
\n ———–
\nbecome payable in connection with the sale of the<\/p>\n
-3-<\/p>\n
Acquired Assets and the assumption of the Assumed Liabilities by Buyer.
\nNotwithstanding the foregoing, the amount of the consideration payable hereunder
\nis exclusive of any Sales Taxes which may be determined to be payable in respect
\nthereof and which, if so determined, shall be paid by the Buyer upon delivery of
\nan appropriate value added tax invoice. Buyer and Seller shall cooperate with
\none another to the extent reasonably requested and legally permitted to minimize
\nany such Sales Taxes.<\/p>\n
1.5 [Reserved].<\/p>\n
1.6 The Closing. The closing of the transactions contemplated by this
\n ———–
\nAgreement (the “Closing”) shall take place at the offices of Wilson Sonsini
\n ——–
\nGoodrich & Rosati, Professional Corporation, in Palo Alto, California commencing
\nat 10:00 a.m., P.T., two business days following the satisfaction or written
\nwaiver of the last of the conditions of Closing as set forth in Article VI
\nhereof, or such other date as the Buyer and Seller may mutually determine (the
\n“Closing Date”).
\n ———— <\/p>\n
1.7 Deliveries at the Closing. At the Closing, the following shall occur:
\n ————————-<\/p>\n
(i) Buyer will deliver to the Seller the various certificates,
\ninstruments and documents referred to in Section 6.2;<\/p>\n
(ii) the Seller will deliver to the Buyer the various
\ncertificates, instruments, and documents referred to in Section 6.3;<\/p>\n
(iii) the Seller will use its best efforts and take all action
\nas may be reasonably necessary to put the Buyer in ownership, possession, and
\noperating control of the Acquired Assets.<\/p>\n
(iv) the Seller will execute, acknowledge (if appropriate), and
\ndeliver to the Buyer: (A) the deeds, if any, relating to any of the Acquired
\nAssets, properly endorsed; (B) assignments of the Seller’ permits, leases,
\nIntellectual Property and Contracts (including Intellectual Property transfer
\ndocuments) and any third party consents necessary, or requested by the Buyer, to
\nsuch assignments described in (B); (C) the Transfer Documents; and (D) such
\nother instruments of sale, transfer, conveyance, and assignment as the Buyer and
\ntheir counsel may reasonably request;<\/p>\n
(v) the Seller will execute or acknowledge (where appropriate),
\nand deliver to the Buyer the Transfer Documents;<\/p>\n
(vi) the Buyer will deliver to the Seller the Total
\nConsideration less the Escrow Amount and the Escrow Amount to the Escrow Agent
\nas specified in Section 1.3; and<\/p>\n
(vii) the Buyer and the Seller shall deliver or cause to be
\ndelivered to one another such other instruments and documents necessary or
\nappropriate to evidence the due execution, delivery and performance of this
\nAgreement.<\/p>\n
-4-<\/p>\n
At any time, and from time to time after the Closing, at the reasonable
\nrequest of the Buyer and without further consideration, the Seller will execute
\nand deliver such other instruments of sale, transfer, conveyance, assignment and
\nconfirmation and take such action as Buyer may reasonably determine is necessary
\nto transfer, convey and assign to the Buyer, and to confirm the Buyer’ title to
\nor interest in the Acquired Assets, to put the Buyer in actual possession and
\noperating control thereof and to assist the Buyer in exercising all rights with
\nrespect thereto.<\/p>\n
At any time, and from time to time after the Closing, at the reasonable
\nrequest of the Seller and without further consideration, the Buyer will execute
\nand deliver such other instruments of assumption and confirmation and take such
\naction as Seller may reasonably determine is necessary to assume the Assumed
\nLiabilities and all obligations with respect thereto.<\/p>\n
1.8 Certain Definitions. For all purposes of this Agreement, the
\n ——————-
\nfollowing terms shall have the following meanings:<\/p>\n
“Buyer Common Stock” shall mean shares of the common stock, par
\n ——————
\nvalue $.0001, of Buyer.<\/p>\n
“Capital Stock Consideration” shall mean that number of shares of
\n —————————
\nBuyer Common Stock equal to the quotient obtained by dividing “X” where X is the
\nTotal Consideration minus the Cash Consideration by “Y” where Y is the Trading
\nPrice.<\/p>\n
“Capital Stock Escrow Amount” shall mean Buyer Common Stock equal
\n —————————
\nin value to 10% of the shares of Capital Stock Consideration.<\/p>\n
“Cash” shall mean cash and cash equivalents within the meaning of
\n —-
\nGAAP.<\/p>\n
“Cash Consideration” shall mean cash equal to (i) 19% of the sum
\n ——————
\nof Total Consideration and the amount of the Assumed Liabilities minus (ii) the
\nAssumed Liabilities.<\/p>\n
“Cash Escrow Amount” shall mean 10% of the Cash Consideration.
\n —————— <\/p>\n
“Escrow Amount” shall mean 10% of the Total Consideration and
\n ————-
\nshall consist of the aggregate of the Capital Stock Escrow Amount and the Cash
\nEscrow Amount.<\/p>\n
“Estimated Balance Sheet” shall mean the estimated unaudited
\n ———————–
\nbalance sheet of the Seller dated the Closing Date which shall be (i) prepared
\nin accordance with GAAP (except that such unaudited balance sheet need not
\ncontain the footnotes required by GAAP) and prepared in good faith and based on
\nreasonable assumptions and (ii) approved by Buyer, which approval shall not be
\nwithheld unreasonably.<\/p>\n
“Estimated Net Assets” shall mean the amount by which current
\n ——————–
\nassets of the Seller as determined in accordance with GAAP (“Current Assets”)
\n ————–
\nexceeds total liabilities of the<\/p>\n
-5-<\/p>\n
Seller as determined in accordance with GAAP (“Total Liabilities”), each as
\n —————–
\nreflected in the Estimated Balance Sheet.<\/p>\n
“Estimated Third Party Expenses” shall mean Third Party Expenses
\n ——————————
\n(as defined in Section 5.4) of the Seller on the Closing Date as estimated by
\nthe Seller and the Principal Stockholders in good faith and based on reasonable
\nassumptions.<\/p>\n
“Excluded Liabilities” shall mean all liabilities of Seller which
\n ——————–
\nare not Assumed Liabilities including, without limitation, those liabilities set
\nforth on Schedule 1.2(b).
\n ————— <\/p>\n
“GAAP” shall mean U.S. generally accepted accounting principles
\n —-
\nconsistently applied.<\/p>\n
“Key Employees” shall mean those employees of the Seller listed
\n ————-
\non Schedule 1.8 hereto.
\n ———— <\/p>\n
“Knowledge” shall mean what would be within the actual knowledge
\n ———
\nof a prudent person after reasonable investigation.<\/p>\n
“Liability” or “Liabilities” shall mean any liability or
\n ——— ———–
\nobligation (whether known or unknown, whether asserted or unasserted, whether
\nabsolute or contingent, whether accrued or unaccrued, whether liquidated or
\nunliquidated, whether incurred or consequential and whether due to or to become
\ndue), including any liability for Taxes.<\/p>\n
“Net Assets” shall mean the amount equal to Current Assets of the
\n ———-
\nSeller minus Total Liabilities of the Seller as of the Closing Date.<\/p>\n
“Person” shall mean an individual, a partnership, a corporation,
\n ——
\nan association, a joint stock company, a trust, a joint venture, an
\nunincorporated organization, a governmental entity (or any department, agency or
\npolitical subdivision thereof) or any other entity.<\/p>\n
“Seller Capital Stock” shall mean shares of Seller Common Stock
\n ——————–
\nand shares of any other capital stock of the Seller.<\/p>\n
“Seller Common Stock” shall mean shares of common stock of the
\n ——————-
\nSeller.<\/p>\n
“Stockholder” shall mean each holder of any Seller Capital Stock
\n ———–
\nimmediately prior to the Closing.<\/p>\n
“Total Consideration” shall mean an amount equal to $54,000,000
\n ——————-
\n(i) plus or minus the amount by which Estimated Net Assets (excluding Estimated
\nThird Party Expenses reflected on the Estimated Balance Sheet) are more or less
\nthan ($7,400,000); and (ii) minus the amount of principal and accrued interest
\noutstanding on the date of the Closing pursuant to that<\/p>\n
-6-<\/p>\n
certain Secured Promissory Note, dated August 26, 1999, issued by the Seller to
\nthe Buyer (the “Bridge Note”).
\n ———— <\/p>\n
“Trading Price” shall mean the average closing sales price of the
\n ————-
\nBuyer Common Stock as reported on the Nasdaq National Market for the five (5)
\nconsecutive trading days ending three (3) business days prior to but not
\nincluding the Closing Date.<\/p>\n
“Transfer Documents” shall mean the Assignment and Assumption
\n ——————
\nAgreement in substantially the form attached hereto as Exhibit C, the Bill of
\n ———
\nSale in substantially the form attached hereto as Exhibit D and the Trademark
\n ———
\nAssignment in substantially the form attached hereto as Exhibit E.
\n ——— <\/p>\n
1.9 Taking of Necessary Action; Further Action. If, at any time after the
\n ——————————————
\nClosing, any further action is necessary or desirable to carry out the purposes
\nof this Agreement and to vest the Buyer with full right, title and possession to
\nthe Acquired Assets, the officers and directors of the Seller and Buyer are
\nfully authorized in the name of their respective corporations or otherwise to
\ntake, and will take, all such lawful and necessary action.<\/p>\n
1.10 Tax Consequences. It is intended by the parties hereto that the
\n —————-
\nAcquisition shall constitute a reorganization within the meaning of Section
\n368(a)(i)(c) of the Code. Each party has consulted with its own tax advisors as
\nto the tax consequences of the Acquisition and no party makes any
\nrepresentations as to the tax consequences of the Acquisition. Except as
\nprovided in this Agreement, neither party is relying on any representations of
\nthe other in evaluating its decisions on the tax consequences of the
\ntransaction.<\/p>\n
ARTICLE II<\/p>\n
REPRESENTATIONS AND WARRANTIES OF THE SELLER
\n AND THE PRINCIPAL STOCKHOLDERS<\/p>\n
Each of the Seller and the Principal Stockholders hereby, jointly and
\nseverally, represents and warrants to Buyer, subject to such exceptions as are
\nspecifically disclosed in the disclosure schedule (referencing the appropriate
\nSection and paragraph numbers) supplied by the Seller and the Principal
\nStockholders to Buyer and attached hereto as Exhibit F (the “Disclosure
\n ——— ———-
\nSchedule”), that on the date hereof and as of the Closing as though made at the
\n——–
\nClosing as follows:<\/p>\n
2.1 Organization of the Seller. The Seller is a corporation duly
\n ————————–
\norganized, validly existing and in good standing under the laws of the State of
\nNew Jersey. The Seller has the corporate power to own its properties and to
\ncarry on its business as now being conducted. The Seller is duly qualified to do
\nbusiness and in good standing as a foreign corporation in each jurisdiction in
\nwhich the failure to be so qualified could have a Seller Material Adverse
\nEffect. For all purposes of this Agreement, the term “Seller Material Adverse
\n ———————–
\nEffect” means any change, event or effect that is materially adverse to the
\n——
\nbusiness, assets (including intangible assets), condition (financial or
\notherwise), results of operations or prospects of the Seller. The Seller has
\ndelivered a true and<\/p>\n
-7-<\/p>\n
correct copy of its Articles
\nof Incorporation and Bylaws, each as amended to date, to Buyer. Section 2.1 of
\nthe Disclosure Schedule lists the directors and officers of the Seller. The
\noperations now being conducted by the Seller have not been conducted under any
\nother name.<\/p>\n
2.2 Subsidiaries. The Seller does not have, and has never had, any
\n ————
\nsubsidiaries or affiliated companies and does not otherwise own, and has not
\notherwise owned, any shares in the capital of or any interest in, or control,
\ndirectly or indirectly, any corporation, partnership, association, joint venture
\nor other business entity.<\/p>\n
2.3 Seller Capital Structure.
\n ————————<\/p>\n
(a) The authorized Seller Capital Stock consists of two hundred (200)
\nshares of authorized Seller Common Stock, no par value, of which two hundred
\n(200) shares are issued and outstanding as of the date hereof. The Seller
\nCapital Stock at the time of the Closing will be held by the persons, with the
\ndomicile addresses and in the amounts set forth in Section 2.3(b) of the
\nDisclosure Schedule. All outstanding shares of Seller Capital Stock are duly
\nauthorized, validly issued, fully paid and non-assessable and not subject to
\npreemptive rights created by statute, the Articles of Incorporation or Bylaws of
\nthe Seller or any agreement to which the Seller is a party or by which it is
\nbound and have been issued in compliance with federal and state securities laws.
\nThere are no declared or accrued unpaid dividends with respect to any shares of
\nthe Seller’s Capital Stock. The Seller has no other capital stock authorized,
\nissued or outstanding.<\/p>\n
(b) The Seller has never adopted or maintained any stock option plan
\nor other plan providing for equity compensation of any person. The Seller has
\nreserved no shares of Seller Common Stock for issuance to employees and
\nconsultants, and no shares of Capital Stock are subject to outstanding
\nunexercised options as of the date hereof. There is no outstanding Seller
\nCapital Stock which is subject to vesting. Except as set forth on Section 2.3(b)
\nof the Disclosure Schedule, there are no options, warrants, calls, rights,
\ncommitments or agreements of any character, written or oral, to which the Seller
\nis a party or by which it is bound obligating the Seller to issue, deliver,
\nsell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
\nor redeemed, any shares of the capital stock of the Seller or obligating the
\nSeller to grant, extend, accelerate the vesting of, change the price of,
\notherwise amend or enter into any such option, warrant, call, right, commitment
\nor agreement. There are no outstanding or authorized stock appreciation, phantom
\nstock, profit participation, or other similar rights with respect to the Seller.
\nThere are no voting trusts, proxies, or other agreements or understandings with
\nrespect to the voting stock of the Seller.<\/p>\n
2.4 Authority. Each of the Seller and the Principal Stockholders has all
\n ———
\nrequisite power and authority to enter into this Agreement and any Related
\nAgreements (as hereinafter defined) to which it is a party and to consummate the
\ntransactions contemplated hereby and thereby. The execution and delivery of this
\nAgreement and any Related Agreements to which it is a party and the consummation
\nof the transactions contemplated hereby and thereby have been duly authorized by
\nall necessary corporate action on the part of the Seller, and no further action
\nis required on the part of the Seller or the Principal Stockholders to authorize
\nthe Agreement, any Related Agreements to which it is a party and the
\ntransactions contemplated hereby and thereby, subject only to the<\/p>\n
-8-<\/p>\n
approval of this Agreement by the Stockholders. This Agreement and the
\nAcquisition have been unanimously approved by the Board of Directors of the
\nSeller. This Agreement and any Related Agreements to which the Seller or the
\nPrincipal Stockholders is a party have been duly executed and delivered by the
\nSeller or the Principal Stockholders, as the case may be, and, assuming the due
\nauthorization, execution and delivery by the other parties hereto and thereto,
\nconstitute the valid and binding obligation of the Seller and the Principal
\nStockholders, as the case may be, enforceable in accordance with their
\nrespective terms, subject to the laws of general application relating to
\nbankruptcy, insolvency and the relief of debtors and to rules of law governing
\nspecific performance, injunctive relief or other equitable remedies. The
\n“Related Agreements” shall mean all such ancillary agreements required in this
\n ——————
\nAgreement to be executed and delivered in connection with the transactions
\ncontemplated hereby, including the Noncompetition Agreements, the Assignment and
\nAssumption Agreement, the Trademark Assignments, the Bill of Sale and the Voting
\nAgreements.<\/p>\n
2.5 No Conflict. The execution and delivery of this Agreement and any
\n ———–
\nRelated Agreements to which the Seller or the Principal Stockholders are a party
\nby either the Seller or the Principal Stockholders do not, and, the consummation
\nof the transactions contemplated hereby and thereby will not, conflict with, or
\nresult in any violation of, or default under (with or without notice or lapse of
\ntime, or both), or give rise to a right of termination, cancellation,
\nmodification or acceleration of any obligation or loss of any material benefit
\nunder (any such event, a “Conflict”) (i) any provision of the Articles of
\n ——–
\nIncorporation and Bylaws of the Seller, (ii) any mortgage, indenture, lease,
\ncontract or other agreement or instrument, permit, concession, franchise or
\nlicense to which the Seller or the Principal Stockholders or any of their
\nrespective properties or assets (including intangible assets) are subject, or
\n(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
\napplicable to the Seller or the Principal Stockholders or their respective
\nproperties or assets.<\/p>\n
2.6 Consents. No consent, waiver, approval, order or authorization of, or
\n ——–
\nregistration, declaration or filing with, any court, administrative agency or
\ncommission or other federal, state, county, local or other foreign governmental
\nauthority, instrumentality, agency or commission (“Governmental Entity”) or any
\n ——————-
\nthird party, including a party to any agreement with the Seller (so as not to
\ntrigger any Conflict), is required by or with respect to the Seller or the
\nPrincipal Stockholders in connection with the execution and delivery of this
\nAgreement and any Related Agreements to which the Seller or the Principal
\nStockholders is a party or the consummation of the transactions contemplated
\nhereby and thereby, except for such consents, waivers, approvals, orders,
\nauthorizations, registrations, declarations and filings as may be required under
\napplicable securities laws. Section 2.6 of the Disclosure Schedule sets forth a
\ntrue, correct and complete list of the identities with any Person whose consent
\nor approval is required and the matter, agreement or contract to which such
\nconsent relates.<\/p>\n
2.7 Seller Financial Statements. Section 2.7 of the Disclosure Schedule
\n —————————
\nsets forth the Seller’s audited balance sheets as of December 31, 1998 and
\nDecember 31, 1997 and the related audited statements of income and cash flow for
\nthe twelve-month periods ended December 31, 1998 and December 31, 1997 (the
\n“Year-End Financials”) and the Seller’s audited balance sheets for the six
\n ——————- <\/p>\n
-9-<\/p>\n
months ended as of June 30, 1999,
\nand the related audited statements of income and cash flow for the six months
\nthen ended (the “Interim Financials”). The Year-End Financials and the Interim
\n ——————
\nFinancials are correct in all material respects and have been prepared in
\naccordance with GAAP applied on a basis consistent throughout the periods
\nindicated and consistent with each other. The Year-End Financials and Interim
\nFinancials present fairly the financial condition and operating results of the
\nSeller as of the dates and during the periods indicated therein, subject in the
\ncase of the Interim Financials, to normal year-end adjustments, which will not
\nbe material in amount or significance. The Seller’s audited balance sheet as of
\nJune 30, 1999 shall be hereinafter referred to as the “Current Balance Sheet.”
\n ———————- <\/p>\n
2.8 No Undisclosed Liabilities. The Seller does not have any liability,
\n ————————–
\nindebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
\nany type, whether accrued, absolute, contingent, matured, unmatured or other,
\nwhich individually or in the aggregate (i) has not been reflected in the Current
\nBalance Sheet, or (ii) has not arisen in the ordinary course of business
\nconsistent with past practices since June 30, 1999, none of which is material to
\nthe business, results of operations or condition (financial or otherwise) of the
\nSeller.<\/p>\n
2.9 No Changes. Since June 30, 1999, there has not been, occurred or
\n ———-
\narisen any:<\/p>\n
(a) amendments or changes to the Articles of Incorporation or Bylaws
\nof the Seller;<\/p>\n
(b) capital expenditure or commitment by the Seller, exceeding
\n$20,000 individually or $50,000 in the aggregate;<\/p>\n
(c) destruction of, damage to or loss of any material assets,
\nbusiness or customer of the Seller (whether or not covered by insurance);<\/p>\n
(d) labor trouble or claim of wrongful discharge or other unlawful
\nlabor practice or action;<\/p>\n
(e) change in accounting methods or practices (including any change
\nin depreciation or amortization policies or rates) by the Seller;<\/p>\n
(f) revaluation by the Seller of any of its assets;<\/p>\n
(g) declaration, setting aside or payment of a dividend or other
\ndistribution with respect to the capital stock of the Seller or any direct or
\nindirect redemption, purchase or other acquisition by the Seller of its capital
\nstock;<\/p>\n
(h) increase in the salary or other compensation payable or to become
\npayable by the Seller to any of its officers, directors, employees or advisors,
\nor the declaration, payment or commitment or obligation of any kind for the
\npayment, by the Seller of a bonus or other additional salary or compensation to
\nany such person;<\/p>\n
-10-<\/p>\n
(i) material agreement, contract, covenant, instrument, lease,
\nlicense or commitment to which the Seller is a party or by which it or any of
\nits assets (including intangible assets) are bound or any termination,
\nextension, amendment or modification the terms of any agreement, contract,
\ncovenant, instrument, lease, license or commitment to which the Seller is a
\nparty or by which it or any of its assets are bound other than agreements with
\ncustomers or suppliers entered into in the ordinary course of business and
\nconsistent with past practice;<\/p>\n
(j) material sale, lease, license or other disposition of any of the
\nassets or properties of the Seller or any creation of any security interest in
\nsuch assets or properties;<\/p>\n
(k) loan by the Seller to any person or entity, incurring by the
\nSeller of any indebtedness, guaranteeing by the Seller of any indebtedness,
\nissuance or sale of any debt securities of the Seller or guaranteeing of any
\ndebt securities of others, except for advances to employees for travel and
\nbusiness expenses in the ordinary course of business, consistent with past
\npractice;<\/p>\n
(l) waiver or release of any material right or claim of the Seller
\nincluding any write-off or other compromise of any material account receivable
\nof the Seller;<\/p>\n
(m) the commencement or notice or threat or reasonable basis therefor
\nof any lawsuit or, to the Seller’s or the Principal Stockholders’ Knowledge,
\nproceeding or investigation against the Seller or its affairs;<\/p>\n
(n) Knowledge of any claim or potential claim of ownership by any
\nPerson other than the Seller of the Seller Intellectual Property (as defined in
\nSection 2.13) or of infringement by the Seller of any other person’s
\nIntellectual Property (as defined in Section 2.13);<\/p>\n
(o) issuance or sale, or contract to issue or sell, by the Seller of
\nany shares of its capital stock or securities exchangeable, convertible or
\nexercisable therefor, or any securities, warrants, options or rights to purchase
\nany of the foregoing;<\/p>\n
(p) (i) sale or license of any Seller Intellectual Property or
\nentering into of any agreement with respect to the Seller Intellectual Property
\nwith any person or entity or with respect to the Intellectual Property of any
\nperson or entity or (ii) purchase or license of any Intellectual Property or
\nentering into of any agreement with respect to the Intellectual Property of any
\nperson or entity or (iii) change in pricing or royalties set or charged by the
\nSeller to its customers or licensees or in pricing or royalties set or charged
\nby persons who have licensed Intellectual Property to the Seller;<\/p>\n
(q) event or condition of any character that has had or is reasonably
\nlikely to have a Seller Material Adverse Effect;<\/p>\n
(r) transaction by the Seller except in the ordinary course of
\nbusiness as conducted on that date and consistent with past practices; or<\/p>\n
-11-<\/p>\n
(s) negotiation or agreement by the Seller or any officer or employee
\nthereof to do any of the things described in the preceding clauses (a) through
\n(r) (other than negotiations with Buyer and its representatives regarding the
\ntransactions contemplated by this Agreement).<\/p>\n
2.10 Tax Matters.
\n ———–<\/p>\n
(a) Definition of Taxes. For the purposes of this Agreement, “Tax”
\n ——————- —
\nor, collectively, “Taxes,” means (i) any and all federal, state, local and
\n —–
\nforeign taxes, assessments and other governmental charges, duties, impositions
\nand liabilities, including taxes based upon or measured by gross receipts,
\nincome, profits, sales, use and occupation, and value added, ad valorem,
\ntransfer, franchise, withholding, payroll, recapture, employment, excise and
\nproperty taxes, together with all interest, penalties and additions imposed with
\nrespect to such amounts; (ii) any liability for the payment of any amounts of
\nthe type described in clause (i) as a result of being a member of an affiliated,
\nconsolidated, combined or unitary group for any period; and (iii) any liability
\nfor the payment of any amounts of the type described in clause (i) or (ii) as a
\nresult of any express or implied obligation to indemnify any other person or as
\na result of any obligations under any agreements or arrangements with any other
\nperson with respect to such amounts and including any liability for Taxes of a
\npredecessor entity.<\/p>\n
(b) Tax Returns and Audits.
\n ———————- <\/p>\n
(i) As of the Closing, the Seller will have prepared or caused
\nto be prepared and timely filed or caused to be filed all required federal,
\nstate, local and foreign returns, estimates, information statements and reports
\n(“Returns”) due on or before the Closing relating to any and all Taxes
\n———
\nconcerning or attributable to the Seller or its operations and, to the extent
\nBuyer would be adversely affected, such Returns are true and correct and have
\nbeen completed in accordance with applicable law.<\/p>\n
(ii) As of the Closing, the Seller (A) will have paid or accrued
\nall Taxes it is required to pay or accrue and will have withheld or caused to be
\nwithheld with respect to its employees all federal and state income taxes, FICA,
\nFUTA and other Taxes required to be withheld, and (B) will have accrued on the
\nCurrent Balance Sheet all Taxes attributable to the periods covered by the
\nCurrent Balance Sheet and will not have incurred any liability for Taxes for the
\nperiod prior to the Closing other than in the ordinary course of business.<\/p>\n
(iii) The Seller has not been delinquent in the payment of any
\nTax nor is there any Tax deficiency outstanding, assessed or proposed against
\nthe Seller, nor has the Seller executed any waiver of any statute of limitations
\non or extending the period for the assessment or collection of any Tax.<\/p>\n
(iv) No audit or other examination of any Return of the Seller
\nis presently in progress, nor has the Seller been notified of any request for
\nsuch an audit or other examination.<\/p>\n
-12-<\/p>\n
(v) The Seller has no liabilities for unpaid federal, state,
\nlocal and foreign Taxes which have not been accrued or reserved against on the
\nCurrent Balance Sheet, whether asserted or unasserted, contingent or otherwise.<\/p>\n
(vi) The Seller has made available to Buyer or its legal
\ncounsel, copies of all foreign, federal and state income and all state sales and
\nuse Returns for the Seller filed for all periods since its inception.<\/p>\n
(vii) There are (and immediately following the Closing there
\nwill be) no liens, pledges, charges, claims, restrictions on transfer,
\nmortgages, security interests or other encumbrances of any sort (collectively,
\n“Liens”) on the assets of the Seller relating to or attributable to Taxes other
\n —–
\nthan Liens for Taxes not yet due and payable.<\/p>\n
(viii) Neither the Seller nor the Principal Stockholders has
\nKnowledge of any basis for the assertion of any claim relating or attributable
\nto Taxes which, if adversely determined, would result in any Lien on the assets
\nof the Seller.<\/p>\n
(ix) None of the Seller’s assets are treated as “tax-exempt use
\n —————
\nproperty”, within the meaning of Section 168(h) of the Code.
\n——– <\/p>\n
(x) There is no contract, agreement, plan or arrangement to
\nwhich the Seller is a party as of the date of this Agreement, including but not
\nlimited to the provisions of this Agreement, covering any employee or former
\nemployee of Seller, individually or collectively, that could give rise to the
\npayment of any amount that would not be deductible pursuant to Sections 280G,
\n404 or 162(m) of the Code.<\/p>\n
(xi) The Seller has not filed any consent agreement under
\nSection 341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply
\nto any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
\nthe Code) owned by the Seller.<\/p>\n
(xii) The Seller is not a party to any tax sharing,
\nindemnification or allocation agreement nor does the Seller owe any amount under
\nany such agreement, other than this Agreement.<\/p>\n
(xiii) No adjustment relating to any Return filed by the Seller
\nhas been proposed formally or, to the Knowledge of the Seller or the Principal
\nStockholders, informally by any tax authority to the Seller or any
\nrepresentative thereof.<\/p>\n
2.11 Restrictions on Business Activities. There is no agreement
\n ———————————–
\n(noncompete or otherwise), commitment, judgment, injunction, order or decree to
\nwhich the Seller is a party or otherwise binding upon the Seller which has or
\nmay have the effect of prohibiting or impairing any business practice of the
\nSeller, any acquisition of property (tangible or intangible) by the Seller or
\nthe conduct of business by the Seller. Without limiting the foregoing, the
\nSeller has not entered into any agreement under which it is restricted from
\nselling, licensing or otherwise distributing any of its<\/p>\n
-13-<\/p>\n
technology or products to or providing services to, customers or potential
\ncustomers or any class of customers, in any geographic area, during any period
\nof time or in any segment of the market.<\/p>\n
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
\n ——————————————————————–
\nEquipment.
\n———<\/p>\n
(a) The Seller does not own any real property, nor has it ever owned
\nany real property. Section 2.12(a) of the Disclosure Schedule sets forth a list
\nof all real property currently leased by the Seller, the name of the lessor, the
\ndate of the lease and each amendment thereto and, with respect to any current
\nlease, the aggregate annual rental and\/or other fees payable under any such
\nlease. All such current leases are in full force and effect, are valid and
\neffective in accordance with their respective terms, and there is not, under any
\nof such leases, any existing default or event of default (or event which with
\nnotice or lapse of time, or both, would constitute a default).<\/p>\n
(b) The Seller has good and valid title to, or, in the case of leased
\nproperties and assets, valid leasehold interests in, all of their respective
\ntangible properties and assets, real, personal and mixed, used or held for use
\nin its business, including without limitation the Acquired Assets, free and
\nclear of any Liens, except as reflected in the Current Balance Sheet and except
\nfor Liens for Taxes not yet due and payable and such imperfections of title and
\nencumbrances, if any, which are not material in character, amount or extent, and
\nwhich do not detract from the value, or interfere with the present use, of the
\nproperty subject thereto or affected thereby.<\/p>\n
(c) Section 2.12(c) of the Disclosure Schedule lists all material
\nitems of equipment (the “Equipment”) owned or leased by the Seller and such
\n ———
\nEquipment is, (i) adequate for the conduct of the business of the Seller as
\ncurrently conducted and (ii) in good operating condition, regularly and properly
\nmaintained, subject to normal wear and tear.<\/p>\n
(d) The Seller has sole and exclusive ownership, free and clear of
\nany Liens, of all customer files and other customer information relating to
\ncustomers of the Seller’s current and former customers (the “Customer
\n ———
\nInformation”). No person other than the Seller possesses any claims or rights
\n———–
\nwith respect to use of the Customer Information.<\/p>\n
(e) As a result of the Acquisition, good and valid title to, or in
\nthe case of leased properties and assets, valid leasehold interests in, all of
\nthe Acquired Assets will be held by Buyer.<\/p>\n
2.13 Intellectual Property.
\n ———————<\/p>\n
(a) For the purposes of this Agreement, the following terms have the
\nfollowing definitions:<\/p>\n
“Intellectual Property” shall mean any or all of the following
\n ———————
\n(i) works of authorship including, without limitation, computer programs, source
\ncode and executable code, whether embodied in software, firmware or otherwise,
\ndocumentation, designs, files, records, data and mask works, (ii) inventions
\n(whether or not patentable), improvements, and technology, (iii) proprietary and
\nconfidential information, trade secrets and know how, (iv) databases, data<\/p>\n
-14-<\/p>\n
compilations and collections and technical data, (v) logos, trade names, trade
\ndress, trademarks and service marks, (vi) domain names, web addresses and sites,
\n(vii) tools, methods and processes, and (viii) all instantiations of the
\nforegoing in any form and embodied in any media.<\/p>\n
“Intellectual Property Rights” shall mean worldwide common law
\n —————————-
\nand statutory rights associated with (i) patents and patent applications, (ii)
\ncopyrights, copyrights registrations and copyrights applications and “moral”
\nrights, (iii) the protection of trade and industrial secrets and confidential
\ninformation, (iv) other proprietary rights relating to intangible intellectual
\nproperty, (v) trademarks, trade names and service marks, (vi) analogous rights
\nto those set forth above, and (vii) divisions, continuations, renewals,
\nreissuances and extensions of the foregoing (as applicable) now existing or
\nhereafter filed, issued or acquired.<\/p>\n
“Seller Intellectual Property” shall mean any Intellectual
\n —————————-
\nProperty and Intellectual Property Rights that are owned by or exclusively
\nlicensed to the Seller.<\/p>\n
“Registered Intellectual Property Rights” shall mean
\n —————————————
\nIntellectual Property Rights that have been registered, filed, certified or
\notherwise perfected by recordation with any state, government or other public
\nlegal authority.<\/p>\n
(b) Section 2.13(b) of the Disclosure Schedule lists all Registered
\nIntellectual Property owned by, or filed in the name of, the Seller (the “Seller
\n ——-
\nRegistered Intellectual Property”) and lists any proceedings or actions before
\n———————————
\nany court, tribunal (including the United States Patent and Trademark Office
\n(the “PTO”) or equivalent authority anywhere in the world) related to any of the
\n —
\nSeller Registered Intellectual Property Rights.<\/p>\n
(c) Each item of Seller Intellectual Property, including all Seller
\nRegistered Intellectual Property listed in Section 2.13(b) of the Disclosure
\nSchedule and all Intellectual Property licensed to the Seller, is free and clear
\nof any Liens or other encumbrances. The Seller is the exclusive owner of all
\nSeller Intellectual Property (other than Seller Intellectual Property which is
\nIntellectual Property exclusively licensed to the Seller).<\/p>\n
(d) To the extent that any Intellectual Property has been developed
\nor created independently or jointly by any person other than the Seller for
\nwhich the Seller has, directly or indirectly, paid the Seller has a written
\nagreement with such person with respect thereto, and the Seller thereby has
\nobtained ownership of, and is the exclusive owner of, all such Intellectual
\nProperty and associated Intellectual Property Rights by operation of law or by
\nvalid assignment.<\/p>\n
(e) The Seller has not transferred ownership of or granted any
\nlicense of or right to use or authorized the retention of any rights to use any
\nIntellectual Property or Intellectual Property Rights that is or was Seller
\nIntellectual Property, to any other person.<\/p>\n
(f) The Seller Intellectual Property constitutes all the Intellectual
\nProperty and Intellectual Property Rights used in and\/or necessary to the
\nconduct of the business of the Seller as it currently is conducted, planned or
\nis reasonably contemplated to be conducted, including, without<\/p>\n
-15-<\/p>\n
limitation, the design, development, manufacture, use, import and sale of
\nproducts, technology and services (including products, technology or services
\ncurrently under development).<\/p>\n
(g) Other than “shrink-wrap” and similar widely available commercial
\n ———–
\nend-user licenses, the contracts, licenses and agreements listed in Section
\n2.13(g) of the Disclosure Schedule include all contracts, licenses and
\nagreements to which the Seller is a party with respect to any Intellectual
\nProperty and Intellectual Property Rights. No person who has licensed
\nIntellectual Property or Intellectual Property Rights to the Seller has
\nownership rights or license rights to improvements made by the Seller in such
\nIntellectual Property which has been licensed to the Seller.<\/p>\n
(h) Section 2.13(h) of the Disclosure Schedule lists all contracts,
\nlicenses and agreements between the Seller and any other person wherein or
\nwhereby the Seller has agreed to, or assumed, any obligation or duty to warrant,
\nindemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any
\nobligation or liability or provide a right of rescission with respect to the
\ninfringement or misappropriation by the Seller or such other person of the
\nIntellectual Property Rights of any person other than the Seller.<\/p>\n
(i) The operation of the business of the Seller as it currently is
\nconducted or is reasonably contemplated to be conducted, including but not
\nlimited to the design, development, use, import, manufacture and sale of the
\nproducts, technology or services (including products, technology or services
\ncurrently under development) of the Seller does not infringe or misappropriate
\nthe Intellectual Property Rights of any person, violate the rights of any person
\n(including rights to privacy or publicity), or constitute unfair competition or
\ntrade practices under the laws of any jurisdiction, and the Seller has not
\nreceived notice from any person claiming that such operation or any act,
\nproduct, technology or service (including products, technology or services
\ncurrently under development) of the Seller infringes or misappropriates the
\nIntellectual Property Rights of any person or constitutes unfair competition or
\ntrade practices under the laws of any jurisdiction (nor is the Seller or the
\nPrincipal Stockholders aware of any basis therefor).<\/p>\n
(j) Each item of Seller Registered Intellectual Property is valid and
\nsubsisting, and all necessary registration, maintenance and renewal fees in
\nconnection with such Seller Registered Intellectual Property have been paid and
\nall necessary documents and certificates in connection with such Seller
\nRegistered Intellectual Property have been filed with the relevant patent,
\ncopyright, trademark or other authorities in the United States or foreign
\njurisdictions, as the case may be, for the purposes of maintaining such
\nRegistered Intellectual Property. There are no actions that must be taken by the
\nSeller within sixty (60) days of the Closing Date, including the payment of any
\nregistration, maintenance or renewal fees or the filing of any documents,
\napplications or certificates for the purposes of maintaining, perfecting or
\npreserving or renewing any Registered Intellectual Property. For each product,
\ntechnology or service of the Seller that constitutes or includes a copyrightable
\nwork, the Seller has registered the copyright in the latest version of such work
\nwith the U.S. Copyright Office. In each case in which the Seller has acquired
\nany Intellectual Property rights from any person, the Seller has obtained a
\nvalid and enforceable assignment sufficient to irrevocably transfer all rights
\nin such Intellectual Property and the associated <\/p>\n
-16-<\/p>\n
Intellectual Property Rights (including the right to seek past and future
\ndamages with respect thereto) to the Seller and, to the maximum extent provided
\nfor by, and in accordance with, applicable laws and regulations, the Seller has
\nrecorded each such assignment with the relevant governmental authorities,
\nincluding the PTO, the U.S. Copyright Office, or their respective equivalents in
\nany relevant foreign jurisdiction, as the case may be.<\/p>\n
(k) There are no contracts, licenses or agreements between the Seller
\nand any other person with respect to Seller Intellectual Property under which
\nthere is any dispute known to the Seller or the Principal Stockholders regarding
\nthe scope of such agreement, or performance under such agreement including with
\nrespect to any payments to be made or received by the Seller thereunder.<\/p>\n
(l) To the Knowledge of the Seller and the Principal Stockholders, no
\nperson is infringing or misappropriating any Seller Intellectual Property.<\/p>\n
(m) The Seller has taken all reasonable steps that are required to
\nprotect the Seller’s rights in confidential information and trade secrets of the
\nSeller or provided by any other person to the Seller. Without limiting the
\nforegoing, the Seller has, and enforces, a policy requiring each employee,
\nconsultant and contractor to execute proprietary information, confidentiality
\nand assignment agreements substantially in the Seller’s standard forms, and all
\ncurrent and former employees, consultants and contractors of the Seller have
\nexecuted such an agreement.<\/p>\n
(n) No Seller Intellectual Property, Intellectual Property Rights or
\nservice of the Seller is subject to any proceeding or outstanding decree, order,
\njudgment, agreement or stipulation that restricts in any manner the use,
\ntransfer or licensing thereof by the Seller or may affect the validity, use or
\nenforceability of such Seller Intellectual Property.<\/p>\n
(o) No (i) product, technology, service or publication of the Seller,
\n(ii) material published or distributed by the Seller or (iii) conduct or
\nstatement of Seller constitutes obscene material, a defamatory statement or
\nmaterial, false advertising or otherwise violates any law or regulation.<\/p>\n
(p) All of the Seller’s products (including products currently under
\ndevelopment) will record, store, process, calculate and present calendar dates
\nfalling on and after (and if applicable, spans of time including) January 1,
\n2000, and will calculate any information dependent on or relating to such dates
\nin the same manner, and with the same functionality, data integrity and
\nperformance, as the products record, store, process, calculate and present
\ncalendar dates on or before December 31, 1999, or calculate any information
\ndependent on or relating to such dates (collectively, “Year 2000 Compliant”).
\n ——————-
\nAll of the Seller’s products will lose no functionality with respect to the
\nintroduction of records containing dates falling on or after January 1, 2000.
\nAll of the Seller’s internal computer and technology products and systems are
\nYear 2000 Compliant.<\/p>\n
2.14 Agreements, Contracts and Commitments.
\n ————————————-<\/p>\n
-17-<\/p>\n
(a) Schedule 2.14(a) of the Disclosure Schedule sets forth the
\nfollowing contracts or agreements (whether written or oral) to which the Seller
\nis a party or bound by:<\/p>\n
(i) any employment or consulting agreement, contract or
\ncommitment with an employee or individual consultant or salesperson or
\nconsulting or sales agreement, contract or commitment with a firm or other
\norganization,<\/p>\n
(ii) any agreement concerning confidentiality,<\/p>\n
(iii) any agreement or plan, including, without limitation, any
\nstock option plan, stock appreciation rights plan or stock purchase plan, any of
\nthe benefits of which will be increased, or the vesting of benefits of which
\nwill be accelerated, by the occurrence of any of the transactions contemplated
\nby this Agreement or the value of any of the benefits of which will be
\ncalculated on the basis of any of the transactions contemplated by this
\nAgreement,<\/p>\n
(iv) any fidelity or surety bond or completion bond,<\/p>\n
(v) any lease of personal property having an annual value
\nindividually in excess of $10,000 or $50,000 in the aggregate,<\/p>\n
(vi) any agreement, contract or commitment containing any
\ncovenant limiting the freedom of the Seller to engage in any line of business or
\nto compete with any person,<\/p>\n
(vii) any agreement, contract or commitment relating to capital
\nexpenditures and involving future annual payments in excess of $10,000
\nindividually or $50,000 in the aggregate,<\/p>\n
(viii) any agreement, contract or commitment relating to the
\ndisposition or acquisition of assets or any interest in any business enterprise
\noutside the ordinary course of the Seller’s business,<\/p>\n
(ix) any mortgages, indentures, loans or credit agreements,
\nsecurity agreements or other agreements or instruments relating to the borrowing
\nof money or extension of credit,<\/p>\n
(x) any purchase order or contract for the purchase of materials
\ninvolving annually in excess of $10,000 individually or $50,000 in the
\naggregate,<\/p>\n
(xi) any construction contracts,<\/p>\n
(xii) any dealer, distribution, joint marketing or development
\nagreement,<\/p>\n
(xiii) any sales representative, original equipment
\nmanufacturer, value added, remarketer, reseller or independent software vendor
\nor other agreement for use or distribution of the Seller’s products, technology
\nor services, or<\/p>\n
-18-<\/p>\n
(xiv) any other agreement, contract or commitment that involves
\nannual payments of $10,000 individually or $50,000 in the aggregate or more or
\nis not cancelable without penalty within thirty (30) days.<\/p>\n
(b) The Seller is in compliance with and has not breached, violated
\nor defaulted under, or received notice that it has breached, violated or
\ndefaulted under, any of the terms or conditions of any material agreement,
\ncontract, covenant, instrument, lease, license or commitment to which it is a
\nparty or by which it is bound (each, a “Contract”), nor is the Seller or the
\n ——–
\nPrincipal Stockholders aware of any event that would constitute such a breach,
\nviolation or default with the lapse of time, giving of notice or both. Each
\nContract is in full force and effect and is not subject to any default
\nthereunder by any party obligated to the Seller pursuant thereto. The Seller has
\nobtained, or will obtain prior to the Closing Date, all necessary consents,
\nwaivers and approvals of parties to any Contract as are required thereunder in
\nconnection with the Acquisition or for such Contracts to remain in effect
\nwithout modification after the Closing. Following the Closing, Buyer will be
\npermitted to exercise all of the rights of Seller under the Contracts without
\nthe payment of any additional amounts or consideration other than ongoing fees,
\nroyalties or payments which the Seller would otherwise be required to pay had
\nthe transactions contemplated by this Agreement not occurred.<\/p>\n
2.15 Interested Party Transactions. No officer, director or Stockholder
\n —————————–
\n(nor any ancestor, sibling, descendant or spouse of any of such persons, or any
\ntrust, partnership or corporation in which any of such persons has or has had an
\ninterest), has or has had, directly or indirectly, (i) an interest in any entity
\nwhich furnished or sold, or furnishes or sells, services, products or technology
\nthat the Seller furnishes or sells, or proposes to furnish or sell, or (ii) any
\ninterest in any entity that purchases from or sells or furnishes to the Seller
\nany goods or services or (iii) a beneficial interest in any Contract; provided,
\n ——–
\nthat ownership of no more than one percent (1%) of the outstanding voting stock
\nof a publicly traded corporation shall not be deemed an “interest in any entity”
\n ———————-
\nfor purposes of this Section 2.15.<\/p>\n
2.16 Governmental Authorization. Section 2.16 of the Disclosure Schedule
\n ————————–
\naccurately lists each consent, license, permit, grant or other authorization
\nissued to the Seller by a Governmental Entity (i) pursuant to which the Seller
\ncurrently operates or holds any interest in any of its properties or (ii) which
\nis required for the operation of its business or the holding of any such
\ninterest (herein collectively called “Seller Authorizations”). The Seller
\n ———————
\nAuthorizations are in full force and effect and constitute all Seller
\nAuthorizations required to permit the Seller to operate or conduct its business
\nor hold any interest in its properties or assets.<\/p>\n
2.17 Litigation. There is no action, suit, claim or proceeding of any
\n ———-
\nnature pending, or, to the Seller’s or the Principal Stockholders’ Knowledge,
\nthreatened, against the Seller, its properties (tangible or intangible) or any
\nof its officers or directors, nor, to the Knowledge of the Seller or the
\nPrincipal Stockholders, is there any reasonable basis therefor. To the Seller’s
\nor the Principal Stockholders’ Knowledge, there is no investigation pending or
\nthreatened against the Seller, its properties or any of its officers or
\ndirectors (nor, to the best Knowledge of the Seller or the Principal<\/p>\n
-19-<\/p>\n
Stockholders, is there any reasonable basis therefor) by or before any
\nGovernmental Entity. No Governmental Entity has at any time challenged or
\nquestioned the legal right of the Seller to conduct its operations as presently
\nor previously conducted.<\/p>\n
2.18 Accounts Receivable; Inventory.
\n ——————————<\/p>\n
(a) The Seller has made available to Buyer a list of all accounts
\nreceivable of the Seller as of September 30, 1999 along with a range of days
\nelapsed since invoice.<\/p>\n
(b) All accounts receivable arose in the ordinary course of business,
\nare carried at values determined in accordance with GAAP consistently applied
\nand are collectible except to the extent of reserves therefor set forth in the
\nCurrent Balance Sheet. No person has any Lien on any of such Accounts Receivable
\nand no request or agreement for deduction or discount has been made with respect
\nto any of such Accounts Receivable.<\/p>\n
(c) All of the inventories of the Seller that are among the Acquired
\nAssets were purchased, acquired or produced in the ordinary and regular course
\nof business and in a manner consistent with the Seller’s regular inventory
\npractices and are set forth on the Seller’s books and records in accordance with
\nthe practices and principles of the Seller consistent with the method of
\ntreating said items in prior periods. None of the inventory of the Seller that
\nis among the Acquired Assets (in either case net of the reserve therefor) is
\nobsolete, defective or in excess of the needs of the business of the Seller
\nreasonably anticipated for the normal operation of the business consistent with
\npast practices and outstanding customer contracts. The presentation of inventory
\non the Seller Financials conforms to GAAP and such inventory is stated at the
\nlower of cost (determined using the first-in, first-out method) or market value.<\/p>\n
2.19 Minute Books. The minutes of the Seller made available to counsel
\n ————
\nfor Buyer are the only minutes of the Seller and contain a reasonably accurate
\nsummary of all meetings of the Board of Directors (or committees thereof) of the
\nSeller and their respective shareholders or actions by written consent since the
\ntime of incorporation of the Seller.<\/p>\n
2.20 Environmental Matters.
\n ———————<\/p>\n
(a) Hazardous Material. The Seller has not: (i) operated any
\n ——————
\nunderground storage tanks at any property that the Seller has at any time owned,
\noperated, occupied or leased; or (ii) illegally released any material amount of
\nany substance that has been designated by any Governmental Entity or by
\napplicable federal, state or local law to be radioactive, toxic, hazardous or
\notherwise a danger to health or the environment, including, without limitation,
\nPCBs, asbestos, petroleum, and urea-formaldehyde and all substances listed as
\nhazardous substances pursuant to the Comprehensive Environmental Response,
\nCompensation, and Liability Act of 1980, as amended, or defined as a hazardous
\nwaste pursuant to the United States Resource Conservation and Recovery Act of
\n1976, as amended, and the regulations promulgated pursuant to such laws (a
\n“Hazardous Material”), but excluding office and janitorial supplies properly and
\n ——————
\nsafely maintained. No Hazardous Materials are present as a result of the
\ndeliberate actions of the Seller or, to the Seller’s or <\/p>\n
-20-<\/p>\n
the Principal Stockholders’ Knowledge, as a result of any actions of any other
\nperson or otherwise, in, on or under any property, including the land and the
\nimprovements, ground water and surface water thereof, that the Seller has at any
\ntime owned, operated, occupied or leased.<\/p>\n
(b) Hazardous Materials Activities. The Seller has not transported,
\n ——————————
\nstored, used, manufactured, disposed of, released or exposed its employees or
\nothers to Hazardous Materials in violation of any law in effect on or before the
\nClosing, nor has it disposed of, transported, sold, or manufactured any product
\ncontaining a Hazardous Material (any or all of the foregoing being collectively
\nreferred to as “Hazardous Materials Activities”) in violation of any rule,
\n ——————————
\nregulation, treaty or statute promulgated by any Governmental Entity in effect
\nprior to or as of the date hereof to prohibit, regulate or control Hazardous
\nMaterials or any Hazardous Material Activity.<\/p>\n
(c) Permits. The Seller currently holds all environmental approvals,
\n ——-
\npermits, licenses, clearances and consents (the “Environmental Permits”) if any,
\n ———————
\nnecessary for the conduct of the Seller’s Hazardous Material Activities,
\nrespectively, and other businesses of the Seller as such activities and
\nbusinesses are currently being conducted.<\/p>\n
(d) Environmental Liabilities. No action, proceeding, revocation
\n ————————-
\nproceeding, amendment procedure, writ, injunction or claim is pending, or to the
\nSeller’s or the Principal Stockholders’ Knowledge, threatened concerning any
\nEnvironmental Permit, Hazardous Material or any Hazardous Materials Activity of
\nthe Seller. Neither the Seller nor the Principal Stockholders is aware of any
\nfact or circumstance which could involve the Seller in any environmental
\nlitigation or impose upon the Seller any environmental liability.<\/p>\n
2.21 Brokers’ and Finders’ Fees; Third Party Expenses. The Seller has not
\n ————————————————
\nincurred, nor will it incur, directly or indirectly, any liability for brokerage
\nor finders’ fees or agents’ commissions or any similar charges in connection
\nwith the Agreement or any transaction contemplated hereby. Section 2.21 of the
\nDisclosure Schedule sets forth the Seller’s current reasonable estimate of all
\nThird Party Expenses (as defined in Section 5.4) expected to be incurred by the
\nSeller in connection with the negotiation and effectuation of the terms and
\nconditions of this Agreement and the transactions contemplated hereby.<\/p>\n
2.22 Employee Benefit Plans and Compensation.
\n —————————————<\/p>\n
(a) The following terms shall have the meanings set forth below:<\/p>\n
(i) “Affiliate” shall mean any other person or entity under
\n ———
\ncommon control with the Seller within the meaning of Section 414(b), (c), (m) or
\n(o) of the Code and the regulations issued thereunder;<\/p>\n
(ii) “Employee Plan” shall mean any plan, program, policy,
\n ————-
\npractice, contract, agreement or other arrangement providing for compensation,
\nseverance, termination pay, deferred compensation, performance awards, stock or
\nstock-related awards, fringe benefits or other employee benefits or remuneration
\nof any kind, whether written, unwritten or otherwise, funded or<\/p>\n
-21-<\/p>\n
unfunded, including without limitation, each “employee benefit plan,” within the
\nmeaning of Section 3(3) of ERISA which is or has been maintained, contributed
\nto, or required to be contributed to, by the Seller or any Affiliate for the
\nbenefit of any Employee, or with respect to which the Seller or any Affiliate
\nhas or may have any liability or obligation;<\/p>\n
(iii) “COBRA” shall mean the Consolidated Omnibus Budget
\n —–
\nReconciliation Act of 1985, as amended;<\/p>\n
(iv) “DOL” shall mean the Department of Labor;
\n — <\/p>\n
(v) “Employee” shall mean any current or former employee,
\n ——–
\nconsultant or director of the Seller or any Affiliate;<\/p>\n
(vi) “Employee Agreement” shall mean each management,
\n ——————
\nemployment, severance, consulting, relocation, repatriation, expatriation, visa,
\nwork permit or other agreement, contract or understanding between the Seller or
\nany Affiliate and any Employee ;<\/p>\n
(vii) “ERISA” shall mean the Employee Retirement Income Security
\n —–
\nAct of 1974, as amended;<\/p>\n
(viii) “FMLA” shall mean the Family Medical Leave Act of 1993,
\n —-
\nas amended;<\/p>\n
(ix) “IRS” shall mean the Internal Revenue Service;
\n — <\/p>\n
(x) “PBGC” shall mean the Pension Benefit Guaranty Corporation;
\n —-
\nand<\/p>\n
(xi) “Pension Plan” shall mean each Employee Plan which is an
\n ————
\n“employee pension benefit plan,” within the meaning of Section 3(2) of ERISA.<\/p>\n
(b) Schedule. Schedule 2.22(b) contains an accurate and complete
\n ——–
\nlist of each Employee Plan and each Employee Agreement. The Seller does not have
\nany plan or commitment to establish any new Employee Plan or Employee Agreement,
\nto modify any Employee Plan or Employee Agreement (except to the extent required
\nby law or to conform any such Employee Plan or Employee Agreement to the
\nrequirements of any applicable law, in each case as previously disclosed to
\nBuyer in writing, or as required by this Agreement), or to enter into any
\nEmployee Plan or Employee Agreement.<\/p>\n
(c) Buyer shall assume no obligations, liabilities or
\nresponsibilities, relating to, arising out of, or resulting from any of the
\nEmployee Plans. [Note: should be listed on Excluded Liabilities list]<\/p>\n
(d) No Pension Plans. Neither the Seller nor any Affiliate has ever
\n —————-
\nmaintained, established, sponsored, participated in, or contributed to, any
\nPension Plan.<\/p>\n
-22-<\/p>\n
(e) [Reserved]<\/p>\n
(f) Health Care Compliance. Neither the Seller nor any Affiliate
\n ———————-
\nhas, prior to the Closing, violated any of the health care continuation
\nrequirements of COBRA, the requirements of FMLA, the requirements of the Health
\nInsurance Portability and Accountability Act of 1996, the requirements of the
\nWomen’s Health and Cancer Rights Act, the requirements of the Newborns’ and
\nMothers’ Health Protection Act of 1996, or any amendment to each such Act, or
\nany similar provisions of state law applicable to its Employees.<\/p>\n
(g) Effect of Transaction. The execution of this Agreement and the
\n ———————
\nconsummation of the transactions contemplated hereby will not (either alone or
\nupon the occurrence of any additional or subsequent events) constitute an event
\nunder any Employee Plan, Employee Agreement, trust or loan that will or may
\nresult in any payment (whether of severance pay or other-wise), acceleration,
\nforgiveness of indebtedness, vesting, distribution, increase in benefits or
\nobligation to fund benefits with respect to any Employee.<\/p>\n
(h) Employment Matters. The Seller: (i) is in compliance with all
\n ——————
\napplicable foreign, federal, state and local laws, rules and regulations
\nrespecting employment, employment practices, terms and conditions of employment
\nand wages and hours, in each case, with respect to Employees; (ii) has withheld
\nand reported all amounts required by law or by agreement to be withheld and
\nreported with respect to wages, salaries and other payments to Employees; (iii)
\nis not liable for any arrears of wages or any taxes or any penalty for failure
\nto comply with any of the foregoing; and (iv) is not liable for any payment to
\nany trust or other fund governed by or maintained by or on behalf of any
\ngovernmental authority, with respect to unemployment compensation benefits,
\nsocial security or other benefits or obligations for Employees (other than
\nroutine payments to be made in the normal course of business and consistent with
\npast practice). There are no pending or, to the knowledge of the Seller or the
\nPrincipal Stockholders, threatened or reasonably anticipated claims or actions
\nagainst the Seller under any worker’s compensation policy or long-term
\ndisability policy.<\/p>\n
(i) Labor. No work stoppage or labor strike against the Seller is
\n —–
\npending, or to the knowledge of the Seller or the Principal Stockholders,
\nthreatened or reasonably anticipated. The Seller does not know of any activities
\nor proceedings of any labor union to organize any Employees. There are no
\nactions, suits, claims, labor disputes or grievances pending, or, to the
\nknowledge of the Seller or the Principal Stockholders, threatened or reasonably
\nanticipated relating to any labor, safety or discrimination matters involving
\nany Employee, including, without limitation, charges of unfair labor practices
\nor discrimination complaints. The Seller has not engaged in any unfair labor
\npractices within the meaning of the National Labor Relations Act. The Seller is
\nnot presently, nor has it been in the past, a party to, or bound by, any
\ncollective bargaining agreement or union contract with respect to Employees and
\nno collective bargaining agreement is being negotiated by the Seller.<\/p>\n
(j) No Interference or Conflict. To the Knowledge of the Seller and
\n —————————
\nthe Principal Stockholders, no shareholder, officer, employee or consultant of
\nthe Seller is obligated under any contract or agreement subject to any judgment,
\ndecree or order of any court or administrative agency<\/p>\n
-23-<\/p>\n
that would interfere with such person’s efforts to promote the interests of the
\nSeller or that would interfere with the Seller’s business. Neither the execution
\nnor delivery of this Agreement, nor the carrying on of the Seller’s business as
\npresently conducted or presently proposed to be conducted nor any activity of
\nsuch officers, directors, employees or consultants in connection with the
\ncarrying on of the Seller’s business as presently conducted or currently
\nproposed to be conducted, will, to the Seller’s and the Principal Stockholders’
\nknowledge, conflict with or result in a breach of the terms, conditions or
\nprovisions of, or constitute a default under, any contract or agreement under
\nwhich any of such officers, directors, employees or consultants is now bound.<\/p>\n
2.23 Insurance. Section 2.23 of the Disclosure Schedule lists all
\n ———
\ninsurance policies and fidelity bonds covering the assets, business, equipment,
\nproperties, operations, employees, officers and directors of the Seller. There
\nis no claim by the Seller pending under any of such policies or bonds as to
\nwhich coverage has been questioned, denied or disputed by the underwriters of
\nsuch policies or bonds. All premiums due and payable under all such policies and
\nbonds have been paid, and the Seller is otherwise in compliance with the terms
\nof such policies and bonds (or other policies and bonds providing substantially
\nsimilar insurance coverage). Neither the Seller nor the Principal Stockholders
\nhas Knowledge of any threatened termination of, or premium increase with respect
\nto, any of such policies.<\/p>\n
2.24 Compliance with Laws. The Seller has complied with, is not in
\n ——————–
\nviolation of, and has not received any notices of violation with respect to, any
\nmaterial foreign, federal, state or local statute, law or regulation.<\/p>\n
2.25 Warranties; Indemnities. Except for the warranties and indemnities
\n ———————–
\ncontained in (i) those contracts and agreements set forth in Section 2.13(g) of
\nthe Disclosure Schedule and (ii) the Seller’s shrink wrap license agreements
\nsubstantially in the form set forth in Section 2.13(d) of the Disclosure
\nSchedule, the Seller has not given any warranties or indemnities relating to
\nproducts or technology sold or licensed or services rendered by the Seller.<\/p>\n
2.26 Complete Copies of Materials. The Seller has delivered or made
\n —————————-
\navailable true and complete copies of each document (or summaries of same) that
\nhas been requested by Buyer or its counsel.<\/p>\n
2.27 Bulk Sales. Neither Seller nor the transactions contemplated by this
\n ———-
\nAgreement are subject to the provisions of Article 6 of the Uniform Commercial
\nCode concerning bulk sales or any similar law.<\/p>\n
2.28 Investment Representations. Seller understands, acknowledges and
\n ————————–
\nagrees to the following:<\/p>\n
(a) Purchase for Own Account. The Buyer Common Stock to be received
\n ————————
\nby Seller hereunder will be acquired for investment for Seller’s own account,
\nnot as a nominee or agent, and not with a view to the public resale or
\ndistribution thereof within the meaning of the Securities Act of 1933, as
\namended, (the “Securities Act”), and Seller has no present intention of
\n ————– <\/p>\n
-24-<\/p>\n
selling, granting any participation in, or otherwise distributing the same.
\nSeller also represents that it has not been formed for the specific purpose of
\nacquiring the Buyer Common Stock.<\/p>\n
(b) Disclosure of Information. Seller has received or has had full
\n ————————-
\naccess to all the information it considers necessary or appropriate to make an
\ninformed investment decision with respect to the Buyer Common Stock to be
\nreceived under this Agreement. Seller further has had an opportunity to ask
\nquestions and receive answers from Buyer regarding Buyer’s business and to
\nobtain additional information (to the extent Buyer possessed such information or
\ncould acquire it without unreasonable effort or expense) necessary to verify any
\ninformation furnished to Seller or to which Seller had access.<\/p>\n
(c) Restricted Securities. Seller understands that the shares of
\n ———————
\nBuyer Common Stock are characterized as “restricted securities” under the
\nSecurities Act inasmuch as they are being acquired from Buyer in a transaction
\nnot involving a public offering and that under the Securities Act and applicable
\nregulations thereunder such securities may be resold without registration under
\nthe Securities Act only in certain limited circumstances. In this connection,
\nSeller represents that it is familiar with Rule 144 of the U.S. Securities and
\nExchange Commission (the “SEC”), as presently in effect, and understands the
\n —
\nresale limitations imposed thereby and by the Securities Act. Seller understands
\nthat Buyer is under no obligation to register any of the securities sold
\nhereunder.<\/p>\n
(d) Further Limitations on Disposition. Without in any way limiting
\n ———————————-
\nthe representations set forth above, Seller further agrees not to make any
\ndisposition of all or any portion of the Buyer Common Stock unless and until:<\/p>\n
(i) there is then in effect a registration statement under the
\nSecurities Act covering such proposed disposition and such disposition is made
\nin accordance with such registration statement; or<\/p>\n
(ii) Seller shall furnish Buyer with an opinion of counsel,
\nreasonably satisfactory to Buyer, that such disposition will not require
\nregistration of such securities under the Securities Act.<\/p>\n
2.29 Legends. It is understood that the certificates evidencing the Buyer
\n ——-
\nCommon Stock will bear the legends set forth below:<\/p>\n
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
\n SECURITIES ACT OF 1933, AS AMENDED (THE `ACT’), OR UNDER THE SECURITIES
\n LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
\n TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
\n PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT
\n TO REGISTRATION OR EXAMINATION THEREFROM. THE HOLDER OF THE SECURITIES
\n REPRESENTED HEREBY SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR
\n OFFICIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE
\n ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
\n SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
\n TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
\n SECURITIES LAWS.<\/p>\n
-25-<\/p>\n
The legend set forth above shall be removed by Buyer from any certificate
\nevidencing Buyer Common Stock upon delivery to Buyer of an opinion by counsel,
\nreasonably satisfactory to Buyer, that a registration statement under the
\nSecurities Act is at that time in effect with respect to the legended security
\nor that such security can be freely transferred in a public sale without such a
\nregistration statement being in effect and that such transfer will not
\njeopardize the exemption or exemptions from registration pursuant to which Buyer
\nissued the Buyer Common Stock.<\/p>\n
2.30 Securities representations. Seller further represents and warrants
\n ————————–
\nto Buyer that the following are true and correct as of the Closing:<\/p>\n
(a) At least ninety-five percent (95%) of the outstanding Seller’s
\ncapital stock, on an as-converted basis, entitled to vote on this Agreement and
\nthe transactions contemplated hereby voted in favor of the Agreement and such
\ntransactions; and<\/p>\n
(b) All holders of outstanding capital stock of Seller entitled to
\nvote on this Agreement and the transactions contemplated hereby have, and have
\nbeen properly informed of, their dissenters’ rights under applicable federal or
\nstate law.<\/p>\n
2.31 Hart-Scott-Rodino Compliance. Vasiliy Salygin, along with his wife,
\n —————————-
\nminor children (if any), the Company and any other entities controlled by or
\nunder common control with Vasiliy Salygin and\/or his wife or minor children,
\ndoes not quality as a $10 million person within the meaning of the Hart-Scott-
\nRodino Antitrust Improvements Act of 1976, as amended, and its implementing
\nregulations.<\/p>\n
2.32 Representations Complete. None of the representations or warranties
\n ————————
\nmade by the Seller or the Principal Stockholders (as modified by the Disclosure
\nSchedule), nor any statement made in any Schedule or certificate furnished by
\nthe Seller or the Principal Stockholders pursuant to this Agreement contains or
\nwill contain at the Closing, any untrue statement of a material fact, or omits
\nor will omit at the Closing to state any material fact necessary in order to
\nmake the statements contained herein or therein, in the light of the
\ncircumstances under which made, not misleading.<\/p>\n
ARTICLE III<\/p>\n
REPRESENTATIONS AND WARRANTIES OF BUYER<\/p>\n
Buyer represents and warrants to the Seller and the Principal Stockholders
\nthat on the date hereof, and as of the Closing as though made on the date
\nhereof, as follows:<\/p>\n
3.1 Organization, Standing and Power. Buyer is a corporation duly
\n ——————————–
\norganized, validly existing and in good standing under the laws of the State of
\nDelaware. Buyer has the corporate power to own its properties and to carry on
\nits business as now being conducted and is duly qualified to do business and is
\nin good standing in each jurisdiction in which the failure to be so qualified
\nwould have a Buyer Material Adverse Effect on the ability of Buyer to consummate
\nthe transactions<\/p>\n
-26-<\/p>\n
contemplated hereby. Buyer has made available a true and correct copy of the
\nCertificate of Incorporation and Bylaws of Buyer, as amended to date, to counsel
\nfor the Seller. For all purposes of this Agreement, the term “Buyer Material
\n ————–
\nAdverse Effect” means any change, event or effect that is materially adverse to
\n————–
\nthe business, assets (including intangible assets), financial condition, or
\nresults of operations of Buyer and its subsidiaries taken as a whole.<\/p>\n
3.2 Authority. The Buyer has all requisite corporate power and authority
\n ———
\nto enter into this Agreement and any Related Agreements to which it is a party
\nand to consummate the transactions contemplated hereby and thereby. The
\nexecution and delivery of this Agreement and any Related Agreements to which it
\nis a party and the consummation of the transactions contemplated hereby and
\nthereby have been duly authorized by all necessary corporate action on the part
\nof Buyer. This Agreement and any Related Agreements to which Buyer is a party
\nhave been duly executed and delivered by Buyer and constitutes the valid and
\nbinding obligations of Buyer, enforceable in accordance with their terms, except
\nas such enforceability may be limited by principles of public policy and subject
\nto the laws of general application relating to bankruptcy, insolvency and the
\nrelief of debtors and rules of law governing specific performance, injunctive
\nrelief or other equitable remedies.<\/p>\n
3.3 No Conflict. The execution and delivery of this Agreement and any
\n ———–
\nRelated Agreements to which it is a party do not, and, the consummation of the
\ntransactions contemplated hereby will not, and the consummation of the
\ntransactions contemplated hereby and thereby will not, conflict with, or result
\nin any violation of, or default under (with or without notice or lapse of time,
\nor both), or give rise to a Conflict under (i) any provision of the Certificate
\nof Incorporation, as amended, and Bylaws of Buyer, (ii) any mortgage, indenture,
\nlease, contract or other agreement or instrument, permit, concession, franchise
\nor license to which Buyer or any of its respective properties or assets are
\nsubject and which has been filed as an exhibit to Buyer’s filings under the
\nSecurities Act or the Securities Exchange Act of 1934, as amended (the “Exchange
\n ——–
\nAct”) or (iii) any judgment, order, decree, statute, law, ordinance, rule or
\n—
\nregulation applicable to Buyer or its properties or assets, except where such
\nConflict will not have a Buyer Material Adverse Effect.<\/p>\n
3.4 Consents. No consent, waiver, approval, order or authorization of, or
\n ——–
\nregistration, declaration or filing with, any Governmental Entity, or any third
\nparty is required by or with respect to Buyer or Seller in connection with the
\nexecution and delivery of this Agreement and any Related Agreements to which it
\nis a party or the consummation of the transactions contemplated hereby and
\nthereby, except for such consents, waivers, approvals, orders, authorizations,
\nregistrations, declarations and filings as may be required under applicable
\nsecurities laws and the HSR Act and such consents, waivers, approvals, orders,
\nauthorizations, registrations, declarations and filings which, if not obtained
\nor made, would not have a Buyer Material Adverse Effect.<\/p>\n
3.5 Capital Structure.
\n —————–<\/p>\n
(a) The authorized stock of Buyer consists of 100,000,000 shares of
\nCommon Stock, $.0001 par value, of which 41,814,905 shares were issued and
\noutstanding as of September 30, 1999, and 10,000,000 shares of Preferred Stock,
\n$.0001 par value, of which 176,589<\/p>\n
-27-<\/p>\n
shares of Series B Preferred Stock and 50,593 shares of Series C Preferred Stock
\nwere issued and outstanding as of September 30, 1999. All such shares of Buyer
\nhave been duly authorized, and all such issued and outstanding shares have been
\nvalidly issued, are fully paid and nonassessable and are free of any liens or
\nencumbrances other than any liens or encumbrances created by or imposed upon the
\nholders thereof. Buyer has also reserved an aggregate of 9,572,700 shares of
\nCommon Stock for issuance pursuant to its employee stock option and stock
\npurchase plans. Except as set forth in Section 3.5 of the Buyer Disclosure
\nSchedule, there are no other options, warrants, calls, rights, commitments or
\nagreements of any character to which Buyer is a party or by which it is bound
\nobligating Buyer to issue, deliver, sell, repurchase or redeem, or cause to be
\nissued, delivered, sold, repurchased or redeemed, any shares of the capital
\nstock of Buyer or obligating Buyer to grant, extend or enter into any such
\noption, warrant, call, right, commitment or agreement.<\/p>\n
(b) The shares of Buyer Common Stock to be issued pursuant to the
\nAcquisition will be duly authorized, validly issued, fully paid, non-assessable,
\nfree of any liens or encumbrances and not subject to any preemptive rights or
\nrights of first refusal created by statute or the Articles of Incorporation or
\nBylaws of Buyer or any agreement to which Buyer is a party or is bound.<\/p>\n
3.6 Brokers’ and Finders’ Fees. The Buyer has not incurred, nor will it
\n ————————–
\nincur, directly or indirectly, any liability for brokerage or finders’ fees or
\nagents’ commissions or any similar charges in connection with this Agreement or
\nany transaction contemplated hereby.<\/p>\n
3.7 Securities Matters.
\n ——————<\/p>\n
(a) All registration statements, annual, quarterly and other reports
\nor forms, and any amendments to any thereof, required to be filed by Buyer with
\nthe SEC (the “SEC Filings”) have been timely filed pursuant to the Securities
\nAct or the Exchange Act (as each such term in hereinafter defined), as
\napplicable.<\/p>\n
(b) The SEC Filings complied as to form in all material respects with
\nthe requirements of the Securities Act of 1933, as amended (the “Securities
\nAct”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
\nas applicable, in effect on the respective dates thereof. None of the SEC
\nFilings, when filed pursuant to the Securities Act or the Exchange Act, as
\napplicable, contained any untrue statement of a material fact or omitted to
\nstate any material fact necessary in order to make the statements therein, in
\nlight of the circumstances under which they were made, not misleading.<\/p>\n
(c) The financial statements included in the SEC Filings comply as to
\nform in all material respects with the applicable accounting requirements of the
\nSecurities and Exchange Commission with respect thereto, were prepared in
\naccordance with GAAP (except as stated in the SEC Filings and, in the case of
\nunaudited interim financials, subject to year-end adjustments and the deletion
\nof complete notes thereto) and fairly present in all material respects the
\nconsolidated financial condition of Buyer and its subsidiaries as of the dates
\nthereof and the consolidated results of their operations for the periods ended
\non such dates. Since the latest date of the financial <\/p>\n
-28-<\/p>\n
statements included in the SEC Filings, there has been no Buyer Material Adverse
\nEffect with respect to Buyer and its subsidiaries, taken as a whole.<\/p>\n
ARTICLE IV<\/p>\n
CONDUCT PRIOR TO THE CLOSING<\/p>\n
4.1 Conduct of Business of the Seller. During the period from the date of
\n ———————————
\nthis Agreement and continuing until the earlier of the termination of this
\nAgreement or the Closing, each of the Seller and the Principal Stockholders
\nagree (except to the extent that Buyer shall otherwise consent in writing), to
\ncarry on the Seller’s business in the usual, regular and ordinary course in
\nsubstantially the same manner as heretofore conducted, to pay the debts (other
\nthan trade obligations) and Taxes of the Seller when due, to pay or perform
\nother obligations (including trade obligations) when due or consistent with past
\npractice, and, to the extent consistent with such business, use their reasonable
\nbest efforts consistent with past practice and policies to preserve intact the
\nSeller’s present business organizations, keep available the services of the
\nSeller’s present officers and key employees and preserve the Seller’s
\nrelationships with customers, suppliers, distributors, licensors, licensees, and
\nothers having business dealings with it, all with the goal of preserving
\nunimpaired the Acquired Assets, the Seller’s goodwill and ongoing businesses at
\nthe Closing. The Seller shall promptly notify Buyer of any event or occurrence
\nor emergency not in the ordinary course of business of the Seller and any
\nmaterial event involving the Seller. Except as expressly contemplated by this
\nAgreement as set forth in Section 4.1 of the Disclosure Schedule, the Seller
\nshall not, without the prior written consent of Buyer:<\/p>\n
(a) Make any expenditures or enter into any commitment or transaction
\nexceeding $10,000 individually or $50,000 in the aggregate or any commitment or
\ntransaction of the type described in Section 2.9 hereof;<\/p>\n
(b) (i) Sell any Seller Intellectual Property or enter into any
\nagreement with respect to the Seller Intellectual Property with any person or
\nentity or with respect to the Intellectual Property of any person or entity,
\n(ii) buy any Intellectual Property or enter into any agreement with respect to
\nthe Intellectual Property of any person or entity, (iii) enter into any
\nagreement with respect to development of any Intellectual Property with a third
\nparty;<\/p>\n
(c) Transfer to any person or entity any rights to the Seller
\nIntellectual Property;<\/p>\n
(d) Enter into or amend any Contract pursuant to which any other
\nparty is granted marketing, distribution, development or similar rights of any
\ntype or scope with respect to any products, service or technology of the Seller;<\/p>\n
(e) Amend or otherwise modify (or agree to do so), except in the
\nordinary course of business, or materially violate the terms of, any of the
\nContracts set forth or described in the Disclosure Schedule;<\/p>\n
-29-<\/p>\n
(f) Commence or settle any litigation;<\/p>\n
(g) Declare, set aside or pay any dividends on or make any other
\ndistributions (whether in cash, stock or property) in respect of any of its
\ncapital stock, or split, combine or reclassify any of its capital stock or issue
\nor authorize the issuance of any other securities in respect of, in lieu of or
\nin substitution for shares of capital stock of the Seller, or repurchase, redeem
\nor otherwise acquire, directly or indirectly, any shares of the capital stock of
\nthe Seller (or options, warrants or other rights exercisable therefor);<\/p>\n
(h) Issue, grant, deliver or sell or authorize or propose the
\nissuance, grant, delivery or sale of, or purchase or propose the purchase of,
\nany shares of its capital stock or securities convertible into, or
\nsubscriptions, rights, warrants or options to acquire, or other agreements or
\ncommitments of any character obligating it to issue or purchase any such shares
\nor other convertible securities.<\/p>\n
(i) Cause or permit any amendments to its Articles of Incorporation
\nor Bylaws;<\/p>\n
(j) Acquire or agree to acquire by merging or consolidating with, or
\nby purchasing any assets or equity securities of, or by any other manner, any
\nbusiness or any corporation, partnership, association or other business
\norganization or division thereof, or otherwise acquire or agree to acquire any
\nassets which are material, individually or in the aggregate, to the Seller’s
\nbusiness;<\/p>\n
(k) Sell, lease, license or otherwise dispose of any of its
\nproperties or assets, except properties or assets which are not Intellectual
\nProperty in the ordinary course of business and consistent with past practices;<\/p>\n
(l) Incur any indebtedness for borrowed money or guarantee any such
\nindebtedness or issue or sell any debt securities or guarantee any debt
\nsecurities of others;<\/p>\n
(m) Grant any loans to others or purchase debt securities of others
\nor amend the terms of any outstanding loan agreement;<\/p>\n
(n) Grant any severance or termination pay (i) to any director or
\nofficer or (ii) to any other employee except payments made pursuant to standard
\nwritten agreements outstanding on the date hereof and disclosed in the
\nDisclosure Schedule;<\/p>\n
(o) Adopt any employee benefit plan, or enter into any employment
\ncontract, pay or agree to pay any special bonus or special remuneration to any
\ndirector or employee, or increase the salaries or wage rates of its employees;<\/p>\n
(p) Revalue any of its assets, including without limitation writing
\ndown the value of inventory or writing off notes or accounts receivable other
\nthan in the ordinary course of business;<\/p>\n
-30-<\/p>\n
(q) Pay, discharge or satisfy, in an amount in excess of $10,000 in
\nany one case or $50,000 in the aggregate, any claim, liability or obligation
\n(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
\n(i) the payment, discharge or satisfaction in the ordinary course of business of
\nliabilities reflected or reserved against in the Current Balance Sheet or (ii)
\nas otherwise set forth on Schedule 4.1(q);<\/p>\n
(r) Make or change any material election in respect of Taxes, adopt
\nor change any accounting method in respect of Taxes, enter into any closing
\nagreement, settle any claim or assessment in respect of Taxes, or consent to any
\nextension or waiver of the limitation period applicable to any claim or
\nassessment in respect of Taxes;<\/p>\n
(s) Enter into any strategic alliance or joint marketing arrangement
\nor agreement;<\/p>\n
(t) Other than as specifically requested in writing by Buyer,
\naccelerate the vesting schedule of any of the outstanding Seller Options or
\nSeller Capital Stock;<\/p>\n
(u) Hire or terminate employees or encourage employees to resign; or<\/p>\n
(v) Take, or agree in writing or otherwise to take, any of the
\nactions described in Sections 4.1(a) through (v) above, or any other action that
\nwould prevent the Seller from performing or cause the Seller not to perform its
\ncovenants hereunder.<\/p>\n
4.2 No Solicitation. Until the earlier of the Closing or the date of
\n —————
\ntermination of this Agreement pursuant to the provisions of Section 8.1 hereof,
\nneither the Seller nor any of the Principal Stockholders will (nor will the
\nSeller nor any of the Principal Stockholders permit any of their respective
\nofficers, directors, agents, representatives or affiliates, as applicable, to
\ndirectly or indirectly, take any of the following actions with any party other
\nthan Buyer and its designees): (a) solicit, encourage, initiate or participate
\nin any negotiations or discussions with respect to, any offer or proposal to
\nacquire all, substantially all or a significant portion of the Seller’s
\nbusiness, properties or technologies or any portion of the Seller’s capital
\nstock (whether or not outstanding) whether by acquisition, purchase of assets,
\ntender offer or otherwise, or effect any such transaction, (b) disclose any
\ninformation not customarily disclosed to any person concerning the Seller’s
\nbusiness, technologies or properties or afford to any person or entity access to
\nits properties, technologies, books or records, (c) assist or cooperate with any
\nperson to make any proposal to purchase all or any part of the Seller’s capital
\nstock or assets, or (d) enter into any agreement with any person providing for
\nthe acquisition of all or any significant portion of the Seller (whether by way
\nof Acquisition, purchase of assets, tender offer or otherwise). In addition to
\nthe foregoing, if the Seller or any of the Principal Stockholders receives,
\nprior to the Closing or the termination of this Agreement, any offer, proposal,
\nor request relating to any of the above, the Seller or the Principal
\nStockholders, as applicable, shall immediately notify Buyer thereof, including
\ninformation as to the identity of the offeror or the party making any such offer
\nor proposal and the specific terms of such offer or proposal, as the case may
\nbe, and such other information related thereto as Buyer may reasonably request.
\nThe parties hereto agree that irreparable damage would occur in the event that
\nthe provisions of this Section 4.2 were not performed in accordance with their
\nspecific terms or were <\/p>\n
-31-<\/p>\n
otherwise breached. It is accordingly agreed by the parties that Buyer shall be
\nentitled to seek an injunction or injunctions to prevent breaches of the
\nprovisions of this Section 4.2 and to enforce specifically the terms and
\nprovisions hereof in any court of the United States or any state having
\njurisdiction, this being in addition to any other remedy to which Buyer may be
\nentitled at law or in equity.<\/p>\n
ARTICLE V<\/p>\n
ADDITIONAL AGREEMENTS<\/p>\n
5.1 Issuance of Restricted Shares; Stockholder Matters.
\n ————————————————–<\/p>\n
(a) Issuance of Shares. The parties hereto acknowledge and agree
\n ——————
\nthat the shares of Buyer Common Stock issuable to the stockholders pursuant to
\nSection 1.3 hereof, shall constitute “restricted securities” within the meaning
\nof the Securities Act. The certificates for shares of Buyer Common Stock to be
\nissued in the Acquisition shall bear appropriate legends to identify such
\nprivately placed shares as being restricted under the Securities Act, to comply
\nwith applicable state securities laws. It is acknowledged and understood that
\nBuyer is relying upon certain written representations made by the Seller.<\/p>\n
(b) Seller Stockholder Approval. As promptly as practicable after
\n —————————
\nthe execution of this Agreement, the Seller shall submit this Agreement and the
\ntransactions contemplated hereby to its Stockholders for approval and adoption
\nas provided by New Jersey Law and its Articles of Incorporation and Bylaws. The
\nSeller shall use its best efforts to solicit and obtain the written consent of
\nits stockholders to approve the Acquisition and this Agreement and to enable the
\nClosing to occur as promptly as practicable. In connection with such Stockholder
\napproval and as soon as practicable after the execution of this Agreement, the
\nSeller shall prepare, with the cooperation of Buyer, an information statement
\nfor purposes of soliciting such written consent of the stockholders. The
\ninformation statement shall include a summary of the material terms of the
\ntransaction in a form reasonably acceptable to the Buyer, a copy of the
\nAgreement, copies of the Buyer’s most recent Annual Report on Form 10-K and
\nQuarterly Report on Form 10-Q and a copy of that certain press release
\ndescribing the terms of Buyer’s proposed acquisition of Internet Technology
\nGroup, plc. The Seller shall use its commercially reasonable efforts, with the
\ncooperation of Buyer, to cause such information statement to be distributed to
\nthe Seller’s stockholders no later than October 5, 1999. Buyer and the Seller
\nshall each use its best efforts to cause the information statement to comply
\nwith all applicable federal and state securities laws requirements. Each of the
\nparties hereto will promptly advise the other parties in writing if at any time
\nprior to the Effective Time either the Seller or Buyer shall obtain knowledge of
\nany facts that might make it necessary or appropriate to amend or supplement the
\ninformation statement in order to make the statements contained or incorporated
\nby reference therein not misleading or to comply with applicable law. The
\ninformation statement shall contain the unanimous recommendation of the Board of
\nDirectors of the Seller that the Seller stockholders approve the Acquisition and
\nthis Agreement. Anything to the contrary contained herein <\/p>\n
-32-<\/p>\n
notwithstanding, the Seller shall not include in the information statement any
\ninformation with respect to Buyer or its affiliates or associates, the form and
\ncontent of which information shall not have been approved by Buyer prior to such
\ninclusion.<\/p>\n
(c) Additional Assurances. At the request of Buyer, the Seller shall
\n ———————
\nuse its commercially reasonable efforts to cause the Seller’s stockholders to
\nexecute and deliver to Buyer such instruments and do and perform such reasonable
\nacts and things as may be necessary or desirable for complying with all
\napplicable securities laws and state corporate law.<\/p>\n
5.2 Access to Information. The Seller shall afford Buyer and its
\n ———————
\naccountants, counsel and other representatives, reasonable access during normal
\nbusiness hours during the period prior to the Closing to (a) all of the Seller’s
\nproperties, books, contracts, commitments and records, (b) all other information
\nconcerning the business, properties and personnel (subject to restrictions
\nimposed by applicable law) of the Seller as Buyer may reasonably request and (c)
\nall key employees of the Seller as identified by Buyer. The Seller agrees to
\nprovide to Buyer and its accountants, counsel and other representatives copies
\nof internal financial statements (including by returns and supporting
\ndocumentation) promptly upon request. Buyer shall provide the Seller with copies
\nof such publicly available information about Buyer as the Seller may request. No
\ninformation or knowledge obtained in any investigation pursuant to this Section
\n5.2 shall affect or be deemed to modify any representation or warranty contained
\nherein or the conditions to the obligations of the parties to consummate the
\nAcquisition.<\/p>\n
5.3 Confidentiality. Each of the parties hereto hereby agrees that the
\n —————
\ninformation obtained in any investigation pursuant to Section 5.2, or pursuant
\nto the negotiation and execution of this Agreement or the effectuation of the
\ntransaction contemplated hereby shall be governed by the terms of the
\nConfidential Disclosure Agreement effective as of on or about April 12, 1999
\nbetween the Seller and Buyer.<\/p>\n
5.4 Expenses. Whether or not the Acquisition is consummated, all fees
\n ——–
\nand expenses incurred in connection with the Acquisition including, without
\nlimitation, all legal, accounting, financial advisory, consulting and all other
\nfees and expenses of third parties (“Third Party Expenses”) incurred by a party
\n ——————–
\nin connection with the negotiation and effectuation of the terms and conditions
\nof this Agreement and the transactions contemplated hereby, shall be the
\nobligation of the respective party incurring such fees and expenses.<\/p>\n
5.5 Public Disclosure. Unless otherwise required by law, prior to the
\n —————–
\nClosing, no disclosure (whether or not in response to an inquiry) of the subject
\nmatter of this Agreement shall be made by any party hereto unless approved by
\nBuyer regarding the subject matter of this Agreement prior to release. Any
\npublic announcement by Buyer regarding the subject matter of this Agreement
\nshall be delivered to the Seller prior to release.<\/p>\n
5.6 Consents. The Seller shall use its best efforts to obtain the
\n ——–
\nconsents, waivers, assignments and approvals under any of the Contracts as may
\nbe required in connection with the<\/p>\n
-33-<\/p>\n
Acquisition (all of such consents, waivers and approvals are set forth in the
\nDisclosure Schedule) so as to preserve all rights of, and benefits to, the
\nSeller thereunder.<\/p>\n
5.7 FIRPTA Compliance. On the Closing Date, the Seller shall deliver to
\n —————–
\nBuyer a properly executed statement in a form reasonably acceptable to Buyer for
\npurposes of satisfying Buyer’s obligations under Treasury Regulation Section
\n1.1445-2(b)(2).<\/p>\n
5.8 Reasonable Efforts. Subject to the terms and conditions provided in
\n ——————
\nthis Agreement, each of the parties hereto shall use commercially reasonable
\nefforts to take promptly, or cause to be taken, all actions, and to do promptly,
\nor cause to be done, all things necessary, proper or advisable under applicable
\nlaws and regulations to consummate and make effective the transactions
\ncontemplated hereby, to obtain all necessary waivers, consents and approvals and
\nto effect all necessary registrations and filings and to remove any injunctions
\nor other impediments or delays, legal or otherwise, in order to consummate and
\nmake effective the transactions contemplated by this Agreement for the purpose
\nof securing to the parties hereto the benefits contemplated by this Agreement;
\nprovided that Buyer shall not be required to agree to any divestiture by Buyer
\nor the Seller or any of Buyer’s subsidiaries or affiliates of shares of capital
\nstock or of any business, assets or property of Buyer or its subsidiaries or
\naffiliates or of the Seller, its affiliates, or the imposition of any material
\nlimitation on the ability of any of them to conduct their businesses or to own
\nor exercise control of such assets, properties and stock.<\/p>\n
5.9 Notification of Certain Matters. The Seller and the Principal
\n ——————————-
\nStockholders shall give prompt notice to Buyer of (i) the occurrence or non-
\noccurrence of any event, the occurrence or non-occurrence of which is likely to
\ncause any representation or warranty of the Seller or the Principal
\nStockholders, respectively, contained in this Agreement to be untrue or
\ninaccurate at or prior to the Closing and (ii) any failure of the Seller or the
\nPrincipal Stockholders, as the case may be, to comply with or satisfy any
\ncovenant, condition or agreement to be complied with or satisfied by it
\nhereunder; provided, however, that the delivery of any notice pursuant to this
\nSection 5.9 shall not limit or otherwise affect any remedies available to the
\nparty receiving such notice. No disclosure by the Seller or the Principal
\nStockholders pursuant to this Section 5.9, however, shall be deemed to amend or
\nsupplement the Disclosure Schedule or prevent or cure any misrepresentations,
\nbreach of warranty or breach of covenant.<\/p>\n
5.10 Additional Documents and Further Assurances. Each party hereto, at
\n ——————————————-
\nthe request of another party hereto, shall execute and deliver such other
\ninstruments and do and perform such other acts and things as may be necessary or
\ndesirable for effecting completely the consummation of this Agreement and the
\ntransactions contemplated hereby.<\/p>\n
5.11 Employee Plans. Seller will terminate each of the employee plans
\n ————–
\nlisted on Schedule 5.11 prior to Closing, provided, however, that if notice
\nperiod is required, Seller will provide such notice prior to the Closing and
\nterminate such plan as soon as possible thereafter.<\/p>\n
5.12 Employee Benefits. Each employee of the Seller who remains an
\n —————–
\nemployee of Buyer after the Closing shall be eligible, upon completion of
\nBuyer’s standard employee background and<\/p>\n
-34-<\/p>\n
reference check, upon proof of appropriate employment authorization from the
\nU.S. Immigration and Naturalization Service or the U.S. Department of State
\nreflecting a right to work in the United States, to receive salary and benefits
\n(such as medical benefits, bonuses, 401(k) and stock options) consistent with
\nBuyer’s standard human resource policies.<\/p>\n
5.13 COBRA Liability. To the extent Seller retains any employees and
\n —————
\ncontinues to maintain group health plans after the Closing Date, the Seller
\nagrees to provide any M&A Qualified Beneficiary (as defined in Proposed Treasury
\nRegulation (S) 54.4980B-10 QA 4(a)) and any COBRA qualified beneficiary,
\ncurrently receiving COBRA benefits, with required COBRA benefits.<\/p>\n
5.14 No Actions Inconsistent With Tax-Free Reorganization. The Seller and
\n —————————————————-
\nBuyer shall (and, following the Closing, the Principal Stockholders shall cause
\nthe Seller to) take no action with respect to the Capital Stock, assets or
\nliabilities of the Seller that would cause the Acquisition to fail to qualify as
\na “reorganization” within the meaning of Section 368(a)(1)(C) of the Code.
\n ————– <\/p>\n
5.15 Net Assets. Buyer shall have ninety (90) days from the Closing Date
\n ———-
\nduring which it may review the Estimated Balance Sheet. Following completion of
\nits review of the Estimated Balance Sheet, Buyer shall deliver to Seller a
\nwritten notice (the “Buyer Closing Adjustment Notice”) stating either (i) that
\n ——————————-
\nBuyer agrees with the calculation of the Net Assets set forth in the Estimated
\nBalance Sheet or (ii) that Buyer does not agree with such calculation and
\nproviding Buyer’s calculation of the Net Assets (it being understood that both
\nSeller and Buyer will have the opportunity to review and dispute any portion of
\nthe Estimated Closing Balance Sheet in the event that Buyer delivers a Buyer
\nClosing Adjustment Notice). The parties shall in good faith attempt to resolve
\nany differences between Seller’s calculation of Net Assets and Buyer’s
\ncalculation of Net Assets. If the parties cannot resolve any such differences
\nwithin thirty (30) days of the delivery of the Buyer’s Closing Adjustment
\nNotice, the dispute shall be submitted to binding arbitration pursuant to 7.3(f)
\nof this Agreement. The Seller and the Principal Stockholders agree that if Net
\nAssets as of the Closing Date are less than the lesser of (i) Estimated Net
\nAssets or (ii) $(7,400,000), Buyer shall be entitled to recover the amount of
\nsuch shortfall from the Escrow Fund as a Loss in accordance with the procedures
\nset forth in Section 7.3. If, upon review of Buyer’s Closing Adjustment Notice,
\nit is finally determined that Net Assets are greater than the lesser of (i)
\nEstimated Net Assets or (ii) $(7,400,000), Buyer shall pay Seller the difference
\nbetween such amounts (in such proportion of cash and capital stock of Buyer as
\nthe parties shall mutually agree) as soon as reasonably practical.<\/p>\n
5.16 Voting Agreements. The Seller shall deliver or cause to be delivered
\n —————–
\nto Buyer, concurrently with the execution of this Agreement, from each person
\nlisted on Schedule 5.16, an executed Voting Agreement in the form attached
\n ————-
\nhereto as Exhibit A, agreeing, among other things, to vote in favor of the
\n ———
\nAcquisition.<\/p>\n
5.17 Non-Competition and Non-Solicitation Agreements. The Seller shall
\n ———————————————–
\ndeliver or cause to be delivered to Buyer an executed Non-Competition Agreement
\nin substantially the form attached hereto as Exhibit B concurrently with the
\n ———
\nexecution of this Agreement from each of the persons listed on Schedule 5.17(a)
\n —————-
\nand a Non-Solicitation Agreement in substantially the form attached<\/p>\n
-35-<\/p>\n
hereto as Exhibit B-1 concurrently with the execution of this Agreement from
\n ———–
\neach of the persons listed on Schedule 5.17(b).
\n —————- <\/p>\n
5.18 Continuity of Business Enterprise. Buyer intends to continue at least
\n ———————————
\none significant historic business line of the Seller or use at least a
\nsignificant portion of the Seller’s historic business assets in a business, in
\neach case within the meaning of Treasury Regulations Section 1. 368-1(d).<\/p>\n
ARTICLE VI<\/p>\n
CONDITIONS TO THE ACQUISITION<\/p>\n
6.1 Conditions to Obligations of Each Party to Effect the Acquisition.
\n —————————————————————–
\nThe respective obligations of the Seller and Buyer to effect the Acquisition
\nshall be subject to the satisfaction at or prior to the Closing of the following
\nconditions:<\/p>\n
(a) No Order. No Governmental Entity shall have enacted, issued,
\n ——–
\npromulgated, enforced or entered any statute, rule, regulation, executive order,
\ndecree, injunction or other order (whether temporary, preliminary or permanent)
\nwhich is in effect and which has the effect of making the Acquisition illegal or
\notherwise prohibiting consummation of the Acquisition.<\/p>\n
6.2 Conditions to Obligations of Seller and the Principal Stockholders. The
\n ——————————————————————
\nobligations of the Seller and the Principal Stockholders to consummate and
\neffect this Agreement and the transactions contemplated hereby shall be subject
\nto the satisfaction at or prior to the Closing of each of the following
\nconditions, any of which may be waived, in writing, exclusively by the Seller:<\/p>\n
(a) Representations, Warranties and Covenants. The representations and
\n —————————————–
\nwarranties of Buyer in this Agreement shall be true and correct in all material
\nrespects on and as of the Closing as though such representations and warranties
\nwere made on and as of such time and each of Buyer shall have performed and
\ncomplied in all material respects with all covenants and obligations of this
\nAgreement required to be performed and complied with by it as of the Closing.<\/p>\n
(b) No Injunctions or Restraints; Illegality. No temporary restraining
\n —————————————-
\norder, preliminary or permanent injunction or other order issued by any court of
\ncompetent jurisdiction or other legal restraint or prohibition preventing the
\nconsummation of the Acquisition shall be in effect, nor shall any proceeding
\nbrought by an administrative agency or commission or other governmental
\nauthority or instrumentality, domestic or foreign, seeking any of the foregoing
\nbe pending; nor shall there be any action taken, or any statute, rule,
\nregulation or order enacted, entered, enforced or deemed applicable to the
\nAcquisition, which makes the consummation of the Acquisition illegal.<\/p>\n
(c) No Material Adverse Change. There shall not have occurred any
\n ————————–
\nBuyer Material Adverse Effect since the date of this Agreement.<\/p>\n
-36-<\/p>\n
(d) Certificate of the Buyer. Seller shall have been provided with a
\n ————————
\ncertificate executed on behalf of Buyer by a Vice President to the effect
\nthat, as of the Closing:<\/p>\n
(i) all representations and warranties made by Buyer in this
\nAgreement are true and correct in all material respects on and as of the Closing
\nas though such representations and warranties were made on and as of such time;
\nand<\/p>\n
(ii) all covenants and obligations of this Agreement to be
\nperformed by Buyer on or before such date have been so performed in all material
\nrespects.<\/p>\n
(e) Assignment and Assumption Agreement. The Buyer shall have executed
\n ———————————–
\nand delivered an Assignment and Assumption Agreement in substantially the form
\nattached hereto as Exhibit C.<\/p>\n
(f) Bridge Note. Buyer shall have cancelled the Bridge Note.
\n ———–<\/p>\n
6.3 Conditions to the Obligations of Buyer. The obligations of Buyer to
\n ————————————–
\nconsummate and effect this Agreement and the transactions contemplated hereby
\nshall be subject to the satisfaction at or prior to the Closing of each of the
\nfollowing conditions, any of which may be waived, in writing, exclusively by
\nBuyer:<\/p>\n
(a) Representations, Warranties and Covenants. The representations and
\n —————————————–
\nwarranties of the Seller and the Principal Stockholders in this Agreement shall
\nbe true and correct in all material respects on and as of the Closing as though
\nsuch representations and warranties were made on and as of the Closing and the
\nSeller and the Principal Stockholders shall have performed and complied in all
\nmaterial respects with all covenants and obligations of this Agreement required
\nto be performed and complied with by them as of the Closing.<\/p>\n
(b) No Injunctions or Restraints; Illegality. No temporary restraining
\n —————————————-
\norder, preliminary or permanent injunction or other order issued by any court of
\ncompetent jurisdiction or other legal restraint or prohibition preventing the
\nconsummation of the Acquisition shall be in effect, nor shall any proceeding
\nbrought by an administrative agency or commission or other governmental
\nauthority or instrumentality, domestic or foreign, seeking any of the foregoing
\nbe pending; nor shall there be any action taken, or any statute, rule,
\nregulation or order enacted, entered, enforced or deemed applicable to the
\nAcquisition, which makes the consummation of the Acquisition illegal.<\/p>\n
(c) Claims. There shall not have occurred any claims (whether or not
\nasserted in litigation) which may materially and adversely affect the
\nconsummation of the transactions contemplated hereby or may have a Seller
\nMaterial Adverse Effect. There shall be no bona fide action, suit, claim or
\nproceeding of any nature pending, or overtly threatened, against the Buyer or
\nthe Seller, their respective properties or any of their officers or directors,
\narising out of, or in any way connected with, the Acquisition or the other
\ntransactions contemplated by the terms of this Agreement.<\/p>\n
-37-<\/p>\n
(d) Third Party Consents. Any and all consents, waivers, assignments
\n ——————–
\nand approvals listed in Section 2.6 of the Disclosure Schedule shall have been
\nobtained.<\/p>\n
(e) Legal Opinion. Buyer shall have received a legal opinion from
\n ————-
\nKelley Drye and Warren LLP, legal counsel to the Seller, substantially in the
\nform of Exhibit H hereto.<\/p>\n
(f) Noncompetition Agreements; At-Will Employment. Each of the
\n ———————————————
\nPrincipal Stockholders set forth on Schedule 5.17(a) shall have executed and
\n —————-
\ndelivered to Buyer a Noncompetition Agreement in the form attached hereto as
\nExhibit B and all of such Noncompetition Agreements shall be in full force and
\n———
\neffect. Each of the Key Employees set forth on Schedule 5.17(b) shall have
\n —————-
\nexecuted and delivered to Buyer a Nonsolicitation Agreement in the form attached
\nhereto as Exhibit B-1 and all of such Nonsolicitation Agreement shall be in full
\n ———–
\nforce and effect. In addition each of the Key Employees shall have entered into
\n“at-will” employment arrangements reasonably satisfactory to Buyer, upon proof
\nof appropriate employment authorization from the U.S. Immigration and
\nNaturalization Service or the U.S. Department of State reflecting a right to
\nwork in the United States, and subject to and in compliance with Buyer’s
\nstandard human resources policies and procedures.<\/p>\n
(g) No Material Adverse Changes; Complete Due Diligence. There shall
\n —————————————————
\nnot have occurred any event or condition of any character that has had or is
\nreasonably likely to have a Seller Material Adverse Effect since the date of
\nthis Agreement. Buyer shall have completed and approved, to its reasonable
\nsatisfaction, due diligence reports on the management and Stockholders of the
\nSeller.<\/p>\n
(h) Estimated Balance Sheet. Buyer shall have received from the Seller
\n ———————–
\nat least three business days prior to the Closing Date the Estimated Balance
\nSheet of the Seller as of the Closing Date certified as to correctness by the
\nSeller and the Principal Stockholders and in a form reasonably satisfactory to
\nBuyer.<\/p>\n
(i) Stockholder Approval; Dissenters. Stockholders holding at least
\n ——————————–
\nninety-five percent (95%) of the Seller’s Capital Stock shall have approved this
\nAgreement, the Acquisition and the transactions contemplated hereby and thereby.
\nNo stockholder shall have exercised or given notice of their intent to exercise
\nappraisal rights in accordance with New Jersey Law.<\/p>\n
(j) Certificate of the Seller and Principal Stockholders. Buyer shall
\n —————————————————-
\nhave been provided with a certificate executed by the Principal Stockholders and
\nexecuted on behalf of the Seller by its Chief Executive Officer to the effect
\nthat, as of the Closing:<\/p>\n
(i) all representations and warranties made by the Seller and the
\nPrincipal Stockholders in this Agreement are true and correct in all material
\nrespects on and as of the Closing as though such representations and warranties
\nwere made on and as of such time;<\/p>\n
(ii) all covenants and obligations of this Agreement to be
\nperformed by the Seller on or before such date have been so performed in all
\nmaterial respects; and<\/p>\n
-38-<\/p>\n
(iii) the provisions set forth in Sections 6.3 (a), (c), (d), (g)
\nand (i) have been satisfied.<\/p>\n
(k) Notes Receivables. Simultaneous with the Closing, Buyer shall have
\n —————–
\nreceived in immediately available funds the amount indicated on the Estimated
\nBalance Sheet under the line item “Estimated Related Party Balance Sheet Item.”
\nBuyer shall have received evidence of receipt of such funds to its satisfaction,
\nin its sole and absolute discretion.<\/p>\n
ARTICLE VII<\/p>\n
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION<\/p>\n
7.1 Survival of Representations and Warranties. The Seller’s and the
\n ——————————————
\nPrincipal Stockholders’ representations and warranties in this Agreement or in
\nany instrument delivered pursuant to this Agreement shall terminate on the
\nsecond anniversary of the Closing Date; provided, however, that the
\nrepresentations and warranties set forth in Section 2.3, Section 2.6, and
\nSection 2.12(e) shall survive the Closing and continue in perpetuity and the
\nrepresentations and warranties relating or pertaining to any Tax or Returns
\nrelated to such Tax set forth in Section 2.10 hereof, shall survive until the
\nexpiration of all applicable statutes of limitations, or extensions thereof,
\ngoverning each Tax or Returns related to such Tax. All of the Buyer’s
\nrepresentations and warranties contained herein or in any instrument delivered
\npursuant to this Agreement shall terminate at the Closing.<\/p>\n
7.2 Indemnification.
\n —————<\/p>\n
(a) The Seller and the Principal Stockholders agree jointly and
\nseverally (except for Mikhail Kofman who shall be liable for indemnification
\nonly for amounts up to the consideration he received as a result of the
\ntransactions contemplated hereby) to indemnify and hold Buyer and its officers,
\ndirectors and affiliates harmless against all claims, losses, liabilities,
\ndamages, deficiencies, costs and expenses, including reasonable attorneys’ fees
\nand expenses of investigation and defense (hereinafter individually a “Loss” and
\n —-
\ncollectively “Losses”) incurred by Buyer, its officers, directors, or affiliates
\n ——
\ndirectly or indirectly as a result of (i) any inaccuracy or breach of a
\nrepresentation or warranty of the Seller or the Principal Stockholders contained
\nin this Agreement or (ii) any failure by the Seller or the Principal
\nStockholders to perform or comply with any covenant contained in this Agreement.<\/p>\n
(b) Notwithstanding anything herein to the contrary, Buyer shall be
\nentitled to seek indemnity from the Escrow Fund under this Section 7.2, only
\nwhen the aggregate amount of all Losses with respect to which the Buyer would
\notherwise be entitled to indemnification exceed $250,000 (the “Basket Amount”)
\nand, in such event, the Buyer shall be entitled to recover all Losses from the
\nEscrow Fund, including the Basket Amount. In no event shall the aggregate amount
\nfor all <\/p>\n
-39-<\/p>\n
Losses payable by the Seller and the Principal Stockholders exceed the Total
\nConsideration, other than in the case of fraud or willful misrepresentation.<\/p>\n
7.3 Escrow Arrangements
\n ——————-<\/p>\n
(a) Escrow Fund. As security for the indemnity provided for in
\n ———–
\nSection 7.2 hereof and by virtue of this Agreement, the Seller will be deemed to
\nhave received and deposited with the Escrow Agent (as defined below) the Escrow
\nAmount (as defined above) (plus any additional shares as may be issued upon any
\nstock split, stock dividend or recapitalization effected by Buyer after the
\nClosing with respect to the Escrow Amount) without any act of the Seller or any
\nStockholders. As soon as practicable after the Closing, the Escrow Amount,
\nwithout any act of the Seller or any Stockholders, will be deposited with the
\nEscrow Agent (or other institution acceptable to Buyer and the Securityholder
\nAgent (as defined in Section 7.3(g) below)) as escrow agent, such deposit to
\nconstitute an escrow fund (the “Escrow Fund”) to be governed by the terms set
\n ———–
\nforth herein. The Escrow Agent may execute this Agreement following the date
\nhereof and prior to the Closing, and such latter execution shall not affect the
\nbinding nature of this Agreement as of the date hereof among the signatories
\nhereto. Nothing herein shall limit the liability of the Seller or the Principal
\nStockholders for any breach of any representation, warranty, or covenant
\ncontained in this Agreement if the Acquisition does not close.<\/p>\n
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
\n ————————————————————–
\nSubject to the following requirements, the Escrow Fund shall be in existence
\nimmediately following the Closing and shall terminate at 5:00 p.m., P.T., on the
\ndate thirty (30) days after the one year anniversary of the Closing Date (the
\n“Escrow Period”); provided that the Escrow Period shall not terminate with
\n ————-
\nrespect to such remaining portion of the Escrow Fund (or some portion thereof)
\nthat in the reasonable judgement of Buyer, subject to the objection of the
\nSecurityholder Agent (as defined below) and the subsequent arbitration of the
\nmatter in the manner provided in Section 7.3(f) hereof, is necessary to satisfy
\n(x) any then pending unsatisfied claims specified in any Officer’s Certificate
\ndelivered to the Escrow Agent prior to the termination of the Escrow Period and
\n(y) any unsatisfied claims specified in any Officer’s Certificate delivered to
\nthe Escrow Agent prior to termination of the Escrow Period with respect to facts
\nand circumstances existing prior to the termination of such Escrow Period. As
\nsoon as all such claims have been resolved and all Third Party Expenses have
\nbeen paid pursuant to Section 5.4 hereof, the Escrow Agent shall deliver to the
\nSeller the remaining portion of the Escrow Fund not required to satisfy such
\nclaims and Third Party Expenses.<\/p>\n
(c) Protection of Escrow Fund.
\n ————————-<\/p>\n
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
\nduring the Escrow Period, shall treat such fund as a trust fund in accordance
\nwith the terms of this Agreement and not as the property of Buyer and shall hold
\nand dispose of the Escrow Fund only in accordance with the terms hereof.<\/p>\n
-40-<\/p>\n
(ii) Any shares of Buyer Common Stock or other equity securities
\nissued or distributed by Buyer (including shares issued upon a stock split)
\n(“New Shares”) in respect of Buyer Common Stock in the Escrow Fund which have
\n ———-
\nnot been released from the Escrow Fund shall be added to the Escrow Fund and
\nbecome a part thereof. New Shares issued in respect of shares of Buyer Common
\nStock which have been released from the Escrow Fund shall not be added to the
\nEscrow Fund but shall be distributed to the record holders thereof. Cash
\ndividends on Buyer Common Stock, if any, shall not be added to the Escrow Fund
\nbut shall be distributed to the record holders thereof.<\/p>\n
(iii) Seller shall have voting rights and the right to
\ndistributions of dividends with respect to the shares of Buyer Common Stock
\ncontributed to the Escrow Fund by Seller (and on any voting securities added to
\nthe Escrow Fund in respect of such shares of Buyer Common Stock). As the record
\nholder of such shares, the Escrow Agent shall vote such shares in accordance
\nwith the instructions of the Seller having the beneficial interest therein and
\nshall promptly deliver copies of all proxy solicitation materials to Seller.
\nBuyer shall show the Buyer Common Stock contributed to the Escrow Fund as issued
\nand outstanding on its balance sheet.<\/p>\n
(d) Claims Upon Escrow Fund.
\n ———————– <\/p>\n
(i) Upon receipt by the Escrow Agent at any time on or before the
\nlast day of the Escrow Period of a certificate signed by any officer of Buyer
\n(an “Officer’s Certificate”): (A) stating that Buyer has paid or properly
\n ———————
\naccrued or reasonably anticipates that it will have to pay or accrue Losses, and
\n(B) specifying in reasonable detail the individual items of Losses included in
\nthe amount so stated, the date each such item was paid or properly accrued, or
\nthe basis for such anticipated liability, and the nature of the
\nmisrepresentations, breach of warranty or covenant to which such items is
\nrelated, the Escrow Agent shall, subject to the provisions of Section 7.3(e),
\ndeliver to Buyer out of the Escrow Fund as promptly as practicable, shares of
\nBuyer Common Stock held in the Escrow Fund in an amount equal to such Losses.<\/p>\n
(ii) For the purposes of determining the number of shares of
\nBuyer Common Stock to be delivered to Buyer out of the Escrow Fund as indemnity
\npursuant to Section 7.3(b) and 7.3(d)(i) hereof, the shares of Buyer Common
\nStock shall be valued at the Trading Price.<\/p>\n
(e) Objections to Claims. At the time of delivery of any Officer’s
\n ——————–
\nCertificate to the Escrow Agent, a duplicate copy of such certificate shall be
\ndelivered to the Securityholder Agent and for a period of thirty (30) days after
\nsuch delivery, the Escrow Agent shall make no delivery to Buyer of any Escrow
\nAmounts pursuant to Section 7.3(d) hereof unless the Escrow Agent shall have
\nreceived written authorization from the Securityholder Agent to make such
\ndelivery. After the expiration of such thirty (30) day period, the Escrow Agent
\nshall make delivery of shares of Buyer Common Stock from the Escrow Fund in
\naccordance with Section 7.3(d) hereof, provided that no such payment or delivery
\nmay be made if the Securityholder Agent shall object in a written statement to
\nthe claim made in the Officer’s Certificate, and such statement shall have been
\ndelivered to the Escrow Agent prior to the expiration of such thirty (30) day
\nperiod.<\/p>\n
-41-<\/p>\n
(f) Resolution of Conflicts; Arbitration.
\n ————————————<\/p>\n
(i) In case the Securityholder Agent shall so object in writing
\nto any claim or claims made in any Officer’s Certificate, the Securityholder
\nAgent and Buyer shall attempt in good faith to agree upon the rights of the
\nrespective parties with respect to each of such claims. If the Securityholder
\nAgent and Buyer should so agree, a memorandum setting forth such agreement shall
\nbe prepared and signed by both parties and shall be furnished to the Escrow
\nAgent. The Escrow Agent shall be entitled to rely on any such memorandum and
\ndistribute shares of Buyer Common Stock from the Escrow Fund in accordance with
\nthe terms thereof.<\/p>\n
(ii) If no such agreement can be reached after good faith
\nnegotiation, either Buyer or the Securityholder Agent may demand arbitration of
\nthe matter unless the amount of the damage or loss is at issue in pending
\nlitigation with a third party, in which event arbitration shall not be commenced
\nuntil such amount is ascertained or both parties agree to arbitration; and in
\neither such event the matter shall be settled by arbitration conducted by one
\narbitrator mutually agreeable to Buyer and the Securityholder Agent. In the
\nevent that within forty-five (45) days after submission of any dispute to
\narbitration, Buyer and the Securityholder Agent cannot mutually agree on one
\narbitrator, Buyer and the Securityholder Agent shall each select one arbitrator,
\nand the two arbitrators so selected shall select a third arbitrator. The
\narbitrator or arbitrators, as the case may be, shall set a limited time period
\nand establish procedures designed to reduce the cost and time for discovery
\nwhile allowing the parties an opportunity, adequate in the sole judgement of the
\narbitrator or majority of the three arbitrators, as the case may be, to discover
\nrelevant information from the opposing parties about the subject matter of the
\ndispute. The arbitrator or a majority of the three arbitrators, as the case may
\nbe, shall rule upon motions to compel or limit discovery and shall have the
\nauthority to impose sanctions, including attorneys’ fees and costs, to the
\nextent as a court of competent law or equity, should the arbitrator or a
\nmajority of the three arbitrators, as the case may be, determine that discovery
\nwas sought without substantial justification or that discovery was refused or
\nobjected to without substantial justification. The decision of a the arbitrator
\nor a majority of the three arbitrators, as the case may be, as to the validity
\nand amount of any claim in such Officer’s Certificate shall be binding and
\nconclusive upon the parties to this Agreement, and notwithstanding anything in
\nSection 7.3(e) hereof, the Escrow Agent shall be entitled to act in accordance
\nwith such decision and make or withhold payments out of the Escrow Fund in
\naccordance therewith. Such decision shall be written and shall be supported by
\nwritten findings of fact and conclusions which shall set forth the award,
\njudgment, decree or order awarded by the arbitrator(s).<\/p>\n
(iii) Judgment upon any award rendered by the arbitrator(s) may
\nbe entered in any court having jurisdiction. Any such arbitration shall be held
\nin Santa Clara County, California under the rules then in effect of the American
\nArbitration Association. The arbitrator(s) shall determine how all expenses
\nrelating to the arbitration shall be paid, including without limitation, the
\nrespective expenses of each party, the fees of each arbitrator and the
\nadministrative fee of the American Arbitration Association.<\/p>\n
-42-<\/p>\n
(g) Securityholder Agent of the Seller; Power of Attorney.
\n —————————————————– <\/p>\n
(i) In the event that the Acquisition is approved, effective upon
\nsuch vote, and without further act of the Seller, Karina Gradus shall be
\nSecurityholder Agent and as such, shall be appointed as agent and attorney-in-
\nfact for the Seller, for and on behalf of Seller, to give and receive notices
\nand communications, to authorize delivery to Buyer of shares of Buyer Common
\nStock from the Escrow Fund in satisfaction of claims by Buyer, to object to such
\ndeliveries, to agree to, negotiate, enter into settlements and compromises of,
\nand demand arbitration and comply with orders of courts and awards of
\narbitrators with respect to such claims, and to take all actions necessary or
\nappropriate in the judgment of Securityholder Agent for the accomplishment of
\nthe foregoing. Such agency may be changed by the Seller from time to time upon
\nnot less than thirty (30) days prior written notice to Buyer; provided that the
\nSecurityholder Agent may not be removed unless the Seller agrees to such removal
\nand to the identity of the substituted agent. No bond shall be required of the
\nSecurityholder Agent, and the Securityholder Agent shall not receive
\ncompensation for his or her services. Notices or communications to or from the
\nSecurityholder Agent shall constitute notice to or from Seller.<\/p>\n
(ii) The Securityholder Agent shall not be liable for any act
\ndone or omitted hereunder as Securityholder Agent while acting in good faith and
\nin the exercise of reasonable judgment. The Seller on whose behalf the Escrow
\nAmount was contributed to the Escrow Fund shall indemnify the Securityholder
\nAgent and hold the Securityholder Agent harmless against any loss, liability or
\nexpense incurred without negligence or bad faith on the part of the
\nSecurityholder Agent and arising out of or in connection with the acceptance or
\nadministration of the Securityholder Agent’s duties hereunder, including the
\nreasonable fees and expenses of any legal counsel retained by the Securityholder
\nAgent.<\/p>\n
(h) Actions of the Securityholder Agent. A decision, act, consent or
\n ———————————–
\ninstruction of the Securityholder Agent shall constitute a decision of the
\nSeller for whom a portion of the Escrow Amount otherwise issuable to them are
\ndeposited in the Escrow Fund and shall be final, binding and conclusive upon the
\nSeller, and the Escrow Agent and Buyer may rely upon any such decision, act,
\nconsent or instruction of the Securityholder Agent as being the decision, act,
\nconsent or instruction of Seller. The Escrow Agent and Buyer are hereby relieved
\nfrom any liability to any person for any acts done by them in accordance with
\nsuch decision, act, consent or instruction of the Securityholder Agent.<\/p>\n
(i) Third-Party Claims. In the event Buyer becomes aware of a third-
\n ——————
\nparty claim which Buyer believes may result in a demand against the Escrow Fund,
\nBuyer shall notify the Securityholder Agent of such claim, and the
\nSecurityholder Agent and the Seller shall be entitled, at their expense, to
\nparticipate in any defense of such claim. Buyer shall have the right in its sole
\ndiscretion to settle any such claim; provided, however, that except with the
\nconsent of the Securityholder Agent, no settlement of any such claim with third-
\nparty claimants shall be determinative of the amount of any claim against the
\nEscrow Fund. In the event that the Securityholder Agent has consented to any
\nsuch settlement, the Securityholder Agent shall have no <\/p>\n
-43-<\/p>\n
power or authority to object under any provision of this Article VII to the
\namount of any claim by Buyer against the Escrow Fund with respect to such
\nsettlement.<\/p>\n
(j) Escrow Agent’s Duties.
\n ——————— <\/p>\n
(i) The Escrow Agent shall be obligated only for the performance
\nof such duties as are specifically set forth herein, and as set forth in any
\nadditional written escrow instructions which the Escrow Agent may receive after
\nthe date of this Agreement which are signed by an officer of Buyer and the
\nSecurityholder Agent, and may rely and shall be protected in relying or
\nrefraining from acting on any instrument reasonably believed to be genuine and
\nto have been signed or presented by the proper party or parties. The Escrow
\nAgent shall not be liable for any act done or omitted hereunder as Escrow Agent
\nwhile acting in good faith and in the exercise of reasonable judgment, and any
\nact done or omitted pursuant to the advice of counsel shall be conclusive
\nevidence of such good faith.<\/p>\n
(ii) The Escrow Agent is hereby expressly authorized to disregard
\nany and all warnings given by any of the parties hereto or by any other person,
\nexcepting only orders or process of courts of law, and is hereby expressly
\nauthorized to comply with and obey orders, judgments or decrees of any court. In
\ncase the Escrow Agent obeys or complies with any such order, judgment or decree
\nof any court, the Escrow Agent shall not be liable to any of the parties hereto
\nor to any other person by reason of such compliance, notwithstanding any such
\norder, judgment or decree being subsequently reversed, modified, annulled, set
\naside, vacated or found to have been entered without jurisdiction.<\/p>\n
(iii) The Escrow Agent shall not be liable in any respect on
\naccount of the identity, authority or rights of the parties executing or
\ndelivering or purporting to execute or deliver this Agreement or any documents
\nor papers deposited or called for hereunder.<\/p>\n
(iv) The Escrow Agent shall not be liable for the expiration of
\nany rights under any statute of limitations with respect to this Agreement or
\nany documents deposited with the Escrow Agent.<\/p>\n
(v) In performing any duties under the Agreement, the Escrow
\nAgent shall not be liable to any party for damages, losses, or expenses, except
\nfor negligence or willful misconduct on the part of the Escrow Agent. The Escrow
\nAgent shall not incur any such liability for (A) any act or failure to act made
\nor omitted in good faith, or (B) any action taken or omitted in reliance upon
\nany instrument, including any written statement of affidavit provided for in
\nthis Agreement that the Escrow Agent shall in good faith believe to be genuine,
\nnor will the Escrow Agent be liable or responsible for forgeries, fraud,
\nimpersonations, or determining the scope of any representative authority. In
\naddition, the Escrow Agent may consult with the legal counsel in connection with
\nEscrow Agent’s duties under this Agreement and shall be fully protected in any
\nact taken, suffered, or permitted by him\/her in good faith in accordance with
\nthe advice of counsel. The Escrow Agent is not responsible for determining and
\nverifying the authority of any person acting or purporting to act on behalf of
\nany party to this Agreement.<\/p>\n
-44-<\/p>\n
(vi) If any controversy arises between the parties to this
\nAgreement, or with any other party, concerning the subject matter of this
\nAgreement, its terms or conditions, the Escrow Agent will not be required to
\ndetermine the controversy or to take any action regarding it. The Escrow Agent
\nmay hold all documents, cash and shares of Buyer Common Stock and may wait for
\nsettlement of any such controversy by final appropriate legal proceedings or
\nother means as, in the Escrow Agent’s discretion, the Escrow Agent may be
\nrequired, despite what may be set forth elsewhere in this Agreement. In such
\nevent, the Escrow Agent will not be liable for damages.<\/p>\n
Furthermore, the Escrow Agent may at its option, file an
\naction of interpleader requiring the parties to answer and litigate any claims
\nand rights among themselves. The Escrow Agent is authorized to deposit with the
\nclerk of the court all documents and shares of Buyer Common Stock held in
\nescrow, except all cost, expenses, charges and reasonable attorney fees incurred
\nby the Escrow Agent due to the interpleader action and which the parties jointly
\nand severally agree to pay. Upon initiating such action, the Escrow Agent shall
\nbe fully released and discharged of and from all obligations and liability
\nimposed by the terms of this Agreement.<\/p>\n
(vii) The parties and their respective successors and assigns
\nagree jointly and severally to indemnify and hold Escrow Agent harmless against
\nany and all losses, claims, damages, liabilities, and expenses, including
\nreasonable costs of investigation, counsel fees, including allocated costs of
\nin-house counsel and disbursements that may be imposed on Escrow Agent or
\nincurred by Escrow Agent in connection with the performance of his\/her duties
\nunder this Agreement, including but not limited to any litigation arising from
\nthis Agreement or involving its subject matter other than arising out of its
\nnegligence or willful misconduct.<\/p>\n
(viii) The Escrow Agent may resign at any time upon giving at
\nleast thirty (30) days written notice to Buyer and the Securityholder Agent;
\nprovided, however, that no such resignation shall become effective until the
\nappointment of a successor escrow agent which shall be accomplished as follows:
\nthe parties shall use their best efforts to mutually agree on a successor escrow
\nagent within thirty (30) days after receiving such notice. If the parties fail
\nto agree upon a successor escrow agent within such time, the Escrow Agent shall
\nhave the right to appoint a successor escrow agent authorized to do business in
\nthe state of California. The successor escrow agent shall execute and deliver an
\ninstrument accepting such appointment and it shall, without further acts, be
\nvested with all the estates, properties, rights, powers, and duties of the
\npredecessor escrow agent as if originally named as escrow agent. Upon
\nappointment of a successor escrow agent, the Escrow Agent shall be discharged
\nfrom any further duties and liability under this Agreement.<\/p>\n
(k) Fees. All fees of the Escrow Agent for performance of its duties
\n —-
\nhereunder shall be paid by Buyer in accordance with the standard fee schedule of
\nthe Escrow Agent. It is understood that the fees and usual charges agreed upon
\nfor services of the Escrow Agent shall be considered compensation for ordinary
\nservices as contemplated by this Agreement. In the event that the conditions of
\nthis Agreement are not promptly fulfilled, or if the Escrow Agent renders any
\nservice not provided for in this Agreement, or if the parties request a
\nsubstantial modification of its <\/p>\n
-45-<\/p>\n
terms, or if any controversy arises, or if the Escrow Agent is made a party to,
\nor intervenes in, any litigation pertaining to the Escrow Fund or its subject
\nmatter, the Escrow Agent shall be reasonably compensated for such extraordinary
\nservices and reimbursed for all costs, attorney’s fees, including allocated
\ncosts of in-house counsel, and expenses occasioned by such default, delay,
\ncontroversy or litigation. The Buyer promises to pay these sums upon demand.<\/p>\n
ARTICLE VIII<\/p>\n
TERMINATION, AMENDMENT AND WAIVER<\/p>\n
8.1 Termination. Except as provided in Section 8.2, this Agreement may be
\n ———–
\nterminated and the Acquisition abandoned at any time prior to the Closing:<\/p>\n
(a) by mutual consent of the Seller and Buyer;<\/p>\n
(b) by Buyer or the Seller if: (i) the Closing has not occurred by
\nNovember 15, 1999, provided, however, that the right to terminate this Agreement
\n ——– ——-
\nunder this Section 8.1(b)(i) shall not be available to any party whose action or
\nfailure to act has been a principal cause of or resulted in the failure of the
\nAcquisition to occur on or before such date and such action or failure to act
\nconstitutes a breach of this Agreement or results in the failure of a condition
\nto closing set forth in Section 6.2 to be met; (ii) there shall be a final
\nnonappealable order of a federal or state court in effect preventing
\nconsummation of the Acquisition; or (iii) there shall be any statute, rule,
\nregulation or order enacted, promulgated or issued or deemed applicable to the
\nAcquisition by any Governmental Entity that would make consummation of the
\nAcquisition illegal;<\/p>\n
(c) by Buyer if there shall be any action taken, or any statute, rule,
\nregulation or order enacted, promulgated or issued or deemed applicable to the
\nAcquisition by any Governmental Entity, which would: (i) prohibit Buyer’s
\nownership or operation of any portion of the business of the Seller or (ii)
\ncompel Buyer or the Seller to dispose of or hold separate all or a portion of
\nthe business or assets of the Seller or Buyer as a result of the Acquisition;<\/p>\n
(d) by Buyer if it is not in material breach of its obligations under
\nthis Agreement and there has been a material breach of any representation,
\nwarranty, covenant or agreement contained in this Agreement on the part of the
\nSeller or the Principal Stockholders and such breach has not been cured within
\nten (10) calendar days after written notice to the Seller; provided, however,
\nthat, no cure period shall be required for a breach which by its nature cannot
\nbe cured;<\/p>\n
(e) by the Seller if neither it nor any Principal Stockholder nor any
\nKey Employee is in material breach of their respective obligations under this
\nAgreement and there has been a material breach of any representation, warranty,
\ncovenant or agreement contained in this Agreement on the part of Buyer and such
\nbreach has not been cured within ten (10) calendar days after written notice to
\nBuyer; provided, however, that no cure period shall be required for a breach
\nwhich by its nature cannot be cured; or<\/p>\n
-46-<\/p>\n
(f) by Buyer if an event having a Seller Material Adverse Effect shall
\nhave occurred after the date of this Agreement.<\/p>\n
8.2 Effect of Termination. In the event of termination of this Agreement
\n ———————
\nas provided in Section 8.1, this Agreement shall forthwith become void and there
\nshall be no liability or obligation on the part of Buyer or the Seller, or their
\nrespective officers, directors or stockholders, provided that each party shall
\nremain liable for any breaches of this Agreement prior to its termination;
\nprovided further that, the provisions of Sections 5.3, 5.4 and 5.5, Article IX
\nand this Section 8.2 shall remain in full force and effect and survive any
\ntermination of this Agreement.<\/p>\n
8.3 Amendment. This Agreement may be amended by the parties hereto at any
\n ———
\ntime by execution of an instrument in writing signed on behalf of Buyer, the
\nSeller and the Principal Stockholders.<\/p>\n
8.4 Extension; Waiver. At any time prior to the Closing, Buyer, on the
\n —————–
\none hand, and the Seller and the Principal Stockholders, on the other hand, may,
\nto the extent legally allowed, (i) extend the time for the performance of any of
\nthe obligations of the other party hereto, (ii) waive any inaccuracies in the
\nrepresentations and warranties made to such party contained herein or in any
\ndocument delivered pursuant hereto, and (iii) waive compliance with any of the
\nagreements or conditions for the benefit of such party contained herein. Any
\nagreement on the part of a party hereto to any such extension or waiver shall be
\nvalid only if set forth in an instrument in writing signed on behalf of such
\nparty.<\/p>\n
ARTICLE IX<\/p>\n
GENERAL PROVISIONS<\/p>\n
9.1 Notices. All notices and other communications hereunder shall be in
\n ——-
\nwriting and shall be deemed given if delivered personally or by commercial
\nmessenger or courier service, or mailed by registered or certified mail (return
\nreceipt requested) or sent via facsimile (with acknowledgment of complete
\ntransmission) to the parties at the following addresses (or at such other
\naddress for a party as shall be specified by like notice), provided, however,
\n ——– ——-
\nthat notices sent by mail will not be deemed given until received:<\/p>\n
(a) if to Buyer, to:
\n Concentric Network Corporation
\n 10590 Tantau Avenue
\n Cupertino, California 95014
\n Attn: Michael Anthofer
\n Telephone No.: (408) 342-2800
\n Facsimile No.: (408) 342-2876<\/p>\n
-47-<\/p>\n
with a copy to:<\/p>\n
Wilson Sonsini Goodrich & Rosati
\n Professional Corporation
\n 650 Page Mill Road
\n Palo Alto, California 94304
\n Attention: David J. Segre, Esq.
\n Paul Bradley Shinn, Esq.
\n Telephone No.: (650) 493-9300
\n Facsimile No.: (650) 493-6811<\/p>\n
(b) if to the Seller, to
\n 9Net Avenue, Inc.
\n 110 Meadowlands Parkway
\n Secaucus, NJ 07094
\n Attn: Karina Gradus, Esq.
\n Telephone No.: (201) 902-9300
\n Facsimile No.: (201) 902-9122<\/p>\n
with a copy to:<\/p>\n
Kelley Drye & Warren LLP
\n 101 Park Avenue
\n New York, NY 10178
\n Attention: Jack Miles, Esq.
\n Jeff Katz, Esq.
\n Telephone No.: (212) 808-7574
\n Facsimile No.: (212) 808-7897<\/p>\n
(c) if to the Principal Stockholders, to:
\n 9Net Avenue, Inc.
\n 110 Meadowlands Parkway
\n Secaucus, NJ 07094
\n Attn: Karina Gradus, Esq.
\n Telephone No.: (201) 902-9300
\n Facsimile No.: (201) 902-9122<\/p>\n
-48-<\/p>\n
(d) If to the Escrow Agent, to:
\n U.S. Bank Trust, N.A.
\n One California Street, 4th Floor
\n San Francisco, CA 94111
\n Attention: Ann Gadsby
\n Telephone No.: (415) 273-4532
\n Facsimile No.: (415) 273-4593<\/p>\n
(e) If to the Securityholder Agent, to:
\n 9Net Avenue, Inc.
\n 110 Meadowlands Parkway
\n Secaucus, NJ 07094
\n Attn: Karina Gradus, Esq.
\n Telephone No.: (201) 902-9300
\n Facsimile No.: (201) 902-9122<\/p>\n
9.2 Interpretation. The words “include,” “includes” and “including” when
\n ————–
\nused herein shall be deemed in each case to be followed by the words “without
\nlimitation.” The table of contents and headings contained in this Agreement are
\nfor reference purposes only and shall not affect in any way the meaning or
\ninterpretation of this Agreement.<\/p>\n
9.3 Counterparts. This Agreement may be executed in one or more
\n ————
\ncounterparts, all of which shall be considered one and the same agreement and
\nshall become effective when one or more counterparts have been signed by each of
\nthe parties and delivered to the other party, it being understood that all
\nparties need not sign the same counterpart.<\/p>\n
9.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto, the
\n —————————-
\nConfidential Disclosure Agreement, dated April 12, 1999, between the Seller and
\nBuyer and the documents and instruments and other agreements among the parties
\nhereto referenced herein: (a) constitute the entire agreement among the parties
\nwith respect to the subject matter hereof and supersede all prior agreements and
\nunderstandings both written and oral, among the parties with respect to the
\nsubject matter hereof; (b) are not intended to confer upon any other person any
\nrights or remedies hereunder; and (c) shall not be assigned (other than by
\noperation of law), except that Buyer and Seller may assign their respective
\nrights and delegate their respective obligations hereunder to their respective
\naffiliates.<\/p>\n
9.5 Severability. In the event that any provision of this Agreement or the
\n ————
\napplication thereof, becomes or is declared by a court of competent jurisdiction
\nto be illegal, void or unenforceable, the remainder of this Agreement will
\ncontinue in full force and effect and the application of such provision to other
\npersons or circumstances will be interpreted so as reasonably to effect the
\nintent of the parties hereto. The parties further agree to replace such void or
\nunenforceable provision of this Agreement with a valid and enforceable provision
\nthat will achieve, to the extent possible, the economic, business and other
\npurposes of such void or unenforceable provision.<\/p>\n
-49-<\/p>\n
9.6 Other Remedies; Specific Performance. Any and all remedies herein
\n ————————————
\nexpressly conferred upon a party will be deemed cumulative with and not
\nexclusive of any other remedy conferred hereby, or by law or equity upon such
\nparty, and the exercise by a party of any one remedy will not preclude the
\nexercise of any other remedy. The parties hereto agree that irreparable damage
\nwould occur in the event that any of the provisions of this Agreement were not
\nperformed in accordance with their specific terms or were otherwise breached. It
\nis accordingly agreed that the parties shall be entitled to seek an injunction
\nor injunctions to prevent breaches of this Agreement and to enforce specifically
\nthe terms and provisions hereof in any court of the United States or any state
\nhaving jurisdiction, this being in addition to any other remedy to which they
\nare entitled at law or in equity.<\/p>\n
9.7 Governing Law. This Agreement shall be governed by and construed in
\n ————-
\naccordance with the laws of the State of California, regardless of the laws that
\nmight otherwise govern under applicable principles of conflicts of laws thereof.
\nEach of the parties hereto irrevocably consents to the exclusive jurisdiction
\nand venue of any court within Santa Clara County, State of California, in
\nconnection with any matter based upon or arising out of this Agreement or the
\nmatters contemplated herein, agrees that process may be served upon them in any
\nmanner authorized by the laws of the State of California for such persons and
\nwaives and covenants not to assert or plead any objection which they might
\notherwise have to such jurisdiction, venue and such process; provided, however,
\nthat upon termination of this Agreement in accordance with Section 8.1, the
\nparties hereto only consent to the exclusive jurisdiction and venue of any court
\nwithin Santa Clara County, State of California, with respect to those items set
\nforth in Section 8.2 hereof which survive termination of this Agreement. Each of
\nBuyer and Seller hereby irrevocably waives all right to trial by jury in any
\naction, proceeding or counterclaim (whether based on contract, tort or
\notherwise) arising out of or relating to this agreement or the actions of Buyer
\nor Seller in the negotiation, administration, performance and enforcement
\nhereof.<\/p>\n
9.8 Rules of Construction. The parties hereto agree that they have been
\n ———————
\nrepresented by counsel during the negotiation and execution of this Agreement
\nand, therefor, waive the application of any law, regulation, holding or rule of
\nconstruction providing that ambiguities in an agreement or other document will
\nbe construed against the party drafting such agreement or document.<\/p>\n
9.9 Attorneys Fees. If any action or other proceeding relating to the
\n ————–
\nenforcement of any provision of this Agreement is brought by any party hereto,
\nthe prevailing party shall be entitled to recover reasonable attorneys’ fees,
\ncosts and disbursements (in addition to any other relief to which the prevailing
\nparty may be entitled).<\/p>\n
-50-<\/p>\n
IN WITNESS WHEREOF, Buyer, the Seller and the Principal Stockholders have
\ncaused this Agreement to be signed, all as of the date first written above.<\/p>\n
CONCENTRIC NETWORK 9NET AVENUE, INC.
\nCORPORATION<\/p>\n
By: \/s\/ Henry R. Nothhaft By: \/s\/ Natalia Salygin
\n ———————- ————————
\nName: Henry R. Nothhaft Name: Natalia Salygin
\n ——————– ———————-
\nTitle: President & CEO Title: President
\n ——————- ———————<\/p>\n
ESCROW AGENT: PRINCIPAL STOCKHOLDERS:<\/p>\n
By: \/s\/ Ann Gadsby By: \/s\/ Vasiliy Salygin
\n ———————- ————————
\nName: Ann Gadsby Name: Vasiliy Salygin, individually
\n ——————– and as trustee
\n ———————-<\/p>\n
Title: Vice President By: \/s\/ Natalia Salygin
\n ——————- ———————–<\/p>\n
Name: Natalia Salygin, individually
\n and as trustee
\n ———————
\nSECURITYHOLDER AGENT:<\/p>\n
By: \/s\/ Karina Gradus By: \/s\/ Luca Vanetta
\n ———————- —————————-<\/p>\n
Name: Karina Gradus Name: BT Bautex, by Luca Vanetta,
\n ——————– director
\n ————————–<\/p>\n
By: \/s\/ Mikhail Kofman
\n —————————-
\n Name: Mikhail Kofman
\n ————————-<\/p>\n
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