EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
by and among
INTERNATIONAL NETWORK SERVICES, INC.,
MID-WEST ACQUISITION CORPORATION
and
PREDICTIVE SYSTEMS, INC.
Dated as of April 8, 2003
TABLE OF CONTENTS
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ARTICLE I THE MERGER..................................................................................................1
1.1 The Merger..........................................................................................1
1.2 Effective Time; Closing.............................................................................2
1.3 Effect of the Merger................................................................................2
1.4 Certificate of Incorporation and Bylaws of Surviving Corporation....................................2
1.5 Directors and Officers of Surviving Corporation.....................................................3
1.6 Effect on Capital Stock.............................................................................3
1.7 Dissenting Shares...................................................................................6
1.8 Surrender of Certificates...........................................................................6
1.9 No Further Ownership Rights in Shares...............................................................8
1.10 Lost, Stolen or Destroyed Certificates..............................................................8
1.11 Taking of Necessary Action; Further Action..........................................................8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY..................................................................8
2.1 Organization and Qualification; Subsidiaries........................................................8
2.2 Certificate of Incorporation and Bylaws.............................................................9
2.3 Capitalization......................................................................................9
2.4 Authority Relative to this Agreement...............................................................11
2.5 No Conflict; Required Filings and Consents.........................................................11
2.6 Compliance; Permits................................................................................12
2.7 SEC Filings; Financial Statements..................................................................13
2.8 No Undisclosed Liabilities.........................................................................14
2.9 Absence of Certain Changes or Events...............................................................14
2.10 Absence of Litigation..............................................................................15
2.11 Employee Benefit Plans.............................................................................15
2.12 Proxy Statement....................................................................................20
2.13 Restrictions on Business Activities................................................................20
2.14 Title to Property..................................................................................20
2.15 Taxes..............................................................................................21
2.16 Environmental Matters..............................................................................23
2.17 Brokers; Third Party Expenses......................................................................24
2.18 Intellectual Property..............................................................................24
2.19 Contracts..........................................................................................26
2.20 Insurance..........................................................................................28
2.21 Opinion of Financial Advisor.......................................................................28
2.22 Board Approval.....................................................................................28
2.23 Vote Required......................................................................................28
2.24 State Takeover Statutes............................................................................28
2.25 Interested Party Transactions......................................................................29
2.26 Intentionally Omitted..............................................................................29
2.27 Intentionally Omitted..............................................................................29
2.28 Full Disclosure; Estimates.........................................................................29
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TABLE OF CONTENTS
(continued)
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..................................................29
3.1 Corporate Organization.............................................................................29
3.2 Certificate of Incorporation and Bylaws............................................................30
3.3 Authority Relative to this Agreement...............................................................30
3.4 No Conflict; Required Filings and Consents.........................................................30
3.5 Proxy Statement....................................................................................31
3.6 Financing..........................................................................................31
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.......................................................................31
4.1 Conduct of Business by Company.....................................................................31
4.2 [Sale of Assets....................................................................................35
4.3 [Business Promotion Program........................................................................35
ARTICLE V ADDITIONAL AGREEMENTS......................................................................................35
5.1 Proxy Statement; Board Recommendation..............................................................35
5.2 Meeting of Company Stockholders....................................................................36
5.3 Confidentiality; Access to Information.............................................................37
5.4 No Solicitation....................................................................................38
5.5 Public Disclosure..................................................................................40
5.6 Reasonable Efforts; Notification...................................................................41
5.7 Third Party Consents...............................................................................41
5.8 Directors' and Officers' Indemnification...........................................................42
5.9 Regulatory Filings; Reasonable Efforts.............................................................42
5.10 Company Actions with Respect to Employees..........................................................43
5.11 Termination of Certain Benefit Plans...............................................................43
5.12 Employee Benefits..................................................................................44
5.13 FIRPTA Certificate.................................................................................44
ARTICLE VI CONDITIONS TO THE MERGER..................................................................................44
6.1 Conditions to Obligations of Each Party to Effect the Merger.......................................44
6.2 Additional Conditions to Obligations of Company....................................................45
6.3 Additional Conditions to the Obligations of Parent and Merger Sub..................................45
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TABLE OF CONTENTS
(continued)
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ARTICLE VII TERMINATION, AMENDMENT AND WAIVER........................................................................47
7.1 Termination........................................................................................47
7.2 Notice of Termination; Effect of Termination.......................................................49
7.3 Fees and Expenses..................................................................................49
7.4 Amendment..........................................................................................52
7.5 Extension; Waiver..................................................................................52
ARTICLE VIII Intentionally Omitted...................................................................................52
ARTICLE IX GENERAL PROVISIONS........................................................................................52
9.1 Non-Survival of Representations and Warranties.....................................................52
9.2 Notices............................................................................................53
9.3 Interpretation; Knowledge..........................................................................53
9.4 Counterparts.......................................................................................55
9.5 Entire Agreement; Third Party Beneficiaries........................................................55
9.6 Severability.......................................................................................55
9.7 Other Remedies; Specific Performance...............................................................55
9.8 Governing Law......................................................................................56
9.9 Rules of Construction..............................................................................56
9.10 Assignment.........................................................................................56
9.11 Waiver of Jury Trial...............................................................................56
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INDEX OF EXHIBITS
Exhibit A Form of Company Voting Agreement
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of April
8, 2003 (the "Agreement"), by and among International Network Services, Inc., a
Delaware corporation ("Parent"), Mid-West Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and
Predictive Systems, Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company
have each determined that it is advisable and in the best interests of their
respective corporations and stockholders for Parent, Merger Sub and Company to
consummate the Merger (as defined in Section 1.1 hereof) upon the terms and
subject to the conditions set forth herein.
WHEREAS, the Board of Directors of the Company (the "Board") has
unanimously (i) determined that the Merger is advisable and in the best
interests of the Company and its stockholders, (ii) approved this Agreement, the
Merger and the other transactions contemplated by this Agreement, including
without limitation the transactions contemplated by the Company Voting
Agreements (as defined herein) (the "Transactions"), and (iii) determined,
subject to the terms of this Agreement, to recommend that the stockholders of
the Company adopt and approve this Agreement and approve the Merger.
WHEREAS, concurrently with the execution of this Agreement, as a
condition and inducement to Parent's willingness to enter into this Agreement,
certain executive officers and directors of the Company, and certain holders of
Shares (as defined in Section 1.6), each in their capacity as stockholders of
the Company, are entering into Voting Agreements in substantially the form
attached hereto as Exhibit A (the "Company Voting Agreements"), pursuant to
which each such stockholder has agreed to vote his, her or its shares of common
stock of the Company in favor of the Merger, subject to the terms therein.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2
hereof) and subject to and upon the terms and conditions of this Agreement and
the applicable provisions of the Delaware General Corporation Law ("Delaware
Law"), Merger Sub shall be merged with and into the Company (the "Merger"), the
separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation. The Company, as the surviving corporation
after the Merger, is hereinafter sometimes referred to as the "Surviving
Corporation."
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1.2 Effective Time; Closing. Upon the terms and subject to the
conditions of this Agreement, the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger (the "Certificate of Merger") with
the Secretary of State of the State of Delaware in accordance with the relevant
provisions of Delaware Law (the time of such filing (or such later time as may
be agreed in writing by the Company and Parent and specified in the Certificate
of Merger) being the "Effective Time") on the Closing Date (as herein defined).
Unless the context otherwise requires, the term "Agreement" as used herein
refers collectively to this Agreement and Plan of Merger (as the same may be
amended from time to time in accordance with the terms hereof) and the
Certificate of Merger. The closing of the Merger (the "Closing") shall take
place at the offices of Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue,
Palo Alto, CA 94301, at a time and date to be specified by the parties hereto,
which shall be no later than the second business day after the satisfaction or
waiver of the conditions set forth in ARTICLE VI hereof (other than those
conditions, which by their terms, are to be satisfied or waived on the Closing
Date), or at such other time, date and location as the parties hereto agree in
writing (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all of the assets, properties, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all of the debts, liabilities, obligations,
restrictions and duties of the Company and Merger Sub shall become the debts,
liabilities, obligations, restrictions and duties of the Surviving Corporation.
1.4 Certificate of Incorporation and Bylaws of Surviving Corporation.
(a) Certificate of Incorporation. As of the Effective Time, by
virtue of the Merger and without any action on the part of Merger Sub or the
Company, the Certificate of Incorporation of the Surviving Corporation shall be
amended and restated to read the same as the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time until
thereafter amended in accordance with Delaware Law and such Certificate of
Incorporation; provided, however, that as of the Effective Time the Certificate
of Incorporation shall provide that the name of the Surviving Corporation is
"Predictive Systems, Inc."
(b) Bylaws. As of the Effective Time, by virtue of the Merger and
without any action on the part of Merger Sub or the Company, the Bylaws of the
Surviving Corporation shall be amended and restated to read the same as the
Bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
subject to Section 5.8 hereof, until thereafter amended in accordance with
Delaware Law, the Certificate of Incorporation of the Surviving Corporation and
such Bylaws; provided, however, that all references in such Bylaws to Merger Sub
shall be amended to refer to "Predictive Systems, Inc."
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1.5 Directors and Officers of Surviving Corporation.
(a) Directors. The initial directors of the Surviving Corporation
shall be the directors of Merger Sub immediately prior to the Effective Time,
until their respective successors are duly elected or appointed and qualified.
(b) Officers. The initial officers of the Surviving Corporation
shall be the officers of Merger Sub as of immediately prior to the Effective
Time.
1.6 Effect on Capital Stock.
(a) Definitions. For all purposes of this Agreement, the following
terms shall have the following respective meanings:
"Adjustment Amount" shall equal (i) if the Final Net Assets are
less than $14,136,700, the amount by which such amount exceeds the Final Net
Assets, or (ii) if the Final Net Assets are greater than $16,636,700, the amount
by which the Final Net Assets exceeds such amount, and (iii) if the Final Net
Assets are greater than $14,136,700, but are less than $16,636,700, the
Adjustment Amount shall be $0.00.
"Estimated Net Assets" shall mean $15,386,700.
"Estimated Valuation Schedule" shall mean the schedule delivered by
the Company to Parent, as lastly amended and modified, and accepted and approved
by Parent, setting forth (by item and quantity) certain assets and certain
liabilities of the Company and its subsidiaries estimated as of the Closing
Date.
"Final Net Assets" shall mean the net assets of the Company and its
subsidiaries as set forth on the Final Net Assets Schedule.
"Final Net Assets Schedule" shall mean the schedule calculating the
Final Net Assets delivered by the Company to Parent in accordance with Section
1.6(f) below.
"Merger Consideration" shall mean the amount equal to the quotient
obtained by dividing (x) the Total Consideration, minus any Adjustment Amount
(if the Adjustment Amount shall have been calculated pursuant to (A)(i) of the
definition thereof) or plus any Adjustment Amount (if the Adjustment Amount
shall have been calculated pursuant to (A)(ii) of the definition thereof), by
(y) the Total Outstanding Shares.
"Net Assets Determination Schedule" shall mean the schedule
attached hereto detailing the methods and procedures by which the Final Net
Assets Schedule shall be prepared and the Final Net Assets determined.
"Shares" shall have the meaning set forth in Section 1.6(c) below.
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"Total Consideration" shall mean $19,186,700.
"Total Outstanding Shares" shall mean the aggregate number of
Shares issued and outstanding immediately prior to the Effective Time.
(b) [Intentionally Omitted].
(c) Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, the Company, or any of
the shareholders of the Company, each share of common stock, par value $.001 per
share, of the Company ("Shares") issued and outstanding immediately prior to the
Effective Time (other than any Shares to be canceled pursuant to Section 1.6(d)
hereof and any Dissenting Shares (as defined in Section 1.7 hereof)), will be
canceled and extinguished and automatically converted into the right to receive,
upon surrender of the certificate representing such Share in the manner provided
in Section 1.8 hereof (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the manner
provided in Section 1.10 hereof), cash, without interest, in an amount equal to
the Merger Consideration. If any Shares outstanding immediately prior to the
Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company ("Unvested Shares"), then the
Merger Consideration issued in exchange for such Unvested Shares shall also be
unvested and subject to the same repurchase option, risk of forfeiture or other
condition. The Merger Consideration payable upon conversion of any Unvested
Share shall be withheld by Merger Sub and paid to each such holder in accordance
with the vesting and other provisions set forth in the applicable restricted
stock purchase agreement.
(d) Cancellation of Treasury and Parent-Owned Shares. Each Share held
by the Company or owned by Merger Sub, Parent or any direct or indirect
wholly-owned subsidiary of the Company or of Parent immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(e) Capital Stock of Merger Sub. Each share of common stock, par value
$0.001 per share, of Merger Sub (the "Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and nonassessable share of common stock, par value
$0.001 per share, of the Surviving Corporation. Each certificate evidencing
ownership of shares of Merger Sub Common Stock outstanding immediately prior to
the Effective Time shall evidence ownership of such shares of capital stock of
the Surviving Corporation.
(f) Final Net Assets Determination.
(i) Within ten (10) days preceding the Closing Date (such period,
the "Review Period"), the Company agrees to deliver to Parent the Final Net
Assets Schedule and to have prepared such Final Net Assets Schedule in
accordance with the methods and procedures set forth on the Net Assets
Determination Schedule. Parent shall in good faith conduct its review of such
Final Net Assets Schedule in determining its approval or disapproval thereof.
Parent and its independent public accountants shall have the right to review the
work papers, schedules and other evidentiary documentation of the Company
utilized in preparing the Final Net Assets Schedule, and shall have reasonable
access to the books, records and personnel of the Company for purposes of
verifying the accuracy of the presentation of the Final Net Assets Schedule.
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(ii) The Final Net Assets Schedule shall be deemed to have been
conclusively determined for purposes of calculating the Final Net Assets
Schedule, the Adjustment Amount, the Total Consideration and the Merger
Consideration upon the acceptance and approval by Parent of the Final Net Assets
Schedule, which Parent shall be obligated to so accept and approve to the extent
the Company has complied with the Net Assets Determination Schedule in preparing
the Final Net Assets Schedule.
(iii) Notwithstanding the limited allowances for expenditures and
liabilities set forth in Section 4.1 hereof, during the Review Period, neither
the Company nor any of its subsidiaries shall incur (A) any other liabilities
except in the ordinary course of business consistent with past practice or in
connection with the transactions contemplated by this Agreement, and (B)
notwithstanding the allowances in clause (A) immediately in the foregoing, any
liabilities of the kind that would be contained in the Final Net Assets Schedule
whatsoever, except for those liabilities consistent with, and not exceeding, the
liabilities as set forth in the Final Net Assets Schedule.
(g) Stock Options.
(i) Immediately following the Effective Time, each outstanding
option to purchase Shares (a "Company Stock Option") issued pursuant to Company
stock plans or other agreements or arrangements, whether vested or unvested,
shall be automatically cancelled and terminated and of no further force or
effect, and the holder thereof shall receive no consideration in connection with
such cancellation and termination.
(ii) Company shall take all necessary actions (including providing
all required notices) to ensure that all outstanding Company Stock Options and
all Company stock option plans (including without limitation the 1999 Stock
Incentive Plan, Synet Service Corporation 1996 Stock Option Plan, and Global
Integrity Corporation 1998 Stock Incentive Plan) are terminated immediately
following the Effective Time. For each holder of any Company Stock Option, the
parties shall take steps to enable the holder thereof to exercise the option
(including any portion that first becomes exercisable in connection with the
Merger) prior to the Effective Time.
(h) [Intentionally Omitted.]
(i) Employee Stock Purchase Plan. On or before May 1, 2003 (the
"ESPP Date") all offering and purchase periods under way under Company's 1999
Employee Stock Purchase Plan (the "ESPP"), shall be terminated and, as of the
date of this Agreement, no new offering or purchase periods shall be commenced.
Company shall take all necessary action, including providing all required
notices to participants, to ensure that the rights of participants in the ESPP
with respect to any such offering or purchase periods shall be determined by
treating the ESPP Date as the last day of such offering and purchase periods.
Company shall take all actions as may be necessary in order to freeze the rights
of the participants in the ESPP, effective as of the date of this Agreement, to
existing participants and, to the extent permissible under the ESPP, existing
participation levels.
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1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, Shares that are outstanding immediately prior to the Effective Time
and that are held by stockholders who shall have not voted in favor of the
Merger or consented thereto in writing and who shall have demanded properly in
writing appraisal for such Shares in accordance with Section 262 of Delaware Law
(collectively, the "Dissenting Shares") shall not be converted into, or
represent the right to receive, the Merger Consideration. Such stockholders
shall instead be entitled to receive payment of the appraised value of such
Shares held by them in accordance with the provisions of such Section 262,
except that all Dissenting Shares held by stockholders who shall have failed to
perfect or who effectively shall have withdrawn or lost their rights to
appraisal of such Shares under such Section 262 shall thereupon be deemed to
have been converted into, and to have become exchangeable for, as of the
Effective Time, the right to receive the Merger Consideration, without any
interest thereon, upon surrender, in the manner provided in Section 1.8 hereof,
of the certificate or certificates that formerly evidenced such Shares.
(b) The Company shall give Parent (i) prompt notice of any demands
for appraisal received by the Company, withdrawals of such demands, and any
other instruments served pursuant to Delaware Law and received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under Delaware Law. The Company shall not, except with
the prior written consent of Parent, make any payment with respect to any
demands for appraisal or offer to settle or settle any such demands.
1.8 Surrender of Certificates.
(a) Paying Agent. Prior to the Effective Time, Parent shall select
a bank or trust company reasonably acceptable to the Company to act as agent
(the "Paying Agent") for the holders of Shares to receive the funds to which
holders of Shares shall become entitled pursuant to Section 1.6(c) hereof. Until
the Effective Time, such funds shall be invested by the Paying Agent as directed
by Parent and in such a way to ensure such funds are sufficient at the Effective
Time to satisfy Parent's obligations hereunder with respect to the Total
Consideration.
(b) Payment Procedures. Promptly after the Effective Time, Parent
shall cause the Paying Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "Certificates"), which
immediately prior to the Effective Time represented the outstanding Shares
converted into the right to receive the Merger Consideration, (i) a letter of
transmittal in customary form (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent and shall contain such other
provisions as Parent may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of Certificates for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holders of such Certificates
formerly representing the Shares shall be entitled to receive in exchange
therefor the Merger Consideration and the Certificates so surrendered shall
forthwith be canceled. Until so surrendered, outstanding Certificates shall be
deemed from and after the Effective Time, for all corporate purposes, to
evidence only the right to receive the respective Merger Consideration. As
promptly as practicable following surrender of any such Certificates, the Paying
Agent shall deliver to the record holders thereof, without interest, the Merger
Consideration.
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(c) Payments with respect to Unsurrendered Shares; No Liability. At
any time following the 180th day after the Effective Time, the Surviving
Corporation shall be entitled to require the Paying Agent to deliver to it any
funds which had been made available to the Paying Agent and not disbursed to
holders of Shares (including, without limitation, all interest and other income
received by the Paying Agent in respect of all funds made available to it), and,
thereafter, such holders shall be entitled to look to the Surviving Corporation
(subject to abandoned property, escheat and other similar laws) only as general
creditors thereof with respect to any cash that may be payable upon due
surrender of the Certificates held by them. Notwithstanding the foregoing,
neither Parent, the Surviving Corporation nor the Paying Agent shall be liable
to any holder of a Share for any cash delivered in respect of such Share to a
public official pursuant to any abandoned property, escheat or other similar
law.
(d) Transfers of Ownership. If the payment of the cash is to be
paid to a person other than the person in whose name the Certificates
surrendered in exchange therefor are registered, it will be a condition of
payment that the Certificates so surrendered be properly endorsed and otherwise
in proper form for transfer (including without limitation, if requested by
Parent or the Paying Agent, a medallion guarantee), and that the persons
requesting such payment will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the payment of the cash to a
person other than the registered holder of the Certificates surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not applicable.
(e) Required Withholding. Each of the Paying Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of the Shares such amounts as may be required to be
deducted or withheld therefrom under the Code or under any provision of state,
local or foreign tax law or under any other applicable legal requirement. To the
extent such amounts are so deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the person to whom
such amounts would otherwise have been paid.
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1.9 No Further Ownership Rights in Shares. Payment of the cash pursuant
to Section 1.6 shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Shares, and there shall be no further registration of
transfers on the records of the Surviving Corporation of the Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this ARTICLE I.
1.10 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Paying Agent shall
pay in exchange for such lost, stolen or destroyed Certificates, upon the making
of an affidavit of that fact by the holder thereof, the cash payable under the
terms hereunder and with respect thereto; provided, however, that Parent may, in
its discretion and as a condition precedent to the payment of such cash, require
the owner of such lost, stolen or destroyed Certificates to deliver a bond in
such reasonable and customary amount as it may direct as indemnity against any
claim that may be made against Parent, the Surviving Corporation or the Paying
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
1.11 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub will take all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject only to such exceptions as are specifically disclosed in writing in the
disclosure schedule supplied by the Company to Parent dated as of the date
hereof and certified by a duly authorized officer of the Company (the "Company
Schedule"), as follows; provided, however, that the Company Schedule shall be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article II and any other paragraph where it is reasonably and
objectively clear that the disclosure is intended to apply to such other
paragraph.
2.1 Organization and Qualification; Subsidiaries.
(a) Each of the Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its businesses as they are now being conducted. Each of the Company and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders
("Approvals") necessary to own, lease and operate the properties it purports to
own, operate or lease and to carry on its businesses as they are now being
conducted, except where the failure to have such Approvals would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company (as defined in Section 9.3(c) hereof).
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(b) The Company has no subsidiaries except for the corporations
identified in Section 2.1(b) of the Company Schedule. Section 2.1(b) of the
Company Schedule also sets forth the form of ownership and percentage interest
of the Company in its subsidiaries and, to the extent that a subsidiary set
forth thereon is not wholly owned by the Company, lists the other persons or
entities who have an interest in such subsidiary and sets forth the percentage
of each such interest. Except as set forth in Section 2.1(b) of the Company
Schedule, neither the Company nor any of its subsidiaries has agreed to make nor
is obligated to make nor is bound by any written or oral agreement, contract,
subcontract, lease, mortgage, indenture, understanding, arrangement, instrument,
note, bond, option, warranty, purchase order, license, sublicense, insurance
policy, benefit plan, pensions, franchise or other instrument, obligation or
commitment or undertaking of any nature (a "Contract"), in effect as of the date
hereof or as may hereafter be in effect under which it may become obligated to
make, any future investment in or capital contribution to any other entity.
Except as set forth in Section 2.1(b) of the Company Schedule, neither the
Company nor any of its subsidiaries directly or indirectly owns any equity or
similar interest in or any interest convertible, exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, limited
liability company, joint venture or other business, association or entity.
(c) The Company and each of its subsidiaries is duly qualified to
do business as a foreign corporation, and is in good standing, under the laws of
all jurisdictions where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification
necessary, except where failures to be so qualified and in good standing would
not reasonably be expected to have a Material Adverse Effect on the Company.
2.2 Certificate of Incorporation and Bylaws. The Company has
previously made available to Parent (i) a complete and correct copy of its
Certificate of Incorporation and Bylaws as amended to date (together, the
"Company Charter Documents") and (ii) the equivalent organizational documents
for each subsidiary of the Company, each as amended to date. The Company Charter
Documents and equivalent organizational documents of each subsidiary of the
Company are in full force and effect. The Company is not in violation of any of
the provisions of the Company Charter Documents, and no subsidiary of the
Company is in violation of its equivalent organizational documents.
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2.3 Capitalization.
(a) The authorized capital stock of the Company consists of
200,000,000 shares of Company common stock, par value $0.001 per share ("Company
Common Stock") and 10,000,000 shares of Preferred Stock, par value of $0.001 per
share ("Company Preferred Stock"). At the close of business on the date of this
Agreement (i) 38,164,365 shares of Company Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable; (ii)
no shares of Company Common Stock were held by subsidiaries of the Company;
(iii) 698,535 shares of Company Common Stock were reserved for future issuance
pursuant to the Company's ESPP; (iv) 7,384,876 shares of Company Common Stock
were reserved for issuance upon the exercise of outstanding options to purchase
Company Common Stock under the 1999 Stock Incentive Plan and 12,788,847 shares
of Company Common Stock were reserved for future issuance pursuant to the
Company's 1999 Stock Incentive Plan; (v) 23,348 shares of Company Common Stock
were reserved for issuance upon the exercise of outstanding options to purchase
Company Common Stock under the Synet Service Corporation 1996 Stock Option Plan
and no shares of Company Common Stock were reserved for future issuance pursuant
to the Synet Service Corporation 1996 Stock Option Plan; (vi) 2,625 shares of
Company Common Stock were reserved for issuance upon the exercise of outstanding
options to purchase Company Common Stock under the Global Integrity Corporation
1998 Stock Incentive Plan and no shares of Company stock were reserved for
future issuance under the Global Integrity Corporation 1998 Stock Incentive
Plan; and (vii) 1,298,730 shares of Company Common Stock were reserved for
issuance upon the exercise of outstanding options to purchase Company Common
Stock which were granted outside of any Company stock option plan. Section
2.3(a) of the Company Schedule sets forth the following information with respect
to each Company Stock Option outstanding as of the date of this Agreement: (i)
the name of the optionee; (ii) the particular plan pursuant to which such
Company Stock Option was granted; (iii) the number of shares of Company Common
Stock subject to such Company Stock Option; (iv) the exercise price of such
Company Stock Option; (v) the date on which such Company Stock Option was
granted; and (vi) the date on which such Company Stock Option expires. All
Company Stock Options will accelerate in full immediately prior to the Effective
Time. All shares of Company Common Stock subject to issuance upon exercise of
such Company Stock Options, upon issuance on the terms and conditions specified
in the instrument pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Section
2.3(a) of the Company Schedule, all outstanding shares of Company Common Stock
and all outstanding Company Stock Options and all outstanding shares of capital
stock of each subsidiary of the Company have been issued and granted in material
compliance with (i) all applicable securities laws and other applicable Legal
Requirements (as defined below) and (ii) all material requirements set forth in
applicable Contracts. For the purposes of this Agreement, "Legal Requirements"
means any federal, state, local, municipal, foreign or other law, statute,
legislation, constitution, principle of common law, resolution, ordinance, code,
edict, order, judgment, decree, rule, regulation, ruling or requirement issues,
enacted, adopted, promulgated, implemented or otherwise put into effect by or
under the authority of any Governmental Entity (as defined in Section 2.5(b)
hereof). There are no declared or accrued but unpaid dividends with respect to
any shares of Company Common Stock.
-10-
(b) The Company owns free and clear of all liens, pledges,
hypothecations, charges, mortgages, security interests, encumbrances, claims,
infringements, interferences, options, right of first refusals, preemptive
rights, or community property interests, without any restriction on the voting
of any security, any restriction on the transfer of any security (except for
restrictions on transfers of any such security imposed by the applicable
regulations of the Securities and Exchange Commission (the "SEC") or other
applicable securities laws) or other asset, or any restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset ("Liens") directly or indirectly through one or more subsidiaries, all
equity securities, partnership interests or similar ownership interests of any
subsidiary of the Company, and all securities convertible into, or exercisable
or exchangeable for, such equity securities, partnership interests or similar
ownership interests, that are issued, reserved for issuance or outstanding.
Except as set forth in Section 2.3(a) hereof, there are no subscriptions,
options, warrants, equity securities, partnership interests or similar ownership
interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound obligating the
Company or any of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause
the repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of the Company or any of
its subsidiaries or obligating the Company or any of its subsidiaries to grant,
extend, accelerate the vesting of or enter into any such subscription, option,
warrant, equity security, call, right, commitment or agreement. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company or any of its
subsidiaries. Except as set forth on Section 2.3(b) of the Company Schedule,
there are no registration rights in respect of any shares of Company Common
Stock, and except for the Company Voting Agreements, there are no voting trusts,
proxies, rights plans, antitakeover plans or other agreements or understandings
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound with respect to any class of equity
security of the Company or with respect to any equity security, partnership
interest or similar ownership interest of any of its subsidiaries.
2.4 Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the Transactions,
subject, with respect to the Merger, to the approval and adoption of this
Agreement and the Merger by holders of a majority of the outstanding Shares in
accordance with Delaware Law. The execution and delivery of this Agreement by
the Company and the consummation by the Company of the Transactions have been
duly and validly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the Transactions (other
than (x) with respect to the Merger, the approval and adoption of this Agreement
and the Merger and the transactions contemplated hereby by holders of a majority
of the outstanding Shares, and (y) the filing of the Certificate of Merger as
required by Delaware Law). This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by Parent and Merger Sub, constitute legal and binding obligations of
the Company, enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
-11-
2.5 No Conflict; Required Filings and Consents.
(a) Except as set forth in Section 2.5(a) of the Company Schedule,
the execution and delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Company Charter Documents or the equivalent organizational documents
of any of the Company's subsidiaries, (ii) subject, (x) with respect to the
Merger, to the approval and adoption of this Agreement and the Merger by holders
of a majority of the outstanding Shares in accordance with Delaware Law and (y)
to compliance with the requirements set forth in Section 2.5(b) hereof, conflict
with or violate in any material respect any Legal Requirements applicable to the
Company or any of its subsidiaries or by which its or any of their respective
properties is bound or affected, or (iii) conflict with or violate, or result in
any breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or materially impair the Company's
or any of its subsidiaries' rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on any of
the properties or assets of the Company or any of its subsidiaries pursuant to,
any Contract to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or its or any of their respective
properties are bound or affected, except to the extent such conflict, violation,
breach, default, impairment or other effect would not in the case of clauses
(ii) or (iii), individually or in the aggregate: (A) reasonably be expected to
have a Material Adverse Effect on the Company or (B) prevent or materially delay
consummation of the Transactions or otherwise prevent the parties hereto from
performing their obligations under this Agreement.
(b) The execution and delivery of this Agreement by the Company
does not, and the performance of this Agreement by the Company shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any court, administrative agency, commission, governmental or
regulatory authority, domestic or foreign (a "Governmental Entity"), except (i)
for applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), state securities laws ("Blue Sky Laws") and state
takeover laws, the pre-merger notification requirements of Governmental
Entities, the rules and regulations of The National Association of Securities
Dealers, Inc. ("Nasdaq") and the filing and recordation of the Certificate of
Merger as required by Delaware Law and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, (A) could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company or, following the
Effective Time, Parent, or prevent consummation of the Transactions or (B)
otherwise prevent the parties hereto from performing their obligations under
this Agreement.
2.6 Compliance; Permits.
(a) Except as set forth in Section 2.6(a) of the Company Schedule,
neither the Company nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any Legal Requirements applicable to the Company or
any of its subsidiaries or by which its or any of their respective properties is
bound or affected, or (ii) any Company Contract (as defined in Section 2.19),
except for any conflicts, defaults or violations that (individually or in the
aggregate) would not be reasonably expected to have a Material Adverse Effect on
the Company.
-12-
(b) The Company and its subsidiaries hold all material permits,
licenses, variances, exemptions, orders and approvals from Governmental Entities
which are required for the operation of the businesses and the holding of the
properties of the Company and its subsidiaries (each, a "Company Permit" and
collectively, the "Company Permits"). The Company Permits are in full force and
effect, and the Company and its subsidiaries are in compliance in all material
respects with the terms of each of the Company Permits.
2.7 SEC Filings; Financial Statements.
(a) Except as set forth in Section 2.7(a) of the Company Schedule,
the Company has made and will make available to Parent a correct and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by the Company with the Securities and Exchange Commission the
SEC since July 30, 1999 (other than the Proxy Statement (as defined in Section
2.12), the "Company SEC Reports"), which are all the forms, reports and
documents required to be filed by the Company with the SEC since July 30, 1999.
The Company SEC Reports (i) were prepared in accordance with the requirements of
the Securities Act or the Exchange Act, as the case may be, and (ii) did not at
the time they were filed (and if amended or superseded by a subsequent filing
then on the date of such subsequent filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. None of the Company's subsidiaries
is required to file any reports or other documents with the SEC.
(b) Each set of consolidated financial statements (including, in
each case, any related notes thereto) contained in the Company SEC Reports
(including any Company SEC Report filed after the date of this Agreement): (i)
complied (and with respect to Company SEC Reports filed after the date hereof,
will comply) as to form in all material respects with the published rules and
regulations of the SEC with respect thereto in effect at the time of such
filing; (ii) was and will be prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, may not contain footnotes as permitted by Form
10-Q of the Exchange Act) and each fairly presents in all material respects the
consolidated financial position of the Company and its consolidated subsidiaries
at the respective dates thereof and the consolidated results of its operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal year-end adjustments which
were not or are not expected to be material in amount or significance.
(c) The Company has previously furnished to Parent a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by the Company with the SEC
pursuant to the Securities Act or the Exchange Act.
(d) As of February 28, 2003, the Company's consolidated cash and
cash equivalents (calculated in accordance with the accounting policies
described in the Company's Form 10-K filed with the SEC on March 31, 2003 for
the fiscal year ended December 31, 2002 (the "2002 Form 10-K")) was not less
than $21,330,662.
-13-
2.8 No Undisclosed Liabilities. Except as set forth in Section 2.8
of the Company Schedule, neither the Company nor any of its subsidiaries has any
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type (whether absolute, accrued, contingent or otherwise)
(collectively, "Liabilities") of a nature required to be disclosed on a balance
sheet or in the related notes to the consolidated financial statements prepared
in accordance with GAAP which are, individually or in the aggregate, material to
the businesses, results of operations, assets or financial condition of the
Company and its subsidiaries taken as a whole, except (i) Liabilities reflected
in the Company's balance sheet as of December 31, 2002 (including any related
notes thereto) (the "Year End Balance Sheet"), (ii) Liabilities incurred since
December 31, 2002 (the "Year End Balance Sheet Date") in the ordinary course of
business, none of which individually (in the case of this clause (ii)) is
material to the businesses, results of operations, assets, liabilities,
properties or financial condition of the Company and its subsidiaries, taken as
a whole, (iii) Liabilities permitted under Section 4.1 hereof, or (iv)
Liabilities incurred in connection with this Agreement or the ISAC Sale (as
defined in Section 4.3).
2.9 Absence of Certain Changes or Events. Except as set forth in
Section 2.9 of the Company Schedule, as permitted by this Agreement, as
otherwise permitted by Parent after the date hereof or, with respect to clause
(iv) below, as set forth in a letter previously delivered by Company to Parent,
since the Year End Balance Sheet Date, there has not been, occurred or arisen:
(i) any event or condition of any character that has had or is reasonably
expected to have a Material Adverse Effect on the Company; (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of the Company's or any of its
subsidiaries' capital stock, or any purchase, redemption or other acquisition by
the Company of any of the Company's capital stock or any other securities of the
Company or its subsidiaries or any options, warrants, calls or rights to acquire
any such shares or other securities except for repurchases from employees
following their termination pursuant to the terms of their pre-existing stock
option or purchase agreements; (iii) any split, combination or reclassification
of any of the Company's or any of its subsidiaries' capital stock; (iv) any
granting by the Company or any of its subsidiaries of any material increase in
compensation or any payment by the Company or any of its subsidiaries of any
bonus (except in the ordinary course of business), or any granting by the
Company or any of its subsidiaries of any increase in severance or termination
pay or any entry by the Company or any of its subsidiaries into any currently
effective employment, severance, termination or indemnification agreement or any
agreement the benefits of which are contingent or the terms of which are
materially altered upon the occurrence of a transaction involving the Company of
the nature contemplated hereby; (v) entry by the Company or any of its
subsidiaries into (x) any licensing or other Contract relating to the use,
acquisition or disposition of any Intellectual Property (as defined in Section
2.18 hereof) other than (1) end-user licenses of commercially available software
applications for internal use by the Company in the ordinary course of business
consistent with past practice, and (2) commercial licenses of the Company's or
third party software or Intellectual Property in the ordinary course of business
consistent with past practice, or (y) any amendment or consent with respect to
any material licensing or other Contract relating to the use, acquisition or
disposition of any Intellectual Property; (vi) any change by the Company in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP; (vii) any revaluation by the Company of any of its assets,
including, without limitation, writing down the value of capitalized inventory
or writing off notes or accounts receivable or any sale of assets of the Company
other than in the ordinary course of business consistent with past practice; or
(viii) any negotiation or agreement by the Company or any of its subsidiaries to
do any of the things described in the preceding clauses (i) through (vii) (other
than negotiations or agreements with Parent regarding the Transactions).
-14-
2.10 Absence of Litigation. Except (x) as set forth in Section 2.10
of the Company Schedule, there are no claims, actions, suits or proceedings
pending or, to the knowledge of the Company, threatened (each, an "Action")
against the Company or any of its subsidiaries, or any of their respective
properties, before any Governmental Entity or arbitrator. Except as set forth in
Section 2.10 of the Company Schedule, the Company has not received notice and
has no knowledge otherwise that an investigation or review by any Governmental
Entity is pending or threatened against the Company or any of its subsidiaries,
or any of their respective properties or any of the executive officers or
directors of the Company or any of its subsidiaries in their capacities as such,
nor has any Governmental Entity indicated to the Company an intention to conduct
the same. To the knowledge of the Company, no Governmental Entity has at any
time challenged or questioned the legal right of the Company to conduct its
operations as presently conducted. The Company has made available to Parent
true, correct and complete copies of all complaints regarding the litigation
referred to in Section 2.10 of the Company Schedule and has made available to
Parent true, correct and complete copies of all pleadings, motions and written
correspondence regarding the litigation referred to in Section 2.10 of the
Company Schedule.
2.11 Employee Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.11(a)(i) below (which definition shall apply
only to this Section 2.11), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iii) "Code" shall mean the Internal Revenue Code of 1986, as
amended;
(iv) "Company Employee Plan" shall mean any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Affiliate has or may have any liability or obligation;
-15-
(v) "DOL" shall mean the Department of Labor;
(vi) "Employee" shall mean any current or former or retired
employee, consultant or director of the Company or any Affiliate;
(vii) "Employment Agreement" shall mean each material
management, employment, severance, consulting, relocation, repatriation,
expatriation, visa, work permit or other agreement, contract or understanding
between the Company or any Affiliate and any Employee;
(viii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(ix) "FMLA" shall mean the Family Medical Leave Act of 1993,
as amended;
(x) "International Employee Plan" shall mean each Company
Employee Plan that has been adopted or maintained by the Company or any
Affiliate, whether informally or formally, or with respect to which the Company
or any Affiliate will or may have any liability, for the benefit of Employees
who perform services outside the United States;
(xi) "IRS" shall mean the Internal Revenue Service;
(xii) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(xiii) "Pension Plan" shall mean each Company Employee Plan
which is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Section 2.11(b) of the Company Schedule contains, or
Parent shall have provided in a letter to Parent prior to the date hereof
detailing, an accurate and complete list of each Company Employee Plan,
International Employee Plan, and each Employment Agreement (excluding offer
letters for "at will" employees) in effect on the date of this Agreement. As of
the date of this Agreement, the Company does not have any plan or commitment to
establish any new Company Employee Plan, International Employee Plan, or
Employment Agreement, to modify any Company Employee Plan or Employment
Agreement (except to the extent required by law or to conform any such Company
Employee Plan or Employment Agreement to the requirements of any applicable law,
in each case as previously disclosed to Parent in writing, or as required by
this Agreement), or to adopt or enter into any Company Employee Plan,
International Employee Plan, or Employment Agreement.
-16-
(c) Documents. The Company has provided or made available to
Parent correct and complete copies of: (i) all documents embodying each Company
Employee Plan, International Employee Plan, and each Employment Agreement
including (without limitation) all amendments thereto and all related trust
documents, administrative service agreements, group annuity contracts, group
insurance contracts, and policies pertaining to fiduciary liability insurance
covering the fiduciaries for each Plan; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the three (3)
most recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan; (iv) if the Company Employee Plan is
funded, the most recent annual and periodic accounting of Company Employee Plan
assets; (v) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each Company Employee Plan; (vi) all IRS determination, opinion,
notification and advisory letters; (vii) all material communications to any
Employee or Employees relating to any Company Employee Plan and any proposed
Company Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to the Company; (viii) all material correspondence to or from any governmental
agency relating to any Company Employee Plan; (ix) model COBRA forms and related
notices (or such forms and notices as required under comparable law); (x) the
three (3) most recent plan years discrimination tests for each Company Employee
Plan; and (xi) all registration statements, annual reports (Form 11-K and all
attachments thereto) and prospectuses prepared in connection with each Company
Employee Plan.
(d) Employee Plan Compliance. Except as set forth in Section
2.11(d) of the Company Schedule, (i) the Company has performed in all material
respects all obligations required to be performed by it under, is not in
material default or material violation of, and has no knowledge of any material
default or material violation by any other party to each Company Employee Plan,
and each Company Employee Plan has been established and maintained in all
material respects in accordance with its terms and in material compliance with
all applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) each Company Employee Plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code has either received a favorable determination,
opinion, notification or advisory letter from the IRS with respect to each such
Company Employee Plan as to its qualified status under the Code, including all
amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a letter and make
any amendments necessary to obtain a favorable determination as to the qualified
status of each such Company Employee Plan; (iii) no "prohibited transaction,"
within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA,
and not otherwise exempt under Section 4975 of the Code or Section 408 of ERISA
(or any administrative class exemption issued thereunder), has occurred with
respect to any Company Employee Plan; (iv) there are no actions, suits or claims
pending, or, to the knowledge of the Company, threatened or reasonably
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan; (v) each
Company Employee Plan (other than any stock option plan) can be amended,
terminated or otherwise discontinued after the Effective Time, without material
liability to the Parent, Company or any of its Affiliates (other than ordinary
administration expenses and accrued benefits); (vi) there are no audits or
proceedings pending or, to the knowledge of the Company or any Affiliates,
threatened by the IRS or DOL with respect to any Company Employee Plan; and
(vii) neither the Company nor any Affiliate is subject to any penalty or tax
with respect to any Company Employee Plan under Section 502(i) of ERISA or
Sections 4975 through 4980 of the Code.
-17-
(e) Pension Plan. Neither the Company nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Collectively Bargained, Multiemployer and Multiple Employer
Plans. At no time has the Company or any Affiliate contributed to or been
obligated to contribute to any Multiemployer Plan. Neither the Company, nor any
Affiliate has at any time ever maintained, established, sponsored, participated
in, or contributed to any "multiple employer plan" (as defined in ERISA or the
Code), or to any plan described in Section 413 of the Code.
(g) No Post-Employment Obligations. Except as set forth in Section
2.11(g) of the Company Schedule, no Company Employee Plan provides, or reflects
or represents any liability to provide retiree health to any person for any
reason, except as may be required by COBRA or other applicable statute, and the
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
or any other person that such Employee(s) or other person would be provided with
retiree health, except to the extent required by statute.
(h) Health Care Compliance. Neither the Company nor any Affiliate
has, prior to the Effective Time and in any material respect, violated any of
the health care continuation requirements of COBRA, the requirements of FMLA,
the requirements of the Health Insurance Portability and Accountability Act of
1996, the requirements of the Women's Health and Cancer Rights Act of 1998, the
requirements of the Newborns' and Mothers' Health Protection Act of 1996, or any
amendment to each such act, or any similar provisions of state law applicable to
its Employees.
(i) Effect of Transaction.
(i) Except as set forth in Section 2.11(i)(i) of the Company
Schedule, the execution of this Agreement and the consummation of the
Transactions will not (either alone or upon the occurrence of any additional or
subsequent events) constitute an event under any Company Employee Plan,
Employment Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) Except as set forth on Section 2.11(i)(ii) of the Company
Schedule, no payment or benefit which will or may be made by the Company or its
Affiliates with respect to any Employee (or any other "disqualified individual"
(as defined in Code Section 280G and the regulations thereunder)) will be
characterized as a "parachute payment," within the meaning of Section 280G(b)(2)
of the Code. There is no Contract, plan or arrangement to which the Company or
any of its subsidiaries is a party or by which it is bound to compensate any
individual for excise taxes paid pursuant to Section 4999 of the Code.
-18-
(j) Employment Matters. The Company: (i) is in compliance in
all material respects with all applicable foreign, federal, state and local
laws, rules and regulations respecting employment, employment practices, terms
and conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing, except such
liabilities, Taxes (as defined in Section 2.15(a)), or penalties which are not,
individually or in the aggregate, material to the Company; and (iii) is not
liable for any payment to any trust or other fund governed by or maintained by
or on behalf of any governmental authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice). Except as set forth in Section
2.11(j) of the Company Schedule, there are no pending, threatened or reasonably
anticipated claims or actions against the Company under any worker's
compensation policy or long-term disability policy.
(k) Labor. No work stoppage or labor strike against the
Company is pending, threatened or reasonably anticipated. The Company does not
know of any activities or proceedings of any labor union to organize any
Employees. Except as set forth in Section 2.11(k) of the Company Schedule, there
are no actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of the Company, threatened or reasonably anticipated relating to any
labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in any material liability to the Company. Neither the Company
nor any of its subsidiaries has engaged in any unfair labor practices within the
meaning of the National Labor Relations Act, which, if adversely determined,
would, individually or in the aggregate, result in any material liability to the
Company. The Company is not presently, nor has it been in the past, a party to,
or bound by, any collective bargaining agreement or union contract with respect
to Employees and no collective bargaining agreement is being negotiated by the
Company.
(l) International Employee Plan. Each International Employee
Plan has been established, maintained and administered in material compliance
with its terms and conditions and with the requirements prescribed by any and
all statutory or regulatory laws that are applicable to such International
Employee Plan. Furthermore, no International Employee Plan has material unfunded
liabilities, that as of the Effective Time, will not be offset by insurance or
fully accrued. Except as required by law, no condition exists that would prevent
the Company or Parent from terminating or amending any International Employee
Plan at any time for any reason without material liability to the Company or its
Affiliates (other than ordinary administration expenses and accrued benefits).
(m) WARN Act. The Company has complied in all material
respects with the Workers Adjustment and Retraining Notification Act of 1988, as
amended ("WARN Act") and all similar state laws.
-19-
(n) Employees and Consultants. Section 2.11(n) of the Company
Schedule or a letter previously delivered by Company to Parent contains a list
of the names of all present employees and consultants of Company and their
respective salaries or wages (as of the date of this Agreement) and dates of
employment or engagement.
2.12 Proxy Statement. The proxy statement to be sent to the
stockholders of the Company in connection with the Stockholders' Meeting (as
hereinafter defined) (such proxy statement, as amended or supplemented, being
referred to herein as the "Proxy Statement"), shall not, at the date the Proxy
Statement is first mailed to stockholders of the Company, at the time of the
Stockholders' Meeting and at the Effective Time, contain any untrue statement of
a material fact, or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not false or misleading, or necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Stockholders' Meeting which shall have become
false or misleading. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent,
Merger Sub or any of Parent's or Merger Sub's representatives for inclusion in
the Proxy Statement. The Proxy Statement shall comply in all material respects
as to form with the requirements of the Exchange Act and the rules and
regulations thereunder.
2.13 Restrictions on Business Activities. Except as set forth in
Section 2.13 of the Company Schedule, there is no Contract (noncompete or
otherwise), commitment, judgment, injunction, order or decree binding upon the
Company or its subsidiaries or to which the Company or any of its subsidiaries
is a party which has or could reasonably be expected to have the effect of
prohibiting or impairing any business practice of the Company or any of its
subsidiaries, any acquisition of property by the Company or any of its
subsidiaries or the conduct of business by the Company or any of its
subsidiaries as currently conducted. Without limiting the foregoing, except as
set forth in Section 2.13 of the Company Schedule, neither the Company nor any
of its subsidiaries has entered into any Contract under which it is restricted
from selling, licensing or otherwise distributing any of its technology or
products to or providing services to, customers or potential customers or any
class of customers, in any geographic area, during any period of time or in any
segment of the market.
2.14 Title to Property.
(a) Neither the Company nor any of its subsidiaries owns any real
property nor have they ever owned any real property. Section 2.14(a) of the
Company Schedule sets forth a list of all real property currently leased by the
Company and any of its subsidiaries, the name of the lessor, the date of the
lease and each amendment thereto. All such current leases are in full force and
effect, are valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event of default
(or event which with notice or lapse of time, or both, would constitute a
default) of the Company or any of its subsidiaries, or to the Company's
knowledge, any other party thereto.
-20-
(b) The Company and each of its subsidiaries has good and valid
title to, or, in the case of leased properties and assets, valid leasehold
interests in, all of its properties and assets, real, personal and mixed, used
or held for use in its businesses, free and clear of all Liens except for (i)
Liens for Taxes (as herein defined) not yet delinquent, (ii) Liens on the
landlord's interest in the facility being leased, and (iii) other Liens which do
not materially impair the Company's or its subsidiaries' ownership or use of
such properties and assets.
(c) Section 2.14(c) of the Company Schedule lists all material
items of equipment owned or leased by the Company or any of its subsidiaries,
and such equipment is adequate for the conduct of the businesses of the Company
and its subsidiaries as currently conducted. All the plants, structures and
material equipment of the Company and its subsidiaries, are in good operating
condition and repair, in all material respects.
2.15 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or "Taxes", means (i) any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts;
(ii) any liability for the payment of any amounts of the type described in
clause (i) as a result of being a member of an affiliated, consolidated,
combined or unitary group for any period; and (iii) any liability for the
payment of any amounts of the type described in clause (i) or (ii) as a result
of any express or implied obligation to indemnify any other person or as a
result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits.
(i) The Company and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, forms, estimates, information
statements and reports ("Returns") relating to Taxes required to be filed by the
Company and each of its subsidiaries with any Tax authority, except such Returns
which are not, individually or in the aggregate, material to the Company. The
Company and each of its subsidiaries have paid all Taxes shown to be due on such
Returns.
(ii) The Company and each of its subsidiaries as of the Effective
Time will have withheld or paid with respect to its employees all federal and
state income Taxes, Taxes pursuant to the Federal Insurance Contribution Act,
Taxes pursuant to the Federal Unemployment Tax Act and other Taxes required to
be withheld or paid, except such Taxes which are not, individually or in the
aggregate, material to the Company.
-21-
(iii) Neither the Company nor any of its subsidiaries has been
delinquent in the payment of any material Tax nor is there any material Tax
deficiency outstanding, proposed or assessed against the Company or any of its
subsidiaries, nor has the Company or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extension of any the period
for the assessment or collection of any Tax.
(iv) Except as set forth in Section 2.15(b)(iv) of the Company
Schedule, no audit or other examination of any Return of the Company or any of
its subsidiaries by any Tax authority is presently in progress, nor has the
Company or any of its subsidiaries been notified of any request for such an
audit or other examination.
(v) No adjustment relating to any Returns filed or required to be
filed by the Company or any of its subsidiaries has been proposed in writing,
formally or informally, by any Tax authority to the Company or any of its
subsidiaries or any representative thereof.
(vi) Neither the Company nor any of its subsidiaries has any
liability for any material unpaid Taxes (whether or not shown to be due on any
Return) which has not been accrued for or reserved on the Company's Year End
Balance Sheet in accordance with GAAP, other than any liability for unpaid Taxes
that may have accrued since the Year End Balance Sheet Date in connection with
the operation of the businesses of the Company and its subsidiaries in the
ordinary course. There are no Liens with respect to Taxes on any of the assets
of the Company or any of its subsidiaries, other than Liens which are not,
individually or in the aggregate, material, or customary Liens for Taxes not yet
due and payable.
(vii) There is no Contract, plan or arrangement to which the
Company or any of its subsidiaries is a party as of the date of this Agreement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company or any of its subsidiaries that,
individually or collectively, would reasonably be expected to give rise to the
payment of any amount that would not be deductible pursuant to Sections 404 or
162(m) of the Code.
(viii) Neither the Company nor any of its subsidiaries has filed
any consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company or any of its
subsidiaries.
(ix) Neither the Company nor any of its subsidiaries is party to or
has any obligation under any tax-sharing, tax indemnity or tax allocation
agreement or arrangement. Neither the Company nor any of its subsidiaries has
ever been a member of a group filing a consolidated, unitary, combined or
similar Return (other than Returns which include only the Company and any of its
subsidiaries) under any federal, state, local or foreign law. Neither the
Company nor any of its subsidiaries is party to any joint venture, partnership
or other arrangement that to the knowledge of the Company could be treated as a
partnership for federal and applicable state, local or foreign Tax purposes.
-22-
(x) None of the Company's or its subsidiaries' assets are tax
exempt use property within the meaning of Section 168(h) of the Code.
(xi) Neither the Company nor any of its subsidiaries has
constituted either a "distributing corporation" or a "controlled corporation" in
a distribution of stock intended to qualify for tax-free treatment under Section
355 of the Code (x) in the two years prior to the date of this Agreement or (y)
in a distribution which could otherwise constitute part of a "plan" or "series
of related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Transactions.
2.16 Environmental Matters.
(a) Hazardous Material. Except as would not result in material
liability to the Company or any of its subsidiaries, no underground storage
tanks and no amount of any substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial supplies,
(a "Hazardous Material") are present, (i) as a result of the actions of the
Company or any of its subsidiaries or any affiliate of the Company, or, (ii) to
the Company's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company or any of
its subsidiaries has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as would not result in a
material liability to the Company (in any individual case or in the aggregate)
(i) neither the Company nor any of its subsidiaries has transported, stored,
used, manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Effective
Time, and (ii) neither the Company nor any of its subsidiaries has disposed of,
transported, sold, used, released, exposed its employees or others to or
manufactured any product containing a Hazardous Material (collectively
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ or injunction is pending, and to the
Company's knowledge, no action, proceeding, revocation proceeding, amendment
procedure, writ or injunction has been threatened by any Governmental Entity
against the Company or any of its subsidiaries in a writing delivered to the
Company or any of its subsidiaries concerning any Company Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of the Company or any of
its subsidiaries. The Company has no knowledge of any fact or circumstance which
could involve the Company or any of its subsidiaries in any environmental
litigation or impose upon the Company any material environmental liability.
-23-
(d) Reports and Records. The Company has delivered to Parent or
made available for inspection by Parent and its agents, representatives and
employees all environmental audits and environmental assessments of any facility
conducted at the request of, or otherwise in the possession of the Company.
2.17 Brokers; Third Party Expenses. Except as set forth in Section
2.17 of the Company Schedule, neither the Company nor any of its subsidiaries
has incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders fees or agent's commissions or any similar charges in
connection with this Agreement or the Transactions contemplated hereby. The
Company has heretofore furnished Parent with a complete and correct copy of all
agreements between the Company and Updata Capital, Inc. ("Updata") pursuant to
which such firm would be entitled to any payment relating to the Transactions.
2.18 Intellectual Property.
(a) "Intellectual Property Rights" means any or all rights in,
arising out of or associated with any of the following: (i) all United States
and foreign patents and patent applications (including all reissues,
reexaminations, divisionals, renewals, extensions, provisionals, continuations
and continuations-in-part) (collectively, "Patents"); (ii) all confidential
inventions (whether patentable or not), technical information (including
information relating to configurations of network infrastructures), procedures,
designs, proprietary business information, customer lists, know how, technology,
methodologies, information, Software (as defined in Section 2.18(h)) and all
documentation relating to any of the foregoing (collectively, "Trade Secrets")
(iii) all United States and foreign copyrights, copyright registrations and
applications therefor (collectively, "Copyrights"); (iv) all United States and
foreign trademarks and service marks (whether or not registered), and trade
names, together with all goodwill appurtenant thereto, and applications for
registration of any of the foregoing (collectively "Trademarks"); and (v)
Internet domain name registrations and applications therefor (collectively
"Domain Names").
(b) Section 2.18(b) of the Company Schedule contains a complete and
accurate list, as of the date hereof, of all Patents, registered Copyrights,
registered Trademarks and Domain Names, and all applications related thereto,
that are owned by the Company and each of its subsidiaries ("Company Registered
Intellectual Property"). All necessary registration, maintenance and renewal
fees currently due in connection with any Company Registered Intellectual
Property Rights have been made and all necessary documents, recordations and
certificates in connection with such Company Registered Intellectual Property
have been filed with the relevant patent, copyright, trademark or other
authorities in the United States or foreign jurisdictions, as the case may be,
for the purposes of maintaining such Company Registered Intellectual Property,
except where the failure to do so would not be reasonably likely to have a
Material Adverse Effect on the Company.
-24-
(c) To the knowledge of the Company, all Company Registered
Intellectual Property and all other Intellectual Property Rights that Company
and its subsidiaries own or exclusively license, or that otherwise are material
to and used in or are necessary for the operation of their businesses as
currently conducted, are valid and enforceable, and no challenges with respect
thereto have been raised by any third party or governmental authority.
(d) To the knowledge of the Company, (i) the operation of the
business of the Company and each of its subsidiaries as such businesses are
currently conducted as of the date hereof do not infringe or misappropriate any
Intellectual Property Rights of any third party or constitute unfair competition
or unfair trade practices under the laws of any jurisdiction, and (ii) the
Company and its subsidiaries own or possess sufficient rights to all
Intellectual Property Rights used in or necessary for the operation of their
businesses as currently conducted on the date hereof.
(e) Neither the Company nor any of its subsidiaries have received
any written notice from any third party as of the date hereof (to the extent it
would have a material effect on the operation of the businesses as currently
conducted), and, to the knowledge of the Company, there is no other assertion or
pending threat from any third party, that the operation of the business of the
Company or any of its subsidiaries or any act, product or service of the Company
or any of its subsidiaries infringes or misappropriates the Intellectual
Property Rights of any third party or constitutes unfair competition or unfair
trade practices under the laws of any jurisdiction.
(f) To the knowledge of the Company, as of the date hereof, no
person is infringing or misappropriating any Intellectual Property Rights owned
or exclusively licensed by the Company or any of its subsidiaries, and Company
and its subsidiaries have not received any written notice that any person is
otherwise infringing or misappropriating any Intellectual Property material to
and used in or necessary for the operation of the business. Neither the Company
nor any of its subsidiaries have brought any such suits, arbitrations or other
adversarial proceedings against any third party for which a definitive agreement
between the Company or any of its subsidiaries (as applicable) and any such
third party has not been entered into between such parties with respect to such
claims as of the date hereof.
(g) Section 2.18(g) of the Company Schedule contains a list of all
material contracts, licenses and agreements to which the Company and each of its
subsidiaries are a party with respect to any Intellectual Property Rights
licensed to or by the Company or its subsidiaries, other than with respect to
end user, off the shelf software that Company or its subsidiaries use in
connection with its day to day business operations ("Company License
Agreements"). The Company and each of its subsidiaries are in compliance with,
and have not breached any term of any of such Company License Agreements and, to
the knowledge of the Company, all other parties to such Company License
Agreements are in compliance with, and have not breached any term of, such
Company License Agreements. The Transactions will not result in the termination
or breach of any Company License Agreement, or the obligations under any Company
License Agreement to pay any royalties or other amounts to any third party in
excess of those amounts otherwise owed by the Company or its subsidiaries
immediately prior to the Transactions.
-25-
(h) To the extent that any computer programs, databases,
compilations, data collections (in each case, whether in human-readable, machine
readable, source code or object code form) and documentation related to the
foregoing ("Software") have been developed or created by a third party and/or
any current or former employee of the Company or its subsidiaries for the
Company or its subsidiaries, the Company or its subsidiaries, as the case may
be, has a written agreement with such third party(ies) and employee(s) with
respect thereto, and the Company or its subsidiaries thereby, with respect to
any Intellectual Property rights material to the operation of the business as
currently conducted, either (i) have obtained ownership of and are the exclusive
owner of with respect to such third party's Intellectual Property Rights in such
work, material or invention, or (ii) have obtained a license sufficient for the
conduct of its business as currently conducted with respect to such third
party's and employee's Intellectual Property Rights in such work, material or
invention by operation of law or by valid assignment.
(i) The Company and its subsidiaries have taken reasonable steps to
protect its Trade Secrets and any Trade Secrets of third parties provided to the
Company and each of its subsidiaries. Without limiting the foregoing, the
Company and each of its subsidiaries maintain a policy requiring all employees,
contractors and other parties having access to such Trade Secrets to execute a
proprietary information/confidentiality agreement. Except under confidentiality
obligations, there has been no disclosure by the Company or any of its
subsidiaries of any Trade Secrets, and to the knowledge of the Company no party
to any such agreement is in breach thereof.
2.19 Contracts.
(a) Except as set forth in Section 2.19(a) of the Company Schedule,
neither the Company nor any of its subsidiaries is a party to or is bound by:
(i) any Contract of indemnification or any guaranty other than
any agreement of indemnification entered into in connection with the sale or
license of Company Products in the ordinary course of business or entered into
with directors and officers in such capacity;
(ii) any Contract currently in force relating to the
disposition or acquisition by the Company or any of its subsidiaries after the
Year End Balance Sheet Date of a material amount of assets not in the ordinary
course of business or pursuant to which the Company or any of its subsidiaries
has any material ownership interest in any corporation, partnership, joint
venture or other business enterprise other than the Company's subsidiaries;
(iii) any dealer, distributor, joint marketing or development
Contract currently in force under which the Company or any of its subsidiaries
have continuing material obligations to jointly market any product, technology
or service, or any Contract pursuant to which the Company or any of its
subsidiaries have continuing material obligations to jointly develop any
Intellectual Property that will not be owned, in whole, by the Company or any of
its subsidiaries;
-26-
(iv) any Contract to provide source code to any third party
for any product or technology that is material to the Company and its
subsidiaries taken as a whole;
(v) any Contract currently in force to license any third party
to manufacture or reproduce any Company product, service or technology or any
agreement, contract or commitment currently in force to sell or distribute any
Company products, service or technology except agreements with distributors or
sales representative in the normal course of business cancelable without penalty
upon notice of ninety (90) calendar days or less and substantially in the form
previously provided to Parent;
(vi) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit in an amount in excess of $50,000
(excluding standard invoice terms for payment of invoices in connection with the
sale of Company Products);
(vii) any settlement agreement under which the Company has any
material ongoing obligations;
(viii) any other Contract or commitment that would be required
to be filed by Company as an exhibit to an Annual Report on Form 10-K under the
Exchange Act; or
(ix) any other Contract involving a current commitment for
payments by or to Company from the date hereof in excess of $150,000.
(b) Except as set forth in Section 2.19(b)(1) of the Company
Schedule, neither the Company nor any of its subsidiaries, nor to the Company's
knowledge any other party to a Company Contract (as defined below), is in
material breach, violation or default under, and neither the Company nor any of
its subsidiaries has received written notice that it has materially breached,
violated or defaulted under, any of the material terms or conditions of any of
the Contracts or commitments to which the Company or any of its subsidiaries is
a party or by which it is bound that are required to be disclosed in Section
2.19(a) of the Company Schedule (any such Contract or commitment, a "Company
Contract") in such a manner as would permit any other party to cancel or
terminate any such Company Contract, or would permit any other party to seek
material damages or other remedies (for any or all of such breaches, violations
or defaults, in the aggregate). The Company has made available to Parent true
and correct copies of any Contracts the Company may have with its top twenty
(20) customers (based on revenue recognized during the first calendar quarter of
2003) (collectively, the "Material Customers") and each such Contract is listed,
along with the revenue recognized by and attributable to each during such
period, in Section 2.19(b)(2) of the Company Schedule.
-27-
(c) Suppliers and Customers. Except as disclosed in Section
2.19(c) of the Company Schedule, each material licensor, vendor, supplier and
licensee of the Company or any of its subsidiaries is set forth in Section
2.19(a) of the Company Schedule, and since March 31, 2003, no such person nor
any Material Customer has canceled or otherwise modified its relationship with
the Company or its subsidiaries and, to the Company's knowledge, (a) no such
person nor any Material Customer has any intention to do so, and (b) the
consummation of the transactions contemplated hereby will not adversely affect
any of such relationships, and no agreements with such parties have expired or
terminated.
2.20 Insurance. The Company maintains insurance policies and/or
fidelity bonds covering the assets, businesses, equipment, properties,
operations, employees, officers and directors of the Company and its
subsidiaries (collectively, the "Insurance Policies") which are of the type and
in amounts customarily carried by persons conducting businesses similar to those
of the Company and its subsidiaries. Section 2.20 of the Company Schedule lists
all such Insurance Policies. There is no claim by the Company or any of its
subsidiaries pending under any of the Insurance Policies as to which coverage
has been denied or disputed by the underwriters of such policies or bonds. All
premiums due and payable under all such Insurance Policies have been paid, and
the Company and each of its subsidiaries, as the case may be, is otherwise in
compliance with the terms of such Insurance Policies in all material respects.
The Company does not have knowledge of any threatened termination of, or premium
increase with respect to, any such Insurance Policies.
2.21 Opinion of Financial Advisor. The Company has been advised in
writing by its financial advisor, Updata, that in its opinion, as of the date of
this Agreement, the Merger Consideration is fair to the stockholders of the
Company from a financial point of view.
2.22 Board Approval. The Board has, as of the date of this Agreement,
unanimously (i) determined that the Merger is advisable and in the best
interests of, the Company and its stockholders, (ii) approved, subject to
stockholder approval, the Transactions, and (iii) determined, subject to the
terms of this Agreement, to recommend that the stockholders of the Company adopt
and approve this Agreement and approve the Merger.
2.23 Vote Required. The affirmative vote of a majority of the votes
that holders of the outstanding Shares are entitled to vote with respect to the
Merger is the only vote of the holders of any class or series of the Company's
capital stock necessary to approve this Agreement and the Transactions,
including the Merger.
2.24 State Takeover Statutes. The Board has approved the Merger, this
Agreement and the Company Voting Agreements, the Escrow Agreement and such
approval is sufficient to render inapplicable to the Merger, this Agreement, the
Company Voting Agreements, the Escrow Agreement and the Transactions and the
transactions contemplated by the Company Voting Agreements and the Escrow
Agreement, the provisions of Section 203 of Delaware Law to the extent, if any,
such Section is applicable to the Merger, this Agreement and the Company Voting
Agreements, the Escrow Agreement and the Transactions and the transactions
contemplated by the Company Voting Agreements and the Escrow Agreement. No other
state takeover statute or similar statute or regulation applies to or purports
to apply to the Merger, this Agreement, the Company Voting Agreements, the
Escrow Agreement or the Transactions and the transactions contemplated by the
Company Voting Agreements and the Escrow Agreement.
-28-
2.25 Interested Party Transactions. There are no relationships between
the Company and any other person required to be disclosed in the Company SEC
Reports and the Proxy Statement in accordance with Item 404 of Regulation S-K
that have not been so disclosed in the Company's SEC Reports or in the Proxy
Statement.
2.26 [Intentionally Omitted. ]
2.27 [Intentionally Omitted.]
2.28 Full Disclosure; Estimates.
(a) No statements contained in the Company Schedule furnished by
the Company to Parent as an exception to a corresponding or reasonably and
objectively applicable representation or warranty hereunder as such statements
relate to such representation or warranty contains, as of the date hereof, or
will contain as of the Effective Time, any untrue statement of material fact or
omits to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) No information pertaining to the assets and liabilities of the
Company which represents the underlying predicate to the estimated values of
such assets and liabilities set forth in the Estimated Valuation Schedule
contains, as of February 28, 2003, any untrue material fact or omits any
material fact necessary in order to make such estimated values derived
therefrom, in light of the circumstances under which they were made, not
misleading.
(c) With respect to any estimates, assumptions, projections or
predictions contained in any aforementioned schedules in this Section 2.28, the
Company represents that such estimates, assumptions, projections or predictions
have been made in good faith and that there is a reasonable basis therefor.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and
warrant to the Company, as follows:
3.1 Corporate Organization. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
own, lease and operate its assets and properties and to carry on its businesses
as they are now being conducted. Each of Parent and Merger Sub is in possession
of all Approvals necessary to own, lease and operate the properties it purports
to own, operate or lease and to carry on its businesses as they are now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such power, authority and Approvals would not prevent or
materially delay consummation of the Transactions, or otherwise prevent Parent
or Merger Sub from performing its material obligations under this Agreement.
-29-
3.2 Certificate of Incorporation and Bylaws. Parent has previously made
available to the Company a complete and correct copy of its and Merger Sub's
Certificate of Incorporation and Bylaws as amended to date (together, the
"Parent Charter Documents"). The Parent Charter Documents are in full force and
effect. Neither Parent nor Merger Sub is in violation of any of the provisions
of its respective Parent Charter Documents in any material respect.
3.3 Authority Relative to this Agreement. Each of Parent and Merger Sub
has all necessary corporate power and authority to execute and deliver this
Agreement, and to perform its obligations hereunder and to consummate the
Transactions. The execution and delivery of this Agreement by Parent and Merger
Sub and the consummation by Parent and Merger Sub of the Transactions have been
duly and validly authorized by all necessary corporate action on the part of
Parent and Merger Sub, and no other corporate proceedings on the part of Parent
or Merger Sub are necessary to authorize this Agreement, or to consummate the
Transactions (other than, with respect to the Merger, the filing of the
Certificate of Merger as required by Delaware Law). This Agreement has been duly
and validly executed and delivered by Parent and Merger Sub and, assuming the
due authorization, execution and delivery by the Company, constitutes a legal
and binding obligation of Parent and Merger Sub, enforceable against Parent and
Merger Sub in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
3.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and
Merger Sub does not, and the performance of this Agreement by Parent and Merger
Sub will not, (i) conflict with or violate the Parent Charter Documents, (ii)
subject to compliance with the requirements set forth in Section 3.3(b) hereof,
conflict with or violate any Legal Requirements applicable to Parent or by which
its properties are bound or affected, or (iii) conflict with or violate, result
in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or impair Parent's rights or
alter the rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a Lien on any of the properties or assets of Parent pursuant to
any Contract to which Parent is a party or by which Parent or its properties are
bound or affected, except to the extent such conflict, violation, breach,
default, impairment or other effect could not in the case of clauses (ii) or
(iii) individually or in the aggregate, prevent or materially delay consummation
of the Transactions or otherwise prevent Parent or Merger Sub from performing
their material obligations under this Agreement.
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(b) The execution and delivery of this Agreement by Parent and
Merger Sub does not, and the performance of this Agreement by Parent and Merger
Sub shall not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity except (i) for
applicable requirements, if any, of Blue Sky Laws and state takeover laws, the
pre-merger notification requirements of foreign Governmental Entities, and the
filing and recordation of the Certificate of Merger as required by Delaware Law
and (ii) where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, could not, individually or in
the aggregate, prevent or materially delay consummation of the Transactions or
otherwise prevent Parent or Merger Sub from performing their material
obligations under this Agreement.
3.5 Proxy Statement. The information supplied by Parent and Merger Sub
for inclusion in the Proxy Statement shall not, at the date the Proxy Statement
is first mailed to stockholders of the Company, at the time of the Stockholders'
Meeting or at the Effective Time, contain any untrue statement of a material
fact, or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not false or misleading, or necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders' Meeting which shall have become false or
misleading. Notwithstanding the foregoing, Parent and Merger Sub make no
representation or warranty with respect to any information supplied by the
Company or any of its representatives for inclusion in the Proxy Statement.
3.6 Financing. Parent will have at the Effective Time sufficient cash
or cash-equivalent funds available to permit Merger Sub to consummate the
Transactions, including, without limitation, acquiring all the outstanding
Shares in the Merger.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by Company. Subject to Section 4.3, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the Effective Time, the
Company and each of its subsidiaries shall, except to the extent that Parent
shall otherwise request or consent in writing (which consent or refusal to grant
consent shall not be unreasonably withheld or delayed), carry on its businesses
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and in compliance with all applicable laws and regulations,
pay its Liabilities and Taxes when due (subject to good faith disputes over such
Liabilities or Taxes), pay or perform other obligations when due, and use its
commercially reasonable efforts consistent with past practices and policies to
(i) preserve intact its present business organization, (ii) keep available the
services of its present officers and employees, and (iii) preserve its
relationships with customers, suppliers, distributors, consultants, licensors,
licensees and others with which it has significant business dealings. In
addition, the Company shall promptly notify Parent of any material event
involving its businesses or operations occurring outside the ordinary course of
business.
In addition, without the prior written consent of Parent (which consent
or refusal to grant consent shall not be unreasonably withheld or delayed),
except as permitted or required by this Agreement, as provided in Section 4.1 of
the Company Schedule, or in accordance with the terms of Section 4.2 hereof with
respect to the ISAC Sale (as defined in Section 4.2 hereof), during the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the Effective Time,
Company shall not do any of the following and shall not permit its subsidiaries
to do any of the following:
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(a) Authorize cash payments in exchange for any options granted
under any employee, consultant, director, or other stock plans;
(b) Grant any severance or termination pay (whether in cash, stock,
equity securities, or property) to any officer or key employee except pursuant
to written agreements outstanding on the date hereof and as previously disclosed
in writing to Parent, or adopt any new severance plan, or amend or modify or
alter in any material respect any severance plan, agreement or arrangement
existing on the date hereof (including without limitation any retention, change
of control or similar agreement), or grant any equity-based compensation,
whether payable in cash or stock (except pursuant to written agreements
outstanding on the date hereof);
(c) Transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the Company Intellectual Property (other
than in the ordinary course of business and consistent with past practice), or
enter into grants to transfer or license to any person future rights to the
Company Intellectual Property other than non-exclusive licenses granted to
end-users and non-exclusive distribution, reseller and similar commercial
agreements entered into in the ordinary course of business and consistent with
past practice; provided that in no event shall the Company (i) license, or enter
into a distribution, reseller or similar arrangement, on an exclusive basis, or
sell, any Company Intellectual Property; or (ii) enter into any Contract (v)
providing for any site licenses other than in the ordinary course of business
and consistent with past practice, (w) containing pricing or discounting terms
or provisions other than in the ordinary course of business consistent with past
practice, (x) requiring the Company to use its "best efforts" other than in the
ordinary course of business and consistent with past practice, (y) limiting the
right of the Company to engage in any line of business or to compete with any
person, or (z) not otherwise in compliance with Section 4.1(d) hereof;
(d) Enter into any Contract (i) requiring the Company to purchase a
minimum amount of products or services with aggregate commitments over the life
of all such Contracts in excess of $50,000 individually or $200,000 in the
aggregate on a monthly basis, or (ii) requiring the Company to provide a minimum
amount of products or services with aggregate commitments over the life of such
Contract in excess of $200,000;
(e) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(f) Purchase, redeem or otherwise acquire, directly or indirectly,
any shares of capital stock of the Company or its subsidiaries, except
repurchases of unvested shares at or below cost in connection with the
termination of the employment relationship with any employee pursuant to stock
option or purchase agreements in effect on the date of this Agreement, provided
that no such repurchase shall be permitted in the event the per share repurchase
price is greater than the Merger Consideration;
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(g) Issue, deliver, sell, authorize or designate (including by
certificate of designation) or pledge or otherwise encumber, or propose any of
the foregoing with respect to any shares of capital stock or any securities
convertible into shares of capital stock, or subscriptions, rights, warrants or
options to acquire any shares of capital stock or any securities convertible
into shares of capital stock, or enter into other agreements or commitments of
any character obligating it to issue any such shares or convertible securities,
other than the issuance, delivery and/or sale of (i) shares of Company Common
Stock pursuant to the exercise of Company Stock Options outstanding as of the
date of this Agreement, or (ii) shares of Company Common Stock issuable to
participants in the ESPP consistent with the terms thereof and subject to
Section 1.6(i) hereof;
(h) Cause, permit or submit to a vote of the Company's stockholders
any amendments to the Company Charter Documents (or similar governing
instruments of any of its subsidiaries);
(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
enter into any joint ventures or similar alliances;
(j) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except in the ordinary course of business consistent with
past practice, and except for the sale, lease, licensing, encumbering or
disposition (other than through licensing unless permitted by Section 4.1(c)) of
property or assets not in excess of $50,000 individually or $200,000 in the
aggregate, provided such property or assets are not material, individually or in
the aggregate, to the businesses of the Company and its subsidiaries;
(k) Grant any loans to employees, officers, directors (other than
for reasonable business expenses or in connection with cashless exercises of
options with respect to such third parties and which are compliant with
applicable Legal Requirements) or other third parties, incur any indebtedness
for borrowed money or guarantee any such indebtedness of another person, issue
or sell any debt securities or options, warrants, calls or other rights to
acquire any debt securities of the Company, enter into any "keep well" or other
agreement to maintain any financial statement condition or enter into any
arrangement having the economic effect of any of the foregoing other than in
connection with the financing of ordinary course trade payables consistent with
past practice;
(l) Except as required by applicable law, this Agreement or
Contracts in effect on the date hereof, adopt or amend any Company Employee Plan
or any employee stock purchase or employee stock option plan, or enter into any
employment contract or collective bargaining agreement, pay any special bonus or
special remuneration to any director or employee (cash, equity or otherwise), or
materially increase the salaries or wage rates or fringe benefits (including
rights to severance or indemnification) of its directors, officers, employees or
consultants;
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(m) Waive the benefits of, agree to modify in any manner,
terminate, release any person from or knowingly fail to enforce the
confidentiality or nondisclosure provisions of any Contract to which the Company
or any of its subsidiaries is a party or of which the Company or any of its
subsidiaries is a beneficiary;
(n) Enter into (unless otherwise permitted by this Section 4.1),
modify or amend (unless such amendment, if it were a new Contract, would be
otherwise permitted by this Section 4.1), or terminate any Contract of a nature
required to be listed as a Company Contract in Section 2.19 of the Company
Schedule or waive, delay the exercise of, release or assign any material rights
or claims thereunder, in each case, outside the ordinary course of business;
(o) Except as required by GAAP, revalue any of its assets
(including without limitation writing down the value of inventory or writing off
notes or accounts receivable other than in the ordinary course of business
consistent with past practice) or make any change in accounting methods,
principles or practices;
(p) Make any Tax election or accounting method change (except as
required by GAAP) that, individually or in the aggregate, is reasonably likely
to adversely affect in any material respect the Tax liability or Tax attributes
of the Company or any of its subsidiaries, settle or compromise any material Tax
liability or consent to any extension or waiver of any limitation period with
respect to Taxes;
(q) Other than taking any action permitted by Section 5.4(c)
hereof, engage in any action with the intent to, directly or indirectly,
adversely impact or materially delay the consummation of the Transactions;
(r) (i) Hire any employee (except that in the event an employee is
terminated pursuant to clause (ii) hereof or voluntarily terminates (including
by death or disability) his or her employment, a replacement may be engaged as a
contractor or temporary "at-will" employee to temporarily fill such terminated
employee's position, provided (x) any consideration payable for services
rendered by such replacement is of a kind and amount permitted by this Section
4.1, and (y) any such agreement with any such replacement shall be terminable,
at the sole option of Parent, without penalty at the Effective Time), or (ii)
terminate any employee (except for termination for cause and subject to Section
5.10 hereof);
(s) Make any individual or series of related payments outside of
the ordinary course of business (including payments to legal, accounting or
other professional service advisors) in excess of $150,000 in the aggregate,
except in connection with this Agreement or the ISAC Sale;
(t) Commence any litigation (whether or not commenced prior to the
date of this Agreement) (other than any litigation to enforce any of its rights
under the Agreement);
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(u) Agree in writing or otherwise to take any of the actions
described in Section 4.1(a) through Section 4.1(t) above.
4.2 Sale of Assets. Notwithstanding anything to the contrary in this
Agreement, the Company may actively solicit, initiate and participate in
negotiations regarding the sale of its Information Sharing and Analysis Center
division and Open Source Intelligence division (collectively, the "ISAC
Business") to one or more third parties, and may provide such third parties with
such information regarding the ISAC Business, as applicable, as the Company and
such third parties deem necessary in order to analyze, negotiate and consummate
the sale of the ISAC Business (the "ISAC Sale"). At any time prior to the
Effective Time, the Company may enter definitive agreements regarding, and may
consummate in accordance with such definitive agreements, the ISAC Sale, subject
to the consent of Parent (which consent shall not be unreasonably withheld or
delayed) with respect to provisions of such agreements to which Parent will be
bound or which may create a liability to which Parent will be obligated after
the Effective Time.
4.3 Business Promotion Program. In addition to the affirmative
covenants of Company prior to the Effective Time with respect to the
preservation and maintenance of Company's businesses as set forth in Section 4.1
above, and no later than seven (7) days after the date hereof, to the extent
permitted by law, the parties shall mutually develop a launch program (the
"Program") to promote the benefits and improved capabilities of the combined
company to Company's customers (and other business affiliations) and employees
prior to the Effective Time. The parties hereby acknowledge that the success of
such Program is critical for the combined company to preserve the value of the
Transactions and otherwise in maximizing the synergies of the Merger after the
Closing, and as such agree to use their respective reasonable best efforts to
actively, timely and diligently abide by, and implement, the terms of the
Program, it being agreed and understood, however, that (i) with the exception of
ordinary travel expenses, the Company shall have no obligation to incur any
additional expense in complying with the terms of the Program, and (ii) if the
terms of this Agreement and the terms of the Program conflict, the terms of the
Program shall control and the Company's adherence to such terms shall not be
deemed a breach of this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement; Board Recommendation.
(a) As promptly as practicable after the execution of this
Agreement, the Company shall prepare and file the Proxy Statement with the SEC
under the Exchange Act. Parent shall provide promptly to the Company such
information concerning itself as, in the reasonable judgment of the Company or
its counsel, may be required or appropriate for inclusion in the Proxy
Statement, or in any amendments or supplements thereto. The Company shall
respond to any comments of the SEC, and shall use its commercially reasonable
efforts to have the Proxy Statement cleared by the SEC as promptly as
practicable after such filing, and the Company shall cause the Proxy Statement
to be mailed to its stockholders at the earliest practicable time after the
Proxy Statement is cleared by the SEC. The Company shall notify Parent promptly
upon the receipt of any comments from the SEC or its staff and of any request by
the SEC or its staff for amendments or supplements to the Proxy Statement or for
additional information and shall supply Parent with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement or the
Merger. The Company shall give Parent and its counsel the opportunity to review
the Proxy Statement, including all amendments and supplements thereto, prior to
its being filed with the SEC and shall give Parent and its counsel the
opportunity to review all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the SEC.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Proxy Statement, the Company shall promptly inform Parent of
such occurrence and file with the SEC or its staff and/or mail to stockholders
of the Company, such amendment or supplement.
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The Proxy Statement shall include the unanimous recommendation of the
Board in favor of adoption and approval of this Agreement and approval of the
Merger (subject to the terms of Section 5.4(c) hereof).
(b) Solely for the purposes of this Agreement, the parties hereby
acknowledge and agree that the recommendation of the Board shall be deemed to
continue to be "unanimous" despite an abstention by one or more directors of the
Board or any committee thereof subsequent to the date of this Agreement on a
vote by the members of the Board or a committee thereof with respect to any
matter pertaining to the recommendation subsequent to the initial unanimous
Board approval, and the Board or any committee thereof shall not have been
deemed to have withdrawn, withheld, amended, changed or modified in a manner
adverse to Parent, nor shall it have been deemed to have failed to include in
the Proxy Statement the unanimous recommendation of the Board that holders of
Shares vote in favor of, adopt and approve this Agreement and approve the
Merger, by virtue of such abstention; provided, however, that the foregoing
shall only apply if, and only if, the following conditions and terms
(collectively, the "Abstention Terms") are met: (i) such an abstention does not
affect the due and valid recommendation of the Board with respect to the Merger
under the Company Charter Documents and all applicable Legal Requirements; (ii)
no abstaining Board member (or any affiliate thereof, including, without
limitation, the Company or any of its subsidiaries) makes any public statement
with respect to the abstention, either explicitly or implicitly, in a manner
adverse to Parent nor any public statement reasonably likely to have an adverse
effect on the adoption and approval of this Agreement and the approval of the
Merger at the Stockholders' Meeting (defined in Section 5.2(a) below); and (iii)
except pursuant to and in accordance with this Section 5.1(b), no abstention in
any way or fashion affects Parent's rights and the Company's obligations with
respect to the maintenance, and the manner of maintenance, of the Board's
unanimous recommendation hereunder.
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5.2 Meeting of Company Stockholders.
(a) Promptly after the date hereof, the Company shall take all
action necessary in accordance with Delaware Law and the Company Charter
Documents to convene an annual or special meeting of its stockholders for the
purpose of considering and taking action on this Agreement and the Merger (the
"Stockholders' Meeting"), to be held as promptly as practicable, and in any
event (to the extent permissible under applicable law) within thirty (30)
calendar days after the Proxy Statement is cleared by the SEC. Subject to the
terms of Section 5.4(c) hereof, the Company shall use its commercially
reasonable efforts to solicit from its stockholders proxies in favor of the
adoption and approval of this Agreement and the approval of the Merger and shall
take all other action necessary or advisable to secure the vote or consent of
its stockholders required by the rules of Nasdaq or Delaware Law to obtain such
approvals. Notwithstanding anything to the contrary contained in this Agreement,
the Company may adjourn or postpone the Stockholders' Meeting to the extent
necessary to ensure that any necessary supplement or amendment to the Proxy
Statement is provided to the Company's stockholders in advance of a vote on the
Merger and this Agreement or, if as of the time for which the Stockholders'
Meeting is originally scheduled (as set forth in the Proxy Statement) there are
insufficient shares of Company Common Stock represented (either in person or by
proxy) to constitute a quorum necessary to conduct the business of the
Stockholders' Meeting. The Company shall ensure that the Stockholders' Meeting
is called, noticed, convened, held and conducted, and that all proxies solicited
by the Company in connection with the Stockholders' Meeting are solicited, in
compliance with Delaware Law, the Company Charter Documents, the rules of Nasdaq
and all other applicable legal requirements. The Company's obligation to call,
give notice of, convene and hold the Stockholders' Meeting in accordance with
this Section 5.2 shall not be limited to or otherwise affected by the
commencement, disclosure, announcement or submission to the Company of any
Acquisition Proposal (it being agreed and understood however, that if this
Agreement shall terminate in accordance with Section 7.1, such obligation to
call, give notice of, convene and hold the Stockholders' Meeting shall
terminate).
(b) Subject to the terms of Section 5.4(c) hereof: (i) the Board
shall recommend that the Company's stockholders vote in favor of and adopt and
approve this Agreement and approve the Merger at the Stockholders' Meeting; (ii)
the Proxy Statement shall include (x) the fairness opinion referred to in
Section 2.21 hereof and (y) a statement to the effect that the Board has
unanimously recommended that the Company's stockholders vote in favor of and
adopt and approve this Agreement and approve the Merger at the Stockholders'
Meeting; and (iii) neither the Board nor any committee thereof shall withdraw,
amend, change or modify, or propose or resolve to withdraw, amend, change or
modify in a manner adverse to Parent, the unanimous recommendation of the Board
that the Company's stockholders vote in favor of and adopt and approve this
Agreement and approve the Merger. For purposes of this Agreement, said
recommendation of the Board of Directors shall be deemed to have been modified
in a manner adverse to Parent if such recommendation shall no longer be
unanimous.
5.3 Confidentiality; Access to Information.
(a) The parties acknowledge that Parent and the Company have
previously executed a Confidentiality Agreement, dated as of October 4, 2002, as
amended on February 20, 2003 (as amended, the "Confidentiality Agreement"),
which Confidentiality Agreement will continue in full force and effect in
accordance with its terms.
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(b) The Company shall afford Parent and its accountants, counsel,
advisors and other representatives reasonable access during normal business
hours, upon reasonable notice, to the properties, books, records and personnel
of the Company during the period prior to the Effective Time to obtain all
information concerning the businesses, including the status of product
development efforts, properties, financial positions, results of operations and
personnel of the Company, as Parent may reasonably request.
(c) No information or knowledge obtained by Parent in any
investigation pursuant to this Section 5.3 will affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Transactions.
5.4 No Solicitation.
(a) Except to the extent permitted by the terms of this Section
5.4, from the date hereof until the earlier of the approval and adoption of this
Agreement and approval of the Merger by the Company's stockholders or the
termination of this Agreement, the Company and its subsidiaries shall not, nor
will they authorize or permit any of their respective officers, directors,
affiliates or employees or any investment banker, attorney, accountant, or other
advisor or representative retained by any of them ("Representatives") to,
directly or indirectly: (i) solicit, initiate, knowingly or intentionally
encourage, facilitate or induce the making, submission or announcement of any
Acquisition Proposal (as defined in Section 5.4(d) hereof); (ii) participate in
any negotiations or discussions regarding, or furnish to any person any
non-public information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes or may reasonably
be expected to lead to, any Acquisition Proposal; (iii) subject to the terms of
Section 5.4(c) hereof, approve, endorse or recommend any Acquisition Proposal;
or (iv) enter into any letter of intent or similar document or any Contract
contemplating or otherwise relating to any Acquisition Transaction (as defined
in Section 5.4(d) hereof); provided, however, that the terms of this Section 5.4
shall not prohibit the Company from furnishing nonpublic information regarding
the Company and its subsidiaries to, entering into a confidentiality agreement
with or entering into negotiations or discussions with, any person or group in
response to an Acquisition Proposal submitted by such person or group (and not
withdrawn) if: (1) neither the Company nor its subsidiaries nor any of their
respective Representatives shall have violated any of the restrictions set forth
in this Section 5.4 in connection with such Acquisition Proposal; (2) the Board
concludes in good faith, after consultation with its outside legal counsel, that
such action is required in order for the Board to comply with its fiduciary
duties to the Company's stockholders under applicable law; (3) (x) at least two
(2) business days prior to furnishing any such nonpublic information to, or
entering into negotiations or discussions with, such person or group, the
Company gives Parent written notice of the identity of such person or group and
of the Company's intention to furnish nonpublic information to, or enter into
negotiations or discussions with, such person or group, and (y) the Company
receives from such person or group an executed confidentiality agreement
containing limitations on the use and disclosure of all nonpublic written and
oral information furnished to such person or group by or on behalf of the
Company which are no less favorable to the Company than the Confidentiality
Agreement; and (4) contemporaneously with furnishing any such nonpublic
information to such person or group, the Company furnishes such nonpublic
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information to Parent (to the extent such nonpublic information has not been
previously furnished by the Company to Parent). In addition to the foregoing,
the Company shall (i) provide Parent with at least forty-eight (48) hours prior
written notice (or such lesser prior notice as provided to the members of the
Board, but in no event less than eight hours) of a meeting of the Board at which
the Board is reasonably expected to consider a Superior Offer and (ii) provide
Parent with at least two (2) business days prior written notice of a meeting of
the Board at which the Board is reasonably expected to recommend a Superior
Offer to its stockholders and together with such notice a copy of any definitive
documentation relating to such Superior Offer and such other documentation
reflecting the terms of the Superior Offer as being considered by the Board. The
terms of this Section 5.4 shall not prohibit the Company from taking any action
necessary in order to comply with Rule 14d-9 or Rule 14e-2 promulgated under the
Exchange Act, provided that neither the Company nor its Board shall, except as
permitted by Section 5.4(c), propose to withdraw, amend, change or modify its
unanimous recommendation of this Agreement and the Merger, or to approve or
recommend, or propose to publicly approve or recommend, an Acquisition Proposal.
The Company and its subsidiaries shall immediately cease any and all existing
activities, negotiations or discussions with any parties conducted heretofore
with respect to any Acquisition Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding two
sentences by any officer or director of the Company or any of its subsidiaries
or any Representative of the Company or any of its subsidiaries shall be deemed
to be a breach of this Section 5.4 by the Company.
(b) In addition to the obligations of the Company set forth in
Section 5.4 hereof, the Company as promptly as practicable shall advise Parent
orally (within one business day) and in writing (within two business days) of
any request received by the Company for nonpublic information which the Company
reasonably believes would lead to an Acquisition Proposal or of any Acquisition
Proposal, or any inquiry received by the Company with respect to or which the
Company reasonably believes would lead to any Acquisition Proposal, the material
terms and conditions of such request, Acquisition Proposal or inquiry, and the
identity of the person or group making any such request, Acquisition Proposal or
inquiry. The Company shall keep Parent informed in all material respects of the
status and details (including material amendments or proposed amendments) of any
such request, Acquisition Proposal or inquiry.
(c) Nothing in this Agreement shall prevent the Board from
withdrawing, amending, changing or modifying its unanimous recommendation in
favor of the Transactions at any time prior to the approval and adoption of this
Agreement and approval of the Merger by the Company's stockholders, but the
Board may do so only to terminate this Agreement in accordance with Section
7.1(e) hereof and only if (i) a Superior Offer (as defined in Section 5.4(d)
hereof) is made to the Company and is not withdrawn, and, concurrent with the
termination of this Agreement pursuant to Section 7.1(e) hereof, the Board shall
cause the Company to enter into a definitive agreement with respect to such
Superior Proposal, (ii) neither the Company nor any of its subsidiaries nor any
of their respective Representatives shall have violated any of the restrictions
set forth in Section 5.4 hereof in connection with such Superior Offer, and
(iii) the Board concludes in good faith, after consultation with its outside
counsel, that in light of such Superior Offer the withdrawal, amendment, change
or modification of such recommendation is required in order for the Board to
comply with its fiduciary duties to the Company's stockholders under applicable
law.
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(d) For purposes of this Agreement, (i) "Acquisition Proposal"
shall mean any offer or proposal (other than an offer or proposal by Parent or
Merger Sub) relating to any Acquisition Transaction. For the purposes of this
Agreement, (ii) "Acquisition Transaction" shall mean any transaction or series
of related transactions other than the Transactions involving: (A) any
acquisition or purchase from the Company by any person or "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of more than a fifteen percent (15%) interest in the total
outstanding voting securities of the Company or any of its subsidiaries or any
tender offer or exchange offer that if consummated would result in any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) beneficially owning fifteen percent (15%) or more of the
total outstanding voting securities of the Company or any of its subsidiaries or
any merger, consolidation, business combination or similar transaction involving
the Company (excluding the ISAC Sale) pursuant to which the stockholders of the
Company immediately preceding such transaction hold less than eighty five
percent (85%) of the equity interests in the surviving or resulting entity of
such transaction; (B) any sale, lease, exchange, transfer, license (other than
in the ordinary course of business and consistent with past practice),
acquisition or disposition of more than fifteen percent (15%) of the assets of
the Company; or (C) any liquidation or dissolution of the Company, and (iii)
"Superior Offer" shall mean an unsolicited, bona fide written offer made by a
third party to consummate any Acquisition Proposal on terms that the Board
determines, in its reasonable judgment (after consultation with a reputable
financial advisor) to be more favorable to the Company stockholders from a
financial point of view than the terms of the Transactions; provided, however,
that any such offer shall not be deemed to be a "Superior Offer" if any
financing required to consummate the transaction contemplated by such offer is
not committed and is not likely in the reasonable judgment of the Board to be
obtained by such third party on a timely basis.
5.5 Public Disclosure.
(a) Parent and the Company shall consult with each other, and to
the extent practicable, agree, before issuing any press release or otherwise
making any public statement with respect to the Transactions, this Agreement or,
except for as necessary to effect the Company's rights under Section 5.4(c)
hereof, an Acquisition Proposal, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law or any listing agreement with a national securities exchange or
Nasdaq, in which case reasonable efforts to consult with the other party will be
made prior to such release or public statement. The parties have agreed to the
text of the joint press release announcing the signing of this Agreement.
(b) Company shall consult with Parent before issuing any press
release or otherwise making any public statement with respect to the Company's
earnings or results of operations, and shall not issue any such press release or
make any such public statement prior to such consultation.
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5.6 Reasonable Efforts; Notification.
(a) Other than taking any action permitted by Section 5.4(c)
hereof, upon the terms and subject to the conditions set forth in this Agreement
each of the parties agrees to use all commercially reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Transactions, including using reasonable efforts to accomplish
the following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in ARTICLE VI to be satisfied, (ii) the obtaining
of all necessary actions or nonactions, waivers, consents, approvals, orders and
authorizations from Governmental Entities and the making of all necessary
registrations, declarations and filings (including registrations, declarations
and filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity, (iii) the obtaining of all consents,
approvals or waivers from third parties required as a result of the transactions
contemplated in this Agreement, (iv) the defending of any suits, claims,
actions, investigations or proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed and (v)
the execution or delivery of any additional instruments reasonably necessary to
consummate the Transactions, and to fully carry out the purposes of, this
Agreement. In connection with and without limiting the foregoing, the Company
and its Board shall, if any state takeover statute or similar statute or
regulation is or becomes applicable to the Transactions or this Agreement, use
all commercially reasonable efforts to ensure that the Transactions may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Transactions and this Agreement. Notwithstanding anything herein to the
contrary, nothing in this Agreement shall be deemed to require Parent or any
subsidiary or affiliate of Parent to agree to any divestiture by itself or the
Company or any of their respective affiliates of shares of capital stock or of
any business, assets or property, or the imposition of any material limitation
on the ability of any of them to conduct their businesses or to own or exercise
control of such assets, properties and stock.
(b) The Company shall give prompt notice to Parent upon becoming
aware that any representation or warranty made by it contained in this Agreement
has become untrue or inaccurate in any material respect, or of any failure of
the Company to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, in each case, such that the conditions set forth in ARTICLE VI hereof
would not be satisfied; provided, however, that no such notification shall
affect the representations, warranties, covenants or agreements of the parties
or the conditions to the obligations of the parties under this Agreement.
5.7 Third Party Consents. As soon as practicable following the date
hereof, Company shall use its commercially reasonable efforts to obtain any
consents, waivers and approvals under any of its or its subsidiaries' respective
Contracts required to be obtained in connection with the consummation of the
Transactions, including those set forth on Section 5.7 of the Company Schedule.
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5.8 Directors' and Officers' Indemnification.
(a) From and after the Effective Time, Parent shall, and shall
cause the Surviving Corporation to fulfill and honor in all respects the
obligations of the Company pursuant to any indemnification provisions of
Company's directors and officers under the Company Charter Documents as in
effect on the date hereof (the "Indemnified Parties"). The Certificate of
Incorporation and Bylaws of the Surviving Corporation will contain provisions
with respect to exculpation and indemnification that are at least as favorable
to the Indemnified Parties as those contained in the Company Charter Documents
as in effect on the date hereof which provisions will not be amended, repealed
or otherwise modified for a period of six (6) years from the Effective Time in
any manner that would adversely affect the rights thereunder of individuals who,
immediately prior to the Effective Time, were directors, officers, employees or
agents of the Company, unless such modification is required by applicable law.
(b) The Company shall purchase, for a price (which shall in no
event exceed the Cap Amount regardless of any amounts credited against premium
payments previously paid by the Company) not to exceed the amount set forth on
Section 5.8(b) of the Company Schedule (the "Cap Amount"), directors' and
officers' liability tail coverage (for a period of six (6) years following the
Effective Time), covering those persons who are currently covered by the
Company's directors' and officers' liability insurance policy, on terms
comparable to those applicable to the current directors and officers of the
Company, and covering all periods prior to the Effective Time (the "Tail
Coverage").
(c) This Section 5.8 is intended for the irrevocable benefit of,
and to grant third party rights to, the Indemnified Parties and shall be binding
on all successors and assigns of Parent, the Company and the Surviving
Corporation. Each of the Indemnified Parties shall be entitled to enforce the
covenants contained in this Section 5.8.
5.9 Regulatory Filings; Reasonable Efforts. As soon as may be
reasonably practicable, the Company and Parent each shall file any appropriate
pre-merger notifications under the competition laws or regulations of any
jurisdiction, as reasonably agreed by the parties to apply. The Company and
Parent each shall promptly (a) supply the other with any information which may
be required in order to effectuate such filings and (b) supply any additional
information, which reasonably may be required by the competition or merger
control authorities of any other jurisdiction and which the parties may
reasonably deem appropriate; provided, however, that Parent shall not be
required to agree to any divestiture by Parent or the Company or any of Parent's
subsidiaries or affiliates of shares of capital stock or of any business, assets
or property of Parent or its subsidiaries or affiliates or of the Company, its
affiliates, or the imposition of any material limitation on the ability of any
of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
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5.10 Company Actions with Respect to Employees.
(a) Company shall use its commercially reasonable efforts (which,
for clarification, shall not obligate the Company to incur any additional
expenditures with the exception of individual bonuses to be mutually determined
by the parties and expenditures made in the ordinary course of the Company's
business in connection with the retention of its employees), to cause each of
its current employees set forth in Section 5.10 of the Company Schedule
(collectively, the "Key Retention Employees") to remain employed with Company or
become employed with Parent (as Parent shall designate) upon the consummation of
the Merger, the parties acknowledging and agreeing that the list of such
individuals in such Section 5.10 of the Company Schedule may be amended, from
time to time prior to the Effective Time, pursuant to mutual agreement by the
parties. In addition, the Company shall notify the Key Retention Employees under
the heading "Interim Employees" under such Section 5.10 (the "Interim
Employees") that they will only be employed by Company or Parent, as the case
may be, to facilitate the integration of the combined company after the Closing,
and for only that period of time after the Closing as Parent deems, in its sole
discretion, necessary for such purpose, and will be terminated immediately upon
the expiration of such period.
(b) In connection with Parent's efforts to retain the Key Retention
Employees prior to the Closing, Parent agrees to use commercially reasonable
efforts to extend substantially concurrent notification to each such employee
his or her terms and status of employment with Parent, and other similar
employment-related information which is customarily shared with prospective
employees.
(c) At any time prior to the Effective Time (it being acknowledged
and agreed that Company shall in its sole discretion determine such time or
times prior to the Effective Time as it deems appropriate), Company shall take
all necessary action to effect the termination of all Company's employees who
are not Key Retention Employees (collectively, the "Non-Retention Employees"),
effective on or prior to the Effective Time; provided, that the Company may
delay taking such actions with respect to certain Non-Retention Employees if in
its sole discretion the Company determines that terminating such Non-Retention
Employees prior to the Effective Time would have an adverse effect on the
Company in the event that this Agreement is terminated.
5.11 Termination of Certain Benefit Plans. Effective no later than
the day immediately preceding the Effective Time, the Company and its
Affiliates, as applicable, shall each terminate any and all group severance,
separation or salary continuation plans, programs or arrangements (excluding, in
each case, the agreements listed on Section 5.11 of the Company Schedule) and
any and all plans intended to include a Code Section 401(k) arrangement (unless
Parent provides written notice to the Company that such 401(k) plans shall not
be terminated) (collectively, for purposes of this Section 5.11 "Company
Employee Plans"). Unless Parent provides such written notice to the Company, no
later than five business days prior to the Effective Time, the Company shall
provide Parent with evidence that such Company Employee Plan(s) have been
terminated (effective no later than the day immediately preceding the Effective
Time) pursuant to resolutions of the Board. The form and substance of such
resolutions shall be subject to review and approval of Parent. The Company also
shall take such other actions in furtherance of terminating such Company
Employee Plan(s) as Parent may reasonably require.
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5.12 Employee Benefits. As soon as practicable after the Effective
Time, Parent shall provide the employees of the Company and its subsidiaries who
remain employed after the Effective Time (each, a "Transferred Company Employee"
and collectively, the "Transferred Company Employees") with substantially the
same types and levels of compensation and employee benefits as provided to such
Transferred Company Employees by the Company immediately prior to the Merger
("Substantially Matching Employment Terms"), provided, however, that a reduction
in salary of up to five percent (5%) for Transferred Company Employees who are
billable employees of the Company and up ten percent (10%) for Transferred
Company Employees for non-billable employees of the Company shall be deemed to
be provided Substantially Matching Employment Terms so long as such Transferred
Company Employees are allowed to recoup the applicable reduced amount pursuant
to Parent's current bonus program. Further, Parent shall treat and cause its
applicable benefit plans (with the exception of Parent's sabbatical program) to
treat the service of Transferred Company Employees with the Company or any
subsidiary of the Company prior to the Effective Time as service rendered to
Parent or any affiliate of Parent for purposes of eligibility to participate and
vesting, including applicability of minimum waiting periods for participation,
but not for benefit accrual. Parent shall use commercially reasonable efforts to
provide that no Transferred Company Employee, or any of his or her eligible
dependents, who, at the Effective Time, are participating in the Company group
health plan shall be excluded from the Parent's group plan, or limited in
coverage thereunder, by reason of any waiting period restriction or pre-existing
condition limitation; provided that such Transferred Employees are based in the
United States and meet applicable actively at work requirements as of the
Effective Time. Notwithstanding the foregoing, and except for its obligation to
provide Substantial Matching Employment Terms to each Transferred Company
Employee as set forth in this Section 5.12, Parent shall not be required to
provide any coverage, benefits, or credit beyond that already promised in
accordance with this Section 5.12 to any Transferred Company Employee which
would be inconsistent with the terms of Parent benefit plans.
5.13 FIRPTA Certificate. On or prior to the Effective Time, the
Company shall deliver to Parent a properly executed statement in a form
reasonably acceptable to Parent for purposes of satisfying Parent's obligations
under Treasury Regulation Section 1.1445-2(c)(3).
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Company Stockholder Approval. This Agreement shall have been
duly approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law, by the stockholders of the Company.
(b) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger. All material foreign antitrust
approvals required to be obtained prior to the Effective Time in connection with
the Merger shall have been obtained.
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(c) Proxy Statement. No order suspending the use of the Proxy
Statement or any part thereof shall have been issued and no proceeding for that
purpose shall have been initiated or threatened in writing by the SEC.
(d) Litigation. There shall be no action, suit, claim, or
proceeding of any nature pending, or threatened which seeks to materially delay
or prevent the consummation of the Merger or the other transactions contemplated
by the terms of this Agreement.
6.2 Additional Conditions to Obligations of Company. The obligation
of the Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. Each representation and
warranty of Parent and Merger Sub contained in this Agreement (i) shall have
been true and correct as of the date of this Agreement and (ii) shall be true
and correct on and as of the Closing Date with the same force and effect as if
made on the Closing Date except (A) in each case, or in the aggregate, as does
not constitute a Material Adverse Effect on Parent and Merger Sub, (B) for
changes contemplated by this Agreement and (C) for those representations and
warranties which address matters only as of a particular date (which
representations shall have been true and correct (subject to the qualifications
as set forth in the preceding clause (A)) as of such particular date) (it being
understood that, for purposes of determining the accuracy of such
representations and warranties, all "Material Adverse Effect" qualifications and
other qualifications based on the word "material" or similar phrases contained
in such representations and warranties shall be disregarded). The Company shall
have received a certificate with respect to the foregoing signed on behalf of
Parent by an authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Closing Date, and the Company shall have received a certificate to such
effect signed on behalf of Parent by an authorized officer of Parent.
6.3 Additional Conditions to the Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to consummate and effect the
Merger shall be subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing,
exclusively by Parent:
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(a) Representations and Warranties. Each representation and
warranty of the Company contained in this Agreement (i) shall have been true and
correct as of the date of this Agreement and (ii) shall be true and correct on
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date except (A) in each case, or in the aggregate, as does not
constitute a Material Adverse Effect on the Company; provided, however, that the
representations and warranties set forth in Sections 2.3(a), 2.4, 2.21, 2.22,
2.23 and 2.24 hereof shall be true and correct in all respects other than an
inaccuracy, with respect to Section 2.3(a) in the foregoing, in the aggregate
amount of no greater than Two Hundred Fifty Thousand (250,000) shares of Company
Common Stock from that aggregate amount of shares set forth in the numerical
capitalization clauses in such Section 2.3(a), (B) for changes contemplated by
this Agreement and (C) for those representations and warranties which address
matters only as of a particular date (which representations shall have been true
and correct (subject to the qualifications as set forth in the preceding clause
(A)) as of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) all
"Material Adverse Effect" qualifications and other qualifications based on the
word "material" or similar phrases contained in such representations and
warranties shall be disregarded (other than with respect to the representations
and warranties set forth in Sections 2.3(a), 2.4, 2.21, 2.22, 2.23 and 2.24
hereof), and (ii) any update of or modification to the Company Schedule made or
purported to have been made after the date of this Agreement shall be
disregarded). Parent shall have received a certificate with respect to the
foregoing signed on behalf of the Company by the Chief Executive Officer and the
Chief Financial Officer of the Company.
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of the Company by the Chief Executive Officer and the Chief Financial
Officer of the Company.
(c) Material Adverse Effect. No Material Adverse Effect with
respect to the Company and its subsidiaries shall have occurred since the date
of this Agreement, and Parent shall have received a certificate to such effect
signed on behalf of the Company by the Chief Executive Officer and the Chief
Financial Officer of the Company.
(d) Consents. The Company shall have obtained, and there shall be
in full force and effect, each of the consents, waivers and approvals required
in connection with the consummation of the transactions contemplated hereby
under the Contracts set forth in Section 6.3(d) of the Company Schedule in form
and substance reasonably satisfactory to Parent.
(e) [Intentionally Omitted].
(f) Employees. At least eighty percent (80%) of the of the Company
employees with the exception of the Interim Employees (the "Key Employees")
listed on Section 5.10, shall continue to be employed by the Company at the
Closing and shall not have given any notice or other indication that they are
not willing to be employed by Parent or a subsidiary of Parent (as Parent shall
designate) following the Merger or to execute and deliver to Parent Parent's
standard forms of Confidentiality and Invention Assignment Agreement and
associated schedules and statements without amendment or modification thereto in
any substantive respect; provided, however, that the Company may replace any
such employee who terminates his employment with the Company prior to the
Closing (a "Former Key Employee") with a current or newly hired employee
possessing substantially the same and comparable qualifications and experience
as the terminating Former Key Employee, and who is reasonably approved by
Parent. No more than one Key Employee who ceases to be employed by the Company
as a result of death or bona fide permanent disability will be excluded from the
numerator and the denominator in calculating such percentage.
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(g) Customer Retention. No more than eighty percent (80%) of the
Material Customers, and none of the Material Customers set forth in Section
6.3(g) of the Company Schedule, shall have given notice, or other indication
after the date of the Agreement that it wishes to, (i) in the case of a Material
Customer who is being billed on a time and materials basis, substantially modify
in an adverse fashion the terms and conditions under which the Company performs
work for such Material Customer, or (ii) in the case of a Material Customer who
is being billed on a fixed-price basis, terminate or modify in an adverse
fashion the terms and conditions of a fixed price project of which the Material
Customer had previously committed to Company (any such occurrences set forth in
clauses (i) and (ii) in the immediate foregoing, a "Substantial Adverse
Modification"); provided, however, that a Substantial Adverse Modification shall
only be deemed to have occurred to the extent that such Substantial Adverse
Modification results, or would result, in a material decline in Company's
recognition of collective revenues from the Material Customers.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, and the Merger may be abandoned, notwithstanding any
requisite approval and adoption of this Agreement and the Transactions by the
stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company;
(b) by either the Company or Parent if the Effective Time shall not
have occurred on or before September 30, 2003 (the "End Date") for any reason;
provided, however, that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose action or failure to act has
been a principal cause of or resulted in the failure of the Effective Time to
occur on or before such date and such action or failure to act constitutes a
breach of this Agreement;
(c) by either the Company or Parent if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger, which order, decree, ruling or other action is final and
nonappealable;
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(d) by either the Company or Parent if the required approval of the
stockholders of the Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at the
Stockholders' Meeting or at any adjournment thereof; provided, however, that the
right to terminate this Agreement under this Section 7.1(d) shall not be
available to the Company where the failure to obtain the Company stockholder
approval shall have been caused by the action or failure to act of the Company
and such action or failure to act constitutes a breach by the Company of this
Agreement;
(e) by the Company, upon approval of the Board, if the Board
concludes in good faith that it is required to do so by its fiduciary duties to
the Company's stockholders under applicable law, after consultation with its
outside legal counsel in connection with entering into a definitive agreement
with respect to a Superior Proposal, upon three (3) days' prior written notice
to Parent, setting forth in reasonable detail the identity of the person making,
and the final terms and conditions of, such Superior Proposal; provided,
however, that any termination of this Agreement pursuant to this Section 7.1(e)
shall not be effective until the Company has made full payment of all amounts
provided under Section 7.3 hereof.
(f) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or if
any representation or warranty of Parent shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
hereof would not be satisfied as of the time of such breach or as of the time
such representation or warranty shall have become untrue, provided, however,
that if such inaccuracy in Parent's representations and warranties or breach by
Parent is curable by Parent through the exercise of its commercially reasonable
efforts, then the Company may not terminate this Agreement under this Section
7.1(f) for thirty (30) calendar days after delivery of written notice from the
Company to Parent of such breach, provided Parent continues to exercise
commercially reasonable efforts to cure such breach (it being understood that
the Company may not terminate this Agreement pursuant to this Section 7.1(f) if
it shall have materially breached this Agreement or if such breach by Parent is
cured during such thirty (30) calendar day period);
(g) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or
if any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b) hereof would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided,
however, that if such inaccuracy in the Company's representations and warranties
or breach by the Company is curable by the Company through the exercise of its
commercially reasonable efforts, then Parent may not terminate this Agreement
under this Section 7.1(g) for thirty (30) calendar days after delivery of
written notice from Parent to the Company of such breach, provided the Company
continues to exercise commercially reasonable efforts to cure such breach (it
being understood that Parent may not terminate this Agreement pursuant to this
Section 7.1(g) if it shall have materially breached this Agreement or if such
breach by the Company is cured during such thirty (30) calendar day period); and
provided further, however, that an inaccuracy with respect to the representation
and warranty set forth in Section 2.19(c) (Suppliers and Customers) of the
Agreement regarding the Material Customers' relationships with the Company shall
not be considered a breach of such representation and warranty as long as the
condition set forth in Section 6.3(g) hereof remains satisfied.
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(h) by Parent, upon a material breach of the provisions of Section
5.4 hereof;
(i) by Parent if a Triggering Event (as defined below) shall have
occurred. For the purposes of this Agreement, a "Triggering Event" shall be
deemed to have occurred if: (i) the Board or any committee thereof shall for any
reason have withdrawn or withheld, or shall have amended, changed or modified in
a manner adverse to Parent its unanimous recommendation in favor of, the
adoption and approval of the Agreement or the approval of the Transactions; (ii)
the Company shall have failed to include in the Proxy Statement the unanimous
recommendation of the Board that holders of Shares vote in favor of and adopt
and approve this Agreement and approve the Merger; (iii) the Board or any
committee thereof shall have approved or recommended any Acquisition Proposal;
(iv) the Company shall have entered into any letter of intent or similar
document or any Contract accepting any Acquisition Proposal; or (v) a tender or
exchange offer relating to securities of the Company shall have been commenced
by a person unaffiliated with Parent and the Company shall not have sent to its
securityholders pursuant to Rule 14e-2 promulgated under the Securities Act,
within ten (10) business days after such tender or exchange offer is first
published sent or given, a statement disclosing that the Board recommends
rejection of such tender or exchange offer; or
(j) by Parent, upon the occurrence of a breach of any of the
Abstention Terms (an "Abstention Breach").
7.2 Notice of Termination; Effect of Termination. Any termination
of this Agreement under Section 7.1 hereof will be effective immediately upon
(or, if the termination is pursuant to Section 7.1(f) or Section 7.1(g) hereof
and the proviso therein is applicable, thirty (30) calendar days after) the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1
hereof, this Agreement shall be of no further force or effect and there shall be
no liability to any party hereunder in connection with the Agreement or the
Transactions, except (i) as set forth in Section 5.3 hereof, this Section 7.2,
Section 7.3 hereof and ARTICLE IX hereof, each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for any intentional or willful breach of, or any intentional
misrepresentation made in this Agreement. No termination of this Agreement shall
affect the obligations of the parties contained in the Confidentiality
Agreement, all of which obligations shall survive termination of this Agreement
in accordance with their terms.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the Transactions
(including fees and expenses of attorneys and accountants) shall be paid by the
party incurring such expenses whether or not the Merger is consummated. For the
avoidance of doubt, Company shall pay all fees and expenses incurred in
connection with the printing and filing with the SEC the Proxy Statement and any
amendments or supplements thereto, and any mailing costs with respect to the
Proxy Statement.
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(b) Company Payments.
(i) The Company shall pay to Parent in immediately available
funds, within one (1) business day after demand by Parent, an amount equal to
$600,000 (the "Termination Fee") if this Agreement is terminated by Parent
pursuant to Section 7.1(i) hereof.
(ii) The Company shall pay to Parent in immediately available
funds, within one (1) business day after demand by Parent, an amount equal to
the Termination Fee if (A) this Agreement is terminated by Parent or the Company
pursuant to Section 7.1(d) hereof and (B) an Abstention Breach occurred prior to
the failure to obtain the required vote at the Stockholders' Meeting or at any
adjournment thereof.
(iii) The Company shall pay to Parent in immediately available
funds, concurrent with a termination by Company of this Agreement pursuant to
Section 7.1(e) hereof, an amount equal to the Termination Fee, and no such
termination of this Agreement shall be deemed effected until such time as the
Termination Fee shall have been paid to Parent.
(iv) The Company shall pay Parent in immediately available
funds, within one (1) business day after demand by Parent, an amount equal to
the Termination Fee, if this Agreement is terminated by Parent pursuant to
Section 7.1(b) or Section 7.1(d) hereof and any of the following shall occur:
(A) if following the date hereof and prior to the
termination of this Agreement, a third party has announced an Acquisition
Proposal and has not publicly definitively withdrawn such Acquisition Proposal
at least five (5) business days prior to the earlier to occur of the End Date or
the Stockholders' Meeting, as applicable, and within nine (9) months following
the termination of this Agreement a Company Acquisition (as defined below) is
consummated; or
(B) if following the date hereof and prior to the
termination of this Agreement, a third party has announced an Acquisition
Proposal and has not publicly definitively withdrawn such Acquisition Proposal
at least five (5) business days prior to the earlier to occur of the End Date or
the Stockholders' Meeting, as applicable, and within nine (9) months following
the termination of this Agreement the Company enters into a letter of intent or
similar document or any Contract providing for a Company Acquisition.
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(v) The Company shall pay to Parent in immediately available
funds, within one (1) business day after demand by Parent, if this Agreement is
terminated by Parent pursuant to Section 7.1(g) based on a failure to satisfy
the condition set forth in Section 6.3(b) and, (x) prior to such termination,
the Company has received, or a third party has announced, an Acquisition
Proposal and (y) such breach is intended to or has the effect of facilitating
such Acquisition Proposal or benefiting the person making such acquisition
proposal without similarly benefiting Parent, an amount equal to the
out-of-pocket fees and expenses incurred by Parent and Merger Sub in connection
with the negotiation, execution and delivery of this Agreement and the
transactions contemplated hereby (including, without limitation, reasonable
attorney fees and expenses, reasonable advisor fees and expenses, and travel
costs) (the "Expenses"); provided, that the Company shall not be required,
pursuant to this Section 7.3(b)(iv), to pay Parent for Expenses in excess of
$500,000 in the aggregate. Notwithstanding the foregoing, payment of such
Expenses shall not constitute liquidated damages with respect to any claim which
Parent or Merger Sub would be entitled to assert against the Company or its
assets, or against any of the Company's directors, officers, employees or
stockholders, with respect to any such breach, and shall not constitute the sole
and exclusive remedy with respect to any such breach.
(vi) The Company hereby acknowledges and agrees that the
agreements set forth in this Section 7.3(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent would not enter into this Agreement. Accordingly, if the Company fails to
pay in a timely manner the amounts due pursuant to this Section 7.3(b) and, in
order to obtain such payment, Parent makes a claim that results in a judgment
against the Company for the amounts set forth in this Section 7.3(b), the
Company shall pay to Parent its reasonable costs and expenses (including
reasonable attorneys' fees and expenses) in connection with such suit, together
with interest on the amounts set forth in this Section 7.3(b) at the prime rate
of The Chase Manhattan Bank in effect on the date such payment was required to
be made; provided, however, that if Parent makes a claim for the amounts set
forth in this Section 7.3(b) that results in a judgment against Parent, Parent
shall pay to the Company its reasonable costs and expenses (including reasonable
attorneys' fees and expenses) in connection with such suit. Payment of the fees
described in this Section 7.3(b) shall not be in lieu of damages incurred in the
event of any intentional or willful breach of, or any intentional
misrepresentation made in, this Agreement.
(vii) Notwithstanding anything to the contrary set forth in
this Agreement, each of the parties hereto hereby expressly acknowledges and
hereby agrees that, with respect to any termination of this Agreement pursuant
to Section 7.1 hereof (other than a termination based upon the willful or
intentional breach of, or any intentional misrepresentation made in, this
Agreement) under circumstances in which the Termination Fee is payable pursuant
to this Section 7.3(b), payment of the Termination Fee shall constitute
liquidated damages with respect to any claim for damages or any other claim
which Parent or Merger Sub would otherwise be entitled to assert against the
Company or its assets, or against any of the Company's directors, officers,
employees or stockholders, with respect to any such termination of this
Agreement, and shall constitute the sole and exclusive remedy with respect to
any such termination of this Agreement. The parties hereto expressly acknowledge
and agree that, in light of the difficulty of accurately determining actual
damages with respect to the foregoing upon any such termination of this
Agreement pursuant to Section 7.1 hereof (other than a termination based upon
the willful or intentional breach of, or any intentional misrepresentation made
in, this Agreement) under circumstances in which the Termination Fee is payable
pursuant to this Section 7.3(b), the right to such payment: (A) constitutes a
reasonable estimate of the damages that will be suffered by reason of any such
termination this Agreement and (B) shall be in full and complete satisfaction of
any and all damages arising as a result of any such termination of this
Agreement. Except for nonpayment of the Termination Fee pursuant to this
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Section 7.3(b) the parties hereto hereby agree that, upon any termination of
this Agreement pursuant to Section 7.1 hereof (other than a termination based
upon the willful or intentional breach of, or any intentional misrepresentation
made in, this Agreement) under circumstances in which the Termination Fee is
payable pursuant to this Section 7.3(b), in no event shall Parent or Merger Sub
be entitled to seek or to obtain any recovery or judgment against the Company or
any subsidiaries of the Company or any of their respective assets, or against
any of their respective directors, officers, employees or stockholders for any
such termination of this Agreement, and in no event shall Parent or Merger Sub
be entitled to seek or obtain any other damages of any kind, including, without
limitation, consequential, special, indirect or punitive damages, for any such
termination of this Agreement. Notwithstanding the foregoing, payment of the
Termination Fee pursuant to this Section 7.3(b) shall not constitute liquidated
damages with respect to any claim for damages or any other claim which Parent or
Merger Sub would be entitled to assert against the Company or its assets, or
against any of the Company's directors, officers, employees or stockholders,
with respect to any such termination of this Agreement based upon the willful or
intentional breach or intentional misrepresentation of any representations,
warranties or covenants of the Company in this Agreement, and shall not
constitute the sole and exclusive remedy with respect to any such termination of
this Agreement based upon the willful or intentional breach or misrepresentation
of any of the representations, warranties or covenants of the Company in this
Agreement.
(viii) For the purposes of this Agreement, "Company
Acquisition" shall mean any of the following transactions (other than the
transactions contemplated by this Agreement): (i) a merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company pursuant to which the stockholders of the
Company immediately preceding such transaction hold less than a majority of the
aggregate equity interests in the surviving or resulting entity of such
transaction, (ii) a sale or other disposition by the Company of assets
representing in excess of a majority of the aggregate fair market value of the
Company's businesses immediately prior to such sale or (iii) the acquisition by
any person or group (including by way of a tender offer or an exchange offer or
issuance by the Company), directly or indirectly, of beneficial ownership or a
right to acquire beneficial ownership of shares representing in excess of a
majority of the voting power of the then outstanding shares of capital stock of
the Company.
7.4 Amendment. Subject to applicable law, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of Parent and the Company.
7.5 Extension; Waiver. At any time prior to the Effective Time, any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
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ARTICLE VIII
[Intentionally Omitted.]
ARTICLE IX
GENERAL PROVISIONS
9.1 Non-Survival of Representations and Warranties. The representations
and warranties of the Company, Parent and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to the Company, to:
Predictive Systems, Inc.
19 West 44th Street, 9th Floor
New York, NY 10036
Attn: Legal Department
Telephone No.: (212) 659-3400
Telecopy No.: (212) 659-3499
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
12 East 49th Street, 30th Floor
New York, New York 10017
Attn: Alexander D. Lynch, Esq.
Telephone No.: (212) 999-5800
Telecopy No.: (212) 999-5899
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(b) if to Parent or the Merger Sub, to:
International Network Services, Inc.
1600 Memorex Drive
Suite 200
Santa Clara, CA 95050
Attn: Chief Executive Officer
Telephone No.: (408) 330-2700
Telecopy No.: (408) 330-2701
with a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301
Attn: Bruce E. Schaeffer, Esq.
Telephone No.: (650) 833-2000
Telecopy No.: (650) 833-2001
9.3 Interpretation; Knowledge.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement unless otherwise indicated. Unless otherwise
indicated the words "include," "includes" and "including" when used herein shall
be deemed in each case to be followed by the words "without limitation." The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. When reference is made herein to "the business of" an entity,
such reference shall be deemed to include the businesses of all direct and
indirect subsidiaries of such entity. Reference to the subsidiaries of an entity
shall be deemed to include all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "knowledge" means with
respect to a party hereto, with respect to any matter in question, that any of
the executive officers or directors of such party has actual knowledge of such
matter; provided that with respect to any executive officer, such executive
officer shall have made reasonable due and diligent inquiry of the employees
responsible for such matter in question; and provided, further, that if any
executive officer does not make such reasonable due and diligent inquiry, then
such executive officer shall be deemed to have actual knowledge of those facts
or matters that such executive officer would have had, had he or she made such
inquiry.
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(c) For purposes of this Agreement, the term "Material Adverse
Effect" when used in connection with any entity means any change, event,
violation, inaccuracy, circumstance or effect, individually or when aggregated
with other changes, events, violations, inaccuracies, circumstances or effects,
that is materially adverse to the businesses, assets (including intangible
assets), liabilities, properties, financial condition or results of operations
of such entity and its subsidiaries taken as a whole, or the ability of such
entity to perform its obligations under this Agreement and timely consummate the
Transactions; provided, however, none of the following shall be deemed in
themselves, either alone or in combination, to constitute, and none of the
following shall be taken into account in determining whether there has been or
will be, a Material Adverse Effect on the Company: (i) any change in the market
price or trading volume of the Shares; (ii) any failure, excluding the cause of
any failure, by the Company to meet internal projections or forecasts or
published revenue or earnings predictions for any period ending (or for which
revenues or earnings are released) on or after the date of this Agreement; (iii)
any adverse change, event, violation, inaccuracy, circumstance or effect that
the Company successfully bears the burden of proving results from or is
attributable to conditions affecting the industries in which the Company
participates, the United States economy as a whole, or foreign economies in any
locations where the Company or any of its subsidiaries has material operations
or sales (which changes in each case do not disproportionately affect the
Company or its subsidiaries, as the case may be); (iv) any adverse change,
event, violation, inaccuracy, circumstance or effect resulting from Company's
compliance with the terms of, or the taking of any action required by, this
Agreement; (v) the termination, cancellation, deferral or other adverse
modification of any Contracts by any customers; or (vi) any voluntary
termination of the employment of employees of the Company by such employees.
Notwithstanding the exclusionary provisos (v) and (vi) immediately in the
foregoing and with respect to the definition of "Material Adverse Effect," such
provisos shall in no way or fashion limit or otherwise affect, Parent's rights
with respect to the conditions set forth in Sections 6.3(f) or 6.3(g) hereof.
(d) For purposes of this Agreement, the term "person" shall mean
any individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.5 Entire Agreement; Third Party Beneficiaries. This Agreement and
the documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Schedule, (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
it being understood that the Confidentiality Agreement shall continue in full
force and effect and shall survive any termination of this Agreement; and (b)
are not intended to confer upon any other person any rights or remedies
hereunder, except as specifically provided in Section 5.8 hereof.
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9.6 Severability. In the event that any provision of this
Agreement, or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
9.7 Other Remedies; Specific Performance. Except as otherwise
provided herein, any and all remedies herein expressly conferred upon a party
will be deemed cumulative with and not exclusive of any other remedy conferred
hereby, or by law or equity upon such party, and the exercise by a party of any
one remedy will not preclude the exercise of any other remedy. The parties
hereto agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.10 Assignment. No party may assign either this Agreement or any of
its rights, interests, or obligations hereunder without the prior written
approval of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
9.11 Waiver of Jury Trial. EACH OF PARENT, COMPANY AND MERGER SUB
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
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[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement and
Plan of Merger to be executed by their duly authorized respective officers as of
the date first written above.
INTERNATIONAL NETWORK SERVICES, INC.
By: /s/ David Butze
-----------------------------------
Name: David Butze
Title: Chief Executive Officer
By: /s/ Julia Kellberg
-----------------------------------
Name: Julia Kellberg
Title: Vice President, Finance
MID-WEST ACQUISITION CORPORATION
By: /s/ David Butze
-----------------------------------
Name: David Butze
Title: Chief Executive Officer
PREDICTIVE SYSTEMS, INC.
By: /s/ Andrew Zimmerman
-----------------------------------
Name: Andrew Zimmerman
Title: Chief Executive Officer
By: /s/ Berry Sethi
-----------------------------------
Name: Berry Sethi
Title: Chief Financial Officer
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[Signature Page to Agreement and Plan of Merger]
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NET ASSETS DETERMINATION SCHEDULE
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Net Assets Determination Schedule
Method of Calculation of the Assets and Liabilities for Preparation of the
Final Net Assets Schedule
Total of the Following Estimated Assets
as of the Anticipated Closing Date
(subject to Note 1) Method of Calculation
- --------------------------------------- ---------------------------------------------------------------------------------
A/R (Gross A/R as of the Closing Date calculated in accordance with GAAP, minus all
AR over 365 days old, A/R minus 5% of A/R aged between 180 and 365 days minus 4%
of A/R aged between 0 and 179 days.)
Restricted Cash Per GAAP
Cash Per GAAP
Work In Process - Hardware and
Software Per GAAP less 4%
Prepaid Expenses Per GAAP
Refundable Income Taxes Per GAAP
Unbilled Revenue Per GAAP less 4%
Receivables from Employees and
Stockholders Per GAAP
Security Deposits (Other Assets) Per GAAP
Fixed Assets $100,000
Other Current Assets $ 36,000
Less: Contingent Liabilities as of the
Anticipated Closing Date
As determined pursuant to the definitive
Potential Payment to Purchaser in the agreement between the Company and the purchaser
ISAC Sale. in the ISAC sale.
Other Contingent Liabilities $315,000 (subject to Note 2)
Less: Estimated Other Liabilities as of the
Anticipated Closing Date (subject to Note 1
except where indicating Note 2)
A/P Per GAAP
Accrued Expenses and Other
Current Liabilties Per GAAP
Deferred Revenue Per GAAP
Transaction Related Liabilities $1,407,000 (subject to Note 2)
Less: Estimated Conversion/Integration
Costs
HR Transition Costs $2,496,500 (subject to Note 2)
Other Transaction Costs $406,500
Notes to Net Assets Determination Schedule
Note 1: GAAP calculations, as of the anticipated Closing Date, which shall be
calculated and estimated to the extent necessary in order to provide what the
anticipated GAAP number will be as of such Closing Date.
Note 2: The fixed amount shall be reduced to the extent the items in the
underlying Estimated Valuation Schedule has either been paid or has been accrued
as an expense since the date of the Agreement.