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EXHIBIT 2
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
Exchange Applications, Inc.,
a Delaware corporation;
Customer Analytics Holdings, Inc.,
a Delaware corporation;
CAH Acquisition Corp.,
a Delaware corporation; and
certain Shareholders and Investors of
Customer Analytics Holdings, Inc.
___________________________
Dated as of June 6, 2000
___________________________
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AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
This Agreement And Plan Of Merger And Reorganization ("Agreement") is made
and entered into as of June 6, 2000, among: Exchange Applications, Inc., a
Delaware corporation ("Parent"); CAH Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Parent ("Merger Sub"); Customer Analytics
Holdings, Inc., a Delaware corporation (the "Company"); each of the shareholders
of the Company listed on the signature pages hereto ("Designated Shareholders")
and each of the other shareholders of the Company that may become a party to
this Agreement for purposes of Articles 5 and 8 hereof ("Other Shareholders").
Certain other capitalized terms used in this Agreement are defined in Exhibit A.
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Recitals
1. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company in accordance with this Agreement and the Delaware General
Corporation Law (the "Merger"). Upon consummation of the Merger, Merger Sub
will cease to exist, and the Company will become a wholly owned subsidiary of
Parent.
2. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
3. This Agreement has been approved by the respective boards of directors
of Parent, Merger Sub and the Company.
4. On the Closing Date and prior to the Merger, all outstanding shares of
the Company's preferred stock will be converted into shares of Company Common
Stock, and all outstanding convertible notes and warrants held by Designated
Shareholders will be exchanged for promissory notes of the Company and/or
exercised or exchanged for shares of Company Common Stock.
5. Pursuant to the Merger, among other things, the outstanding shares of
Company Common Stock (as hereinafter defined in Section 1.5(c)) will be
converted into shares of Common Stock (as hereinafter defined in Section 1.5(c))
at the conversion ratio set forth herein.
Agreement
The parties to this Agreement agree as follows:
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1. Description of Transaction
1.1 Merger of Merger Sub into the Company. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 Effect of the Merger. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the Delaware General
Corporation Law (the "DGCL").
1.3 Closing; Effective Time. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts, on Friday, June
23, 2000, or on the first practicable date thereafter following the satisfaction
or waiver of the conditions precedent set forth herein (the "Closing Date").
Contemporaneously with or as promptly as practicable after the Closing, a
properly executed certificate of merger conforming to the requirements of
Section 251 of the DGCL shall be filed with the Secretary of State of the State
of Delaware. The Merger shall become effective at the time such certificate of
merger is filed with and accepted by the Secretary of State of the State of
Delaware (the "Effective Time").
1.4 Certificate of Incorporation and Bylaws; Directors and Officers.
Unless otherwise determined by Parent and the Company prior to the Effective
Time:
(a) the Certificate of Incorporation of the Surviving Corporation
shall be amended and restated as of the Effective Time to conform to the
Certificate of Incorporation of Merger Sub as in effect immediately prior to the
Effective Time;
(b) the Bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to the Bylaws of Merger Sub as in
effect immediately prior to the Effective Time; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit B.
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1.5 Exchange of Notes and Warrants; Conversion of Preferred Stock;
Conversion of Shares.
(a) Immediately prior to the Effective Time, (i) the outstanding
Convertible Notes shall be exchanged for promissory notes of the Company in a
form having the general terms set forth in the Expression of Interest Letter and
otherwise reasonably acceptable to the Company, Parent and those Designated
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Shareholders that are holders of the Convertible Notes (the "Investor Notes");
and (ii) the Investor Warrants will be exchanged for Company Common Stock. The
aggregate outstanding principal amount of the Investor Notes as of the Effective
Time shall be equal to or less than $5,000,000. Parent will reissue the Investor
Notes and join the Company as a payor of the Investor Notes immediately
following the Effective Time.
(b) Immediately prior to the Effective Time, all outstanding shares
of Series A Preferred Stock, $.0001 par value, of the Company ("Series A
Preferred Stock") shall be exchanged for shares of Company Common Stock. The
transactions described in subparagraphs (a) and (b) are referred to herein,
collectively, as the "Exchange and Conversion Transactions."
(c) Subject to Section 1.8(c), at the Effective Time, by virtue of
the Merger and without any further action on the part of Parent, Merger Sub, the
Company or any shareholder of the Company:
(i) each share of common stock, par value $.0001 per share, of
the Company ("Company Common Stock") outstanding immediately prior to the
Effective Time shall be converted into the right to receive 0.2677308348112 of a
share ("Applicable Fraction") of the common stock, par value $.001 per share, of
Parent ("Common Stock");
(ii) each share of the common stock (with no par value) of Merger
Sub outstanding immediately prior to the Effective Time shall be converted into
one share of common stock of the Surviving Corporation.
(d) Parent acknowledges that the Exchange and Conversion Transactions
are conditioned upon the execution of the CA Shareholder Indemnity and Escrow
Agent.
1.6 Employee Stock Options. At the Effective Time, each stock option to
acquire Company Common Stock that is then outstanding, including but not limited
to those granted under each of (i) the Company's 2000 Equity Incentive Plan (ii)
the Company's 1998-1999 Stock Option Plan and (iii) the Company's 1997-1999
Stock Option Plan (the "Company Stock Option Plans"), whether vested or unvested
(a "Company Option"), shall be assumed by Parent in accordance with the terms
(as in effect as of the date of this Agreement) of the applicable Company Stock
Option Plan and/or the stock option agreement by which such Company Option is
evidenced. All rights with respect to Company Common Stock under outstanding
Company Options shall thereupon be converted into rights with respect to Common
Stock as set forth below. Accordingly, from and after the Effective Time, (a)
each Company Option assumed by Parent may be exercised solely for shares of
Common Stock, (b) the number of shares of Common Stock subject to each such
assumed Company Option shall be equal to the number of shares of Company
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Common Stock that were subject to such Company Option immediately prior to the
Effective Time multiplied by the Applicable Fraction, rounded down to the
nearest whole number of shares of Common Stock, (c) the per share exercise price
for the Common Stock issuable upon exercise of each such assumed Company Option
shall be determined by dividing the exercise price per share of Company Common
Stock subject to such Company Option, as in effect immediately prior to the
Effective Time, by the Applicable Fraction, and rounding the resulting exercise
price up to the nearest whole cent, and (d) all restrictions on the exercise of
each such assumed Company Option shall continue in full force and effect, and
the term, exercisability, vesting schedule and other provisions of such Company
Option shall otherwise remain unchanged; provided, however, that each such
assumed Company Option shall, in accordance with its terms, be subject to
further adjustment as appropriate to reflect any stock split, reverse stock
split, stock dividend, recapitalization or other similar transaction effected by
Parent after the Effective Time. The Company and Parent shall take all action
that may be necessary (under each of the Company Stock Option Plans and
otherwise) to effectuate the provisions of this Section 1.6. Following the
Closing, Parent will send to each holder of an assumed Company Option a written
notice setting forth (i) the number of shares of Common Stock subject to such
assumed Company Option, and (ii) the exercise price per share of Common Stock
issuable upon exercise of such assumed Company Option. Parent shall file with
the SEC, as soon as reasonably practical but in any event within thirty (30)
days after the Closing Date, a registration statement on Form S-8 registering
the exercise of the Company Options assumed by Parent pursuant to this Section
1.6.
1.7 Closing of the Company's Transfer Books. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "Company Stock Certificate") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.8.
1.8 Exchange of Certificates.
(a) At or as soon as reasonably practicable after the Effective Time,
Parent will send to the holders of Company Stock Certificates (i) a letter of
transmittal in customary form and containing such provisions as Parent may
reasonably specify, and (ii) instructions for use in effecting the surrender of
Company Stock Certificates in exchange for certificates representing Common
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Stock. Upon surrender of a Company Stock Certificate to Parent for exchange,
together with a duly executed letter of transmittal and such other documents as
may be reasonably required by Parent the holder of such Company Stock
Certificate shall be entitled to receive in exchange therefor (subject to
Section 8.3) a certificate representing the number of whole shares of Common
Stock that such holder has the right to receive pursuant to the provisions of
this Section 1, and the Company Stock Certificate so surrendered shall be
canceled. Until surrendered as contemplated by this Section 1.8, each Company
Stock Certificate shall be deemed, from and after the Effective Time, to
represent only the right to receive upon such surrender a certificate
representing shares of Common Stock (and cash in lieu of any fractional share of
Common Stock as described in Section 1.8(c)) as contemplated by this Section 1.
If any Company Stock Certificate shall have been lost, stolen or destroyed,
Parent may, in its discretion and as a condition precedent to the issuance of
any certificate representing Common Stock, require the owner of such lost,
stolen or destroyed Company Stock Certificate to provide an appropriate
affidavit and to deliver a bond (in such sum as Parent may reasonably direct) as
indemnity against any claim that may be made against Parent or the Surviving
Corporation with respect to such Company Stock Certificate.
(b) No dividends or other distributions declared or made with respect
to Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Company Stock Certificate with respect to the shares
of Common Stock represented thereby, and no cash payment in lieu of any
fractional share shall be paid to any such holder, until such holder surrenders
such Company Stock Certificate in accordance with this Section 1.8 (at which
time such holder shall be entitled to receive all such dividends and
distributions and such cash payment).
(c) No fractional shares of Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional shares
shall be issued. In lieu of such fractional shares, any holder of capital stock
or other securities of the Company who would otherwise be entitled to receive a
fraction of a share of Common Stock (after aggregating all fractional shares of
Common Stock issuable to such holder) shall, upon surrender of such holder's
Company Stock Certificate(s), be paid in cash the dollar amount (rounded to the
nearest whole cent), determined by multiplying such fraction by the closing
price of Parent's Common Stock on the trading day immediately preceding the
Closing Date.
(d) Neither Parent nor the Surviving Corporation shall be liable to
any holder or former holder of capital stock of the Company for any shares of
Common Stock (or dividends or distributions with respect thereto), or for any
cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
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1.9 Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations. No party shall take any position on any Tax
Return inconsistent with this Section 1.9 unless advised in writing by such
party's auditors that such a position is required.
1.10 Further Action. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation or Parent with
full right, title and possession of and to all rights and property of Merger Sub
and the Company, the officers and directors of the Surviving Corporation and
Parent shall be fully authorized (in the name of Merger Sub, in the name of the
Company and otherwise) to take such action.
2. Representations and Warranties of the Company
The Company represents and warrants, as to the Company and each of the
Company's Subsidiaries (including, for all periods prior to the 1999 Merger, all
predecessors of the Company and its Subsidiaries), to and for the benefit of the
Indemnitees that, except as set forth in the disclosure schedule that has been
prepared by the Company in accordance with the requirements of Section 10.4 and
that has been delivered by the Company to Parent on and as of the date of this
Agreement and signed on behalf of the Company by the Chief Operating Officer and
Chief Financial Officer of the Company (the "Company Disclosure Schedule"):
2.1 Due Organization; Subsidiaries; Etc.
(a) All Subsidiaries of the Company are set forth and described on
Part 2.1(a) of the Company Disclosure Schedule. Except as set forth on Part
2.1(a) of the Company Disclosure Schedule: (i) the Company has no Subsidiaries
and the Company does not own any capital stock of, or any equity interest of any
nature in, any other Entity; (ii) the Company has not agreed and is not
obligated to make, nor is it bound by any Contract under which it may become
obligated to make, any future investment in or capital contribution to any other
Entity; and (iii) the Company has not, at any time, been a general partner of
any general partnership, limited partnership or other Entity.
(b) The Company and each of its Subsidiaries are duly organized and
validly existing under the laws of the state of its incorporation and have all
necessary power and authority: (i) to conduct their business in the manner in
which their business is currently being conducted; (ii) to own and use their
assets in the manner in which their assets are currently owned and used; and
(iii) to perform their obligations under all Contracts by which they are bound.
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(c) Each of the Company and its Subsidiaries is qualified to do
business as a foreign corporation, and is in corporate and tax good standing,
under the laws of all jurisdictions where the nature of its business requires
such qualification.
(d) Except as disclosed in Part 2.1(d) of the Company Disclosure
Schedule, there are no shareholder agreements, registration rights agreements,
voting trusts or other agreements or understandings to which the Company or any
Subsidiary is a party or to which the Company or any Subsidiary is bound
relating to the voting or registration of any shares of capital stock of the
Company or any Subsidiary thereof.
2.2 Certificate of Incorporation and Bylaws. The Company has delivered to
Parent accurate and complete copies of the certificate of incorporation, bylaws
and other charter and organizational documents of the Company and its
Subsidiaries including all amendments thereto. Neither the Company nor any of
its Subsidiaries is in violation of any of the provisions of its certificate of
incorporation or bylaws or equivalent governing instruments.
2.3 Capitalization, Etc.
(a) The authorized capital stock of the Company consists of: (i)
100,000,000 shares of Company Common Stock, of which 10,903,824 shares have been
issued and are outstanding as of the date of this Agreement and 11,065,744
shares will be issued and outstanding after giving effect to the completion of
the Conversion and Exchange Transactions, and (ii) 20,000,000 shares of Company
preferred stock, of which 6,000,000 shares have been designated as series A
preferred stock. On the date hereof, and without giving effect to the Exchange
and Conversion Transactions; 5,598,144 shares of series A preferred stock are
issued and are outstanding. All of such shares of series A preferred stock will
be converted into 5,598,194 shares of Company Common Stock prior to the
completion of the Merger. All of the Company Common Stock and series A preferred
stock is owned of record only as set forth on Part 2.3(a) of the Company
Disclosure Schedule, and immediately after giving effect to the Merger (assuming
no transfers of capital stock or conversion or exercise of any convertible
securities (other than the Conversion and Exchange Transactions) after the date
hereof and prior to the Effective Time) all of the outstanding Company Common
Stock and series A preferred stock will be owned of record as set forth on Part
2.3(a) of the Company Disclosure Schedule hereof. All of the outstanding shares
of Company Common Stock have been and, as of the Effective Time, will be duly
authorized and validly issued, and fully paid and nonassessable. There are no
shares of Company Common Stock held in treasury by the Company. No shares of the
Company's preferred stock have been designated as series B preferred stock, and,
after giving effect to the Conversion and Exchange Transactions, there will be
outstanding no rights to purchase or otherwise acquire any series B preferred
stock. Except as set forth in Part 2.3(a) of the Company
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Disclosure Schedule: (i) none of the outstanding shares of Company Common Stock
or series A preferred stock is entitled or subject to any preemptive right,
right of first refusal or similar right; (ii) none of the outstanding shares of
Company Common Stock or series A preferred stock is subject to any right of
first refusal in favor of the Company or any other Person; and (iii) there is no
Company Contract relating to the voting or registration of, or restricting any
Person from purchasing, selling, pledging or otherwise disposing of (or granting
any option or similar right with respect to), any shares of Company Common Stock
or series A preferred stock. Upon consummation of the Merger, (A) the shares of
Common Stock issued in exchange for any shares of Company Common Stock that are
subject to a Contract pursuant to which the Company has the right to repurchase,
redeem or otherwise reacquire any shares of Company Common Stock will, upon
completion of the Merger and the transactions contemplated thereby and upon the
consent of the other parties thereto, become subject to the restrictions,
conditions and other provisions contained in such Contract, and (B) Parent will
succeed to and become entitled to exercise the Company's rights and remedies
under each such Contract to the extent the other party thereto consents. The
Company is not under any obligation to repurchase, redeem or otherwise acquire
any outstanding shares of Company Common Stock or other capital stock. Except as
set forth on Part 2.3(a) of the Company Disclosure Schedule, no shares of
Company Common Stock or other capital stock outstanding on the date of this
Agreement 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.
(b) As of the date of this Agreement: 2,834,785 shares of Company
Common Stock are subject to issuance pursuant to outstanding Company Options,
975,226 shares of which are subject to issuance pursuant to Company Options that
are vested; and as of the Effective Time (assuming consummation of the Merger)
309,000 additional shares shall be subject to issuance pursuant to Company
Options that are vested.
Part 2.3(b)(i) of the Company Disclosure Schedule sets forth the
following information with respect to each Company Option outstanding as of the
date of this Agreement: (i) the particular plan pursuant to which such Company
Option was granted, if granted pursuant to a plan; (ii) the name of the
optionee; (iii) the number of shares of Company Common Stock subject to such
Company Option; (iv) the exercise price of such Company Option; (v) the date
upon which such Company Option was granted; and (vi) the applicable vesting
schedule and extent to which such Company Option is vested and exercisable as of
the date of this Agreement. Accurate and complete copies of all stock option
plans under which the Company has currently outstanding stock options, the form
of all stock option agreements evidencing such options granted under plans, and
the form of all stock option agreements not granted under plans have been
delivered to Parent.
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Except as set forth in Part 2.3(b)(ii) of the Company Disclosure
Schedule, there are no commitments or agreements of any character to which the
Company is bound obligating the Company to accelerate the vesting of any Company
Option or the vesting of any restricted stock purchase arrangement as a result
of the Merger or otherwise.
(c) Except as set forth in Part 2.3(c) of the Company Disclosure
Schedule there is no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of the Company from the Company; (ii)
outstanding security, instrument or obligation that is or may be or become
convertible into or exchangeable for any shares of the capital stock or other
securities of the Company; (iii) shareholder rights plan (or similar plan
commonly referred to as a "poison pill") or Contract under which the Company is
or may become obligated to sell or otherwise issue any shares of its capital
stock or any other securities; or (iv) condition or circumstance that may give
rise to or provide a basis for the assertion of a claim by any Person to the
effect that such Person is entitled to acquire or receive from the Company or
any Shareholder or Investor any shares of capital stock or other securities of
the Company.
(d) All outstanding shares of Company Common Stock and all
outstanding Company Options have been issued and granted in compliance with (i)
all applicable securities laws and other applicable Legal Requirements, and (ii)
all requirements set forth in applicable Contracts. No holder of capital stock
of the Company has any appraisal or other similar rights with respect to the
Merger except for such rights as may be available under the DGCL.
(e) Part 2.3(e) of the Company Disclosure Schedule sets forth (i) the
authorized and outstanding capital stock of each Subsidiary of the Company, (ii)
all options, warrants and other rights (whether or not currently exercisable) to
acquire any shares of capital stock or other securities of each Subsidiary of
the Company and (iii) all outstanding securities, instruments or obligations
that may be or become convertible into or exchangeable for any shares of capital
stock or other securities of each Subsidiary of the Company.
2.4 Financial Statements. The Company has delivered to Parent the
following financial statements and notes (collectively, the "Company Financial
Statements"): the Company's audited financial statements (balance sheets, income
statements and statements of cash flows) as of and for the fiscal year ended
December 31, 1999, and unaudited financial statements for the four months ended
April 30, 2000 (collectively, the "Company Financial Statements"). The unaudited
balance sheet absent footnotes and year end adjustments of the Company as of
April 30, 2000 is hereinafter referred to as the "Most Recent Balance Sheet."
December 31, 1999 is hereinafter referred to as the "Balance Sheet Date". The
Company Financial Statements are accurate and complete in all material respects
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and present fairly the financial position of the Company and its Subsidiaries as
of the respective dates thereof and the results of operations of the Company and
its Subsidiaries for the periods covered thereby and are consistent with the
books and records of the Company and its Subsidiaries. The Company Financial
Statements have been prepared in accordance with GAAP.
2.5 Absence of Changes. Since the Balance Sheet Date:
(a) there has not been any change in the business, condition
(financial or otherwise), assets, liabilities, operations or financial
performance of the Company or any of its Subsidiaries that has had or could
reasonably be expected to have a Material Adverse Effect;
(b) there has not been any loss, damage or destruction to, or any
interruption in the use of, any of the assets of the Company or any of its
Subsidiaries that has had or could reasonably be expected to have a Material
Adverse Effect;
(c) except as set forth in Part 2.5(c) of the Company Disclosure
Schedule or as contemplated by Sections 1.5(a) and (b) of this Agreement, the
Company has not (i) declared, accrued, set aside or paid any dividend or made
any other distribution in respect of any shares of capital stock, or (ii)
repurchased, redeemed or otherwise reacquired any shares of capital stock or
other securities;
(d) except as set forth in Sections 1.5(a) or (b) of this Agreement
or as set forth in Part 2.5(d) of the Company Disclosure Schedule, the Company
has not sold, issued, granted or authorized the issuance or grant of (i) any
capital stock or other security (except for Company Common Stock issued upon the
exercise of outstanding Company Options), (ii) any option, call, warrant or
right to acquire any capital stock or any other security (except for Company
Options described in Part 2.3(b)(i) of the Company Disclosure Schedule), or
(iii) any instrument convertible into or exchangeable for any capital stock or
other security of the Company or any of its Subsidiaries;
(e) except as set forth in Part 2.5(e) of the Company Disclosure
Schedule, the Company has not amended or waived any of its rights under, or
permitted the acceleration of vesting under, any provision of the Company's
stock option plan, or (ii) any provision of any agreement evidencing any
outstanding Company Option;
(f) except as contemplated by or required to comply with Section 1.4
or 1.5 of this Agreement, and except as set forth in Part 2.5(f) of the Company
Disclosure Schedule, there has been no amendment to the certificate of
incorporation, bylaws or other charter or organizational documents of the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries has effected or been a party to any merger, consolidation, share
exchange, business
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combination, recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction;
(g) the Company has not accepted or entered into any agreement,
letter of intent, expression of interest or other undertaking with respect to
any Acquisition Proposal;
(h) except as set forth in Part 2.5(h) of the Company Disclosure
Schedule, the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(i) except as set forth in Part 2.5(i) of the Company Disclosure
Schedule, the Company has not made any capital expenditures that exceed $25,000
in the aggregate;
(j) except in the ordinary course of business and consistent with
past practices, the Company has not and none of its Subsidiaries have (i)
entered into or permitted any of the assets owned or used by it to become bound
by any Material Contract (as defined in Section 2.10), or (ii) amended or
prematurely terminated, or waived any material right or remedy under, any
Material Contract;
(k) except in each case for rights or other assets acquired, leased,
licensed, disposed of, waived or relinquished in the ordinary course of business
and consistent with past practices (and except as listed on Part 2.5(i) of the
Company Disclosure Schedule), the Company has not, and none of its Subsidiaries
have, (i) acquired, leased or licensed any material right or other material
asset from any other Person, (ii) sold or otherwise disposed of, or leased or
licensed, any material right or other material asset to any other Person, or
(iii) waived or relinquished any right;
(l) except as set forth in Part 2.5(l) of the Company Disclosure
Schedule, the Company has not, and none of its Subsidiaries have, written off as
uncollectible, or established any extraordinary reserve with respect to, any
account receivable or other indebtedness in excess of $10,000 with respect to
any single matter, or in excess of $25,000 in the aggregate;
(m) except as set forth in Part 2.5(m) of the Company Disclosure
Schedule, the Company has not, and none of its Subsidiaries have, made any
pledge of any of its assets or otherwise permitted any of its assets to become
subject to any Encumbrance, except in the ordinary course of business and
consistent with past practices;
(n) except as set forth in Part 2.8(b) of the Company Disclosure
Schedule, the Company has not, and none of its Subsidiaries have, (i) lent money
to any Person, other than routine travel or relocation advances made to
employees in
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the ordinary course of business, or (ii) incurred or guaranteed any indebtedness
for borrowed money;
(o) except as set forth on Part 2.5(o) of the Company Disclosure
Schedule, the Company has not (i) established or adopted any Plan (as defined in
Section 2.16(a)), (ii) caused or permitted any Plan to be amended in any
material respect (except as required to maintain the qualified status of the
Plan under Code Section 401(a)), or (iii) paid any material bonus or made any
profit-sharing or similar payment to, or materially increased the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees (it being
understood that, for purposes of this paragraph (o), "material increases" means,
for any individual, salary increases more than $15,000, borrowings more than
$10,000, bonuses more than $10,000 and commissions more than $25,000 (in each
case in the aggregate for such individual);
(p) the Company has not, and none of its Subsidiaries have, changed
any of its methods of accounting or accounting practices in any respect;
(q) except as set forth in Part 2.5(q) of the Company Disclosure
Schedule, the Company has not, and none of its Subsidiaries have, commenced or
settled any Legal Proceeding;
(r) the Company has not, and none of its Subsidiaries have, entered
into any employment or other agreement requiring compensation for employment in
excess of $100,000 or for severance upon termination with any of its officers,
directors or employees not reflected on Part 2.5(r) or Part 2.10(a) of the
Company Disclosure Schedule;
(s) except as set forth on Part 2.5(s) of the Company Disclosure
Schedule, the Company has not and none of its Subsidiaries has, entered into any
transaction that has had, or, to the Company's Knowledge, could reasonably be
expected to have, a Material Adverse Effect on the Company; and
(t) the Company has not, and none of its Subsidiaries has, agreed or
committed to take any of the actions referred to in clauses "(c)" through "(s)"
above.
2.6 Leasehold; Equipment. The Company does not, nor does any of its
Subsidiaries, own any real property. All real property leased by the Company and
its Subsidiaries is identified in Part 2.6 of the Company Disclosure Schedule.
All such real property is being leased pursuant to lease agreements that are in
full force and effect, and 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) by the Company or its Subsidiaries or, to the
Company's Knowledge, by any other party thereto that would result in a Material
Adverse Effect. All material
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items of equipment and other tangible assets owned by or leased to the Company
or any of its Subsidiaries are adequate for the uses to which they are being
put, are in good condition and repair (ordinary wear and tear excepted) and are
adequate for the conduct of the business of the Company and its Subsidiaries in
the manner in which such business is currently being conducted.
2.7 Title to Assets. Each of the Company and its Subsidiaries owns, and
has good, valid and marketable title to, or in the case of leased properties and
assets, valid leasehold interests in, all of its tangible properties and assets,
real, personal and mixed, used or held for use in its business except as
reflected in the Company Financial Statements and Most Recent Balance Sheet,
including: (i) all assets reflected on the Most Recent Balance Sheet; and (ii)
all other assets reflected in the books and records of the Company as being
owned or leased by the Company. All of such assets are owned or leased by the
Company free and clear of any Encumbrances, except in the case of leased or
purchased equipment as set forth in the Contract pursuant to which such assets
were leased or acquired.
2.8 Receivables; Significant Customers.
(a) Part 2.8(a) of the Company Disclosure Schedule provides an
accurate and complete breakdown as of April 30, 2000 of the committed but
undelivered contracts of the Company and its Subsidiaries ("Backlog Schedule")
with respect to executed contracts for software and services to be provided to
customers by the Company. With respect to each customer contract listed in the
Backlog Schedule, the information set forth in the columns titled "License",
"Services" and "Maintenance" accurately reflect the Company's current good faith
projections for fees to be billed and earned under the applicable contracts for
"License", "Services" or "Maintenance," as applicable, including estimated fees
for services expected to be rendered on a time and materials basis based upon
the Company's best good faith estimate of the total projected hours to deliver
the products and services. Notwithstanding anything to the contrary such
information represents only the Company's good faith estimates and the actual
amounts earned and billed may vary from the estimates.
(b) Part 2.8(b) of the Company Disclosure Schedule contains an
accurate and complete list as of the date of this Agreement of all loans and
advances made by the Company or any of its Subsidiaries to any employee,
director, consultant or independent contractor of the Company or any of its
Subsidiaries, other than routine travel or relocation advances made to employees
in the ordinary course of business.
(c) For the purposes of this Agreement, "Significant Customers" are
the ten (10) customers of the Company and its Subsidiaries that have effected
the most purchases, in dollar terms, and accounted for the most revenues, in
dollar terms, during each of the past four (4) fiscal quarters. Except as set
forth in Part
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2.8(c) of the Company Disclosure Schedule, none of the Significant Customers has
canceled, returned or substantially reduced or, to the Knowledge of the Company,
is currently attempting or threatening to cancel, return or substantially
reduce, any purchases from, orders to or services provided by the Company or any
of its Subsidiaries. To the Knowledge of the Company, since the Balance Sheet
Date, neither the Company nor any of its Subsidiaries has received any material
customer complaints concerning its products and/or services, nor has it had any
of its products returned by a customer or threatened to be returned by a
customer nor is it aware that any customer may return any products.
2.9 Proprietary Assets.
(a) The Company and each of its Subsidiaries owns, or is licensed to
use, all patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, maskworks, schematics, design and other drawings,
technology, know-how, computer software programs or applications and tangible or
intangible proprietary information or material (excluding Company Commercial
Software Rights (as defined below)) that are used or currently proposed by the
Company and each of its Subsidiaries to be used in the business of the Company
and of its Subsidiaries as currently conducted or as currently proposed to be
conducted as of the date hereof or as of the Closing Date (the "Company
Intellectual Property Rights"). Part 2.9(a) of the Company Disclosure Schedule
(i) sets forth a complete list of all patents, patent applications, registered
trademarks, unregistered copyrights, trade names and service marks, and any
applications therefor, included in the Company Intellectual Property Rights;
(ii) specifies the jurisdictions in which each such Company Intellectual
Property Right has been issued or registered or in which an application for such
issuance and registration has been filed, including the respective registration
or application numbers and the names of all registered owners, together with a
list of all of the currently marketed software products of the Company and each
of its Subsidiaries and a list of which, if any, of such software products that
have been registered for copyright protection with the United States Copyright
Office and any foreign offices and by whom such items have been registered and
(iii) as to each such Company Intellectual Property Right, specifies whether it
is owned by the Company and each of its Subsidiaries or licensed to the Company
or its Subsidiaries by another Person and, in the cases of any license, sets
forth (i) the licensor, (ii) the term of such license, and (iii) the amount of
the license fee payable thereunder.
(b) Part 2.9(b) of the Company Disclosure Schedule also sets forth a
complete list of all licenses, sublicenses and other agreements pursuant to
which the Company or its Subsidiaries has licensed any other Person to use any
Company Intellectual Property Right or other trade secret material to the
Company or its Subsidiaries, and includes the identity of such licensees,
provided, however, that standard end user licenses to object code versions of
software of the Company and its Subsidiaries need not be listed. The Company is
not, nor will it be and none of
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its Subsidiaries are, nor will they be as a result of the execution and delivery
of this Agreement or the performance of its obligations hereunder, in violation
of any license, sublicense or agreement described on such list, nor will the
execution, delivery or performance of this Agreement terminate thereunder.
Except as set forth on Part 2.9(b) of the Company Disclosure Schedule, the
Company or one of its Subsidiaries is the sole and exclusive owner of, with all
right, title and interest in and to (free and clear of any liens, encumbrances
or licenses, other than end user licenses), the Company Intellectual Property
Rights, and has sole and exclusive rights, and is not contractually obligated to
pay any compensation to any third party for the use thereof or the material
covered thereby in connection with the services or products in respect of which
such Company Intellectual Property Rights are being used.
(c) Except as set forth on Part 2.9(c) of the Company Disclosure
Schedule, the Company and each of its Subsidiaries has sufficient rights under
the license agreements for all Company Intellectual Property Rights licensed to
the Company and each of its Subsidiaries to use such Company Intellectual
Property Rights in its business as currently conducted and as proposed to be
conducted without payment of royalties or other compensation to the licensor
thereof. No claims with respect to the Company Intellectual Property Rights have
been asserted or, to the Knowledge of the Company, are threatened by any Person
(i) to the effect that the manufacture, sale, licensing or use of any product
as, now used, sold or licensed or proposed for use, sale or license by the
Company or its Subsidiaries infringes on any copyright, patent, trade mark,
service mark or trade secret, (ii) against the use by the Company or its
Subsidiaries of any trademarks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in the
Company's and each of its Subsidiaries' business as currently conducted or as
proposed by the Company and each of its Subsidiaries to be conducted, or (iii)
challenging the ownership, validity or effectiveness of any of the owned Company
Intellectual Property Rights.
(d) Except as set forth on Part 2.9(d) of the Company Disclosure
Schedule, all registered and material unregistered trademarks, service marks and
copyrights held by the Company are valid and subsisting. To the Knowledge of the
Company, there is no material unauthorized use, infringement or misappropriation
of any of the owned Company Intellectual Property Rights by any third party,
including any employee or former employee of the Company or any of its
Subsidiaries. No Company Intellectual Property Right owned by the Company or any
of its Subsidiaries or product of the Company or any of its Subsidiaries is
subject to any outstanding order, judgment, decree, stipulation or agreement
restricting in any manner the licensing thereof by the Company or any of its
Subsidiaries. There is no outstanding order, judgment, decree or stipulation
against the Company or any of its Subsidiaries, and the Company and each of its
Subsidiaries is not party to any agreement, restricting in any manner the
licensing of the Company and each of its Subsidiaries' products by the Company
and each of
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its Subsidiaries. Except for end user licenses or as otherwise set forth on Part
2.9(d) of the Company Disclosure Schedule, the Company has not entered into any
agreement to indemnify any Person against any charge of infringement of any
Company Intellectual Property Right.
(e) Except as set forth on Part 2.9(e) of the Company Disclosure
Schedule, each current employee, consultant, designer, product developer or
independent contractor of the Company and each of its Subsidiaries, and each
past (whose employment or other relationship with the Company or its
Subsidiaries terminated on or after January 1, 1997) employee, consultant,
designer, product developer or independent contractor of the Company and each of
its Subsidiaries, who prior to the Effective Time had access to any Company
Intellectual Property Right or participated in the design or development of any
Company Intellectual Property Right or any product currently marketed, or
currently under design or development, by the Company of any of its Subsidiaries
(each such Person so involved in design or development being referred to as a
"Developer") has signed a proprietary information agreement with the Company and
each of its Subsidiaries (as applicable) containing non-disclosure and, with
respect to each Developer, inventions assignment/ownership provisions, and
correct copies of all such agreements have been delivered to Parent and no
commissions, royalties, share of profits or other payments are now due or will
ever be due to such persons as the result of the sale or licensing of any
intellectual property used by the Company and each of its Subsidiaries or of any
product sold or licensed by the Company or its Subsidiaries.
(f) "Company Commercial Software Rights" means packaged commercially
available software programs generally available to the public which have been
licensed to the Company and its Subsidiaries pursuant to end-user licenses and
which are used in the Company or its Subsidiaries' business but are in no way a
component of or incorporated in any of the Company or its Subsidiaries' products
and related trademarks, technology and know-how. Neither the Company nor its
Subsidiaries has breached or violated the terms of its license, sublicense or
other agreement relating to any Company Commercial Software Rights and has a
valid right to use such Company Commercial Software Rights under such license
and agreements. No claims with respect to the Company Commercial Software Rights
have been asserted or, to the Knowledge of the Company, are threatened by any
Person against the Company or its Subsidiaries. To the Knowledge of the Company,
there is not, nor has there been, unauthorized use, infringement or
misappropriation of any of the Company Commercial Software Rights by the Company
or its Subsidiaries or any employee, consultant, designer, product developer, or
independent contractor of the Company or its Subsidiaries.
2.10 Contracts.
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(a) Part 2.10 of the Company Disclosure Schedule identifies each
Contract of the Company or any of its Subsidiaries that constitutes a "Material
Contract." For purposes of this Agreement, each of the following shall be deemed
to constitute a "Material Contract":
(i) any collective bargaining Contract;
(ii) (A) any written Contract or outstanding offer relating to
the employment of, or the performance of services by, any employee, consultant,
designer, product developer or independent contractor for $100,000 per year or
more (B) any Contract pursuant to which the Company or any of its Subsidiaries
is required to make any severance, termination or similar payment, bonus,
deferred compensation, incentive compensation or relocation payment or any other
payment (other than payments in respect of salary less than $100,000) to any
current or former employee or director of the Company or any of its Subsidiaries
and (C) any Contract or Plan (including, without limitation, any stock option
plan, stock appreciation plan or stock purchase plan), any of the benefits of
which may be increased, or the vesting of benefits of which may be accelerated
as a result of the Merger or otherwise;
(iii) any insurance policy, fidelity or surety bond or
completion bond;
(iv) any Contract not listed on Part 2.9 of the Company
Disclosure Schedule (A) relating to the acquisition, transfer, development,
sharing, license (to or by the Company or any of its Subsidiaries), use or other
exploitation of any Proprietary Asset (except for any Company Commercial
Software Rights or other Contracts pursuant to which any Proprietary Asset is
licensed to the Company or any of its Subsidiaries for internal use under any
third party software license generally available to the public); or (B) with
respect to the distribution or marketing of any products of the Company or any
of its Subsidiaries;
(v) any lease of real property;
(vi) any Contract not listed on Part 2.9 (a), (b), (d) or (e)
of the Company Disclosure Schedule or which both is not granting Company
Commercial Software Rights to the Company and its Subsidiaries and involves
goods or services of $100,000 or more in any twelve-month period that provides
for indemnification or guaranty not entered into in the ordinary course of
business, but in any event any Contract that provides for indemnification of any
officer, director, employee or agent of the Company or any one of its
Subsidiaries;
(vii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(iii) hereof
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(other than extensions of credit from customers or suppliers in the ordinary
course of business);
(viii) any Contract imposing any restriction on the right or
ability of the Company or any of its Subsidiaries (A) to compete in any market
or geographic area with any other Person, (B) to acquire any product or other
asset or any services from any other Person, to sell any product or other asset
to or perform any services for any other Person or to transact business or deal
in any other manner with any other Person, or (C) to develop or distribute any
technology;
(ix) any Contract (A) relating to the acquisition, issuance,
voting, registration, sale or transfer of any securities (other than the
issuance of Company Common Stock upon the valid exercise of Company Options
outstanding as of the date of this Agreement), (B) providing any Person with any
preemptive right or any similar right with respect to any securities, or (C)
providing the Company or any of its Subsidiaries with any right of first refusal
with respect to, or right to repurchase or redeem, any securities;
(x) any Contract requiring that the Company or any of its
Subsidiaries give any notice or provide any information to any Person prior to
accepting any Acquisition Proposal;
(xi) any Contract that contemplates or involves payment or
delivery by the Company or its Subsidiaries of cash or other consideration in an
amount or having a value in excess of $25,000 in the aggregate, or contemplates
or involves the performance by the Company or its Subsidiaries of services
having a value in excess of $25,000 in the aggregate;
(xii) any Contract currently in force to disclose or deliver to
any Person, or permit the disclosure or delivery to any escrow agent or other
Person, of the source code, or any portion or aspect of the source code, or any
proprietary information or algorithm contained in or relating to any source
code, of any Company Intellectual Property Rights;
(xiii) any Contract or Plan (including, without limitation, any
stock option plan, stock appreciation plan or stock purchase plan), any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the execution of this Agreement or the consummation of any of
the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(xiv) any joint marketing or development Contract currently in
force under which the Company or any of its Subsidiaries has continuing
obligations to jointly market any product, technology or service, or any
material Contract
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pursuant to which the Company or any of its Subsidiaries has continuing
obligations to jointly develop any Proprietary Asset;
(xv) all commitments for trade shows including deposits made
or due, the dates, locations of the shows and the locations reserved for the
booth of the Company or any of its Subsidiaries;
(xvi) any joint venture, partnership or other cooperative
arrangement or agreement involving a sharing of profits or losses; and
(xvii) any agreement governing any of the transactions or
arrangements set forth on the Backlog Schedule.
(b) Each Material Contract is valid and in full force and effect, and
is enforceable by the Company or its Subsidiaries, as the case may be, in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.10(c) of the Company Disclosure
Schedule: (i) neither the Company nor any of its Subsidiaries has violated or
breached, or committed any default under, any Contract, and, to the Company's
Knowledge, no other Person has violated or breached, or committed any default
under, any Contract; (ii) no event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time) will, or could
reasonably be expected to, (A) result in a violation or breach of any of the
provisions of any Contract of the Company or any of its Subsidiaries, (B) give
any Person the right to declare a default or exercise any remedy under any
Company Contract, (C) give any Person the right to a rebate, chargeback, penalty
or change in delivery schedule under any Contract of the Company or any of its
Subsidiaries involving $10,000 or more, (D) give any Person the right to
accelerate the maturity or performance of any Contract of the Company or any of
its Subsidiaries, or (E) give any Person the right to cancel, terminate or
modify any Contract of the Company or any of its Subsidiaries; and (iii) neither
the Company or any of its Subsidiaries, nor any of their directors, officers,
management employees, lawyers or accountants has received any notice or other
communication regarding any actual or possible violation or breach of, or
default under, any Contract of the Company or any of its Subsidiaries.
(d) There is no Contract of the Company or any of its Subsidiaries to
which any Governmental Body is a party or under which any Governmental Body has
any rights or obligations, or directly or indirectly benefiting any Governmental
Body (including any subcontract or other Contract between the Company or any of
its Subsidiaries and any contractor or subcontractor to any Governmental Body).
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(e) No Person is renegotiating, or has a right pursuant to the terms
of any Contract of the Company or any of its Subsidiaries to renegotiate, any
amount in excess of $5,000 paid or payable to the Company or any of its
Subsidiaries under any Contract or any other material term or provision of any
Contract.
2.11 Liabilities. Neither the Company nor any of its Subsidiaries has any
liabilities required to be reflected in financial statements in accordance with
generally accepted accounting principles consistently applied ("GAAP"), except
for: (a) liabilities identified as such in the "liabilities" column of the Most
Recent Balance Sheet; (b) normal and recurring liabilities that have been
incurred by the Company since the date of the Most Recent Balance Sheet in the
ordinary course of business and consistent with past practices; or (c)
liabilities set forth in Part 2.11 of the Company Disclosure Schedule.
2.12 Compliance with Legal Requirements. The Company is, and has at all
times since January 1, 1997 (the "Measurement Date") been, in compliance with
all applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and will not have a Material Adverse Effect on
the Company or any of its Subsidiaries. Since the Measurement Date, neither the
Company nor any of its Subsidiaries has received any notice or other
communication from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement. The Company has
not and none of its Subsidiaries have violated in any respect (to the Company's
Knowledge), or received a notice or charge asserting any violation of the
Sherman Act, the Clayton Act, the Robinson-Patman Act, or the Federal Trade
Commission Act, each as amended.
2.13 Certain Business Practices. Neither the Company nor any of its
Subsidiaries, nor to the Knowledge of the Company any director, officer, agent
or employee of the Company or any of its Subsidiaries has on behalf of or in the
name of the Company or any of its Subsidiaries (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
2.14 Governmental Authorizations. The Company and its Subsidiaries hold
all Governmental Authorizations (including, without limitation, export licenses)
necessary to enable the Company to conduct its business in the manner in which
such business is currently being conducted except for those Governmental
Authorizations the failure of which to obtain would not have a Material Adverse
Effect. All such Governmental Authorizations are valid and in full force and
effect. Each of the Company and its Subsidiaries is, and at all times has been,
in
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substantial compliance with the terms and requirements of such Governmental
Authorizations. Neither the Company nor any of its Subsidiaries has received any
notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any material Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any material Governmental Authorization.
2.15 Tax Matters.
(a) Except as set forth in Part 2.15(a) of the Company Disclosure
Schedule, all Tax Returns required to be filed by or on behalf of the Company
and/or its Subsidiaries with any Governmental Body on or before the Closing
Date, taking into account any extensions that may have been granted with respect
to such Tax Returns before the Closing Date (the "Company Returns") (i) have
been or will be filed on or before the applicable due date, (ii) have been, or
will be when filed, true, correct and complete and (iii) have been, or will be
when filed, prepared in compliance with all applicable Legal Requirements. All
Taxes for periods where the due date for payment has occurred and that are owed
by the Company or its Subsidiaries, whether or not shown on any Company Return,
have been or will be paid on or before the Closing Date. Except as set forth in
Part 2.15(a) of the Company Disclosure Schedule, neither the Company nor any of
its Subsidiaries has requested or been granted an extension of time for filing
any Company Return that has not been filed.
(b) The accruals for Taxes on the books and records of the Company
and its Subsidiaries were made in accordance with GAAP and are sufficient to
discharge the Taxes for all periods (or portion of any period) ending on or
prior to the Closing Date.
(c) The Company has made available to Parent complete and correct
copies of all Company Returns, audit reports and statements of deficiencies for
each of the last three taxable years filed by or issued to or with respect to
the Company or its Subsidiaries.
(d) Except as set forth in Part 2.15(d) of the Company Disclosure
Schedule, no Company Return has ever been examined or audited by any
Governmental Body. No extension or waiver of the limitation period applicable to
any of the Company Returns has been granted (by the Company or any other
Person), and no such extension or waiver has been requested from the Company or
any of its Subsidiaries. No audit is pending with respect to any Company Return
of the Company or any of its Subsidiaries, nor does the Company nor any of its
Subsidiaries have Knowledge of any information that an audit by any Governmental
Body may be forthcoming.
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(e) No claim or Legal Proceeding is pending or, to the Knowledge of
the Company, has been threatened against or with respect to the Company or any
of its Subsidiaries in respect of any Tax. There are no unsatisfied liabilities
for Taxes with respect to any notice of deficiency or similar document received
by the Company or any of its Subsidiaries with respect to any Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document that are being contested in good faith by the Company or any of its
Subsidiaries and with respect to which adequate reserves for payment have been
established). Neither the Company nor any of its subsidiaries has Knowledge of
any basis for the assertion of a deficiency for Taxes. There are no outstanding
rulings of, or requests for rulings with, any Governmental Body addressed to the
Company or any Subsidiary that are, or if issued would be, binding on the
Company or any Subsidiary. There are no liens for Taxes upon any of the assets
of the Company or any of its Subsidiaries except liens for current Taxes not yet
due and payable and the Company has and its Subsidiaries have no Knowledge of
any basis for the assertion of any claim which, if adversely determined, would
result in such a lien. The Company has not and none of its Subsidiaries have
entered into or become bound by any agreement or consent pursuant to Section
341(f) of the Code. The Company has not been and none of its Subsidiaries have
been, and will not be, required to include any adjustment in taxable income for
any tax period (or portion thereof) pursuant to Section 481 or 263A of the Code
or any comparable provision under state or foreign Tax laws as a result of
transactions or events occurring, or accounting methods employed, prior to the
Closing. Neither the Company nor any Subsidiary has any application pending with
any Governmental Body requesting permission for any changes in any accounting
method. No Governmental Body has proposed any such adjustment or change in
accounting method.
(f) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company or any of its Subsidiaries that,
considered individually or considered collectively with any other such
Contracts, will, or could reasonably be expected to, give rise directly or
indirectly to the payment of any amount that would not be deductible pursuant to
Section 280G, 404 or (except as set forth in Part 2.15(f) of the Company
Disclosure Schedule) Section 162 of the Code. The Company is not, and never has
been, and none of its Subsidiaries are, and never have been, a party to or bound
by any tax indemnity agreement, tax sharing agreement, tax allocation agreement
or similar Contract. Neither the Company nor any of its Subsidiaries has any
current or potential contractual obligation to indemnify any other Person with
respect to Taxes.
(g) Neither the Company nor any of its Subsidiaries (i) has been a
member of an affiliated group filing a consolidated federal income tax return
(other than the group the common parent of which is the Company) or any group of
corporations filing a consolidated, combined, unitary, or group return under
state, local or foreign law (other than the group the common parent of which is
the
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Company), or (ii) has any liability for the Taxes of any other Person (other
than any of the Company and its Subsidiaries) under Treasury Regulation 1.1502-6
(or any similar provision of state, local or foreign law), as a transferee or
successor, by contract, or otherwise.
(h) All Taxes required to be withheld, collected or deposited by the
Company or any Subsidiary of the Company (including, but not limited to, amounts
paid or owing to any employee, creditor, independent contractor or other Person)
have been timely withheld, collected or deposited and, to the extent required,
have been timely paid to the relevant Governmental Body.
(i) Except as set forth in Part 2.15(i) of the Company Disclosure
Schedule (which will be provided prior to the Closing Date), (i) the Company and
its Subsidiaries are not and have not been subject to tax in any jurisdiction
outside the United States and (ii) neither the Company nor any Subsidiary of the
Company has ever had a permanent establishment in any foreign country, as
defined in the relevant tax treaty between the United States and such foreign
country, or has ever otherwise operated or conducted business through any branch
in any foreign country.
(j) No closing agreement or settlement agreement pursuant to any
provision of any Tax law has been entered into with any Governmental Body by or
with respect to which the Company or any Subsidiary of the Company which
requires the Company or any Subsidiary of the Company to include any item of
income in, or exclude any item of deduction from, any Tax Return for any taxable
period ending after the date hereof.
(k) Neither the Company nor any of its Subsidiaries has ever been
either a "distributing corporation" or a "controlled corporation" in connection
with a distribution of stock qualifying for tax-free treatment, in whole or in
part, pursuant to Section 355 of the Code.
(l) No claim has been made against the Company or any of its
Subsidiaries by any taxing authority in any jurisdiction where the Company or
any of its Subsidiaries does not pay Tax or file Company Returns that the
Company or any of its Subsidiaries is or may be subject to Taxes assessed by
such jurisdiction and, to the Knowledge of the Company and the Company
Subsidiaries, no such claim can reasonably be made.
(m) Neither the Company nor any of its Subsidiaries has been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code.
(n) None of the assets of the Company or any of its Subsidiaries is
property which the Company or a Subsidiary of the Company is required to treat
as
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being owned by any other Person pursuant to the so-called "safe-harbor lease"
provisions of former Section 168(f)(8) of the Code.
(o) Each asset with respect to which the Company or any of its
Subsidiaries claims depreciation, amortization or similar expense for Tax
purposes is owned for Tax purposes by the Company or the relevant Subsidiary.
None of the property owned or used by the Company or any of its Subsidiaries is
subject to a lease that is not a "true lease" for federal income tax purposes.
(p) None of the assets of the Company or any of its Subsidiaries is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(q) None of the assets of the Company or any of its Subsidiaries
directly or indirectly secures any debt the interest on which is tax exempt
under Section 103(a) of the Code.
(r) All elections with respect to Taxes affecting the Company or any
of its Subsidiaries are set forth in Part 2.15(r) of the Company Disclosure
Schedule. After the date hereof, no election with respect to Taxes will be made
without the written consent of the Parent.
(s) The Company has not distributed and will not distribute to its
shareholders, in connection with or in contemplation of the transactions
contemplated by this Agreement, an amount of its assets, including cash, with a
fair market value greater than ten percent (10%) of the fair market value of the
net assets or thirty percent (30%) of the fair market value of the gross assets
(within the meaning of Rev. Proc. 86-42) held by the Company immediately prior
to any such distribution.
(t) The Company's and its Subsidiaries' tax basis in their assets for
purposes of determining their respective future amortization, depreciation and
other federal income tax deductions is accurately reflected on their respective
tax books and records.
(u) As of the date hereof, the net operating losses of the Company
and its Subsidiaries are not subject to Sections 382 or 269 of the Code, Treas.
Reg. (Section) 1.1502-21T(c), or any similar provisions of the Code or the
Treasury Regulations otherwise limiting the use of the net operating losses of
the Company or its Subsidiaries.
(v) Neither the Company nor its Subsidiaries are subject to any
penalty by reason of a violation of any order, rule or regulation of, or default
with respect to any Company Return required to be filed with, any Governmental
Body to which it is subject.
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(w) Neither the Company nor any of its Subsidiaries has any excess
loss account (as defined in Treas. Reg (Section) 1.1502-19) with respect to the
stock of any Subsidiary.
2.16 Employee and Labor Matters; Benefit Plans.
(a) Part 2.16(a) of the Company Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, medical, life or
other insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any current or former employee or director of, or current or
former consultant or contractor to, the Company or its subsidiaries.
(b) Except as set forth in Part 2.16(b) of the Company Disclosure
Schedule, the Company does not, and nor do any of its subsidiaries, maintain,
sponsor or contribute to, and the Company has not, and nor have any of its
Subsidiaries, at any time in the past maintained, sponsored or contributed to,
any employee pension benefit plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not
excluded from coverage under specific Titles or Subtitles of ERISA) for the
benefit of employees or former employees of the Company and its Subsidiaries (a
"Pension Plan"). None of the Plans identified in Part 2.16(b) of the Company
Disclosure Schedule is subject to Title IV of ERISA or Section 412 of the Code.
(c) Except as set forth in Part 2.16(c) of the Company Disclosure
Schedule, the Company does not, and nor do any of its Subsidiaries, maintain,
sponsor or contribute to any: (i) employee welfare benefit plan (as defined in
Section 3(1) of ERISA, whether or not excluded from coverage under specific
Titles or Subtitles of ERISA) for the benefit of any employee or former employee
or director of, or current or former consultant or contractor to, the Company
and its Subsidiaries (a "Welfare Plan"), or (ii) self-funded medical, dental or
other similar Plan. None of the Plans identified in Section 2.16(c) of the
Company Disclosure Schedule is a multi-employer plan (within the meaning of
Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to Parent,
on behalf of itself and each of its Subsidiaries: (i) an accurate and complete
copy of such Plan (including all amendments thereto); (ii) an accurate and
complete copy of the annual report, if required under ERISA, with respect to
such Plan for the last two years; (iii) an accurate and complete copy of the
most recent summary plan description, together with each Summary of Material
Modifications, if required under ERISA, with respect to such Plan, (iv) if such
Plan is funded through a trust or any third party funding vehicle, an accurate
and complete copy of the trust or other funding agreement (including all
amendments thereto) and accurate and
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complete copies the most recent financial statements thereof; (v) accurate and
complete copies of all Contracts relating to such Plan, including service
provider agreements, insurance contracts, minimum premium contracts, stop-loss
agreements, investment management agreements, subscription and participation
agreements and recordkeeping agreements; and (vi) an accurate and complete copy
of the most recent determination letter received from the Internal Revenue
Service with respect to such Plan (if such Plan is intended to be qualified
under Section 401(a) of the Code) and any governmental advisory opinions,
rulings, compliance statements, closing agreements, or similar materials
specific to such Plan.
(e) The Company is not and never, and none of its Subsidiaries is or
ever, has been required to be treated as a single employer with any other Person
under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the
Code. The Company has never and none of its Subsidiaries has ever made a
complete or partial withdrawal from a multi-employer plan, as such term is
defined in Section 3(37) of ERISA, resulting in "withdrawal liability," as such
term is defined in Section 4201 of ERISA (without regard to subsequent reduction
or waiver of such liability under either Section 4207 or 4208 of ERISA).
(f) Neither the Company nor any of its Subsidiaries has any plan or
commitment to create any Welfare Plan or any additional Pension Plan, or to
modify or change any existing Pension Plan (other than to comply with applicable
law, including, without limitation, amendments to the Code and ERISA made by the
Uniformed Services Employment and Reemployment Rights Act of 1994 ("USERRA"),
the Uruguay Round Agreement Act ("GATT"), the Small Business Job Protection Act
of 1996 ("SBJPA") and the Taxpayer Relief Act of 1997 ("TRA '97")) in a manner
that would affect any current or former employee or director of, or current or
former consultant or contractor to, of the Company or any of its Subsidiaries.
The Company has not and none of its Subsidiaries has agreed in writing to
maintain any Plan for any period of time and each such Plan is terminable at the
sole discretion of the sponsor thereof, subject only to such constraints as may
imposed by applicable law.
(g) No Plan provides death, medical or health benefits (whether or
not insured) with respect to any current or former employee or director of, or
current or former consultant or contractor to, the Company or any Subsidiary
after any such individual's termination of service other than (i) benefit
coverage mandated by applicable law, including coverage provided pursuant to
Section 4980B of the Code, (ii) deferred compensation benefits accrued as
liabilities on the Company Balance Sheet, and (iii) benefits the full cost of
which are borne by such individuals of the Company or any Subsidiary (or their
beneficiaries)). Notwithstanding the foregoing, certain individual employees
have such benefits under their employment agreements as disclosed in Part
2.10(a)(ii) of the Company Disclosure Schedule.
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(h) With respect to any Plan constituting a group health plan within
the meaning of Section 4980B(g)(2) of the Code, the provisions of Section 4980B
of the Code ("COBRA") have been complied with in all material respects. Part
2.16(h) of the Company Disclosure Schedule describes all obligations of the
Company or any of its Subsidiaries as of the date of this Agreement under any of
the provisions of COBRA.
(i) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
but not limited to ERISA and the Code. There is no pending or, to the Knowledge
of the Company, threatened legal action, proceeding or investigation, other than
routine claims for benefits, concerning any Plan or to the best knowledge of the
Company any fiduciary or service provider thereof with respect to the Plans and,
to the Knowledge of the Company, there is no basis for any such legal action or
proceeding. No Plan nor any party in interest with respect thereof has engaged
in a prohibited transaction which could subject the Company or any of its
Subsidiaries directly or indirectly to liability under Section 409 or 502(i) of
ERISA or Section 4975 of the Code. With respect to each Plan for which a
separate fund of assets is or is required to be maintained, full payment has
been made of all amounts required of the Company, under the terms of each such
Plan or applicable law, as applied through the Closing Date.
(j) Each of the Plans intended to be qualified under Section 401(a)
of the Code has either received a favorable determination from the Internal
Revenue Service as to its qualified status under the Code (or relies on a
favorable opinion letter issued by the Internal Revenue Service with respect to
a standardized form of prototype plan adopted by the Company or its
Subsidiaries, as the case may be) or the requisite period under applicable
Treasury Regulations or Internal Revenue Service pronouncements in which to
apply for such determination letter and to make any amendments necessary to
obtain a favorable determination with respect to the Plan has not expired, and
the Company is not aware of any reason why any such determination letter should
be revoked or which requires or could require action under the compliance
resolution programs of the Internal Revenue Service to preserve such
qualification.
(k) Except as set forth in Part 2.16(k) of the Company Disclosure
Schedule, neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, alone or in combination with any other event or action, will
result in any payment (including any bonus, golden parachute or severance
payment) to any current or former employee or director of, or current or former
consultant or contractor to, the Company or any of its Subsidiaries (whether or
not under any Plan), or materially increase the benefits payable under any Plan,
or result in any acceleration of the time of payment or vesting of any such
benefits (other than as
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required under Section 411(d)(3) of the Code in connection with the termination
or partial termination of a Plan).
(l) Part 2.16(l) of the Company Disclosure Schedule contains a list
of all salaried employees of the Company and its Subsidiaries as of the date of
this Agreement, and correctly reflects, in all material respects, their base
salaries, their targeted annual bonus amounts, their dates of employment and
their positions. Neither the Company nor any of its Subsidiaries is a party to
any collective bargaining contract or other Contract with a labor union
involving any of its employees. Except as set forth in Part 2.16(l) of the
Company Disclosure Schedule, all of the employees of the Company and its
Subsidiaries are "at will" employees and each current or former contractor or
consultant to the Company and its Subsidiaries is and has at all times been
properly characterized as such.
(m) Part 2.16(m) of the Company Disclosure Schedule identifies each
employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.
(n) Each Plan complies in all material respects with all applicable
Legal Requirements. The Company and each of its Subsidiaries is in compliance in
all material respects with all Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters.
(o) The Company and each of its Subsidiaries has good labor
relations, and the Company does not have any Knowledge that (i) the consummation
of the Merger or any of the other transactions contemplated by this Agreement
will have a material adverse effect on the labor relations of the Company or any
of its Subsidiaries, or (ii) any of the employees of the Company or any of its
Subsidiaries intends to terminate his or her employment with the Company or its
Subsidiary, as the case may be.
2.17 Environmental Matters. The Company and each of its Subsidiaries is in
compliance in all material respects with all applicable Environmental Laws,
which compliance includes the possession by the Company and its Subsidiaries of
all permits and other Governmental Authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof. To the
Knowledge of the Company, there is no pending or threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding, or
investigation inquiry or information request by an Governmental Body, relating
to any Environmental Law involving the Company or its Subsidiaries. The Company
has not received any notice or other communication (in writing or otherwise),
whether from a Governmental Body, citizens group, employee or otherwise, that
alleges that the Company or its Subsidiaries is not in compliance with any
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Environmental Law. To the Knowledge of the Company, no current or prior owner of
any property leased or controlled by the Company has received any notice or
other communication (in writing or otherwise), whether from a Government Body,
citizens group, employee or otherwise, that alleges that such current or prior
owner or the Company is not in compliance with any Environmental Law. To the
Knowledge of the Company, all property that is leased to, controlled by or used
by the Company and its Subsidiaries, and all surface water, groundwater and soil
associated with or adjacent to such property is in clean and healthful condition
and is free of any material environmental contamination of any nature.
2.18 Insurance. Part 2.18 of the Company Disclosure Schedule lists all
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, software, errors and omissions, employees, officers and
directors of the Company, as well as all claims made under any insurance policy
by the Company since the Measurement Date, other than health insurance claims.
Each such insurance policy is in full force and effect. All premiums payable
under all such policies and bonds have been paid and the Company is otherwise in
compliance in all material respects with the terms of such policies and bonds.
Such policies of insurance and bonds are of the type and in amounts customarily
carried by persons conducting businesses similar to those of the Company. Since
the Measurement Date, the Company has not received any notice or other
communication regarding any actual or possible (a) cancellation or invalidation
of any insurance policy, (b) refusal of any coverage or rejection of any
material claim under any insurance policy, other than health insurance claims,
or (c) material adjustment in the amount of the premiums payable with respect to
any insurance policy. Except as set forth in Part 2.18 of the Company Disclosure
Schedule, there is no pending claim (including any workers' compensation claim)
other than health insurance claims under or based upon any insurance policy of
the Company; and no event has occurred, and to the Knowledge of the Company, no
condition or circumstance exists, that might (with or without notice or lapse of
time) directly or indirectly give rise to or serve as a basis for any such
claim.
2.19 Related Party Transactions. Except as set forth in Part 2.19 of the
Company Disclosure Schedule, (a) no Related Party has, and no Related Party has
had, any direct or indirect interest in any material asset used in or otherwise
relating to the business of the Company; (b) no Related Party is indebted to the
Company; (c) to the Knowledge of the Company, no Related Party has entered into,
or has had any direct or indirect financial interest in, any material Contract,
transaction or business dealing involving the Company; (d) to the Knowledge of
the Company, no Related Party is competing, or has, directly or indirectly, with
the Company; and (e) no Related Party has any claim or right against the Company
(other than rights under Company Options and rights to receive compensation for
services performed as an employee of the Company).
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2.20 Legal Proceedings; Orders.
(a) Part 2.20 of the Company Disclosure Schedule accurately lists all
Legal Proceedings pending or, to the Knowledge of the Company, threatened or
which the Company expects will ultimately be threatened or commenced. There is
no pending Legal Proceeding, and to the Knowledge of the Company, no Person has
threatened to commence any Legal Proceeding: (i) that involves the Company or
any of the assets owned or used by the Company, including, without limitation,
any Company Intellectual Property Right; or (ii) that challenges, or that may
have the effect of preventing, delaying, making illegal or otherwise interfering
with, the Merger or any of the other transactions contemplated by this
Agreement. To the Knowledge of the Company, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that will, or that could
reasonably be expected to, give rise to or serve as a basis for the commencement
of any such Legal Proceeding. To the Knowledge of the Company, no event has
occurred, and no claim, dispute or other condition or circumstance exists, that
will, or that could reasonably be expected to, cause or provide a basis for a
director, officer or other Representative of the Company to seek indemnification
from, or commence a Legal Proceeding against or involving, the Company.
(b) There is no order, writ, injunction, judgment or decree to which
the Company, or any of the assets owned or used by the Company, is subject. No
officer or, to the Knowledge of the Company, other employee of the Company is
subject to any order, writ, injunction, judgment or decree that prohibits such
officer or other employee from engaging in or continuing any conduct, activity
or practice relating to the business of the Company or of the Parent and its
Subsidiaries.
2.21 Authority; Inapplicability of Anti-takeover Statutes; Binding Nature
of Agreement. The Company has the absolute and unrestricted right, power and
authority to enter into and to perform its obligations under this Agreement. The
Board of Directors of the Company (a) has determined that the Merger is
advisable and fair and in the best interests of the Company and its
shareholders, (b) has approved the execution, delivery and performance of this
Agreement by the Company and has approved the Merger, (c) prior to the Closing
Date, will have recommended the adoption and approval of this Agreement and the
Merger by the Company's shareholders and directed that this Agreement and the
Merger be submitted for consideration by the Company's shareholders by action by
written consent in lieu of Company shareholders' meeting, and (d) has adopted a
resolution having the effect of causing the Company not to be subject to any
state takeover law or similar Legal Requirement that might otherwise apply to
the Merger or any of the other transactions contemplated by this Agreement. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable
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remedies. As of the Effective Time, each of the Designated Shareholders and
Other Shareholders has delivered a valid consent to the Merger and a valid
waiver of dissenters' rights in connection therewith.
2.22 No Existing Discussions. Neither the Company nor any Representative
of the Company, is engaged, directly or indirectly, in any discussions or
negotiations with any other Person relating to any Acquisition Proposal other
than the Merger.
2.23 Vote Required. The affirmative vote by written consent of the holders
of a simple majority of the shares of Company Common Stock outstanding and two-
thirds of the Series A Preferred Stock outstanding is the only vote of the
holders of any class or series of the Company's capital stock necessary to adopt
and approve this Agreement, the Merger and the other transactions contemplated
by this Agreement.
2.24 Non-Contravention; Consents. Except as set forth in Part 2.24 of the
Company Disclosure Schedule, neither (i) the execution, delivery or performance
of this Agreement or any of the other agreements referred to in this Agreement,
nor (ii) the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of the
provisions of the certificate of incorporation, bylaws or other charter or
organizational documents of the Company or any of its Subsidiaries;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge the Merger or any
of the other transactions contemplated by this Agreement or to exercise any
remedy or obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which the Company, or any of the assets owned
or used by the Company, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the business of the
Company or to any of the assets owned or used by the Company;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Company Contract, or give any
Person the right to (i) declare a default or exercise any remedy under any such
Company Contract, (ii) a rebate, chargeback, penalty or change in delivery
schedule under any such Company Contract, (iii) accelerate the maturity or
performance of
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any such Company Contract, or (iv) cancel, terminate or modify any term of such
Company Contract;
(e) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by the Company (except for liens that
will not, in any case or in the aggregate have a Material Adverse Effect); or
(f) result in the disclosure or delivery to any Person (other than
Parent or Merger Sub) of the source code, or any portion or aspect of the source
code, or any proprietary information or algorithm contained in or relating to
any source code, of any material Company Intellectual Property Right, or the
transfer of any material asset of the Company to any Person (other than Parent
or Merger Sub).
Except as may be required by the DGCL or as set forth in Part 2.24 of the
Company Disclosure Schedule, the Company was not, is not and will not be
required to make any filing with or give any notice to, or to obtain any Consent
from, any Person in connection with (x) the execution, delivery or performance
of this Agreement or any of the other agreements referred to in this Agreement,
or (y) the consummation of the Merger or any of the other transactions
contemplated by this Agreement.
2.25 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
any of the other transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
2.26 Full Disclosure. This Agreement (including the Company Disclosure
Schedule) does not, and the certificate referred to in Section 6.5(g) will not,
(i) contain any representation, warranty or information that is false or
misleading with respect to any material fact, or (ii) omit to state any material
fact necessary in order to make the representations, warranties and information
contained and to be contained herein and therein (in the light of the
circumstances under which such representations, warranties and information were
or will be made or provided) not false or misleading.
2.27 Customs. The Company and its Subsidiaries have acted with reasonable
care to properly value and classify, in accordance with applicable tariff laws,
rules and regulations, all goods that the Company and its Subsidiaries import
into the United States or any other country (the "Imported Goods"). There are
currently no claims for material amounts pending against the Company or any of
its Subsidiaries by the U.S. Customs Service (or other foreign customs
authorities) relating to the valuation, classification or marking of the
Imported Goods. There have not been any material penalties assessed or claimed
by the U.S. Customs Service or foreign customs authorities with respect to the
Imported Goods. The
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Company has paid to the U.S. Customs Service and relevant foreign customs
authorities, with such exceptions as are not material, all duties, tariffs and
excise taxes assessed, due and payable with such exceptions as would not result,
in any individual case or series of related cases in a Material Adverse Effect
on the Company.
2.28 Legends. All technical data, computer software and Company Commercial
Software Rights delivered or otherwise provided or made available by or on
behalf of the Company to Governmental Bodies in connection with Government
Contracts have been marked with all markings and legends (including "restricted
rights" legends and "government purpose license rights" legends) appropriate
(under the Federal Acquisition Regulations, under other applicable Legal
Requirements or otherwise) to ensure that no Governmental Body or other Person
is able to acquire any unlimited rights with respect to any of such technical
data, computer software or Company Commercial Software Rights and to ensure that
the Company has not lost or relinquished and will not lose or relinquish any
material rights with respect thereto.
2.29 Books and Records. The minute books and other similar records of the
Company contain true and complete records of all actions taken at any meetings
of the Company's shareholders, Board of Directors or any committee thereof and
of all written consents executed in lieu of the holding of any such meeting.
The books and records of the Company contain an accurate record of all stock
issuances and stock transfers of the Company Common Stock, Company Preferred
Stock and the capital stock of the Company's Subsidiaries and have been
maintained in accordance with good business and bookkeeping practices.
2.30 Banking Facilities. Part 2.30 of the Company Disclosure Schedule
identifies:
(a) Each bank, savings and loan or similar financial institution in
which the Company or any of its Subsidiaries has an account or safety deposit
box and the numbers of the accounts or safety deposit boxes maintained by the
Company or its Subsidiaries at such bank, savings and loan or similar financial
institution; and
(b) The names of all persons authorized to draw on each such account
or to have access to any such safety deposit box facility, together with a
description of the authority (and conditions thereof, if any) or each such
person with respect thereto.
3. Additional Representations and Warranties of the Designated Shareholders
Each of the Designated Shareholders and Other Shareholders, individually
and not jointly, and each as to himself, herself or itself, and not as to any
other
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Designated Shareholder or Other Shareholder, hereby represents and warrants to
Parent and Merger Sub as of the date of such party's execution and delivery of
this Agreement and as of the Closing Date as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in Section 2 of this Agreement):
3.1 Requisite Power and Authority. Such party has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and to carry out its provisions. All action on the part of such party
required for the lawful execution and delivery of this Agreement has been or
will be taken prior to the Closing. Upon execution and delivery, this Agreement
will be the valid and binding obligation of such party, enforceable in
accordance with its terms, subject to (i) laws of general application relating
to the bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
3.2 Transfer Restrictions. Such party acknowledges and agrees that the
shares of Common Stock to be issued to such party in the Merger (the "Shares")
have not been registered under the Securities Act and are subject to
restrictions on transfer as follows:
(a) Such party agrees not to make any disposition of all or any
portion of the Shares received by such party unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) The proposed disposition is made pursuant to an exemption
from registration under the Securities Act and applicable state securities laws
and (A) if such disposition occurs prior to the first anniversary of the Closing
Date the transferee has agreed in writing to be bound by the terms of Section
3.2 of this Agreement, (B) such party shall have notified Parent of the proposed
disposition and shall have furnished Parent with a detailed statement of the
circumstances surrounding the proposed disposition, and (C) if reasonably
requested by Parent, such party shall have furnished Parent with an opinion of
counsel, reasonably satisfactory to Parent, that such disposition will not
require registration of such shares under the Securities Act.
(iii) Notwithstanding the provisions of paragraphs (i) and (ii)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by any such party that is to a member of the Affiliated Group of
such party; provided that the transferee will be subject to the terms of Section
3.2 of this Agreement to the same extent as if such transferee were the original
party hereunder.
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(b) Each certificate representing Common Stock issued in accordance
with this Agreement shall (unless otherwise permitted by the provisions of the
Agreement) be stamped or otherwise imprinted with a legend substantially similar
to the following (in addition to any legend required under applicable state
securities laws or as provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS REGISTERED
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
(c) Parent shall be obligated to reissue promptly unlegended
certificates at the request of such party if it shall have obtained an opinion
of counsel (which counsel may be counsel to Parent) reasonably acceptable to
Parent to the effect that the securities proposed to be disposed of may lawfully
be so disposed of without registration, qualification or legend.
(d) Such party has received and reviewed the Parent SEC Documents,
the due diligence materials provided by Parent to the Company's management and,
as of the Closing Date, the shareholder disclosure documents provided by Parent
to the Company shareholders.
3.3 Reliance Upon Representations, Warranties and Covenants. Such party
understands that the representations, warranties and covenants of such party set
forth herein will be relied upon by Parent, the Company and their respective
counsel and accounting firms.
4. Representations and Warranties of Parent and Merger Sub
Parent and Merger Sub jointly and severally represent and warrant to the
Company, the Designated Shareholders and the Other Shareholders as follows:
4.1 Organization, Standing and Power. 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. Each of Parent and Merger Sub has the corporate power
to own its properties and to carry on its business as now being conducted and is
duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified would have a material adverse effect on the
Parent or the ability of Parent and Merger Sub to consummate the transactions
contemplated hereby.
4.2 SEC Filings; Financial Statements.
(a) Parent has made available to the Company accurate and complete
copies (excluding copies of exhibits) of each report, registration statement
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(on a form other than Form S-3 or S-8) and definitive proxy statement filed by
Parent with the SEC between January 1, 2000 and the date of this Agreement (the
"Parent SEC Documents"). As of the time it was filed with the SEC (or, if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing): (i) each of the Parent SEC Documents complied in all
material respects with the applicable requirements of the Securities Act or the
Exchange Act (as the case may be); and (ii) none of the Parent SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The consolidated financial statements contained in the Parent SEC
Documents: (i) complied as to form in all material respects with the published
rules and regulations of the SEC applicable thereto; (ii) were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered, except as may be indicated in the notes to such financial statements
and (in the case of unaudited statements) as permitted by Form 10-Q of the SEC,
and except that unaudited financial statements may not contain footnotes and are
subject to year-end audit adjustments; and (iii) fairly present in all material
respects the consolidated financial position of Parent and its subsidiaries as
of the respective dates thereof and the consolidated results of operations of
Parent and its subsidiaries for the periods covered thereby.
4.3 Authority; Binding Nature of Agreement. Parent and Merger Sub have the
absolute and unrestricted right, power and authority to perform their
obligations under this Agreement, and the execution, delivery and performance by
Parent and Merger Sub of this Agreement have been duly authorized by all
necessary action on the part of Parent and Merger Sub and their respective
boards of directors. This Agreement constitutes the legal, valid and binding
obligation of Parent and Merger Sub, enforceable against them in accordance with
its terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
4.4 Valid Issuance. The Common Stock to be issued in the Merger will, when
issued in accordance with the provisions of this Agreement, be validly issued,
fully paid and nonassessable.
4.5 Non-Contravention; Consents. Neither (i) Parent or Merger Sub's
execution, delivery or performance of this Agreement or any of the other
agreements contemplated by this Agreement, (ii) the consummation of the Merger
will (with or without the lapse of time), nor (iii) the issuance of the shares
of Common Stock to be issued in the Merger, (a) conflict with or result in any
breach of any provision of the certificate of incorporation or bylaws of Parent
or the certificate of incorporation or bylaws of Merger Sub, or (b) result in a
default by Parent or Merger Sub under any
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Contract to which either Parent or Merger Sub a party, except for any default
that has not had and will not have a Material Adverse Effect on Parent, (c)
result in a violation by Parent or Merger Sub of any laws, order, writ,
injunction, judgment or decree to which Parent or Merger Sub is subject, except
for any violation that has not had and will not have a Material Adverse Effect
on Parent, or (d) require registration of such issuance pursuant to the
Securities Act or any state securities laws. To Parent's Knowledge, except as
may be required by the Securities Act, the Exchange Act, state securities or
"blue sky" laws, the DGCL and the HSR Act, Parent is not and will not be
required to make any filing with or give any notice to, or to obtain any Consent
from, any Person in connection with the execution and delivery of this
Agreement, the consummation of the Merger, or the issuance of the shares of
Common Stock pursuant thereto.
4.6 Absence of Certain Changes or Events. Between January 1, 2000 and the
date hereof, except as disclosed in the Parent SEC Documents, there has not been
any event that has had or could reasonably be expected to have a Material
Adverse Effect on Parent.
4.7 No Vote Required. No vote of Parent's stockholders is necessary to
adopt and approve this Agreement, the Merger and the other transactions
contemplated by this Agreement, or to issue the Common Stock to be issued in the
Merger.
4.8 Ownership of Merger Sub; No Prior Activities. Merger Sub is a newly
formed corporation that has conducted no business activity and was formed solely
for the purpose of engaging in the transactions contemplated by this Agreement.
As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and except for this Agreement,
Merger Sub has not and will not have incurred, directly or indirectly, through
any subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any Person. Neither Parent nor any of its
Affiliates has taken or agreed to take any action or failed to take any action
that would prevent the Merger from constituting a reorganization within the
meaning of Section 368(a) of the Code. Parent has no present plan or intention
to cause the Company to sell or otherwise dispose of any of its assets or any
assets of Merger Sub acquired in the Merger, except for dispositions in the
ordinary course of business or transfers described in Section 368(a)(2)(c) of
the Code. Prior to the Merger, Parent will be in control of Merger Sub within
the meaning of Section 368(c) of the Code. Merger Sub has no plan or intention
to issue additional shares of its stock that would result in Parent losing
control of Merger Sub within the meaning of Section 368(c) of the Code. Parent
has no plan or intention to liquidate Merger Sub; to merge Merger Sub with or
into another corporation or other entity; or to sell or otherwise dispose of
stock of Merger Sub except for transfers of stock permitted by Treas. Reg.
(Section)1.368-
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2(k). Following the Merger, Company will continue its historic business or use a
significant portion of its historic business assets in a business. Parent is not
an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code.
4.9 Registration Rights. The only agreements pursuant to which Parent has
agreed to register the resale of any Common Stock are (a) the Agreement and Plan
of Merger and Reorganization, dated August 13, 1999, among Parent, Gino Borland,
Gino Borland Inc. and Borland Acquisition Corp., (b) the Payment and
Registration Rights Agreement, dated as of December __, 1999, between Parent and
Microstrategy, Inc. and (c) the Agreement and Plan of Merger and Reorganization,
dated March 20, 2000, among Parent, Knowledge Stream Partners, Inc., KSP
Acquisition Corp. and Robert van der Hooning.
5. Certain Covenants of the Parties
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement and the Effective Time (except as
otherwise provided herein), the parties hereto agree (except to the extent that
the other parties hereto shall otherwise consent in writing) that:
5.1 Operation of Business. The Company will conduct the business of the
Company and its Subsidiaries only in the ordinary course of business. The
Company shall carry on its business and that of its Subsidiaries only in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use all
commercially reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the services
of its present officers and key employees and preserve its relationships with
key customers, suppliers, distributors, licensors, licensees and others having
business dealings with it so that its goodwill and ongoing businesses shall be
unimpaired at the Effective Time. The Company shall also report to Parent on a
regular basis concerning the business, operations and financial condition of the
Company and its Subsidiaries. The Company shall promptly notify Parent of any
event or occurrence not in the ordinary course of business of the Company or its
Subsidiaries, and any event of which the Company is aware which reasonably would
be expected to have a Material Adverse Effect on the Company (even if the
likelihood of such event has previously been disclosed in the Company Disclosure
Schedule). Except as expressly contemplated by this Agreement or disclosed in
the Company Disclosure Schedule, and in furtherance of the foregoing, the
Company shall not and shall not permit its Subsidiaries, without the prior
written consent of Parent:
(a) except pursuant to mandatory terms under options outstanding on
the date hereof, accelerate, amend or change the period of exercisability of
such options, or authorize cash payments in exchange for any such options or
warrants;
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(b) enter into any commitment or transaction not in the ordinary
course of business to be performed over a period longer than six months in
duration, or to make any capital expenditure in excess of $1,000;
(c) grant any severance or termination pay to any director, officer,
employee or consultant;
(d) transfer to any person or entity any rights to any of the Company
Intellectual Property Rights;
(e) enter into or amend any agreements pursuant to which any other
party is granted manufacturing, marketing, distribution or other similar rights
of any type or scope with respect to any products of the Company or its
Subsidiaries unless such agreement is entered into in the ordinary course of
business and at least two (2) days prior written notice has been delivered to
Parent;
(f) violate, amend or otherwise modify the terms of any of the
Company's Material Contracts or Governmental Authorizations;
(g) commence a lawsuit other than for the routine collection of bills
or for breach of this Agreement;
(h) except as provided in Section 1.5 of this Agreement, declare or
pay any dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for any shares of
its capital stock, or repurchase or otherwise acquire, directly or indirectly,
any shares of its capital stock;
(i) except as provided in Section 1.5 of this Agreement, issue,
deliver or sell, authorize or propose the issuance, delivery or sale of, or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating the
Company to issue any such shares or other convertible securities, other than
upon the exercise of employee stock options outstanding on the date hereof;
(j) except as contemplated by Section 1.4 hereof, cause or permit any
amendments to its certificate of incorporation or bylaws;
(k) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof;
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(l) sell, lease, license or otherwise dispose of any of the Company's
properties or assets unless such sale, lease, license or disposition is in the
ordinary course of business and consistent with past practice, and at least two
(2) days prior written notice has been delivered to Parent;
(m) except as contemplated by Sections 1.4 and 1.5 hereof, incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue or
sell any debt securities or guarantee any debt securities of others;
(n) adopt or amend any employee benefit plans, programs, policies or
other arrangements, or enter into any employment contract, pay any special bonus
or special remuneration to any director, employee or consultant, or increase the
salaries or wage rates of its employees;
(o) 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 and consistent with past practice;
(p) pay, discharge or satisfy in an amount in excess of $10,000 in
any one case any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of obligations in the ordinary course of business;
(q) make or change any tax election, adopt or change any tax
accounting method, or enter into any closing agreement, settle any tax claim or
assessment, or consent to any extension or waiver of the limitation period
applicable to any tax claim or assessment;
(r) engage in any activities or transactions that are outside the
ordinary course of its business;
(s) waive or commit to waive any rights with a value in excess of
$1,000;
(t) cancel, materially amend or renew any insurance policy other than
in the ordinary course of business;
(u) alter, or enter into any commitment to alter, its interest in any
corporation, association, joint venture, partnership or business entity in which
the Company directly or indirectly holds any interest on the date hereof; or
(v) take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through (u) above.
It is the intention of the parties that, from and after the HSR
Termination Date, Parent shall be granted and shall undertake effective
operating
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control of the Company and its Subsidiaries. As soon as possible after the date
of this Agreement Parent and the Company will enter into a management agreement
(the "Management Agreement") governing the terms of the operations of the
Company and its Subsidiaries during the period between the HSR Termination Date
and the earlier of the Closing Date and the date of termination of this
Agreement. The Management Agreement will provide (w) that Parent will only
operate the Company and its Subsidiaries in the ordinary course of business, and
will make the same undertakings to the Company with respect to the business of
the Company and its Subsidiaries as the Company has made in this Section 5.1,
(x) that Parent will indemnify the Company for any breach of the covenants
contained in the Management Agreement, (y) that the Company will cooperate with
Parent in the operation of the business, and (z) that Parent shall get the
benefit of all revenues of the Company and its Subsidiaries during this period
and will be responsible for the expenses of the Company and its Subsidiaries
during this period. The terms of the Management Agreement will be negotiated in
good faith by Parent and the Company and will be entered into effective as of
the HSR Termination Date.
5.2 Registration Statement. On the Closing Date, Parent will enter into a
Registration Rights Agreement (which upon execution thereof will supercede this
Section 5.2 in its entirety) with the Designated Shareholders and Other
Shareholders that will include the following rights and obligations of the
parties and will otherwise be reasonably acceptable to Parent and the
Shareholder Representative:
(a) As soon as possible after the Closing Date, but no later than
August 15, 2000, Parent will file with the SEC a Registration Statement on Form
S-3 (or Form S-1 if Form S-3 is not available) (each, a "Registration
Statement") registering the resale of one-third of the shares of Common Stock
issued (or issuable) to the Designated Shareholders and Other Shareholders at
the Closing. Parent will agree to use all commercially reasonable efforts to
cause such Registration Statement to become effective as soon as practicable
thereafter. The Designated Shareholders and Other Shareholders will agree to
provide to Parent all information reasonably required by Parent, and otherwise
to cooperate in good faith with Parent, in the preparation of such Registration
Statement. Parent will agree to use commercially reasonable efforts to file an
additional Registration Statement to cover the resale thereunder of (i) an
additional one-third of the shares on or prior to June 30, 2001 and (ii) the
balance of the shares of Common Stock issued (or issuable) to the Designated
Shareholders and Other Shareholders at the Closing on or prior to June 30, 2002.
(b) Parent will agree to use its reasonable efforts to cause each
Registration Statement to remain effective until the earliest of (i) the date
upon which all shares covered by such Registration Statement have been sold to
the public pursuant to such Registration Statement, (ii) one year after the
effective date
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of such Registration Statement and (iii) the date on which all of the shares
covered by such Registration Statement may be sold pursuant to Rule 144(k) or in
any three month period under Rule 144.
(c) Parent will not be obligated to effect a registration pursuant to
Section 5.2(a) and may suspend the Company shareholders' rights to make sales
pursuant to an effective registration pursuant to Section 5.2(a), at any time
when Parent, in the good faith judgment of its Board of Directors, reasonably
believes that the filing thereof at the time requested, or the offering of
securities pursuant thereto, would (i) materially and adversely affect a pending
or proposed acquisition, merger, recapitalization, consolidation, reorganization
or similar transaction, or negotiations, discussions or pending proposals
related thereto, or (ii) be seriously detrimental to Parent and its
shareholders, in which event (under clause (i) or (ii) above) Parent's sole
relief from its registration obligations is the right to defer filing of such
Registration Statement (or to suspend the Company shareholder's rights to make
sales pursuant to such Registration Statement if it is already effective) for a
period of not more than 60 days; provided, however, that Parent shall not
utilize the right described in this Section 5.2(c) more than twice.
(d) The Designated Shareholders and Other Shareholders will agree
that, if so requested by Parent and the underwriter's representative (if any),
and so long as all of the then officers and directors of Parent also so agree,
such shareholders will not sell or otherwise transfer any registrable securities
or other securities of Parent (other than those then eligible for re-sale under
a Registration Statement) during the ninety (90) day period following the
effective date of a registration statement of the Parent filed under the
Securities Act for an underwritten offering by the Parent of Common Stock.
(e) Parent will agree that if Parent proposes to register any Common
Stock under the Securities Act for sale for cash in an underwritten offering
(whether for Parent's own account or for the account of a selling stockholder),
Parent will deliver to the Shareholder Representative notice of such proposed
registration (a "Piggyback Registration") at least 30 days prior to the filing
of the registration statement. At the written request of any Designated
Shareholder or Other Shareholder delivered to Parent in accordance with the
instructions set forth in the notice within 10 days after receipt by the
Shareholder Representative of the notice from Parent, which request shall state
the number of shares of Common Stock issued pursuant to the Merger that such
Designated Shareholder or Other Shareholder wishes to sell under the
registration statement, Parent will agree to use reasonable efforts to include
in such underwritten registration such shares requested to be included. The
Designated Shareholders and Other Shareholders will agree that if the managing
underwriters of a Piggyback Registration advise Parent in writing that in their
opinion the number of securities requested to be included in the registration
exceeds the number which can be sold in the offering, Parent may exclude from
the registration any or all
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shares that the Designated Shareholders and Other Shareholders propose to sell;
provided, however, that no shares may be excluded if the registration includes
-------- -------
Common Stock of holders (other from holders exercising demands registration
rights for the underwritten registration) other than the Designated Shareholders
and Other Shareholders unless the participating Designated Shareholders and
Other Shareholders are permitted to participate in such registration with such
holders on a pro rata basis.
--- ----
(f) With a view to making available the benefits of certain rules and
regulations of the SEC which may at any time permit the sale of the Common Stock
to the public without registration, at all times after the Closing Date, Parent
will agree to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) use reasonable efforts to file with the SEC in a timely
manner all reports and other documents required of Parent under the Securities
Act and the Exchange Act; and
(c) furnish to each Designated Shareholder and Other
Shareholders forthwith upon request a written statement by Parent as to its
compliance with the reporting requirements of such Rule 144 and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of Parent, and such other reports and documents so filed by
Parent as such holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing such holder to sell any Common Stock without
registration.
(d) The Registration Rights Agreement will contain customary
terms concerning indemnification and the provision of information.
5.3 Exclusivity; Acquisition Proposals. Unless and until this Agreement
shall have been terminated by either party pursuant to Section 9.1 hereof, the
Company shall not and shall not permit any of its Subsidiaries to, directly or
indirectly, through any officer, director, agent or otherwise, (a) solicit,
initiate or encourage submission of proposals or offers from any person relating
to (i) any acquisition or purchase of all or substantially all of the assets of,
or any equity interest in, the Company or its Subsidiaries or any merger,
consolidation, business combination or similar transaction with the Company or
its Subsidiaries, or (ii) any other material transaction incompatible with the
Merger (including, without limitation, a joint venture or other similar
transaction), or (b) participate in any discussions or negotiations regarding,
furnish to any other person any confidential information with respect to, or
otherwise cooperate in any way with, or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing.
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5.4 Employee Matters. Except as otherwise agreed by Parent and the
Company, Parent shall offer to all employees of the Company as of the Closing
Date who are also employees of the Company immediately prior to the Effective
Time employment by the Parent after the Effective Time, and each such offer
shall (i) include a compensation package in accordance with Parent's
compensation policy, (ii) to the extent permitted by Parent's employee benefit
programs, enable such eligible employee to participate in Parent's employee
benefit programs (or to continue to participate in the Company's existing
benefit programs, to the extent Parent elects to continue any such program after
the Closing Date) and other individual benefits as outlined in each employee's
individual offer, such as life insurance, Parent's 401(k) plan and Parent's
Employee Stock Purchase Plan ("Parent Plans"), and (iii) be in the form of an
individual offer letter prepared in accordance with Parent's customary form
(such letter to confirm such employee's initial position, compensation, location
and reporting relationship). Parent agrees that for purposes of all Parent Plans
(including all policies and employee fringe benefit programs) under which an
employee's benefit depends in whole or in part on length of service, credit will
be given to such employee for service previously credited with the Company prior
to the Effective Time; provided, that such crediting of services does not result
in duplication of benefits. Such persons, if they accept such employment, shall
be "at will" employees and may be terminated by Parent for any reason or for no
reason unless Parent agrees in writing to the contrary. The Company represents
that it has taken all steps necessary to terminate and has terminated its 401(k)
plans prior to the Closing Date.
5.5 Consents. Each of Parent and the Company shall promptly apply for or
otherwise seek, and use its commercially reasonable efforts to obtain (and the
Company will assist Parent and Merger Sub in obtaining), all consents and
approvals required to be obtained by it for the consummation of the Merger,
including without limitation, all authorizations or waivers required under the
HSR Act. Each of the Company and Parent shall furnish to the other such
necessary information and reasonable assistance as the other may request in
connection with all filings and submissions necessary under the HSR Act. The
Company shall use its commercially reasonable efforts to obtain approval of its
shareholders of the Merger, and the Company and the Parent shall use
commercially reasonable efforts to obtain all necessary consents, waivers and
approvals under any of the Company's Contracts and Permits in connection with
the Merger, except such consents and approvals as Parent and the Company
mutually agree the Company shall not seek to obtain.
5.6 Legal Conditions to the Merger. The Company and Parent shall each take
at its own expense all reasonable actions (a) to defend all lawsuits or other
legal proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby, (b) to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby, (c) to effect all necessary
registrations and filings
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and submissions of information required or requested by any governmental entity,
and (d) to fulfill all conditions to this Agreement.
5.7 Nasdaq Listing. Parent shall use its best efforts to have the shares
of Common Stock issuable to the shareholders of the Company pursuant to the
Agreement and such other shares required to be reserved for issuance in
connection with the Merger authorized for listing on Nasdaq upon official notice
of issuance.
5.8 Public Announcements. Each party will consult in advance with the
other concerning the timing and content of any announcements, press releases and
public statements concerning the Merger and will not make any such announcement,
release or statement without the other's prior written consent; provided,
--------
however, that Parent may make any public statement concerning the Merger without
-------
the Company's prior written consent if, in the opinion of counsel for Parent,
such statement or announcement is required to comply with applicable law and
Parent has provided to the Company a copy of any such written statement or
announcement that it proposes to make before making such announcement and
reasonably considers requests for changes made by the Company.
5.9 Tax Matters. Parent and the Company will each use reasonable efforts
before and after the Closing to cause the Merger to qualify as a reorganization
within the meaning of Section 368(a) of the Code, and will not take, and will
use reasonable efforts to prevent any Affiliate of such party from taking, any
actions which could prevent the Merger from qualifying as such a reorganization,
and will take such action as is available and may be reasonably required to
negate the impact of any past actions by such party or its respective Affiliates
which would reasonably be expected to adversely impact the qualification of the
Merger as a reorganization within the meaning of Section 368(a) of the Code.
6. Conditions Precedent to Obligations of Parent and Merger Sub
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction (or waiver by Parent), at or prior to the Closing, of each of the
following conditions:
6.1 Accuracy of Representations. Each of the representations and
warranties made by the Company, the Designated Shareholders and the Other
Shareholders in this Agreement, the Release and Consents executed hereunder and
the Shareholder's Closing Certificates shall be accurate in all material
respects as of the Closing Date (subject to the provisions of Section 6.14) as
if made at the Closing Date (unless such representations or warranties are
qualified by a "Material Adverse Effect" or other materiality qualification, in
which case such representations and warranties shall be accurate in all
respects).
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6.2 Performance of Covenants. All of the covenants and obligations that
the Company, the Designated Shareholders and the Other Shareholders are required
to perform at or prior to the Closing shall have been complied with and
performed in all material respects (subject to the provisions of Section 6.14).
6.3 Exchange and Conversion Transactions; Shareholder Approval. The
Exchange and Conversion Transactions shall have been completed on terms
reasonably satisfactory to Parent. Parent shall have received true and complete
copies of all documents and other instruments governing the Exchange and
Conversion Transactions. The principal terms of the Merger shall have been duly
approved by the affirmative vote of a majority of the shares of the Company of
every class and series outstanding immediately prior to the Effective Time (or
such greater vote as is required under the DGCL). All transactions, agreements
or other arrangements between any group of holders of Company Common Stock, on
the one hand, and holders of Series A Preferred Stock, on the other hand, with
regard to the allocation of Common Stock to be issued in the Merger shall have
been consented to in writing by at least a majority of the outstanding shares of
Company Common Stock (excluding parties that hold (or held) Series A Preferred
Stock), and Parent shall have received evidence of such consent satisfactory to
it. True and complete copies of all documents and other instruments evidencing
any such transactions, agreements or other arrangements shall have been
delivered to Parent.
6.4 Consents. All Consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement, including
those identified in Part 2.24 of the Company Disclosure Schedule, shall have
been obtained and shall be in full force and effect.
6.5 Agreements and Documents. Parent (and, where applicable, the Company)
shall have received the following agreements and documents, each of which shall
be in full force and effect:
(a) letters setting forth offers of employment with the Company,
executed by Parent and each of the employees set forth on Part 6.5(a) of the
Company Disclosure Schedule;
(b) a Release and Consent, in the form of Exhibit C, executed by
---------
each of the Designated Shareholders and Other Shareholders (each, a "Release and
Consent");
(c) Investment Representation Letters in the form of Exhibit D,
---------
executed by each of the Designated Shareholders and Other Shareholders;
(d) Nondisclosure and Noncompetition agreements, executed by the
employees of the Company and its Subsidiaries listed in Part 6.5(d) of the
Company Disclosure Schedule;
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(e) assignments duly executed by the Company and its Subsidiaries,
reasonably satisfactory to Parent, assigning all rights and interests of the
Company and its Subsidiaries under all non-compete, non-disclosure or other
similar documents executed by present and former employees, consultants or
contractors;
(f) a legal opinion of Munsch Hardt Kopf & Harr, P.C., dated as of
the Closing Date, in form and substance satisfactory to Parent;
(g) a certificate executed by each Designated Shareholder stating
that, to its Knowledge, each of the conditions set forth in Sections 6.1, 6.2,
6.3, 6.4, 6.7 and 6.8 shall have been duly satisfied (each, a "Shareholder's
Closing Certificate");
(h) written resignations of all directors of the Company and its
Subsidiaries, effective as of the Effective Time;
(i) written resignations of the employees set forth on Part 6.5(i) of
the Company Disclosure Schedule, together with severance agreements in form and
substance satisfactory to Parent and duly executed by each such employee;
(j) an amended and restated Employment Agreement between Parent and
Robert Hall, in form satisfactory to Parent;
(k) an Escrow Agreement in form and substance satisfactory to the
Designated Shareholders, the Company and Parent, executed by the parties
thereto;
(l) a certificate of the Secretary of the State of Delaware as of the
Closing Date as to the legal existence and good standing of the Company in
Delaware as of the Closing Date; and
(m) a certificate of the treasurer of the Company certifying as to
the payment of Taxes in Delaware.
6.6 FIRPTA Compliance. The Company shall have delivered to Parent a
statement (in such form as may be reasonably requested by counsel to Parent)
conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the United
States Treasury Regulations, and (b) the Company shall have delivered to the
Internal Revenue Service the notification required under Section 1.897 - 2(h)(2)
of the United States Treasury Regulations.
6.7 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, no action for any such order or injunction shall have been commenced and
not
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decided by the applicable court or dismissed, no action for damages against
Parent, the Company or the Surviving Corporation with respect to the
transactions contemplated by this Agreement shall have been commenced and not
dismissed, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.8 No Legal Proceedings. No Person shall have commenced or threatened to
commence any Legal Proceeding challenging or seeking the recovery of a material
amount of damages in connection with the Merger or seeking to prohibit or limit
the exercise by Parent of any material right pertaining to its ownership of
stock of the Surviving Corporation.
6.9 Regulatory Approvals. The Company and Parent shall have filed all
notices, reports and other documents required to be filed with any Governmental
Body with respect to the Merger and the other transactions contemplated by this
Agreement, and submitted promptly any additional information requested by any
such Governmental Body. Each of the Company and Parent shall (1) have given the
other party prompt notice of the commencement of any Legal Proceeding by or
before any Governmental Body with respect to the Merger or any of the other
transactions contemplated by this Agreement, (2) kept the other party informed
as to the status of any such Legal Proceeding, and (3) promptly informed the
other party of any communication to or from the Federal Trade Commission, the
Department of Justice or any other Governmental Body regarding the Merger. All
waiting periods applicable to the transactions contemplated by this Agreement
under the HSR Act shall have expired or been terminated.
6.10 Listing. Arrangements shall have been made for the shares of Common
Stock to be issued in the Merger to be authorized for listing on Nasdaq, subject
to notice of issuance.
6.11 Termination of Certain Agreements. All shareholders, voting trust or
registration rights agreements between the Company and its shareholders (or
other agreements containing provisions relating to restrictions on transfer of,
or the voting of, shares of the Company's capital stock or the granting of
registration rights with respect to shares of the Company's capital stock),
other than the instruments governing the Exchange and Conversion Transactions,
the Escrow Agreement and the CA Shareholder Escrow and Indemnity Agreement,
shall have been terminated.
6.12 Pay-Off Arrangements. Arrangements satisfactory to Parent shall have
been made for the pay-off of by Parent the Bank One financing arrangements and
the termination of all security interests securing the obligations hereunder.
6.13 Appraisal Rights. Parent shall be satisfied either that (a) Company
shareholders have no appraisal rights or (b) the holders of not less than 99% of
the
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shares of Company Common Stock outstanding immediately prior to the Effective
Time shall either have (i) delivered to the Company a duly executed waiver of
appraisal rights or (ii) received a valid notice of appraisal rights at least
twenty (20) days prior to the Closing Date and not demanded appraisal rights.
6.14 Effect of Management Agreement. It is understood by Parent that the
effect of actions taken or omitted by Parent in violation of the Management
Agreement may not cause the conditions in Sections 6.1 or 6.2 to be unsatisfied.
7. Conditions Precedent to Obligations of the Company
The obligations of the Company to effect the Merger and otherwise consummate the
transactions contemplated by this Agreement are subject to the satisfaction (or
waiver by the Company), at or prior to the Closing, of the following conditions:
7.1 Accuracy of Representations. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate in all material respects as of the Closing Date as if made at the
Closing Date, unless such representations or warranties are qualified by a
"Material Adverse Effect" or other materiality qualification in which case such
representation or warranties shall be accurate in all respects).
7.2 Performance of Covenants. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.
7.3 Documents. The Company shall have received the following documents:
(a) a legal opinion of Bingham Dana LLP, dated as of the Closing
Date, in form and substance satisfactory to the Company;
(b) certificates executed by Parent and Merger Sub containing the
representation and warranty of each such party that the conditions set forth in
Sections 7.1, 7.2, 7.5, 7.6 and 7.7 have been duly satisfied (the "Parent's
Closing Certificate"); and
(c) letters setting forth offers of employment with the Company,
executed by Parent and each of the employees set forth on Part 6.5(i) of the
Company Disclosure Schedule.
7.4 Listing. Arrangements satisfactory to the Company shall have been made
for the shares of Common Stock to be issued in the Merger to be authorized for
listing on Nasdaq, subject to notice of issuance.
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7.5 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, no action for any such order or injunction shall have been commenced and
not decided by the applicable court or dismissed, no action for damages against
Parent, the Company or the Surviving Corporation with respect to the
transactions contemplated by this Agreement shall have been commenced and not
dismissed, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.6 No Legal Proceedings. No Person shall have commenced or threatened to
commence any Legal Proceeding challenging or seeking the recovery of a material
amount of damages in connection with the Merger or seeking to prohibit or limit
the exercise by any shareholder of the Company of any material right pertaining
to its ownership of Common Stock.
7.7 Regulatory Approvals. The Company and Parent shall have filed all
notices, reports and other documents required to be filed with any Governmental
Body with respect to the Merger and the other transactions contemplated by this
Agreement, and submitted promptly any additional information requested by any
such Governmental Body. Each of the Company and Parent shall (1) have given the
other party prompt notice of the commencement of any Legal Proceeding by or
before any Governmental Body with respect to the Merger or any of the other
transactions contemplated by this Agreement, (2) kept the other party informed
as to the status of any such Legal Proceeding, and (3) promptly informed the
other party of any communication to or from the Federal Trade Commission, the
Department of Justice or any other Governmental Body regarding the Merger. All
waiting periods applicable to the transactions contemplated by this Agreement
under the HSR Act shall expired or been terminated.
7.8 Tax Treatment. The Company shall be satisfied that the Merger
qualifies as a reorganization within the meaning of Section 368(a) of the Code.
8. Indemnification, Etc.
8.1 Survival of Representations, Etc.
(a) The representations and warranties made by the Company, the
Designated Shareholders and the Other Shareholders in Sections 2 and 3 shall
survive the Closing and shall expire at 5:00 p.m. Eastern time on the Audit
Release Date (other than representations and warranties of the Company under
Sections 2.3 and 2.15(a) and (b), which shall survive until the lapsing of the
applicable statute of limitations, and the representations and warranties of the
Company under Sections 2.9(a), (b), (c) and (f), which representations shall
survive until the second anniversary of this Agreement). Notwithstanding the
foregoing, if, at any time
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prior to such Audit Release Date (or other applicable expiration date) any
Indemnitee (acting in good faith) delivers to the Shareholder Representative (as
defined below) a written notice alleging the existence of an inaccuracy in or a
breach of any of the representations and warranties made by the Company, the
Designated Shareholders or the Other Shareholders (and setting forth in
reasonable detail the basis for such Indemnitee's belief that such an inaccuracy
or breach may exist) and asserting a claim for recovery under Section 8.2 based
on such alleged inaccuracy or breach, then the claim asserted in such notice
shall survive such Audit Release Date (or other applicable expiration date),
until such time as such claim is fully and finally resolved. No claim for
indemnification of the type described in Section 8.2(a)(iii) may be initiated at
any time after the second anniversary of this Agreement. All representations and
warranties made by Parent and Merger Sub shall terminate and expire as of the
Effective Time, and any liability of Parent or Merger Sub with respect to such
representations and warranties shall thereupon cease.
(b) The representations, warranties, covenants and obligations of the
Company, the Designated Shareholders and the Other Shareholders, and the rights
and remedies that may be exercised by the Indemnitees, shall not be limited or
otherwise affected by or as a result of any information furnished to, or any
investigation made by or Knowledge of, any of the Indemnitees or any of their
Representatives. Parent acknowledges that the Company Disclosure Schedules shall
be read together with applicable representations and warranties of the Company
under this Agreement.
(c) For purposes of this Agreement, each statement or other item of
information set forth in the Company Disclosure Schedule or in any update to the
Company Disclosure Schedule shall be deemed to be a representation and warranty,
or a qualification of a representation and warranty, made by the Company, the
Designated Shareholders or Other Shareholders, as the case may be, in this
Agreement.
8.2 Indemnification by the Designated Shareholders and Other Shareholders.
(a) From and after the Effective Time (but subject to Section
8.1(a)), the Designated Shareholders and Other Shareholders, severally and not
jointly (on their own behalf and on behalf of their heirs, successors and
assigns, the "Indemnitors") shall hold harmless and indemnify each of the
Indemnitees from and against, and shall compensate and reimburse each of the
Indemnitees for, any Damages that are directly or indirectly suffered or
incurred by any of the Indemnitees or to which any of the Indemnitees may
otherwise become subject (regardless of whether or not such Damages relate to
any third-party claim) and that arise from or as a result of, or are directly or
indirectly connected with: (i) any inaccuracy in or breach of any representation
or warranty set forth in Section 2 or
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in any Designated Shareholder's or Other Shareholders Release and Consent
(without giving effect, in any such case, to any "Material Adverse Effect" or
other materiality qualification or any similar qualification contained or
incorporated directly or indirectly in such representation or warranty, but
giving effect to any update to the Company Disclosure Schedule delivered by the
Company to Parent prior to the Closing and any dollar threshold set forth in the
representations and warranties in this Agreement); (ii) any breach of any
covenant or obligation of the Company set forth in this Agreement so long as
such breach was not caused by the Parent's gross negligence or willful
misconduct, the Designated Shareholders or Other Shareholders (including the
covenants set forth in Section 5); (iii) the transactions and other arrangements
among the Company, the Designated Shareholders and certain Other Shareholders
contemplated by the CA Shareholder Escrow and Indemnity Agreement or any other
agreement or arrangement, written or oral, entered into among the Designated
Shareholders, certain Other Shareholders and/or the Company in connection
therewith; or (iv) any Legal Proceeding relating to any inaccuracy or breach or
claim of the type referred to in clause "(i)," "(ii)" or "(iii)" above
(including any Legal Proceeding commenced by any Indemnitee for the purpose of
enforcing any of its rights under this Section 8, to the extent such Indemnitee
is successful in such Legal Proceeding). Each Indemnitor shall be responsible
under this Article 8 only for such Indemnitor's pro rata portion of any
--- ----
indemnification claim arising as a result of a breach of any representation or
warranty of the Company based on the number of shares of Common Stock to be
issued to the Indemnitors in the Merger. No Indemnitor shall be responsible
hereunder for any obligations of any other Indemnitor under this Agreement or
for any breach by any other Indemnitor of such other Indemnitor's
representations, warranties or covenants.
(b) Each of the Indemnitors acknowledges and agrees that, if the
Surviving Corporation suffers, incurs or otherwise becomes subject to any
Damages as a result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation, then (without limiting any of
the rights of the Surviving Corporation as an Indemnitee) Parent shall also be
deemed, by virtue of its ownership of the stock of the Surviving Corporation, to
have incurred Damages as a result of and in connection with such inaccuracy or
breach.
8.3 Satisfaction of Indemnification Claim. Upon the Effective Time, each
of the Indemnitors hereby agrees that Parent may deposit shares of Common Stock
issuable to the Indemnitors in accordance with Section 1.5 into an escrow fund
("Escrow Fund") established pursuant to an Escrow Agreement (the "Escrow
Agreement") to be executed on or before the Closing Date between Parent, the
Designated Shareholders, the Other Shareholders and the Escrow Agent named
therein in a form acceptable to Parent, the Designated Shareholders and Other
Shareholders. The number of shares of Common Stock to be deposited in the Escrow
Fund (the "Escrow Shares") shall be equal to 19% of the total number of shares
of Common Stock issued to the Indemnitors pursuant to Section 1.5, and
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shall be allocated on a pro rata basis to all Indemnitors based on the number of
shares of Common Stock to be issued to each Indemnitor pursuant to the Merger.
In accordance with the terms of the Escrow Agreement, the Escrow Shares shall be
released, subject to Section 8.6, to satisfy a portion or all claims for
indemnification pursuant to Section 8.2, with any shares of Common Stock that
are not the subject of a claim under the Escrow Agreement to be released from
such Escrow Agreement on the Audit Release Date. For purposes of the
satisfaction of claims in accordance with the Escrow Agreement, each Escrow
Share will be deemed to have a value equal to the closing price of Common Stock
on the Closing Date.
8.4 No Contribution. Each Indemnitor hereby waives, and acknowledges and
agrees that it shall not have and shall not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of indemnity or other
right or remedy against the Surviving Corporation or any other Indemnitor in
connection with any indemnification obligation or any other liability to which
he may become subject under or in connection with this Agreement.
8.5 Matters Involving Third Parties.
(a) If any third party shall notify any Indemnitee about any matter
(a "Third Party Claim") that may give rise to a claim for indemnification
against the Indemnitors under this Section 8, then the Indemnitee shall promptly
notify the Shareholder Representative in writing, provided, however, that no
delay on the part of any Indemnitee in notifying the Shareholder Representative
shall relieve the Indemnitors from any obligation hereunder unless (and then
solely to the extent) the Indemnitors are prejudiced by the delay.
(b) The Shareholder Representative will have the right to defend the
Indemnitee against the Third Party Claim (other than a Third Party Claim in
respect of a breach of any representation or warranty under Section 2.9) with
counsel of its choice reasonably satisfactory to the Indemnitee so long as (i)
the Shareholder Representative notifies the Indemnitee in writing within 15 days
after Indemnitee has given notice of the Third Party Claim that the Indemnitors
undertake the defense of the Third Party Claim, (ii) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief, and (iii) the Indemnitors conduct the defense of the Third Party Claim
actively and diligently.
(c) So long as Parent reasonably believes the Indemnitors are
conducting the defense of the Third Party Claim in accordance with Section
8.5(b) above, (i) the Indemnitee may retain separate co-counsel at its sole cost
and expense and participate in the defense of the Third Party Claim and (ii) the
Indemnitee will not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Shareholder Representative (which consent shall not be
unreasonably withheld).
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(d) If the Indemnitors are not actively and diligently conducting the
defense of the Third Party Claim, or in the case of any Third Party Claim in
respect of a breach of any representation or warranty under Section 2.9, then
(i) the Indemnitee may defend against, and consent to the entry of any judgment
or enter into any settlement with respect to the Third Party Claim in any manner
it may deem reasonable (and the Indemnitee shall consult with, but need not
obtain any consent from, the Shareholder Representative or the Indemnitors in
connection therewith), (ii) the costs of defending against the Third Party Claim
(including attorney's fees and expenses) incurred by the Indemnitors shall
constitute indemnification claims hereunder, and such claims shall be
recoverable in the same manner as the applicable underlying claim (as described
in Section 8.6(d)) and (iii) the Indemnitors will remain responsible for any
Damages the Indemnitee may suffer resulting from, arising out of, relating to,
in the nature of, or caused by the Third Party Claim to the fullest extent
provided in this Section 8, subject to the limitations in Section 8.6(d).
8.6 Limitations on Indemnification. Notwithstanding anything herein to the
contrary:
(a) The Indemnitees shall not assert any claim for indemnification
against the Indemnitors until such time as, and only to the extent that, the
aggregate of all claims that the Indemnitees may have against the Indemnitors
shall exceed $250,000.
(b) The aggregate amount of all indemnification payments made
pursuant to this Section 8 arising out of claims described in Section 8.2 or in
Section 8.5 (other than payments made pursuant to this Section 8 arising out of
claims for intentional misrepresentation, intentional misconduct or fraud) shall
not exceed an amount equal to 19% of the total consideration actually received
by the Indemnitors pursuant to this Agreement (valued at the closing price on
the Closing Date).
(c) The aggregate amount of all indemnification payments made
pursuant to this Section 8 shall not exceed 100% of the total consideration
actually received by the Indemnitors pursuant to this Agreement (valued at the
closing price on the Closing Date).
(d) Except with respect to Designated Claims, all claims for
indemnification under this Section 8 (other than the reimbursement of legal
expenses under Section 8.5) shall be satisfied solely by the release of Escrow
Shares in accordance with the terms of the Escrow Agreement. In the case of
Designated Claims, Indemnitees shall have the option of pursuing such claims
directly against Indemnitors or seeking the release of Escrow Shares in
accordance with the terms of the Escrow Agreement. As used herein, the term
"Designated Claims" shall mean claims arising out of any intentional
misrepresentation, intentional misconduct or fraud, or out of any breach of the
representations of the Company in
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Sections 2.3, 2.9 (a), (b), (c ) or (f) or 2.15 (a) or (b), or out of the
transactions or arrangements described in Section 8.2(a)(iii).
(e) The aggregate liability of the Indemnitors to the Indemnitees for
a breach of this Agreement or otherwise arising from the transactions
contemplated hereby, including, but not limited to, breach of contract claims,
indemnity claims, and tort claims (other than those claims relating to fraud,
intentional misrepresentation or intentional misconduct), is hereby expressly
limited by the limitations on indemnification set forth in this Section 8.6.
(f) The Indemnitors shall have no liability for claims arising out of
any breach by the Company of its representations in the last sentence of Section
2.4 as a result of the Company's change to percentage completion revenue
recognition practices for the 1999 fiscal year.
(g) The Indemnitors shall have no liability for any breach of any
representation, warranty or covenant to the extent such breach resulted from any
action or omission by Parent in violation of the Management Agreement.
8.7 Exercise of Remedies by Indemnitees Other Than Parent. No Indemnitee
(other than Parent or any successor thereto or assign thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy under
this Agreement unless Parent (or any successor thereto or assign thereof) shall
have consented to the assertion of such indemnification claim or the exercise of
such other remedy.
8.8 Shareholder Representative.
(a) The Designated Shareholders and the Other Shareholders shall
designate a representative prior to the Closing Date to be constituted and
appointed as agent ("Shareholder Representative") for and on behalf of the
Designated Shareholders and Other Shareholders to give and receive notices and
communications, to agree to, negotiate, and enter into, on behalf of all
Designated Shareholders and Other Shareholders, amendments, consents and waivers
under this Agreement (including Section 5.2 hereof) and the Escrow Agreement, to
enter into and administer, on behalf of the Designated Shareholders or Other
Shareholders, the Escrow Agreement, to authorize delivery to Parent of the
Common Stock or other property from the Escrow Fund in satisfaction of
indemnification claims in accordance with the Escrow Agreement, and to take all
actions necessary or appropriate in the judgment of the Shareholder
Representative for the accomplishment of the foregoing; provided, however, that
the Shareholder Representative shall not agree to any amendment that would
materially adversely affect the rights of any Designated Shareholder or Other
Shareholder without the written consent of Indemnitors holding greater than 50%
of the shares of Common Stock received by all Indemnitors pursuant to the
Merger, or that adversely affects
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any Designated Shareholder or Other Shareholder disproportionately from other
parties without the consent of such Designated Shareholder or Other
Shareholders. Such agency may be changed by the holders of a majority in
interest of the Designated Shareholders and Other Shareholders from time to time
upon not less than 10 days' prior written notice to Parent. No bond shall be
required of the Shareholder Representative, and the Shareholder Representative
shall receive no compensation for his services. Notices or communications to or
from the Shareholder Representative shall constitute notice to or from each of
the Designated Shareholders and Other Shareholders.
(b) The Shareholder Representative shall not be liable for any act
done or omitted hereunder or under the Escrow Agreement as Shareholder
Representative while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the written advice of counsel
shall be conclusive evidence of such good faith. The Company shareholders shall
severally indemnify the Shareholder Representative and hold him harmless against
any loss, liability or expense incurred without gross negligence or bad faith on
the part of the Shareholder Representative and arising out of or in connection
with the acceptance or administration of his duties hereunder.
(c) The Shareholder Representative shall have reasonable access to
information about the Company and the reasonable assistance of the Company's and
Parent's officers and employees for purposes of performing its duties and
exercising its rights hereunder, provided that the Shareholder Representative
shall treat confidentially and not disclose any nonpublic information from or
about the Company or Parent to anyone (except on a need to know basis to
individuals who agree to treat such information confidentially).
8.9 Actions of the Shareholder Representative. A decision, act, consent or
instruction of the Shareholder Representative in respect of any action under
this Agreement or the Escrow Agreement shall constitute a decision of all
Indemnitors and shall be final, binding and conclusive upon each such Indemnitor
and the Escrow Agent and Parent may rely upon any decision, act, consent or
instruction of the Shareholder Representative hereunder or under the Escrow
Agreement as being the decision, act, consent or instruction of each and every
such Indemnitor. The Escrow Agent and Parent are hereby relieved from any
liability to any Person (including any Indemnitor) for any acts done by them in
accordance with such decision, act, consent or instruction of the Shareholder
Representative.
9. Termination
9.1 Termination.
(a) This Agreement may be terminated at any time prior to the
Effective Time:
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(i) by mutual agreement of the Boards of Directors of Parent
and the Company;
(ii) by Parent (provided Parent is not otherwise in breach), if
there has been a breach by the Company of any representation, warranty, covenant
or agreement set forth in this Agreement on the part of the Company which is
material and which the Company fails to cure within five business days after
notice thereof is given by Parent (except that no cure period shall be provided
for a breach by the Company which by its nature cannot be cured);
(iii) by the Company (provided the Company is not otherwise in
breach), if there has been a breach by Parent or Sub of any representation,
warranty, covenant or agreement set forth in this Agreement on the part of
Parent or Sub which is material and which Parent or Sub, as the case may be,
fails to cure within five business days after notice thereof is given by the
Company (except that no cure period shall be provided for a breach by Parent or
Sub which by its nature cannot be cured); or
(iv) by Parent or the Company, if the Closing shall not have
occurred before 5:00 p.m. (New York time) on June 29, 2000, provided that no
party that is then in material breach of this Agreement may terminate this
Agreement under this clause (iv).
(b) Where action is taken to terminate this Agreement pursuant to
this Section 9.1, it shall be sufficient for such action to be authorized by the
Board of Directors of the party taking such action.
9.2 If either Parent or the Company terminates this Agreement pursuant to
this Section 9.1, all obligations of the parties hereunder shall terminate
without any liability of any party to any other party (except for any liability
of any party for breach by such party of one of its covenants under this
Agreement prior to termination), provided that the agreements contained in
Section 10.2 and 10.6 hereof shall survive. Notwithstanding the foregoing, in
the event of the termination of this Agreement prior to the Closing, no party
may sue or assert any claim against any other party based upon a breach of such
other party's representations contained herein unless such breach involves one
or more intentional misrepresentations or fraud.
10. Miscellaneous Provisions
10.1 Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
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10.2 Fees and Expenses. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its Representatives with
respect to the Company's business (and the furnishing of information to Parent
and its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement (including the Company
Disclosure Schedule) and all agreements, certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
transactions contemplated by this Agreement, (c) the preparation and submission
of any filing or notice required to be made or given in connection with any of
the transactions contemplated by this Agreement, and the obtaining of any
Consent required to be obtained in connection with any of such transactions, (d)
the consummation of the Merger, and (e) the filing of any required premerger
notification and report forms relating to the Merger under the HSR Act;
provided, however, that any fees, costs and expenses (including legal fees and
accounting fees) incurred by the Company in excess of $150,000 shall reduce the
amount of Common Stock issued in the Merger on a dollar-for-dollar basis valuing
each share of Common Stock at the average of the closing bid prices for shares
of Common Stock, as reported on the Nasdaq National Market, over the period of
ten (10) trading days ending three days prior to the Closing Date. The Company
shall not be responsible for any fees, costs or expenses of any Designated
Shareholders or Other Shareholders in connection with any of the foregoing.
10.3 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
10.4 Disclosure Schedule. The Company Disclosure Schedule shall be
arranged in separate parts corresponding to the numbered and lettered sections
contained in the applicable section of this Agreement, and the information
disclosed in any numbered or lettered part shall be deemed to relate to and to
qualify only the particular representation or warranty set forth in the
corresponding numbered or lettered section of the Agreement, and shall not be
deemed to relate to or to qualify any other representation or warranty.
10.5 Notices. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to
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such other address or facsimile telephone number as such party shall have
specified in a written notice given to the other parties hereto):
if to Parent: Exchange Applications, Inc.
d/b/a Xchange, Inc.
89 South Street
Boston, MA 02111
Attention: Andrew Frawley
Facsimile: (617) 443-9143
with a copy to: Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Attention: Neil W. Townsend, Esq.
Facsimile: (617) 951-8866
if to Merger Sub: CAH Acquisition Corp.
c/o Xchange, Inc.
89 South Street
Boston, MA 02111
Attention: Andrew Frawley
Facsimile: (617) 443-9143
with a copy to: Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Attention: Neil W. Townsend, Esq.
Facsimile: (617) 951-8736
if to the Company: Customer Analytics, Inc.
with a copy to: Munsch Hardt Kopf & Harr, P.C.
4000 Fountain Place
1445 Ross Ave.
Dallas, TX 75202-2790
Attention: Mark Kopidlansky, Esq.
Facsimile: (214) 855-7584
if to any Shareholder: at the address set forth in the Release
and Consent executed by such Shareholder
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10.6 Confidentiality. Without limiting the generality of anything
contained in this Agreement, on and at all times after the Closing Date, the
Shareholders and each Investor shall keep confidential, and shall not use or
disclose to any other Person, any non-public document or other non-public
information in such Person's possession that relates to the business of the
Company or Parent.
10.7 Time of the Essence. Time is of the essence of this Agreement.
10.8 Headings. The headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.9 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
10.10 Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the Commonwealth of
Massachusetts (without giving effect to principles of conflicts of laws).
10.11 Cooperation. The Company agrees to cooperate fully with Parent and
to execute and deliver such further documents, certificates, agreements and
instruments and to take such other actions as may be reasonably requested by
Parent to evidence or reflect the transactions contemplated by this Agreement
and to carry out the intent and purposes of this Agreement.
10.12 Liability. Notwithstanding anything to the contrary in this
Agreement or any of the agreements attached hereto as exhibits (collectively,
the "Merger Agreements"), the parties hereto agree that no officer, director,
stockholder or shareholder of any of the parties hereto shall be personally
liable with respect to any of the Merger Agreements or any of the transactions
contemplated thereby, other than with respect to their personal obligations
under the Merger Agreements.
10.13 Successors and Assigns. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); the Designated Shareholders and
Other Shareholders and their respective personal representatives, executors,
administrators, estates, heirs, successors and assigns (if any); Parent and its
successors and assigns (if any); and Merger Sub and its successors and assigns
(if any). This Agreement shall inure to the benefit of: the Company; the
Designated Shareholders and the Other Shareholders; the holders of assumed
Company Options (to the extent set forth in Section 1.6); Parent; Merger Sub;
the other Indemnitees (subject to Section 8); and the respective successors and
assigns (if any) of the foregoing. Parent may freely assign any or all of its
rights but not its obligations under this Agreement (including its
indemnification rights under
60
<PAGE>
Section 8), in whole or in part, to any subsidiary or successor without
obtaining the consent or approval of any other party hereto or of any other
Person.
10.14 Remedies Cumulative; Specific Performance. The rights and remedies
of the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
10.15 Waiver.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
10.16 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of the Company, Parent, Merger Sub and the Shareholder
Representative, acting upon the instruction of the Designated Shareholders and
Other Shareholders in accordance with Section 8.8.
10.17 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.18 Parties in Interest. Except as provided in Section 10.13, none of
the provisions of this Agreement is intended to provide any rights or remedies
to any
61
<PAGE>
Person other than the parties hereto and their respective successors and
assigns (if any).
10.19 Entire Agreement. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof; provided, however, that the Non-Disclosure Agreement
between Parent and the Company dated as of May 2000 shall not be superseded by
this Agreement and shall remain in effect in accordance with its terms until the
earlier of (a) the Effective Time, or (b) the date on which such Non-Disclosure
Agreement is terminated in accordance with its terms. Parent acknowledges that
the terms of agreements attached hereto as Exhibits have not been fully
negotiated as of the date hereof and that such agreements will be executed to
the extent that the final forms are satisfactory to the parties thereto.
10.20 Construction.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
10.21 Jurisdiction; Services of Process.
Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against any of the
parties in the courts of The Commonwealth of Massachusetts, County of
Suffolk, or, if it has or can acquire jurisdiction, in the United States
District Court located in Boston, and each of the parties consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in
any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
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<PAGE>
The parties hereto have caused this Agreement to be executed and delivered
as of the date first above written.
Exchange Applications, Inc.,
a Delaware corporation
By: /s/ F. Daniel Haley
---------------------------
Printed Name: F. Daniel Haley
Title: Chief Deal Officer
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
CAH Acquisition Corp.,
a Delaware corporation
By: /s/ Neil W. Townsend
---------------------------
Printed Name: Neil W. Townsend
Title: Secretary
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
Customer Analytics Holdings, Inc.
a Delaware corporation
By: /s/ Stephen M. Carpenter
---------------------------
Printed Name: Stephen M. Carpenter
Title: Chief Operating Officer
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
Robert E. Hall and Linda Hall
/s/ Robert E. Hall
------------------------------
/s/ Linda Hall
------------------------------
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
J. Thomas Morse and Linda Morse
/s/ J. Thomas Morse
------------------------------
/s/ Linda Morse
------------------------------
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
Stephen M. Carpenter
/s/ Stephen M. Carpenter
------------------------------
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
Evangelos Simoudis
/s/ Evangelos Simoudis
------------------------------
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
Information Associates - II, L.P.
By: /s/ Bonnie N. Kennedy
---------------------------
Printed Name: Bonnie N. Kennedy
Title: Acting Signatory
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
IA - II Affiliates Fund, L.L.C.
By: /s/ Bonnie N. Kennedy
---------------------------
Printed Name: Bonnie N. Kennedy
Title: Acting Signatory
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
Insight Venture Partners I, L.P.
By: /s/ Jeff Horing
---------------------------
Printed Name: Jeff Horing
Title: Managing Member
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
Wexford Insight, L.L.C.
By: /s/ Robert Holtz
---------------------------
Printed Name: Robert Holtz
Title: Vice President
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
Information Associates, - II, L.P.
By: /s/ Bonnie N. Kennedy
---------------------------
Name: Bonnie N. Kennedy
Title: Acting Signatory
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
IA - II Affiliates Fund, L.L.C.
By: /s/ Bonnie N. Kennedy
---------------------------
Name: Bonnie N. Kennedy
Title: Acting Signatory
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
Insight Venture Partners I, L.P.
By: /s/ Jeff Horing
---------------------------
Name: Jeff Horing
Title: Managing Member
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
Wexford Insight L.L.C.
By: /s/ Robert Holtz
--------------------------
Name: Robert Holtz
Title: Vice President
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
---------
"Acquisition Proposal" means any offer or proposal (other than an
offer or proposal by Parent) contemplating or otherwise relating to any
Acquisition Transaction.
"Acquisition Transaction" means any transaction involving:
(a) the sale, license, disposition or acquisition of all or a
substantial portion of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any capital stock
or other equity security of the Company (other than common stock issued to
employees of the Company, upon exercise of Company Options or otherwise, in
routine transactions in accordance with the Company's past practices or as
otherwise contemplated by the Agreement, including Section 1.5 thereof), (ii)
any option, call, warrant or right (whether or not immediately exercisable) to
acquire any capital stock or other equity security of the Company (other than
stock options granted to employees of the Company in routine transactions in
accordance with the Company's past practices), or (iii) any security, instrument
or obligation that is or may become convertible into or exchangeable for any
capital stock or other equity security of the Company; or
(c) any merger, consolidation, business combination, reorganization or
similar transaction involving the Company.
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with") shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract otherwise.
"Affiliated Group" means, with respect to any Person, (i) any
Affiliate of such Person, (ii) any Person who is a director, officer, partner,
member, shareholder or principal of such Person or of any Affiliate of such
Person, or (iii) any member of the Family Group of such Person or of any Person
referred to in clause (ii) above.
i
<PAGE>
"Agreement" means the Agreement and Plan of Merger and Reorganization
to which this Exhibit A is attached (including the Company Disclosure Schedule),
---------
as it may be amended from time to time.
"Audit Release Date" means the date which is the earlier of (i) one
(1) year from the Effective Time and (ii) the date Parent files its Annual
Report on Form 10-K for the fiscal year ending December 31, 2000.
"CA Shareholder Escrow and Indemnity Agreement" means the "Investor
Escrow Agreement" to be entered into between the Company and the Company's
shareholders party thereto on or prior to the Closing Date.
"Company Contract" means any Contract: (a) to which the Company is a
party; (b) by which the Company or any asset of the Company is or may become
bound or under which the Company has, or may become subject to, any obligation;
or (c) under which the Company has or may acquire any right or interest.
"Consent" means any approval, consent, ratification, permission,
waiver or authorization (including any Governmental Authorization).
"Contract" means any written, oral or other agreement, contract,
subcontract, lease, understanding, instrument, note, option, warranty, purchase
order, license, sublicense, insurance policy, benefit plan or legally binding
commitment or undertaking of any nature.
"Control" (including the term "controlled by") means the possession,
directly or indirectly or as trustee or executor, of the power to direct or
change the direction of the management policies of a person or Entity, whether
through the ownership of stock, a trustee or execution, by contract or credit
arrangement or otherwise.
"Convertible Notes" means the promissory notes of the Company listed
and described in Part 2.3(c) of the Company Disclosure Schedule.
"Damages" means any loss, damage, injury, decline in value, liability,
claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including
reasonable attorneys' fees), charge, cost (including costs of investigation) or
expense of any nature.
"Encumbrance" means any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, claim, infringement, interference, option, right
of first refusal, preemptive right, community property interest or restriction
of any nature (including any restriction on the voting of any security, any
restriction on the transfer of any security or other asset, any restriction on
the receipt of any income derived from any asset, any restriction on the use of
any asset and any
ii
<PAGE>
restriction on the possession, exercise or transfer of any other attribute of
ownership of any asset).
"Entity" means any 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 or
entity.
"Environmental Law" means any federal, state, local or foreign Legal
Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agreement" means the Exchange Agreement to be entered into
on or about the date hereof among the Company and each of the Company
shareholders party thereto governing the Exchange and Conversion Transactions.
"Expression of Interest Letter" means that certain letter of interest
dated May 24, 2000 between Company and Parent.
"Family Group" means, with respect to a Person, such Person, such
Person's spouse and any lineal descendant (whether natural or adopted) or
antecedent, brother or sister, or the spouse of any of the foregoing
(collectively, "Immediate Family"), any trust for the benefit of such Person or
such Person's Immediate Family, any corporation, partnership or limited
liability company in which such Person or such Person's Immediate Family (or
trust(s) for any of their benefit) are the direct and beneficial owners of all
of the equity interests (provided such Person or Person's Immediate Family or
trust(s) for any of their benefit continue to be the direct and beneficial
owners of all such equity interests), and the personal representative of such
Person upon such person's death for purposes of administration of such Person's
estate or upon such Person's incompetency for purposes of the protection and
management of the assets of such Person.
"Governmental Authorization" means any: (a) permit, license,
certificate, franchise, permission, clearance, registration, qualification or
authorization issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal Requirement; or (b)
right under any Contract with any Governmental Body.
iii
<PAGE>
"Governmental Body" means any: (a) nation, state, commonwealth,
province, territory, county, municipality, district or other jurisdiction of any
nature; (b) federal, state, local, municipal, foreign or other government; or
(c) governmental or quasi-governmental authority of any nature (including any
governmental division, department, agency, taxing authority, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
"Government Contract" means any prime contract, subcontract, letter
contract, purchase order or delivery order executed or submitted to or on behalf
of any Governmental Body or any prime contractor or higher-tier subcontractor,
or under which any Governmental Body or any such prime contractor or
subcontractor otherwise has or may acquire any right or interest.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"HSR Termination Date" means, with respect to the Merger, the date of
expiration or termination of all applicable waiting periods under the HSR Act.
"Indemnitees" means the following Persons: (a) Parent; (b) Parent's
current and future affiliates (including the Surviving Corporation); (c) the
respective Representatives of the Persons referred to in clauses "(a)" and "(b)"
above; and (d) the respective successors and assigns of the Persons referred to
in clauses "(a)", "(b)" and "(c)" above; provided, however, that the
shareholders of the Company shall not be deemed to be "Indemnitees."
"Investor Warrants" means those preferred stock purchase warrants
designated as such on Part 2.3(c) of the Company Disclosure Schedule.
"Knowledge". An individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) Such individual is actually aware of such fact or other matter; or
(b) A prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such fact or
other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, as a
director, officer, partner, executor, or trustee of such Person (or in any
similar capacity) has, or at any time had, Knowledge of such fact or other
matter.
"Legal Proceeding" means any action, suit, litigation, arbitration,
proceeding (including any civil, criminal, administrative, investigative or
appellate
iv
<PAGE>
proceeding), hearing, inquiry, audit, examination or investigation commenced,
brought, conducted or heard by or before, or otherwise involving, any court or
other Governmental Body or any arbitrator or arbitration panel.
"Legal Requirement" means any federal, state, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
"Material Adverse Effect". An event, violation, inaccuracy,
circumstance or other matter will be deemed to have a "Material Adverse Effect"
on the Company if such event, violation, inaccuracy, circumstance or other
matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in the Agreement but
for the presence of "Material Adverse Effect" or other materiality
qualifications, or any similar qualifications, in such representations and
warranties) would have a material adverse effect on (i) the business, condition,
capitalization, assets, liabilities, operations, prospects or financial
performance of the Company or its Subsidiaries, taken as a whole (ii) the
ability of the Company to consummate the Merger or any of the other transactions
contemplated by the Agreement or to perform any of its obligations under the
Agreement, or (iii) Parent's ability to vote, receive dividends with respect to
or otherwise exercise ownership rights with respect to the stock of the
Surviving Corporation. An event, violation, inaccuracy, circumstance or other
matter will be deemed to have a "Material Adverse Effect" on Parent if such
event, violation, inaccuracy, circumstance or other matter (considered together
with all other matters that would constitute exceptions to the representations
and warranties set forth in the Agreement but for the presence of "Material
Adverse Effect" or other materiality qualifications, or any similar
qualifications, in such representations and warranties) would have a material
adverse effect on the business, condition, assets, liabilities, operations or
financial performance of Parent and its Subsidiaries taken as a whole, it being
understood that no change in the trading price of Parent's stock shall
constitute a Material Adverse Effect on Parent.
"Materials of Environmental Concern" means chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other substance that is now or hereafter regulated by any Environmental Law or
that is otherwise a danger to health, reproduction or the environment.
"Nasdaq" means the Nasdaq National Market.
"1999 Merger" means the merger between the Company and Action Systems
Holdings, Inc. dated as of October 29, 1999.
v
<PAGE>
"Person" means any individual, Entity or Governmental Body.
"Proprietary Asset" means any: (a) patent, patent application,
trademark (whether registered or unregistered), trademark application, trade
name, fictitious business name, service mark (whether registered or
unregistered), service mark application, copyright (whether registered or
unregistered), copyright application, maskwork, maskwork application, trade
secret, know-how, customer list, franchise, system, computer software, computer
program (in source and executable form), algorithm, invention, design,
blueprint, engineering drawing, proprietary product, technology, proprietary
right or other intellectual property right or intangible asset in any
jurisdiction in the world; or (b) right to use or exploit any of the foregoing
in any jurisdiction in the world.
"Related Party" means each of the following (i) each Shareholder;
(ii) each individual who is, or who has at any time since the Measurement Date
has been, an officer of the Company; (iii) each member of the immediate family
of each of the individuals referred to in clauses "(i)" and "(ii)" above; (iv)
each Investor; and (v) any trust or other Entity (other than the Company) in
which any one of the individuals referred to in clauses "(i)", "(ii)" and
"(iii)" above holds (or in which more than one of such individuals collectively
hold), beneficially or otherwise, a material voting, proprietary or equity
interest.)
"Representatives" means officers, directors, employees, agents,
attorneys, accountants, advisors and representatives.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
Subsidiary. An entity shall be deemed to be a "Subsidiary" of another
Person if such Person or one of its Subsidiaries, is the general partner or
other manager of such entity or directly or indirectly owns, beneficially or of
record, an amount of voting securities of other interests in such Entity that is
sufficient to enable such Person to elect members of such Entity's board of
directors or other governing body.
"Tax" means any tax (including any income, franchise, capital gains,
gross receipts, value-added, sur, excise, ad valorem, transfer, stamp, sales,
use, property, business, withholding and payroll, profits, employment,
estimated, alternative or add-on minimum, recapture, environmental or other
tax), levy, assessment, tariff, duty (including any customs duty), deficiency or
fee, and any related charge or amount (including any fine, penalty or interest),
together with all interest, penalties and additions, imposed, assessed or
collected by or under the authority of any Governmental Body.
vi
<PAGE>
"Tax Return" means any return (including any information return),
report, claim for refund statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
vii
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A Certain Definitions
Exhibit B Directors and Officers of the Surviving Corporation
Exhibit C Form of Release and Consent
Exhibit D Form of Investment Representation Letter
SCHEDULES
---------
Company Disclosure Schedule
viii
<PAGE>
ANNEX A
ESCROW AGREEMENT
----------------
This Escrow Agreement is made as of June 28, 2000, by and among State
Street Bank and Trust Company ("Escrow Agent"), Exchange Applications, Inc.
------ -----
("Parent") and Steve Carpenter as agent (the "Shareholder Representative") for
------ ----------- --------------
the former shareholders of Customer Analytics Holdings, Inc., a Delaware
corporation ("Company") listed on Exhibit A (the "Shareholders"). Terms not
------- ------- - ------------
otherwise defined herein shall have the meaning set forth in the Merger
Agreement (as defined below). Notwithstanding the foregoing, the use of such
defined terms incorporated by reference to the Merger Agreement is solely for
the convenience of the Parent and the Shareholder Representative and the Escrow
Agent may rely on the use of such defined terms in any communication received by
it.
WITNESSETH
WHEREAS, Parent, Company, certain investors and shareholders of the
Company, and CAH Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Parent ("Merger Sub"), have entered into an Agreement and Plan of
----------
Merger and Reorganization (the "Merger Agreement"), dated as of June 6, 2000,
------ ---------
providing for the merger of Merger Sub with and into the Company (the "Merger");
------
WHEREAS, the parties intend to establish an Escrow Fund (as defined below)
to compensate Parent for certain Damages it may incur by reason of a breach of
the representations, warranties or covenants of Shareholder Representative and
Company contained in the Merger Agreement; and
WHEREAS, the parties hereto desire to set forth further terms and
conditions in addition to those set forth in the Merger Agreement relating to
the operation of the Escrow Fund.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein, and intending to be legally bound, hereby agree as
follows:
1. Escrow Shares and Escrow Fund. As soon as practicable after
-----------------------------
the Effective Time, nineteen percent (19%) of the total number of shares of
Parent Common Stock issued to the Shareholders pursuant to Section 1.5 of the
Merger Agreement in the amount of 761,602 shares (the "Escrow Shares") shall be
-------------
registered in the name of each Shareholder as set forth on Exhibit A, and be
------- -
deposited with the Escrow Agent with stock powers duly executed in blank, such
deposit to constitute the "Escrow Fund" and to be governed by the terms set
------ ----
forth
<PAGE>
-2-
herein. The Escrow Agent shall have no responsibility for the genuineness,
validity, market value, title or sufficiency for any intended purpose of the
Escrow Shares. The Escrow Fund shall be available to Parent to satisfy a portion
or all claims for indemnification pursuant to Section 8.2 of the Merger
Agreement and subject to the limitations in Section 8.6 of the Merger Agreement.
Parent and Company each acknowledge that such Damages, if any, would relate to
unresolved contingencies existing at the Effective Time, which if resolved at
the Effective Time would have led to a reduction in the total number of shares
Parent would have agreed to issue in connection with the Merger. Nothing herein
shall limit the provisions of Section 8 of the Merger Agreement with respect to
the liability (i) of Company for any breach of any representation, warranty or
covenant if the Merger does not close, (ii) of any Shareholder in connection
with any indemnification claim, or (iii) of any rights of Parent to seek
indemnification under Section 8 of the Merger Agreement. The number of Escrow
Shares owned of record by each Shareholder is set forth in Exhibit A attached
------- -
hereto, which allotment is pro rata based upon the number of shares of Parent
Common Stock issuable to the former shareholders of Company as of the Closing of
the Merger.
The Shareholders shall remain as record owners of the Escrow Shares unless
they are transferred to Parent or the Shareholder Representative pursuant to
this Escrow Agreement and as a result the Shareholders shall retain all rights
and benefits of a shareholder of the Parent, including, but not limited to, the
right to vote all such shares in accordance with Section 6(b) hereof and the
right to receive dividends and distributions in accordance with Section 9
hereof.
Upon execution of this Agreement, each Shareholder listed on Exhibit A
shall deliver to the Escrow Agent three stock powers bearing signature
guarantees. The Escrow Agent shall at any time be entitled to request in
writing from the Shareholder Representative additional stock powers. If the
Escrow Agent is not in timely receipt of three stock powers from each
Shareholder upon execution of this Agreement, or any stock powers requested by
the Escrow Agent thereafter, then the Shareholders agree, jointly and severally,
to indemnify and hold the Escrow Agent harmless as to any liability incurred by
it by reason of its not having received the necessary stock powers in order to
carry out its duties and obligations under this Agreement, and to reimburse the
Escrow Agent for all of its costs or expenses, including, among other things,
counsel fees and expenses, reasonably incurred by reason of its duties
hereunder.
The Shareholder Representative represents and warrants to the Escrow Agent
that he has the irrevocable right, power and authority (i) to enter into and
perform this Escrow Agreement and bind all of the Shareholders to its terms,
(ii) to give and receive directions and notices hereunder, and (iii) to make all
determinations that may be required or that he deems appropriate under this
Escrow Agreement. For purposes of Sections 8(a) and 12 of this Escrow
<PAGE>
-3-
Agreement, the Shareholder Representative shall be entitled to act only in
accordance with the instructions of holders of a majority in interest of the
Escrow Shares subject to this Escrow Agreement. The Escrow Agent shall be under
no duty to determine the shareholder Representative's compliance with the
foregoing.
Until notified in writing by the Shareholder Representative that he has
resigned or by a majority in interest of the Shareholders that he has been
removed, the Escrow Agent may act upon the directions, instructions and notices
of the Shareholder Representative named above and, thereafter, upon the
directions, instructions and notices of any successor named in a writing
executed by a majority in interest of the Shareholders filed with the Escrow
Agent.
2. Damage Threshold. Parent may not receive any shares from the Escrow
----------------
Fund unless and until an Officer's Certificate or Certificates (as defined in
Section 5 below) identifying Damages the aggregate amount of which exceeds
$250,000 has been delivered to the Escrow Agent as provided in Section 5 below,
and such amount is determined pursuant to this Escrow Agreement to be payable,
in which case Parent shall receive shares equal in value to the full amount of
Damages in accordance with the terms of this Agreement as set forth in Section
5.
3. Rights and Obligations of the Parties. The Escrow Agent shall be
-------------------------------------
entitled to such rights and shall perform such duties of the Escrow Agent as set
forth herein, in accordance with the terms and conditions of this Escrow
Agreement. The Escrow Agent shall have no obligation to invest any escrowed
property. Parent and Shareholder Representative shall be entitled to their
respective rights and shall perform their respective duties and obligations as
set forth herein, in accordance with the terms hereof. In the event that the
terms of this Escrow Agreement conflict in any way with the provisions of the
Merger Agreement solely as between the Shareholder Representative and Parent,
the Merger Agreement shall control.
4. Escrow Period. Subject to the provisions of Section 6(c), the Escrow
-------------
Period shall terminate upon the earlier of (i) the expiration of one (1) year
following the Effective Time being June 28, 2001, and (ii) the date Parent files
its Annual Report on Form 10-K for the fiscal year ending December 31, 2000.
Parent will inform Escrow Agent in writing of the termination of the Escrow
Period pursuant to this Section 4. In the event of a termination prior to June
28, 2001, the Shareholder Representative may also provide such notice of
termination so long as it is accompanied by a copy of Parent's Annual Report on
Form 10-K for the fiscal year end December 31, 2000.
<PAGE>
-4-
5. Claims upon Escrow Fund.
-----------------------
(a) Subject to Section 7, claims may be made against the Escrow Fund upon
receipt by the Escrow Agent on or before the last day of the Escrow Period of a
certificate signed by any officer of Parent (an "Officer's Certificate"):
--------- -----------
(i) stating that Damages exist in an aggregate amount greater than
$250,000.00;
(ii) specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid, or
property accrued or arose, the nature of the misrepresentation, and the breach
of warranty or claim to which such item is related, the Escrow Agent shall,
subject to the provisions of Sections 7 and 8, deliver to Parent out of the
Escrow Fund, as promptly as practicable, Parent Common Stock or other assets
held in the Escrow Fund having a value equal to such Damages as determined
pursuant to Section 5(b) below; and
(iii) certifying as to the simultaneous delivery of such Officer's
Certificate to the Shareholder Representative.
(b) For the purpose of compensating Parent for its Damages pursuant
to this Agreement, the Parent Common Stock in the Escrow Fund shall be valued at
the Parent Common Stock closing price as listed on The Nasdaq Stock Market on
the Closing Date as certified to the Escrow Agent by Parent. The Escrow Agent
shall be entitled to rely conclusively upon any such certification of value
without any duty to verify or recalculate the same and the Escrow Agent shall
not be liable for any action or omission of, or delay on the part of, Parent in
such connection. Notwithstanding any term hereof to the contrary, in any such
instance, the Escrow Agent shall be entitled to refrain from taking any action
otherwise required hereunder (and which requires a determination of fair market
value), without liability on its part, until it is provided with notice in
accordance with this Agreement. In lieu of releasing any fractional Escrow
Shares, any fraction of a released Escrow Share that would otherwise be released
shall be rounded down to the nearest whole Escrow Share.
6. Duties of Escrow Agent. The duties of the Escrow Agent shall include
----------------------
the following:
(a) The Escrow Agent shall hold and safeguard the Escrow Shares
during the Escrow Period, and shall hold and dispose of the Escrow shares only
in accordance with the terms of this Escrow Agreement.
Except as otherwise provided in this Agreement, the Escrow Agent shall
be under no obligation to preserve, protect or exercise rights in the Escrow
<PAGE>
-5-
Shares, and shall be responsible only for reasonable measures to maintain the
physical safekeeping thereof and otherwise to perform and observe such duties on
its part as are expressly set forth in this Agreement.
(b) The Escrow Shares shall be voted by the record owners of such
shares. The Escrow Agent shall, at least three business days prior to the date
on which the Escrow Agent is requested to take any action, deliver to the
Shareholder Representative a proxy or other instrument in the form supplied to
it by the Shareholder Representative for voting or otherwise exercising any
right to consent with respect to any of the Escrow Shares held by it hereunder,
to authorize therein the Shareholder Representative to exercise such voting or
consent authority in respect of the Escrow Shares. The Escrow Agent shall not be
responsible for forwarding to any party, notifying any party with respect to, or
taking any action with respect to, any notice, solicitation or other document or
information, written or otherwise, received from an issuer or other person with
respect to the Escrow Shares, including but not limited to, proxy material,
tenders, options, the pendency of calls and maturities and expiration of rights.
(c) Promptly following termination of the Escrow Period as set forth
in Section 4 hereof, the Escrow Agent shall deliver to the Shareholders the
number of Escrow Shares valued as set forth in Section 5 and other property in
the Escrow Fund in excess of any amount of such Escrow Shares or other property
sufficient, subject to the objection of the Shareholder Representative and the
subsequent arbitration of the matter in the manner provided in Section 8 hereof,
to satisfy any unsatisfied claims specified in any Officer's Certificate
theretofore delivered to the Escrow Agent prior to termination of the Escrow
Period with respect to facts and circumstances existing prior to expiration of
the Escrow Period, and to pay expenses as provided in Section 15(b) hereof. As
soon as all such claims have been resolved and the Escrow Agent has received a
written notice from Parent to that effect, the Escrow Agent shall deliver to
such Shareholders all of the Escrow Shares and other property remaining in the
Escrow Fund and not required to satisfy such claims and expenses. Each
Shareholder shall receive Escrow Shares pro rata according to their Percentage
Interests as set forth opposite the name of each such Shareholder on Exhibit A
------- -
hereto. Parent shall promptly instruct the transfer agent of the Parent Common
Stock to deliver certificates representing Parent Common Stock to each
Shareholder as directed by the Escrow Agent to carry out the intent of this
Section.
(d) Under no circumstances should the terms of this Agreement
--
require the Escrow Agent to release or distribute escrow funds or property
sooner than two (2) business days after the Escrow Agent has received the
requisite notices or paperwork in good form, or passage of the applicable claims
period or release date, as the case may be.
<PAGE>
-6-
(e) To the extent directed to do so by the Shareholder
Representative, the Escrow Agent shall sell or deliver to the Shareholder
Representative with the accompanying stock power a sufficient number of the
shares of Parent Common Stock held in the Escrow Fund, and shall apply the
proceeds of such sale, to pay expenses reasonably incurred by the Shareholder
Representative on behalf of the Shareholders as provided in Section 15(b)
hereof.
(f) In connection with any sale of the Escrow Shares pursuant to
Section 6(e) of this Agreement, the Escrow Agent shall be entitled to receive
and rely upon, prior to taking action in that regard, written direction from the
Shareholder Representative as to the manner and method to be undertaken in
carrying out such sale, including without limitation written direction (i)
identifying the number of shares to be sold, (ii) identifying the brokerage firm
the Shareholder Representative requests to be used or instructing the Escrow
Agent to use its affiliated brokerage service, and (iii) setting forth any
necessary or special instructions with respect to the sale (including any stop
loss or minimum price per share instruction); and the Shareholder Representative
shall execute and deliver any instruments reasonably required by the Escrow
Agent in order to carry out such sale or liquidation.
(g) The Escrow Agent shall have no responsibility in connection with
such sale other than to make delivery of the Escrowed Shares to the selected
brokerage firm, with instruction (including any special instruction provided by
the Shareholder Representative, and to receive and deposit into the Escrow
Account (to be administered and distributed in accordance with this Agreement)
any net sale proceeds received therefrom. The Escrow Agent shall have no duty or
obligation to determine or accomplish compliance with any applicable transfer
restrictions; and it shall be the sole obligation of the party directing such
sale to take any remaining actions, and to provide or deliver any necessary
instruments or opinions (at its expense) necessary to comply with applicable
transfer restrictions or applicable securities laws. The Escrow Agent shall have
no liability for any actions or omissions of any such brokerage firm, and shall
have no liability for the price or execution achieved. Without limiting the
generality of the foregoing, the Shareholder Representative expressly
acknowledges that (a) the Escrow Shares may need to be sent to a transfer agent
to be reissued in saleable form, (b) the Escrow Shares may contain or be subject
to transfer restrictions that may limit their marketability and impose
restrictions upon the number or types of purchasers to whom they can be offered
or sold, and (c) the Escrow Agent shall have no liability for any failure or
delay (or any price change during any such delay) on the part of the Shareholder
Representative or any transfer agent, or caused by any necessary registration or
delivery procedures, or compliance with any applicable transfer restrictions
involved in the transfer of such Escrow Shares.
<PAGE>
-7-
(h) The Escrow Agent shall be entitled to contract with any brokerage
firm (which may be selected by the Escrow Agent without liability on its part,
taking into consideration any brokerage firm requested by the Shareholder
Representative, as provided above), which may be affiliated with the Escrow
Agent, and may enter into any such contract on a basis which provides that such
brokerage firm shall use its "best efforts" to effect such sale. The Escrow
Agent shall be indemnified hereunder for any costs, expenses and risks
associated therewith or arising thereunder (other than resulting from its own
gross negligence or willful misconduct), and the proceeds of sale to which the
Shareholder Representative shall be entitled shall be net of all brokerage
commissions and charges.
(i) The net sale proceeds of any such sale of Escrow Shares received
by the Escrow Agent shall be applied to pay expenses incurred by the Shareholder
Representative pursuant to Section 15(b) hereof net of a fee for the preparation
of an individual 1099-B (the "Sales Administration Fee"). The Sales
Administration fee shall be assessed each day a sale is affected until the total
number of shares specified in such written direction from the Shareholder
Representative are sold; provided that the minimum Sales Administration Fee per
sale transaction shall be $500.00.
(j) In no event shall the Escrow Agent be liable for indirect,
punitive, special or consequential damage or loss (including but not limited to
lost profits) whatsoever, even if the Escrow Agent has been informed of the
likelihood of such loss or damage and regardless of the form of action.
(k) The Escrow Agent shall have no more or less responsibility or
liability on account of any action or omission of any book entry depository,
securities intermediary or other sub escrow agent employed by the Escrow Agent
than any such book entry depository, securities intermediary or other sub escrow
agent has to the Escrow Agent, except to the extent that such action or omission
of any book entry depository, securities intermediary or other sub escrow agent
was caused by the Escrow Agent's own gross negligence, bad faith or willful
misconduct in breach of this Escrow Agreement.
7. Objections to Claim. At the time of delivery of any Officer's
-------------------
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Shareholder Representative and for a period of fifteen
(15) business days (the "Objection Period") after receipt by the Escrow Agent of
-----------------
the Officer's Certificate shall make no delivery of Parent Common Stock or other
property pursuant to Section 5 hereof unless the Escrow Agent shall have
received written authorization from the Shareholder Representative to make such
delivery. After the expiration of such Objection Period, the Escrow Agent
<PAGE>
-8-
shall make delivery of the Parent Common Stock or other property in the Escrow
Fund in accordance with Section 5 hereof, provided that no such payment or
delivery may be made if the Shareholder Representative shall object in a written
statement to the claim made in the Officer's Certificate, and such statement
shall have been delivered to the Escrow Agent and to Parent prior to the
expiration of such Objection Period.
8. Resolution of Conflicts; Arbitration.
------------------------------------
(a) In case the Shareholder Representative shall so object in writing to
any claim or claims by Parent made in any Officer's Certificate, Parent shall
have fifteen (15) business days (the "Response Period") to respond in a written
---------------
statement to the objection of the Shareholder Representative. If after such
Response Period there remains a dispute as to any claims, the Shareholder
Representative and Parent shall attempt in good faith for thirty (30) days to
agree upon the rights of the respective parties with respect to each of such
claims. If the Shareholder Representative and Parent should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and shall distribute the Parent Common
Stock or other property from the Escrow Fund in accordance with the terms
thereof.
(b) If no such agreement can be reached after good faith negotiation,
either Parent or the Shareholder Representative may, by written notice to the
other, demand arbitration of the matter unless the amount of the damage or loss
is at issue in pending litigation with a third party, in which event arbitration
shall not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by three arbitrators. Within fifteen (15) days after such written
notice is sent, Parent and the Shareholder Representative shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The decision of the arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement, and notwithstanding anything in Section 5 hereof, the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance therewith.
(c) Judgment upon any award rendered by the arbitrators may be entered in
any court having jurisdiction. Any such arbitration shall be held in Suffolk
County, Commonwealth of Massachusetts, under the commercial rules then in effect
of the American Arbitration Association.
9. Distributions. Any cash dividends (but excluding any distributions
-------------
received upon a stock split, merger or other recapitalization or reorganization,
<PAGE>
-9-
or upon a liquidating distribution the "Retained Escrow Earnings") shall be
------------------------
promptly distributed by the Parent to the record owner of the Escrow Shares to
which such distribution relates. If, notwithstanding the foregoing, any cash
dividends (but excluding any Retained Escrow Earnings) are received by the
Escrow Agent such cash dividends shall be promptly distributed by the Escrow
Agent to the record owner of the Escrow Shares to which such distribution
relates. Any other distributions including any Retained Escrow Earnings, shall
be directed by Parent (and the Shareholders, as record owners of such Escrow
Shares, hereby authorize Parent) to the Escrow Agent to be added to the Escrow
Fund and become a part hereof. If, notwithstanding the foregoing, any Retained
Escrow Earnings are received by any Shareholder, such Retained Escrow Earnings
shall be promptly distributed by such Shareholder to the Escrow Agent. Any
provision hereof shall be equitably adjusted to appropriately reflect any stock
split, reverse stock split, merger or other recapitalization or reorganization
based upon written instructions from Parent to the Escrow Agent.
10. Exculpatory Provisions.
----------------------
(a) The Escrow Agent shall not be responsible for any of the agreements
referred to or described herein (including without limitation the Merger
Agreement), or for determining or compelling compliance therewith, and shall not
otherwise be bound thereby. The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein (which duties
are ministerial and not fiduciary) and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties.
The Escrow Agent shall not be liable for forgeries or false presentations. The
Escrow Agent shall not be liable for any act done or omitted hereunder as escrow
agent except for gross negligence or willful misconduct. The Escrow Agent shall
in no case or event be liable for any representations or warranties of Company,
Parent, the Shareholder Representative, the Shareholders or Merger Sub. Any act
done or omitted pursuant to the advice or opinion of counsel, including in-house
counsel, shall be conclusive evidence of the good faith of the Escrow Agent; and
the Escrow Agent will be entitled to rely on the advice of such counsel. The
Escrow Agent shall not be obligated to take any legal or other action hereunder
which might in its judgment involve or cause it to incur any expense or
liability unless it shall have been furnished with acceptable indemnification.
(b) The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law or arbitration as provided
herein, and is hereby expressly authorized to comply with and obey orders,
judgments or decrees of any court or rulings of any arbitrators. In case the
Escrow Agent obeys or complies with any such order, judgment or decree of any
court or such ruling of
<PAGE>
-10-
any arbitrator, the Escrow Agent shall not be liable to any of the parties
hereto or to any other person by reason of such compliance, notwithstanding any
such order, judgment, decree or arbitrators' ruling being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(c) The Escrow Agent shall not be liable in any respect on account of the
identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver the Escrow Agreement or any documents or papers
deposited or called for thereunder.
(d) The Escrow Agent shall not be liable for any change in, modification,
recission or clarification of law adversely affecting any rights under any
statute of limitation with respect to the Escrow Agreement or any documents
deposited with the Escrow Agent.
11. Alteration of Duties. This Escrow Agreement may be altered, amended,
--------------------
modified or revoked only by a writing signed by the Escrow Agent, Parent, the
Shareholder Representative and Shareholders holding a majority of the Escrow
Shares.
12. Resignation and Removal of the Escrow Agent. The Escrow Agent may
-------------------------------------------
resign as Escrow Agent at any time with or without cause by giving at least
thirty (30) days' prior written notice to each of Parent and the Shareholder
Representative, such resignation to be effective thirty (30) days following the
date such notice is given. In addition, Parent and the Shareholder
Representative may jointly remove the Escrow Agent as escrow agent at any time
with or without cause, by an instrument (which may be executed in counterparts)
given to the Escrow Agent, which instrument shall designate the effective date
of such removal. In the event of any such resignation or removal, a successor
escrow agent, which shall be a bank or trust company organized under the laws of
the United States of America or of the Commonwealth of Massachusetts having a
combined capital and surplus of not less than $100,000,000, shall be appointed
by the Shareholder Representative with the approval of Parent, which approval
shall not be unreasonably withheld. Any such successor escrow agent shall
deliver to Parent and the Shareholder Representative a written instrument
accepting such appointment, and thereupon it shall succeed to all the rights and
duties of the Escrow Agent hereunder and shall be entitled to receive the Escrow
Fund. If no successor escrow agent is named by the Shareholder Representative,
the Escrow Agent may apply to a court of competent jurisdiction for appointment
of a successor Escrow Agent.
13. Further Instruments. If the Escrow Agent reasonably requires other or
-------------------
further instruments in connection with performance of its duties
<PAGE>
-11-
hereunder, the necessary parties hereto shall join in furnishing such
instruments.
14. Disputes. It is understood and agreed that should any dispute arise
--------
with respect to the delivery and/or ownership or right of possession of the
securities held by the Escrow Agent hereunder, the Escrow Agent is authorized
and directed to act in accordance with, and shall be entitled (at its sole
option and election) to retain in its possession without liability to anyone,
all or any of said Escrow Fund until such dispute shall have been settled either
by the mutual written agreement of parties involved or by a final order, decree
or judgment of a court in the United States of America, the time for perfection
of an appeal of such order, decree or judgment having expired. The Escrow Agent
may, but shall be under no duty whatsoever to, institute or defend any legal
proceedings that relate to the Escrow Fund directed to act in accordance with,
and in reliance upon, the terms hereof.
15. Escrow Fees and Expenses.
------------------------
(a) Parent shall pay the Escrow Agent such fees as are established by
the Fee Schedule attached hereto as Exhibit B.
------- -
(b) Any out-of-pocket fees and expenses incurred by the Shareholder
Representative shall be paid by the Shareholders based upon their Percentage
Interests within ten (10) days of a written request from the Shareholder
Representative. Should such fees and expenses not be paid within forty-five
(45) days from the date requested, the Shareholder Representative may cause such
amounts to be paid out of the Escrow Fund in preference to other distributions
from such Escrow Fund; provided, however, that the aggregate of such payments
shall not exceed the proceeds of sales of shares made pursuant to Section 6(d)
hereof if and to the extent that this would reduce the number of shares
distributed to Parent, and provided further that under no circumstances will the
Shareholder Representative have personal liability for any such fees and
expenses. In the event any fees and expenses of Shareholder Representative are
not paid pursuant to this Section 15(b), then the Shareholders shall indemnify
Shareholder Representative pursuant to Section 17(a).
16. Indemnification.
---------------
(a) In consideration of the Escrow Agent's acceptance of this appointment,
Parent agrees to indemnify and hold the Escrow Agent (and its officers,
directors, employees and agents) harmless as to any liability incurred by it to
any person, firm or corporation by reason of its having accepted such
appointment or in carrying out the terms hereof and the Merger Agreement, and
<PAGE>
-12-
to reimburse the Escrow Agent for all its costs and expenses, including, among
other things, counsel fees and expenses, reasonably incurred by reason of its
duties hereunder; provided, however, that no indemnity need be paid in case of
the Escrow Agent's gross negligence, willful misconduct or breach of this Escrow
Agreement. The Shareholder Representative shall not be liable for any act done
or omitted hereunder or under the Merger Agreement as Shareholder Representative
while acting in good faith and in the exercise of reasonable judgment, and any
act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(b) Parent agrees to indemnify and hold the Escrow Agent harmless from any
liability or obligations on account of taxes, assessments, additions for late
payment, interest, penalties, expenses and other governmental charges that may
be assessed or asserted against the Escrow Agent and any loss, liability or
expense incurred without gross negligence or bad faith on the part of the
Shareholder Representative and arising out of or in connection with or relating
to any payment made or other activities performed under the terms of this
Agreement, including without limitation any liability for the withholding or
deduction of (or the failure to withhold or deduct) the same, and any liability
for failure to obtain proper certifications or to report properly to
governmental authorities in connection with this Agreement, including costs and
expenses (including reasonable legal fees and expenses), interest and penalties.
The foregoing indemnification and agreement to hold harmless shall survive the
termination of this Agreement; provided, however, that no indemnity need be paid
in case of the Escrow Agent's gross negligence, willful misconduct or breach of
this Escrow Agreement.
17. Shareholder Representative.
--------------------------
(a) As between the Shareholders and the Shareholder Representative, the
Shareholders shall severally indemnify the Shareholder Representative and hold
him harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Shareholder Representative and
arising out of or in connection with the acceptance or administration of his
duties hereunder or under the Merger Agreement. A decision, act, consent or
instruction of the Shareholder Representative in respect of any action under
this Agreement or the Merger Agreement shall constitute a decision of all
Shareholders and shall be final, binding and conclusive upon each such
Shareholder and the Escrow Agent and Parent may rely upon any decision, act,
consent or instruction of the Shareholder Representative hereunder or under the
Escrow Agreement as being the decision, act, consent or instruction of each and
every such Shareholder and shall be entitled to take action consented to by a
majority of the Shareholders. The Escrow Agent and Parent are hereby relieved
from any liability to any
<PAGE>
-13-
Person (including any Shareholder) for any acts done by them in accordance with
such decision, act, consent or instruction of the Shareholder Representative.
(b) The Shareholder Representative shall not be responsible for any of the
agreements referred to or described herein (including without limitation the
Merger Agreement), or for determining or compelling compliance therewith, and
shall not otherwise be bound thereby. The Shareholder Representative shall be
obligated only for the performance of such duties as are specifically set forth
herein (which duties are ministerial and not fiduciary) and may rely and shall
be protected in relying or refraining from acting on any instrument reasonably
believed to be genuine and to have been signed or presented by the proper party
or parties. The Shareholder Representative shall not be liable for forgeries or
false presentations. The Shareholder Representative shall not be liable for any
act done or omitted hereunder as Shareholder Representative except for gross
negligence or willful misconduct. The Shareholder Representative shall in no
case or event be liable for any representations or warranties of Company,
Parent, the Shareholder Representative, the Shareholders or Merger Sub. Any act
done or omitted pursuant to the advice or opinion of counsel, shall be
conclusive evidence of the good faith of the Shareholder Representative; and the
Shareholder Representative will be entitled to rely on the advice of such
counsel. The Shareholder Representative shall not be obligated to take any
legal or other action hereunder which might in its judgment involve or cause it
to incur any expense or liability unless it shall have been furnished with
acceptable indemnification.
(c) The Shareholder Representative is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law or arbitration
as provided herein, and is hereby expressly authorized to comply with and obey
orders, judgments or decrees of any court or rulings of any arbitrators. In
case the Shareholder Representative obeys or complies with any such order,
judgment or decree of any court or such ruling of any arbitrator, the
Shareholder Representative shall not be liable to any of the parties hereto or
to any other person by reason of such compliance, notwithstanding any such
order, judgment, decree or arbitrators' ruling being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(d) The Shareholder Representative shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver the Escrow Agreement or any
documents or papers deposited or called for thereunder.
(e) The Shareholder Representative shall not be liable for any change in,
modification, recission or clarification of law adversely affecting any rights
<PAGE>
-14-
under any statute of limitation with respect to the Escrow Agreement or any
documents deposited with the Shareholder Representative.
18. General.
-------
(a) Any notice given hereunder shall be in writing and shall be deemed to
have been duly given or made as of the date delivered, mailed or transmitted;
provided, however, that no notice to the Escrow Agent shall be deemed duly given
or made until actually received by the Escrow Agent, and any notice given
hereunder shall be effective upon receipt, if delivered personally, mailed by
registered or certified mail (postage prepaid, return receipt requested) or sent
by facsimile to the address or facsimile number of the party as set forth below
(or at such other address for a party as shall be specified by like change of
address):
To Parent:
------
Exchange Applications, Inc.
89 South Street
Boston, MA 02111
Attention: Andrew J. Frawley
Telephone: (617) 737-2244
Telecopy: (617) 790-2849
With a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 10022-4689
Attention: Neil Townsend, Esq.
Telephone: (617) 951-8866
Telecopy: (617) 951-8736
To Shareholder Representative:
--------------------------
Steve Carpenter
5941 Glendower Lane
Plano, Texas 75093
Telephone: (972) 403-0410
Telecopy: (972) 403-0410
<PAGE>
-15-
To the Escrow Agent:
------ -----
If by courier:
State Street Bank and Trust Company
Global Investor Services Group - Corporate Trust
2 Avenue de Lafayette - 6/th/ Floor
Boston, MA 02111-1724
Attention: Lynn Palmiter
Telephone: (617) 662-1785
Telecopy: (617) 662-1466
or, if by U.S. mail:
State Street Bank and Trust Company
Global Investor Services Group - Corporate Trust
P.O. Box 778
Boston, MA 02102-0778
Attention: Lynn Palmiter
Telephone: (617) 662-1785
Telecopy: (617) 662-1466
or to such other address as any party may have furnished in writing to the other
parties in the manner provided above.
(b) The captions in this Escrow Agreement are for convenience only and
shall not be considered a part of or affect the construction or interpretation
of any provision of this Escrow Agreement.
(c) This Escrow Agreement may be executed in any number of counterparts,
each of which when so executed shall constitute an original copy hereof, but all
of which together shall constitute one agreement.
(d) No party may, without the prior express written consent of each other
party, assign this Escrow Agreement in whole or in part. This Escrow Agreement
shall be binding upon and inure to the benefit of the respective successors and
assigns of the parties hereto.
(e) This Escrow Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts as applied to contracts made
and to be performed entirely within the Commonwealth of Massachusetts. The
parties to this Escrow Agreement hereby agree to submit to personal jurisdiction
in the Commonwealth of Massachusetts. In any such action or proceeding, the
parties each hereby absolutely and irrevocably (i) waive any
<PAGE>
-16-
objection to jurisdiction or venue, (ii) waive personal service of any summons,
complaint, declaration or other process, and (iii) agree that the service
thereof may be made by certified or registered first class mail directed to such
party, as the case may be, at their respective addresses in accordance with
Section 18 hereof;
(f) Force Majeure. The Escrow Agent shall not be responsible for delays or
failures in performance resulting from acts beyond its control. Such acts shall
include but not be limited to acts of God, strikes lockouts, riots, acts of war,
epidemics, governmental regulations superimposed after the fact, fire,
communication line failures, computer viruses, power failures, earthquakes or
other disasters.
(g) Reproduction of Documents. This Escrow Agreement and all documents
relating thereto, including without limitation (a) consents, waivers and
modifications which may hereafter be executed, and (b) certificates and other
information previously or hereunder furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro card, miniature
photographic or other similar process. The parties agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction shall likewise be admissible in evidence.
<PAGE>
-17-
IN WITNESS WHEREOF, each of the parties has executed this Escrow Agreement
as of the date first above written.
STATE STREET BANK AND
TRUST COMPANY, as Escrow
Agent
By: /s/ Arthur L. Blakeslee
------------------------
Name: Arthur L. Blakeslee
Title: Assistant Vice President
EXCHANGE APPLICATIONS, INC.
By: /s/ F. Daniel Haley
------------------------
Name: F. Daniel Haley
Title: Chief Deal Officer
SHAREHOLDER REPRESENTATIVE
By: /s/ Stephen M. Carpenter
------------------------
Name: Stephen M. Carpenter
<PAGE>
EXHIBIT A
List of Holders
Name of Shareholder Number of Shares Percentage Interest
Insight Venture Partners I, L.P. 46,190 6.07%
Wexford InSight LLC 127,339 16.72%
Information Associates II, L.P. 112,633 14.79%
IA-II Affiliates Fund L.L.C. 6,571 .86%
Acxiom Corporation 12,193 1.60%
Pegasus Systems 12,193 1.60%
J. Thomas Morse 111,730 14.68%
The Laskshmi Trust 35,608 4.68%
The SYDA Foundation 8,902 1.17%
The PRASAD Project 6,359 .83%
Robert Hall 190,260 24.98%
Linda Hall 773 .10%
Steve Carpenter 56,904 7.47%
Evangelos Simoudis 29,725 3.90%
Peter & Nancy Meekin 476 .06%
Vanetia Kontogouris 476 .06%
Lee Wilkins 2,035 .27%
Integrated Changeware Systems 1,142 .15%
Sally Susan Jablon 92 .01%
Total Shares 791,601 100%
<PAGE>
EXHIBIT B
---------
STATE STREET
Schedule of Fees
To Provide
Escrow Services
For
Exchange Applications, Inc.
Merger with
Customer Analytics Holdings, Inc.
Acceptance Fee: waived
Administration Fee: $3,500.00 per year or part
thereof, plus $35 per selling
stockholder
*Out-Of-Pocket Expenses: At Cost
*Legal Fees: At Cost
(State Street will use Peabody & Arnold as Counsel)
*The foregoing fees are to include any fees incurred in the preparation of this
Escrow Agreement and all costs and expenses incurred in connection with the
administration of this Agreement or the escrow created hereby or the performance
or observance of its duties hereunder which are in excess of its compensation
for normal services hereunder, including without limitation, payment of any
legal fees and expenses incurred by the Escrow Agent in connection with
resolution of any claim by any party hereunder.
