Exhibit 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated August 29, 2000 by and among NCT Group,
Inc., a Delaware corporation ("Parent"), NCT Midcore, Inc., a Delaware
corporation and a wholly-owned subsidiary of Parent ("Subsidiary"), Midcore
Software Incorporated, a Connecticut corporation (the "Company"), Jerrold
Metcoff ("Metcoff"), David Wilson ("Wilson") and Barry Marshall-Johnson
("Johnson"). Subsidiary and the Company are sometimes hereinafter referred to
collectively as the "Constituent Corporations". Metcoff, Wilson and Johnson are
sometimes hereinafter referred to collectively as the "Principals" or
individually as a "Principal".
W I T N E S S E T H :
WHEREAS, the respective Boards of Directors of Parent, Subsidiary and the
Company deem it advisable and in the best interests of such corporations and
their respective shareholders that the Company merge with and into Subsidiary in
accordance with the terms and conditions of this Agreement and the applicable
provisions of the laws of the respective states of incorporation of Subsidiary
and the Company; and
WHEREAS, for United States federal income tax purposes, it is intended that
the transactions contemplated by this Agreement shall qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder (the "Code"), and
this Agreement is intended to be and is adopted as a plan of reorganization
within the meaning of Section 368 of the Code.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
Definitions
For purposes of this Agreement, the following initial capitalized terms
shall have the meanings ascribed to them in this Section 1:
"Acquisition" is defined in Section 7(b).
"Acceleration Shares" means shares of stock of a company that is a
reporting company under the Exchange Act and which shares are actively
traded on a recognized United States securities exchange or the NASD OTC
Bulletin Board.
"Affiliate", as applied to any specified Person, means any other Person
that, directly or indirectly, controls, is controlled by or is under common
control with such specified Person. For purposes of the foregoing,
"control", when used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management or policies of such Person, whether through the ownership of
voting securities, by contract or otherwise, and the terms "controlled" and
"controlling" shall have meanings correlative to the foregoing. In the case
of a Person who is an individual, the term "Affiliate" shall include, with
respect to such specified Person, (i) members of such specified Person's
immediate family (as defined in Instruction 2 of Item 404(a) of Regulation
S-K under the Securities Act), and (ii) trusts, the trustee or the
beneficiaries of which are such specified Person or members of such
Person's immediate family as determined in accordance with the foregoing
clause (i).
"Assets" is defined in Section 4(d).
"Austost Shares" is defined in Section 5(i).
"Basket Limitation" is defined in Section 10(g).
"Bundled Service Royalties" is defined in Section 3(a)(2)(C).
"Bundled Service" means any service provided by the Surviving Corporation
or any Affiliate with which service a Product or any Derivative Product is
bundled or combined.
"Business" means the business of the Company and the Company Subsidiary as
it is presently being conducted.
"CBCA" is defined in Section 2(a).
"Claim" is defined in Section 10(d).
"Closing Date" is defined in Section 2(b).
"Closing" is defined in Section 2(b).
"Code" is defined in the Recitals hereto.
"Company Financial Statements" is defined in Section 4(e).
"Company Shareholders" means the Founding Shareholders and the Non-Founding
Shareholders.
"Company Shares" means shares of the common stock, no par value per share,
of the Company.
"Company Subsidiary Financial Statements" is defined in Section 4(e).
"Company Subsidiary" means Midcore Software Limited, a private limited
company incorporated under the laws of England.
"Company" is defined in the Preamble hereto.
"Connecticut Certificate of Merger" is defined in Section 2(b).
"Connecticut Secretary of State" is defined in Section 2(b).
"Constituent Corporations" is defined in the Preamble hereto.
"Contract" means any contract, lease, commitment, understanding,
arrangement, purchase order, sales order, agreement, mortgage, note, bond,
right, warrant or instrument, whether written or oral, which is intended or
purports to be binding and enforceable.
"Conversion Price" means the volume weighted average closing bid price of
Parent Shares on the NASD OTC Bulletin Board for the ten (10) trading days
ending the day before the Closing Date.
"Delaware Certificate of Merger" is defined in Section 2(b).
"Delaware Secretary of State" is defined in Section 2(b).
"Delisting Event" is defined in Section 3(b)(3).
"Derivative Product" means any software or other intellectual property
right developed by the Surviving Corporation or any Affiliate and which is
based in whole or in material part on a Product or any function or feature
thereof.
"DGCL" is defined in Section 2(a).
"Direct Distribution Costs" means all costs under generally accepted
accounting principles for the distribution of Products or Derivative
Products or provision of Bundled Services, as the case may be, such as
sales commissions, and, with respect to Bundled Services, amounts paid to
third parties. Under no circumstances shall Direct Distribution Costs
include any charge for Royalties or any non-cash charges, including,
without limitation, amortization or depreciation, whether related to
purchase price or otherwise, or research or development, whether currently
or previously expended, or any corporate overhead or overhead related
generally to distribution or sales or marketing costs.
"Disclosure Schedule" is defined in "Representations and Warranties of the
Company and the Principals" in Section 4.
"Dissolution Event" is defined in Section 3(b)(3).
"Effective Time" is defined in Section 2(b).
"Employment Agreement" is defined in Section 8(b)(3).
"Exchange Act" is defined in Section 5(e).
"Exchange Agent" is defined in Section 3(d).
"Founding Shareholder Company Shares" means all of the Company Shares
issued and outstanding immediately prior to the Effective Time and owned
legally and beneficially by the Founding Shareholders.
"Founding Shareholder Conversion Factor" means the quotient (rounded to the
nearest thousandth) of (i) the Founding Shareholder Conversion Number
divided by (ii) the Conversion Price.
"Founding Shareholder Conversion Number" means the difference between (a)
the quotient (rounded to the nearest thousandth) of (i) $6,425,000 reduced
by $52,500 divided by (ii) the Total Company Shares minus (b) the quotient
(rounded to the nearest thousandth) of (i) $1,725,000 divided by (ii) the
Founding Shareholder Company Shares.
"Founding Shareholders" or, individually, a "Founding Shareholder" means
Wilson and Metcoff.
"Governmental Authority" means, within the United States, any (a) nation,
state, county, city, town, village, district, or other jurisdiction of any
nature; (b) federal, state, local, municipal, or other government, (c)
governmental or quasi-governmental authority of any nature; or (d) body
exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing power or authority of
any nature.
"Indemnified Party" is defined in Section 10(d).
"Indemnifying Party" is defined in Section 10(d).
"IP Rights" is defined in Section 4(k).
"Johnson" is defined in the Preamble hereto.
"Law" means any law, statute, regulation, ordinance, rule, order, decree,
judgment, consent decree, settlement agreement or governmental requirement
enacted, promulgated, entered into, agreed with or imposed by any
Governmental Authority.
"Look Back Date" is defined in Section 3(b)(1).
"Look Back Shares" means, with respect to each Founding Shareholder, the
number of Parent Shares issued to such Founding Shareholder in connection
with the Merger and equal to the product of (i) $1,500,000 divided by the
Conversion Price, multiplied by (ii) in the case of Wilson, Wilson's
Percentage Interest, and, in the case of Metcoff, Metcoff's Percentage
Interest.
"Losses" is defined in Section 10(b).
"Material Adverse Effect" means (i) a material adverse effect upon the
business, operations, properties, assets or condition (financial or
otherwise) of the Company, taken as a whole, or (ii) a material adverse
effect on the ability of the Company to perform its obligations under this
Agreement or any Related Agreement to be executed and delivered by the
Company as contemplated by the terms hereof.
"Maximum Royalties Amount" is defined in Section 6(a).
"Merger" is defined in Section 2(a).
"Metcoff" is defined in the Preamble hereto.
"Metcoff's Percentage Interest" means 57.2948%.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.
"Net Bundled Service Revenues" means all revenues (as determined on a cash
received basis) of the Surviving Corporation or any Affiliate with respect
or relating to the provision of a Bundled Service, including any up-front
or recurring revenues from resellers, distributors, sales representatives
and dealers or attributable to maintenance, installation, customizations or
modifications less (y) sales, use, value-added, excise and similar taxes
and duties and similar governmental assessments (on services as provided)
and promotional allowances actually allowed in amounts and for purposes
customary in the trade. Net Bundled Service Revenues shall not include any
revenues or costs or expenses with respect or relating to the provision of
a Bundled Service attributable to computer hardware or equipment.
"Net Bundled Service Sales" means Net Bundled Service Revenues less Direct
Distribution Costs.
"Net Product Revenues" means all revenues (as determined on a cash received
basis) of the Surviving Corporation or any Affiliate with respect to any
sale, use, licensing, or other disposition of a Product or any Derivative
Product, including any up-front or recurring revenues from resellers,
distributors, sales representatives and dealers less (y) sales, use,
value-added, excise and similar taxes and duties and similar governmental
assessments (on products as shipped), any allowances actually made and
taken for returns, and promotional allowances actually allowed in amounts
and for purposes customary in the trade. If a Product or any Derivative
Product is bundled in a package or group with other products, the Net
Product Revenues attributable to such bundled Product or Derivative Product
shall be the proportionate value that the individual list price of such
Product or Derivative Product bears to the aggregate list price of all
products in the package or group; provided, however, that if no individual
list price is available for each component of a bundled Product or
Derivative Product, then the Net Product Revenues attributable to such
bundled Product or Derivative Product shall be equitably determined by the
Founding Shareholders and the Surviving Corporation.
"Net Product Sales" means Net Product Revenues less Direct Distribution
Costs.
"Non-Founding Shareholder Company Shares" means all of the Company Shares
issued and outstanding immediately prior to the Effective Time and owned
legally and beneficially by the Non-Founding Shareholders.
"Non-Founding Shareholder Conversion Factor" means the quotient (rounded to
the nearest thousandth) of (i) the Non-Founding Shareholder Conversion
Number divided by (ii) the Conversion Price.
"Non-Founding Shareholder Conversion Number" means the sum of (a) the
quotient (rounded to the nearest thousandth) of (i) $6,425,000 reduced by
$52,500 divided by (ii) the Total Company Shares plus (b) the quotient
(rounded to the nearest thousandth) of (i) $170,138 divided by (ii) the
Non-Founding Shareholder Company Shares.
"Non-Founding Shareholders" or, individually, a "Non-Founding Shareholder"
means Johnson, Michelle Jordano, Cheryl Bray, Edward Lau, George Klein,
Robert Millstein, Paul Finkel, Hilda Marshall-Johnson, Robert Wilson,
Patricia Wilson, Clara W. Boan, Trustee for Clara W. Boan Trust dated
4/10/87, Mitchell Pines, H. Shepardson Wild and Scott Hambley.
"Option Agreement" is defined in Section 8(b)(4).
"Option Plan" is defined in Section 3(g).
"Parent Indemnified Parties" is defined in Section 10(b).
"Parent Financial Statements" is defined in Section 5(e).
"Parent Shares" means shares of the common stock, $0.01 par value per
share, of Parent.
"Parent" is defined in the Preamble hereto.
"Per Share Average Price" means the volume weighted average closing bid
price of Parent Shares on the NASD OTC Bulletin Board (or any exchange on
which the Parent Shares is then listed) for the ten (10) trading days
ending the day before the Look Back Date.
"Permits" is defined in Section 4(p).
"Person" means any individual, corporation, proprietorship, firm,
partnership, limited partnership, limited liability company, trust,
association or other entity.
"Preferred Shares" means shares of the preferred stock, $0.10 par value per
share, of Parent.
"Principal Indemnified Parties" is defined in Section 10(c).
"Principals", or, individually, a "Principal" is defined in the Preamble
hereto.
"Product Royalties" is defined in Section 3(a)(2)(B).
"Product" means any software or other intellectual property right
heretofore sold or licensed by the Company and the software or other
intellectual property rights currently under development or contemplated
and described in Schedule A hereto, including any new version, upgrade,
enhancement or replacement thereto or thereof.
"Registration Guaranty Shares" is defined in Section 9(e).
"Registration Price" is defined in Section 9(e).
"Registration Statement" is defined in Section 9(c)(1).
"Registered Shares" is defined in Section 9(c)(1).
"Registrable Shares" is defined in Section 9(c)(1).
"Related Agreement" means each Employment Agreement, each Option Agreement
and any other agreement attached as an Exhibit hereto or thereto and any
other agreement, instrument, certificate or other document executed and/or
delivered in connection with the transactions contemplated hereby.
"Returns" is defined in Section 4(i)(1).
"Royalties" is defined in Section 3(a)(2)(C).
"Royalty Audit Expenses" is defined in Section 6(b).
"Royalty Audit" is defined in Section 6(b).
"Sale Transaction" is defined in Section 3(b)(3).
"SEC" is defined in Section 5(e).
"SEC Documents" is defined in Section 5(e).
"Securities Act" is defined in Section 5(e).
"Subsidiary" is defined in the Preamble hereto.
"Surviving Corporation" is defined in Section 2(a).
"Taxes" means all taxes, charges, fees, levies, or other assessments,
including, without limitation, all net income, gross income, gross
receipts, sales, use, goods and services, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, social security,
unemployment, excise, estimated, severance, stamp, occupation, property, or
other taxes, customs duties, fees, assessments, or charges of any kind
whatsoever, including, without limitation, all interest and penalties
thereon, and additions to tax or additional amounts imposed by any taxing
authority, domestic or foreign, upon the Company with respect to the Assets
or the Business.
"Total Company Shares" means all of the Company Shares issued and
outstanding immediately prior to the Effective Time and owned legally and
beneficially by the Company Shareholders.
"Transmittal Letter" is defined in Section 3(d).
"Underwriter Price" is defined in Section 9(e).
"Wilson" is defined in the Preamble hereto.
"Wilson's Percentage Interest" means 42.7052%.
Plan of Merger
(a) The Merger. Upon the terms and subject to the conditions of this
Agreement and in accordance with the applicable provisions of the Connecticut
Business Corporation Act, as amended (the "CBCA") and the General Corporation
Law of the State of Delaware, as amended (the "DGCL"), at the Effective Time (i)
the Company shall be merged with and into Subsidiary (the "Merger"), (ii) the
separate existence of the Company shall thereupon cease and (iii) Subsidiary, as
the surviving corporation in the Merger (the "Surviving Corporation"), shall
continue its corporate existence under the laws of the State of Delaware.
(b) Closing; Effective Time. The closing of the transactions contemplated
by this Agreement (the "Closing") is taking place simultaneously with the
execution hereof on the date hereof (the "Closing Date") at the offices of
Brenner, Saltzman & Wallman LLP, 271 Whitney Avenue, New Haven, Connecticut
06511. At the Closing, the parties shall cause the Merger to be consummated by
filing a certificate of merger in substantially the form of Exhibit A attached
hereto (the "Delaware Certificate of Merger") with the Secretary of State of the
State of Delaware (the "Delaware Secretary of State") and by filing a
certificate of merger in substantially the form of Exhibit B attached hereto
(the "Connecticut Certificate of Merger") with the Secretary of State of the
State of Connecticut (the "Connecticut Secretary of State") (the date and time
of the later to occur of the filing of the Delaware Certificate of Merger with
the Delaware Secretary of State and the filing of the Connecticut Certificate of
Merger with the Connecticut Secretary of State (or such later time as is
specified in the Delaware Certificate of Merger and the Connecticut Certificate
of Merger) being the "Effective Time".)
(c) Effect of the Merger. The Merger shall have the effects set forth in
the applicable provisions of the CBCA and the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, immunities, powers and franchises of the Company
and Subsidiary shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Subsidiary shall become the debts,
liabilities and duties of the Surviving Corporation.
(d) Certificate of Incorporation and By-Laws. At the Effective Time, the
Certificate of Incorporation of Subsidiary, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended in accordance with applicable provisions of
the DGCL and such Certificate of Incorporation. The By-Laws of Subsidiary shall
be the By-Laws of the Surviving Corporation until thereafter amended in
accordance with applicable provisions of the DGCL and such By-Laws.
(e) Directors and Officers. At the Effective Time, each director of the
Company shall cease to hold such office, and the directors of Subsidiary shall
become the directors of the Surviving Corporation, each of whom shall hold such
office until the next annual meeting of shareholders of the Surviving
Corporation and until his successor shall have been elected or appointed and
qualified to serve or otherwise as provided in the Certificate of Incorporation
or By-Laws of the Surviving Corporation. At the Effective Time, each officer of
the Company shall cease to hold such office, and the officers of Subsidiary
shall become the officers of the Surviving Corporation, in the same capacity or
capacities, each of whom shall serve at the pleasure of the Board of Directors
of the Surviving Corporation.
(f) The Company's Shareholder Approval. The Company will take all action
necessary in accordance with applicable provisions of the CBCA and any other
applicable Law, and with its Certificate of Incorporation and By-Laws, to
solicit the unanimous written consent of its shareholders or to convene a
meeting of its shareholders, to be held as soon as practicable, to consider and
vote upon this Agreement and the transactions contemplated hereby. The Company
shall use its best efforts to obtain such shareholder approval.
(g) Further Action. If, at any time after the Effective Time, any further
action is necessary or desirable to carry out the purposes of this Agreement or
to vest the Surviving Corporation with the full right, title and possession to
all assets, property, rights, privileges, immunities, powers and franchises of
either or both of the Constituent Corporations, the officers and directors of
the Surviving Corporation are fully authorized in the name of either or both of
the Constituent Corporations or otherwise to take all such action.
Conversion of Shares; Exchange of Shares
(a) Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of Parent, Subsidiary, the Company or the
holders of any of the following securities:
(1) Each Company Share issued and outstanding immediately prior to
the Effective Time and owned legally and beneficially by a
Non-Founding Shareholder shall be canceled, extinguished and
converted into the right to receive the number of Parent Shares
which is equal to the Non-Founding Shareholder Conversion Factor.
(2) Each Company Share issued and outstanding immediately prior to
the Effective Time and owned legally and beneficially by a
Founding Shareholder shall be canceled, extinguished and
converted into the right to receive:
(A) the number of Parent Shares which is equal to the Founding
Shareholder Conversion Factor; and
(B) royalties from the Surviving Corporation equal to the
quotient of (i) five percent (5%) of Net Product Sales divided by
(ii) the number of Founding Shareholder Company Shares (the
"Product Royalties"); and
(C) royalties from the Surviving Corporation equal to the
quotient of (i) two and one-half percent (2 1/2%) of Net Bundled
Service Sales divided by (ii) the number of Founding Shareholder
Company Shares (the "Bundled Service Royalties"). The Product
Royalties and the Bundled Service Royalties are hereinafter
collectively referred to as the "Royalties". The Royalties shall
be payable in accordance with, and subject to the terms and
provisions of, Section 6 hereof.
(b) Look Back.
(1) If on the third anniversary of the Closing Date (the "Look Back
Date"), the Per Share Average Price is less than the Conversion
Price, then Parent shall deliver to each Founding Shareholder
that number of additional Parent Shares equal to: (A) the
difference between the Conversion Price and the Per Share Average
Price, multiplied by (B) the number of Look Back Shares of such
Founding Shareholder and divided by (after performing the
multiplication operation) (C) the Per Share Average Price.
(2) If on the Look Back Date the Per Share Average Price is greater
than the Conversion Price, then each Founding Shareholder shall
surrender to Parent that number of Parent Shares equal to: (A)
the difference between the Per Share Average Price and the
Conversion Price, multiplied by (B) the number of Look Back
Shares of such Founding Shareholder and divided by (after
performing the multiplication operation) (C) the Per Share
Average Price.
(3) If more than 50% of Parent or Surviving Corporation's stock are
purchased or acquired (including by virtue of a merger,
consolidation, reorganization or similar transaction) by any
Person at any time prior to the Look Back Date in a single
transaction or series of related transactions (a "Sale
Transaction") involving more than 50% cash consideration payable
on the effective date of the Sale Transaction, the average price
per share utilized for calculating the Per Share Average Price
shall be the cash value per share paid in such Sale Transaction
and the Look Back Date shall be accelerated to the day
immediately prior to the closing of the Sale Transaction. If
prior to the Look Back Date a Sale Transaction involves the
equity security of another Person and less than 50% cash
consideration, the rights and obligations of Parent under this
Section 3(b) shall be assigned to and assumed by the purchaser in
such Sale Transaction with the Founding Shareholders' rights and
obligations under this Section 3(b) to be converted into
commensurate rights to receive and obligations to return equity
securities of the purchaser in such Sale Transaction based upon
the fair market value on the Look Back Date (which with respect
to publicly-traded securities shall be determined on the same
basis as the Per Share Average Price) of the equity security
which was received by the Founding Shareholders for each Parent
Share on the closing date of such Sale Transaction, as equitably
adjusted for stock splits, stock dividends and recapitalizations
effectuated after the date hereof and any cash consideration
received in such Sale Transaction. In the event of any
dissolution, liquidation, winding up, or bankruptcy of Parent (a
"Dissolution Event") prior to the Look Back Date, then Parent
shall deliver Acceleration Shares or, in lieu thereof, pay in
cash on the date of the occurrence of any such Dissolution Event,
to each Founding Shareholder his pro rata share (based on the
number of Founding Shareholder Company Shares owned by him) of
$1,500,000 in exchange for cancellation of the number of Parent
Shares which are subject to the look back provisions contained in
this Section 3(b). In the event that prior to the Look Back Date
the Parent Shares are no longer actively traded on any nationally
recognized United States securities exchange, which for these
purposes shall be deemed to include the NASD OTC Bulletin Board
(a "Delisting Event"), for a period in excess of ten (10)
consecutive days (other than as a result of a Sale Transaction),
Parent shall deliver to such Founding Shareholder Acceleration
Shares or, in lieu thereof, pay in cash, his pro rata share
(based on the number of Founding Shareholder Company Shares owned
by him) of $1,500,000 in exchange for the number of Parent Shares
which are subject to the look back provisions contained in this
Section 3(b). As a condition to the delivery of the Acceleration
Shares under Section 3(b) or Section 6(c) of this Agreement, the
issuer of the Acceleration Shares shall provide the Founding
Shareholders with an agreement in form and substance acceptable
to the Founding Shareholders that requires the issuer of such
Acceleration Shares: (A) to promptly list the Acceleration Shares
for trading on a United States securities exchange or the NASD
OTC Bulletin Board; (B) register all Acceleration Shares to be
delivered hereunder (including any additional Acceleration Shares
which are received under Section 3(b)(3)(C)) and otherwise
perform all obligations and agreements as are contained in
Section 9(c) and (d) of this Agreement as if the Acceleration
Shares were substituted for Registrable Shares; and (C) if on the
second business day prior to the effective date of the
Registration Statement covering the Acceleration Shares the
closing bid price of the Acceleration Shares is less than the
price used to calculate the number of Acceleration Shares
initially delivered under Section 3(b) or Section 6(c) (as the
case may be), then the issuer of such Acceleration Shares shall
deliver to the Founding Shareholders, in proportion to the number
of Acceleration Shares initially received by him, additional
Acceleration Shares so that the aggregate fair market value (as
of the second business day prior to such effective date) of all
Acceleration Shares so delivered shall be (i) $1,500,000 in the
case of Acceleration Shares delivered pursuant to Section 3(b);
or (b) the outstanding balance of the Maximum Royalties Amount in
the case of Acceleration Shares delivered pursuant to Section
6(c).
(4) Restrictive Legends. Each certificate evidencing the Look Back
Shares of the Founding Shareholders shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE CONSTITUTE LOOK
BACK SHARES AS SUCH TERM IS DEFINED IN THAT CERTAIN
AGREEMENT AND PLAN OF MERGER (THE "MERGER AGREEMENT") DATED
AUGUST 29, 2000 BY AND AMONG NCT GROUP, INC., NCT MIDCORE,
INC., MIDCORE SOFTWARE INCORPORATED, DAVID WILSON, JERROLD
METCOFF AND BARRY MARSHALL-JOHNSON, A COPY OF WHICH MERGER
AGREEMENT IS ON FILE AT THE OFFICES OF NCT GROUP."
(5) Restriction on Sales. During the 90-day period prior to the Look
Back Date, neither Founding Shareholder shall sell or offer to
sell, or induce or entreat any other person or entity to sell or
offer to sell, any Parent Shares then beneficially owned by him
or such person or entity, or as to which he or such person or
entity has dispositive or investment powers, or to engage in any
short selling of Parent Shares by trading in options or other
derivatives of Parent Shares.
(c) Closing of the Company's Transfer Books. At and after the Effective
Time, holders of certificates representing Company Shares shall cease to have
any rights as shareholders of the Company except as otherwise provided herein or
by applicable Law, the stock transfer books of the Company shall be closed with
respect to Company Shares issued and outstanding immediately prior to the
Effective Time, and no further transfer of Company Shares shall thereafter be
made on such stock transfer books. If, after the Effective Time, valid
certificates previously representing Company Shares are presented to the
Surviving Corporation or the Exchange Agent as defined in Section 3(d) below,
they shall be exchanged as provided in Section 3(d). At the Closing, the Company
and the Company Subsidiary shall surrender to the Surviving Corporation all
stock transfer records, minute books and seals of the Company and of the Company
Subsidiary.
(d) Exchange of Certificates. Certificates representing shares of
Subsidiary common stock outstanding immediately prior to the Effective Time
shall be deemed for all purposes to represent an equivalent number of shares of
common stock of the Surviving Corporation following the Effective Time and shall
be so accepted for such purposes by the Surviving Corporation. Parent,
Subsidiary, or an exchange agent appointed by Parent (the "Exchange Agent"),
shall transmit to the Company Shareholders appropriate documents, including a
form of transmittal letter substantially as attached hereto as Exhibit C (the
"Transmittal Letter"), to be used by them to surrender their certificates
representing Company Shares in exchange for certificates representing Parent
Shares and/or cash in lieu of any fractional Parent Shares. Until so surrendered
and exchanged, each certificate representing Company Shares held by any Company
Shareholder shall represent solely the right to receive Parent Shares and/or
Royalties into which the Company Shares it theretofore represented shall have
been converted pursuant to Section 3(a) hereof; provided, however, that
customary and appropriate certifications and indemnities allowing exchange
against lost or destroyed certificates shall be provided.
(e) No Fractional Shares. No fractional Parent Shares will be issued in
connection with the Merger, but in lieu of such fractional shares, any Company
Shareholder who would otherwise be entitled to receive a fractional share shall,
upon surrender of such Company Shareholder's certificate or certificates
representing Company Shares, be entitled to receive an amount in cash (without
interest) determined by multiplying (i) the Conversion Price by (ii) the
fractional share interest to which such Company Shareholder would otherwise be
entitled.
Representations and Warranties of the Company and the Principals
The Company and the Principals hereby jointly and severally represent and
warrant to Parent and Subsidiary that, except as set forth in the Disclosure
Schedule delivered by the Company to Parent and Subsidiary on the date hereof
(the "Disclosure Schedule"):
(a) Organization and Corporate Power. Each of the Company and the Company
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of the
Company and the Company Subsidiary has all requisite corporate power and
authority and all authorizations, licenses, permits and certifications necessary
to carry on its business as now being conducted and to own, lease and operate
its properties. Each of the Company and the Company Subsidiary is duly qualified
or registered as a foreign corporation to do business in every jurisdiction in
which the nature of its business or the ownership of its properties requires it
to be so qualified and in which the failure to be so qualified would have a
Material Adverse Effect. Except with respect to the Company Subsidiary, the
Company does not own any stock, partnership interest, joint venture interest,
other ownership interest or any other security issued by any other corporation,
partnership, limited liability company, organization or entity.
(b) Capitalization. Immediately prior to the Effective Time, before giving
effect to the transactions contemplated by this Agreement, the authorized
capital stock of the Company shall consist solely of 400,000 Company Shares.
Immediately prior to the Effective Time, before giving effect to the
transactions contemplated by this Agreement, there will be 37,301 Company Shares
issued and outstanding, all of which will be duly authorized, validly issued,
fully paid and nonassessable, and there shall be no Company Shares reserved for
issuance upon exercises of any option, warrant, convertible security, derivative
security, debt instrument, or otherwise. The Disclosure Schedule sets forth the
name of each owner of record of Company Shares and the number of Company Shares
owned by each immediately prior to the Effective Time. The Company has delivered
to Parent a list setting forth the addresses of all such record owners.
Immediately prior to the Effective Time, before giving effect to the
transactions contemplated by this Agreement, the share capital of the Company
Subsidiary shall consist solely of 100 Ordinary Shares of one pound each, of
which one share will be issued and outstanding and will be owned by the Company.
Except as set forth above and in the Disclosure Schedule, immediately prior to
the Effective Time, before giving effect to the transactions contemplated
hereby, there will be outstanding (i) no shares of capital stock or other voting
securities of the Company or the Company Subsidiary, (ii) no securities of the
Company or the Company Subsidiary convertible into or exchangeable for capital
stock or voting securities of the Company or the Company Subsidiary, (iii) no
options, warrants or other rights to acquire from the Company or the Company
Subsidiary, and no obligation of the Company or the Company Subsidiary to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company or the
Company Subsidiary, (iv) no equity equivalents, interests in the ownership or
earnings of the Company or the Company Subsidiary or other similar rights and
(v) no obligations of the Company or the Company Subsidiary to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or the
Company Subsidiary.
(c) Execution, Delivery; Valid and Binding Agreement. The execution,
delivery and performance of this Agreement by the Company and the consummation
of the transactions contemplated to be performed by the Company hereby have been
duly and validly authorized by the Board of Directors of the Company and no
other corporate proceedings on the part of the Company are necessary for the
Company to authorize the execution and delivery of this Agreement by the Company
and the consummation of the transactions contemplated to be performed by the
Company hereby (other than, with respect to the Merger, the approval of this
Agreement by the affirmative vote of the holders of a majority of the
outstanding Company Shares). This Agreement has been duly executed and delivered
by the Company and, assuming that this Agreement is the valid and binding
agreement of Parent and Subsidiary, this Agreement constitutes the valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except that (i) such enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(d) Authority; No Breach. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. Neither the execution, delivery or performance of this Agreement by
the Company nor the consummation by the Company of the transactions contemplated
hereby will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or By-Laws or similar organizational documents of
the Company, (ii) other than the filing of the Connecticut Certificate of Merger
with the Connecticut Secretary of State and except for filings, permits,
authorizations, consents and approvals as may be required under other provisions
of this Agreement, require on the part of the Company any filing with, or
permit, authorization, consent or approval of, any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency, except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings, individually or
in the aggregate, would not have a Material Adverse Effect on the Company, (iii)
result in a violation or breach of, or constitute a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the Company is a
party or by which any of the Company's properties or assets (the "Assets") may
be bound or (iv) violate any order, writ, injunction, decree, statue, rule or
regulation applicable to the Company, or any of the Assets, excluding from the
foregoing clauses (iii) and (iv) such violations, breaches or defaults which
would not, individually or in the aggregate, have a Material Adverse Effect.
(e) Financial Statements. The Company has delivered to Parent and/or
Subsidiary copies of the unaudited financial statements of the Company
Subsidiary for the fiscal years ending March 31, 1998, March 31, 1999 and March
31, 2000 (the "Company Subsidiary Financial Statements"), including balance
sheets as at the dates specified therein and detailed profit and loss accounts
for the fiscal years then ended, and the unaudited financial statements of the
Company for the fiscal years ending February 28, 1999 and February 29, 2000,
including the related statements of operation and accumulated deficit and cash
flows for the fiscal years then ended, and the unaudited balance sheet of the
Company at April 30, 2000 (collectively, the "Company Financial Statements").
The Company Subsidiary Financial Statements and the Company Financial Statements
are based upon information contained in the books and records of the Company
Subsidiary and the Company, respectively, and fairly present the financial
condition and, with respect to the Company Financial Statements, results of
operations and cash flows of the Company, as at the dates thereof and for the
periods referred to therein. At April 30, 2000 neither the Company Subsidiary
nor the Company had any loss contingency not reflected on the Company Subsidiary
Financial Statements or the Company Financial Statements, respectively, within
the meaning of Financial Accounting Standard No. 5.
(f) Absence of Undisclosed Liabilities. Except for liabilities incurred in
the ordinary course of business (none of which, individually, or in the
aggregate, would have a Material Adverse Effect), since April 30, 2000, neither
the Company nor the Company Subsidiary has incurred any liabilities or
indebtedness of any nature (whether accrued, absolute, contingent or otherwise).
(g) Absence of Certain Changes. Except as contemplated by this Agreement,
since April 30, 2000, the Company and the Company Subsidiary have conducted
their respective businesses only in the ordinary course of the Business and
consistent with past practice, there has not been any change in the Business,
Assets, liabilities, financial condition, cash flows, operations, licenses or
results of operations of the Company which has had a Material Adverse Effect,
and neither the Company nor the Company Subsidiary has:
(1) borrowed any amount or incurred or become subject to any
liability, except (i) current liabilities incurred in the
ordinary course of the Business and (ii) liabilities under
contracts entered into in the ordinary course of the Business;
(2) mortgaged, pledged or subjected to any lien, charge or any other
encumbrance, any of the Assets, except liens for current property
taxes not yet due and payable or purchase money security
interests granted in the ordinary course of the Business;
(3) discharged or satisfied any lien or encumbrance or paid any
liability, other than current liabilities paid in the ordinary
course of the Business;
(4) sold, assigned or transferred (including, without limitation,
transfers to any employees or affiliates) any tangible Assets,
except in the ordinary course of the Business, or canceled any
debts or claims;
(5) sold, assigned or transferred (including, without limitation,
transfers to any employees or affiliates) any patents,
trademarks, trade names, copyrights, trade secrets, intellectual
property or other intangible Assets, or disclosed any proprietary
confidential information to any person other than Parent or
Subsidiary;
(6) waived any rights of material value or suffered any extraordinary
losses, whether or not in the ordinary course of the Business or
consistent with past practice;
(7) taken any other action or entered into any other transaction
other than in the ordinary course of the Business and in
accordance with past custom and practice, or entered into any
transaction with any Affiliate;
(8) suffered any material theft, damage, destruction or loss of or to
any property or properties owned or used by the Company in the
operation of the Business, whether or not covered by insurance;
(9) made or granted any bonus or any wage, salary or compensation
increase to any officer, employee or consultant; made or granted
any increase in any employee benefit plan or arrangement; amended
or terminated any existing employee benefit plan or arrangement;
adopted any new employee benefit plan or arrangement; or made any
commitment or incurred any liability to any labor organization;
(10) made any capital expenditures or commitments therefor in excess
of $1,000 individually or $5,000 in the aggregate;
(11) made any loans or advances to, or guarantees for the benefit of,
any shareholder or employee, or any other Persons other than in
the ordinary course of the Business consistent with past
practices; or
(12) changed the Company's accounting principles or practices.
(h) Title to Properties; Sufficiency of Assets.
(1) Neither the Company nor the Company Subsidiary owns any real
property. The real property demised by the lease described in the
Disclosure Schedule constitutes all of the real property used or
occupied by the Company and the Company Subsidiary in connection
with the Business.
(2) Neither the Company nor the Company Subsidiary owns any
equipment, machinery, furniture, fixtures, furnishings and other
tangible items of personal property having an original purchase
price in excess of $2,500 and which is used, or usable, in
connection with the operation of the Business. The Disclosure
Schedule sets forth a description of all leases under which the
Company or the Company Subsidiary is lessee of equipment,
machinery, furniture, fixtures, furnishings and other tangible
items of personal property used in connection with the operation
of the Business. To the best knowledge of the Company, all of the
equipment, machinery, furniture, fixtures, furnishings and other
tangible items of personal property whether owned or leased by
the Company and the Company Subsidiary that are necessary for the
conduct of the Business are, taken as a whole, in operating
condition and are usable in the ordinary course of the Business.
There are no defects in such assets or other condition relating
thereto which, in the aggregate, adversely affect the operation
or value of the Assets or the Business.
(3) The Company and the Company Subsidiary owns and has good title to
each of the Assets which are owned by the Company or the Company
Subsidiary, respectively, free and clear of any security
interests, mortgages, claims, liens or encumbrances of any nature
whatsoever, except for liens for taxes not yet due and payable.
With respect to Assets which the Company or the Company
Subsidiary leases, the Company and the Company Subsidiary is in
material compliance with such leases and, to the Company's
knowledge, holds a valid leasehold interest thereunder.
(i) Tax Matters.
(1) The Company and the Company Subsidiary have: (A) timely filed (or
has had timely filed on its behalf) all returns, declarations,
reports, estimates, information returns, and statements
("Returns") required to be filed or sent by it in respect of any
Taxes or required to be filed or sent by it by any taxing
authority having jurisdiction; (B) timely and properly paid (or
has had paid on its behalf) all Taxes shown to be due and payable
on such Returns; (C) complied with all applicable laws, rules,
and regulations relating to the withholding of Taxes and the
payment thereof, and timely and properly withheld from individual
employee wages and paid over to the proper Governmental
Authorities all amounts required to be so withheld and paid over
under all applicable laws.
(2) There are no liens for Taxes upon any Assets of the Company or
the Company Subsidiary, except liens for Taxes not yet due.
(3) With respect to the Business, neither the Company nor the Company
Subsidiary expects the assessment of any additional Taxes on the
Company or the Company Subsidiary or is aware of any unresolved
questions, claims or disputes concerning the liability for Taxes
on the Company or the Company Subsidiary that would adversely
affect the Surviving Corporation's use or enjoyment of the
Assets.
(j) Contracts and Commitments.
(1) The Disclosure Schedule lists the agreements of the types listed
below, whether oral or written, to which the Company or the
Company Subsidiary is a party, which are currently in effect, and
which relate to the operation of the Business or the Assets:
(A) collective bargaining agreement or Contract with any labor
union;
(B) any Contract of any kind with any employee, officer or
director of the Company (including respecting salary, stock
options, bonuses, salary increases and the like) or any of
the respective Affiliates of such individuals;
(C) confidentiality agreement;
(D) any Contract which involves (i) the payment or receipt of
cash or other property which exceeds $25,000, (b) an
unperformed commitment required to be performed by the
Company or the Company Subsidiary over a period in excess of
sixty (60) days, or (c) goods or services having a value in
excess of $25,000; or (d) any Contract with any Governmental
Authority or with a party acting as a prime contractor with
any Governmental Authority in respect of the Contract with
the Company or the Company Subsidiary;
(E) any Contract pursuant to which the Company or the Company
Subsidiary has made or will make loans or advances, or has
or will have incurred debts or has become or will become a
guarantor or surety or pledged its credit or otherwise
become responsible with respect to any undertaking of
another (except for the negotiation and collection of
negotiable instruments in the ordinary course of the
Business);
(F) any indenture, credit agreement, loan agreement, note,
mortgage, security agreement, lease of real or personal
property, loan commitment or other Contract relating to the
borrowing of funds, the extension of credit or financing;
(G) any lease or agreement under which the Company or the
Company Subsidiary is lessor or lessee of, or holds or
operates any personal property owned by any other party;
(H) any lease or agreement under which the Company or the
Company Subsidiary is lessor or lessee of, or permits any
third party to hold or operate, any property, real or
personal;
(I) any Contract or group of related Contracts with the same
party for the purchase of products or services to be used in
the Business
(J) any Contract or group of related Contracts with the same
party for the sale of products or services;
(K) any Contract that limits or restricts the Company or the
Company Subsidiary or any of the Principals from freely
engaging in the Business anywhere in the world or which
otherwise limits the scope of the Company's or the Company
Subsidiary's conduct of the Business;
(L) any license agreement or other Contract providing for the
payment or receipt of royalties or other compensation by the
Company or the Company Subsidiary in connection with the IP
Rights described in the Disclosure Schedule;
(M) any Contract, whether or not fully performed, relating to
any acquisition or disposition of the Company or the Company
Subsidiary or any predecessor in interest to the Company or
the Company Subsidiary, or any acquisition or disposition of
any subsidiary, division, line of business or real property;
and
(N) other agreements relating to the Business or which are
material to the Business or were not entered into in the
ordinary course of the Business.
(2) The Company and the Company Subsidiary have performed all
material obligations required to be performed by them in
connection with the Contracts, neither the Company nor the
Company Subsidiary is in receipt of any claim of default under
any Contract, neither the Company nor the Company Subsidiary has
any present expectation or intention of not fully performing any
obligation pursuant to any Contract, and the Company has no
knowledge of any breach or anticipated breach by any other party
to any Contract. Each Contract is valid, binding and enforceable
against the Company or the Company Subsidiary, as the case may
be, and, to the knowledge of the Company and the Principals, is
valid, binding and enforceable against he other party thereto in
accordance with its terms, except that such enforceability may be
subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and the remedy of specific
performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
(k) Intellectual Property Rights. The Disclosure Schedule describes all
rights in patents, patent applications, trademarks, service marks, trade names,
corporate names, copyrights, mask works, trade secrets, know-how or other
intellectual property rights owned by, licensed to or otherwise controlled by
the Company or the Company Subsidiary or used in, developed for use in, or
necessary to the conduct of the Business as now conducted or planned to be
conducted (collectively, the "IP Rights"). The Disclosure Schedule describes all
IP Rights which have been licensed to third parties and those IP Rights which
are licensed from third parties and identifies all Contracts containing the
licenses to and from third parties. The Company has taken reasonably appropriate
measures to protect the secrecy, confidentiality and value of the IP Rights. The
Company has not received any notice of, nor are there any facts known to the
Company that indicate a likelihood of, any infringements or misappropriation by
or conflict from any third party with respect to the IP Rights. No claim by any
third party contesting the validity or ownership of any IP Rights has been made,
is currently outstanding or, to the best of the Company's knowledge, is
threatened. Neither the Company nor the Company Subsidiary has received any
notice of any infringement, misappropriation or violation by the Company or the
Company Subsidiary of any intellectual property rights of any third party and,
to the best of the Company's and each Principal's knowledge, the Company's and
the Company Subsidiary's use of the IP Rights in connection with the Business,
does not infringe, misappropriate or otherwise violate any such intellectual
property rights.
(l) Litigation. There are no actions, suits, proceedings, orders or
investigations affecting in any manner the Business, the Assets or the
transactions contemplated hereby pending or, to the best knowledge of the
Company and of each Principal, threatened against the Company or the Company
Subsidiary, at law or in equity, or before or by any Governmental Authority.
Neither the Company nor the Company Subsidiary is, with respect to the Business
or the Assets, subject to any order, judgment, decree, injunction, stipulation
or consent order with any court or other Governmental Authority. Neither the
Company nor the Company Subsidiary has, with respect to the Business or the
Assets, entered into any agreement to settle or compromise any proceeding.
(m) Employees.
(1) The Disclosure Schedule lists each employee of the Company and/or
the Company Subsidiary and the title and remuneration of such
employee.
(2) Except as set forth in the Disclosure Schedule, with respect to
the operation of the Business, (a) the Company and the Company
Subsidiary has complied in all material respects with all laws
relating to employment and employment practices, including
provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and
other taxes; (b) neither the Company nor the Company Subsidiary
is a party to any collective bargaining agreement or under any
duty to bargain with any union and neither the Company nor the
Company Subsidiary has any material labor relations problem
pending and the labor relations of the Company and the Company
Subsidiary are satisfactory; (c) no workers' compensation claims
are pending against the Company or the Company Subsidiary nor is
the Company aware of any facts that would give rise to such a
claim; and (d) to the best of the Company's knowledge, no
employee of the Company or of the Company Subsidiary is subject
to any secrecy or noncompetition agreement or any other agreement
or restriction of any kind that would impede in any way the
ability of such employee to carry out fully all activities of
such employee in furtherance of the Business.
(n) Employee Benefit Plans. The Company does not maintain or contribute to
any "Employee Benefit Plan" as defined in the Employee Retirement Income
Security Act of 1974, as amended from time to time, and any successor statute or
law thereto.
(o) Insurance. The Disclosure Schedule lists and briefly describes each
insurance policy maintained by the Company with respect to the Business and the
Assets and sets forth the date of expiration of each such insurance policy. All
of such insurance policies are in full force and effect and all premiums due and
payable have been paid. The Company is not in default with respect to its
material obligations under any of such insurance policies.
(p) Compliance with Laws; Permits. To the best of the Company's and each
Principal's knowledge, neither the Company nor the Company Subsidiary is in
violation in any material respect of any Laws affecting the Assets or the
conduct or operation of the Business, including, without limitation, Laws
relating to the environment, discrimination, employment, occupational health and
safety, and no claims have been filed against the Company or the Company
Subsidiary alleging a violation of any such Laws. Neither the Company nor the
Company Subsidiary has made or agreed to make gifts of money, other property or
similar benefits (other than incidental gifts of articles of nominal value) to
any actual or potential customer, supplier, governmental employee or any other
person in a position to assist or hinder the Company in connection with any
actual or proposed transaction. To the best of the Company's and each
Principal's knowledge, the Company and the Company Subsidiary have, in full
force and effect, all licenses, permits and certificates from Governmental
Authorities necessary to conduct the Business in the manner in which the
Business is presently conducted and to own and operate the Assets (collectively,
the "Permits"). The Company and the Company Subsidiary have conducted the
Business in compliance with all material terms and conditions of the Permits.
(q) Relationships with Affiliates. No officer, director or employee of the
Company or any Affiliate of the Company has any interest in any property
(whether real, personal or mixed and whether tangible or intangible), used in or
pertaining to the Business. Neither the Company nor any Affiliate of the Company
owns an equity interest or any other financial or profit interest in, a Person
that has (i) had business dealings or a material financial interest in any
transaction with the Company or the Company Subsidiary, or (ii) engaged in
competition with the company with respect to any products or services of the
Company or the Company Subsidiary in any market presently served by the Company.
(r) Brokerage. No Person has or will have, as a result of any act or
omission of the Company, any right, interest or claim against Parent, Subsidiary
and/or the Surviving Corporation for any commission, fee or other compensation
as a finder or broker in connection with the transactions contemplated by this
Agreement.
(s) Disclosure. No representation or warranty made by the Company or the
Principals in this Agreement, nor any statement made by the Company in the
Disclosure Schedule or any certificate furnished by the Company pursuant to this
Agreement, contains or will contain at the Effective Time, any untrue statement
of a material fact, or omits or will omit at the Effective Time, to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
Representations and Warranties of Parent and Subsidiary
Parent and Subsidiary hereby jointly and severally represent and warrant to
the Company that:
(a) Organization and Corporate Power. Each of Parent and Subsidiary is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. Each of Parent and Subsidiary has all requisite
corporate power and authority and all authorizations, licenses, permits and
certifications necessary to carry on its business as now being conducted and to
own, lease and operate its properties. Each of Parent and Subsidiary is duly
qualified or registered as a foreign corporation to do business in every
jurisdiction in which the nature of its respective business or the ownership of
its respective properties requires it to be so qualified and in which the
failure to be so qualified would have material adverse effect on the financial
or operating condition of its respective business as being conducted by it or
materially impair the ability of Parent or Subsidiary to consummate the
transactions contemplated hereby.
(b) Capitalization. The authorized capital stock of Parent at June 30, 2000
consisted of 325,000,000 Parent Shares, of which 275,014,933 shares were issued
and outstanding as of such date, and 10,000,000 Preferred Shares, of which 5,468
shares were issued and outstanding as of such date. All outstanding Parent
Shares and Preferred Shares are validly issued, fully paid and nonassessable.
The authorized capital stock of Subsidiary consists of 10,000,000 shares of
common stock, $0.01 par value per share, 1,000 shares of which are issued and
outstanding and held by Parent, and 1,000,000 shares of preferred stock, $0.10
par value per share, no shares of which are issued and outstanding. All such
shares will be duly authorized, and all such issued and outstanding shares will
be validly issued, fully paid and nonassessable and free of any liens or
encumbrances. The Parent Shares to be issued pursuant to the Merger, when
issued, will be duly authorized, validly issued, fully paid, nonassessable, free
of any liens or encumbrances (due to any act or omission of Parent) and are not
subject to any preemptive rights or rights of first refusal created by statute
or the Certificate of Incorporation or By-Laws of Parent or any agreement to
which Parent is a party or is bound. The Parent Shares issued in connection with
the Merger shall be issued in compliance with applicable federal and state
securities laws, shall be legended only as required by applicable Law or as
contemplated by this Agreement and shall be eligible with the NASD for trading
on the OTC Bulletin Board. Except as described in Parent's Proxy Statement dated
June 2, 2000 and as of the dates stated therein, there are outstanding (i) no
shares of capital stock or other voting securities of Parent, (ii) no securities
of Parent convertible into or exchangeable for capital stock or voting
securities of Parent, (iii) no options, warrants, convertible debt or other
rights to acquire from Parent, and no obligation of Parent to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of Parent, (iv) no equity equivalents,
interests in the ownership or earnings of Parent or other similar rights; (v) no
obligations of Parent to repurchase, redeem or otherwise acquire any shares of
capital stock of Parent and (vi) no liens, encumbrances, security interests,
pledges or mortgages on any material assets of Parent.
(c) Execution, Delivery; Valid and Binding Agreement. The execution,
delivery and performance of this Agreement by Parent and Subsidiary and the
consummation of the transactions contemplated to be performed by Parent and
Subsidiary hereby have been duly and validly authorized by the respective Board
of Directors of Parent and Subsidiary and no other corporate proceedings on the
part of Parent or Subsidiary are necessary for Parent and Subsidiary to
authorize the execution and delivery of this Agreement by Parent and Subsidiary
and the consummation of the transactions contemplated to be performed by Parent
and Subsidiary hereby. This Agreement has been duly executed and delivered by
Parent and Subsidiary and, assuming that this Agreement is the valid and binding
agreement of the Company and the Principals, this Agreement constitutes the
valid and binding obligation of Parent and Subsidiary, enforceable against them
respectively in accordance with its terms, except that (i) such enforceability
may be subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(d) Authority; No Breach. Each of Parent and Subsidiary has the requisite
corporate power and authority to execute and deliver this Agreement and to
perform its respective obligations hereunder. Neither the execution, delivery or
performance of this Agreement by Parent or Subsidiary nor the consummation by
Parent or Subsidiary of the transactions contemplated hereby will (i) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or By-Laws or similar organizational documents of Parent or
Subsidiary, (ii) other than the filing of the Delaware Certificate of Merger
with the Delaware Secretary of State and except for filings, permits,
authorizations, consents and approvals as may be required under other provisions
of this Agreement, require on the part of Parent or Subsidiary any filing with,
or permit, authorization, consent or approval of, any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency, except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings, individually or
in the aggregate, would not have a material adverse effect on Parent or
Subsidiary, taken as a whole, or materially impair the ability of Parent or
Subsidiary to consummate the transactions contemplated hereby, (iii) result in a
violation or breach of, or constitute a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which Parent or Subsidiary is a
party or by which any of Parent's or Subsidiary's properties or assets may be
bound or (iv) violate any order, writ, injunction, decree, statue, rule or
regulation applicable to Parent or Subsidiary, or any of Parent's or
Subsidiary's assets.
(e) SEC Documents; Parent Financial Statements. Parent has furnished or
made available to the Company and the Principals true and complete copies of all
reports or registration statements filed by it with the Securities and Exchange
Commission (the "SEC") since May 1, 1999, all in form so filed, including the
exhibits thereto (all of the foregoing being collectively referred to as the
"SEC Documents"). As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act of
1933 (the "Securities Act") or the Securities Exchange Act of 1934 (the
"Exchange Act"), as the case may be, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, except to the extent
corrected by a document subsequently filed with the SEC. The financial
statements of Parent, including the notes thereto, included in the SEC Documents
(the "Parent Financial Statements") comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, and present fairly the financial
position of Parent at the dates thereof and the results of its operations and
cash flows for the periods then ended, all in accordance with generally accepted
accounting principles consistently applied (subject, in the case of unaudited
statements, to the exclusion of footnotes and normal audit and year end
adjustments). There has been no change in Parent's accounting policies or
practices except as described in the notes to the Parent Financial Statements.
(f) No Material Adverse Change. Since April 20, 2000, neither Parent nor
any Affiliate has suffered any material adverse change with respect to the
business, assets, prospects, financial or operating condition of Parent or any
Affiliate.
(g) Litigation. Except as disclosed in the SEC Documents, there are no
actions, suits, proceedings, orders or investigations affecting in any material
manner Parent's business or assets or the transactions contemplated hereby
pending or, to the best knowledge of Parent, threatened against Parent, at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, nor, to the best of Parent's knowledge, is there any basis
therefor. There is no action, suit, proceeding or investigation which Parent
currently intends to initiate.
(h) Brokerage. No Person has or will have, as a result of any act or
omission of Parent, any right, interest or claim against the Company for any
commission, fee or other compensation as a finder or broker in connection with
the transactions contemplated by this Agreement.
(i) Funding Needs. Parent has a valid, binding and enforceable obligation
to obtain up to $10,000,000 of additional equity funding from Austost Anstalt
Schaan and Balmore S.A. from the sale of 10,060,251 Parent Shares (the "Austost
Shares"). The sale of the Austost Shares to the public by Austost and the
payment of the proceeds from such sale to Parent does not violate any Laws,
including, without limitation, federal or state securities laws and does not
require any further registration, notice or listing with the SEC or NASDAQ. As
of June 30, 2000, none of the Austost Shares had been sold.
(j) Disclosure. No representation or warranty made by Parent or Subsidiary
in this Agreement, nor any statement made by Parent or Subsidiary in any
schedule or certificate furnished by Parent or Subsidiary pursuant to this
Agreement, contains or will contain at the Effective Time, any untrue statement
of material fact, or omits or will omit at the Effective Time, to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
Royalty Provisions
(a) Payment of Royalties. The aggregate amount of the Royalties shall not
exceed $1,725,000 (the "Maximum Royalties Amount"). The Royalties payable to
each Founding Shareholder in connection with the Merger shall be calculated by
the Surviving Corporation on a quarterly basis and paid to such Founding
Shareholder by check or wire transfer to an account designated by each Founding
Shareholder within forty-five (45) days after the end of each calendar quarter
until such time as the Founding Shareholders shall have received payment in full
of the Maximum Royalties Amount; provided, however, that if the Founding
Shareholders have not received payment in full of the Maximum Royalties Amount
on or before the Look Back Date, then, and in such event, each Founding
Shareholder shall be entitled to elect, in his discretion, upon written notice
to Parent delivered within thirty (30) days following the Look Back Date, either
to (i) continue to receive payment of the Royalties on a quarterly basis and
otherwise in accordance with the terms and provisions of this Section 6 until
such time as such Founding Shareholder's pro-rata share of the Maximum Royalties
Amount shall be paid in full to such Founding Shareholder, or (ii) receive the
unpaid balance of such Founding Shareholder's pro-rata share of the Maximum
Royalties Amount in the form of Parent Shares equal in number to the quotient of
(x) such Founding Shareholder's pro-rata share of the unpaid balance of the
Maximum Royalties Amount divided by (y) the Per Share Average Price.
(b) Quarterly Statements and Audit Rights. Simultaneously with the delivery
of each quarterly payment of Royalties by the Surviving Corporation hereunder,
the Surviving Corporation agrees to deliver a written report describing the
amount of Net Product Sales for each Product and any Derivative Products and the
amount of Net Bundled Service Sales for each Bundled Service. The Surviving
Corporation further agrees to maintain accurate books and records relating to
the Net Product Sales and Net Bundled Service Sales. Such books and records
shall be made available for inspection, upon reasonable advance written notice,
during normal business hours and without undue disruption to the Surviving
Corporation's or any Affiliate's business, by an independent certified public
accountant selected and paid by the Founding Shareholders for the purpose of
verifying the Surviving Corporation's or its Affiliates' compliance with the
terms of this Section 6. Such independent certified public accountant shall be
subject to the Surviving Corporation's and its Affiliates' reasonable security
and confidentiality procedures. If, following any audit conducted by an
independent certified public accountant in accordance with the provisions of
this Section 6(b) (a "Royalty Audit"), it is determined that the Surviving
Corporation has underpaid the Founding Shareholders by an amount equal to or
greater than ten percent (10%) but less than twenty percent (20%) of the
Royalties owed to the Founding Shareholders with respect to any quarter, then
the Surviving Corporation shall share equally with the Founding Shareholders all
expenses reasonably incurred by the Founding Shareholders (including travel and
related expenses) in connection with the Royalty Audit (the "Royalty Audit
Expenses"). If, following a Royalty Audit, it is determined that the Surviving
Corporation has underpaid the Founding Shareholders by an amount equal to or
greater than twenty percent (20%) of the Royalties owed to the Founding
Shareholders with respect to any quarter, then the Surviving Corporation shall
bear all of the Royalty Audit Expenses. In the event of any underpayment or
failure to timely pay any Royalties due hereunder, the Surviving Corporation
shall pay to the Founding Shareholders a premium equal to ten percent (10%) of
the amount of the underpayment or the amount of the late payment. Any
underpayment of Royalties and any late payment of Royalties (and the payment or
reimbursement of Royalty Audit Expenses and the payment of a premium, if
applicable) which is not paid or reimbursed to the Founding Shareholders by the
Surviving Corporation within ten (10) days of receipt from the Founding
Shareholders of notice of such underpayment or late payment, as the case may be,
shall thereafter bear simple interest at the rate of 7% per annum until paid in
full. The accrual of interest and payment of a premium hereunder shall not limit
any other rights or remedies that the Founding Shareholders may have as a result
of an underpayment or a late payment of Royalties. Any overpayments of Royalties
owed to the Founding Shareholders with respect to any quarter shall be credited
to the next quarterly payment of Royalties or returned by the Founding
Shareholders.
(c) Acceleration Event. Notwithstanding anything to the contrary contained
herein, the outstanding balance of the Maximum Royalties Amount shall become
immediately due and payable, in cash, in the event of (i) a Dissolution Event or
(ii) a Sale Transaction which does not include an affirmative assumption by the
purchaser, survivor or acquirer of all obligations related to the payment of
Royalties hereunder and an agreement to pay the outstanding balance of the
Maximum Royalties Amount on the Look Back Date by delivery of Acceleration
Shares having a fair market value equal to such balance or, in lieu thereof,
cash, within ten days of the Look Back Date. Notwithstanding anything to the
contrary contained herein, in the event of a Delisting Event prior to the Look
Back Date, the outstanding balance of the Maximum Royalties Amount on the Look
Back Date shall be paid by delivery of Acceleration Shares having a fair market
value equal to such balance or, in lieu thereof, cash, within ten days of the
Look Back Date.
(d) Non-Cash Compensation. Notwithstanding anything to the contrary herein,
Net Product Revenue shall not include any non-cash compensation received by
Surviving Corporation or any Affiliate (including barter or equity compensation)
unless the Founding Shareholders agree to accept 5% of such non-cash
compensation as payment against the Royalty due hereunder. If the Founding
Shareholders elect not to accept such non-cash compensation an equitable share
of costs and expenses related to the Product or Derivative Product for which
non-cash compensation was received shall not be deducted in order to calculate
Net Product Sales for which a Royalty shall be due.
Conduct Prior to Effective Time
(a) Conduct of Business of the Company. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Effective
Time, the Company and the Company Subsidiary will conduct its operations only in
the ordinary course of the Business. Prior to the Effective Time, except as
contemplated by this Agreement, the Company and the Company Subsidiary will not
take or commit to take any of the actions described in clauses 1 through 12 of
Section 4(g) hereof without the prior written consent of Parent in each
instance.
(b) No Solicitation. Until the earlier of the Effective Time and the date
of termination of this Agreement pursuant to the provisions of Section 11
hereof, the Company and the Company Subsidiary will not (nor will the Company or
the Company Subsidiary permit any of its respective officers, directors,
shareholders, agents, representatives or affiliates to): (i) solicit, initiate,
entertain, or encourage any proposals or offers from, or conduct discussions
with or engage in negotiations with, any person relating to any possible
acquisition of the Company or the Company Subsidiary (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise), any portion of the
Company's or the Company Subsidiary's capital stock or assets or any equity
interest in the Company or the Company Subsidiary (collectively, an
"Acquisition"), (ii) provide information with respect to the Company or the
Company Subsidiary to any person, other than Parent, relating to, or otherwise
cooperate with, facilitate or encourage any effort or attempt by any such person
with regard to, any possible Acquisition, (iii) enter into an agreement with any
person, other than Parent, providing for an Acquisition or (iv) make or
authorize any statement, recommendation or solicitation in support of any
possible Acquisition.
Conditions to the Merger
(a) Conditions to Obligations of Each Party. The respective obligations of
each party to this Agreement are subject, unless waived in writing by such
party, to the satisfaction at or prior to the Effective Time of the following
conditions:
(1) No Order. No governmental authority or instrumentality, domestic
or foreign, shall have enacted, issued, promulgated, enforced or
entered any Law (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting the consummation of the Merger.
(2) No Injunction. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding brought by an administrative
agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the
foregoing be pending.
(b) Conditions to Obligations of the Company. The obligations of the
Company hereunder are subject, unless waived in writing by the Company, to the
satisfaction at or prior to the Effective Time of the following conditions:
(1) Representations and Warranties; Performance of Obligations. The
representations and warranties of Parent and Subsidiary contained
in Section 5 shall be true, correct and complete as of the
Effective Time as though such representations and warranties had
been made as of such time, and all of the terms, covenants and
conditions of this Agreement to be complied with and performed by
Parent and/or Subsidiary on or prior to the Effective Time shall
have been duly complied with and performed at or prior to the
Effective Time, and a certificate to the foregoing effect dated
the Closing Date and signed by an authorized officer of Parent
shall have been delivered to the Company at the Closing.
(2) Shareholder Approval. This Agreement and the Merger shall have
been unanimously approved and adopted by the Company
Shareholders.
(3) Employment Agreements. Subsidiary shall have executed and
delivered to each of Metcoff, Wilson and Johnson his Employment
Agreement in substantially the form of Exhibit D, E and F
attached hereto, respectively (individually, an "Employment
Agreement"), and each Employment Agreement shall be effective as
of the Effective Time.
(4) Option Agreements. Each of Parent and Subsidiary shall have
executed and delivered to each of Metcoff and Wilson his Option
Agreement in substantially the form of Exhibit G and H attached
hereto, respectively (individually, an "Option Agreement"), and
shall have caused each Option Agreement to have been executed by
Connectclearly.com , Inc., and each Option Agreement shall be in
full force and effect.
(5) Legal Opinion. The Company shall have received a legal opinion
from Crowell & Moring LLP, counsel to Parent and Subsidiary, in
substantially the form attached hereto as Exhibit I.
(c) Conditions to Obligations of Parent and Subsidiary.
(1) Representations and Warranties; Performance of Obligations. The
representations and warranties of the Company contained in
Section 4 shall be true, correct and complete as of the Effective
Time as though such representations and warranties had been made
as of such time, and all of the terms, covenants and conditions
of this Agreement to be complied with and performed by the
Company on or prior to the Effective Time shall have been duly
complied with and performed at or prior to the Effective Time,
and a certificate to the foregoing effect dated the Closing Date
and signed by the President of the Company shall have been
delivered to Parent at the Closing.
(2) Employment Agreements. Each of Metcoff, Wilson and Johnson shall
have executed and delivered to Subsidiary his respective
Employment Agreement and each Employment Agreement shall be
effective as of the Effective Time.
(3) Legal Opinion. Parent and Subsidiary shall have received a legal
opinion from Brenner, Saltzman & Wallman LLP, counsel to the
Company, in substantially the form attached as Exhibit J hereto.
(4) Investment Intent Letters. Each Company Shareholder shall have
executed and delivered to Parent an investment intent letter in
substantially the form of Exhibit K attached hereto.
(5) Conversion of Shareholder Debt. Prior to the Closing Date, the
Company's indebtedness owed to the Founding Shareholders shall be
converted into equity of the Company.
(6) Exercise of Options. Prior to the Closing Date, each of the
Company's option holders shall have exercised all of their
respective options to purchase Company Shares by means of a full
recourse promissory note in substantially the form of Exhibit L
attached hereto, which promissory note shall be made in the
original principal amount of the aggregate exercise price of such
option holder's options.
Additional Agreements
(a) NASD Listing. Parent shall, to the extent required, use its best
efforts to authorize for trading on the NASD OTC Bulletin Board the Parent
Shares to be issued and those required to be reserved for issuance, in
connection with the Merger, upon official notice of issuance.
(b) Tax-Free Reorganization. The transactions contemplated hereunder are
intended to qualify as a tax-free "reorganization" under the provisions of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code. All parties hereto agree to
provide the informational statement required to be filed with their Returns in
connection with a tax-free reorganization and to otherwise report these
statements consistent with the treatment of the transactions as a tax-free
reorganization, including, without limitation, determination of basis. This
Agreement shall be deemed a plan of reorganization adopted pursuant to Section
368 of the Code. Consistent with the requirements of a reorganization, the
Surviving Corporation hereby confirms its intention to continue the Business.
The Surviving Corporation has no plan or intention to sell or otherwise dispose
of any of the Assets in a manner which would be inconsistent with the
continuation of business requirements respecting a reorganization transaction.
Notwithstanding the foregoing, the parties hereto acknowledge and agree that no
party hereto is making any representation or warranty as to the tax consequences
of this Agreement and the consummation of the transactions contemplated hereby.
(c) Filing of Registration Statement.
(1) Promptly following the Closing Date, but in any event within
sixty (60) days thereof, at Parent's cost and expense, Parent
will (A) file with the SEC a registration statement (the
"Registration Statement") on any appropriate form under the
Securities Act with respect to the offering and sale or other
disposition of 7,126,547 Parent Shares (the "Registrable Shares")
on behalf of the Company Shareholders and (B) make all required
filings with the NASD. Parent shall use its best efforts to cause
the Registration Statement to be declared effective as soon as
reasonably practicable. Upon the Registration Statement going
effective, the Registrable Shares will be referred to as the
"Registered Shares".
(2) Parent agrees that it will (A) prepare and promptly file with the
SEC any amendments or supplements to the Registration Statement
or prospectus which may be necessary to keep the Registration
Statement effective and to comply with the provisions of the
Securities Act with respect to the offer of the Registered Shares
covered by the Registration Statement for a period of twelve (12)
months from the effective date of the Registration Statement; (B)
furnish to each Founding Shareholder, as soon as practicable,
copies of each final prospectus, or supplement or amendment
required to be prepared with respect thereto, all in such
quantities as they may from time to time reasonably request; (C)
prepare and promptly file with the SEC, and promptly notify each
Founding Shareholder of the filing of, such amendment or
supplement to the Registration Statement or prospectus as may be
necessary to correct any statement therein or omission therefrom
if, at any time when a prospectus relating to the Registered
Shares is required to be delivered under the Securities Act, any
event with respect to Parent shall have occurred as a result of
which any prospectus would include an untrue statement of
material fact or omit to state any material fact necessary to
make the statements therein not misleading; (D) in case the
Company Shareholders are required to deliver a prospectus,
prepare promptly such amendment or amendments to the Registration
Statement and such prospectus or prospectuses as may be necessary
to permit compliance with the requirements of Section 10(a)(3) of
the Securities Act; (E) advise each Founding Shareholder promptly
after Parent shall receive notice or obtain knowledge of the
issuance of any stop order by the SEC suspending the
effectiveness of the Registration Statement or amendment thereto
or of the initiation or threatening of any proceedings for that
purpose, and promptly use every reasonable effort to prevent the
issuance of any stop order or to obtain its withdrawal at the
earliest possible moment if such stop order should be issued; (F)
use its best efforts, if required, to list or secure the
designation of the Registered Shares on any securities exchange
or over-the-counter market on which equity securities of Parent
are then listed or designated and provide for a transfer agent
and registrar for such Registered Shares no later than the
effective date of the Registration Statement; and (G) use its
best efforts to take all other steps necessary to effect the
registration of such Registered Shares contemplated hereby.
(3) The Founding Shareholders agree that, upon receipt of any notice
from Parent of the happening of any event of the kind described
in clause (2)(E) of this Section 9(c), the Founding Shareholders
shall instruct each Company Shareholder to forthwith discontinue
the disposition of the Registered Shares until the Founding
Shareholders have received copies of the supplemented or amended
prospectus contemplated by clause (2)(E), or until the Founding
Shareholders are advised in writing by Parent that the use of the
prospectus may be resumed, and have received copies of any
additional or supplemental filings that are incorporated by
reference in the prospectus, and, if so directed by Parent, the
Founding Shareholders shall instruct the Company Shareholders to
deliver to Parent all copies, other than permanent file copies,
then in the Company Shareholders' possession of the prospectus
covering the Registered Shares current at the time of receipt of
such notice.
(4) If Parent takes any action to permit a public offering or sale or
other distribution of the Registered Shares, the Founding
Shareholders shall furnish information to Parent concerning the
Company Shareholders' holdings of securities of Parent and the
proposed method of sale or other disposition of the Parent Shares
and such other information and undertakings as Parent may from
time to time reasonably request in writing and as shall be
required in connection with the preparation and filing of any
registration statement and any amendments thereto covering all or
part of the Registered Shares in order to assist Parent in
complying with the Securities Act and the Exchange Act. The
Founding Shareholders further agree, as agent for all of the
Company Shareholders, to enter into such undertakings and take
such other action relating to the conduct of the proposed
offering which Parent may reasonably request as being necessary
to assist Parent in complying with the federal and state
securities laws and the rules or other requirements of the NASD
or otherwise to effectuate the offering.
(5) Parent shall pay all expenses incident to Parent's performance of
or compliance with Section 9(c), including, without limitation,
all registration, filing and NASD fees, all fees and expenses of
complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery
expenses, the fees and disbursements of counsel for Parent, the
Company, the Company Shareholders and of Parent's independent
public accountants. With respect to sales of the Registered
Shares, the Company Shareholders shall pay all underwriting
discounts and commissions and fees of underwriters, selling
brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registered
Shares, and transfer taxes, if any.
(6) Parent will file the reports required to be filed by it under the
Exchange Act and the rules and regulations adopted by the SEC
thereunder (or, if Parent is not required to file such reports,
will, upon the request of the Founding Shareholders, make
publicly available, at Parent's own cost and expense, other
information for a period of up to four (4) months) and will take
such further action as the Founding Shareholders may reasonably
request, all to the extent required from time to time to enable
the Company Shareholders to sell the Registered Shares without
registration under the Securities Act, within the limitation of
exemptions provided by (A) Rule 144 under the Securities Act, as
such Rule may be amended from time to time, or (B) any similar
rule or regulation adopted by the SEC providing for an exemption
from registration under the Securities Act for such sales. Upon
the request of any Founding Shareholder, Parent will deliver to
such Founding Shareholder a written statement as to whether it
has complied with all such requirements.
(d) Cooperation. Parent will cooperate fully with the Founding Shareholders
in furnishing any necessary information required by any of the Company
Shareholders in connection with the preparation, distribution and filing of any
filings, applications and notices which may be required by other federal, state
and local governmental or regulatory agencies or stock exchanges in any
jurisdiction in connection with the transactions contemplated hereby.
(e) Price Guaranty. If on the second business day prior to the date that
Parent has requested in writing that the SEC accelerate the date of
effectiveness of the Registration Statement the closing bid price for Parent
Shares (the "Registration Price") is less than the Conversion Price, then Parent
shall deliver to the holders of Registered Shares in proportion to the number of
Registrable Shares held by them additional Parent Shares (the "Registration
Guaranty Shares") equal to (A) the product of (i) the absolute difference
between the Conversion Price and the Registration Price, multiplied by (ii) the
sum of (x) the quotient of $1,600,000 divided by the Conversion Price plus (y)
the aggregate number of Parent Shares issued to Non-Founding Shareholders in
connection with the Merger, divided by (B) the Registration Price; provided,
however, that if the registration is an underwritten offering (which
underwritten offering is requested by Parent) and the net per share sale price
(i.e., net of underwriting discounts or commissions) paid by the underwriters
for Parent Shares (the "Underwriter Price") is less than the Conversion Price,
then the Underwriter Price shall be substituted for the Registration Price in
the foregoing clauses (A)(i) and (B) for purposes of calculating the number of
Registration Guaranty Shares. Parent shall amend the Registration Statement
prior to it being declared effective to include the Registration Guaranty
Shares.
(f) Release from Personal Guarantees; Indebtedness. As of or prior to the
Effective Time, Parent shall pay off the Company's Term Note and Revolving
Credit Agreement with Webster Bank.
(g) Press Releases and Announcements. The Company and Parent shall mutually
agree upon any public announcement relating to the transactions contemplated
hereby and shall not issue any public announcement prior to such agreement,
except as may be required by Law, in which case the disclosing party shall use
all reasonable efforts to consult in good faith with the other party before
issuing such public announcement.
(h) Expenses. Subject to the provisions of Section 9(c), each of the
parties hereto shall pay their own fees and expenses, including their own
counsel fees, incurred in connection with this Agreement and the consummation of
the transactions contemplated hereby. Notwithstanding the foregoing, the parties
agree that if this Agreement is not terminated, Parent shall pay the legal fees
and expenses incurred by the Company and/or the Principals in connection with
this Agreement and the consummation of the transactions contemplated hereby in
the amount of $52,500 for and on behalf of the Company in immediately available
funds at the Closing. The parties accordingly recognize and agree that the value
of the Parent Shares to be issued in connection with the Merger has been reduced
by $52,500. The parties acknowledge and agree that the Founding Shareholders
shall be responsible for paying any legal fees and expenses incurred by the
Company and/or the Principals in connection with this Agreement and the
consummation of the transactions contemplated hereby in excess of $52,500.
Survival of Representations and Warranties; Indemnification
(a) Survival of Representations and Warranties. The representations and
warranties contained in Sections 4 and 5 of this Agreement or in any Related
Agreement shall survive the Merger as follows: (i) the representations and
warranties of the Company and the Principals contained in Sections 4(a), 4(b),
4(c), 4(d) and 4(i) hereof, and the representations and warranties of Parent and
Subsidiary contained in Sections 5(a), 5(b) 5(c) and 5(d) hereof, shall survive
the Merger until the expiration of the statute of limitations applicable to any
claim that is the subject of such representation or warranty, at which time they
shall expire; (ii) the representations and warranties of the Company and the
Principals contained in Section 4(k) hereof shall survive the Merger until the
date that is two (2) years following the Closing Date, at which time they shall
expire; and (iii) all other representations and warranties of the Company and
the Principals or of Parent and Subsidiary shall survive the Merger until the
date that is one (1) year following the Closing Date, at which time they shall
expire.
(b) Indemnification of Parent by Principals. Subject to the limitations
contained in this Section 10, the Principals hereby agree, jointly and
severally, to indemnify in full Parent, Subsidiary and the Surviving Corporation
and their respective officers, directors, employees, agents and shareholders
(collectively, the "Parent Indemnified Parties") and hold them harmless against
any loss, liability, deficiency, damage, expense or cost, including, in each
case, reasonable legal expenses and costs (collectively, "Losses"), which any of
the Parent Indemnified Parties may suffer, sustain or become subject to as a
result of (i) any breach of any of the representations and warranties of the
Company or the Principals to Parent contained in Section 4 of this Agreement or
in any Related Agreement executed and/or delivered by the Company in connection
with the transactions contemplated hereby, (ii) any breach of, or failure to
perform, any covenant or obligation of the Company prior to the Closing which is
contained in this Agreement or in any Related Agreement, or (iii) any claim,
action or proceeding asserted by a former Company Shareholder relating to any
determination that the transactions consummated hereunder did not qualify as a
tax free "reorganization" under the Code or for any other purpose.
(c) Indemnification of the Principals by Parent. Subject to the limitations
contained in this Section 10, the Surviving Corporation and Parent hereby agree,
jointly and severally, to indemnify in full the Principals (collectively, the
"Principal Indemnified Parties") and hold them harmless against any Losses which
any of the Principal Indemnified Parties may suffer, sustain or become subject
to as a result of (i) any breach of any of the representations and warranties of
Parent and/or Subsidiary to the Company contained in Section 5 of this Agreement
or in any Related Agreement executed and/or delivered by Parent or Subsidiary,
as the case may be, in connection with the transactions contemplated hereby,
(ii) any breach of, or failure to perform, any covenant or obligation to the
Company of Parent and/or Subsidiary in this Agreement or in any Related
Agreement or in connection with the transactions contemplated hereby or thereby,
or (iii) any liability of any Principal arising after the Closing Date for
repayment, in such Principal's capacity as a guarantor, of the indebtedness or
other obligations of the Company.
(d) Third Party Claims. If a party hereto becomes eligible to be
indemnified hereunder (an "Indemnified Party") by virtue of being made a
defendant in or party to any action or proceeding, judicial or administrative,
instituted by any third party for liability relating to or arising out of any
claim for which indemnification is available under Section 10(b) or 10(c) above
(any such third party action or proceeding being referred to as a "Claim"), the
Indemnified Party shall give the indemnifying party (the "Indemnifying Party")
prompt notice thereof; provided, that the failure to give such notice shall not
affect any Indemnified Party's ability to seek reimbursement unless, and to the
extent that, such failure has adversely affected the Indemnifying Party's
ability to defend successfully a Claim. The Indemnifying Party shall be entitled
to contest and defend such Claim; provided, that the Indemnifying Party can
demonstrate to the reasonable satisfaction of the Indemnified Party that the
Indemnifying Party has the financial wherewithal to conduct vigorously such
defense and to satisfy all liabilities of the Indemnified Party with respect to
such Claim in the event such defense is unsuccessful; provided, further, that
the Indemnifying Party has a reasonable basis for concluding that such defense
may be successful; and provided, further, that notice of the intention to
contest and defend is given by the Indemnifying Party to the Indemnified Party
within twenty (20) business days after the Indemnified Party's notice of such
Claim (but, in all events, at least five (5) business days prior to the date
that an answer to such Claim is due to be filed) and the Indemnifying Parties
thereafter diligently contest and defend such Claim. Such contest and defense
shall be conducted by reputable attorneys employed by the Indemnifying Party
reasonably acceptable to the Indemnified Party; provided, that the Indemnified
Party shall be entitled at any time, at its own cost and expense (which expense
shall not constitute a Loss unless the Indemnified Party reasonably determines
that the Indemnifying Party is not adequately representing or, because of a
conflict of interest, may not adequately represent, any of the Indemnified
Party's interests), to participate in such contest and defense and to be
represented by attorneys of its own choosing. If the Indemnified Party elects to
participate in such defense, the Indemnified Party will cooperate with the
Indemnifying Party in the conduct of such defense. Neither the Indemnified Party
nor the Indemnifying Party shall concede, settle or compromise any Claim without
the consent of such other party, which consent will not be unreasonably withheld
or delayed. Notwithstanding the foregoing, (i) if a Claim seeks equitable relief
or (ii) if the subject matter of a Claim relates to the ongoing business of any
of the Indemnified Parties, which Claim, if decided against any of the
Indemnified Parties, would materially adversely affect the ongoing business or
reputation of any of the Indemnified Parties, then, in each such case, the
Indemnified Parties alone shall be entitled to contest, defend and settle such
Claim in the first instance and, if the Indemnified Parties do not contest,
defend or settle such Claim, the Indemnifying Party shall then have the right to
contest and defend (but not settle) such Claim.
(e) Other Claims. In the event any Indemnified Party should have a claim
against an Indemnifying Party that does not involve a Claim, such Indemnified
Party shall deliver a notice of such claim with reasonable promptness to the
Indemnifying Party. If the Indemnifying Party notifies such Indemnified Party
that they do not dispute the claim or the amount of Loss described in such
notice, the Loss in the amount specified in such Indemnified Party's notice will
be conclusively deemed a liability of the Indemnifying Party, and Sellers shall
pay the amount of such Loss to the Indemnified Party on demand. If the
Indemnifying Party disputes its liability or the amount of Loss with respect to
such claim by notice to the Indemnified Party, the Indemnifying Party and the
Indemnified Party will proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through the negotiations of such individuals within
thirty (30) days after the delivery of Indemnified Party's notice of such claim,
such dispute shall be resolved fully and finally in New Haven, Connecticut by an
arbitrator selected pursuant to, and an arbitration governed by, the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator shall
resolve the dispute as soon as possible and in any event within thirty (30) days
after selection, and judgment upon the award rendered by such arbitrator may be
entered in any court of competent jurisdiction.
(f) Deposit with Escrow Agent. In the event of a claim for indemnification
hereunder, the Indemnified Party may elect to deposit with an independent third
party escrow agent any payments of Royalties or any return of, or additions to,
the Look Back Shares thereafter due to the Indemnifying Party until such claim
for indemnification is resolved. The parties shall, in good faith, mutually
select such escrow agent and enter into an escrow agreement after notice of a
claim for indemnification is made.
(g) Basket Limitation. No Indemnified Party shall assert any claim for
indemnification for a breach of a representation or warranty until such time as
the aggregate of all claims which such Indemnified Party may have against an
Indemnifying Party shall exceed $50,000 (the "Basket Limitation") at which time
an Indemnified Party shall be entitled to seek indemnification hereunder for all
claims pursuant to this Section 10, but only to the extent such claims, in the
aggregate, exceed the Basket Limitation. For purposes of the preceding sentence,
Parent, Subsidiary and the Surviving Corporation shall be considered to be a
single Indemnifying and Indemnified Party and the Principals shall be considered
to be a single Indemnifying and Indemnified Party. The limitation contained in
this Section 10(g) shall not apply to any claim for indemnification covered
under Section 10(b)(iii) hereof.
(h) Exclusive Remedies. This Section 10 shall be the exclusive contractual
remedy with respect to claims for breaches of the representations, warranties
and covenants under this Agreement and the parties hereto hereby waive any and
all other rights and remedies they may have in connection with this Agreement
and the transactions contemplated hereby. In the event the foregoing waiver is
not effective then all the limitations, restrictions and rights under this
Section 10 shall nonetheless continue to apply to any other rights or remedies.
(i) Limitations of Liability. Notwithstanding anything to the contrary
contained herein, under no circumstances shall: (A) the aggregate liability of
the Principals hereunder exceed $2,570,000 or (B) the individual aggregate
liability of (1) Wilson exceed $984,729, (2) Metcoff exceed $1,321,147 or (3)
Johnson exceed $264,124 of the amount of any indemnification hereunder.
Liability hereunder shall be limited to direct out-of-pocket damages. In no
event will any party hereto be liable to any other party for lost profits, lost
savings or any incidental, special, indirect, exemplary or consequential damages
or like items. No claim for indemnity shall include any claim for a multiplier
effect or capitalization of damages.
(j) Satisfaction of Indemnity. Any and all amounts determined to be owed by
any Principal by reason of this Section 10 may be satisfied by surrender to
Parent of such number of Parent Shares equal to the amount of any such indemnity
obligation. For purposes of this Section 10(j), the value of each such Parent
Share so surrendered to Parent shall be equal to the Conversion Price.
(k) No Contribution Right. The obligations of the Principals to indemnify
the Parent Indemnified Parties pursuant to this Section 10 are primary
obligations of the Principals. Each of the Principals hereby waives any rights
or causes of action to seek or obtain contribution or indemnification from the
Company or the Surviving Corporation to cover any obligations incurred under, or
for Losses indemnified or to be indemnified by him, pursuant to this Section 10.
Termination, Amendment and Waiver
(a) Termination. This Agreement may be terminated at any time prior to the
Effective Time:
(1) by mutual written consent of the Company and Parent;
(2) by the Company or Parent upon written notice to the other party
if the Closing of the transactions contemplated by this Agreement
shall not have occurred on or before August 31, 2000; provided,
however, that a party will not be entitled to terminate this
Agreement pursuant to this Section 11(a)(2) if such party's
willful breach of this Agreement has prevented the consummation
of the transactions contemplated hereby; or
(3) by either the Company, on the one hand, or Parent, on the other
hand, upon written notice to the other party, if there has been a
material breach of any representation, warranty, covenant or
agreement contained in this Agreement.
(b) Effects of Termination. In the event of termination of this Agreement
by the Company or Parent as provided in this Section 11, this Agreement shall
forthwith become void and there shall be no further liability on the part of the
Company, Parent, Subsidiary or Principal, or their respective officers,
directors or shareholders; provided, however, that each party shall remain
liable for any willful breaches of this Agreement prior to its termination.
(c) Amendment and Waiver. This Agreement may be amended, and any provision
of this Agreement may be waived; provided, that any such amendment or waiver
will be binding upon the Company only if such amendment or waiver is set forth
in a writing executed by the Company, and any such amendment or waiver will be
binding upon Parent and Subsidiary only if such amendment or waiver is set forth
in a writing executed by Parent and Subsidiary and any such amendment or waiver
will be binding upon a Principal only if such amendment or waiver is set forth
in a writing executed by such Principal. No course of dealing between or among
any persons having any interest in this Agreement will be deemed effective to
modify or amend any part of this Agreement or any rights or obligations of any
person under or by reason of this Agreement.
General Provisions
(a) Notices. All notices, demands and other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when personally delivered or three
days after being mailed by first class mail, return receipt requested, or when
receipt is acknowledged, if sent by facsimile, telecopy or other electronic
transmission device. Notices, demands and communications to the Company and
Parent will, unless another address is specified in writing, be sent to the
addresses indicated below:
Notices to the Company or Principals: with a copy to:
------------------------------------ --------------
Midcore Software Incorporated Brenner, Saltzman & Wallman LLP
900 Straits Turnpike 271 Whitney Avenue
Middlebury, Connecticut 06762 New Haven, Connecticut 06511
Attention: David Wilson Attention: Wayne A. Martino, Esq.
Jerrold Metcoff
Telephone: (203) 577-5370 Telephone: (203) 772-2600
Facsimile: (203) 577-5380 Facsimile: (203) 772-3907
Notices to Parent or the Surviving Corporation: with a copy to:
----------------------------------------------- --------------
NCT Group, Inc. Crowell & Moring LLP
20 Ketchum Street 1001 Pennsylvania Avenue N.W.
Westport, Connecticut 06880 Washington, D.C. 20004
Attention: Chief Executive Officer Attention: William P. O'Neill, Esq.
Chief Financial
Officer
Telephone: (203) 226-4447 Telephone: (202) 624-2603
Facsimile: (203) 226-4338 Facsimile: (202) 628-5116
(b) Assignment. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, except that neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by Parent,
Subsidiary or Surviving Corporation without the prior written consent of the
Principals, which consent shall not be unreasonably withheld and neither this
Agreement, nor any of the rights, interests or obligations hereunder may be
assigned by the Company or the Principals without the prior written consent of
Parent, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing sentence, a Founding Shareholder may assign his rights under Section 6
without the consent of any other party hereto and a Founding Shareholder may
assign his rights and obligations under Section 3(b) upon his death without the
consent of any other party hereto.
(c) Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable Law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable Law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
(d) Complete Agreement. This Agreement and exhibits hereto, the Disclosure
Schedule and the other documents referred to herein contain the complete
agreement between the parties and supersede any prior understandings, agreements
or representations by or between the parties, written or oral, which may be
related to the subject matter hereof in any way. The Confidential and/or
Proprietary Information Agreement dated April 11, 2000 by and between Parent and
the Company shall survive the execution of this Agreement and remain in full
force and effect.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.
(f) Governing Law. The internal law, and not the law of conflicts, of the
State of Connecticut will govern all questions concerning the construction,
validity and interpretation of this Agreement and the performance of the
obligations imposed by this Agreement. Each of the parties hereto irrevocably
consents to the in personam jurisdiction of the Courts of the State of
Connecticut and of the United States District Court sitting in Connecticut and
consents to service of process by certified mail at the address set forth for
notice for such party in Section 12(d) above.
(g) Guaranty. Parent hereby unconditionally and irrevocably guarantees the
payment and performance in full of any and all obligations of its Affiliates
(including Subsidiary) hereunder, under any Related Agreement or in connection
with the transactions contemplated hereby or by any Related Agreements. No
release or termination of the liability of the Surviving Corporation shall
release, limit or terminate the liability of the Parent.
(h) Access. After the Closing, the Surviving Corporation and its respective
officers, directors, employees, agents and representatives shall afford during
normal business hours the Principals and their respective agents and
representatives full access to all of the Company's books and records relating
to all periods through the Closing Date and to inspect, examine and make copies
of such books and records in connection with tax and financial reporting matters
and other bona fide business purposes of the Company and the Principals. The
Surviving Corporation shall retain all such books and records for a period of
seven (7) years from the date to which such books and records related.
(i) Disclosure and Accommodation. The written disclosure by the Company of
any fact, circumstance, condition, document, agreement or any other information
or event for any purpose of this Agreement or any Related Agreement including
any exhibit, schedule, list or other document required to be delivered hereto or
thereto shall be deemed to be a sufficient disclosure of such fact,
circumstance, condition, document, agreement or other such information or event
for all purposes hereof or thereof. The written disclosure by the Company of any
material or immaterial fact, circumstance, document agreement or any other
information for any purpose which is not literally or explicitly required by the
express provisions of this Agreement or any Related Agreement including any
exhibit, schedule, list or other document required to be delivered hereto or
thereto is provided by the Company strictly as an accommodation and the making
or omitting of any such disclosure in any other circumstance shall have no
effect of any kind whatsoever on the standards of materiality or disclosure
otherwise objectively applicable to the terms and provisions of this Agreement.
(j) Authorship. This Agreement or any Related Agreement shall not be
construed for or against any party by reason of the authorship or claimed
authorship of any provision hereof or thereof or by reason of the status of the
respective parties hereto or thereto.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PARENT:
NCT Group, Inc.
By: /s/ Michael J. Parrella
-------------------------------
Name: Michael J. Parrella
Title: Chief Executive Officer
SUBSIDIARY:
NCT Midcore, Inc.
By: /s/Michael J. Parrella
-------------------------------
Name: Michael J. Parrella
Title: Chief Executive Officer
COMPANY:
Midcore Software Incorporated
By: /s/David Wilson
-------------------------------
Name: David Wilson
Title: President
PRINCIPALS:
/s/Jerrold Metcoff
-----------------------------------
Jerrold Metcoff
/s/David Wilson
-----------------------------------
David Wilson
/s/Barry Marshall-Johnson
-----------------------------------
Barry Marshall-Johnson
<PAGE>
