|
|
|
|
Legal Resources
Business Contracts
MCLE Courses
Projects
Friends
|
Sample Business ContractsHome: Sample Business Contracts:
================================================================================
SHARE EXCHANGE AGREEMENT
among:
MERCURY INTERACTIVE CORPORATION
a Delaware corporation;
CONDUCT LTD
an Israeli corporation;
CONDUCT SOFTWARE TECHNOLOGIES, INC.
a California corporation;
and
THE CONDUCT SHAREHOLDERS
and
THE CONDUCT NOTEHOLDERS
-----------------------------
Dated as of November 24, 1999
-----------------------------
================================================================================
<PAGE>
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT ("Agreement") is made and entered into as of
November 24, 1999, by and among: Mercury Interactive Corporation, a Delaware
corporation ("Mercury"); Conduct Ltd., an Israeli corporation ("Conduct");
Conduct Software Technologies, Inc., a California corporation and wholly-owned
subsidiary of Conduct (the "Subsidiary"); the shareholders of Conduct Ltd., as
identified on Exhibit A (the "Conduct Shareholders"); and the Conduct
---------
Noteholders. Certain capitalized terms used in this Agreement are defined in
Exhibit B.
---------
Recitals
A. Mercury, Conduct and the Conduct Shareholders intend to effect an
exchange of all of the issued and outstanding capital shares of Conduct for
newly issued shares of Mercury common stock.
B. This Agreement contemplates a transaction in which Mercury will acquire
all of the outstanding capital shares of Conduct for stock of Mercury in a
taxable purchase of stock.
C. This Agreement has been adopted and approved by the respective boards
of directors of Mercury, Conduct and Subsidiary.
Agreement
The parties to this Agreement agree as follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 Exchange of Shares. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing, Mercury agrees to issue 408,000 shares
of common stock of Mercury (the "Mercury Stock") in exchange for all outstanding
Conduct ordinary shares and preferred shares (the "Conduct Capital Shares"), all
outstanding Convertible Promissory Notes and all outstanding options and
warrants to purchase Conduct Capital Shares and the Conduct Shareholders agree
to assign and transfer to Mercury in exchange for the Mercury Stock all
outstanding Conduct Capital Shares. Thereupon, Conduct will be a wholly-owned
subsidiary of Mercury and the corporate existence of Conduct, with all its
purposes, powers and objects, shall continue unaffected and unimpaired.
1.2 Escrow of Mercury Stock. At the Closing, Mercury shall segregate from
the Mercury Stock issuable hereunder such number of shares of Mercury Stock as
is equal to 10% of the shares of Mercury Stock to be issued to Conduct
Shareholders at the Closing represented by one stock certificate issued in the
name of the Escrow Agent and cause such stock to be deposited with and U.S. Bank
Trust National Association to act as escrow agent (the "Escrow Agent"), under
the escrow agreement in the form attached hereto as Exhibit C.
---------
<PAGE>
1.3 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of General Counsel
Associates LLP, 1891 Landings Drive, Mountain View, CA 94043 at 5:00 p.m. on
November 30, 1999 (provided that all other conditions set forth in Sections 7
and 8 have been satisfied or waived) or on such other date as is mutually agreed
upon by Conduct and Mercury. (The date on which the Closing actually takes
place is referred to in this Agreement as the "Closing Date.").
1.4 Deliveries at Execution and Closing.
(a) Contemporaneously with the execution and delivery of this
Agreement:
(i) Mercury, the Escrow Agent, the Conduct Shareholders and the
Shareholders' Agent are entering into an Escrow Agreement in the form of
Exhibit C (the "Escrow Agreement");
---------
(ii) Mercury and each of David Barzilai and Sharon Azulai are
amending the Employment Agreements between Subsidiary and each of them as set
forth in the Amendment to their respective Employment Agreements in the form of
Exhibit D;
---------
(iii) Conduct shall deliver to Mercury a certificate pursuant to
which Conduct represents and warrants to Mercury that attached to such
certificate are resolutions duly adopted by the unanimous consent of the Board
of Directors approving the Agreement and the transactions contemplated by this
Agreement; and
(b) Mercury shall deliver to Conduct a certificate pursuant to which
Mercury represents and warrants to Conduct that attached to such certificate are
resolutions duly adopted by unanimous consent of the Board of Directors
approving the Agreement and the transactions contemplated by this Agreement.
(c) At the Closing: (i) the Conduct Shareholders shall deliver to
Mercury (x) the share certificates representing one hundred percent of the
outstanding Conduct Capital Shares, duly endorsed share transfer deeds signed by
each of Conduct's Shareholders (and if the Conduct Shareholder is not an
individual, such deed shall be approved by the entity's lawyer as binding upon
the entity) and witnessed regarding the transfer of shares of such Conduct
Shareholder to Mercury; and (ii) the officers and directors of Conduct and
Subsidiary shall resign from their positions as officers and directors of
Conduct; and (iii) Mercury shall deliver the Mercury Stock in accordance with
Sections 1.5(a) and 1.5(g), shall make the cash payments for fractional shares
specified in Section 1.5(f).
(d) All actions and transactions occurring at the Closing shall be
deemed to take place simultaneously and no transaction shall be deemed to have
been completed or any document delivered until all such transactions have been
completed and all required documents delivered.
1.5 Articles of Association; Directors and Officers.
2
<PAGE>
(a) The Articles of Association of Conduct shall be amended and
restated as of the Closing in a form satisfactory to Mercury.
(b) The directors and officers of Conduct and Subsidiary immediately
after the Closing shall be those Persons designated by Mercury in its sole
discretion.
1.6 The Exchange.
(a) At the Closing, by virtue of the terms of this Agreement and
without any further action on the part of Mercury, Conduct or any Conduct
Shareholder:
(i) First:
(1) each share of Series A Preferred of Conduct (the
"Series A Preferred") outstanding immediately prior to the Closing shall be
exchanged into: (A) a fraction of a share of Mercury Stock (as defined
below) (y) having a numerator equal to $0.286 (representing the liquidation
preference of each share of Series A Preferred under Conduct's Articles of
Association plus any declared but unpaid dividends), and (z) having a
denominator equal to the Mercury Average Stock Price ("the Series A
Liquidation Amount"); plus (B) the Applicable Fraction (defined below) of a
share of the common stock of Mercury;
(2) each share of Series B Preferred of Conduct (the
"Series B Preferred") outstanding immediately prior to the Closing shall be
exchanged into: (A) a fraction of a share of Mercury Stock (as defined
below), in each case (y) having a numerator equal to $0.865 (representing
the liquidation preference of each share of Series B Preferred under
Conduct's Articles of Association plus any declared but unpaid dividends),
and (z) having a denominator equal to the Mercury Average Stock Price ("the
Series B Liquidation Amount"); and (B) the Applicable Fraction of a share
of Mercury Stock;
(ii) Thereafter,
(1) each share of the ordinary shares of Conduct (the
"Conduct Ordinary Shares") outstanding immediately prior to the C losing
shall be exchanged into the Applicable Fraction (as defined below) of a
share of the common stock (par value $0.002 per share) of Mercury ("Mercury
Stock"). The "Applicable Fraction" shall be the fraction (A) having a
numerator equal to 408,000 less the Aggregate Preferred Stock Liquidation
Preference (if any) and (B) having a denominator equal to the Fully Diluted
Number of Conduct Capital Shares;
(2) each share of the Conduct Preferred Shares outstanding
immediately prior to the Closing (in addition to the amounts set forth
above in Subsection 1.6(a)(i)) shall be exchanged into the Applicable
Fraction of a share of the Mercury Stock.
3
<PAGE>
(iii) all calculations under this Section 1.6(a) shall be
rounded to the nearest one thousandth (1/1,000th); and
(iv) subject only to Section 1.6(c), in no case shall the number
of shares of Mercury Stock issued under this Section 1.6(a) to the Conduct
Shareholders, when added to the shares of Mercury Stock issuable to the
holders of options and warrants to purchase Conduct Capital Shares under
Section 1.7, exceed 408,000 shares.
(b) Notwithstanding anything to the contrary contained in this
Agreement, a portion of the shares of Mercury Stock issued in the transactions
contemplated by this Agreement shall be delivered into escrow and held as
specified in Section 1.8 hereof.
(c) In the event Mercury at any time or from time to time between the
date of this Agreement and the Closing declares or pays any dividend on Mercury
Stock payable in Mercury Stock or in any right to acquire Mercury Stock, or
effects a subdivision of the outstanding shares of Mercury Stock into a greater
number of shares of Mercury Stock (by stock dividends, combinations, splits,
recapitalizations and the like), or in the event the outstanding shares of
Mercury Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Mercury Stock, then the Applicable
Fraction shall be appropriately adjusted.
(d) The shares of Mercury Stock to be issued in the transaction shall
be characterized as "restricted securities" for purposes of Rule 144 under the
Securities Act, and each certificate representing any of such shares shall bear
a legend identical or similar in effect to the following legend (together with
any other legend or legends required by applicable state securities laws or
otherwise):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
UNLESS REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE."
(e) If any Conduct Capital Shares outstanding immediately prior to
the Closing are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with Conduct, then the shares of Mercury Stock
issued in exchange for such Conduct Capital Shares will also be unvested and
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of Mercury Stock may accordingly
be marked with appropriate legends.
(f) No fractional shares of Mercury Stock shall be issued in
connection with the transactions contemplated by this Agreement, and no
certificates for any such fractional shares shall be issued. In lieu of such
fractional shares, any holder of capital shares of Conduct
4
<PAGE>
who would otherwise be entitled to receive a fraction of a share of Mercury
Stock (after aggregating all fractional shares of Mercury Stock issuable to such
holder) shall, upon surrender of such holder's stock certificate(s) representing
capital shares of Conduct, be paid in cash the dollar amount (rounded to the
nearest whole cent), without interest, determined by multiplying such fraction
by the Mercury Average Stock Price. In no case shall any holder of capital
shares of Conduct be entitled to receive cash in an amount equal to or greater
than the value of one share of Mercury Stock.
(g) Mercury shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable to any holder or former holder of
Conduct Capital Shares pursuant to this Agreement such amounts as Mercury may be
required to deduct or withhold therefrom under the Internal Revenue Code of
1986, as amended (the "Code") or under any provision of state, local or foreign
tax law. To the extent such amounts are so deducted or withheld, such amounts
shall be treated for all purposes under this Agreement as having been paid to
the Person to whom such amounts would otherwise have been paid.
(h) The shares of Mercury Stock issued upon surrender for exchange of
shares of Conduct Capital Shares in accordance with the terms of this Agreement
shall be deemed to have been fully paid and issued in full satisfaction of all
rights pertaining to such shares.
1.7 Stock Options, Warrants and Convertible Promissory Notes.
(a) At the Closing, each option to purchase capital shares of Conduct
that is then outstanding, whether vested or unvested (a "Conduct Option"), shall
be assumed by Mercury in accordance with the terms (as in effect as of the date
of this Agreement) of the stock option agreement by which such Conduct Option is
evidenced. At the Closing, all rights with respect to Conduct Capital Shares
under outstanding Conduct Options shall be converted into rights with respect to
Mercury Stock. Accordingly, from and after the Closing, (i) each Conduct Option
assumed by Mercury may be exercised solely for shares of Mercury Stock, (ii) the
number of shares of Mercury Stock subject to each such assumed Conduct Option
shall be equal to the number of Conduct Capital Shares that were subject to such
Conduct Option immediately prior to the Closing multiplied by the Applicable
Fraction, rounded down to the nearest whole number of shares of Mercury Stock,
(iii) the per share exercise price for the Mercury Stock issuable upon exercise
of each such assumed Conduct Option shall be determined by dividing the exercise
price per share of Conduct Capital Shares subject to such Conduct Option, as in
effect immediately prior to the Closing, by the Applicable Fraction, and
rounding the resulting exercise price up to the nearest whole cent and (iv) all
restrictions on the exercise of each such assumed Conduct Option shall continue
in full force and effect, and the term, exercisability, vesting schedule and
other provisions of such Conduct Option shall otherwise remain unchanged;
provided, however, that each such assumed Conduct Option shall, in accordance
with its terms, be subject to further adjustment as appropriate to reflect any
stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction effected by Mercury after the Closing. It is the intention
of the parties that Conduct Options so assumed by Mercury qualify, to the
maximum extent permissible following the Closing, as incentive stock options as
defined in Section 422 of the Code to the extent such options qualified as
incentive stock options prior to the Closing, or as options granted pursuant to
the provisions of section 102 of the Israeli Income
5
<PAGE>
Tax Ordinance (new version) 1961 (the "Ordinance") and any regulations, rules,
orders or procedures promulgated thereunder, including the Income Tax Rules (Tax
benefits in Stock Issuance to Employees) 5349-1989 (the "Rules"), as
appropriate. Conduct and Mercury shall take all action that may be necessary to
effectuate the provisions of this Section 1.7. As soon as is reasonably
practicable following the Closing, Mercury will send to each holder of an
assumed Conduct Option a written notice setting forth (i) the number of shares
of Mercury Stock subject to such assumed Conduct Option and (ii) the exercise
price per share of Mercury Stock issuable upon exercise of such assumed Conduct
Option. Mercury shall file with the SEC, within 10 days after the Closing, a
registration statement on Form S-8 registering the exercise of any Conduct
Options assumed by Mercury pursuant to this Section 1.7.
(b) Immediately prior to the Closing, each warrant to purchase
Conduct Capital Shares that is then outstanding (a "Conduct Warrant"), shall
terminate according to its terms.
(c) Immediately prior to the Closing, each Conduct Noteholder hereby
agrees to convert all Conduct Convertible Promissory Notes held by such holder
into such number of Conduct Series B Preferred Shares as is equal to the amount
of outstanding principal divided by $0.865.
1.8 Exchange of Certificates; Escrow Shares.
(a) At the Closing, each Conduct Shareholder shall surrender to
Mercury all certificates representing shares of Conduct Ordinary Shares or
Conduct Preferred Shares, as appropriate, for cancellation, together with an
executed share transfer deed duly endorsed and witnessed in blank by such holder
and such other documents as may be reasonably required by Mercury. As soon as
practicable after the Closing, Mercury shall (i) deliver to each Conduct
Shareholder who has surrendered its, his or her certificates formerly
representing Conduct Capital Shares in compliance with the preceding sentence a
certificate representing 90 percent of the number of whole shares of Mercury
Stock that such Conduct Shareholder has the right to receive pursuant to the
provisions of Section 1.6 and (ii) deliver to the escrow agent under the Escrow
Agreement in the form of Exhibit C hereto (the "Escrow Agreement"), on behalf
---------
the Conduct Shareholders, a certificate representing 10 percent of the number of
whole shares of Mercury Stock that each Conduct Shareholder has the right to
receive pursuant to the provisions of Section 1.6 represented by one stock
certificate issued in the name of the Escrow Agent (the "Escrow Shares"). In
determining the number of whole shares that represent 90 percent of the number
of shares of Mercury Stock to which each Conduct Shareholder is entitled
pursuant to Section 1.6, Mercury shall round up to the nearest whole number of
shares, and in determining the number of Escrow Shares to which such Conduct
Shareholder is entitled pursuant to Section 1.6, Mercury shall round down to the
nearest whole number. If any shares of Mercury Stock are to be issued in the
name of a person other than the person in whose name Conduct Stock Certificate
surrendered in exchange therefor is registered, it shall be a condition to the
issuance of such shares that (i) the certificate(s) so surrendered shall be
transferable, and shall be properly assigned, endorsed or accompanied by
appropriate stock powers, (ii) such transfer shall otherwise be proper and (iii)
the person requesting such transfer shall pay Mercury, or its exchange agent,
any transfer or other taxes payable by reason of the foregoing or establish to
the
6
<PAGE>
satisfaction of Mercury that such taxes have been paid or are not required
to be paid. If any Conduct share certificate shall have been lost, stolen or
destroyed, Mercury may, in its discretion and as a condition precedent to the
issuance of any certificate representing Mercury Stock, require the owner of
such lost, stolen or destroyed Company share certificate to provide an
appropriate affidavit with respect to such Company share certificate.
(b) No dividends or other distributions declared or made with respect
to Mercury Stock with a record date after the Closing shall be paid to the
holder of any unsurrendered Conduct share certificate with respect to the shares
of Mercury Stock represented thereby, and no cash payment in lieu of any
fractional share shall be paid to any such holder, until such holder surrenders
such Company Stock Certificate in accordance with this Section 1.8 (at which
time such holder shall be entitled receive all such dividends and distributions
and such cash payment payable subsequent to the Closing but prior to the
surrender of such Company Stock Certificate.).
1.9 Tax Consequences. For United States federal income tax purposes and the
Israeli Income Tax Ordinance, the transactions contemplated by this Agreement
are intended to constitute a taxable sale of Conduct shares to Mercury.
1.10 Accounting Treatment. For accounting purposes, the transaction is
intended to be treated as a "pooling of interests."
1.11 Further Action. If, at any time after the Closing, any further action
is determined by Mercury to be necessary or desirable to carry out the purposes
of this Agreement or to vest Conduct or Mercury with full right, title and
possession of and to all rights and property of Conduct, the officers and
directors of Conduct and Mercury shall be fully authorized (in the name of
Conduct and otherwise) to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF CONDUCT AND SUBSIDIARY
Except as set forth in the Disclosure Schedule attached hereto as Exhibit
-------
E, Conduct and, Subsidiary jointly and severally represent and warrant, to
-
Mercury that the representations and warrants set forth below are true and
correct as of the date of the Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement), as follows:
2.1 Due Organization; Subsidiaries; Etc.
(a) Conduct is a corporation duly organized, validly existing and in
good standing under the laws of Israel, and Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the state of
California. Conduct and the Subsidiary each have all necessary power and
authority: (i) to conduct its business in the manner in which its business is
currently being conducted; (ii) to own and use its assets in the manner in which
its assets are currently owned; and (iii) to perform its obligations in all
material respects under all Material Contracts by which it is bound.
7
<PAGE>
(b) Except as set forth on Part 2.1(b) neither Conduct nor Subsidiary
have conducted any business under or otherwise used, for any purpose or in any
jurisdiction, any fictitious name, assumed name, trade name or other name.
(c) Neither Conduct nor Subsidiary is, and has not been, required to
be qualified, authorized, registered or licensed to do business as a foreign
corporation in any jurisdiction, except where the failure to be so qualified,
authorized, registered or licensed would not have a Material Adverse Effect on
Conduct.
(d) Part 2.1(d) of the Disclosure Schedule accurately sets forth (i)
the names of the members of Conduct's and Subsidiary's board of directors, and
(ii) the names and titles of Conduct's and Subsidiary's officers. Neither
Conduct's nor Subsidiary's board of directors has ever established any
committees, other than the Conduct Compensation Committee and the Audit
Committee.
(e) Conduct has no subsidiaries, other than Subsidiary, and has never
owned, beneficially or otherwise, any shares or other securities of, or any
direct or indirect interest of any nature in, any other Entity.
2.2 Articles of Association and Bylaws; Records. Conduct has delivered to
Mercury accurate and complete copies of: (a) Conduct's articles of association
and Subsidiary's articles of incorporation and bylaws, including all amendments
thereto; (b) the share records of Conduct and Subsidiary and (c) the minutes and
other records of the meetings and other proceedings (including any actions taken
by written consent or otherwise without a meeting) of the shareholders of
Conduct and Subsidiary and the board of directors of Conduct and the Subsidiary.
There have been no meetings or other proceedings or actions of the shareholders
of Conduct or Subsidiary or the board of directors of Conduct or Subsidiary in
which any material action took place that are not fully reflected in such
minutes or other records. There has not been any material violation of any of
the provisions of Conduct's articles of association or Subsidiary's articles of
incorporation or bylaws or of any resolution adopted by Conduct's or
Subsidiary's shareholders or Conduct's or Subsidiary's board of directors. The
books of account, stock records, minute books and other records of Conduct and
Subsidiary are accurate, up-to-date and complete in all material respects, and
have been maintained in accordance with all applicable material Legal
Requirements.
2.3 Capitalization, Etc.
(a) The authorized capital shares of Conduct consist of (i)
14,371,965 ordinary shares, of which 3,911,875 shares are issued and outstanding
as of the date of this Agreement and (ii) 7,349,285 Preferred Shares, 2,096,250
of which are designated as Series A Preferred, 2,096,250 of which are issued and
outstanding as of the date of this Agreement, and 5,253,035 of which are
designated Series B Preferred Stock, 4,625,000 of which are issued and
outstanding as of the date of this Agreement. The authorized capital stock of
Subsidiary consists of 1,000 shares of common stock, of which 100 shares are
issued and outstanding as of the date of this Agreement and all of which are
owned by Conduct. Exhibit A to this Agreement sets forth the names of Conduct's
---------
Shareholders as of the date of this Agreement and the number of
8
<PAGE>
Conduct Ordinary Shares and Conduct Preferred Shares owned of record by each of
such Conduct Shareholders as of the date of this Agreement. Conduct has reserved
an additional 1,875,000 Conduct Ordinary Shares for issuance under its 1998
Share Option Plan (the "Option Plan") to employees, advisory board members,
officers or directors of, or consultants to, Conduct, of which options to
acquire 739,063 Ordinary Shares have been granted and are outstanding as of the
date of this Agreement (and 8,125 have been exercised at the date hereof). Part
2.3(a)(1) of the Disclosure Schedule sets forth a true and complete list as of
the date hereof of all holders of outstanding Conduct Options, including the
number of Conduct Ordinary Shares subject to each such Conduct Option, the
exercise and vesting schedule, and the exercise price per share. Conduct has
reserved an additional 628,035 shares of Conduct Series B Preferred Stock for
issuance pursuant to outstanding warrants as of the date of this Agreement to
purchase shares of Conduct Series B Preferred Stock and pursuant to convertible
unsecured promissory notes. Part 2.3(a)(2) of the Disclosure Schedule sets forth
the names of Conduct's warrant holders as of the date of this Agreement and the
number of shares issuable upon exercise of outstanding warrants as of the date
of this Agreement and the names of the Conduct Noteholders, the aggregate
principal amounts of such notes and the number of shares issuable upon
conversion in full of such note as of the date of this Agreement.
(b) All of the outstanding Conduct Ordinary Shares and Conduct
Preferred Shares have been duly authorized and validly issued and are fully paid
and nonassessable. Except as set forth on Part 2.3(b), there are no preemptive
rights applicable to any capital shares of Conduct or Subsidiary.
(c) Except as identified in Section 2.3(a), as of the date of this
Agreement, there is no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any shares of the
capital shares or other securities of Conduct or Subsidiary; or (ii) outstanding
security, instrument or obligation that is or may become convertible into or
exchangeable for any shares of the capital shares or other securities of Conduct
or Subsidiary.
(d) No capital shares or other securities have been repurchased,
redeemed or otherwise reacquired by Conduct.
(e) All outstanding Conduct Capital Shares have been issued in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements, and (ii) all requirements set forth in applicable Contracts.
2.4 Financial Statements.
(a) Conduct has delivered to Mercury the following financial
statements and notes (collectively, the "Conduct Financial Statements"):
(i) the audited consolidated balance sheets of Conduct as of
December 31, 1998, 1997 and 1996, and the related audited consolidated
statements of income, statements of shareholders' equity and statements of cash
flows of Conduct for the years then ended, together with the notes thereto; and
9
<PAGE>
(ii) the unaudited consolidated balance sheet of Conduct as of
September 30, 1999 (the "Unaudited Interim Balance Sheet"), and the related
unaudited consolidated statement of income of Conduct for the nine months then
ended.
(b) Conduct Financial Statements are accurate and complete in all
material respects and present fairly the financial position of Conduct as of the
respective dates thereof and the results of operations and cash flows of Conduct
for the periods covered thereby. Conduct Financial Statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods covered (except that the financial
statements referred to in Section 2.4(a)(ii) do not contain footnotes and are
subject to normal and recurring year-end audit adjustments, which will not,
individually or in the aggregate, be material in magnitude).
2.5 Absence of Changes. Except as set forth in Part 2.5 of the Disclosure
Schedule, and except with respect to the actions contemplated by this agreement
since September 30, 1999:
(a) there has not been any material adverse change in Conduct's or
Subsidiary's business, condition, assets, liabilities, operations or financial
performance, and no event has occurred that will, or could reasonable be
expected tohave a Material Adverse Effect on Conduct;
(b) there has not been any material loss, damage or destruction to,
or any interruption in the use of, any of Conduct's or Subsidiary's assets
(whether or not covered by insurance);
(c) Neither Conduct nor Subsidiary has declared, accrued, set aside
or paid any dividend or made any other distribution in respect of any capital
shares, and has not repurchased, redeemed or otherwise reacquired any capital
shares or other securities;
(d) Neither Conduct nor Subsidiary has sold, issued or authorized the
issuance of (i) any capital shares or other security, (ii) any option, call,
warrant or right to acquire, or otherwise relating to, any capital shares or any
other security, or (iii) any instrument convertible into or exchangeable for any
capital shares or other security;
(e) Neither Conduct nor Subsidiary has made any capital expenditure
which individually exceeds $10,000 or, when added to all other capital
expenditures made by Conduct since September 30, 1999, exceeds $25,000 in the
aggregate;
(f) Neither Conduct nor Subsidiary has (i) entered into or permitted
any of the assets owned or used by it to become bound by any Material Contract
(as defined in Section 2.10(a)), or (ii) amended or prematurely terminated, or
waived any material right or remedy under any Material Contract to which it is
or was a party or under which it has or had any rights or obligations;
(g) Neither Conduct nor Subsidiary has (i) acquired, leased or
licensed any right or other assets from any other Person (other than immaterial
rights or other immaterial assets acquired, leased or licensed by Conduct from
other Persons in the ordinary course of
10
<PAGE>
business and consistent with Conduct's past practices), (ii) sold, assigned or
otherwise disposed of, or leased or licensed, any right or other asset to any
other Person (other than immaterial rights or other immaterial assets disposed
of or leased or licensed by Conduct to other Persons in the ordinary course of
business and consistent with Conduct's past practices), or (iii) waived or
relinquished any right (other than immaterial rights waived or relinquished by
Conduct in the ordinary course of business and consistent with Conduct's past
practices);
(h) Neither Conduct nor Subsidiary has written off as uncollectible,
or established any extraordinary reserve with respect to, any account receivable
or other indebtedness;
(i) Neither Conduct nor Subsidiary has made any pledge of any of its
assets or otherwise permitted any of its assets to become subject to any
Encumbrance, except for pledges of immaterial assets made in the ordinary course
of business and consistent with Conduct's past practices;
(j) Neither Conduct nor Subsidiary has (i) lent money to any Person,
or (ii) incurred or guaranteed any indebtedness for borrowed money;
(k) Neither Conduct nor Subsidiary has (i) established, adopted or
amended any Employee Benefit Plan, or (ii) made any profit-sharing or similar
payment to any of its directors, officers or employees;
(l) Neither Conduct nor Subsidiary has materially changed any of its
methods of accounting or accounting practices in any respect;
(m) Neither Conduct nor Subsidiary has made any Tax election;
(n) Neither Conduct nor Subsidiary has commenced or settled any
material Legal Proceeding;
(o) Neither Conduct nor Subsidiary has entered into any material
transaction or taken any other material action outside the ordinary course of
business or inconsistent with its past practices; and
(p) Conduct has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(o)" above.
2.6 Title to Assets.
(a) Except as set forth in Part 2.6(a) of the Disclosure Schedule,
Conduct owns, and has good, valid and marketable title to, all material assets
purported to be owned by it, including: (i) all material assets reflected on the
Unaudited Interim Balance Sheet (except for those disposed of in the ordinary
course of business since September 30, 1999); (ii) all material assets referred
to in Parts 2.8 and 2.9 of the Disclosure Schedule and all of Conduct's rights
under the Contracts identified in Part 2.10(a) of the Disclosure Schedule; and
(iii) all other material assets reflected in Conduct's books and records as
being owned by Conduct. Except as
11
<PAGE>
set forth in Part 2.6(a) of the Disclosure Schedule, all of said material assets
are owned by Conduct free and clear of any liens or other Encumbrances, except
for (i) any lien for current taxes not yet due and payable, and (ii) minor liens
that have arisen in the ordinary course of business and that do not (in any case
or in the aggregate) materially detract from the value of the assets subject
thereto or materially impair the operations of Conduct.
(b) Part 2.6(b) of the Disclosure Schedule identifies all assets that
are being leased or licensed to Conduct, except for (i) any equipment being
leased to Conduct under a standard operating lease requiring annual payments by
Conduct of less than $12,000, and (ii) any software being licensed to Conduct
under any third party software license generally available to the public at a
total cost of less than $10,000.
2.7 Bank Accounts; Receivables; Customers.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate and
complete information (including account numbers, type of account and names of
all individuals authorized to draw on or make withdrawals from each account)
with respect to each account maintained by or for the benefit of Conduct or
Subsidiary at any bank or other financial institution.
(b) Except as set forth in Part 2.7(b) of the Disclosure Schedule,
all existing accounts receivable of Conduct or Subsidiary (including those
accounts receivable reflected on the Unaudited Interim Balance Sheet that have
not yet been collected and those accounts receivable that have arisen since
September 30, 1999 and have not yet been collected) (i) represent valid
obligations of customers of Conduct or Subsidiary arising from bona fide
transactions entered into in the ordinary course of business, and (ii) no
request or agreement for deduction or discount has been made with respect to any
amounts receivable.
(c) Part 2.7(c) of the Disclosure Schedule (i) identifies and
provides an accurate and complete breakdown of the revenues received from each
customer or other Person that accounted for more than 5% of the revenues of
Conduct in the fiscal year ended December 31, 1998 and the nine months ending
September 30, 1999. and (ii) identifies each customer that is obligated to make
payments to Conduct in an aggregate amount exceeding $25,000 per year. Conduct
has not received any notice or other communication indicating that any customer
or other Person identified in Part 2.7(c) of the Disclosure Schedule intends or
expects to cease dealing with Conduct or to effect a material reduction in the
volume of business transacted by such Person with Conduct below historical
levels: except where the termination or modification of such customer
relationship would not, individually or in to aggregate, have a Material Adverse
Effect on the Conduct or Subsidiary
2.8 Equipment; Leasehold.
(a) The equipment owned or leased by Conduct and Subsidiary is, taken
as a whole, adequate for the uses to which it is being put, is in good condition
and repair (ordinary wear and tear excepted) and is adequate for the conduct of
Conduct's business in the manner in which such business is currently being
conducted.
12
<PAGE>
(b) Neither Conduct nor Subsidiary owns any real property or any
interest in real property, except for the leasehold created under the real
property leases identified in Part 2.8(b) of the Disclosure Schedule.
2.9 Proprietary Assets.
(a) Part 2.9(a)(1) of the Disclosure Schedule sets forth, with
respect to each Conduct Proprietary Asset that has been registered, recorded or
filed with any Governmental Body or with respect to which an application has
been filed with any Governmental Body, (i) a brief description of such Conduct
Proprietary Asset, and (ii) the names of the jurisdictions covered by the
applicable registration, recordation, filing or application. Part 2.9(a)(2) of
the Disclosure Schedule identifies the Conduct Proprietary Assets owned by
Conduct or Subsidiary as set forth in the product brochures or the product
specifications attached as Part 2.9(a)(2) of the Disclosure Schedule. Part
2.9(a)(3) of the Disclosure Schedule identifies and provides a brief description
of each Conduct Proprietary Asset that is owned by any other Person and that is
licensed to or used by Conduct or Subsidiary (except for any Conduct Proprietary
Asset that is licensed to Conduct or Subsidiary under any third party software
license that (1) is generally available to the public at a cost of less than
$5,000, and (2) imposes no future monetary obligation on Conduct or Subsidiary)
and identifies the license agreement or other agreement under which such Conduct
Proprietary Asset is being licensed to or used by Conduct or Subsidiary. Except
as set forth in Part 2.9(a)(4) of the Disclosure Schedule, Conduct has good,
valid and marketable title to all of the Conduct Proprietary Assets identified
in Parts 2.9(a)(1) and 2.9(a)(2) of the Disclosure Schedule, free and clear of
all liens and other Encumbrances, and has a valid right to use all Proprietary
Assets identified in Part 2.9(a)(3) of the Disclosure Schedule. Except as set
forth in Part 2.9(a)(5) of the Disclosure Schedule, neither Conduct nor
Subsidiary is obligated to make any payment to any Person for the use of any
Conduct Proprietary Asset. Except as set forth in Part 2.9(a)(6) of the
Disclosure Schedule, Conduct is free to use, modify, copy, distribute, sell,
license or otherwise exploit each of the Conduct Proprietary Assets on an
exclusive basis (other than Conduct Proprietary Assets consisting of software
licensed to Conduct or Subsidiary under third party licenses generally available
to the public, with respect to which Conduct's rights are not exclusive).
(b) Conduct and Subsidiary have taken all reasonable measures and
precautions necessary to protect and maintain the confidentiality and secrecy of
all Conduct Proprietary Assets (except Conduct Proprietary Assets whose value
would be unimpaired by public disclosure), and otherwise to maintain and protect
the value of all Conduct Proprietary Assets. Except as set forth in Part 2.9(b)
of the Disclosure Schedule, neither Conduct nor Subsidiary have disclosed nor
delivered nor permitted to be disclosed or delivered to any Person, and, no
Person, to the Company's and Subsidiary's Knowledge (other than Conduct or
Subsidiary), has access to or has any rights with respect to, the source code,
or any portion or aspect of the source code, of any Conduct Proprietary Asset.
(c) To Conduct and Subsidiary's Knowledge, none of Conduct
Proprietary Assets infringes or conflicts with any Proprietary Asset owned or
used by any other Person. Except as set forth in Part 2.9(c) of the Disclosure
Schedule, to Conduct and Subsidiary's Knowledge, neither Conduct nor Subsidiary
is infringing, misappropriating or making any
13
<PAGE>
unlawful use of, and neither Conduct nor Subsidiary has at any time infringed,
misappropriated or made any unlawful use of, or received any written notice or
other communication of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Proprietary Asset owned or used by any
other Person. Except as set forth in Part 2.9(c) of the Disclosure Schedule, to
Conduct and Subsidiary's Knowledge, no other Person is infringing,
misappropriating or making any unlawful use of, and no Proprietary Asset owned
or used by any other Person infringes or conflicts with, any Conduct Proprietary
Asset.
(d) Conduct Proprietary Assets constitute all the Proprietary Assets
necessary to enable Conduct to conduct its business in the manner in which such
business is currently being conducted. Except as set forth in Part 2.9(d) of the
Disclosure Schedule, (i) neither Conduct nor Subsidiary has licensed any of
Conduct Proprietary Assets to any Person on an exclusive basis, and (ii) neither
Conduct nor Subsidiary has entered into any covenant not to compete or Contract
limiting its ability to exploit fully any of the Conduct Proprietary Assets or
to transact business in any market or geographical area or with any Person.
(e) Except as set forth in Part 2.9(e) of the Disclosure Schedule,
all current and former employees of Conduct and Subsidiary, and all current and
former consultants and independent contractors to Conduct and Subsidiary, have
executed and delivered to Conduct or Subsidiary, as applicable, written
agreements (containing no exceptions to or exclusions from the scope of their
coverage) that are substantially identical to the form of Employee Invention
Assignment and Confidentiality Agreement attached to Part 2.9(e) of the
Disclosure Schedule.
(f) Except as set forth in Part 2.9(f) of the Disclosure Schedule,
neither Conduct nor Subsidiary has entered into and is not bound by any Contract
under which any Person has the right to distribute or license, on a commercial
basis, any Conduct Proprietary Asset including source code, object code, or any
versions, modifications or derivative works of source code or object code in any
Conduct Proprietary Asset.
(g) To Conduct's and Subsidiary's Knowledge, each computer program
and other item of software owned by Conduct or Subsidiary is Year 2000
Compliant. To Conduct and Subsidiary's Knowledge, each computer program and
other item of software that has been designed, developed, sold, installed,
licensed or otherwise made available by Conduct or Subsidiary to any Person is
Year 2000 Compliant. As used in this Section 2.9(g), "Year 2000 Compliant"
means, with respect to a computer program or other item of software (i) the
functions, calculations, and other computing processes of the program or
software (collectively, "Processes") perform in a consistent and correct manner
without interruption regardless of the date on which the Processes are actually
performed and regardless of the date input to the applicable computer system,
whether before, on, or after January 1, 2000; (ii) the program or software
accepts, calculates, compares, sorts, extracts, sequences, and otherwise
processes date inputs and date values, and returns and displays date values, in
a consistent and correct manner regardless of the dates used whether before, on,
or after January 1, 2000; (iii) the program or software accepts and responds to
year input, if any, in a manner that resolves any ambiguities as to century in a
defined, predetermined, and appropriate manner; (iv) the program or software
stores and displays date information in ways that are unambiguous as to the
determination of the century; and (v) leap years will be determined by the
following standard (A) if dividing the year
14
<PAGE>
by 4 yields an integer, it is a leap year, except for years ending in 00, but
(B) a year ending in 00 is a leap year if dividing it by 400 yields an integer.
2.10 Contracts.
(a) Part 2.10(a) of the Disclosure Schedule identifies each Conduct
Contract that constitutes a "Material Contract." (For purposes of this
Agreement, each of the following (and each other Contract that is material to
the business of Conduct and Subsidiary taken together as a whole) shall be
deemed to constitute a "Material Contract":
(i) any Contract relating to the employment or engagement of, or
the performance of services by, any employee, consultant or independent
contractor (other than offer letters which do not contain any payments to an
employee which become due upon termination of employment);
(ii) any Contract relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Proprietary Asset
(except for Contracts with respect to any Proprietary Asset that is licensed to
Conduct or Subsidiary under any third party software license that (1) is
generally available to the public at a cost of less than $5,000, and (2) imposes
no future monetary obligation on Conduct or Subsidiary);
(iii) any Contract imposing any restriction on Conduct's or
Subsidiary's right or ability (A) to compete with any other Person, (B) to
acquire any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any other Person
or to transact business or deal in any other manner with any other Person, or
(C) to develop or distribute any technology;
(iv) any Contract creating or involving any agency relationship,
distribution arrangement or franchise relationship;
(v) any Contract creating or relating to the creation of any
material Encumbrance with respect to any material asset owned or used by Conduct
or Subsidiary;
(vi) any Contract involving or incorporating any guaranty, any
pledge, any performance or completion bond, any indemnity, any right of
contribution or any surety arrangement;
(vii) any Contract creating or relating to any partnership or
joint venture or any sharing of revenues, profits, losses, costs or liabilities;
(viii) any Contract relating to the purchase or sale of any
product or other asset by or to, or the performance of any services by or for,
any Related Party (as defined in Section 2.19);
(ix) any Contract to which any Governmental Body is a party or
under which any Governmental Body has any rights or obligations, or involving or
directly or indirectly benefiting any Governmental Body (including any
subcontract or other Contract between Conduct and any contractor or
subcontractor to any Governmental Body);
(x) any Contract entered into outside the ordinary course of
business or inconsistent with Conduct's past practices;
15
<PAGE>
(xi) any written Contract between Conduct and Subsidiary;
(xii) any Contract that has a term of more than 90 days and that
may not be terminated by Conduct or Subsidiary (without penalty) within 90 days
after the delivery of a termination notice by Conduct or Subsidiary; and
(xiii) any Contract (not otherwise identified in clauses "(i)"
through "(xii)" of this sentence) that contemplates or involves (A) the payment
or delivery of cash or other consideration in an amount or having a value in
excess of $25,000 in the aggregate, or (B) the performance of services having a
value in excess of $25,000 in the aggregate.
(b) Conduct has delivered or made available to Mercury accurate and
complete copies of all Contracts identified in Part 2.10(a) of the Disclosure
Schedule, including all amendments thereto. Each Contract identified in Part
2.10(a) of the Disclosure Schedule is valid and in full force and effect, and is
enforceable by Conduct or Subsidiary in accordance with its terms, subject to
(i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.10(c) of the Disclosure Schedule:
(i) Neither Conduct nor Subsidiary has committed any material
breach or default under any Conduct Contract, and, to the Knowledge of Conduct
and Subsidiary, no other Person has committed any material breach or default
under any Conduct Contract;
(ii) to the Knowledge of Conduct and Subsidiary, no event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time) will, or could reasonably be expected to, (A) result in a
material violation or breach of any of the provisions of any Conduct Contract,
(B) give any Person the right to declare a default or exercise any remedy under
any Conduct Contract, (C) give any Person the right to accelerate the maturity
or performance of any Conduct Contract, or (D) give any Person the right to
cancel, terminate or materially modify any Conduct Contract;
(iii) Neither Conduct nor Subsidiary has received any written
notice or other communication regarding (i) any material violation or breach of,
or default under, any Conduct Contract, or (ii) any termination of any material
Conduct Contract; and
(iv) Neither Conduct nor Subsidiary has waived any of its
material rights under any Contract.
16
<PAGE>
(d) No Person is renegotiating, or has the right to renegotiate, any
amount paid or payable to Conduct or Subsidiary under any Conduct Contract or
any other term or provision of any Conduct Contract.
(e) The Contracts identified in Part 2.10(a) of the Disclosure
Schedule collectively constitute all of the Material Contracts necessary to
enable Conduct and Subsidiary to conduct the business in the manner in which the
business is currently being conducted.
2.11 Liabilities.
(a) Neither Conduct nor Subsidiary has accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for: (i)
liabilities identified as such in the "liabilities" column of the Unaudited
Interim Balance Sheet; (ii) liabilities incurred in the ordinary course of
business (and in compliance with this Agreement) since the date of the Unaudited
Interim Balance Sheet; (iii) liabilities for future performance under existing
Material Contracts (iv) accounts payable or accrued salaries that have been
incurred by Conduct or Subsidiary since September 30, 1999 in the ordinary
course of business and consistent with Conduct's past practices; (v) the
liabilities identified in Part 2.11(a) of the Disclosure Schedule; (vi)
transaction expenses incurred in connection with this Agreement and (vii)
liabilities (other than those provided for separately in sections (i), (ii),
(iii), (iv), (v) and (vi) of this Section 2.11) which do not exceed $10,000,
individually or in the aggregate.
(b) Part 2.11(b) of the Disclosure Schedule provides an accurate and
complete breakdown of: (i) all accounts payable of Conduct and Subsidiary as of
September 30, 1999, (ii) all notes payable of Conduct or Subsidiary and all
indebtedness of Conduct or Subsidiary for borrowed money, (iii) all customer
deposits and other deposits held by Conduct or Subsidiary as of September 30,
1999; and (iv) deferred revenue, warranty or obligations to deliver services,
support or upgrades.
2.12 Compliance with Legal Requirements. Except as set forth in Part 2.12
of the Disclosure Schedule, Conduct and Subsidiary each is, in substantial
compliance with each Legal Requirement that is applicable in any material
respect to the conduct of its business or the ownership of its assets. No event
has occurred, and no condition or circumstance exists, that might (with or
without notice or lapse of time) constitute or result directly or indirectly in
a material violation by Conduct or Subsidiary of, or a failure in any material
respect on the part of Conduct or Subsidiary to comply with, any material Legal
Requirement. Except as set forth in Part 2.12 of the Disclosure Schedule,
neither Conduct nor Subsidiary has ever received any written notice or other
communication from any Governmental Body regarding any actual or possible
material violation of, or failure to comply with, any material Legal
Requirement.
2.13 Governmental Authorizations. Part 2.13 of the Disclosure Schedule
identifies each Governmental Authorization held by Conduct or Subsidiary, and
Conduct has delivered to Mercury accurate and complete copies of all
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule.
The Governmental Authorizations identified in Part 2.13 of the
17
<PAGE>
Disclosure Schedule are valid and in full force and effect, and collectively
constitute all Governmental Authorizations necessary to enable Conduct and
Subsidiary to conduct the business in the manner in which their business is
currently being conducted except such Governmental Authorizations that no
Governmental Body has demanded to be obtained or of which Conduct and Subsidiary
are unaware, or which the failure to obtain if required, would not have a
Material Adverse Effect on Conduct or Subsidiary. Conduct and Subsidiary each is
in compliance with the material terms and requirements of the respective
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule.
Neither Conduct nor Subsidiary has ever received any written notice or other
written communication from any Governmental Body regarding (a) any material
violation of or failure to comply with any material term or requirement of any
Governmental Authorization, or (b) any revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization.
2.14 Tax Matters.
(a) Except as set forth in Part 2.14(a) of the Disclosure Schedule,
all material Tax Returns required to be filed by or on behalf of Conduct or
Subsidiary with any Governmental Body on or before the date hereof (the "Conduct
Returns") (i) have been filed in a timely manner, and (ii) to Conduct's and
Subsidiary's Knowledge, have been accurately and completely prepared in any
material respect in compliance with all applicable Legal Requirements. All
material amounts shown on Conduct Returns to be due on or before the date hereof
have been paid. Conduct has delivered to Mercury accurate and complete copies of
all Conduct Returns filed since the date of Conduct's incorporation.
(b) Except as set forth in Part 2.14(b) of the Disclosure Schedule,
each Tax required to have been paid, or claimed by any Governmental Body to be
payable, by Conduct or Subsidiary (whether pursuant to any Tax Return or
otherwise) has been to the extent material duly paid in full on a timely basis.
Any Tax required to have been withheld or collected by Conduct or Subsidiary has
been duly withheld and collected on a timely basis; and (to the extent required)
each such Tax has been paid to the appropriate Governmental Body on a timely
basis or adequately reserved in the Conduct financial statements.
(c) Conduct Financial Statements fully accrue all actual and
contingent material liabilities for Taxes with respect to all periods through
the dates thereof in accordance with generally accepted accounting principles.
Conduct has established, in the ordinary course of business and consistent with
its past practices, reserves adequate for the payment of all Taxes for the
period from September 30, 1999 through the date hereof.
(d) No Conduct Return relating to income Taxes has ever been examined
or audited by any Governmental Body. Except as set forth in Part 2.14(d) of the
Disclosure Schedule, there has been no examination or audit of any Conduct
Return, and no such examination or audit has been proposed or scheduled by any
Governmental Body. Conduct has delivered to Mercury accurate and complete copies
of all audit reports and similar documents (to which Conduct has access)
relating to Conduct Returns. No extension or waiver of the limitation
18
<PAGE>
period applicable to any of Conduct Returns has been granted (by Conduct,
Subsidiary or any other Person), and no such extension or waiver has been
requested from Conduct.
(e) No claim or Legal Proceeding is pending or to the Knowledge of
Conduct or Subsidiary has been threatened against or with respect to Conduct or
Subsidiary in respect of any Tax. There are no unsatisfied liabilities for Taxes
(including liabilities for interest, additions to tax and penalties thereon and
related expenses) with respect to any notice of deficiency or similar document
received by Conduct or Subsidiary. There are no liens for Taxes upon any of the
assets of Conduct, except liens for current Taxes not yet due and payable.
Subsidiary has not entered into or become bound by any agreement or consent
pursuant to Section 341(f) of the Code. Subsidiary has not been, and will not
be, required to include any adjustment in taxable income for any tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions or events
occurring, or accounting methods employed, prior to the date hereof. Conduct
will not be required to include any adjustment in its taxable income for any tax
period (or portion thereof) as a result of transactions or events occurring, or
accounting methods employed, prior to the date hereof.
(f) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of Subsidiary that, considered individually or considered
collectively with any other such Contracts, will, or could reasonably be
expected to, give rise directly or indirectly to the payment of any amount that
would not be deductible pursuant to Section 280G or Section 162 of the Code.
Neither Conduct or Subsidiary is, and has never been, a party to or bound by any
tax indemnity agreement, tax sharing agreement, tax allocation agreement or
similar Contract.
(g) Except as set forth in Part 2.14(g) of the Disclosure Schedule,
since Conduct's incorporation, (i) no Governmental Body has asserted any claim
or otherwise made any allegation that Conduct or Subsidiary has failed or may
have failed to pay any sales tax, use tax or similar Tax, and (ii) neither
Conduct or Subsidiary has engaged in any discussions or negotiations with any
Governmental Body, and has not sent any written communication to or received any
written communication from any Governmental Body, in connection with any
possible failure on the part of Conduct or Subsidiary to pay any sales tax, use
tax or similar Tax.
(h) Subsidiary has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code (S)6662. Subsidiary (A) has not
been a member of an affiliated group filing a consolidated federal income Tax
Return and (B) does not have any Liability for the Taxes of any other Person
under Reg. (S)1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(i) Conduct has not been required to file a United States federal
income tax return or any state income tax return for any year. Conduct has had
no income which is effectively connected with a US trade or business under Code
section 864. Except as set forth in Part 2.14(i) of the Disclosure Schedule,
Conduct is not a party to an Advance Pricing Agreement (or any similar agreement
under foreign law) and all transactions between Conduct and
19
<PAGE>
Subsidiary (and any other commonly controlled parties) have been in accordance
with the arm's length standard in compliance with Code section 482 and the
treasury regulations thereunder.
2.15 Employee and Labor Matters; Benefit Plans.
(a) Part 2.15(a) of the Disclosure Schedule contains a list of all
employees of Conduct or Subsidiary as of the date of this Agreement, and
correctly reflects their salaries, any other compensation payable to them
(including compensation payable pursuant to bonus, deferred compensation or
commission arrangements), their dates of employment and their positions and
their vacation accruals as of September 30, 1999. Neither Conduct or Subsidiary
is, and has never been, a party to any collective bargaining contract or other
Contract with a labor union involving any of its employees.
(b) To the Knowledge of Conduct or Subsidiary, there is no employee
of Conduct or Subsidiary who is not fully available to perform work because of
disability or other leave, except as set forth in Part 2.15(b). The employment
of each employee of Conduct or Subsidiary is terminable by Conduct or Subsidiary
at will. Conduct has made available copies of all employee manuals and
handbooks, disclosure materials, policy statements and other materials relating
to the employment of the current employees of Conduct and Subsidiary.
(c) Part 2.15(c) of the Disclosure Schedule identifies each bonus,
deferred compensation, incentive compensation, stock purchase, stock option,
severance pay, termination pay, hospitalization, medical, insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plan,
program or agreement (individually referred to as a "Plan" and collectively
referred to as the "Plans") sponsored, maintained, contributed to or required to
be contributed to by Conduct or Subsidiary for the benefit of any current or
former employee of Conduct or Subsidiary.
(d) Except as set forth in Parts 2.15(c) or 2.15(d) of the Disclosure
Schedule, neither Conduct nor Subsidiary maintains, sponsors or contributes to,
and has not at any time in the past maintained, sponsored or contributed to, any
employee pension benefit plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") , which applies to
such employees, whether or not excluded from coverage under specific Titles or
Merger Subtitles of ERISA and as required pursuant to the Israeli Severance
Payment Law - 1963, applicable collective agreements and extension orders) for
the benefit of employees or former employees of Conduct or Subsidiary (a
"Pension Plan").
(e) Except as set forth in Parts 2.15(c) or 2.15(e) of the Disclosure
Schedule, neither Conduct or Subsidiary maintains, sponsors or contributes to
any employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether
or not excluded from coverage under specific Titles or Merger Subtitles of
ERISA) for the benefit of employees or former employees of Conduct or Subsidiary
(a "Welfare Plan") except for those Welfare Plans described in Part 2.15(e) of
the Disclosure Schedule, none of which is a multiemployer plan (within the
meaning of Section 3(37) of ERISA).
(f) With respect to each Plan, Conduct has delivered to Mercury:
20
<PAGE>
(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report (if
required under ERISA) with respect to such Plan for each of 1997 and 1998;
(iii) an accurate and complete copy of (A) the most recent
summary plan description, together with each Summary of Material Modifications
(if required under ERISA) with respect to such Plan, and (B) each material
employee communication relating to such Plan;
(iv) if such Plan is funded through a trust or any third party
funding vehicle, an accurate and complete copy of the trust or other funding
agreement (including all amendments thereto) and accurate and complete copies
the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to
such Plan, including service provider agreements, insurance contracts, minimum
premium contracts, stop-loss agreements, investment management agreements,
subscription and participation agreements and recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent
determination, opinion, notification, or advisory letter received from the
Internal Revenue Service with respect to such Plan (if such Plan is intended to
be qualified under Section 401(a) of the Code).
(g) Except with respect to each other, neither Conduct nor Subsidiary
is and has never been required to be treated as a single employer with any other
Person under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of
the Code. Neither Conduct or Subsidiary has ever been a member of an "affiliated
service group" within the meaning of Section 414(m) of the Code. Neither Conduct
or Subsidiary has ever made a complete or partial withdrawal from a
"multiemployer plan" (as defined in Section 3(37) of ERISA) resulting in
"withdrawal liability" (as defined in Section 4201 of ERISA), without regard to
subsequent reduction or waiver of such liability under either Section 4207 or
4208 of ERISA.
(h) Neither Conduct or Subsidiary has any plan or commitment to
create any additional Welfare Plan or any Pension Plan, or to modify or change
any existing Welfare Plan or Pension Plan (other than to comply with applicable
law).
(i) No Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former employee of
Conduct or Subsidiary after any such employee's termination of service (other
than (i) benefit coverage mandated by applicable law, including coverage
provided pursuant to Section 4980B of the Code, (ii) deferred compensation
benefits accrued as liabilities on the Unaudited Interim Balance Sheet, and
(iii) benefits the full cost of which are borne by current or former employees
of Conduct or Subsidiary (or their beneficiaries)).
21
<PAGE>
(j) With respect to each of the Welfare Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
(k) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
ERISA and the Code.
(l) Each of the Plans intended to be qualified under Section 401(a)
of the Code has either received a favorable determination, opinion, notification
or advisory letter from the Internal Revenue Service with respect to each such
plan as to its qualified status under the Code, or has remaining a period of
time under applicable Treasury regulations or IRS pronouncements in which to
apply for such a letter, and neither Conduct nor Subsidiary is aware of any
reason why any such determination letter should be revoked.
(m) Except as set forth in Part 2.15(m) of the Disclosure Schedule,
neither the execution, delivery or performance of this Agreement, nor the
consummation of the transactions contemplated by this Agreement, will result in
any bonus payment, golden parachute payment, severance payment or other payment
to any current or former employee or director of Conduct or Subsidiary (whether
or not under any Plan), or materially increase the benefits payable under any
Plan, or result in any acceleration of the time of payment or vesting of any
such benefits.
(n) Except as set forth in Part 2.15(n) of the Disclosure Schedule,
Conduct and Subsidiary are in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, employee compensation, wages, bonuses and terms and conditions of
employment.
(o) Conduct and Subsidiary have good labor relations, and, except as
set forth in Part 2.15(o) of the Disclosure Schedule, neither Conduct nor
Subsidiary has any Knowledge of any facts indicating that (i) the consummation
of the transactions contemplated by this Agreement will have a material adverse
effect on Conduct's or Subsidiary's labor relations, or (ii) any of Conduct's or
Subsidiary's employees intends to terminate his or her employment with Conduct
or Subsidiary, as applicable. To the Knowledge of Conduct and Subsidiary no
employee of Conduct or Subsidiary is a party to or is bound by any
confidentiality agreement, noncompetition agreement or other Contract (with any
Person) that may have an adverse effect on (A) the performance by such employee
of any of his duties or responsibilities as an employee of Conduct or
Subsidiary, or (B) the business or operations of Conduct and Subsidiary.
2.16 Environmental Matters. To Conduct's Knowledge, Conduct is and has at
all times been in compliance with all applicable Israeli environmental laws and
regulations. There is no pending or, to Conduct's Knowledge, threatened Legal
Proceeding alleging violation of, or requesting compliance by Conduct with,
Israeli environmental laws and regulations.
2.17 Sale of Products; Performance of Services.
(a) Except as set forth in Part 2.17(a) of the Disclosure Schedule,
to Conduct's and Subsidiary's Knowledge, each product, system, program,
Proprietary Asset or other asset designed, developed, manufactured, assembled,
sold, installed, repaired, licensed or
22
<PAGE>
otherwise made available by Conduct or Subsidiary to any Person: (i) conformed
and complied in all material respects with the terms and requirements of any
applicable warranty or other Contract and with all material applicable Legal
Requirements; and (ii) was free of any bug, virus, design defect or other defect
or deficiency at the time it was sold or otherwise made available, other than
any immaterial bug or similar defect that would not adversely affect in any
material respect such product, system, program, Proprietary Asset or other asset
(or the operation or performance thereof).
(b) To Conduct's and Subsidiary's Knowledge, all installation
services, design services, development services, programming services, repair
services, maintenance services, support services, training services, upgrade
services and other services that have been performed by Conduct or Subsidiary
were performed properly and in conformity in all material respects with the
terms and requirements of all applicable warranties and other Contracts and with
all material applicable Legal Requirements.
(c) Neither Conduct nor Subsidiary will incur or otherwise become
subject to any material Liability arising directly or indirectly from (i) any
product, system, program, Proprietary Asset or other asset designed, developed,
manufactured, assembled, sold, installed, repaired, licensed or otherwise made
available by Conduct or Subsidiary, or (ii) any installation services, design
services, development services, programming services, repair services,
maintenance services, support services, training services, upgrade services or
other services performed by Conduct or Subsidiary.
(d) Except as set forth in Part 2.17(d) of the Disclosure Schedule,
no customer or other Person has ever asserted or, to Conduct's or Subsidiary's
Knowledge, threatened to assert any claim against Conduct or Subsidiary (i)
under or based upon any warranty provided by or on behalf of Conduct or
Subsidiary, or (ii) under or based upon any other warranty relating to any
product, system, program, Proprietary Asset or other asset designed, developed,
manufactured, assembled, sold, installed, repaired, licensed or otherwise made
available by Conduct or Subsidiary or any services performed by Conduct or
Subsidiary. To the Knowledge of Conduct and Subsidiary, no material event has
occurred, and no condition or circumstance exists, that might (with or without
notice or lapse of time) give rise to or serve as a basis for the assertion of
any such claim.
2.18 Insurance. Part 2.18 of the Disclosure Schedule identifies each
insurance policy maintained by, at the expense of or for the benefit of Conduct
and Subsidiary. Conduct has delivered to Mercury accurate and complete copies
of the insurance policies identified in Part 2.18 of the Disclosure Schedule.
Each of the insurance policies identified in Part 2.18 of the Disclosure
Schedule is in full force and effect.
2.19 Related Party Transactions. Except as set forth in Part 2.19 of the
Disclosure Schedule and except for this agreement and the transactions
contemplated hereby: (a) no Related Party has, and no Related Party has at any
time had any material indirect interest in any material asset used in or
otherwise relating to the business of Conduct or Subsidiary; (b) no Related
Party is, or has at any time been, indebted to Conduct or Subsidiary; (c) no
Related Party has entered into, or has had any material financial interest in,
any material Contract, transaction or business
23
<PAGE>
dealing involving Conduct or Subsidiary. For purposes of this Section 2.19, each
of the following shall be deemed to be a "Related Party": (i) each of the
Conduct Shareholders; (ii) each individual who is, or who has at any time been
an officer or director of Conduct or Subsidiary; (iii) each individual who is,
or who at any time been a member of the immediate family of any of the
individuals referred to in clauses "(i)" and "(ii)" above; (iv) any trust or
other Entity (other than Conduct) in which any one of the individuals referred
to in clauses "(i)", "(ii)" and "(iii)" above holds (or in which more than one
of such individuals collectively hold), beneficially or otherwise, a material
voting, proprietary or equity interest; and (v) as defined in Section 96A of the
Israeli Companies Ordinance-1983.
2.20 Legal Proceedings; Orders.
(a) Except as set forth in Part 2.20(a) of the Disclosure Schedule,
there is no pending Legal Proceeding, and (to the Knowledge of Conduct and
Subsidiary ) no Person has threatened to commence any Legal Proceeding: (i) that
involves Conduct, Subsidiary or any of the assets owned or used by Conduct or
Subsidiary; or (ii) that challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the transactions
contemplated by this Agreement. To the Knowledge of Conduct and Subsidiary
except as set forth in Part 2.20(a) of the Disclosure Schedule, no material
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, give rise to or
serve as a basis for the commencement of any such material Legal Proceeding.
(b) Except as set forth in Part 2.20(b) of the Disclosure Schedule,
no material Legal Proceeding has ever been commenced by, and no material Legal
Proceeding has ever been pending against, Conduct or Subsidiary.
(c) There is no order, writ, injunction, judgment or decree to which
Conduct or Subsidiary, or any of the assets owned or used by Conduct or
Subsidiary, is subject. To the Knowledge of Conduct and Subsidiary, none of the
Conduct Principal Shareholders is subject to any order, writ, injunction,
judgment or decree that relates to Conduct's business or to any of the assets
owned or used by Conduct or Subsidiary. To the Knowledge of Conduct and
Subsidiary, no officer or other employee of Conduct or Subsidiary is subject to
any order, writ, injunction, judgment or decree that prohibits such officer or
other employee from engaging in or continuing any conduct, activity or practice
relating to Conduct's business.
2.21 Authority; Binding Nature of Agreement. Conduct or Subsidiary each
have the absolute and unrestricted right, power and authority to enter into and
to perform its obligations under this Agreement and under each other agreement,
document or instrument referred to in or contemplated by this Agreement to which
Conduct or Subsidiary is or will be a party; and the execution, delivery and
performance by Conduct and Subsidiary of this Agreement and of each such other
agreement, document and instrument have been duly authorized by all necessary
action on the part of Conduct, Subsidiary and each of their boards of directors.
This Agreement and each other agreement, document and instrument referred to in
or contemplated by this Agreement to which Conduct or Subsidiary is a party
constitutes, assuming the due authorization, execution and delivery hereof by
Mercury and subject to the filings and approvals specified in Section 7 hereof,
the legal, valid and binding obligation of Conduct or Subsidiary, as
24
<PAGE>
applicable, enforceable against Conduct or Subsidiary, as applicable, in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
2.22 Non-Contravention; Consents. Except as set forth in Part 2.22 of the
Disclosure Schedule and except for Breaches which could not reasonably be
expected to have a Material Adverse Effect on Conduct or Subsidiary, neither (1)
the execution, delivery or performance of this Agreement or any other agreement,
document or instrument referred to in or contemplated by this Agreement, nor (2)
the consummation of the transactions contemplated by this Agreement or any such
other agreement, document or instrument, will directly or indirectly (with or
without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of Conduct's articles of association or (ii) Subsidiary's
articles of incorporation or bylaws, or (ii) any resolution adopted by Conduct's
or Subsidiary's shareholders or Conduct's or Subsidiary's board of directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction, judgment
or decree to which Conduct or Subsidiary, or any of the assets owned or used by
Conduct or Subsidiary, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by Conduct or Subsidiary or that otherwise relates to Conduct's
business or to any of the assets owned or used by Conduct or Subsidiary;
(d) contravene, conflict with or result in a material violation or
breach of, or result in a material default under, any provision of any material
Contract, or give any Person the right to (i) declare a default or exercise any
remedy under any Contract, (ii) accelerate the maturity or performance of any
Contract, or (iii) cancel, terminate or modify any Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by Conduct or
Subsidiary (except for minor liens that will not, in any case or in the
aggregate, materially detract from the value of the assets subject thereto or
materially impair the operations of Conduct or Subsidiary).
Neither Conduct nor Subsidiary is, nor will be, required to make any filing with
or give any notice to, or to obtain any Consent from, any Person in connection
with (x) the execution, delivery or performance of this Agreement or any other
agreement, document or instrument referred to in or contemplated by this
Agreement, or (y) the consummation of the transactions contemplated by this
Agreement or contemplated by any other agreement, document or instrument
referred to in or contemplated by this Agreement except for (A) filings with the
Israel
25
<PAGE>
Investment Center of the Israeli Ministry of Trade & Industry, (B) filings with
the Chief Scientist of the Israeli Ministry of Trade & Industry, (C) the
approval of the General Director of the Antitrust Authority in Israel, (D)
approval of Israeli Income Tax Authorities as specified in Section 6.8 below,
and (E) such other consents, approvals, orders, authorizations, registrations,
declarations and filings, the failure of which to be obtained or made would not
have, individually or in the aggregate, a Material Adverse Effect on Conduct or
Subsidiary.
2.23 Approved Enterprise. Except as set forth in Part 2.23, Conduct has
complied in all material respects with the terms and conditions as specified in
the letter of approval dated December 29, 1996 and September 8, 1999, from the
Israeli Investment Center of the Ministry of Industry and Trade for an
investment program and the terms of the Encouragement of Capital Investments
law-1959, issued to it.
2.24 Chief Scientist. Except as set forth in Part 2.24 of the Disclosure
Schedule, Conduct has complied in all material respects with the terms and
conditions as specified in the letter of approval dated March 19, 1997, from the
Chief Scientist of the Israeli Ministry of Industry and Trade and the terms of
the Encouragement of Industrial Research and Development Law - 1984.
2.25 No Brokers. Except as set forth in Part 2.25, none of Conduct nor
Subsidiary has agreed or become obligated to pay to any Person, or has taken any
action that might result in any Person claiming to be entitled to receive, any
brokerage commission, finder's fee or similar commission or fee in connection
with any of the transactions contemplated by this Agreement.
2.26 Full Disclosure. This Agreement (including the Disclosure Schedule)
does not contain any representation, warranty or information that is false or
misleading with respect to any material fact.
Section 3. Representations and Warranties of Conduct Shareholders
The Conduct Shareholders each, severally and not jointly, represent and
warrant to Mercury that on the date hereof and as of the Closing, as though made
at the Closing, as follows:
3.1 Ownership of Conduct Capital Shares. Such Conduct Shareholder is the
sole record and beneficial owner of the Conduct Capital Shares designated as
being owned by the Conduct Shareholder opposite his, her or its name in Exhibit
-------
A to this Agreement. Such Conduct Capital Shares are not subject to any Liens
-
or to any rights of first refusal of any kind, and such Conduct Shareholder has
not granted any rights to purchase such Conduct Capital Shares to any other
person or entity. Such Conduct Shareholder has the sole right to transfer such
Conduct Capital Shares to Mercury. Such Conduct Capital Shares constitute all
of the Conduct Capital Shares owned, beneficially or of record, by such Conduct
Shareholder. and such Conduct Shareholder has no options, warrants or other
rights to acquire Conduct Capital Shares. At the Closing, in exchange for the
Mercury Stock issued pursuant to Sections 1.1 and 1.5 hereof, Mercury will
receive good title to such Conduct Capital Shares, subject to no Liens retained,
granted or permitted by such Conduct Shareholder or Conduct. Such Conduct
Shareholder hereby waivers its Right of First Refusal and Right of Co-Sale with
respect to the shares held by
26
<PAGE>
other Conduct Shareholders as set forth in the Conduct Articles of Association
as currently in effect.
3.2 Tax Matters. Such Conduct Shareholder has had an opportunity to review
with his own tax advisors the tax consequences to the Conduct Shareholder of the
transactions contemplated by this Agreement. Such Conduct Shareholder
understands that he must rely solely on his advisors and not on any statements
or representations by Mercury, Conduct, Subsidiary or any of their agents. Such
Conduct Shareholder understands that he (and not Mercury, Conduct, or
Subsidiary) shall be responsible for his, her or its own tax liability that may
arise as a result of the transactions contemplated by this Agreement.
3.3 Authority. Such Conduct Shareholder has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
such Conduct Shareholder, and, assuming the due authorization, execution and
delivery by the other parties hereto, constitutes the valid and binding
obligation of such Conduct Shareholder, enforceable in accordance with its
terms, except as such enforceability may be limited by principles of public
policy and subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and to rules of law governing specific
performance, injunctive relief or other equitable remedies.
3.4 No Conflict. The execution and delivery by such Conduct Shareholder of
this Agreement and the consummation of the transactions contemplated hereby will
not conflict with any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise or license to which such
Conduct Shareholder or any of his, her or its properties or assets is subject,
or any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to such Conduct Shareholder or his, her or its properties or assets.
3.5 Exemption from Registration. Such Conduct Shareholder is aware (i)
that the Mercury Stock to be issued to Conduct Shareholder in the transactions
contemplated by this Agreement will not be registered immediately and will not
be issued pursuant to a registration statement under the Securities Act, but
will instead be issued in reliance on the exemption from registration set forth
in Section 4(2) of the Act and in Regulation D under the Act, and (ii) that
neither the transactions contemplated by this Agreement nor the issuance of such
Mercury Stock has been approved or reviewed by the SEC or by any other
governmental agency.
3.6 No Immediate Resale. Such Conduct Shareholder is aware that, because
the Mercury Stock to be issued in the transactions contemplated by this
Agreement will not be registered immediately under the Act, such Mercury Stock
cannot be resold unless such Mercury Stock is registered under the Act or unless
an exemption from registration is available. Conduct Shareholder is also aware
that while Mercury has agreed to file a registration statement promptly after
the Closing with respect to the Mercury Stock to be issued to Conduct
Shareholder in the transactions contemplated by this Agreement pursuant to the
terms of a Registration Rights Agreement among Mercury and the Conduct
Shareholders, there may be times that such registration statement would be
unavailable for use by Conduct Shareholder to sell his or her shares. If the
registration statement is unavailable then the provisions of Rule 144 under the
Act will permit resale of the Mercury Stock to be issued to Conduct Shareholder
in the transactions
27
<PAGE>
contemplated by this Agreement only under limited circumstances, and such
Mercury Stock must be held by Conduct Shareholder for at least one year before
it can be sold pursuant to Rule 144.
3.7 Investment Intent. The Mercury Stock to be issued to Conduct
Shareholder in the transactions contemplated by this Agreement will be acquired
by Conduct Shareholder for investment and for his own account, and not with a
view to, or for resale in connection with, any unregistered distribution
thereof.
3.8 Adequate Investigation. Conduct Shareholder has received, reviewed and
considered all the information Conduct Shareholder considers necessary to enable
Conduct Shareholder to make an informed decision to invest in Mercury Stock,
including the Mercury SEC Documents (defined below).
3.9 Sophisticated Investor. Conduct Shareholder (either by himself or in
conjunction with his representative) is knowledgeable, sophisticated and
experienced in making, and is qualified to make, decisions with respect to
investments in securities presenting investment decisions like that involved in
Conduct Shareholder's contemplated investment in the Mercury Stock to be issued
in the transactions contemplated by this Agreement. Conduct Shareholder
understands and has fully considered the risks of acquiring and owning Mercury
Stock and further understands that: (i) an investment in Mercury Stock is a
speculative investment which involves a high degree of risk and is suitable only
for an investor who is able to bear the economic consequences of losing his or
her entire investment; and (ii) there are substantial restrictions on the
transferability of the Mercury Stock to be issued in the transactions
contemplated by this Agreement, and, accordingly, it may not be possible for
Conduct Shareholder to liquidate his investment in such Mercury Stock (in whole
or in part) in the case of emergency. Conduct Shareholder is able: (1) to hold
the Mercury Stock that he is to receive in the transactions contemplated by this
Agreement for a substantial period of time; and (2) to afford a complete loss of
his investment in such Mercury Stock.
3.10 Legends; Stop Transfer Orders. Conduct Shareholder understands that
stop transfer instructions will be given to Mercury's transfer agent with
respect to the Mercury Stock to be issued to Conduct Shareholder in the
transactions contemplated by this Agreement, and that there will be placed on
the certificate or certificates representing such Mercury Stock a legend
identical or similar in effect to the following legend (together with any other
legend or legends required by applicable state securities laws or otherwise):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
UNLESS REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE."
28
<PAGE>
Section 4. Representations and Warranties of Mercury Mercury represents and
warrants to Conduct, Subsidiary and the Conduct Shareholders as follows:
4.1 Corporate Status. Mercury is a corporation duly organized, validly
existing and in good standing under, the laws of the State of Delaware.
4.2 SEC Filings; Financial Statements.
(a) Mercury has filed all required reports, schedules, forms,
statements and other documents with the SEC since January 1, 1995 (the "Mercury
SEC Documents"). Mercury has delivered or otherwise made available to the
Conduct Shareholders accurate and complete copies (excluding copies of exhibits)
of each report, registration statement (on a form other than Form S-8) and
definitive proxy statement filed by Mercury with the SEC between January 1, 1999
and the date of this Agreement. As of the time it was filed with the SEC (or, if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing): (i) each of the Mercury SEC Documents complied in all
material respects with the applicable requirements of the Securities Act or the
Exchange Act (as the case may be); and (ii) none of the Mercury SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The consolidated financial statements contained in the Mercury
SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered, except as may be indicated in
the notes to such financial statements and (in the case of unaudited statements)
as permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to normal and recurring
year-end audit adjustments (which will not, individually or in the aggregate, be
material in magnitude); and (iii) fairly present the consolidated financial
position of Mercury and its subsidiaries as of the respective dates thereof and
the consolidated results of operations of Mercury and its subsidiaries for the
periods covered thereby.
4.3 Authority; Binding Nature of Agreement. Mercury has the absolute and
unrestricted right, power and authority to perform its obligations under this
Agreement and under each other agreement, document or instrument referred to in
or contemplated by this Agreement to which Mercury is or will be a party; and
the execution, delivery and performance by Mercury of this Agreement and under
each other agreement, document or instrument referred to in or contemplated by
this Agreement to which Mercury is or will be a party has been duly authorized
by all necessary action on the part of Mercury and its board of directors. This
Agreement and each other agreement, document or instrument referred to in or
contemplated by this Agreement to which Mercury is or will be a party
constitutes the legal, valid and binding obligation of Mercury, enforceable
against Mercury in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
29
<PAGE>
4.4 Consents and Approvals; No Violations. There is no requirement
applicable to Mercury to make any filing with, or to obtain any permit,
authorization, consent or approval of any Governmental Body as a condition to
the execution, delivery or performance by Mercury of this Agreement or any other
agreement, document or instrument referred to in or contemplated by this
Agreement, or the lawful consummation by Mercury of the transactions
contemplated by this Agreement, except for (A) the approval of the General
Director of the Antitrust Authority in Israel, (B) filings with the Israel
Investment Center of the Israeli Ministry of Trade & Industry, (C) filings with
the Chief Scientist of the Israeli Ministry of Trade & Industry, (D) the
approval of Israeli Income Tax Authorities set forth in Section 6.8 below, and
(E) such other consents, approvals, orders, authorizations, registrations,
declarations and filings, the failure of which to be obtained or made would not
have, individually or in the aggregate, a Material Adverse Effect on Mercury.
Neither the execution, delivery or performance of this Agreement by Mercury or
any other agreement, document or instrument referred to in or contemplated by
this Agreement nor the consummation by Mercury of the transactions contemplated
by this Agreement or any such other agreement, document or instrument will
directly or indirectly (with or without notice or lapse of time) (i) contravene,
conflict with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws of Mercury or any resolution adopted by Mercury's
shareholders or board of directors, (ii) contravene, conflict with or result in
a material breach or default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any material note, bond, mortgage, indenture, license agreement, lease or
other material contract, instrument or obligation to which Mercury is a party or
by which any of its assets may be bound, (iii) contravene, conflict with or
result in violation in any material respects any statute, rule, regulation,
order, writ, injunction or decree or any other Government Authorization
applicable to Mercury or any of its material assets, where the consequences of
any and all such breaches, defaults and violations would, in the aggregate, have
a material and adverse effect on the business, operations or financial condition
of Mercury taken as a whole, (iv) contravene, conflict with or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the transactions contemplated by this Agreement or to exercise
any remedy or obtain any relief under any Legal Requirement or any order, writ,
injunction, judgement or decree, or (v) result in the creation of any material
(individually or in the aggregate) liens, charges or Encumbrances on any of the
assets of Mercury. Mercury is aware that in order to obtain the approval of the
Chief Scientist of the Israeli Ministry of Trade & Industry, it will be required
to deliver to the Chief Scientist certain undertakings substantially in the form
attached as Exhibit J. As promptly as practicable after the date hereof, and in
---------
any event prior to the Closing, Mercury will sign and deliver such form to the
Chief Scientist.
4.5 Valid Issuance. Subject to Section 1.5(e), the Mercury Stock to be
issued in the transactions contemplated by this Agreement will, when issued in
accordance with the provisions of this Agreement, be validly issued, fully paid
and nonassessable, and free of Encumbrances, issued in compliance with all Legal
Requirements and free of restriction on transfer other than restrictions
pursuant to this Agreement and under applicable securities laws.
30
<PAGE>
SECTION 5. Certain Covenants
5.1 Access and Investigation.
(a) During the period from the date of this Agreement through the
Closing Date (the "Pre-Closing Period"), Conduct shall: (a) provide Mercury and
Mercury's Representatives with reasonable access to Conduct's and Subsidiary's
personnel and assets and to all existing books, records, tax returns, work
papers and other documents and information relating to Conduct and Subsidiary;
and (b) provide Mercury and Mercury's Representatives with copies of such
existing books, records, tax returns, work papers and other documents and
information relating to Conduct and Subsidiary, and with such additional
financial, operating and other data and information regarding Conduct and
Subsidiary, as Mercury may reasonably request.
(b) During the Pre-Closing Period, Mercury shall: (a) provide Conduct
and Conduct's Representatives with reasonable access to Mercury's personnel and
assets and to all existing books, records, tax returns, work papers and other
documents and information relating to Mercury; and (b) provide Conduct and
Conduct's Representatives with copies of such existing books, records, tax
returns, work papers and other documents and information relating to Mercury,
and with such additional financial, operating and other data and information
regarding Mercury, as Conduct may reasonably request.
(c) All information provided during the Pre-Closing Period by Mercury
or Conduct to the other or the other's Representatives in connection with any
investigation hereunder or pursuant to the negotiation and execution of this
Agreement and the consummation of the transactions contemplated hereby shall be
subject to the provisions of the Mutual Nondisclosure Agreement between Mercury
and Conduct dated as of September 29, 1999 (the "Nondisclosure Agreement"),
which shall remain in full force and effect. Except for information set forth in
the Disclosure Schedule or the attachments thereto, no information obtained in
any investigation shall effect or be deemed to modify any representation or
warranty contained in this Agreement.
5.2 Operation of the Business of Conduct. Without the prior written consent
of Mercury during the Pre-Closing Period, and except as otherwise contemplated
or permitted by this Agreement:
(a) Conduct and Subsidiary shall each use its best effort to conduct
its business and operations in the ordinary course and in substantially the same
manner as such business and operations have been conducted prior to the date of
this Agreement, shall pay its debts and Taxes when due (subject to good faith
disputes, if any, over such debts and Taxes), and shall pay or perform its other
material obligations when due;
(b) Conduct and Subsidiary shall each use commercially reasonable
efforts to (i) preserve intact its current business organization, (ii) keep
available the services of its current officers and employees and (iii) maintain
its relations and good will with all suppliers,
31
<PAGE>
customers, landlords, creditors, employees and other Persons having business
relationships with Conduct;
(c) Conduct and Subsidiary shall not declare, accrue, set aside or
pay any dividend or make any other distribution in respect of any capital
shares;
(d) Conduct and Subsidiary shall not repurchase, redeem or otherwise
reacquire any capital shares or other securities other than pursuant to
Contracts in effect as of the date of this Agreement;
(e) Except for Conduct Capital Shares issued upon the exercise of
options and warrants to purchase Conduct Capital Shares and any convertible
promissory notes outstanding on the date of this Agreement and upon the
conversion of Conduct Preferred Shares, neither Conduct nor Subsidiary shall
sell, issue or authorize the issuance of (i) any capital shares or other
security, (ii) any option or right to acquire any capital shares or other
security or (iii) any instrument convertible into or exchangeable for any
capital shares or other security;
(f) Conduct shall not amend its articles of association or the
articles of incorporation or bylaws of Subsidiary, or effect or permit Conduct
or Subsidiary to become a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(g) Conduct and Subsidiary shall not form any subsidiary or acquire
any equity interest or other interest in any other Entity;
(h) Neither Conduct nor Subsidiary shall (i) establish, adopt or
amend any employee benefit plan, (ii) pay any bonus or make any profit-sharing
payment, severance (except as required by applicable law), cash incentive
payment or similar payment to, increase the amount of the wages, salary,
commissions, fringe benefits or other compensation or remuneration payable to,
any of its directors, officers or employees, or accelerate the vesting of any
Conduct Option or any Conduct Capital Shares subject to vesting or (iii) hire
any new employee or terminate any current employee;
(i) Neither Conduct nor Subsidiary shall change any of its methods of
accounting or accounting practices;
(j) Neither Conduct nor Subsidiary shall make any Tax election;
(k) Neither Conduct nor Subsidiary shall commence or settle any Legal
Proceeding, except as required by applicable law;
(l) Neither Conduct nor Subsidiary shall enter into any license
agreement with respect to or otherwise transfer any rights to any Conduct
Proprietary Asset, or except in the ordinary course of business enter into any
license with respect to any Proprietary Asset of any other person or entity;
32
<PAGE>
(m) Neither Conduct nor Subsidiary shall enter into or amend any
Contract pursuant to which any other party is granted marketing, distribution or
similar rights of any type or scope with respect to any products or technology
of Conduct or Subsidiary;
(n) Neither Conduct nor Subsidiary shall amend or otherwise modify or
violate the terms of any of Conduct Contracts set forth or described in the
Disclosure Schedule;
(o) Neither Conduct nor Subsidiary shall incur any indebtedness for
borrowed money (other than indebtedness to trade creditors in the ordinary
course of business) or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others;
(p) Neither Conduct nor Subsidiary shall grant any loans to others
(other than advances of employee travel expenses in the ordinary course of
business consistent with past practices) or purchase debt securities of others
or amend the terms of any outstanding loan agreement;
(q) Neither Conduct nor Subsidiary shall revalue any of its assets,
including without limitation writing down the value of inventory or writing off
notes;
(r) Other than obligations existing as of the date of this Agreement,
neither Conduct nor Subsidiary shall pay, discharge or satisfy, in an amount in
excess of $25,000 (in any one case) or $100,000 (in the aggregate), any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise);
(s) No Conduct Shareholder shall transfer any Conduct Capital Shares
to any other Person; and
(t) Neither Conduct nor Subsidiary nor any Conduct Shareholder shall
agree or commit to take any of the actions described in clauses "(c)" through
"(s)" above.
5.3 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, Conduct shall promptly notify
Mercury in writing of: (i) the discovery by Conduct or Subsidiary of any event,
condition, fact or circumstance that occurred or existed on or prior to the date
of this Agreement and that caused or constitutes an inaccuracy in or breach of
any representation or warranty made by Conduct or Subsidiary in this Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or exists
after the date of this Agreement and that would cause or constitute an
inaccuracy in or breach of any representation or warranty made by Conduct or
Subsidiary in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement; (iii) any breach of any covenant or obligation of Conduct or
Subsidiary; and (iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 7
impossible or unlikely. Notification in accordance with this Section 5.3(a)
shall not
33
<PAGE>
affect Conduct's or Subsidiary's liability for breach of any such
representation, warranty or covenant under this Agreement.
(b) During the Pre-Closing Period, Mercury shall promptly notify
Conduct in writing of: (i) the discovery by Mercury of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by Mercury in this Agreement; (ii) any event,
condition, fact or circumstance that occurs, arises or exists after the date of
this Agreement and that would cause or constitute an inaccuracy in or breach of
any representation or warranty made by Mercury in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance or (B)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement; (iii) any breach of any covenant or
obligation of Mercury; and (iv) any event, condition, fact or circumstance that
would make the timely satisfaction of any of the conditions set forth in Section
8 impossible or unlikely. Notification in accordance with this Section 5.3(b)
shall not affect Mercury's liability for breach of any such representation,
warranty or covenant under this Agreement.
5.4 No Negotiation. During the Pre-Closing Period, Conduct, Subsidiary and
the Conduct Shareholders shall not, and shall not permit any of their
Representatives to: (a) solicit any proposal or offer from any Person (other
than Mercury) for or relating to a possible Acquisition Transaction; or (b)
participate in any negotiations or enter into any agreement with, or provide any
information to or cooperate with, any Person (other than Mercury) relating to or
in connection with a possible Acquisition Transaction or any other transaction
which would alter the equity ownership of Conduct. In addition to the foregoing,
if Conduct receives prior to the Closing or the termination of this Agreement
any offer, proposal, or request relating to any of the above, Conduct shall
immediately notify Mercury thereof, including information as to the identity of
the offeror or the party making any such offer or proposal and the specific
terms of such offer or proposal, as the case may be, and such other information
related thereto as Mercury may reasonably request.
SECTION 6. Additional Covenants of the Parties
6.1 Filings and Consents. As promptly as practicable after the execution of
this Agreement, each party to this Agreement (a) shall make all filings, if any,
and give all notices, if any, required to be made and given by such party in
connection with the transactions contemplated by this Agreement and (b) shall
use all commercially reasonable efforts to obtain all Consents, if any, required
to be obtained (pursuant to any applicable Legal Requirement or Contract, or
otherwise) by such party in connection with the transactions contemplated by
this Agreement. Without limiting the foregoing, the parties shall promptly (i)
apply for and obtain the approvals of the Chief Scientist of the Israel,
Ministry of Trade and Industry, the Investment Center of the Israeli Ministry of
Trade and Industry, the Israeli Income Tax Authorities and the Israeli General
Director of the Antitrust Authority and (ii) provide notices of to holders of
Conduct Warrants.
34
<PAGE>
6.2 Reservation of Authorized Common Stock. Mercury shall also reserve a
sufficient number of Common Stock for issuance upon exercise of assumed options
of Conduct.
6.3 Nasdaq Listing. As promptly as practicable after the date hereof, and
in any event prior to the Closing, Mercury shall use its best efforts to cause
the shares of the Mercury Stock to be issued pursuant to this Agreement to be
included on Nasdaq, subject to notice of official issuance thereof.
6.4 Public Announcements . Except as required by applicable law, Mercury,
in its sole discretion, shall determine the form, timing and contents of
announcements and disclosures regarding the proposed transaction; provided,
--------
however, prior to any such announcement, Mercury shall afford Conduct a
-------
reasonable opportunity to review and comment on any such announcement or
disclosure.
6.5 Best Efforts. During the Pre-Closing Period, Conduct, Subsidiary and
Mercury shall each use their best efforts to cause the conditions set forth in
Sections 7 and 8 to be satisfied before November 30, 1999.
6.6 Employee Matters. Mercury and Conduct shall use commercially
reasonable efforts to recruit each key employee of Conduct or Subsidiary to
continue at-will employment with Conduct or Subsidiary after the Closing. Those
employees of Conduct or Subsidiary that continue to be employees of Mercury or
any of its affiliates, including Conduct or Subsidiary, following the Closing
shall upon the closing be eligible to participate in Mercury's health, vacation,
employee stock purchase, 401(k) and other plans, to the same extent as
comparably situated employees of Mercury and shall receive credit under
Mercury's benefit plans for time served as an employee of Conduct or Subsidiary.
6.7 Additional Shareholders. Conduct shall notify Mercury of any exercises
or cancellations of options or warrants or conversions of convertible promissory
notes after the date of this Agreement until the Closing. Conduct shall use its
best efforts to cause each such Person who exercises a Conduct Option or Conduct
Warrant or converts a Conduct Convertible Promissory Note to become parties to
this Agreement (the "New Conduct Shareholders"). Any such New Conduct
Shareholders may be added as parties to this Agreement as set forth in Section
11.12 hereof. Any such New Conduct Shareholder who executes this Agreement and
shall be considered "Conduct Shareholders" for all purposes of this Agreement.
6.8 Qualified Option Plan. As promptly as practicable after the date
hereof, and in any event prior to the Closing, Mercury shall use its best
efforts to obtain approval of the Israeli Income Tax Authorities for the
qualification of the options of Conduct assumed by Mercury pursuant to this
Agreement as Options granted pursuant to the provisions of section 102 of the
Israeli Income Tax Ordinance (new version) 1961 (the "Ordinance") and any
regulations, rules, orders or procedures promulgated thereunder, including the
Income Tax Rules (Tax benefits in Stock Issuance to Employees) 5349-1989 (the
"Rules").
35
<PAGE>
6.9 Indemnification of Directors and Officers . For a period of six years
from the Closing Date, Mercury shall, and shall cause Conduct to, fulfill and
honor in all respects all rights to indemnification existing in favor of the
directors and officers of Conduct, as provided in and subject to the terms of
Conduct's Articles of Association (as in effect as of the date of this
Agreement) and pursuant to any resolutions of Conduct or Subsidiary provided
that (a) the indemnified party has met any applicable standard of conduct to
qualify for such indemnification and (b) the basis of the claim against such
indemnified party does not otherwise constitute a breach of any of the
representations or warranties made by, or covenants to be performed by, Conduct
under this Agreement. This Section 6.9 shall survive the consummation of the
transactions contemplated hereby, is intended to benefit and may be enforced by
the directors and officers of Conduct, and shall be binding on all successors
and assigns of Mercury and Conduct.
6.10 Private Placement. Mercury and Conduct shall each take all steps
necessary or desirable, utilize all commercially reasonable efforts and
cooperate with one another in every way to have the issuance of the shares of
Mercury Stock to be issued in the transactions contemplated by this Agreement
qualify for one of the exemptions from registration under the Securities Act
provided in Regulation D promulgated thereunder, including the retention of a
purchaser representative, if necessary.
6.11 Registration Statements.
(a) Mercury will prepare and file with the SEC a registration
statement on Form S-3 in accordance with the terms of the Registration Rights
Agreement.
(b) Mercury will, within 10 days after the Closing, prepare and file
with the SEC a registration statement on Form S-8, in connection with the
issuance of the Mercury Stock with respect to the assumed Conduct Options and
maintain the effectiveness of such registration statement thereafter for so long
as any such options remain outstanding.
SECTION 7. Conditions Precedent to Obligations of Mercury
The obligations of Mercury to effect the transactions contemplated by this
Agreement are subject to the satisfaction (or waiver by Mercury), at or prior to
the Closing, of each of the following conditions:
7.1 Accuracy of Representations. Each of the representations and warranties
made by Conduct, Subsidiary and the Conduct Shareholders in this Agreement shall
have been accurate as of the date of this Agreement. In addition, the
representations and warranties of Conduct, Subsidiary and the Conduct
Shareholders contained in this Agreement shall be true and correct in all
material respects on and as of the Closing except for changes contemplated by
this Agreement and except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as of
such particular date), with the same force and effect as if made on and as of
the Closing except in such cases (other than the representations in Sections
2.2, 2.3, 2.21, 3.1 and 3.4) where the failure to be so true and correct would
not have a Material Adverse Effect on Conduct. Mercury shall have received a
certificate
36
<PAGE>
with respect to the foregoing signed on behalf of Conduct and Subsidiary by two
of the respective executive officers or legally authorized signatories of each
of Conduct and Subsidiary.
7.2 Performance of Covenants. All of the covenants and obligations that
Conduct is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all material respects, except
where the failure to have performed or complied with such covenants and
obligations has not had a Material Adverse Effect on Conduct, or Mercury's
ownership and control thereof, after the Closing.
7.3 Agreements and Documents. Mercury shall have received the following
agreements and documents, each of which shall be in full force and effect:
(a) an Escrow Agreement in the form of Exhibit C hereto, executed by
---------
the Shareholders' Agent on behalf of the Conduct Shareholders;
(b) written resignations of all directors of Conduct and Subsidiary,
effective as of the Closing Date
(c) a legal opinion of Tida Shamir & Co., Advocates substantially in
the form of Exhibit F-1 hereto
-----------
(d) |
