EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is entered into as of
July 10, 1998 by and among Visio Corporation, a Washington corporation
("Buyer"), VMS-1, Inc., a Delaware corporation and wholly owned subsidiary of
Buyer ("Merger Sub"), Kaspia Systems, Inc., a Delaware corporation ("Seller"),
and Xxxx Xxxxx and Xxxxx Xxxxxx (the "Significant Stockholders").
RECITALS
A. Seller, the Significant Stockholders, Buyer and Merger Sub believe it
advisable and in their respective best interests to effect a merger of Seller
and Merger Sub pursuant to this Agreement (the "Merger").
B. The Boards of Directors of Buyer and of Merger Sub and the sole
stockholder of Merger Sub each have approved the Merger in accordance with
applicable law.
C. The Merger is intended to be treated as a tax-free reorganization
pursuant to the provisions of Section 368(a)(1) of the Internal Revenue Service
Code of 1986, as amended (the "Code"), and as a "pooling of interests" for
accounting purposes.
AGREEMENT
In consideration of the terms hereof, the parties hereto agree as follows:
ARTICLE I - THE MERGER
1.1 MERGER
Upon the terms and subject to the conditions hereof, (a) at the Effective
Time (as defined in Section 1.3) the separate existence of Merger Sub shall
cease and Merger Sub shall be merged with and into Seller (Seller is sometimes
referred to herein as the "Surviving Corporation") and (b) from and after the
Effective Time, the Merger shall have all the effects of a merger under the laws
of the State of Delaware and other applicable law.
1.2 THE CLOSING
The closing of the Merger pursuant to this Agreement (the "Closing") shall
take place on July 10, 1998 or on the earliest business date thereafter on which
all the conditions to the Closing set forth in Articles V and VI are satisfied
(the "Closing Date") at 9:00 a.m. local time at the offices of Xxxxxxx Coie LLP
1201 Third Avenue, 46th Floor, Seattle, Washington, or at such other place, time
and location as Buyer and Seller shall
agree. At the Closing, each of the parties hereto shall deliver all such
documents, instruments, certificates and other items as may be required under
this Agreement or the Operative Documents (as defined in Section 2.3(b)) or
otherwise.
1.3 EFFECTIVE DATE AND TIME
On the Closing Date and subject to the terms and conditions hereof, a
certificate of merger (the "Certificate of Merger") complying with the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
substantially in the form attached hereto as Exhibit 1.3, and in such form and
executed in such manner as required by Delaware Law, shall be delivered for
filing to the Secretary of State of the State of Delaware (the "Delaware
Secretary of State"). The Merger shall become effective on the date (the
"Effective Date") and at the time (the "Effective Time") of filing of the
Certificate of Merger or at such other time as may be specified in the
Certificate of Merger as filed. If the Delaware Secretary of State requires any
changes in the Certificate of Merger as a condition to its filing or to issuing
a certificate to the effect that the Merger is effective, Buyer, Merger Sub,
Seller and the Significant Stockholders will execute any necessary revisions
incorporating such changes, provided such changes are not inconsistent with and
do not result in any material change in the terms of this Agreement.
1.4 CERTIFICATE OF INCORPORATION OF SURVIVING CORPORATION
At the Effective Time, the Certificate of Incorporation of Merger Sub shall
be in the form attached hereto as Exhibit 1.4 and shall be the Certificate of
Incorporation of the Surviving Corporation. Thereafter, the Certificate of
Incorporation of the Surviving Corporation may be amended in accordance with its
terms and as provided by Delaware Law.
1.5 BYLAWS OF SURVIVING CORPORATION
At the Effective Time, the Bylaws of Merger Sub shall be in the form
attached hereto as Exhibit 1.5 and shall be the Bylaws of the Surviving
Corporation. Thereafter, the Bylaws of the Surviving Corporation may be amended
in accordance with their terms, the Certificate of Incorporation of the
Surviving Corporation and as provided by Delaware Law.
1.6 DIRECTORS AND OFFICERS
At the Effective Time, the directors of Merger Sub shall continue in office
as the directors of the Surviving Corporation, and the officers of Merger Sub
shall continue in office as the officers of the Surviving Corporation, and such
directors and officers shall hold office in accordance with and subject to the
Certificate of Incorporation and Bylaws of the Surviving Corporation.
-2-
1.7 MERGER CONSIDERATION
1.7.1 CONVERSION OF SHARES
At the Effective Time, by virtue of the Merger and without any action on
the part of the holders thereof:
(a) All shares of any class of capital stock of Seller held by Seller as
treasury shares or otherwise will be canceled.
(b) Subject to Section 1.7.2, each share of common stock, $.001 par value
per share (the "Seller Common Stock") (including each share of Seller Common
Stock issued upon conversion of Seller's Series A Preferred Stock, $.001 par
value per share (the "Series A Stock")), and each share of Series B Preferred
Stock, $.001 par value per share (the "Series B Stock") (including each share of
Series B Stock issued upon the exercise immediately prior to the Effective Time
of the Warrants (as defined in Section 2.5(b))) (the "Series B Stock," and
together with the Seller Common Stock, the "Seller Capital Stock"), of Seller
issued and outstanding immediately prior to the Effective Time (other than
shares of Seller Capital Stock as to which dissenters' rights of appraisal have
been exercised under Delaware Law) shall be converted into the right to receive
from Buyer that number of whole shares of Buyer's common stock, $.01 par value
per share ("Buyer Common Stock"), as determined below.
(1) Each share of Seller Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive from Buyer that number of shares of Buyer Common Stock equal to the
quotient obtained by dividing (A) 491,702 shares (the "Buyer Base Shares") minus
the Liquidation Preference Shares (as defined below) by (B) the sum of (i) the
outstanding shares of Seller Capital Stock plus (ii) that number of shares of
Seller Capital Stock issuable upon exercise of all outstanding options and
warrants to acquire shares of Seller Capital Stock (assuming in the case of
clauses (A) and (B) that any and all shares of Series A Stock that may be issued
and outstanding or issuable have been converted into shares of Seller Common
Stock) with any fractional shares rounded up to the nearest whole number (the
quotient so derived being referred to herein as the "Common Exchange Ratio").
(2) Each share of Series B Stock issued and outstanding immediately
prior to the Effective Time shall be converted into the right to receive from
Buyer that number of shares of Buyer Common Stock equal to (A) the product
obtained by multiplying 1.5 by the Common Exchange Ratio, plus (B) the quotient
obtained by dividing (i) the Liquidation Preference Shares by (ii) the total
number of outstanding shares of Series B Stock, including each share of Series B
Stock obtained upon the exercise immediately prior to the Effective Time of the
Warrants with any fractional shares rounded up to the nearest whole number.
-3-
(3) "Liquidation Preference Shares" shall mean the quotient obtained
by dividing (A) the product obtained by multiplying (i) the Liquidation
Preference Amount by (ii) the total number of outstanding shares of Series B
Stock, including each share of Series B Stock obtained upon the exercise
immediately prior to the Effective Time of the Warrants, by (B) the Average
Closing Price (as defined in Section 1.7.2). "Liquidation Preference Amount"
shall mean the liquidation preference set forth with respect to the Series B
Stock in Seller's Amended and Restated Certificate of Incorporation ($1.35 per
share).
(4) The shares of Buyer Common Stock issued pursuant to this Section
1.7.1 are referred to herein as the "Merger Consideration."
1.7.2 ADJUSTMENT OF BUYER BASE SHARES
(a) The number of Buyer Base Shares issuable pursuant to Section 1.7.1
(and the Merger Consideration) is subject to adjustment as follows:
(i) if the product obtained by multiplying 491,702 by the average of
the daily average prices of Buyer Common Stock as reported by the Nasdaq
National Market for the five (5) consecutive trading days immediately prior to
the Closing Date (the "Average Closing Price") is equal to or greater than
Twenty Three Million Four Hundred Fifty Six Thousand Dollars ($23,456,000), then
the number of Buyer Base Shares shall be adjusted to equal the quotient obtained
by dividing Twenty-Three Million Four Hundred Fifty Six Thousand Dollars
($23,456,000) by the Average Closing Price;
(ii) if the product obtained by multiplying 491,702 by the Average
Closing Price is equal to or less than Twenty One Million Four Hundred Fifty Six
Thousand Dollars ($21,456,000), then the number of Buyer Base Shares shall be
adjusted to equal the quotient obtained by dividing Twenty One Million Four
Hundred Fifty Six Thousand Dollars ($21,456,000) by the Average Closing Price;
and
(iii) if Seller's Actual Net Equity (as defined and calculated in
accordance with Section 1.7.3) as of the Closing Date exceeds a deficit of
$1,075,000 (the "Equity Deficit Amount"), then the number of Buyer Base Shares
shall be reduced by an amount equal to (A) the difference between the Seller's
Actual Net Equity as disclosed on the Closing Balance Sheet (as defined in
Section 1.7.3(a)) and the Equity Deficit Amount (such difference, the "Closing
Adjustment"), divided by (B) the Average Closing Price.
1.7.3 CLOSING ADJUSTMENT
(a) "Actual Net Equity" shall mean Seller's total assets less Seller's
total liabilities (for purposes of this definition, Seller's total liabilities
shall exclude redeemable
-4-
preferred stock), determined in conformity with United States generally accepted
accounting principles ("GAAP") and in a manner consistent with that used to
prepare the Seller Financial Statements (as defined in Section 2.7). It is
expressly acknowledged that the fees of Vrolyk & Co., as well as all fees of
Seller in connection with this transaction, shall be included in the
determination of Actual Net Equity. No later than two (2) business days prior to
the Closing Date, Seller shall prepare and deliver to Buyer (i) a balance sheet
dated as of June 30, 1998, prepared in a manner consistent with that used to
prepare the Seller Financial Statements and audited by KPMG Peat Marwick LLP and
(ii) a balance sheet dated as of two (2) days prior to the Closing Date,
prepared in a manner consistent with that used to prepare the Seller Financial
Statements (the "Closing Balance Sheet").
(b) In the event that Buyer shall dispute the Closing Balance Sheet, Buyer
may, within thirty (30) days after the Closing Date, engage a nationally
recognized firm of certified public accountants (the "Independent Expert")
selected by Buyer and reasonably acceptable to the Stockholder Representative
(as defined below). The costs and expenses of such Independent Expert shall be
borne by Buyer; provided, however, that should the Independent Expert determine
that there exists a discrepancy between the Closing Balance Sheet and the Final
Balance Sheet (as defined below) in excess of $50,000 (a "Discrepancy"), and, as
a result, the sum of (i) the dollar value of the Discrepancy, (ii) the cost and
expenses of the Independent Expert, and (iii) the Actual Net Equity shall exceed
the Equity Deficit Amount, the costs of such audit shall be borne by the
stockholders of Seller (the "Stockholders") (with such cost, if any, borne by
the Stockholders considered a Loss for purposes of Article VIII). The
Independent Expert shall perform an audit of the Closing Balance Sheet and shall
deliver its audited Closing Balance Sheet (the "Final Balance Sheet") to Buyer
and the representative for the Stockholders appointed by the Stockholders in the
Investor Rights Agreement (as defined in Section 5.17) (the "Stockholder
Representative") no later than thirty (30) days following appointment. The
decision of the Independent Expert shall be final and binding upon the parties.
(c) In the event that the Final Balance Sheet reflects an Actual Net
Equity deficit that is greater than that reflected on the Closing Balance Sheet
(an "Understatement"), the amount of such Understatement shall be deemed to
constitute a Loss (as defined in Section 8.2) for purposes of Article VIII, and
Buyer shall be entitled to recover from the Escrowed Shares (as defined in
Section 1.7.4) that number of Escrowed Shares determined by dividing such
Understatement by the Average Closing Price, in accordance with the Escrow
Agreement (as defined in Section 1.7.4).
1.7.4 ESCROWED SHARES
(a) At the Closing, ten percent (10%) of the shares received as part of
the Merger Consideration (the "Escrowed Shares") shall be deposited in escrow
with
-0-
XxxxxXxxxxx Shareholder Services L.L.C., as escrow agent, or such other party as
may be agreed upon prior to the Closing (the "Escrow Agent"), to be held and
administered in accordance with an Escrow Agreement in substantially the form
attached hereto as Exhibit 1.7 (the "Escrow Agreement") for the purpose of
securing the indemnification obligations pursuant to Article VIII and the
obligations with respect to any Understatement calculated pursuant to Section
1.7.3(c). The Escrowed Shares shall be deducted pro rata from that portion of
the Merger Consideration, as adjusted, otherwise issuable to each of the
Stockholders. Fractional shares of Buyer Common Stock shall not be deposited in
escrow. In lieu thereof, each Stockholder shall round up such fractional share
to the nearest whole number and deposit in escrow a full share of Buyer Common
Stock for such fractional share. The Escrowed Shares shall be registered in the
name of the respective Stockholders and shall be accompanied by stock powers
endorsed in blank.
(b) At the termination of the Survival Period (as defined in Section 8.1),
any Escrowed Shares that are not required to reimburse Buyer for any Loss which
constitutes an indemnifiable claim under Article VIII or an Understatement under
Section 1.7.3(c), or that are not pending determination as an indemnifiable
claim, shall be returned by the Escrow Agent to the Stockholders, pro rata, in
the same proportion as originally deducted from the portion of the Merger
Consideration otherwise issuable to each Stockholder. Any Escrowed Shares
returned to Buyer hereunder shall be treated, to the extent permitted by law, by
the Stockholders and by Buyer as a purchase price adjustment.
(c) Notwithstanding the escrow of the Escrowed Shares, dividends or other
distributions declared and paid on such shares shall continue to be paid by
Buyer to the Stockholders and all voting rights with respect to such shares
shall inure to the benefit of and be enjoyed by the Stockholders. Any
securities received by the Escrow Agent in respect of any Escrowed Shares held
in escrow as a result of any stock split or combination of shares of Buyer
Common Stock, payment of a stock dividend or other stock distribution in or on
shares of Buyer Common Stock, or change of Buyer Common Stock into any other
securities pursuant to or as a part of a merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation of Buyer, or
otherwise, shall be held by the Escrow Agent as, and shall be included within
the definition of, Escrowed Shares.
1.7.5 STOCK OPTIONS
At the Effective Time, (i) each outstanding option to purchase Seller
Common Stock (each, an "Option") issued pursuant to Seller's Amended and
Restated 1996 Stock Option Plan (the "Option Plan"), whether vested or unvested,
shall be assumed by Buyer and shall constitute an option (an "Assumed Option")
to acquire, on the same terms and conditions as were applicable under such
Option prior to the Effective Time, that number of shares of Buyer Common Stock
(rounded down to the nearest whole number) determined by multiplying (A) the
Common Exchange Ratio by (B) the number of shares
-6-
of Seller Common Stock then subject to purchase pursuant to such Option, at a
price per share (rounded up to the nearest $.001) equal to the aggregate
exercise price for the shares of Seller Common Stock then subject to purchase
pursuant to such Option, divided by the number of full shares of Buyer Common
Stock deemed to be purchasable pursuant to such Assumed Option; provided,
however, that, with respect to an Option to which Section 421 of the Code
applies by reason of its qualification under Section 422 or 423 of the Code (a
"qualified stock option"), in no event shall the terms of any Assumed Option
give the holder of a qualified stock option additional benefits that he or she
did not have under such qualified stock option, (ii) any references in each such
Assumed Option to Seller shall be deemed to refer to Buyer, where appropriate,
and (iii) Buyer shall assume the Option Plan and any references in the Option
Plan to Seller shall be deemed to refer to Buyer, where appropriate. To the
extent necessary to register such shares, Buyer shall file on or prior to the
date that is thirty (30) days after the Closing Date, and maintain the
effectiveness of, a registration statement or registration statements on Form S-
8 with respect to the shares of Seller Common Stock subject to such Assumed
Options for so long as such Assumed Options remain outstanding. Buyer shall use
reasonable efforts to take such actions as are necessary for the conversion of
the Assumed Options pursuant to this Section 1.7.5, including the reservation,
issuance and listing of shares of Buyer Common Stock as are necessary to
effectuate the transaction contemplated by this Section 1.7.5.
1.7.6 CONVERSION OF MERGER SUB STOCK
At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, each issued and outstanding share of capital
stock of Merger Sub will be converted into one share of common stock, $.001 par
value, of the Surviving Corporation.
1.7.7 DISSENTING SHARES
Any issued and outstanding shares of Seller Capital Stock held by any
Stockholder who, in accordance with Delaware Law, dissents from the Merger (a
"Dissenting Stockholder") and perfects his, her or its appraisal rights with
respect to such shares ("Dissenting Shares") shall not be converted or canceled
as described elsewhere in this Section 1.7 but instead shall become the right to
receive from the Surviving Corporation such consideration as may be determined
to be due to such Dissenting Stockholder pursuant to Delaware Law; provided,
however, that Dissenting Shares outstanding at the Effective Time and held by a
Dissenting Stockholder who shall after the Effective Time withdraw such
Dissenting Stockholder's demand for appraisal or lose such Dissenting
Stockholder's right of appraisal as provided by Delaware Law shall be deemed to
be converted as of the Effective Time into the right to receive the
consideration that would otherwise have been payable in respect thereof if no
dissent had been made.
-7-
1.7.8 EXCHANGE OF CERTIFICATES; NO FRACTIONAL SHARES
Promptly after the Effective Time, Buyer will make available to all
Stockholders, and such Stockholders will be entitled to receive, upon surrender
to Buyer of one or more certificates representing shares of Seller Capital Stock
for cancellation, a certificate representing the aggregate number of shares of
Buyer Common Stock that such Stockholder is entitled to receive pursuant to
Section 1.7.1; provided, however, that the certificates representing the
Escrowed Shares shall be deposited with the Escrow Agent in accordance with the
Escrow Agreement. No fractional shares of Buyer Common Stock will be issued.
The aggregate number of shares of Buyer Common Stock a Stockholder is entitled
to receive shall be rounded to the nearest whole number, with .5 being rounded
up. The shares of Buyer Common Stock that the Stockholders are entitled to
receive pursuant to the Merger will be deemed to have been issued at the
Effective Date. No interest will accrue on the Merger Consideration. If the
Merger Consideration (or any portion thereof) is to be delivered to any person
other than the person in whose name the certificate or certificates representing
shares of Seller Capital Stock surrendered in exchange therefor is registered,
it will be a condition to such exchange that the person requesting such exchange
will pay to Buyer any transfer or other taxes required by reason of the payment
of the Merger Consideration to a person other than the registered holder of the
certificate or certificates so surrendered, or will establish to the
satisfaction of Buyer that such tax has been paid or is not applicable.
Notwithstanding the foregoing, neither Buyer nor any other party hereto will be
liable to a holder of shares of Seller Capital Stock for any Merger
Consideration delivered to a public official pursuant to applicable abandoned
property, escheat and similar laws.
1.7.9 NO FURTHER TRANSFERS
From and after the Effective Time, there will be no further transfers of
any shares of Seller Capital Stock on the stock transfer books of the Surviving
Corporation. If, after the Effective Time, certificates formerly representing
shares of Seller Capital Stock are presented to the Surviving Corporation for
transfer, they will be canceled and exchanged in accordance with this Section
1.7.
1.8 TRANSFER TAXES
The Stockholders shall pay all transfer, documentary, sales, use, stamp,
registration and other similar taxes and fees (including any penalties and
interest) incurred in connection with such taxes.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
OF SELLER AND SIGNIFICANT STOCKHOLDERS
To induce Buyer and Merger Sub to enter into and perform this Agreement and
except as set forth in the Disclosure Memorandum executed concurrently herewith
and
-8-
attached hereto and made a part hereof (the "Disclosure Memorandum"), which will
specifically identify or cross-reference the paragraph or paragraphs of this
Article II to which the exceptions therein relate, and which will constitute in
its entirety a representation and warranty under this Article II, Seller and the
Significant Stockholders jointly and severally represent and warrant to Buyer
and Merger Sub as of the date of this Agreement as follows in this Article II.
For purposes of this Article II, unless the context otherwise requires,
references to Seller will be deemed to include Seller and all predecessors of
Seller.
2.1 ORGANIZATION AND GOOD STANDING
Seller is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, and has all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted. Seller is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which Seller's operations or ownership of property makes such qualification
necessary, except as would not have a Seller Adverse Effect (as defined in
Section 5.7).
2.2 SUBSIDIARIES AND AFFILIATES
Seller does not own or control, and has not in the past owned or
controlled, directly or indirectly, any corporation, partnership, limited
liability company or other business entity. Seller does not own, directly or
indirectly, any ownership, equity, profits or voting interest in, or otherwise
control, any corporation, partnership, joint venture or other entity, and has no
agreement or commitment to purchase any such interest.
2.3 ENFORCEABILITY
(a) Seller has full corporate power and authority to execute, deliver and
perform its obligations under this Agreement and each of the agreements,
certificates, instruments and documents executed or delivered pursuant to the
terms of this Agreement. All corporate action on the part of Seller necessary
for the due authorization, execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
performance of all of Seller's obligations hereunder, has been taken by Seller
or will be taken by Seller prior to the Closing. This Agreement has been duly
authorized, executed and delivered by Seller. This Agreement is a legal, valid
and binding obligation of Seller, enforceable against Seller in accordance with
its terms.
(b) Each Significant Stockholder has full corporate power and authority to
execute, deliver and perform its obligations under this Agreement and each of
the agreements, certificates, instruments and documents executed or delivered
pursuant to the terms of this Agreement, including, without limitation and as
applicable, the Escrow
-9-
Agreement, the Employment Agreement (as defined in Section 5.14), the
Noncompetition Agreement (as defined in Section 5.15), the Proprietary
Information Agreement (as defined in Section 5.16) and the Investor Rights
Agreement (collectively, the "Operative Documents") to which he, she or it is a
party. All action on the part of such Significant Stockholder necessary for the
due authorization, execution, delivery and performance of this Agreement and the
Operative Documents to which he is a party, the consummation of the transactions
contemplated hereby and thereby, and the performance of all of such Significant
Stockholder's obligations hereunder and thereunder has been taken by such
Significant Stockholder or will be taken by such Significant Stockholder prior
to the Closing. This Agreement has been, and the Operative Documents to which
such Significant Stockholder is a party will be, duly authorized, executed and
delivered by such Significant Stockholder. This Agreement is, and each of the
Operative Documents to which such Significant Stockholder is a party will be, a
legal, valid and binding obligation of such Significant Stockholder, enforceable
against such Significant Stockholder in accordance with their respective terms.
2.4 NO APPROVALS; NO CONFLICTS
2.4.1 SELLER
The execution, delivery and performance of this Agreement by Seller, and
the consummation of the transactions contemplated hereby, will not (a)
constitute a violation (with or without the giving of notice or lapse of time or
both) of any provision of any domestic or foreign law or any judgment, decree,
order, regulation or rule of any court, agency or other governmental authority
applicable to Seller, (b) require any consent, approval or authorization of any
person, corporation, partnership, domestic or foreign governmental authority or
other organization or entity (a "Person"), other than compliance with applicable
securities laws and the filing of documents necessary to consummate the Merger
with the Delaware Secretary of State, (c) result in a default (with or without
the giving of notice or lapse of time, or both) under, an acceleration or
termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel any material agreement, lease, note or other
restriction, Encumbrance (as defined below), obligation or liability to which
Seller is a party or by which Seller is bound or to which any of its assets are
subject, (d) result in the creation of any lien, encumbrance, adverse claim,
mortgage, pledge, deed of trust, security interest, charge, restriction on sale
or transfer (other than restrictions imposed by applicable securities laws),
preemptive right, option or other adverse claim or interest of any kind
("Encumbrance") upon any of Seller's assets or upon any shares of Seller Capital
Stock or other securities of Seller, (e) invalidate or materially adversely
affect any permit, license, authorization or status used in Seller's business,
or (f) conflict with or result in a breach of or constitute a default under any
provision of Seller's charter documents or bylaws.
-10-
2.4.2 SIGNIFICANT STOCKHOLDERS
The execution, delivery and performance by each Significant Stockholder of
this Agreement and the Operative Documents to which he is a party and the
consummation of the transactions contemplated hereby and thereby will not (a)
constitute a violation by such Significant Stockholder (with or without the
giving of notice or lapse of time, or both) of any provisions of law or any
judgment, decree, order, regulation or rule of any court, agency or other
governmental authority applicable to such Significant Stockholder, (b) require
any consent, approval or authorization of, or declaration, filing or
registration with, any Person, other than compliance with applicable securities
laws and the filing of all documents necessary to consummate the Merger with the
Delaware Secretary of State, (c) result in the creation of any Encumbrance upon
the shares of Seller Capital Stock owned by such Significant Stockholder, or (d)
conflict with or result in a breach of or constitute a default under any
provision of Seller's charter documents or bylaws.
2.5 CAPITALIZATION
(a) The authorized capital stock of Seller consists solely of 17,000,000
shares of Seller Common Stock, of which 6,083,263 shares are issued and
outstanding (inclusive of 330,435 shares issued to UB Networks, Inc. (now
Newbridge Networks, Inc.) exercisable immediately prior to the Closing of the
Merger automatically pursuant to an option agreement), and 8,000,000 shares of
preferred stock, $.001 par value per share (the "Seller Preferred Stock"), of
which 2,000,000 shares are designated as Series A Stock and 3,000,000 shares are
designated as Series B Stock. Of the Seller Preferred Stock, 1,996,047 shares
of Series A Stock and 2,370,369 shares of Series B Stock are issued and
outstanding. All of the outstanding shares of Series A Stock will be converted
prior to the Effective Time. The shares of Series A Stock and Series B Stock
are convertible into 2,994,070 (rounding down) and 3,555,553 (rounding down)
shares of Seller Common Stock, respectively. The shares of Seller Capital Stock
are held of record as set forth in the Disclosure Memorandum. The shares of
Seller Capital Stock are duly authorized, validly issued, fully paid and
nonassessable.
(b) There are no outstanding or authorized subscriptions, options,
warrants, calls, rights, commitments or other agreements of any character that
obligate or may obligate Seller to issue any additional shares of capital stock
or any securities convertible into or evidencing the right to subscribe for any
shares of capital stock of Seller, except (i) Seller Preferred Stock convertible
into 6,549,623 (rounding down) shares of Seller Common Stock, (ii) Options
(excluding the 330,435 options exercisable by UB Networks, Inc. (as set forth
above in Section 2.5(a)) representing in the aggregate the right to purchase up
to 1,044,997 (rounding down) shares of Seller Common Stock, and (iii) warrants
representing in the aggregate the right to purchase up to 95,814 shares of
Series B Stock ("Warrants"), all of which Warrants will be exercised prior to
the Effective Time. The shares of Series B Stock issuable upon exercise of the
Warrants are
-11-
convertible into 143,721 shares of Seller Common Stock. The Disclosure
Memorandum sets forth the number of Options and Warrants outstanding, the grant
dates, number of vested shares and exercise prices thereof (in each case, as
applicable), and the identities of the holders thereof. No Person other than the
Stockholders holds any interest in any of the securities of Seller.
(c) Seller is not a party or subject to any agreement or understanding,
and, to the knowledge of Seller and each Significant Stockholder, (i) there is
no agreement or understanding between any Persons (including any Stockholders)
that affects or relates to the voting or giving of written consents with respect
to any securities of Seller or that relates to the right to transfer or
otherwise dispose of such securities (including any rights of refusal,
repurchase or co-sale), (ii) no Stockholder or any affiliate thereof is indebted
to Seller, (iii) Seller is not indebted to any of its Stockholders or any
affiliate thereof, and (iv) Seller is not under any contractual or other
obligation to register any of its presently outstanding securities or any of its
securities that may hereinafter be issued.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS
Since May 26, 1998, Seller has not (a) taken any action or entered into or
agreed to enter into any transaction, agreement or commitment (other than this
Agreement) other than in the ordinary course of business, consistent with past
practice, (b) encumbered or disposed of any properties or assets, except in the
ordinary course of business, consistent with past practice, (c) changed the
compensation or terms of employment provided to the officers or employees of
Seller earning more than $10,000 per annum, (d) disposed of or permitted to
lapse any rights to the use of any material trademark, service xxxx, trade name,
patent, copyright or other intellectual property right, (e) made any change in
any method of accounting or accounting practice, (f) borrowed or agreed to
borrow any funds, incurred or become subject to, whether directly or by way of
assumption or guarantee or otherwise, any obligations or liabilities (absolute,
accrued, contingent or otherwise) in excess of $25,000, except liabilities and
obligations incurred in the ordinary course of business and consistent with past
practice, or increased, or experienced any change in any assumptions underlying
or methods of calculating, any bad debt, contingency or other reserves, or (g)
experienced any Seller Adverse Effect.
2.7 FINANCIAL STATEMENTS
Seller has delivered to Buyer the audited balance sheets and statements of
income and cash flows for Seller at and for the fiscal years ended December 31,
1995, 1996 and 1997 and Seller's audited and unaudited balance sheets and
unaudited statement of income and cash flows for the six-month period ended June
30, 1998 (collectively, the "Seller Financial Statements"). The audited Seller
Financial Statements have been prepared in conformity with GAAP on a basis
consistent with prior accounting periods, and present fairly Seller's financial
position, results of operations and changes in financial
-12-
position at the dates and for the periods indicated. The unaudited Seller
Financial Statements have been prepared by Seller's management on a basis
consistent with prior accounting periods, and present fairly Seller's financial
position, results of operations and changes in financial position at the dates
and for the periods indicated. Seller has no liabilities or obligations of any
nature (absolute, contingent or otherwise) that are not fully reflected or
reserved against in the June 30, 1998 audited balance sheet (the "Seller Balance
Sheet") and statement of income, except (a) liabilities, obligations, claims or
assessments incurred since the date of the Seller Balance Sheet that have been
disclosed to Buyer in writing or (b) liabilities, obligations, claims or
assessments incurred in the ordinary course of business.
2.8 CUSTOMERS AND SUPPLIERS
2.8.1 CUSTOMERS
The Disclosure Memorandum sets forth a complete and accurate list of
customers accounting for 10% or more of Seller's revenues during each of the
past two fiscal years and the six months ended June 30, 1998, showing the
approximate total revenues from each such customer during such periods. Seller
has not received any notice from its customers that would cause it or the
Significant Stockholders in its or their reasonable judgment to expect any
material modification to the relationship with any of Seller's customers named
in the Disclosure Memorandum.
2.8.2 SUPPLIERS
The Disclosure Memorandum sets forth a complete and accurate list of
Seller's suppliers from whom Seller purchased goods or services representing
more than 10% of the total expenses (including payroll expenses) of Seller
during the past two fiscal years and the six months ended June 30, 1998. Seller
has not received any notice from its suppliers that would cause it or the
Significant Stockholders in its or their reasonable judgment to expect any
material modification to the relationship with any of Seller's suppliers named
in the Disclosure Memorandum.
2.9 ORDERS, COMMITMENTS AND RETURNS
The Disclosure Memorandum contains an accurate summary as of the date
hereof of Seller's total backlog and as of the Closing Date (including all
accepted and unfulfilled supply and service contracts) and the aggregate of all
outstanding purchase orders issued by Seller (which aggregate includes all
material contracts or commitments for Seller's purchase of materials or other
supplies). All such sale and purchase commitments were made in the ordinary
course of business.
-13-
2.10 ACCOUNTS RECEIVABLE
All accounts receivable of Seller reflected in the Seller Balance Sheet or
existing at the Closing ("Accounts") represent amounts due for services
performed or sales actually made in the ordinary course of business and
accurately reflect the amounts due. To the knowledge of Seller and each
Significant Stockholder, the bad debt reserves and allowances reflected in the
Seller Balance Sheet are adequate. To the knowledge of Seller and each
Significant Stockholder, all Accounts existing and remaining unpaid at the time
of Closing will be collectible by the Surviving Corporation in the ordinary
course of business, consistent with past practices.
2.11 TAXES
(a) Seller has filed all Tax Returns (as defined below) that it was
required to file. All such Tax Returns were correct and complete in all
respects. All Taxes (as defined below) due and payable by Seller (whether or
not shown on any Tax Return) have been paid. Seller is not the beneficiary of
any extension of time within which to file any Tax Return that has not yet been
filed. Neither Seller nor any Significant Stockholder has received notice of
any claim made by an authority in a jurisdiction where Seller does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction.
(b) Seller has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party.
(c) There is no dispute or claim concerning any Tax liability of Seller
(i) claimed or raised by any authority in writing or (ii) as to which any of the
directors and officers (and employees responsible for Tax matters) of Seller
have knowledge based on personal contact with any agent of such authority. The
Disclosure Memorandum lists all federal, state, local and foreign income Tax
Returns filed with respect to Seller for taxable periods ended on or after
December 31, 1990 that have been audited, and indicates those Tax Returns that
currently are the subject of audit. Seller has delivered to Buyer correct and
complete copies of all federal income Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by Seller since
December 31, 1990.
(d) Seller has not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency, other than extensions of time for the filing of Tax Returns that
Seller subsequently filed.
(e) Seller has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. Seller has not made any payments, is not
obligated to make any payments and is not a party to any agreement that under
certain circumstances could
-14-
obligate it to make any payments that will not be deductible under Section 280G
of the Code. Seller has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. Seller is
not a party to any Tax allocation or sharing agreement. Seller (i) has not been
a member of an affiliated group of corporations filing a consolidated federal
income Tax Return and (ii) has no liability for the Taxes of any person under
Section 1.502-67 of the Treasury Regulations (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract, or otherwise.
(f) The unpaid Taxes of Seller that currently are due and payable (i) do
not, as of the date hereof, exceed the reserve for Tax liability (rather than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the Seller Financial Statements
for the year ended December 31, 1997 (rather than in any notes thereto), and
(ii) will not exceed that reserve as adjusted for the passage of time through
the Effective Date in accordance with the past custom and practice of Seller in
filing its Tax Returns.
(g) There has been no ownership change, as defined in Section 382(g) of
the Code, with respect to Seller during or after any taxable period in which
Seller incurred a net operating loss. The Disclosure Memorandum sets forth the
amount of any net operating loss, net-unrealized built-in loss (as defined under
Section 382 of the Code), net capital loss, and unused investment or other
credit, unused foreign tax, or excess charitable contribution of Seller as of
December 31, 1997 and June 30, 1998.
(h) "Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Section 59A of
Code), customs, duties, capital stock franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value-added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
(i) "Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
2.12 REAL PROPERTY
The Disclosure Memorandum contains a complete and accurate list of all real
property that is or has been owned, leased, rented or used by Seller (the "Real
Property"). Seller has delivered to Buyer true and complete copies of all
leases, subleases, rental agreements, contracts of sale, tenancies or licenses
relating to the Real Property. Seller's title to or leasehold interest in, as
applicable, each parcel of the Real Property is free and
-15-
clear of all liens, mortgages, pledges, deeds of trust, security interests,
charges, encumbrances, institutional controls and other adverse claims or
interests of any kind, except (a) liens for Taxes not yet due and payable or (b)
statutory liens in immaterial amounts which are not yet delinquent. Seller's
offices and operations comply in all material respects with applicable safety,
health, environmental and other laws and regulations. No consent is required
from any Person under any lease or other agreement or instrument relating to the
Real Property in connection with the consummation of the transactions
contemplated by this Agreement, and Seller has not received notice that any
party to any such lease or other agreement or instrument intends to cancel,
terminate or refuse to renew the same or to exercise or decline to exercise any
option or other right thereunder.
2.13 PERSONAL PROPERTY
The Disclosure Memorandum contains a complete and accurate list of each
item of personal property having a value in excess of $1,000 that is owned,
leased, rented or used by Seller (the "Personal Property"). Seller has
delivered to Buyer true and complete copies of all leases, subleases, rental
agreements, contracts of sale, tenancies or licenses relating to the Personal
Property. Seller has good and marketable title to all Personal Property, free
and clear of all Encumbrances. The Personal Property is of a quality consistent
with industry standards, is in good operating condition and repair, normal wear
and tear excepted, is adequate for the uses to which it is being put and
complies in all material respects with applicable safety, health, environmental
and other laws and regulations. No consent is required from any Person under
any lease or other agreement or instrument relating to the Personal Property in
connection with the consummation of the transactions contemplated by this
Agreement, and Seller has not received notice that any party to any such lease
or other agreement or instrument intends to cancel, terminate or refuse to renew
the same or to exercise or decline to exercise any option or other right
thereunder. Seller has not granted any lease, sublease, tenancy or license of
any portion of the Personal Property.
2.14 INTELLECTUAL PROPERTY
2.14.1 TITLE
Seller owns, or is licensed or otherwise entitled to use without
restriction (free and clear of any Encumbrance), Seller's Intellectual
Properties (as defined below) and Seller's Intellectual Property Rights (as
defined below) and has rights (and is not contractually obligated to pay any
compensation to any third party in respect thereof) to use the Seller's
Intellectual Properties and the Seller's Intellectual Property Rights.
"Seller's Intellectual Properties" means all products, computer programs,
specifications, source code, object code, graphics, devices, techniques, know-
how, algorithms, methods, technology, processes, procedures, packaging, trade
dress, trade secrets, formulae, drawings, designs,
-16-
improvements, discoveries, concepts, user interfaces, "look and feel," software
or development tools, content and inventions, whether or not patentable or
copyrightable and whether or not reduced to practice, all designs, logos,
themes, know-how, concepts that are now used, have been used or are currently
proposed to be used in Seller's business and all documentary evidence thereof,
including, without limitation, the intellectual properties listed in the
Disclosure Memorandum. "Seller's Intellectual Property Rights" means all
intellectual property and other proprietary rights in Seller's Intellectual
Properties, and all licenses, sublicenses or like agreements providing any right
or concession to use any of Seller's Intellectual Properties, including all
trade names, trademarks, domain names, service marks, copyrights and their
registrations and applications and all goodwill associated therewith, all
domestic and foreign letters patented and patent applications, if any, whether
arising under the laws of the United States or any other state, country or
jurisdiction, including all rights or causes of action for infringement or
misappropriation of any of the foregoing, including, without limitation, the
intellectual property and other proprietary rights listed in the Disclosure
Memorandum.
2.14.2 SOURCE CODE
No Person claiming by, through or under Seller or any Stockholder has a
copy, or the right to acquire or discover a copy, of any of the source code with
respect to Seller's Intellectual Properties. Neither Seller nor any Significant
Stockholder has delivered copies of such source code to Seller's Intellectual
Properties to any Person, whether pursuant to an escrow arrangement or
otherwise.
2.14.3 LICENSES
Copies of all licenses, sublicenses and other agreements, including
confidential disclosure agreements, as to which Seller is a party or pursuant to
which any other Person is authorized to use any of Seller's Intellectual
Properties, are listed in the Disclosure Memorandum and have been delivered by
Seller to Buyer. Seller is not, and as a result of the execution and delivery
of this Agreement or the performance of Seller's obligations hereunder will not
be, in violation of, or lose any rights pursuant to, any such license,
sublicense or agreement.
2.14.4 INFRINGEMENT
Seller's Intellectual Properties do not infringe any patent, copyright,
trade secret, trademark or other intellectual property or proprietary right of
any Person, whether arising under the laws of the United States or any other
state, country or jurisdiction. No claim with respect to Seller's Intellectual
Properties has been asserted or, to Seller's or any Significant Stockholder's
knowledge, is threatened by any Person, and neither Seller nor any Significant
Stockholder knows of any claim (a) to the effect that the manufacture, sale or
use of any product or specification used or offered by Seller or proposed for
use or
-17-
sale by Seller or using or incorporating any of Seller's Intellectual Properties
infringes any copyright, patent, trademark, service xxxx, trade secret or other
intellectual property or proprietary right of any third party, whether arising
under the laws of the United States or any other state, country or jurisdiction;
(b) against the use by Seller of any of Seller's Intellectual Properties; or (c)
challenging the ownership, validity or effectiveness of any of Seller's
Intellectual Property Rights. To the knowledge of Seller and each Significant
Stockholder, there has not been and there is not now any unauthorized use,
infringement or misappropriation of any of Seller's Intellectual Properties or
Seller's Intellectual Property Rights by any third party, including, without
limitation, any current or former employee of Seller. There has not been and
there is not now any unauthorized use, infringement or misappropriation of any
copyright, patent, trademark, service xxxx, trade secret or other intellectual
property or proprietary right of any third party by Seller.
2.14.5 VALID AND SUBSISTING; APPLICATIONS AND REGISTRATIONS
All patents and registered trademarks, service marks and other company,
product or service identifiers and registered copyrights of Seller are valid and
subsisting. Seller had and does now have the exclusive right to file, prosecute
and maintain all applications and registrations with respect to Seller's
Intellectual Property Rights.
2.14.6 INDEMNIFICATION
Seller has not entered into any agreement or offered to indemnify any
Person against any charge of infringement of any intellectual property or other
proprietary right. Seller has not entered into any agreement granting any
Person the right to bring any infringement action with respect to, or otherwise
to enforce, any of Seller's Intellectual Property Rights.
2.14.7 YEAR 2000
The software included in Seller's Intellectual Properties (including,
without limitation, any software licensed by Seller and incorporated or imbedded
in any product or specification used or offered by Seller or proposed for use or
sale by Seller) is Millennium Compliant. As used in this Agreement, "Millennium
Compliant" means the ability of the software to provide the following functions:
(a) consistently handle date information before, during and after January 1,
2000, including, but not limited to, accepting date input, providing date
output, and performing calculations on dates or portions of dates; (b) function
accurately in accordance with its specifications and without interruption
before, during and after January 1, 2000, without any change in operations
associated with the advent of the new century (defined for purposes of this
paragraph as commencing at 12:00 A.M., January 1, 2000); (c) respond to two-
digit date input in a way that resolves any ambiguity as to century in a
disclosed, defined and predetermined manner; and (d) store and provide output of
date information in ways that are unambiguous as to century.
-18-
2.15 COMPLIANCE WITH LAWS
(a) Seller has complied and is in compliance with all federal, state,
local and foreign laws, rules, regulations, ordinances, decrees and orders
applicable to Seller, its business and employees and Real Property and Personal
Property, including, without limitation, all laws relating to intellectual
property protection, antitrust matters, consumer protection, import and export
matters, currency exchange, environmental protection, equal employment
opportunity, health and occupational safety, pension and employee benefit
matters, securities and investor protection matters and labor and employment
matters, other than such noncompliance as would not reasonably be expected to
have a Seller Adverse Effect. Neither Seller nor any Significant Stockholder has
received notice, or is otherwise aware, of any asserted present or past
unremedied material failure of Seller to comply with any such laws, rules,
regulations, ordinances, decrees and orders.
(b) Seller is not in violation of, and has not violated, in connection
with the ownership, use, maintenance or operation of the Real Property or
Personal Property or the conduct of its business, any applicable foreign,
federal, state, county and local statutes, laws, regulations, guidances, rules,
ordinances, codes, licenses, permits, judgments, writs, decrees, injunctions or
orders of any governmental entity relating to environmental (air, groundwater,
soil, natural resource, noise and odor) matters, including, without limitation,
the Clean Air Act, the Federal Water Pollution Control Act, the Resource
Conservation and Recovery Act and the regulations issued thereunder, the
Comprehensive Environmental Response, Compensation, and Liability Act, the Clean
Water Act, the Hazardous Materials Transportation Act, the Toxic Substances
Control Act, the Hazardous Waste Control Act, the Model Toxics Control Act and
comparable Oregon laws, and the regulations issued thereunder (collectively,
"Environmental Laws"), other than any such violations as would not reasonably be
expected to have a Seller Adverse Effect. Seller has received all permits,
licenses or other approvals required of it under applicable Environmental Laws.
2.16 CONTRACTS
The Disclosure Memorandum contains a complete and accurate list of all
contracts, agreements, instruments and arrangements to which Seller is a party
that relate to Seller's business and provide for payments to be made by Seller
pursuant thereto in excess of $25,000 in the preceding twelve month period,
including, without limitation, all security agreements, license agreements,
purchase and supply agreements, and agreements relating to the borrowing of
money ("Contracts"). All such Contracts are valid and in full force and
effect, Seller has performed in all material respects its obligations
thereunder, and there are not, under any of the Contracts, any defaults or
events of default on the part of Seller or, to the knowledge of Seller and each
Significant Stockholder, any other party thereto. True and complete copies of
each such written Contract have been delivered to Buyer. Neither Seller nor any
Significant Stockholder
-19-
has received notice, nor is Seller or any Significant Stockholder otherwise
aware, that any party to any Contract intends to cancel, terminate or refuse to
renew such contract or to exercise or decline to exercise any option or right
thereunder. Seller and the Significant Stockholders have identified in the
Disclosure Memorandum all material contracts, agreements, arrangements and
understandings, oral or written, to which Seller was a party or by which Seller
was bound and that relate to Seller that have been terminated within the two
years prior to the date of this Agreement, except for such contracts,
agreements, arrangements and understandings that have been terminated in the
ordinary course of business following full performance by all parties thereto.
No consent is required from any Person under any of the Contracts in connection
with the transactions contemplated by this Agreement.
2.17 CLAIMS AND LEGAL PROCEEDINGS
There are no material claims, actions, suits, arbitrations, proceedings or
investigations pending or, to the knowledge of Seller and each Significant
Stockholder, threatened against Seller before or by any domestic or foreign
governmental or nongovernmental department, commission, board, bureau, agency or
instrumentality or any other body. To the knowledge of Seller and each
Significant Stockholder, there is no valid basis for any claim, action, suit,
arbitration, proceeding or investigation against Seller. There are no material
outstanding or unsatisfied judgments, orders, decrees, stipulations or
settlements to which Seller is a party that involve the transactions
contemplated herein or that would have a Seller Adverse Effect.
2.18 LABOR MATTERS
Seller has complied in all material respects with all provisions of all
laws relating to the employment of labor, including the Worker Adjustment and
Retraining Notification Act, and it has no liability for arrears of wages or
taxes or penalties for failure to comply with such laws. Seller has provided
Buyer with true, accurate and complete copies of all invention, confidentiality,
noncompetition and similar agreements entered into between Seller and any
current or former employees, independent contractors or consultants of Seller.
To the knowledge of Seller and each Significant Stockholder, no such current or
former employee, independent contractor or consultant of Seller is in violation
of any such agreement. Neither Seller nor any Significant Stockholder has
provided confidential information of Seller (including, without limitation, any
confidential information pertaining to any of Seller's Intellectual Properties)
to any current or former employee, independent contractor or consultant of
Seller except pursuant to such an agreement. All of Seller's Intellectual
Properties were created by (a) employees of Seller within the scope of their
employment and under written obligation to assign all of their inventions and
rights in the same to Seller or (b) by independent contractors under written
obligation to assign all inventions and rights in the same to Seller. There are
no material disputes, employee grievances or disciplinary actions pending or, to
the knowledge of Seller and
-20-
each Significant Stockholder, threatened between Seller and any of its current
or former employees. Seller is not a party to any collective bargaining
agreement with any labor union, and has no knowledge of any organizational
efforts by or on behalf of any labor union with respect to its employees. Except
for any matters that will be fully performed, terminated or expired as of the
Closing with no further obligation on the part of Seller, Seller is not a party
to any management contract, employment contract or other contract providing for
the employment or rendition of executive services that is not terminable without
penalty by Seller on no more than 30 days' notice; or bonus, incentive, deferred
compensation, severance pay, pension, profit-sharing, retirement, stock
purchase, stock option, employee benefit or similar plan, agreement or
arrangement that is not terminable without penalty by Seller or no more than 30
days' notice.
2.19 EMPLOYEE BENEFIT PLANS
(a) The Disclosure Memorandum sets forth a true, accurate and complete
list of each retirement, pension, profit sharing, deferred compensation,
savings, bonus, incentive, cafeteria, flexible benefits, medical, dental,
vision, hospitalization, life insurance, dependent care assistance, tuition
reimbursement, disability, sick pay, holiday, vacation, severance, stock
purchase, stock option, stock appreciation rights, fringe benefit and other
employee benefit plan, fund, policy, program, contract, arrangement or payroll
practice (including, but not limited to, each "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) and each employment or consulting contract or agreement,
whether formal or informal and whether legally binding or not, (i) sponsored,
maintained or contributed to by Seller, (ii) covering or benefiting any current
or former officer, employee, agent, director or independent contractor of Seller
(or any dependent or beneficiary of any such individual), or (iii) with respect
to which Seller has (or could have) any actual or potential obligation or
liability (such plans, funds, policies, programs, contracts, arrangements and
payroll practices are hereinafter referred to collectively as "Employee Benefit
Plans" and each individually as an "Employee Benefit Plan"). Seller does not
have any agreement, arrangement or commitment, whether formal or informal and
whether legally binding or not, to create any additional plan, fund, policy,
program, contract, arrangement or payroll practice or, except as set forth
herein, to modify or amend any existing Employee Benefit Plan. The terms of each
Employee Benefit Plan permit Seller to amend or terminate such Employee Benefit
Plan at any time and for any reason without penalty or material cost. There has
been no amendment, written interpretation or announcement (whether or not
written) by Seller relating to, or change in participation or coverage under,
any Employee Benefit Plan that, either alone or together with other such items
or events, would materially increase the expense of maintaining the Employee
Benefit Plans above the level of expense incurred with respect thereto for the
most recent fiscal year included in the Seller Financial Statements.
-21-
(b) Seller has delivered to Buyer true, correct and complete copies (or,
in the case of unwritten Employee Benefit Plans, descriptions) of all Employee
Benefit Plans (and all amendments thereto), along with, to the extent applicable
to the particular Employee Benefit Plan, the following information: (i) copies
of the annual reports (Form 5500 series) filed with respect to such Employee
Benefit Plan for the last three years; (ii) copies of the summary plan
descriptions, summary annual reports, summaries of material modifications and
all material employee manuals or communications filed or distributed with
respect to such Employee Benefit Plan during the last three years; (iii) copies
of any insurance contracts or trust agreements (and any amendments thereto)
through which the Employee Benefit Plan is funded; (iv) copies of all contracts
(and any amendments thereto) relating to such Employee Benefit Plan, including,
but not limited to, service provider agreements, insurance contracts, investment
management agreements and recordkeeping agreements; and (v) a copy of the most
recent Internal Revenue Service (the "IRS") determination letter issued with
respect to such Employee Benefit Plan.
(c) With respect to each Employee Benefit Plan: (i) such Employee Benefit
Plan is, and at all times since inception has been, maintained, administered and
operated in compliance with its terms and with the requirements prescribed by
any and all applicable laws, statutes, orders, rules and regulations, including,
but not limited to, ERISA and the Code; (ii) all returns, reports and other
disclosures relating to such Employee Benefit Plan required to be filed with any
governmental entity or agency or furnished to any participant or beneficiary
have been fully and accurately completed or prepared and timely and properly
filed or furnished in accordance with applicable law; (iii) no event or omission
has occurred, or is about to occur, that could subject Seller or any other
Person, directly or indirectly, to a tax under Chapter 43 of Subtitle D of the
Code; (iv) neither Seller nor any other fiduciary of such Employee Benefit Plan
has engaged in any transaction or acted or failed to act in a manner that
violates the fiduciary requirements of ERISA or any other applicable law; (v) no
event has occurred or is threatened or about to occur that would constitute a
nonexempt prohibited transaction under Section 406 or 407 of ERISA or under
Section 4975 of the Code; and (vi) none of the transactions contemplated in (or
by) this Agreement will constitute or result in a transaction described in
either (or both) clause (iv) or (v) of this Section 2.19(c).
(d) Each Employee Benefit Plan that is intended to be qualified under
Section 401(a) of the Code is, and at all times since inception has been, so
qualified and its related trust is, and at all times since inception has been,
exempt from taxation under Section 501(a) of the Code, and each such Employee
Benefit Plan is the subject of an unrevoked favorable determination letter from
the IRS to that effect. Nothing has occurred since the most recent favorable
determination letter issued with respect to each such Employee Benefit Plan that
could cause such Seller (or such Employee Benefit Plan) to lose its ability to
rely on such determination letter or could cause the IRS to revoke such
determination letter.
-22-
(e) Each Employee Benefit Plan that constitutes a "group health plan,"
within the meaning of Section 607(1) of ERISA or Section 4980B(g)(2) of the
Code, has been maintained, administered and operated at all times since
inception in compliance with the requirements of Sections 601 through 609 of
ERISA, Section 4980B(f) of the Code, any regulations under such ERISA and Code
sections and the requirements of any applicable foreign, national, state or
local law regarding continued insurance coverage.
(f) All contributions, premiums and other payments (including, but not
limited to, all employer contributions and all employee salary reduction or
deferral contributions) due or required to be made to (or with respect to) each
Employee Benefit Plan (or to any Person pursuant to the terms of any Employee
Benefit Plan) from Seller or any other Person have been timely paid, or, if not
yet due, have been properly recorded on the books of Seller or the Employee
Benefit Plan, as applicable.
(g) Seller is not, and has never been, a member of (i) a controlled group
of corporations, within the meaning of Section 414(b) of the Code, (ii) a group
of trades or businesses under common control, within the meaning of Section
414(c) of the Code, (iii) an affiliated service group, within the meaning of
Section 414(m) of the Code, or (iv) any other group of Persons treated as a
single employer under Section 414(o) of the Code.
(h) Seller does not maintain or contribute to, and has never maintained or
contributed to (or been obligated to contribute to), any multiemployer plan
within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA or 414(f) of
the Code, any multiple employer plan within the meaning of Section 4063 or
Section 4064 of ERISA or Section 413(c) of the Code, or any employee benefit
plan, fund, program, contract or arrangement that is subject to Section 412 of
the Code, Section 302 of ERISA or Title IV of ERISA.
(i) No Employee Benefit Plan provides or has any obligation to provide (or
contribute toward the cost of) health or any other welfare benefits (within the
meaning of Section 3(1) of ERISA) with respect to any current or former officer,
employee, agent, director or independent contractor of Seller or any other
entity beyond such individual's retirement or other termination of service,
other than continuation coverage mandated by Sections 601 through 608 of ERISA
or Section 4980B(f) of the Code.
(j) There are no actions, suits or claims (other than routine claims for
benefits) pending or, to the knowledge of Seller or the Significant
Stockholders, threatened with respect to (or against the assets of) any Employee
Benefit Plan, nor is there a basis for any such action, suit or claim. No
Employee Benefit Plan is currently under investigation, audit or review,
directly or indirectly, by the IRS, the Department of Labor or any other
governmental entity or agency, and, to the knowledge of Seller or the
-23-
Significant Stockholders, no such action is contemplated or under consideration
by the IRS, the Department of Labor or any other governmental entity or agency.
(k) Neither the execution and delivery of this Agreement or any related
agreement nor the consummation of the transactions contemplated in (or by) this
Agreement or any related agreement will (i) entitle any current or former
officer, employee, agent, director or independent contractor of Seller to
severance pay, unemployment compensation or any other payment from Seller or any
other Person, or otherwise increase the amount of compensation due to any such
individual, (ii) result in any benefit or right becoming established or
increased, or accelerate the time of payment or vesting of any benefit, under
any Employee Benefit Plan, (iii) require Seller or any other Person to make any
contribution to a "rabbi" trust or to increase its contributions to any Employee
Benefit Plan, or (iv) conflict with the terms of any Employee Benefit Plan,
whether or not some other subsequent action or event would be required to
trigger any of the items specified in clause (i), (ii), (iii) or (iv) of this
Section 2.19.
2.20 LICENSES, PERMITS AND AUTHORIZATIONS
Seller has received all governmental approvals, authorizations, consents,
licenses, sublicenses, orders, registrations and permits of all agencies,
whether federal, state, local or foreign currently required in connection with
the operation of Seller's business as currently conducted (the "Permits").
Seller is in compliance in all material respects with the terms of all the
Permits, and all the Permits are valid and in full force and effect, and no
proceeding is pending or, to the knowledge of Seller or any Significant
Stockholder, threatened the object of which is to revoke, limit or otherwise
affect any of the foregoing. Seller has not received any notifications of any
asserted present failure to have obtained any such Permit or past and unremedied
failure to obtain any such Permit.
2.21 BROKERS
Except for Vrolyk & Co., neither Seller nor any Significant Stockholder has
retained any broker or finder in connection with the transactions contemplated
by this Agreement.
2.22 BANK ACCOUNTS
The Disclosure Memorandum sets forth the names and locations of all banks,
trust companies, savings and loan associations and other financial institutions
at which Seller maintains safe deposit boxes or accounts of any nature and the
names of all persons authorized to draw thereon, make withdrawals therefrom or
have access thereto.
-24-
2.23 CREDITORS' LIST
The Disclosure Memorandum sets forth a full, complete and accurate list of
all creditors of Seller, with the amounts payable to each such creditor as of
the date hereof and the Closing Date.
2.24 CORPORATE BOOKS AND RECORDS
Seller has furnished to Buyer or its representatives, for their
examination, true and complete copies of (a) the Amended and Restated
Certificate of Incorporation and Bylaws of Seller as currently in effect,
including all amendments thereto, (b) the minute books of Seller, and (c) the
stock transfer books of Seller. Such minutes reflect all meetings (including
actions taken by written consent) of Seller's stockholders, Board of Directors
and any committees thereof since Seller's inception, and such minutes accurately
reflect in all material respects the events of and actions taken at such
meetings. Such stock transfer books accurately reflect all issuances and
transfers of Seller Capital Stock since its inception.
2.25 POOLING MATTERS
To the knowledge of Seller and each Significant Stockholder, Seller has not
taken or failed to take any action that would prevent the accounting for the
Merger as a pooling of interests in accordance with Accounting Principles Board
Opinion No. 16, the interpretive releases issued pursuant thereto and the
pronouncements of the Securities and Exchange Commission (the "SEC").
2.26 BUYER STOCK OWNERSHIP
Seller does not own any shares of Buyer Common Stock or other securities
convertible into Buyer Common Stock.
2.27 PROXY/INFORMATION STATEMENT
Seller and the Significant Stockholders acknowledge that the Buyer Common
Stock has not been and will not prior to issuance be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and will be issued in
reliance on the private offering exemption contained in Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated thereunder. In
connection with the transactions contemplated hereby, Seller will prepare and
distribute to the Stockholders a proxy statement (or information statement in
the case of a consent solicitation) (the "Proxy/Information Statement") for the
purpose of soliciting the requisite approval of the Merger. The
Proxy/Information Statement includes all the information with respect to Seller
or the Stockholders required under Items 6, 17 and 18 of Form S-4 under the
Securities Act and with respect thereto does not include any untrue statement of
a material fact or omit to
-25-
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2.28 FULL DISCLOSURE
The representations and warranties and other factual statements of Seller
and the Significant Stockholders contained in this Agreement, and all
information in the Disclosure Memorandum, taken as a whole, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made herein and therein not misleading.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
OF BUYER AND MERGER SUB
To induce Seller and the Significant Stockholders to enter into and perform
this Agreement, Buyer and Merger Sub represent and warrant to Seller and the
Significant Stockholders as of the date of this Agreement as follows in this
Article III.
3.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation validly existing and duly authorized to transact
business in the corporate form under the laws of the State of Washington and has
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted. Merger Sub is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as now being conducted.
3.2 ENFORCEABILITY
Each of Buyer and Merger Sub has full corporate power and authority to
execute, deliver and perform its obligations under this Agreement and the
Operative Documents to which it is a party. All corporate action on the part of
Buyer and Merger Sub necessary for the due authorization, execution, delivery
and performance of this Agreement and the Operative Documents, the consummation
of the transactions contemplated hereby and thereby, and the performance of all
of Buyer's and Merger Sub's obligations hereunder and thereunder has been taken
or will be taken prior to the Closing. This Agreement has been, and the
Operative Documents to which Buyer and Merger Sub are parties will be, duly
authorized, executed and delivered by each of Buyer and Merger Sub. This
Agreement is, and each of the Operative Documents to which Buyer and/or Merger
Sub is a party will be, a legal, valid and binding obligation of each of Buyer
and Merger Sub, as the case may be, enforceable against each of Buyer and Merger
Sub in accordance with its terms.
-26-
3.3 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS
The execution, delivery and performance of this Agreement and the Operative
Documents by Buyer and Merger Sub, and the consummation by them of the
transactions contemplated hereby and thereby, will not (a) constitute a
violation (with or without the giving of notice or lapse of time or both) of any
provision of any domestic or foreign law applicable to Buyer or Merger Sub, (b)
require any consent, approval or authorization of any Person, or (c) conflict
with or result in a breach of or constitute a default under any provision of
Buyer's or Merger Sub's charter documents or bylaws.
3.4 CAPITALIZATION; NASDAQ LISTING
The authorized capital stock of Buyer consists of 200,000,000 shares of
Buyer Common Stock and 40,000,000 shares of preferred stock, $.01 par value (the
"Buyer Preferred Stock"). As of June 30, 1998, (a) 29,427,937 shares of Buyer
Common Stock were issued and outstanding, fully paid and nonassessable; (b)
options to purchase 4,303,311 shares of Buyer Common Stock were outstanding; and
(c) no shares of Buyer Preferred Stock were outstanding. The Buyer Common Stock
is listed for trading on the Nasdaq National Market, no suspension of trading in
the Buyer Common Stock is in effect or, to Buyer's knowledge, threatened, and
the Buyer Common Stock meets the criteria for listing and trading on the Nasdaq
National Market.
3.5 BROKERS
Neither Buyer nor Merger Sub has retained any broker or finder in
connection with the transactions contemplated by this Agreement.
3.6 SECURITIES
The shares of Buyer Common Stock to be issued pursuant to this Agreement
have been duly authorized for issuance, and such shares, when issued and
delivered to the Stockholders pursuant to this Agreement, shall be validly
issued, fully paid and nonassessable.
3.7 CLAIMS AND LEGAL PROCEEDINGS
Except as disclosed by Buyer in any document filed pursuant to any
securities law (including, without limitation, the Securities Act, and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and all rules
and regulations promulgated thereunder), there are no claims, actions, suits,
arbitrations, criminal or civil investigations or proceedings pending or
involving or, to Buyer's knowledge, threatened, against Buyer before any court
or governmental or nongovernmental department, commission, board, bureau, agency
or instrumentality, or any other Person, that would, directly or indirectly,
have a material adverse effect on Buyer's business or operations.
-27-
3.8 SECURITIES FILINGS
Since November 9, 1995, Buyer has filed all reports required to be filed
with the SEC. All such reports complied in all material respects with the
applicable requirements of the Securities Act and the Exchange Act. None of
such reports contained any material misstatements or omissions of fact at the
time they were filed. All financial statements contained in such reports were
prepared in accordance with GAAP consistently applied during the relevant
periods, except as where noted, and in the case of unaudited interim financial
statements, subject to ordinary year-end and other adjustments described in such
statements.
3.9 CONDUCT OF BUSINESS
Since the end of Buyer's last fiscal quarter, Buyer has conducted its
business in the ordinary course consistent with past practice and has not
entered into any material transactions other than in the ordinary course
consistent with past practices. Since the end of Buyer's last fiscal quarter
there has been no material adverse change in the business, financial condition,
results of operations, properties, assets or liabilities of Buyer.
3.10 POOLING MATTERS
To the knowledge of Buyer, Buyer has not taken or failed to take any action
that would prevent the accounting for the Merger as a pooling of interests in
accordance with Accounting Principles Board Opinion No. 16, the interpretive
releases issued pursuant thereto and the pronouncements of the SEC.
3.11 SELLER STOCK OWNERSHIP
Neither Buyer nor any of its subsidiaries own any shares of Seller Capital
Stock or other securities convertible into shares of Seller Capital Stock.
ARTICLE IV - COVENANTS
Between the date of this Agreement and the Effective Time, the parties
covenant and agree as set forth in this Article IV.
4.1 CONDUCT OF BUSINESS BY SELLER PENDING THE MERGER
Unless Buyer shall otherwise agree in writing, the business of Seller shall
be conducted in and only in, and Seller shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice and in
accordance with applicable law; and Seller and the Significant Stockholders
shall use their respective reasonable best efforts to preserve substantially
intact the business organization of Seller, to keep available the services of
the current officers, employees and consultants of Seller
-28-
and to preserve the current relationships of Seller with customers, suppliers
and other persons with which Seller has significant business relations. By way
of amplification and not limitation, except as otherwise contemplated by this
Agreement, Seller shall not, between the date of this Agreement and the
Effective Time, directly or indirectly do, or propose to do, any of the
following without the prior written consent of Buyer:
(a) amend or otherwise change its Amended and Restated Certificate of
Incorporation or Bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of
Seller Capital Stock (other than upon exercise or conversion of outstanding
Seller Preferred Stock, Options or Warrants), or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
Seller Capital Stock, or any other ownership interest (including, without
limitation, any phantom interest) of Seller, or (ii) any assets of Seller,
except for sales in the ordinary course of business and in a manner consistent
with past practice;
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise;
(d) reclassify, combine, split, subdivide, redeem, purchase or otherwise
acquire, directly or indirectly, any Seller Capital Stock, other than the
repurchase of Seller Common Stock from Seller's employees, consultants,
advisors, directors or officers pursuant to agreements existing as of this date
and at such Person's cost (or such other price as may be agreed to by Seller's
Board of Directors);
(e) (i) acquire (including, without limitation, by merger, consolidation,
or acquisition of stock or assets) any corporation, partnership, other business
organization or division thereof or any material amount of assets; (ii) incur
any indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible for,
the obligations of any Person, or make any loans or advances, except in the
ordinary course of business and consistent with past practice; (iii) enter into
any contract or agreement other than in the ordinary course of business,
consistent with past practice; (iv) authorize any single capital expenditure
which is in excess of $10,000; or (v) enter into or amend any contract,
agreement, commitment or arrangement with respect to any matter set forth in
this Section 4.1(e);
(f) enter into any employment, consulting or agency agreement, or increase
the compensation payable or to become payable to its officers, employees or
consultants, except for increases in accordance with existing agreements or past
practices for employees of Seller who are not officers of Seller, or grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any director, officer or other employee of Seller, or establish,
adopt, enter into or amend any collective bargaining, bonus, profit-sharing,
thrift, compensation, stock option, restricted stock,
-29-
pension, retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the benefit of
any director, officer or employee;
(g) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect to
accounting policies or procedures (including, without limitation, procedures
with respect to the payment of accounts payable and collection of accounts
receivable);
(h) make any tax election or settle or compromise any material federal,
state, local or foreign income Tax liability;
(i) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction, in the ordinary course of business and
consistent with past practice, of liabilities reflected or reserved against in
the Seller Balance Sheet or subsequently incurred in the ordinary course of
business and consistent with past practice;
(j) take any action that would or is reasonably likely to result in any of
the representations and warranties of Seller set forth in this Agreement being
untrue, or in any covenant of Seller set forth in this Agreement being breached,
or in any of the conditions to the Merger specified in Article V hereof not
being satisfied; or
(k) agree to take any action specified in Section 2.6, or enter into any
other material transaction other than those specified above.
4.2 ACCESS TO INFORMATION; CONFIDENTIALITY
From the date hereof to the Effective Time, Seller shall, and shall cause
the officers, directors, employees, auditors and agents of Seller to, afford the
officers, employees and agents of Buyer reasonable access at all reasonable
times to the officers, employees, agents, properties, offices, plants and other
facilities, books and records of Seller and shall furnish Buyer with all
financial, operating and other data and information as Buyer, through its
officers, employees or agents, may reasonably request. From the date hereof
until the Effective Time, Seller shall provide Buyer with monthly and other
financial statements of Seller as they become available internally at Seller,
all of which financial statements shall fairly present the financial position
and results of operations of Seller as of the dates and for the periods therein
specified. No investigation pursuant to this Section 4.2 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto. The parties shall continue
to comply with and to perform their respective obligations under the Mutual
Confidentiality Agreement between Buyer and Seller entered into as of May 1,
1998, which shall be deemed terminated without any further action by the parties
hereto at the
-30-
Effective Time.
4.3 NO ALTERNATIVE TRANSACTIONS
Unless this Agreement shall have been terminated in accordance with its
terms, prior to the Effective Time, Seller and the Significant Stockholders
shall not, directly or indirectly, through any officer, director, agent or
otherwise, solicit, initiate or encourage any inquiries or the submission of any
proposal or offer (including, without limitation, any proposal or offer to the
Stockholders) from any Person relating to any merger, acquisition or purchase of
all or (other than in the ordinary course of business) any portion of the assets
of, or any equity interest in, Seller or any business combination with Seller
(an "Alternative Proposal") or participate in any negotiations regarding, or
furnish to any other Person any information with respect to, or otherwise
cooperate or negotiate in any way with, or assist or participate in, facilitate
or encourage, any effort or attempt by any other Person to make or implement an
Alternative Proposal. Seller or the Significant Stockholders immediately shall
cease and cause to be terminated any existing discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing, and they
will take the necessary steps to inform the individuals or entities referred to
above of the obligations taken under this Section 4.3. Seller and the
Significant Stockholders shall notify Buyer immediately if any such Alternative
Proposal, or any inquiry or contact with any Person with respect thereto, is
made. Seller agrees not to release any third party from, or waive any provision
of, any confidentiality or standstill agreement to which Seller is a party.
4.4 NOTIFICATION OF CERTAIN MATTERS
Seller, Buyer and Merger Sub shall give prompt notice to the other parties
hereto of (a) the occurrence or nonoccurrence of any event that would be likely
to cause any representation or warranty of Seller, Buyer or Merger Sub contained
in this Agreement to be untrue or inaccurate and (b) any failure of Seller,
Buyer or Merger Sub to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 4.4 shall not limit or
otherwise affect the remedies available to Buyer hereunder.
4.5 FURTHER ACTION; REASONABLE BEST EFFORTS
Upon the terms and subject to the conditions hereof, each of the parties
hereto shall use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereby, including, without limitation,
using its reasonable best efforts to obtain all waivers, licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with Seller as are necessary for the
consummation of the transactions contemplated hereby and to fulfill the
conditions of the
-31-
Merger. No Significant Stockholder will undertake any course of action
inconsistent with this Agreement or that would make any representations,
warranties or agreements made by such party in this Agreement or any Operative
Documents untrue or any conditions precedent to this Agreement unable to be
satisfied at or prior to the Closing. After the Closing Date, each party hereto,
at the request of and without any further cost or expense to the other parties,
will take any further actions necessary or desirable to carry out the purposes
of this Agreement and any Operative Document, to vest in the Surviving
Corporation full title to all properties, assets and rights of Seller and to
effect the issuance of the Buyer Common Stock to the Stockholders pursuant to
the terms and conditions hereof.
4.6 POOLING; REORGANIZATION
From and after the date hereof and until the Effective Time, none of Buyer,
Seller or any Significant Stockholder will (a) take any action or fail to take
any action that would jeopardize the treatment of the Merger as a "pooling of
interests" for accounting purposes, including, without limitation, any action by
Seller, any Significant Stockholder or Buyer with respect to their
representations and warranties in Sections 2.25 and 3.7, respectively, that
would cause such representations not to be true in all material respects from
and after the date hereof until the Effective Time or (b) enter into any
contract, agreement, commitment or arrangement with respect to either of the
foregoing.
4.7 PUBLICITY
Neither Seller nor any Significant Stockholder shall issue any press
release or otherwise make any statements to any third party with respect to this
Agreement or the transactions contemplated hereby without Buyer's prior written
approval, which approval shall not be unreasonably withheld. Except as may be
required by law or any listing agreement with the Nasdaq National Market or any
national securities exchange, Buyer shall not issue any press release or
otherwise make any statements to any third party with respect to this Agreement
or the transactions contemplated hereby without Seller's prior written approval,
which approval will not be unreasonably withheld.
4.8 REGISTRATION RIGHTS
On the terms and subject to the conditions of the Investor Rights
Agreement, Buyer, Seller and the Significant Stockholders shall cooperate with
respect to, and Buyer shall promptly prepare and file with the SEC no later than
thirty (30) days after the Closing Date a Registration Statement on Form S-3
(the "Registration Statement") under the Securities Act, covering the resale of
the shares of Buyer Common Stock issuable as a result of the Merger. Buyer
shall use its best efforts, and Seller and the Significant Stockholders will
cooperate with Buyer, to have the Registration Statement declared effective by
the SEC as promptly as practicable thereafter. In connection therewith, the
-32-
parties hereto agree to execute and deliver the Investor Rights Agreement on or
before the Closing Date.
4.9 LISTING APPLICATION
Buyer shall promptly prepare and submit to the Nasdaq National Market a
listing application covering the shares of Buyer Common Stock issuable in the
Merger, and shall use its best efforts to obtain, prior to the Effective Time,
approval for the listing of such shares of Buyer Common Stock, subject to
official notice of issuance.
4.10 APPROVAL OF STOCKHOLDERS
(a) Seller will take all action necessary in accordance with applicable
law and its Amended and Restated Certificate of Incorporation and Bylaws to
convene a meeting of the Stockholders or conduct a consent solicitation as
promptly as practicable to consider and vote on (or consent to, as the case may
be) the approval of this Agreement and the transactions contemplated hereby. The
Board of Directors of Seller shall recommend such approval and Seller shall take
all lawful action to solicit such approval.
(b) Each of the Significant Stockholders shall vote or cause to be voted,
or execute a written consent with respect to, the shares of Seller Capital Stock
owned by such Significant Stockholder (i) in favor of adoption and approval of
this Agreement and all transactions contemplated hereby at every meeting of the
Stockholders at which such matters are considered and in connection with every
proposal to take action by written consent with respect thereto and (ii) against
any other third-party proposal to merge or consolidate with Seller or any
subsidiary of Seller or to sell all or substantially all of Seller's assets at
every meeting of the Stockholders at which such matters are considered and in
connection with every proposal to take action by written consent with respect
thereto.
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS
OF BUYER AND MERGER SUB
The obligations of Buyer and Merger Sub to perform and observe the
covenants, agreements and conditions hereof to be performed and observed by them
at or before the Closing shall be subject to the satisfaction of the following
conditions, which may be expressly waived only in writing signed by Buyer:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of Seller and each Significant
Stockholder contained herein (including the Disclosure Memorandum) and in the
Operative Documents shall have been true and correct when made and shall be true
and correct as of the Closing Date as though made on that date.
-33-
5.2 PERFORMANCE OF AGREEMENTS
Seller and the Significant Stockholders shall have performed all
obligations and agreements and complied with all covenants and conditions
contained in this Agreement or any Operative Document to be performed and
complied with by them at or prior to the Closing.
5.3 OPINION OF COUNSEL FOR SELLER
Buyer shall have received the opinion letter of Wise & Xxxxxxx LLP, counsel
for Seller and the Significant Stockholders, dated the Closing Date,
substantially in the form attached hereto as Exhibit 5.3.
5.4 STOCKHOLDER APPROVAL
The Stockholders shall have duly and validly approved the Merger by a vote
or written consent in accordance with Delaware Law.
5.5 CONSENTS TO MERGER
Seller shall have received and shall have delivered to Buyer written
consents to the Merger from each of the parties (other than Seller) to those
Contracts identified in the Disclosure Memorandum as requiring consent in
connection with the Merger, which consents shall be satisfactory in all respects
to Buyer in its sole and absolute discretion.
5.6 COMPLIANCE CERTIFICATE
Buyer shall have received a certificate of the President and the Chief
Financial Officer of Seller, dated the Closing Date, in form and substance
reasonably satisfactory to Buyer, certifying that the conditions to the
obligations of Buyer and Merger Sub have been fulfilled.
5.7 MATERIAL ADVERSE CHANGE
Since the date of this Agreement and through the Closing, there shall not
have occurred any change in the business, operations, assets, liabilities
(absolute, accrued, contingent or otherwise), sales, margins, profitability or
condition (financial or other) of Seller having an adverse effect (a "Seller
Adverse Effect"), and no change having a Seller Adverse Effect shall have
occurred in any domestic or foreign laws or regulations affecting Seller or in
any material third party contractual or other business relationships of Seller.
-34-
5.8 OTHER APPROVALS
All transfers of permits or licenses and all approvals of or notices to
public agencies, federal, state, local or foreign, the granting or delivery of
which is necessary for the consummation of the transactions contemplated hereby
or for the continued operation of Seller, shall have been obtained, and all
waiting periods specified by law shall have passed or otherwise been waived to
the extent possible. All other consents, approvals and notices referred to in
this Agreement and necessary for the consummation of the transactions
contemplated hereby or for the continued operation of Seller shall have been
obtained or delivered.
5.9 PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE
All corporate and other proceedings in connection with the transactions
contemplated hereby and by the Operative Documents, and all documents and
instruments incident to such transactions, shall have been approved by Buyer's
counsel, and Buyer shall have received a certificate of the Secretary of Seller,
in form and substance reasonably satisfactory to Buyer, as to the authenticity
and effectiveness of the actions of the Board of Directors and the Stockholders
authorizing the Merger and the transactions contemplated by this Agreement and
the Operative Documents, as the case may be, and such other documents as are
reasonably specified by Buyer's counsel.
5.10 COMPLIANCE WITH LAWS
The consummation of the transactions contemplated by this Agreement and the
Operative Documents shall be legally permitted by all laws and regulations to
which Buyer or Seller is subject.
5.11 POOLING OF INTERESTS
Buyer and Seller shall have received from each of KPMG Peat Marwick LLP and
Ernst & Young LLP an opinion in form and substance reasonably satisfactory to
Buyer that the Merger will qualify for "pooling of interests" treatment under
applicable accounting standards.
5.12 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect which
enjoins, restrains, conditions or prohibits consummation of this Agreement or
any Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or threatened that would enjoin, restrain, condition
or prevent consummation of this Agreement or any Operative Document.
-35-
5.13 ESCROW AGREEMENT
The Escrow Agent and the Stockholder Representative on behalf of the
Stockholders shall have executed and delivered the Escrow Agreement.
5.14 EMPLOYMENT AGREEMENTS
Each of Xxxx Xxxxx, Xxx Xxx Xxxxxx, Xxxxx Xxxxx, Xxxx Xxxxxxx and Xxxxxx
Xxxxxx (the "Key Employees") shall have executed an employment agreement,
substantially in the form attached hereto as Exhibit 5.14 (the "Employment
Agreement").
5.15 NONCOMPETITION AGREEMENTS
Each of the Key Employees shall have executed a confidentiality,
noncompetition and nonsolicitation agreement, substantially in the form attached
hereto as Exhibit 5.15 (the "Noncompetition Agreement").
5.16 PROPRIETARY INFORMATION AGREEMENTS
Each of the employees of Seller shall have executed a proprietary
information and inventions agreement, substantially in the form attached hereto
as Exhibit 5.16 (the "Proprietary Information Agreement").
5.17 INVESTOR RIGHTS AGREEMENT
Each of the Stockholders shall have executed the Investor Rights Agreement,
substantially in the form attached hereto as Exhibit 5.17 (the "Investor Rights
Agreement").
5.18 TAX OPINION
Buyer and Merger Sub shall have received an opinion of Wise & Xxxxxxx LLP
to the effect that for federal income tax purposes (a) the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the Code;
(b) each of Buyer, Merger Sub and Seller will be a party to the reorganization
within the meaning of Section 368(b) of the Code; (c) no gain or loss will be
recognized by Buyer, Seller or Merger Sub as a result of the Merger; and (d) no
gain or loss will be recognized by the Stockholders as a result of the Merger
with respect to shares converted only into Buyer Common Stock. In rendering
such opinion, Wise & Xxxxxxx LLP may request and rely on certain reasonable
representations of Buyer and Seller.
5.19 AFFILIATE LETTERS
Seller shall have delivered or caused to be delivered to Buyer an Affiliate
Letter in the form attached hereto as Exhibit 5.19 from each of those Persons
who were, at the
-36-
record date for Seller's Stockholders meeting (or the date on which the
requisite number of consents has been obtained) to approve the Merger,
"affiliates" of Seller within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act.
5.20 CONVERSION
Each share of Series A Stock shall have been converted into that number of
shares of Seller Common Stock as determined in accordance with Seller's Amended
and Restated Certificate of Incorporation.
5.21 TERMINATION OF CERTAIN AGREEMENTS
Any and all rights of refusal, co-sale rights and registration rights
(other than pursuant hereto) for the benefit of the holders of Seller Common
Stock, Series A Stock or Series B Stock shall have been terminated.
5.22 TERMINATION OF SEP
Prior to the Closing Date, Seller shall take all steps necessary to
terminate its simplified employee pension ("SEP") plan, such termination to be
effective as of a date preceding the Closing Date.
5.23 SETTLEMENT AGREEMENT
Prior to the Closing Date, Seller and Newbridge Networks, Inc.
("Newbridge") shall have entered into that certain Settlement Agreement and
Mutual Release by and between Seller and Newbridge dated as of July 9, 1998.
5.24 AVERAGE CLOSING PRICE
The Average Closing Price shall be equal to or greater than $39.00.
ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS
OF SIGNIFICANT STOCKHOLDERS AND SELLER
The obligations of the Significant Stockholders and Seller to perform and
observe the covenants, agreements and conditions hereof to be performed and
observed by them at or before the Closing shall be subject to the satisfaction
of the following conditions, which may be expressly waived only in writing
signed by Seller and the Stockholder Representative.
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of Buyer and Merger Sub contained herein
and in the Operative Documents to which either is a party shall have been true
and correct
-37-
when made and shall be true and correct as of the Closing Date as though made on
that date.
6.2 PERFORMANCE OF AGREEMENTS
Buyer and Merger Sub shall have performed all obligations and agreements
and complied with all covenants and conditions contained in this Agreement or
any Operative Document to which either is a party to be performed and complied
with by them at or prior to the Closing.
6.3 OPINION OF BUYER'S COUNSEL
Seller shall have received the opinion letter of Xxxxxxx Coie LLP, counsel
for Buyer and Merger Sub, dated the Closing Date, substantially in the form
attached hereto as Exhibit 6.3.
6.4 STOCKHOLDER APPROVAL
The Stockholders shall have duly and validly approved the Merger by a vote
or written consent in accordance with Delaware Law.
6.5 COMPLIANCE CERTIFICATE
Seller shall have received a certificate of an officer of Buyer, dated the
Closing Date, in form and substance reasonably satisfactory to Seller,
certifying that the conditions to the obligations of the Significant
Stockholders and Seller have been fulfilled.
6.6 OTHER APPROVALS
All transfers of permits or licenses and all approvals of or notices to
public agencies, federal, state, local or foreign, the granting or delivery of
which is necessary for the consummation of the transactions contemplated hereby
or for the continued operation of Seller, shall have been obtained, and all
waiting periods specified by law shall have passed or otherwise been waived to
the extent possible. All other consents, approvals and notices referred to in
this Agreement and necessary for the consummation of the transactions
contemplated hereby or for the continued operation of Seller shall have been
obtained or delivered.
6.7 PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE
All corporate and other proceedings in connection with the transactions
contemplated hereby and by the Operative Documents, and all documents and
instruments incident to such transactions, shall have been approved by Seller's
counsel, and Seller shall have received a certificate of the Secretary of Buyer,
in form and
-38-
substance reasonably satisfactory to Seller, as to the authenticity and
effectiveness of the actions of the Board of Directors authorizing the Merger
and the transactions contemplated by this Agreement and the Operative Documents,
as the case may be, and such other documents as are reasonably specified by
Seller's counsel.
6.8 COMPLIANCE WITH LAWS
The consummation of the transactions contemplated by this Agreement and the
Operative Documents shall be legally permitted by all laws and regulations to
which Buyer or Seller is subject.
6.9 POOLING OF INTERESTS
Buyer and Seller shall have received from each of KPMG Peat Marwick LLP and
Ernst & Young LLP an opinion in form and substance reasonably satisfactory to
Seller that the Merger will qualify for "pooling of interests" treatment under
applicable accounting standards.
6.10 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect that
enjoins, restrains, conditions or prohibits consummation of this Agreement or
any Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or threatened that would enjoin, restrain, condition
or prevent consummation of this Agreement or any Operative Document.
6.11 OPERATIVE DOCUMENTS
Buyer and Merger Sub shall have executed and delivered to Seller all the
Operative Documents to which they are parties.
6.12 TAX OPINION
Buyer and Seller shall have received an opinion of Wise & Xxxxxxx LLP to
the effect that for federal income tax purposes (a) the Merger will be treated
as a reorganization within the meaning of Section 368(a) of the Code; (b) each
of Buyer, Merger Sub and Seller will be a party to the reorganization within the
meaning of Section 368(b) of the Code; (c) no gain or loss will be recognized by
Buyer, Seller or Merger Sub as a result of the Merger; and (d) no gain or loss
will be recognized by the Stockholders as a result of the Merger with respect to
shares converted only into Buyer Common Stock. In rendering such opinion, Wise
& Xxxxxxx LLP may request and rely on certain reasonable representations of
Buyer and Seller.
-39-
6.13 AVERAGE CLOSING PRICE
The Average Closing Price shall be less than or equal to $52.50.
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time (notwithstanding any approval of this Agreement
by the Stockholders):
(a) by mutual written consent duly authorized by the Boards of Directors
of Seller, Merger Sub and Buyer;
(b) by either Seller or Buyer, if the Merger has not been consummated by
August 15, 1998; provided, however, that the right to terminate this Agreement
under this Section 7.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such date;
(c) by either Seller or Buyer, if there shall be any law or regulation
that makes consummation of the Merger illegal or otherwise prohibited or if any
judgment, injunction, order or decree enjoining Buyer, Merger Sub or Seller from
consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable; provided, however, that the party
seeking to terminate this Agreement pursuant to this Section 7.1(c) shall have
used all reasonable efforts to remove such judgment, injunction, order or
decree;
(d) by Seller, in the event of a material breach by Buyer of any
representation, warranty or agreement contained herein that has not been cured
or is not curable by August 15, 1998;
(e) by Buyer, in the event of a material breach by Seller of any
representation, warranty or agreement contained herein that has not been cured
or is not curable by August 15, 1998;
(f) by Seller, if the Average Closing Price is greater than $52.50; or
(g) by Buyer, if the Average Closing Price is less than $39.00.
7.2 EFFECT OF TERMINATION
In the event of the termination of this Agreement pursuant to Section 7.1,
there shall be no further obligation on the part of any party hereto, except
that the
-40-
confidentiality obligations under Section 4.2 shall survive any such termination
and nothing herein shall relieve any party from liability for any breach
thereof.
7.3 AMENDMENT
This Agreement may be amended by Buyer, Merger Sub, Seller and the
Stockholders (acting in the case of the Stockholders through the Stockholder
Representative) at any time prior to the Effective Time; provided, however, that
no amendment may be made that would reduce the amount or change the type of
consideration into which each share of Seller Capital Stock shall be converted
upon consummation of the Merger without the prior written consent of the
Stockholders in the manner and as set forth in the Escrow Agreement. This
Agreement may not be amended except by an instrument in writing signed by Buyer,
the Stockholder Representative and Seller.
7.4 WAIVER
At any time prior to the Effective Time, any party hereto may (a) extend
the time for the performance of any obligation or other act of any other party
hereto, (b) waive any inaccuracy in the representations and warranties contained
herein or in any document delivered pursuant hereto, or (c) waive compliance
with any agreement or condition contained herein. Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the party
or parties against whom enforcement of the discharge is sought.
ARTICLE VIII - SURVIVAL AND INDEMNIFICATION
8.1 SURVIVAL
All representations and warranties contained in this Agreement or in the
Operative Documents or in any certificate delivered pursuant hereto or thereto
shall survive the Closing for a period of one year after the Closing Date (the
"Survival Period"), and shall not be deemed waived or otherwise affected by any
investigation made or any knowledge acquired with respect thereto, or by any
notice delivered pursuant to Section 4.4 hereof. Nevertheless, any
representation or warranty in respect of which indemnity may be sought pursuant
to this Agreement shall survive the time at which it would otherwise terminate
if written notice of the inaccuracy thereof specifying the Loss (as defined in
Section 8.2), including the amount thereof, giving rise to such right to
indemnity shall have been delivered to the Stockholder Representative prior to
such time. The covenants and agreements contained in this Agreement or in the
Operative Documents shall survive the Closing and shall continue until all
obligations with respect thereto shall have been performed or satisfied or shall
have been terminated in accordance with their terms.
-41-
8.2 INDEMNIFICATION
From and after the Effective Date, the Stockholders will defend, indemnify
and hold harmless Buyer and the Surviving Corporation from and against any
claims, losses, liabilities, actions, damages, costs and expenses (including
reasonable attorneys' fees) incurred by Buyer or the Surviving Corporation (a
"Loss") arising out of or in connection with (a) any breach of the
representations or warranties made by Seller or any Stockholder under this
Agreement or in any agreement, certificate or other instrument delivered by
Seller or any Stockholder in connection with this Agreement; (b) any failure by
Seller or any Stockholder to perform any of the covenants or agreements
contained in this Agreement or in any agreement, certificate or other instrument
delivered by Seller or any Stockholder pursuant to this Agreement; (c) any claim
by any third party arising out of Seller's operation of Seller's business or the
ownership, use or distribution of Seller's assets on or before the Effective
Date; (d) all liability for Taxes of Seller assessed during or attributable to
any taxable period ending on or prior to the Effective Date, and the portion of
any taxable period that includes, but does not end on, the Effective Date to the
extent such Taxes exceed the reserve for Tax liability (rather than any reserve
for deferred Taxes established to reflect timing differences between book and
Tax income) set forth on the face of the Final Balance Sheet (rather than in any
notes thereto); (e) any liability for Taxes resulting from the transactions
contemplated by this Agreement, excluding any Taxes resulting from (i) a
reassessment of Real Property or Personal Property, (ii) any inaccuracy in or
breach of any representation or warranty made by Buyer or Merger Sub under this
Agreement or in any agreement, certificate or other instrument delivered by
Buyer or Merger Sub in connection with this Agreement, or (iii) any failure of
Buyer or Merger Sub to perform or comply with any covenant, obligation or
restriction contained in this Agreement or in any agreement, certificate or
other instrument delivered by Buyer or Merger Sub in connection with this
Agreement; (f) any claims by Seller's trade creditors relating to Seller's
obligations existing on or prior to, or arising with respect to the period
ending on, the Effective Date; or (g) an Understatement.
8.3 LIMITATIONS
Anything to the contrary notwithstanding, (i) neither Buyer nor the
Surviving Corporation shall be indemnified and held harmless in respect of any
Loss which is covered by insurance owned by Seller and assigned to the Surviving
Corporation or such insurance as currently is maintained by Buyer to the extent
that any net Loss is reduced by the proceeds of any such insurance, (ii) the
Stockholders shall not be obligated to defend and hold harmless Buyer or the
Surviving Corporation with respect to any claims made by Buyer or the Surviving
Corporation after the expiration of the time period referred to in Section 8.1,
(iii) the aggregate liability of each Stockholder hereunder shall be limited to
a dollar amount equal to the product obtained by multiplying the Merger
Consideration received by such Stockholder pursuant to Section 1.7.1 by the
Average
-42-
Closing Price, (iv) the aggregate liability of each Stockholder shall be limited
to such Stockholder's pro rata portion (based on such Stockholder's equity
ownership of Seller as set forth in the Disclosure Memorandum) of any Loss for
which indemnification is sought under Section 8.2, and (v) neither Buyer nor the
Surviving Corporation shall be indemnified and held harmless in respect of any
Loss resulting from the inability of Buyer or the Surviving Corporation to
collect any accounts receivable of Seller as of the Effective Time due solely to
the discontinuance after the Effective Time of any product line of Seller, or
the failure after the Effective Time to perform maintenance obligations with
respect to any such product line, including, without limitation, Losses related
to the return of any such product due solely to the discontinuance of such
product line.
8.4 PROCEDURE
8.4.1 CLAIM NOTICE
In the event that Buyer or the Surviving Corporation sustains or incurs any
Losses in respect of which indemnification may be sought pursuant to this
Article VIII, Buyer or the Surviving Corporation may assert a claim for
indemnification by giving written notice thereof (the "Claim Notice") to the
Stockholder Representative, which will describe in reasonable detail the facts
and circumstances upon which the asserted claim for indemnification is based.
The Claim Notice will also specify how Buyer or the Surviving Corporation
intends to recover such funds pursuant to this Agreement. Unless the claim
described in the Claim Notice is contested by the Stockholder Representative by
written notice to Buyer or the Surviving Corporation of the amount of the claim
that is contested, given within thirty (30) days of the receipt by the
Stockholder Representative of the Claim Notice, Buyer or the Surviving
Corporation may recover such undisputed amount of the claim described in the
Claim Notice from the Stockholders by giving written notice of such claim to the
Escrow Agent. The Escrow Agent shall be entitled to rely on any such notice and
distribute the Escrowed Shares held in escrow to Buyer in accordance with the
terms thereof.
8.4.2 REPRESENTATIVE NOTICE
If, within thirty (30) days of the receipt by the Stockholder
Representative of the Claim Notice, the Stockholder Representative contests in
writing to Buyer and the Escrow Agent that such Loss constitutes an
indemnifiable claim (the "Representative Notice"), then Buyer and the
Stockholder Representative, acting in good faith, shall attempt to reach
agreement with respect to such claim. If Buyer and the Stockholder
Representative should so agree, a memorandum setting forth such agreement shall
be prepared and signed by Buyer and the Stockholder Representative and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and distribute the Escrowed Shares held in escrow in
accordance with the terms thereof.
-43-
8.4.3 THIRD-PARTY CLAIMS
With respect to claims for indemnification hereunder resulting from or in
connection with any legal proceeding commenced by a third party, Buyer or the
Surviving Corporation will give the Claim Notice to the Stockholder
Representative no later than twenty (20) days prior to the time any initial
answer or response to the asserted claim is legally required under any
applicable court or procedural rule. The Stockholders may, at the Stockholders'
own expense, participate in the proceeding with counsel of their choice.
Nothing in this Section 8.4.3 limits in any way the right of Buyer or the
Surviving Corporation to defend against any claim or litigation in such manner
as it may deem appropriate, including, but not limited to, settling the claim or
litigation (after giving notice of the same to the Stockholder Representative)
on such terms as Buyer or the Surviving Corporation may in good xxxxx xxxx
appropriate (provided, however, that no such settlement shall occur without the
Stockholder Representative's prior written consent, which shall not be
unreasonably withheld), and the Stockholders will, subject to the limitations
set forth in Section 8.3, promptly indemnify Buyer or the Surviving Corporation
in accordance with the provisions of Section 1.7.4, this Article VIII and the
Escrow Agreement.
8.5 OFFSET
The satisfaction of any Losses owed to Buyer under this Article VIII shall
be made by delivery by the Escrow Agent to Buyer of that number of Escrowed
Shares calculated by dividing the dollar amount of any Loss by the Average
Closing Price. Any liability of the Stockholders for indemnification under this
Article VIII shall (subject to the limitations set forth in Section 8.3) be
satisfied, first, from Escrowed Shares pursuant to a setoff under the Escrow
Agreement and, second, to the extent the Escrowed Shares are insufficient to
satisfy any such liability, from other shares of Buyer Common Stock or proceeds
from any disposition thereof as the Stockholder Representative may elect.
8.6 INVESTIGATIONS; WAIVERS
Buyer's and the Surviving Corporation's right to indemnification provided
for in this Article VIII will remain in effect notwithstanding any investigation
at any time by or on behalf of any party hereto or any waiver by any party
hereto of any condition to such party's obligations to consummate the
transactions contemplated hereby.
ARTICLE IX - GENERAL
9.1 EXPENSES
Regardless of whether the transactions contemplated by this Agreement are
consummated, each party will pay its own fees and expenses incident to the
negotiation, preparation and execution of this Agreement (including legal and
accounting fees and
-44-
expenses). It is expressly acknowledged by Seller that the fees of Vrolyk & Co.,
as well as all fees of Seller pursuant to this Section 9.1, shall be included in
the determination of Actual Net Equity pursuant to Section 1.7.3.
9.2 NOTICES
Any notice or demand desired or required to be given hereunder will be in
writing given by personal delivery, certified or registered mail, confirmed
facsimile transmission or overnight courier service, in each case addressed as
respectively set forth below or to such other address as any party will have
previously designated by such a notice. The effective date of any notice or
request will be the date of personal delivery, four days after the date of
mailing by certified or registered mail, the date on which successful facsimile
transmission is confirmed or the date undertaken for delivery by a reputable
overnight courier service, as the case may be, in each case properly addressed
as provided herein and with all charges prepaid.
TO BUYER OR MERGER SUB:
Visio Corporation
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Legal Department
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxx Coie LLP
0000 Xxxxx Xxxxxx, 00xx xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
TO SELLER OR SIGNIFICANT STOCKHOLDERS:
Kaspia Systems, Inc.
0000 XX Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxx 00000
Attention: Xxxx Xxxxx
Facsimile: (000) 000-0000
-45-
with a copy to:
Wise & Xxxxxxx LLP
0000 Xxxxxx Xxx, Xxxxx 000
Xxxx Xxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxxxxxxx
Facsimile: (000) 000-0000
9.3 SEVERABILITY
If any term or other provision of this Agreement is determined by a court
or by arbitration to be invalid, illegal or incapable of being enforced under
any rule of law, or public policy, all other conditions and provisions of this
Agreement will nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto will negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated hereby are
consummated as originally contemplated to the fullest extent possible.
9.4 ENTIRE AGREEMENT
All prior or contemporaneous agreements, contracts, promises,
representations and statements among the parties to this Agreement as to the
subject matter hereof (other than the Exhibits to this Agreement and the
Disclosure Memorandum, the Operative Documents and the other agreements
specifically mentioned in this Agreement, and the certificates and other
documents delivered pursuant to this Agreement (together with this Agreement,
the "Transaction Documents")) are merged into this Agreement. The Transaction
Documents set forth the entire understanding and agreement among the parties
with respect to the subject matter hereof and thereof, and there are no terms,
conditions, representations, warranties or covenants other than those contained
in the Transaction Documents or supplied by law.
9.5 ASSIGNMENT
This Agreement will not be assigned by operation of law or otherwise
without the prior written consent of the other parties (acting in the case of
the Stockholders through the Stockholder Representative) hereto.
9.6 PARTIES IN INTEREST
This Agreement will be binding on and inure solely to the benefit of each
party hereto and its permitted assigns, and nothing in this Agreement, express
or implied, is
-46-
intended to or will confer on any other Person any right, benefit or remedy of
any nature whatsoever under or by reason of this Agreement.
9.7 SPECIFIC PERFORMANCE
Each of the parties acknowledges and agrees that the other parties hereto
would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the parties hereto agrees that the other
parties hereto will be entitled to an injunction to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof (including the indemnification provisions hereof) in
any competent court having jurisdiction over the parties, in addition to any
other remedy to which they may be entitled at law or in equity.
9.8 GOVERNING LAW; JURISDICTION AND VENUE
This Agreement shall be governed by and construed and enforced in
accordance with and subject to the internal laws and decisions of the State of
Washington, regardless of its or any other jurisdiction's conflict of law
provisions. The parties hereto agree that venue for any dispute hereunder, or
action on any obligation under this Agreement, shall be in King County,
Washington, or the United States District Court for the Western District of
Washington, and the parties hereto submit to the jurisdiction of the state and
federal courts of the State of Washington for any dispute hereunder or action on
any obligation under this Agreement.
9.9 HEADINGS
The descriptive headings contained in this Agreement are included for
convenience of reference only and will not affect in any way the meaning or
interpretation of this Agreement.
9.10 FURTHER ASSURANCES
Each party (acting in the case of the Stockholders through the Stockholder
Representative) will, at the reasonable request of any other party hereto, from
time to time, execute and deliver such other assignments, transfers,
conveyances, and other instruments and documents and do and perform such other
acts and things as may be reasonably necessary or desirable for effecting
complete consummation of this Agreement and the transactions contemplated
hereby.
9.11 COUNTERPARTS; ELECTRONIC SIGNATURES
This Agreement may be executed and delivered in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which when
executed and
-47-
delivered will be deemed to be an original but all of which taken
together will constitute one and the same agreement. To expedite the process of
entering into this Agreement, the parties acknowledge that Transmitted Copies of
this Agreement will be equivalent to original documents until such time as
original documents are completely executed and delivered. "Transmitted Copies"
will mean copies that are reproduced or transmitted via photocopy, facsimile or
other process of complete and accurate reproduction and transmission.
9.12 REMEDIES CUMULATIVE
Except as otherwise provided herein, each and all of the rights and
remedies provided in this Agreement, and each and all of the rights and remedies
allowed at law and in equity in like case, will be cumulative, and the exercise
of one right or remedy will not be exclusive of the right to exercise or resort
to any and all other rights or remedies provided in this Agreement or at law or
in equity.
-48-
IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement as of the date and year first above written.
VISIO CORPORATION
By: /s/ Xxxxx X. Xxxxxx
--------------------------------------------------
Name: Xxxxx X. Xxxxxx
------------------------------------------------
Its: Senior Vice President-Finance & Administration
-------------------------------------------------
VMS-1, INC.
By: /s/ Xxxxx X. Xxxxxx
--------------------------------------------------
Name: Xxxxx X. Xxxxxx
------------------------------------------------
Its: Treasurer
-------------------------------------------------
KASPIA SYSTEMS, INC.
By: /s/ Xxxx Xxxxx, President
--------------------------------------------------
Name: Xxxx Xxxxx, President
SIGNIFICANT STOCKHOLDER
/s/ Xxxx Xxxxx
-----------------------------------------------------
Xxxx Xxxxx
SIGNIFICANT STOCKHOLDER
/s/ Xxxxx Xxxxxx
-----------------------------------------------------
Xxxxx Xxxxxx
-49-
