Exhibit 2.1
EXECUTION FORM
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NETEGRITY, INC.,
LKN ACQUISITION CORP.,
AND
DATACHANNEL, INC.
OCTOBER 24, 2001
Table of Contents
Page
ARTICLE I THE MERGER......................................................... 1
1.1 The Merger........................................................... 1
1.2 The Closing.......................................................... 1
1.3 Actions at the Closing............................................... 2
1.4 Additional Action.................................................... 2
1.5 Conversion of Shares................................................. 2
1.6 Dissenting Shares................................................... 10
1.7 Payment of Consideration............................................ 11
1.8 Fractional Shares................................................... 12
1.9 Options and Warrants................................................ 13
1.10 Escrow and Special Escrow........................................... 13
1.11 Certificate of Incorporation and By-laws............................ 14
1.12 No Further Rights................................................... 14
1.13 Closing of Transfer Books........................................... 14
1.14 Loan................................................................ 14
1.15 Employee Payments at Closing........................................ 15
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................... 15
2.1 Organization, Qualification and Corporate Power..................... 15
2.2 Capitalization...................................................... 15
2.3 Authorization of Transaction........................................ 16
2.4 Noncontravention.................................................... 17
2.5 Subsidiaries........................................................ 18
2.6 Financial Statements................................................ 19
2.7 Absence of Certain Changes.......................................... 19
2.8 Undisclosed Liabilities............................................. 19
2.9 Tax Matters......................................................... 20
2.10 Assets.............................................................. 22
2.11 Owned Real Property................................................. 22
2.12 Real Property Leases................................................ 22
2.13 Intellectual Property............................................... 23
2.14 Inventory........................................................... 24
2.15 Contracts........................................................... 25
2.16 Accounts Receivable................................................. 26
2.17 Powers of Attorney.................................................. 26
2.18 Insurance........................................................... 26
2.19 Litigation.......................................................... 26
2.20 Warranties.......................................................... 27
2.21 Employees........................................................... 27
2.22 Employee Benefits................................................... 27
2.23 Environmental Matters............................................... 30
2.24 Legal Compliance.................................................... 31
2.25 Customers........................................................... 31
2.26 Permits............................................................. 32
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Table of Contents
(continued)
Page
2.27 Certain Business Relationships With Affiliates...................... 32
2.28 Brokers' Fees....................................................... 32
2.29 Books and Records................................................... 32
2.30 Disclosure.......................................................... 32
2.31 Projections......................................................... 33
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE MERGER
SUBSIDIARY.................................................................. 33
3.1 Organization, Qualification and Corporate Power..................... 33
3.2 Capitalization...................................................... 33
3.3 Authorization of Transaction........................................ 33
3.4 Noncontravention.................................................... 34
3.5 Reports and Financial Statements.................................... 34
3.6 Litigation.......................................................... 35
3.7 Interim Operations of the Merger Subsidiary......................... 35
ARTICLE IV COVENANTS........................................................ 35
4.1 Closing Efforts..................................................... 35
4.2 Governmental and Third-Party Notices and Consents................... 35
4.3 Stockholder Approval................................................ 36
4.4 Operation of Business............................................... 38
4.5 Access to Information............................................... 40
4.6 Notice of Certain Matters........................................... 40
4.7 Exclusivity......................................................... 41
4.8 Expenses............................................................ 41
4.9 Agreements from Certain Affiliates of the Company................... 42
4.10 Listing of Merger Shares............................................ 42
4.11 Repurchase of Certain Company Shares................................ 42
4.12 FIRPTA Tax Certificates............................................. 43
4.13 Isogen Divestiture.................................................. 43
4.14 Termination of 401(k) Plan.......................................... 44
4.15 Certain Indebtedness................................................ 44
ARTICLE V CONDITIONS TO CONSUMMATION OF MERGER.............................. 44
5.1 Conditions to Each Party's Obligations.............................. 44
5.2 Conditions to Obligations of the Buyer and the Merger Subsidiary.... 44
5.3 Conditions to Obligations of the Company............................ 46
ARTICLE VI INDEMNIFICATION.................................................. 47
6.1 Indemnification by the Company Stockholders......................... 47
6.2 Indemnification by the Buyer........................................ 48
6.3 Indemnification Claims.............................................. 48
6.4 Survival of Representations and Warranties.......................... 51
6.5 Limitations......................................................... 52
ARTICLE VII REGISTRATION RIGHTS............................................. 53
7.1 Registration of Shares.............................................. 53
7.2 Limitations on Registration Rights.................................. 54
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Table of Contents
(continued)
Page
7.3 Registration Procedures............................................. 55
7.4 Requirements of Company Stockholders................................ 55
7.5 Indemnification..................................................... 56
7.6 Assignment of Rights................................................ 56
ARTICLE VIII TERMINATION.................................................... 56
8.1 Termination of Agreement............................................ 56
8.2 Effect of Termination............................................... 57
ARTICLE IX DEFINITIONS...................................................... 57
ARTICLE X MISCELLANEOUS..................................................... 60
10.1 Press Releases and Announcements.................................... 60
10.2 No Third Party Beneficiaries........................................ 61
10.3 Entire Agreement.................................................... 61
10.4 Succession and Assignment........................................... 61
10.5 Counterparts and Facsimile Signature................................ 61
10.6 Headings............................................................ 61
10.7 Notices............................................................. 61
10.8 Governing Law....................................................... 62
10.9 Amendments and Waivers.............................................. 62
10.10 Severability........................................................ 62
10.11 Submission to Jurisdiction.......................................... 63
10.12 Construction........................................................ 63
10.13 Specific Performance................................................ 63
Exhibit A - Escrow Agreement
Exhibit B - Affiliate Agreement
Exhibit C - Investment Representation Letter
Exhibit D - Opinion of Counsel to the Company
Exhibit E - Opinion of Counsel to the Buyer and the Merger Subsidiary
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AGREEMENT AND PLAN OF MERGER
Agreement entered into as of October 24, 2001 by and among Netegrity,
Inc., a Delaware corporation (the "Buyer"), LKN Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of the Buyer (the "Merger
Subsidiary"), and DataChannel, Inc., a Washington corporation (the "Company").
The Buyer, the Merger Subsidiary and the Company are referred to collectively
herein as the "Parties."
This Agreement contemplates a merger of the Merger Subsidiary into the
Company. In such merger, the stockholders of the Company will receive cash and
common stock of the Buyer in exchange for their capital stock of the Company.
The Parties acknowledge that the Merger (as defined below) would not
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), if consummated as of the
date on which this Agreement is entered into, but nevertheless intend that the
Merger constitute such a reorganization if it so qualifies on the Closing Date
(as defined below), and the parties adopt this Agreement as the plan of
reorganization for purposes of the Code.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, the Merger Subsidiary shall merge with and into the Company (with
such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Merger Subsidiary shall cease and the Company shall continue as
the surviving corporation in the Merger (the "Surviving Corporation"). The
"Effective Time" shall be the time at which the Surviving Corporation files (i)
a certificate of merger or other appropriate documents prepared and executed in
accordance with Section 252(c) of the Delaware General Corporation Law (the
"Certificate of Merger") with the Secretary of State of the State of Delaware
and (ii) articles of merger or other appropriate documents prepared and executed
in accordance with Section 23B.11.050 of the Washington Business Corporation Act
(the "Articles of Merger"). The Merger shall have the effects set forth in
Section 259 of the Delaware General Corporation Law and Section 23B.11.060 of
the Washington Business Corporation Act.
1.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Xxxx and Xxxx LLP
in Boston, Massachusetts, as soon as possible, but in no event later than three
business days, after satisfaction or waiver of the conditions (excluding the
delivery of any documents to be delivered at the Closing by any of the Parties)
set forth in Article V hereof, or at such other time and place as the Parties
may agree (the "Closing Date").
1.3 Actions at the Closing. At the Closing:
(a) the Company shall deliver to the Buyer and the Merger Subsidiary
the various certificates, instruments and documents referred to in Section 5.2;
(b) the Buyer and the Merger Subsidiary shall deliver to the Company
the various certificates, instruments and documents referred to in Section 5.3;
(c) the Surviving Corporation shall file with the Secretary of State of
the State of Delaware the Certificate of Merger and with the Secretary of State
of the State of Washington the Articles of Merger;
(d) the Buyer shall deliver the Initial Cash Consideration (as defined
below) and a certificate for the Initial Shares (as defined below) to a bank
trust company or other entity reasonably satisfactory to the Company appointed
by the Buyer to act as the exchange agent (the "Exchange Agent") in accordance
with Section 1.7;
(e) the Buyer shall deliver the Special Escrow Cash (as defined below)
to an escrow agent (the "Special Escrow Agent") designated by the
Indemnification Representatives, in accordance with written instructions
delivered to the Buyer not later than three business days prior to the Closing
Date, pursuant to Section 1.10(c); and
(f) the Buyer, Xxxxx Xxxxxxxxx and Xxxxx Xxxxx (the "Indemnification
Representatives") and State Street Bank and Trust Company (the "Escrow Agent")
shall execute and deliver the Escrow Agreement attached hereto as EXHIBIT A (the
"Escrow Agreement") and the Buyer shall deliver to the Escrow Agent a
certificate for the Escrow Shares (as defined below) being placed in escrow on
the Closing Date pursuant to Section 1.10(a).
1.4 Additional Action. The Surviving Corporation may, at any time after
the Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Merger
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of any Party or the holder of any of the
following securities:
(a) Each share of common stock, $.01 par value per share, of the
Company ("Common Shares") issued and outstanding immediately prior to the
Effective Time (other than Dissenting Shares (as defined below)) shall be
converted into and represent the right to receive (subject to Section 1.10):
(i) (A) an amount in cash equal to the Common Cash Proceeds (as
defined below), without any interest thereon and (B) such number of shares of
common stock, par value $.01 per share, of the Buyer (the "Buyer Common Stock")
as is equal to the Common Stock Share Amount (as defined below); provided that
if the Total Value Common Consideration (as defined below) exceeds $0.1965, then
(1) the number of shares of Buyer
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Common Stock allocated under clause (B) above shall be reduced to that number of
shares of Buyer Common Stock such that the Total Value Common Consideration
equals $0.1965 (the number of shares of Buyer Common Stock, if any, by which the
number of shares of Buyer Common Stock allocated under clause (B) above shall be
reduced by application of this clause (1) is referred to herein as the "Common
Share Reduction"), and (2) if the Total Value Common Consideration continues to
exceed $0.1965 after application of such clause (1), the amount in cash
allocated under clause (A) above shall be reduced such that the Total Value
Common Consideration equals $0.1965 (the amount in cash, if any, by which the
amount in cash allocated under clause (A) above shall be reduced by application
of this clause (2) is referred to herein as the "Common Cash Reduction"); and
(ii) the Participation Cash Payment (as defined below), if any, and
the Participation Stock Payment (as defined below), if any.
(b) Each share of preferred stock, $.01 par value per share, of the
Company ("Preferred Shares"; and, together with the Common Shares, the "Company
Shares") issued and outstanding immediately prior to the Effective Time (other
than Preferred Shares owned beneficially by the Buyer or the Merger Subsidiary
and Dissenting Shares) shall be converted into and represent the right to
receive (subject to Section 1.10):
(i) for each share of Series A Convertible Preferred Stock (A) an
amount in cash equal to the Series A Cash Proceeds (as defined below), without
any interest thereon and (B) such number of shares of Buyer Common Stock as is
equal to the Series A Preferred Stock Share Amount (as defined below); provided
that if the Total Value Preferred Consideration (as defined below) for such
Preferred Share exceeds the applicable Preferred Stock Liquidation Amount (as
defined below), then (1) the number of shares of Buyer Common Stock allocated
under clause (B) above shall be reduced to that number of shares of Buyer Common
Stock such that such Total Value Preferred Consideration equals the applicable
Preferred Stock Liquidation Amount, and (2) if such Total Value Preferred
Consideration continues to exceed the applicable Preferred Stock Liquidation
Amount after application of such clause (1), the amount in cash allocated under
clause (A) above shall be reduced such that such Total Value Preferred
Consideration equals the applicable Preferred Stock Liquidation Amount;
(ii) for each share of Series B Convertible Preferred Stock (A) an
amount in cash equal to the Series B Cash Proceeds (as defined below), without
any interest thereon and (B) such number of shares of Buyer Common Stock as is
equal to the Series B Preferred Stock Share Amount (as defined below); provided
that if the Total Value Preferred Consideration for such Preferred Share exceeds
the applicable Preferred Stock Liquidation Amount, then (1) the number of shares
of Buyer Common Stock allocated under clause (B) above shall be reduced to that
number of shares of Buyer Common Stock such that such Total Value Preferred
Consideration equals the applicable Preferred Stock Liquidation Amount, and (2)
if such Total Value Preferred Consideration continues to exceed the applicable
Preferred Stock Liquidation Amount after application of such clause (1), the
amount in cash allocated under clause (A) above shall be reduced such that such
Total Value Preferred Consideration equals the applicable Preferred Stock
Liquidation Amount;
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(iii) for each share of Series C Convertible Preferred Stock (A) an
amount in cash equal to the Series C Cash Proceeds (as defined below), without
any interest thereon and (B) such number of shares of Buyer Common Stock as is
equal to the Series C Preferred Stock Share Amount (as defined below); provided
that if the Total Value Preferred Consideration for such Preferred Share exceeds
the applicable Preferred Stock Liquidation Amount, then (1) the number of shares
of Buyer Common Stock allocated under clause (B) above shall be reduced to that
number of shares of Buyer Common Stock such that such Total Value Preferred
Consideration equals the applicable Preferred Stock Liquidation Amount, and (2)
if such Total Value Preferred Consideration continues to exceed the applicable
Preferred Stock Liquidation Amount after application of such clause (1), the
amount in cash allocated under clause (A) above shall be reduced such that such
Total Value Preferred Consideration equals the applicable Preferred Stock
Liquidation Amount;
(iv) for each share of Series D Convertible Preferred Stock (A) an
amount in cash equal to the Series D Cash Proceeds (as defined below), without
any interest thereon and (B) such number of shares of Buyer Common Stock as is
equal to the Series D Preferred Stock Share Amount (as defined below); provided
that if the Total Value Preferred Consideration for such Preferred Share exceeds
the applicable Preferred Stock Liquidation Amount, then (1) the number of shares
of Buyer Common Stock allocated under clause (B) above shall be reduced to that
number of shares of Buyer Common Stock such that such Total Value Preferred
Consideration equals the applicable Preferred Stock Liquidation Amount, and (2)
if such Total Value Preferred Consideration continues to exceed the applicable
Preferred Stock Liquidation Amount after application of such clause (1), the
amount in cash allocated under clause (A) above shall be reduced such that such
Total Value Preferred Consideration equals the applicable Preferred Stock
Liquidation Amount; and
(v) the Participation Cash Payment (as defined below), if any, and
the Participation Stock Payment (as defined below), if any.
(c) For purposes of this Agreement, the following terms shall have the
meanings ascribed to them below:
(i) "Common Cash Proceeds" shall be the result obtained by dividing
(A) Total Common Cash Consideration by (B) the number of outstanding Common
Shares immediately prior to the Effective Time.
(ii) "Total Common Cash Consideration" shall be the result obtained
by subtracting (A) the product of (1) the Common Repurchase Cost and (2) the
Repurchase Fraction, from (B) the Common Cash Consideration.
(iii) "Common Repurchase Cost" shall be the sum of (A) the Deemed
Repurchase Cost and (B) the product of (1) the Repurchase Spread and (2) 0.05.
(iv) "Repurchase Spread" shall be the result obtained by
subtracting (A) the Deemed Repurchase Cost from (B) the product of (1) the
number of shares of capital stock of the Company repurchased from stockholders
after the date hereof and (2) the average
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purchase price per share paid or to be paid by the Company for shares of capital
stock of the Company repurchased from stockholders after the date hereof.
(v) "Deemed Repurchase Cost" shall be the product of (A) the number
of shares of capital stock of the Company repurchased from stockholders after
the date hereof and (B) the lesser of (1) the Gross Share Consideration and (2)
the average purchase price per share paid or to be paid by the Company for
shares of capital stock of the Company repurchased from stockholders after the
date hereof.
(vi) "Gross Share Consideration" shall be the result obtained by
dividing (A) the sum of (1) the Common Cash Consideration and (2) the product of
(x) 125,000 and (y) the Buyer Common Stock Price by (B) the number of
outstanding Common Shares immediately prior to the Effective Time.
(vii) "Repurchase Cost" shall be the aggregate purchase price paid
or to be paid by the Company for the shares of capital stock of the Company
repurchased from stockholders as described in Section 4.11(a) of this Agreement.
(viii) "Repurchase Fraction" shall be the result obtained by
dividing (A) the Adjusted Cash Consideration by (B) the sum of (1) the Adjusted
Cash Consideration plus (2) the product of (x) 2,500,000 and (y) the Buyer
Common Stock Price.
(ix) "Common Cash Consideration" shall be the result obtained by
multiplying (A) the Adjusted Cash Consideration by (B) 0.05.
(x) "Adjusted Cash Consideration" shall be the result obtained by
subtracting (A) the sum of (1) the amount of the Third Party Expenses (as
defined in Section 4.8 below) (other than the Permitted Legal Fees (as defined
in Section 4.8 below)), (2) the amount of the Special Employee Retention Awards
(as defined in Section 1.15 below), (3) the amount of the Isogen Expenses (as
defined in Section 4.13 below), if any, and (4) the amount of the Net Loan
Balance (as defined in Section 1.14 below), from (B) $15,000,000.
(xi) "Buyer Common Stock Price" shall equal the average of the
closing prices of the Buyer Common Stock on The Nasdaq National Market over the
thirty-day period ending three days prior to the Closing Date.
(xii) "Common Stock Share Amount" shall be the result obtained by
dividing (A) the Common Stock Proceeds Amount by (B) the number of outstanding
Common Shares immediately prior to the Effective Time.
(xiii) "Common Stock Proceeds Amount" shall be the result obtained
by dividing (A) the Total Common Stock Proceeds Amount by (B) the Buyer Common
Stock Price.
(xiv) "Total Common Stock Proceeds Amount" shall be the result
obtained by subtracting (A) the product of (1) the Common Repurchase Cost and
(2) the
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Xxxxxxxxxx Adjustment Factor, from (B) the product of (1) 125,000 and
(2) the Buyer Common Stock Price.
(xv) "Repurchase Adjustment Factor" shall be the result obtained by
subtracting (A) the Repurchase Fraction from (B) one.
(xvi) "Series A Preferred Cash Proceeds" shall be the result
obtained by dividing (A) the product of (1) the Total Preferred Cash
Consideration and (2) Series A Preferred Percentage by (B) the number of
outstanding shares of Series A Convertible Preferred Stock of the Company
immediately prior to the Effective Time.
(xvii) "Series B Preferred Cash Proceeds" shall be the result
obtained by dividing (A) the product of (1) the Total Preferred Cash
Consideration and (2) Series B Preferred Percentage by (B) the number of
outstanding shares of Series B Convertible Preferred Stock of the Company
immediately prior to the Effective Time.
(xviii) "Series C Preferred Cash Proceeds" shall be the result
obtained by dividing (A) the product of (1) the Total Preferred Cash
Consideration and (2) Series C Preferred Percentage by (B) the number of
outstanding shares of Series C Convertible Preferred Stock of the Company
immediately prior to the Effective Time.
(xix) "Series D Preferred Cash Proceeds" shall be the result
obtained by dividing (A) the product of (1) the Total Preferred Cash
Consideration and (2) Series D Preferred Percentage by (B) the number of
outstanding shares of Series D Convertible Preferred Stock of the Company
immediately prior to the Effective Time.
(xx) "Total Preferred Cash Consideration" shall be the result
obtained by subtracting (A) the product of (1) the Repurchase Spread and (2)
0.95, from (B) the result obtained by subtracting (1) the product of (x) the
Common Repurchase Cost and (y) the Repurchase Adjustment Factor, from (2) the
Preferred Cash Consideration.
(xxi) "Preferred Cash Consideration" shall equal the result
obtained by adding (A) the product of (1) the Adjusted Cash Consideration and
(2) 0.95 and (B) the Common Cash Reduction Amount.
(xxii) "Common Cash Reduction Amount" shall be the result obtained
by multiplying (A) the Common Cash Reduction by (B) the number of outstanding
Common Shares immediately prior to the Effective Time.
(xxiii) "Series A Preferred Percentage" shall be the result
obtained by dividing (A) the product of (1) 0.70 and (2) the number of
outstanding shares of Series A Convertible Preferred Stock of the Company
immediately prior to the Effective Time, by (B) the Aggregate Preferred
Liquidation Preference.
(xxiv) "Series B Preferred Percentage" shall be the result obtained
by dividing (A) the product of (0) 0.000000 and (2) the number of outstanding
shares of Series B
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Convertible Preferred Stock of the Company immediately prior to the Effective
Time, by (B) the Aggregate Preferred Liquidation Preference.
(xxv) "Series C Preferred Percentage" shall be the result obtained
by dividing (A) the product of (1) 3.3449 and (2) the number of outstanding
shares of Series C Convertible Preferred Stock of the Company immediately prior
to the Effective Time, by (B) the Aggregate Preferred Liquidation Preference.
(xxvi) "Series D Preferred Percentage" shall be the result obtained
by dividing (A) the product of (1) 5.5937 and (2) the number of outstanding
shares of Series D Convertible Preferred Stock of the Company immediately prior
to the Effective Time, by (B) the Aggregate Preferred Liquidation Preference.
(xxvii) "Aggregate Preferred Liquidation Preference" shall equal
the sum of (A) the product of (1) 0.70 and (2) the number of outstanding shares
of Series A Convertible Preferred Stock of the Company immediately prior to the
Effective Time, (B) the product of (0) 0.000000 and (2) the number of
outstanding shares of Series B Convertible Preferred Stock of the Company
immediately prior to the Effective Time, (C) the product of (1) 3.3449 and (2)
the number of outstanding shares of Series C Convertible Preferred Stock of the
Company immediately prior to the Effective Time, and (D) the product of (1)
5.5937 and (2) the number of outstanding shares of Series D Convertible
Preferred Stock of the Company immediately prior to the Effective Time.
(xxviii) "Series A Preferred Stock Share Amount" shall be the
result obtained by dividing (A) the product of (1) the Preferred Stock Proceeds
Amount and (2) Series A Preferred Percentage by (B) the number of outstanding
shares of Series A Convertible Preferred Stock of the Company immediately prior
to the Effective Time.
(xxix) "Series B Preferred Stock Share Amount" shall be the result
obtained by dividing (A) the product of (1) the Preferred Stock Proceeds Amount
and (2) Series B Preferred Percentage by (B) the number of outstanding shares of
Series B Convertible Preferred Stock of the Company immediately prior to the
Effective Time.
(xxx) "Series C Preferred Stock Share Amount" shall be the result
obtained by dividing (A) the product of (1) the Preferred Stock Proceeds Amount
and (2) Series C Preferred Percentage by (B) the number of outstanding shares of
Series C Convertible Preferred Stock of the Company immediately prior to the
Effective Time.
(xxxi) "Series D Preferred Stock Share Amount" shall be the result
obtained by dividing (A) the product of (1) the Preferred Stock Proceeds Amount
and (2) Series D Preferred Percentage by (B) the number of outstanding shares of
Series D Convertible Preferred Stock of the Company immediately prior to the
Effective Time.
(xxxii) "Preferred Stock Proceeds Amount" shall be the result
obtained by dividing (A) the Total Preferred Stock Proceeds Amount by (B) the
Buyer Common Stock Price.
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(xxxiii) "Total Preferred Stock Proceeds Amount" shall be the sum
of (A) the product of (1) the sum of (x) 2,375,000 and (y) the Common Share
Reduction Amount and (2) the Buyer Common Stock Price plus (B) the product of
(1) the Common Repurchase Cost and (2) the Repurchase Adjustment Factor.
(xxxiv) "Common Share Reduction Amount" shall be the result
obtained by multiplying (A) the Common Share Reduction by (B) the number of
outstanding Common Shares immediately prior to the Effective Time.
(xxxv) "Participation Cash Payment" shall be the result obtained by
dividing (A) the amount in cash by which the Distributable Cash Consideration
exceeds the aggregate amount to be paid to the Company Stockholders after the
application of the provisions of Section 1.5(a)(i), Section 1.5(b)(i), Section
1.5(b)(ii), Section 1.5(b)(iii) and Section 1.5(b)(iv), by (B) the number of
outstanding Common Shares immediately prior to the Effective Time (after giving
effect to the conversion into Common Shares of all outstanding Preferred
Shares).
(xxxvi) "Distributable Cash Consideration" shall be the result
obtained by subtracting (A) the Repurchase Cost from (B) the Adjusted Cash
Consideration.
(xxxvii) "Participation Stock Payment" shall be the result obtained
by dividing (A) the number of shares of Buyer Common Stock by which the
2,500,000 exceeds the aggregate number of shares to be delivered to the Company
Stockholders after the application of the provisions of Section 1.5(a)(i),
Section 1.5(b)(i), Section 1.5(b)(ii), Section 1.5(b)(iii) and Section
1.5(b)(iv), by (B) the number of outstanding Common Shares immediately prior to
the Effective Time (after giving effect to the conversion into Common Shares of
all outstanding Preferred Shares).
(xxxviii) "Total Value Common Consideration" shall be the sum of
(A) the Common Cash Proceeds and (B) the product of (1) the Common Stock Share
Amount and (2) the Buyer Common Stock Price.
(xxxix) "Total Value Preferred Consideration" with respect to each
Preferred Share shall be the sum of (A) the Series A Preferred Cash Proceeds,
Series B Preferred Cash Proceeds, Series C Preferred Cash Proceeds or Series D
Preferred Cash Proceeds, as the case may be, and (B) the product of (1) the
Series A Preferred Stock Share Amount, Series B Preferred Stock Share Amount,
Series C Preferred Stock Share Amount and Series D Preferred Stock Share Amount,
as the case may be, and (2) the Buyer Common Stock Price.
(xl) "Preferred Stock Liquidation Amount" with respect to each
share of Series A Convertible Preferred Stock of the Company shall be $0.70,
with respect to each share of Series B Convertible Preferred Stock of the
Company shall be $1.070281, with respect to each share of Series C Convertible
Preferred Stock of the Company shall be $3.3449, and with respect to each share
of Series D Convertible Preferred Stock of the Company shall be $5.5937.
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(xli) "Aggregate Section 1.5 Consideration" shall be the sum of (A)
the product of (1) the Total Value Common Consideration and (2) the total number
of outstanding Common Shares immediately prior to the Effective Time, plus (B)
the product of (1) the Total Value Preferred Consideration with respect to a
share of Series A Convertible Preferred Stock of the Company and (2) the total
number of outstanding shares of Series A Convertible Preferred Stock immediately
prior to the Effective Time, plus (C) the product of (1) the Total Value
Preferred Consideration with respect to a share of Series B Convertible
Preferred Stock of the Company and (2) the total number of outstanding shares of
Series B Convertible Preferred Stock immediately prior to the Effective Time,
plus (D) the product of (1) the Total Value Preferred Consideration with respect
to a share of Series C Convertible Preferred Stock of the Company and (2) the
total number of outstanding shares of Series C Convertible Preferred Stock
immediately prior to the Effective Time, plus (E) the product of (1) the Total
Value Preferred Consideration with respect to a share of Series D Convertible
Preferred Stock of the Company and (2) the total number of outstanding shares of
Series D Convertible Preferred Stock immediately prior to the Effective Time.
(xlii) "Stockholder Section 1.5 Consideration", with respect to a
Company Stockholder shall be the sum of (A) the product of (1) the Total Value
Common Consideration and (2) the total number of outstanding Common Shares held
by such Company Stockholder immediately prior to the Effective Time, plus (B)
the product of (1) the Total Value Preferred Consideration with respect to a
share of Series A Convertible Preferred Stock of the Company and (2) the total
number of outstanding shares of Series A Convertible Preferred Stock held by
such Company Stockholder immediately prior to the Effective Time, plus (C) the
product of (1) the Total Value Preferred Consideration with respect to a share
of Series B Convertible Preferred Stock of the Company and (2) the total number
of outstanding shares of Series B Convertible Preferred Stock held by such
Company Stockholder immediately prior to the Effective Time, plus (D) the
product of (1) the Total Value Preferred Consideration with respect to a share
of Series C Convertible Preferred Stock of the Company and (2) the total number
of outstanding shares of Series C Convertible Preferred Stock held by such
Company Stockholder immediately prior to the Effective Time, plus (E) the
product of (1) the Total Value Preferred Consideration with respect to a share
of Series D Convertible Preferred Stock of the Company and (2) the total number
of outstanding shares of Series D Convertible Preferred Stock held by such
Company Stockholder immediately prior to the Effective Time.
(xliii) "Stockholder Special Escrow Fraction", with respect to a
Company Stockholder, shall be the result obtained by dividing (A) his, her or
its Stockholder Section 1.5 Consideration by (B) the Aggregate Section 1.5
Consideration.
(d) Each stockholder of record of the Company immediately prior to the
Effective Time (collectively, the "Company Stockholders") shall be entitled to
receive immediately all of the cash into which his, her or its Company Shares
were converted pursuant to this Section 1.5 other than an amount in cash equal
to the result obtained by multiplying (i) $400,000 by (ii) his, her or its
Stockholder Special Escrow Fraction (the "Initial Cash Consideration"); the
remaining cash into which their Company Shares were converted pursuant to this
Section 1.5 (the "Escrow Cash") shall be deposited in escrow pursuant to Section
1.10(c).
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The Initial Cash Consideration and the Escrow Cash shall together be referred to
herein as the "Cash Consideration." Company Stockholders shall be entitled to
receive immediately 90% (86%, if the Company has not sold or otherwise
transferred the capital stock of Isogen as contemplated by Section 4.13 prior to
the Isogen Deadline) of the shares of Buyer Common Stock into which their
Company Shares were converted pursuant to this Section 1.5 (the "Initial
Shares"); the remaining 10% (14%, if the Company has not sold or otherwise
transferred the capital stock of Isogen as contemplated by Section 4.13 prior to
the Isogen Deadline) of the shares of Buyer Common Stock into which their
Company Shares were converted pursuant to this Section 1.5, rounded to the
nearest whole number (the "Escrow Shares"), shall be deposited in escrow
pursuant to Section 1.10(a) and shall be held and disposed of in accordance with
the terms of the Escrow Agreement. The Initial Shares and the Escrow Shares
shall together be referred to herein as the "Merger Shares." The fractional
share interests of each Company Stockholder will be aggregated and no Company
Stockholder will receive cash in an amount equal to or greater than the value of
one full share of Buyer Common Stock.
(e) Each Company Share owned beneficially by the Buyer or the Merger
Subsidiary shall be cancelled and retired without payment of any consideration
therefor.
(f) Each share of common stock, $.01 par value per share, of the Merger
Subsidiary issued and outstanding immediately prior to the Effective Time shall
be converted into and thereafter evidence one share of common stock, $.01 par
value per share, of the Surviving Corporation.
(g) A Schedule 1.5(g) shall be appended to this Agreement on the
Closing Date setting forth with respect to each Company Stockholder the Initial
Shares, the Escrow Shares, the Initial Cash Consideration and the Escrow Cash
allocable to such Company Stockholder as provided in Section 1.5.
(h) Notwithstanding anything to the contrary contained herein, the
aggregate consideration to be paid by the Buyer under this Agreement shall not
exceed the Distributable Cash Consideration and 2,500,000 shares of Buyer Common
Stock.
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" mean Company
Shares held as of the Effective Time held by a Company Stockholder who has not
voted such Company Shares in favor of the approval of this Agreement and with
respect to which dissenters' rights shall have been duly demanded in accordance
with Section 23B.13.020 of the Washington Business Corporation Act and not
terminated prior to the Effective Time. Dissenting Shares shall not be converted
into or represent the right to receive the Merger Shares and Cash Consideration,
unless the right of such Company Stockholder to receive fair value under the
Washington Business Corporation Act terminates in accordance with Section
23B.13.020 of such Act. If such right is terminated otherwise than by purchase
of the Dissenting Shares by the Buyer or the Surviving Corporation, then (i) as
of such termination, such holder's Dissenting Shares shall cease to be
Dissenting Shares and shall be converted into and represent the right to receive
the Cash Consideration and Merger Shares issuable in respect of such
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Company Shares pursuant to Section 1.5, and (ii) promptly following such
termination, the Buyer shall deliver to the Exchange Agent the Initial Cash
Consideration and a certificate representing 90% (86%, if the Company has not
sold or otherwise transferred the capital stock of Isogen as contemplated by
Section 4.13 prior to the Isogen Deadline) of the Merger Shares, in each case,
to which such holder is entitled pursuant to Section 1.5 (which shares shall be
considered Initial Shares for all purposes of this Agreement) and shall deliver
to the Escrow Agent a certificate representing the remaining 10% (14%, if the
Company has not sold or otherwise transferred the capital stock of Isogen as
contemplated by Section 4.13 prior to the Isogen Deadline) of the Merger Shares
to which such holder is entitled pursuant to Section 1.5 (which shares shall be
considered Escrow Shares for all purposes of this Agreement).
(b) The Company shall give the Buyer (i) prompt notice of any written
demands for payment of fair value of any Company Shares, withdrawals of such
demands, and any other instruments that relate to such demands received by the
Company and (ii) the opportunity to direct all negotiations and proceedings with
respect to demands for payment of fair value under the Washington Business
Corporation Act. The Company shall not, except with the prior written consent of
the Buyer, make any payment with respect to any demands for payment of fair
value of Company Shares or offer to settle any such demands.
1.7 Payment of Consideration.
(a) Prior to the Effective Time, the Buyer shall appoint the Exchange
Agent to effect the exchange for the Initial Shares and the Initial Cash
Consideration of certificates that, immediately prior to the Effective Time,
represented Company Shares converted into Merger Shares and Cash Consideration
pursuant to Section 1.5 (including any Company Shares referred to in the last
sentence of Section 1.6(a)) ("Certificates"). On the Closing Date, the Buyer
shall deliver to the Exchange Agent, in trust for the benefit of holders of
Certificates, cash in immediately available funds in the amount of the Initial
Cash Consideration and a stock certificate (issued in the name of the Exchange
Agent or its nominee) representing the Initial Shares, as described in Section
1.5. As soon as practicable after the Effective Time, the Buyer shall cause the
Exchange Agent to send a notice and a transmittal form to each holder of a
Certificate advising such holder of the effectiveness of the Merger and the
procedure for surrendering to the Exchange Agent such Certificate in exchange
for the Initial Cash Consideration payable and the Initial Shares issuable
pursuant to Section 1.5. Each holder of a Certificate, upon proper surrender
thereof to the Exchange Agent in accordance with the instructions in such
notice, shall be entitled to receive in exchange therefor (subject to any taxes
required to be withheld) the Initial Cash Consideration payable and the Initial
Shares issuable pursuant to Section 1.5 plus cash in lieu of any fractional
shares, as provided in Section 1.8 below. Until properly surrendered, each such
Certificate shall be deemed for all purposes to evidence only the right to
receive the Initial Cash Consideration payable pursuant to Section 1.5 and a
certificate for the Initial Shares issuable pursuant to Section 1.5. Holders of
Certificates shall not be entitled to receive either any Initial Cash
Consideration or certificates for the Initial Shares to which they would
otherwise be entitled until such Certificates are properly surrendered.
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(b) If any Initial Shares are to be issued in the name of a person
other than the person in whose name the Certificate surrendered in exchange
therefor is registered, it shall be a condition to the issuance of such Initial
Shares that (i) the Certificate so surrendered shall be transferable, and shall
be properly assigned, endorsed or accompanied by appropriate stock powers, (ii)
such transfer shall otherwise be proper and (iii) the person requesting such
transfer shall pay to the Exchange Agent any transfer or other taxes payable by
reason of the foregoing or establish to the satisfaction of the Exchange Agent
that such taxes have been paid or are not required to be paid. Notwithstanding
the foregoing, neither the Exchange Agent nor any Party shall be liable to a
holder of Company Shares for any Initial Shares issuable to such holder pursuant
to Section 1.5 that are delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, the Buyer shall issue in
exchange for such lost, stolen or destroyed Certificate the Initial Shares and
the Initial Cash Consideration issuable in exchange therefor pursuant to Section
1.5. The Board of Directors of the Buyer may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificate to give the Buyer a bond in such sum as it may
direct and/or an indemnity against any claim that may be made against the Buyer
with respect to the Certificate alleged to have been lost, stolen or destroyed.
(d) No dividends or other distributions that are payable to the holders
of record of Buyer Common Stock as of a date on or after the Closing Date shall
be paid to former Company Stockholders entitled by reason of the Merger to
receive Initial Shares until such holders surrender their Certificates for
certificates representing the Merger Shares. Upon such surrender, the Buyer
shall pay or deliver to the persons in whose name the certificates representing
such Initial Shares are issued any dividends or other distributions that are
payable to the holders of record of Buyer Common Stock as of a date on or after
the Closing Date and which were paid or delivered between the Effective Time and
the time of such surrender; provided that no such person shall be entitled to
receive any interest on such dividends or other distributions.
1.8 Fractional Shares. No certificates or scrip representing fractional
Initial Shares shall be issued to former Company Stockholders upon the surrender
for exchange of Certificates, and such former Company Stockholders shall not be
entitled to any voting rights, rights to receive any dividends or distributions
or other rights as a stockholder of the Buyer with respect to any fractional
Initial Shares that would have otherwise been issued to such former Company
Stockholders. In lieu of any fractional Initial Shares that would have otherwise
been issued, each former Company Stockholder that would have been entitled to
receive a fractional Initial Share shall, upon proper surrender of such person's
Certificates, receive a cash payment equal to the closing price per share of the
Buyer Common Stock on the Nasdaq National Market, as reported by Nasdaq, on the
business day immediately preceding the Closing Date, multiplied by the fraction
of a share that such Company Stockholder would otherwise be entitled to receive.
-12-
1.9 Options and Warrants.
(a) As of the Effective Time, all options to purchase Common Shares
issued by the Company pursuant to the Company's Amended and Restated 1997 Stock
Option Plan or the Company's 2000 Nonemployee Director Stock Option Plan
(collectively, the "Option Plans") or otherwise ("Options"), shall terminate and
be canceled without payment of any consideration therefor. The Buyer shall not
assume any Options nor be required by the terms of this Agreement to replace any
Options with a comparable option. The Company shall terminate the Option Plans
and all other stock option plans and other stock or equity-related plans of the
Company prior to the Effective Time, and neither the Buyer nor the Surviving
Corporation shall have any liability or obligation thereunder.
(b) The Company shall cause the termination, as of the Effective Time,
of all outstanding warrants to purchase Company Shares (the "Warrants") which
remain unexercised.
(c) The Company shall obtain, prior to the Closing, the consent from
each holder of an Option or a Warrant to the termination of such Option or
Warrant pursuant to this Section 1.9 (unless such consent is not required under
the terms of the applicable agreement, instrument or plan).
1.10 Escrow and Special Escrow.
(a) On the Closing Date, the Buyer shall deliver to the Escrow Agent a
certificate (issued in the name of the Escrow Agent or its nominee) representing
the Escrow Shares, as described in Section 1.5, for the purpose of securing the
indemnification obligations of the Indemnifying Stockholders (as defined in
Section 6.1) set forth in this Agreement. The Escrow Shares shall be held by the
Escrow Agent under the Escrow Agreement pursuant to the terms thereof. The
Escrow Shares shall be held as a trust fund and shall not be subject to any
lien, attachment, trustee process or any other judicial process of any creditor
of any party, and shall be held and disbursed solely for the purposes and in
accordance with the terms of the Escrow Agreement.
(b) The adoption of this Agreement and the approval of the Merger by
the Company Stockholders shall constitute approval of the Escrow Agreement and
of all of the arrangements relating thereto, including without limitation the
placement of the Escrow Shares in escrow and the appointment of the
Indemnification Representatives as their representatives for purposes of the
Escrow Agreement and as attorneys-in-fact and agents for and on behalf of each
Company Stockholder, and the taking of any and all action and the making of any
decisions required or permitted to be taken or made by them under the Escrow
Agreement or Article VI of this Agreement.
(c) On the Closing Date, the Buyer shall deliver the Escrow Cash (the
"Special Escrow Fund") to the Special Escrow Agent, for the purpose of paying
the costs and expenses with respect to the Special Escrow Fund and the costs and
expenses (including legal and consultant fees for reviewing, analyzing and
defending any claim hereunder) incurred on behalf of the Company Stockholders
following the Closing Date with respect to this Agreement,
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including the indemnification provisions hereof. The Special Escrow Fund shall
be held by the Special Escrow Agent under an escrow agreement to be entered into
with the Special Escrow Agent after the date hereof (the "Special Escrow
Agreement"). The Special Escrow Fund shall be held as a trust fund and shall not
be subject to any lien, attachment, trustee process or any other judicial
process of any creditor of any party, and shall be held and disbursed solely for
the purposes and in accordance with the terms of the Special Escrow Agreement.
(d) The adoption of this Agreement and the approval of the Merger by
the Company Stockholders shall constitute approval of the arrangement described
in Section 1.10(c) hereof, the Special Escrow Agreement and of all of the
arrangements relating thereto, including without limitation the placement of the
Special Escrow Fund in escrow and the appointment of the Indemnification
Representatives for the purposes described in Section 1.10(c) hereof.
1.11 Certificate of Incorporation and By-laws.
(a) The Certificate of Incorporation of the Surviving Corporation
immediately following the Effective Time shall be the same as the Certificate of
Incorporation of the Merger Subsidiary immediately prior to the Effective Time,
except that (1) the name of the corporation set forth therein shall be changed
to the name of the Company and (2) the identity of the incorporator shall be
deleted.
(b) The By-laws of the Surviving Corporation immediately following the
Effective Time shall be the same as the By-laws of the Merger Subsidiary
immediately prior to the Effective Time, except that the name of the corporation
set forth therein shall be changed to the name of the Company.
1.12 No Further Rights. From and after the Effective Time, no Company
Shares shall be deemed to be outstanding, and holders of Certificates shall
cease to have any rights with respect thereto, except as provided herein or by
law.
1.13 Closing of Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Buyer, the Surviving Corporation or the Exchange Agent, they shall be
canceled and exchanged for Cash Consideration and Merger Shares in accordance
with Section 1.5, subject to Section 1.10 and to applicable law in the case of
Dissenting Shares.
1.14 Loan. Concurrently with the execution of this Agreement, the Company
and the Buyer have entered into a Loan and Security Agreement dated as of the
date hereof (the "Loan Agreement"). For purposes of this Agreement, "Net Loan
Balance" means the amount, if any, by which (i) the principal and interest
balance outstanding under the Loan Agreement as of the Closing Date, exceeds
(ii) the sum of (A) $1,000,000, (B) the amount of the Third Party Expenses paid
as of the Closing Date (other than the Permitted Legal Fees), and (C) the
aggregate purchase price paid by the Company for the shares of capital stock of
the Company repurchased from stockholders as described in Section 4.11(a) of
this Agreement.
-14-
1.15 Employee Payments at Closing. The Company has established a
Management and Employee Retention Program payable to certain selected employees
of the Company (in the aggregate amount of up to $1,750,000) at the Closing, in
accordance with written instructions delivered to the Buyer not later than three
business days prior to the Closing Date. The cash consideration to be paid in
accordance with the preceding sentence shall be referred to herein as the
"Special Employee Retention Awards."
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that the statements
contained in this Article II are true and correct, except as set forth in the
disclosure schedule provided by the Company to the Buyer contemporaneous with
the execution of this Agreement (the "Disclosure Schedule"). The Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article II, and the disclosures in any
paragraph of the Disclosure Schedule shall qualify other paragraphs in this
Article II to the extent it is reasonably clear from a reading of the disclosure
that such disclosure is applicable to such other paragraphs. For purposes of
this Agreement, the phrase "to the knowledge of the Company" or any phrase of
similar import shall be deemed to refer to the actual knowledge of the directors
and executive officers of the Company, as well as any other knowledge which such
director and executive officers would have possessed had they had reason to make
inquiry and made reasonable inquiry of appropriate employees and agents of the
Company with respect to the matter in question.
2.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized and validly existing under the laws of the State of
Washington. All fees and penalties owed to the State of Washington by the
Company under the Washington Business Corporation Act have been paid. The
Company is duly qualified to conduct business and is in corporate and tax good
standing under the laws of each jurisdiction in which the nature of its
businesses or the ownership or leasing of its properties requires such
qualification, except where the failure to be so qualified or in good standing,
individually or in the aggregate, has not had and would not reasonably be
expected to have a Company Material Adverse Effect (as defined below). The
Company has all requisite corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. The Company has furnished to the Buyer complete and accurate copies
of its Articles of Incorporation and By-laws. The Company is not in default
under or in violation of any provision of its Articles of Incorporation or
By-laws. For purposes of this Agreement, "Company Material Adverse Effect" means
a material adverse effect on the assets, business, condition (financial or
otherwise), results of operations or future prospects of the Company and the
Subsidiaries (as defined below), taken as a whole.
2.2 Capitalization. The authorized capital stock of the Company consists
of (a) 75,000,000 Common Shares, of which, as of the date of this Agreement,
13,860,156 shares were issued and outstanding and (b) 25,000,000 Preferred
Shares, of which (i) 1,784,143 shares have been designated as Series A
Convertible Preferred Stock, of which, as of the date of this
-15-
Agreement, 1,784,143 shares were issued and outstanding, (ii) 2,366,496 shares
have been designated as Series B Convertible Preferred Stock, of which, as of
the date of this Agreement, 2,366,496 shares were issued and outstanding, (iii)
2,703,105 shares have been designated as Series C Convertible Preferred Stock,
of which, as of the date of this Agreement, 2,703,105 shares were issued and
outstanding, (iv) 8,044,765 shares have been designated as Series D Convertible
Preferred Stock, of which, as of the date of this Agreement, 8,044,765 shares
were issued and outstanding, (v) 1 share has been designated Series X Junior
Preferred Stock, of which no shares are issued or outstanding and (vi) 1 share
has been designated as Series Y Junior Preferred Stock, of which no shares are
issued or outstanding. Section 2.2 of the Disclosure Schedule sets forth a
complete and accurate list of (i) all stockholders of the Company, indicating
the number and class or series of Company Shares held by each stockholder and
(for Company Shares other than Common Shares) the number of Common Shares (if
any) into which such Company Shares are convertible, (ii) all outstanding
Options and Warrants, indicating (A) the holder thereof, (B) the number and
class or series of Company Shares subject to each Option and Warrant and (for
Company Shares other than Common Shares) the number of Common Shares (if any)
into which such Company Shares are convertible, (C) the exercise price, date of
grant, vesting schedule and expiration date for each Option or Warrant, and (D)
any terms regarding the acceleration of vesting, and (iii) all stock option
plans and other stock or equity-related plans of the Company. All of the issued
and outstanding Company Shares are, and all Company Shares that may be issued
upon exercise of Options or Warrants will be (upon issuance in accordance with
their terms), duly authorized, validly issued, fully paid, nonassessable and
free of all preemptive rights. Other than the Options and Warrants listed in
Section 2.2 of the Disclosure Schedule, there are no outstanding or authorized
options, warrants, rights, agreements or commitments to which the Company is a
party or which are binding upon the Company providing for the issuance or
redemption of any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock or similar rights with respect to the Company.
Except as set forth in Section 2.2 of the Disclosure Schedule, there are no
agreements to which the Company is a party or by which it is bound with respect
to the voting (including without limitation voting trusts or proxies),
registration under the Securities Act of 1933, as amended (the "Securities
Act"), or sale or transfer (including without limitation agreements relating to
pre-emptive rights, rights of first refusal, co-sale rights or "drag-along"
rights) of any securities of the Company. To the knowledge of the Company, there
are no agreements among other parties, to which the Company is not a party and
by which it is not bound, with respect to the voting (including without
limitation voting trusts or proxies) or sale or transfer (including without
limitation agreements relating to rights of first refusal, co-sale rights or
"drag-along" rights) of any securities of the Company. All of the issued and
outstanding Company Shares were issued in compliance with applicable federal and
state securities laws.
2.3 Authorization of Transaction. The Company has all requisite power and
authority to execute and deliver this Agreement and all requisite corporate
power and authority to perform its obligations hereunder. The execution and
delivery by the Company of this Agreement and, subject to the adoption of this
Agreement and the approval of the Merger by (a) at least sixty-six and
two-thirds percent of the votes represented by the outstanding Company Shares
entitled to vote on this Agreement and the Merger, (b) at least sixty-six and
two-thirds percent of the votes represented by the outstanding Series B
Convertible Preferred Stock, Series C Convertible
-16-
Preferred Stock and Series D Convertible Preferred Stock, voting together as a
single class, (c) at least sixty-six and two-thirds percent of the votes
represented by the outstanding Company Shares and (d) at least a majority of the
votes represented by the outstanding shares of a class or a series of a class of
the Company's capital stock voting as a separate voting group if such class or
series is affected in one or more of the ways enumerated in RCW 23B.10.040 in
any amendment to the Company's Articles of Incorporation required to effect the
allocation of consideration set forth in Section 1.5 of this Agreement
(collectively, the "Requisite Stockholder Approval"), the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of the Company. Without
limiting the generality of the foregoing, the Board of Directors of the Company,
at a meeting duly called and held, by the unanimous vote of all directors (i)
determined that the Merger is fair and in the best interests of the Company and
its stockholders, (ii) adopted this Agreement in accordance with the provisions
of the Washington Business Corporation Act, and (iii) directed that this
Agreement and the Merger be submitted to the stockholders of the Company for
their adoption and approval and resolved to recommend that the stockholders of
Company vote in favor of the adoption of this Agreement and the approval of the
Merger. The stockholders of the Company listed on EXHIBIT 4.3 attached hereto
constitute the Requisite Stockholder Approval. This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such obligation and its enforceability may be limited
by applicable bankruptcy and other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies is subject to the discretion of the court before which any proceeding
therefor may be brought (whether at law or in equity).
2.4 Noncontravention. Subject to compliance with the applicable
requirements of the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "Xxxx-Xxxxx-Xxxxxx Act"), and the filing of the Articles of Merger
as required by the Washington Business Corporation Act and the filing of the
Certificate of Merger as required by the Delaware General Corporation Law,
neither the execution and delivery by the Company of this Agreement, nor the
consummation by the Company of the transactions contemplated hereby, will (a)
conflict with or violate any provision of the Articles of Incorporation or
By-laws of the Company or the charter, By-laws or other organizational document
of any Subsidiary (as defined below), (b) require on the part of the Company or
any Subsidiary any filing with, or any permit, authorization, consent or
approval of, any court, arbitrational tribunal, administrative agency or
commission or other governmental or regulatory authority or agency (a
"Governmental Entity"), (c) except as set forth in Section 2.4(c) of the
Disclosure Schedule, conflict with, result in a breach of, constitute (with or
without due notice or lapse of time or both) a default under, result in the
acceleration of obligations under, create in any party the right to terminate,
modify or cancel, or require any notice, consent or waiver under, any contract
or instrument to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary is bound or to which any of their assets is subject,
(d) result in the imposition of any Security Interest (as defined below) upon
any assets of the Company or any Subsidiary or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, any
Subsidiary or any of their properties or assets. For purposes of this Agreement:
"Security Interest" means any mortgage, pledge, security interest, encumbrance,
charge or other lien (whether arising by contract or by
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operation of law), other than (i) mechanic's, materialmen's, and similar liens,
(ii) liens arising under worker's compensation, unemployment insurance, social
security, retirement, and similar legislation, (iii) liens on goods in transit
incurred pursuant to documentary letters of credit, and (iv) liens for taxes not
yet due and payable, in each case arising in the Ordinary Course of Business (as
defined below) of the Company and not material to the Company; and "Ordinary
Course of Business" means the ordinary course of the Company's business,
consistent with past custom and practice (including with respect to frequency
and amount).
2.5 Subsidiaries.
(a) Section 2.5 of the Disclosure Schedule sets forth: (i) the name of
each corporation, partnership, joint venture or other entity in which the
Company has, directly or indirectly, an equity interest representing 50% or more
of the capital stock thereof or other equity interests therein (individually, a
"Subsidiary" and, collectively, the "Subsidiaries"); (ii) the number and type of
outstanding equity securities of each Subsidiary and a list of the holders
thereof; (iii) the jurisdiction of organization of each Subsidiary; (iv) the
names of the officers and directors of each Subsidiary; and (v) the
jurisdictions in which each Subsidiary is qualified or holds licenses to do
business as a foreign corporation or other entity.
(b) Each Subsidiary is a corporation duly organized, validly existing
and in corporate and tax good standing under the laws of the jurisdiction of its
incorporation. Each Subsidiary is duly qualified to conduct business and is in
corporate and tax good standing under the laws of each jurisdiction in which the
nature of its businesses or the ownership or leasing of its properties requires
such qualification, except where the failure to be so qualified or in good
standing, individually or in the aggregate, has not had and would not reasonably
be expected to have a Company Material Adverse Effect. Each Subsidiary has all
requisite power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. The Company has
delivered to the Buyer complete and accurate copies of the charter, By-laws or
other organizational documents of each Subsidiary. No Subsidiary is in default
under or in violation of any provision of its charter, By-laws or other
organizational documents. All of the issued and outstanding shares of capital
stock of each Subsidiary are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth in Section 2.5
of the Disclosure Schedule, all shares of each Subsidiary that are held of
record or owned beneficially by either the Company or any Subsidiary are held or
owned free and clear of any restrictions on transfer (other than restrictions
under the Securities Act and state securities laws), claims, Security Interests,
options, warrants, rights, contracts, calls, commitments, equities and demands.
There are no outstanding or authorized options, warrants, rights, agreements or
commitments to which the Company or any Subsidiary is a party or which are
binding on any of them providing for the issuance, disposition or acquisition of
any capital stock of any Subsidiary. There are no outstanding stock
appreciation, phantom stock or similar rights with respect to any Subsidiary.
There are no voting trusts, proxies or other agreements or understandings with
respect to the voting of any capital stock of any Subsidiary.
-18-
(c) The Company does not control directly or indirectly or
have any direct or indirect equity participation or similar interest in any
corporation, partnership, limited liability company, joint venture, trust or
other business association which is not a Subsidiary.
2.6 Financial Statements. The Company has provided to the Buyer (a) the
audited consolidated balance sheets and statements of income, changes in
stockholders' equity and cash flows of the Company as of and for each of the
last three fiscal years; and (b) the unaudited consolidated balance sheet and
statements of income, changes in stockholders' equity and cash flows as of and
for the nine months ended as of September 30, 2001 (the "Most Recent Balance
Sheet Date"). Such financial statements (collectively, the "Financial
Statements") have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods covered thereby, fairly present the financial condition, results of
operations and cash flows of the Company and the Subsidiaries as of the
respective dates thereof and for the periods referred to therein and are
consistent with the books and records of the Company and the Subsidiaries;
provided, however, that the Financial Statements referred to in clause (b) above
are subject to normal recurring year-end adjustments (which will not be
material) and the year-end adjustments set forth in Section 2.6 of the
Disclosure Schedule and do not include footnotes.
2.7 Absence of Certain Changes. Since the Most Recent Balance Sheet
Date, (a) except as set forth in Section 2.7(a) of the Disclosure Schedule,
there has occurred no event or development which, individually or in the
aggregate, has had, or could reasonably be expected to have in the future, a
Company Material Adverse Effect, and (b) except as set forth in Section 2.7(b)
of the Disclosure Schedule, neither the Company nor any Subsidiary has taken any
of the actions set forth in paragraphs (a) through (q) of Section 4.4.
2.8 Undisclosed Liabilities.
(a) None of the Company and its Subsidiaries has any liability
(whether known or unknown, whether absolute or contingent, whether liquidated or
unliquidated and whether due or to become due), except for (a) liabilities shown
on the balance sheet referred to in clause (b) of Section 2.6 (the "Most Recent
Balance Sheet"), (b) liabilities which have arisen since the Most Recent Balance
Sheet Date in the Ordinary Course of Business or as specifically provided in
this Agreement and (c) contractual and other liabilities incurred in the
Ordinary Course of Business which are not required by GAAP to be reflected on a
balance sheet.
(b) As of the date 30 days after the date hereof, the Company
will not have any liability (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated and whether due or to become due)
relating to the business of Isogen International Corp., a Texas corporation and
wholly-owned Subsidiary ("Isogen"), as conducted by Isogen or the Company,
because Isogen will have assumed all of such liabilities prior to such date.
- 19 -
2.9 Tax Matters.
(a) For purposes of this Agreement, the following terms shall
have the following meanings:
(i) "Taxes" means all taxes, charges, fees, levies or
other similar assessments or liabilities, including without limitation income,
gross receipts, ad valorem, premium, value-added, excise, real property,
personal property, sales, use, transfer, withholding, employment, unemployment
insurance, social security, business license, business organization,
environmental, workers compensation, payroll, profits, license, lease, service,
service use, severance, stamp, occupation, windfall profits, customs, duties,
franchise and other taxes imposed by the United States of America or any state,
local or foreign government, or any agency thereof, or other political
subdivision of the United States or any such government, and any interest,
fines, penalties, assessments or additions to tax resulting from, attributable
to or incurred in connection with any tax or any contest or dispute thereof.
(ii) "Tax Returns" means all reports, returns,
declarations, statements or other information required to be supplied to a
taxing authority in connection with Taxes.
(b) Each of the Company and the Subsidiaries has filed on a
timely basis all Tax Returns that it was required to file, and all such Tax
Returns were complete and accurate in all material respects. Neither the Company
nor any Subsidiary is or has ever been a member of a group of corporations with
which it has filed (or been required to file) consolidated, combined or unitary
Tax Returns, other than a group of which only the Company and the Subsidiaries
are or were members. Each of the Company and the Subsidiaries has paid on a
timely basis all Taxes that were due and payable. The unpaid Taxes of the
Company and the Subsidiaries for tax periods through the Most Recent Balance
Sheet Date do not exceed the accruals and reserves for Taxes (excluding accruals
and reserves for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the Most Recent Balance Sheet. Neither
the Company nor any Subsidiary has any actual or potential liability for any Tax
obligation of any taxpayer (including without limitation any affiliated group of
corporations or other entities that included the Company or any Subsidiary
during a prior period) other than the Company and the Subsidiaries. All Taxes
that the Company or any Subsidiary is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity.
(c) The Company has delivered to the Buyer complete and
accurate copies of all federal income Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by the Company or any
Subsidiary since inception. The federal income Tax Returns of the Company and
each Subsidiary have been audited by the Internal Revenue Service or are closed
by the applicable statute of limitations for all taxable years through the
taxable year specified in Section 2.9(c) of the Disclosure Schedule. No
examination or audit of any Tax Return of the Company or any Subsidiary by any
Governmental Entity is currently in progress or, to the knowledge of the
Company, threatened or contemplated. Neither the Company nor any Subsidiary has
been informed by any jurisdiction that the jurisdiction believes that the
Company or Subsidiary was required to file any Tax Return that was not filed.
Neither the Company nor
- 20 -
any Subsidiary has waived any statute of limitations with respect to Taxes or
agreed to an extension of time with respect to a Tax assessment or deficiency.
(d) Neither the Company nor any Subsidiary: (i) is a
"consenting corporation" within the meaning of Section 341(f) of the Code, and
none of the assets of the Company or the Subsidiaries are subject to an election
under Section 341(f) of the Code; (ii) has been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii)
has made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments that may be treated as an
"excess parachute payment" under Section 280G of the Code; (iv) has any actual
or potential liability for any Taxes of any person (other than the Company and
its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of federal, state, local, or foreign law), or as a transferee or
successor, by contract, or otherwise; or (v) is or has been required to make a
basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury
Regulation Section 1.337(d)-2(b).
(e) None of the assets of the Company or any Subsidiary: (i)
is property that is required to be treated as being owned by any other person
pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of
1954; (ii) is "tax-exempt use property" within the meaning of Section 168(h) of
the Code; (iii) directly or indirectly secures any debt the interest on which is
tax exempt under Section 103(a) of the Code or (iv) is subject to a lease under
Section 7701(h) of the Code or under any predecessor section.
(f) No property of the Company or any Subsidiary is subject to
any liens for Taxes, other than liens for Taxes not yet due and payable.
(g) Neither the Company nor any Subsidiary has been nor will
be required by reason of the Merger to include any adjustment in taxable income
for any Tax period (or portion thereof) pursuant to Sections 481 or 263A of the
Code or any comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger.
(h) There is no limitation on the utilization by either the
Company or any Subsidiary of its net operating losses, built-in losses, Tax
credits, or similar items under Sections 382, 383, or 384 of the Code or
comparable provisions of state law (other than any such limitation arising as a
result of the consummation of the transactions contemplated by this Agreement).
(i) Neither the Company nor any Subsidiary has ever
participated in an international boycott as defined in Section 999 of the Code.
(j) Except as set forth in Section 2.9(j) of the Disclosure
Schedule, neither the Company nor any Subsidiary has distributed to its
stockholders or security holders stock or securities of a controlled
corporation, nor has stock or securities of the Company or any Subsidiary been
distributed in a transaction to which Section 355 of the Code applies (i) in the
two years prior to the date of this Agreement or (ii) in a distribution that
could otherwise
- 21 -
constitute part of a "plan" or "series of related transactions" (within the
meaning of Section 355(e) of the Code) that includes the transactions
contemplated by this Agreement.
(k) Schedule 2.9(k) of the Disclosure Schedule sets forth each
jurisdiction in which the Company or any Subsidiary files, is required to file
or has been required to file a Return or is or has been liable for any Taxes on
a "nexus" basis, except for jurisdictions where the Company's liability for
Taxes does not and is not reasonably expected to exceed $10,000.
(l) Neither the Company nor any Subsidiary owns any interest
in an entity that is characterized as a partnership for federal income Tax
purposes.
2.10 Assets.
(a) Each of the Company and the Subsidiaries owns or leases
all tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. Such tangible assets, taken
as a whole, are free from material defects, have been maintained in accordance
with normal industry practice, are in good operating condition and repair
(subject to normal wear and tear) and are suitable for the purposes for which
they presently are used. No asset of the Company or any Subsidiary (tangible or
intangible) is subject to any Security Interest, except as set forth in Section
2.10(a) of the Disclosure Schedule.
(b) All assets and liabilities related to, and used in
connection with, the business conducted by Isogen are set forth in Section
2.10(b) of the Disclosure Schedule and, as of the date 30 days after the date
hereof, will be owned by Isogen. Isogen does not own or lease any assets used in
the Company's business.
2.11 Owned Real Property. The Company owns no real property.
2.12 Real Property Leases. Section 2.12 of the Disclosure Schedule
lists all real property leased or subleased to or by the Company or any
Subsidiary and lists the term of such lease, any extension and expansion
options, and the rent payable thereunder. The Company has delivered to the Buyer
complete and accurate copies of the leases and subleases listed in Section 2.12
of the Disclosure Schedule. With respect to each lease and sublease listed in
Section 2.12 of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding,
enforceable and in full force and effect;
(b) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect immediately prior to
the Closing;
(c) neither the Company nor any Subsidiary nor, to the
knowledge of the Company, any other party, is in breach or violation of, or
default under, any such lease or sublease, and no event has occurred, is pending
or, to the knowledge of the Company, is threatened, which, after the giving of
notice, with lapse of time, or otherwise, would constitute a
- 22 -
breach or default by the Company or any Subsidiary or, to the knowledge of the
Company, any other party under such lease or sublease;
(d) neither the Company nor any Subsidiary has assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in
the leasehold or subleasehold; and
(e) the Company is not aware of any Security Interest,
easement, covenant or other restriction applicable to the real property subject
to such lease, except for recorded easements, covenants and other restrictions
which do not materially impair the current uses or the occupancy by the Company
or a Subsidiary of the property subject thereto.
2.13 Intellectual Property.
(a) Each of the Company and the Subsidiaries owns or has the
right to use all Intellectual Property (as defined below) necessary (i) to use,
manufacture, market and distribute the products manufactured, marketed, sold or
licensed, and to provide the services provided, by the Company or the
Subsidiaries to other parties (together, the "Customer Deliverables") and (ii)
to operate the internal systems of the Company or the Subsidiaries that are
material to its business or operations, including, without limitation, computer
hardware systems, software applications and embedded systems (the "Internal
Systems"; the Intellectual Property owned by or licensed to the Company or the
Subsidiaries and incorporated in or underlying the Customer Deliverables or the
Internal Systems is referred to herein as the "Company Intellectual Property").
Each item of Company Intellectual Property will be owned or available for use by
the Surviving Corporation immediately following the Closing on substantially
identical terms and conditions as it was immediately prior to the Closing. The
Company or the appropriate Subsidiary has taken all reasonable measures to
protect the proprietary nature of each item of the Intellectual Property owned
by or licensed to the Company or the Subsidiaries and incorporated in or
underlying the Customer Deliverables. To the knowledge of the Company, (a) no
other person or entity has any rights to any of the Company Intellectual
Property owned by the Company or a Subsidiary (except pursuant to agreements or
licenses specified in Section 2.13(c) of the Disclosure Schedule), and (b) no
other person or entity is infringing, violating or misappropriating any of the
Intellectual Property owned by or licensed to the Company or the Subsidiaries
and incorporated in or underlying the Customer Deliverables. For purposes of
this Agreement, "Intellectual Property" means all (i) patents and patent
applications, (ii) copyrights and registrations thereof, (iii) mask works and
registrations and applications for registration thereof, (iv) computer software,
data and documentation, (v) trade secrets and confidential business information,
whether patentable or unpatentable and whether or not reduced to practice,
know-how, manufacturing and production processes and techniques, research and
development information, copyrightable works, financial, marketing and business
data, pricing and cost information, business and marketing plans and customer
and supplier lists and information, (vi) trademarks, service marks, trade names,
domain names and applications and registrations therefor and (vii) other
proprietary rights relating to any of the foregoing. Section 2.13(a) of the
Disclosure Schedule lists each patent, patent application, copyright
registration or application
- 23 -
therefor, mask work registration or application therefor, and trademark, service
xxxx and domain name registration or application therefor of the Company or any
Subsidiary.
(b) None of the Customer Deliverables, or the marketing,
distribution, provision or use thereof, infringes or violates, or constitutes a
misappropriation of, any Intellectual Property rights of any person or entity.
To the knowledge of the Company, none of the Internal Systems, or the use
thereof, infringes or violates, or constitutes a misappropriation of, any
Intellectual Property rights of any person or entity. Section 2.13(b) of the
Disclosure Schedule lists any complaint, claim or notice, or written threat
thereof, received by the Company or any Subsidiary alleging any such
infringement, violation or misappropriation; and the Company has provided to the
Buyer complete and accurate copies of all written documentation in the
possession of the Company or any Subsidiary relating to any such complaint,
claim, notice or threat. The Company has provided to the Buyer complete and
accurate copies of all written documentation in the Company's possession
relating to claims or disputes known to the Company concerning any Company
Intellectual Property.
(c) Section 2.13(c) of the Disclosure Schedule identifies each
license or other agreement (or type of license or other agreement) pursuant to
which the Company or a Subsidiary has licensed, distributed or otherwise granted
any rights to any third party with respect to, any Company Intellectual
Property.
(d) Section 2.13(d) of the Disclosure Schedule identifies each
item of Company Intellectual Property that is owned by a party other than the
Company or a Subsidiary, and the license or agreement pursuant to which the
Company or a Subsidiary uses it (excluding software programs licensed by the
Company pursuant to "shrink wrap" or "click wrap" licenses).
(e) Neither the Company nor any Subsidiary has disclosed the
source code for any of the software owned by the Company or a Subsidiary (the
"Software") or other confidential information constituting, embodied in or
pertaining to the Software to any person or entity, except pursuant to the
agreements listed in Section 2.13(e) of the Disclosure Schedule, and the Company
has taken reasonable measure to prevent disclosure of such source code.
(f) All of the copyrightable materials (including Software)
incorporated in or bundled with the Customer Deliverables have been created by
employees of the Company or a Subsidiary within the scope of their employment by
the Company or a Subsidiary or by independent contractors of the Company or a
Subsidiary who have executed agreements expressly assigning all right, title and
interest in such copyrightable materials to the Company or a Subsidiary. No
portion of such copyrightable materials was jointly developed with any third
party.
(g) To the knowledge of the Company, the Customer Deliverables
and the Internal Systems are free from significant defects or programming errors
and conform in all material respects to the written documentation and
specifications therefor.
2.14 Inventory. Neither the Company nor any Subsidiary has any
inventory.
- 24 -
2.15 Contracts.
(a) Section 2.15 of the Disclosure Schedule lists the
following agreements (written or oral) to which the Company or any Subsidiary is
a party as of the date of this Agreement:
(i) any agreement (or group of related agreements)
for the lease of personal property from or to third parties providing for lease
payments in excess of $10,000 per annum or having a remaining term longer than
12 months;
(ii) any agreement (or group of related agreements)
for the purchase or sale of products or for the furnishing or receipt of
services (A) which calls for performance over a period of more than one year,
(B) which involves more than the sum of $50,000, or (C) in which the Company or
any Subsidiary has granted manufacturing rights, "most favored nation" pricing
provisions or marketing or distribution rights relating to any products or
territory or has agreed to purchase a minimum quantity of goods or services or
has agreed to purchase goods or services exclusively from a certain party;
(iii) any agreement establishing a partnership or
joint venture;
(iv) any agreement (or group of related agreements)
under which it has created, incurred, assumed or guaranteed (or may create,
incur, assume or guarantee) indebtedness (including capitalized lease
obligations) involving more than $50,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition (other than confidentiality and noncompetition agreements with
employees in the forms which are attached as Exhibit 2.15(a)(v) to the
Disclosure Schedule);
(vi) any employment or consulting agreement;
(vii) any agreement involving any officer, director
or stockholder of the Company or any affiliate (an "Affiliate"), as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), thereof;
(viii) any agreement under which the consequences of
a default or termination would reasonably be expected to have a Company Material
Adverse Effect;
(ix) any agreement which contains any provisions
requiring the Company or any Subsidiary to indemnify any other party thereto
(excluding indemnities contained in agreements for the purchase, sale or license
of products entered into in the Ordinary Course of Business); and
(x) any other agreement (or group of related
agreements) either involving more than $50,000 or not entered into in the
Ordinary Course of Business.
- 25 -
(b) The Company has delivered to the Buyer a complete and
accurate copy of each agreement listed in Section 2.13 or Section 2.15 of the
Disclosure Schedule. With respect to each agreement so listed: (i) the agreement
is legal, valid, binding and enforceable and in full force and effect; (ii) the
agreement will continue to be legal, valid, binding and enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing; and (iii) neither the
Company nor any Subsidiary nor, to the knowledge of the Company, any other
party, is in breach or violation of, or default under, any such agreement, and
no event has occurred, is pending or, to the knowledge of the Company, is
threatened, which, after the giving of notice, with lapse of time, or otherwise,
would constitute a breach or default by the Company or any Subsidiary or, to the
knowledge of the Company, any other party under such contract; provided, in each
case, the consents listed in Section 2.4 of the Disclosure Schedule are
obtained.
2.16 Accounts Receivable. Except as set forth in Section 2.16 of the
Disclosure Schedule, all accounts receivable of the Company and the Subsidiaries
reflected on the Most Recent Balance Sheet are valid receivables subject to no
setoffs or counterclaims and are current and collectible (within 90 days after
the date on which it first became due and payable), net of the applicable
reserve for bad debts on the Most Recent Balance Sheet. All accounts receivable
reflected in the financial or accounting records of the Company that have arisen
since the Most Recent Balance Sheet Date are valid receivables subject to no
setoffs or counterclaims and are collectible (within 90 days after the date on
which it first became due and payable), net of a reserve for bad debts in an
amount proportionate to the reserve shown on the Most Recent Balance Sheet.
2.17 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company or any Subsidiary.
2.18 Insurance. Section 2.18 of the Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company or any Subsidiary is a party. Such insurance policies are of the type
and in amounts reasonable in relation to organizations conducting businesses or
owning assets similar to those of the Company and the Subsidiaries. There is no
material claim pending under any such policy as to which coverage has been
questioned, denied or disputed by the underwriter of such policy. All premiums
due and payable under all such policies have been paid, neither the Company nor
any Subsidiary may be liable for retroactive premiums or similar payments, and
the Company and the Subsidiaries are otherwise in compliance in all material
respects with the terms of such policies. To the knowledge of the Company, there
are no threatened terminations of, or material premium increases with respect
to, any such policy. Except as set forth in Section 2.18 of the Disclosure
Schedule, each such policy will continue to be enforceable and in full force and
effect immediately following the Closing in accordance with the terms thereof as
in effect immediately prior to the Closing.
2.19 Litigation. Except as set forth in Section 2.19 of the Disclosure
Schedule, there is no action, suit, proceeding, claim, arbitration or
investigation before any Governmental Entity or
- 26 -
before any arbitrator (a "Legal Proceeding") which is pending or has been
threatened in writing against the Company or any Subsidiary.
2.20 Warranties. No product or service manufactured, sold, leased,
licensed or delivered by the Company or any Subsidiary is subject to any
guaranty, warranty, right of return, right of credit or other indemnity other
than (i) except as set forth in Section 2.20(b) of the Disclosure Schedule, the
applicable standard terms and conditions of sale or lease of the Company or the
appropriate Subsidiary with respect to such sale or lease, which are described
in Section 2.20(a) of the Disclosure Schedule and (ii) manufacturers' warranties
for which neither the Company nor any Subsidiary has any liability. Section
2.20(c) of the Disclosure Schedule sets forth the aggregate expenses incurred by
the Company and the Subsidiaries in fulfilling their obligations under their
guaranty, warranty, right of return and indemnity provisions during each of the
fiscal years and the interim period covered by the Financial Statements; and the
Company does not know of any reason based on its operating history why such
expenses should significantly increase as a percentage of sales in the future.
2.21 Employees.
(a) Section 2.21 of the Disclosure Schedule contains a list of
all employees of the Company and each Subsidiary whose annual rate of
compensation exceeds $50,000 per year, along with the position and the annual
rate of compensation of each such person. Each current or past employee of the
Company or any Subsidiary has entered into a confidentiality/assignment of
inventions agreement with the Company or such Subsidiary, a copy or form of
which has previously been delivered to the Buyer. Section 2.21 of the Disclosure
Schedule contains a list of all employees of the Company or any Subsidiary who
are a party to a non-competition agreement with the Company or any Subsidiary;
copies of such agreements have previously been made available to the Buyer.
Except as set forth in Section 2.21(a) of the Disclosure Schedule, to the
knowledge of the Company, no key employee or group of employees has any plans to
terminate employment with the Company or any Subsidiary.
(b) Neither the Company nor any Subsidiary is a party to or
bound by any collective bargaining agreement, nor has any of them experienced
any strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Company has no knowledge of any organizational effort
made or threatened, either currently or within the past two years, by or on
behalf of any labor union with respect to employees of the Company or any
Subsidiary.
2.22 Employee Benefits.
(a) For purposes of this Agreement, the following terms shall
have the following meanings:
(i) "Employee Benefit Plan" means any "employee
pension benefit plan" (as defined in Section 3(2) of ERISA), any "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA), and any other
written or oral plan, agreement or arrangement involving direct or indirect
compensation, including without limitation insurance coverage, severance
- 27 -
benefits, disability benefits, deferred compensation, bonuses, stock options,
stock purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement compensation.
(ii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(iii) "ERISA Affiliate" means any entity which is, or
at any applicable time was, a member of (1) a controlled group of corporations
(as defined in Section 414(b) of the Code), (2) a group of trades or businesses
under common control (as defined in Section 414(c) of the Code), or (3) an
affiliated service group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which includes or included
the Company or a Subsidiary.
(b) Section 2.22(b) of the Disclosure Schedule contains a
complete and accurate list of all Employee Benefit Plans maintained, or
contributed to, by the Company, any Subsidiary or any ERISA Affiliate. Complete
and accurate copies of (i) all Employee Benefit Plans which have been reduced to
writing, (ii) written summaries of all unwritten Employee Benefit Plans, (iii)
all related trust agreements, insurance contracts and summary plan descriptions,
and (iv) all annual reports filed on IRS Form 5500, 5500C or 5500R and (for all
funded plans) all plan financial statements for the last five plan years for
each Employee Benefit Plan, have been delivered to the Buyer. Each Employee
Benefit Plan has been administered in all material respects in accordance with
its terms and each of the Company, the Subsidiaries and the ERISA Affiliates has
in all material respects met its obligations with respect to such Employee
Benefit Plan and has made all required contributions thereto. The Company, each
Subsidiary, each ERISA Affiliate and each Employee Benefit Plan are in
compliance in all material respects with the currently applicable provisions of
ERISA and the Code and the regulations thereunder (including without limitation
Section 4980 B of the Code, Subtitle K, Chapter 100 of the Code and Sections 601
through 608 and Section 701 et seq. of ERISA). All filings and reports as to
each Employee Benefit Plan required to have been submitted to the Internal
Revenue Service or to the United States Department of Labor have been duly
submitted.
(c) There are no Legal Proceedings (except claims for benefits
payable in the normal operation of the Employee Benefit Plans and proceedings
with respect to qualified domestic relations orders) against or involving any
Employee Benefit Plan or asserting any rights or claims to benefits under any
Employee Benefit Plan that could give rise to any material liability.
(d) All the Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination letters
from the Internal Revenue Service to the effect that such Employee Benefit Plans
are qualified and the plans and the trusts related thereto are exempt from
federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code, no such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in any respect, and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost. Each
- 28 -
Employee Benefit Plan which is required to satisfy Section 401(k)(3) or Section
401(m)(2) of the Code has been tested for compliance with, and satisfies the
requirements of, Section 401(k)(3) and Section 401(m)(2) of the Code for each
plan year ending prior to the Closing Date.
(e) Neither the Company, any Subsidiary, nor any ERISA
Affiliate has ever maintained an Employee Benefit Plan subject to Section 412 of
the Code or Title IV of ERISA.
(f) At no time has the Company, any Subsidiary or any ERISA
Affiliate been obligated to contribute to any "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA).
(g) Except as set forth in Section 2.22(g) of the Disclosure
Schedule, there are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of the
Company or any Subsidiary (or to any beneficiary of any such employee),
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code or other applicable law and insurance conversion
privileges under state law. The assets of each Employee Benefit Plan which is
funded are reported at their fair market value on the books and records of such
Employee Benefit Plan.
(h) No act or omission has occurred and no condition exists
with respect to any Employee Benefit Plan maintained by the Company, any
Subsidiary or any ERISA Affiliate that would subject the Company, any Subsidiary
or any ERISA Affiliate to (i) any material fine, penalty, tax or liability of
any kind imposed under ERISA or the Code or (ii) any contractual indemnification
or contribution obligation protecting any fiduciary, insurer or service provider
with respect to any Employee Benefit Plan.
(i) No Employee Benefit Plan is funded by, associated with or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(j) Each Employee Benefit Plan is amendable and terminable
unilaterally by the Company at any time without liability to the Company as a
result thereof and no Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
(k) Section 2.22(k) of the Disclosure Schedule discloses each:
(i) agreement with any stockholder, director, executive officer or other key
employee of the Company or any Subsidiary (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Company or any Subsidiary of the nature of any of
the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Company or any Subsidiary that may be
subject to the tax imposed by Section 4999 of the Code or included in the
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determination of such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Company or any Subsidiary,
including without limitation any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan or
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
(l) Section 2.22(l) of the Disclosure Schedule sets forth the
policy of the Company and any Subsidiary with respect to accrued vacation,
accrued sick time and earned time-off and the amount of such liabilities as of
June 30, 2001.
2.23 Environmental Matters.
(a) Each of the Company and the Subsidiaries has complied with
all applicable Environmental Laws (as defined below), except for violations of
Environmental Laws that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse Effect.
There is no pending or, to the knowledge of the Company, threatened civil or
criminal litigation, written notice of violation, formal administrative
proceeding, or investigation, inquiry or information request by any Governmental
Entity, relating to any Environmental Law involving the Company or any
Subsidiary, except for litigation, notices of violations, formal administrative
proceedings or investigations, inquiries or information requests that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect. For purposes of this
Agreement, "Environmental Law" means any federal, state or local law, statute,
rule or regulation or the common law relating to the environment or occupational
health and safety, including without limitation any statute, regulation,
administrative decision or order pertaining to (i) treatment, storage, disposal,
generation and transportation of industrial, toxic or hazardous materials or
substances or solid or hazardous waste; (ii) air, water and noise pollution;
(iii) groundwater and soil contamination; (iv) the release or threatened release
into the environment of industrial, toxic or hazardous materials or substances,
or solid or hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or chemicals;
(v) the protection of wild life, marine life and wetlands, including without
limitation all endangered and threatened species; (vi) storage tanks, vessels,
containers, abandoned or discarded barrels, and other closed receptacles; (vii)
health and safety of employees and other persons; and (viii) manufacturing,
processing, using, distributing, treating, storing, disposing, transporting or
handling of materials regulated under any law as pollutants, contaminants, toxic
or hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used above, the terms "release" and "environment" shall have
the meaning set forth in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA").
(b) There have been no releases of any Materials of
Environmental Concern (as defined below) into the environment at any parcel of
real property or any facility formerly or currently owned, or to the knowledge
of the Company, operated or controlled by the Company or
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a Subsidiary. With respect to any such releases of Materials of Environmental
Concern, the Company or such Subsidiary has given all required notices to
Governmental Entities (copies of which have been provided to the Buyer). The
Company is not aware of any releases of Materials of Environmental Concern at
parcels of real property or facilities other than those owned, operated or
controlled by the Company or a Subsidiary that could reasonably be expected to
have an impact on the real property or facilities owned, operated or controlled
by the Company or a Subsidiary. For purposes of this Agreement, "Materials of
Environmental Concern" means any chemicals, pollutants or contaminants,
hazardous substances (as such term is defined under CERCLA), solid wastes and
hazardous wastes (as such terms are defined under the Resource Conservation and
Recovery Act), toxic materials, oil or petroleum and petroleum products or any
other material subject to regulation under any Environmental Law.
(c) Set forth in Section 2.23(c) of the Disclosure Schedule is
a list of all documents (whether in hard copy or electronic form) that contain
any environmental reports, investigations and audits relating to premises
currently or previously owned or operated by the Company or a Subsidiary
(whether conducted by or on behalf of the Company or a Subsidiary or a third
party, and whether done at the initiative of the Company or a Subsidiary or
directed by a Governmental Entity or other third party) which the Company has
possession of or access to. A complete and accurate copy of each such document
has been provided to the Buyer.
(d) The Company is not aware of any material environmental
liability of any solid or hazardous waste transporter or treatment, storage or
disposal facility that has been used by the Company or any Subsidiary.
2.24 Legal Compliance. Each of the Company and the Subsidiaries, and
the conduct and operations of their respective businesses, are in compliance
with each applicable law (including rules and regulations thereunder) of any
federal, state, local or foreign government, or any Governmental Entity, except
for any violations or defaults that, individually or in the aggregate, have not
had and would not reasonably be expected to have a Company Material Adverse
Effect.
2.25 Customers. Section 2.25 of the Disclosure Schedule sets forth a
list of (a) each customer that accounted for (i) more than $100,000 of revenue
to the Company or (ii) more than $10,000 of revenue related to the purchase or
license of products (and not services), in each case, during the last full
fiscal year or the interim period through the Most Recent Balance Sheet Date and
the amount of revenues accounted for by such customer during each such period in
order of decreasing revenue and (b) each supplier that is the sole supplier of
any significant product to the Company or a Subsidiary. No such customer or
supplier has indicated within the past year that it will stop, or decrease the
rate of, buying products or supplying products, as applicable, to the Company or
any Subsidiary. No unfilled customer order or commitment obligating the Company
or any Subsidiary to process, manufacture or deliver products or perform
services, to the knowledge of the Company, will result in a loss to the Company
or any Subsidiary upon completion of performance. No purchase order or
commitment of the Company or any Subsidiary is in excess of normal requirements,
nor are prices provided therein in excess of current market prices for the
products or services to be provided thereunder.
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2.26 Permits. Section 2.26 of the Disclosure Schedule sets forth a list
of all permits, licenses, registrations, certificates, orders or approvals from
any Governmental Entity (including without limitation those issued or required
under Environmental Laws and those relating to the occupancy or use of owned or
leased real property) ("Permits") of a material nature issued to or held by the
Company or any Subsidiary. Such listed Permits are the only Permits that are
required for the Company and the Subsidiaries to conduct their respective
businesses as presently conducted or as proposed to be conducted, except for
those the absence of which, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse Effect. Each
such Permit is in full force and effect and, to the knowledge of the Company, no
suspension or cancellation of such Permit is threatened and there is no basis
for believing that such Permit will not be renewable upon expiration. Except as
set forth in Section 2.26 of the Disclosure Schedule, each such Permit will
continue in full force and effect immediately following the Closing.
2.27 Certain Business Relationships With Affiliates. No Affiliate of
the Company or of any Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Company or any Subsidiary, (b)
to the knowledge of the Company, has any claim or cause of action against the
Company or any Subsidiary, or (c) owes any money to, or is owed any money by,
the Company or any Subsidiary. Section 2.27 of the Disclosure Schedule describes
any transactions or relationships between the Company or a Subsidiary and any
Affiliate thereof which have occurred or existed since the beginning of the time
period covered by the Financial Statements.
2.28 Brokers' Fees. Except as set forth in Section 2.28 of the
Disclosure Schedule, neither the Company nor any Subsidiary has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.
2.29 Books and Records. The minute books and other similar records of
the Company and each Subsidiary contain complete and accurate records of all
actions taken at any meetings of the Company's or such Subsidiary's
stockholders, Board of Directors or any committee thereof and of all written
consents executed in lieu of the holding of any such meeting. The books and
records of the Company and each Subsidiary accurately reflect in all material
respects the assets, liabilities, business, financial condition and results of
operations of the Company or such Subsidiary and have been maintained in
accordance with good business and bookkeeping practices.
2.30 Disclosure. No representation or warranty by the Company contained
in this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered or to be delivered by
or on behalf of the Company pursuant to this Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not misleading.
The Company has disclosed to the Buyer all material information relating to the
business of the Company or any Subsidiary or the transactions contemplated by
this Agreement.
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2.31 Projections. The projections dated [October 23, 2001] provided by
the Company to the Buyer were, as of the date thereof, prepared by the Company
in good faith using reasonable information available to management of the
Company and, based on the assumptions therein, represent Company management's
good faith estimates, as of the date thereof, of the future performance of the
Company for the periods referred to therein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE MERGER SUBSIDIARY
Each of the Buyer and the Merger Subsidiary represents and warrants to
the Company as follows:
3.1 Organization, Qualification and Corporate Power. Each of the Buyer
and the Merger Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation. The Buyer is
duly qualified to conduct business and is in corporate and tax good standing
under the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified or in good standing would not have a Buyer
Material Adverse Effect (as defined below). The Buyer has all requisite
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. The Buyer has furnished
or made available to the Company complete and accurate copies of its Certificate
of Incorporation and By-laws. For purposes of this Agreement, "Buyer Material
Adverse Effect" means a material adverse effect on the assets, business,
condition (financial or otherwise), results of operations or future prospects of
the Buyer and its subsidiaries, taken as a whole.
3.2 Capitalization. The authorized capital stock of the Buyer consists
of (a) 55,000,000 shares of Buyer Common Stock, of which 31,196,903 shares were
issued and outstanding as of August 6, 2001, and (b) 5,000,000 shares of
Preferred Stock, $.01 par value per share, of which no shares are issued or
outstanding. All of the issued and outstanding shares of Buyer Common Stock are
duly authorized, validly issued, fully paid, nonassessable and free of all
preemptive rights. All of the Merger Shares will be, when issued in accordance
with this Agreement, duly authorized, validly issued, fully paid, nonassessable
and free of all preemptive rights.
3.3 Authorization of Transaction. Each of the Buyer and the Merger
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and (in the case of the Buyer) the Escrow Agreement and to perform its
obligations hereunder and thereunder. The execution and delivery by the Buyer
and the Merger Subsidiary of this Agreement and (in the case of the Buyer) the
Escrow Agreement and the consummation by the Buyer and the Merger Subsidiary of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Buyer and Merger
Subsidiary, respectively. This Agreement has been duly and validly executed and
delivered by the Buyer and the Merger Subsidiary and constitutes a valid and
binding obligation of the Buyer and the Merger Subsidiary, enforceable against
them in accordance with its terms, except as such
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obligation and its enforceability may be limited by applicable bankruptcy and
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies is subject to the discretion
of the court before which any proceeding therefor may be brought (whether at law
or in equity).
3.4 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act and the Xxxx-Xxxxx-Xxxxxx Act, and the filing of the Articles of
Merger as required by the Washington Business Corporation Act and the filing of
the Certificate of Merger as required by the Delaware General Corporation Law,
neither the execution and delivery by the Buyer or the Merger Subsidiary of this
Agreement or (in the case of the Buyer) the Escrow Agreement, nor the
consummation by the Buyer or the Merger Subsidiary of the transactions
contemplated hereby or thereby, will (a) conflict with or violate any provision
of the charter or By-laws of the Buyer or the Merger Subsidiary, (b) require on
the part of the Buyer or the Merger Subsidiary any filing with, or permit,
authorization, consent or approval of, any Governmental Entity, (c) conflict
with, result in breach of, constitute (with or without due notice or lapse of
time or both) a default under, result in the acceleration of obligations under,
create in any party any right to terminate, modify or cancel, or require any
notice, consent or waiver under, any contract or instrument to which the Buyer
or the Merger Subsidiary is a party or by which either is bound or to which any
of their assets are subject, except for (i) any conflict, breach, default,
acceleration, termination, modification or cancellation which would not
adversely affect the consummation of the transactions contemplated hereby or
(ii) any notice, consent or waiver the absence of which would not adversely
affect the consummation of the transactions contemplated hereby, or (d) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
the Buyer or the Merger Subsidiary or any of their properties or assets.
3.5 Reports and Financial Statements. The Buyer has previously
furnished or made available to the Company complete and accurate copies, as
amended or supplemented, of its (a) Annual Report on Form 10-K for the fiscal
year ended December 31, 2000, as filed with the Securities and Exchange
Commission (the "SEC"), and (b) all other reports filed by the Buyer under
Section 13 or subsections (a) or (c) of Section 14 of the Exchange Act with the
SEC since December 31, 2000 (such reports, as amended or supplemented from time
to time, are collectively referred to herein as the "Buyer Reports"). The Buyer
Reports constitute all of the documents required to be filed by the Buyer under
Section 13 or subsections (a) or (c) of Section 14 of the Exchange Act with the
SEC from December 31, 2000 through the date of this Agreement. The Buyer Reports
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder when filed. As of their respective dates,
the Buyer Reports did not contain any untrue statement of a material fact or
omit to 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. The audited financial statements and unaudited interim
financial statements of the Buyer included in the Buyer Reports (i) complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto when filed, (ii)
were prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby (except as may be indicated therein or in the notes
thereto, and in the case of quarterly financial
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statements, as permitted by Form 10-Q under the Exchange Act), (iii) fairly
present the consolidated financial condition, results of operations and cash
flows of the Buyer as of the respective dates thereof and for the periods
referred to therein, and (iv) are consistent with the books and records of the
Buyer.
3.6 Litigation. Except as disclosed in the Buyer Reports, as of the
date of this Agreement, there is no Legal Proceeding which is pending or, to the
Buyer's knowledge, threatened against the Buyer or any subsidiary of the Buyer
which, if determined adversely to the Buyer or such subsidiary, could have,
individually or in the aggregate, a Buyer Material Adverse Effect or which in
any manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement.
3.7 Interim Operations of the Merger Subsidiary. The Merger Subsidiary
was formed solely for the purpose of engaging in the transactions contemplated
by this Agreement and has engaged in no business activities other than as
contemplated by this Agreement.
ARTICLE IV
COVENANTS
4.1 Closing Efforts. Each of the Parties shall use its best efforts, to
the extent commercially reasonable ("Reasonable Best Efforts"), to take all
actions and to do all things necessary, proper or advisable to consummate the
Closing and the transactions contemplated by this Agreement, including without
limitation using its Reasonable Best Efforts to ensure that (i) its
representations and warranties remain true and correct in all material respects
through the Closing Date and (ii) the conditions to the obligations of the other
Parties to consummate the Merger are satisfied.
4.2 Governmental and Third-Party Notices and Consents.
(a) Each Party shall use its Reasonable Best Efforts to
obtain, at its expense, all waivers, permits, consents, approvals or other
authorizations from Governmental Entities, and to effect all registrations,
filings and notices with or to Governmental Entities, as may be required for
such Party to consummate the transactions contemplated by this Agreement and to
otherwise comply with all applicable laws and regulations in connection with the
consummation of the transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, each of the Parties shall promptly
file any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the Xxxx-Xxxxx-Xxxxxx Act, shall
use its Reasonable Best Efforts to obtain an early termination of the applicable
waiting period, and shall make any further filings or information submissions
pursuant thereto that may be necessary, proper or advisable; provided, however,
that, notwithstanding anything to the contrary in this Agreement, the Buyer
shall not be obligated to sell or dispose of or hold separately (through a trust
or otherwise) any assets or businesses of the Buyer or its Affiliates. The Buyer
shall pay the filing fee of the Buyer's pre-merger notification report under the
Xxxx-Xxxxx-Xxxxxx Act.
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(b) The Company shall use its Reasonable Best Efforts to
obtain, at its expense, all such waivers, consents or approvals from third
parties, and to give all such notices to third parties, as are required to be
listed in Section 2.4 of the Disclosure Schedule.
4.3 Stockholder Approval.
(a) The Company shall use its Reasonable Best Efforts to
obtain, as promptly as practicable, the Requisite Stockholder Approval, either
at a special meeting of stockholders or pursuant to a written stockholder
consent, all in accordance with the applicable requirements of the Washington
Business Corporation Act. In connection with such special meeting of
stockholders or written stockholder consent, the Company shall provide to its
stockholders a written proxy or information statement (the "Disclosure
Statement") which includes (A) a summary of the Merger and this Agreement (which
summary shall include a summary of the terms relating to the indemnification
obligations of the Company Stockholders, the escrow arrangements and the
authority of the Indemnification Representatives, and a statement that the
approval of this Agreement by the stockholders of the Company shall constitute
approval of such terms), (B) all of the information required by Rule 502(b)(2)
of Regulation D under the Securities Act and (C) a statement that dissenters'
rights are available for the Company Shares pursuant to RCW 23B.13 of the
Washington Business Corporation Act and a copy of such RCW 23B.13. The Buyer
agrees to cooperate with the Company in the preparation of the Disclosure
Statement. The Company agrees not to distribute the Disclosure Statement until
the Buyer has had a reasonable opportunity to review and comment on the
Disclosure Statement and the Disclosure Statement has been approved by the Buyer
(which approval may not be unreasonably withheld or delayed). If the Requisite
Stockholder Approval is obtained by means of a written consent, the Company
shall send, pursuant to RCW 23B.07.040 and RCW 23B.13.220(2) of the Washington
Business Corporation Act, a written notice to all stockholders of the Company
that did not execute such written consent informing them that this Agreement and
the Merger were approved by the stockholders of the Company and that dissenters'
rights are available for their Company Shares pursuant to RCW 23B.13 of the
Washington Business Corporation Act (which notice shall include a copy of such
RCW 23B.13), and shall promptly inform the Buyer of the date on which such
notice was sent.
(b) Notwithstanding anything to the contrary contained herein,
if the Buyer notifies the Company that it is not reasonably satisfied that the
issuance and sale of the Merger Shares is exempt from the registration
requirements of the Securities Act, the Parties agree, without further action,
as follows:
(i) The following shall be substituted in lieu of the
second, third and fourth sentences of Section 4.3(a) of this Agreement: "In
connection with such special meeting of stockholders or written stockholder
consent, the Buyer shall prepare, with the assistance and cooperation of the
Company, a Registration Statement on Form S-4 (the "Disclosure Statement"). The
Disclosure Statement shall include a prospectus/proxy statement to be used for
the purpose of offering the Merger Shares and Cash Consideration to stockholders
of the Company and soliciting proxies or written consents from stockholders of
the Company for the purpose of obtaining the Requisite Stockholder Approval
(such prospectus/proxy statement,
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together with any accompanying letter to stockholders, notice of meeting and
form of proxy or written consent, shall be referred to herein as the
"Prospectus/Proxy Statement"). The summary of the Merger in the Prospectus/Proxy
Statement shall include a summary of the terms relating to the indemnification
obligations of the Company Stockholders, the escrow arrangements and the
authority of the Indemnification Representatives, and a statement that the
approval of this Agreement by the stockholders of the Company shall constitute
approval of such terms. The Buyer shall file the Disclosure Statement with the
SEC and shall, with the assistance of the Company, promptly respond to any SEC
comments on the Disclosure Statement and shall otherwise use its Reasonable Best
Efforts to have the Registration Statement declared effective under the
Securities Act as promptly as practicable and to comply with any applicable
state securities laws. Promptly following such time as the Disclosure Statement
is declared effective, the Company shall distribute the Prospectus/Proxy
Statement to its stockholders and, pursuant thereto, shall use its Reasonable
Best Efforts to obtain the Requisite Stockholder Approval.";
(ii) The conditions in Section 5.2(h) and Section
5.2(l) of this Agreement shall be deemed satisfied;
(iii) The respective obligations of each Party to
consummate the Merger shall be subject to the following condition: "The
Disclosure Statement shall have become effective in accordance with the
provisions of the Securities Act, and there shall not be in effect any stop
order suspending the effectiveness of the Disclosure Statement or any
proceedings seeking such a stop order."; and
(iv) Article VII of this Agreement shall be deleted
and have no further force or effect.
(c) The Company, acting through its Board of Directors, shall
include in the Disclosure Statement the unanimous recommendation of its Board of
Directors that the stockholders of the Company vote in favor of the approval of
this Agreement and the Merger.
(d) The Company shall ensure that the Disclosure Statement
does not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading (provided that the
Company shall not be responsible for the accuracy or completeness of any
information relating to the Buyer or furnished by the Buyer in writing for
inclusion in the Disclosure Statement).
(e) The Buyer shall ensure that the Disclosure Statement does
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading (provided that the
Buyer shall not be responsible for the accuracy or completeness of any
information relating to the Company or furnished by the Company in writing for
inclusion in the Disclosure Statement).
(f) The stockholders of the Company listed on EXHIBIT 4.3
attached hereto each agree (i) to vote all Company Shares that are beneficially
owned by him, her or it in favor
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of the amendments to the Company's Articles of Incorporation necessary or
desirable to effect the conversion provided in Section 1.5 of this Agreement,
(ii) to vote all Company Shares that are beneficially owned by him, her or it in
favor of the approval of this Agreement and the Merger, (iii) not to vote any
Company Shares in favor of any other acquisition (whether by way of merger,
consolidation, share exchange, stock purchase or asset purchase) of all or a
majority of the outstanding capital stock or assets of the Company and (iv)
otherwise to use his, her or its Reasonable Best Efforts to obtain the Requisite
Stockholder Approval.
4.4 Operation of Business. Except as contemplated by this Agreement or
as directed in writing by the Buyer after the date hereof, during the period
from the date of this Agreement to the Effective Time, the Company shall (and
shall cause each Subsidiary to) conduct its operations in the Ordinary Course of
Business and in compliance with all applicable laws and regulations and, to the
extent consistent therewith, use its Reasonable Best Efforts and available
resources to preserve intact its current business organization, keep its
physical assets in good working condition, pay its liabilities as they become
due, keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall not be
impaired in any material respect. Without limiting the generality of the
foregoing, prior to the Effective Time, the Company shall not (and shall cause
each Subsidiary not to), without the written consent of the Buyer:
(a) issue or sell, or, except as provided in Section 4.11 of
this Agreement, redeem or repurchase, any stock or other securities of the
Company or any rights, warrants or options to acquire any such stock or other
securities (except pursuant to the conversion or exercise of convertible
securities or Options or Warrants outstanding on the date hereof), or amend any
of the terms of (including without limitation the vesting of) any such
convertible securities or Options or Warrants;
(b) split, combine or reclassify any shares of its capital
stock; except as provided in Section 4.13 of this Agreement, declare, set aside
or pay any dividend or other distribution (whether in cash, stock or property or
any combination thereof) in respect of its capital stock;
(c) create, incur or assume any indebtedness (including
obligations in respect of capital leases), other than trade payables treated as
a current liability incurred in the Ordinary Course of Business or under the
Loan Agreement; assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person or entity; or make any loans, advances or capital contributions
to, or investments in, any other person or entity;
(d) enter into, adopt or amend any Employee Benefit Plan or
any employment or severance agreement or arrangement of the type described in
Section 2.22(k) (other than the Management and Employee Retention Program
described in Section 1.15), or (except for normal increases in the Ordinary
Course of Business for employees who are not Affiliates) increase or decrease in
any manner the compensation or fringe benefits of, or modify the employment
terms of, its directors, officers or employees, generally or individually, or
pay any bonus or other
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benefit to its directors, officers or employees (except for existing payment
obligations listed in Section 2.20 of the Disclosure Schedule), or fail to pay
any existing payment obligations listed in Section 2.20 of the Disclosure
Schedule, or hire any employee, or retain any consultant or contractor (it being
understood that the Company and the Buyer shall consult with each other in
connection with the approval required hereunder to hire any employee or retain
any consultant or contractor), or terminate the employment of any employee;
(e) acquire, sell, lease, license or dispose of any assets or
property (including without limitation any shares or other equity interests in
or securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than (i) purchases and
sales of assets in the Ordinary Course of Business and (ii) as contemplated by
Section 4.14 of this Agreement;
(f) license, distribute or otherwise grant any right to any
third party with respect to, any Company Intellectual Property;
(g) mortgage or pledge any of its property or assets or
subject any such property or assets to any Security Interest;
(h) discharge or satisfy any Security Interest or pay any
obligation or liability other than in the Ordinary Course of Business;
(i) amend its charter, by-laws or other organizational
documents, except for an amendment to the Company's charter required to effect
the allocation of consideration set forth in Section 1.5 of this Agreement;
(j) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(k) enter into, amend, terminate, take or omit to take any
action that would constitute a violation of or default under, or waive any
rights under, any material contract or agreement;
(l) make or change any election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, or settle any claim or assessment in respect of Taxes;
(m) make or commit to make any capital expenditure in excess
of $10,000 per item or $50,000 in the aggregate;
(n) institute or settle any Legal Proceeding;
(o) take any action or fail to take any action permitted by
this Agreement with the knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of the Company set
forth in this Agreement becoming untrue or (ii) any of the conditions to the
Merger set forth in Article V not being satisfied;
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(p) directly or indirectly apply any of the proceeds of
advances under the Loan Agreement to provide or extend working capital to
Isogen; or
(q) agree in writing or otherwise to take any of the foregoing
actions.
4.5 Access to Information.
(a) The Company shall (and shall cause each Subsidiary to)
permit representatives of the Buyer to have full access (at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of the Company and the Subsidiaries) to all premises, properties,
financial and accounting records, contracts, other records and documents, and
personnel, of or pertaining to the Company and each Subsidiary.
(b) Within 15 days after the end of each month ending prior to
the Closing, beginning with October 31, 2001, the Company shall furnish to the
Buyer an unaudited income statement for such month and a balance sheet as of the
end of such month, prepared on a basis consistent with the Financial Statements.
Such financial statements shall present fairly the financial condition and
results of operations of the Company and the Subsidiaries on a consolidated
basis as of the dates thereof and for the periods covered thereby, and shall be
consistent with the books and records of the Company and the Subsidiaries.
(c) Each of the Buyer and the Merger Subsidiary (i) shall
treat and hold as confidential any Confidential Information (as defined below),
(ii) shall not use any of the Confidential Information except in connection with
this Agreement, and (iii) if this Agreement is terminated for any reason
whatsoever, shall return to the Company all tangible embodiments (and all
copies) thereof which are in its possession. For purposes of this Agreement,
"Confidential Information" means the information furnished under (a) and (b)
above and any confidential or proprietary information of the Company or any
Subsidiary that is furnished in writing to the Buyer or the Merger Subsidiary by
the Company or any Subsidiary in connection with this Agreement and is, in each
case, labeled confidential or proprietary; provided, however, that it shall not
include any information (A) which, at the time of disclosure, is available
publicly, (B) which, after disclosure, becomes available publicly through no
fault of the Buyer or the Merger Subsidiary, (C) which the Buyer or the Merger
Subsidiary knew or to which the Buyer or the Merger Subsidiary had access prior
to disclosure or (D) which the Buyer or the Merger Subsidiary rightfully obtains
from a source other than the Company or a Subsidiary.
4.6 Notice of Certain Matters.
(a) From the date of this Agreement until the Effective Time,
the Company shall promptly (and in any event within three days) deliver to the
Buyer supplemental information concerning events or circumstances occurring
subsequent to the date hereof which would render any representation, warranty or
statement in this Agreement or the Disclosure Schedule inaccurate or incomplete
at any time after the date of this Agreement until the Effective Time. No such
supplemental information or other matter to which the Buyer has previously
consented in writing shall be deemed to cure any misrepresentation or breach of
warranty or constitute an amendment to any representation, warranty or statement
contained in this
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Agreement or the Disclosure Schedule; provided that if such supplemental
information or other matter to which the Buyer has previously consented in
writing relates to an event or circumstance occurring subsequent to the date
hereof (without breach of Section 4.4) and relates to the subject matter of a
representation or warranty contained in Article II hereof (other than the
subject matter of Sections 2.1, 2.2, 2.3, 2.4, 2.8(b), 2.10(b) and 2.13), then
such supplemental information or other matter to which the Buyer has previously
consented in writing, solely for purposes of Section 5.2(c) of this Agreement,
shall constitute an amendment of the representation or warranty to which it
relates.
(b) From the date of this Agreement until the Effective Time,
the Company shall promptly (and in any event within three days) notify the Buyer
if any employee or group of employees terminates, has given notice that they
will terminate, or, to the knowledge of the Company, has any plans to terminate,
employment with the Company or any Subsidiary.
4.7 Exclusivity.
(a) The Company shall not, and the Company shall require each
of its officers, directors, employees, representatives and agents not to,
directly or indirectly, (i) initiate, solicit, encourage or otherwise facilitate
any inquiry, proposal, offer or discussion with any party (other than the Buyer)
concerning any merger, reorganization, consolidation, recapitalization, business
combination, liquidation, dissolution, share exchange, sale of stock, sale of
material assets or similar business transaction involving the Company, any
Subsidiary or any division of the Company, (ii) furnish any non-public
information concerning the business, properties or assets of the Company, any
Subsidiary or any division of the Company to any party (other than the Buyer or,
pursuant to the terms of an agreement that is listed in Section 2.2 of the
Disclosure Schedule, to the Company's stockholders) or (iii) engage in
discussions or negotiations with any party (other than the Buyer) concerning any
such transaction; provided, however, that nothing herein shall preclude any such
actions solely with respect to the divestiture of the Company's Isogen business
contemplated by Section 4.14 of this Agreement.
(b) The Company shall immediately notify any party with which
discussions or negotiations of the nature described in paragraph (a) above were
pending that the Company is terminating such discussions or negotiations. If the
Company receives any inquiry, proposal or offer of the nature described in
paragraph (a) above, the Company shall, within one business day after such
receipt, notify the Buyer of such inquiry, proposal or offer, including the
identity of the other party and the terms of such inquiry, proposal or offer.
4.8 Expenses. Except as set forth in Article VI and the Escrow
Agreement, each of the Parties shall bear its own costs and expenses (including
legal fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby; provided, however, that all costs and expenses
incurred by the Company at or prior to the Closing in connection with the
transactions contemplated by this Agreement, including without limitation, the
broker, accounting and legal fees and expenses of the Company (the "Third Party
Expenses"), shall be borne by the Company Stockholders. The Buyer shall be
authorized to deduct from the Adjusted Cash Consideration the estimated Third
Party Expenses and shall have no obligation to assume any such costs or
expenses. Notwithstanding the foregoing, the Buyer shall bear up to $50,000
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in legal expenses, as reasonably itemized, incurred by counsel to the Company in
connection with the preparation of the Disclosure Statement (the "Permitted
Legal Fees"), and such Permitted Legal Fees shall not, for any purpose hereof,
be considered Third Party Expenses. Any Third Party Expenses incurred in excess
of the estimated Third Party Expenses so deducted shall be subject to the
indemnification provisions of Article VII.
4.9 Agreements from Certain Affiliates of the Company. Upon the
execution of this Agreement, the Company shall provide to the Buyer a list of
those persons who are, in the Company's reasonable judgment, Affiliates of the
Company. The Company shall provide the Buyer such information and documents as
the Buyer shall reasonably request for purposes of reviewing such list and shall
notify the Buyer in writing regarding any change in the identity of its
Affiliates prior to the Closing Date. In order to help ensure that the issuance
of and any resale of the Merger Shares will comply with the Securities Act, the
Company shall use its Reasonable Best Efforts to deliver or cause to be
delivered to the Buyer, as soon as practicable and in any case prior to the
mailing of the Disclosure Statement (or, in the case of any person who becomes
an Affiliate after such date, as soon as practicable after such person becomes
an Affiliate), an Affiliate Agreement, in the form attached hereto as EXHIBIT B
(an "Affiliate Agreement"), executed by each of its Affiliates. The Buyer shall
be entitled to place appropriate legends on the certificates evidencing any
Merger Shares to be issued to Affiliates of the Company, and to issue
appropriate stop transfer instructions to the transfer agent for the Buyer
Common Stock, setting forth restrictions on transfer consistent with the terms
of the Affiliate Agreement.
4.10 Listing of Merger Shares. The Buyer shall use its Reasonable Best
Efforts to list the Merger Shares on the Nasdaq National Market.
4.11 Repurchase of Certain Company Shares.
(a) Not later than 30 days after the date hereof (or such
later date as the Buyer and the Company shall mutually agree in writing), the
Company shall use its Reasonable Best Efforts to repurchase from each holder of
capital stock of the Company that is not an "accredited investor" as defined in
Rule 501(a) under the Securities Act all shares of capital stock of the Company
owned by such holder in order to reduce the total number of stockholders who are
not "accredited investors" to thirty-five or less. The purchase price to be paid
by the Company for the shares of capital stock held by all such holders shall
not exceed $0.19 per share of capital stock or $400,000 in the aggregate. The
agreement to be used by the Company for such repurchases shall be in a form that
is reasonably acceptable to the Buyer.
(b) In connection with such repurchases, the Company shall
provide to its stockholders a written statement (the "Repurchase Disclosure
Statement") which includes (A) a summary of the Merger and this Agreement (which
summary shall include a summary of the terms relating to the indemnification
obligations of the Company Stockholders, the escrow arrangements and the
authority of the Indemnification Representatives), (B) a summary of the terms
and conditions of such repurchase and (C) the information required by the
Securities Act. The Buyer agrees to cooperate with the Company in the
preparation of the Repurchase Disclosure Statement. The Company agrees not to
distribute the Repurchase Disclosure Statement until the Buyer has had a
reasonable opportunity to review and comment on the
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Repurchase Disclosure Statement and the Repurchase Disclosure Statement has been
approved by the Buyer (which approval may not be unreasonably withheld or
delayed).
(c) The Company shall ensure that the Repurchase Disclosure
Statement does not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading (provided that
the Company shall not be responsible for the accuracy or completeness of any
information furnished by the Buyer in writing for inclusion in the Repurchase
Disclosure Statement).
(d) The Buyer shall ensure that any information furnished by
the Buyer to the Company in writing for inclusion in the Repurchase Disclosure
Statement does not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading.
4.12 FIRPTA Tax Certificates. If requested by the Buyer, (i) on or
before the Closing Date, the Company will deliver to the Buyer and to the
Internal Revenue Service notices that the Company Shares are not a "U.S. real
property interest" in accordance with the Treasury Regulations under Sections
897 and 1445 of the Code, or (ii) if the Company does not deliver a notice
pursuant to clause (i), on or before the Closing Date, the Stockholders will
deliver to the Buyer certifications that they are not foreign persons in
accordance with the Treasury Regulations under Section 1445 of the Code. If the
Buyer does not receive either the notices or certifications described above on
or before the Closing Date, the Buyer shall be permitted to withhold from the
Cash Consideration any required withholding tax under Section 1445 of the Code.
4.13 Isogen Divestiture. The Buyer acknowledges that not later than
five business days prior to the Closing Date (the "Isogen Deadline") the Company
will sell or otherwise transfer the capital stock of Isogen which may take the
form of a transfer incident to a dividend to the Company Stockholders. It is
anticipated that the net economic benefit of such sale (after all associated
costs and expenses, including without limitation, tax costs) will inure to the
Company Stockholders (in addition to the Merger consideration provided for
herein) or that the capital stock of Isogen will be distributed to or for the
benefit of the Company Stockholders prior to the Merger. The Company shall
regularly update the Buyer as to the status of the divestiture of the capital
stock of Isogen and shall promptly notify the Buyer (and in any event within
three days) of any material change in the status of such divestiture. The
divestiture or distribution contemplated by this Section 4.13 shall be effected
(i) without liability to the Company, the Surviving Corporation or the Buyer and
(ii) in a manner reasonably satisfactory to the Buyer. If the Company has not
sold or otherwise transferred the capital stock of Isogen as contemplated by
this Section 4.13 prior to the Isogen Deadline, the Surviving Corporation shall
be free to wind-up the business conducted by Isogen after the Closing in any
manner satisfactory to the Surviving Corporation and the Buyer. In such event
the Buyer shall reasonably estimate, in its sole discretion, the net cost and
expense expected to be incurred by the Company and the Buyer (after taking into
account the value expected to be realized by the Company and the Buyer from
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Isogen's assets) in connection with a wind-up of the Isogen business without
liability to the Company; and such amount shall be referred to herein as the
"Isogen Expenses."
4.14 Termination of 401(k) Plan. The Company shall terminate its 401(k)
Plan no later than one day prior to the Closing Date.
4.15 Certain Indebtedness. Buyer acknowledges that any repayment of the
Company's indebtedness to Comerica Bank-California (formerly known as Imperial
Bank), at Closing in accordance with the terms of the Loan Agreement shall be
Buyer's responsibility, and does not constitute an advance under the Loan
Agreement.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations
of each Party to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) this Agreement and the Merger shall have received the
Requisite Stockholder Approval; and
(b) all applicable waiting periods (and any extensions
thereof) under the Xxxx-Xxxxx-Xxxxxx Act shall have expired or otherwise been
terminated if a filing thereunder is required.
5.2 Conditions to Obligations of the Buyer and the Merger Subsidiary.
The obligation of each of the Buyer and the Merger Subsidiary to consummate the
Merger is subject to the satisfaction (or waiver by the Buyer) of the following
additional conditions:
(a) the number of Dissenting Shares shall not exceed 5% of the
number of outstanding Common Shares as of the Effective Time (calculated as if
all of the outstanding Preferred Shares were converted into Common Shares);
(b) the Company and the Subsidiaries shall have obtained (and
shall have provided copies thereof to the Buyer) all of the waivers, permits,
consents, approvals or other authorizations, and effected all of the
registrations, filings and notices, referred to in Section 4.2 which are
required on the part of the Company or the Subsidiaries, except for any the
failure of which to obtain or effect would not, individually or in the
aggregate, have a Company Material Adverse Effect or a material adverse effect
on the ability of the Parties to consummate the transactions contemplated by
this Agreement;
(c) the representations and warranties of the Company set
forth in the first sentence of Section 2.1 and in Section 2.3 and any
representations and warranties of the Company set forth in this Agreement that
are qualified as to materiality shall be true and correct in all respects, and
all other representations and warranties of the Company set forth in this
Agreement shall be true and correct in all material respects, in each case as of
the date of this Agreement and as of the Effective Time as though made as of the
Effective Time, except to the
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extent such representations and warranties are specifically made as of a
particular date (in which case such representations and warranties shall be true
and correct as of such date), and in each case, other than with respect to the
representations and warranties of the Company set forth in Sections 2.1, 2.2,
2.3, 2.4, 2.8(b), 2.10(b) and 2.13, taking into account any amendment thereto as
provided in Section 4.6(a);
(d) there shall have been no material damage to the properties
or assets of the Company nor material loss of key employees of the Company since
the date of this Agreement, as a direct result of the elements, acts of God,
acts of civil or military authority, fires, floods, war, riots or other
catastrophic events beyond the control of the Company;
(e) the Company shall have performed or complied with in all
material respects its agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the Effective Time;
(f) no Legal Proceeding shall be pending or threatened in
writing wherein an unfavorable judgment, order, decree, stipulation or
injunction would (i) prevent consummation of any of the transactions
contemplated by this Agreement, or (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, and no
such judgment, order, decree, stipulation or injunction shall be in effect;
(g) the Company shall have delivered to the Buyer and the
Merger Subsidiary a certificate (the "Company Certificate") to the effect that
each of the conditions specified in clause (a) of Section 5.1 and clauses (a)
through (f) (insofar as clause (f) relates to Legal Proceedings involving the
Company or a Subsidiary) of this Section 5.2 is satisfied in all respects;
(h) for purposes of the determination provided in Section
4.3(b) regarding the availability of an exemption from the registration
requirements of the Securities Act for the issuance and sale of the Merger
Shares, each of the Company Stockholders as of immediately prior to the
Effective Time shall have executed and delivered to the Buyer an Investment
Representation Letter in the form attached hereto as Exhibit C and the Buyer
shall have no reason to believe that the statements set forth therein are not
true and shall be reasonably satisfied that the issuance and sale of the Merger
Shares is exempt from the registration requirements of the Securities Act;
(i) the Buyer shall have received from counsel to the Company
an opinion with respect to the matters set forth in Exhibit D attached hereto,
addressed to the Buyer and dated as of the Closing Date;
(j) the Buyer shall have received copies of the removals or
resignations, effective as of the Effective Time, of each director and officer
of the Company and the Subsidiaries (other than any such resignations which the
Buyer designates, by written notice to the Company, as unnecessary);
- 45 -
(k) the Company shall have effected the sale or other transfer
of Isogen in the manner contemplated by Section 4.13 of this Agreement not later
than December 15, 2001, and thereafter the Company shall have no liability
whatsoever with respect to the Isogen business;
(l) for purposes of the determination provided in Section
4.3(b) regarding the availability of an exemption from the registration
requirements of the Securities Act for the issuance and sale of the Merger
Shares, the number of holders of capital stock of the Company who are not
"accredited investors" as defined in Rule 501(a) under the Securities Act shall
be less than 35;
(m) each of Xxxxx Xxxxxxxxx and Xxxxx Xxxxx shall have entered
into employment arrangements with the Company providing for six months continued
employment and six months severance, and
(n) the Buyer shall have received such other customary
certificates and instruments (including without limitation certificates of good
standing of the Company and the Subsidiaries in their jurisdiction of
organization and the various foreign jurisdictions in which they are qualified,
certified charter documents, certificates as to the incumbency of officers and
the adoption of authorizing resolutions) as it shall reasonably request in
connection with the Closing.
5.3 Conditions to Obligations of the Company. The obligation of the
Company to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) the Merger Shares shall have been authorized for listing
on the Nasdaq National Market upon official notice of issuance;
(b) the Buyer shall have effected all of the registrations,
filings and notices referred to in Section 4.2 which are required on the part of
the Buyer, except for any which if not obtained or effected would not have a
Buyer Material Adverse Effect or a material adverse effect on the ability of the
Parties to consummate the transactions contemplated by this Agreement;
(c) the representations and warranties of the Buyer and the
Merger Subsidiary set forth in the first sentence of Section 3.1 and Section 3.3
and any representations and warranties of the Buyer and the Merger Subsidiary
set forth in this Agreement that are qualified as to materiality shall be true
and correct, and the representations and warranties of the Buyer and the Merger
Subsidiary set forth in this Agreement that are not so qualified (other than
those set forth in Section 3.1 and Section 3.3) shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Effective Time as though made as of the Effective Time, except to the extent
such representations and warranties are specifically made as of a particular
date (in which case such representations and warranties shall be true and
correct as of such date);
(d) each of the Buyer and the Merger Subsidiary shall have
performed or complied with in all material respects its agreements and covenants
required to be performed or complied with under this Agreement as of or prior to
the Effective Time;
- 46 -
(e) no Legal Proceeding shall be pending or threatened wherein
an unfavorable judgment, order, decree, stipulation or injunction would (i)
prevent consummation of any of the transactions contemplated by this Agreement
or (ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, and no such judgment, order, decree,
stipulation or injunction shall be in effect;
(f) the Buyer shall have delivered to the Company a
certificate (the "Buyer Certificate") to the effect that each of the conditions
specified in clauses (a) through (e) (insofar as clause (e) relates to Legal
Proceedings involving the Buyer) of this Section 5.3 is satisfied in all
respects;
(g) the Company shall have received from counsel to the Buyer
and the Merger Subsidiary an opinion with respect to the matters set forth in
Exhibit F attached hereto, addressed to the Company and dated as of the Closing
Date; and
(h) the Company shall have received such other customary
certificates and instruments (including without limitation certificates of good
standing of the Buyer and the Merger Subsidiary in their jurisdiction of
organization, certified charter documents, certificates as to the incumbency of
officers and the adoption of authorizing resolutions) as it shall reasonably
request in connection with the Closing.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Company Stockholders. Subject to Section 6.5
of this Agreement, the Company Stockholders receiving the Cash Consideration and
the Merger Shares pursuant to Section 1.5 (the "Indemnifying Stockholders")
shall indemnify the Buyer in respect of, and hold it harmless against, any and
all debts, obligations and other liabilities (whether absolute, accrued,
contingent, fixed or otherwise, or whether known or unknown, or due or to become
due or otherwise), monetary damages, fines, fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
amounts paid in settlement, interest, court costs, costs of investigators, fees
and expenses of attorneys, accountants, financial advisors and other experts,
and other expenses of litigation) ("Damages") incurred or suffered by the
Surviving Corporation or the Buyer or any Affiliate thereof resulting from,
relating to or constituting:
(a) any misrepresentation, breach of warranty or failure to
perform any covenant or agreement of the Company contained in this Agreement or
the Company Certificate;
(b) any failure of any Company Stockholder to have good, valid
and marketable title to the issued and outstanding Company Shares issued in the
name of such Company Stockholder, free and clear of all Security Interests;
(c) any claim by a stockholder or former stockholder of the
Company, or any other person or entity, seeking to assert, or based upon: (i)
ownership or rights to ownership of any shares of stock of the Company; (ii) any
rights of a stockholder (other than the right to
- 47 -
receive the Cash Consideration and the Merger Shares pursuant to this Agreement
or dissenters' rights under the applicable provisions of the Washington Business
Corporation Act), including any option, preemptive rights or rights to notice or
to vote; (iii) any rights under the Articles of Incorporation or By-laws of the
Company; or (iv) any claim that his, her or its shares were wrongfully
repurchased by the Company, except with respect to any breach by the Buyer of
Section 4.11(d);
(d) any costs and expenses (including accounting, financial
advisor, legal or finder fees and expenses) incurred by the Company at or prior
to Closing in connection with this Agreement and the transactions contemplated
hereby, other than the Permitted Legal Fees; or
(e) the Isogen business, including without limitation, the
costs and expenses incurred in connection with the wind-up of Isogen.
6.2 Indemnification by the Buyer. The Buyer shall indemnify the
Indemnifying Stockholders in respect of, and hold them harmless against, any and
all Damages incurred or suffered by the Indemnifying Stockholders resulting
from, relating to or constituting any misrepresentation, breach of warranty or
failure to perform any covenant or agreement of the Buyer or the Merger
Subsidiary contained in this Agreement or the Buyer Certificate.
6.3 Indemnification Claims.
(a) A party entitled, or seeking to assert rights, to
indemnification under this Article VI (an "Indemnified Party") shall give
written notification to the party from whom indemnification is sought (an
"Indemnifying Party") of the commencement of any suit or proceeding relating to
a third party claim for which indemnification pursuant to this Article VI may be
sought. Such notification shall be given within 20 business days after receipt
by the Indemnified Party of notice of such suit or proceeding, and shall
describe in reasonable detail (to the extent known by the Indemnified Party) the
facts constituting the basis for such suit or proceeding and the amount of the
claimed damages; provided, however, that no delay on the part of the Indemnified
Party in notifying the Indemnifying Party shall relieve the Indemnifying Party
of any liability or obligation hereunder except to the extent of any Damage or
liability caused by or arising out of such failure. Within 20 business days
after delivery of such notification, the Indemnifying Party may, upon written
notice thereof to the Indemnified Party, assume control of the defense of such
suit or proceeding with counsel reasonably satisfactory to the Indemnified
Party; provided that (i) the Indemnifying Party may only assume control of such
defense if (A) it acknowledges in writing to the Indemnified Party that any
damages, fines, costs or other liabilities that may be assessed against the
Indemnified Party in connection with such suit or proceeding constitute Damages
for which the Indemnified Party shall be indemnified pursuant to this Article VI
and (B) the ad damnum is less than or equal to the amount of Damages for which
the Indemnifying Party is liable under this Article VI and (ii) the Indemnifying
Party may not assume control of the defense of a suit or proceeding involving
criminal liability or in which equitable relief is sought against the
Indemnified Party. If the Indemnifying Party does not so assume control of such
defense, the Indemnified Party shall control such defense. The party not
controlling such defense (the "Non-controlling Party") may participate therein
at its own expense; provided that if the Indemnifying Party assumes control of
such defense and the
- 48 -
Indemnified Party reasonably concludes that the Indemnifying Party and the
Indemnified Party have conflicting interests or different defenses available
with respect to such suit or proceeding, the reasonable fees and expenses of one
counsel to the Indemnified Party with respect to such matters of conflict shall
be considered "Damages" for purposes of this Agreement. The party controlling
such defense (the "Controlling Party") shall keep the Non-controlling Party
advised of the status of such suit or proceeding and the defense thereof and
shall consider in good faith recommendations made by the Non-controlling Party
with respect thereto. The Non-controlling Party shall furnish the Controlling
Party with such information as it may have with respect to such suit or
proceeding (including copies of any summons, complaint or other pleading which
may have been served on such party and any written claim, demand, invoice,
billing or other document evidencing or asserting the same) and shall otherwise
cooperate with and assist the Controlling Party in the defense of such suit or
proceeding. The Indemnifying Party shall not agree to any settlement of, or the
entry of any judgment arising from, any such suit or proceeding without the
prior written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed; provided that the consent of the Indemnified
Party shall not be required if the Indemnifying Party agrees in writing to pay
any amounts payable pursuant to such settlement or judgment and such settlement
or judgment includes a complete release of the Indemnified Party from further
liability with respect to the claim and has no other adverse effect on the
Indemnified Party of a financial nature or with respect to Intellectual
Property. The Indemnified Party shall not agree to any settlement of, or the
entry of any judgment arising from, any such suit or proceeding without the
prior written consent of the Indemnifying Party, which shall not be unreasonably
withheld or delayed.
(b) In order to seek indemnification under this Article VI, an
Indemnified Party shall give written notification (a "Claim Notice") to the
Indemnifying Party which contains (i) a description and the amount (the "Claimed
Amount") of any Damages incurred or reasonably expected to be incurred by the
Indemnified Party, (ii) a statement that the Indemnified Party is entitled to
indemnification under this Article VI for such Damages and a reasonable
explanation of the basis therefor, and (iii) a demand for payment (in the manner
provided in paragraph (c) below) in the amount of such Damages. If the
Indemnified Party is the Buyer the Indemnifying Party shall deliver a copy of
the Claim Notice to the Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the
Indemnifying Party shall deliver to the Indemnified Party a written response
(the "Response") in which the Indemnifying Party shall: (i) agree that the
Indemnified Party is entitled to receive all of the Claimed Amount (in which
case the Response shall be accompanied by a payment by the Indemnifying Party to
the Indemnified Party of the Claimed Amount, by check or by wire transfer;
provided that if the Indemnified Party is the Buyer, the Indemnifying Party and
the Indemnified Party shall deliver to the Escrow Agent, within three days
following the delivery of the Response, a written notice executed by both
parties instructing the Escrow Agent to distribute to the Buyer such number of
Escrow Shares as have an aggregate Value (as defined below) equal to the Claimed
Amount), (ii) agree that the Indemnified Party is entitled to receive part, but
not all, of the Claimed Amount (the "Agreed Amount") (in which case the Response
shall be accompanied by a payment by the Indemnifying Party to the Indemnified
Party of the Agreed Amount, by check or by wire transfer; provided that if the
Indemnified Party is the
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Buyer, the Indemnifying Party and the Indemnified Party shall deliver to the
Escrow Agent, within three days following the delivery of the Response, a
written notice executed by both parties instructing the Escrow Agent to
distribute to the Buyer such number of Escrow Shares as have an aggregate Value
equal to the Agreed Amount) or (iii) dispute that the Indemnified Party is
entitled to receive any of the Claimed Amount. If the Indemnifying Party in the
Response disputes its liability for all or part of the Claimed Amount, the
Indemnifying Party and the Indemnified Party shall follow the procedures set
forth in Section 6.3(d) for the resolution of such dispute (a "Dispute"). For
purposes of this Article VI, the "Value" of any Escrow Shares delivered in
satisfaction of an indemnity claim shall be the average of the last reported
sale prices per share of the Buyer Common Stock on the Nasdaq National Market
over the five consecutive trading days ending on the Closing Date (subject to
equitable adjustment in the event of any stock split, stock dividend, reverse
stock split or similar event affecting the Buyer Common Stock since the
beginning of such five-day period), multiplied by the number of such Escrow
Shares.
(d) During the 60-day period following the delivery of a
Response that reflects a Dispute, the Indemnifying Party and the Indemnified
Party shall use good faith efforts to resolve the Dispute. If the Dispute is not
resolved within such 60-day period, the Indemnifying Party and the Indemnified
Party shall discuss in good faith the submission of the Dispute to a mutually
acceptable alternative dispute resolution procedure (which may be non-binding or
binding upon the parties, as they agree in advance) (the "ADR Procedure"). In
the event the Indemnifying Party and the Indemnified Party agree upon an ADR
Procedure, such parties shall, in consultation with the chosen dispute
resolution service at a mutually acceptable location (the "ADR Service"),
promptly agree upon a format and timetable for the ADR Procedure, agree upon the
rules applicable to the ADR Procedure, and promptly undertake the ADR Procedure.
The provisions of this Section 6.3(d) shall not obligate the Indemnifying Party
and the Indemnified Party to pursue an ADR Procedure or prevent either such
party from pursuing the Dispute in a court of competent jurisdiction; provided
that they comply with their good faith obligation to pursue such procedure and,
if the Indemnifying Party and the Indemnified Party agree to pursue an ADR
Procedure, neither the Indemnifying Party nor the Indemnified Party may commence
litigation or seek other remedies with respect to the Dispute prior to the
completion of such ADR Procedure. Any ADR Procedure undertaken by the
Indemnifying Party and the Indemnified Party shall be considered a compromise
negotiation for purposes of federal and state rules of evidence, and all
statements, offers, opinions and disclosures (whether written or oral) made in
the course of the ADR Procedure by or on behalf of the Indemnifying Party, the
Indemnified Party or the ADR Service shall be treated as confidential and, where
appropriate, as privileged work product. Such statements, offers, opinions and
disclosures shall not be discoverable or admissible for any purposes in any
litigation or other proceeding relating to the Dispute (provided that this
sentence shall not be construed to exclude from discovery or admission any
matter that is otherwise discoverable or admissible). The fees and expenses of
any ADR Service used by the Indemnifying Party and the Indemnified Party shall
be shared equally by the Indemnifying Party and the Indemnified Party. If the
Indemnified Party is the Buyer, the Indemnifying Party and the Indemnified Party
shall deliver to the Escrow Agent, promptly following the resolution of the
Dispute (whether by mutual agreement, pursuant to an ADR Procedure, as a result
of a judicial decision or otherwise),
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a written notice executed by both parties instructing the Escrow Agent as to
what (if any) portion of the Escrow Shares shall be distributed to the Buyer
and/or the Indemnifying Stockholders (which notice shall be consistent with the
terms of the resolution of the Dispute).
(e) Notwithstanding the other provisions of this Section 6.3,
if a third party asserts (other than by means of a lawsuit) that an Indemnified
Party is liable to such third party for a monetary or other obligation which may
constitute or result in Damages for which such Indemnified Party may be entitled
to indemnification pursuant to this Article VI, and such Indemnified Party
reasonably determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Party shall be entitled to satisfy such
obligation, without prior notice to or consent from the Indemnifying Party, (ii)
such Indemnified Party may subsequently make a claim for indemnification in
accordance with the provisions of this Article VI, and (iii) such Indemnified
Party shall be reimbursed, in accordance with the provisions of this Article VI,
for any such Damages for which it is entitled to indemnification pursuant to
this Article VI (subject to the right of the Indemnifying Party to dispute the
Indemnified Party's entitlement to indemnification, or the amount for which it
is entitled to indemnification, under the terms of this Article VI).
(f) For purposes of this Section 6.3 and the last two
sentences of Section 6.4, (i) if the Indemnifying Stockholders comprise the
Indemnifying Party, any references to the Indemnifying Party (except provisions
relating to an obligation to make or a right to receive any payments provided
for in Section 6.3 or Section 6.4) shall be deemed to refer to the
Indemnification Representatives, and (ii) if the Indemnifying Stockholders
comprise the Indemnified Party, any references to the Indemnified Party (except
provisions relating to an obligation to make or a right to receive any payments
provided for in Section 6.3 or Section 6.4) shall be deemed to refer to the
Indemnification Representatives. The Indemnification Representatives shall have
full power and authority on behalf of each Indemnifying Stockholder to take any
and all actions on behalf of, execute any and all instruments on behalf of, and
execute or waive any and all rights of, the Indemnifying Stockholders under this
Article VI. The Indemnification Representatives shall have no liability to any
Indemnifying Stockholder or to the Buyer and the Merger Subsidiary (beyond their
liability as an Indemnifying Stockholder hereunder) for any action taken or
omitted on behalf of the Indemnifying Stockholders pursuant to this Article VI.
6.4 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement, the Company Certificate or the Buyer
Certificate shall (a) survive the Closing and any investigation at any time made
by or on behalf of an Indemnified Party and (b) shall expire on the date one
year following the Closing Date. If an Indemnified Party delivers to an
Indemnifying Party, before expiration of a representation or warranty, either a
Claim Notice based upon a breach of such representation or warranty, or a notice
that, as a result a legal proceeding instituted by or written claim made by a
third party, the Indemnified Party reasonably expects to incur Damages as a
result of a breach of such representation or warranty (an "Expected Claim
Notice"), then such representation or warranty shall survive until, but only for
purposes of, the resolution of the matter covered by such notice. If the legal
proceeding or written claim with respect to which an Expected Claim Notice has
been given is definitively
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withdrawn or resolved in favor of the Indemnified Party, the Indemnified Party
shall promptly so notify the Indemnifying Party; and if the Indemnified Party
has delivered a copy of the Expected Claim Notice to the Escrow Agent and Escrow
Shares have been retained in escrow after the Termination Date (as defined in
the Escrow Agreement) with respect to such Expected Claim Notice, the
Indemnifying Party and the Indemnified Party shall promptly deliver to the
Escrow Agent a written notice executed by both parties instructing the Escrow
Agent to distribute such retained Escrow Shares to the Indemnifying Stockholders
in accordance with the terms of the Escrow Agreement.
6.5 Limitations.
(a) Notwithstanding anything to the contrary herein, (i) the
aggregate liability of the Indemnifying Stockholders, on the one hand, and the
Buyer, on the other hand, for Damages under this Article VI or, except with
respect to claims based on fraud, otherwise under this Agreement, shall not
exceed the aggregate Value of the Escrow Shares; provided that if the Company
has not sold or otherwise transferred the capital stock of Isogen as
contemplated by Section 4.13 prior to the Isogen Deadline and, in accordance
with Section 1.5(f), the number of Escrow Shares is increased by 100,000, (A)
the aggregate liability of the Indemnifying Stockholders, on the one hand, and
the Buyer, on the other hand, for Damages under this Article VI or, except with
respect to claims based on fraud, otherwise under this Agreement, shall not
exceed the aggregate Value of such number of Escrow Shares as is equal to the
result obtained by subtracting (1) 100,000 from (2) the total number of Escrow
Shares and (B) the aggregate liability of the Indemnifying Stockholders for
Damages under this Article VI with respect to a claim under Section 6.1(e) shall
not exceed the aggregate Value of the Escrow Shares, (ii) the Indemnifying
Stockholders and the Buyer shall be liable under this Article VI with respect to
claims under Section 6.1(a) or Section 6.2 for only that portion of the
aggregate Damages for which they or it would otherwise be liable which exceeds
$350,000, and (iii) each Indemnifying Stockholder shall only be liable for his,
her or its pro rata share (based on the number of Merger Shares received by such
Indemnifying Stockholder as a percentage of the total number of Merger Shares
issued); provided that the limitation set forth in clause (ii) above shall not
apply to (A) a claim pursuant to Section 6.1(a) relating to a breach of the
representations and warranties set forth in Sections 2.1, 2.2, 2.3, 2.8(b),
2.10(b) or 2.13 (or the portion of the Company Certificate relating thereto) or
to a breach of the covenants set forth in Sections 4.8, 4.11 or 4.13, or (B) a
claim pursuant to Section 6.2 relating to a breach of the representations and
warranties set forth in Sections 3.1, 3.2 or 3.3 (or the portion of the Buyer
Certificate relating thereto). For purposes solely of this Article VI, all
representations and warranties of the Company in Article II (other than Section
2.31) and all representations and warranties of the Buyer and the Merger
Subsidiary in Article III shall be construed as if the term "material" and any
reference to "Company Material Adverse Effect" and "Buyer Material Adverse
Effect" (and variations thereof) were omitted from such representations and
warranties.
(b) Notwithstanding anything to the contrary herein, except
with respect to claims based on fraud, after the Closing, (i) the Escrow
Agreement shall be the exclusive means for the Buyer to collect any Damages for
which it is entitled to indemnification under this Article VI or otherwise under
this Agreement and (ii) the Buyer shall only be entitled to deliver a
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Claim Notice under Section 6.3 or Expected Claim Notice under Section 6.4 on or
prior to the date one year following the Closing Date.
(c) Except with respect to claims based on fraud, after the
Closing, the rights of the Indemnified Parties under this Article VI and the
Escrow Agreement shall be the sole and exclusive remedy of the Indemnified
Parties with respect to claims under this Agreement, including without
limitation, claims resulting from or relating to any misrepresentation, breach
of warranty or failure to perform any covenant or agreement contained in this
Agreement.
(d) No Indemnifying Stockholder shall have any right of
contribution against the Company or the Surviving Corporation with respect to
any breach by the Company of any of its representations, warranties, covenants
or agreements.
(e) In computing the amount of Damages recoverable by an
Indemnified Party hereunder, the following shall apply:
(i) The Indemnifying Party shall be given the benefit
of any insurance proceeds to the extent that such proceeds are actually received
by the Indemnified Party;
(ii) The Indemnifying Party shall not be required to
indemnify the Indemnified Party for consequential or incidental damages suffered
by the Indemnified Party, but shall be obligated to indemnify the Indemnified
Party for consequential or incidental damages for which the Indemnified Party is
liable to a third party;
(iii) The Indemnified Party shall not be entitled to
receive duplicative Damage awards with respect to any indemnity claim; and
(iv) Subject to Section 6.3 hereof, the Indemnified
Party shall cooperate in the investigation of any claim by a third party until
such time as the Indemnified Party or the Indemnifying Party, in accordance with
Section 6.3, assumes control of the defense of such claim. The Indemnifying
Party shall pay the reasonable expenses incurred in providing such cooperation
(including legal fees and disbursements) by the Indemnified Party and by its
officers, directors, employees and agents, and shall reimburse such parties for
their time spent in such cooperation. The Indemnified Party shall fully comply
with any applicable laws imposing on such Indemnified Party an obligation to
mitigate Damages.
ARTICLE VII
REGISTRATION RIGHTS
7.1 Registration of Shares. The Buyer shall use its reasonable efforts
to promptly file (and in any event within 60 days following the Closing, if the
Closing is on or before December 31, 2001, or within 30 days of the Closing, if
the Closing is after December 31, 2001) with the SEC a Registration Statement on
Form S-3, covering the resale to the public by the Company Stockholders of the
Merger Shares (together with any post-effective amendments thereto, the
"Stockholder Registration Statement"). The Buyer shall use its Reasonable Best
efforts to cause the Stockholder Registration Statement to be declared effective
by the SEC as soon as
- 53 -
practicable. The Buyer shall: (i) cause the Stockholder Registration Statement
to remain effective until the date one year after the Closing Date or such
earlier time as all of the Merger Shares covered by the Stockholder Registration
Statement have been sold pursuant thereto; and (ii) use its Reasonable Best
Efforts to ensure that (except for information furnished by the Company
Stockholders in writing for inclusion in the Stockholder Registration Statement)
the Stockholder Registration Statement shall, at the time it (including any
amendments or supplements thereto) is declared effective by the SEC, does not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and that the prospectus contained within the Stockholder
Registration Statement shall not, at any time it is used (other than during any
suspension period as provided below), contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The Stockholder Registration Statement (including the documents incorporated by
reference therein) shall comply in all material respects as to form and
substance with the requirements of the Securities Act, the Securities Exchange
Act of 1934, as amended, and the respective rules and regulations thereunder,
except that no representation is made by the Buyer with respect to statements
made or incorporated by reference therein based on information supplied by the
Company Stockholders for inclusion or incorporation by reference in the
Stockholder Registration Statement.
7.2 Limitations on Registration Rights.
(a) The Buyer may, by written notice to the Company
Stockholders, (i) delay the filing or effectiveness of the Stockholder
Registration Statement or (ii) suspend the Stockholder Registration Statement
after effectiveness and require that the Company Stockholders immediately cease
sales of shares pursuant to the Stockholder Registration Statement, in the event
that (A) the Buyer determines that information required to be included in the
financial statements comprising a portion of the Stockholder Registration
Statement is not yet available, (B) the Buyer files a registration statement
(other than a registration statement on Form S-8 or its successor form) with the
SEC for a public offering of its securities, (C) the Buyer is engaged in any
activity or transaction or preparations or negotiations for any activity or
transaction that the Buyer desires to keep confidential for business reasons, if
the Buyer determines in good faith that the public disclosure requirements
imposed on the Buyer under the Securities Act in connection with the Stockholder
Registration Statement would require disclosure of such activity, transaction,
preparations or negotiations.
(b) If the Buyer delays or suspends the Stockholder
Registration Statement or requires the Company Stockholders to cease sales of
shares pursuant to paragraph (a) above, the Buyer shall, as promptly as
practicable following the termination of the circumstance which entitled the
Buyer to do so, take such actions as may be necessary to file or reinstate the
effectiveness of the Stockholder Registration Statement and/or give written
notice to all Company Stockholders authorizing them to resume sales pursuant to
the Stockholder Registration Statement. If as a result thereof the prospectus
included in the Stockholder Registration Statement has been amended to comply
with the requirements of the Securities Act, the Buyer shall enclose such
revised prospectus with the notice to Company Stockholders given
- 54 -
pursuant to this paragraph (b), and the Company Stockholders shall make no
offers or sales of shares pursuant to the Stockholder Registration Statement
other than by means of such revised prospectus.
7.3 Registration Procedures.
(a) In connection with the filing by the Buyer of the
Stockholder Registration Statement, the Buyer shall furnish to each Company
Stockholder a copy of the prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act.
(b) The Buyer shall use its best efforts to register or
qualify the Merger Shares covered by the Stockholder Registration Statement
under the securities laws of each state of the United States; provided, however,
that the Buyer shall not be required in connection with this paragraph (b) to
qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction.
(c) If the Buyer has delivered preliminary or final
prospectuses to the Company Stockholders and after having done so the prospectus
is amended or supplemented to comply with the requirements of the Securities
Act, the Buyer shall promptly notify the Company Stockholders and, if requested
by the Buyer, the Company Stockholders shall immediately cease making offers or
sales of shares under the Stockholder Registration Statement and return all
prospectuses to the Buyer. The Buyer shall promptly provide the Company
Stockholders with revised or supplemented prospectuses and, following receipt of
the revised or supplemented prospectuses, the Company Stockholders shall be free
to resume making offers and sales under the Stockholder Registration Statement.
(d) The Buyer shall pay the expenses incurred by it in
complying with its obligations under this Article VII, including all
registration and filing fees, exchange listing fees, fees and expenses of
counsel for the Buyer, and fees and expenses of accountants for the Buyer, but
excluding (i) any brokerage fees, selling commissions or underwriting discounts
incurred by the Company Stockholders in connection with sales under the
Stockholder Registration Statement and (ii) the fees and expenses of any counsel
retained by Company Stockholders.
7.4 Requirements of Company Stockholders. The Buyer shall not be
required to include any Merger Shares in the Stockholder Registration Statement
unless:
(a) the Company Stockholder owning such shares furnishes to
the Buyer in writing such information regarding such Company Stockholder and the
proposed sale of Merger Shares by such Company Stockholder as the Buyer may
reasonably request in writing in connection with the Stockholder Registration
Statement or as shall be required in connection therewith by the SEC or any
state securities law authorities;
(b) such Company Stockholder shall have provided to the Buyer
its written agreement:
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(i) to indemnify the Buyer and each of its directors
and officers against, and hold the Buyer and each of its directors and officers
harmless from, any losses, claims, damages, expenses or liabilities (including
reasonable attorneys fees) to which the Buyer or such directors and officers may
become subject by reason of any statement or omission in the Stockholder
Registration Statement made in reliance upon, or in conformity with, a written
statement by such Company Stockholder furnished pursuant to this Section 7.4;
and
(ii) to report to the Buyer sales made pursuant to
the Stockholder Registration Statement.
7.5 Indemnification. The Buyer agrees to indemnify and hold harmless
each Company Stockholder whose shares are included in the Stockholder
Registration Statement against any losses, claims, damages, expenses or
liabilities to which such Company Stockholder may become subject by reason of
any untrue statement of a material fact contained in the Stockholder
Registration Statement or any omission to state therein a fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, expenses or liabilities arise
out of or are based upon information furnished in writing to the Buyer by or on
behalf of a Company Stockholder for use in the Stockholder Registration
Statement. The Buyer shall have the right to assume the defense and settlement
of any claim or suit for which the Buyer may be responsible for indemnification
under this Section 7.5.
7.6 Assignment of Rights. A Company Stockholder may not assign any of
its rights under this Article VII except in connection with the transfer of some
or all of his, her or its Merger Shares to a parent, child or spouse, or trust
for their benefit or, in the case of a partnership, to the partners of such
partnership pursuant to a pro rata distribution or, in the case of a limited
liability company, to the members of such limited liability company pursuant to
a pro rata distribution, provided each such transferee agrees in a written
instrument delivered to the Buyer to be bound by the provisions of this Article
VII.
ARTICLE VIII
TERMINATION
8.1 Termination of Agreement. The Parties may terminate this Agreement
prior to the Effective Time (whether before or after Requisite Stockholder
Approval), as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
(b) the Buyer may terminate this Agreement by giving written
notice to the Company in the event the Company is in breach of any
representation, warranty or covenant contained in this Agreement, and such
breach, individually or in combination with any other such breach, (i) would
cause the conditions set forth in clauses (c) or (e) of Section 5.2 (after the
application of Section 4.6(a)) not to be satisfied and (ii) is not cured within
20 days following delivery by the Buyer to the Company of written notice of such
breach;
- 56 -
(c) the Company may terminate this Agreement by giving written
notice to the Buyer in the event the Buyer or the Merger Subsidiary is in breach
of any representation, warranty or covenant contained in this Agreement, and
such breach, individually or in combination with any other such breach, (i)
would cause the conditions set forth in clauses (c) or (d) of Section 5.3 not to
be satisfied and (ii) is not cured within 20 days following delivery by the
Company to the Buyer of written notice of such breach;
(d) any Party may terminate this Agreement by giving written
notice to the other Parties at any time after the Company Stockholders have
voted on whether to approve this Agreement and the Merger in the event this
Agreement and the Merger failed to receive the Requisite Stockholder Approval;
(e) the Buyer may terminate this Agreement by giving written
notice to the Company if the Closing shall not have occurred on or before April
30, 2002 by reason of the failure of any condition precedent under Section 5.1
or 5.2 hereof (unless the failure results primarily from a breach by the Buyer
or the Merger Subsidiary of any representation, warranty or covenant contained
in this Agreement); or
(f) the Company may terminate this Agreement by giving written
notice to the Buyer and the Merger Subsidiary if the Closing shall not have
occurred on or before April 30, 2002 by reason of the failure of any condition
precedent under Section 5.1 or 5.3 hereof (unless the failure results primarily
from a breach by the Company of any representation, warranty or covenant
contained in this Agreement).
8.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8.1, all obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party for breaches of this Agreement).
ARTICLE IX DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
Adjusted Cash Consideration 1.5(c)(x)
ADR Procedure 6.3(d)
ADR Service 6.3(d)
Affiliate 2.15(a)(vii)
Affiliate Agreement 4.9
Agreed Amount 6.3(c)
Aggregate Section 1.5 Consideration 1.5(c)(xxxiv)
Articles of Merger 1.1
Buyer Introduction
Buyer Certificate 5.3(f)
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Buyer Common Stock 1.5(a)
Buyer Common Stock Price 1.5(c)(xi)
Buyer Material Adverse Effect 3.1
Buyer Reports 3.5
Cash Consideration 1.5(d)
CERCLA 2.23(a)
Certificates 1.7(a)
Certificate of Merger 1.1
Claim Notice 6.3(b)
Claimed Amount 6.3(b)
Closing 1.2
Closing Date 1.2
Code Introduction
Common Cash Consideration 1.5(c)(ix)
Common Cash Proceeds 1.5(c)(i)
Common Repurchase Cost 1.5(c)(iii)
Common Stock Proceeds Amount 1.5(c)(xiii)
Common Stock Share Amount 1.5(c)(xii)
Common Shares 1.5(a)
Company Introduction
Company Certificate 5.2(g)
Company Intellectual Property 2.13(a)
Company Material Adverse Effect 2.1
Company Shares 1.5(b)
Company Stockholder 1.5(d)
Confidential Information 4.5(c)
Controlling Party 6.3(a)
Customer Deliverables 2.13(a)
Damages 6.1
Deemed Repurchase Cost 1.5(c)(v)
Disclosure Schedule Article II
Disclosure Statement 4.3(a)
Dispute 6.3(c)
Dissenting Shares 1.6(a)
Distributable Cash Consideration 1.5(c)(xxix)
Effective Time 1.1
Employee Benefit Plan 2.22(a)(i)
Environmental Law 2.23(a)
ERISA 2.22(a)(ii)
ERISA Affiliate 2.22(a)(iii)
Escrow Agreement 1.3(e)
Escrow Agent 1.3(e)
Escrow Cash 1.5(d)
Escrow Shares 1.5(d)
Expected Claim Notice 6.4
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Exchange Act 2.15(a)(vi)
Exchange Agent 1.3(d)
Financial Statements 2.6
GAAP 2.6
Governmental Entity 2.4
Gross Share Consideration 1.5(c)(vi)
Xxxx-Xxxxx-Xxxxxx Act 2.4
Indemnification Representatives 1.3(e)
Indemnified Party 6.3(a)
Indemnifying Party 6.3(a)
Indemnifying Stockholders 6.1
Initial Cash Consideration 1.5(d)
Initial Shares 1.5(d)
Intellectual Property 2.13(a)
Internal Systems 2.13(a)
Isogen 2.8(b)
Isogen Deadline 4.13
Isogen Expenses 4.13
Loan Agreement 1.14
Legal Proceeding 2.19
Materials of Environmental Concern 2.23(b)
Merger 1.1
Merger Shares 1.5(d)
Merger Subsidiary Introduction
Most Recent Balance Sheet 2.8(a)
Most Recent Balance Sheet Date 2.6
Net Loan Balance 1.14
Non-controlling Party 6.3(a)
Option Plans 1.9(a)
Options 1.9(a)
Ordinary Course of Business 2.4
Participation Cash Payment 1.5(c)(xxviii)
Participation Stock Payment 1.5(c)(xxx)
Parties Introduction
Permits 2.26
Permitted Legal Fees 4.8
Preferred Cash Consideration 1.5(c)(xxi)
Preferred Stock Liquidation Amount 1.5(c)(xxxiii)
Preferred Shares 1.5(b)
Preferred Stock Proceeds Amount 1.5(c)(xxvi)
Prospectus/Proxy Statement 4.3(b)(i)
Reasonable Best Efforts 4.1
Repurchase Adjustment Factor 1.5(c)(xv)
Repurchase Cost 1.5(c)(vii)
Repurchase Disclosure Document 4.11(b)
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Repurchase Fraction 1.5(c)(viii)
Repurchase Spread 1.5(c)(iv)
Response 6.3(c)
Requisite Stockholder Approval 2.3
SEC 3.5
Securities Act 2.2
Security Interest 2.4
Series A Preferred Cash Proceeds 1.5(c)(xvi)
Series A Preferred Stock Share Amount 1.5(c)(xxii)
Series B Preferred Cash Proceeds 1.5(c)(xvii)
Series B Preferred Stock Share Amount 1.5(c)(xxiii)
Series C Preferred Cash Proceeds 1.5(c)(xviii)
Series C Preferred Stock Share Amount 1.5(c)(xxiv)
Series D Preferred Cash Proceeds 1.5(c)(xix)
Series D Preferred Stock Share Amount 1.5(c)(xxv)
Software 2.13(e)
Special Employee Retention Awards 1.15
Special Escrow Agent 1.3(e)
Special Escrow Agreement 1.10(c)
Special Escrow Fund 1.10(c)
Stockholder Section 1.5 Consideration 1.5(c)(xxxi)
Stockholder Special Escrow Fraction 1.5(c)(xxxii)
Stockholder Registration Statement 7.1
Subsidiary 2.5(a)
Surviving Corporation 1.1
Taxes 2.9(a)(i)
Tax Returns 2.9(a)(ii)
Third Party Expenses 4.8
Total Common Cash Consideration 1.5(c)(ii)
Total Common Stock Proceeds Amount 1.5(c)(xiv)
Total Preferred Cash Consideration 1.5(c)(xx)
Total Preferred Stock Proceeds Amount 1.5(c)(xxvii)
Total Value Common Consideration 1.5(c)(xxxi)
Total Value Preferred Consideration 1.5(c)(xxxii)
Value 6.3(c)
Warrants 1.9(b)
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Announcements. No Party shall issue any press
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however, that
any Party may make any public disclosure it believes in good faith is required
by applicable law, regulation or stock market rule (in which
- 60 -
case the disclosing Party shall use reasonable efforts to advise the other
Parties and provide them with a copy of the proposed disclosure prior to making
the disclosure).
10.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that (a) the provisions in
Article I concerning issuance of the Merger Shares and Article VI concerning
indemnification are intended for the benefit of the Company Stockholders and (b)
the provisions in Section 6.1 concerning indemnification are intended for the
benefit of the individuals specified therein and their successors and assigns.
10.3 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof; provided that the
Confidentiality Agreement dated June 5, 2001 between the Buyer and the Company
shall remain in effect in accordance with its terms.
10.4 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests or obligations hereunder without the prior written
approval of the other Parties; provided that the Merger Subsidiary may assign
its rights, interests and obligations hereunder to an Affiliate of the Buyer.
10.5 Counterparts and Facsimile Signature. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same instrument. This
Agreement may be executed by facsimile signature.
10.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered four business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next business day
delivery via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
If to the Company: Copy to:
------------------ --------
DataChannel, Inc. Xxxx Xxxxxx Xxxxxx Lubersky LLP
0000 - 000xx Xxxxxx XX, Xxxxx 000 0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000 Xxxxxxx, XX 00000
Attn: Xxxxx Xxxxxxxxx and Xxx Xxxxx Attn: Xxxxxxx X. Xxxxxx
Fax: (000) 000-0000 Fax: (000) 000-0000
- 61 -
If to the Buyer or the Merger Subsidiary: Copy to:
Netegrity, Inc. Xxxx and Xxxx LLP
00 Xxxxxx Xxxxxx 00 Xxxxx Xxxxxx
Xxxxxxx, XX 00000 Xxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxx Attn: Xxxx X. Xxxxxxx
Fax: (000) 000-0000 Fax: (000) 000-0000
Any Party may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any Party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
10.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of laws
of any jurisdictions other than those of the State of Delaware.
10.9 Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time; provided,
however, that any amendment effected subsequent to the Requisite Stockholder
Approval shall be subject to any restrictions contained in the Delaware General
Corporation Law or Washington Business Corporation Act. No amendment of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by all of the Parties. No waiver of any right or remedy hereunder
shall be valid unless the same shall be in writing and signed by the Party
giving such waiver. No waiver by any Party with respect to any default,
misrepresentation or breach of warranty or covenant hereunder shall be deemed to
extend to any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
10.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
- 62 -
10.11 Submission to Jurisdiction. Each of the Parties (a) submits to
the jurisdiction of any state or federal court sitting in Delaware in any action
or proceeding arising out of or relating to this Agreement, (b) agrees that all
claims in respect of such action or proceeding may be heard and determined in
any such court, and (c) agrees not to bring any action or proceeding arising out
of or relating to this Agreement in any other court. Each of the Parties waives
any defense of inconvenient forum to the maintenance of any action or proceeding
so brought and waives any bond, surety or other security that might be required
of any other Party with respect thereto. Any Party may make service on another
Party by sending or delivering a copy of the process to the Party to be served
at the address and in the manner provided for the giving of notices in Section
10.7. Nothing in this Section 10.11, however, shall affect the right of any
Party to serve legal process in any other manner permitted by law.
10.12 Construction.
(a) The language used in this Agreement shall be deemed to be
the language chosen by the Parties to express their mutual intent, and no rule
of strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise.
10.13 Specific Performance. The Parties recognize and agree that if for
any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, the Parties agree that, in addition to any
other remedies, the nondefaulting party shall be entitled to commence a
proceeding to obtain specific performance of the defaulting party's obligations
under this Agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written. NETEGRITY, INC.
By: /s/ Xxxxx X. Xxxxxx
------------------------
Name: Xxxxx X. Xxxxxx
Title: President and
Chief Executive Officer
LKN ACQUISITION CORP.
By: /s/ Xxxxx X. Xxxxxx
------------------------
Name: Xxxxx X. Xxxxxx
Title: President
DATACHANNEL, INC.
By: /s/ Xxxxx Xxxxxxxxx
------------------------
Name: Xxxxx Xxxxxxxxx
Title: President and
Chief Executive Officer
The following stockholders of the Company hereby execute this Agreement
for the limited purpose of agreeing to and becoming bound by the provisions of
Section 4.3(f).
XXX XXXXXXX FUNDS
By: /s/ Xxxxxx Xxx Xxxxxxx
------------------------
Its: Managing Director
XXX XXXXXXX CAPITAL PARTNERS
By: /s/ Xxxxxx Xxx Xxxxxxx
------------------------
Its: Managing Director
XXX XXXXXXX CROSSOVER FUND, L.P.
By: /s/ Xxxxxx Xxx Xxxxxxx
------------------------
Its: Managing Director
BROOKSIDE CAPITAL PARTNERS FUND, L.P.
By: /s/ Xx Xxxxxxxx
------------------------
Its: Managing Director
The following stockholders of the Company hereby execute this Agreement
for the limited purpose of agreeing to and becoming bound by the provisions of
Section 4.3(f).
/s/ Xxxx Xxxxxx
------------------------
Xxxx Xxxxxx
/s/ Xxxxx Xxxxxxxxx
------------------------
Xxxxx Xxxxxxxxx
/s/ Xxxxxx X. Xxxxxxxxx
------------------------
Xxxxxx X. Xxxxxxxxx
/s/ Xxxxxx X. Pool
------------------------
Xxxxxx X. Pool
/s/ Xxxxx X. Pool
------------------------
Xxxxx X. Pool
POOL ENTERPRISES, LLC
By: /s/ illegible
------------------------
Its: Manager
The following stockholders of the Company hereby execute this Agreement
for the limited purpose of agreeing to and becoming bound by the provisions of
Section 4.3(f).
U.S. VENTURE PARTNERS V, L.P.
USVP V INTERNATIONAL, L.P.
2180 ASSOCIATES FUND V, L.P.
USVP V ENTREPRENEUR
PARTNERS, L.P.
By Presidio Management Group, V, L.L.C.
----------------------------------------------------
Its General Partner
By: /s/ Xxxxxxx X. Xxxxx
---------------------------------------------------
Its: Attorney-In-Fact
--------------------------------------------------
DB CAPITAL INVESTMENTS, L.P.
By: DB Capital Partners, L.P., its General Partner
By: DB Capital Partners, Inc., its General Partner
By: /s/ Xxxxxxx Xxxxx
---------------------------------------------------
Its: Managing Director
--------------------------------------------------
XML FUND LLC
By: /s/ illegible
---------------------------------------------------
Its: Manager
--------------------------------------------------
LAZARUS FAMILY INVESTMENTS, LLC
By: /s/ Xxxxxxxx Xxxxxxx
---------------------------------------------------
Its: Manager
--------------------------------------------------
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment")
dated as of December 3, 2001, by and among NETEGRITY, INC., a Delaware
corporation (the "Buyer"), LKN ACQUISITION CORP., a Delaware corporation and a
wholly-owned subsidiary of the Buyer (the "Merger Subsidiary"), and DATACHANNEL,
INC., a Washington corporation (the "Company").
WHEREAS, the parties entered into an Agreement and Plan of Merger dated
as of October 24, 2001 (the "Merger Agreement"); and
WHEREAS, the parties desire to amend the Merger Agreement pursuant to
the terms of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties agree
as follows:
1. Except as otherwise specifically defined in this Amendment,
capitalized terms used in this Amendment without definition shall have the
meaning ascribed thereto in the Merger Agreement.
2. Section 1.5 of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"1.5 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of any Party or the holder of any of
the following securities:
(a) Each share of common stock, $.01 par value per share,
of the Company ("Common Shares") issued and outstanding immediately prior to the
Effective Time (other than Dissenting Shares (as defined below)) shall be
converted into and represent the right to receive (subject to Section 1.10):
(i) (A) an amount in cash equal to the Common
Cash Proceeds (as defined below), without any interest thereon and (B) such
number of shares of common stock, par value $.01 per share, of the Buyer (the
"Buyer Common Stock") as is equal to the Common Stock Share Amount (as defined
below); provided that if the Total Value Common Consideration (as defined below)
exceeds $0.1965, then (1) the number of shares of Buyer Common Stock allocated
under clause (B) above shall be reduced to that number of shares of Buyer Common
Stock such that the Total Value Common Consideration equals $0.1965 (the number
of shares of Buyer Common Stock, if any, by which the number of shares of Buyer
Common Stock allocated under clause (B) above shall be reduced by application of
this clause (1) is referred to herein as the "Common Share Reduction"), and (2)
if the Total Value Common Consideration continues to exceed $0.1965 after
application of such clause (1), the amount in cash allocated under clause (A)
above shall be reduced such that the Total Value Common Consideration equals
$0.1965 (the amount in cash, if any, by which the amount in cash allocated
under clause (A) above shall be reduced by application of this clause (2) is
referred to herein as the "Common Cash Reduction"); and
(ii) the Participation Cash Payment (as defined
below), if any, and the Participation Stock Payment (as defined below), if any.
(b) Each share of preferred stock, $.01 par value per
share, of the Company ("Preferred Shares"; and, together with the Common Shares,
the "Company Shares") issued and outstanding immediately prior to the Effective
Time (other than Preferred Shares owned beneficially by the Buyer or the Merger
Subsidiary and Dissenting Shares) shall be converted into and represent the
right to receive (subject to Section 1.10):
(i) for each share of Series A Convertible
Preferred Stock (A) an amount in cash equal to the Series A Cash Proceeds (as
defined below), without any interest thereon and (B) such number of shares of
Buyer Common Stock as is equal to the Series A Preferred Stock Share Amount (as
defined below); provided that if the Total Value Preferred Consideration (as
defined below) for such Preferred Share exceeds the applicable Preferred Stock
Liquidation Amount (as defined below), then (1) the number of shares of Buyer
Common Stock allocated under clause (B) above shall be reduced to that number of
shares of Buyer Common Stock such that such Total Value Preferred Consideration
equals the applicable Preferred Stock Liquidation Amount, and (2) if such Total
Value Preferred Consideration continues to exceed the applicable Preferred Stock
Liquidation Amount after application of such clause (1), the amount in cash
allocated under clause (A) above shall be reduced such that such Total Value
Preferred Consideration equals the applicable Preferred Stock Liquidation
Amount;
(ii) for each share of Series B Convertible
Preferred Stock (A) an amount in cash equal to the Series B Cash Proceeds (as
defined below), without any interest thereon and (B) such number of shares of
Buyer Common Stock as is equal to the Series B Preferred Stock Share Amount (as
defined below); provided that if the Total Value Preferred Consideration for
such Preferred Share exceeds the applicable Preferred Stock Liquidation Amount,
then (1) the number of shares of Buyer Common Stock allocated under clause (B)
above shall be reduced to that number of shares of Buyer Common Stock such that
such Total Value Preferred Consideration equals the applicable Preferred Stock
Liquidation Amount, and (2) if such Total Value Preferred Consideration
continues to exceed the applicable Preferred Stock Liquidation Amount after
application of such clause (1), the amount in cash allocated under clause (A)
above shall be reduced such that such Total Value Preferred Consideration equals
the applicable Preferred Stock Liquidation Amount;
(iii) for each share of Series C Convertible
Preferred Stock (A) an amount in cash equal to the Series C Cash Proceeds (as
defined below), without any interest thereon and (B) such number of shares of
Buyer Common Stock as is equal to the Series C Preferred Stock Share Amount (as
defined below); provided that if the Total Value Preferred Consideration for
such Preferred Share exceeds the applicable Preferred Stock Liquidation Amount,
then (1) the number of shares of Buyer Common Stock allocated under clause (B)
above shall be reduced to that number of shares of Buyer Common Stock such that
such Total Value Preferred Consideration equals the applicable Preferred Stock
Liquidation Amount, and (2) if such Total Value Preferred Consideration
continues to exceed the applicable Preferred
-2-
Stock Liquidation Amount after application of such clause (1), the amount in
cash allocated under clause (A) above shall be reduced such that such Total
Value Preferred Consideration equals the applicable Preferred Stock Liquidation
Amount;
(iv) for each share of Series D Convertible
Preferred Stock (A) an amount in cash equal to the Series D Cash Proceeds (as
defined below), without any interest thereon and (B) such number of shares of
Buyer Common Stock as is equal to the Series D Preferred Stock Share Amount (as
defined below); provided that if the Total Value Preferred Consideration for
such Preferred Share exceeds the applicable Preferred Stock Liquidation Amount,
then (1) the number of shares of Buyer Common Stock allocated under clause (B)
above shall be reduced to that number of shares of Buyer Common Stock such that
such Total Value Preferred Consideration equals the applicable Preferred Stock
Liquidation Amount, and (2) if such Total Value Preferred Consideration
continues to exceed the applicable Preferred Stock Liquidation Amount after
application of such clause (1), the amount in cash allocated under clause (A)
above shall be reduced such that such Total Value Preferred Consideration equals
the applicable Preferred Stock Liquidation Amount; and
(v) the Participation Cash Payment (as defined
below), if any, and the Participation Stock Payment (as defined below), if any.
(c) For purposes of this Agreement, the following terms
shall have the meanings ascribed to them below:
(i) "Common Cash Proceeds" shall be the result
obtained by dividing (A) Total Common Cash Consideration by (B) the number of
outstanding Common Shares immediately prior to the Effective Time.
(ii) "Total Common Cash Consideration" shall be
the result obtained by subtracting (A) the product of (1) the Common Repurchase
Cost and (2) the Repurchase Fraction, from (B) the Common Cash Consideration.
(iii) "Common Repurchase Cost" shall be the sum of
(A) the Deemed Repurchase Cost and (B) the product of (1) the Repurchase Spread
and (2) 0.05.
(iv) "Repurchase Spread" shall be the result
obtained by subtracting (A) the Deemed Repurchase Cost from (B) the product of
(1) the number of shares of capital stock of the Company repurchased from
stockholders after the date hereof and (2) the average purchase price per share
paid or to be paid by the Company for shares of capital stock of the Company
repurchased from stockholders after the date hereof.
(v) "Deemed Repurchase Cost" shall be the
product of (A) the number of shares of capital stock of the Company repurchased
from stockholders after the date hereof and (B) the lesser of (1) the Gross
Share Consideration and (2) the average purchase price per share paid or to be
paid by the Company for shares of capital stock of the Company repurchased from
stockholders after the date hereof.
(vi) "Gross Share Consideration" shall be the
result obtained by dividing (A) the sum of (1) the Common Cash Consideration and
(2) the product of (x) 125,000
-3-
and (y) the Buyer Common Stock Price by (B) the number of outstanding Common
Shares immediately prior to the Effective Time.
(vii) "Repurchase Cost" shall be the aggregate
purchase price paid or to be paid by the Company for the shares of capital stock
of the Company repurchased from stockholders as described in Section 4.11(a) of
this Agreement.
(viii) "Repurchase Fraction" shall be the result
obtained by dividing (A) the Adjusted Cash Consideration by (B) the sum of (1)
the Adjusted Cash Consideration plus (2) the product of (x) 2,500,000 and (y)
the Buyer Common Stock Price.
(ix) "Common Cash Consideration" shall be the
result obtained by multiplying (A) the Adjusted Cash Consideration by (B) 0.05.
(x) "Adjusted Cash Consideration" shall be the
result obtained by subtracting (A) the sum of (1) the amount of the Third Party
Expenses (as defined in Section 4.8 below) (other than the Permitted Legal Fees
(as defined in Section 4.8 below)), (2) the amount of the Special Employee
Retention Awards (as defined in Section 1.15 below), (3) the amount of the
Isogen Expenses (as defined in Section 4.13 below), if any, and (4) the amount
of the Net Loan Balance (as defined in Section 1.14 below), from (B)
$15,000,000.
(xi) "Buyer Common Stock Price" shall equal the
average of the closing prices of the Buyer Common Stock on The Nasdaq National
Market over the thirty-day period ending three days prior to the Closing Date.
(xii) "Common Stock Share Amount" shall be the
result obtained by dividing (A) the Common Stock Proceeds Amount by (B) the
number of outstanding Common Shares immediately prior to the Effective Time.
(xiii) "Common Stock Proceeds Amount" shall be the
result obtained by dividing (A) the Total Common Stock Proceeds Amount by (B)
the Buyer Common Stock Price.
(xiv) "Total Common Stock Proceeds Amount" shall
be the result obtained by subtracting (A) the product of (1) the Common
Repurchase Cost and (2) the Repurchase Adjustment Factor, from (B) the product
of (1) 125,000 and (2) the Buyer Common Stock Price.
(xv) "Repurchase Adjustment Factor" shall be the
result obtained by subtracting (A) the Repurchase Fraction from (B) one.
(xvi) "Series A Preferred Cash Proceeds" shall be
the result obtained by dividing (A) the product of (1) the Total Preferred Cash
Consideration and (2) Series A Preferred Percentage by (B) the number of
outstanding shares of Series A Convertible Preferred Stock of the Company
immediately prior to the Effective Time.
(xvii) "Series B Preferred Cash Proceeds" shall be
the result obtained by dividing (A) the product of (1) the Total Preferred Cash
Consideration and (2) Series B Preferred
-4-
Percentage by (B) the number of outstanding shares of Series B Convertible
Preferred Stock of the Company immediately prior to the Effective Time.
(xviii) "Series C Preferred Cash Proceeds" shall be
the result obtained by dividing (A) the product of (1) the Total Preferred Cash
Consideration and (2) Series C Preferred Percentage by (B) the number of
outstanding shares of Series C Convertible Preferred Stock of the Company
immediately prior to the Effective Time. (xix) "Series D Preferred Cash
Proceeds" shall be the result obtained by dividing (A) the product of (1) the
Total Preferred Cash Consideration and (2) Series D Preferred Percentage by (B)
the number of outstanding shares of Series D Convertible Preferred Stock of the
Company immediately prior to the Effective Time.
(xix) "Series D Preferred Cash Proceeds" shall be
the result obtained by dividing (A) the product of (1) the Total Preferred Cash
Consideration and (2) Series D Preferred Percentage by (B) the number of
outstanding shares of Series D Convertible Preferred Stock of the Company
immediately prior to the Effective Time.
(xx) "Total Preferred Cash Consideration" shall
be the result obtained by subtracting (A) the product of (1) the Repurchase
Spread and (2) 0.95, from (B) the result obtained by subtracting (1) the product
of (x) the Common Repurchase Cost and (y) the Repurchase Adjustment Factor, from
(2) the Preferred Cash Consideration.
(xxi) "Preferred Cash Consideration" shall equal
the result obtained by adding (A) the product of (1) the Adjusted Cash
Consideration and (2) 0.95 and (B) the Common Cash Reduction Amount.
(xxii) "Common Cash Reduction Amount" shall be the
result obtained by multiplying (A) the Common Cash Reduction by (B) the number
of outstanding Common Shares immediately prior to the Effective Time.
(xxiii) "Series A Preferred Percentage" shall be the
result obtained by dividing (A) the product of (1) 0.70 and (2) the number of
outstanding shares of Series A Convertible Preferred Stock of the Company
immediately prior to the Effective Time, by (B) the Aggregate Preferred
Liquidation Preference.
(xxiv) "Series B Preferred Percentage" shall be the
result obtained by dividing (A) the product of (0) 0.000000 and (2) the number
of outstanding shares of Series B Convertible Preferred Stock of the Company
immediately prior to the Effective Time, by (B) the Aggregate Preferred
Liquidation Preference.
(xxv) "Series C Preferred Percentage" shall be the
result obtained by dividing (A) the product of (1) 3.3449 and (2) the number of
outstanding shares of Series C Convertible Preferred Stock of the Company
immediately prior to the Effective Time, by (B) the Aggregate Preferred
Liquidation Preference.
(xxvi) "Series D Preferred Percentage" shall be the
result obtained by dividing (A) the product of (1) 5.5937 and (2) the number of
outstanding shares of Series D Convertible Preferred Stock of the Company
immediately prior to the Effective Time, by (B) the Aggregate Preferred
Liquidation Preference.
(xxvii) "Aggregate Preferred Liquidation Preference"
shall equal the sum of (A) the product of (1) 0.70 and (2) the number of
outstanding shares of Series A Convertible
-5-
Preferred Stock of the Company immediately prior to the Effective Time, (B) the
product of (0) 0.000000 and (2) the number of outstanding shares of Series B
Convertible Preferred Stock of the Company immediately prior to the Effective
Time, (C) the product of (1) 3.3449 and (2) the number of outstanding shares of
Series C Convertible Preferred Stock of the Company immediately prior to the
Effective Time, and (D) the product of (1) 5.5937 and (2) the number of
outstanding shares of Series D Convertible Preferred Stock of the Company
immediately prior to the Effective Time.
(xxviii) "Series A Preferred Stock Share Amount"
shall be the result obtained by dividing (A) the product of (1) the Preferred
Stock Proceeds Amount and (2) Series A Preferred Percentage by (B) the number of
outstanding shares of Series A Convertible Preferred Stock of the Company
immediately prior to the Effective Time.
(xxix) "Series B Preferred Stock Share Amount"
shall be the result obtained by dividing (A) the product of (1) the Preferred
Stock Proceeds Amount and (2) Series B Preferred Percentage by (B) the number of
outstanding shares of Series B Convertible Preferred Stock of the Company
immediately prior to the Effective Time.
(xxx) "Series C Preferred Stock Share Amount"
shall be the result obtained by dividing (A) the product of (1) the Preferred
Stock Proceeds Amount and (2) Series C Preferred Percentage by (B) the number of
outstanding shares of Series C Convertible Preferred Stock of the Company
immediately prior to the Effective Time.
(xxxi) "Series D Preferred Stock Share Amount"
shall be the result obtained by dividing (A) the product of (1) the Preferred
Stock Proceeds Amount and (2) Series D Preferred Percentage by (B) the number of
outstanding shares of Series D Convertible Preferred Stock of the Company
immediately prior to the Effective Time.
(xxxii) "Preferred Stock Proceeds Amount" shall be
the result obtained by dividing (A) the Total Preferred Stock Proceeds Amount by
(B) the Buyer Common Stock Price.
(xxxiii) "Total Preferred Stock Proceeds Amount"
shall be the sum of (A) the product of (1) the sum of (x) 2,375,000 and (y) the
Common Share Reduction Amount and (2) the Buyer Common Stock Price plus (B) the
product of (1) the Common Repurchase Cost and (2) the Repurchase Adjustment
Factor.
(xxxiv) "Common Share Reduction Amount" shall be the
result obtained by multiplying (A) the Common Share Reduction by (B) the number
of outstanding Common Shares immediately prior to the Effective Time.
(xxxv) "Participation Cash Payment" shall be the
result obtained by dividing (A) the amount in cash by which the Distributable
Cash Consideration exceeds the aggregate amount to be paid to the Company
Stockholders after the application of the provisions of Section 1.5(a)(i),
Section 1.5(b)(i), Section 1.5(b)(ii), Section 1.5(b)(iii) and Section
1.5(b)(iv), by (B) the number of outstanding Common Shares immediately prior to
the Effective Time (after giving effect to the conversion into Common Shares of
all outstanding Preferred Shares).
-6-
(xxxvi) "Distributable Cash Consideration" shall be
the result obtained by subtracting (A) the Repurchase Cost from (B) the Adjusted
Cash Consideration.
(xxxvii) "Participation Stock Payment" shall be the
result obtained by dividing (A) the number of shares of Buyer Common Stock by
which the 2,500,000 exceeds the aggregate number of shares to be delivered to
the Company Stockholders after the application of the provisions of Section
1.5(a)(i), Section 1.5(b)(i), Section 1.5(b)(ii), Section 1.5(b)(iii) and
Section 1.5(b)(iv), by (B) the number of outstanding Common Shares immediately
prior to the Effective Time (after giving effect to the conversion into Common
Shares of all outstanding Preferred Shares).
(xxxviii) "Total Value Common Consideration" shall be
the sum of (A) the Common Cash Proceeds and (B) the product of (1) the Common
Stock Share Amount and (2) the Buyer Common Stock Price.
(xxxix) "Total Value Preferred Consideration" with
respect to each Preferred Share shall be the sum of (A) the Series A Preferred
Cash Proceeds, Series B Preferred Cash Proceeds, Series C Preferred Cash
Proceeds or Series D Preferred Cash Proceeds, as the case may be, and (B) the
product of (1) the Series A Preferred Stock Share Amount, Series B Preferred
Stock Share Amount, Series C Preferred Stock Share Amount and Series D Preferred
Stock Share Amount, as the case may be, and (2) the Buyer Common Stock Price.
(xl) "Preferred Stock Liquidation Amount" with
respect to each share of Series A Convertible Preferred Stock of the Company
shall be $0.70, with respect to each share of Series B Convertible Preferred
Stock of the Company shall be $1.070281, with respect to each share of Series C
Convertible Preferred Stock of the Company shall be $3.3449, and with respect to
each share of Series D Convertible Preferred Stock of the Company shall be
$5.5937.
(xli) "Aggregate Section 1.5 Consideration" shall
be the sum of (A) the product of (1) the Total Value Common Consideration and
(2) the total number of outstanding Common Shares immediately prior to the
Effective Time, plus (B) the product of (1) the Total Value Preferred
Consideration with respect to a share of Series A Convertible Preferred Stock of
the Company and (2) the total number of outstanding shares of Series A
Convertible Preferred Stock immediately prior to the Effective Time, plus (C)
the product of (1) the Total Value Preferred Consideration with respect to a
share of Series B Convertible Preferred Stock of the Company and (2) the total
number of outstanding shares of Series B Convertible Preferred Stock immediately
prior to the Effective Time, plus (D) the product of (1) the Total Value
Preferred Consideration with respect to a share of Series C Convertible
Preferred Stock of the Company and (2) the total number of outstanding shares of
Series C Convertible Preferred Stock immediately prior to the Effective Time,
plus (E) the product of (1) the Total Value Preferred Consideration with respect
to a share of Series D Convertible Preferred Stock of the Company and (2) the
total number of outstanding shares of Series D Convertible Preferred Stock
immediately prior to the Effective Time.
(xlii) "Stockholder Section 1.5 Consideration",
with respect to a Company Stockholder shall be the sum of (A) the product of (1)
the Total Value Common Consideration and (2) the total number of outstanding
Common Shares held by such Company
-7-
Stockholder immediately prior to the Effective Time, plus (B) the product of (1)
the Total Value Preferred Consideration with respect to a share of Series A
Convertible Preferred Stock of the Company and (2) the total number of
outstanding shares of Series A Convertible Preferred Stock held by such Company
Stockholder immediately prior to the Effective Time, plus (C) the product of (1)
the Total Value Preferred Consideration with respect to a share of Series B
Convertible Preferred Stock of the Company and (2) the total number of
outstanding shares of Series B Convertible Preferred Stock held by such Company
Stockholder immediately prior to the Effective Time, plus (D) the product of (1)
the Total Value Preferred Consideration with respect to a share of Series C
Convertible Preferred Stock of the Company and (2) the total number of
outstanding shares of Series C Convertible Preferred Stock held by such Company
Stockholder immediately prior to the Effective Time, plus (E) the product of (1)
the Total Value Preferred Consideration with respect to a share of Series D
Convertible Preferred Stock of the Company and (2) the total number of
outstanding shares of Series D Convertible Preferred Stock held by such Company
Stockholder immediately prior to the Effective Time.
(xliii) "Stockholder Special Escrow Fraction", with
respect to a Company Stockholder, shall be the result obtained by dividing (A)
his, her or its Stockholder Section 1.5 Consideration by (B) the Aggregate
Section 1.5 Consideration.
(d) Each stockholder of record of the Company immediately
prior to the Effective Time (collectively, the "Company Stockholders") shall be
entitled to receive immediately all of the cash into which his, her or its
Company Shares were converted pursuant to this Section 1.5 other than an amount
in cash equal to the result obtained by multiplying (i) $400,000 by (ii) his,
her or its Stockholder Special Escrow Fraction (the "Initial Cash
Consideration"); the remaining cash into which their Company Shares were
converted pursuant to this Section 1.5 (the "Escrow Cash") shall be deposited in
escrow pursuant to Section 1.10(c). The Initial Cash Consideration and the
Escrow Cash shall together be referred to herein as the "Cash Consideration."
Company Stockholders shall be entitled to receive immediately 90% (86%, if the
Company has not sold or otherwise transferred the capital stock of Isogen as
contemplated by Section 4.13 prior to the Isogen Deadline) of the shares of
Buyer Common Stock into which their Company Shares were converted pursuant to
this Section 1.5 (the "Initial Shares"); the remaining 10% (14%, if the Company
has not sold or otherwise transferred the capital stock of Isogen as
contemplated by Section 4.13 prior to the Isogen Deadline) of the shares of
Buyer Common Stock into which their Company Shares were converted pursuant to
this Section 1.5, rounded to the nearest whole number (the "Escrow Shares"),
shall be deposited in escrow pursuant to Section 1.10(a) and shall be held and
disposed of in accordance with the terms of the Escrow Agreement. The Initial
Shares and the Escrow Shares shall together be referred to herein as the "Merger
Shares." The fractional share interests of each Company Stockholder will be
aggregated and no Company Stockholder will receive cash in an amount equal to or
greater than the value of one full share of Buyer Common Stock.
(e) Each Company Share owned beneficially by the Buyer or
the Merger Subsidiary shall be cancelled and retired without payment of any
consideration therefor.
(f) Each share of common stock, $.01 par value per share,
of the Merger Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted
-8-
into and thereafter evidence one share of 0common stock, $.01 par value per
share, of the Surviving Corporation.
(g) A Schedule 1.5(g) shall be appended to this Agreement
on the Closing Date setting forth with respect to each Company Stockholder the
Initial Shares, the Escrow Shares, the Initial Cash Consideration and the Escrow
Cash allocable to such Company Stockholder as provided in Section 1.5.
(h) Notwithstanding anything to the contrary contained
herein, the aggregate consideration to be paid by the Buyer under this Agreement
shall not exceed the Distributable Cash Consideration and 2,500,000 shares of
Buyer Common Stock."
3. Section 1.11 of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"1.11 Certificate of Incorporation and By-laws.
(a) The Articles of Incorporation of the Surviving
Corporation immediately following the Effective Time shall be in the form
attached hereto as Exhibit F.
(b) The Bylaws of the Surviving Corporation immediately
following the Effective Time shall be in the form attached hereto as Exhibit G."
4. The form of Articles of Incorporation attached hereto as
Exhibit F shall be attached to the Merger Agreement as Exhibit F thereto. The
form of Bylaws attached hereto as Exhibit G shall be attached to the Merger
Agreement as Exhibit G thereto.
5. Section 2.31 of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"2.31 Projections. The projections dated October 23, 2001 provided by
the Company to the Buyer were, as of the date thereof, prepared by the Company
in good faith using reasonable information available to management of the
Company and, based on the assumptions therein, represent Company management's
good faith estimates, as of the date thereof, of the future performance of the
Company for the periods referred to therein."
6. Section 6.5(a) of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"(a) Notwithstanding anything to the contrary herein, (i) the
aggregate liability of the Indemnifying Stockholders, on the one hand, and the
Buyer, on the other hand, for Damages under this Article VI or, except with
respect to claims based on fraud, otherwise under this Agreement, shall not
exceed the aggregate Value of the Escrow Shares; provided that if the Company
has not sold or otherwise transferred the capital stock of Isogen as
contemplated by Section 4.13 prior to the Isogen Deadline and, in accordance
with Section 1.5(d), the number of Escrow Shares is increased by 100,000, (A)
the aggregate liability of the Indemnifying Stockholders, on the one hand, and
the Buyer, on the other hand, for Damages under this Article VI or, except with
respect to claims based on fraud, otherwise under this Agreement,
-9-
shall not exceed the aggregate Value of such number of Escrow Shares as is equal
to the result obtained by subtracting (1) 100,000 from (2) the total number of
Escrow Shares and (B) the aggregate liability of the Indemnifying Stockholders
for Damages under this Article VI with respect to a claim under Section 6.1(e)
shall not exceed the aggregate Value of the Escrow Shares, (ii) the Indemnifying
Stockholders and the Buyer shall be liable under this Article VI with respect to
claims under Section 6.1(a) or Section 6.2 for only that portion of the
aggregate Damages for which they or it would otherwise be liable which exceeds
$350,000, and (iii) each Indemnifying Stockholder shall only be liable for his,
her or its pro rata share (based on the number of Merger Shares received by such
Indemnifying Stockholder as a percentage of the total number of Merger Shares
issued); provided that the limitation set forth in clause (ii) above shall not
apply to (A) a claim pursuant to Section 6.1(a) relating to a breach of the
representations and warranties set forth in Sections 2.1, 2.2, 2.3, 2.8(b),
2.10(b) or 2.13 (or the portion of the Company Certificate relating thereto) or
to a breach of the covenants set forth in Sections 4.8, 4.11 or 4.13, or (B) a
claim pursuant to Section 6.2 relating to a breach of the representations and
warranties set forth in Sections 3.1, 3.2 or 3.3 (or the portion of the Buyer
Certificate relating thereto). For purposes solely of this Article VI, all
representations and warranties of the Company in Article II (other than Section
2.31) and all representations and warranties of the Buyer and the Merger
Subsidiary in Article III shall be construed as if the term "material" and any
reference to "Company Material Adverse Effect" and "Buyer Material Adverse
Effect" (and variations thereof) were omitted from such representations and
warranties."
7. Except as specifically stated above, the Merger Agreement
remains in full force and effect and is not modified or amended hereby. To the
extent that the Merger Agreement or any of the documents and agreements attached
as exhibits to the Merger Agreement, referred to therein or contemplated thereby
refer to the Merger Agreement, such reference shall mean the Merger Agreement as
amended hereby.
[The Next Page is the Signature Page]
-10-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
NETEGRITY , INC.
By /s/ Xxxxx X. Xxxxxx
---------------------------------------------
Name: Xxxxx X. Xxxxxx
Title: President and Chief Executive Officer
LKN ACQUISITION CORP.
By /s/ Xxxxx X. Xxxxxx
---------------------------------------------
Name: Xxxxx X. Xxxxxx
Title: President
DATACHANNEL, INC.
By /s/ Xxxxx Xxxxxxxxx
---------------------------------------------
Name: Xxxxx Xxxxxxxxx
Title: President and Chief Executive Officer
-11-
SECOND AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment")
dated as of December 7, 2001, by and among NETEGRITY, INC., a Delaware
corporation (the "Buyer"), LKN ACQUISITION CORP., a Delaware corporation and a
wholly owned subsidiary of the Buyer (the "Merger Subsidiary"), and DATACHANNEL,
INC., a Washington corporation (the "Company").
WHEREAS, the parties entered into an Agreement and Plan of Merger dated
as of October 24, 2001, as amended by a First Amendment to Agreement and Plan of
Merger dated as of December 3, 2001 (the "Merger Agreement"); and
WHEREAS, the parties desire to amend the Merger Agreement pursuant to
the terms of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties agree
as follows:
1. Except as otherwise specifically defined in this Amendment,
capitalized terms used in this Amendment without definition shall have the
meaning ascribed thereto in the Merger Agreement.
2. Section 1.15 of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"1.15 Employee Payments at Closing. The Company has
established a Management and Employee Retention Program payable to
certain selected employees of the Company (in the aggregate amount of
up to $1,880,000) at the Closing, in accordance with written
instructions delivered to the Buyer not later than three business days
prior to the Closing Date. The cash consideration to be paid in
accordance with the preceding sentence shall be referred to herein as
the "Special Employee Retention Awards.""
3. Except as specifically stated above, the Merger Agreement
remains in full force and effect and is not modified or amended hereby. To the
extent that the Merger Agreement or any of the documents and agreements attached
as exhibits to the Merger Agreement, referred to therein or contemplated thereby
refer to the Merger Agreement, such reference shall mean the Merger Agreement as
amended hereby.
[The Next Page is the Signature Page]
1
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
NETEGRITY, INC.
By /s/ Xxxxx X. Xxxxxx
---------------------------------------------
Name: Xxxxx X. Xxxxxx
Title: President and Chief Executive Officer
LKN ACQUISITION CORP.
By /s/ Xxxxx X. Xxxxxx
---------------------------------------------
Name: Xxxxx X. Xxxxxx
Title: President
DATACHANNEL, INC.
By /s/ Xxxxx Xxxxxxxxx
---------------------------------------------
Name: Xxxxx Xxxxxxxxx
Title: President and Chief Executive Officer
2
The undersigned, being the duly elected Secretary of the Merger Subsidiary,
hereby certifies that this Agreement has been adopted by a majority of the votes
represented by the outstanding shares of capital stock of the Merger Subsidiary
entitled to vote on this Agreement.
/s/ Xxxxxxx Xxxxx
-----------------------------------
Xxxxxxx Xxxxx
Secretary
The undersigned, being the duly elected Secretary of the Company, hereby
certifies that this Agreement has been adopted by a vote of greater than
two-thirds of the outstanding shares of common stock, Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible
Preferred Stock and Series D Convertible Preferred Stock of the Company, each
voting separately as a class, and by two-thirds of all outstanding shares of
common stock and preferred stock of the Company, voting together as a single
class, entitled to vote on this Agreement.
/s/ Xxxxx Xxxxx
-----------------------------------
Xxxxx Xxxxx
Secretary
[The following schedules and exhibits to this Agreement and Plan of
Merger have been omitted and will be provided to the Commission upon request to
Netegrity:
Exhibit A -- Escrow Agreement
Exhibit B -- Affiliate Agreement
Exhibit C -- Investment Representation Letter
Exhibit D -- Opinion of Counsel to the Company
Exhibit E -- Opinion of Counsel to the Buyer and Merger Subsidiary
Exhibit F -- Second Amended and Restated Articles of Incorporation of
DataChannel, Inc.
Exhibit G -- Amended and Restated Bylaws of DataChannel, Inc.
Exhibit 4.3 -- Principal Stockholders
Schedule 1.5(g)
Disclosure Schedule]
