EXHIBIT 10.1
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
XXXXXX.XXX, INC.,
COLUMBIA ACQUISITION CORP.,
AND
XXXXXXXXXXX.XXX, INC.
AND
SHAREHOLDER REPRESENTATIVE
DATED MAY 20, 2000
EFFECTIVE AS OF MARCH 18, 2000
CONTENTS
ARTICLE I - THE MERGER....................................................................................1
1.1 The Merger..............................................................................1
1.2 The Closing.............................................................................1
1.3 Effective Date and Time.................................................................2
1.4 Articles of Incorporation of the Surviving Corporation..................................2
1.5 Bylaws of the Surviving Corporation.....................................................2
1.6 Directors and Officers of the Surviving Corporation.....................................2
1.7 Conversion of Shares....................................................................2
1.7.1 Merger Consideration.........................................................2
1.7.2 Exchange of Certificates.....................................................7
1.7.3 No Fractional Shares.........................................................7
1.7.4 No Further Transfers.........................................................8
1.8 Shareholder Matters.....................................................................8
1.9 Dissenters' Rights......................................................................8
1.10 Discretionary Parent Loan...............................................................8
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................9
2.1 Organization............................................................................9
2.2 Enforceability..........................................................................9
2.3 Capitalization..........................................................................9
2.4 Subsidiaries and Affiliates.............................................................10
2.5 No Approvals; No Conflicts..............................................................11
2.6 Financial Statements....................................................................11
2.7 Absence of Certain Changes or Events....................................................12
2.8 Taxes...................................................................................14
2.9 Property................................................................................15
2.10 Contracts...............................................................................16
2.10.1 Material Contracts...........................................................16
2.10.2 Required Consents............................................................17
2.11 Claims and Legal Proceedings............................................................18
2.12 Labor and Employment Matters............................................................18
2.13 Employee Benefit Plans..................................................................18
2.13.1 Employee Benefit Plan Listing................................................18
2.13.2 Documents Provided...........................................................19
2.13.3 Compliance...................................................................19
2.13.4 Contributions and Premium Payments...........................................19
2.13.5 Multiemployer and Title IV Plans.............................................20
2.13.6 Post-Termination Welfare Benefits............................................20
2.13.7 Suits, Claims and Investigations.............................................20
2.13.8 Payments Resulting From Transactions.........................................20
2.14 Personnel...............................................................................20
2.15 Intellectual Property...................................................................21
2.15.1 General......................................................................21
2.15.2 Third Party Technology.......................................................21
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2.15.3 Maintenance of Rights........................................................21
2.15.4 Third Party Claims...........................................................22
2.15.5 Infringement by the Company..................................................22
2.15.6 Warranty Against Defects.....................................................22
2.15.7 Domain Names.................................................................22
2.15.8 Year 2000....................................................................23
2.16 Corporate Books and Records.............................................................23
2.17 Permits.................................................................................23
2.18 Compliance With Laws....................................................................23
2.19 Insurance...............................................................................23
2.20 Brokers or Finders......................................................................24
2.21 Absence of Questionable Payments........................................................24
2.22 Bank Accounts...........................................................................24
2.23 Insider Interests.......................................................................24
2.24 Compliance With Environmental Laws......................................................25
2.25 Information Supplied by the Company.....................................................25
2.26 Operating Data..........................................................................25
2.27 Affiliates..............................................................................25
2.28 Full Disclosure.........................................................................26
2.29 Compliance with H-S-R Act...............................................................26
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.....................................26
3.1 Organization............................................................................26
3.2 Enforceability..........................................................................26
3.3 Securities..............................................................................27
3.4 No Approvals or Notices Required; No Conflicts With Instruments.........................27
3.5 Capitalization..........................................................................27
3.6 Brokers or Finders......................................................................28
3.7 No Material Adverse Event...............................................................28
3.8 Full Disclosure.........................................................................28
3.9 Claims and Legal Proceedings............................................................28
3.10 Taxes...................................................................................28
3.11 Compliance With Laws....................................................................29
ARTICLE IV - CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB.................................29
4.1 Accuracy of Representations and Warranties..............................................29
4.2 Performance of Agreements...............................................................29
4.3 Opinion of Company Counsel..............................................................29
4.4 Compliance Certificate..................................................................29
4.5 Material Adverse Change.................................................................30
4.6 Approvals and Consents..................................................................30
4.7 Proceedings and Documents; Secretary's Certificate......................................30
4.8 Nonforeign Affidavit....................................................................30
4.9 Compliance With Laws....................................................................30
4.10 Legal Proceedings.......................................................................30
4.11 Amendment to Company's Articles of Incorporation........................................30
ii
4.12 Amended and Restated Shareholder Commitment and Indemnity Agreements....................31
4.13 Termination of Certain Agreements.......................................................31
4.14 Fairness Approval; Effectiveness of Registration Statement..............................31
4.15 Dissenters' Rights......................................................................31
4.16 Conversion of Securities................................................................31
4.17 Shareholder Approval....................................................................32
4.18 Noncompetition, Invention Assignment and Nondisclosure Agreements.......................32
4.19 Intentionally Omitted...................................................................32
4.20 Escrow Agreement........................................................................32
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY............................................32
5.1 Accuracy of Representations and Warranties..............................................32
5.2 Performance of Agreements...............................................................32
5.3 Opinion of Parent Counsel...............................................................32
5.4 Compliance Certificate..................................................................33
5.5 Legal Proceedings.......................................................................33
5.6 Material Adverse Change.................................................................33
5.7 Approvals and Consents..................................................................33
5.8 Compliance With Laws....................................................................33
5.9 Intentionally Omitted...................................................................33
5.11 Secretary's Certificate.................................................................33
5.12 Shareholder Approval....................................................................34
5.13 Escrow Agreement........................................................................34
ARTICLE VI - COVENANTS....................................................................................34
6.1 Conduct of Business by the Company Pending the Merger...................................34
6.2 Access to Information; Confidentiality..................................................35
6.3 No Alternative Transactions.............................................................36
6.4 Notification of Certain Matters.........................................................36
6.5 Further Action..........................................................................36
6.6 Nasdaq Listing..........................................................................37
6.7 Publicity...............................................................................37
6.8 Shareholders' Meeting; Shareholder Commitment and Indemnity Agreements..................37
6.9 Fairness Approval; Registration Statement; Information Supplied.........................38
6.10 Xxxx-Xxxxx-Xxxxxx.......................................................................39
6.11 Affiliates..............................................................................39
6.12 Directors' and Officers' Indemnification................................................40
6.13 Termination of 401(k) Plan..............................................................40
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER...........................................................40
7.1 Termination.............................................................................40
7.2 Effect of Termination...................................................................41
7.3 Amendment...............................................................................41
7.4 Waiver..................................................................................41
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7.5 Termination Fee.........................................................................41
ARTICLE VIII - SURVIVAL, INDEMNIFICATION AND RIGHTS TO ESCROW SHARES......................................42
8.1 Survival................................................................................42
8.2 Parent Losses...........................................................................42
8.3 Indemnification by Parent...............................................................43
8.4 Threshold and Limitations...............................................................43
8.5 Procedure for Indemnification Claims and Claims Against Escrow Consideration............43
8.6 Remedies; Specific Performance..........................................................46
8.7 Shareholder Representative..............................................................46
8.8 No Circular Recovery....................................................................46
ARTICLE IX - GENERAL......................................................................................47
9.1 Tax Matters.............................................................................47
9.2 Expenses................................................................................47
9.3 Notices.................................................................................47
9.4 Severability............................................................................48
9.5 Entire Agreement........................................................................48
9.6 Assignment..............................................................................48
9.7 Parties in Interest.....................................................................48
9.8 Governing Law; Jurisdiction; Venue......................................................48
9.9 Counterparts............................................................................48
9.10 Waiver of Jury Trial....................................................................49
9.11 Schedules...............................................................................49
iv
EXHIBITS
--------
1.7.1 - Form of Escrow Agreement
1.7.2 - Form of Letter of Transmittal
2 - Schedule of Exceptions
4.3 - Form of Opinion of Company Counsel
4.18 - Form of Nondisclosure, Invention Assignment,
Noncompetition and Nonsolicitation Agreement
5.3 - Form of Opinion of Parent Counsel
6.8(a) - Company's Amended Articles
6.8(c) - Form of Amended and Restated Shareholder Commitment and
Indemnity Agreement
8.2 - List of Special Indemnitors
v
AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger (this "AGREEMENT") is
dated as of May 20, 2000, and effective as of March 18, 2000, by and among
XxxxxX.xxx, Inc., a Washington corporation ("Parent"), Columbia Acquisition
Corp., an Oregon corporation and wholly owned subsidiary of Parent ("MERGER
SUB"), xxxxxxxxxxx.xxx, Inc., an Oregon corporation (the "COMPANY"), and
Xxxxxxxx X'Xxxxx, which individual signs solely for the purpose of Section 8.7
of this Agreement (the "Shareholder Representative").
RECITALS
A. The Company, Parent, Merger Sub and Shareholder Representative entered
into an Agreement and Plan of Merger dated March 18, 2000 (the "ORIGINAL MERGER
AGREEMENT"), which provides (subject to the conditions set forth therein) for
the merger of Merger Sub with and into the Company.
B. The Company, Parent, Merger Sub and Shareholder Representative believe
it advisable and in their respective best interests to amend and restate the
Original Merger Agreement on the terms and subject to the conditions set forth
in this Agreement providing for the merger of the Company with and into Merger
Sub (the "MERGER").
C. The Board of Directors of the Company has approved this Agreement and
the Merger as required by applicable law.
D. The Boards of Directors of Parent and Merger Sub, and the sole
shareholder of Merger Sub, have approved this Agreement and the Merger as
required by applicable law.
E. The parties intend that the Merger will qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"CODE").
AGREEMENT
In consideration of the terms hereof, the parties hereto agree as follows:
ARTICLE I - THE MERGER
1.1 THE MERGER
Upon the terms and subject to the conditions hereof, (a) at the Effective Time
(as defined in Section 1.3) the separate corporate existence of the Company
shall cease and the Company shall be merged with and into Merger Sub (Merger Sub
as the surviving corporation after the Merger is sometimes referred to herein as
the "SURVIVING CORPORATION") and (b) from and after the Effective Time, the
Merger shall have all the effects of a merger under the laws of the State of
Oregon and other applicable law.
1.2 THE CLOSING
The closing of the Merger (the "CLOSING") shall take place at the offices of
Xxxx Xxxxxx Spears Lubersky LLP, 0000 Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx,
Xxxxxxxxxx, as soon as practicable after the satisfaction or waiver of the
conditions set forth in Articles IV and V below, or such other date, time and
location as Parent and the Company shall agree (the "CLOSING DATE").
1.3 EFFECTIVE DATE AND TIME
On the Closing Date and subject to the terms and conditions hereof, the parties
hereto shall cause the appropriate articles of merger and related documents
(collectively, the "ARTICLES OF MERGER") complying with the applicable
provisions of the Oregon Business Corporation Act ("OREGON LAW"), in such form
as required by, and executed in duplicate in accordance with, Oregon Law, shall
be delivered for filing with the Secretary of State of the State of Oregon (the
"OREGON SECRETARY OF STATE"). The Merger shall become effective on the date (the
"EFFECTIVE DATE") and at the time (the "EFFECTIVE TIME") of filing of the
Articles of Merger with the Oregon Secretary of State, or at such other time as
may be specified in the Articles of Merger as filed. If the Oregon Secretary of
State requires any changes in the Articles of Merger as a condition to filing or
to issuing its certificate to the effect that the Merger is effective, Parent,
Merger Sub and the Company will execute any necessary revisions incorporating
such changes, provided such changes are not inconsistent with and do not result
in any material change in the terms of this Agreement.
1.4 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION
At the Effective Time, the Articles of Incorporation of Merger Sub in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation; provided, however, that Article I thereof shall be
amended to read as follows: "The name of this corporation is xxxxxxxxxxx.xxx,
Inc." Thereafter, the Articles of Incorporation of the Surviving Corporation may
be amended in accordance with their terms and as provided by law.
1.5 BYLAWS OF THE SURVIVING CORPORATION
At the Effective Time, the Bylaws of Merger Sub as in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Corporation.
Thereafter, the Bylaws of the Surviving Corporation may be amended or repealed
in accordance with their terms and the Articles of Incorporation of the
Surviving Corporation as provided by law.
1.6 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
At the Effective Time, the directors and officers of Merger Sub immediately
prior to the Effective Time shall be the directors and officers of the Surviving
Corporation, and such directors and officers shall hold office in accordance
with and subject to the Articles of Incorporation and Bylaws of the Surviving
Corporation.
1.7 CONVERSION OF SHARES
1.7.1 MERGER CONSIDERATION
As of the Effective Time, by virtue of the Merger and without any action on the
part of the holders thereof:
(a) All shares of any class of capital stock of the Company held by the
Company as treasury shares or otherwise shall be canceled.
(b) Each issued and outstanding share of capital stock of Merger Sub shall
remain outstanding and constitute one share of common stock of the Surviving
Corporation.
(c) Each share of the Company's common stock ("COMPANY COMMON STOCK") and
each share of the Company's preferred stock ("COMPANY PREFERRED STOCK") (the
Company Common Stock and Company Preferred Stock, together, "COMPANY CAPITAL
STOCK"), issued and outstanding immediately prior to the Effective Time (other
than any shares of Company Capital Stock to be canceled pursuant to Section
1.7.1(a) and any Dissenting Shares (as defined below)) will be canceled and
extinguished and will be converted automatically into the right
to receive consideration consisting of shares of common stock of Parent ("PARENT
COMMON STOCK") and cash as provided in this Section 1.7.1(c).
(i) One-half of the shares of the Company's Series A Preferred
Stock and one-half of the shares of the Company's Series B Preferred Stock, in
each case rounded up to the nearest even number of shares of the Company's
Series A Preferred Stock or the Company's Series B Preferred Stock held by each
holder thereof (such shares of Series A Preferred Stock and Series B Preferred
Stock, collectively, the "COMPANY LIQUIDATION PREFERENCE STOCK"), issued and
outstanding immediately prior to the Effective Time shall have the right to
receive a liquidation preference out of the Merger Consideration (as defined in
Section 1.7.1(d) below) in the aggregate amount of $4,893,845 (subject to
appropriate reduction in the event Silicon Valley Bank does not fully exercise
its warrant for cash prior to the Effective Time, the "PREFERENCE AMOUNT")
consisting of a number of shares of Parent Common Stock as determined, valued
and allocated in accordance with Section 3(a), Section 3(c)(3)(A) and Section
3(c)(3)(C) of Article II.D. of the Company's Amended Articles (as defined in
Section 6.8(a) below), payable as follows: (A) ninety percent (90%) of the
Preference Amount ("PREFERRED FIXED SHARES") shall be distributed outright to
the holders of the Company Liquidation Preference Stock and (B) ten percent
(10%) of the Preference Amount ("PREFERRED ESCROW SHARES") shall be distributed
subject to the terms and conditions of ARTICLE VIII of this Agreement and in
accordance with the procedures in the Escrow Agreement (as defined below). After
the payment of the Preference Amount as above provided, the Company Liquidation
Preference Stock shall have the right to participate in the right to receive the
remaining Merger Consideration as provided in clause (ii) immediately following.
(ii) Subject to the provisions of the last two sentences of this
clause (ii), each share of Company Common Stock issued and outstanding
(including the Company Converted Stock (as defined below)) and each share of
Company Liquidation Preference Stock issued and outstanding immediately prior to
the Effective Time (other than any shares of Company Capital Stock to be
canceled pursuant to Section 1.7.1(a) and any Dissenting Shares), will be
canceled and extinguished and will be converted automatically into (A) the right
to receive (x) that number of shares of Parent Common Stock that is equal to the
Fixed Share Exchange Ratio (as defined below), rounded down to the nearest whole
share of Parent Common Stock ("COMMON FIXED SHARES") and (y) that amount in cash
that is equal to the Fixed Cash Per Share (as defined below) rounded up to the
nearest whole cent ("COMMON FIXED CASH"), and (B) the right to receive, subject
to the terms and conditions of ARTICLE VIII of this Agreement and in accordance
with the procedures in the Escrow Agreement (as defined below), (x) that number
of shares of Parent Common Stock that is equal to the Escrow Share Exchange
Ratio (as defined below), rounded down to the nearest whole share of Parent
Common Stock ("COMMON ESCROW SHARES") and (y) that amount in cash that is equal
to the Escrow Cash Per Share (as defined below) rounded up to the nearest whole
cent ("COMMON ESCROW CASH"). All shares of Company Liquidation Preference Stock
issued and outstanding immediately prior to the Effective Time shall share
ratably in the Merger Consideration pursuant to the preceding sentence on an
as-if-converted into Company Common Stock basis in the manner provided in
Section 3(b), Section 3(c)(3)(B) and Section 3(c)(3)(D) of Article II.D. of the
Company's Amended Articles until such time as the holders of such shares have
received the maximum amount per share provided in Section 3(b) of Article II.D.
of the Company's Amended Articles and thereafter such shares shall no longer be
entitled to participate in the right to receive the remaining Merger
Consideration. All shares of Company Preferred Stock other than the Company
Liquidation Preference Stock issued and outstanding immediately prior to the
Effective Time (the "COMPANY CONVERTED STOCK") shall be converted immediately
prior to the Effective Time into Company Common Stock in accordance with Section
3(c)(3)(A) and Section 4(m)(1) of Article II.D. of the Company's Amended
Articles and share ratably in the Merger Consideration pursuant to this Section
1.7.1(c)(ii).
For purposes of this Agreement, the terms set forth below are defined as follows
(as determined immediately prior to the Effective Time, unless otherwise
specified):
"AGGREGATE EQUITY VALUE" means $124,489,713 (which includes the value of the
outstanding Company Capital Stock and assumed value of the proceeds from
exercise of outstanding unexercised Options (as defined below)
and Warrants (as defined below)) LESS (A) the dollar amount of any investment
banking, accounting or legal fees (excluding, however, $25,000 payable to
counsel for the Company and $25,000 payable to counsel for holders of the
Company Preferred Stock) paid or payable by the Company in connection with the
Merger, and LESS (B) the dollar amount of any indebtedness of the Company for
borrowed money (other than ordinary course trade accounts payable, accrued sales
commissions and accrued sales tax) outstanding, but excluding other indebtedness
to parties other than Parent incurred after the date hereof with prior written
consent of Parent, and PLUS (C) the Company's cash on hand but excluding
therefrom the proceeds from the exercise of Options and Warrants.
"DISSENTERS' CASH RESERVE" means the product obtained by multiplying (A) a
reasonable cash allowance per Dissenting Share as determined by Parent, but not
more than the Total Consideration Per Common Share times (B) the number of
Dissenting Shares.
"COMMON ESCROW CONSIDERATION" means 10% of (A) the Aggregate Equity Value LESS
(B) the product obtained by multiplying (i) the sum of the Preferred Fixed
Shares and the Preferred Escrow Shares by (ii) the Parent Share Value.
"ESCROW CASH PER SHARE" means the product (rounded to the nearest whole cent)
obtained by multiplying (A) the Escrow Consideration Per Share by (B) the
quotient obtained by dividing (i) $1,000,000 by (ii) the Common Escrow
Consideration.
"ESCROW SHARE EXCHANGE RATIO" means the quotient (rounded to the nearest fourth
decimal) obtained by dividing (A) the product obtained by multiplying (i) the
Escrow Consideration Per Share by (ii) 1 LESS the quotient obtained by dividing
(a) $1,000,000 by (b) the Common Escrow Consideration by (B) the Parent Share
Value.
"ESCROW CONSIDERATION PER SHARE" means the quotient obtained by dividing (A) the
Common Escrow Consideration by (B) the number of shares of Company Common Stock
(including the Company Liquidation Preference Stock on an as-if-converted basis
as described in Section 1.7.1(c)(ii) above and the Company Converted Stock
converted as described in Section 1.7.1 (c)(ii) above) LESS the Dissenting
Shares.
"FIXED CASH PER SHARE" means the product (rounded to the nearest whole cent)
obtained by multiplying (A) the Common Fixed Consideration Per Share by (B) the
quotient obtained by dividing (i) the Residual Cash by (ii) the Common Fixed
Consideration.
"COMMON FIXED CONSIDERATION" means (A) the Aggregate Equity Value LESS (A) the
Dissenters' Cash Reserve and LESS (B) the Common Escrow Consideration and LESS
(C) the sum of the (i) product obtained by multiplying the sum of the Option
Merger Shares and the Warrant Merger Shares by (ii) the Parent Share Value, and
LESS (D) the product obtained by multiplying (i) the sum of the Preferred Fixed
Shares and the Preferred Escrow Shares by (ii) the Parent Share Value.
"COMMON FIXED CONSIDERATION PER SHARE" means the quotient obtained by dividing
(A) the Common Fixed Consideration by (B) the number of shares of Company Common
Stock (including the Company Liquidation Preference Stock on an as-if-converted
basis as described in Section 1.7.1(c)(ii) above and the Company Converted Stock
converted as described in Section 1.7.1 (c)(ii) above) LESS the number of
Dissenting Shares.
"FIXED SHARE EXCHANGE RATIO" means the quotient (rounded to the nearest fourth
decimal place) obtained by dividing (A) the product obtained by multiplying (i)
the Common Fixed Consideration Per Share by (i) 1 LESS the quotient obtained by
dividing (a) the Residual Cash by (b) the Common Fixed Consideration by (B) the
Parent Share Value.
"FULLY DILUTED COMMON STOCK NUMBER" means the total number of shares of Company
Common Stock outstanding immediately prior to the Effective Time, PLUS the total
number of Options and Warrants assumed by
Parent under Sections 1.7.1 (f) and (g), PLUS the total number of shares of
Company Common Stock issuable upon conversion or exercise of any other
securities and rights of the Company (including without limitation the Company
Preferred Stock) outstanding immediately prior to Closing which are convertible
or exercisable into Company Common Stock.
"OPTION MERGER SHARES" has the meaning set forth in Section 1.7.1(f).
"PARENT SHARE VALUE" means $25.44, as adjusted to reflect fully the effect of
any stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock),
reorganization, recapitalization or other like change with respect to Parent
Common Stock occurring after the date hereof and prior to the Effective Time
"RESIDUAL CASH" means the Total Merger Cash LESS the Dissenters' Cash Reserve
and LESS $1,000,000.
"TOTAL CONSIDERATION PER COMMON SHARE" means the quotient (rounded to the
nearest whole cent) obtained by dividing (A) the sum of (i) the Aggregate Equity
Value LESS (ii) the product obtained by multiplying (a) the sum of the Preferred
Fixed Shares and the Preferred Escrow Shares by (b) the Parent Share Value by
(B) the Fully Diluted Common Stock Number.
"TOTAL MERGER CASH" means (A) the Aggregate Equity Value LESS (B) the product
obtained by multiplying the Total Merger Shares by the Parent Share Value.
"TOTAL MERGER SHARES" means 4,306,616 shares of Parent Common Stock, as adjusted
to reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock occurring after the date hereof and prior to the
Effective Time.
"WARRANT MERGER SHARES" has the meaning set forth in Section 1.7.1(g).
(d) The number of shares of Parent Common Stock to be issued to each
shareholder of the Company in the Merger under the above paragraphs of this
Section 1.7.1 shall be calculated by aggregating all shares of Company Capital
Stock held by each such shareholder. The number of shares of Parent Common Stock
issuable and the amount of cash payable in the Merger in respect of Company
Capital Stock as provided above are referred to herein as the "MERGER
CONSIDERATION." Notwithstanding any other provision of this Agreement, (i) the
maximum number of shares of Parent Common Stock to be issued in the Merger
(including without limitation Parent Common Stock to be reserved for issuance
upon exercise of any of the Options and Warrants to be assumed by Parent as
provided in this Agreement) shall not exceed the Total Merger Shares and (ii)
the maximum amount of cash to be payable in the Merger shall not exceed the
Total Merger Cash.
(e) The Preferred Escrow Shares and the Common Escrow Shares (collectively,
the "ESCROW SHARES") and the Preferred Escrow Cash and the Common Escrow Cash
(collectively, the "ESCROW CASH") shall be deposited in escrow with the Escrow
Agent, to be held, administered and released in accordance with the Escrow
Agreement in substantially the form attached to this Agreement as EXHIBIT 1.7.1.
(the "ESCROW AGREEMENT"). The Escrow Shares shall be issued in one certificate
in the name of the Escrow Agent, "as Escrow Agent under that Escrow Agreement
dated the Closing Date" or otherwise with equivalent effect. Such Escrow Shares
and Escrow Cash shall be held for the purposes described in Article VIII and the
Escrow Agreement. Until the final resolution of any and all indemnification
claims relating to the Escrow Shares, dividends or other distributions declared
and paid on Escrow Shares, if any, shall be paid by Parent to the stockholders
who would be entitled to them if all Escrow Shares were distributed and all
voting rights with respect to such shares shall inure to the benefit of and be
enjoyed by such stockholders. Any securities received by the Escrow Agent in
respect of any Escrow Shares held in escrow as a result of any stock split or
combination of shares of Parent Common Stock, payment of a stock dividend or
other stock distribution in or on shares of Parent Common Stock, or change of
Parent Common Stock into any other securities pursuant to or as a part of a
merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation of Parent, or otherwise, shall be held by the
Escrow Agent as, and shall be included within the definition of, Escrow Shares.
The Escrow Shares and Escrow Cash collectively constitute the "ESCROW
CONSIDERATION."
(f) Each outstanding option to purchase shares of Company Common Stock
issued pursuant to the Company's Amended and Restated 1994 Stock Incentive Plan
(the "COMPANY OPTION PLAN"), whether or not vested or exercisable (the
"OPTIONS"), shall be assumed by Parent and shall constitute an option to
acquire, on the same vesting terms, and on substantially the same other terms
and conditions as were applicable under such assumed Option (including, without
limitation, any repurchase rights), provided that (i) such Option shall be
exercisable for that number of shares of Parent Common Stock equal to the
product of the number of shares of Company Common Stock that were issuable upon
exercise of such Option immediately prior to the Effective Time multiplied by
the Option and Warrant Exchange Ratio (as defined below) applicable to the
Company Common Stock subject to such Option (rounded down to the nearest whole
number of shares of Parent Common Stock) and (ii) the per share exercise price
for the shares of Parent Common Stock issuable upon exercise of such assumed
Option shall be equal to the quotient determined by dividing the per share
exercise price of Company Common Stock at which such Option was exercisable
immediately prior to the Effective Time by the Option and Warrant Exchange Ratio
applicable to the Company Common Stock subject to such Option (rounded up to the
nearest whole cent). For purposes of this Agreement, "OPTION AND WARRANT
EXCHANGE RATIO" means to the quotient obtained by dividing (i) the Total
Consideration Per Common Share by (ii) the Parent Share Value. Each such assumed
Option shall, in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, reverse stock split, stock dividend
recapitalization or other similar transaction effected by Parent after the
Effective Time.
Parent shall, from and after the Effective Time, upon exercise of the Company
Options in accordance with the terms thereof, make available for issuance all
shares of Parent Common Stock covered thereby and shall, as promptly as
practicable after the Effective Time, issue to each holder of an outstanding
Option a document evidencing the foregoing assumption by Parent. The aggregate
number of shares of Parent Common Stock reserved for issuance upon exercise of
the Options assumed by Parent in the Merger as provided above are referred to
herein as the "OPTION MERGER SHARES."
The assumption of the Options shall occur in such manner that (x) Parent is
"assuming a stock option in a transaction to which Section 424(a) applied "
within the meaning of Section 424 of the Code, or (y) such transaction, to the
extent that Section 424 of the Code does not apply to any such Options, would be
a transaction within Section 424 of the Code. It is the intention of the parties
that the Options assumed by Parent shall qualify following the Effective Time as
incentive stock options as defined in Section 422 of the Internal Revenue Code
to the same extent the Options qualified as incentive stock options immediately
prior to the Effective Time and the provisions of this Section 1.7.1(f) shall be
applied consistent with this intent.
(g) Each warrant to purchase shares of Company Capital
Stock outstanding as of the Effective Time ("WARRANTS"), to the extent permitted
by the terms of such Warrant, shall be terminated and of no further force or
effect as of the Effective Time, unless previously exercised or converted into
Company Capital Stock in accordance with the terms of such Warrant, and shall
not be assumed by Parent. To the extent such termination is not permitted by the
terms of any such Warrant, such Warrant shall be assumed by Parent and shall
constitute a Warrant to acquire, on the same vesting terms (if any), and on
substantially the same other terms and conditions as were applicable under such
assumed Warrant (including, without limitation, any repurchase rights), provided
that (i) such Warrant shall be exercisable for that number of shares of Parent
Common Stock equal to the product of the number of shares of Company Common
Stock that were issuable upon exercise of such Warrant immediately prior to the
Effective Time (assuming that the shares of Company Preferred Stock issuable
upon the exercise of any Warrant shall be treated in the same manner as provided
in Section 1.7.1(c) above and the Company's Amended Articles as if such shares
of Company Preferred Stock were issued and outstanding immediately prior to the
Effective Time) multiplied by the Option and Warrant Exchange
Ratio (as defined below) applicable to the Company Common Stock subject to such
Warrant (rounded down to the nearest whole number of shares of Parent Common
Stock) and (ii) the per share exercise price for the shares of Parent Common
Stock issuable upon exercise of such assumed Warrant shall be equal to the
quotient determined by dividing the per share exercise price of Company Common
Stock at which such Warrant was exercisable immediately prior to the Effective
Time (assuming that the shares of Company Preferred Stock issuable upon the
exercise of any Warrant shall be treated in the same manner as provided in
Section 1.7.1(c) above and the Company's Amended Articles as if such shares of
Company Preferred Stock were issued and outstanding immediately prior to the
Effective Time) by the Option and Warrant Exchange Ratio applicable to the
Company Common Stock subject to such Warrant (rounded up to the nearest whole
cent); provided further, that the number of shares of Parent Common Stock that
may be purchased upon exercise of such Warrant shall not include any fractional
shares, and, at the time of assumption of such Warrant, Parent shall pay to the
holder thereof as soon as practicable an amount of cash equal to such fraction
multiplied by the Parent Share Value. The aggregate number of shares of Parent
Common Stock reserved for issuance upon exercise of the Warrants assumed by
Parent in the Merger as provided above are referred to herein as the "WARRANT
MERGER SHARES."
1.7.2 EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Date, Escrow Agent, as exchange
agent, shall make available, and each shareholder of the Company immediately
prior to the Effective Time will be entitled to receive, in no event more than
five business days after surrender to Escrow Agent of a letter of transmittal in
the form set forth at EXHIBIT 1.7.2 hereto (the "LETTER OF TRANSMITTAL")
together with documents delivered as required therein including one or more
certificates representing Company Common Stock for cancellation, certificates
representing the number of shares of Parent Common Stock that such shareholder
is entitled to receive as Fixed Shares pursuant to Section 1.7.1 hereof. The
certificates representing the Escrow Shares shall be delivered to and retained
by the Escrow Agent in accordance with the Escrow Agreement. The shares of
Parent Common Stock that each such shareholder shall be entitled to receive
pursuant to the Merger shall be deemed to have been issued at the Effective
Time. No interest shall accrue on the Merger Consideration. If the Merger
Consideration (or any portion thereof) is to be delivered to any person other
than the person in whose name the certificate or certificates representing
shares of Company Common Stock surrendered in exchange therefor is registered,
it shall be a condition to such exchange that the person requesting such
exchange shall pay to Parent any transfer or other taxes required by reason of
the payment of the Merger Consideration to a person other than the registered
holder of the certificate or certificates so surrendered, or shall establish to
the satisfaction of Parent that such tax has been paid or is not applicable.
Notwithstanding the foregoing, neither Parent nor any other party hereto shall
be liable to a holder of shares of Company Common Stock for any Merger
Consideration delivered to a public official pursuant to applicable abandoned
property, escheat and similar laws. In the event that any certificates
representing shares of Company Common Stock shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the shareholder
claiming such certificate to be lost, stolen or destroyed, Parent shall cause to
be issued in exchange for such lost, stolen or destroyed certificate the shares
of Parent Common Stock that such shareholder is entitled to receive pursuant to
Section 1.7.1; provided, however, that Parent may in its discretion and as a
condition precedent to the issuance thereof, require such shareholder to provide
Parent with an indemnity agreement without bond against any claim that may be
made against Parent with respect to the certificate alleged to have been lost,
stolen or destroyed.
1.7.3 NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Parent Common Stock
shall be issued in the Merger, and no dividend, stock split or other
distribution with respect to Parent Common Stock shall relate to any such
fractional interest, and any such fractional interests shall not entitle the
owner thereof to vote or to any rights of a security holder. In lieu thereof,
Parent shall pay to the holder of shares of Company Common Stock who would
otherwise be entitled to a fraction of a share of Parent Common Stock, as soon
as practicable after the Effective Date (and in the same timely manner required
for delivery of certificates of Parent Common Stock provided in Section 1.7.2),
an amount in cash equal to such fraction multiplied by the Parent Share Value.
1.7.4 NO FURTHER TRANSFERS
After the Effective Time, there shall be no transfers of any shares of Company
Common Stock on the stock transfer books of the Surviving Corporation. If, after
the Effective Time, certificates formerly representing shares of Company Common
Stock are presented to the Surviving Corporation, they shall be forwarded to
Parent and shall be canceled and exchanged in accordance with this Section 1.7.
1.8 SHAREHOLDER MATTERS
The approval by a shareholder of the Company of this Agreement and the
transactions contemplated hereby (whether by written consent or by vote) shall
constitute the agreement by such shareholder who so approves: (a) to enter into
and be bound by the Letter of Transmittal; and (b) to waive any and all rights
of appraisal or dissent that may be available to such shareholder under Oregon
Law with respect to the Merger.
1.9 DISSENTERS' RIGHTS
Holders of shares of Company Common Stock who have complied with all the
requirements for perfecting appraisal rights for such shares as required under
Oregon Law ("DISSENTING SHAREHOLDERS") shall not be entitled to any Merger
Consideration under this Agreement with respect to such shares notwithstanding
the above provisions of this Article I, and in lieu thereof shall be entitled to
receive from the Surviving Corporation whatever is determined to be due to them
under Oregon Law with respect to such shares (the "DISSENTING SHARES");
provided, however, that Dissenting Shares outstanding at the Effective Time and
held by a Dissenting Shareholder who shall after the Effective Time withdraw
such Dissenting Shareholder's demand for appraisal or lose such Dissenting
Shareholder's right of appraisal as provided by Oregon Law shall be deemed to be
converted as of the Effective Time into the right to receive the Merger
Consideration that would otherwise have been payable in respect thereof under,
and on the terms and conditions set forth in, this Agreement as if no dissent
had been made. Promptly after execution and delivery of this Agreement, the
Company shall take such actions as are necessary to comply with the requirements
of ORS 60.567 of Oregon Law and shall use reasonable best efforts to ensure that
the deadline under ORS 60.571 of Oregon Law for demands for appraisal in respect
of the Merger shall have expired prior to the Effective Time. Prior to the
Effective Time, the Company will not settle any demand with respect to any
Dissenting Shares without the consent of Parent, which consent shall not be
unreasonably withheld. The Company shall give notice to Parent promptly after it
is notified that any shareholder of the Company has elected or attempted to
exercise appraisal rights. Notwithstanding anything in Article VIII to the
contrary, all amounts paid by the Surviving Corporation to any Dissenting
Shareholder pursuant to a judgment in or settlement of a proceeding relating to
Dissenting Shares in excess of the Merger Consideration which would have been
paid to such Dissenting Shareholder had such Dissenting Shareholder not
dissented shall constitute losses for which Parent is entitled to
indemnification from the Escrow Consideration. Nothing in this Agreement is
intended or shall be construed as an agreement or admission that any statutory
appraisal rights are or may be available with respect to the transactions
contemplated hereby.
1.10 DISCRETIONARY PARENT LOAN
Parent may, in its sole discretion, make one or more bridge loans to the Company
prior to the Closing Date. The Company acknowledges and agrees that the
aggregate principal amount, together with such interest thereon as the parties
may negotiate, of such bridge loan(s), if any, (a) shall not result in an
increase to the Aggregate Equity Value, and (b) shall be included in the dollar
amount of any indebtedness of the Company for borrowed money for purposes of
calculating any decrease in the Aggregate Equity Value.
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as is otherwise specifically set forth with appropriate cross-references
in the Schedule of Exceptions attached hereto as EXHIBIT 2 (the "SCHEDULE OF
EXCEPTIONS"), and in order to induce Parent and Merger Sub to
enter into and perform this Agreement and the other agreements and certificates
that are required to be executed pursuant to this Agreement (collectively, the
"OPERATIVE DOCUMENTS"), the Company represents and warrants to Parent and Merger
Sub as of the date of this Agreement and as of the Closing as follows in this
Article II. Except where the context clearly indicates otherwise, all references
to the "Company" below shall be deemed to include the Subsidiary (as defined in
Section 2.4).
2.1 ORGANIZATION
The Company is a corporation duly organized and legally existing under the laws
of the State of Oregon. The Company has all requisite corporate power and
authority to own, operate and lease its properties and assets, to carry on its
business as now conducted and as currently proposed to be conducted, and to
enter into and perform its obligations under this Agreement and the other
Operative Documents to which the Company is a party, and to consummate the
transactions contemplated hereby and thereby. The Company is duly qualified and
licensed as a foreign corporation to do business and is in good standing in each
jurisdiction in which the character of the Company's properties occupied, owned
or held under lease or the nature of the business conducted by the Company makes
such qualification or licensing necessary, except where the failure to be so
qualified or in good standing has not had and could not reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect.
For purposes of this Agreement, the term "COMPANY MATERIAL ADVERSE EFFECT" shall
mean any material adverse effect on the business, operations, assets,
liabilities (absolute, accrued, contingent or otherwise) or condition (financial
or other) of the Company and its subsidiaries; provided, however, that a Company
Material Adverse Effect shall not include any change in general economic
conditions.
2.2 ENFORCEABILITY
The Company has full corporate power and authority to execute, deliver and
perform its obligations under this Agreement and each of the other Operative
Documents to which it is a party and each of the certificates, instruments and
documents executed or delivered by it pursuant to the terms of this Agreement.
All corporate action on the part of the Company and its officers, directors and
shareholders necessary for the authorization, execution, delivery and
performance of this Agreement and the other Operative Documents to which the
Company is a party, the consummation of the Merger, and the performance of all
the Company's obligations under this Agreement and the other Operative Documents
to which the Company is a party has been taken or will be taken as of or prior
to the Effective Time. All such corporate action by the Board of Directors has
been taken. This Agreement has been, and each of the other Operative Documents
to which the Company is a party at the Closing will have been, duly executed and
delivered by the Company, and this Agreement is, and each of the other Operative
Documents to which the Company is a party will be at the Closing, a legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
2.3 CAPITALIZATION
(a) The authorized capital stock of the Company consists of 15,829,250
shares of Company Common Stock and 9,170,750 shares of Company Preferred Stock.
(b) The issued and outstanding capital stock of the Company consists solely
of 4,602,384 shares of Company Common Stock, 1,883,094 shares of Series A
Preferred Stock and 1,685,375 shares of Series B Preferred Stock, which are held
of record and, to the knowledge of the Company, beneficially by the shareholders
of the Company as set forth in Section 2.3(b) of the Schedule of Exceptions.
Such issued and outstanding shares are duly authorized and validly issued, fully
paid and nonassessable, and were issued in compliance with all applicable
federal and state securities laws. To the knowledge of the Company, no Person
(as defined in Section 2.5) other than the shareholders of the Company holds any
interest in any of the
outstanding shares. True and correct copies of the stock records of the Company,
showing all issuances and transfers of shares of capital stock of the Company
since inception, have been provided to Parent or its counsel.
(c) Other than (i) Options to purchase up to 2,893,245 shares of Company
Common Stock that have been granted under the Company Option Plan; (ii) Warrants
to purchase up to 46,332 shares of Company Common Stock, and Warrants to
purchase up to 1,000,000 shares of Company Preferred Stock pursuant to that
certain Warrant Subscription Agreement by and between the Company and Silicon
Valley Bank (the "Bank") dated January 19, 1999, and that certain Preferred
Stock Purchase Warrant by and between the Company and the Bank dated January 19,
1999; and (iii) the rights of first refusal and co-sale described in Section
2.3(c) of the Schedule of Exceptions, there are no outstanding rights of first
refusal or offer, preemptive rights, options, warrants, conversion rights or
other agreements, either directly or indirectly, for the purchase or acquisition
from the Company or any shareholder of any shares of Company Common Stock or any
securities convertible into or exchangeable for shares of Company Common Stock.
Set forth in Section 2.3(c) of the Schedule of Exceptions is a spreadsheet
accurately reflecting the total outstanding shares of Company Common Stock by
class, the number and class of shares of Company Common Stock issuable upon
conversion of all Options and Warrants outstanding, the grant or issue dates,
vesting schedules, statutory (ISO) or nonqualified grant, and exercise or
conversion prices thereof and, in each case, the identities of the holders and
an indication of their relationships to the Company (if any exist other than a
security holder). All Options and Warrants have been granted with exercise
prices equal to the fair market value per share of Company Common Stock on the
date of grant, as determined by the Company's Board of Directors. All of the
outstanding Options and Warrants were issued in compliance with all applicable
federal and state securities laws. Each outstanding Option was issued under, and
pursuant to the terms of, the Company Option Plan, a true and correct copy of
which has been delivered to the Company, and a stock option agreement in the
form attached to Schedule 2.3(c). Each outstanding Warrant was issued pursuant
to a Warrant Agreement in the form attached to Schedule 2.3(c). Section 2.3(c)
of the Schedule of Exceptions also identifies all Options or other equity rights
that have been offered in connection with any employee or consulting agreement
but that, as of the date hereof, have not been issued or granted. Prior to
Closing, Company will provide Parent with true and correct copies of all stock
option agreements and warrant agreements reflecting all options and warrants
outstanding as of the Effective Time. Except as set forth in Section 2.3(c) of
the Schedule of Exceptions, the consummation of the transactions contemplated by
this Agreement will not accelerate the vesting of any Options.
(d) The Company is not a party or subject to any agreement or understanding
and, to the knowledge of the Company, there is no agreement or understanding
between any Persons that affects or relates to the voting or giving of written
consents with respect to any securities of the Company or the voting by any
director of the Company. No shareholder of the Company or any affiliate thereof
is indebted to the Company, and the Company is not indebted to any shareholder
of the Company or any affiliate thereof. Except as described in Section 2.3(d)
of the Schedule of Exceptions, the Company is not under any contractual or other
obligation to register any of its presently outstanding securities or any of its
securities that may hereafter be issued. All rights of refusal and co-sale
rights and other rights relating to transfer of stock granted by the Company
with respect to the Company Common Stock, Options or Warrants are described in
Section 2.3(d) of the Schedule of Exceptions.
2.4 SUBSIDIARIES AND AFFILIATES
Except for Extensis B.V. ("Subsidiary"), the Company does not own or control,
and has not in the past owned or controlled, directly or indirectly, any
corporation, partnership, limited liability company or other business entity.
The Company does not own, directly or indirectly, any ownership, equity, or
voting interest in, or otherwise control, any corporation, partnership, joint
venture or other entity, and has no agreement or commitment to purchase any such
interest.
2.5 NO APPROVALS; NO CONFLICTS
The execution, delivery and performance by the Company of this Agreement and the
other Operative Documents to which the Company is a party and the consummation
of the transactions contemplated hereby and thereby, the effectiveness of the
Merger will not, except as set forth in Section 2.5 of the Schedule of
Exceptions, (a) constitute a violation (with or without the giving of notice or
lapse of time, or both) of any statute, regulation, rule or other provision of
law or any judgment, decree, order or other requirement of any court or other
governmental authority applicable to the Company, (b) require any consent,
approval or authorization of, or declaration, filing or registration with, any
person, corporation, partnership, joint venture, association, organization,
other entity or governmental or regulatory authority (a "PERSON"), except for
(i) compliance with applicable securities laws, (ii) the filing of all documents
necessary to consummate the Merger with the Oregon Secretary of State, and (iii)
the approval by the shareholders of the Company of the merger transaction
contemplated hereby as required by Oregon law, (c) constitute a breach of or
conflict with or result in a default (with or without the giving of notice or
lapse of time, or both) under, or acceleration or termination of, or the
creation in any party of the right to accelerate, terminate, modify or cancel,
any material agreement, lease, note or other restriction, encumbrance,
obligation or liability to which the Company is a party or by which it is bound
or to which any assets of the Company are subject, (d) result in the creation of
any Encumbrance (as defined in Section 2.9(d)) upon any material assets of the
Company or, to the knowledge of the Company, upon any outstanding shares or
other securities of the Company, (e) conflict with or result in a breach of or
constitute a default under any provision of the Articles of Incorporation or
Bylaws of the Company, or (f) invalidate or adversely affect any permit, license
or authorization currently material to the conduct of the business of the
Company.
2.6 FINANCIAL STATEMENTS
The Company has delivered to Parent (a) audited balance sheets, statements of
income and expense for the fiscal years ended December 31, 1997, 1998 and 1999
and (b) unaudited balance sheets, and unaudited statements of income and expense
and statements of shareholders' equity of the Company as of and for the
one-month period ended January 31, 2000. All the foregoing financial statements
are herein referred to as the "FINANCIAL STATEMENTS." The balance sheet of the
Company as of January 31, 2000 is herein referred to as the "COMPANY BALANCE
SHEET." Except as set forth in Section 2.6 of the Schedule of Exceptions, the
Financial Statements have been prepared in conformity with generally accepted
accounting principles in the United States ("GAAP") on a basis consistent with
prior accounting periods. The Financial Statements were prepared from and in
accordance with the books and records of the Company and fairly present the
financial position, results of operations and changes in financial position of
the Company as of the dates and for the periods indicated. The Company has no
liabilities or obligations of any nature (absolute, contingent or otherwise)
that are not fully reflected or reserved against in the Company Balance Sheet,
except liabilities or obligations incurred since the date of the Company Balance
Sheet in the ordinary course of business and consistent with past practice that
are not in excess of $60,000 in the aggregate or $30,000 individually. As of the
date hereof, the Company has no indebtedness for borrowed money other than as
set forth in Section 2.6 of the Schedule of Exceptions. The Company maintains
standard systems of accounting established and administered in accordance with
GAAP. Except as set forth in Section 2.6 of the Schedule of Exceptions, the
Company is not a guarantor, indemnitor, surety or other obligor of any
indebtedness of any other Person. Section 2.6 of the Schedule of Exceptions sets
forth all promissory notes, loans, lines of credits or similar obligations
pursuant to which the Company is an obligor, together with all the amounts owed
by the Company under such obligations, and all liabilities under equipment
leases of the company as of January 31, 2000. Section 2.6 of the Schedule of
Exceptions sets forth all indebtedness and other obligations of the shareholders
relating to the Company, together with all the amounts owed by such shareholders
in respect thereof, as of the Closing.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except as set forth in Section 2.7 of the Schedule of Exceptions or as
contemplated by this Agreement, since the date of the Company Balance Sheet, no
event has occurred and no state of facts has developed or is continuing that has
had or could reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect, and neither the Company nor any of its officers
or directors in their representative capacities have:
(a) received notice that there has been or will be a loss
of, or contract cancellation by, any current customer, supplier or licensor of
the Company, which loss or cancellation would result in lost annual revenues to
the Company of at least $60,000;
(b) taken any action or entered into or agreed to enter
into any transaction, agreement or commitment other than in the ordinary course
of business and consistent with past practice;
(c) forgiven or canceled any indebtedness for borrowed
money or waived any claims or rights of material value (including, without
limitation, any indebtedness owing to the Company by any shareholder, officer,
director, employee or affiliate of the Company);
(d) granted, other than in the ordinary course of
business and consistent with past practice, any increase in the compensation of
directors, officers, employees or consultants;
(e) borrowed or agreed to borrow any funds, assumed or
become subject to, whether directly or by way of guarantee or otherwise, any
liabilities or obligations (absolute, accrued or contingent), or incurred any
liabilities or obligations (absolute, accrued or contingent) except liabilities
and obligations incurred in the ordinary course of business and consistent with
past practice not to exceed $60,000 in the aggregate or $30,000 individually, or
increased, or experienced any change in any assumptions underlying or methods of
calculating, any bad debt, contingency or other reserves;
(f) paid, discharged or satisfied any claims, liabilities
or obligations (absolute, accrued or contingent) other than the payment,
discharge or satisfaction in the ordinary course of business and consistent with
past practice of claims, liabilities and obligations reflected or reserved
against in the Company Balance Sheet or incurred in the ordinary course of
business and consistent with past practice since the date of the Company Balance
Sheet, or prepaid any obligation having a fixed maturity of more than 90 days
from the date such obligation was issued or incurred;
(g) permitted or allowed any of its property or assets
(real, personal or mixed, tangible or intangible) to be subjected to any
mortgage, pledge, lien, security interest, encumbrance, institutional control,
restriction or charge, except (i) conditional sales or similar security
interests granted in connection with the purchase of equipment or supplies in
the ordinary course of business, (ii) Encumbrances for current taxes not yet due
and payable, (iii) landlord's liens for rental payments not yet due and payable,
and (iv) mechanics', materialmen's, carriers' and other similar statutory liens
securing indebtedness that is in the aggregate less than $30,000, was incurred
in the ordinary course of business and is not yet due and payable;
(h) written down the value of any inventory or written
off as uncollectible any notes or accounts receivable, except for write-downs
and write-offs that are in the aggregate less than $30,000, incurred in the
ordinary course of business and consistent with past practice;
(i) sold, transferred or otherwise disposed of any of its
properties or assets (real, personal or mixed, tangible or intangible) with an
aggregate net book value in excess of $10,000, except the sale of inventory in
the ordinary course of business and consistent with past practice;
(j) disposed of or permitted to lapse any rights to the
use of any trademark, trade name, patent or copyright, or disposed of or
disclosed to any Person other than representatives of Parent any trade secret,
formula, process or know-how not theretofore a matter of public knowledge
without obtaining an appropriate confidentiality agreement from such person;
(k) made any single capital expenditure or commitment in
excess of $30,000 for additions to property, plant, equipment or intangible
capital assets or made aggregate capital expenditures in excess of $60,000 for
additions to property, plant, equipment or intangible capital assets;
(l) made any change in any method of accounting or
accounting practice or internal control procedure;
(m) issued any capital stock (except for shares issued
pursuant to the exercise of options under the Company Option Plan), other
securities or options or other rights to acquire capital stock or other
securities, or declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock, or redeemed, purchased or
otherwise acquired, directly or indirectly, any shares of capital stock or other
securities of the Company, or otherwise permitted the withdrawal by any of the
holders of capital stock of the Company of any cash or other assets (real,
personal or mixed, tangible or intangible), in compensation, indebtedness or
otherwise, other than payments of compensation, granting of options (other than
options for 168,500 granted March 10, 2000 under the Company Option Plan) of
Company Capital Stock in the ordinary course of business and consistent with
past practice;
(n) except for transactions that are not material in the
aggregate, loaned or advanced any amount to, or sold, transferred or leased any
properties or assets (real, personal or mixed, tangible or intangible) to, or
entered into any agreement or arrangement with, any of the Company's officers,
directors or employees or any affiliate of the Company's officers directors or
employees, except directors' fees and compensation paid to officers and
employees at rates consistent with past practice, and except stock purchase
agreements and stock option agreements with such individuals;
(o) entered into or agreed to enter into, or otherwise
suffered to be outstanding, any power of attorney of the Company or any
obligations or liabilities (absolute, accrued or contingent) of the Company, as
guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise, in
respect of the obligation of any other Person;
(p) received notice of, or otherwise obtained knowledge
of: (i) any claim, action, suit, arbitration, proceeding or investigation
involving, pending against or threatened against the Company or any employee of
the Company in his or her capacity as a representative of the Company before or
by any court or governmental or nongovernmental department, commission, board,
bureau, agency or instrumentality, or by any other Person; (ii) any valid basis
for any material claim, action, suit, arbitration, proceeding, investigation or
the application of any fine or penalty adverse to the Company before or by any
Person; or (iii) any outstanding or unsatisfied judgments, orders, decrees or
stipulations to which the Company or any officer, director or employee of the
Company is a party that relate directly to the transactions contemplated herein
or that have had or could reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect;
(q) entered into or agreed to any sale, assignment,
transfer or license of any IP Rights or Technology (as defined in Section 2.15
below) or other intangible assets of the Company to a third party, except for
non exclusive licenses granted to customers in the ordinary course of business
(true and complete copies of which have been provided to Parent), or any
amendment or change to any existing license or other agreement relating to IP
Right or Technology;
(r) incurred, assumed or guaranteed any indebtedness for
borrowed money other than in the ordinary and usual course of business,
consistent with past practice, and in amounts and on terms consistent with past
practice, or granted any security interest in any assets; or
(s) agreed, whether in writing or otherwise, to take any
action described in this Section 2.7.
2.8 TAXES
(a) (i) All Tax Returns (as defined below) required to be filed by or on
behalf of the Company have been filed on a timely basis with the appropriate
governmental authority in all jurisdictions in which such Tax Returns are
required to be filed, and all such Tax Returns were (at the time they were
filed) true, correct and complete in all respects; (ii) all Taxes (as defined
below) of the Company (whether or not reflected on any Tax Return) have been
fully and timely paid; (iii) no waivers of statutes of limitation have been
given or requested with respect to the Company in connection with any Tax
Returns covering the Company with respect to any Taxes payable by it; (iv) no
taxing authority in a jurisdiction where the Company does not file Tax Returns
has made a claim, assertion or threat to the Company that the Company is or may
be subject to taxation by such jurisdiction; (v) the Company has duly and timely
withheld from employee salaries, wages and other compensation and paid over to
the appropriate governmental authority all amounts required to be so withheld
and paid over for all periods under all applicable laws; and no amounts have
been or would be required to be withheld with respect to the lapse of
restrictions on Company Capital Stock; (vi) there are no liens with respect to
Taxes on any of the Company's property or assets other than liens for current
Taxes not yet payable; (vii) there are no Tax rulings, requests for rulings, or
closing agreements requested by or to which the Company is a party that could
affect the liability for Taxes or the amount of taxable income of the Company
for any period (or portion of a period) after the date hereof; and (viii) any
adjustment of Taxes of the Company made by the IRS in any examination that is
required to be reported to the appropriate state, local or foreign taxing
authorities has been reported, and any additional Taxes due with respect thereto
have been paid.
(b) Neither the Company nor any other Person on behalf of the Company (i)
has filed a consent pursuant to Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by the Company;
(ii) has executed or entered into a closing agreement pursuant to Section 7121
of the Code or any predecessor provision thereof or any similar provision of
state, local or foreign law; or (iii) has agreed to or is required to make any
adjustments pursuant to Section 481(a) of the Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or has notice that a governmental authority has proposed any such
adjustment or change in accounting method.
(c) There is no dispute or claim concerning any Tax liability of the
Company either (i) claimed or raised by any authority in writing or (ii) as to
which any of the directors and officers (and employees responsible for Tax
matters) of the Company have knowledge based on contact or correspondence with
any agent of such authority. Section 2.8(c) of the Schedule of Exceptions lists
all Tax Returns filed with respect to the Company for taxable periods ended on
or after the Company's inception or the inception of any predecessor that have
been audited, and indicates those Tax Returns that currently are the subject of
audit. The Company has delivered to Parent correct and complete copies of all
Tax Returns, examination reports and statements of deficiencies assessed against
or agreed to by the Company since the Company's inception.
(d) The Company has not made any payments, is not obligated to
make any payments and is not a party to any agreement that
under certain circumstances could obligate it to make any
payments that will not be deductible under Section 280G of the
Code (or any similar provision of state, local or foreign
law).
(e) The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(f) The Company is not a party to any Tax allocation or sharing agreement.
The Company (i) has not been a member of a Tax Group (as defined below) filing a
consolidated income Tax Return under Section 1501 of the Code (or any similar
provision of state, local or foreign law) and (ii) does not have any liability
for Taxes of any Person under Treasury Regulations Section 1.1502-6 (or any
similar provision of state, local or foreign law) as a transferee or successor
by contract or otherwise.
(g) The unpaid Taxes of the Company (i) did not, as of January 31, 2000,
exceed the reserve for Tax liability set forth on the face (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) of the Company Balance Sheet and (ii) do not exceed that
reserve as adjusted for the passage of time and operations in the ordinary
course of business through the Closing Date.
(h) Except as disclosed in the Company's stock transfer records attached to
Section 2.8(h) of the Schedule of Exceptions, there has been no ownership
change, as defined in Section 382(g) of the Code (or any comparable provision of
state, local or foreign law), with respect to the Company during or after any
taxable period in which the Company incurred a net operating loss. Sections
2.8(h) of the Schedule of Exceptions sets forth the amount of any net operating
loss, net capital loss, unused investment or other credit, unused foreign tax or
excess charitable contribution allocable to the Company.
As used in this Agreement, the following terms shall have the following
meanings:
"TAXES" means all foreign, federal, state, county or local taxes, charges, fees,
levies, imposts, duties and other assessments, including, but not limited to,
any income, alternative minimum or add-on, estimated, gross income, gross
receipts, sales, use, transfer, transactions, intangibles, ad valorem,
value-added, franchise, registration, title, license, capital, paid-up capital,
profits, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, real property, recording, personal property, federal highway use,
commercial rent, environmental (including, but not limited to, taxes under
Section 59A of the Code) or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalties or additions to tax; and "TAX" means any
of the foregoing Taxes.
"TAX GROUP" means any federal, state, local or foreign consolidated, affiliated,
combined, unitary or other similar group of which the Company is now or was
formerly a member.
"TAX RETURNS" means any return, declaration, report, claim or refund,
information return, statement or other similar document relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
2.9 PROPERTY
(a) Section 2.9(a) of the Schedule of Exceptions contains a complete and
accurate list of all real property owned, leased or currently being used by the
Company (the "REAL PROPERTY"). The Company has delivered to Parent true and
complete copies of all written leases, subleases, rental agreements, contracts
of sale, tenancies or licenses relating to the Real Property and written
summaries of the terms of any oral leases, subleases, rental agreements,
contracts of sale, tenancies or licenses to which the Real Property is subject.
(b) Section 2.9(b) of the Schedule of Exceptions contains a complete and
accurate list of any item of personal property having a current value in excess
of $6,000 that is owned, leased, rented or used by the Company (the "PERSONAL
PROPERTY"). The Company has delivered to Parent true and complete copies of all
leases, subleases, rental agreements, contracts of sale, tenancies or licenses
to which any item of Personal Property is subject.
(c) The Real Property and the Personal Property include all the properties
and assets (whether real, personal or mixed, tangible or intangible) (other
than, in the case of the Personal Property, property rights with an individual
current value of less than $6,000 and the Technology and IP Rights) reflected in
the Company Balance Sheet (except for such properties or assets sold since the
date of the Company Balance Sheet in the ordinary course of business and
consistent with past practice) and all the properties and assets purchased by
the Company since the date of the Company Balance Sheet (other than, in the case
of the Personal Property, property rights with an individual value of less than
$6,000 and the Technology and IP Rights). The Real Property and the Personal
Property include all material property used in the business of the Company,
other than the Technology and IP Rights. The Company's offices and other
structures and its Personal Property are in good operating condition and repair,
normal wear and tear excepted, are adequate for the uses to which they are being
put, and, to the Company's knowledge, comply in all material respects with
applicable safety and other laws and regulations.
(d) The Company's title to or leasehold interest in each parcel of the Real
Property is free and clear of all liens, mortgages, pledges, deeds of trust,
security interests, charges, encumbrances and other adverse claims or interests
of any kind (each, an "ENCUMBRANCE"), except for Encumbrances related to Taxes
not yet due and payable and landlords' liens for rental payments not yet due and
payable. Each lease of any portion of the Real Property is valid, binding and
enforceable in accordance with its terms against the parties thereto and, to the
Company's knowledge, against any other Person with an interest in such Real
Property, the Company has performed in all material respects all obligations
imposed on it thereunder, and neither the Company nor, to the Company's
knowledge, any other party thereto is in material default thereunder, nor is
there any event that with notice or lapse of time, or both, would constitute a
material default thereunder by the Company or, to the Company's knowledge, by
any other party. The Company has not granted any lease, sublease, tenancy or
license of, or entered into any rental agreement or contract of sale with
respect to, any portion of the Real Property.
(e) The Personal Property is free and clear of all Encumbrances (except as
reflected in the Financial Statements, except for Encumbrances created by the
lessors thereof, except for Encumbrances related to Taxes not yet due and
payable by the Company), and except as set forth in Section 2.9(e) of the
Schedule of Exceptions, and, other than leased Personal Property that is so
noted on the list supplied pursuant to Section 2.9(b), the Company owns such
Personal Property. Each lease, license, rental agreement, contract of sale or
other agreement to which the Personal Property is subject is valid, binding and
enforceable in accordance with its terms against the Company and, to the
Company's knowledge, each other party thereto, the Company has performed in all
material respects all obligations imposed on it thereunder, and neither the
Company nor, to the Company's knowledge, any other party thereto is in material
default thereunder, nor is there any event that with notice or lapse of time, or
both, would constitute a material default by the Company or, to the Company's
knowledge, any other party thereunder. The Company has not granted any lease,
sublease, tenancy or license of any portion of the Personal Property, except in
the ordinary course of business.
2.10 CONTRACTS
2.10.1 MATERIAL CONTRACTS
Section 2.10.1 of the Schedule of Exceptions contains a complete and accurate
list (other than the IP Rights listed in Section 2.15 of the Schedule of
Exceptions) of all contracts, agreements and understandings, oral or written, to
which the Company is currently a party or by which the Company is currently
bound that (x) provide for potential payments by or to the Company in excess of
$30,000, (y) are otherwise material to the Company's business or (z) the loss of
which could reasonably be expected to cause a Company Material Adverse Effect
(collectively, "MATERIAL CONTRACTS"), including, without limitation, acquisition
agreements, strategic alliance agreements, stock purchase agreements,
shareholders agreements, security agreements, license agreements, software
development agreements, distribution agreements, joint venture agreements,
reseller agreements, credit agreements, and instruments relating to the
borrowing of money. All such Material Contracts set forth in
Section 2.10.1 of the Schedule of Exceptions are valid, binding and enforceable
in accordance with their terms against the Company and, to the Company's
knowledge, each other party thereto, and are in full force and effect, the
Company has performed in all material respects all obligations imposed on it
thereunder, and neither the Company nor, to the Company's knowledge, any other
party thereto is in default thereunder, nor to the Company's knowledge is there
any event that with notice or lapse of time, or both, would constitute a
material default by the Company or, to the Company's knowledge, any other party
thereunder. True and complete copies of each such Material Contract (or written
summaries of the terms of any such oral contract) have been delivered to Parent
by the Company. Except as set forth in Section 2.10.1 of the Schedule of
Exceptions (which shall be considered Material Contracts), the Company has none
of the following:
(a) contracts with directors, officers, shareholders,
employees, agents, consultants, advisors, salespeople, sales representatives,
distributors or dealers that cannot be canceled by the Company within 30 days'
notice without liability, penalty or premium, any agreement or arrangement
providing for the payment of any bonus or commission based on sales or earnings,
or any compensation agreement or arrangement affecting or relating to former
employees of the Company;
(b) employment agreements, whether express or implied, or
any other agreements for services that contain severance or termination pay
liabilities or obligations;
(c) noncompetition agreements or other arrangements that
would prevent the Company from carrying on its business anywhere in the world;
(d) notices that any party to a contract listed in
Section 2.10.1 of the Schedule of Exceptions intends to cancel, terminate or
refuse to renew such contract (if such contract is renewable);
(e) material disputes with any of its suppliers,
customers, distributors, OEM resellers, licensors or licensees;
(f) product distribution agreements, development
agreements or license agreements as licensor or licensee (except for standard
nonexclusive software licenses granted to end-user customers in the ordinary
course of business, the form of which has been provided to Parent, or standard
licenses purchased by the Company for off-the-shelf software);
(g) joint venture contracts or arrangements or any other
agreements that involve a sharing of profits with other persons;
(h) instruments evidencing indebtedness for borrowed
money by way of a direct loan, sale of debt securities, purchase money
obligation, conditional sale or guarantee, or otherwise, except for trade
indebtedness incurred in the ordinary course of business, and except as
disclosed in the Financial Statements; and
(i) binding revenue sharing contracts, agreements,
commitments or understandings, oral or written, with any third party.
2.10.2 REQUIRED CONSENTS
The execution and delivery of this Agreement and the performance of the
obligations of the Company hereunder will not constitute a default under any
Material Contract and do not require the consent of any other party to any
Material Contract, except for those consents listed in Section 2.10.2 of the
Schedule of Exceptions, all of which will be obtained at or prior to the
Closing.
2.11 CLAIMS AND LEGAL PROCEEDINGS
Except as set forth in Section 2.11 of the Schedule of Exceptions, there are no
claims, actions, suits, arbitrations, investigations or proceedings pending or,
to the Company's knowledge, threatened against or involving the Company before
or by any court or governmental or nongovernmental department, commission,
board, bureau, agency or instrumentality, or by any other Person. To the
Company's knowledge, there is no valid basis for any claim, action, suit,
arbitration, proceeding or investigation before or by any Person, except as has
not had and could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. There are no material outstanding
or unsatisfied judgments, orders, decrees or stipulations to which the Company
is a party. Section 2.11 of the Schedule of Exceptions sets forth a description
of any material disputes that have been settled or resolved by litigation or
arbitration since the Company's inception.
2.12 LABOR AND EMPLOYMENT MATTERS
Except as set forth in Section 2.12 of the Schedule of Exceptions, there are no
material labor disputes, employee grievances or disciplinary actions pending or,
to the Company's knowledge, threatened against or involving the Company or any
of its present or former employees in connection with their employment at the
Company. The Company has complied with all provisions of law relating to
employment and employment practices, terms and conditions of employment, wages
and hours. The Company is not engaged in any unfair labor practice and has no
liability for any arrears of wages or Taxes or penalties for failure to comply
with any such provisions of law. There is no labor strike, dispute, slowdown or
stoppage pending or, to the Company's knowledge, threatened against or affecting
the Company, and the Company has not experienced any work stoppage or other
labor difficulty since its inception. No collective bargaining agreement is
binding on the Company. The Company has no knowledge of any organizational
efforts presently being made or threatened by or on behalf of any labor union
with respect to employees of the Company. Except as set forth in Section 2.12 of
the Schedule of Exceptions, each employee, officer and consultant of the Company
has executed nondisclosure, invention assignment, noncompetition and
nonsolicitation agreements in the form previously provided to Parent. To the
Company's knowledge, no employee (or person performing similar functions) of the
Company is in violation of any such agreement or any employment agreement,
patent disclosure agreement, proprietary information agreement or other contract
or agreement relating to the relationship of such employee with the Company or
any other party. All employees of the Company are employed on an "at will"
basis, and are eligible to work and are lawfully employed in the United States.
2.13 EMPLOYEE BENEFIT PLANS
2.13.1 EMPLOYEE BENEFIT PLAN LISTING
Section 2.13.1 of the Schedule of Exceptions accurately lists all retirement,
pension, profit sharing, deferred compensation, savings, bonus, incentive,
cafeteria, flexible benefits, medical, dental, vision, hospitalization, life
insurance, group insurance, medical expense reimbursement, dependent care
assistance, tuition reimbursement, disability, accident, sick pay, holiday,
vacation, severance, stock purchase, stock option, stock appreciation rights,
fringe benefit and other employee benefit plans, funds, policies, programs,
contracts, arrangements and payroll practices (including, but not limited to,
all "employee benefit plans," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all
employment, consulting and personal service contracts and agreements, whether
formal or informal, whether written or unwritten, and whether legally binding or
not, (a) sponsored, maintained or contributed to by the Company, (b) covering or
benefiting any current or former officer, employee, agent, director or
independent contractor of the Company (or any dependent or beneficiary of any
such individual), or (c) with respect to which the Company has (or could have)
any obligation or liability (such plans, funds, policies, programs, contracts,
arrangements and payroll practices are hereinafter referred to collectively as
"EMPLOYEE BENEFIT PLANS" and each individually as an "EMPLOYEE BENEFIT PLAN").
The Company does not have any agreement, arrangement, commitment or obligation,
whether formal or informal, whether written or unwritten and whether legally
binding or not, to
create (or contribute to) any additional employee benefit plan, fund, policy,
program, contract, arrangement or payroll practice, or to modify or amend any
existing Employee Benefit Plan. There has been no amendment, written
interpretation or announcement (whether or not written) by the Company relating
to, or change in participation or coverage under, any Employee Benefit Plan
that, either alone or together with other such items or events, could increase
the expense of maintaining the Employee Benefit Plan above the level of expense
incurred with respect thereto for the most recent fiscal year included in the
Financial Statements except where such amendment or change is required by law
and set forth in Schedule 2.13.1 to the Disclosure Memorandum. The terms of each
Employee Benefit Plan permit the Company to amend or terminate such Employee
Benefit Plan at any time and for any reason without penalty or liability to
Company. The Company does not maintain or contribute to, and has never
maintained or contributed to (or been obligated to contribute to), any employee
pension benefits plan as defined in Section 3(2) of ERISA that is subject to
Title IV of ERISA or Section 412 of the Code. The Company is not, and has never
been, a member of (i) a controlled group of corporations, within the meaning of
Section 414(b) of the Code, (ii) a group of trades or businesses under common
control, within the meaning of Section 414(c) of the Code, (iii) an affiliated
service group, within the meaning of Section 414(m) of the Code, or (iv) any
other group of Persons treated as a single employer under Section 414(o) of the
Code.
2.13.2 DOCUMENTS PROVIDED
The Company has delivered to Parent true, correct and complete copies (or, in
the case of unwritten Employee Benefit Plans, descriptions) of all documents
containing the terms of such Employee Benefit Plans (and all amendments
thereto), along with, to the extent applicable to the particular Employee
Benefit Plan, the following information: (a) copies of the last three annual
reports (Form 5500 series) filed with respect to such Employee Benefit Plan, (b)
copies of the summary plan descriptions, summaries of material modifications and
all material employee manuals or communications filed or distributed with
respect to such Employee Benefit Plan during the last three years; (c) copies of
all contracts (and any amendments thereto) relating to such Employee Benefit
Plan, including, but not limited to, service provider agreements, administrative
service agreements and insurance contracts; (d) copies of the current
determination letter or opinion letter received from the Internal Revenue
Service regarding each Employee Benefit Plan's qualified status under Section
401(a) of the Code (if applicable); and (e) copies of each trust agreement for
each Employee Benefit Plan.
2.13.3 COMPLIANCE
With respect to each Employee Benefit Plan, (a) such Employee Benefit Plan is,
and at all times since its inception has been, maintained, administered,
operated and funded in all material respects in accordance with its terms and in
compliance in all material respects with all applicable laws, statutes, orders,
rules and regulations, and all requirements prescribed thereby, including, but
not limited to, ERISA and the Code; and (b) the Company, and, to the Company's
knowledge, each fiduciary of such Employee Benefit Plan and all other Persons
have, at all times, properly performed all obligations, whether arising by
operation of law or by contract, required to be performed by each of them in
connection with such Employee Benefit Plan. No event or omission has occurred,
or is reasonably expected by the Company to occur (including, but not limited
to, any of the transactions contemplated in or by this Agreement), with respect
to any Employee Benefit Plan that has or could subject, directly or indirectly,
the Company or any other Person to a tax under Chapter 43 of Subtitle D of the
Code or a penalty under Part 5 of Subtitle B of Title I of ERISA.
2.13.4 CONTRIBUTIONS AND PREMIUM PAYMENTS
All contributions, premiums and other payments due or required to be made to
each Employee Benefit Plan under the terms of such Employee Benefit Plan, ERISA,
the Code or other applicable law have been timely paid, or, if not yet due, have
been properly recorded on the books of the Company and will be timely paid if
they become due prior to or upon the Closing Date.
2.13.5 MULTIEMPLOYER AND TITLE IV PLANS
The Company does not maintain or contribute to, and has never maintained or
contributed to (or been obligated to contribute to), any multiemployer plan as
defined in Section 3(37) or Section 4001(a)(3) of ERISA or 414(f) of the Code,
or any employee benefit plan, fund, program, contract or arrangement that is
subject to Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA.
2.13.6 POST-TERMINATION WELFARE BENEFITS
Neither the Company nor any Employee Benefit Plan provides or has any obligation
to provide (or contribute toward the cost of) health, severance or any other
welfare benefits (within the meaning of Section 3(1) of ERISA) with respect to
any current or former officer, employee, agent, director or independent
contractor of the Company or any other entity beyond such individual's
retirement or other termination of service, other than continuation coverage
mandated by Sections 601 through 608 of ERISA or Section 4980B(f) of the Code.
2.13.7 SUITS, CLAIMS AND INVESTIGATIONS
There are no actions, suits or claims (other than routine claims for benefits)
pending or, to the Company's knowledge, threatened with respect to (or against
the assets of) any Employee Benefit Plan, nor to the Company's knowledge is
there a basis for any such action, suit or claim. No Employee Benefit Plan is
currently under investigation, examination, audit or review, directly or
indirectly, by the IRS, the Department of Labor (the "DOL") or any other
governmental entity or agency, and, to the Company's knowledge, no such action
is contemplated or under consideration by the IRS, the DOL or any other
governmental entity or agency.
2.13.8 PAYMENTS RESULTING FROM TRANSACTIONS
Except as set forth in Section 2.13.8 of the Schedule of Exceptions, neither the
execution and delivery of this Agreement or any of the other Operative Documents
nor the consummation of the transactions contemplated in (or by) this Agreement
or any of the other Operative Documents will (a) entitle any current or former
officer, employee, agent, director or independent contractor of the Company to
severance pay or any other payment from the Company, or otherwise increase the
amount of compensation due to any such individual or result in the acceleration
of the vesting of any of the Options, or (b) result in any benefit or right
becoming established or increased, or accelerate the time of payment or vesting
of any benefit, under any Employee Benefit Plan, whether or not some other
subsequent action or event would be required to trigger any of the items
specified in (a) or (b) above.
2.14 PERSONNEL
Section 2.14 of the Schedule of Exceptions lists (a) the names and current
compensation amounts of all directors and officers of the Company; (b) the wage
rates for nonsalaried and nonofficer salaried employees of the Company by
classification, and all union contracts (if any); (c) the names and current
compensation packages of all independent contractors and consultants of the
Company; and (d) the family relationships, if any, among such personnel. The
Company is not in default with respect to any of its obligations referred to in
clause (b) above and has no, and will not incur any, material obligation or
liability for severance or back pay owed through or by virtue of the Merger.
2.15 INTELLECTUAL PROPERTY
2.15.1 GENERAL
The Company owns all right, title and interest in and to, or has a valid and
enforceable license in and to, the following as required to conduct its business
as now conducted and as proposed to be conducted: (a) all
products, tools, computer programs, specifications, source code, object code,
graphics, devices, techniques, algorithms, methods, processes, procedures,
packaging, trade dress, formulae, drawings, designs, improvements, discoveries,
concepts, user interfaces, software, "look and feel," development and other
tools, content, inventions (whether or not patentable or copyrightable and
whether or not reduced to practice), designs, logos, know-how, concepts and
other technology that are now developed, produced, used, marketed or sold by the
Company (collectively, the "TECHNOLOGY"); and (b) all intellectual property and
other proprietary rights related to the Technology, including, without
limitation, all trade names, trademarks, domain names, service marks, logos,
brand names and other identifiers, trade secrets, copyrights and domestic and
foreign patents, and, to the extent applied for, the registrations,
applications, renewals, extensions and continuations (in whole or in part)
thereof, all goodwill associated therewith and all rights and causes of action
for infringement, misappropriation, misuse, dilution or unfair trade practices
associated therewith (collectively, the "TECHNOLOGY RIGHTS"). The Technology,
excluding the Third Party Technology (as defined below), is sometimes referred
to herein as the "COMPANY TECHNOLOGY," and the Technology Rights, to the extent
related to the Company Technology and including the Company IP Registrations (as
defined below), are sometimes referred to herein as the "COMPANY IP RIGHTS."
Section 2.15.1 of the Schedule of Exceptions lists all patents, patent
applications, copyright registrations (and applications therefor) and trademark
registrations (and applications therefor) relating to any Company Technology or
Company IP Rights (collectively, the "Company IP REGISTRATIONS"). Except as set
forth in Section 2.15.1 of the Schedule of Exceptions, the Company owns all
right, title and interest, free and clear of any Encumbrances, in and to the
Company Technology and the Company IP Rights. The Company Technology includes,
without limitation, the Technology listed in Section 2.15.1 of the Schedule of
Exceptions.
2.15.2 THIRD PARTY TECHNOLOGY
Section 2.15.2 of the Schedule of Exceptions sets forth a list of all Technology
used in the Company's business for which the Company does not own all right,
title and interest (collectively, the "THIRD PARTY TECHNOLOGY"), and all license
agreements or other contracts pursuant to which the Company has the right to use
(in the manner used by the Company) the Third Party Technologies (the "THIRD
PARTY LICENSES"), indicating, with respect to each of the Third Party
Technologies listed therein, the owner thereof and the Third Party License
applicable thereto (other than shrink wrap licenses, shareware, open source and
other public domain software). The Company has the lawful right to use (free of
any material restriction not expressly set forth in the Third Party Licenses)
all Third Party Technology necessary for the conduct of the Company's business
as now conducted and as proposed to be conducted in any written materials
furnished by the Company to Parent. All Third Party Licenses are valid, binding
and in full force and effect, the Company and, to the Company's knowledge, each
other party thereto have performed in all material respects their obligations
thereunder, and neither the Company nor, to the Company's knowledge, any other
party thereto is in default thereunder, nor to the Company's knowledge has there
occurred any event or circumstance that with notice or lapse of time or both
would constitute a default or event of default on the part of the Company or, to
the Company's knowledge, any other party thereto or give to any other party
thereto the right to terminate or modify any Third Party License. The Company
has not received notice that any party to any Third Party License intends to
cancel, terminate or refuse to renew (if renewable) such Third Party License or
to exercise or decline to exercise any option or right thereunder.
2.15.3 MAINTENANCE OF RIGHTs
The Company has not conducted its business, and has not used or enforced (or, to
its knowledge, failed to use or enforce) the Company IP Rights, in a manner that
would result in the abandonment, cancellation or unenforceability of any item of
the Company IP Rights, and the Company has not taken (or, to its knowledge,
failed to take) any action that would result in the forfeiture or relinquishment
of any Company IP Rights, in each case where such abandonment, cancellation,
unenforceability, forfeiture or relinquishment has had or could reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect. Except as set forth in Section 2.15.3 of the Schedule of Exceptions, the
Company has not granted or agreed to grant to any third party any rights or
permissions to use any of the Technology or the Technology Rights. To Company's
knowledge, except pursuant to reasonably prudent safeguards, (a) no third party
has received from or through the Company any confidential information relating
to the Technology or the Technology Rights therein and thereto, and (b) the
Company is not under any contractual or other obligation to disclose to any
third party any Company Technology.
2.15.4 THIRD PARTY CLAIMS
(a) The Company has not received any notice or claim (whether written, oral
or otherwise) challenging the Company's ownership or rights in the Company
Technology or the Company IP Rights or claiming that any other person or entity
has any legal or beneficial ownership with respect thereto; (b) all the Company
IP Rights are legally valid and enforceable without any material qualification,
limitation or restriction on their use, and the Company has not received any
notice or claim (whether written, oral or otherwise) challenging the validity or
enforceability of any of the Company IP Rights; and (c) to the Company's
knowledge, no other person or entity is infringing or misappropriating any part
of the Company IP Rights or otherwise making any unauthorized use of the Company
Technology.
2.15.5 INFRINGEMENT BY THE COMPANY
(a) The use of any of the Technology or the Technology Rights in the
Company's business does not infringe, violate or interfere with or constitute an
appropriation of any right, title or interest (i) to the Company's knowledge, of
any patent or trademark held by any other person or entity or (ii) of any
copyright, trade secret right or other intellectual property right held by any
other person or entity, and, with respect to both clauses (i) and (ii) except as
set forth in Section 2.15.5 of the Schedule of Exceptions, there have been no
claims made with respect thereto; (b) the use in the United States of the
trademarks listed in Section 2.15.1 of the Schedule of Exceptions in the
Company's business does not infringe, violate or interfere with or constitute an
appropriation of any right, title or interest held by any other person or
entity, and there have been no claims with respect thereto; and (c) the Company
has not received any notice or claim (whether written, oral or otherwise)
regarding any infringement, misappropriation, misuse, abuse or other
interference with any third party intellectual property or proprietary rights
(including, without limitation, infringement of any patent, copyright, trademark
or trade secret right of any third party) by the Company.
2.15.6 WARRANTY AGAINST DEFECTS
Except as set forth in Schedule 2.15.6 to the Schedule of Exceptions, the
Company Technology (other than Company Technology that is not yet fully
developed) is free from known material defects that could reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect and
substantially conforms to the applicable specifications, documentations and
samples of such Company Technology.
2.15.7 DOMAIN NAMES
Section 2.15.6 of the Schedule of Exceptions sets forth a list of all Internet
domain names used by the Company in its business (collectively, the "DOMAIN
NAMES"). The Company has, and upon the Closing the Surviving Corporation will
have, a valid domain name registration and all material rights (free of any
material restriction) in and to the Domain Names, including, without limitation,
all rights necessary to continue to conduct the Company's business as it is
currently conducted.
2.15.8 YEAR 2000
The Company Technology will accurately process, calculate, compare and sequence
date and time data from, into, between and beyond the year 2000 and other years,
including leap year calculations, when used in accordance with Company
documentation, and no date and time data will result in a material adverse
effect on
the operation of the Company's business or require a correction or other fix
involving a material expenditure of funds, excluding any effects caused by
failures of technology other than Company Technology.
2.16 CORPORATE BOOKS AND RECORDS
The Company has furnished to Parent or its representatives for their examination
true and complete copies of (a) the Articles of Incorporation and Bylaws of the
Company as currently in effect, including all amendments thereto, (b) the minute
books of the Company, and (c) the stock issuance and transfer books of the
Company and Option and Warrant records. Such minutes reflect all meetings of and
actions by the Company's shareholders, Board of Directors and any committees
thereof since the Company's inception. Such stock transfer books accurately
reflect all issuances and transfers of shares of capital stock of the Company,
and the Option and Warrant records accurately reflect all grants of Options and
Warrants, since the Company's inception.
2.17 PERMITS
The Company has received all required governmental approvals, authorizations,
consents, licenses, orders, registrations and permits of all agencies, whether
federal, state, local or foreign (the "PERMITS"), the failure to obtain of which
has had or could reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. Section 2.17 of the Schedule of
Exceptions contains a list of all Permits with expiration dates, if any. The
Company is in compliance in all material respects with the terms of all Permits,
and all Permits are valid and in full force and effect, and no proceeding is
pending or, to the knowledge of the Company, threatened, the object of which is
to revoke, limit or otherwise affect any Permit, all except as has not had or
could not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. The Company has not received any notifications
of any asserted failure to obtain any Permit or any past and unremedied failure
to obtain any Permit.
2.18 COMPLIANCE WITH LAWS
The Company is and has at all times been in compliance with all federal, state,
local and foreign laws, rules, regulations, ordinances, decrees, orders and
similar mandates applicable to the Company and its business, assets and
employees, except as has not had and could not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, including,
without limitation, all such laws, rules, ordinances, decrees, orders or
mandates relating to antitrust, consumer protection and privacy, intellectual
property, unfair trade, false advertising, currency exchange, environmental
protection, equal opportunity, health, occupational safety, pension, securities
and trading-with-the-enemy matters. The Company has not received any
notification of any asserted present or past unremedied failure by the Company
to comply with any of such laws, rules, ordinances, decrees, orders or mandates.
2.19 INSURANCE
Section 2.19 of the Schedule of Exceptions sets forth a true and correct list of
all insurance policies maintained by the Company. The Company maintains
commercially reasonable levels of (a) insurance on its property (including
leased premises) that insures against loss or damage by fire or other casualty
and (b) insurance against liabilities, claims and risks of a nature and in such
amounts as are normal and customary in the Company's industry for companies of
similar size and financial condition. All insurance policies of the Company are
in full force and effect, all premiums with respect thereto covering all periods
up to and including the date this representation is made have been paid, and no
notice of cancellation or termination has been received with respect to any such
policy or binder. Such policies or binders are sufficient for compliance with
all requirements of law currently applicable to the Company and of all
agreements to which the Company is a party (except as has not had and could not
reasonably be expected to have a Company Material Adverse Effect), will remain
in full force and effect through the respective expiration dates of such
policies or binders without the payment of additional premiums, and will not in
any way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. The Company has not been refused any insurance
with respect to its assets or operations, nor has its coverage been limited, by
any insurance carrier to which it has applied for any such insurance or with
which it has carried insurance.
2.20 BROKERS OR FINDERS
Except with respect to Pacific Crest Securities, the Company has not incurred,
and will not incur, directly or indirectly, as a result of any action taken by
or on behalf of the Company, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with the Merger, this
Agreement or any transaction contemplated hereby.
2.21 ABSENCE OF QUESTIONABLE PAYMENTS
Neither the Company nor any director, officer, agent, employee or other Person
acting on behalf of the Company has used any Company funds for improper or
unlawful contributions, payments, gifts or entertainment, or made any improper
or unlawful expenditures relating to political activity to domestic or foreign
government officials or others. The Company has reasonable financial controls to
prevent such improper or unlawful contributions, payments, gifts, entertainment
or expenditures. Neither the Company nor any current director, officer, agent,
employee or other Person acting on behalf of the Company has accepted or
received any improper or unlawful contributions, payments, gifts or
expenditures. The Company has at all times complied, and is in compliance, in
all respects with the Foreign Corrupt Practices Act and all foreign laws and
regulations relating to prevention of corrupt practices and similar matters.
2.22 BANK ACCOUNTS
Section 2.22 of the Schedule of Exceptions sets forth the names and locations of
all banks, trust companies, savings and loan associations and other financial
institutions at which the Company maintains safe deposit boxes or accounts of
any nature and the names of all Persons authorized to draw thereon, make
withdrawals therefrom or have access thereto.
2.23 INSIDER INTERESTS
Except as stated on Schedule 2.23, no shareholder or officer, director,
employee, contractor, consultant or other representative of the Company has any
interest (other than as a shareholder of the Company) (a) in any Real Property,
Personal Property, Technology or Technology Rights used in or directly
pertaining to the business of the Company, including, without limitation,
inventions, patents, trademarks or trade names, or (b) in any agreement,
contract, arrangement or obligation relating to the Company, its present or
prospective business or its operations. There are no agreements, understandings
or proposed transactions between the Company and any of its officers, directors,
shareholders, affiliates or any affiliate thereof. The Company and its officers,
directors or employees have no interest, either directly or indirectly, in any
entity, including, without limitation, any corporation, partnership, joint
venture, proprietorship, firm, licensee, business or association (whether as an
employee, officer, director, shareholder, agent, independent contractor,
security holder, creditor, consultant or otherwise) that presently (i) provides
any services, produces and/or sells any products or product lines, or engages in
any activity that is the same, similar to or competitive with any activity or
business in which the Company is now engaged or proposes to engage; (ii) is a
supplier, customer or creditor; or (iii) has any direct or indirect interest in
any asset or property, real or personal, tangible or intangible, of the Company
or any property, real or personal, tangible or intangible, that is necessary or
desirable for the present or currently anticipated future conduct of the
Company's business.
2.24 COMPLIANCE WITH ENVIRONMENTAL LAWS
Neither the Company nor, to the Company's knowledge, any other Person
(including, without limitation, any previous owner, lessee or sublessee) has
treated, stored or disposed of any material amounts of petroleum products,
hazardous waste, hazardous substances, pollutants or contaminants on the Real
Property, or any real property previously owned, leased, subleased or used by
the Company in the operation of its business, in violation of any applicable
foreign, federal, state or local statutes, regulations or ordinances, or common
law, in each case as in existence at or prior to the Closing. To the Company's
knowledge, there have been no releases of any material amounts of petroleum,
petroleum products, hazardous waste, hazardous substances, pollutants or
contaminants on, at or from any assets or properties, including, without
limitation, the Real Property, owned, leased, subleased or used by the Company
in the operation of its business during the time such assets or properties were
owned, leased, subleased or used by the Company (or, to the Company's knowledge,
prior to such time), including, without limitation, any releases of any material
amounts of petroleum, petroleum products, hazardous waste, hazardous substances,
pollutants or contaminants in violation of any law.
2.25 INFORMATION SUPPLIED BY THE COMPANY
None of the information supplied or to be supplied by the Company to its
shareholders in connection with any written consent by or meeting of such
shareholders for approval of the Merger, to the extent prepared by the Company
or any of its representatives or advisors, at the date on which such information
was supplied prior to the time the Company's shareholders were requested to
approve the Merger, contained any untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not materially misleading; provided, however, that the Company makes
no representations or warranties regarding information furnished by or related
to Parent or Merger Sub.
2.26 OPERATING DATA
The Company has delivered to Parent certain of its operating data and certain
performance data for its web site (xxxxxxxxxxx.xxx), including without
limitation: number of hits, conversion rates (if applicable), performance
information (including average download times per page, system resource usage
per page), error rates and uptime and availability downloads, users, page views
and click-through rates. Assuming the accuracy of third party monitoring
software used by the Company, such data accurately and fairly present the
operations of and other data related to the Company and the performance of its
web site and does not contain any material misstatements or omissions of
material facts.
2.27 AFFILIATES
Section 2.27 of the Schedule of Exceptions contains a complete list of those
persons who may be deemed to be, in the Company's reasonable judgment,
affiliates of the Company within the meaning of Rule 145 promulgated under the
Securities Act of the 1933, as amended (the "SECURITIES ACT").
2.28 FULL DISCLOSURE
The representations and warranties contained in this Agreement, including the
Schedule of Exceptions, taken as a whole, do not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements so made or information so delivered not misleading. The Company has
provided Parent with all material information regarding the Company and its
business.
2.29 COMPLIANCE WITH H-S-R ACT
No person or entity, directly or indirectly through fiduciaries, agents,
controlled entities, or other means, holds 50 percent or more of the outstanding
voting securities of the Company or has the contractual right to designate 50
percent or more of the directors of the Company. Further, the Company does not
produce and derive annual sales or revenues in excess of $1,000,000 from
products within industries 2000-3999 as coded in the Standard Industrial
Classification Manual (1972 edition) published by the Executive Office of the
President of the United States, Office of Management and Budget. Further, the
Company has less than $10,000,000 in total assets, as stated on the last
regularly prepared balance sheet of the Company as of the date of this Agreement
and at the Effective Time.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
In order to induce the Company to enter into and perform this Agreement and the
other Operative Documents, Parent and Merger Sub jointly and severally represent
and warrant to the Company as follows in this Article III:
3.1 ORGANIZATION
Parent is a corporation duly organized and legally existing under the laws of
the State of Washington. Merger Sub is a corporation duly organized and legally
existing under the laws of the State of Oregon. Each of Parent and Merger Sub
has all requisite corporate power and authority to own, operate and lease its
respective properties and assets, to carry on its respective business as now
conducted and as proposed to be conducted, to enter into and perform its
obligations under this Agreement and the other applicable Operative Documents to
which Parent or Merger Sub is a party, and to consummate the transactions
contemplated hereby and thereby. Each of Parent and Merger Sub is duly qualified
and licensed as a foreign corporation to do business and is in good standing in
each jurisdiction in which the character of properties occupied, owned or held
under lease by Parent or Merger Sub, as applicable, or the nature of the
business conducted by Parent or Merger Sub, as applicable, makes such
qualification or licensing necessary, except where the failure to be so
qualified or in good standing has not had and could not reasonably be expected
to have, individually or in the aggregate, a material adverse effect on the
business, operations, assets, liabilities (absolute, accrued, contingent or
otherwise) or condition (financial or other) of Parent and its subsidiaries
taken as a whole (a "PARENT MATERIAL ADVERSE EFFECT"); provided, however, that
Parent Material Adverse Effect shall not include any change in general economic
conditions or the trading price of Parent Common Stock. All the issued and
outstanding shares of capital stock of Merger Sub are held of record and
beneficially by Parent.
3.2 ENFORCEABILITY
Parent and Merger Sub each have full corporate power and authority to
execute, deliver and perform their obligations under this Agreement and each of
the other Operative Documents to which they are a party, and each of the
certificates, instruments and documents executed or delivered by them pursuant
to the terms of this Agreement. All corporate action on the part of Parent and
Merger Sub and their respective officers, directors and shareholders necessary
for the authorization, execution, delivery and performance of this Agreement and
the other applicable Operative Documents to which Parent or Merger Sub is a
party, the consummation of the Merger and the performance of all their
respective obligations under this Agreement and the other applicable Operative
Documents to which Parent or Merger Sub is a party has been taken or will be
taken prior to the Effective Time. This Agreement has been, and each of the
other Operative Documents to which Parent or Merger Sub is a party will have
been at the Closing, duly executed and delivered by Parent or Merger Sub, as the
case may be, and this Agreement is, and each of the other Operative Documents to
which Parent or Merger Sub is a party will be at the Closing, a legal, valid and
binding obligation of Parent or Merger Sub, as the case may be, enforceable
against Parent or Merger Sub, as the case may be, in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
creditors' rights generally or by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
3.3 SECURITIES
The Parent Common Stock to be issued pursuant to this Agreement has been, or
will be prior to the Effective Time, duly authorized for issuance, and such
Parent Common Stock, when issued and delivered to the Company's shareholders
pursuant to this Agreement, shall be validly issued, fully paid and
nonassessable.
3.4 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS
The execution, delivery and performance of this Agreement and the other
Operative Documents by Merger Sub and Parent, as applicable, and the
consummation by them of the transactions contemplated hereby and thereby will
not (a) constitute a violation (with or without the giving of notice or lapse of
time, or both) of any statute, regulation, rule or other provision of law or any
judgment, decree, order or other requirement of any court or other governmental
authority applicable to Parent or Merger Sub; (b) require any consent, approval
or authorization of, or declaration, filing or registration with, any Person,
except (i) compliance with applicable securities laws (ii) the filing of all
documents necessary to consummate the Merger with the Oregon Secretary of State;
(iii) filings, consents and approvals as may be required under the HSR Act; and
(iv) the approval by the Parent's shareholders of the Merger, this Agreement and
the issuance of the Parent Common Stock to the Company's shareholders; (c)
constitute a breach of or conflict with or result in a default (with or without
the giving of notice or lapse of time, or both) under, or acceleration or
termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any agreement, lease, note or other restriction,
encumbrance, obligation or liability to which Parent or Merger Sub is a party or
by which it is bound or to which any assets of Parent or Merger Sub are subject;
(d) conflict with or result in a breach of or constitute a default under any
provision of the Articles of Incorporation or Bylaws of Parent or Merger Sub.
3.5 CAPITALIZATION
The authorized capital stock of Parent consists of 70,000,000 shares of Parent
Common Stock, of which 22,142,077 shares were issued and outstanding as of March
14, 2000, and 30,000,000 shares of preferred stock, par value $.01 per share,
none of which are issued or outstanding. Such issued and outstanding shares are
duly authorized and validly issued, fully paid and nonassessable and were issued
in compliance with all applicable federal and state securities laws. As of March
14, 2000, other than (i) options to purchase up to 2,123,029 shares of Parent
Common Stock that are outstanding under Parent's stock option plans, (ii)
warrants to purchase up to 1,317,068 shares of Parent Common Stock, and (iii)
rights granted to employees of Parent or its subsidiaries under Parent's
Employee Stock Purchase Plan, there are no outstanding rights of first refusal
or offer, preemptive rights, options, warrants, conversion rights or other
agreements, either directly or indirectly, for the purchase or acquisition from
the Parent of any shares of Parent Common Stock or any securities convertible
into or exchangeable for shares of Parent Common Stock.
3.6 BROKERS OR FINDERS
Parent has not incurred, and will not incur, directly or indirectly, as a result
of any action taken by or on behalf of Parent, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
the Merger, this Agreement or any transaction contemplated hereby that would
result in a claim against the Company or its shareholders.
3.7 NO MATERIAL ADVERSE EVENT
Since February 11, 2000, no event has occurred and no state of facts has
developed or is continuing that has had or could reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect,
except for such events or facts that have been disclosed in filings made with
the Securities Exchange Commission (the "SEC").
3.8 FULL DISCLOSURE
The representations and warranties of Parent and Merger Sub in this Agreement do
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements so made, in light of the
circumstances in which they were made, not misleading. Parent's Registration
statement on Form S-1, as declared effective by the SEC on February 11, 2000,
and Parent's Quarterly Report on Form 10-Q for the quarter ended September 30,
1999, and all other reports or registration statements filed by it under the
Securities Act, or under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), in the form filed with
the SEC, as of the date filed, (a) complied in all material aspects as to form
with the applicable requirements under the Securities Act or the Exchange Act,
as the case may be, and (b) 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.
3.9 CLAIMS AND LEGAL PROCEEDINGS
There are no material claims, actions, suits, arbitrations, investigations or
proceedings pending or, to Parent's knowledge, threatened against or involving
Parent or Merger Sub before or by any court or governmental or nongovernmental
department, commission, board, bureau, agency or instrumentality, or by any
other Person. To Parent's knowledge, there is no valid basis for any material
claim, action, suit, arbitration, proceeding or investigation before or by any
Person, except as has not had and could not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect. There are no
material outstanding or unsatisfied judgments, orders, decrees or stipulations
to which either Parent or Merger Sub is a party. There is no claim, action,
suit, arbitration, criminal or civil investigation or proceeding pending or, to
Parent's knowledge, threatened against or involving Parent before or by any
court or governmental or nongovernmental department, commission, board, bureau,
agency or instrumentality, or any other Person, that questions the validity of
this Agreement or any action taken or to be taken by Parent pursuant to this
Agreement or in connection with the transactions contemplated hereby.
3.10 TAXES
All Tax Returns required to be filed by or on behalf of Parent have been filed
on a timely basis with the appropriate governmental authority in all
jurisdictions in which such Tax Returns are required to be filed, and all such
Tax Returns were (at the time they were filed) true, correct and complete in all
respects. All Taxes of Parent (whether or not reflected on any Tax Return) have
been fully and timely paid. No waivers of statutes of limitation have been given
or requested with respect to Parent in connection with any Tax Returns covering
Parent with respect to any Taxes payable by it. No taxing authority in a
jurisdiction where Parent does not file Tax Returns has made a claim, assertion
or threat to Parent that it is or may be subject to taxation by such
jurisdiction. There are no liens with respect to Taxes on any of Parent's
property or assets other than liens for current Taxes not yet payable.
3.11 COMPLIANCE WITH LAWS
Parent is and has at all times been in compliance with all federal, state, local
and foreign laws, rules, regulations, ordinances, decrees, orders and similar
mandates applicable to Parent and its business, assets and employees, except as
has not had and could not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect, including, without limitation, all
such laws, rules, ordinances, decrees, orders or mandates relating to antitrust,
consumer protection and privacy, intellectual property, unfair trade, false
advertising, currency exchange, environmental protection, equal opportunity,
health, occupational safety,
pension, securities and trading-with-the-enemy matters. Parent has not received
any notification of any asserted present or past unremedied failure by Parent to
comply with any of such laws, rules, ordinances, decrees, orders or mandates.
ARTICLE IV - CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to perform and observe the covenants,
agreements and conditions hereof to be performed and observed by them at or
before the Closing shall be subject to the satisfaction of the following
conditions, which may be expressly waived only in writing signed by Parent:
4.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company contained herein (including
the Schedule of Exceptions and other Exhibits) and in the other Operative
Documents shall have been true and correct when made and, except to the extent
that such representations and warranties speak as of an earlier date, shall be
true and correct in all material respects as of the Closing Date, as though made
on that date.
4.2 PERFORMANCE OF AGREEMENTS
The Company shall have performed in all material respects all obligations and
agreements and complied in all material respects with all covenants contained in
this Agreement or any other Operative Document to be performed and complied with
by it at or prior to the Closing.
4.3 OPINION OF COMPANY COUNSEL
Parent shall have received the opinion letter of Xxxx Xxxxx LLP, counsel for the
Company, dated the Closing Date, substantially in the form of EXHIBIT 4.3.
4.4 COMPLIANCE CERTIFICATE
Parent shall have received a certificate of the President of the Company, dated
the Closing Date, in form and substance reasonably satisfactory to Parent,
certifying (a) that the conditions to the obligations of Parent and Merger Sub
in Sections 4.1, 4.2, 4.5, 4.6, 4.13, 4.15, 4.16, 4.17 and 4.18 have been
fulfilled, and certifying the amount of any Company indebtedness for borrowed
money (other than ordinary course trade accounts payable, accrued sales
commissions and accrued sales tax) outstanding as of the Closing Date and (b) a
stock, option and warrant ledger in form and substance reasonably satisfactory
to Parent.
4.5 MATERIAL ADVERSE CHANGE
Since the date of this Agreement and through the Closing, no event shall have
occurred and no state of facts shall have developed or be continuing that has
had or could reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
4.6 APPROVALS AND CONSENTS
All transfers of permits or licenses and all approvals of or notices to public
agencies, federal, state, local or foreign, the granting or delivery of which is
necessary for the consummation of the transactions contemplated hereby, or for
the continued operation of the Company, shall have been obtained, and all
waiting periods specified by law shall have passed. All other consents,
approvals and notices referred to in this Agreement or in the Schedule of
Exceptions, including without limitation any consents required under any of the
Material Contracts in connection with the Merger, shall have been obtained or
delivered and shall be reasonably satisfactory to Parent.
4.7 PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE
All corporate and other proceedings in connection with the transactions
contemplated hereby and by the other Operative Documents, and all documents and
instruments incident to such transactions, shall have been reasonably approved
by Parent's counsel. Parent shall have received a certificate of the Secretary
of the Company, in form and substance reasonably satisfactory to Parent, as to
the authenticity and effectiveness of the actions of the Board of Directors and
shareholders of the Company authorizing the Merger and the transactions
contemplated by this Agreement and the other Operative Documents. Copies of the
Company's Articles of Incorporation, certified by the Oregon Secretary of State,
and Bylaws, certified by the Secretary of the Company, shall be attached to such
certificate.
4.8 NONFOREIGN AFFIDAVIT
Parent shall have received from the Company, pursuant to Section 1445 of the
Code, a Foreign Investment in Real Property Tax Act Affidavit substantially in
form reasonably satisfactory to Parent.
4.9 COMPLIANCE WITH LAWS
The consummation of the transactions contemplated by this Agreement and the
other Operative Documents shall be legally permitted by all laws and regulations
to which Parent or the Company is subject.
4.10 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect that enjoins,
restrains, conditions or prohibits consummation of this Agreement or any other
Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or threatened that would enjoin, restrain, condition
or prevent consummation of this Agreement or any other Operative Document.
4.11 AMENDMENT TO COMPANY'S ARTICLES OF INCORPORATION
The Company shall have filed the Company's Amended Articles with the Secretary
of State for the State of Oregon and the Company's Amended Articles shall be in
effect immediately prior to the Effective Time.
4.12 AMENDED AND RESTATED SHAREHOLDER COMMITMENT AND INDEMNITY AGREEMENTS
The Amended and Restated Shareholder Commitment and Indemnity Agreements (as
that term is defined in Section 6.8(c) below) contemplated by Section 6.8(c) and
executed effective as of the date of this Agreement by those Company
shareholders and holders of options to acquire Company Common Stock listed in
Schedule 2.27 and the Amended and Restated Shareholder Commitment and Indemnity
Agreements executed pursuant to Section 6.11 shall be in full force and effect,
the parties thereto shall have complied with the provisions thereof in all
material respects, and the representations and warranties of such parties
contained therein shall be true and correct in all material respects as of the
Closing Date as though made as of such date.
4.13 TERMINATION OF CERTAIN AGREEMENTS
Any and all rights of refusal, co-sale rights and registration rights for the
benefit of the holders of Company Common Stock, or Options, Warrants, or other
stock purchase rights shall have been terminated effective at or prior to
Closing.
4.14 FAIRNESS APPROVAL; EFFECTIVENESS OF REGISTRATION STATEMENT
The Fairness Approval described in Section 6.9(a) shall have been obtained, or,
if Parent elects to proceed with the Registration Statement as provided in
Section 6.9(b), the Registration Statement shall have been declared effective by
the SEC under the Securities Act, and no stop order (or similar action)
suspending the Fairness Approval or, if applicable, the effectiveness of the
Registration Statement shall have been issued by the Securities Director (as
defined in Section 6.9(a)) or the SEC, as applicable, and no proceedings for
that purpose and no similar proceeding in respect of the Company's information
or proxy statement shall have been initiated or threatened by the Securities
Director or the SEC, as applicable.
4.15 DISSENTERS' RIGHTS
Holders of no more than 5% of the Company Common Stock shall have delivered to
the Company before the Effective Time timely written notice of such holder's
intent to exercise their dissenters' rights with respect to the Merger in
accordance with Oregon Law, unless such holder shall have withdrawn or otherwise
lost his or her right to such payment.
4.16 CONVERSION OF SECURITIES
(a) All holders of Warrants to purchase Company Preferred Stock
shall have exercised their rights under such Warrants (including without
limitation the payment of the exercise price specified in such Warrants in cash
or through net issuance as may be permitted in accordance with the terms of such
Warrants) and the Company shall have issued on or before the Closing Date such
number of fully paid and nonassessable shares of Company Preferred Stock as
shall be determined in accordance with the terms of such Warrants. In addition
to the foregoing, all holders of the Company Preferred Stock issued upon
exercise of such Warrants shall comply with the terms of Section 4.16(b) below.
(b) The holders of the Company Converted Stock shall have taken
all such actions necessary or appropriate to convert the Company Converted Stock
into Company Common Stock, on or before the Closing Date, in accordance with
Section 4(m)(1) of Article II.D. of the Company's Amended Articles, including
without limitation such actions required to comply with the provisions of
Section 4(d) of Article II.D. of the Company's Amended Articles. The Company
shall have taken all such actions necessary or appropriate to comply with
Section 4(d) of Article II.D. of the Company's Amended Articles, including
without limitation the issuance, on or before the Closing Date, of such number
of fully paid and nonassessable shares of the Company Common Stock issuable upon
the conversion of the Company Converted Stock as determined in accordance with
Section 4(m) of Article II.D. of the Company's Amended Articles.
(c) Any rights to purchase Company Common Stock or other equity
securities of the Company (other than the Options and Warrants being assumed by
Parent under Section 1.7.1 above) shall have been terminated or converted into
Company Common Stock prior to the Effective Time.
4.17 SHAREHOLDER APPROVAL
The shareholders of the Company shall have approved the Merger in accordance
with Oregon Law.
4.18 NONCOMPETITION, INVENTION ASSIGNMENT AND NONDISCLOSURE AGREEMENTS
All employees of the Company shall have executed and delivered a nondisclosure,
invention assignment, noncompetition and nonsolicitation agreement in the form
attached to this Agreement as EXHIBIT 4.18, which is consistent with the form
currently in use by Parent for new hires.
4.19 INTENTIONALLY OMITTED
4.20 ESCROW AGREEMENT
Escrow Agent and the Shareholder Representative shall have executed and
delivered the Escrow Agreement.
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to perform and observe the covenants, agreements
and conditions hereof to be performed and observed by it at or before the
Closing shall be subject to the satisfaction of the following conditions, which
may be expressly waived only in writing signed by the Company.
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of Parent and Merger Sub contained herein and
in the other Operative Documents shall have been true and correct when made and,
except to the extent that such representations and warranties speak as of an
earlier date, shall be true and correct in all material respects as of the
Closing Date, as though made on that date.
5.2 PERFORMANCE OF AGREEMENTS
Parent and Merger Sub shall have performed in all material respects all
obligations and agreements and complied in all material respects with all
covenants contained in this Agreement or any other Operative Document to be
performed and complied with by them at or prior to the Closing.
5.3 OPINION OF PARENT COUNSEL
The Company shall have received the opinion letter of Xxxx Xxxxxx Spears
Lubersky LLP, counsel for Parent, dated the Closing Date, substantially in the
form of EXHIBIT 5.3.
5.4 COMPLIANCE CERTIFICATE
The Company shall have received a certificate of an officer of Parent, dated the
Closing Date, substantially in form and substance reasonably satisfactory to the
Company, certifying that the conditions to the obligations of the Company in
Sections 5.1, 5.2, 5.6 and 5.7 have been fulfilled.
5.5 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect that enjoins,
restrains, conditions or prohibits consummation of this Agreement or any other
Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or threatened which would enjoin, restrain,
condition or prevent consummation of this Agreement or any other Operative
Document.
5.6 MATERIAL ADVERSE CHANGE
Since the date of this Agreement and through the Closing, no event shall have
occurred and no state of facts shall have developed or be continuing that has
had or could reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect, except for such changes occurring as a direct
result of the execution or announcement of this Agreement. Changes in the
trading prices of Parent Common Stock shall not be deemed to have a Parent
Material Adverse Effect under this Agreement.
5.7 APPROVALS AND CONSENTS
All transfers of permits or licenses and all approvals of or notices to public
agencies, federal, state, local or foreign, the granting or delivery of which is
necessary for the consummation of the transactions contemplated hereby by shall
have been obtained, and all waiting periods specified by law shall have passed.
All other consents, approvals and notices referred to in this Agreement shall
have been obtained or delivered and be reasonably satisfactory to Company.
5.8 COMPLIANCE WITH LAWS
The consummation of transactions contemplated by this Agreement and under the
other Operative Documents shall be legally permitted by all laws and regulations
to which Parent or the Company is subject.
5.9 INTENTIONALLY OMITTED
5.10 FAIRNESS APPROVAL; EFFECTIVENESS OF REGISTRATION STATEMENT
The Fairness Approval described in Section 6.9(a) shall have been obtained, or,
if Parent elects to proceed with the Registration Statement as provided in
Section 6.9(b), the Registration Statement shall have been declared effective by
the SEC under the Securities Act, and no stop order (or similar action)
suspending the Fairness Approval or, if applicable, the effectiveness of the
Registration Statement shall have been issued by the Securities Director or the
SEC, as applicable, and no proceedings for that purpose and no similar
proceeding in respect of the Company's information or proxy statement shall have
been initiated or threatened by the Securities Director or the SEC, as
applicable.
5.11 SECRETARY'S CERTIFICATE
The Company shall have received a certificate of the Secretary of Parent, in
form and substance reasonably satisfactory to Company, as to the authenticity
and effectiveness of the actions of the Board of Directors of Parent authorizing
the Merger and transactions contemplated by this Agreement and the other
Operative Documents to which Parent is a party. Copies of the Parent's Articles
of Incorporation, certified by the Washington Secretary of State, and Bylaws,
certified by the Secretary of Parent, shall be attached to such certificate.
5.12 SHAREHOLDER APPROVAL
The shareholders of the Company shall have approved the Merger in accordance
with Oregon law.
5.13 ESCROW AGREEMENT
Parent, Escrow Agent and the Shareholder Representative shall have executed and
delivered the Escrow Agreement.
ARTICLE VI - COVENANTS
The parties covenant and agree as follows in this Article VI.
6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER
Unless Parent shall otherwise agree in writing, the business of the Company
shall be conducted in and only in, and the Company shall not take any action
except in, the ordinary course of business and in a manner consistent with past
practice and in accordance with applicable law. The Company shall use its best
efforts to preserve
intact the business organization of the Company, to keep available the services
of the current officers, employees and consultants of the Company and to
preserve the current relationships of the Company with, and the goodwill of,
customers, suppliers and other Persons with which the Company has significant
business relations. By way of amplification and not limitation, except as
otherwise contemplated by this Agreement, the Company shall not, between the
date of this Agreement and the Effective Time, directly or indirectly do, or
propose to do, any of the following without the prior written consent of Parent,
which consent shall not be unreasonably withheld:
(a) amend or otherwise change its Articles of Incorporation (except as
provided in the Company's Amended Articles) or Bylaws;
(b) except for the issuance of shares of Company Common Stock upon the
exercise or conversion of currently outstanding Options or Warrants issue, sell,
contract to issue or sell, pledge, dispose of, grant, encumber or authorize the
issuance, sale, pledge, disposition, grant or Encumbrance of (i) any shares of
capital stock of any class of the Company, (ii) any options, warrants,
convertible securities or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without limitation,
any phantom interest) of the Company, or (iii) except in the ordinary course of
business and in a manner consistent with past practice, any assets of the
Company;
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock or other securities, property or otherwise, with respect
to any of its capital stock;
(d) reclassify, combine, split, subdivide, redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock or other securities;
(e) (i) acquire (including, without limitation, by merger, consolidation,
or acquisition of stock or assets) any corporation, partnership, other business
organization or division thereof or any material amount of assets; (ii) incur
any indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible for,
the obligations of any Person, or make any loans or advances, except in the
ordinary course of business and consistent with past practice; (iii) enter into
any contract or agreement other than in the ordinary course of business,
consistent with past practice; (iv) authorize any single capital expenditure
which is in excess of $30,000 or capital expenditures which are, in the
aggregate, in excess of $60,000 for the Company taken as a whole; (v) enter into
any agreement in which the obligation of the Company exceeds $30,000 or which
shall not terminate or be subject to termination for convenience within 30 days
following execution; (vi) license any Technology or IP Rights, except
nonexclusive licenses to end users of the Company's products granted in the
ordinary course of the Company's business, consistent with past practice; or
(vii) enter into or amend any contract, agreement, commitment or arrangement
with respect to any matter set forth in this subsection (e);
(f) enter into or amend any employment, consulting or agency agreement, or
increase the compensation payable or to become payable to its officers,
employees, agents or consultants, or grant any severance or termination pay to,
or enter into any employment or severance agreement with, any director, officer
or other employee of the Company, or establish, adopt, enter into or amend any
Employee Benefit Plan, collective bargaining, bonus, profit-sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance, benefit or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any director,
officer or employee;
(g) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect to
accounting methods, policies or procedures (including, without limitation,
procedures with respect to the payment of accounts payable and collection of
accounts receivable);
(h) take any action that would prevent Parent from being able to account
for the Merger as a pooling of interests whether or not permitted by the
provisions of this Article VI;
(i) make any Tax election or settle or compromise any Tax liability;
(j) pay, discharge or satisfy any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice;
(k) take any action that would or is reasonably likely to result in any of
the representations or warranties of the Company set forth in this Agreement
being untrue in any material respect, or in any covenant of the Company set
forth in this Agreement being breached, or in any of the conditions to the
Merger specified in Article IV not being satisfied;
(l) take any action of the type covered in Section 2.7 above;
(m) incur any additional indebtedness for borrowed money; or
(n) agree to do any of the foregoing.
6.2 ACCESS TO INFORMATION; CONFIDENTIALITY
From the date hereof to the Effective Time, the Company shall, and shall cause
the officers, directors, employees and agents of the Company to, afford the
officers, employees and agents of Parent access at all reasonable times to the
officers, employees, agents, properties, offices, plants and other facilities,
books and records of the Company and shall furnish Parent with all financial,
operating and other data and information as Parent, through its officers,
employees or agents, may reasonably request. From the date hereof until the
Effective Time, the Company shall provide Parent with monthly and other
financial statements of the Company as they become available internally at the
Company, all of which financial statements shall fairly present the financial
position and results of operations of the Company as of the dates and for the
periods therein specified. No investigation or due diligence efforts of any
party hereto (or such party's representatives) pursuant to this Section 6.2 or
otherwise in connection with the transactions contemplated by this Agreement
shall affect, or limit in any way such party's ability to rely on, any
representation or warranty of the other parties in this Agreement or any
condition to the obligations of the parties hereto. The parties shall continue
to comply with and to perform their respective obligations under the Mutual
Nondisclosure Agreement between Parent and the Company entered into as of
February 1, 2000 (the "Mutual Nondisclosure Agreement").
6.3 NO ALTERNATIVE TRANSACTIONS
The Company shall immediately cease and cause to be terminated any existing
discussions or negotiations with any parties (other than Parent) conducted
heretofore with respect to any Alternative Transaction (as defined below).
Unless this Agreement shall have been terminated in accordance with its terms,
the Company shall not, directly or indirectly, through any officer, director,
agent or otherwise, solicit, initiate or encourage the submission of any
proposal or offer from any Person relating to any Alternative Transaction, or
participate in any negotiations regarding any Alternative Transaction, or
furnish to any other Person any information with respect to, or otherwise
cooperate or negotiate in any way with, or assist or participate in, facilitate
or encourage, any effort or attempt by any other Person with regard to any
Alternative Transaction; provided, however, that the Company may provide
information to a Third Party (as defined below) who makes a bona fide proposal
for an Alternative Transaction after compliance with the provisions of clauses
(i) and (ii) of Section 7.1(f) below, provided further that such Third Party
first executes a confidentiality agreement at least as protective of the Company
as the confidentiality agreement between the Company and Parent. The Company
shall notify Parent promptly if any such proposal or offer, or any inquiry or
contact with any Person with respect thereto, is made and shall, in any such
notice to Parent, indicate in reasonable detail the identity of the Person
making such proposal, offer, inquiry or contact and the terms and conditions of
such proposal, offer, inquiry or contact. The Company agrees not to release any
third party from, or waive any provision of, any confidentiality or standstill
(e.g., agreement not to invest in or seek change of control of the Company)
agreement to which the Company is a party. The term "ALTERNATIVE TRANSACTION"
shall mean either (a) a transaction pursuant to which any Person other than
Parent or an affiliate of Parent (a "THIRD PARTY") acquires or would acquire
more than 25% of the capital stock of the Company either from the Company or its
shareholders, (b) a merger or other business combination involving the Company
pursuant to which any Third Party acquires or would acquire more than 25% of the
equity ownership of the Company or the entity surviving such merger or other
business combination, or (c) any other transaction pursuant to which any Third
Party acquires control of the assets or business of the Company.
6.4 NOTIFICATION OF CERTAIN MATTERs
Each party shall give prompt notice to the other parties if (a) such party
obtains knowledge that any representation or warranty by such party in this
Agreement was inaccurate when made or will be inaccurate as of the Closing; (b)
there occurs or fails to occur any event or state of facts that would be
reasonably likely to cause any representation or warranty made by such party
contained in this Agreement to be untrue or inaccurate as of the Closing Date;
(c) such party fails to comply with, perform or satisfy any covenant, condition
or agreement to be complied with, performed or satisfied by such party
hereunder; or (d) there occurs or fails to occur any event or state of facts
that would render any condition to the obligations of the other party to this
Agreement reasonably incapable of being satisfied on or prior to the reasonably
anticipated Closing Date or, if none, October 9, 2000; provided, however, that
the delivery of any notice pursuant to this Section 6.4 shall not limit or
otherwise negatively affect the remedies available to the parties hereunder.
6.5 FURTHER ACTION
Upon the terms and subject to the conditions hereof, each of the parties hereto
shall use commercially reasonable efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereby, including, without limitation,
using commercially reasonable efforts to obtain all waivers, licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company as are necessary for the
consummation of the transactions contemplated hereby and to fulfill the
conditions to the Merger. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or the other Operative Documents, each party to this Agreement shall
use commercially reasonable efforts to promptly take all such action. After the
Closing, each party hereto, at the request of and without any further cost or
expense to the other parties, will take any further actions reasonably necessary
or desirable to carry out the purposes of this Agreement or any other Operative
Document, to vest in the Surviving Corporation full title to all properties,
assets and rights of the Company and to effect the issuance of the Parent Common
Stock to the shareholders of the Company pursuant to the terms and conditions
hereof.
6.6 NASDAQ LISTING
Parent agrees to authorize for listing on the Nasdaq National Market the shares
of Parent Common Stock constituting the Merger Consideration, and the shares of
Parent Common Stock required to be reserved for issuance upon exercise of
Options and Warrants assumed in connection with the Merger, by filing with the
Nasdaq National Market a Notification of Listing of Additional Shares (or such
other form as may be required by the Nasdaq National Market) as soon as
reasonably practicable after the Closing.
6.7 PUBLICITY
No party hereto shall issue any press release or otherwise make any statements
to any third party with respect to this Agreement or the transactions
contemplated hereby other than the issuance by Parent of a press release
announcing this Agreement and the transactions contemplated hereby or as
required by law. Prior to such
issuance, Parent will consult with the Company regarding the content of the
press release and obtain the Company's reasonable approval to such press
release.
6.8 SHAREHOLDERS' MEETING; SHAREHOLDER COMMITMENT AND INDEMNITY AGREEMENTS
(a) The Company shall cause a meeting of its shareholders (the
"COMPANY SHAREHOLDERS' MEETING") to be duly called and held as soon as
reasonably practicable after the Fairness Hearing (as defined below) for the
purpose of voting on the approval and adoption of (i) the amendment to the
Company's Articles of Incorporation, substantially in the form attached hereto
as EXHIBIT 6.8(a) (the "COMPANY'S AMENDED ARTICLES"), and (ii) this Agreement
and the Merger. In connection with the Company Shareholders' Meeting, the
Company will, (i) subject to Section 6.8(b), use its reasonable best efforts to
obtain such approvals from its shareholders and (ii) otherwise comply with all
legal requirements applicable to such meeting.
(b) Except as provided below, the Board of Directors of the
Company shall unanimously recommend approval and adoption of the Company's
Amended Articles, this Agreement and the Merger by its shareholders and the
Company shall take all lawful action to solicit such approval, including timely
mailing of an Information Statement or Proxy Statement/Prospectus. The Company
shall be permitted to withdraw, or modify in a manner adverse to Parent, its
recommendations to its shareholders, but only if (i) the Board of Directors of
the Company determines in good faith, on the basis of the advice of the
Company's outside counsel that it must take such action in order for the Board
of Directors to comply with its fiduciary duties under applicable law, (ii) the
Company shall have delivered to Parent three business days' prior written notice
advising Parent that it intends to take such action and the Company's Board of
Directors has considered any proposed changes to this Agreement (if any)
proposed by Parent and (iii) the Company has fully and completely complied with
Sections 7.1(f) and 7.5. Unless this Agreement is previously terminated in
accordance with Article VII, the Company shall submit the Company's Amended
Articles, this Agreement and the Merger to its shareholders at the Company
Shareholders' Meeting required to be called and held pursuant to Section 6.8(a),
even if the Company's Board of Directors determines at any time after the date
hereof that it is no longer advisable or recommends that its shareholders reject
the above described proposals.
(c) Pursuant to the terms of the Amended and Restated Shareholder
Commitment and Indemnity Agreements in the form attached hereto as EXHIBIT
6.8(c) (the "AMENDED AND RESTATED SHAREHOLDER COMMITMENT AND INDEMNITY
Agreements") and dated effective as of the date of this Agreement, "affiliates"
(within the meaning of Rule 145 under the Securities Act) who are shareholders
of the Company each have agreed to vote all shares of Company Common Stock (or
Company Preferred Stock convertible into shares of Company Common Stock) owned
by them or over which they have voting control, or to execute or cause to be
executed consents, to grant their approval of the Company's Amended Articles,
the Merger and this Agreement."
6.9 FAIRNESS APPROVAL; REGISTRATION STATEMENT; INFORMATION SUPPLIED
(a) As soon as reasonably practicable following the execution of this
Agreement, Parent and the Company shall prepare the necessary documents and
Parent shall apply to obtain approval ("FAIRNESS APPROVAL") of the plan to issue
Parent Common Stock and assume the Options and the Warrants from the Director of
the Department of Consumer and Business Services of the State of Oregon
("SECURITIES DIRECTOR"), after a hearing before the Securities Director
("FAIRNESS HEARING"), pursuant to ORS 59.095 of the Oregon law ("ORS 59.095"),
so that the issuance of Parent Common Stock and the assumption of the Options
and the Warrants in the Merger shall be exempt from registration under Section
3(a)(10) of the Securities Act of 1933, as amended (the "1933 ACT"). Each of the
Company and Parent will use commercially reasonable efforts to comply with the
requirements of ORS 59.095 (and any rules or regulations promulgated by the
Securities Director pursuant thereto) and to obtain the Fairness Approval as
soon as practicable after such filing. Each of Parent and the Company will
promptly provide all information relating to their respective business and
operations necessary for submission to the Securities Director and the Company's
shareholders to satisfy all requirements of applicable state and federal
securities laws; provided, however, that the Company agrees, prior to providing
any
information or documentation to the Securities Director, to obtain the consent
of Parent (which consent shall not be withheld unreasonably).
(b) If, following the Fairness Hearing, Fairness Approval is not obtained
and, if required by applicable securities laws for the issuance of Parent Common
Stock to holders of Company Capital Stock and the assumption of the Options and
the Warrants in the Merger in accordance with the terms and provisions of this
Agreement, Parent and the Company shall cooperate either, at Parent's option,
(i) to register the issuance of shares of Parent Common Stock and the assumption
of the Options and the Warrants by means of the preparation and filing with the
Securities and Exchange Commission ("SEC") of a Registration Statement on Form
S-4 (the "FORM S-4") under the 1933 Act and use best efforts to have such
Registration Statement declared effective as soon as practicable after such
filing, or (ii) to qualify the issuance of Parent Common Stock and the
assumptions of the Options and the Warrants under any exemption from
registration legally available for such issuance and assumption. The respective
parties shall cause the Form S-4 to comply as to form in all material respects
with the applicable provisions of the 1933 Act, the Securities Exchange Act of
1934 (the "1934 ACT") and the rules and regulations thereunder. Parent shall use
all reasonable efforts, and the Company shall cooperate with Parent, to have the
Form S-4 declared effective by the SEC as promptly as practicable and to keep
the Form S-4 effective as long as is necessary to consummate the Merger. Parent
shall advise the Company, promptly after it receives notice thereof, of the time
when the Form S-4 has become effective or any supplement or amendment has been
filed, the issuance of any stop order, the suspension of the qualification of
Parent Common Stock issuable in connection with the Merger for offer or sale in
any jurisdiction, or any request by the SEC for amendment of the Form S-4 or
comments thereon and responses thereto or requests by the SEC for additional
information.
(c) As promptly as practical after the date of this Agreement, Parent shall
prepare and make such filings, and the Company shall use its best efforts to
assist Parent in preparing and making such filings, as are required under
applicable state securities laws or "Blue Sky" permits or approvals required to
carry out the Merger and Parent shall pay all expenses incident thereto.
(d) The Company agrees that none of the information supplied in writing by
the Company for inclusion or incorporation by reference in any submission to the
Securities Director or to the Company's shareholders in connection with
obtaining the Fairness Approval pursuant to the transactions contemplated
hereby, including any disclosure documents relating thereto (collectively, the
"FAIRNESS APPLICATION") will, at the time the Fairness Application is submitted
to the Securities Director and at the time the Fairness Hearing is held, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. The Company further agrees that the written information concerning
the Company provided by it for inclusion in any information statement or proxy
statement, and each amendment or supplement thereto, at the time of mailing
thereof and at the time of the meeting of the Company's shareholders, or, in the
case of written information concerning the Company provided by the Company for
inclusion in the Form S-4 or any amendment or supplement thereto, at the time it
is filed or becomes effective, shall not include 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.
(e) Parent agrees that none of the information supplied in writing by
Parent for inclusion or incorporation by reference in any submission to the
Securities Director or to the Company's shareholders in connection with
obtaining the Fairness Approval pursuant to the transactions contemplated
hereby, including the Fairness Application will, at the time the Fairness
Application is submitted to the Securities Director and at the time the Fairness
Hearing is held, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading. Parent further agrees that the written
information concerning Parent provided by it for inclusion in any information
statement or proxy statement, and each amendment or supplement thereto, at the
time of mailing thereof and at the time of the meeting of the Company's
shareholders, or, in the case of written information concerning Parent contained
in the
Form S-4 or any amendment or supplement thereto, at the time it is filed or
becomes effective, shall not include 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.
6.10 XXXX-XXXXX-XXXXXX
Promptly after the date hereof, Parent and the Company (as may be required
pursuant to the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 0000 (xxx "XXX
XXX") will complete all documents required to be filed with the Federal Trade
Commission and the Department of Justice in order to comply with the HSR Act
and, not later than 10 days after the date hereof, together with the Persons who
are required to join in such filings, shall file the same with the appropriate
governmental bodies. Parent shall pay any fees that may be payable in connection
with the filing pursuant to the HSR Act. Parent, and the Company shall promptly
furnish all materials thereafter required by any of the governmental bodies
having jurisdiction over such filings, and shall take all reasonable actions and
shall file and use all reasonable efforts to have declared effective or approved
all documents and notifications with any such governmental bodies, as may be
required under the HSR Act or other federal antitrust laws for the consummation
of the Merger and any other transactions contemplated this Agreement.
6.11 AFFILIATES
Section 2.27 of the Schedule of Exceptions identifies all known Persons who may
be deemed "affiliates" of the Company under Rule 145 of the 1933 Act (a "RULE
145 AFFILIATE"). The Company shall use its best efforts to obtain a written
agreement from each Rule 145 Affiliate (other than those Persons who have
previously provided Parent with Amended and Restated Shareholder Commitment and
Indemnity Agreements in accordance with Section 6.8 above) as soon as
practicable and, in any event at least 30 days prior to the Effective Time,
substantially in the form of the affiliate covenants contained in the Amended
and Restated Shareholder Commitment and Indemnity Agreements. Parent shall be
entitled to place legends as specified in such affiliate covenants on the
certificates evidencing any Parent Common Stock to be received by such Rule 145
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the Parent Common Stock,
consistent with the terms of such affiliate covenants.
6.12 DIRECTORS' AND OFFICERS' INDEMNIFICATION
The articles of incorporation and the by-laws of the Company shall not be
amended, repealed or otherwise modified for a period of three years from the
Effective Date in any manner that would adversely affect the rights thereunder
of individuals who at the Effective Date were directors or officers of the
Company entitled to indemnification pursuant to the Company's articles of
incorporation and by-laws.
6.13 TERMINATION OF 401(k) PLAN
If required by Parent in writing, the Company shall, immediately prior to and
contingent upon the Closing Date, have terminated the Company's 401(k) Plan (the
"401(k) PLAN") and no further contributions shall be made to the 401(k) Plan.
The Company shall provide to Parent (i) executed resolutions by the Company's
board of directors authorizing the termination and (ii) executed amendments to
the 401(k) Plan, which in the Parent's reasonable judgment, are sufficient (A)
to assure compliance with all applicable requirements of the Code and
regulations thereunder and (B) to provide for the distribution of all assets of
the 401(k) Plan upon termination thereof.
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION
This Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time (notwithstanding any approval of this Agreement by
the shareholders of the Company):
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent, if the Merger has not been consummated
by October 9, 2000; provided, however, that the right to terminate this
Agreement under this subsection (b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date;
(c) by either the Company or Parent, if there shall be any law or
regulation that makes consummation of the Merger illegal or if any judgment,
injunction, order or decree enjoining Parent, Merger Sub or the Company from
consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable; provided, however, that the party
seeking to terminate this Agreement pursuant to this subsection (c) shall have
used all reasonable efforts to remove such judgment, injunction, order or
decree;
(d) by the Company, in the event of a material breach by Parent of any
representation, warranty or agreement contained herein that has not been cured
or is not curable within 15 days after notice of such material breach or if any
condition to the obligations of the Company pursuant to Article V becomes
incapable of being satisfied on or before October 9, 2000;
(e) by Parent, in the event of a material breach by the Company of any
representation, warranty or agreement contained herein that has not been cured
or is not curable within 15 days after notice of such material breach or if any
condition to the obligations of Parent pursuant to Article IV becomes incapable
of being satisfied on or before October 9, 2000;
(f) by the Company as provided in this clause (f). If (i) the Company
receives a bona fide, unsolicited written offer from a Third Party relating to
an Alternative Transaction (which offer may or may not be subject to
confirmatory due diligence) and (ii) the Company shall have notified Parent in
writing of all terms and conditions of such offer, then thereafter the Company
shall be entitled to provide information to such Third Party, subject to
obtaining an appropriate confidentiality agreement from such Third Party as
contemplated by Section 6.3 above. In the event that such offer, including the
financing thereof, has been determined in good faith by the Board of Directors
of the Company, based upon the opinion of its outside financial advisors, to be
on terms financially superior for its shareholders than the Merger (a "SUPERIOR
PROPOSAL"), the Company may terminate this Agreement if it accepts such Superior
Proposal; provided, however, that all of the following requirements are first
met: (A) prior to the termination of this Agreement and the acceptance of such
Superior Proposal, the Company shall have given Parent three days' written
notice of such Superior Proposal, including all material terms and conditions
thereof, and of the Company's intention to accept such Superior Proposal and
terminate this Agreement and Parent shall have the opportunity to consider such
offer and participate, at its option, in making a counter proposal on or before
the expiration of such three day notice period and (B) the Company shall pay to
Parent the Fee (as defined below) by wire in immediately available funds within
the time period set forth in the penultimate sentence of Section 7.5.
7.2 EFFECT OF TERMINATION
In the event of the termination of this Agreement pursuant to Section 7.1
hereof, there shall be no further obligation on the part of any party hereto,
except that nothing herein shall relieve any party from liability for any
willful breach hereof.
7.3 AMENDMENT
This Agreement may be amended only in writing signed by each of the parties
hereto.
7.4 WAIVER
At any time prior to the Effective Time, any party hereto may (a) extend the
time for the performance of any obligation or other act of any other party
hereto, (b) waive any inaccuracy in the representations and warranties contained
herein or in any document delivered pursuant hereto, or (c) waive compliance
with any agreement or condition contained herein. Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the party
or parties to be bound thereby.
7.5 TERMINATION FEE
The Company shall pay to Parent a fee of $5,980,000 in cash (the "FEE") in the
event that (a) this Agreement is terminated by Parent pursuant to Section 7.1(e)
above because of a breach by the Company of Section 6.3 of this Agreement or
Parent becomes entitled to terminate this Agreement under Section 7.1(e) above
because of a breach by the Company of Section 6.3 or this Agreement is
terminated under Section 7.1(f) above, and (b) the Company enters into an
agreement relating to, or consummates, an Alternative Transaction (as defined in
Section 6.3 above) either prior to the date such termination occurs or the right
to terminate arises, or within one year thereafter. The Fee shall be payable no
later than the earlier of (x) the date on which the Company enters into a
definitive agreement relating to an Alternative Transaction or (y) the date of
closing thereof. Notwithstanding the foregoing, the Fee shall not be payable if
Parent is in material breach of this Agreement at the time this Agreement is
terminated.
ARTICLE VIII - SURVIVAL, INDEMNIFICATION AND RIGHTS TO ESCROW SHARES
8.1 SURVIVAL
All representations and warranties contained in this Agreement or in the other
Operative Documents or in any certificate delivered pursuant hereto or thereto
shall survive the Closing for a period of one year after the Effective Time (the
"SURVIVAL PERIOD"), and shall not be deemed waived or otherwise affected by any
investigation made or any knowledge acquired with respect thereto; provided,
however, that any claim based on any manner of fraud shall survive Closing
without limitation to the Survival Period. The covenants and agreements
contained in this Agreement or in the other Operative Documents shall survive
the Closing and shall continue until all obligations with respect thereto shall
have been performed or satisfied or shall have been terminated in accordance
with their terms.
8.2 PARENT LOSSES
(a) Subject to the limitations set forth in this Article VIII, from and
after the Closing, and in respect of, and from, out of, and to the extent of the
resources constituting the Escrow Consideration pursuant to the Escrow
Agreement, the Surviving Corporation and Parent, its officers, directors and
affiliates (as "affiliate" is defined in Rule 12b-2 of the Exchange Act) (the
"PARENT PARTIES") shall be indemnified, held harmless from, against, and in
respect of, and shall be reimbursed for and otherwise entitled to recover for,
any and all defense costs (including but not limited to attorneys' and experts'
fees) settlements, judgments and all other losses, damages, debts, liabilities,
obligations, diminution of value, orders, awards, writs, injunctions, decrees,
fines, penalties, Taxes, costs or expenses (including, but not limited to, any
reasonable legal or accounting fees or expenses) ("LOSSES") resulting from or
arising out of, or in the case of a Third Party Claim alleged to arise from
facts or events which would constitute, (a) any inaccuracy or misrepresentation
in, or breach of, any representation or warranty made by the Company in this
Agreement, together with the Schedule of Exceptions as delivered upon execution
of this Agreement, or in any other Operative Document; or (b) any failure by the
Company or any Company Shareholder or any holder of any option or warrant to
acquire Company Common Stock as of the Effective Date to perform or comply, in
whole or in part, with any covenant or agreement in this Agreement or in any
other Operative Document; or (c) the amount of any short-term or long-term
liabilities of the Company as of the Closing Date other than (i) ordinary course
trade accounts payable, (ii) accrued sales commissions (iii) accrued
sales tax and (iv) indebtedness deducted in the calculation of Merger Shares
pursuant to Section 1.7.1(d) or incurred after the date hereof with the prior
written consent of Parent; or (d) all amounts paid by the Surviving Corporation
to any Dissenting Shareholder in excess of the Merger Consideration which would
have been paid to such Dissenting Shareholder had such Dissenting Shareholder
not dissented as provided in Section 1.9; or (e) the failure of the issuance or
exercise of any Option under the Company Option Plan (or any other plan) to
comply with applicable federal and state securities laws; or (f) any of the
matters disclosed in the Schedule of Exceptions with respect to Section 2.3(b),
Section 2.11, Section 2.12, Section 2.15.1 (only as to the first paragraph),
Section 2.15.5, or (g) any payments made by Parent or the Surviving Corporation
pursuant to any indemnity agreements between the Company and its officers and
directors based on any act or omission of any officer or director prior to the
Closing. Each such inaccuracy, breach or failure and the Losses with respect
thereto and the other amounts shall be deemed a "CLAIM" and collectively
"CLAIMS."
(b) From and after the Closing those shareholders of the Company and
holders of options to acquire Company's Common Stock listed on EXHIBIT 8.2 to
this Agreement (the "SPECIAL INDEMNITORS"), jointly and severally shall
indemnify and hold Parent Parties harmless from and against, and shall reimburse
the Parent Parties for, any and all Claims and the Losses with respect thereto
for which the Parent Parties are entitled to be indemnified, held harmless from
or reimbursed under Section 8.2(a), but only to the extent such Claims and
Losses are based on any manner of fraud. However, the liability of each Special
Indemnitor therefor shall not exceed the aggregate amount such Special
Indemnitor shall have had the right to receive under Section 1.7.1 of this
Agreement, for this purpose valuing (i) each share of Parent Common Stock at the
Parent Share Value and (ii) each Option or Warrant at the spread between the
Option or Warrant exercise price per share of Parent Common Stock and the Parent
Share Value covered by such Option or Warrant (whether or not then vested or
exercisable). Claims made by Parent Parties pursuant to this Section 8.2(b)
shall be deemed a "CLAIM" and collectively "CLAIMS."
8.3 INDEMNIFICATION BY PARENT
Subject to the limitations set forth in this Article VIII, from and after the
Closing, Parent shall indemnify and hold the Shareholders (the "SHAREHOLDER
INDEMNIFIED PARTIES") harmless from and against, and shall reimburse the
Shareholder Indemnified Parties for, any and all Losses, resulting from, arising
out of or in the case of a Third Party Claim alleged to arise from facts or
events which would constitute (a) any inaccuracy or misrepresentation in, or
breach of, any representation or warranty made by Parent or Merger Sub in this
Agreement, or in any other Operative Document; or (b) any failure by Parent or
Merger Sub to perform or comply, in whole or in part, with any covenant or
agreement in this Agreement or in any other Operative Document. Each such
inaccuracy, breach or failure and the Losses with respect thereto shall be
deemed a "CLAIM" and collectively "CLAIMS." The Shareholder Indemnified Parties,
together with the Parent Parties, are sometimes referred to herein as the
"INDEMNIFIED PARTIES."
8.4 THRESHOLD AND LIMITATIONS
(a) The Indemnified Parties shall not be entitled to receive any payment
with respect to any Claims under this Article VIII until the aggregate Losses
for which such Indemnified Parties would be otherwise entitled to receive
payment, plus the aggregate Shareholder Costs, if any, payable under Section
8.7(b) exceed $135,000 (the "THRESHOLD"); provided, however, that (i) the
Threshold shall not apply to Losses specified under clauses (c), (d) or (f) of
Section 8.2(a) above or to Claim under Section 8.2(b) and (ii) once the
aggregate Losses exceed the Threshold, such Indemnified Parties shall be
entitled to receive payment for the aggregate amount of all Losses without
regard to the Threshold subject to the limitation in Section 8.4(c).
(b) An indemnifying party shall not be obligated to defend and hold
harmless an Indemnified Party, or otherwise be liable to such party, with
respect to any claims made by the Indemnified Party after the expiration of the
Survival Period or other applicable time limitation described in Section 8.1,
except that indemnity may be sought after the expiration of the Survival Period
or other applicable time limitation if a Claim Notice (as defined
in Section 8.5(a)) shall have been delivered to Parent or the Shareholder
Representative (as defined in Section 8.7 below), as the case may be, prior to
the expiration of such time period.
(c) Notwithstanding anything to the contrary in this Agreement, the
aggregate liability of Parent under or with respect to this Agreement, including
without limitation Parent's Indemnification obligations under this Article VIII
or otherwise shall not exceed $10,000,000.
8.5 PROCEDURE FOR INDEMNIFICATION CLAIMS AND CLAIMS AGAINST ESCROW
CONSIDERATION
(a) A Parent Party shall give written notice (the "CLAIM NOTICE") of any
Claim under this Article VIII to the Shareholder Representative, and the
Shareholder Representative shall give a Claim Notice to Parent of any Claim by
the Shareholder Indemnified Parties under this Article VIII, in each case as
promptly as practicable, but in any event: (i) if such Claim relates to the
assertion against a party of any claim by a third party (a "THIRD PARTY CLAIM"),
within 45 days after the assertion of such Third Party Claim, or (ii) if such
Claim is not in respect of a Third Party Claim, within 45 days after the
discovery of facts upon which the Claimant intends to base a Claim pursuant to
Article VIII hereof; provided, however, that the failure or delay to so notify
the Responsible Party shall not relieve the Responsible Party of any obligation
or liability that the Responsible Party may have to the Claimant or limit a
Claimant's right to payment from the Escrow Consideration, except to the extent
that a Responsible Party demonstrates that the Responsible Party's ability to
defend or resolve such Claim is materially adversely affected thereby. Any such
Claim Notice shall describe the facts and circumstances on which the asserted
Claim is based and shall specify how the Claimant intends to recover such funds
pursuant to this Agreement and the basis for the determination of the amount
which the Claimant intends to recover. The party giving a Claim Notice is
referred to herein as the "CLAIMANT," and the party to whom the claim notice is
given is referred herein as the "RESPONSIBLE PARTY."
(b) If, within 30 days of the effective date of a Claim Notice (determined
in accordance with Section 9.3), the Responsible Party contests in writing to
the Claimant that Losses identified in such Claim Notice constitute Claims (the
"CONTEST NOTICE"), then the Claimant and the Responsible Party, acting in good
faith, shall attempt to reach agreement with respect to the contested portions
of such Claims. Unless a Claim is contested within such 30-day period (meaning
the effective date of the Contest Notice is on or prior to the 30th day after
the effective date of the Claim Notice to which such Contest Notice relates),
the Claimant shall, subject to the other terms of this Article VIII, be paid the
amount of the Losses related to such Claim or the uncontested portion thereof.
If the Responsible Party objects to a Claim on the basis that it lacks
sufficient information, it shall promptly request from the Claimant any
additional information reasonably necessary for it to assess such Claim, and the
Claimant shall, to the extent the Claimant reasonably can, provide additional
information reasonably requested. Upon receipt of such additional information,
the Responsible Party shall review it as soon as reasonably practicable and
notify the Claimant of any withdrawal or modification of the objection. If the
Claimant and the Responsible Party are unable to reach agreement with respect to
any contested Claims within 45 days of the delivery of the Contest Notice, the
matter shall be settled by binding arbitration in Seattle, Washington as set
forth below. All Claims shall be settled in accordance with the Commercial
Arbitration Rules then in effect of the American Arbitration Association (the
"AAA RULES"). The Responsible Party and the Claimant shall each designate one
arbitrator within 15 days after the termination of such 45-day period. The
Responsible Party and the Claimant shall cause such designated arbitrators
mutually to agree upon and designate a third arbitrator; provided, however, that
(i) failing such agreement within 70 days of delivery of the Contest Notice, the
third arbitrator shall be appointed in accordance with the AAA Rules and (ii) if
either the Responsible Party or the Claimant fails to timely designate an
arbitrator, the dispute shall be resolved by the one arbitrator timely
designated. All of the fees and expenses of the arbitrators shall be paid in
accordance with the determination of the arbitrators based on the outcome of the
dispute, with any portion thereof that is payable by a party other than Parent
being paid by Parent and reimbursed from the Escrow Consideration in the same
manner as other Claims. The Responsible Party and the Claimant shall cause the
arbitrators to decide the matter to be arbitrated pursuant hereto within 30 days
after the appointment of the last arbitrator. The arbitrators' decision shall
relate solely to whether the Claimant is entitled to be indemnified for the
contested Claim, or the contested portion thereof,
pursuant to the applicable terms of this Agreement. The final decision of the
majority of the arbitrators shall be furnished to the Responsible Party and the
Claimant in writing and shall constitute the conclusive determination of the
issue in question binding upon the Shareholder Representative, and the Parent
Parties, and shall not be contested by any of them. Such decision may be used in
a court of law only for the purpose of seeking enforcement of the arbitrators'
decision.
(c) (i) Subject to the rights of or duties to any insurer or other
third party having potential liability therefor, the Responsible Party shall
have the right, upon written notice given to the Claimant within 30 days after
receipt of a Claim Notice from the Claimant of any Third Party Claim, to assume
the defense or handling of such Third Party Claim, at the Responsible Party's
sole expense, in which case the provisions of Section 8.5(c)(ii) shall govern;
provided, however, that, notwithstanding the foregoing, Parent may elect to
assume the defense and handle any such Third Party Claim as to which Parent is
the Indemnified Party or Claimant if (A) Parent determines in good faith that
the resolution of such Third Party Claim could result in a material adverse
impact on the business, operations, assets, liabilities (absolute, accrued,
contingent or otherwise), condition (financial or otherwise) or prospects of
Parent, and (B) it is represented by counsel reasonably acceptable to both
Parent and the Shareholder Representative. If Parent elects to assume the
defense of any such Third Party Claim pursuant to the preceding sentence, the
provisions of Section 8.5(d)(ii) hereof shall govern.
(ii) The Responsible Party shall select counsel reasonably
acceptable to the Claimant in connection with conducting the defense or handling
of such Third Party Claim, and the Responsible Party shall defend or handle the
same in consultation with the Claimant and shall keep the Claimant timely
apprised of the status of such Third Party Claim. The Responsible Party shall
not, without the prior written consent of the Claimant, agree to a settlement of
any Third Party Claim, unless (A) the settlement provides an unconditional
release and discharge of the Claimant and the Claimant is reasonably satisfied
with such discharge and release and (B) the Claimant shall not have reasonably
objected to any such settlement on the ground that the circumstances surrounding
the settlement could result in an adverse impact on the business, operations,
assets, liabilities (absolute, accrued, contingent or otherwise), condition
(financial or otherwise) or prospects of the Claimant. The Claimant shall
cooperate with the Responsible Party and shall be entitled to participate in the
defense or handling of such Third Party Claim with its own counsel and at its
own expense.
(d) (i) If the Responsible Party does not give written notice to the
Claimant within 30 days after receipt of a Claim Notice from the Claimant of any
Third Party Claim of the Responsible Party's election to assume the defense or
handling of such Third Party Claim, the provisions of Section 8.5(d)(ii) hereof
shall govern.
(ii) The Claimant may, at the Claimant's expense (which
shall be paid or reimbursed from time to time by the Responsible Party, or where
a Parent Party is the Claimant shall be paid or reimbursed from the Escrow
Consideration, as such expenses are incurred by the Claimant), select counsel in
connection with conducting the defense or handling of such Third Party Claim and
defend or handle such Third Party Claim in such manner as it may deem
appropriate; provided, however, that the Claimant shall keep the Responsible
Party timely apprised of the status of such Third Party Claim and shall not
settle such Third Party Claim without the prior written consent of the
Responsible Party, which consent shall not be unreasonably withheld. If the
Claimant defends or handles such Third Party Claim, the Responsible Party shall
cooperate with the Claimant and shall be entitled to participate in the defense
or handling of such Third Party Claim with its own counsel and at its own
expense.
(e) Any Claims by Shareholder Indemnified Parties under this Article VIII
or otherwise must be made solely and exclusively by and through the Shareholder
Representative and in accordance with the terms and procedures in this Article
VIII. Parent shall not be obligated or otherwise liable for any Claims made by
any Shareholder Indemnified Party unless a proper Claim Notice is given by the
Shareholder Representative in accordance with this Article VIII.
(f) The Shareholder Representative shall have authority to dispute,
arbitrate, litigate, settle and compromise all Claims made by Parent Parties in
his or her prudent business judgment, subject to the same standards as apply to
actions by a Board of Directors generally. He or she shall be entitled at his or
her own cost (which cost may be reimbursed out of the Escrow Consideration to
the extent permitted for Shareholder Costs in Section 8.7(b)) to consult with
such advisors, and hire such counsel or accounting support, and incur such other
expenses (including errors and omissions or similar insurance) as he or she sees
fit, within that standard of conduct. Any recovery on such Claims by the
Shareholders' Representative shall go first to cover the Shareholder
Representative's expenses and fees, and then to offset any Claims allowed
against the Escrow Consideration.
(g) The Shareholder Representative shall not be personally liable in his
capacity as Shareholder Representative, for any error of judgment on his part or
for any other act done or omitted by him in good faith in connection with his
duties as Shareholder Representative, except willful misconduct. In all such
cases, any act done or omitted by the Shareholder Representative upon the advice
of his attorneys shall be deemed conclusively to be performed or omitted in good
faith by the Shareholder Representative.
(h) The Parent Parties may offset any Claim the Parent Parties may have
against the Escrow Consideration against any valid Claim for indemnification by
the Shareholder Indemnified Parties under Article VIII. For purposes of
calculating such offset, the value of Escrow Shares shall be determined as of
the date the Claim Notice was settled or approved by the Shareholder
Representative.
8.6 REMEDIES; SPECIFIC PERFORMANCE
Except for claims based on any manner of fraud, the indemnification and Claims
provisions of this Article VIII are the sole and exclusive remedy of any party
to this Agreement for a breach of any representation, warranty or covenant
contained herein. Notwithstanding the preceding sentence, each of the parties
acknowledges and agrees that the other parties hereto would be damaged
irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached.
Accordingly, each of the parties hereto agrees that the other parties hereto
shall be entitled to an injunction to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof (including the indemnification provisions hereof) in any
competent court having jurisdiction over the parties, in addition to any other
remedy to which they may be entitled at law or in equity.
8.7 SHAREHOLDER REPRESENTATIVE
(a) The Company and the Special Indemnitors pursuant to this Agreement and
the Escrow Agreement referred to in Section 1.7.1(e) above, irrevocably appoint
Xxxxxxxx X'Xxxxx, with full power of substitution and resubstitution, to act as
the shareholder representative ("Shareholder Representative") in administering
the Escrow Consideration and performing the duties given the Shareholder
Representative under the Escrow Agreement and to carry out the responsibilities
of the Shareholder Representative set forth in Article VIII of this Agreement.
Xxxxxxxx X'Xxxxx agrees to serve as Shareholder Representative. If the
Shareholder Representative dies or is incapacitated before being able to name a
substitute, holders of a majority in interest of the Escrow Consideration
interests shall be entitled to appoint a successor by written consent. The
Shareholder Representative shall have authority to act for and on behalf of the
Special Indemnitors with respect to all matters arising in connection with this
Agreement, including, without limitation, the power and authority, in his sole
discretion, to: (a) take any action contemplated to be taken by the Shareholder
Representative under this Article VIII; (b) negotiate, determine, defend and
settle any Third Party Claim and any dispute which may arise under or in
connection with this Agreement; and (c) make, execute, acknowledge and deliver
any releases, assurances, receipts, requests, instructions, notices, agreements,
certificates and any other instruments, and to generally do any and all things
and to take any and all actions which may be requisite, proper or advisable in
connection with this Agreement or the Escrow Agreement.
(b) The reasonable costs and expenses incurred by the Shareholder
Representative in carrying out his duties as Shareholder Representative under
this Agreement, including without limitation, reasonable legal fees and costs
incurred in defense of any Claim under Section 8.2 or Section 8.5 (the
"SHAREHOLDER COSTS"); shall be paid or reimbursed out of the Escrow
Consideration provided that the Shareholder Costs shall not exceed $500,000 in
the aggregate.
8.8 NO CIRCULAR RECOVERY
No Shareholder will be entitled to make any claim for indemnification against
the Surviving Corporation or any of its Affiliates by reason of the fact that
such Shareholder (or any of his, her or its officers, directors, agents or other
representatives) was a controlling person, director, officer, employee, agent or
other representative of the Company or of any of its Affiliates or was serving
as such for another Person at the request of the Company or any of its
shareholders or Affiliates (whether such claim is for Losses of any kind or
otherwise and whether such claim is pursuant to any statute, charter, by-law,
contractual obligation or otherwise) with respect to any action brought by a
Parent Party against such Shareholder or the Shareholders.
ARTICLE IX - GENERAL
9.1 TAX MATTERS
Except where otherwise required by law, the parties shall not take a position on
any tax returns inconsistent with the treatment of the Merger for tax purposes
as a reorganization within the meaning of Section 368(a)(1)(A) of the Code by
reason of Section 368(a)(2)(E) of the Code; provided, however, that neither
Parent nor Merger Sub makes any representation or warranty with respect to any
Tax consequences to the Company or its shareholders arising under this
Agreement.
9.2 EXPENSES
Each party shall pay its own fees and expenses incident to the negotiation,
preparation and execution of this Agreement and the other Operative Documents
(including legal and accounting fees and expenses); provided, however, that,
should any action be brought hereunder, the attorneys' fees and expenses of the
prevailing party shall be paid by the other party to such action.
9.3 NOTICES
Any notice, request or demand desired or required to be given hereunder shall be
in writing given by personal delivery, confirmed facsimile transmission or
overnight courier service, in each case addressed as respectively set forth
below or to such other address as any party shall have previously designated by
such a notice. The effective date of any notice, request or demand shall be the
date of personal delivery, the date on which successful facsimile transmission
is confirmed or the date actually delivered by a reputable overnight courier
service, as the case may be, in each case properly addressed as provided herein
and with all charges prepaid.
To Parent or Merger Sub:
XxxxxX.xxx, Inc.
00000 X.X. 0xx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Fax: (000) 000-0000
Attention: General Counsel
with a copy to:
Xxxx Xxxxxx Spears Lubersky LLP
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000-0000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
To Company:
0000 X.X. Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx
with a copy to:
Xxxx Xxxxx LLP
000 X.X. Xxxxxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx
9.4 SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
9.5 ENTIRE AGREEMENT
This Agreement, the Mutual Nondisclosure Agreement and the other Operative
Documents constitute the entire agreement among the parties with respect to the
subject matter hereof and thereof and supersede all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof and thereof.
9.6 ASSIGNMENT
This Agreement shall not be assigned by operation of law or otherwise; provided,
however, that Merger Sub's rights and obligations may be assigned to and assumed
by Parent or any other corporation wholly owned (directly or through
intermediate wholly owned subsidiaries) by Parent.
9.7 PARTIES IN INTEREST
This Agreement shall be binding upon and inure solely to the benefit of the
parties hereto and their respective successors, heirs, legal representatives and
permitted assigns, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under
or by reason of this Agreement; provided, however, that the Shareholder
Representative shall have the right after the Effective Time to enforce this
Agreement on behalf of the Shareholders.
9.8 GOVERNING LAW; JURISDICTION; VENUE
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of Washington applicable to contracts executed in and to be
performed in that state. The parties irrevocably consent to the nonexclusive
jurisdiction and venue of the state and federal courts located in King County,
Washington and Multnomah County, Oregon in connection with any action relating
to this Agreement.
9.9 COUNTERPARTS
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
9.10 WAIVER OF JURY TRIAL
Each of Parent, the Company and Merger Sub hereby irrevocably waives all right
to trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Agreement, the
transactions contemplated hereby or the actions of such parties in the
negotiation, administration, performance and enforcement of this Agreement.
9.11 SCHEDULES
The disclosures in the Schedule of Exceptions shall relate only to the
representations and warranties in the Section of this Agreement to which they
expressly relate and not to any other representations or warranty in this
Agreement.
[The Remainder of This Page Was Intentionally Left Blank.]
IN WITNESS WHEREOF, the parties hereto have entered into and signed this Amended
and Restated Agreement and Plan of Merger as of the date and year first above
written.
XXXXXX.XXX, INC.
By /s/ XXXXXXX X. XXXXXX
---------------------------------
Its President and CEO
--------------------------------
COLUMBIA ACQUISITION CORP.
By /s/ XXXXXXX X. XXXXXX
---------------------------------
Its President and CEO
--------------------------------
XXXXXXXXXXX.XXX, INC.
By /s/ XXXXX XXXXXX
---------------------------------
Its President and CEO
--------------------------------
SHAREHOLDER REPRESENTATIVE SIGNATURE PAGE
IN WITNESS WHEREOF, the Shareholder Representative has entered into and signed
this Amended and Restated Agreement and Plan of Merger as of the date and year
first above written.
SHAREHOLDER REPRESENTATIVE
/s/ XXXXXXXX X'XXXXX
-----------------------------------
Xxxxxxxx X'Xxxxx
(Solely for the purpose of Section
8.7 of this Agreement)
