EXHIBIT 99.1
AGREEMENT AND PLAN OF MERGER
AMONG
ARIS Corporation,
xxxx.xxx International Corp.,
ARIS Interactive, Inc.,
Xxxxxx X. Fine,
Xxxxx Xxxxx,
AND
Xxxxxxx X. Fine
May 17, 1999
AGREEMENT AND PLAN OF MERGER
Agreement entered into on as of May 17, 1999 by and among ARIS Corporation,
a Washington corporation (the "ACQUIROR"), ARIS Interactive, Inc., a Washington
corporation ("ACQUIROR SUB"), xxxx.xxx International Corp., a Washington
corporation (the "TARGET"), Xxxxxx X. Fine, Xxxxx Xxxxx and Xxxxxxx X. Fine
(collectively, the "MAJOR SHAREHOLDERS"). The Acquiror, Acquiror Sub and the
Target are referred to collectively herein as the "PARTIES."
This Agreement contemplates a tax-free merger of the Target with and into
the Acquiror Sub in a reorganization pursuant to Internal Revenue Code Sections
368(a)(1)(A) and 368(a)(2)(D). The Target Shareholders will receive capital
stock in the Acquiror or a combination of cash and stock in exchange for their
capital stock in the Target.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties and the Major Shareholders agree as
follows.
1. DEFINITIONS.
"ACQUISITION PROPOSAL" has the meaning set forth in Section 5(i) below.
"AFFILIATE" has the meaning set forth in Rule 145 of the regulations
promulgated under the Securities Act.
"ALTERNATIVE TRANSACTION" has the meaning set forth in Section 7(c)(iii)
below.
"ARTICLES OF MERGER" has the meaning set forth in Section 2(c) below.
"AVERAGE PRICE" means the average of the per share daily closing prices of
Acquiror Shares as reported by Nasdaq for each trading day during the
Measurement Period.
"ACQUIROR" has the meaning set forth in the preface above.
"ACQUIROR-OWNED SHARE" means any Target Share that the Acquiror owns
beneficially (except by virtue of having a proxy to vote such Target Share).
"ACQUIROR COMFORT LETTER" has the meaning set forth in Section 5(d) below.
"ACQUIROR SHARE" means any share of the Common Stock, without par value, of
the Acquiror.
"ACQUIROR SUB" has the meaning set forth in the preface above.
"CASH CONSIDERATION" has the meaning set forth in Section 2(d)(v) below.
"CLOSING" has the meaning set forth in Section 2(b) below.
"CLOSING DATE" has the meaning set forth in Section 2(b) below.
"CODE" has the meaning set forth in Section 3(m) below.
"COMPENSATION OR BENEFIT PLANS" has the meaning set forth in Section
3(m)(i) below.
"CONFIDENTIAL INFORMATION" means any information concerning the businesses
and affairs of the Target and its Subsidiaries that is not already generally
available to the public.
"DAMAGES" has the meaning set forth in Section 9(a)(iii) below.
"DEFINITIVE TARGET MATERIALS" means the definitive prospectus/proxy
statement relating to the Special Target Meeting.
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"DISCLOSURE DOCUMENT" means the disclosure document combining the
Prospectus and the Definitive Target Materials.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 3 below.
"DISSENTING SHARE" means any Target Share as to which any shareholder has
exercised his or its appraisal rights under Section 23B.13.010, ET. SEQ. of the
Washington Business Corporation Act.
"EFFECTIVE TIME" has the meaning set forth in Section 2(d)(i) below.
"ERISA" has the meaning set forth in Section 3(m)(i) below.
"EMPLOYEES" has the meaning set forth in Section 3(m)(i) below.
"EXCHANGE AGENT" has the meaning set forth in Section 2(e)(i) below.
"FAIRNESS OPINION" has the meaning set forth in Section 2(a) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means actual knowledge of any of the Major Shareholders,
Xxxxxxx X. Xxxxxxx, Xxxxx Xxxxx or Xxxx Xxxxx after reasonable investigation.
"MAJOR SHAREHOLDERS" means Xxxxxx X. Fine, Xxxxx Xxxxx and Xxxxxxx X. Fine.
"MEASUREMENT PERIOD" means the period of ten trading days ending on the
second trading day prior to the Special Target Meeting.
"MERGER" has the meaning set forth in Section 2(a) below.
"MERGER CONSIDERATION" has the meaning set forth in Section 2(d)(v) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Section 3(g)
below.
"OPTION CONVERSION RATIO" means (i) the Share Consideration plus (ii) the
Cash Consideration divided by the Average Price.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARTY" has the meaning set forth in the preface above.
"PENSION PLAN" has the meaning set forth in Section 3(m)(ii) below.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PLANS" has the meaning set forth in Section 3(m)(i) below.
"PRODUCTS" means any products offered or furnished by the Target or its
Subsidiaries, or any predecessor in interest of the Target or its Subsidiaries,
or any predecessor in interest of the Target or any of its Subsidiaries,
currently or at any time in the past, including, without limitation, each item
of hardware, software, or firmware; any
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system, equipment, or products consisting of or containing one or more
thereof; and any and all enhancements, upgrades, customizations,
modifications, and maintenance thereto.
"PROSPECTUS" means the final prospectus relating to the registration of the
Acquiror Shares under the Securities Act.
"PUBLIC REPORT" has the meaning set forth in Section 3(e) below.
"REGISTRATION STATEMENT" has the meaning set forth in Section 5(c)(i)
below.
"REQUISITE TARGET SHAREHOLDER APPROVAL" means the affirmative vote of the
holders of a two-thirds majority of the Target Shares in favor of this Agreement
and the Merger.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, OTHER THAN (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"SERVICES" means any services offered or furnished by the Target or its
Subsidiaries, or any predecessor in interest of the Target, currently or at any
time in the past.
"SHARE CONSIDERATION" has the meaning set forth in Section 2(d)(v) below.
"SPECIAL TARGET MEETING" has the meaning set forth in Section 5(c)(ii)
below, including any postponement or adjournment thereof.
"SUBSIDIARY" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"SURVIVING CORPORATION" has the meaning set forth in Section 2(a) below.
"TARGET" has the meaning set forth in the preface above.
"TARGET COMFORT LETTER" has the meaning set forth in Section 5(d) below.
"TARGET INTELLECTUAL PROPERTY RIGHTS" has the meaning set forth in Section
3(j)(ii) below.
"TARGET OPTION" means options to purchase Target Shares outstanding
immediately prior to the Effective Time under the Target's 1996 Incentive Stock
Option Plan, 1997 Stock Option Plan and 1998 Employee Bonus Plan.
"TARGET SHARE" means any share of the Common Stock, par value $.01 per
share, of the Target.
"TARGET SHAREHOLDER" means any Person who or which holds any Target Shares.
"TARGET WARRANT" means warrants granted by Target to purchase Target Shares
outstanding immediately prior to the Effective Time, as described on the
attached SCHEDULE 3(B).
"THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS" has the meaning set forth in
Section 3(j)(ii) below.
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"WASHINGTON BUSINESS CORPORATION ACT" means the Washington business
corporation act, as amended.
2. BASIC TRANSACTION.
(a) THE MERGER. On and subject to the terms and conditions of this
Agreement, the Target will merge with and into Acquiror Sub (the "MERGER") at
the Effective Time. Acquiror Sub shall be the corporation surviving the Merger
(the "SURVIVING CORPORATION"). The Target hereby represents and warrants to the
Acquiror and Acquiror Sub that its Board of Directors, at a meeting duly called
and held, has (i) unanimously determined that this Agreement and the
transactions contemplated hereby, including the Merger, are fair to and in the
best interest of the Target's shareholders, (ii) unanimously adopted and
approved this Agreement and the transactions contemplated hereby, including the
Merger, which approval satisfies in full the requirements of the Washington
Business Corporation Act, including without limitation, the requirements of
Section 23B.08.720 thereof and (iii) unanimously resolved to recommend approval
of this Agreement and the Merger by the Target Shareholders. The Target further
represents that (i) the Target's financial advisor has delivered to the Target's
Board of Directors its written or oral opinion (the "FAIRNESS OPINION") that the
consideration to be paid in the Merger is fair to the holders of Target Shares
from a financial point of view; and (ii) the Target has been advised by each of
the Major Shareholders and each of its directors and executive officers intend
to vote his or her Target Shares to approve the Merger.
(b) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of the Acquiror in
Bellevue, Washington, commencing at 9:00 a.m. local time on the business day
following the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as the Parties may mutually determine (the
"CLOSING DATE"); PROVIDED, HOWEVER, that the Closing Date shall be no earlier
than August 15, 1999.
(c) ACTIONS AT THE CLOSING. At the Closing, (i) the Target will deliver to
the Acquiror the various certificates, instruments, and documents referred to in
Section 6(a) below, (ii) the Acquiror will deliver to the Target the various
certificates, instruments, and documents referred to in Section 6(b) below,
(iii) Acquiror Sub and the Target will file with the Secretary of State of the
State of Washington Articles of Merger substantially in the form attached hereto
as EXHIBIT A (the "ARTICLES OF MERGER"), and (iv) the Acquiror will deliver to
the Exchange Agent in the manner provided below in this Section 2 the
certificate evidencing the Acquiror Shares issued in the Merger.
(d) EFFECT OF MERGER.
(i) GENERAL. The Merger shall become effective at the time (the
"EFFECTIVE TIME") the Acquiror Sub and the Target file the Articles of
Merger with the Secretary of State of the State of Washington. The Merger
shall have the effect set forth in the Washington Business Corporation Act.
The Surviving Corporation may, at any time after the Effective Time, take
any action (including executing and delivering any document) in the name
and on behalf of either Acquiror Sub or the Target in order to carry out
and effectuate the transactions contemplated by this Agreement.
(ii) ARTICLES OF INCORPORATION. The Articles of Incorporation of
Acquiror Sub in effect at and as of the Effective Time will remain the
Articles of Incorporation of the Surviving Corporation without any
modification or amendment in the Merger.
(iii) BYLAWS. The Bylaws of Acquiror Sub in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation without
any modification or amendment in the Merger.
(iv) DIRECTORS AND OFFICERS. The directors and officers of Acquiror
Sub in office at and as of the Effective Time will remain the directors and
officers of the Surviving Corporation (retaining their respective positions
and terms of office).
(v) CONVERSION OF TARGET SHARES. At and as of the Effective Time:
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(A) each Target Share (other than any Dissenting Share or
Acquiror-owned Share) shall be converted into the right to receive the following
consideration (the "MERGER CONSIDERATION"):
(1) that number of Acquiror Shares equal to the lesser of
(x) .3717 or (y) 4.5531, divided by the Average Price (such lesser number of
Acquiror Shares being hereinafter referred to as the "SHARE CONSIDERATION"),
plus
(2) an amount in cash equal to the lesser of (x) $1.9513 or
(y) the amount (if any) by which 4.5531 exceeds the Share Consideration
multiplied by the Average Price (such lesser amount being hereinafter referred
to as the "CASH CONSIDERATION").
At the Effective Time and without any action on the part of the holder, Target
Shares held by such holder shall cease to be outstanding and shall constitute
only the right to receive without interest, the Merger Consideration multiplied
by the number of Target Shares held by such holder and cash in lieu of a
fractional share.
(B) each Dissenting Share shall be converted into the right
to receive payment from the Surviving Corporation with respect thereto in
accordance with the provisions of the Washington Business Corporation Act, and
(C) each Acquiror-owned Share shall be canceled; PROVIDED,
HOWEVER, that the Merger Consideration shall be subject to equitable adjustment
in the event of any stock split, stock dividend, reverse stock split, or other
change in the number of Target Shares outstanding. No Target Share shall be
deemed to be outstanding or to have any rights other than those set forth above
in this Section 2(d)(v) after the Effective Time.
(vi) REPLACEMENT OF TARGET OPTIONS. At the Effective Time and
without any action on the part of the holder, all Target Options shall terminate
and cease to be exercisable, no Target Option shall be accelerated in vesting
(other than Target Options held by employees that Acquiror notifies Target will
not be continued as employees of the Surviving Corporation, and Target Options
held by Xxxxxxx X. Xxxxxxx that vest automatically pursuant to his employment
agreement), and the Target's Board of Directors shall take or cause to be taken
such actions as may be required to cause such result. The Acquiror shall cause
to be granted under the Acquiror's Stock Option Plan to each holder of Target
Options, options to purchase a number of Acquiror Shares equal to that number of
Target Shares issuable upon exercise of such holder's Target Options multiplied
by the Option Conversion Ratio at an exercise price per Acquiror Share equal to
the exercise price per Target Share of such outstanding Target Option divided by
the Option Conversion Ratio, and having the same vesting schedule as the Target
Options replaced.
(vii) REPLACEMENT OF TARGET WARRANTS. At the Effective Time and
without any action on the part of the holder, each outstanding Target Warrant
shall be converted into the right to purchase the Merger Consideration in lieu
of each Target Share issuable upon exercise of such Target Warrant upon payment
of the exercise price per Target Share of such outstanding Target Warrant.
(viii) SHARES OF ACQUIROR SUB. Each issued and outstanding share of
capital stock of Acquiror Sub at and as of the Effective Time will remain issued
and outstanding and held by the Acquiror.
(e) PROCEDURE FOR PAYMENT.
(i) Immediately after the Effective Time, (A) the Acquiror will
furnish to ChaseMellon Shareholder Services (the "EXCHANGE AGENT") a stock
certificate (issued in the name of the Exchange Agent or its nominee)
representing that number of Acquiror Shares equal to the product of (I) the
Share Consideration TIMES (II) the number of outstanding Target Shares
(other than any Dissenting Shares and Acquiror-owned Shares) and cash in
the amount equal to the product of (III) the Cash Consideration (if any)
times (IV) the number of outstanding Target Shares (other than any
Dissenting Shares and Acquiror-owned Shares), and (B) the Acquiror will
cause the Exchange Agent to mail a letter of transmittal (with instructions
for its use) in customary form reflecting the terms of the Merger to each
record holder of outstanding Target Shares for the holder to use in
surrendering the certificates which represented his or its Target Shares in
exchange for a certificate representing the number of Acquiror Shares and a
check for the amount of cash (if any) to which he or it is entitled, plus
cash in lieu of
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fractional shares (if any). Certificates representing securities held by
an Affiliate of the Target shall not be exchanged until the Acquiror has
received an agreement from such Affiliate in the form of EXHIBIT B hereto.
(ii) The Acquiror will not pay any dividend or make any
distribution on Acquiror Shares (with a record date at or after the
Effective Time) to any record holder of outstanding Target Shares until the
holder surrenders for exchange his or its certificates which represented
Target Shares. The Acquiror instead will pay the dividend or make the
distribution to the Exchange Agent in trust for the benefit of the holder
pending surrender and exchange. The Acquiror may cause the Exchange Agent
to invest any cash the Exchange Agent receives from the Acquiror as a
dividend or distribution in one or more of the permitted investments
designated by the Acquiror ; PROVIDED, HOWEVER, that the terms and
conditions of the investments shall be such as to permit the Exchange Agent
to make prompt payments of cash to the holders of outstanding Target Shares
as necessary. The Acquiror may cause the Exchange Agent to pay over to the
Acquiror any net earnings with respect to the investments, and the Acquiror
will replace promptly any cash which the Exchange Agent loses through
investments. In no event, however, will any holder of outstanding Target
Shares be entitled to any interest or earnings on the dividend or
distribution pending receipt.
(iii) No fractional shares shall be issuable by the Acquiror
pursuant hereto. In lieu of issuing fractional shares, a cash adjustment
will be paid equal to the fraction of one Acquiror Share that would
otherwise be issuable, multiplied by the Average Price.
(iv) The Acquiror may cause the Exchange Agent to return any
Acquiror Shares and dividends and distributions thereon and any cash
remaining unclaimed 180 days after the Effective Time, and thereafter each
remaining record holder of outstanding Target Shares shall be entitled to
look to the Acquiror (subject to abandoned property, escheat, and other
similar laws) as a general creditor thereof with respect to the Acquiror
Shares and dividends and distributions thereon and any cash to which he or
it is entitled upon surrender of his or its certificates.
(v) Notwithstanding anything in this Agreement to the contrary,
Target Shares that are Dissenting Shares immediately prior to the Effective
Time shall not be converted into Acquiror Shares and cash (if any) pursuant
to the Merger, and the holders of such Dissenting Shares shall be entitled
to receive payment of the fair value of their Dissenting Shares in
accordance with the provisions of the Washington Business Corporation Act;
unless and until such holders shall fail to perfect, lose, or withdraw
their rights thereunder. If, after the Effective Time, any holder of
Dissenting Shares shall fail to perfect, lose or withdraw his or its right
to be paid fair value, then such Dissenting Shares no longer shall be
deemed to be Dissenting Shares, and shall be treated as if they had been
converted at the Effective Time into the right to receive the consideration
being paid for Target Shares in the Merger, without any interest, and the
Acquiror shall take all necessary action to effect the exchange of Acquiror
Shares and cash (if any) for the Target Shares. The Target shall give the
Acquiror prompt written notice of any demands for payment of fair value for
any Target Shares, and the Acquiror shall have the right to participate in
all negotiations or proceedings with respect to such demands. Without the
prior written consent of the Acquiror, the Target shall not settle, offer
to settle or make any payment with respect to any such demands.
(vi) The Acquiror shall pay all charges and expenses of the
Exchange Agent.
(f) CLOSING OF TRANSFER RECORDS. After the close of business on the Closing
Date, transfers of Target Shares outstanding prior to the Effective Time shall
not be made on the stock transfer books of the Surviving Corporation.
3. REPRESENTATIONS AND WARRANTIES OF THE TARGET AND THE MAJOR SHAREHOLDERS.
The Target and each of the Major Shareholders, jointly and severally, represent
and warrant to the Acquiror that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 3),
except as set forth in the disclosure schedule accompanying this Agreement and
initialed by the Parties (the "DISCLOSURE SCHEDULE"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section 3.
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(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of the Target
and its Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation. Each
Subsidiary is identified by name and jurisdiction of incorporation in the
Disclosure Schedule. Each of the Target and its Subsidiaries is duly authorized
to conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required except where the failure to be so qualified
would not have a material adverse effect on the Target and its Subsidiaries
taken as a whole. Each of the Target and its Subsidiaries has full corporate
power and authority to carry on the businesses in which it is engaged and to own
and use the properties owned and used by it. The Target's Articles of
Incorporation and Bylaws are in the form filed as exhibits to its Public
Reports.
(b) CAPITALIZATION. The entire authorized capital stock of the Target
consists of 10,000,000 Target Shares, of which 2,669,590 Target Shares are
issued and outstanding as of the date of this Agreement. All of the issued and
outstanding Target Shares have been duly authorized and are validly issued,
fully paid, and nonassessable. Except as set forth on Disclosure Schedule 3(b),
there are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Target to issue, sell, or otherwise cause to
become outstanding any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Target or any of its Subsidiaries. All of the
outstanding shares of capital stock of each of the Target's Subsidiaries have
been duly authorized and are validly issued, fully paid and nonassessable and
are legally and beneficially owned by the Target or another wholly owned
Subsidiary of the Target, free and clear of all Security Interests or any right
or option of any person to purchase or otherwise acquire any such capital stock.
There are no outstanding or authorized options, warrants, purchase rights,
subscriptions rights, conversion rights, exchange rights or other contracts or
commitments that could require any Subsidiary of the Target to issue, sell or
otherwise cause to become outstanding any of its capital stock, or that could
require the Target or any Subsidiary of the Target to transfer any capital stock
of any Subsidiary of the Target.
(c) AUTHORIZATION OF TRANSACTION. Subject only to Requisite Target
Shareholder Approval, the Target has full power and authority (including full
corporate power and authority) and has taken all corporate actions necessary to
authorize the execution and delivery of this Agreement and the performance of
its obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Target, enforceable in accordance with its terms and
conditions.
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Target and its Subsidiaries or
any of their assets is subject or any provision of the charter or bylaws of any
of the Target and its Subsidiaries or (ii) except as set forth on Disclosure
Schedule 3(d), conflict with, result in a breach of, constitute a default under,
result in the acceleration of, result in a change in the rights or obligations
of any parties to, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument or other arrangement to which any of the Target and its
Subsidiaries is a party or by which any of them is bound or to which any of
their assets is subject (or result in the imposition of any Security Interest
upon any of their assets) except in each case where there would be no material
adverse effect upon the business, assets, financial condition, operations,
results of operations or future prospects of the Target and its Subsidiaries
taken as a whole. Other than in connection with the provisions of the
Washington Business Corporation Act, the Securities Exchange Act, the Securities
Act, and the state securities laws, none of the Target and its Subsidiaries is
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
(e) FILINGS WITH THE SEC. The Target has made all filings with the SEC that
it has been required to make under the Securities Act and the Securities
Exchange Act (collectively the "PUBLIC REPORTS"). Each of the Public Reports has
complied, and all Public Reports to be filed with the SEC after the date hereof
will comply, with the Securities Act and the Securities Exchange Act in all
material respects. None of the Public Reports, as of its respective date,
contained or will contain any untrue statement of a material fact or omitted or
will omit to state a material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
(f) FINANCIAL STATEMENTS. Each of the financial statements included in or
incorporated by reference into the Public Reports (including the related notes
and schedules) has been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, presents fairly the financial
condition of the Target and its
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Subsidiaries as of the indicated dates and the results of operations,
retained earnings and changes in financial position of the Target and its
Subsidiaries for the indicated periods, is correct and complete in all
material respects, and is consistent with the books and records of the Target
and its Subsidiaries; PROVIDED, HOWEVER, that the interim financial
statements are subject to normal year-end adjustments which will not be
material in amount or effect.
(g) SUBSEQUENT EVENTS. Since January 31, 1999, excepted as disclosed in
the Public Reports filed prior to the date hereof, the Target and its
Subsidiaries have conducted their businesses only in, and have not engaged in
any material transaction other than in, the Ordinary Course of Business or made
any change in accounting principles, practices and methods. Since January 31,
1999, (the "MOST RECENT FISCAL YEAR END") there has not been any material
adverse change in the business, assets, financial condition, operations, results
of operations, or future prospects of the Target and its Subsidiaries taken as a
whole.
(h) UNDISCLOSED LIABILITIES. Except as set forth on Schedule 3(h), none of
the Target and its Subsidiaries has any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due) including any liability for taxes, except for (i) liabilities set forth on
the face of the balance sheet dated as of the Most Recent Fiscal Year End
(including in any notes thereto), (ii) liabilities which have arisen after the
Most Recent Fiscal Year End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law) and (iii) liabilities which in the aggregate are not material to the Target
and its Subsidiaries, taken as a whole.
(i) LITIGATION. Except as set forth on Schedule 3(i), there is no action,
suit, investigation or proceeding pending against, or to the Knowledge of the
Target threatened against or affecting, the Target or any of its Subsidiaries or
any of their properties (or any basis therefor) before any court or arbitrator
or any governmental body, agency or official which, if determined or resolved
adversely to the Target or any Subsidiary, may have a material adverse effect on
the business, assets, financial condition, operations, results of operations, or
prospects of the Target and its Subsidiaries taken as a whole. Except as set
forth on Schedule 3(i), to the Knowledge of the Target there are no facts or
circumstances that could result in any claims or actions, suits, investigations
or proceedings of the sort described in the preceding sentence.
(j) INTELLECTUAL PROPERTY.
(i) Except as set forth on Schedule 3(j)(i), the Target and/or
each of its Subsidiaries owns, or is licensed or otherwise
possesses legally enforceable rights to use all patents,
trademarks, trade names, service marks, copyrights, and any
applications therefor, trade secrets, technology, know-how,
computer software programs or applications, and tangible or
intangible proprietary information or materials that are used
in the business of the Target and its Subsidiaries as
currently conducted or as proposed to be conducted, except
where the failure to own, be licensed or otherwise have such
rights would not have a material adverse effect upon the
business, assets, financial condition, operations, results of
operations or future prospect of the Target and its
Subsidiaries, taken as a whole. All patents, trademarks,
trade names, service marks and copyrights held by the Target
or any Subsidiary are valid and subsisting.
(ii) Except as disclosed in the Public Reports filed prior to the date
hereof or as set forth on Schedule 3(j)(ii):
(A) neither the Target nor any of its Subsidiaries is, nor
will the Target or any of its Subsidiaries be as a result of the
execution and delivery of this Agreement or the performance of the
Target's obligations hereunder, in violation of any licenses,
sublicenses and other agreement as to which the Target or any of its
Subsidiaries is a party or pursuant to which the Target or any of its
Subsidiaries is authorized to use any third-party patents, trademarks,
trade names, service marks, copyrights, trade secrets, technology,
know-how or computer software (collectively, "THIRD-PARTY INTELLECTUAL
PROPERTY RIGHTS");
8
(B) no claims with respect to (I) the patents, registered and
unregistered trademarks and service marks, registered copyrights,
trade names, and any applications therefor, trade secrets, know-how,
technology or computer software owned by the Target or any of its
Subsidiaries (collectively called the "TARGET INTELLECTUAL PROPERTY
RIGHTS"); or (II) Third-Party Intellectual Property Rights are
currently pending or, to the Knowledge of the officers of the Target,
are threatened by any person;
(C) to the Knowledge of the Target, there are no valid grounds for
any BONA FIDE claims (I) to the effect that the manufacture, sale,
licensing or use of any product or provision of any service as now
used, sold, licensed or provided or proposed for use, sale, license or
to be provided by the Target or any of its Subsidiaries, infringes on
any copyright, patent, trademark, trade name, service xxxx, copyright,
know-how, technology or trade secret of any person; (II) against the
use by the Target or any of its Subsidiaries, of any Target
Intellectual Property Right or Third-Party Intellectual Property Right
used in the business of the Target or any of its Subsidiaries as
currently conducted or as proposed to be conducted; (III) challenging
the ownership, validity or enforceability of any of the Target
Intellectual Property Rights; or (IV) challenging the license or
legally enforceable right to use of the Third-Party Intellectual
Rights by the Target or any of its Subsidiaries; and
(D) each of the employees and consultants of the Target and its
Subsidiaries has executed and delivered to the Target in connection
with employment or engagement a binding agreement conveying to the
Target or such Subsidiary all rights to any invention, trade secret,
or other intellectual property substantially in the form of agreement
provided to the Acquiror, and to the Knowledge of the Target, there is
no unauthorized use, infringement or misappropriation of any of the
Target Intellectual Property Rights by any third party, including any
employee or consultant of the Target or any of its Subsidiaries.
(k) PRODUCT AND SERVICE WARRANTIES.
Except as set forth on Schedule 3(k), (i) there are no warranties, express
or implied, written or oral, with respect to the Products or Services; (ii)
there are no pending or , to the Knowledge of the Target, threatened claims with
respect to any such warranty, and neither the Target nor any of its Subsidiaries
has any liability with respect to any such warranty, whether known or unknown,
absolute, accrued, contingent or otherwise and whether due or to become due; and
(iii) there are no material product or service liability claims (whether arising
for breach of warranty or contract, or for negligences or other tort, or under
any statute) against or involving the Target or any of its Subsidiaries or any
Product or Service and no such claims have been settled, adjudicated or
otherwise disposed of since January 31, 1996.
(l) YEAR 2000 COMPLIANCE.
(i) Products and Services. All of the Products and Services are
Year 2000 Compliant except for any failure to be Year 2000 Compliant which
would not be material to the business, assets, financial condition,
operations, results of operations or future prospects of the Target and its
Subsidiaries taken as a whole. If the Target or any of its Subsidiaries is
obligated to repair or replace Products or Services previously provided by
the Target or any of its subsidiaries that are not Year 2000 Compliant in
order to meet the Target's or such Subsidiary's contractual obligations, to
avoid personal injury, to avoid misrepresentation claims, or to satisfy any
other contractual or legal obligations or requirements, to the Target's
Knowledge it has repaired or replaced those Products and Services to make
them Year 2000 Compliant. The Target has furnished the Acquiror with true,
correct and complete copies of any customer agreements and other materials
and correspondence in which the Target or any of its Subsidiaries has
furnished (or could be deemed to have furnished) assurances as to the
performance and/or functionally of any Products or Services on or after
January 1, 2000, as a result of the occurrence of such date.
(ii) Internal MIS Systems and Facilities. To the Knowledge of the
Target, all Internal MIS Systems and Facilities are Year 2000 Complaint.
9
(iii) Suppliers. To the Knowledge of the Target, but without any
duty to investigate, all vendors of products or services to the Target and
its Subsidiaries, and their respective products, services and operations,
are Year 2000 Compliant.
(iv) Year 2000 Compliance Investigations and Reports. The Target
has furnished the Acquiror with a true, correct and complete copy of any
written internal investigations, memoranda, budget plans, forecasts, or
reports concerning the Year 2000 Compliance of the products, services,
operations, systems, supplies, and facilities of the Target and its
Subsidiaries and the Target's and its Subsidiaries' vendors.
The terms as used within this Section 3(l) have the following
definitions:
"FACILITIES" means any facilities or equipment used by the
Target or its Subsidiaries in any location, including HVAC systems,
mechanical systems, elevators, security systems, fire suppression systems,
telecommunications systems, fax machines, copy machines, and equipment,
whether or not owned by the Target.
"INTERNAL MIS SYSTEMS" means any computer software and systems
(including hardware, firmware, operating systems software, utilities, and
applications software) used in the ordinary course of the Target's or its
Subsidiaries' business by or on behalf of the Target or its Subsidiaries,
including payroll, accounting, billing/receivables, inventory, asset
tracing, customer services, human resources, and e-mail systems.
"YEAR 2000 COMPLIANT" means that (1) the products, services,
or other items) at issue accurately process, provide and/or receive all
date/time data (including calculating, comparing, sequencing, processing
and outputting) within, from, into, and between centuries (including the
twentieth and twenty-first centuries and the years 1999 and 2000),
including leap year calculations, and (2) neither the performance nor the
functionality nor the Target's provision of the products, services, and
other item(s) at issue will be affected by any dates/times prior to, on,
after, or spanning January 1, 2000. The design of the products, services,
and other item(s) at issue to ensure compliance with the foregoing
warranties and representations includes proper date/time data, century
recognition and recognition of 1999 and 2000, calculations that accommodate
single century and multi-century formulae and date/time values before, on,
after, and spanning January 1, 2000, and date/time data interface values
that reflect the century, 1999, and 2000. In particular, but without
limitation, (i) no value for current date/time will cause any material
error, interruption, or decreased performance in or for such product(s),
service(s), and other item(s), (ii) all manipulations of date and time
related data (including calculating, comparing, sequencing, processing, and
outputting) will produce correct results for all valid dates and times when
used independently or in combination with other product, services, and/or
items, (iii) date/time elements in interfaces and data storage will specify
the century to eliminate date ambiguity without human intervention,
including leap year calculations, (iv) where any date/time element is
represented without a century, the correct century will be unambiguous for
all manipulations involving that element, (v) authorization codes,
passwords, and zaps (purge functions) will function normally and in
materially the same manner during, prior to, on and after January 1, 2000,
including the manner in which they function with respect to expiration
dates and CPU serial numbers, and (vi) the Target's or its Subsidiaries'
supply of the product(s), service(s), and other item(s) will not be
materially interrupted, delayed, decreased, or otherwise affected by the
advent of the year 2000.
(m) EMPLOYEE BENEFITS.
(i) All bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus,
stock purchase, restricted stock and stock option plans, all employment,
termination, severance, welfare, fringe benefit, compensation, medical
or health contract or other plan, contract, policy or arrangement which
covers employees or former employees (the "EMPLOYEES") and current and
former directors of the Target or its Subsidiaries or their respective
predecessors (the "COMPENSATION AND BENEFIT PLANS" or "PLANS"),
including, but not limited to, "employee benefit plans" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") are listed in Schedule 3(m)(i) of the
Disclosure Schedule and any "change in control" or similar
10
provisions therein are specifically identified in such Schedule.
Schedule 3(m)(i) contains a complete and accurate list of all current
Employees of the Target and its Subsidiaries. True and complete copies
of all Compensation and Benefit Plans, including, but to limited to, any
trust instruments and/or insurance contracts, if any, forming a part of
any such plans and agreements, and all amendments thereto, have been
made available to the Acquiror.
(ii) All Compensation and Benefit Plans have been administered in
accordance with their terms and such Plans are in compliance with all
applicable laws, including, without limitation, as applicable, ERISA and
the Internal Revenue Code of 1986, as amended (the "CODE"). Each Plan
which is an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA ("PENSION PLAN") and which is intended to be qualified under
Section 401(a) of the Code, has received a favorable determination letter
from the Internal Revenue Service, and the Target is not aware of any
circumstances likely to result in revocation of any such favorable
determination letter. There is no pending or, to the Knowledge of the
Target, threatened litigation relating to the Compensation and Benefit
Plans. Neither the Target nor any of its Subsidiaries has engaged in a
transaction with respect to any Plan that, assuming the taxable period of
such transaction expired as of the date hereof, could subject the Target or
any of its Subsidiaries to a tax or penalty imposed by either Section 4975
of the Code or Section 502(i) of ERISA in an amount which would be
material.
(iii) None of the Compensation and Benefit Plans or any other
employee benefit plan within the meaning of Section 3(3) of ERISA under
which the Target (or its Subsidiaries) has or could have any liability (a)
constitutes a "multiemployer plan," as defined in Section 3(37) of ERISA;
or (b) is subject to Title IV of ERISA, Section 302 of ERISA, or Section
412 of the Code.
(iv) Neither the Target nor any of its Subsidiaries have any
obligations for retiree health or life benefits under any Plan, except as
set forth on Schedule 3(m)(iv). There are no restrictions on the rights of
the Target or any of its Subsidiaries to amend or terminate any such Plan
without incurring any liability thereunder.
(v) All Compensation and Benefit Plans covering foreign employees
comply with applicable local law. Neither the Target nor any of its
Subsidiaries has any unfunded liabilities with respect to any Pension Plan
which covers foreign Employees.
(vi) Except as set forth in Schedule 3(m)(vi), the consummation
of the transactions contemplated by this Agreement will not (x) entitle
any employees of the Target or any of its Subsidiaries to severance pay,
(y) accelerate the time of payment or vesting or trigger any payment of
compensation or benefits under, increase the amount payable or trigger
any other material obligation pursuant to, any of the Compensation and
Benefit Plans or (z) result in any breach or violation of, or a default
under, any of the Compensation and Benefit Plans.
(vii) No payment (or acceleration of benefits) required to be made
to any Employee as a result of the transactions contemplated by this
Agreement under any Compensation and Benefit Plan or otherwise will, if
made, constitute an "excess parachute payment" within the meaning of
Section 280G of the Code.
(n) EMPLOYEES. As of the date hereof and except as set forth on Schedule
3(n), no executive or technical employee of the Target or any of its
Subsidiaries has terminated employment with the Target or such Subsidiary since
May 1, 1999. As at the date hereof, except as set forth in Schedule 3(n), to
the Knowledge of the Target no executive or technical employee of the Target or
any of its Subsidiaries has indicated the intention to terminate employment with
the Target or such Subsidiary, materially reduce his or her time commitment to
such employment, or given any indication that he or she may do so.
(o) CUSTOMERS. Except as set forth on Schedule 3(o), since January 31,
1999, no existing customer of the Target or any Subsidiary has cancelled any
agreement for Products and Services, reduced the quantity of Products and
Services required from the Target or any Subsidiary, advised the Target that it
will not continue to purchase Products or Services, amended its agreements or
business arrangements with the Target or any of its Subsidiaries to the
disadvantage of the
11
Target or such Subsidiary or, to the Knowledge of the Target, indicated its
intention to do any of the foregoing or the possibility that it will seek to
do any of the foregoing.
(p) BROKERS' FEES. None of the Target and its Subsidiaries has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement, except
for up to $150,000 plus expenses payable to Xxxxx XxxXxxxxx, the Target's
financial advisor.
(q) CONTINUITY OF BUSINESS ENTERPRISE. The Target operates at least one
significant historic business line, or owns at least a significant portion of
its historic business assets, in each case within the meaning of Reg. Section
1.368-1(d).
(r) AFFILIATE AGREEMENTS. Disclosure Schedule 3(r) lists all Affiliates of
the Target who beneficially own Target Shares. The Target has obtained and
delivered to the Acquiror agreements in the form of EXHIBIT B hereto executed by
each of its Affiliates with respect to transactions in Target Shares and
Acquiror Shares.
(s) TAXATION OF THE MERGER. The representations and warranties set forth
in EXHIBIT D hereto are true and correct.
(t) AGREEMENT OF EXECUTIVE OFFICERS AND DIRECTORS. The Target has obtained
from each of the Major Shareholders and from each of its directors and delivered
to the Acquiror an agreement in the form of EXHIBIT C hereto to the effect that
all Target Shares held by such person will be voted in favor of the Merger and
with respect to certain other matters.
(u) DISCLOSURE. The Definitive Target Materials will comply with the
Securities Act and the Securities Exchange Act in all material respects. The
Definitive Target Materials will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they will be made,
not misleading; PROVIDED, HOWEVER, that the Target and the Major Shareholders
make no representation or warranty with respect to any information that the
Acquiror will supply specifically for use in the Definitive Target Materials.
None of the information that the Target will supply specifically for use in the
Registration Statement, or the Prospectus will contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they will
be made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR AND ACQUIROR SUB. The
Acquiror and Acquiror Sub each represents and warrants to the Target that the
statements contained in this Section 4 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 4), except as set forth in the Disclosure
Schedule. The Disclosure Schedule will be arranged in paragraphs corresponding
to the numbered and lettered paragraphs contained in this Section 4.
(a) ORGANIZATION. The Acquiror and Acquiror Sub are each corporations duly
organized and validly existing under the laws of the jurisdictions of their
incorporation.
(b) CAPITALIZATION. The entire authorized capital stock of the Acquiror
consists of 100,000,000 Acquiror Shares, of which 10,950,617 Acquiror Shares are
issued and outstanding at April 30, 1999, and 5,000,000 shares of preferred
stock, without par value, none of which are issued and outstanding. All of the
Acquiror Shares to be issued in the Merger have been duly authorized and, upon
consummation of the Merger, will be validly issued, fully paid, and
nonassessable. The entire authorized capital stock of Acquiror Sub consists of
100,000 shares of common stock, without par value, of which 100 shares are
issued and outstanding.
(c) AUTHORIZATION OF TRANSACTION. The Acquiror and Acquiror Sub each has
full power and authority (including full corporate power and authority) and has
taken all corporate action necessary to authorize the execution and delivery of
this Agreement and the performance of their respective obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of the
Acquiror and Acquiror Sub, enforceable in accordance with its terms and
conditions.
12
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Acquiror or Acquiror Sub is subject
or any provision of the charter or bylaws of the Acquiror or Acquiror Sub or
(ii) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument or other arrangement to which the Acquiror or Acquiror Sub
is a party or by which it is bound or to which any of its assets is subject.
Other than in connection with the provisions of the Washington Business
Corporation Act, the Securities Exchange Act, the Securities Act, and the state
securities laws, neither the Acquiror nor Acquiror Sub needs to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) BROKERS' FEES. Neither the Acquiror or Acquiror Sub has any liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which any of
the Target and its Subsidiaries could become liable or obligated.
(f) CONTINUITY OF BUSINESS ENTERPRISE. It is the present intention of the
Acquiror and Acquiror Sub to continue at least one significant historic business
line of the Target, or to use at least a significant portion of the Target's
historic business assets in a business, in each case within the meaning of Reg.
Section 1.368-1(d).
(g) ACQUIROR'S SEC REPORTS. The Acquiror has made all filings with the SEC
that it has been required to make under the Securities Act or the Securities
Exchange Act ("Acquiror's Reports"). Each of Acquiror's Reports has complied
with the requirements of the Securities Act and the Securities Exchange Act in
all material respects. None of Acquiror's Reports, as of its respective date,
contained any untrue statement of material fact or omitted to state a material
fact necessary to make the statements made therein, in the light of the
circumstances under which they were made not misleading.
(h) DISCLOSURE. The Registration Statement and the Prospectus will comply
with the Securities Act and the Securities Exchange Act in all material
respects. The Registration Statement and the Prospectus will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they will be made, not misleading; PROVIDED, HOWEVER, that the
Acquiror makes no representation or warranty with respect to any information
that the Target will supply specifically for use in the Registration Statement
and the Prospectus. None of the information that the Acquiror will supply
specifically for use in the Definitive Target Materials will contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made therein, in the light of the circumstances under
which they will be made, not misleading.
(i) LITIGATION. There is no action, suit, investigation or proceeding
pending against, or to the knowledge of the executive officers of Acquiror
threatened against Acquiror or any of its Subsidiaries or any of their
properties before any court or arbitrator or any governmental body, agency or
official which is required by Item 103 of Regulation S-K of the SEC to be
disclosed in Acquiror's Reports that is not disclosed in the Acquiror's report
on Form 10-Q for the quarter ended March 31, 1999.
(j) SUBSEQUENT EVENTS. Since March 31, 1999, (i) the Acquiror has not made
any change in accounting principles, practices and methods, and (ii) there has
not been any material adverse change in the business, assets, financial
condition, operations, results of operations or future prospects of the Acquiror
and its Subsidiaries taken as a whole.
5. COVENANTS. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
(a) GENERAL. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 6 below).
13
(b) NOTICES AND CONSENTS. The Target will give any notices (and will cause
each of its Subsidiaries to give any notices) to third parties, and will use its
best efforts to obtain (and will cause each of its Subsidiaries to use its best
efforts to obtain) any third party consents, that the Acquiror may request in
connection with the matters referred to in Section 3(d) above.
(c) REGULATORY MATTERS AND APPROVALS. Each of the Parties will (and the
Target will cause each of its Subsidiaries to) give any notices to, make any
filings with, and use its best efforts to obtain any authorizations, consents,
and approvals of governments and governmental agencies in connection with the
matters referred to in Section 3(d) and Section 4(d) above. Without limiting the
generality of the foregoing:
(i) SECURITIES ACT, SECURITIES EXCHANGE ACT, AND STATE SECURITIES
LAWS. The Target will prepare and file with the SEC in compliance with
Section 14(a) of the Securities Exchange Act, proxy materials including a
proxy statement relating to the Special Target Meeting which will also
serve as a prospectus relating to the Acquiror Shares under the Securities
Act. The Acquiror will prepare and file with the SEC a registration
statement under the Securities Act relating to the offering and issuance of
the Acquiror Shares (the "REGISTRATION STATEMENT"). The filing Party in
each instance will use its best efforts to respond to the comments of the
SEC thereon and will make any further filings (including amendments and
supplements) in connection therewith that may be necessary, proper, or
advisable, provided that the Target will not file any materials with the
SEC without the prior consent of the Acquiror, which will not be
unreasonably withheld or delayed. The Acquiror and the Target will
cooperate fully in the preparation of the Disclosure Materials, and the
Acquiror will provide the Target, and the Target will provide the Acquiror,
with whatever information and assistance in connection with the foregoing
filings that the filing Party may request. The Acquiror will take all
actions that may be necessary, proper, or advisable under state securities
laws in connection with the offering and issuance of the Acquiror Shares.
(ii) WASHINGTON BUSINESS CORPORATION ACT. The Target will call a
special meeting of its shareholders (the "SPECIAL TARGET MEETING") as soon
as practicable in order that the shareholders may consider and vote upon
the approval of the Merger in accordance with the Washington Business
Corporation Act. The Target will mail the Disclosure Document to its
shareholders and as soon as practicable. The Disclosure Document will
contain the affirmative recommendation of the board of directors of the
Target in favor of the approval of the Merger.
(d) COMFORT LETTERS. The Target will deliver to the Acquiror on or before
the date the Disclosure Document is mailed to their respective shareholders a
written letter of Ernst & Young LLP stating their conclusions as to the accuracy
of certain information derived from the financial records of the Target and its
Subsidiaries and contained in the Disclosure Document (the "TARGET COMFORT
LETTER"). The Target Comfort Letter shall be satisfactory in form and substance
to the Acquiror, acting reasonably, and shall be reasonably customary in scope
and substance for letters delivered by independent public accountants in
connection with transactions similar to those contemplated by this Agreement.
The Acquiror will deliver to the Target on or before the date the Disclosure
Document is mailed to its shareholders a letter of PricewaterhouseCoopers LLP
stating their conclusions as to the accuracy of certain information derived from
the financial records of the Acquiror and its Subsidiaries and contained in the
Disclosure Document (the "ACQUIROR COMFORT LETTER"). The Acquiror Comfort Letter
shall be satisfactory in form and substance to the Target, acting reasonably,
and shall be reasonably customary in scope and substance for letters delivered
by independent public accountants in connection with transactions similar to
those contemplated by this Agreement.
(e) LISTING OF ACQUIROR SHARES. The Acquiror will use its best efforts to
cause the Acquiror Shares that will be issued in the Merger to be approved for
listing on the Nasdaq National Market, subject to official notice of issuance,
prior to the Effective Time.
(f) OPERATION OF BUSINESS. The Target will not (and will not cause or
permit any of its Subsidiaries to) engage in any practice, take any action, or
enter into any transaction outside the Ordinary Course of Business, other than
with the prior written consent of the Acquiror. Without limiting the generality
of the foregoing:
(i) none of the Target and its Subsidiaries will authorize or
effect any change in its charter or bylaws;
(ii) none of the Target and its Subsidiaries will grant (except as
set forth on Schedule 5(f)(ii)) or accelerate or permit the acceleration of
the vesting of any options, warrants, or other rights to purchase or obtain
14
any of its capital stock or issue, sell, or otherwise dispose of any
capital stock of the Target or any Subsidiary (except upon the conversion
or exercise of options, warrants, and other rights to acquire shares of
capital stock of the Target currently outstanding and disclosed in this
Agreement) except that (i) vesting of Target Options held by Xxxxxxx X.
Xxxxxxx will be accelerated at the Effective Time pursuant to his
employment agreement and (ii) the Target may accelerate the vesting of
Target Options for employees of the Target that the Acquiror notifies the
Target will not be continued as employees of the Surviving Corporation
after the Effective Time;
(iii) none of the Target and its Subsidiaries will declare, set
aside, or pay any dividend or distribution with respect to its capital
stock (whether in cash or in kind), or redeem, repurchase, or otherwise
acquire any of its capital stock;
(iv) none of the Target and its Subsidiaries will issue any note,
bond, or other debt security or create, incur, assume, or guarantee any
obligation of any third party or any indebtedness for borrowed money or
capitalized lease obligation outside the Ordinary Course of Business;
(v) none of the Target and its Subsidiaries will sell or dispose
of material assets or will impose any Security Interest upon any of its
assets outside the Ordinary Course of Business;
(vi) none of the Target and its Subsidiaries will make any capital
investment in, make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;
(vii) none of the Target and its Subsidiaries will make any change
in employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business;
(viii) none of the Target and its Subsidiaries will take any action
that will preclude the Merger from being treated as a tax-free
reorganization pursuant to Internal Revenue Code Sections 368(a)(1)(A) and
368(a)(2)(D);
(ix) none of the Target and its Subsidiaries will amend any
employment agreement or increase the compensation of directors, officers or
employees outside the Ordinary Course of Business; and
(x) none of the Target and its Subsidiaries will commit to any of
the foregoing.
(g) FULL ACCESS. The Target will (and will cause each of its Subsidiaries
to) permit representatives of the Acquiror to have full access to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to each of the Target and its Subsidiaries. The
Acquiror will treat and hold as such any Confidential Information it receives
from any of the Target and its Subsidiaries in the course of the reviews
contemplated by this Section 5(g), will not use any of the Confidential
Information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, agrees to return to the Target all
tangible embodiments (and all copies) thereof which are in its possession.
(h) NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice to
the other Parties and the Major Shareholders, and each of the Major Shareholders
will give prompt written notice to the Parties, of any material development that
would, if not corrected by the Closing Date, result in any of its own
representations and warranties in Section 3 and Section 4 above being incorrect
at the Closing Date. No disclosure by any Party or Major Shareholder pursuant to
this Section 5(h), however, shall be deemed to amend or supplement the
Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
(i) ACQUISITION PROPOSALS. The Target and each Major Shareholder agree
that neither the Target nor any of its Subsidiaries nor any of the respective
officers, directors, agents, employees or representatives of the Target or any
of its Subsidiaries (including, without limitation, any investment banker,
attorney or accountant retained by the Target or any of its Subsidiaries) nor
any of the Major Shareholders (whether or not acting on behalf of the Target)
shall initiate, solicit or encourage, directly or indirectly, any inquiries or
the making of any proposal or offer to the Target or any Subsidiary or any of
the shareholders of the Target with respect to a merger, consolidation or
similar transaction involving, or any purchase of all or any significant portion
of the assets or any equity securities of, the Target or any of its Subsidiaries
(any such proposal or offer being hereinafter referred to as an "ACQUISITION
PROPOSAL") or, except to the extent legally
15
required for the discharge by the board of directors of the Target of its
fiduciary duties as advised in writing by counsel, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any Person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal. The Target shall immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. The
Target shall take the necessary steps to promptly inform the individuals or
entities referred to in the first sentence hereof of the obligations
undertaken in this Section 5(i). The Target will notify the Acquiror
immediately if any inquiries or proposals relating to an actual or potential
Acquisition Proposal are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or
continued with the Target or any of its Subsidiaries. The Target also will
promptly request each person which has heretofore executed a confidentiality
agreement in connection with its consideration of acquiring the Target and/or
any of its Subsidiaries to return all Confidential Information heretofore
furnished to such person by or on behalf of the Target.
(j) INDEMNIFICATION. The Acquiror will observe any indemnification
provisions now existing in the articles of incorporation or bylaws of the Target
for the benefit of any individual who served as a director or officer of the
Target at any time prior to the Effective Time. The Acquiror shall obtain
directors' and officers' liability insurance covering each individual who served
as an officer or director of the Target at any time prior to the Effective Time
for a period of 24 months after the Effective Time for an amount and coverage
not less than that in effect for such directors and officers of the Target
immediately prior to the Effective Time.
(k) CONTINUITY OF BUSINESS ENTERPRISE The Acquiror will cause the Surviving
Corporation to continue at least one significant historic business line of the
Target, or use at least a significant portion of the Target's historic business
assets in a business, in each case within the meaning of Reg. Section
1.368-1(d).
(l) TARGET'S COMPENSATION AND BENEFIT PLANS. The Target will take such
actions as the Acquiror reasonably requests with respect to the Target's
Compensation and Benefit Plans, it being understood that the purpose of the
covenant contained in this Section 5(l) is to conform the Target's Compensation
and Benefit Plans to applicable legal requirements and to minimize any future
liabilities of the Acquiror, Acquiror Sub and the Surviving Corporation in
respect of the Target's Compensation and Benefit Plans.
6. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE ACQUIROR. The obligation of the
Acquiror to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) this Agreement and the Merger shall have received the
Requisite Target Shareholder Approval and the number of Dissenting Shares
shall not exceed 10% of the number of outstanding Target Shares;
(ii) the Target and its Subsidiaries shall have procured all of the
third party consents specified in Section 5(b) above, unless, in the
opinion of the Acquiror, acting reasonably, the failure to obtain such
consents would not have a material adverse effect on the operations of the
Surviving Corporation;
(iii) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of the
Closing Date;
(iv) the Target shall have performed and complied with all of its
covenants and obligations hereunder in all material respects through the
Closing;
(v) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Surviving Corporation to own the former assets, to operate the former
businesses, and to control the former Subsidiaries of the Target, or (D)
affect adversely the right of any of the former Subsidiaries of the Target
to own its assets
16
and to operate its businesses (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(vi) since the date of this Agreement, there shall have been no
material adverse change in the business, assets, financial condition,
operations, results of operations or prospects of the Target and its
Subsidiaries taken as a whole, it being understood that a material adverse
change in the employee base of the Target and its Subsidiaries may
constitute such a material adverse change;
(vii) the Target shall have delivered to the Acquiror a certificate
of its Chief Executive Officer and Chief Financial Officer to the effect
that each of the conditions specified above in Section 6(a)(i)-(vi) is
satisfied in all respects;
(viii) the Registration Statement shall have become effective under
the Securities Act prior to the mailing of the Disclosure Document to
Target Shareholders;
(ix) the Acquiror Shares that will be issued in the Merger shall
have been approved for listing on the Nasdaq National Market, subject to
official notice of issuance;
(x) the Acquiror shall have received an opinion from Xxxxxx &
Whitney LLP, dated as of the Effective Time, substantially to the effect
that, on the basis of the facts, representations and assumptions set forth
in such opinions which are consistent with the state of facts existing at
the Effective Time, the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code and that accordingly:
(A) No gain or loss will be recognized by the Acquiror, Acquiror
Sub or the Target as a result of the Merger.
(B) No gain or loss will be recognized by the shareholders of
Target who exchange Target Shares for Acquiror Shares pursuant to the
Merger, except with respect to any cash received by such Target
shareholders in the Merger.
(C) Gain, if any, but not loss, will be recognized by Target
shareholders upon the exchange of Target Shares for cash pursuant to the
Merger. Such gain will be recognized, but not in excess of the amount of
cash, in an amount equal to the difference, if any, between (a) the fair
market value of the Acquiror Shares and cash received and (b) the Target
shareholder's adjusted tax basis in the Target Shares surrendered in
exchange therefor pursuant to the Merger. If the receipt of cash payments
has the effect of a distribution of a dividend to a Target Shareholder,
some or all of the gain recognized will be treated as a dividend taxed as
ordinary income. If the exchange does not have the effect of a
distribution of a dividend, all of the gain recognized would be a capital
gain, provided the Target Shares are a capital asset in the hands of the
Target shareholder at the time of the Merger.
(D) The aggregate tax basis of the Acquiror Shares received by a
Target Shareholder who exchanges Target Shares in the Merger will be the
same as the aggregate tax basis of the Target Shares surrendered in
exchange therefor, decreased by the amount of any cash received by such
Target Shareholder which is treated as a redemption rather than a dividend
and increased by the amount of any non-dividend gain recognized by such
Target Shareholder in connection with the Merger.
(E) The holding period of the Acquiror Shares received by a Target
Shareholder pursuant to the Merger will include the period during which the
Target Shares surrendered therefor were held, provided the Target Shares
are a capital asset in the hands of the Target shareholder at the time of
the Merger.
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in
certificates of officers of the Acquiror, Acquiror Sub and the
Target and others, including certain Target shareholders who
are parties to this Agreement.
17
(xi) the Acquiror shall have received the resignations, effective
as of the Closing, of each director and officer of the Target and its
Subsidiaries other than those whom the Acquiror shall have specified in
writing at least four business days prior to the Closing;
(xii) all actions to be taken by the Target in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and substance
to the Acquiror, acting reasonably; and
(xiii) Xxxxxx X. Fine shall have entered into an employment agreement
with the Acquiror in form and substance acceptable to the Acquiror and
Xxxxxx X. Fine.
The Acquiror may waive any condition specified in this Section 6(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE TARGET. The obligation of the Target to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the Registration Statement shall have become effective under
the Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued or proceedings therefor
initiated or threatened by the SEC;
(ii) the Acquiror Shares that will be issued in the Merger shall
have been approved for listing on the Nasdaq National Market, subject to
official notice of issuance;
(iii) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of the
Closing Date;
(iv) since the date of this Agreement, there shall have been no
material adverse change in the business, assets, financial condition,
operations, results of operations or future prospects of the Acquiror and
its Subsidiaries, taken as a whole;
(v) each of the Acquiror and Acquiror Sub shall have performed and
complied with all of its covenants and obligations hereunder in all
material respects through the Closing;
(vi) each of the Acquiror and Acquiror Sub shall have delivered to
the Target a certificate of its Chief Executive Officer and its Chief
Financial Officer or general counsel to the effect that each of the
conditions specified above in Section 6(b)(i)-(v) is satisfied in all
respects;
(vii) this Agreement and the Merger shall have received the
Requisite Target Shareholder Approval;
(viii) the Target shall have received a favorable opinion from Xxxxxx
& Whitney LLP , dated as of the Effective Time, as to the matters set forth
in Section 4(a) (other than as to outstanding shares), (b), and (c) hereof
and as to the valid issuance and listing on Nasdaq of the Acquiror Shares
being issued in the Merger and the effectiveness of the Registration
Statement;
(ix) Target shall have received an opinion from Xxxxxx & Xxxxxxx
LLP, dated as of the Effective Time, substantially to the effect that, on
the basis of the facts, representations and assumptions set forth in such
opinions which are consistent with the state of facts existing at the
Effective Time, the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code and
that accordingly:
(A) No gain or loss will be recognized by the Acquiror, Acquiror
Sub or Target as a result of the Merger.
18
(B) No gain or loss will be recognized by the shareholders of
Target who exchange Target Shares for Acquiror Shares pursuant to the
Merger, except with respect to any cash received by such Target
shareholders in the Merger.
(C) Gain, if any, but not loss, will be recognized by Target
Shareholders upon the exchange of Target Shares for cash pursuant to the
Merger. Such gain will be recognized, but not in excess of the amount of
cash, in an amount equal to the difference, if any, between (a) the fair
market value of the Acquiror Shares and cash received and (b) the Target
Shareholder's adjusted tax basis in the Target Shares surrendered in
exchange therefor pursuant to the Merger. If the receipt of cash payments
has the effect of a distribution of a dividend to a Target Shareholder,
some or all of the gain recognized will be treated as a dividend taxed as
ordinary income. If the exchange does not have the effect of a
distribution of a dividend, all of the gain recognized would be a capital
gain, provided the Target Shares are a capital asset in the hands of the
Target Shareholder at the time of the Merger.
(D) The aggregate tax basis of the Acquiror Shares received by a
Target Shareholder who exchanges Target Shares in the Merger will be the
same as the aggregate tax basis of the Target Shares surrendered in
exchange therefor, decreased by the amount of any cash received by such
Target Shareholder which is treated as a redemption rather than a dividend
and increased by the amount of any non-dividend gain recognized by such
Target Shareholder in connection with the Merger.
(E) The holding period of the Acquiror Shares received by a Target
Shareholder pursuant to the Merger will include the period during which the
Target Shares surrendered therefor were held, provided the Target Shares
are a capital asset in the hands of the Target Shareholder at the time of
the Merger.
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in
certificates of officers of the Acquiror, Acquiror Sub and the
Target and others, including certain Target shareholders who
are parties to this Agreement. Failure of the Target or
Majority Shareholders to provide such certificates shall
constitute a waiver by the Target of the requirement for this
opinion.
(x) all actions to be taken by the Acquiror or Acquiror Sub in
connection with consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be satisfactory in form
and substance to the Target, acting reasonably.
The Target may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
7. TERMINATION OF AGREEMENT. This Agreement may be terminated with the
prior authorization of the board of directors of the Party terminating the
Agreement (whether before or after shareholder approval) as provided below:
the Acquiror and the Target may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
(b) the Acquiror may terminate this Agreement by giving written notice to
the Target at any time prior to the Effective Time if:
(i) the Target or any Major Shareholder shall have breached any
material representation, warranty, covenant or obligation contained in this
Agreement in any material respect, the Acquiror has notified the Target of
the breach, and the breach has continued without cure for a period of 20
days after the notice of breach;
(ii) the Closing shall not have occurred on or before December 31,
1999, by reason of the failure of any condition precedent under Section
6(a) hereof (unless the Target has breached any material representation,
warranty, covenant or failure results primarily from the Acquiror
breaching any representation, warranty, covenant or obligation contained in
this Agreement);
19
(iii) the Target or any person described in Section 5(i) shall have
taken any action proscribed by Section 5(i), or any action that would have
been proscribed by Section 5(i) but for the exception thereto allowing
certain activity to be taken if required by fiduciary obligations as
advised in writing by counsel;
(iv) the board of directors of Target shall have withdrawn or
modified in a manner adverse to the Acquiror or Acquiror Sub its approval
or recommendation of the Merger or this Agreement, or fails to reaffirm
such approval or recommendation when requested by the Acquiror
(c) the Target may terminate this Agreement by giving written notice to the
Acquiror at any time prior to the Effective Time if:
(i) the Acquiror has breached any material representation, warranty,
covenant or obligation contained in this Agreement in any material respect,
the Target has notified the Acquiror of the breach, and the breach has
continued without cure for a period of 20 days after the notice of breach;
(ii) the Closing shall not have occurred on or before December 31,
1999, by reason of the failure of any condition precedent under Section
6(b) hereof (unless the failure results primarily from the Target breaching
any representation, warranty, covenant or obligation contained in this
Agreement);
(iii) the Target is not in material breach of its representations,
warranties, covenants or obligations under the Agreement and the board of
directors of the Target receives an unsolicited written offer with respect
to an Acquisition Proposal, or an unsolicited tender offer for Target
Shares is commenced, and the board of directors of the Target determines
that such transaction (the "ALTERNATIVE TRANSACTION") is more favorable to
the shareholders of the Target than the Merger, provided the Target has
given the Acquiror five business days prior notice of its intention to
terminate this Agreement to accept the Alternative Transaction and the
Acquiror shall have failed to offer to amend this Agreement so that it is
at least as favorable to the shareholders of the Target as the Alternative
Transaction.
(d) The Acquiror or the Target may terminate this Agreement by giving
written notice to the other Parties at any time after the Special Target Meeting
in the event this Agreement and the Merger fail to receive the Requisite Target
Shareholder Approval, and the Acquiror may terminate this Agreement if the
number of Dissenting Shares exceeds 10% of the outstanding Target Shares.
8. EFFECT OF TERMINATION.
(a) LIABILITIES UPON TERMINATION. If this Agreement is terminated
pursuant to Xxxxxxx 0, xxxx of the Acquiror, Acquiror Sub or the Target (nor
any of their officers or directors) shall have any liability or further
obligation to any other Party or its shareholders except as provided in
Sections 8(b) and 8(c) below, as liquidated damages and in lieu of all other
liabilities to any person for breach of this Agreement, provided that the
confidentiality provisions of Section 9 (b) and 5(g) shall survive
termination of this Agreement.
(b) ACQUIROR'S BREAK-UP FEE. If :
(i) this Agreement shall have been terminated by the Acquiror
pursuant to Section 7(b)(i), 7(b)(iii) or 7(b)(iv) hereof;
(ii) this Agreement is terminated by the Target pursuant
to Section 7(c)(iii); or
(iii) this Agreement is terminated pursuant to Section 7(d)
hereof;
then, in any such event, the Target shall promptly, but in no event
later than five business days after a request from the Acquiror for payment
(other than a termination pursuant to Section 7(c) (iii), in which case
payment shall be made upon giving notice of termination), pay to the Acquiror
(A) a fee equal to $500,000, which amount
20
shall be payable in same day funds; plus, (B) upon receipt of an invoice or
invoices therefor an amount equal to out-of-pocket expenses, including fees
and expenses paid to investment bankers, lawyers, accountants and other
service providers, incurred in connection with the transactions contemplated
by this Agreement. If not paid when due, amounts payable pursuant to this
Section 8(b) shall bear interest at the rate of ten percent (10%) per annum.
The Target acknowledges that the agreements contained in this Section 8(b)
(i) reflect reasonable compensation to the Acquiror for undertaking the
Merger and risking the loss of the benefits of the Merger under the
circumstances contemplated by this Section 8(b), (ii) were agreed to by the
Target for the purpose of inducing the Acquiror and Acquiror Sub to execute
this Agreement and undertake their obligations hereunder, and (iii) are an
integral part of the transactions contemplated by the Parties in this
Agreement, and that without these agreements, the Acquiror and Acquiror Sub
would not have entered into this Agreement.
(c) TARGET'S BREAKUP FEE. If the Acquiror shall terminate this
Agreement under circumstances other than those permitted in Section 7(a), (b)
or (d) hereof, or if the Target terminates pursuant to Section 7(c)(i) (other
than for breaches of the representations and warranties set forth in Section
4(i) or 4(j)), the Acquiror shall promptly pay to the Target (A) a fee equal
to $500,000, which amount shall be payable in same day funds; plus (B) upon
receipt of an invoice or invoices therefor an amount equal to out-of-pocket
expenses, including fees and expenses paid to investment bankers, lawyers,
accountants, and other service providers, incurred in connection with the
transactions contemplated by the Agreement. If not paid when due, amounts
payable pursuant to this Section 8(c) shall bear interest at the rate of 10%
per annum. The Acquiror acknowledges that the agreements contained in this
Section 8(c) (i) reflect reasonable compensation to the Target for
undertaking the Merger and risking the loss of benefits of the Merger under
the circumstances contemplated by this Section 8(c), (ii) were agreed for the
purpose of inducing the Target to execute this Agreement and undertake its
obligations hereunder, and (iii) are an integral part of the transactions
contemplated by the Parties in this Agreement, and without these agreements,
the Target would not have entered into this Agreement.
9. MISCELLANEOUS.
(a) SURVIVAL AND INDEMNITY.
(i) Except as set forth in Section 9(a)(ii), none of the
representations, warranties, and covenants of the Parties (other than
the provisions in Section 2 above concerning issuance of the Acquiror
Shares and the provisions in Section 5(j) above concerning
indemnification) will survive the Effective Time;
(ii) The representations and warranties of the Major Shareholders
in Section 3 hereof shall survive the Effective Time for a period of one
year, provided that (i) the representations and warranties set forth in
Sections 3 (b), (i), (j) and (l) hereof and any representation and
warranty as to which any of Major Shareholders had actual knowledge of
the facts which a reasonable person in such Major Shareholder's
circumstances should have concluded would constitute an inaccuracy or
breach shall survive for two years; and (ii) the representations and
warranties set forth in Section 3(s) hereof shall survive until all
applicable statutes of limitations, including waivers and extensions,
have expired with respect to each matter addressed therein.
Notwithstanding the preceding sentence, any representation or warranty
for which indemnity may be sought pursuant to this Section 9(a) shall
survive the
21
time it would otherwise terminate pursuant to the preceding sentence,
if notice of the inaccuracy or breach thereof shall have been given to
the Major Shareholder against whom indemnity may be sought.
(iii) The Major Shareholders agree, jointly and severally, to
indemnify the Acquiror, Acquiror Sub and the Surviving Corporation
against, and agrees to hold each of them harmless from, any and all
damage, loss, liability and expense (including, without limitation,
costs of investigation and reasonable attorneys' fees in connection with
any claim, action, suit or proceeding) (collectively, "DAMAGES")
incurred or suffered by the Acquiror, the Acquiror Sub or the Surviving
Corporation arising out of:
(A) any misrepresentation or breach of any warranty made
by Major Shareholders in Section 3 hereof; or
(B) any claim by any holder or former holder of Target
Shares against Target or its officers, directors, or controlling
persons alleging violations of Sections 5, 11, or 12 of the
Securities Act or Section 10(b) or 14(a) (other than with respect
to the Definitive Target Materials) of the Exchange Act,
intentional or negligent misrepresentation, breach of fiduciary
duty, or any misstatement of material fact or omission to state a
fact that is required to be stated or necessary to make the
statements made, in the light of the circumstances under which they
were made, not misleading.
Provided, however, that the Major Shareholders shall be not liable for
indemnity under this Section 9(a)(iii) unless the aggregate Damages exceed
$50,000, in which event the Major Shareholders shall be liable for all
Damages, subject to Section 9(a)(iv).
(iv) The aggregate indemnification obligations of the Majority
Shareholders under Section 9(a) shall not exceed:
(A) With respect to Damages arising out of
misrepresentations and breaches of warranties set forth in Section
3 hereof which shall survive for one year pursuant to Section
9(a)(ii) hereof, an amount equal to ten percent (10%) of (i) the
aggregate number of Acquiror Shares multiplied by the Average Price
plus (ii) the aggregate amount of cash, received by the Major
Shareholders (and any transferees of any Target Shares held by the
Major Shareholders on the date hereof) pursuant to the Merger;
provided that Damages claimed under Section 9(a)(iv)(B) shall count
toward the foregoing limitation;
(B) With respect to Damages arising out of
misrepresentations and breaches of warranties set forth in Section
3 hereof which shall survive for two years pursuant to Section
9(a)(ii) hereof and Damages recoverable under Section 9(a)(iv)(B)
hereof, an amount equal to $1,000,000; provided that Damages
claimed under Section 9(a)(iv)(A) shall count toward the $1,000,000
limitation.
22
Provided further, that if and to the extent any Damages are paid by
insurance, the Major Shareholders shall not have any indemnification
obligations hereunder (and the insurance provider shall not have any rights
of subrogation hereunder), it being understood that the Acquiror, Acquiror
Sub and the Surviving Corporation shall use commercially reasonable efforts
to pursue recovery against an insurer under insurance coverage, but none of
them shall be required to commence litigation or otherwise expend
significant resources pursuing collection in the event of a dispute with
the insurer.
(v) No investigation or knowledge by or on behalf of the Acquiror
or Acquiror Sub or the Surviving Corporation (whether before or after
the Effective Time) shall in any way limit the representations and
warranties set forth in Section 3 or the right of indemnity set forth in
this Section 9(a).
(b) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Neither the Acquiror nor the
Target shall issue any press release or make any public announcement relating to
the subject matter of this Agreement without the prior written approval of the
other; PROVIDED, HOWEVER, that the Acquiror or the Target may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its best efforts to advise the other Party
and its counsel at least one day prior to making the disclosure). No Party
other then the Acquiror or the Target shall issue any press release or make any
public disclosure concerning the subject matter of this Agreement, or otherwise
disclose any information concerning the subject matter of this Agreement to any
person that has not previously been made public by the Acquiror or the Target.
(c) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; PROVIDED, HOWEVER, that (i) the provisions in
Section 2 above concerning issuance of the Acquiror Shares are intended for the
benefit of the Target Shareholders and (ii) the provisions in Section 5(j) above
concerning indemnification are intended for the benefit of the individuals
specified therein and their respective legal representatives.
(d) ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof, except that the prior confidentiality agreement executed by the Acquiror
and the Target shall remain in effect until the Effective Time or termination of
this Agreement.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the Acquiror and the Target.
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) HEADINGS. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
IF TO THE TARGET OR MAJOR SHAREHOLDERS:
Xxx Fine
0000 Xxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000-0000
23
COPY TO:
Xxxxxx Xxxxxx, Esq.
Cairncross & Hempelmann, P.S.
70th Floor Columbia Center
000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000-0000
IF TO THE ACQUIROR OR ACQUIROR SUB:
ARIS Corporation
Attn: General Counsel
0000 000xx Xxxxxx XX
Xxxxxxxx, Xxxxxxxxxx 00000-0000
COPY TO:
Xxxxx Xxxxx
Xxxxxx & Xxxxxxx LLP
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
Any Party or Major Shareholder may send any notice, request, demand, claim,
or other communication hereunder to the intended recipient at the address set
forth above using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail, or electronic mail),
but no such notice, request, demand, claim, or other communication shall be
deemed to have been duly given unless and until it actually is received by the
intended recipient. Any Party or Major Shareholder may change the address to
which notices, requests, demands, claims, and other communications hereunder are
to be delivered by giving the other Parties and the Major Shareholders notice in
the manner herein set forth.
(i) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Washington without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Washington or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Washington.
(j) AMENDMENTS AND WAIVERS. The Acquiror, Acquiror Sub and the Target may
mutually amend any provision of this Agreement at any time prior to the
Effective Time with the prior authorization of their respective boards of
directors; PROVIDED, HOWEVER, that any amendment effected subsequent to
shareholder approval will be subject to the restrictions contained in the
Washington Business Corporation Act, and provided further that no amendment may
increase the obligations of any Major Shareholder with respect to any
representation or warranty without such Major Shareholder's written consent. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by the Acquiror, Acquiror Sub, the Target and any
Major Shareholder required to be a party thereto by the previous sentence. No
waiver by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) EXPENSES. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(m) CONSTRUCTION. The Parties and Major Shareholders have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the Parties and Major Shareholders and no
presumption or burden of proof shall arise
24
favoring or disfavoring any Party or Major Shareholder by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
otherwise requires. The word "including" shall mean including without
limitation.
(n) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
25
IN WITNESS WHEREOF, the Parties and the Major Shareholders have executed
this Agreement as of the date first above written.
ARIS CORPORATION
By: /s/ Xxxx Xxxxxxx
------------------
Name: Xxxx Xxxxxxx
Title: Vice President, General Counsel and Secretary
ARIS INTERACTIVE, INC.
By: /s/ Xxxx Xxxxxxx
------------------
Name: Xxxx Xxxxxxx
Title: Vice President and Secretary
XXXX.XXX INTERNATIONAL CORP.
By: /s/ Xxxxxx X. Fine
--------------------
Name: Xxxxxx X. Fine
Title: CEO
Major Shareholders:
/s/ XXXXXX X. FINE
------------------
Xxxxxx X. Fine
/s/ Xxxxx Xxxxx
---------------
Xxxxx Xxxxx
/S/ Xxxxxxx X. Fine
-------------------
Xxxxxxx X. Fine
26
EXHIBIT A
ARTICLES OF MERGER
xxxx.xxx International Corp.,
a Washington corporation
WITH AND INTO
ARIS Interactive, Inc.,
a Washington corporation
In accordance with RCW 23B.11.050
The undersigned, __________________, being the
____________________________________________________ of xxxx.xxx International
Corp., a Washington corporation ("Target") and ____________________, being the
___________________ _______________________ of ARIS Interactive, Inc., a
Washington corporation ("Acquiror Sub") DO HEREBY CERTIFY as follows:
(1) the constituent corporations in the merger (the "Merger") are xxxx.xxx
International Corp., a Washington corporation, and ARIS Interactive, Inc., a
Washington corporation; the name of the surviving corporation is ARIS
Interactive, Inc., a Washington corporation.
(2) an Agreement and Plan of Merger dated as of ______________________
(the "Merger Agreement") has been approved, adopted, and executed by each of
the constituent corporations in accordance with RCW 23B.11.010. The Merger
Agreement is attached hereto as EXHIBIT A and incorporated herein by
reference.
(3) The Merger Agreement was duly approved by the shareholders of each of
the constituent corporations in accordance with Section 23B.011.030 of the
Washington Business Corporation Act.
The Merger shall become effective on the date on which these Articles of
Merger are filed with the Secretary of State of the State of Washington.
A-1
IN WITNESS WHEREOF, the parties hereto have caused these Articles of Merger
to be duly executed as of this _________ day of __________________, 1999.
XXXX.XXX INTERNATIONAL CORP.,
a Washington corporation
By:
--------------------------------
Name:
Title:
ARIS INTERACTIVE, INC.,
a Washington corporation
By:
--------------------------------
Name:
Title:
A-2
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the _____
day of ________, 1999 by and between xxxx.xxx International Corp., a Washington
corporation ("Target"), and ARIS Interactive, Inc., a Washington corporation
("Acquiror Sub") (collectively, the "Constituent Corporations"), with reference
to the following facts:
A. Each of the Constituent Corporations has, subject to approval by their
respective shareholders, adopted the plan of merger embodied in this Agreement,
and the Constituent Corporations and their respective boards of directors deem
it advisable and in the best interest of each of the Constituent Corporations
that Target be merged with and into Acquiror Sub pursuant to the applicable laws
of Washington and Section 368 of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, the Constituent Corporations do hereby agree to merge, on
the terms and conditions herein provided, as follows:
1. THE MERGER.
1.1 GOVERNING LAW. Target shall be merged into Acquiror Sub in
accordance with the applicable laws of the State of Washington (the "Merger").
Acquiror Sub shall be the surviving corporation and shall be governed by the
laws of the State of Washington.
1.2 EFFECTIVE TIME. The "Effective Time" of the Merger shall be,
and such term as used herein shall mean, the time at which Acquiror Sub and
Target file Articles of Merger in substantially the form attached hereto as
EXHIBIT A in the office of the Secretary of State of the State of Washington
after satisfaction of the requirements of applicable laws prerequisite to such
filing.
2. SHARE CONVERSION. On the Effective Date, by virtue of the Merger and
without any action on the part of the holders thereof:
2.1 each share of common stock, par value $.01 per share, of
Target (a "Target Share") (other than any Target Share as to which any
shareholder has exercised his or its appraisal rights under Section
23B.13.010, ET. SEQ. of the Washington Business Corporation Act (a
"Dissenting Share") or any Target Share that ARIS Corporation (the
"Acquiror") owns beneficially (an "Acquiror-owned Share")) shall be converted
into the right to receive the following consideration (the "Merger
Consideration"):
(1) that number of shares of common stock, without par
value, of the Acquiror ("Acquiror Shares") equal to the lesser of (x) .3717 or
(y) 4.5531, divided by the average of the per share daily closing prices of
Aquiror Shares as reported by Nasdaq for each trading day during the period of
ten trading days ending [DATE THAT IS THE SECOND TRADING DAY PRIOR TO THE TARGET
SPECIAL MEETING] (the "Average Price") (such lesser number of Acquiror Shares
being hereinafter referred to as the "Share Consideration"), plus
(2) an amount in cash equal to the lesser of (x) $1.9513
or (y) the amount (if any) by which 4.5531 exceeds the Share Consideration
multiplied by the Average Price (such lesser amount being hereinafter referred
to as the "Cash Consideration").
At the Effective Time and without any action on the part of the holder, Target
Shares held by such holder shall cease to be outstanding and shall constitute
only the right to receive without interest, the Merger Consideration multiplied
by the number of Target Shares held by such holder and cash in lieu of a
fractional share.
1
2.2 each Dissenting Share shall be converted into the
right to receive payment from Acquiror Sub with respect thereto in accordance
with the provisions of the Washington Business Corporation Act, and
2.3 each Acquiror-owned Share shall be canceled;
PROVIDED, HOWEVER, that the Merger Consideration shall be subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock split,
or other change in the number of Target Shares outstanding. No Target Share
shall be deemed to be outstanding or to have any rights other than those set
forth above in this Section 2 after the Effective Time.
2.4 SHARES OF ACQUIROR SUB. Each issued and outstanding
share of capital stock of Acquiror Sub at and as of the Effective Time will
remain issued and outstanding and held by the Acquiror.
3. EFFECT OF THE MERGER.
3.1 RIGHTS, PRIVILEGES, ETC. At the Effective Time,
Acquiror Sub, without further act, deed or other transfer, shall retain or
succeed to, as the case may be, and possess and be vested with all the
rights, privileges, immunities, powers, franchises and authority, of a public
as well as of a private nature, of the Constituent Corporations; all property
of every description and every interest therein and all debts and other
obligations of or belonging to or due to the Constituent Corporations on
whatever account shall thereafter be taken and deemed to be held by or
transferred to, as the case may be, or vested in Acquiror Sub without further
act or deed; title to any real estate, or any interest therein, vested in the
Constituent Corporations shall not revert or in any way be impaired by reason
of the Merger; and all of the rights of creditors of the Constituent
Corporations shall be preserved unimpaired, and all liens upon the property
of the Constituent Corporations shall be preserved unimpaired, and such
debts, liabilities, obligations and duties of the Constituent Corporations
shall thenceforth remain with or attach to, as the case may be, Acquiror Sub
and may be enforced against it to the same extent as if all of such debts,
liabilities, obligations and duties had been incurred or contracted by it.
3.2 REPLACEMENT OF TARGET OPTIONS. At the Effective Time
and without any action on the part of the holder, all outstanding options
("Target Options") to purchase Target Shares shall terminate and cease to be
exercisable, no Target Option shall be accelerated in vesting (other than
Target Options held by employees that Acquiror notifies Target will not be
continued as employees of Acquiror Sub, and Target Options held by Xxxxxxx X.
Xxxxxxx that vest automatically pursuant to his employment agreement), and
the Target's Board of Directors shall take or cause to be taken such actions
as may be required to cause such result. The Acquiror shall cause to be
granted under the Acquiror's Stock Option Plan to each holder of Target
Options, options to purchase a number of Acquiror Shares equal to that number
of Target Shares issuable upon exercise of such holder's Target Options
multiplied by the Option Conversion Ratio at an exercise price per Acquiror
Share equal to the exercise price per Target Share of such outstanding Target
Option divided by the sum of (i) the Share Consideration plus (ii) the Cash
Consideration divided by the Average Price, and having the same vesting
schedule as the Target Options replaced.
3.3 REPLACEMENT OF TARGET WARRANTS. At the Effective
Time and without any action on the part of the holder, each outstanding
warrant (a "Target Warrant") granted by Target to purchase Target Shares
shall be converted into the right to purchase the Merger Consideration in
lieu of each Target Share issuable upon exercise of such Target Warrant upon
payment of the exercise price per Target Share of such outstanding Target
Warrant.
3.4 ARTICLES OF INCORPORATION AND BYLAWS. The Articles
of Incorporation of Acquiror Sub as in effect at the Effective Time shall,
from and after the Effective Time, be and continue to be the Articles of
Incorporation of Acquiror Sub without change or amendment until thereafter
amended in accordance with the provisions thereof and applicable laws. The
Bylaws of Acquiror Sub as in effect at the Effective Time shall, from and
after the Effective Time, be and continue to be the Bylaws of Acquiror Sub
without change or amendment until thereafter amended in accordance with the
provisions thereof, the Articles of Incorporation of Acquiror Sub and
applicable laws.
3.5 DIRECTORS AND OFFICERS. The directors and officers
of Acquiror Sub shall be the directors and officers of Acquiror Sub at the
Effective Time, and such directors and officers shall serve until they are
removed or replaced in accordance with the Articles of Incorporation and
Bylaws of Acquiror Sub.
2
3.6 FURTHER ACTION. From time to time, as and when
requested by Acquiror Sub, or by its successors or assigns, any party hereto
shall execute and deliver or cause to be executed and delivered all such
deeds and other instruments, and shall take or cause to be taken all such
further or other actions, as Acquiror Sub, or its successors or assigns, may
deem necessary or desirable in order to vest in and confirm to Acquiror Sub,
and its successors or assigns, title to and possession of all the property,
rights, privileges, powers and franchises referred to herein and otherwise to
carry out the intent and purposes of this Agreement.
4. DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, Target Shares that are Dissenting Shares immediately prior to the
Effective Time shall not be converted into Acquiror Shares pursuant to the
Merger, and the holders of such Dissenting Shares shall be entitled to receive
payment of the fair value of their Dissenting Shares in accordance with the
provisions of the Washington Business Corporation Act; unless and until such
holders shall fail to perfect, lose, or withdraw their rights thereunder. If,
after the Effective Time, any holder of Dissenting Shares shall fail to perfect,
lose or withdraw his or its right to be paid fair value, then such Dissenting
Shares no longer shall be deemed to be Dissenting Shares, and shall be treated
as if they had been converted at the Effective Time into the right to receive
the consideration being paid for Target Shares in the Merger, without any
interest, and Acquiror shall take all necessary action to effect the exchange of
Acquiror Shares for the Target Shares. Target shall give Acquiror prompt
written notice of any demands for payment of fair value for any Target Shares,
and Acquiror shall have the right to participate in all negotiations or
proceedings with respect to such demands. Without the prior written consent of
the Acquiror, the Target shall not settle, offer to settle or make any payment
with respect to any such demands.
5. TERMINATION; AMENDMENT.
5.1 TERMINATION PROVISION. Anything contained in this
Agreement to the contrary notwithstanding, this Agreement may be terminated
and the merger abandoned:
(a) Upon written notice at any time prior to the
Effective Time by mutual consent of the Constituent Corporations; or
(b) If holders of at least two-thirds of the outstanding
Target Shares shall not vote in favor of the Merger; or
(c) If there exists a suit, action, or other proceeding
commenced, pending or threatened, before any court or other governmental agency
of the federal or state government, in which it is sought to restrain, prohibit
or otherwise adversely affect the consummation of the Merger contemplated
hereby.
5.2 AMENDMENT PROVISIONS. Anything contained in this
Agreement notwithstanding, this Agreement may be amended or modified in
writing at any time prior to the Effective Time; PROVIDED THAT, an amendment
made subsequent to the adoption of this Agreement by the shareholders of the
Constituent Corporations shall not (1) alter or change the amount or kind of
shares, securities, cash, property and/or rights to be received in exchange
for or on conversion of all or any of the shares of any class or series
thereof of the Constituent Corporations, (2) alter or change any terms of the
Articles of Incorporation of Acquiror Sub or (3) alter or change any of the
terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of shares of any class or series thereof of the
Constituent Corporations; PROVIDED, HOWEVER, the Constituent Corporations may
by agreement in writing extend the time for performance of, or waive
compliance with, the conditions or agreements set forth herein.
5.3 BOARD ACTION. In exercising their rights under this
Section 5, each of the Constituent Corporations may act by its Board of
Directors, and such rights may be so exercised, notwithstanding the prior
approval of this Agreement by the shareholders of the Constituent
Corporations.
3
IN WITNESS WHEREOF, this Agreement, having first been duly approved by
resolutions of the Board of Directors of each of the Constituent Corporations,
is hereby executed on behalf of each of the Constituent Corporations by their
respective officers thereunto duly authorized.
XXXX.XXX INTERNATIONAL CORP.
By:
--------------------------------
Name:
Title:
ARIS INTERACTIVE, INC.
By:
--------------------------------
Name:
Title:
4
EXHIBIT B
AFFILIATE'S LETTER
ARIS Corporation
0000 000xx Xxxxxx X.X.
Xxxxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
The undersigned shareholder, officer and/or director of xxxx.xxx
International Corp. (the "Target") has been advised that the undersigned may be
deemed by the Target to be an "affiliate" of the Target, as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act of 1933, as amended
(the "Securities Act") (such rule, as amended or replaced by any successor rule,
referred to herein as "Rule 145").
Pursuant to the terms of the Agreement and Plan of Merger dated as of May
17, 1999 (the "Merger Agreement"), among ARIS Corporation ("Acquiror"), ARIS
Interactive, Inc. ("Acquiror Sub"), the Target and certain shareholders of the
Target, the Target will be merged with and into Acquiror Sub (the "Merger"). As
a result of the Merger, outstanding shares of common stock, par value $.01 per
share, of the Target ("Target Common Stock") will be converted into the right to
receive shares of common stock, without par value, of the Acquiror ("Acquiror
Common Stock") or a combination of Acquiror Common Stock and cash, as determined
pursuant to the Merger Agreement.
In order to induce the Acquiror and the Target to enter into the Merger
Agreement and to consummate the Merger, the undersigned (referred to herein as
"Affiliate") represents, warrants and agrees as follows:
1. Affiliate has been advised that the issuance of the Acquiror Common Stock,
if any, to Affiliate pursuant to the Merger is being registered with the
Securities and Exchange Commission (the "SEC") under the Securities Act and the
rules and regulations promulgated thereunder on a Registration Statement on Form
S-4. However, Affiliate has also been advised that, because Affiliate may be
deemed to be an "affiliate" of the Target (as that term is used in paragraphs
(c) and (d) of Rule 145), any sale, transfer or other disposition by Affiliate
of any Acquiror Common Stock issued pursuant to the Merger will, under current
law, require either (a) further registration under the Securities Act of the
Acquiror Common Stock to be sold, transferred, or otherwise disposed of, or (b)
compliance with Rule 145, or (c) the availability of another exemption from such
registration.
2. Affiliate will not offer to sell, sell, or otherwise dispose of any Acquiror
Common Stock issued pursuant to the Merger except pursuant to an effective
registration statement or in compliance with Rule 145 or another exemption from
the registration requirements of the Securities Act (the compliance with Rule
145 or the availability of such other exemption to be established by Affiliate
to the reasonable satisfaction of Acquiror's counsel).
3. Affiliate consents to the placement of a stop transfer order with the
Target's and Acquiror's stock transfer agent and registrar, and to the placement
of the following legend on certificates representing the Acquiror Common Stock
issued or to be issued to Affiliate:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT IN COMPLIANCE WITH AN AFFILIATE'S LETTER FROM THE
UNDERSIGNED TO ARIS CORPORATION, AND PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR IN COMPLIANCE WITH RULE 145 UNDER THE SECURITIES ACT OF 1933
OR ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933."
4. Affiliate has carefully read this letter and has discussed with counsel for
Affiliate or counsel for the Target, to the extent Affiliate felt necessary, the
requirements of this letter and other applicable limitations on the ability of
Affiliate to sell, transfer, or otherwise dispose of Target Common Stock and
Acquiror Common Stock. Affiliate
B-1
understands that if Affiliate should become an "affiliate" of Acquiror, there
will be additional restrictions on Affiliate's ability to sell, transfer or
otherwise dispose of Acquiror Common Stock.
5. The Target agrees to take all reasonable actions up to the date of the
Merger, including but not limited to the placement of a stop transfer order with
the Target's stock transfer agent and registrar, to ensure compliance by
Affiliate with the provisions of this letter.
6. Execution of this letter should not be considered an admission on the part
of Affiliate that Affiliate is an "affiliate" of the Target as described in the
first paragraph of this letter, nor as a waiver of any rights that Affiliate may
have to object to any claim that Affiliate is such an affiliate on or after the
date of this letter.
7. By Acquiror's acceptance of this letter, Acquiror hereby agrees with
Affiliate
as follows:
A) For so long as and to the extent necessary to permit Affiliate to sell
Acquiror Common Stock pursuant to Rule 145 and, to the extent applicable, Rule
144 under the Securities Act, Acquiror shall (a) use its reasonable efforts to
(i) file, on a timely basis, all reports and data required to be filed with the
SEC by it pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and (ii) furnish to Affiliate upon request a written
statement as to whether Acquiror has complied with such reporting requirements
during the 12 months preceding any proposed sale of Acquiror Common Stock by
Affiliate under Rule 145, and (b) otherwise use its reasonable efforts in permit
such sales pursuant to Rule 145 and Rule 144. Acquiror hereby represents to
Affiliate that it has filed all reports required to be filed with the SEC under
Section 13 of the 1934 Act during the preceding 12 months.
(B) It is understood and agreed that certificates with the legends set
forth in paragraph 3 above will be substituted by delivery of certificates
without such legends if (i) one year shall have elapsed from the date the
undersigned acquired the Acquiror Common Stock received in the Merger and the
provisions of Rule 145(d)(2) are then available to the undersigned, (ii) two
years shall have elapsed from the date the undersigned acquired the Acquiror
Common Stock received in the Merger and the provisions of Rule 145(d)(3) are
then applicable to the undersigned, or (iii) Acquiror has received either an
opinion of counsel, which opinion and counsel shall be reasonably satisfactory
to Acquiror, or a "no action" letter obtained by the undersigned from the staff
of the SEC, to the effect that the restrictions imposed by Rule 145 under the
Act no longer apply to the undersigned.
8. Notwithstanding any other provision contained herein, this Affiliate's
Letter and all obligations of and restrictions imposed on Affiliate hereunder,
and all obligations imposed on the Target hereunder, shall terminate upon the
termination of the Merger Agreement in accordance with its terms; provided that
such termination shall not relieve Affiliate of liability for any prior breach
of Affiliate's obligations hereunder.
Very truly yours,
May 17, 1999
----------------------------------
----------------------------------
(Print Name)
B-2
EXHIBIT C
VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 17, 1999 (this "Agreement"), between
[SHAREHOLDER] (the "Shareholder") and ARIS Corporation, a Washington corporation
("Acquiror").
WHEREAS, xxxx.xxx International Corp., a Washington corporation ("Target"),
Acquiror and ARIS Interactive, Inc., a Washington corporation and a wholly owned
subsidiary of Acquiror ("Acquiror Sub"), are contemporaneously entering into an
Agreement and Plan of Merger, dated as of this date (the "Merger Agreement"),
which provides, among other things, for the merger of Target with and into
Acquiror Sub (the "Merger");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Acquiror and Acquiror Sub have requested that the Shareholder make
certain agreements with respect to certain shares of Common Stock, par value
$.01 per share ("Shares"), of Target beneficially owned by him, upon the terms
and subject to the conditions of this Agreement; and
WHEREAS, in order to induce Acquiror and Acquiror Sub to enter into the
Merger Agreement, the Shareholder is willing to make certain agreements with
respect to the Subject Shares (as defined);
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth in this Agreement, the parties agree as follows:
1. VOTING AGREEMENTS; PROXY.
(a) For so long as this Agreement is in effect, in any meeting of
shareholders of Target, and in any action by consent of the shareholders of
Target, the Shareholder shall vote, or, if applicable, give consents with
respect to, all of the Subject Shares that are held by the Shareholder on the
record date applicable to the meeting or consent (i) IN FAVOR OF the Merger
Agreement and the Merger contemplated by the Merger Agreement, as the Merger
Agreement may be modified or amended from time to time in a manner not adverse
to the Shareholder and (ii) AGAINST any competing Acquisition Proposal (as
defined in the Merger Agreement) or other proposal inconsistent with the Merger
Agreement or which may delay the likelihood of the completion of the Merger. The
Shareholder shall use his best efforts to cast that Shareholder's vote or give
that Shareholder's consent in accordance with the procedures communicated to
that Shareholder by Target relating thereto so that the vote or consent shall be
duly counted for purposes of determining that a quorum is present and for
purposes of recording the results of that vote or consent.
(b) Upon the reasonable written request of Acquiror, in furtherance of the
transactions contemplated in this Agreement and by the Merger Agreement and in
order to secure the performance of the Shareholder's duties under Section 1(a)
of this Agreement, the Shareholder shall promptly execute, in accordance with
the provisions of RCW 23B.07.220, and deliver to Acquiror an irrevocable proxy,
substantially in the form attached as Exhibit A, and irrevocably appoint
Acquiror or its designees, with full power of substitution, its attorney and
proxy to vote or, if applicable, to give consent with respect to, all Shares
constituting Subject Shares at the time of the relevant record date with regard
to any of the matters referred to in paragraph (a) above at any meeting of the
shareholders of Target, or in connection with any action by written consent by
the shareholders of Target. The Shareholder acknowledges and agrees that this
proxy, if and when given, shall be coupled with an interest, shall constitute,
among other things, an inducement for Acquiror to enter into the Merger
Agreement, shall be irrevocable and shall not be terminated by operation of law
or otherwise upon the occurrence of any event and that no subsequent proxies
with respect to such Subject Shares shall be given (and if given shall not be
effective); provided, however, that any such proxy shall terminate automatically
and without further action on behalf of the Shareholder upon the termination of
this Agreement.
2. COVENANTS. For so long as this Agreement is in effect, the Shareholder
agrees not to (i) sell, transfer, pledge, assign, hypothecate, encumber, tender
or otherwise dispose of, or enter into any contract with respect to the sale,
transfer, pledge, assignment, hypothecation, encumbrance, tender or other
disposition of (each such disposition or contract, a "Transfer"), any Subject
Shares or Shares the Shareholder then has the right to acquire, or will have the
C-1
right to acquire within 60 days, pursuant to options to purchase Shares granted
to the Shareholder by Target; (ii) grant any proxies with respect to any shares
that then constitute Subject Shares, deposit any of the Subject Shares into a
voting trust or enter into a voting or option agreement with respect to any of
the Subject Shares; (iii) subject to Section 7, directly or indirectly, solicit,
initiate, encourage or otherwise facilitate any inquiries or the making of any
proposal or offer with respect to an Acquisition Proposal or engage in any
negotiation concerning, or provide any confidential information or data to, or
have any discussions with any person relating to, an Acquisition Proposal; or
(iv) take any action which would make any representation or warranty of the
Shareholder in this Agreement untrue or incorrect or prevent, burden or
materially delay the consummation of the transactions contemplated by this
Agreement; PROVIDED, HOWEVER, that nothing in the foregoing provisions of this
Section 3 shall prohibit the Shareholder from effecting (i) any Transfer of
Subject Shares pursuant to any bona fide charitable gift or by will or
applicable laws of descent and distribution, or for estate planning purposes or
(ii) the Transfer of up to _______ Subject Shares to Blue Note Partners, a
Washington general partnership, [XXXXXX X. FINE'S VOTING AGREEMENT TO INCLUDE
THE FOLLOWING ADDITIONAL LANGUAGE][of up to 50,000 Subject Shares to Xxxxxxx X.
Xxxxxxx and of up to 50,000 Subject Shares to Tor Xxxxxx d/b/a IntLex,] in each
case if the transferee agrees in writing to be bound by the provisions of this
Agreement. As used in this Agreement, "person" shall have the meaning specified
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. The Shareholder
represents and warrants to Acquiror that:
(a) Capacity; No Violations. The Shareholder has the legal capacity to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement. This Agreement has been duly executed and delivered by the
Shareholder and constitutes a valid and binding agreement of the Shareholder
enforceable against the Shareholder in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and general principles of equity
(whether considered in a proceeding in equity or at law). The execution,
delivery and performance by the Shareholder of this Agreement will not (i)
conflict with, require a consent, waiver or approval under, or result in a
breach or default under, any of the terms of any contract, commitment or other
obligation to which the Shareholder is a party or by which the Shareholder is
bound; (ii) violate any order, writ, injunction, decree or statute, or any law,
rule or regulation applicable to the Shareholder or the Subject Shares; or (iii)
result in the creation of, or impose any obligation on the Shareholder to
create, any Lien upon the Subject Shares that would prevent the Shareholder from
voting the Subject Shares. In this Agreement, "Lien" shall mean any lien,
pledge, security interest, claim, third party right or other encumbrance.
(b) Subject Shares. As of the date of this Agreement, the Shareholder is
the beneficial owner of and has the power to vote or direct the voting of the
Subject Shares free and clear of any Liens that would prevent the Shareholder
from voting such Subject Shares. As of the date of this Agreement, the Subject
Shares are the only shares of any class of capital stock of Target which the
Shareholder has the right, power or authority (sole or shared) to sell or vote,
and, other than options or warrants to purchase Shares held by the Shareholder
as of this date, the Shareholder does not have any right to acquire, nor is it
the beneficial owner of, any other shares of any class of capital stock of
Target or any securities convertible into or exchangeable or exercisable for any
shares of any class of capital stock of Target. The Shareholder is not a party
to any contracts (including proxies, voting trusts or voting agreements) that
would prevent the Shareholder from voting the Subject Shares.
4. EXPENSES. Each party to this Agreement shall pay its own expenses incurred
in connection with this Agreement.
5. SPECIFIC PERFORMANCE. The Shareholder acknowledges and agrees that if he
fails to perform any of its obligations under this Agreement, immediate and
irreparable harm or injury would be caused to Acquiror for which money damages
would not be an adequate remedy. In that event, the Shareholder agrees that
Acquiror shall have the right, in addition to any other rights it may have, to
specific performance of this Agreement. Accordingly, if Acquiror should
institute an action or proceeding seeking specific enforcement of the provisions
of this Agreement, the Shareholder hereby waives the claim or defense that
Acquiror has an adequate remedy at law and hereby agrees not to assert in that
action or proceeding the claim or defense that a remedy at law exists. The
Shareholder further agrees to waive any requirements for the securing or posting
of any bond in connection with obtaining any equitable relief.
6. SHAREHOLDER CAPACITY. No person bound by this Agreement who is or becomes
during the term hereof a director or officer of the Company makes any agreement
or understanding herein in his capacity as such director or officer.
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The Shareholder signs solely in his capacity as the beneficial owner of
[, or the general partner of a partnership which is the beneficial owner of,]
the Shareholder's Subject Shares and nothing herein shall limit or affect any
actions taken by the Shareholder in his capacity as an officer or director of
Target to the extent specifically permitted by the Merger Agreement. Nothing
in this Agreement shall be deemed to constitute a transfer of the beneficial
ownership of the Subject Shares by the Shareholder.
7. NOTICES. All notices and other communications given or made pursuant to this
Agreement shall be in writing and shall be deemed to have been duly given or
made as of the date of receipt and shall be delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), sent
by overnight courier or sent by telecopy, to the applicable party at the
following addresses or telecopy numbers (or at any other address or telecopy
number for a party as shall be specified by like notice):
If to Acquiror:
ARIS Corporation
0000 000xx Xxx. X.X.
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxxx, Esq.
Telecopy: (000) 000-0000
With a copy to:
Xxxxxx & Xxxxxxx LLP
U.S. Bank Centre
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxxxxxx X. Xxxxx, Esq.
Telecopy: (000) 000-0000
If to the Shareholder:
[SHAREHOLDER ADDRESS]
With a copy to:
Xxxxxx Xxxxxx, Esq.
Xxxxxxxxxx & Xxxxxxxxxx, X.X.
70th Floor Columbia Center
000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000-0000
8. PARTIES IN INTEREST. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective successors and assigns; provided,
however, that any successor in interest or assignee shall agree to be bound by
the provisions of this Agreement. Nothing in this Agreement, express or implied,
is intended to confer upon any Person other than Acquiror, the Shareholder or
their successors or assigns, any rights or remedies under, or by reason, of this
Agreement.
9. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire agreement
between the Shareholder and Acquiror with respect to the subject matter of this
Agreement and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to these transactions. This
Agreement may not be changed, amended or modified orally, but may be changed
only by an agreement in writing signed by the party against whom any waiver,
change, amendment, modification or discharge may be sought.
10. ASSIGNMENT. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party to this Agreement, except that (a) Acquiror may assign its rights and
obligations under this Agreement to any of its direct or indirect wholly owned
subsidiaries (including Acquiror
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Sub), but no transfer shall relieve Acquiror of its obligations under this
Agreement if the transferee does not perform its obligations, and (b) the
Shareholder may transfer Subject Shares to the extent permitted by Section 3
of this Agreement.
11. HEADINGS. The section headings in this Agreement are for convenience only
and shall not affect the construction of this Agreement.
12. COUNTERPARTS. This Agreement may be executed in any number of counterparts,
each of which, when executed, shall be deemed to be an original and all of which
together shall constitute one and the same document.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington without giving effect to any
choice or conflict of law provision or rule (whether of the State of Washington
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Washington.
14. TERMINATION. This Agreement shall terminate automatically and without
further action on behalf of any party at the earlier of (i) the Effective Time
(as defined in the Merger Agreement) and (ii) the date the Merger Agreement is
terminated pursuant to its terms.
15. SUBJECT SHARES. The term "Subject Shares" shall mean the Shares set forth
opposite the Shareholder's name on Schedule A hereto, together with any Shares
of capital stock of Target acquired by the Shareholder after the date hereof
over which the Shareholder has the power to vote or power to direct the voting.
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IN WITNESS WHEREOF, Acquiror and the Shareholder have caused this Agreement to
be duly executed and delivered on the day and year first above written.
ARIS CORPORATION
By:
--------------------------
Name:
Title:
Shareholder:
-----------------------------
-----------------------------
(Print Name)
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SCHEDULE A
SHAREHOLDER SHARES OWNED
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EXHIBIT A
IRREVOCABLE PROXY
In order to secure the performance of the duties of the undersigned pursuant to
the Voting Agreement, dated as of May __, 1999 (the "Voting Agreement") between
the undersigned and ARIS Corporation, a Washington corporation ("Acquiror"), a
copy of such agreement being attached hereto and incorporated by reference
herein, the undersigned hereby irrevocably appoints __________, ___________ and
____________, and each of them, the attorneys, agents and proxies, with full
power of substitution in each of them, for the undersigned and in the name,
place and stead of the undersigned, to vote or, if applicable, to give written
consent, in such manner as each such attorney, agent and proxy or his substitute
shall in his sole discretion deem proper to record such vote (or consent) in the
manner set forth in Section 1 of the Voting Agreement with respect to all shares
of Common Stock, par value $.01 per share (the "Shares"), of xxxx.xxx
International Corporation., a Washington corporation (the "Company"), which the
undersigned is or may be entitled to vote at any meeting of the Company held
after the date hereof, whether annual or special and whether or to an adjourned
meeting, or, if applicable, to give written consent with respect thereto. This
Proxy is coupled with an interest, shall be irrevocable and binding on any
successor in interest of the undersigned and shall not be terminated by
operation of law or otherwise upon the occurrence of any event (other than as
provided in Section 1 of the Voting Agreement), including, without limitation,
the death or incapacity of the undersigned. This Proxy shall operate to revoke
any prior proxy as to the Shares heretofore granted by the undersigned. This
Proxy shall terminate upon the termination of the Voting Agreement. This Proxy
has been executed in accordance with RCW 23B.07.220.
Dated: May ___, 1999
------------------------
[Name]
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EXHIBIT D
1. The Merger is the result of arm's-length bargaining between Target
and Acquiror. Target is entering into the Merger for business reasons and not
for the principal purpose of avoiding federal income tax. Accordingly, to the
Knowledge of the undersigned, the fair market value of the Acquiror Shares and
cash payments pursuant to the Merger Agreement will be approximately equal to
the fair market value of the Target Shares surrendered in exchange therefor.
2. There is no plan or intention by the undersigned shareholders of
Target and to the Knowledge of the undersigned, there is no plan or intention by
any other shareholders of Target, to enter into any transaction or arrangement
with any person that would result, directly or indirectly, in the sale to,
exchange with or delivery to (each of the foregoing a "disposition") Acquiror or
any person related to Acquiror, within the meaning of Treasury Regulation
Section 1.368-1(e)(3) ("Acquiror Related Person"), of any interest in the
Acquiror Shares to be received in the Merger such that the Target shareholders'
ownership in the aggregate of Acquiror Shares would be reduced to a number of
Acquiror Shares having a value, as of the Effective Time, of less than 50
percent of the total value of all of the formerly outstanding Target Shares as
of such date. For purposes of this representation, (i) any transaction or
arrangement resulting in a reduction of a Target shareholder's benefits or
burdens of ownership (by short sale or otherwise) with respect to the holding of
Acquiror Shares will be treated as a disposition by such shareholder of such
stock; (ii) any transaction or arrangement resulting in the disposition by a
Target shareholder of Acquiror Shares to a person other than Acquiror or a
Acquiror Related Person (other than a disposition described in the preceding
sentence) will be disregarded and will not be treated as a reduction in such
shareholder's ownership of Acquiror Shares; and (iii) Target Shares exchanged
for cash in lieu of fractional Acquiror Shares will be treated as outstanding
immediately prior to the Effective Time. Moreover, Target Shares that are sold
to, exchanged with or otherwise delivered to Acquiror, a Acquiror Related
Person, or a person related to Target within the meaning of Treasury Regulation
Section 1.368-1(e)(3) ("Target Related Person") prior to (and in connection
with) the Merger will be taken into account in making this representation and,
accordingly, Acquiror Shares received in the xxxxx with respect to such Target
Shares will not be included among the shares of Acquiror Shares treated as owned
by Target shareholders following the Merger.
3. Prior to and in connection with the Merger, (i) Target has not
redeemed (and will not redeem) any shares of Target stock and has not made (and
will not make) any distributions (except for regular, normal dividends) with
respect thereto, and (ii) the persons related to Target, within the meaning of
Temp. Treas. Reg. Section 1.368-1T(e)(2)(ii) (referring to Treas.
Reg. Section 1.368-1(e)(3)), have not acquired (and will not acquire) shares of
Target stock from any holder thereof.
4. Pursuant to the Merger, Acquiror Sub will acquire at least 90% of
the fair market value of the net assets of Target and at least 70% of the fair
market value of the gross assets of Target held immediately prior to the Merger.
For purposes of this representation, amounts paid by Target to dissenters,
amounts paid by Target to Target shareholders who receive cash or other
property, amounts used by Target to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made by
Target in connection with the Merger will be included as assets of Target
immediately prior to the Merger.
5. Since December 31, 1996, Target has not disposed of any assets
other than in the ordinary course of business and has not redeemed any stock,
warrants, options or similar instruments, and Target will not undertake any such
disposition or redemption prior to the Merger.
6. To the Knowledge of the undersigned, Acquiror and its affiliated
entities have not owned any shares of Target stock or possessed any right to
acquire Target stock (regardless of when exercisable) at any time during the
five year period preceding the Merger. For purposes of this representation,
"affiliated entities" are entities in which the Acquiror directly or indirectly
holds 50% or more of the vote or value.
7. Target has no plan or intention to issue additional shares of its
stock that would result in Acquiror losing control of Target within the meaning
of Section 368(c) of the Code.
8. The liabilities of Target assumed by Acquiror Sub and the
liabilities to which the transferred assets of Target are subject were incurred
by Target in the ordinary course of its business.
D-1
9. Target and Target Shareholders will pay their respective expenses,
if any, incurred in connection with the Merger.
10. There is no intercorporate indebtedness existing between Acquiror
and Target or between Acquiror Sub and Target that was issued, acquired, or will
be settled at a discount.
11. Target is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code. For purposes of this
representation, an "investment company" within the meaning of Section
368(a)(2)(F)(iii) and (iv) of the Code means a regulated investment company, a
real estate investment trust, or a corporation (i) 50 percent or more of the
value of whose total assets are stock and securities (whether or not held for
investment) (the "50 Percent Asset Test") and (ii) 80 percent or more of the
value of whose total assets are held for investment (the "80 Percent Asset
Test"). In general, in applying the 50 Percent Asset Test and the 80 Percent
Asset Test, (i) the stock and securities of any subsidiary corporation whose
outstanding stock is at least 50 percent owned (by vote or value), directly or
indirectly, by the corporation; any interest in at least 50 percent of the
profits or capital of a partnership owned, directly or indirectly, by the
corporation; and any active general partnership interests owned by the
corporation are disregarded and the corporation is instead considered to own its
ratable share of each of the subsidiary corporation's or partnership's assets
and (ii) any limited partnership interests or passive general partnership
interests not described in clause (i) are considered securities. For purposes of
the preceding sentence, indirect ownership is determined (i) in the case of the
stock of a lower-tier subsidiary corporation, by multiplying the percentages of
stock owned in each corporation in the chain of ownership and (ii) in the case
of an interest in the profits or capital of a lower-tier partnership, by
multiplying the percentage interests in the profits or capital (as the case may
be) of each partnership in the chain of ownership; PROVIDED, however, that such
lower-tier partnership interest and all upper-tier partnership interests in the
chain of ownership must constitute limited partnership interests or passive
general partnership interests. In general, for purposes of the 80 Percent Asset
Test, assets are considered held for investment if (i) they are held primarily
for (a) gain from appreciation in value, (b) production of passive income
(including royalties, rents, dividends, interest, and annuities), or (c) both of
these and (ii) they are not held primarily for sale to customers in the ordinary
course of a trade or business. Further, (i) in applying the 50 Percent Asset
Test, "securities" include obligations of State and local governments, commodity
futures contracts, shares of regulated investment companies and real estate
investment trusts, and other investments constituting "securities" within the
meaning of the Investment Company Act of 1940 (15 U.S.C. 80a-2(36)) (other than
treasury stock), and (ii) in applying the 50 Percent Asset Test and the 80
Percent Asset Test, assets acquired with a purpose of terminating the
corporation's status as an investment company or qualifying a corporation as a
diversified investment company and all cash, cash items (including receivables
and other cash equivalents other than securities), and U.S. Government
securities are excluded from the numerator and the denominator.
12. On the date of the Merger, to the Knowledge of the undersigned,
the fair market value of the assets of Target transferred to Acquiror Sub will
exceed the sum of the liabilities assumed by Acquiror Sub, plus the amount of
liabilities, if any, to which such assets are subject.
13. On the date of Merger, to the Knowledge of the undersigned, the
fair market value of the assets of Target will exceed the sum of its
liabilities, plus the amount of liabilities, if any, to which the assets are
subject.
14. Target is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
15. None of the compensation received by any shareholder-employees
of Target will be separate consideration for, or allocable to, any of their
Target Shares; none of the Acquiror Shares received by any Target
shareholder-employees pursuant to the Merger will be separate consideration
for, or allocable to, any employment agreement; and the compensation paid to
any Target shareholder-employees will be for services actually rendered and
to the Knowledge of the undersigned, will be commensurate with amounts paid
to third parties bargaining at arm's length for similar services under
similar circumstances.
16. The payment of cash in lieu of fractional shares of Acquiror
Shares is solely for the purpose of avoiding the expense and inconvenience to
Acquiror of issuing fractional shares and does not represent separately
D-2
bargained for consideration. To the Knowledge of the undersigned, the total cash
consideration that will be paid in the Merger to the shareholders of Target in
lieu of fractional shares of Acquiror will not exceed one percent of the total
consideration to be issued in the Merger to the shareholders of Target in
exchange for their Target Shares. The fractional share interests of each Target
shareholder will be aggregated, and no Target shareholder will receive cash in
an amount greater than the value of one full share of Target Shares.
17. Target will satisfy the information reporting requirements of
Treasury Regulation Section 1.368-3 with respect to the Merger.
18. Except for an initial public offering by Target of Target Shares
in August 1997 and for transactions involving an aggregate ownership interest of
20% or less of Target, there have been no significant changes in the
shareholders of Target since December 31, 1996.
19. Target is not a "collapsible" corporation as defined in Section
341 of the Code.
20. At the Effective Time of the Merger, Target will not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any person could acquire stock in Target that, if
exercised or converted, would affect Acquiror's acquisition or retention of
control of Target as defined in Section 368(c) of the Code.
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