EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
CORILLIAN CORPORATION,
QUANTUM ACQUISITION CORPORATION,
QUARRY ACQUISITION LLC,
QBT SYSTEMS INC.,
AND
THE SHAREHOLDERS OF QBT SYSTEMS INC.
DATED AS OF AUGUST 5, 2005
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS................................................................... 2
1.1 Certain Defined Terms..................................................... 2
1.2 Certain Additional Defined Terms.......................................... 8
ARTICLE II - TRANSACTION AND TERMS OF THE MERGERS......................................... 10
2.1 The Step One Merger........................................................... 10
2.1.1 The Closing.......................................................... 10
2.1.2 Effective Time....................................................... 10
2.1.3 Effects of the Step One Merger....................................... 10
2.1.4 Certificate of Incorporation and Bylaws of the Interim
Surviving Corporation................................................ 11
2.1.5 Directors and Officers of the Interim Surviving Corporation.......... 11
2.2 Step Two Merger................................................................ 11
2.2.1 Step Two Merger Effective Time....................................... 11
2.2.2 Effects of the Step Two Merger....................................... 12
2.2.3 Articles of Organization and Operating Agreement of the
Surviving LLC........................................................ 12
2.2.4 Manager and Officers of the Surviving LLC............................ 12
2.2.5 Treatment of Capital Stock in Step Two Merger........................ 12
2.3 Conversion of Company Capital Stock............................................ 13
2.4 Options; Exchange Procedures................................................... 14
2.4.1 Options.............................................................. 14
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2.4.2 Receipt of Certificates.............................................. 14
2.4.3 No Fractional Shares................................................. 15
2.4.4 Dissenting Shares.................................................... 15
2.5 Escrow Fund.................................................................... 16
2.5.1 Withholding of Escrow Amount; Escrow Fund............................ 16
2.5.2 Deposit of Escrow Amount............................................. 16
2.5.3 Release of Escrow Fund............................................... 16
2.5.4 No Transfer or Encumbrance........................................... 17
2.5.6 No Liability of Parent............................................... 17
2.6 Shareholder Representative..................................................... 17
2.7 Tax Free Reorganization........................................................ 18
2.8 Tax Withholding................................................................ 18
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................... 19
3.1 Organization................................................................... 19
3.2 Enforceability................................................................. 19
3.3 Capitalization................................................................. 20
3.4 Subsidiaries and Affiliates.................................................... 21
3.5 No Approvals; No Conflicts..................................................... 22
3.6 Financial Statements........................................................... 23
3.7 Absence of Certain Changes or Events........................................... 23
3.8 Taxes.......................................................................... 25
3.9 Property....................................................................... 29
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3.10 Contracts................................................................... 30
3.11 Claims and Legal Proceedings................................................ 32
3.12 Labor and Employment Matters................................................ 32
3.13 Employee Benefit Plans...................................................... 33
3.13.1 Employee Benefit Plan Listing........................................ 33
3.13.2 Documents Provided................................................... 34
3.13.3 Compliance........................................................... 34
3.13.4 Qualification........................................................ 35
3.13.5 Contributions and Premium Payments................................... 35
3.13.6 Related Employers.................................................... 36
3.13.7 Multiemployer and Title IV Plans..................................... 36
3.13.8 Post-Termination Benefits............................................ 36
3.13.9 Suits, Claims and Investigations..................................... 36
3.13.10 Payments Resulting From Transactions................................. 37
3.14 Intellectual Property.......................................................... 37
3.14.1 General.............................................................. 37
3.14.2 No Encumbrances; Protection.......................................... 37
3.14.3 Internet Domain Names................................................ 38
3.14.4 Ownership of Employee Works.......................................... 38
3.14.5 Non-Infringement..................................................... 39
3.14.6 Intellectual Property Registrations.................................. 39
3.14.7 Maintenance of Rights................................................ 39
3.14.8 Confidentiality...................................................... 40
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3.14.9 Warranty Against Defects............................................. 40
3.14.10 Indemnification...................................................... 40
3.14.11 Restrictions on Intellectual Property................................ 41
3.15 Warranties and Maintenance..................................................... 41
3.16 Corporate Books and Records.................................................... 41
3.17 Licenses, Permits, Authorizations, etc......................................... 42
3.18 Compliance With Laws........................................................... 42
3.19 Insurance...................................................................... 42
3.20 Brokers or Finders............................................................. 43
3.21 Absence of Questionable Payments............................................... 43
3.22 Bank Accounts.................................................................. 43
3.23 Insider Interests.............................................................. 43
3.24 Compliance With Environmental Laws............................................. 44
3.25 Accounts Receivable............................................................ 44
3.26 Information to Shareholders.................................................... 45
3.27 Full Disclosure................................................................ 45
3.28 Disclaimer Regarding Projections............................................... 45
3.29 MemberBridge Acquisition Expenses.............................................. 46
ARTICLE IIIA - REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS......................... 46
3A.1 Accreditation.................................................................. 46
3A.2 Ownership...................................................................... 46
3A.3 Enforceability; No Conflicts................................................... 46
3A.4 Claims Against the Company..................................................... 47
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3A.5 Brokers or Agents.............................................................. 47
3A.7 Investment for Own Account..................................................... 48
3A.8 Residency...................................................................... 48
3A.9 Litigation..................................................................... 48
3A.10 SEC Documents; Access to Information........................................... 48
3A.11 Indemnity...................................................................... 49
3A.12 Restricted Securities.......................................................... 49
3A.13 Tax Consequences............................................................... 49
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PARENT................................. 49
4.1 Organization................................................................... 49
4.2 Enforceability................................................................. 50
4.3 Securities..................................................................... 50
4.4 No Approvals or Notices Required; No Conflicts With Instruments................ 51
4.5 Capitalization................................................................. 51
4.6 SEC Documents.................................................................. 51
4.7 Absence of Certain Changes..................................................... 52
4.8 Full Disclosure................................................................ 52
4.9 Shareholders Consent........................................................... 52
4.10 Brokers or Finders............................................................. 52
4.11 Litigation..................................................................... 52
4.12 Compliance with Laws........................................................... 53
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ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARENT............................. 53
5.1 Accuracy of Representations and Warranties..................................... 53
5.2 Performance of Agreements...................................................... 53
5.3 Approvals and Consents......................................................... 54
5.4 Secretary's Certificate........................................................ 54
5.5 Officer's Certificate.......................................................... 54
5.6 Nonforeign Affidavit........................................................... 54
5.7 Compliance with Laws........................................................... 54
5.8 Legal Proceedings.............................................................. 54
5.9 Termination of Certain Agreements.............................................. 55
5.10 Exercise of Stock Purchase Rights; Conversion of Convertible Securities........ 55
5.11 Nondisclosure Agreements....................................................... 55
5.12 Consulting Agreement and Non-Competition Agreement............................. 55
5.13 Securities Laws................................................................ 55
5.14 Legal Opinion of Counsel to Company............................................ 55
5.15 Resignation of Officers and Directors.......................................... 56
5.16 Company Shareholder Approval................................................... 56
ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS...... 56
6.1 Accuracy of Representations and Warranties..................................... 56
6.2 Performance of Agreements...................................................... 56
6.3 Legal Proceedings.............................................................. 56
PAGE vi
6.4 Compliance with Laws........................................................... 57
6.5 Secretary's Certificates....................................................... 57
6.6 Securities Laws................................................................ 57
6.7 Legal Opinion of Counsel to Parent............................................. 57
6.8 Officer's Certificate.......................................................... 57
6.9 Consulting Agreement and Non-Competition Agreement............................. 57
6.10 Company Shareholder Approval................................................... 57
ARTICLE VII - COVENANTS................................................................... 58
7.1 Conduct of Business by the Company Pending the Mergers......................... 58
7.2 Access to Information; Confidentiality......................................... 60
7.3 No Alternative Transactions.................................................... 60
7.4 Notification of Certain Matters................................................ 61
7.5 Further Action; Commercially Reasonable Efforts................................ 61
7.6 Publicity...................................................................... 62
7.7 Blue Sky Laws.................................................................. 62
7.8 Repayment of Debt, Releases of Liens........................................... 62
7.9 Piggyback Registration......................................................... 62
7.10 Parent Payment of Certain Liabilities.......................................... 69
7.11 Execution of All Ancillary Documents........................................... 69
7.12 Termination of 401(k) Plan..................................................... 69
ARTICLE VIIA - COVENANTS OF THE SHAREHOLDERS.............................................. 70
7A.1 Restrictions on Transfer....................................................... 70
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7A.2 Execution of All Ancillary Documents........................................... 70
7A.3 No Alternative Transactions.................................................... 70
7A.4 Limitation on Sales............................................................ 70
7A.5 Agreement to Vote Shares....................................................... 70
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER.......................................... 71
8.1 Termination.................................................................... 71
8.2 Effect of Termination.......................................................... 72
8.3 Amendment...................................................................... 72
8.4 Waiver......................................................................... 72
ARTICLE IX - SURVIVAL AND INDEMNIFICATION................................................. 73
9.1 Survival....................................................................... 73
9.2 Indemnification by the Shareholders............................................ 73
9.3 Indemnification by the Parent.................................................. 74
9.4 Threshold and Limitations; Adjustment of Merger Consideration.................. 74
9.5 Procedure for Indemnification.................................................. 75
9.5.1 Claim Notice......................................................... 75
9.5.2 Defense of Third-Party Claims........................................ 75
9.5.3 Resolution of Claim Notice........................................... 77
9.6 Remedies; Specific Performance; No Contribution from the Company............... 78
ARTICLE X - GENERAL....................................................................... 78
10.1 Tax Matters.................................................................... 78
10.2 Expenses....................................................................... 80
PAGE viii
10.3 Notices........................................................................ 80
10.4 Severability................................................................... 81
10.5 Entire Agreement............................................................... 82
10.6 Assignment..................................................................... 82
10.7 Parties in Interest............................................................ 82
10.8 Governing Law.................................................................. 83
10.9 Headings....................................................................... 83
10.10 Counterparts................................................................... 83
10.11 Waiver of Jury Trial........................................................... 83
EXHIBITS
--------
A-1 - Consulting Agreement
A-2 - Non-Competition Agreement
3.12 - Form of Company Employee Confidentiality Agreement
5.6 - Real Property Tax Affidavit
5.15 - Form of Company Counsel Legal Opinion
6.7 - Form of Parent Counsel Legal Opinion
SCHEDULES
---------
2.3 - Merger Consideration Allocation for Closing Distribution
3 - Company Disclosure Schedule
3A - Shareholder Disclosure Schedule
5.3 - List of Consents, Approvals and Notices
7.8 - Permitted Debt
7.10 - Liabilities to be Assumed by Parent
10.2 - Company Expenses
PAGE ix
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is made and
entered into as of August 5, 2005, by and among Corillian Corporation, an Oregon
corporation (the "Parent"), Quantum Acquisition Corporation, a New York
corporation and wholly owned subsidiary of Parent ("Merger Sub"), Quarry
Acquisition LLC, a single member Oregon limited liability company and wholly
owned subsidiary of Parent (the "Surviving LLC"), qbt Systems Inc., a New York
corporation (the "Company"), and each of the shareholders of the Company who
have signed this Agreement (the "Shareholders").
RECITALS
A. The Parent, the Company and the Shareholders believe it advisable and
in their respective best interests to effect the acquisition of the Company
pursuant to the merger of Merger Sub with and into the Company (the "Step One
Merger") with the Company surviving the Step One Merger (the "Interim Surviving
Corporation"), followed by a merger of the Interim Surviving Corporation with
and into the Surviving LLC with the Surviving LLC surviving (the "Step Two
Merger" and, together with the Step One Merger, the "Mergers").
B. The Board of Directors of the Company has approved this Agreement and
the Mergers as required by applicable law.
C. The Board of Directors of the Parent and Merger Sub and the manager of
the Surviving LLC have approved this Agreement and the Mergers as required by
applicable law.
D. It is intended that, unless the Closing Date Share Price is less than
90% of the Share Price, the Mergers, together, will qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
AGREEMENT
In consideration of the terms hereof, the parties hereto agree as follows:
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ARTICLE I - DEFINITIONS
1.1 CERTAIN DEFINED TERMS
As used in this Agreement, the following terms shall have the following
meanings (such definitions to be equally applicable to both the singular and
plural forms of the terms defined):
"Ancillary Documents" means, collectively, the Consulting Agreement, the
Non-Competition Agreement and the other agreements and certificates that are
required to be executed pursuant to this Agreement.
"Aggregate Cash Consideration" means (i) the Initial Aggregate Cash
Consideration, or (ii), if the Closing Date Share Price is less than 90% of the
Share Price, the product of the Merger Consideration Value multiplied by 0.75.
"Aggregate Stock Consideration" means (i) the Initial Aggregate Stock
Consideration, or (ii), if the Closing Date Share Price is less than 90% of the
Share Price, the number of shares of the Parent Common Stock determined by
dividing (a) the Merger Consideration Value, minus the Aggregate Cash
Consideration, by (b) the Share Price.
"Business" means the business of the Company as currently conducted.
"Business Day" means any day that is not a Saturday, a Sunday or any other
day on which banks generally are required or authorized to be closed in New
York, New York.
"Cash Fraction" means the lesser of (i) 0.60 or (ii) the quotient of (x)
the Share Price Fraction divided by (y) the sum of (A) 0.40 and (B) the Share
Price Fraction.
"Closing Date Share Price" means the closing price of Parent Common Stock
as quoted on the NASDAQ Stock Market's National Market on the last trading day
immediately prior to the Closing Date.
"Code" means the Internal Revenue Code of 1986, and all rules and
regulations promulgated thereunder, all as in effect from time to time.
"Company Capital Stock" means the outstanding shares of the Company Common
Stock and any other classes and series of capital stock of the Company (in each
case on a fully diluted, as-converted to Company Common Stock basis).
"Company Common Stock" means the Company's Common Stock, par value $.001
per share.
PAGE 2
"Company Intellectual Property" means, all Intellectual Property used in,
developed for use in, or necessary to the conduct of the business of the Company
and the Company Subsidiaries as it is currently conducted or as it is
contemplated to be conducted.
"Company Material Adverse Effect" means any material adverse effect on the
business, operations, assets, liabilities, condition (financial or otherwise) or
prospects of the Company.
"Company Preferred Stock" means the Company's Preferred Stock, par value
$.001 per share.
"Company Shareholder Approval" meant the affirmative vote, at a meeting of
the Company's shareholders, of the holders of a sufficient percentage of the
Company Capital Stock necessary under the New York Business Corporation Law, the
Company's Certificate, the Bylaws of the Company and any other agreement,
documents or law that governs the voting rights of the Company's shareholders to
approve the Mergers, this Agreement and the transactions contemplated hereby.
"Company's Certificate" means the Company's Certificate of Incorporation,
as amended.
"Consulting Agreement" means the consulting agreement attached to this
Agreement as Exhibit A-1 and to be entered into between the Parent and Xxxx
Xxxxxxxxxx as of the Closing Date.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds (other than surety or performance bonds), debentures,
notes or other similar instruments, (iii) all obligations of such Person to pay
the deferred purchase price of property or services, except trade accounts
payable arising in the ordinary course of business, (iv) all capitalized lease
obligations of such Person, (v) all non-contingent reimbursement, indemnity or
similar obligations of such Person in respect of amounts paid under a letter of
credit, surety bond or similar instrument, other than letters of credit to
suppliers of the Company for property or services to be provided to the Company
in the ordinary course of business, (vi) all Debt of others secured by an
Encumbrance on any asset of such Person, whether or not such Debt is assumed by
such Person, and (vii) all Debt of others guaranteed by such Person.
"Employee Benefit Plan" means any retirement, pension, profit sharing,
deferred compensation, stock bonus, savings, bonus, incentive, cafeteria,
medical, dental, vision, hospitalization, life insurance, accidental death and
dismemberment, medical expense reimbursement, dependent care assistance, tuition
reimbursement,
PAGE 3
disability, sick pay, holiday, vacation, severance, change of control, stock
purchase, stock option, restricted stock, phantom stock, stock appreciation
rights, fringe benefit or other employee benefit plan, program, policy,
practice, contract, agreement, fund or arrangement (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of ERISA) or
any employment, consulting or personal services contract, whether written or
oral, funded or unfunded or domestic or foreign, (a) sponsored, maintained or
contributed to by the Company or to which the Company is a party, (b) covering
or benefiting any current or former officer, employee, agent, director or
independent contractor of the Company (or any dependent or beneficiary of any
such individual), or (c) with respect to which the Company has (or could have)
any obligation or liability.
"Encumbrance" means, with respect to any asset, any mortgage, deed of
trust, lien, pledge, charge, security interest, title retention device,
conditional sale or other security arrangement, collateral assignment, claim,
charge, adverse claim of title, ownership or right to use, restriction or other
encumbrance of any kind in respect of such asset (including any restriction on
(a) the voting of any security or the transfer, other than pursuant to
applicable federal and state securities laws, of any security or other asset,
(b) the receipt of any income derived from any asset, (c) the use of any asset,
and (d) the possession, exercise or transfer of any other attribute of ownership
of any asset).
"Environmental Laws" means all state, local, and federal laws, statutes,
regulations, and ordinances of any kind relating to environmental protection or
compliance, including but not limited to, the federal Clean Water Act; Clean Air
Act; Toxic Substances Control Act; Comprehensive Environmental Response,
Compensation and Liability Act; Resource Conservation and Recovery Act; Federal
Insecticide, Fungicide, and Rodenticide Act; Safe Drinking Water Act; Hazardous
Materials Transportation Act; and common law including, but not limited to,
causes of action arising in tort.
"ERISA" means the Employee Retirement Income Security Act of 1974, and all
rules and regulations promulgated thereunder, all as in effect from time to
time.
"Escrow Amount" means an amount equal to $200,000.
"Exchange Act" means the Securities and Exchange Act of 1934, as amended.
"Fully Diluted Common Stock Number" means the total number of shares of
Company Common Stock issued and outstanding immediately prior to the Closing
Date, including the total number of shares of Company Common Stock issuable upon
exercise of Options and other Stock Purchase Rights outstanding immediately
prior to
PAGE 4
the Closing Date, other than Options terminated pursuant to Section 2.4.1(b),
and regardless of restrictions on exercise.
"Governmental Entity" means any United States or non-United States
federal, national, state or local governmental or quasi-governmental,
administrative, regulatory or judicial court, department, commission, agency,
board, bureau, instrumentality or other authority.
"Hazardous Substances" means petroleum, petroleum products, hazardous
waste, pollutants, contaminants or substances that constitute hazardous
substances under the Comprehensive Environmental Response, Compensation and
Liability Act.
"Initial Aggregate Cash Consideration" means the product of (i) the
Purchase Price multiplied by (ii) the Cash Fraction.
"Initial Aggregate Stock Consideration" means the number of shares of the
Parent Common Stock determined by dividing (a) the Purchase Price, minus the
Aggregate Cash Consideration, by (b) the Share Price.
"Intellectual Property" means, collectively, all worldwide industrial and
intellectual property rights, including patents, patent applications, patent
rights, trademarks, trademark registrations and applications therefore, trade
dress rights, trade names, service marks, service xxxx registrations and
applications therefore, Internet domain names, Internet and World Wide Web URLs
or addresses, copyrights, copyright registrations and applications therefore,
mask work rights, mask work registrations and applications therefore,
inventions, trade secrets, know-how, customer lists, supplier lists, proprietary
processes and formulae, software source code and object code, hardware
description language ("HDL") code, netlists, design databases, design
methodologies, design schematics, ASICs, cores, transceivers, interconnects,
equalizers, algorithms, architectures, structures, technology, screen displays,
photographs, images, layouts, development tools, designs, blueprints,
specifications, technical drawings (or similar information in electronic format)
and all documentation and media constituting, describing, embodying or relating
to any of the foregoing, including manuals, programmers' notes, memoranda and
records.
"Knowledge" means, with respect to a corporation, all facts,
circumstances, events or other matters that at any time were known to any
officer or director of the corporation, or any agents representing the
corporation with respect to the Mergers, or which could be ascertained by a
reasonable review of the documents, records, books and files of the corporation
(in each case, whether written or electronic), or by making inquiry to the
officers, senior managers, project managers or site managers of the corporation
likely to have knowledge concerning the facts, circumstances, events or matter
at issue. "To the knowledge of," or any similar phrase with respect to, any
PAGE 5
other person or entity means that such other person or entity has no actual
knowledge contrary to the facts or matters so referenced.
"Law" means any constitution, law, ordinance, principle of common law,
code, regulation, statute or treaty of any Governmental Entity.
"MemberBridge Acquisition Expenses" means the Company's expenses
(including the purchase price and all other payment obligations) in connection
with its acquisition of certain assets constituting the MemberBridge application
from Corporate Network eCom, LLC, a Kansas limited liability company.
"Merger Consideration Value" means (i) the product of the Initial
Aggregate Stock Consideration, multiplied by the Closing Date Share Price, plus
(ii) the Initial Aggregate Cash Consideration.
"Merger Consideration" means (i) the Aggregate Stock Consideration plus
(ii) the Aggregate Cash Consideration.
"Non-Competition Agreement" means the non-competition agreement attached
to this Agreement as Exhibit A-2 and to be entered into between the Parent and
Xxxx Xxxxxxxxxx as of the Closing Date.
"Parent Common Stock" means the Parent's Common Stock, no par value per
share.
"Parent Material Adverse Effect" means any material adverse effect on the
business, operations, assets, liabilities, condition (financial or otherwise) or
prospects of the Parent.
"Person" means a person, corporation, partnership, joint venture,
association, organization, limited liability company or other entity or a
governmental or regulatory authority.
"Piggyback Registrable Shares" means the shares of Parent Common Stock
issued to the Shareholders as the Aggregate Stock Consideration.
"Pre-Closing Straddle Period" means that portion of any Straddle Period
that extends before the Closing Date through the Closing Date.
"Pre-Closing Tax Period" means any Tax period ending on or before the
Closing Date.
"Pre-Closing Taxes" means (i) all Taxes (or the nonpayment thereof) of he
Company for any Pre-Closing Tax Period and any Pre-Closing Straddle Period; (ii)
all
PAGE 6
Taxes of any member of an affiliated, combined or unitary group of which the
Company is or was a member on or prior to the Closing Date, including pursuant
to Treasury Regulation Section 1.1502-6 or any analogous or similar state, local
or foreign Law; (iii) any and all Taxes of any Person (other than the Company)
imposed on the Company as a transferee or successor, by contract or pursuant to
any Law, which Taxes relate to an event or transaction occurring on or before
the Closing Date; (iv) any Tax incurred or suffered by the Company, the Parent
or any of their Affiliates arising out of a breach of any representation or
warranty in Section 3.8 hereof, or any covenant or agreement contained in
Section 10.1; and (v) all Losses arising out of or incident to the imposition,
assessment or assertion of any Tax described in clauses (i), (ii), (iii) and
(iv) above.
"Purchase Price" means $5,330,000, less any transaction expenses of the
Company paid or payable pursuant to Section 10.2 hereof, except to the extent
that such transaction expenses are paid out of the proceeds from the exercise of
any Options.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Price" means $3.26, calculated based on the average closing price
of Parent Common Stock as quoted on the NASDAQ Stock Market's National Market
for the ten trading days immediately preceding July 5, 2005. The Share Price
shall be adjusted appropriately to reflect any stock splits, recapitalizations
or stock dividends with respect to the Parent Common Stock that occur after the
date of this Agreement.
"Share Price Fraction" means the product of (i) 0.60 multiplied by (ii)
the ratio of the Closing Date Share Price to the Share Price.
"Stock Purchase Rights" means all rights, warrants or options, vested or
unvested, to acquire Company Capital Stock, regardless of restrictions or
exercise, and securities and notes convertible or exchangeable at any time, into
Company Capital Stock, regardless of restrictions on conversion.
"Straddle Period" means any Tax period that begins on or before the
Closing Date and ends after the Closing Date.
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1.2 CERTAIN ADDITIONAL DEFINED TERMS
In addition to terms defined in Section 1.1, the following capitalized
terms are used as defined in the Sections set forth opposite such terms:
Defined Terms Section Reference
------------- -----------------
Agreement Introduction
Blue Sky Laws 7.9(iii)(4)
Certificate of Merger 2.1.2
ChaseMellon 2.4.2
Claim Notice 9.5(a)
Claims 9.4(a)
Closing 2.1.1
Closing Date 2.1.1
Code Recitals
Company Introduction
Company Disclosure Schedule Article III
Company Subsidiary 3.4
Confidentiality Agreement 7.2
Dissenting Shares 2.4.4
DOL 3.13.8
Domain Names 3.14.11
Effective Time 2.1.2
Effective Time Holder 2.5.1
Employee Benefit Plans 3.13.1
Escrow Earnings 2.5.2
Escrow Fund 2.5.1
Escrow Period 2.5.1
Financial Statements 3.6
Indemnified Party 9.4(a)
Independent Accounting Firm 2.5(c)
Interim Surviving Corporation Recitals
IP Registrations 3.14.5
IRS 2.6(a)
Losses 9.2
Option 2.4.1(b)
Major Shareholders 9.4(b)
Merger Sub Introduction
Mergers Recitals
Nondisclosure Agreement 3.12
Parent Contested Claim 9.5.3(c)
Permitted Debt 7.9
PAGE 8
Defined Terms Section Reference
------------- -----------------
Per Shareholder Cash Consideration 2.3
Per Shareholder Stock Consideration 2.3
Personal Property 3.9(b)
Piggyback Registering Shareholder 7.9(a)
Primary Indemnitors 9.4(b)
Pro Rata Share 2.5.1
Parent Introduction
Parent Indemnified Parties 9.2
Real Property 3.9(a)
Registration Claim 7.9
Registration Indemnified Person 7.9
Registration Indemnifying Person 7.9
Registration Statement 7.9
Risk Factors 3A.10
SEC Documents 4.6
Shareholder Contested Claim 9.5.3(b)
Shareholder Disclosure Schedule Article IIIA
Shareholder Indemnified Party 9.3
Shareholder Representative 2.6
Shareholders Introduction
Step One Merger Recitals
Step Two Certificate of Merger 2.2.1
Step Two Merger Recitals
Step Two Merger Effective Time 2.2.1
Surrender 2.3(a)
Survival Period 9.1
Surviving LLC Introduction
Taxes 3.8
Tax Returns 3.8
Third Party Claim 9.5(a)
Threshold 9.4(a)
Transfer Agent 2.4.2
Transfer Taxes 10.1(c)
Transmitted Copies 10.10
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ARTICLE II - TRANSACTION AND TERMS OF THE MERGERS
2.1 THE STEP ONE MERGER
Subject to the terms and conditions of this Agreement, at the Effective
Time (as defined in Section 2.1.2 hereof), Merger Sub shall be merged with and
into the Company in accordance with the applicable provisions of the New York
Business Corporation Law, whereupon the separate corporate existence of Merger
Sub shall cease, with the Company surviving the Step One Merger as the Interim
Surviving Corporation and as a wholly owned subsidiary of Parent under the laws
of the state of New York.
2.1.1 THE CLOSING
Subject to the satisfaction or waiver of the conditions set forth in
Articles V and VI and the termination provisions of Article VIII, the closing of
the Step One Merger and the transactions contemplated hereby (the "Closing")
shall take place at the offices of Xxxxxxx Coie LLP, 0000 X.X. Xxxxx Xxxxxx,
00xx Xxxxx, Xxxxxxxx, Xxxxxx at 10:00 a.m. on a date specified by the parties
(the "Closing Date"), which shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in Articles V and VI (other
than those conditions that by their terms are to be satisfied at the Closing,
but subject to the satisfaction or waiver of those conditions).
2.1.2 EFFECTIVE TIME
At the time of the Closing, the Company and Merger Sub shall file, or
cause to be filed, with the Secretary of State of the state of New York a
Certificate of Merger for the Step One Merger, which Certificate shall be in the
form required by and executed in accordance with the applicable provisions of
the New York Business Corporation Law and in form and substance acceptable to
the Parent (the "Certificate of Merger"). The Step One Merger shall become
effective at the time such filing is made or, if agreed to by the Parent and the
Company, at such later time or date set forth in the Certificate of Merger (the
"Effective Time").
2.1.3 EFFECTS OF THE STEP ONE MERGER
The Step One Merger shall have the effects set forth under the New York
Business Corporation Law. From and after the Effective Time, the Interim
Surviving Corporation shall possess all the rights, privileges, powers, and
franchises, and be subject to all the restrictions, disabilities, and duties, of
the Company and Merger Sub, all as more fully described under the New York
Business Corporation Law.
PAGE 10
2.1.4 CERTIFICATE OF INCORPORATION AND BYLAWS OF THE INTERIM
SURVIVING CORPORATION
The Certificate of Incorporation of Merger Sub shall, by virtue of the
Merger, become and thereafter be the Certificate of Incorporation of the Interim
Surviving Corporation until amended in accordance with such Certificate of
Incorporation and the New York Business Corporation Law. The Bylaws of Merger
Sub in effect immediately prior to the Effective Time shall be the Bylaws of the
Interim Surviving Corporation, until amended in accordance with such Bylaws, the
Certificate of Incorporation and the New York Business Corporation Law.
2.1.5 DIRECTORS AND OFFICERS OF THE INTERIM SURVIVING CORPORATION
The directors and officers of Merger Sub immediately prior to the
Effective Time shall be the directors and officers of the Interim Surviving
Corporation until their respective successors shall be duly elected and
qualified or appointed.
2.2 STEP TWO MERGER
Immediately following the Step One Merger, the Interim Surviving
Corporation shall be merged with and into the Surviving LLC in accordance with
the applicable provisions of the New York Business Corporation Law and the
Oregon Limited Liability Company Act, whereupon the separate corporate existence
of the Interim Surviving Corporation shall cease, with the Surviving LLC
surviving as a wholly owned subsidiary of Parent under the laws of the state of
Oregon.
2.2.1 STEP TWO MERGER EFFECTIVE TIME
On the Closing Date, immediately following the Effective Time, the Interim
Surviving Corporation and the Surviving LLC shall file, or cause to be filed,
with the Secretary of State of the states of New York and Oregon a Certificate
of Merger for the Step Two Merger, which Certificate shall be in the form
required by and executed in accordance with the applicable provisions of the New
York Business Corporation Law and the Oregon Limited Liability Company Act and
in form and substance acceptable to the Parent (the "Step Two Certificate of
Merger"). The Step Two Merger shall become effective at the time such filing is
made or, if agreed to by the Parent and the Company (or the Interim Surviving
Corporation, as successor in interest of the Company), at such later time or
date set forth in the Step Two Certificate of Merger (the "Step Two Merger
Effective Time").
PAGE 11
2.2.2 EFFECTS OF THE STEP TWO MERGER
The Step Two Merger shall have the effects set forth under the New York
Business Corporation Law and the Oregon Limited Liability Company Act. From and
after the Step Two Merger Effective Time, the Surviving LLC shall possess all
the rights, privileges, powers, and franchises, and be subject to all the
restrictions, disabilities, and duties, of the Interim Surviving Corporation and
the Surviving LLC, all as more fully described under the New York Business
Corporation Law and the Oregon Limited Liability Company Act.
2.2.3 ARTICLES OF ORGANIZATION AND OPERATING AGREEMENT OF THE
SURVIVING LLC
The Articles of Organization of the Surviving LLC shall, by virtue of the
Step Two Merger, become and thereafter be the Articles of Organization of the
Surviving LLC until amended in accordance with such Articles of Organization and
the Oregon Limited Liability Company Act, except that the Articles of
Organization of the Surviving LLC may be amended upon the Step Two Merger
Effective Time to change the name of the Surviving LLC. The Operating Agreement
of the Surviving LLC in effect immediately prior to the Step Two Merger
Effective Time shall be the Operating Agreement of the Surviving LLC, until
amended in accordance with such Operating Agreement, the Articles of
Organization and the Oregon Limited Liability Company Act.
2.2.4 MANAGER AND OFFICERS OF THE SURVIVING LLC
The manager and officers of the Surviving LLC immediately prior to the
Step Two Merger Effective Time shall be the manager and officers of the
Surviving LLC until their respective successors shall be duly elected and
qualified or appointed.
2.2.5 TREATMENT OF CAPITAL STOCK IN STEP TWO MERGER
Subject to the provisions of this Agreement, at the Step Two Merger
Effective Time, automatically by virtue of the Step Two Merger and without any
action on the part of any shareholder, (a) each membership interest of the
Surviving LLC common stock outstanding immediately prior to the Step Two Merger
Effective Time shall be unchanged and shall remain issued and outstanding, and
(b) each share of the Interim Surviving Corporation common stock outstanding
immediately prior to the Step Two Merger Effective Time shall be cancelled
without consideration and shall cease to be an issued and outstanding share of
Interim Surviving Corporation common stock.
PAGE 12
2.3 CONVERSION OF COMPANY CAPITAL STOCK
(a).Subject to the terms and condition of this Agreement, at the Effective
Time, each share of the Company Capital Stock (including Company Common Stock
issued upon exercise of an Option prior to the Effective Time) that is issued
and outstanding immediately prior to the Effective Time shall, by virtue of the
Step One Merger and without the need for further action on the part of the
holder thereof, be cancelled and extinguished and automatically converted into
the right to receive a portion of the Merger Consideration, upon surrender of
the certificate representing such shares of Company Capital Stock, or if shares
are held in book entry form, irrevocable instructions from the holder thereof
surrendering such shares (either, the "Surrender"), together with any required
Form W-9 or Form W-8, as follows: (i) by wire transfer in accordance with the
wire instructions set forth on Schedule 2.3, an amount of cash consideration
equal to the Aggregate Cash Consideration, multiplied by a fraction, the
numerator of which is the aggregate number of shares of Company Capital Stock
held by such Shareholder (on an as-converted to Company Common Stock basis) and
the denominator of which is the Fully Diluted Common Stock Number (the "Per
Shareholder Cash Consideration"), subject to the provisions of Section 2.5
(regarding the withholding of the Escrow Amount), and (ii) the number of fully
paid and nonassessable shares of the Parent Common Stock equal to Aggregate
Stock Consideration, multiplied by a fraction, the numerator of which is the
aggregate number of shares of Capital Common Stock (on an as-converted to
Company Common Stock basis) held by such Shareholder and the denominator of
which is the Fully Diluted Common Stock Number, with cash paid in lieu of any
fractional share of the Parent Common Stock pursuant to Section 2.4.3 hereof.
The Per Shareholder Cash Consideration and the Per Shareholder Stock
Consideration allocable to each Shareholder is set forth on Schedule 2.3.
(b) If, prior to the Closing Date, the Parent recapitalizes through a
split-up of its outstanding shares of capital stock into a greater number, or a
combination of its outstanding shares of capital stock into a lesser number,
reorganizes, reclassifies or otherwise changes its outstanding shares of capital
stock into the same or a different number of shares of other classes of capital
stock, or declares a dividend on its outstanding shares of capital stock payable
in shares or securities convertible into shares, the number of shares of the
Parent Common Stock into which the shares of Company Capital Stock are to be
converted will be adjusted appropriately so as to maintain the proportionate
interests of the holders of the Company Capital Stock and the holders of shares
of capital stock of the Parent.
PAGE 13
2.4 OPTIONS; EXCHANGE PROCEDURES
2.4.1 OPTIONS
Effective as of the Closing, each option to purchase shares of the
Company Common Stock, whether or not vested or exercisable, that is outstanding
immediately prior to the Closing (each, an "Option"), and that has not been
exercised prior to the Closing, shall be terminated. No Options will continue
after the Closing or be assumed or continued by the Parent. Prior to the
Closing, the Company shall take all action necessary to effect the termination
of all Options as contemplated by this Section 2.4.1.
2.4.2 RECEIPT OF CERTIFICATES
The Parent shall, on the Closing Date, issue irrevocable instructions to
ChaseMellon (the "Transfer Agent") to issue certificates representing the number
of shares of the Parent Common Stock that such Shareholder is entitled to
receive pursuant to Section 2.3(a) hereof upon Surrender of such Shareholder's
shares of Company Capital Stock. In the event that any certificates representing
shares of Company Capital Stock shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Shareholder claiming such
certificate to be lost, stolen or destroyed, the Parent shall issue in exchange
for such lost, stolen or destroyed certificate the shares of the Parent Common
Stock that such Shareholder is entitled to receive pursuant to Section 2.3(a)
hereof; provided, however, that the Parent may in its discretion and as a
condition precedent to the issuance thereof, require such Shareholder to provide
the Parent with an indemnity agreement against any claim that may be made
against the Parent with respect to the certificate alleged to have been lost,
stolen or destroyed. The shares of the Parent Common Stock that each Shareholder
of the Company shall be entitled to receive in connection with the Mergers
pursuant to Section 2.3(a) shall be deemed to have been issued on the Closing
Date. If the Merger Consideration (or any part thereof) is to be delivered to
any Person other than the Person in whose name the certificate or certificates
representing shares of Company Capital Stock surrendered in exchange therefor is
registered, it shall be a condition to such exchange that (a) the prior written
consent of Parent is obtained, such consent not unreasonably withheld or delayed
and (b) the person requesting such exchange shall pay to the Parent any transfer
or other taxes required by reason of the payment of the Merger Consideration to
a Person other than the registered holder of the certificate or certificates so
surrendered, or shall establish to the satisfaction of the Parent that such tax
has been paid or is not applicable. Notwithstanding anything to the contrary,
neither the Parent nor any other party hereto shall be liable to a holder of
shares of Company Capital Stock for any Merger
PAGE 14
Consideration delivered to a public official pursuant to applicable law,
including, without limitation, abandoned property, escheat and similar laws.
2.4.3 NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of the Parent
Common Stock shall be issued by virtue of the Mergers, and no dividend, stock
split or other distribution with respect to the Parent Common Stock shall relate
to any such fractional interest, and any such fractional interests shall not
entitle the owner thereof to vote or to any rights of a security holder. In lieu
thereof, the Parent shall pay to the holder of shares of Company Capital Stock
who would otherwise be entitled to a fraction of a share of the Parent Common
Stock, as soon as practicable after the Closing Date (and in the same timely
manner required for delivery of certificates of the Parent Common Stock provided
in Section 2.4.2), an amount in cash equal to such fraction multiplied by the
Share Price.
2.4.4 DISSENTING SHARES
Holders of issued and outstanding shares of Company Common Stock who
have complied with all the requirements for perfecting dissenters' rights, as
required under the New York Business Corporation Law, shall not receive a
portion of the Merger Consideration, as set forth in Section 2.3(a), but shall
be entitled to their rights under New York Business Corporation Law with respect
to such shares (the "Dissenting Shares"). Notwithstanding the foregoing, if any
holder of Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) the right to dissent, then, as of the later of the
Effective Time and the occurrence of such event, such holder's issued and
outstanding shares of Company Common Stock shall automatically be converted into
and represent only the right to receive the portion of the Merger Consideration
to which such holder is then entitled under this Agreement and the New York
Business Corporation Law, without interest thereon and upon Surrender of the
certificate representing such shares of Company Common Stock. Notwithstanding
any provision of this Agreement to the contrary, any Dissenting Shares held by a
shareholder of the Company who has perfected dissenter's rights for such shares
in accordance with the New York Business Corporation Law shall not be entitled
to its portion of the Merger Consideration pursuant to this Section 2.4.4. Each
holder of Dissenting Shares who, pursuant to the New York Business Corporation
Law, becomes entitled to payment of the value of the Dissenting Shares owned by
such holder will receive payment therefor but only after the value therefor has
been agreed upon or finally determined pursuant to the New York Business
Corporation Law. Any portion of the Merger Consideration, as adjusted, that
would otherwise have been payable with respect to Dissenting Shares if such
shares were not Dissenting Shares will be retained by Parent.
PAGE 15
2.5 ESCROW FUND
2.5.1 WITHHOLDING OF ESCROW AMOUNT; ESCROW FUND
At the Effective Time, the Parent shall withhold the Escrow Amount from
the Aggregate Cash Consideration payable pursuant to Section 2.3(a) to the
Company's shareholders (other than holders of solely shares of Company Common
Stock which constitute and remain Dissenting Shares) (each, an "Effective Time
Holder" and collectively, the "Effective Time Holders") on a pro rata basis
based upon the amount of cash each such Effective Time Holder is entitled to
receive pursuant to Section 2.3(a) with respect to such holder's shares of
Company Common Stock (other than Dissenting Shares) relative to the amount of
cash all such Effective Time Holders are entitled to receive pursuant to Section
2.3(a) with respect to their shares of Company Common Stock (other than
Dissenting Shares) (the "Pro Rata Share"). The Parent shall hold the Escrow
Amount, plus any Escrow Earnings paid in accordance with Section 2.5.2
(together, the "Escrow Fund"), for twelve (12) months following the Effective
Time (the "Escrow Period") as partial security for the indemnification
obligations of the Company and the Shareholders under Article IX of this
Agreement.
2.5.2 DEPOSIT OF ESCROW AMOUNT
On the Effective Date, the Parent shall cause the Escrow Amount to be
deposited in a segregated interest-bearing account of the Parent at a bank of
its selection. The interest, earnings and income that accrue upon the Escrow
Amount during the period of time during which the Escrow Amount is held in such
account (the "Escrow Earnings") shall be added to the Escrow Fund and become a
part thereof. For tax reporting and withholding purposes, each Effective Time
Holder shall be treated as having received and contributed to the Escrow Fund
income earned on such Effective Time Holder's Pro Rata Portion and shall be
liable and responsible for any Taxes due with respect to such income. The Parent
shall exercise reasonable care in investing, holding and safeguarding the Escrow
Fund.
2.5.3 RELEASE OF ESCROW FUND
As soon as reasonably practicable (but in any event within 10 business
days) following the expiration of the Escrow Period, the Parent shall release to
the Effective Time Holders, at their respective addresses and in accordance with
their respective Pro Rata Shares, all of the remaining Escrow Fund, if any, in
excess of (i) any portion of the Escrow Fund retained by the Parent in
satisfaction of Claims for Losses by Parent Indemnified Parties and (ii) any
portion of the Escrow Fund that is necessary to satisfy all unresolved,
unsatisfied or disputed Claims for Losses specified in any Claim Notice
delivered to the Shareholder Representative before the expiration of the Escrow
Period. If any Claims are unresolved, unsatisfied or disputed as of the
expiration of
PAGE 16
the Escrow Period, then the Parent shall retain possession and custody of that
portion of the Escrow Fund that equals the total maximum amount of Losses then
being claimed by Parent Indemnified Parties in all such unresolved, unsatisfied
or disputed Claims, and as soon as reasonably practicable (but in any event
within 10 business days) following resolution of all such Claims, the Parent
shall release to the Effective Time Holders, at their respective addresses and
in accordance with their respective Pro Rata Shares, the remaining Escrow Fund,
if any, not required to satisfy such Claims. Such releases of the Escrow Fund
shall be made by check.
2.5.4 NO TRANSFER OR ENCUMBRANCE
No portion of the Escrow Amount, Escrow Earnings or any beneficial
interest therein may be pledged, encumbered, sold, assigned or transferred
(including any transfer by operation of law), by the Parent or an Effective Time
Holder or be taken or reached by any legal or equitable process in satisfaction
of any debt or other liability of the Parent or such Effective Time Holder or
used for any reason, prior to (i) in the case of the Parent, the retention of
all or a portion of the Escrow Fund in satisfaction of a Claim for Losses in
accordance with this Agreement or (ii) in the case of the Effective Time
Holders, the release by the Parent to the Effective Time Holders of the Escrow
Fund in accordance with this Agreement, except that Effective Time Holders shall
be entitled to assign their rights to the Escrow Fund by will, by the laws of
intestacy or by other operation of law.
2.5.6 NO LIABILITY OF PARENT
In holding and administering the Escrow Fund, the Parent will incur no
liability with respect to any action taken by it in reliance upon any written
notice, direction, instruction, consent, statement or other document believed by
it to be genuine and to have been signed by the Shareholder Representative (and
shall have no responsibility to determine the authenticity thereof), nor for any
other action or inaction, except the Parent's own willful misconduct or gross
negligence. In all questions arising under this Agreement with respect to the
Escrow Fund, the Parent may rely on the advice of counsel, and the Parent will
not be liable to anyone for anything done, omitted or suffered in good faith by
the Parent based on such advice, except for the Parent's own willful misconduct
or gross negligence.
2.6 SHAREHOLDER REPRESENTATIVE
Each Shareholder hereby irrevocably authorizes and appoints Xxxxx Xxxxx
(the "Shareholder Representative"), as such Shareholder's representative and
true and lawful attorney-in-fact and agent to (a) act in such Shareholder's
name, place and stead as contemplated by Sections 7.6 and 8.1 and Articles VI
and IX, (b) execute in the name and on behalf of such Shareholder any other
agreement, certificate, instrument or
PAGE 17
document to be delivered by the Shareholders in connection with this Agreement,
(c) authorize the release of delivery to the Parent of the Escrow Fund in
amounts in satisfaction of Claims by the Parent Indemnified Parties pursuant to
Article IX (including by not objecting to such Claims), and (d) agree to, object
to, negotiate, resolve, enter into settlements and compromises of, demand
litigation of, and comply with orders of court with respect to Claims. If the
Shareholder Representative or any successor shall resign, die, or become unable
to act as the Shareholder Representative, a replacement shall promptly be
appointed by a writing signed by Shareholders who initially received a majority
of the Aggregate Stock Consideration. Any such successor Shareholder
Representative shall have the same powers and duties as if appointed as the
original Shareholder Representative hereunder. The Shareholder Representative or
the Shareholders shall promptly notify the Parent of the appointment of a
successor Shareholder Representative. The Shareholders (other than the
Shareholder Representative) shall, jointly and severally, indemnify the
Shareholder Representative for, and hold him harmless against, any loss,
liability, claim or expense, including reasonable attorney's fees, arising out
of or in connection with his duties as Shareholder Representative under this
Agreement, including the costs and expenses of defending himself against any
such loss, liability, claim or expense in connection herewith.
2.7 TAX FREE REORGANIZATION
Except as otherwise required by the Internal Revenue Service (the "IRS")
pursuant to a determination (as defined in Section 1313 of the Code) or
otherwise, and unless the Closing Date Share Price is less than 90% of the Share
Price, the parties shall not take a position on any tax returns inconsistent
with the treatment of the Mergers for tax purposes as a reorganization within
the meaning of Section 368(a) of the Code; provided, however, that nothing else
contained herein shall constitute a representation, warranty or agreement with
respect to any Tax consequences to the Company or its Shareholders arising under
this Agreement or as a result of the transactions contemplated hereby.
Notwithstanding the foregoing, if the Closing Date Share Price is less than 90%
of the Share Price, the parties acknowledge that the Mergers and the
transactions contemplated hereby will not constitute a "reorganization" within
the meaning of Section 368(a) of the Code.
2.8 TAX WITHHOLDING
Parent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of Company
Common Stock such amounts as it is required to deduct and withhold with respect
to the making of such payments under the Code, or any provision of state, local
or foreign tax Law. To the extent that amounts are so withheld by Parent, such
withheld amounts shall be
PAGE 18
treated for all purposes of this Agreement as having been paid to the holder of
shares of Company Common Stock in respect of which such deduction and
withholding was made by Parent.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as is otherwise set forth with appropriate Section references in
the Company Disclosure Schedule attached as Schedule 3 (the "Company Disclosure
Schedule"), and in order to induce the Parent to enter into and perform this
Agreement and the Ancillary Documents, the Company, and the Shareholders with
respect to Sections 3.13.4 and 3.13.9 as applicable to the Shareholders,
represents and warrants to the Parent as of the date of this Agreement and as of
the Closing as follows in this Article III.
3.1 ORGANIZATION
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York. The Company has all requisite
corporate power and authority to own, operate and lease its properties and
assets, to carry on its business as now conducted and as currently proposed to
be conducted, and to enter into and perform its obligations under this Agreement
and the Ancillary Documents to which the Company is a party, and to consummate
the transactions contemplated hereby and thereby. The Company is duly qualified
and licensed as a foreign corporation to do business and is in good standing in
each jurisdiction in which the character of the Company's properties occupied,
owned or held under lease or the nature of the business conducted by the Company
makes such qualification or licensing necessary, except where the failure to be
so qualified or in good standing would not have a Company Material Adverse
Effect.
3.2 ENFORCEABILITY
The Company has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement and each of the
Ancillary Documents to which it is a party and each of the certificates,
instruments and documents executed or delivered by it pursuant to the terms of
this Agreement. Subject to obtaining the Company Shareholder Approval, all
corporate action on the part of the Company necessary for the authorization,
execution, delivery and performance of this Agreement and the Ancillary
Documents to which the Company is a party, the consummation of the Mergers, and
the performance of all the Company's obligations under this Agreement and the
Ancillary Documents to which the Company is a party has been taken. This
Agreement has been, and each of the Ancillary Documents to which the Company is
a party at the Closing will have been, duly
PAGE 19
executed and delivered by the Company, and this Agreement is, and, when executed
and delivered by the Company, each of the Ancillary Documents to which the
Company is a party will be at the Closing, a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except as to the effect, if any, of (a) applicable bankruptcy and other similar
laws affecting the rights of creditors generally and (b) rules of law governing
specific performance, injunctive relief and other equitable remedies.
3.3 CAPITALIZATION
(a) The authorized capital stock of the Company consists of 20,000,000
shares of Company Common Stock and 1,000,000 shares of Company Preferred Stock.
(b) As of the date of this Agreement, the issued and outstanding capital
stock of the Company consists solely of 12,319,940 shares of Company Common
Stock and no shares of Company Preferred Stock. All of such shares are, and
immediately prior to the Closing Date will be, held of record and beneficially
by the Shareholders of the Company as set forth on Section 3.3(b) of the Company
Disclosure Schedule. The outstanding shares of Company Capital Stock as of the
date hereof are, and immediately prior to the Closing Date all then outstanding
shares of Company Capital Stock will be, duly authorized and validly issued,
fully paid and nonassessable, and issued in compliance with all applicable
federal and state securities laws. No Person other than the Shareholders holds
any interest in any of the outstanding shares of Company Capital Stock. True and
correct copies of the stock records of the Company, showing all issuances and
transfers of shares of capital stock of the Company since inception, have been
provided to the Parent or its counsel.
(c) As of the date of this Agreement, other than Options to purchase up to
1,845,000 shares of Company Common Stock or other Stock Purchase Rights set
forth in Section 3.3(c) of the Company Disclosure Schedule, there are no
outstanding rights of first refusal or offer, co-sale rights, preemptive rights,
Stock Purchase Rights or other agreements, either directly or indirectly, for
the purchase or acquisition from the Company or any Shareholder of any shares of
Company Capital Stock or any securities convertible into or exchangeable for
shares of Company Capital Stock, and the Company is not committed to issue or
grant any such rights, Stock Purchase Rights or other agreements. Set forth in
Section 3.3(c) of the Company Disclosure Schedule is a spreadsheet accurately
reflecting the number of such Options and other Stock Purchase Rights
outstanding, the grant or issue dates, vesting schedules and exercise or
conversion prices thereof, and, in each case, the identities of the holders and
an indication of their relationships to the Company. The Company has delivered
to the Parent true and correct copies of the form of stock option agreements
relating to Options granted thereunder, all other agreements with respect to
Stock Purchase
PAGE 20
Rights, and all material deviations therefrom. Section 3.3(c) of the Company
Disclosure Schedule also identifies all Options and Stock Purchase Rights that
have been offered in connection with any employee or consulting agreement,
arrangement or understanding but that, as of the date hereof, have not been
issued or granted.
(d) The Company is not a party or subject to any agreement or
understanding, and, to the knowledge of the Company, there is no agreement or
understanding between any Persons that affects or relates to the voting or
giving of written consents with respect to any securities of the Company or the
voting by any director of the Company. No Shareholder or any affiliate thereof
is indebted to the Company, and the Company is not indebted to any Shareholder
or any affiliate thereof. The Company is not under any contractual or other
obligation to register, repurchase or redeem any of its presently outstanding
securities or any of its securities that may hereafter be issued.
(e) Section 3.3(e) of the Company Disclosure Schedule describes all rights
granted in favor of the Company to repurchase or to receive upon forfeiture any
securities of the Company.
(f) Except as described on Section 3.3(f) of the Company Disclosure
Schedule, all Options and Stock Purchase Rights have been granted or issued with
a purchase or exercise price of not less than fair market value, as determined
by the Company's Board of Directors at the date of grant or issuance.
3.4 SUBSIDIARIES AND AFFILIATES
Section 3.4 of the Company Disclosure Schedule sets forth each
corporation, partnership, limited liability company or other business entity,
(a) which the Company owns or controls, or has in the past owned or controlled,
directly or indirectly, (b) in which the Company owns, directly or indirectly,
any ownership, equity, or voting interest in, or (c) in which the Company has an
agreement or commitment to purchase any such interest (any of the foregoing, a
"Company Subsidiary" and collectively, the "Company Subsidiaries"). Each entity
listed on Section 3.4 of the Company Disclosure Schedule that is no longer in
existence has been duly dissolved in accordance with its charter documents and
the laws of the jurisdiction of its incorporation or organization. Each Company
Subsidiary is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization. All of the
outstanding shares of capital stock, membership interests or other equity
interests of each Company Subsidiary are owned of record and beneficially by the
Company, free and clear of any and all Encumbrances. All outstanding shares of
each Company Subsidiary, membership interests or other equity interests are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the charter documents or bylaws of
PAGE 21
such Company Subsidiary, or any agreement to which such Company Subsidiary is a
party or by which it is bound. There are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which any
Company Subsidiary is a party or by which it is bound obligating such Company
Subsidiary to issue, deliver, sell, purchase or redeem, or cause to be issued,
sold, repurchased or redeemed, any shares of the capital stock of the Company
Subsidiary, membership interests or other equity interests or obligating such
Company Subsidiary to grant, extend, accelerate the vesting of, change the price
of, otherwise amend or enter into any such option, warrant, call right,
commitment or agreement. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights with
respect to any Company Subsidiary. There are no outstanding liabilities or
obligations (outstanding, contingent or otherwise), direct or indirect,
including taxes, with respect to any Company Subsidiary. Neither the Company nor
any Company Subsidiary has agreed or is obligated to make any future investment
in or capital contribution to any Person.
3.5 NO APPROVALS; NO CONFLICTS
Except as set forth in Section 3.5 of the Company Disclosure Schedule, the
execution, delivery and performance by the Company of this Agreement and the
Ancillary Documents to which the Company is a party and the consummation of the
transactions contemplated hereby and thereby will not (a) constitute a violation
(with or without the giving of notice or lapse of time, or both) of any
provision of law or any judgment, decree, order, regulation or rule of any court
or other governmental authority applicable to the Company, (b) require any
consent, approval or authorization of, or declaration, filing or registration
with, any Person, except compliance with applicable securities laws, (c) result
in a default (with or without the giving of notice or lapse of time, or both)
under, or acceleration or termination of, or the creation in any party of the
right to accelerate, terminate, modify or cancel, any material agreement, lease,
note or other restriction, Encumbrance, obligation or liability to which the
Company is a party or by which it is bound or to which any assets of the Company
are subject, (d) result in the creation of any Encumbrance upon any material
assets of the Company or, to the Knowledge of the Company, upon any outstanding
shares or other securities of the Company, (e) conflict with or result in a
breach of or constitute a default under any provision of the Company's
Certificate or the Company's Bylaws, or (f) invalidate or, to the Company's
Knowledge, adversely affect any permit, license or authorization currently
material to the conduct of the business of the Company.
PAGE 22
3.6 FINANCIAL STATEMENTS
(i) The Company has delivered to the Parent statements of income and
expense prepared on a cash basis for the fiscal year ended December 31, 2004 and
statements of income and expense prepared on an accrual basis for the five-month
period ended May 31, 2005 (the "Financial Statements"). The Financial Statements
have been prepared on a basis consistent with prior accounting periods and
fairly present in all material respects the financial position, results of
operations and changes in financial position of the Company as of the dates and
for the periods indicated therein. To the Company's knowledge, there is no basis
for the assertion against the Company of any liability, obligation or claim that
is likely to result or cause a Company Material Adverse Effect that is not
fairly reflected in the Financial Statements or otherwise disclosed in Section
3.6 of the Company Disclosure Schedule. The Company is not a guarantor,
indemnitor, surety or other obligor of any Debt of any other Person.
(ii) The Company has no liabilities or obligations of any nature
(absolute, contingent or otherwise) that are not fully reflected or reserved
against in the Financial Statements, except (x) liabilities or obligations
incurred since May 31, 2005 in the ordinary course of business and consistent
with past practice that are not in excess of $20,000 in the aggregate or $10,000
individually and (y) as otherwise set forth on Section 3.6 of the Company
Disclosure Schedule, provided, however, the Company shall have no liability
pursuant to this representation for current liabilities incurred in the ordinary
course of business, unless the negative working capital exceeds $293,000.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except for transactions specifically contemplated in this Agreement or as
set forth on Section 3.7 of the Company Disclosure Schedule, since May 31, 2005,
neither the Company nor any of its officers or directors in their representative
capacities on behalf of the Company has:
(a) taken any action or entered into or agreed to enter into any
transaction, agreement or commitment other than in the ordinary course of
business;
(b) forgiven or canceled any Debt or waived any claims or rights of
material value (including, without limitation, any Debt owing by any
Shareholder, officer, director, employee or affiliate of the Company);
(c) granted, other than in the ordinary course of business and
consistent with past practice, any increase in the compensation of directors,
officers, employees or consultants (including any such increase pursuant to any
employment or consulting agreement or bonus, pension, profit-sharing, lease
payment or other plan or
PAGE 23
commitment) or any increase in the compensation payable or to become payable to
any director, officer, employee or consultant;
(d) suffered any change having, or reasonably likely to have, a
Company Material Adverse Effect;
(e) borrowed or agreed to borrow any funds, incurred or become
subject to, whether directly or by way of assumption or guarantee or otherwise,
any Debt, or any other obligations or liabilities (absolute, accrued, contingent
or otherwise) individually in excess of $5,000 or in excess of $10,000 in the
aggregate, except liabilities and obligations (other than Debt) that are
incurred in the ordinary course of business and consistent with past practice or
increased, or experienced any change in any assumptions underlying or methods of
calculating, any bad debt, contingency or other reserves;
(f) paid, discharged or satisfied any material claims, liabilities
or obligations (absolute, accrued, contingent or otherwise) other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of claims, liabilities and obligations reflected
or reserved against in the Financial Statements or incurred in the ordinary
course of business and consistent with past practice since March 31, 2005;
(g) permitted or allowed any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any Encumbrance,
restriction or charge which remains in existence on the date hereof, except in
the ordinary course of business and consistent with past practice;
(h) purchased or sold, transferred or otherwise disposed of any of
its material properties or assets (real, personal or mixed, tangible or
intangible) other than as contemplated by this Agreement or sales or licenses of
software and services in the ordinary course of business;
(i) disposed of or permitted to lapse any rights to the use of any
trademark, trade name, patent or copyright, or disposed of or disclosed to any
Person without obtaining an appropriate confidentiality agreement from any such
Person any material trade secret, formula, process or know-how not theretofore a
matter of public knowledge;
(j) made any single capital expenditure or commitment in excess of
$5,000 for additions to property, plant, equipment or intangible capital assets
or made aggregate capital expenditures in excess of $10,000 for additions to
property, plant, equipment or intangible capital assets;
PAGE 24
(k) made any election or change in any election concerning Taxes,
any adoption or change in any Tax accounting method or practice, or any change
in any Tax accounting period, or any other change in accounting methods or
practices or internal control procedure;
(l) issued any capital stock or other securities, or declared, paid
or set aside for payment any dividend or other distribution in respect of its
capital stock, or redeemed, purchased or otherwise acquired, directly or
indirectly, any shares of capital stock or other securities of the Company, or
otherwise permitted the withdrawal by any of the holders of Company Capital
Stock of any cash or other assets (real, personal or mixed, tangible or
intangible), in compensation, Debt or otherwise, other than payments of
compensation to employees in the ordinary course of business and consistent with
past practice;
(m) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed, tangible or
intangible) to or from any of the Company's Shareholders, officers, directors,
employees or consultants or any affiliate of any of the Company's Shareholders,
officers, directors, employees or consultants, except compensation and expense
allowances (for travel and other business-related expenses) in the ordinary
course of business paid to officers, directors, employees or consultants of the
Company; or
(n) agreed, whether in writing or otherwise, to take any action
described in this Section 3.7.
3.8 TAXES
(a) Except as set forth in Section 3.8 of the Company Disclosure Schedule,
each of the Company and the Company Subsidiaries has (i) properly prepared and
timely filed all Tax Returns required to be filed (taking into account any
extension of time to file); (ii) paid all Taxes required to be paid (whether or
not shown to be due on such Tax Returns); and (iii) paid all Taxes for which a
notice of assessment or collection has been received by the Company or any
Company Subsidiary (other than those being contested or which the Company
intends to contest in good faith by appropriate proceedings, and for which
adequate reserves have been established for such Taxes on the books and records
of the Company. All such Tax Returns are true, correct and complete and have
been prepared in accordance with applicable Law. There are no Encumbrances for
Taxes (other than Taxes not yet due and payable) on any of the assets of the
Company or any of the Company Subsidiaries.
(b) Each of the Company and the Company Subsidiaries has withheld or
collected and paid over to appropriate governmental entities (or are properly
holding
PAGE 25
for such payment) all Taxes required by law to be withheld or collected by it in
connection with amounts paid or owing to any Person.
(c) Except as set forth in Section 3.8(c) of the Company Disclosure
Schedule, no dispute or claim concerning any Tax liability of the Company or any
Company Subsidiary has been proposed or claimed in writing or, to the Knowledge
of the Company, threatened by any authority, including a claim that the Company
or any Company Subsidiary is subject to Tax in a jurisdiction where it does not
currently file a Tax Return. The Company has made available to the Parent
correct and complete copies of all Tax Returns for Taxable years for which the
applicable statute of limitations has not expired, and all examination reports,
and statements of deficiencies, if any, assessed against or agreed to by the
Company and any Company Subsidiary.
(d) Neither the Company nor any Company Subsidiary has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency, which is currently effective. No
power of attorney that currently is in effect has been granted by the Company or
any Company Subsidiary with respect to any Tax matter.
(e) Neither the Company nor any Company Subsidiary has ever been a United
States real property holding corporation within the meaning of Section
897(c)(1)(A)(ii) of the Code. Neither the Company nor any of the Company
Subsidiaries is a party to any Tax allocation, indemnity, sharing or similar
agreement (excluding any lease or similar agreement to the extent it provides
for the payment of property taxes by the lessee or similar user of property)
that will survive the Closing. Neither the Company nor any of the Company
Subsidiaries (i) has been a member of any affiliated, consolidated, combined,
unitary or similar group (other than the group, the common parent of which is
the Company) that filed or was required to file a consolidated, combined,
unitary or similar Tax Return, or (ii) has or will have any liability for the
Taxes (excluding any contractual obligation to pay property taxes as a lessee or
similar user of property) of any Person (other than the Company and any of the
Company Subsidiaries that is currently a member of the Company's affiliated
group filing a consolidated federal income Tax Return) under Treas. Reg. Section
1.1502-6 (or any similar provision of any other Law), as a transferee or
successor, by contract, assumption, transferee liability, operation of Law or
otherwise.
(f) The unpaid Taxes of the Company (i) did not, as of May 31, 2005,
exceed the reserve for Tax liability set forth on the face (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) of the Financial Statements and (ii) do not exceed that
reserve as adjusted for the passage of time and operations in the ordinary
course of business through the Closing Date.
PAGE 26
(g) The Company and each Company Subsidiary has disclosed on its Tax
Returns any Tax reporting position taken therein which reasonably could result
in the imposition of penalties under Section 6662 of the Code or any comparable
provisions of state, local or foreign Law.
(h) Neither the Company nor any Company Subsidiary has consummated, has
participated in, or is currently participating in any transaction which was or
is a "Tax shelter" transaction as defined in Sections 6662, 6011 or 6111 (before
amendment by the American Jobs Creation Act of 2004) of the Code or the treasury
regulations promulgated thereunder or which was or is a "Listed Transaction" or
a "Reportable Transaction" as those terms are defined in the Code and the
treasury regulations thereunder.
(i) Neither the Company nor any Company Subsidiary is required to include
in income, or exclude any item of deduction from, Taxable income for any Taxable
period ending after the Closing Date by reason of any (i) change in accounting
method for a Taxable period ending on or prior to the Closing Date (nor does the
Company or any Company Subsidiary have any Knowledge that the Internal Revenue
Service (or other Governmental Entity) has proposed or is considering proposing,
any such change), (ii) "closing agreement" described in Section 7121 of the Code
(or any similar provision of any other Law), (iii) installment sale or open
transaction disposition made on or prior to the Closing, or (iv) prepaid amount
received on or prior to the Closing.
(j) Neither the Company nor any Company Subsidiary has made any payment or
payments, is obligated to make any payment or payments, or is a party to any
contract that, individually or collectively, could give rise to the payment of
any amount (whether in cash or property) as a result of the Mergers that may not
be deductible pursuant to the terms of Section 162(m) or 280G of the Code.
(k) Except as set forth in Section 3.8(k) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary is involved in, subject
to, or a party to any joint venture, partnership, limited liability company
agreement or other arrangement that is treated as a "partnership" for federal,
state, local or foreign income Tax purposes. Neither the Company nor any Company
Subsidiary owns an entity that is treated as "disregarded as an entity separate
from its owner" pursuant to Section 301.7701-3 of the treasury regulations.
(l) Neither the Company nor any Company Subsidiary has been either a
"distributing corporation" or a "controlled corporation" (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for
tax-free treatment under Section 355 of the Code (i) in the two years prior to
the date of this Agreement or (ii) in a distribution that could otherwise
constitute part of a "plan" or "series of
PAGE 27
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Mergers.
(m) Except as set forth in Section 3.8(m) of the Company Disclosure
Schedule, there currently is no limitation on the utilization of the net
operating losses, built-in losses, capital losses, Tax credits or other similar
items of the Company under Section 382, 383, 384 and 1502 of the Code and
treasury regulations promulgated thereunder. Neither the Company nor any of the
Company Subsidiaries is or has been a party to any transaction where a deferred
intercompany gain was generated under Section 1502 of the Code and the treasury
regulations promulgated thereunder. The unpaid Taxes of the Company (i) did not,
as of December 31, 2004, exceed the reserve for Tax liability set forth on the
face (rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) of the Financial Statements and (ii) do
not exceed that reserve as adjusted for the passage of time and operations in
the ordinary course of business through the Closing Date.
As used in this Agreement, the following terms shall have the following
meanings:
"Taxes" means (i) all foreign, federal, state, county or local taxes,
charges, fees, levies, imposts, duties, and other assessments, including, but
not limited to, any income, alternative minimum or add-on tax, estimated, gross
income, gross receipts, sales, use, transfer, transactions, intangibles, ad
valorem, value-added, franchise, registration, title, license, capital, paid-up
capital, profits, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, real property, recording, personal property, federal
highway use, commercial rent, environmental (including, but not limited to,
taxes under Section 59A of the Code) or windfall profit tax, custom, duty or
other tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest, penalties or additions to tax; (ii) any
liability for the payment of any amounts of the type described in clause (i) of
this sentence as a result of being a member of an affiliated, consolidated,
combined, unitary or aggregate group for any Taxable period, and (iii) any
liability for the payment of any amounts of the type described in clause (i) or
(ii) of this sentence as a result of being a transferee of or successor to any
Person or as a result of any express or implied obligation to assume such Taxes
or to indemnify any other Person. "Tax" means any of the foregoing Taxes.
"Tax Returns" means any return, declaration, report, claim or refund,
information return, statement, or other similar document relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
PAGE 28
3.9 PROPERTY
(a) The Company owns no real property other than the leasehold interests
described on Section 3.9(a) of the Company Disclosure Schedule, which contains a
complete and accurate list of all real property owned, leased or currently being
used by the Company (the "Real Property"). The Company has delivered to the
Parent or its counsel true and complete copies of all written leases, subleases,
rental agreements, contracts of sale, tenancies or licenses relating to the Real
Property and written summaries of the terms of any oral leases, subleases,
rental agreements, contracts of sale, tenancies or licenses to which the Real
Property is subject.
(b) Section 3.9(b) of the Company Disclosure Schedule contains a complete
and accurate list of each item of personal property having a net book value in
excess of $5,000 which is owned, leased, rented or used by the Company, as of
the date hereof (the "Personal Property"); provided that such list need not
describe the Company Intellectual Property listed in Section 3.14 to the Company
Disclosure Schedule. The Company has delivered to the Parent true and complete
copies of all leases, subleases, rental agreements, contracts of sale, tenancies
or licenses to which the Personal Property is subject.
(c) The Real Property and the Personal Property include all the properties
and assets (whether real, personal or mixed, tangible or intangible) (other
than, in the case of the Personal Property, property rights with an individual
value of less than $5,000 and the Company Intellectual Property) reflected in
the Financial Statements (except for such properties or assets sold since May
31, 2005 in the ordinary course of business and consistent with past practice)
and all the properties and assets purchased or otherwise acquired by the Company
since May 31, 2005 (other than, in the case of the Personal Property, property
rights with an individual value of less than $5,000 and the Company Intellectual
Property). The Real Property and the Personal Property include all material
property used in the business of the Company, other than the Company
Intellectual Property. The Company's Real Property and its Personal Property are
in good operating condition and repair, normal wear and tear excepted, are
adequate for the uses to which they are being put, and comply in all material
respects with applicable safety and other laws and regulations.
(d) The Company's leasehold interest in each parcel of the Real Property
is free and clear of all Encumbrances, except for Encumbrances related to Taxes
not yet due and payable, and Encumbrances relating to the owner of any such Real
Property that do not adversely affect the Company's possession or use thereof.
Each lease of any portion of the Real Property is valid, binding and enforceable
in accordance with its terms against the Company and, to the Company's
knowledge, against each other party thereto, except as to the effect, if any, of
(i) applicable bankruptcy and other
PAGE 29
similar laws affecting the rights of creditors generally and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
The Company has performed in all material respects all obligations imposed upon
it under each lease, and neither the Company nor, to the Company's knowledge,
any other party thereto is in material default thereunder, nor is there any
event which with notice or lapse of time, or both, would constitute a material
default thereunder by the Company or, to the Company's knowledge, by any other
party. The Company has not granted any lease, sublease, tenancy or license of,
or entered into any rental agreement or contract of sale with respect to, any
portion of the Real Property.
(e) The Personal Property is free and clear of all Encumbrances, and,
other than leased Personal Property which is so noted on the list supplied
pursuant to Section 3.9(b) hereof, the Company owns such Personal Property. Each
lease, license, rental agreement, contract of sale or other agreement to which
the Personal Property is subject is valid, binding and enforceable in accordance
with its terms against the Company and, to the Company's knowledge, against each
other party thereto, except as to the effect, if any, of (i) applicable
bankruptcy and other similar laws affecting the rights of creditors generally
and (ii) rules of law governing specific performance, injunctive relief and
other equitable remedies. The Company has performed in all material respects all
obligations imposed upon it under each such agreement, and neither the Company
nor, to the Company's knowledge, any other party thereto is in material default
thereunder, nor is there any event which with notice or lapse of time, or both,
would constitute a material default by the Company or, to the Company's
knowledge, any other party thereunder. The Company has not granted any lease,
sublease, tenancy or license of any portion of the Personal Property, except in
the ordinary course of business.
3.10 CONTRACTS
Section 3.10 of the Company Disclosure Schedule contains a complete and
accurate list (other than the Company Intellectual Property listed on Section
3.14 of the Company Disclosure Schedule) of all contracts, agreements and
understandings, oral or written, to which the Company is currently a party or by
which the Company is currently bound providing for potential payments by or to
the Company in excess of $10,000, including, without limitation, consulting
agreements, license agreements, software development agreements, distribution
agreements, joint venture agreements, security agreements, reseller agreements,
credit agreements and instruments relating to the borrowing of money. All
contracts set forth in Section 3.10 of the Company Disclosure Schedule are
valid, binding and enforceable in accordance with their terms against the
Company and, to the Company's knowledge, each other party thereto, except as to
the effect, if any, of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally and (b) rules of law governing
specific
PAGE 30
performance, injunctive relief and other equitable remedies, and are in full
force and effect. The Company has performed in all material respects all
obligations imposed on it under the contracts set forth in Section 3.10 of the
Company Disclosure Schedule, and neither the Company nor, to the Company's
knowledge, any other party thereto is in material default thereunder, nor is
there any event which with notice or lapse of time, or both, would constitute a
material default by the Company or, to the Company's knowledge, any other party
thereunder. True and complete copies of each such written contract (or written
summaries of the terms of any oral contract) have been delivered to the Parent
by the Company. Except as set forth on Section 3.10 of the Company Disclosure
Schedule, the Company has no
(a) contracts with directors, officers, Shareholders, employees,
agents, consultants, advisors, salespeople, sales representatives or resellers
that cannot be canceled by the Company within 30 days' notice without liability,
penalty or premium, any agreement or arrangement providing for the payment of
any bonus or commission based on sales or earnings, or any compensation
agreement or arrangement affecting or relating to former employees of the
Company;
(b) employment agreement or any other agreement for services that
contains severance or termination pay liabilities or obligations;
(c) non-competition agreement or other arrangement that would
prevent the Company from carrying on its business anywhere in the world;
(d) notice or reason to believe that any party to a contract listed
in Section 3.10 of the Company Disclosure Schedule intends to cancel, terminate
or refuse to renew such contract (if such contract is renewable);
(e) material dispute with any of its consultants, suppliers,
customers, distributors, licensors or licensees;
(f) product distribution agreement, development agreement, or
license agreement as licensor or licensee (except for standard licenses
purchased by the Company for off-the-shelf software);
(g) joint venture contract or arrangement or any other agreement
that involves a sharing of profits with other persons;
(h) instrument evidencing Debt, except for trade payables incurred
in the ordinary course of business, and except as disclosed in the Financial
Statements; and
(i) agreements or commitments to provide indemnification.
PAGE 31
3.11 CLAIMS AND LEGAL PROCEEDINGS
Except as set forth in Section 3.11 of the Company Disclosure Schedule,
there are no claims, actions, suits, arbitrations, investigations or proceedings
pending or involving or, to the Company's knowledge, threatened against the
Company before or by any court or governmental or nongovernmental department,
commission, board, bureau, agency or instrumentality, or any other Person. There
are no outstanding or unsatisfied judgments, orders, decrees or stipulations to
which the Company is a party. Section 3.11 of the Company Disclosure Schedule
sets forth a description of any material disputes that have been settled or
resolved by litigation or arbitration since January 1, 2002. To the Company's
knowledge, there is no reasonable basis for the assertion against the Company of
any claims, actions, suits, arbitrations, investigations or proceedings before
any court or governmental or nongovernmental department, commission, board,
bureau, agency or instrumentality, or any other Person, which might reasonably
be expected to have a Company Material Adverse EFFECT.
3.12 LABOR AND EMPLOYMENT MATTERS
There are no labor disputes, employee or consultant grievances or
disciplinary actions pending or, to the Company's knowledge, threatened against
or involving the Company or, to the Company's knowledge, any of its present or
former employees or consultants. To the Company's knowledge, no employee or
consultant intends to terminate his or her employment or consulting relationship
with the Company within the next twelve months, other than in the ordinary
course if there shall be inadequate work for such employee or consultant. The
Company has complied in all material respects with all provisions of applicable
law relating to employment and employment practices, terms and conditions of
employment, wages and hours. The Company is not engaged in any unfair labor
practice as defined under applicable law and has no liability for any arrears of
wages or Taxes or penalties for failure to comply with any such provisions of
law. There is no labor strike, dispute, slowdown or stoppage pending or, to the
Company's knowledge, threatened against or affecting the Company, and the
Company has not experienced any work stoppage or other collective labor
difficulty since its incorporation. No collective bargaining agreement is
binding on the Company. The Company has no knowledge of any organizational
efforts presently being made or threatened by or on behalf of any labor union
with respect to employees or consultants of the Company. Except as set forth in
Section 3.12 of the Company Disclosure Schedule, each employee and officer of
and consultant to the Company has executed an Employee Agreement Regarding
Inventions, Confidentiality and Competitive Activities in the form attached as
Exhibit 3.12 to the Company Disclosure Schedule (a "Nondisclosure Agreement")
and, as of the Closing, each current employee and officer of and each current
consultant to the Company who has not executed a Nondisclosure Agreement as of
the date hereof
PAGE 32
shall have executed and delivered to the Company such an agreement. To the
Company's knowledge, each Nondisclosure Agreement is, and as of the Closing will
be, a valid, binding and enforceable obligation of the employee, officer or
consultant named therein. To the Company's knowledge, no employee (or person
performing similar functions) of the Company is in violation of any such
agreement or any employment agreement, non-competition agreement, patent
disclosure agreement, invention assignment agreement, proprietary information
agreement or other contract or agreement relating to the relationship of such
employee with the Company or any other party. Section 3.12 of the Company
Disclosure Schedule sets forth a true and complete list of (a) the names and
current compensation amounts of all directors and officers of the Company; (b)
the names of and wage rates for all nonsalaried and nonofficer salaried
employees of the Company by classification, and all union contracts (if any);
(c) all group insurance programs in effect for employees of the Company; and (d)
the names and current compensation packages of all independent contractors and
consultants of the Company. Except as set forth in Section 3.12 of the Company
Disclosure Schedule, the Company is not in material default with respect to any
of its obligations referred to in clauses (a) - (d) above and has no, and will
not incur any, obligation or liability for severance or back pay owed through or
by virtue of the Mergers. Except as disclosed in Section 3.12 of the Company
Disclosure Schedule, all employees of the Company are employed on an "at will"
basis.
3.13 EMPLOYEE BENEFIT PLANS
3.13.1 EMPLOYEE BENEFIT PLAN LISTING
Section 3.13.1 of the Company Disclosure Schedule sets forth a complete
and accurate list of all Employee Benefit Plans. The Company does not have any
agreement, arrangement, commitment or obligation, whether formal or informal,
whether written or unwritten and whether legally binding or not, to create,
enter into or contribute to any additional Employee Benefit Plan or to modify or
amend any existing Employee Benefit Plan. There has been no amendment,
interpretation or announcement (written or oral) by the Company or any other
Person relating to, or change in participation or coverage under, any Employee
Benefit Plan that, either alone or together with other such items or events,
could materially increase the expense of maintaining such Employee Benefit Plan
(or the Employee Benefit Plans taken as whole) above the level of expense
incurred with respect thereto for the most recent fiscal year included in the
Financial Statements. The terms of each Employee Benefit Plan permit the Company
to amend and terminate such Employee Benefit Plan at any time and for any reason
without penalty and without material liability or expense. None of the Company's
rights under any Employee Benefit Plan will be impaired in any way by this
Agreement or the consummation of the transactions contemplated by this
Agreement.
PAGE 33
3.13.2 DOCUMENTS PROVIDED
The Company has delivered to the Parent true, correct and complete copies
(or, in the case of unwritten Employee Benefit Plans, descriptions) of all
Employee Benefit Plans (and all amendments thereto), along with, to the extent
applicable to the particular Employee Benefit Plan, the following information:
(a) the three most recent annual reports (Form 5500 series) filed with respect
to such Employee Benefit Plan; (b) the most recent summary plan description, and
all summaries of modifications related thereto, distributed with respect to such
Employee Benefit Plan; (c) all contracts and agreements (and any amendments
thereto) relating to such Employee Benefit Plan, including, without limitation,
all trust agreements, investment management agreements, annuity contracts,
insurance contracts, bonds, indemnification agreements and service provider
agreements; (d) the most recent determination letter issued by the IRS with
respect to such Employee Benefit Plan; (e) the most recent annual actuarial
valuation prepared for such Employee Benefit Plan; (f) all written
communications during the last three years relating to the creation, amendment
or termination of such Employee Benefit Plan, or an increase or decrease in
benefits, acceleration of payments or vesting or other events that could result
in liability to the Company; (g) all material correspondence to or from any
governmental entity or agency relating to such Employee Benefit Plan; (h)
samples of all administrative forms currently in use with respect to such
Employee Benefit Plan, including, without limitation, all COBRA and HIPAA forms
and notices; and (i) all coverage, nondiscrimination, top heavy and Code Section
415 tests performed with respect to such Employee Benefit Plan for the last
three years.
3.13.3 COMPLIANCE
With respect to each Employee Benefit Plan: (a) such Employee Benefit Plan
was properly and legally established; (b) such Employee Benefit Plan is, and at
all times has been, maintained, administered, operated and funded in all
material respects in accordance with its terms and in compliance with all
applicable requirements of all applicable laws, statutes, orders, rules and
regulations, including, without limitation, ERISA and the Code; (c) the Company
and each other Person (including, without limitation, each fiduciary) have, at
all times and in all material respects, properly performed all of their duties
and obligations (whether arising by operation of law or by contract) under or
with respect to such Employee Benefit Plan, including, without limitation, all
reporting, disclosure and notification obligations; (d) all returns, reports
(including, without limitation, all Form 5500 series annual reports, together
with all schedules and audit reports required with respect thereto), notices,
statements, summary plan descriptions and other disclosures relating to such
Employee Benefit Plan required to be filed with any governmental entity or
agency or distributed to any Employee Benefit Plan participant have been
properly prepared and duly filed or
PAGE 34
distributed, as applicable, in a timely manner; (e) neither the Company nor any
fiduciary has engaged in any transaction or acted or failed to act in a manner
that violates the fiduciary requirements of ERISA or any other applicable law,
statute, order, rule or regulation; (f) no transaction or event has occurred or
is threatened or about to occur (including any of the transactions contemplated
in or by this Agreement) that constitutes or could constitute a prohibited
transaction under Section 406 or 407 of ERISA or under Section 4975 of the Code
for which an exemption is not available; and (g) the Company has not incurred,
and there exists no condition or set of circumstances in connection with which
the Company or the Parent could incur, directly or indirectly, any liability or
expense (except for routine contributions and benefit payments) under ERISA, the
Code or any other applicable law, statute, order, rule or regulation, or
pursuant to any indemnification or similar agreement, with respect to such
Employee Benefit Plan.
3.13.4 QUALIFICATION
Each Employee Benefit Plan that is intended to be qualified under Section
401(a) of the Code is so qualified and its related trust and/or group annuity
contract is exempt from taxation under Section 501(a) of the Code. Each such
Employee Benefit Plan (a) is the subject of an unrevoked favorable determination
letter from the IRS with respect to such Employee Benefit Plan's qualified
status under the Code, as amended by the Tax Reform Act of 1986 and all
subsequent legislation, including, without limitation, that legislation commonly
referred to as "GUST" and "EGTRRA," or (b) has remaining a period of time under
the Code or applicable Treasury regulations or IRS pronouncements in which to
request, and make any amendments necessary to obtain, such a letter from the
IRS. Nothing has occurred or is reasonably expected by the Company or any
Shareholder to occur that could adversely affect the qualification or exemption
of any such Employee Benefit Plan or its related trust or group annuity
contract. No such Employee Benefit Plan is a "top-heavy plan," as defined in
Section 416 of the Code.
3.13.5 CONTRIBUTIONS AND PREMIUM PAYMENTS
All contributions, premiums and other payments due or required to be paid
to (or with respect to) each Employee Benefit Plan have been timely paid, or, if
not yet due, have been accrued as a liability on the Financial Statements. All
income taxes and wage taxes that are required by law to be withheld from
benefits derived under the Employee Benefit Plans have been properly withheld
and remitted to the proper depository in a timely manner.
PAGE 35
3.13.6 RELATED EMPLOYERS
The Company is not, and has never been, a member of (a) a controlled group
of corporations, within the meaning of Section 414(b) of the Code, (b) a group
of trades or businesses under common control, within the meaning of Section
414(c) of the Code, (c) an affiliated service group, within the meaning of
Section 414(m) of the Code, or (d) any other group of Persons treated as a
single employer under Section 414(o) of the Code.
3.13.7 MULTIEMPLOYER AND TITLE IV PLANS
The Company does not sponsor, maintain or contribute to, and has never
sponsored, maintained or contributed to (or been obligated to sponsor, maintain
or contribute to), (a) a "multiemployer plan," as defined in Section 3(37) or
Section 4001(a)(3) of ERISA, (b) a multiple employer plan within the meaning of
Section 4063 or 4064 of ERISA or Section 413 of the Code, (c) an employee
benefit plan that is subject to Section 302 of ERISA, Title IV of ERISA of
Section 412 of the Code, or (d) a "multiple employer welfare arrangement," as
defined in Section 3(40) of ERISA.
3.13.8 POST-TERMINATION BENEFITS
Neither the Company nor any Employee Benefit Plan provides or has any
obligation to provide (or contribute toward the cost of) post-employment or
post-termination benefits of any kind, including, without limitation, death and
medical benefits, with respect to any current or former officer, employee,
agent, director or independent contractor of the Company, other than (a)
continuation coverage mandated by Sections 601 through 608 of ERISA and Section
4980B(f) of the Code and paid for entirely by such individual, (b) retirement
benefits under any Employee Benefit Plan that is qualified under Section 401(a)
of the Code, and (c) deferred compensation that is accrued as a current
liability on the Financial Statements.
3.13.9 SUITS, CLAIMS AND INVESTIGATIONS
There are no actions, suits or claims (other than routine claims for
benefits) pending or, to the knowledge of the Company or any Shareholder,
threatened with respect to (or against the assets of) any Employee Benefit Plan
nor, to the knowledge of the Company or any Shareholder, is there a basis for
any such action, suit or claim. No Employee Benefit Plan is currently under
investigation, audit or review, directly or indirectly, by the IRS, the
Department of Labor (the "DOL") or any other governmental entity or agency, and,
to the knowledge of the Company and each Shareholder, no such action is
contemplated or under consideration by the IRS, the DOL or any other
governmental entity or agency.
PAGE 36
3.13.10 PAYMENTS RESULTING FROM TRANSACTIONS
Neither the execution and delivery of this Agreement or any of the
Ancillary Documents nor the consummation of the transactions contemplated in (or
by) this Agreement or any of the Ancillary Documents (either alone or upon the
occurrence of any additional or subsequent event(s)) will (a) entitle any
individual to severance pay, unemployment compensation or any other payment from
the Company, Parent or any other Person, or otherwise increase the amount of
compensation due to (or forgive any indebtedness owed by) any individual, (b)
result in any benefit or right becoming established or increased, or accelerate
the time of payment or vesting of any benefit, under any Employee Benefit Plan,
or (c) require the Company or Parent to transfer or set aside any assets to fund
or otherwise provide for any benefits for any individual.
3.14 INTELLECTUAL PROPERTY
3.14.1 GENERAL
Section 3.14.6 of the Company Disclosure Schedule lists all Company
Intellectual Property that: (a) is owned by, licensed to or otherwise controlled
by the Company and the Company Subsidiaries; or (b) is used in, developed for
use in, or necessary to the conduct of the business of the Company and the
Company Subsidiaries as it is currently conducted or as it is contemplated to be
conducted. Section 3.14.1 of the Company Disclosure Schedule also lists all
Company Intellectual Property that has been licensed to or from third parties or
the public (in the case of open source software). Each item of Company
Intellectual Property owned or used or contemplated to be used by the Company or
the Company Subsidiaries immediately prior to the Closing Date hereunder shall
be owned or available for use by the Parent or its subsidiaries on identical
terms and conditions immediately after the Closing Date.
3.14.2 NO ENCUMBRANCES; PROTECTION
The Company and the Company Subsidiaries own, free and clear of any
Encumbrance other than pursuant to the license agreements or other contracts to
which the Company is a party, copies of which have been provided to Parent or
its counsel, and possess all right, title and interest, or hold a valid license,
in and to all Company Intellectual Property, and have taken all necessary action
to protect the Company Intellectual Property. All of the Company's rights in
Company Intellectual Property are legally valid and enforceable. The Company
Intellectual Property owned or licensed by the Company is sufficient for the
conduct of the business of the Company and the Company Subsidiaries as it is
currently conducted and as it is currently contemplated to be conducted. There
are no royalties, fees, honoraria or other payments payable by the Company or
any of the Company Subsidiaries to any Person
PAGE 37
by reason of the ownership, development, modification, use, license, sublicense,
sale, distribution or other disposition of the Company Intellectual Property
other than as set forth in Section 3.14.2 of the Company Disclosure Schedule.
The Company and the Company Subsidiaries have taken all necessary security
measures to protect the secrecy, confidentiality and value of the Company
Intellectual Property.
3.14.3 INTERNET DOMAIN NAMES
Section 3.14.3 of the Company Disclosure Schedule lists the Internet
domain names included in the Company Intellectual Property. The Company or one
of the Company Subsidiaries is the registrant and sole legal and beneficial
owner of the Internet domain names included in the Company Intellectual
Property, free of any Encumbrance. The Company or one of the Company
Subsidiaries is the registered owner of the trademarks underlying each of the
domain names included in the Company Intellectual Property. There are no pending
or, to the knowledge of the Company, threatened actions, suits, claims,
litigation or proceedings relating to the domain names included in the Company
Intellectual Property. The Company has operated the websites identified in
Section 3.14.3 of the Company Disclosure Schedule.
3.14.4 OWNERSHIP OF EMPLOYEE WORKS
Except as set forth on Section 3.14.4 of the Company Disclosure Schedule,
all personnel, including employees, agents, consultants and contractors, who
have contributed to or participated in the conception or development, or both,
of the Company Intellectual Property on behalf of the Company or any of the
Company Subsidiaries and all officers and technical employees of the Company or
the Company Subsidiaries either (i) have been a party to "work-for-hire"
arrangements or agreements with the Company or one or more of the Company
Subsidiaries in accordance with applicable law that has accorded the Company or
the Company Subsidiaries effective and exclusive ownership of all Intellectual
Property thereby arising, or (ii) have executed appropriate instruments of
assignment in favor of the Company or one or more of the Company Subsidiaries in
accordance with applicable law that has accorded the Company or one or more of
the Company Subsidiaries effective and exclusive ownership of all Company
Intellectual Property thereby arising, or (ii) have executed appropriate
instruments of assignment in favor of the Company or one or more of the Company
Subsidiaries as assignee that have conveyed to the Company or one or more of the
Company Subsidiaries effective and exclusive ownership of all Intellectual
Property arising thereby.
PAGE 38
3.14.5 NON-INFRINGEMENT
The use of the Company Intellectual Property in the conduct of the
Company's and the Company Subsidiaries' businesses has not infringed,
misappropriated or conflicted with and does not and will not infringe,
misappropriate or conflict with any Intellectual Property right of any other
Person, nor has the Company or any or any Company Subsidiary received any notice
(written or oral) or any infringement, misappropriation or violation by the
Company or any Company Subsidiary of any Intellectual Property right of any
third party. Except as disclosed in Section 3.14.5 of the Company Disclosure
Schedule, no claim (written or oral) by any Person contesting the validity or
enforceability of any Company Intellectual Property has been made, is currently
outstanding or, to the Knowledge of the Company, is threatened. To the Knowledge
of the Company, no Person is infringing or misappropriating any Intellectual
Property right of the Company or any Company Subsidiary.
3.14.6 INTELLECTUAL PROPERTY REGISTRATIONS
Section 3.14.5 of the Company Disclosure Schedule sets forth all of the
Company's patents, patent applications, copyright registrations (and
applications therefor) and trademark registrations (and applications therefor)
(collectively, the "IP Registrations") associated with the Company Intellectual
Property. The Company owns all right, title and interest, free and clear of any
Encumbrances, in and to the IP Registrations, together with any other rights in
or to any of the Company's copyrights (registered or unregistered), rights in
any trademarks (registered or unregistered), trade secret rights and other
intellectual property rights (including, without limitation, rights of
enforcement) contained or embodied in the Company Intellectual Property. The
Company has delivered to Parent complete and accurate copies of correspondence,
litigation documents, legal opinions, agreements, file histories and office
actions relating to the IP Registrations listed on Section 3.14.6 of the Company
Disclosure Schedule.
3.14.7 MAINTENANCE OF RIGHTS
Except as set forth in Section 3.14.7 of the Company Disclosure Schedule,
the Company has not conducted its business, and has not used or enforced (or, to
its knowledge, failed to use or enforce) the Company's rights in Company
Intellectual Property, in a manner that would result in the abandonment,
cancellation or unenforceability of any material item of the Company
Intellectual Property or the IP Registrations, and the Company has not taken
(or, to its knowledge, failed to take) any action that would result in the
forfeiture or relinquishment of any material Company Intellectual Property.
Except as set forth in Section 3.14.7 of the Company Disclosure Schedule, the
Company has not granted to any third party any rights or permissions to use any
of the Company Intellectual Property. To the Company's knowledge, except
PAGE 39
pursuant to reasonably prudent safeguards, (a) no third party has received any
Company confidential information relating to the Company Intellectual Property,
and (b) the Company is not under any contractual or other obligation to disclose
to any third party any Company Intellectual Property.
3.14.8 CONFIDENTIALITY
Except as set forth in Section 3.14.8 of the Company Disclosure Schedule,
(a) the Company has not disclosed any source code regarding Company Intellectual
Property to any person or entity other than an employee of or consultant to the
Company and under a written nondisclosure agreement; (b) the Company has at all
times maintained and enforced commercially reasonable procedures to protect all
confidential information relating to Company Intellectual Property; (c) neither
the Company nor any escrow agent under any existing escrow agreement to which
the Company is a party is under any contractual or other obligation to disclose
the source code or any other proprietary information included in or relating to
the Company Intellectual Property; and (d) the Company has not deposited any
source code relating to the Company Intellectual Property into any source code
escrows or similar arrangements. If, as disclosed in Section 3.14.8 of the
Company Disclosure Schedule, the Company has deposited any source code to
Company Intellectual Property into source code escrows or similar arrangements,
no event has occurred or is anticipated to occur that has or could reasonably
form the basis for a release of such source code from such escrows or
arrangements.
3.14.9 WARRANTY AGAINST DEFECTS
Except as set forth in Section 3.14.9 of the Company Disclosure Schedule,
the Company Intellectual Property is free from known material defects and
substantially conforms to the applicable specifications and documentation for
such Company Intellectual Property.
3.14.10 INDEMNIFICATION
Except as set forth on Section 3.14.10 of the Company Disclosure Schedule,
the Company has not entered into any agreement or offered to indemnify any
Person against any charge of infringement by the Company Intellectual Property,
or any other intellectual property or right. The Company has not entered into
any agreement granting any Person the right to bring any infringement action
with respect to, or otherwise to enforce, any Company Intellectual Property.
PAGE 40
3.14.11 RESTRICTIONS ON INTELLECTUAL PROPERTY
Except as set forth in Section 3.14.11 of the Company Disclosure Schedule,
to the Knowledge of the Company, none of the Company's officers, employees,
consultants, agents or representatives, during his or her term of employment or
engagement with the Company, has entered into any agreement regarding know-how,
trade secrets, assignment of rights in inventions, or prohibition or restriction
of competition or solicitation of customers, or any other similar restrictive
agreement or covenant, whether written, transmitted or oral, in connection with
Company Intellectual Property other than with the Company.
3.15 WARRANTIES AND MAINTENANCE
(a) Section 3.15(a) of the Company Disclosure Schedule sets forth a list
of all contracts, agreements or arrangements in which the Company warrants or
guarantees the performance or operation of Company Intellectual Property. Except
as set forth in Section 3.15(a) of the Company Disclosure Schedule, the
Company's warranties with respect to the services it performs for third parties
are limited to using industry standards, and the remedies for a breach of such
warranties are limited to the fees collected by the Company from such third
parties. Except as set forth in Section 3.15(a) of the Company Disclosure
Schedule, all of the Company's contracts and agreements with its customers
provide that the Company shall not be liable for consequential damages.
(b) Other than as disclosed in Section 3.15(b) of the Company Disclosure
Schedule, the Company has not, during the past three years, had any claims,
actions, suits, disputes, arbitrations, proceedings or payments involving or
relating to the breach of any representations or warranties (express or implied)
made by the Company, other than in the ordinary course of business, which
individually or in the aggregate would not have a Company Material Adverse
Effect.
(c) Section 3.15(c) of the Company Disclosure Schedule sets forth a list
of all contracts, agreements or arrangements in which the Company is obligated
to support or maintain for a third party any software, computer systems or
programs, hardware, processes, algorithms or other Company Intellectual Property
after the completion of a project for such third party.
3.16 CORPORATE BOOKS AND RECORDS
The Company has furnished to the Parent or its representatives for its
examination true and complete copies of (a) the Company's Certificate and the
Company's Bylaws of the Company as currently in effect, including all amendments
thereto, (b) the minute books of the Company, and (c) the stock transfer books
of the
PAGE 41
Company. Such stock transfer books accurately reflect all issuances and
transfers of shares of capital stock of the Company since its inception.
3.17 LICENSES, PERMITS, AUTHORIZATIONS, ETC.
Except as identified in Sections 3.1 and 3.5 of the Company Disclosure
Schedule, the Company has received all currently required governmental
approvals, authorizations, consents, licenses, orders, registrations and permits
of all agencies, whether federal, state, local or foreign. The Company has not
received any notifications of any asserted present failure by it to have
obtained any such governmental approval, authorization, consent, license, order,
registration or permit, or past and unremedied failure to obtain such items.
3.18 COMPLIANCE WITH LAWS
Except as described in Section 3.18 of the Company Disclosure Schedule,
the Company is in compliance with all federal, state, local and foreign laws,
rules, regulations, ordinances, decrees and orders applicable to it, to its
employees and consultants or to the Real Property and the Personal Property,
including, without limitation, all such laws, rules, regulations, ordinances,
decrees and orders relating to intellectual property protection, antitrust
matters, consumer protection, currency exchange, environmental protection, equal
employment opportunity, health and occupational safety, pension and employee
benefit matters, securities and investor protection matters, labor and
employment matters and trading-with-the-enemy matters. The Company has not
received any notification of any asserted present or past unremedied failure by
the Company to comply with any of such laws, rules, regulations, ordinances,
decrees or orders.
3.19 INSURANCE
Section 3.19 of the Company Disclosure Schedule sets forth a true and
correct list of all insurance policies maintained by the Company. The Company
maintains commercially reasonable levels of (a) insurance on its property
(including leased premises) that insures against loss or damage by fire or other
casualty and (b) insurance against liabilities, claims and risks of a nature and
in such amounts as are normal and customary in the Company's industry for
companies of similar size and financial condition. All insurance policies of the
Company are in full force and effect, all premiums with respect thereto covering
all periods up to and including the Closing Date have been paid, and no notice
of cancellation or termination has been received with respect to any such policy
or binder. Such policies or binders are sufficient for compliance in all
material respects with all requirements of law currently applicable to the
Company and of all agreements to which the Company is a party, will remain in
full force and effect through the respective expiration dates of such policies
or binders
PAGE 42
without the payment of additional premiums, and will not in any way be affected
by, or terminate or lapse by reason of, the transactions contemplated by this
Agreement. The Company has not been refused any insurance with respect to its
assets or operations, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance.
3.20 BROKERS OR FINDERS
Except as disclosed in Section 3.20 of the Company Disclosure Schedule,
the Company has not incurred, and will not incur, directly or indirectly, as a
result of any action taken by or on behalf of the Company, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Mergers, this Agreement or any transaction contemplated
hereby.
3.21 ABSENCE OF QUESTIONABLE PAYMENTS
Neither the Company nor, to the Company's knowledge, any director,
officer, agent, employee or other Person acting on behalf of the Company has
used any Company funds for improper or unlawful contributions, payments, gifts
or entertainment, or made any improper or unlawful expenditures relating to
political activity to domestic or foreign government officials or others. The
Company has reasonable financial controls to prevent such improper or unlawful
contributions, payments, gifts, entertainment or expenditures. Neither the
Company nor, to the Company's knowledge, any current director, officer, agent,
employee or other Person acting on behalf of the Company has accepted or
received any improper or unlawful contributions, payments, gifts or
expenditures. The Company has at all times complied, and is in compliance, in
all material respects with the Foreign Corrupt Practices Act and all foreign
laws and regulations relating to prevention of corrupt practices and similar
matters.
3.22 BANK ACCOUNTS
Section 3.22 of the Company Disclosure Schedule sets forth the names and
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which the Company maintains safe deposit boxes or
accounts of any nature and the names of all Persons authorized to draw thereon,
make withdrawals therefrom or have access thereto.
3.23 INSIDER INTERESTS
Except as set forth in Section 3.23 of the Company Disclosure Schedule, no
Shareholder, employee, consultant, officer or director of the Company has any
interest (other than as a Shareholder of the Company) (a) in any Real Property,
Personal
PAGE 43
Property, or Company Intellectual Property used in or pertaining to the business
of the Company, including, without limitation, inventions, patents, trademarks
or trade names, or (b) in any agreement, contract, arrangement or obligation
relating to the Company, its present or prospective business or its operations.
Except as set forth in Section 3.23 of the Company Disclosure Schedule, there
are no agreements, understandings or proposed transactions between the Company
and any of its officers, directors, Shareholders, affiliates or any affiliate
thereof. Except as set forth in Section 3.23 of the Company Disclosure Schedule,
the Company and its officers and directors have no interest, either directly or
indirectly, in any entity, including, without limitation, any corporation,
partnership, joint venture, proprietorship, firm, licensee, business or
association (whether as an employee, officer, director, Shareholder, agent,
independent contractor, security holder, creditor, consultant or otherwise) that
presently (i) provides any services, produces and/or sells any products or
product lines, or engages in any activity that is the same, similar to or
competitive with any activity or business in which the Company is now engaged or
proposes to engage; (ii) is a supplier, customer or creditor; or (iii) has any
direct or indirect interest in any asset or property, real or personal, tangible
or intangible, of the Company or any property, real or personal, tangible or
intangible, that is necessary or desirable for the present or currently
anticipated future conduct of the Company's business.
3.24 COMPLIANCE WITH ENVIRONMENTAL LAWS
Neither the Company nor, to the Company's knowledge, any other Person
(including, without limitation, any previous owner, lessee or sublessee) has
treated, stored or disposed of any material amounts of petroleum products,
hazardous waste, hazardous substances, pollutants or contaminants on the Real
Property, or any real property previously owned, leased, subleased or used by
the Company in the operation of its business, in violation of any applicable
foreign, federal, state or local statutes, regulations or ordinances, or common
law, in each case as in existence at or prior to the Closing. There have been no
releases of any material amounts of Hazardous Substances on, at or from any
assets or properties, including, without limitation, the Real Property, owned,
leased, subleased or used by the Company in the operation of its business during
the time such assets or properties were owned, leased, subleased or used by the
Company (or, to the Company's knowledge, prior to such time), including, without
limitation, any releases of any material amounts of Hazardous Substances in
violation of any Environmental Laws.
3.25 ACCOUNTS RECEIVABLE
Except as set forth in Section 3.25 of the Company Disclosure Schedule,
all accounts receivable of the Company reflected on the Financial Statements
represent bona fide transactions made in the ordinary course of business of the
Company and, to
PAGE 44
the Company's knowledge, are collectible in the ordinary course of business
consistent with past practices of the Company, subject to applicable reserves
and to credits in accordance with the Company's policies disclosed to Parent.
Section 3.25 of the Company Disclosure Schedule contains a complete and accurate
aging report of such accounts receivable as of the date hereof.
3.26 INFORMATION TO SHAREHOLDERS
Any information supplied by the Company to the Shareholders to consider in
connection with the Mergers, other than information supplied in writing to the
Company by Parent for such purpose, shall not, on the date any such information
is sent to the Shareholders and on the Closing Date, contain any statement
which, at such time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements made therein, not
false or misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the Mergers.
3.27 FULL DISCLOSURE
No information furnished by the Company to the Parent or its
representatives in connection with this Agreement (including, but not limited
to, the Financial Statements and all information in the Company Disclosure
Schedule and the other Exhibits hereto) or the Ancillary Documents contains any
untrue statement of a material fact, and all such information, taken as a whole,
does not omit to state a material fact necessary in order to make the statements
so made or information so delivered, taken as a whole, not misleading, except
that no representation is made as to the omission of any fact or circumstance
which affects the industry in general or the economy of the United States or
foreign countries in which the Company conducts business, in general, and which
is not, in any such case, peculiar to the Company.
3.28 DISCLAIMER REGARDING PROJECTIONS
In connection with the Parent's investigation of the Company, certain
projections and certain business plan information for succeeding fiscal years
have been made available to the Parent. The Parent acknowledges that there are
uncertainties inherent in attempting to make such projections and other
forecasts and plans, and that the Company makes no representations and
warranties with respect to such projections, forecasts or plans, except that
such projections, forecasts and plans were prepared in good faith based upon
assumptions that the Company believed to be reasonable when made.
PAGE 45
3.29 MEMBERBRIDGE ACQUISITION EXPENSES
Section 3.29 of the Company Disclosure Schedule contains a complete and
accurate list of the MemberBridge Acquisition Expenses. All of the MemberBridge
Acquisition Expenses have been paid as of or prior to the date of this Agreement
except for certain expenses either incurred prior to the date hereof but not yet
paid or expected to be incurred between the date of this Agreement and the
Closing, in an amount not to exceed an aggregate of $30,000.
ARTICLE IIIA - REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Except as is otherwise set forth with appropriate Section references in
the Shareholder Disclosure Schedule attached hereto as Schedule 3A (the
"Shareholder Disclosure Schedule"), and in order to induce the Parent to enter
into and perform this Agreement and the Ancillary Documents to be entered into
as of the Closing among the Parent and the Shareholders, each Shareholder,
individually and not jointly, represents and warrants to the Parent as of the
date of this Agreement and as of the Closing as follows in this Article IIIA:
3A.1 ACCREDITATION
Such Shareholder is (a) either alone or with the assistance of a
professional advisor, a sophisticated investor, able to fend for himself,
herself or itself in the transactions contemplated by this Agreement and the
Ancillary Documents to which such Shareholder is a party and has such knowledge
and experience in financial and business matters that he, she or it is capable
of evaluating the merits and risks of the prospective investment in the Parent
Common Stock, and (b) an "accredited investor" as defined in Regulation D of the
Securities Act. Section 3A.1 of the Shareholder Disclosure Schedule lists all
Shareholders who are accredited investors.
3A.2 OWNERSHIP
Such Shareholder owns beneficially and of record the Company Capital Stock
set forth in Section 3.3(b) of the Company Disclosure Schedule, free and clear
of any Encumbrance.
3A.3 ENFORCEABILITY; NO CONFLICTS
(a) Such Shareholder has full power or capacity (as the case may be) and
authority to execute this Agreement and the Ancillary Documents to which such
Shareholder is a party, to make the representations, warranties and covenants
herein
PAGE 46
and therein contained and to perform such Shareholder's obligations hereunder
and thereunder.
(b) This Agreement has been, and each of the Ancillary Documents to which
such Shareholder is a party at the Closing will have been, duly executed and
delivered by such Shareholder, and this Agreement is, and, when executed and
delivered by such Shareholder, each of the Ancillary Documents to which such
Shareholder is a party at the Closing will be, the legal, valid and binding
obligations of such Shareholder, enforceable in accordance with their terms,
except as to the effect, if any, of (i) applicable bankruptcy and other similar
laws affecting the rights of creditors generally and (ii) rules of law governing
specific performance, injunctive relief and other equitable remedies.
(c) The execution, delivery and performance by such Shareholder of this
Agreement and the Ancillary Documents to which he, she or it is a party, the
consummation of the transactions contemplated hereby and thereby, and the
fulfillment of the terms hereof and thereof will not (i) constitute a violation
(with or without the giving of notice or lapse of time or both) of any provision
of any law applicable to the such Shareholder; (ii) require any consent,
approval or authorization of, or notice to, any Person that has not been
obtained or made; (iii) result in a default under, an acceleration or
termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any agreement, lease, note or other restriction,
encumbrance, obligation or liability to which such Shareholder is a party or by
which he, she or it is bound; or (iv) result in the creation or imposition of
any Encumbrance on any of such Shareholder's shares of Company Capital Stock.
3A.4 CLAIMS AGAINST THE COMPANY
Such Shareholder does not have any claims against the Company other than
any rights or claims arising with respect to such Shareholder's ownership of
Company Capital Stock.
3A.5 BROKERS OR AGENTS
Except as set forth in Section 3A.5 of the Shareholder Disclosure
Schedule, such Shareholder has not employed any broker or agent in connection
with the transactions contemplated by this Agreement and agrees to indemnify the
Parent against all losses, damages or expenses relating to or arising out of
claims for fees or commission of any broker or agent employed by such
Shareholder.
PAGE 47
3A.7 INVESTMENT FOR OWN ACCOUNT
The Parent Common Stock is being acquired by such Shareholder for
investment for his, her or its respective account, not as a nominee or agent;
such Shareholder has no present intention of selling, granting any participation
in or otherwise distributing any of the Parent Common Stock in a manner contrary
to the Securities Act or to any applicable state securities or Blue Sky law, nor
does such Shareholder have any contract, undertaking, agreement or arrangement
with any person or entity to sell, transfer or grant a participation to such
person or entity with respect to any of the Parent Common Stock.
3A.8 RESIDENCY
For purposes of the application of state securities laws, such Shareholder
is a resident of the state as set forth in Section 3A.8 of the Shareholder
Disclosure Schedule.
3A.9 LITIGATION
There is no litigation, claim, proceeding or governmental investigation
pending or threatened against the Shareholder which seeks to delay or prevent
the consummation of, or which would be reasonably likely to adversely affect the
Shareholder's ability to consummate, the Mergers contemplated by this Agreement
or the Ancillary Documents.
3A.10 SEC DOCUMENTS; ACCESS TO INFORMATION
Such Shareholder has received and read the SEC Documents and fully
understands the risks of investing in the Parent Common Stock, including,
without limitation, those risks identified in the SEC Documents under the
heading "Risk Factors." Such Shareholder acknowledges receipt of the Information
Statement and Private Placement Memorandum, dated July 25, 2005, and all
exhibits thereto. Such Shareholder believes it has been given access to all
information requested by it regarding the Parent, including, in particular, the
current financial condition of the Parent and the risks associated therewith,
and has utilized such access to its satisfaction for the purpose of obtaining
information about the Parent; particularly, such Shareholder has been given
reasonable opportunity to ask questions of, and receive answers from, the Parent
concerning the Parent, its financial condition, the merits and risks of the
business of the Parent, and the terms and conditions of the Parent Common Stock
to be issued pursuant to this Agreement. Any questions raised by such
Shareholders concerning the Parent or the Mergers have been answered to the
satisfaction of such Shareholder. Such Shareholder represents that such
Shareholder is satisfied that such Shareholder has received all material
information necessary and
PAGE 48
sufficient for such Shareholder to make an informed decision about entering into
this Agreement. Such Shareholder's decision to enter into the Merger Agreement
and the transactions contemplated hereby is based principally on the
Shareholder's desire to exchange such Shareholder's holdings in the Company for
the Merger Consideration described herein, which such Shareholder considers to
be a fair and reasonable price.
3A.11 INDEMNITY
Such Shareholder makes the representations and warranties contained in
this Article IIIA in such Shareholder's capacity as a Shareholder only, and any
rights of contribution or indemnity contained in the Company's Certificate or
Bylaws pertaining to such Shareholder when acting in a capacity other than as a
Shareholder shall not apply to the representations and warranties contained in
this Article IIIA.
3A.12 RESTRICTED SECURITIES
Such Shareholder realizes that the shares of Parent Common Stock issued
pursuant to this Agreement have not been registered under the Act, are
characterized under the Act as "restricted securities," the stock certificates
representing such shares will have legends to that effect and, therefore, cannot
be sold or transferred unless they are subsequently registered under the Act or
an exemption from such registration is available. In this connection, such
Shareholder represents that it is familiar with Rule 144 of the SEC, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
3A.13 TAX CONSEQUENCES
Such Shareholder has read this Agreement, including Section 2.7, and fully
understands the tax consequences arising thereunder, including that, if the
Closing Date Share Price is less than 90% of the Share Price, the transactions
contemplated by this Agreement will be fully taxable to such Shareholder. Such
Shareholder has had the opportunity to consult with his, her or its tax advisors
and is not relying on the Parent or the Company for any tax advice whatsoever.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PARENT
In order to induce the Company and Shareholders to enter into and perform
this Agreement and the Ancillary Documents, the Parent represents and warrants
to the Company and Shareholders as follows in this Article IV:
4.1 ORGANIZATION
The Parent is a corporation duly organized and validly existing under the
laws of the State of Oregon. The Parent has all requisite corporate power and
authority to
PAGE 49
own, operate and lease its properties and assets, to carry on its business as
now conducted, and as proposed to be conducted and to enter into and perform its
obligations under this Agreement and the Ancillary Documents to which the Parent
is a party, and to consummate the transactions contemplated hereby and thereby.
The Parent is duly qualified and licensed as a foreign corporation to do
business and is in good standing in each jurisdiction in which the character of
properties occupied, owned or held under lease by the Parent or the nature of
the business conducted by the Parent makes such qualification or licensing
necessary, except where the failure to be so qualified or in good standing would
not have a Parent Material Adverse Effect. The Parent has full corporate power
and authority to execute, deliver and perform this Agreement and the Ancillary
Documents to which it is a party, and to carry out the transactions contemplated
hereby and thereby.
4.2 ENFORCEABILITY
The Parent has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement and each of the
Ancillary Documents to which it is a party and each of the certificates,
instruments and documents executed or delivered by it pursuant to the terms of
this Agreement. All corporate action on the part of the Parent and its officers,
directors and shareholders necessary for the authorization, execution, delivery
and performance of this Agreement and the other applicable Ancillary Documents
to which the Parent is a party, the consummation of the Mergers and the
performance of all of its obligations under this Agreement and the other
applicable Ancillary Documents to which the Parent is a party has been taken or
will be taken prior to the Closing Date. This Agreement has been, and each of
the Ancillary Documents to which the Parent is a party will have been at the
Closing, duly executed and delivered by the Parent, and this Agreement is, and,
when executed and delivered by the Parent, each of the Ancillary Documents to
which the Parent is a party will be at the Closing, a legal, valid and binding
obligation of the Parent, enforceable against the Parent in accordance with its
terms, except as to the effect, if any, of (a) applicable bankruptcy and other
similar laws affecting the rights of creditors generally and (b) rules of law
governing specific performance, injunctive relief and other equitable remedies.
4.3 SECURITIES
The Parent Common Stock to be issued pursuant to this Agreement has been,
or will be prior to the Closing Date, duly reserved and authorized for issuance,
and such Parent Common Stock, when issued and delivered to the Shareholders
pursuant to this Agreement, shall be validly issued, fully paid and
nonassessable and, assuming the accuracy of the representations and warranties
contained in Article IIIA, issued in compliance with applicable federal and
state securities laws.
PAGE 50
4.4 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS
The execution, delivery and performance of this Agreement and the
Ancillary Documents by the Parent and the consummation by it of the transactions
contemplated hereby and thereby will not (a) constitute a violation (with or
without the giving of notice or lapse of time, or both) of any provision of law
or any judgment, decree, order, regulation or rule of any court or other
governmental authority applicable to the Parent, except for such violations
which would not, both individually and in the aggregate, have a Parent Material
Adverse Effect; (b) require any consent, approval or authorization of, or
declaration, filing or registration with, any Person, except (i) compliance with
applicable securities laws, and (ii) such consents, approvals, authorizations,
declarations, filings and registrations the failure of which to obtain or effect
would not, both individually and in the aggregate, have a Parent Material
Adverse Effect; (c) result in a default (with or without the giving of notice or
lapse of time, or both) under, or acceleration or termination of, or the
creation in any party of the right to accelerate, terminate, modify or cancel,
any agreement, lease, note or other restriction, encumbrance, obligation or
liability to which the Parent is a party or by which it is bound or to which any
assets of the Parent are subject, except for such defaults, accelerations,
terminations or creations of such rights which would not, both individually and
in the aggregate, have a Parent Material Adverse Effect; or (d) conflict with or
result in a breach of or constitute a default under any provision of the
Articles of Incorporation or Bylaws of the Parent.
4.5 CAPITALIZATION
As of June 30, 2005, the authorized capital stock of the Parent consists
of 150,000,000 shares of the Parent Common Stock, of which 38,961,551 shares
were issued and outstanding and 1,835,609 of which were reserved for future
issuance to employees pursuant to Parent's stock option plan, 250,000 of which
were reserved for issuance under a warrant, 101,030 of which were reserved for
issuance under the Parent's Employee Stock Purchase Plan, and 40,000,000 shares
of preferred stock, no par value per share, none of which is issued or
outstanding. Such issued and outstanding shares of the Parent Common Stock are
validly issued, fully paid and nonassessable.
4.6 SEC DOCUMENTS
The Parent has furnished the Shareholders with true and complete copies of
its Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, its
Annual Reports on Form 10-K for the fiscal years ended December 31, 2004 and
December 31, 2003, the most recent Proxy Statement on Schedule 14A, and any
Reports on Form 8-K filed by Parent since March 31, 2005 (collectively, the "SEC
PAGE 51
Documents"). As of their respective filing dates, each of the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
the rules and regulations of the SEC promulgated thereunder.
4.7 ABSENCE OF CERTAIN CHANGES
Since the date of the financial statements included in the SEC Documents,
there has not been any change which by itself or in conjunction with all other
such changes, has had or could reasonably be expected to have a Parent Material
Adverse Effect, except as disclosed in the SEC Documents.
4.8 FULL DISCLOSURE
No information furnished by the Parent to the Company, the Shareholders or
their respective representatives in connection with this Agreement or the
Ancillary Documents (including, without limitation, the information contained in
the SEC Documents) contains any untrue statement of a material fact, taken as a
whole, or omits to state a material fact necessary in order to make the
statements so made or information so delivered not materially misleading. For
purposes of this Section 4.8, the information furnished by the Parent does not
include any reports or analyses prepared by third parties (e.g. analysts),
regardless of whether or not the Parent provided such reports and analyses to
the Shareholders, the Company or their respective representatives at their
request.
4.9 SHAREHOLDERS CONSENT
No consent or approval of the shareholders of the Parent is required or
necessary for the Parent to enter into this Agreement or the Ancillary Documents
to which it is a party or to consummate the transactions contemplated hereby and
thereby.
4.10 BROKERS OR FINDERS
The Parent has not incurred, and will not incur, directly or indirectly,
as a result of any action taken by or on behalf of the Parent, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Mergers, this Agreement, or any transaction contemplated
hereby and agrees to indemnify the Shareholders against all losses, damages or
expenses relating to or arising out of claims for fees or commission of any
broker or agent employed by the Parent.
4.11 LITIGATION
There is no material litigation, claim, proceeding or governmental
investigation pending or threatened against the Parent, other than as disclosed
in the SEC Documents, and there is no litigation, claim, proceeding, or
governmental
PAGE 52
investigation pending or threatened against Parent that seeks to delay or
prevent the consummation of, or which would be reasonably likely to adversely
affect the Parent's ability to consummate, the Mergers.
4.12 COMPLIANCE WITH LAWS
The Parent is in material compliance with all federal, state, local and
foreign laws, rules, regulations, ordinances, decrees and orders applicable to
it, to its employees and consultants or to its properties, including, without
limitation, all such laws, rules, regulations, ordinances, decrees and orders
relating to intellectual property protection, antitrust matters, consumer
protection, currency exchange, environmental protection, equal employment
opportunity, health and occupational safety, pension and employee benefit
matters, securities and investor protection matters, labor and employment
matters and trading-with-the-enemy matters, except as disclosed in the SEC
Documents, and except where the failure of the Parent to so comply would not
have a Parent Material Adverse Effect. The Parent has not received any
notification of any asserted present or past unremedied failure by the Parent to
comply with any of such laws, rules, regulations, ordinances, decrees or orders,
other than as disclosed in the SEC Documents.
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARENT
The obligations of the Parent to perform and observe the covenants,
agreements and conditions hereof to be performed and observed by it at or before
the Closing shall be subject to the satisfaction of the following conditions,
which may be expressly waived only in writing signed by the Parent:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company and the Shareholders
contained herein and in the Ancillary Documents shall have been true and correct
when made and, except (a) for changes contemplated by this Agreement and the
Ancillary Documents and (b) to the extent that such representations and
warranties speak as of an earlier date, shall be true and correct as of the
Closing Date as though made on that date.
5.2 PERFORMANCE OF AGREEMENTS
The Company shall have performed in all material respects all obligations
and agreements and complied in all material respects with all covenants
contained in this Agreement or any Ancillary Agreement to be performed and
complied with by it at or prior to the Closing.
PAGE 53
5.3 APPROVALS AND CONSENTS
All transfers of permits or licenses and all approvals of or notices to
public agencies, federal, state, local or foreign, the granting or delivery of
which is necessary for the consummation of the transactions contemplated hereby
and by the Ancillary Documents, or for the continued operation of the Company as
now operated, including landlord consents, shall have been obtained, and all
waiting periods specified by law shall have passed. All consents, approvals and
notices set forth on Schedule 5.3 shall have been obtained or delivered.
5.4 SECRETARY'S CERTIFICATE
The Parent shall have received a certificate of the Secretary of the
Company, in form and substance satisfactory to the Parent, as to the
authenticity and effectiveness of the actions of the Board of Directors and
Shareholders of the Company authorizing the Mergers and the transactions
contemplated by this Agreement and the Ancillary Documents. Copies of the
Company's Certificate, certified by the New York Secretary of State, and Bylaws,
certified by the Secretary of the Company, shall be attached to such
certificate.
5.5 OFFICER'S CERTIFICATE
The Parent shall have received a certificate of the Chief Executive
Officer of the Company that the conditions set forth in Sections 5.1, 5.2, 5.3,
5.9 and 5.10 have been satisfied.
5.6 NONFOREIGN AFFIDAVIT
The Parent shall have received from the Company, pursuant to Section 1445
of the Code, a Foreign Investment in Real Property Tax Act Affidavit,
substantially in the form of Exhibit 5.6.
5.7 COMPLIANCE WITH LAWS
The consummation of the transactions contemplated by this Agreement and
the Ancillary Documents shall be legally permitted by all laws and regulations
to which the Parent or the Company is subject.
5.8 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect which
enjoins, restrains, conditions or prohibits consummation of the transactions
contemplated by this Agreement or any Ancillary Document, and no litigation,
investigation or administrative proceeding shall be pending or threatened which
would enjoin, restrain,
PAGE 54
condition or prevent consummation of the transactions contemplated by this
Agreement or any Ancillary Document.
5.9 TERMINATION OF CERTAIN AGREEMENTS
Any and all rights of refusal, co-sale rights and registration rights, if
any, for the benefit of the holders of Company Capital Stock or Stock Purchase
Rights of the Company shall have been terminated or shall terminate upon
consummation of the Mergers.
5.10 EXERCISE OF STOCK PURCHASE RIGHTS; CONVERSION OF CONVERTIBLE
SECURITIES
Any and all Stock Purchase Rights and any and all securities and notes
convertible at any time into Company Capital Stock, vested and unvested, and
regardless of restrictions on exercise or conversion, shall have been exercised
or terminated prior to the Closing Date.
5.11 NONDISCLOSURE AGREEMENTS
The Company shall have delivered to the Parent true and correct copies of
all Nondisclosure Agreements entered into by employees or officers of or
consultants to the Company after the date hereof, and no such Nondisclosure
Agreement shall contain any exceptions to the terms thereof, including, without
limitation, to the exclusive ownership by the Company of all Company-related
inventions and intellectual property developments.
5.12 CONSULTING AGREEMENT AND NON-COMPETITION AGREEMENT
Xxxx Xxxxxxxxxx shall have executed and delivered the Consulting Agreement
and the Non-Competition Agreement.
5.13 SECURITIES LAWS
The Parent shall have received all permits and other authorizations under
applicable federal and state securities or Blue Sky Laws to issue the Aggregate
Stock Consideration pursuant to the Mergers.
5.14 LEGAL OPINION OF COUNSEL TO COMPANY
The Parent shall have received an opinion from the counsel to Company in
substantially the form attached as Exhibit 5.14.
PAGE 55
5.15 RESIGNATION OF OFFICERS AND DIRECTORS
The Parent shall have received a written resignation from each of the
officers and directors of the Company and the Company Subsidiaries and from
Xxxxx Xxxxx as General Counsel of the Company, each effective as of the
Effective Time and in a form acceptable to the Parent.
5.16 COMPANY SHAREHOLDER APPROVAL
The Company Shareholder Approval shall have been obtained.
ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS
The obligations of the Company and the Shareholders to perform and observe
the respective covenants, agreements and conditions hereof to be performed and
observed by them at or before the Closing shall be subject to the satisfaction
of the following conditions, which may be expressly waived only in writing
signed by the Company and the Shareholder Representative, on behalf of the
Shareholders.
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Parent contained herein and in
the Ancillary Documents shall have been true and correct when made and, except
for (a) changes contemplated by this Agreement and the Ancillary Documents and
(b) to the extent that such representations and warranties speak as of an
earlier date, shall be true and correct as of the Closing Date as though made on
that date.
6.2 PERFORMANCE OF AGREEMENTS
The Parent shall have performed in all material respects all obligations
and agreements and complied in all material respects with all covenants
contained in this Agreement or any Ancillary Document to be performed and
complied with by it at or prior to the Closing.
6.3 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect which
enjoins, restrains, conditions or prohibits consummation of the transactions
contemplated by this Agreement or any Ancillary Document, and no litigation,
investigation or administrative proceeding shall be pending or threatened which
would enjoin, restrain, condition or prevent consummation of the transactions
contemplated by this Agreement or any Ancillary Document.
PAGE 56
6.4 COMPLIANCE WITH LAWS
The consummation of the transactions contemplated by this Agreement and
the Ancillary Documents shall be legally permitted by all laws and regulations
to which the Parent or the Company is subject.
6.5 SECRETARY'S CERTIFICATES
The Company shall have received a certificate of the Secretary of the
Parent, in form and substance satisfactory to the Company, as to the
authenticity and effectiveness of the actions of the Board of Directors of the
Parent authorizing the Mergers and the transactions contemplated by this
Agreement and the Ancillary Documents. Copies of the Parent's Articles of
Incorporation, certified by the Oregon Secretary of State, and Bylaws, certified
by the Secretary of the Parent, shall be attached to such certificate.
6.6 SECURITIES LAWS
The Parent shall have received all permits and other authorizations under
applicable federal and state securities or Blue Sky Laws to issue the Aggregate
Stock Consideration pursuant to the Mergers.
6.7 LEGAL OPINION OF COUNSEL TO PARENT
The Company shall have received an opinion of counsel to the Parent
substantially in the form attached as Exhibit 6.7.
6.8 OFFICER'S CERTIFICATE
The Company shall have received a certificate of the Chief Executive
Officer of the Parent that the conditions set forth in Sections 6.1 and 6.2 have
been satisfied.
6.9 CONSULTING AGREEMENT AND NON-COMPETITION AGREEMENT
The Parent shall have executed and delivered the Consulting Agreement and
the Non-Competition Agreement.
6.10 COMPANY SHAREHOLDER APPROVAL
The Company Shareholder Approval shall have been obtained.
PAGE 57
ARTICLE VII - COVENANTS
Between the date of this Agreement and the Closing Date, or such later
period as set forth in Sections 7.5, 7.6, 7.7, 7.8, 7.9 and 7.10, the parties
covenant and agree as set forth in this Article VII.
7.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGERS
Unless the Parent shall otherwise agree in writing, the business of the
Company shall be conducted in and only in, and the Company shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice and in accordance with applicable law; and the Company shall
use its best efforts to preserve intact the business organization of the
Company, to keep available the services of the current officers, employees and
consultants of the Company and to preserve the current relationships of the
Company with, and the goodwill of, customers, suppliers and other Persons with
which the Company has significant business relations. By way of amplification
and not limitation, except as otherwise contemplated by this Agreement, the
Company shall not, between the date of this Agreement and the Closing Date,
directly or indirectly do, or propose to do, any of the following without the
prior written consent of the Parent:
(a) amend or otherwise change the Company's Certificate or Bylaws;
(b) except for the issuance of shares of Company Capital Stock upon
the exercise or conversion of currently outstanding Stock Purchase Rights or the
issuance of shares of Company Common Stock upon the exercise of Options, issue,
sell, contract to issue or sell, pledge, dispose of, grant, encumber or
authorize the issuance, sale, pledge, disposition, grant or Encumbrance of (i)
any assets of the Company, except in the ordinary course of business and in a
manner consistent with past practice, (ii) any shares of capital stock of any
class of the Company, or (iii) any options, warrants, convertible securities or
other rights of any kind to acquire any shares of such capital stock, or any
other ownership interest (including, without limitation, any phantom interest)
of the Company;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock or other securities, property or otherwise,
with respect to any of its capital stock;
(d) reclassify, combine, split, subdivide, redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock or other
securities;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation, partnership,
other
PAGE 58
business organization or division thereof or any material amount of assets; (ii)
incur any Debt or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, any obligations of any Person, or make any loans or
advances, except in the ordinary course of business and consistent with past
practice; (iii) enter into any contract or agreement other than in the ordinary
course of business, consistent with past practice; (iv) authorize any single
capital expenditure which is in excess of $10,000 or capital expenditures which
are, in the aggregate, in excess of $25,000 for the Company taken as a whole;
(v) enter into any agreement in which the obligation of the Company exceeds
$10,000 or which shall not terminate or be subject to termination for
convenience within 30 days following execution; (vi) license any Company
Intellectual Property; or (vii) enter into or amend any contract, agreement,
commitment or arrangement with respect to any matter set forth in this paragraph
(e);
(f) enter into or amend any employment, consulting or agency
agreement, or increase the compensation payable or to become payable to any of
its officers, employees, agents or consultants, or grant any severance or
termination pay to, or enter into any employment or severance agreement with,
any director, officer, employee or consultant of the Company, or establish,
adopt, enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance, Employee Benefit Plan
or other plan, agreement, trust, fund, policy or arrangement for the benefit of
any director, officer, employee or consultant; provided, however, that the
Company may use proceeds from the exercise of Options to pay bonuses or other
extraordinary payments;
(g) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect to
accounting methods, policies or procedures (including, without limitation,
procedures with respect to the payment of accounts payable and collection of
accounts receivable);
(h) file an amended Tax Return, enter into any closing agreement,
settle any Tax claim or assessment relating to the Company or any company
Subsidiary, surrender any right to claim a refund or credit of Taxes, consent to
any extension or waiver of the limitation period applicable to any Tax claim or
assessment relating to the Company or any Company Subsidiary, or take any other
similar action, including making any election with respect to any Taxes,
relating to the filing of any Tax Return or the payment of any Tax;
(i) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the
PAGE 59
payment, discharge or satisfaction of trade payables in the ordinary course
of business and consistent with past practice;
(j) take any action that would or is reasonably likely to result in
any of the representations or warranties of the Company set forth in this
Agreement being untrue in any material respect, or in any covenant of the
Company set forth in this Agreement being breached, or in any of the conditions
to the Mergers specified in Article V hereof not being satisfied; or
(k) agree to do any of the foregoing.
7.2 ACCESS TO INFORMATION; CONFIDENTIALITY
Subject to the terms of any confidentiality or similar agreement
previously entered into by the parties (collectively, the "Confidentiality
Agreement"), from the date hereof to the Closing Date, the Company shall, and
shall cause the officers, directors, employees and agents of the Company to,
afford the officers, employees and agents of the Parent access at all reasonable
times to the officers, employees, agents, properties, offices, plants and other
facilities, books and records of the Company and shall furnish the Parent with
all financial, operating and other data and information as the Parent, through
its officers, employees or agents, may reasonably request. Until the Closing
Date, the Parent shall not visit the Company's facilities or contact the
Company's customers, software vendor partners or employees (other than the
Company's senior management, as identified by Xxxx Xxxxxxxxxx) unless and until
the Parent receives the written approval of the Company, such approval not to be
unreasonably withheld or delayed. From the date hereof until the Closing Date,
the Company shall provide the Parent with monthly and other financial statements
of the Company as they become available internally at the Company, all of which
financial statements shall fairly present the financial position and results of
operations of the Company as of the dates and for the periods therein specified.
No investigation pursuant to this Section 7.2 shall affect any representation or
warranty in this Agreement of any party hereto or any condition to the
obligations of the parties hereto. The parties shall continue to comply with and
to perform their respective obligations under the Confidentiality Agreement.
7.3 NO ALTERNATIVE TRANSACTIONS
Unless this Agreement shall have been terminated in accordance with its
terms, the Company and the Shareholders shall not, directly or indirectly,
through any officer, director, agent or otherwise, solicit, initiate or
encourage the submission of any proposal or offer from any Person relating to
any acquisition or purchase of all or any material portion of the assets of, or
any equity interest in, the Company or any business combination with the Company
or participate in any negotiations regarding,
PAGE 60
or furnish to any other Person any information with respect to, or otherwise
cooperate or negotiate in any way with, or assist or participate in, facilitate
or encourage, any effort or attempt by any other Person to do or seek any of the
foregoing. The Company and the Shareholders shall notify the Parent promptly if
any such proposal or offer, or any inquiry or contact with any Person with
respect thereto, is made and shall, in any such notice to the Parent, indicate
in reasonable detail the identity of the Person making such proposal, offer,
inquiry or contact and the terms and conditions of such proposal, offer, inquiry
or contact. The Company and the Shareholders agree not to release any third
party from, or waive any provision of, any confidentiality or standstill
agreement (e.g. agreement not to invest in or seek change of control of the
Company) to which the Company is a party.
7.4 NOTIFICATION OF CERTAIN MATTERS
Each party shall give prompt notice to the other parties of (a) the
occurrence or nonoccurrence of any event which would be likely to cause any
representation or warranty made by such party contained in this Agreement to be
untrue or inaccurate in any material respect and (b) any material failure by
such party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such party hereunder; provided, however, that the
delivery of any notice pursuant to this Section 7.4 shall not limit or otherwise
affect the rights or remedies available to the parties hereunder.
7.5 FURTHER ACTION; COMMERCIALLY REASONABLE EFFORTS
Upon the terms and subject to the conditions hereof, each of the parties
hereto shall use commercially reasonable efforts to take, or cause to be taken,
all appropriate action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereby, including, without limitation,
using its commercially reasonable efforts to obtain all waivers, licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and of other Persons as are necessary for the
consummation of the transactions contemplated hereby and to fulfill the
conditions to the Mergers. In case at any time after the Closing Date any
further action is necessary or desirable to carry out the purposes of this
Agreement or the Ancillary Documents, each party to this Agreement shall use
commercially reasonable efforts to promptly take all such action. After the
Closing, each party hereto, at the request of the other parties, will take any
further actions necessary or desirable to carry out the purposes of this
Agreement or any Ancillary Document, to vest in the Parent full title to all
properties, assets and rights of the Company, and to effect the issuance of the
Parent Common Stock to the Shareholders pursuant to the terms and conditions
hereof.
PAGE 61
7.6 PUBLICITY
No party to this Agreement shall make, or cause to be made, any press
release or public announcement or otherwise communicate with any news media in
respect of this Agreement or the transactions contemplated hereby without the
prior written consent of the Parent, which consent shall not be unreasonably
withheld (and the Parent, the Company and the Shareholder Representative, on
behalf of the Shareholders, shall cooperate as to the timing and content of any
such press release, announcement or communication), except as such release,
announcement or communication may be required by governmental authorities,
regulations, a court of competent jurisdiction or applicable law (including,
without limitation, securities laws affecting the Parent's public disclosure
obligations), in which case the party releasing the information shall use its
best efforts to provide the information contained therein to the Parent, the
Company and the Shareholder Representative in advance of its disclosure.
7.7 BLUE SKY LAWS
The Parent shall use reasonable efforts to comply with the securities and
blue sky laws of all jurisdictions which are applicable to the issuance of the
Parent Common Stock in connection with the Mergers, but shall not be obligated
to file a registration statement or similar filing or application with respect
to such Parent Common Stock. The Company and the Shareholders shall use
reasonable efforts to assist the Parent as may be necessary to comply with the
securities and Blue Sky Laws of all jurisdictions which are applicable in
connection with the issuance of the Parent Common Stock in connection with the
Mergers.
7.8 REPAYMENT OF DEBT, RELEASES OF LIENS
Prior to the Closing Date, the Company shall pay all Debt except as set
forth on Schedule 7.8 (the "Permitted Debt") and cause any lenders under such
Debt to release all Encumbrances with respect to any of the Company's assets.
7.9 PIGGYBACK REGISTRATION
(a) The Parent shall notify the Shareholders in writing at least fifteen
(15) days prior to the filing of any registration statement under the Securities
Act for purposes of a public offering of securities of the Parent (including,
but not limited to, registration statements relating to secondary offerings of
securities of the Parent, but excluding registration statements relating to
employee benefit plans or with respect to corporate reorganizations or other
transactions under Rule 145 of the Securities Act) and will afford each
Shareholder, subject to the terms of this Section 7.9, an opportunity to include
in such registration statement all or part of such Piggyback
PAGE 62
Registrable Shares held by such Shareholder. Each Shareholder desiring to
include in any such registration statement all or any part of the Piggyback
Registrable Shares held by it (a "Piggyback Registering Shareholder") shall,
within fifteen (15) days after the above-described notice from the Parent, so
notify the Parent in writing. Such notice shall state the intended method of
disposition of the Piggyback Registrable Shares by such Shareholder. If the
registration statement under which the Parent gives notice under this paragraph
(a) is for an underwritten offering, the Parent shall so advise the Shareholder.
In such event, the right of any such Piggyback Registering Shareholder to be
included in a registration pursuant to this paragraph (a) shall be conditioned
upon such Shareholder's participation in such underwriting and the inclusion of
such Shareholder's Piggyback Registrable Shares in the underwriting to the
extent provided herein. All Piggyback Registering Shareholders proposing to
distribute their Piggyback Registrable Shares through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Parent. If the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be included
in the underwriting shall be allocated, first, to the Parent; second, to the
holders of shares of Parent Common Stock that are contractually entitled to
include such shares in such registration statement based on agreements in
existence prior to the date hereof in accordance with the terms and cut-back
provisions of such agreements; third, to the Piggyback Registering Shareholders
on a pro rata basis based on the total number of shares of Parent Common Stock
held by such Piggyback Registering Shareholders; and fourth, to any other
shareholder of the Company (other than a Shareholder) on a pro rata basis. No
such reduction shall reduce the securities being offered by the Parent for its
own account to be included in the registration and underwriting. If any
Piggyback Registering Shareholder disapproves of the terms of any such
underwriting, such Piggyback Registering Shareholder may elect to withdraw
therefrom by written notice to the Parent and the underwriter, delivered at
least ten (10) Business Days prior to the effective date of the registration
statement. Any Piggyback Registrable Shares excluded or withdrawn from such
underwriting shall be excluded and withdrawn from the registration. For any
Shareholder which is a partnership or corporation, the partners, retired
partners and shareholders of such Shareholder, or the estates and family members
of any such partners and retired partners and any trusts for the benefit of any
of the foregoing person shall be deemed to be a single Shareholder, and any pro
rata reduction with respect to such Shareholder shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such Shareholder as defined in this sentence. The
Parent shall have the right to terminate or withdraw any registration initiated
by it under this paragraph (a) prior to the effectiveness of such registration
whether or not any Shareholder has elected to include securities in such
registration. All rights of the Shareholders and
PAGE 63
obligations of the Parent under this paragraph (a) terminate upon the second
anniversary of the Closing Date.
(b) Notwithstanding the forgoing,
(i) The Parent shall not be required to conduct an underwritten
offering.
(ii) The Parent shall have no obligation to include the Piggyback
Registrable Shares owned by any Shareholder in a Registration Statement
unless and until such Shareholder has furnished the Parent with all
information and statements about or pertaining to such Shareholder in such
reasonable detail and on such timely basis as is reasonably deemed by the
Parent to be necessary or appropriate for the preparation of the
Registration Statement.
(iii) In connection with the filing of a Registration Statement, the
Parent shall, subject to the other provisions of this Section 7.9:
(1) use its reasonable best efforts to cause the Registration
Statement to become effective as soon as practicable after the
filing thereof;
(2) prepare and file with the SEC as promptly as is
commercially reasonably practicable such amendments and
supplements to the Registration Statement and the prospectus
contained therein as may be necessary to keep such
Registration Statement effective and to comply with the
provisions of the Securities Act until the earlier to occur of
(A) six months after the effective date of such Registration
Statement or the first anniversary of the Closing Date,
whichever occurs later, or (B) the completion by the Piggyback
Registering Shareholders of the distribution described in such
Registration Statement;
(3) furnish to the Shareholders the number of copies of such
Registration Statement, each amendment and supplement thereto
and each prospectus contained therein as the Shareholders may
reasonably request;
(4) use reasonable efforts to register or qualify such shares
under the state blue sky or securities laws ("Blue Sky Laws")
of such jurisdictions as the Shareholders reasonably request
(and to keep such registrations and qualifications effective
for so long as the Registration Statement is maintained
effective), and to do any
PAGE 64
and all other acts and things that may be reasonably necessary
or advisable to enable the Shareholders to consummate the
disposition of such shares in such jurisdictions; provided,
however, that the Parent will not be required to do any of the
following: (i) qualify generally to do business in any
jurisdiction where it would not be required but for this
Section 7.9, (ii) subject itself to taxation in any such
jurisdiction, or (iii) file any general consent to service of
process in any such jurisdiction;
(5) promptly notify the Shareholders at any time during the
period that the Parent is required to keep the Registration
Statement effective, of the occurrence of any event as a
result of which such Registration Statement or the prospectus
contained therein contains an untrue statement of a material
fact or omits any fact necessary to make the statements
therein in the light of the circumstances under which they
were made, not misleading, and prepare a supplement or
amendment to the Registration Statement or such prospectus so
that, as thereafter delivered to the Parents of such shares,
the Registration Statement will not contain an untrue
statement of a material fact or omit to state any fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(6) use commercially reasonable efforts to cause all such
shares to be listed on the Nasdaq National Market System or
such other exchanges on which shares of Parent Common Stock
are then traded; and
(7) have the right to defer such filing for a period of up to
ninety (90) days, or such shorter period as may be required,
if the Parent shall furnish to the Shareholders a certificate
signed by the Chairman of the Board of Directors of the Parent
stating that the Board of Directors of the Parent has
determined that (a) a material event has occurred or is likely
to occur that has not been publicly disclosed and if disclosed
could have a material adverse effect on the Parent or (b) the
registration could materially interfere with any public
offering of primary shares issued by the Parent or of
secondary shares being registered pursuant to any registration
rights in existence on the date of this Agreement,
acquisition, disposition, corporate reorganization or other
material transaction involving the Parent or its subsidiaries.
PAGE 65
(c) If, pursuant to this Section 7.9, the shares of Parent Common
Stock owned by the Shareholders are included in a registration statement, then
the Shareholders shall pay all transfer taxes, if any, relating to the sale of
the shares of Parent Common Stock and the fees and expenses of its own counsel.
(d) Except for the fees and expenses specified in paragraph (c) of
this Section 7.9 and except as provided in this paragraph (d), the Parent shall
pay all expenses incident to the registration and to the Parent's performance of
or compliance with this Section 7.9, including, without limitation, all
registration and filing fees, fees and expenses of compliance with Blue Sky
Laws, printing expenses, messenger and delivery expenses, and fees and expenses
of counsel for the Parent and all independent certified public accountants and
other persons retained by the Parent.
(e) In the event that the shares of Piggyback Registrable Shares
owned by the Shareholders are sold by means of a registration statement pursuant
to this Section 7.9, each Shareholder (for the purposes of this paragraph (e),
individually the "Registration Indemnifying Person") agrees to indemnify and
hold harmless the other Shareholders, the Parent, each of the Parent's and such
other Shareholders' officers and directors, and each Person, if any, who
controls or may control the Parent or such other Piggyback Registering
Shareholders within the meaning of the Securities Act (for the purposes of this
paragraph (e), the other Piggyback Registering Shareholders, the Parent, such
officers and directors, and any such other Persons being referred to
individually as a "Registration Indemnified Person") from and against all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs, and expenses, including, without limitation, interest,
penalties, and reasonable attorneys' fees and disbursements, asserted against,
resulting to, imposed upon, or incurred by such Registration Indemnified Person,
directly or indirectly (collectively, referred to for purposes of this paragraph
(e) and the corresponding provision of paragraph (f) below in the singular as a
"Registration Claim"), based upon, arising out of, or resulting from (1) any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement (including any preliminary or final prospectus contained
therein or any amendments or supplements thereto) or any omission or alleged
omission to state therein a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading, or (2) any violation or alleged violation of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law in connection with such registration and sale of securities, in
each case to the extent (but only to the extent) that such Registration Claim is
based upon, arises out of or results from any untrue statement or omission based
upon information furnished to the Parent by such Piggyback Registering
Shareholder in a written document for use in connection with the registration
statement; and each such Piggyback Registering Shareholder will pay,
PAGE 66
as incurred, any legal or other expenses reasonably incurred by any Person
intended to be indemnified pursuant to this paragraph (e) in connection with
investigating or defending any such Registration Claim.
(f) The Parent (for the purposes of this paragraph (f), the
"Registration Indemnifying Person") agrees to indemnify and hold harmless each
Piggyback Registering Shareholder participating in the distribution of shares of
Parent Common Stock pursuant to a registration statement, (for the purposes of
this paragraph (f), the Piggyback Registering Shareholders and any such other
persons also being referred to individually as an "Registration Indemnified
Person") from and against all Registration Claims based upon, arising out of, or
resulting from (x) any untrue statement or alleged untrue statement of a
material fact contained in the registration statement or any omission or alleged
omission to state therein a material fact necessary in order to make the
statement made therein, in the light of the circumstances under which they were
made, not misleading, or (y) any violation or alleged violation of the
Securities Act or the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act or the Exchange Act or any state
securities law in connection with such registration and sale of securities,
provided that Parent will not be liable in any such case to the extent that any
such Registration Claim arises out of or results from any untrue statement or
omission based upon information furnished to the Parent by the Piggyback
Registering Shareholders in a written document provided by the Shareholders for
use in connection with the registration statement; and the Parent will pay to
each such Piggyback Registering Shareholder or controlling Person, as incurred,
any legal or other expenses reasonably incurred thereby in connection with
investigating or defending any such Registration Claim. The foregoing indemnity
will not inure to the benefit of any Piggyback Registering Shareholder to the
extent that a prospectus relating to the shares of Parent Common Stock was
required to be delivered by such Shareholder under the Securities Act and the
Claim results from the fact that there was not sent or given to the Parent of
the Piggyback Registrable Shares, at or prior to the written confirmation of the
sale of such Piggyback Registrable Shares to such Parent, a copy of the
prospectus if the Parent had previously furnished copies thereof to such
Registering Shareholder.
(g) The indemnification set forth herein shall be in addition to any
liability the Parent or the Piggyback Registering Shareholders may otherwise
have in connection with any registration of the Piggyback Registrable Shares.
Within a reasonable time after receiving definitive notice of any Registration
Claim in respect of which a Registration Indemnified Person may seek
indemnification under this Section 7.9, such Registration Indemnified Person
shall submit written notice thereof to such Registration Indemnifying Person(s).
The failure of the Registration Indemnified Person so to notify the Registration
Indemnifying Person(s) of any such Registration Claim shall not relieve the
Registration Indemnifying Person(s) from any
PAGE 67
liability it may have hereunder except to the extent that (1) such liability was
caused or increased by such omission, or (2) the ability of the Registration
Indemnifying Person(s) to reduce such liability was materially adversely
affected by such omission. In addition, the omission of the Registration
Indemnified Person so to notify the Registration Indemnifying Person(s) of any
such Claim shall not relieve the Registration Indemnifying Person(s) from any
liability it may have otherwise than hereunder. The Registration Indemnifying
Person(s) shall have the right to undertake, by counsel or representatives of
its own choosing, the defense, compromise, or settlement (without admitting
liability of the Registration Indemnifying Person(s)) of any such Registration
Claim asserted, such defense, compromise, or settlement to be undertaken at the
expense and risk of the Registration Indemnifying Person(s), and the
Registration Indemnified Person shall have the right to engage separate counsel,
at its own expense, which counsel for the Registration Indemnifying Person(s)
shall keep informed and consult with in a reasonable manner; provided, however,
that the Registration Indemnified Person(s) shall have the right to retain
separate counsel, with reasonable fees and expenses to be paid by the
Registration Indemnifying Person(s), if representation of the Registration
Indemnified Person(s) by the counsel retained by the Registration Indemnifying
Person(s) would be inappropriate due to potential or actual differing interests
between the Registration Indemnified Person(s) and the Registration Indemnifying
Person(s) in such proceeding. In the event the Registration Indemnifying
Person(s) shall fail to undertake such defense by its own representatives, the
Registration Indemnifying Person(s) shall give prompt written notice of such
election not to undertake such defense to the Registration Indemnified Person,
and the Registration Indemnified Person shall undertake, at the Registration
Indemnifying Person(s)' expense, the defense, compromise, or settlement (without
admitting liability of the Registration Indemnified Person) thereof on behalf of
and for the account and risk of the Registration Indemnifying Person(s) by
counsel or other representatives designated by the Registration Indemnified
Person. In the event that any Registration Claim shall arise out of a
transaction or cover any period or periods wherein the Parent and the Piggyback
Registering Shareholders shall each be liable hereunder for part of the
liability or obligation arising therefrom, then the parties shall, each choosing
its own counsel and bearing its own expenses, defend such Registration Claim,
and no settlement or compromise of such Registration Claim may be made without
the joint consent or approval of the Parent and the Piggyback Registering
Shareholders, which shall not be unreasonably withheld. Notwithstanding the
foregoing, no Registration Indemnifying Person(s) shall be obligated hereunder
with respect to amounts paid in settlement of any Registration Claim if such
settlement is effected without the consent of such Registration Indemnifying
Person(s) (which consent shall not be unreasonably withheld).
(h) If the indemnification provided for in this Section 7.9 is held
by a court of competent jurisdiction to be unavailable to an Registration
Indemnified
PAGE 68
Person (as defined in either paragraph (e) or (f)) with respect to any
Registration Claim, then the Piggyback Registering Shareholders or the Parent,
as applicable and as the case may be (each a "Registration Indemnifying Party"),
in lieu of indemnifying an Registration Indemnified Party hereunder, shall
contribute to the amount paid or payable by such Registration Indemnified Party
as a result of such Registration Claim in such proportion as is appropriate to
reflect the relative fault of the Registration Indemnifying Party on the one
hand and of the Registration Indemnified Party on the other in connection with
the statements, omissions or violations which resulted in such Registration
Claim, as well as any other relevant equitable considerations. The relative
fault of the Registration Indemnifying Party and of the Registration Indemnified
Party shall be determined by a court of law by reference to, among other things,
whether the untrue or allegedly untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Registration Indemnifying Party or by the Registration
Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(i) The obligations of the Parent and the Piggyback Registering
Shareholders under this Section 7.9 shall survive the completion of any offering
of Piggyback Registrable Shares in a registration statement under this Section
7.9, and otherwise.
7.10 PARENT PAYMENT OF CERTAIN LIABILITIES
The Parent shall pay or provide funds to the Company to pay at Closing or
when due, the estimated liabilities listed on Schedule 7.10.
7.11 EXECUTION OF ALL ANCILLARY DOCUMENTS
The Parent and the Company will execute at or prior to Closing each of the
Ancillary Documents to which it is a party and all instruments or documents
contemplated thereby.
7.12 TERMINATION OF 401(k) PLAN
The Company agrees to terminate its 401(k) plan prior to Closing
Date. Prior to the Closing Date, the Company shall provide Parent with evidence
satisfactory to Parent that the Company's 401(k) plan has been terminated
pursuant to resolutions of the Company's Board of Directors (the form and
substance of such resolutions shall be subject to advance review and approval by
Parent), effective not later than the day immediately preceding the Closing
Date.
PAGE 69
ARTICLE VIIA - COVENANTS OF THE SHAREHOLDERS
7A.1 RESTRICTIONS ON TRANSFER
Each Shareholder will not sell, transfer, or otherwise dispose of, or make
any offer or agreement relating to any of the foregoing with respect to, any
shares of the Parent Common Stock that the undersigned may acquire in connection
with the Mergers, except: (i) pursuant to a registration statement under the
Securities Act or (ii) in a transaction otherwise exempt from the registration
requirements of the Securities Act.
7A.2 EXECUTION OF ALL ANCILLARY DOCUMENTS
Each Shareholder will execute at or prior to Closing each Ancillary
Document to which it is a party and all instruments or documents contemplated
thereby.
7A.3 NO ALTERNATIVE TRANSACTIONS
(a) Each Shareholder shall vote or cause to be voted, or execute a written
consent with respect to, his, her or its shares of Company Capital Stock against
any proposal by a party other than the Parent to merge or consolidate with the
Company or any subsidiary of the Company or to sell all or substantially all the
assets of the Company or any subsidiary of the Company at every meeting of the
Shareholders of the Company at which such matters are considered and at every
adjournment thereof and in connection with every proposal to take action by
written consent with respect thereto.
(b) Each Shareholder agrees that he, she or it will not, nor will such
Shareholder permit any entity under such Shareholder's control to, deposit any
shares of Company Capital Stock in a voting trust or subject the shares to any
agreement, arrangement or understanding with respect to the voting of the shares
inconsistent with this Agreement.
7A.4 LIMITATION ON SALES
During the term of this Agreement and prior to the Closing, each
Shareholder agrees not to sell, assign, transfer, pledge, encumber or otherwise
dispose of any of his, her or its shares of Company Capital Stock.
7A.5 AGREEMENT TO VOTE SHARES
(a) Each Shareholder that is a Major Shareholder hereby agrees to vote all
Shares that such Shareholder is entitled to vote, at any time, to approve and
adopt the Agreement, the Mergers, all agreements related to the Merger and any
actions related
PAGE 70
thereto at any meeting of the shareholders of the Company, and at any
adjournment thereof, at which such Agreement, the Mergers and other related
agreements (or any amended version thereof), or such other actions, are
submitted for the consideration and vote of the shareholders of the Company.
Notwithstanding any provision of this Agreement to the contrary, nothing in this
Agreement shall limit or restrict any Shareholder from acting in such
Shareholder's capacity as a director or officer of the Company.
(b) Each Shareholder that has a right of first refusal with respect to the
sale of Company securities by any other shareholder pursuant to contract or
otherwise, hereby waives such right of first refusal with respect to the
transactions contemplated by this Agreement.
(c) Each Shareholder agrees not to exercise any dissenters' rights to
which such Shareholder may be eligible pursuant to the New York Business
Corporation Law.
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION
This Agreement may be terminated and the Mergers may be abandoned at any
time prior to the Closing Date:
(a) by mutual written consent of the Parent, the Company, and the
Shareholder Representative;
(b) by either the Company or the Parent, if the Step One Merger has
not been consummated by August 15, 2005; provided, however, that the right to
terminate this Agreement under this paragraph (b) shall not be available to any
party whose failure to fulfill or cause to be fulfilled any obligation under
this Agreement has been the cause of, or resulted in, the failure of the Closing
Date to occur on or before such date;
(c) by either the Company or the Parent, if there shall be any law
or regulation that makes consummation of the Mergers illegal or if any judgment,
injunction, order or decree enjoining the Parent or the Company from
consummating the Mergers is entered and such judgment, injunction, order or
decree shall become final and nonappealable; provided, however, that the party
seeking to terminate this Agreement pursuant to this paragraph (c) shall have
used all reasonable efforts to remove such judgment, injunction, order or
decree;
PAGE 71
(d) by the Company, in the event of a material breach by the Parent
of any representation, warranty or agreement contained herein which has not been
cured or is not curable by August 15, 2005;
(e) by the Parent, in the event of a material breach by the Company
or by the Shareholders of any representation, warranty or agreement contained
herein which has not been cured or is not curable by August 15, 2005.
8.2 EFFECT OF TERMINATION
In the event of the termination of this Agreement pursuant to Section 8.1
hereof, there shall be no further obligation on the part of any party hereto,
except that nothing herein shall relieve any party from liability for any breach
hereof before the termination date. Notwithstanding the foregoing, the
Confidentiality Agreement between the Parent and the Company shall survive the
termination of this Agreement and remain in full force and effect.
8.3 AMENDMENT
This Agreement may not be amended except by an instrument in writing
signed by the Parent, the Company and Shareholders holding an aggregate of at
least 60% of the Company Common Stock then outstanding.
8.4 WAIVER
At any time prior to the Closing Date, the Parent may (a) extend the time
for the performance of any obligation or other act of the Company or the
Shareholders, (b) waive any inaccuracy in the representations and warranties of
the Company or the Shareholders contained herein or in any document delivered
pursuant hereto, or (c) waive compliance with any agreement of the Company or
the Shareholders or any condition to the obligations of the Parent contained
herein. At any time prior to the Closing Date, the Company may (a) extend the
time for the performance of any obligation or other act of the Parent, (b) waive
any inaccuracy in the representations and warranties of the Parent contained
herein or in any document delivered pursuant hereto, or (c) waive compliance
with any agreement of the Parent or any condition to the obligations of the
Company contained herein. Any such extension or waiver shall be valid only if
set forth in an instrument in writing signed by the party or parties to be bound
thereby.
PAGE 72
ARTICLE IX - SURVIVAL AND INDEMNIFICATION
9.1 SURVIVAL
All representations and warranties contained in this Agreement or in the
Ancillary Documents or in any certificate delivered pursuant hereto or thereto
shall survive the Closing for a period of eighteen months after the Closing Date
(the "Survival Period"), and shall not be deemed waived or otherwise affected by
any investigation made or any knowledge acquired with respect thereto, or by any
notice delivered pursuant to Section 7.4 hereof; provided, however, that (a) any
claim based on fraud or relating to title to the Company Capital Stock shall
survive the Closing indefinitely, (b) any claim related to Section 3.13 shall
survive for thirty (30) days after the applicable statute of limitations, and
(c) and any claim relating to Taxes shall survive for thirty (30) days after the
applicable statute of limitations. The covenants and agreements contained in
this Agreement or in the Ancillary Documents shall survive the Closing and shall
continue until all obligations with respect thereto shall have been performed or
satisfied or shall have been terminated in accordance with their terms.
9.2 INDEMNIFICATION BY THE SHAREHOLDERS
Subject to the provisions and limitations set forth in this Article IX,
from and after the Closing, each Shareholder shall indemnify and hold the
Parent, its officers, directors and affiliates (as "affiliate" is defined in
Rule 12b-2 of the Exchange Act) (the "Parent Indemnified Parties") harmless from
and against, and shall reimburse the Parent Indemnified Parties for, any and all
losses, damages, debts, liabilities, obligations, judgments, orders, awards,
writs, injunctions, decrees, fines, penalties, Taxes, costs or expenses
("Losses") arising out of (i) any inaccuracy or misrepresentation in, or breach
of, any representation or warranty made by the Company or such Shareholder in
this Agreement or in any Ancillary Document; (ii) any failure by the Company or
such Shareholder to perform or comply, in whole or in part, with any covenant or
agreement in this Agreement or in any Ancillary Document; (iii) any claim by any
employee or former employee listed on Section 3.3(c) of the Company Disclosure
Schedule to the extent based upon such employee's or former employee's having an
option, right or interest in, or any right to receive an option, right or
interest in any equity securities of the Company; (iv) any liability for
withholding Taxes imposed with respect to any Merger Consideration payable to
such Shareholder or (v) any Pre-Closing Taxes (except to the extent such Taxes
are reflected on the Financial Statements or have been incurred since May 31,
2005 in the ordinary course of business and consistent with past practice).
PAGE 73
9.3 INDEMNIFICATION BY THE PARENT
Subject to the limitations set forth in this Article IX, from and after
the Closing, the Parent shall indemnify and hold the Shareholders, their
officers, directors and affiliates (as "affiliate" is defined in Rule 12b-2 of
the Exchange Act) (the "Shareholder Indemnified Parties") harmless from and
against, and shall reimburse the Shareholders for, any and all Losses arising
out of (i) any inaccuracy or misrepresentation in, or breach of, any
representation or warranty made by the Parent in this Agreement or in any
Ancillary Document; or (ii) any failure by the Parent to perform or comply, in
whole or in part, with any covenant or agreement in this Agreement or in any
Ancillary Document.
9.4 THRESHOLD AND LIMITATIONS; ADJUSTMENT OF MERGER CONSIDERATION
(a) No Parent Indemnified Party or Shareholder Indemnified Party shall be
entitled to receive any indemnification payment with respect to any claim for
indemnification under this Article IX ("Claims") until the aggregate Losses for
which the Parent Indemnified Parties or the Shareholder Indemnified Parties, as
the case may be, would otherwise be entitled to receive indemnification exceed
$100,000 (the "Threshold"). Once such aggregate Losses exceed the Threshold, the
Parent Indemnified Parties or the Shareholder Indemnified Parties, as the case
may be, shall be entitled to indemnification for the aggregate amount of all
Losses. Notwithstanding the foregoing, the Parent Indemnified Parties and the
Shareholder Indemnified Parties (collectively, the "Indemnified Parties"), as
the case may be, shall be entitled to indemnification for all Losses based upon
a claim of fraud or relating to title to Company Capital Stock, authority to
enter into this Agreement, Taxes, the representations in Sections 3.2, 3.6(ii),
3.13, 3.20, 3.29, 3A.3, 3A.5, 4.2 and 4.10, the covenants set forth in Sections
7.10 and 10.2 hereof, or clause (iii) and (iv) of Section 9.2, without regard to
the Threshold.
(b) Except for Losses based upon a claim of fraud or relating to Taxes,
title to Company Capital Stock or authority to enter into this Agreement, the
aggregate liability of all Shareholders under this Article IX shall be limited
to 50% of the Merger Consideration. With respect to any Claim other than those
referenced in the last sentence of this Section 9.4(b), each Shareholder shall
be jointly and severally liable, provided that with respect to any Claim to be
satisfied with funds other than from the Escrow Fund, the liability of the
Shareholders shall be several and limited to each Shareholder's Pro Rata Share
of such obligations, provided further, that Xxxx X. Xxxxxxxxxx, Xx. Xxxxxx
Xxxxxx and Xxxxx Xxxxx (collectively, the "Major Shareholders"), agree with the
Parent Indemnified Parties to be responsible for payment to the Parent
Indemnified Parties of 100% of such obligations, on a several basis, limited to
such Major Shareholder's pro rata share of such obligations based on
PAGE 74
the allocation of the Merger Consideration among the Major Shareholders. In the
event of any Claim based upon fraud by a Shareholder (but not based on fraud by
the Company) or upon a Shareholder's breach of the representations and
warranties set forth in Article IIIA, the representations and warranties set
forth in Sections 3.13.4 and 3.13.9 as applicable to such Shareholder, or the
covenants set forth in Article VIIA, the Parent Indemnified Parties shall be
entitled to pursue the Claim only against such Shareholder.
(c) An indemnifying party shall not be obligated to defend and hold
harmless an Indemnified Party, or otherwise be liable to such party, with
respect to any claims made by the Indemnified Party after the expiration of the
applicable time period as set forth in Section 9.1 hereof. Notwithstanding the
foregoing, indemnity may be sought after the expiration of the Survival Period
pursuant to this Article IX if a Claim Notice shall have been delivered to the
Shareholder Representative, on behalf of the Shareholders, or to the Parent, as
the case may be, prior to the expiration of the Survival Period.
9.5 PROCEDURE FOR INDEMNIFICATION
9.5.1 CLAIM NOTICE
An Indemnified Party shall give written notice (the "Claim Notice") of any
Claim for indemnification under this Article IX to the Shareholder
Representative, on behalf of the Shareholders, or to the Parent, as the case may
be, reasonably promptly after the assertion against the Indemnified Party of any
claim by a third party (a "Third Party Claim") or, if such Claim is not in
respect of a Third Party Claim, reasonably promptly after the discovery of facts
upon which the Indemnified Party intends to base a Claim for indemnification
pursuant to this Article IX; provided, however, that the failure or delay to so
notify the Shareholder Representative or the Parent, as the case may be, shall
not relieve the indemnifying party of any obligation or liability that the
indemnifying party may have to the Indemnified Party except to the extent that
the indemnifying party demonstrates that his, her or its ability to defend or
resolve such Claim is materially adversely affected thereby. Any such Claim
Notice shall describe the facts and circumstances on which the asserted Claim
for indemnification is based and shall include the amount of the indemnifiable
Losses (or, if such amount is not then determined, a good faith estimate
thereof) and the basis for the determination of the amount of such Losses.
9.5.2 DEFENSE OF THIRD-PARTY CLAIMS
(a) (i) Subject to the rights of or duties to any insurer or other third
party having potential liability therefor, the Shareholder Representative, on
behalf of the Shareholders, shall have the right, upon written notice given by
the Shareholder
PAGE 75
Representative to the Parent Indemnified Party within 30 days after receipt by
the Shareholder Representative of the notice from the Parent Indemnified Party
of any Third Party Claim, to assume the defense or handling of such Third Party
Claim, at the Shareholders' sole expense, in which case the provisions of
Section 9.5.2(b) hereof shall govern; provided, however, that, notwithstanding
the foregoing, the Parent may elect to assume the defense and handle any such
Third Party Claim if it determines in good faith that the resolution of such
Third Party Claim could result in an adverse impact on the business, operations,
assets, liabilities (absolute, accrued, contingent or otherwise), condition
(financial or otherwise) or prospects of the Parent, in which case the
provisions of Section 9.5.2(c)(ii) hereof shall govern.
(ii) Subject to the rights of or duties to any insurer or other
third party having potential liability therefor, the Parent shall have the
right, upon written notice given by the Parent to the Shareholder Representative
within 30 days after receipt by the Parent of the notice from a Shareholder
Indemnified Party of any Third Party Claim, to assume the defense or handling of
such Third Party Claim, at the Parent's sole expense, in which case the
provisions of Section 9.5.2(a)(ii) hereof shall govern.
(b) The Shareholder Representative, on behalf of the Shareholders, or the
Parent, as the case may be, shall select counsel reasonably acceptable to the
Indemnified Party in connection with conducting the defense or handling of such
Third Party Claim, and the Shareholder Representative or the Parent, as the case
may be, shall defend or handle the same in consultation with the Indemnified
Party and shall keep the Indemnified Party timely apprised of the status of such
Third Party Claim. Neither the Shareholder Representative nor the Parent, as the
case may be, shall, without the prior written consent of the Indemnified Party,
agree to a settlement of any Third Party Claim, unless (A) the settlement
provides an unconditional release and discharge of the Indemnified Party and the
Indemnified Party is reasonably satisfied with such discharge and release and
(B) with respect to any Claim by a Parent Indemnified Party, the Parent shall
not have reasonably objected to any such settlement on the ground that the
circumstances surrounding the settlement could result in an adverse impact on
the business, operations, assets, liabilities (absolute, accrued, contingent or
otherwise), condition (financial or otherwise) or prospects of the Parent. The
Indemnified Party shall cooperate with the Shareholder Representative or the
Parent, as the case may be, and shall be entitled to participate in the defense
or handling of such Third Party Claim with its own counsel and at its own
expense.
(c) (i) (A) If (x) the Shareholder Representative does not give written
notice to the Parent Indemnified Party pursuant to Section 9.5.2(a)(i) within 30
days after receipt of the notice from the Parent Indemnified Party of any Third
Party Claim of the Shareholder Representative's election to assume the defense
or handling of such Third Party Claim or (y) the Parent elects to assume the
defense and the handling of
PAGE 76
such Third Party Claim pursuant to the proviso in Section 9.5.2(a)(i), the
provisions of Section 9.5.2(c)(ii) hereof shall govern.
(B) If the Parent does not give written notice to the
Shareholder Representative pursuant to Section 9.5.2(a)(ii) within 30 days after
receipt of the notice from a Shareholder Indemnified Party of any Third Party
Claim of the Parent's election to assume the defense or handling of such Third
Party Claim, the provisions of Section 9.5.2(c)(ii) hereof shall govern.
(ii) The Indemnified Party may, at the indemnifying party's expense,
select counsel reasonably acceptable to the indemnifying party in connection
with conducting the defense or handling of such Third Party Claim and defend or
handle such Third Party Claim in such manner as the Indemnified Party may deem
appropriate and in consultation with the indemnified party; provided, however,
that the Indemnified Party shall keep the Shareholder Representative or the
Parent, as the case may be, timely apprised of the status of such Third Party
Claim and shall not settle such Third Party Claim without the prior written
consent of the Shareholder Representative or the Parent, as the case may be,
which consent shall not be unreasonably withheld. If the Indemnified Party
defends or handles such Third Party Claim, the indemnifying party shall
cooperate with the Indemnified Party and shall be entitled to participate in the
defense or handling of such Third Party Claim with its own counsel and at its
own expense.
9.5.3 RESOLUTION OF CLAIM NOTICE
Each Claim Notice given by an Indemnified Party shall be resolved as
follows:
(a) UNCONTESTED CLAIMS. If, within 15 business days after a Claim Notice
is received by the Shareholder Representative, on behalf of the Shareholders, or
by the Parent, the recipient does not contest such Claim Notice in writing, then
(a), in the case of a Claim Notice received by the Shareholder Representative,
the Shareholder Representative shall be conclusively deemed to have consented,
on behalf of all Effective Time Holders, to the recovery by the Parent
Indemnified Parties of the full amount of Losses specified in the Claim Notice
in accordance with this Article IX, including the forfeiture of the Escrow Fund;
or (b), in the case of a Claim Notice, received by the Parent, the Parent shall
promptly deliver payment in the amount of Losses specified in the Claim Notice
to the Shareholder Representative on behalf of the Shareholders.
(b) CONTESTED CLAIMS BY SHAREHOLDER REPRESENTATIVE. If the Shareholder
Representative gives the Parent written notice contesting all or any portion of
a Claim Notice (a "Shareholder Contested Claim") within the 15 business day
period specified in Section 9.5.3(a), then such Shareholder Contested Claim
shall be resolved by either
PAGE 77
(i) a written settlement agreement executed by the Parent and the Shareholder
Representative or (ii) in the absence of such a written settlement agreement
within 30 business days following receipt by the Parent of the written notice
from the Shareholder Representative, by litigation between the Parent and the
Shareholder Representative.
(c) CONTESTED CLAIMS BY THE PARENT. If the Parent gives the Shareholder
Representative written notice contesting all or any portion of a Claim Notice (a
"Parent Contested Claim") within the 15 business day period specified in Section
9.5.3(a), then such Parent Contested Claim shall be resolved by either (i) a
written settlement agreement executed by the Parent and the Shareholder
Representative or (ii) in the absence of such a written settlement agreement
within 30 business days following receipt by the Shareholder Representative of
the written notice from the Parent, by litigation between the Parent and the
Shareholder Representative.
9.6 REMEDIES; SPECIFIC PERFORMANCE; NO CONTRIBUTION FROM THE COMPANY
Except as otherwise provided, the indemnification provisions of this
Article IX are the sole and exclusive remedy of any party to this Agreement for
a breach of any representation, warranty or covenant contained herein.
Notwithstanding the preceding sentence, each of the parties acknowledges and
agrees that the other parties hereto would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the parties
hereto agrees that the other parties hereto shall be entitled to an injunction
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof (including the
indemnification provisions hereof) in any competent court having jurisdiction
over the parties, in addition to any other remedy to which they may be entitled
at law or in equity. Notwithstanding any provisions to the contrary, after the
Closing Date, the Shareholders shall have no right against the Company based on
or arising from the covenants, representations and warranties being made under
this Agreement by the Company or the Shareholders arising hereunder or
otherwise, whether by direct claim, cross-claim, in respect of indemnity or
contribution rights, or otherwise.
ARTICLE X - GENERAL
10.1 TAX MATTERS
(a) The Parent shall prepare and timely file, or cause to be prepared and
timely filed, all Returns of the Company that are due with respect to a Straddle
Period or any Pre-Closing Tax Period other than Returns for which the due date
(with applicable extensions) falls on or before the Closing Date. The Parent
shall pay or
PAGE 78
cause to be paid all Taxes imposed on the Company shown as due and owing on such
Returns subject to reimbursement by the Shareholders pursuant to Section 9.2
hereof.
(b) For purposes of this Agreement, the portion of Tax attributable to the
Pre-Closing Straddle Period shall (i) in the case of any Taxes other than sales
or use taxes, value-added taxes, employment taxes, withholding taxes, and any
Tax based on or measured by income, receipts or profits earned during a Straddle
Period, be deemed to be the amount of such Tax for the entire taxable period
multiplied by a fraction, the numerator of which is the number of days in the
Pre-Closing Straddle Period and denominator of which is the number of days in
the Straddle Period, and (ii) in the case of any sales or use taxes, value-added
taxes, employment taxes, withholding taxes, and any Tax based on or measured by
income, receipts or profits earned during a Straddle Period, be deemed equal to
the amount which would be payable if the Straddle Period ended on and included
the Closing Date. To the extent that any Tax for a Straddle Period is based on
the greater of a Tax on net income, on the one hand, and a Tax measured by net
worth or some other basis not otherwise measured by income, on the other, the
portion of such Tax related to the Pre-Closing Straddle Period shall be deemed
to be (iii) if the amount of such Tax for the Straddle Period is measured by net
worth or other basis, the amount of such Tax determined as though the taxable
values for the entire Straddle Period equal the respective values as of the end
of the Closing Date and multiplying the amount of such Tax by a fraction the
numerator of which is the number of days during the Straddle Period that are in
the Pre-Closing Straddle Period and the denominator of which is the number of
days in the Straddle Period or (iv) if the amount of such Tax for the Straddle
Period is measured by net income, the amount of such Tax determined as though
the applicable Tax period terminated at the end of the day on the Closing Date.
(c) All transfer, documentary, sales, use, stamp, registration, value
added and other such Taxes and fees (including any penalties and interest)
imposed on the Parent, the Company or the Surviving LLC in connection with this
Agreement and the Ancillary Agreements ("Transfer Taxes") will be borne and paid
by the Shareholders when due, and the Shareholders, at their own expense, will
cause to be filed all necessary Returns and other documentation with respect to
all such Transfer Taxes.
(d) In connection with the preparation of Returns, audit examinations, and
any administrative or judicial proceedings relating to the Tax liabilities
imposed on the Company for all Pre-Closing Tax Periods, the Parent, the Company,
the Surviving LLC, and the Shareholder Representative, on behalf of the
Shareholders, shall cooperate fully with each other, including, without
limitation, the furnishing or making available during normal business hours of
records, personnel (as reasonably required), books of account, powers of
attorney or other materials necessary or helpful for the
PAGE 79
preparation of such Returns, the conduct of audit examinations or the defense of
claims by Taxing Authorities as to the imposition of Taxes.
(e) All Tax sharing agreements or similar agreements with respect to or
involving the Company or any of its Company Subsidiaries shall be terminated as
of the Closing Date and, after the Closing Date, neither the Surviving LLC, the
Company, nor its Company Subsidiaries shall be bound thereby or have any
liability thereunder.
(f) Prior to Closing, the Company shall cause any payments that reasonably
could constitute parachute payments within the meaning of Section 280G of the
Code to be duly authorized and approved by the Company's shareholders in a
manner sufficient to exempt all such payments from the application of section
280G of the Code pursuant to the shareholder approval exemption set forth
therein and the regulations promulgated thereunder.
10.2 EXPENSES
The cost of the Company's investment banking, legal and accounting fees
incurred in connection with the transactions contemplated by this Agreement will
be paid or accrued by the Company at or prior to the Closing, and payable out of
proceeds from the exercise of any Options. Schedule 10.2 to this Agreement sets
forth such expenses paid or accrued as of the date of this Agreement. Each party
shall pay its own fees and expenses incident to the negotiation, preparation and
execution of this Agreement and the Ancillary Documents, regardless of whether
the transactions contemplated by this Agreement are consummated; provided,
however, that, should any action be brought hereunder, the reasonable attorneys'
fees and expenses of the prevailing party shall be paid by the other party to
such action.
10.3 NOTICES
Any notice, request or demand desired or required to be given hereunder
shall be in writing given by personal delivery, confirmed facsimile
transmission, or overnight courier service, in each case addressed as
respectively set forth below or to such other address as any party shall have
previously designated by such a notice. The effective date of any notice,
request or demand shall be the date of personal delivery, the date on which
successful facsimile transmission is confirmed or the date actually delivered by
a reputable overnight courier service, as the case may be, in each case properly
addressed as provided herein and with all charges prepaid.
PAGE 80
TO THE PARENT:
Corillian Corporation
0000 XX Xxxx Xxxxx Xxxxx
Xxxxxxxxx, Xxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Xxxxx
with a copy to:
Xxxxxxx Coie LLP
0000 XX Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxx, Xxxxxx 00000
Fax: (000) 000-0000
Attention: Xxx X. Xxxxxx
TO THE COMPANY:
qbt Systems Inc.
000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
with a copy to:
St. Xxxx & Xxxxx, LLC
Xxx Xxxx Xxxxx, Xxxx
Xxxxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx. Esq.
TO THE SHAREHOLDER REPRESENTATIVE:
Xxxxx Xxxxx
c/o Netlogic Inc.
000 Xxxxxxxx, 00xx Xxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
with a copy to:
Xxxx X. Xxxxxxxxxx
c/o Netlogic Inc.
000 Xxxxxxxx, 00xx Xxxxx, Xxxxx 0000
PAGE 81
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
10.4 SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
10.5 ENTIRE AGREEMENT
This Agreement, the Confidentiality Agreement and the Ancillary Documents
constitute the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersede all prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof and thereof, including, without limitation, the Letter of
Intent, dated as of July 5, 2005, as amended July 14, 2005, July 20, 2005 and
July 29, 2005, entered into by and between the Parent and the Company.
10.6 ASSIGNMENT
This Agreement shall not be assigned prior to the Closing by operation of
law or otherwise; provided, however, that the Parent's rights and obligations
may be assigned to and assumed by the Parent or by any other corporation wholly
owned (directly or through intermediate wholly owned subsidiaries) by the
Parent.
10.7 PARTIES IN INTEREST
This Agreement shall be binding upon and inure solely to the benefit of
the parties hereto and their respective successors, heirs, legal representatives
and permitted assigns, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
PAGE 82
10.8 GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Oregon applicable to contracts executed in and to be
performed in that state, excluding conflicts-of-laws principles.
10.9 HEADINGS
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.10 COUNTERPARTS
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement. To expedite the process of entering into this Agreement,
the parties acknowledge that Transmitted Copies of this Agreement will be
equivalent to original documents until such time as original documents are
completely executed and delivered. "Transmitted Copies" will mean copies that
are reproduced or transmitted via photocopy, facsimile or other process of
complete and accurate reproduction and transmission.
10.11 WAIVER OF JURY TRIAL
The Parent, the Company and each of the Shareholders hereby irrevocably
waives all right to trial by jury in any action, proceeding or counterclaim
(whether based on contract, tort or otherwise) arising out of or relating to
this Agreement, the transactions contemplated hereby or the actions of such
parties in the negotiation, administration, performance and enforcement hereof.
[Remainder of this page intentionally left blank.]
PAGE 83
IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement and Plan of Reorganization as of the date and year first above
written.
CORILLIAN CORPORATION
By: /s/ XXXX X. XXXXX
----------------------------------
Xxxx X. Xxxxx
Chief Financial Officer
QBT SYSTEMS INC.
By: /s/ XXXX X. XXXXXXXXXX
----------------------------------
Xxxx X. Xxxxxxxxxx
Chief Executive Officer
QUANTUM ACQUISITION CORPORATION
By: /s/ XXXX X. XXXXX
----------------------------------
Xxxx X. Xxxxx
Vice President and Treasurer
QUARRY ACQUISITION LLC
By: /s/ XXXX X. XXXXX
----------------------------------
Xxxx X. Xxxxx, Manager
SHAREHOLDERS:
/s/ XXXX X. XXXXXXXXXX
--------------------------------------
Xxxx X. Xxxxxxxxxx
PAGE 84
/s/ XXXXXX XXXXXX
--------------------------------------
Xx. Xxxxxx Xxxxxx
/s/ XXXXX XXXXX
--------------------------------------
Xxxxx Xxxxx
/s/ XXXXX XXXXXX
--------------------------------------
Xxxxx Xxxxxx
/s/ XXXXX XXXXX
--------------------------------------
Xxxxx Xxxxx
/s/ GUANGMING LAN
--------------------------------------
Guangming Lan
/s/ XXXX XXXXXX
--------------------------------------
Xxxx Xxxxxx
/s/ XXXXX XXXXXXX
--------------------------------------
Xxxxx Xxxxxxx
/s/ AYDIN HAREZI
--------------------------------------
Aydin Harezi
/s/ XXXX X. XXXXXXX
--------------------------------------
Xxxx X. Xxxxxxx
/s/ XXXXXXX XXXXXXXX
--------------------------------------
Xxxxxxx Xxxxxxxx
/s/ XXXXXXX XXXXX
--------------------------------------
Xxxxxxx Xxxxx
/s/ XXXXX XXXXXXXXXX
--------------------------------------
Xxxxx Xxxxxxxxxx
/s/ XXXXXXX XXX-XXXXXX
--------------------------------------
Xxxxxxx Xxx-Xxxxxx
/s/ XXXXX XXXXXX
--------------------------------------
Xxxxx Xxxxxx
/s/ XXXXX XXXXXX
--------------------------------------
Xxxxx Xxxxxx