EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MICROFIELD GRAPHICS, INC.
AND
INNOVATIVE SAFETY TECHNOLOGIES, LLC
AND
MICROFIELD MERGER SUB, INC.
DATED AS OF SEPTEMBER 16, 2002
TABLE OF CONTENTS
PAGE
RECITALS ..........................................................................1
ARTICLE I: DEFINITIONS...............................................................1
Agreement...........................................................................2
Articles of Merger..................................................................2
Closing.............................................................................2
Closing Date........................................................................2
Code................................................................................2
Common Stock Purchase Agreement.....................................................2
Disclosure Schedules................................................................2
Effective Time......................................................................2
Employment Agreement................................................................2
Enforceability Exceptions...........................................................2
Governmental Authority..............................................................2
IST.................................................................................2
IST Membership Interests............................................................3
Knowledge...........................................................................3
Law.................................................................................3
Lien................................................................................3
Material Adverse Effect.............................................................3
Members.............................................................................3
Merger..............................................................................3
Merger Consideration................................................................3
Merger Sub..........................................................................3
Microfield..........................................................................3
Microfield Common Stock.............................................................3
Microfield Stock Value..............................................................3
OBCA................................................................................3
OLLCA...............................................................................4
Permits.............................................................................4
Person .............................................................................4
Representative......................................................................4
Special Meeting.....................................................................4
Subsidiary..........................................................................4
Surviving Corporation...............................................................4
Other Terms.........................................................................4
ARTICLE II: THE MERGER................................................................5
2.1 The Merger...................................................................5
2.2 Effective Time...............................................................5
2.3 Articles of Incorporation of Surviving Corporation...........................5
2.4 Bylaws of Surviving Corporation..............................................5
2.5 Directors and Officers of Surviving Corporation..............................5
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2.6 Conversion of IST Membership Interests.......................................5
2.7 Procedure for Payment........................................................6
(a) Surrender of Membership Interests.....................................6
(b) No Fractional Shares..................................................6
(c) No Further Rights in IST Membership Interests.........................6
2.8 Membership Transfer Books....................................................6
2.9 Unregistered Shares..........................................................6
2.10 Stock Certificate Legends....................................................7
2.11 Appointment of Representative................................................7
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF IST.....................................8
3.1 Organization.................................................................8
3.2 Capitalization...............................................................8
3.3 Subsidiaries.................................................................8
3.4 Authorization; Binding Agreement.............................................9
3.5 Governmental Approvals.......................................................9
3.6 No Violations................................................................9
3.7 IST Financial Statements.....................................................9
3.8 Absence of Certain Changes or Events.........................................9
3.9 No Undisclosed Liabilities..................................................10
3.10 Compliance with Laws........................................................10
3.11 Permits.....................................................................10
3.12 Litigation..................................................................10
3.13 Contracts...................................................................10
3.14 Employee Benefit Plans......................................................11
3.15 Taxes and Tax Returns.......................................................13
3.16 Intellectual Property.......................................................14
3.17 Employee and Labor Matters..................................................15
3.18 Limitation on Business Conduct..............................................16
3.19 Title to Property...........................................................16
3.20 Owned and Leased Premises...................................................16
3.21 Environmental Matters.......................................................16
3.22 Insurance...................................................................17
3.23 Product Liability and Recalls...............................................17
3.24 Customers...................................................................18
3.25 Interested Party Transactions...............................................18
3.26 Finders and Investment Bankers..............................................18
3.27 Full Disclosure.............................................................18
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF MICROFIELD AND MERGER SUB..............18
4.1 Organization and Good Standing..............................................18
4.2 Capitalization..............................................................19
4.3 Authorization; Binding Agreement............................................19
4.4 Governmental Approvals......................................................19
4.5 No Violations...............................................................19
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4.6 Litigation..................................................................20
4.7 Finders and Investment Bankers..............................................20
4.8 SEC Reports and Financial Statements........................................20
4.9 No Undisclosed Liabilities..................................................20
4.10 Taxes and Tax Returns.......................................................20
4.11 No Prior Activities.........................................................21
ARTICLE V: ADDITIONAL COVENANTS OF IST..............................................21
5.1 Conduct of Business of IST..................................................21
5.2 Notification of Certain Matters.............................................22
5.3 Access and Information......................................................23
5.4 Member Approval.............................................................23
5.5 Reasonable Best Efforts.....................................................23
5.6 Public Announcements........................................................23
5.7 Compliance..................................................................23
5.8 IST Options and Warrants....................................................24
ARTICLE VI: ADDITIONAL COVENANTS OF MICROFIELD AND MERGER SUB........................24
6.1 Notification of Certain Matters.............................................24
6.2 Access and Information......................................................24
6.3 Reasonable Best Efforts.....................................................24
6.4 Public Announcements........................................................24
6.5 Compliance..................................................................25
ARTICLE VII: SURVIVAL; INDEMNIFICATION................................................25
7.1 Survival....................................................................25
7.2 Indemnification by Members..................................................25
7.3 Indemnification by Microfield...............................................25
7.4 Limits on Indemnification...................................................26
(a) Members Liability....................................................26
(b) Microfield's Liability...............................................26
7.5 Indemnification Procedure...................................................27
(a) Third Party Claims...................................................27
(b) Non-Third Party Claims...............................................28
7.6 Payment with Microfield Common Stock........................................28
7.7 Rights Not Exclusive........................................................28
ARTICLE VIII: CONDITIONS PRECEDENT.....................................................29
8.1 Merger Conditions...........................................................29
(a) Member Approval......................................................29
(b) No Injunction or Action..............................................29
(c) Sale of Common Stock.................................................29
8.2 Conditions Precedent to the Obligations of Microfield and Merger Sub........29
(a) Compliance with Agreement............................................29
(b) Representations and Warranties of IST................................29
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(c) No Material Adverse Effect...........................................29
(d) Closing Certificates.................................................29
(e) Employment Agreement.................................................30
8.3 Conditions Precedent to the Obligations of IST..............................30
(a) Compliance with Agreement............................................30
(b) Representations and Warranties of Microfield and Merger Sub..........30
(c) Minimum Cash.........................................................30
(d) Closing Certificate..................................................30
(e) Appointment of President.............................................30
(f) Board of Directors...................................................30
ARTICLE IX: TERMINATION AND ABANDONMENT..............................................30
9.1 Termination.................................................................30
9.2 Effect of Termination and Abandonment.......................................32
ARTICLE X: MISCELLANEOUS............................................................32
10.1 Confidentiality.............................................................32
10.2 Amendment and Modification..................................................33
10.3 Waiver of Compliance; Consents..............................................33
10.4 Survival....................................................................33
10.5 Notices.....................................................................33
10.6 Binding Effect; Assignment..................................................34
10.7 Fees and Expenses...........................................................34
10.8 Governing Law...............................................................35
10.9 Counterparts................................................................35
10.10 Interpretation..............................................................35
10.11 Entire Agreement............................................................35
10.12 Severability................................................................35
10.13 Specific Performance........................................................35
10.14 Third Parties...............................................................35
10.15 Disclosure Schedules........................................................35
EXHIBITS
Exhibit A -- Form of Employment Agreement
Exhibit B -- Form of JMW Engagement Agreement
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of September 16, 2002, by
and among Microfield Graphics, Inc., an Oregon corporation, Innovative Safety
Technologies, LLC, an Oregon limited liability company, and Microfield Merger
Sub, Inc., an Oregon corporation.
RECITALS
A. The respective boards of directors of Microfield and Merger Sub and the
manager of IST have: (a) determined that the Merger of IST with and into
Merger Sub pursuant and subject to all of the terms and conditions of this
Agreement is advisable, fair and in the best interests of Microfield, IST
and Merger Sub and their respective shareholders and Members; and (b)
approved the Merger, this Agreement and the transactions contemplated by
this Agreement.
B. The manager of IST has directed that the Merger, this Agreement and the
transactions contemplated by this Agreement be submitted for approval at the
Special Meeting.
C. The Board of Directors of Microfield has authorized the issuance of
Microfield Common Stock pursuant to this Agreement.
D. Microfield, IST and Merger Sub desire to make certain representations,
warranties, covenants and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements set forth herein and for other good and valuable consideration, the
sufficiency of which are acknowledged, the parties agree as follows:
ARTICLE I: DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified:
"AGREEMENT" shall mean this Agreement and Plan of Merger, together with
the attached Exhibits and Disclosure Schedules, as the same may be amended from
time to time in accordance with the terms hereof.
"ARTICLES OF MERGER" shall mean Articles of Merger in a form approved
for filing in accordance with the OBCA.
"CLOSING" shall mean the conference to be held at 10:00 a.m., on the
Closing Date at the offices of Stoel Rives LLP, or such other time and place as
the parties may mutually agree to in writing.
"CLOSING DATE" shall mean:
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(a) that date that is one business day after satisfaction or
waiver of all of the conditions set forth in Article VIII of this Agreement; or
(b) such other date as the parties may mutually agree.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder, as the same may be in effect from time to
time.
"COMMON STOCK PURCHASE AGREEMENT" shall mean the Common Stock Purchase
Agreement, dated on or about September 16, 2002, by and among Microfield and the
investors named therein pursuant to which Microfield will issue approximately
1,363,639 shares of Microfield Common Stock.
"DISCLOSURE SCHEDULES" shall mean the Disclosure Schedules attached to
this Agreement.
"EFFECTIVE TIME" shall mean the date and time when the Merger becomes
effective.
"EMPLOYMENT AGREEMENT" shall mean the Employment Agreement between
Microfield and Xxxx X. Xxxxxx, in the form attached as Exhibit A.
"ENFORCEABILITY EXCEPTIONS" shall mean the limits with respect to the
enforceability of any agreement imposed by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by principles of equity regarding the availability of
remedies.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state
or other political subdivision thereof or any entity, authority or body
exercising executive, legislative, judicial or regulatory functions of or
pertaining to government, including, without limitation, any governmental or
regulatory authority, agency, department, board, commission or instrumentality,
any court, tribunal or arbitrator and any self-regulatory organization.
"IST" shall mean Innovative Safety Technologies, LLC, an Oregon limited
liability company.
"IST MEMBERSHIP INTERESTS" shall mean all of the issued and outstanding
membership interests in IST.
"KNOWLEDGE" with respect to a party, shall mean the actual knowledge of
the existence or nonexistence of a fact or matter, after reasonable inquiry, by
any of the executive officers, directors or managers of Microfield or IST, as
applicable.
"LAW" shall mean any federal, state, local or other law, rule,
regulation or governmental requirement of any kind, and the rules, regulations
and orders promulgated thereunder by any regulatory agencies.
"LIEN" shall mean (a) any mortgage, pledge, lien, covenant, lease,
security interest or encumbrance of any kind and (b) with respect to any asset,
the interest of a vendor or lessor
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under any conditional sale agreement, financing lease or other title retention
agreement relating to such asset.
"MATERIAL ADVERSE CHANGE" shall mean any materially adverse change in
the financial condition, properties, business or results of operations of a
party, other than changes arising out of general economic conditions unrelated
to the business in which the party is engaged.
"MATERIAL ADVERSE EFFECT" shall mean any event, condition or fact that
is, or reasonably may be expected to be, materially adverse to the financial
condition, properties, business, results of operations or prospects of a party,
other than events, conditions or facts arising out of general economic
conditions unrelated to the business in which the party is engaged.
"MEMBERS" shall mean all Persons owning IST Membership Interests on the
relevant date.
"MERGER" shall mean the merger of IST with and into Merger Sub pursuant
to this Agreement and the OBCA.
"MERGER CONSIDERATION" shall mean the aggregate number of shares of
Microfield Common Stock issuable to the Members pursuant to Section 2.6, subject
to any rounding for fractional shares pursuant to Section 2.7(b).
"MERGER SUB" shall mean Microfield Merger Sub, Inc., an Oregon
corporation and a wholly owned Subsidiary of Microfield.
"MICROFIELD" shall mean Microfield Graphics, Inc., an Oregon
corporation.
"MICROFIELD COMMON STOCK" shall mean shares of Common Stock, no par
value, of Microfield.
"MICROFIELD STOCK VALUE" shall mean $0.22 per share.
"OBCA" shall mean the Oregon Business Corporation Act, as the same shall
be in effect from time to time.
"OLLCA" shall mean the Oregon Limited Liability Company Act, as the same
shall be in effect from time to time.
"PERMITS" shall mean all permits, licenses, approvals, qualifications,
governmental authorizations, registrations and franchises that IST has or holds,
all of which are listed and briefly described in the Disclosure Schedules.
"PERSON" shall mean a natural person, corporation, trust, partnership,
limited liability company, governmental entity, agency or branch or department
thereof, or any other legal entity.
"REPRESENTATIVE" shall mean Xxxxxx X. Xxxxxx, or his successor, who
shall act as representative of the Members under the Agreement.
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"SPECIAL MEETING" shall mean a special meeting or action by unanimous
written consent of the IST Members for the purpose of approving the Merger, this
Agreement and the transactions contemplated by this Agreement and for such other
purposes as may be necessary or desirable.
"SUBSIDIARY" shall mean any entity (a) at least a majority of the
outstanding capital stock or ownership interest of which shall at the time be
owned by Microfield or IST, as applicable, directly or through one or more
entities that are themselves Subsidiaries or (b) with respect to which
Microfield or IST, as applicable, may elect a majority of the board of
directors.
"SURVIVING CORPORATION" shall mean Merger Sub, which shall survive the
Merger of IST with and into Merger Sub.
"OTHER TERMS". The following terms shall have the meanings specified in
the following noted sections of this Agreement:
TERM SECTION
---- -------
Balance Sheet 3.9
Consent 3.5
Damages 7.2
Employee Plans 3.14(a)
Environmental Claim 3.21(e)(i)
Environmental Laws 3.21(e)(ii)
ERISA 3.14(a)
ERISA Affiliate 3.14(a)
Financial Statements 3.7
Intellectual Property Rights 3.16(b)
IRS 3.14(b)
ISO 3.14(c)
IST's Indemnified Persons 7.2
Litigation 3.12
Material Contracts 3.13
Matter of Environmental Concern 3.21(e)(iii)
Microfield Balance Sheet 4.9
Microfield Indemnified Persons 7.2
Microfield SEC Reports 4.8
Preferred Shares 3.2
Related Documents 7.1
Rule 144 2.9
Securities Act 2.9
Taxes 3.15(b)
Tax Returns 3.15(b)
Third Party Claims 7.5(a)(i)
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ARTICLE II: THE MERGER
2.1 THE MERGER. At the Effective Time and upon and subject to the
terms and conditions of this Agreement, IST will be merged with and into Merger
Sub, which shall be the Surviving Corporation in the Merger and shall continue
to be governed by the Laws of the State of Oregon, and the separate existence of
IST shall cease. The Merger shall be pursuant to the provisions of, and shall be
with the effects provided in, the OBCA.
2.2 EFFECTIVE TIME. Subject to the terms and conditions of this
Agreement, on the Closing Date, Merger Sub and IST will cause the Articles of
Merger to be executed, delivered and filed as provided in the OBCA. The Merger
shall become effective at the time of the filing of the Articles of Merger with
the Oregon Secretary of State or at such later time as Microfield and IST may
agree and as may be set forth in the Articles of Merger.
2.3 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles
of Incorporation of Merger Sub in effect immediately prior to the Effective Time
shall be the Articles of Incorporation of the Surviving Corporation until
amended in accordance with the OBCA, provided that Article I of the Articles of
Incorporation of Merger Sub shall be amended at the Effective Time to change the
name of Merger Sub to "Innovative Safety Technologies, Inc."
2.4 BYLAWS OF SURVIVING CORPORATION. The Bylaws of Merger Sub in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation until amended in accordance with the OBCA.
2.5 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The duly
qualified and acting directors and officers of Merger Sub immediately prior to
the Effective Time shall be the directors and officers of the Surviving
Corporation, to hold office as provided in the Bylaws of the Surviving
Corporation.
2.6 CONVERSION OF IST MEMBERSHIP INTERESTS. At the Effective Time, by
virtue of the Merger and without any action on the part of Merger Sub, IST,
Microfield or the Members, each holder of IST Membership Interests issued and
outstanding at the Effective Time shall be entitled to, and such interests will
be converted into the right to receive, the number of shares of Microfield
Common Stock as determined by the following formula:
X = I x 1,818,181
Where:
"X" is the number of shares of Microfield Common Stock to be
received by a Member and
"I" is the percentage of the issued and outstanding IST
Membership Interests held by such Member immediately before the
Effective Time.
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2.7 PROCEDURE FOR PAYMENT.
(a) SURRENDER OF MEMBERSHIP INTERESTS. From and after the
Effective Time, each holder of IST Membership Interests outstanding immediately
prior to the Effective Time, upon surrender to Microfield or its agent
designated for such purpose of any letters of transmittal or other documents as
may be reasonably requested by Microfield or its agent, shall be entitled to
receive a certificate representing the number of shares of Microfield Common
Stock into which such IST Membership Interests shall have been converted
pursuant to the provisions of Section 2.6.
(b) NO FRACTIONAL SHARES. No certificates or scrip evidencing
fractional shares of Microfield Common Stock shall be issued in the Merger, and
such fractional share interests will not entitle the owner thereof to any rights
as a shareholder of Microfield. Merger Consideration to be paid to each Member
will be rounded to the nearest whole share.
(c) NO FURTHER RIGHTS IN IST MEMBERSHIP INTERESTS. All shares
of Microfield Common Stock issued upon conversion of the IST Membership
Interests in accordance with the terms of this Agreement shall be deemed to have
been issued (and paid) in full satisfaction of all rights pertaining to the IST
Membership Interests.
2.8 MEMBERSHIP TRANSFER BOOKS. At the Effective Time, the membership
transfer books of IST shall be closed and there shall be no further registration
of transfers of IST Membership Interests thereafter on the records of IST. From
and after the Effective Time, the holders of IST Membership Interests
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such IST Membership Interests except as otherwise
provided in this Agreement or by Law.
2.9 UNREGISTERED SHARES. The Members have been informed by Microfield
that the Microfield Common Stock conveyed hereunder as Merger Consideration has
not been registered under the Securities Act of 1933 (the "SECURITIES ACT") and
that such Microfield Common Stock must be held for the time required by Rule 144
promulgated under the Securities Act ("RULE 144"), unless (i) the distribution
for sale of the Microfield Common Stock has been registered under the Securities
Act, (ii) a sale of the Microfield Common Stock is made in conformity with the
provisions of Rule 144, or (iii) in the opinion of counsel, which opinion is
reasonably acceptable to Microfield, some other exemption from registration is
available with respect to any such sale, transfer or other disposition of such
Microfield Common Stock.
2.10 STOCK CERTIFICATE LEGENDS. Each Member acknowledges and
understands that stock transfer instructions will be given to Microfield's
transfer agent with respect to the Merger Consideration and that there will be
placed on the certificates for such shares, or any substitution therefor, the
following legend:
"The securities evidenced by this certificate have not
been registered under the Securities Act of 1933 (the "Act") or
any applicable state law, and no interest therein may be sold,
distributed, assigned, offered, pledged or otherwise transferred
6
unless (a) there is an effective registration statement under
such Act and applicable state securities laws covering any such
transaction involving these securities or (b) the Company
receives an opinion of legal counsel for the holder of these
securities (concurred in by legal counsel for the Company) to the
effect that such transaction is exempt from registration or the
Company otherwise satisfies itself that such transaction is
exempt from registration."
2.11 APPOINTMENT OF REPRESENTATIVE. (a) The Representative is hereby
appointed as representative of the Members for purposes of this Agreement.
Member approval of this Agreement shall include confirmation of the authority of
the Representative. Microfield, Merger Sub and IST may rely upon the acts of the
Representative for all purposes permitted hereunder.
(b) The Representative shall have full power of substitution
to act in the name, place and stead of the Members in all matters in connection
with this Agreement. The Representative's power shall include the following
powers, without limitation: the power to act for the Members with regard to the
indemnification obligations hereunder; the power to compromise any claim on
behalf of the Members and to transact matters of litigation or arbitration in
connection with this Agreement; the power to do or refrain from doing all such
further acts and things on behalf of the Members that the Representative deems
necessary or appropriate in his sole discretion, and to execute all such
documents as the Representative shall deem necessary or appropriate, in
connection therewith; and the power to receive service of process in connection
with any claims hereunder.
(c) If the Representative resigns, dies or otherwise becomes
incapacitated and unable to serve as Representative, his successor shall be
appointed by a majority in interest of the Members (such majority in interest to
be determined in accordance with the proportionate interests of each Member in
the Microfield Common Stock received by the Members in the Merger).
(d) The Representative shall act for the Members hereunder in
the manner the Representative believes to be in the best interest of the Members
and consistent with his obligations hereunder, but shall have no duties or
obligations except as specifically set forth herein. In acting as representative
of the Members, the Representative may rely upon, and shall be protected in
acting or refraining from acting upon, an opinion or advice of counsel,
certificate of auditors or other certificate, statement, instrument, opinion,
report, notice, request, consent, order arbitrator's award, appraisal, bond or
other paper or documents reasonably believed by him to be genuine and to have
been signed or presented by the proper party or parties. The Representative
shall not be personally liable to the Members for any action taken, suffered or
omitted by him in good faith and reasonably believed by him to be authorized or
within the discretion of the rights or powers conferred upon him by this Section
2.11. The Representative may consult with counsel and any advice of such counsel
shall be full and complete authorization and protection in respect to any action
taken or suffered or omitted by him in such capacity in good faith and in
accordance with such opinion of counsel. The Representative may perform his
duties as Representative either directly or by or through his agents or
attorneys, and
7
the Representative shall not be responsible to the Members for any misconduct or
negligence on the part of any agent or attorney appointed with due care by him
hereunder.
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF IST
IST represents and warrants to Microfield and Merger Sub that, except as
set forth in the correspondingly numbered sections of the Disclosure Schedules:
3.1 ORGANIZATION. IST is a limited liability company duly organized
and validly existing under the laws of the jurisdiction of its formation and has
all requisite limited liability company power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. IST
is duly qualified or licensed and in good standing to do business in each
jurisdiction in which the character of the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not reasonably be expected to have a
Material Adverse Effect. IST has delivered to Microfield accurate and complete
copies of the Articles of Organization and Operating Agreement, as currently in
effect, of IST.
3.2 CAPITALIZATION. As of the date hereof, the IST Membership
Interests and the holders thereof are as set forth in Section 3.2 of the
Disclosure Schedules. All issued and outstanding IST Membership Interests are
duly authorized, validly issued, fully paid and non-assessable. Section 3.2 of
the Disclosure Schedules sets forth the name of the holder and the exercise
price of all options and warrants to purchase IST Membership Interests. Except
as disclosed in Section 3.2 of the Disclosure Schedules, there are no
outstanding rights, subscriptions, warrants, puts, calls, unsatisfied preemptive
rights, options or other agreements of any kind relating to any of the
outstanding or unissued IST Membership Interests or any other security of IST,
and there is no authorized or outstanding security of any kind convertible into
or exchangeable for any such membership interest or other security. There are no
obligations, contingent or other, of IST to repurchase, redeem or otherwise
acquire any IST Membership Interests or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
other entity.
3.3 SUBSIDIARIES. There are no Subsidiaries of IST.
3.4 AUTHORIZATION; BINDING AGREEMENT. IST has all requisite limited
liability company power and authority to execute and deliver this Agreement and
to complete the transactions contemplated hereby. The execution and delivery of
this Agreement and the completion of the transactions contemplated hereby,
including, but not limited to, the Merger, have been duly and validly authorized
by IST's manager, and no other limited liability company proceedings on the part
of IST are necessary to authorize the execution and delivery of this Agreement
or to complete the transactions contemplated hereby (other than adoption of this
Agreement by the Members in accordance with the OLLCA and the Operating
Agreement of IST). This Agreement has been duly and validly executed and
delivered by IST and constitutes the legal, valid and binding agreement of IST,
enforceable against IST in accordance with its
8
terms, except to the extent that enforceability thereof may be limited by the
Enforceability Exceptions.
3.5 GOVERNMENTAL APPROVALS. No consent, approval, waiver or
authorization of, notice to or declaration or filing with ("CONSENT") any
Governmental Authority, on the part of IST is required in connection with the
execution or delivery by IST of this Agreement or the completion by IST of the
transactions contemplated hereby other than (a) the filing of the Articles of
Merger with the Secretary of State of Oregon in accordance with the OBCA, and
(b) those Consents that, if they were not obtained or made, would not reasonably
be expected to have a Material Adverse Effect.
3.6 NO VIOLATIONS. The execution and delivery of this Agreement, the
completion of the transactions contemplated hereby and compliance by IST with
any of the provisions hereof will not (a) conflict with or result in any breach
of any provision of the Articles of Organization or Operating Agreement of IST,
(b) require any Consent under or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of, any Material Contract, (c) result in the
creation or imposition of any Lien upon any of the assets of IST or (d) subject
to obtaining the Consents from Governmental Authorities referred to in Section
3.5, violate any applicable provision of any Law to which IST or its assets or
properties are subject, except, in the case of each of clauses (b), (c) and (d)
above, for any deviations from the foregoing that would not reasonably be
expected to have a Material Adverse Effect.
3.7 IST FINANCIAL STATEMENTS. The unaudited financial statements and
unaudited interim financial statements of IST delivered to Microfield from July
31, 2001 (inception) through December 31, 2001 and for the six months ended June
30, 2002 (the "FINANCIAL STATEMENTS") have been prepared on an accrual basis
(except as may be indicated therein or in the notes thereto) and present fairly,
in all material respects, the financial position of IST as at the dates thereof
and the results of its operations and cash flows for the periods then ended,
subject to any adjustments described therein.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 3.8 of the Disclosure Schedules, from December 31, 2001 through the date
of this Agreement, there has not been: (a) any event that has had or would
reasonably be expected to have a Material Adverse Effect; (b) any declaration,
payment or setting aside for payment of any dividend or other distribution or
any redemption or other acquisition of any Membership Interests or securities of
IST by IST; (c) any material damage or loss to any material asset or property,
whether or not covered by insurance; (d) any change by IST in accounting
principles or practices; (e) any material revaluation by IST of any of its
assets, including writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; (f) any sale
of a material amount of property of IST, except in the ordinary course of
business; (g) any payments to IST employees or service providers outside of
IST's regular course of business; or (h) any other action or event, involving an
amount exceeding $5,000 that would have required the consent of Microfield
pursuant to Section 5.1 had such action or event occurred after the date of this
Agreement.
9
3.9 NO UNDISCLOSED LIABILITIES. Except as set forth in Section 3.9 of
the Disclosure Schedules, IST has no liabilities (absolute, accrued, contingent
or other), except liabilities (a) adequately provided for in IST's unaudited
balance sheet (including any related notes thereto) as of June 30, 2002 (the
"BALANCE SHEET") (b) incurred in the ordinary course of business on or before
June 30, 2002 and not required under GAAP to be reflected on the Balance Sheet,
(c) incurred since June 30, 2002 in the ordinary course of business consistent
with past practice, (d) incurred in connection with this Agreement or (e) that
would not reasonably be expected to have a Material Adverse Effect.
3.10 COMPLIANCE WITH LAWS. The business of IST has been operated in
compliance with all Laws applicable thereto, except for any non-compliance that
would not reasonably be expected to have a Material Adverse Effect.
3.11 PERMITS. Section 3.11 of the Disclosure Schedules contains a
complete and accurate list of each material Permit that is held by IST or that
otherwise relates to the business of, or to any of the assets owned or used by,
IST. Each Permit is valid and in full force and effect. Except as set forth in
Section 3.11 of the Disclosure Schedules, (a) IST has all Permits required in
connection with the operation of its business, (b) IST is not in violation of
any Permit and (c) no proceedings are pending or, to the Knowledge of IST,
threatened, to revoke or limit any Permit, except, in the case of each of
clauses (a) and (b), where the absence or violation would not reasonably be
expected to have a Material Adverse Effect.
3.12 LITIGATION. There is no suit, action or proceeding ("LITIGATION")
pending or, to the Knowledge of IST, threatened against IST, nor is there any
judgment, decree, injunction, rule or order of any Governmental Authority
outstanding against IST.
3.13 CONTRACTS. Section 3.13 of the Disclosure Schedules sets forth,
as of the date hereof, a list of the following contracts to which IST is a party
or by which its properties or assets is bound (the "MATERIAL CONTRACTS"): (a)
all loan agreements, indentures, mortgages, pledges, conditional sale or title
retention agreements, security agreements, guaranties, standby letters of
credit, equipment leases or lease purchase agreements, each in an amount equal
to or exceeding $5,000; (b) all contracts, agreements, commitments or other
understandings or arrangements other than those addressed in Section 3.14, but
excluding contracts, agreements, commitments or other understandings or
arrangements entered into in the ordinary course of business and involving
individual payments or receipts by IST of less than $5,000 over the term of such
contract, agreement, commitment or other understanding or arrangement; and (c)
all other agreements that are material to IST and not excluded under the
foregoing clauses. IST is not a party to any agreements to acquire in the future
the capital stock or substantially all the assets of another Person. Except as
disclosed in Section 3.13 of the Disclosure Schedules, to the Knowledge of IST
all the Material Contracts are valid and binding and are in full force and
effect and enforceable against IST in accordance with their respective terms,
subject to the Enforceability Exceptions, and IST is not in violation or breach
of or default under any Material Contract, except where the failure to be in
full force and effect or where such violation or breach would not reasonably be
expected to have a Material Adverse Effect. To the Knowledge of IST, no party is
in default, violation or breach of any Material Contract where such violation or
breach would reasonably be expected to have a Material Adverse Effect.
10
3.14 EMPLOYEE BENEFIT PLANS. (a) Section 3.14(a) of the Disclosure
Schedules lists all employee pension benefit plans (as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974 ("ERISA")), all employee
welfare benefit plans (as defined in Section 3(1) of ERISA) and all other bonus,
option, membership purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar fringe or employee benefit plans,
programs or arrangements, and any employment, executive compensation or
severance agreements, written or otherwise, as amended, modified or
supplemented, for the benefit of, or relating to, any former or current
employee, officer or consultant who is an individual or an individual doing
business in a corporate form (or any of their beneficiaries) of IST or any other
entity (whether or not incorporated) or which is under common control with IST
(an "ERISA AFFILIATE") within the meaning of Section 414(b), (c), (m) or (o) of
the Code or Section 4001(a)(14) or (b) of ERISA, or any IST Subsidiary, with
respect to which IST has or could have any current (actual or contingent)
material liability (together for purposes of this Section 3.14, the "EMPLOYEE
PLANS"). Prior to the date of this Agreement, IST has provided or made available
to Microfield copies of (i) each such written Employee Plan (or a written
description of any Employee Plan which is not written) and all related trust
agreements, insurance and other contracts (including policies), summary plan
descriptions, summaries of material modifications and any material
communications to plan participants, (ii) the three most recent annual reports
on Form 5500 series, with accompanying schedules and attachments, filed with
respect to each Employee Plan required to make such a filing, and (iii) the most
recent favorable determination letters issued for each Employee Plan and related
trust which is intended to qualify under Section 401(a) of the Code (and, if an
application for such determination is pending, a copy of the application for
such determination).
(b) (i) None of the Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any Person (other than in
accordance with Section 4980B of the Code or Part 6 of Subtitle B of Title I of
ERISA and none of the Employee Plans is subject to Title IV of ERISA or Section
412 of the Code); (ii) neither IST nor any ERISA Affiliate has ever contributed
to a "MULTIEMPLOYER PLAN" as such term is defined in Section 3(37) of ERISA;
(iii) to the Knowledge of IST, no "PARTY IN INTEREST" or "DISQUALIFIED PERSON"
(as defined in Section 3(14) of ERISA and Section 4975 of the Code) has at any
time engaged in a transaction with respect to any Employee Plan that could
subject IST or any ERISA Affiliate, directly or indirectly, to a tax, penalty or
other liability for prohibited transactions under ERISA or Section 4975 of the
Code, except for any such tax, penalty or liability that would not reasonably be
expected to result in a Material Adverse Effect; (iv) to the Knowledge of IST,
no fiduciary of any Employee Plan has breached any of the responsibilities or
obligations imposed upon fiduciaries under Title I of ERISA, except where such
breach would not reasonably be expected to result in a Material Adverse Effect;
(v) all Employee Plans have been established and maintained substantially in
accordance with their terms and have operated in compliance with the
requirements prescribed by any and all statutes (including ERISA and the Code),
orders, or governmental rules and regulations currently in effect with respect
thereto (including all applicable requirements for notification to participants
or the Department of Labor, the Internal Revenue Service (the "IRS") or the
Secretary of the Treasury), except where failure to do so would not reasonably
be expected to result in a Material Adverse Effect; and IST and each IST
Subsidiary have performed all obligations required to be performed by them
under, are not in default under or in violation of any Employee Plan except
where failure to do so would not
11
reasonably be expected to result in a Material Adverse Effect, and have no
Knowledge of any default or violation by any other party to, any of the Employee
Plans; (vi) each Employee Plan which is intended to be qualified under Sections
401 and 501 of the Code is the subject of a favorable determination letter from
the IRS, and to the Knowledge of IST nothing has occurred that may reasonably be
expected to impair such determination; (vii) all contributions required to be
made with respect to any Employee Plan pursuant to the terms of the Employee
Plan have been made on or before their due dates, including due dates with
respect to employee deferrals; and (viii) there are no complaints, charges or
claims against IST pending or to IST's Knowledge threatened to be brought by or
filed with any Governmental Authority based on, arising out of, in connection
with or otherwise relating to the classification of any individual by IST as an
independent contractor or "LEASED EMPLOYEE" (within the meaning of section
414(n) of the Code) rather than as an employee.
(c) Section 3.14(c) of the Disclosure Schedules sets forth a
true and complete list of each current or former employee, officer or director
of IST or any of its Subsidiaries who holds (i) any option to purchase IST
Membership Interests as of the date hereof, together with the percentage of IST
Membership Interests subject to such option, the option price of such option (to
the extent determined as of the date hereof), whether such option is intended to
qualify as an incentive stock option within the meaning of Section 422(b) of the
Code (an "ISO"), and the expiration date of such option; (ii) any IST Membership
Interests that are restricted as a result of an agreement with or equity
participation plan of IST; and (iii) any other right, directly or indirectly, to
receive IST Membership Interests, except as otherwise disclosed in Section 3.14
of the Disclosure Schedules, together with the percentage of IST Membership
Interests subject to such right. Section 3.14(c) of the Disclosure Schedules
also sets forth the total number of any such ISOs and any such nonqualified
options and other such rights.
(d) Unless otherwise disclosed in Section 3.14(a) of the
Disclosure Schedules, Section 3.14(d) of the Disclosure Schedules sets forth a
true and complete list of (i) all employment agreements with officers of IST or
any of its Subsidiaries; (ii) all agreements with consultants who are
individuals obligating IST or any of its Subsidiaries to make annual cash
payments in an amount exceeding $2,000; (iii) all agreements that individually
or in the aggregate are or could be material with respect to the services of
independent contractors or leased employees who are individuals or individuals
doing business in a corporate form whether or not they participate in any of the
Employee Plans; (iv) all officers of IST or any of its Subsidiaries who have
executed a non-competition agreement with IST or any of its Subsidiaries; (v)
all severance agreements, programs and policies of IST or any of its
Subsidiaries with or relating to its employees, in each case with outstanding
commitments exceeding $10,000, excluding programs and policies required to be
maintained by Law; and (vi) all plans, programs, agreements and other
arrangements of IST that contain change in control provisions.
(e) (i) Except as set forth in Section 3.14(e) of the
Disclosure Schedules, no Employee Plan is an employee stock ownership plan
(within the meaning of Section 4975(e)(7) of the Code) or otherwise invests in
IST Common Stock; and (ii) the completion of the transactions contemplated by
this Agreement will not result in an increase in the amount of compensation or
benefits or accelerate the vesting or timing of payment of any benefits or
12
compensation payable in respect of any employee except as disclosed in Section
3.14(e) of the Disclosure Schedules or except where such increase or
acceleration would not reasonably be expected to result in a Material Adverse
Effect.
(f) Except as set forth in Section 3.14(f) of the Disclosure
Schedules, IST maintains no Employee Plan covering non-U.S. employees.
3.15 TAXES AND TAX RETURNS. (a) IST has timely filed, or caused to be
timely filed, all material Tax Returns required to be filed by it, and all such
Tax Returns are true, complete and correct in all material respects, and has
timely paid, collected or withheld, or caused to be paid, collected or withheld,
all material amounts of Taxes required to be paid, collected or withheld, other
than such Taxes for which adequate reserves in IST Financial Statements have
been established and which are being contested in good faith and as identified
in Section 3.15 of the Disclosure Schedules. Except as set forth in Section 3.15
of the Disclosure Schedules, there are no material claims or assessments pending
against IST (or its Members with respect to IST) for any alleged deficiency in
any Tax, and IST has not been notified in writing of any proposed Tax claims or
assessments against IST (or its Members with respect to IST) (other than in each
case, claims or assessments for which adequate reserves in the Financial
Statements have been established and which are being contested in good faith and
as identified in Section 3.15 of the Disclosure Schedules or claims or
assessments which are immaterial in amount). Neither IST nor its Members with
respect to IST has executed any waivers or extensions of any applicable statute
of limitations to assess any material amount of Taxes. There are no outstanding
requests by IST (or its Members with respect to IST) for any extension of time
within which to file any material Tax Return or within which to pay any material
amounts of Taxes shown to be due on any Tax Return. There are no Liens for
material amounts of Taxes on the assets of IST (or its Members with respect to
IST) except for statutory liens for current Taxes not yet due and payable. There
are no outstanding powers of attorney enabling any party to represent IST (or
its Members with respect to IST) or any of its Subsidiaries with respect to Tax
matters.
(b) For purposes of this Agreement, the term "TAX" shall mean
any federal, state, local, foreign or provincial income, gross receipts,
property, sales, use, license, excise, franchise, employment, payroll,
alternative or add-on minimum, ad valorem, transfer or excise tax, or any other
tax, custom, duty, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or penalty imposed by any
Governmental Authority. The term "TAX RETURN" shall mean a report, return or
other information (including any attached schedules or any amendments to such
report, return or other information) supplied to or filed with or required to be
supplied to or filed with a governmental entity with respect to any Tax,
including an information return, claim for refund, amended return or declaration
or estimated Tax.
(c) Except as set forth in Section 3.15 of the Disclosure
Schedules, (i) IST has been a partnership for federal and state income tax
purposes at all times since its inception and neither IST nor any member on
behalf of IST has elected or will elect to have IST be treated as an association
for federal tax purposes or be excluded from application of the provisions of
subchapter K of the Code; (ii) IST has not been included in a combined,
consolidated or unitary Tax Return and other than with respect to IST, IST is
not currently liable for Taxes of any other
13
Person, or is currently under any contractual obligation to indemnify any Person
with respect to Taxes (except for customary agreements to indemnify lenders or
securityholders in respect of taxes other than income taxes), or is a party to
any tax sharing agreement or any other agreement providing for payments by IST
with respect to Taxes; (iii) IST is not a party to any joint venture,
partnership or other arrangement or contract (other than its own operating
agreement) that could be treated as a partnership for federal income tax
purposes; (iv) IST has not entered into any sale leaseback or any leveraged
lease transaction that fails to satisfy the requirements of Revenue Procedure
75-21 (or similar provisions of foreign law); (v) IST has not agreed nor is
required, as a result of a change in method of accounting or otherwise, to
include any adjustment under Section 481 of the Code (or any corresponding
provision of state, local or foreign law) in taxable income; (vi) IST is not a
party to any agreement, contract, arrangement or plan that would result (taking
into account the transactions contemplated by this Agreement), separately or in
the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code; (vii) IST is not liable with respect to any
indebtedness the interest of which is not deductible for applicable federal,
foreign, state or local income tax purposes; (viii) IST is not a "consenting
corporation" under Section 341(f) of the Code or any corresponding provision of
state, local or foreign law; (ix) IST has complied with all applicable laws,
rules, and regulations relating to the withholding and payment of Taxes except
where the amount of taxes involved is not material; and (x) none of the assets
owned by IST is property that is required to be treated as owned by any other
Person pursuant to Section 168(g)(8) of the Internal Revenue Code of 1954, as
amended, as in effect immediately prior to the enactment of the Tax Reform Act
of 1986, or is "tax-exempt use property" within the meaning of Section 168(h) of
the Code.
3.16 INTELLECTUAL PROPERTY. (a) Section 3.16(a) of the Disclosure
Schedules sets forth a list of (i) all patents and patent applications owned by
IST worldwide; (ii) all trademark and service xxxx registrations and all
trademark and service xxxx applications, material common law trademarks,
material trade dress and material slogans, and all trade names owned by IST
worldwide; (iii) all copyright registrations and copyright applications owned by
IST worldwide; and (iv) all licenses in which IST is (A) a licensor with respect
to any of the patents, trademarks, service marks, trade names or copyrights
listed in Section 3.16 of the Disclosure Schedules or (B) a licensee of any
other Person's patents, trade names, trademarks, service marks or copyrights
except for any licenses of software programs that are commercially available
"off the shelf."
(b) IST owns, or is licensed or otherwise possesses legal
enforceable rights to use, all patents, trademarks, trade names, service marks,
trade dress, slogans, copyrights and any applications therefor, technology,
know-how, trade secrets, computer software programs or applications, domain
names and tangible or intangible proprietary information or materials that are
used in the respective businesses of IST as currently conducted (the
"INTELLECTUAL PROPERTY RIGHTS"), except for any such failures to own, be
licensed or possess that would not reasonably be expected to have a Material
Adverse Effect.
(c) IST has made all necessary filings and recordations for
the patents, patent applications, trademark and service xxxx registrations,
trademark and service xxxx applications, copyright registrations and copyright
applications set forth in Section 3.16(a) of the Disclosure Schedules, except
where the failure to make such filings or recordations would not reasonably be
14
expected to have a Material Adverse Effect. There are not currently pending, and
to the Knowledge of IST there are no valid grounds for, any bona fide claims (i)
that the business of IST infringes on any copyright, patent, trademark, service
xxxx or trade secret; (ii) against the use by IST of any trademarks, trade
names, trade secrets, copyrights, patents, technology, know-how or computer
software programs and applications used in the business of IST as currently
conducted or as proposed to be conducted; (iii) challenging the exclusive
ownership, validity or effectiveness of any of Intellectual Property Rights; or
(iv) challenging the license or legally enforceable right to use of any
third-party patents, trademarks, service marks and copyrights by IST, except, in
the case of each of clauses (i), (ii), (iii) and (iv) above, for matters that,
if determined adversely to IST, would not reasonably be expected to have a
Material Adverse Effect.
(d) Except as set forth in Section 3.16 of the Disclosure
Schedules, to the Knowledge of IST, there is no material unauthorized use,
infringement or misappropriation of any of Intellectual Property Rights by any
third party, including any employee or former employee of IST.
(e) Except as set forth in Section 3.16 of the Disclosure
Schedules, there are no valid royalty agreements, license agreements (except for
any license implied by the sale or products) or similar arrangements with
respect to the Intellectual Property.
3.17 EMPLOYEE AND LABOR MATTERS.
(a) Section 3.17(a) of the Disclosure Schedules sets forth a
list of all employees of IST.
(b) Except as set forth in Section 3.17 of the Disclosure
Schedules, (i) there are no controversies pending or, to the Knowledge of IST,
threatened, between IST and any of its employees, which controversies would
reasonably be expected to have a Material Adverse Effect; (ii) IST is not a
party to any collective bargaining agreement or other labor union contract
applicable to Persons employed by IST, nor, as of the date of this Agreement,
does IST know of any activities or proceedings of any labor union to organize
any such employees; and (iii) IST has no Knowledge of any strikes, slowdowns,
work stoppages, lockouts, or threats thereof, by or with respect to any
employees of IST that would reasonably be expected to have a Material Adverse
Effect.
3.18 LIMITATION ON BUSINESS CONDUCT. IST is not a party to, nor has
any obligation under, any contract or agreement, written or oral, that contains
any covenants currently or prospectively limiting in any material respect the
freedom of IST to engage in any line of business or to compete with any entity.
3.19 TITLE TO PROPERTY. Except as set forth in Section 3.19 of the
Disclosure Schedules, IST owns the properties and assets that it purports to own
free and clear of all Liens, except for Liens that arise in the ordinary course
of business and do not materially impair IST's ownership or use of such
properties or assets, Liens for taxes not yet due or delinquent or being
contested in good faith by appropriate proceedings for which reserves have been
established in
15
accordance with GAAP and Liens securing obligations under IST's credit
agreements, loan agreements and equipment leases. Except as set forth in
Schedule 3.19 of the Disclosure Schedules, with respect to the property and
assets it leases, IST, and to the best of IST's Knowledge, each of the other
parties thereto, is in material compliance with such leases, and IST holds a
valid leasehold interest free of any Liens, except those referred to above. The
rights, properties and assets presently owned, leased or licensed by IST include
all rights, properties and assets necessary to permit IST to conduct its
business in all material respects in the same manner as its businesses have been
conducted prior to the date hereof.
3.20 OWNED AND LEASED PREMISES. Each of the buildings, structures and
premises owned or leased by IST is in reasonably good repair and operating
condition.
3.21 ENVIRONMENTAL MATTERS. Except as set forth in Section 3.21 of the
Disclosure Schedules:
(a) IST is in material compliance with the Environmental Laws,
which compliance includes the possession by IST of all material Permits and
governmental authorizations required under applicable Environmental Laws, and
compliance in all material respects with the terms and conditions thereof,
except in each case where such non-compliance would not reasonably be expected
to have a Material Adverse Effect. IST has not received any written
communication from a Governmental Authority that alleges that is not in such
material compliance except where such non-compliance would not reasonably be
expected to have a Material Adverse Effect.
(b) There are no Environmental Claims, including claims based
on "arranger liability," pending or, to the Knowledge of IST, threatened against
IST or to the Knowledge of IST, pending or threatened against any Person or
entity whose liability for any Environmental Claim IST has to the Knowledge of
IST retained or assumed either contractually or by operation of law, except for
such Environmental Claims that would not reasonably be expected to have a
Material Adverse Effect.
(c) To the Knowledge of IST, there are no past or present
actions, inactions, activities, circumstances, conditions, events or incidents,
including the release, emission, discharge, presence or disposal of any Material
of Environmental Concern, that would form the basis of any Environmental Claim
against IST or against any Person whose liability for any Environmental Claim
IST has retained or assumed either contractually or by operation of law, except
for such Environmental Claims that would not reasonably be expected to have a
Material Adverse Effect.
(d) IST is in compliance in all material respects with
Environmental Laws as they relate to (i) any on-site or off-site locations where
to IST's Knowledge, IST has stored, disposed or arranged for the disposal of
Materials of Environmental Concern for itself (but not on behalf of others) or
(ii) any underground storage tanks located on property owned or leased by IST of
which IST has Knowledge.
(e) For purposes of this Agreement:
16
(i) "ENVIRONMENTAL CLAIM" means any written claim,
action, cause of action, investigation or written notice by any Person alleging
potential liability (including potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from (A) the presence, or release into the environment, of any Material of
Environmental Concern at any location, whether or not owned or operated by IST,
or (B) circumstances forming the basis of any violation, or alleged violation,
of any Environmental Law.
(ii) "ENVIRONMENTAL LAWS" means all Federal, state,
local and foreign laws or regulations relating to pollution or protection of
human health and the environment (including ambient air, surface water, ground
water, land surface or sub-surface strata), including laws and regulations
relating to emissions, discharges, releases or threatened releases of Materials
of Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
(iii) "MATERIAL OF ENVIRONMENTAL CONCERN" means
chemicals, pollutants, contaminants, hazardous materials, hazardous substances
and hazardous wastes, toxic substances, petroleum and petroleum products that
are regulated under the Environmental Laws.
3.22 INSURANCE. Section 3.22 of the Disclosure Schedules contains a
complete and accurate list of all fire, liability, worker's compensation and
other forms of insurance insuring IST, and its respective officers and
directors, assets and operations. The insurance polices maintained by IST are
with reputable insurance carriers and have no premium delinquencies.
3.23 PRODUCT LIABILITY AND RECALLS.
(a) Except as disclosed in Section 3.23 of the Disclosure
Schedules, to IST's Knowledge, there is no claim, pending or overtly threatened,
against IST for injury to Person or property of employees or any third parties
suffered as a result of the sale of any product or performance of any service by
IST, including claims arising out of the defective or unsafe nature of its
products or services, that would reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
(b) Except as disclosed in Section 3.23 of the Disclosure
Schedules, there is no pending or, to the Knowledge of IST, overtly threatened
recall or investigation of any product sold by IST, which recall or
investigation would reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect.
3.24 CUSTOMERS. Section 3.24 of the Disclosure Schedules sets forth a
list of IST's 10 largest customers (detailed, in the case of government
agencies, by separate government agency) in terms of gross sales for the twelve
month period ended June 30, 2002. Except as set forth in Section 3.24 of the
Disclosure Schedules, since June 30, 2002, there have not been any changes in
the business relationships of IST with any of the customers named therein that
would constitute a Material Adverse Effect. Except as set forth in Section 3.24
of the Disclosure
17
Schedules, no customer of IST accounted for more than 5% of the revenues of IST
for the twelve month period ended June 30, 2002.
3.25 INTERESTED PARTY TRANSACTIONS. Except as set forth in Section
3.25 of the Disclosure Schedules, no event has occurred that would be required
to be reported, if IST were a reporting company under Section 13 of the
Securities Exchange Act of 1934, pursuant to Item 404 of Regulation S-K
promulgated by the Securities and Exchange Commission (without regard to the
$60,000 threshold contained in Item 404).
3.26 FINDERS AND INVESTMENT BANKERS. Neither IST nor any of its
officers or directors has employed any broker, finder or financial advisor or
otherwise incurred any liability for any brokerage fees, commissions, or
financial advisors' or finders' fees in connection with the transactions
contemplated hereby.
3.27 FULL DISCLOSURE. No statement contained in any certificate or
schedule, including, without limitation, the Disclosure Schedules, furnished or
to be furnished by IST to Microfield or Merger Sub in, or pursuant to the
provisions of, this Agreement contains or shall contain any untrue statement of
a material fact or omits or will omit to state any material fact necessary, in
the light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF MICROFIELD AND MERGER SUB
Microfield and Merger Sub jointly and severally represent and warrant to
IST that:
4.1 ORGANIZATION AND GOOD STANDING. Each of Microfield and Merger Sub
is a corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.
4.2 CAPITALIZATION. The authorized capital stock of Microfield
consists of (a) 25,000,000 shares of Microfield Common Stock and (b) 10,000,000
shares of preferred stock (the "PREFERRED SHARES"). As of September 6, 2002, (i)
4,596,066 shares of Microfield Common Stock were issued and outstanding, (ii) no
shares of Preferred Shares were issued and outstanding, (iii) 75,000 shares of
Microfield Common Stock were reserved for future issuance pursuant to
outstanding options to purchase Microfield Common Stock, and (iv) 2,066,000
shares of Microfield Common Stock were reserved for future issuance upon
exercise of warrants to purchase Microfield Common Stock. No other capital stock
of Microfield is authorized or issued. Microfield has agreed to issue shares of
Microfield Common Stock pursuant to the Common Stock Purchase Agreement. All
issued and outstanding Microfield Common Stock are, and the Microfield Common
Stock to be issued pursuant to the Common Stock Purchase Agreement will be, duly
authorized, validly issued, fully paid and nonassessable. The shares of
Microfield Common Stock to be issued to the Members in the Merger will be duly
authorized, validly issued, fully paid and nonassessable.
4.3 AUTHORIZATION; BINDING AGREEMENT. Microfield and Merger Sub have
all requisite corporate power and authority to execute and deliver this
Agreement and to complete
18
the transactions contemplated hereby. The execution and delivery of this
Agreement and the completion of the transactions contemplated hereby, including,
but not limited to, the Merger, have been duly and validly authorized by the
respective boards of directors of Microfield and Merger Sub, and no other
corporate proceedings on the part of Microfield or Merger Sub are necessary to
authorize the execution and delivery of this Agreement or to complete the
transactions contemplated hereby (other than the requisite approval by the sole
shareholder of Merger Sub of this Agreement and the Merger). This Agreement has
been duly and validly executed and delivered by each of Microfield and Merger
Sub and constitutes the legal, valid and binding agreement of Microfield and
Merger Sub, enforceable against each of Microfield and Merger Sub in accordance
with its terms, subject to the Enforceability Exceptions.
4.4 GOVERNMENTAL APPROVALS. No Consent from or with any Governmental
Authority on the part of Microfield or Merger Sub is required in connection with
the execution or delivery by Microfield and Merger Sub of this Agreement or the
completion by Microfield and Merger Sub of the transactions contemplated hereby
other than (a) the filing of the Articles of Merger with the Secretary of State
of Oregon in accordance with the OBCA, and (b) those Consents that, if they were
not obtained or made, would not reasonably be expected to have a Material
Adverse Effect.
4.5 NO VIOLATIONS. The execution and delivery of this Agreement, the
completion of the transactions contemplated hereby and compliance by Microfield
or Merger Sub with any of the provisions hereof will not (a) conflict with or
result in any breach of any provision of the Articles of Incorporation and
Bylaws of Microfield or other similar documents of any Subsidiary of Microfield,
or (b) require any Consent under or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of, any material note, bond, mortgage,
indenture, contract, lease, license, agreement or instrument to which Microfield
or any Subsidiary of Microfield is a party or by which any of them or any of
their respective assets or property is subject, except in any such case for any
such conflicts, violations, breaches, defaults or other occurrences that would
not prevent or delay completion of the Merger, or otherwise materially and
adversely affect the ability of Microfield or Merger Sub to perform their
respective obligations under this Agreement.
4.6 LITIGATION. There is no Litigation pending or, to the Knowledge
of Microfield, threatened against Microfield or any of its Subsidiaries which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, nor is there any judgment, decree, injunction, rule or
order of any Governmental Authority outstanding against Microfield or any of its
Subsidiaries which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.
4.7 FINDERS AND INVESTMENT BANKERS. Except for $10,000 payable to
Xxxx X. Xxxxxx, neither Microfield nor any of its officers or directors has
employed any broker, finder or financial advisor or otherwise incurred any
liability for any brokerage fees, commissions, or financial advisors' or
finders' fees in connection with the transactions contemplated hereby.
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4.8 SEC REPORTS AND FINANCIAL STATEMENTS. Microfield has furnished
IST and the Members with complete copies of all registration statements, reports
and proxy statements, including amendments thereto, filed with the SEC since
December 31, 2000 and prior to the date of this Agreement (collectively, the
"MICROFIELD SEC REPORTS"). Each of the Microfield SEC Reports, as of the date
filed, complied in all material respects with the applicable requirements of the
Act, the Securities Exchange Act of 1934 and the rules and regulations
promulgated by the Securities and Exchange Commission thereunder. Without
limiting the generality of the foregoing, there are no contracts to which
Microfield is a party that are required to be filed as exhibits to the
Microfield SEC Reports pursuant to Item 601(b)(10) of Regulation S-B promulgated
under the Act which have not been so filed.
4.9 NO UNDISCLOSED LIABILITIES. Except as disclosed in the Microfield
SEC Reports, Microfield has no liabilities (absolute, accrued, contingent or
other), except liabilities (a) adequately provided for in Microfield's unaudited
balance sheet (including any related notes thereto) as of June 29, 2002 (the
"MICROFIELD BALANCE SHEET") (b) incurred in the ordinary course of business on
or before June 29, 2002 and not required under GAAP to be reflected on the
Microfield Balance Sheet, (c) incurred since June 29, 2002 in the ordinary
course of business consistent with past practice, (d) incurred in connection
with this Agreement or (e) that would not reasonably be expected to have a
Material Adverse Effect.
4.10 TAXES AND TAX RETURNS. (a) Microfield has timely filed, or caused
to be timely filed, all Tax Returns required to be filed by it, and all such Tax
Returns are true, complete and correct in all material respects, and has timely
paid, collected or withheld, or caused to be paid, collected or withheld, all
material amounts of Taxes required to be paid, collected or withheld, other than
such Taxes for which adequate reserves in the financial statements contained in
the Microfield SEC Reports have been established and which are being contested
in good faith. There are no material claims or assessments pending against
Microfield for any alleged deficiency in any Tax, and neither Microfield nor any
of its officers, directors or employees has been notified of any proposed Tax
claims or assessments against Microfield. Microfield has not executed any
currently effective waivers or extensions of any applicable statute of
limitations to assess any material amount of Taxes. There are no outstanding
requests by Microfield for any extension of time within which to file any Tax
Return or within which to pay any material amounts of Taxes shown to be due on
any Tax Return. There are no Liens for material amounts of Taxes on the assets
of Microfield except for statutory liens for current Taxes not yet due and
payable. There are no outstanding powers of attorney enabling any party to
represent Microfield with respect to Tax matters.
4.11 NO PRIOR ACTIVITIES. Except for obligations or liabilities
incurred in connection with its incorporation or organization or the negotiation
and completion of this Agreement and the transactions contemplated hereby
(including any financing in connection therewith), Merger Sub has not incurred
any obligations or liabilities and has not engaged in any business or activities
of any type or kind whatsoever or entered into any agreements or arrangements
with any Person.
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ARTICLE V: ADDITIONAL COVENANTS OF IST
IST covenants and agrees as follows:
5.1 CONDUCT OF BUSINESS OF IST. (a) Unless Microfield shall otherwise
consent in writing (which consent, in the case of paragraphs (D), (E), (F), (H),
(I), or (J) below, shall not be unreasonably withheld) and except as expressly
contemplated by this Agreement or in the Disclosure Schedules, during the period
from the date of this Agreement to the Effective Time, (i) IST shall conduct its
business in the ordinary course and consistent with past practice, and IST shall
use its reasonable best efforts to preserve substantially intact its business
organization, to keep available the services of its present officers and
employees and to preserve the present commercial relationships of IST with
Persons with whom IST does significant business and (ii) without limiting the
generality of the foregoing, IST will not:
(A) amend or propose to amend its Articles of
Organization or Operating Agreement (or similar organizational documents);
(B) authorize for issuance, issue, grant, sell,
pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any
equity interests in IST, or any options, warrants, commitments, subscriptions or
rights of any kind to acquire or sell any equity interests in or other
securities of IST, including, but not limited to, any securities convertible
into or exchangeable for equity interests in IST;
(C) split, combine or reclassify any of its
membership interests or declare, pay or set aside any dividend or other
distribution (whether in cash, equity interests or property or any combination
thereof) in respect of its membership interest, or directly or indirectly
redeem, purchase or otherwise acquire or offer to acquire any of its equity
interests or other securities;
(D) create or incur any indebtedness for
borrowed money in excess of $5,000 or issue any debt securities or make any
loans or advances;
(E) (a) sell, pledge, dispose of or encumber any
assets of IST; (b) authorize any capital expenditures or purchases of fixed
assets in excess of $5,000; (c) assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any Person, or make any
loans or advances; or (d) voluntarily incur any material liability or obligation
(absolute, contingent or otherwise) in excess of $5,000.
(F) increase in any manner the compensation of
any of its officers or employees or enter into, establish, amend or terminate
any employment, consulting, retention, change in control, collective bargaining,
bonus or other incentive compensation, profit sharing, health or other welfare,
stock option or other equity, pension, retirement, vacation, severance, deferred
compensation or other compensation or benefit plan, policy, agreement, trust,
fund or arrangement with, for or in respect of, any member, officer, director,
employee, consultant or affiliate other than, in any such case referred to
above, as may be required by Law or as required pursuant to the terms of
agreements in effect on the date of this Agreement;
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(G) alter through merger, liquidation,
reorganization, restructuring or in any other fashion the limited liability
company structure or ownership of IST;
(H) except as may be required as a result of a
change in Law, change any of the accounting principles or practices used by it;
(I) make any tax election or settle or
compromise any income tax liability;
(J) pay, discharge or satisfy any material
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or other), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of liabilities
reflected or reserved against in, or contemplated by, the Financial Statements
(or the notes thereto) of IST or incurred in the ordinary course of business
consistent with past practice;
(K) take, or agree in writing or otherwise to
take, any of the foregoing actions or any action that would make any of the
representations or warranties of IST contained in this Agreement untrue or
incorrect in any material respect at or prior to the Effective Time; or
(L) acquire (by merger, consolidation, or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof.
(b) IST shall comply with all Laws applicable to it or any of its
properties, assets or business and to maintain in full force and effect all
Permits necessary for such business, except in any such case for any failure so
to comply or maintain that would not reasonably be expected to result in a
Material Adverse Effect.
5.2 NOTIFICATION OF CERTAIN MATTERS. IST shall give prompt notice to
Microfield if any of the following occur after the date of this Agreement: (a)
receipt of any notice or other communication in writing from any party alleging
that the Consent of such party is or may be required in connection with the
transactions contemplated by this Agreement; (b) receipt of any notice or other
communication from any Governmental Authority in connection with the
transactions contemplated by this Agreement; (c) the occurrence of an event that
would be reasonably likely (i) to have a Material Adverse Effect or (ii) to
cause any condition set forth in Section 8.1 or 8.2 to be unsatisfied; or (d)
the commencement or threat of any Litigation involving or affecting IST, or any
of its respective properties or assets, or, to IST's Knowledge, any employee,
agent, director, officer or member, in his or her capacity as such, of IST
which, if pending on the date hereof, would have been required to have been
disclosed pursuant to this Agreement or which relates to the completion of the
Merger.
5.3 ACCESS AND INFORMATION. Between the date of this Agreement and
the Effective Time, and without intending by this Section 5.3 to limit any of
the other obligations of the parties under this Agreement, IST will give, and
shall direct its accountants and legal counsel to give, Microfield and its
authorized representatives (including, without limitation, its financial
advisors, accountants and legal counsel), at reasonable times and without undue
disruption to or
22
interference with the normal conduct of the business and affairs of IST, access
as reasonably required in connection with the transactions provided for in this
Agreement to all offices and other facilities and to all contracts, agreements,
commitments, books and records of or pertaining to IST and will furnish
Microfield with such financial and operating data and other information with
respect to the business and properties of IST as Microfield may from time to
time reasonably request in connection with such transactions.
5.4 MEMBER APPROVAL. As soon as practicable, IST will take all steps
necessary to duly call, give notice of, convene and hold the Special Meeting for
the purpose of voting upon the Merger, this Agreement and the transactions
contemplated hereby.
5.5 REASONABLE BEST EFFORTS. Subject to the terms and conditions
herein provided, IST agrees to use reasonable best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to complete and make effective as promptly as practicable
the transactions contemplated by this Agreement, including, but not limited to,
obtaining all Consents from Governmental Authorities and other parties required
for the completion of the Merger and the transactions contemplated thereby,
including without limitation all Consents required under any Material Contract.
Upon the terms and subject to the conditions hereof, IST agrees to use
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary to satisfy the other conditions of the
Closing set forth herein.
5.6 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, IST
shall not, and shall use reasonable best efforts to cause its affiliates not to,
issue or cause the publication of any press release or any other announcement
with respect to the Merger or the transactions contemplated hereby without the
consent of Microfield, except where such release or announcement is required by
applicable Law, in which case IST, prior to making such announcement, will
consult with Microfield regarding the same.
5.7 COMPLIANCE. In completing the transactions contemplated hereby,
IST shall comply with all applicable Laws.
5.8 IST OPTIONS AND WARRANTS. IST shall take all action necessary to
ensure that all outstanding options, warrants or similar rights to purchase
equity interests in IST have been exercised or cancelled prior to the Closing
Date.
ARTICLE VI: ADDITIONAL COVENANTS OF MICROFIELD AND MERGER SUB
Microfield and Merger Sub covenant and agree as follows:
6.1 NOTIFICATION OF CERTAIN MATTERS. Microfield shall give prompt
notice to IST if any of the following occur after the date of this Agreement:
(a) receipt of any notice or other communication in writing from any party
alleging that the Consent of such party is or may be required in connection with
the transactions contemplated by this Agreement; (b) receipt of any notice or
other communication from any Governmental Authority in connection with the
transactions contemplated by this Agreement; (c) the occurrence of an event that
would be reasonably likely (i) to have a Material Adverse Effect or (ii) to
cause any condition set forth in
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Section 8.1 or 8.3 to be unsatisfied; or (d) the commencement or threat of any
Litigation involving or affecting Microfield, or any of its respective
properties or assets, or, to Microfield's Knowledge, any employee, agent,
director, or officer, in his or her capacity as such, of Microfield which, if
pending on the date hereof, would have been required to have been disclosed
pursuant to this Agreement or which relates to the completion of the Merger.
6.2 ACCESS AND INFORMATION. Between the date of this Agreement and
the Effective Time, and without intending by this Section 6.2 to limit any of
the other obligations of the parties under this Agreement, Microfield will give,
and shall direct its accountants and legal counsel to give, IST and its
authorized representatives (including, without limitation, its financial
advisors, accountants and legal counsel), at reasonable times and without undue
disruption to or interference with the normal conduct of the business and
affairs of Microfield, access as reasonably required in connection with the
transactions provided for in this Agreement to all offices and other facilities
and to all contracts, agreements, commitments, books and records of or
pertaining to Microfield and will furnish IST with such financial and operating
data and other information with respect to the business and properties of
Microfield as IST may from time to time reasonably request in connection with
such transactions.
6.3 REASONABLE BEST EFFORTS. Subject to the terms and conditions herein
provided, Microfield and Merger Sub agree to use reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to complete and make effective as promptly
as practicable the transactions contemplated by this Agreement, including, but
not limited to, obtaining all Consents from Governmental Authorities and other
third parties required for the completion of the Merger and the transactions
contemplated by this Agreement, including without limitation all Consents
required under any of Microfield's material contracts. Upon the terms and
subject to the conditions hereof, Microfield and Merger Sub agree to use
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary to satisfy the other conditions of the
Closing set forth herein.
6.4 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect,
Microfield and Merger Sub shall not, and shall use reasonable best efforts to
cause their affiliates not to, issue or cause the publication of any press
release or any other announcement with respect to the Merger or the transactions
contemplated by this Agreement without the consent of the Surviving Corporation
(such consent not to be unreasonably withheld or delayed), except where such
release or announcement is required by applicable Law, in which case Microfield,
prior to making such announcement, will consult with IST regarding the same.
6.5 COMPLIANCE. In completing the transactions contemplated by this
Agreement, Microfield and Merger Sub shall comply in, and cause their
Subsidiaries to comply or to be in compliance, in all material respects, with
all applicable Laws.
ARTICLE VII: SURVIVAL; INDEMNIFICATION
7.1 SURVIVAL. All representations, warranties, covenants and
agreements made in this Agreement or in any exhibit, schedule, certificate or
agreement delivered in accordance with this Agreement (collectively, the
"RELATED DOCUMENTS"), shall survive any investigation by or on
24
behalf of any party, the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and any termination or
expiration of this Agreement.
7.2 INDEMNIFICATION BY MEMBERS. Notwithstanding any investigation by
Microfield, from and after the Closing, the Members shall indemnify, hold
harmless and, to the extent provided in Section 7.5(a), defend Microfield, its
subsidiaries, shareholders, affiliates, officers, directors, employees, agents,
successors and assigns (collectively, "MICROFIELD'S INDEMNIFIED PERSONS") from
and against, and reimburse each of Microfield's Indemnified Persons with respect
to, any and all losses, damages, liabilities, costs, and expenses, including
interest from the Closing Date to the time of payment, penalties and reasonable
attorneys' fees (collectively, "DAMAGES") incurred by any of Microfield's
Indemnified Persons by reason of or arising out of or in connection with (a) any
breach or inaccuracy of any representation or warranty of IST made in this
Agreement or any Related Document or (b) any failure by IST to perform any
covenant required to be performed by it pursuant to this Agreement or any
Related Document. This indemnification extends to any Damages suffered by any of
Microfield's Indemnified Persons, whether or not a claim is made against any of
Microfield's Indemnified Persons by any third party.
7.3 INDEMNIFICATION BY MICROFIELD. Notwithstanding any investigation
by IST or the Members, from and after the Closing, Microfield shall indemnify,
hold harmless and, to the extent provided in Section 7.5(a), defend the Members
(collectively, "IST'S INDEMNIFIED PERSONS") from and against, and reimburse each
of IST's Indemnified Persons with respect to, any and all Damages incurred by
any of IST's Indemnified Persons by reason of or arising out of or in connection
with: (a) any breach or inaccuracy of any representation or warranty of
Microfield or Merger Sub made in this Agreement or any Related Document; (b) any
failure by Microfield or Merger Sub to perform any covenant required to be
performed by it pursuant to this Agreement or any Related Document; or (c) any
liability or obligation of IST to any third party expressly assumed by
Microfield in accordance with the terms of this Agreement. This indemnification
extends to any Damages suffered by any of IST's Indemnified Persons, whether or
not a claim is made against any of IST's Indemnified Persons by any third party.
7.4 LIMITS ON INDEMNIFICATION. Notwithstanding the foregoing, the
liability of Members and Microfield under Sections 7.2 and 7.3 above shall be
subject to the following limitations:
(a) MEMBERS LIABILITY. The liability of the Members pursuant
to Section 7.2 is limited as follows:
(i) No claim for indemnity will be effective if not
made within two years after the Closing Date, other than claims (A) claims
asserted with respect to the covenant contained in Section 5.7, which claims may
be made up to three years after the Closing Date; and (B) claims based upon the
assertion that Members had actual knowledge that a representation or warranty
made by Members was materially false when made or was made with the intent to
deceive, which claims may be made at any time up to the applicable statute of
limitations;
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(ii) The maximum aggregate amount of the liability of
Members is $200,000 (the "Limitation"), other than liability for claims with
respect to the representations and warranties contained in Section 3.16, with
respect to which the maximum aggregate amount of the liability of Members is the
Limitation plus an additional $200,000; and
(iii) Members shall not have any indemnification
obligation with respect to the first $25,000 of Damages of Microfield's
Indemnified Persons as a group unless Damages of Microfield's Indemnified
Persons as a group equal or exceed such amount, in which case Members
obligations under Section 7.2 shall include the entire amount of Damages.
(iv) Each Member's liability shall be limited to its pro
rata share of such liability based upon the Member's percentage ownership
interest in IST immediately before the Effective Time.
(b) MICROFIELD'S LIABILITY. Microfield's obligations pursuant
to Section 7.3 are limited as follows:
(i) No claim for indemnity will be effective if not
made within two years after the Closing Date, other than claims asserted with
respect to any of the representations and warranties contained in Sections 4.6
and 4.10 and claims based upon the assertion that Microfield had actual
knowledge that a representation or warranty made by Microfield was materially
false when made or was made with the intent to deceive, which claims may be made
at any time up to the applicable statute of limitations;
(ii) The maximum aggregate amount of Microfield's
liability is $200,000; and
(iii) Microfield shall not have any indemnification
obligation with respect to the first $25,000 of Damages of IST's Indemnified
Persons as a group unless Damages of IST's Indemnified Persons as a group equal
or exceed such amount, in which case Microfield's obligations under Section 7.3
shall include the entire amount of Damages.
7.5 INDEMNIFICATION PROCEDURE.
(a) THIRD PARTY CLAIMS.
(i) Each indemnified party will, with reasonable
promptness after obtaining knowledge thereof, provide the indemnifying party
with written notice of all third party actions, suits, proceedings, claims,
demands or assessments that may be subject to the indemnification provisions of
this Section 7 (collectively, "THIRD PARTY CLAIMS"), including, in reasonable
detail, the basis for the claim, the nature of Damages and a good faith estimate
of the amount of Damages.
(ii) The indemnifying party or, in the case where the
Members are the indemnifying party, the Representative, shall have 15 days after
receipt of the claim notice to notify the indemnified party in writing whether
the indemnifying party agrees that the claim is subject to this Section 7 and,
if so, whether the indemnifying party elects to undertake, conduct
26
and control, through counsel of its choosing (subject to the consent of the
indemnified party, such consent not to be withheld unreasonably), and at its
sole risk and expense, the good faith settlement or defense of the Third Party
Claim.
(iii) If within 15 days after receipt of the claim notice
the indemnifying party or, in the case where the Members are the indemnifying
party, the Representative, notifies the indemnified party that the indemnifying
party elects to undertake the good faith settlement or defense of the Third
Party Claim, the indemnified party shall reasonably cooperate with the
indemnifying party in connection therewith including, without limitation, by
making available to the indemnifying party all relevant information material to
the defense of the Third Party Claim. The indemnified party shall be entitled to
participate in the settlement or defense of the Third Party Claim through
counsel chosen by the indemnified party, at its expense, and to approve any
proposed settlement that would impose any obligation or duty on the indemnified
party, which approval may, in the sole discretion of the indemnified party, be
withheld. So long as the indemnifying party is contesting the Third Party Claim
in good faith and with reasonable diligence, the indemnified party shall not pay
or settle the Third Party Claim. Notwithstanding the foregoing, the indemnified
party shall have the right to pay or settle any Third Party Claim at any time,
provided that in such event it waives any right to indemnification therefor by
the indemnifying party.
(iv) If the indemnifying party or, in the case where the
Members are the indemnifying party, the Representative, does not provide notice
that it elects to undertake the good faith settlement or defense of the Third
Party Claim, or if the indemnifying party or, in the case where the Members are
the indemnifying party, the Representative, fails to contest the Third Party
Claim or undertake or approve settlement, in good faith and with reasonable
diligence, the indemnified party shall thereafter have the right to contest,
settle or compromise the Third Party Claim at its exclusive discretion, at the
risk and expense of the indemnifying party and the indemnifying party will
thereby waive any claim, defense or argument that the indemnified party's
defense or settlement of such Third Party Claim is in any respect inadequate or
unreasonable.
(v) A party's failure to give timely notice will not
constitute a defense (in part or in whole) to any claim for indemnification by
such party, except if, and only to the extent that, such failure results in any
material prejudice to the indemnifying party.
(b) NON-THIRD PARTY CLAIMS.
(i) Each indemnified party will, with reasonable
promptness, deliver to the indemnifying party written notice of all claims for
indemnification under this Section 7, other than Third Party Claims, including,
in reasonable detail, the basis for the claim, the nature of Damages and a good
faith estimate of the amount of Damages.
(ii) The indemnifying party or, in the case where the
Members are the indemnifying party, the Representative, shall have 30 days after
receipt of the claim notice to notify the indemnified party in writing whether
the indemnifying party accepts liability for all or any part of the Damages
described in the claim notice. If the indemnifying party or, in the case
27
where the Members are the indemnifying party, the Representative, does not so
notify the indemnified party the indemnifying party shall be deemed to accept
liability for all the Damages described in the claim notice.
(iii) A party's failure to give timely notice will not
constitute a defense (in part or in whole) to any claim for indemnification by
such party, except if, and only to the extent that, such failure results in any
material prejudice to the indemnifying party.
7.6 PAYMENT WITH MICROFIELD COMMON STOCK. Any Damages payable
hereunder may be paid by delivery of the equivalent value of Microfield Common
Stock using the Microfield Stock Value. In the case of payment by Members, such
payment will be accomplished by delivery of certificates representing shares of
Microfield Common Stock together with duly executed stock powers to Mellon
Investor Services, LLC, the transfer agent for Microfield Common Stock, or its
successor, with instructions to transfer and deliver to Microfield a stock
certificate evidencing the requisite number of shares to be transferred to
Microfield or instructing that the shares be cancelled, as the case may be, with
certificates representing the balance to be returned to Members. In the case of
payment by Microfield, such payment will be accomplished by the issuance and
delivery of certificates representing the requisite number of shares of
Microfield Common Stock to each Member.
7.7 RIGHTS NOT EXCLUSIVE. An indemnified party's rights to
indemnification under this Section 7 are in addition to, and not in lieu of, any
other rights to which the indemnified party may be entitled at law or in equity.
ARTICLE VIII: CONDITIONS PRECEDENT
8.1 MERGER CONDITIONS. The respective obligations of each party to
effect the Merger shall be subject to the fulfillment or waiver at or prior to
the Effective Time of the following conditions:
(a) MEMBER APPROVAL. The Merger, this Agreement and the
transactions contemplated by this Agreement shall have been approved at or prior
to the Effective Time by the required vote of the Members in accordance with the
OLLCA and the operating agreement of IST.
(b) NO INJUNCTION OR ACTION. No order, statute, rule,
regulation, executive order, stay, decree, judgment or injunction shall have
been enacted, entered, promulgated or enforced by any court or other
Governmental Authority that prohibits or prevents the completion of the Merger
which has not been vacated, dismissed or withdrawn prior to the Effective Time.
IST and Microfield shall use all reasonable best efforts to have any of the
foregoing vacated, dismissed or withdrawn by the Effective Time.
(c) SALE OF COMMON STOCK. Concurrently with the Closing,
Microfield shall have closed the transactions contemplated by the Common Stock
Purchase Agreement.
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8.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MICROFIELD AND MERGER
SUB. The obligations of Microfield and Merger Sub to be performed on the Closing
Date shall be subject to the satisfaction prior to or at the Closing of the
following express conditions precedent:
(a) COMPLIANCE WITH AGREEMENT. IST shall have performed and
complied: (i) in all respects with all of its obligations under Sections 5.1 and
5.8; and (ii) in all respects with all of its other obligations under this
Agreement that are to be performed or complied with by it prior to or on the
Closing Date, except where the failure to perform or comply, individually or in
the aggregate, would not or would not be reasonably likely to result in a
Material Adverse Effect.
(b) REPRESENTATIONS AND WARRANTIES OF IST. The representations
and warranties made by IST in this Agreement shall be true and correct in all
respects when made and as of the Closing Date with the same force and effect as
though made on the Closing Date, except where the effect of any breaches of the
representations and warranties of IST made in this Agreement, individually or in
the aggregate, would not be reasonably likely to result in a Material Adverse
Effect.
(c) NO MATERIAL ADVERSE EFFECT. During the period from the
date of this Agreement to the Closing Date there shall not have occurred, and be
continuing on the Closing Date, any Material Adverse Effect.
(d) CLOSING CERTIFICATES. IST shall have delivered to
Microfield (a) a certificate signed on behalf of IST by the manager of IST,
dated on the Closing Date, to the effect that, to the best of such person's
Knowledge, the conditions set forth in Sections 8.2(a) and (b) have been
satisfied; and (b) a secretary's certificate as to such IST corporate matters in
connection with the Merger as Microfield may reasonably request.
(e) EMPLOYMENT AGREEMENT. Xxxx X. Xxxxxx shall have executed
and delivered the Employment Agreement.
8.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF IST. The obligations
of IST to be performed on the Closing Date shall be subject to the satisfaction
prior to or at the Closing of the following express conditions precedent:
(a) COMPLIANCE WITH AGREEMENT. Microfield and Merger Sub shall
have performed and complied in all respects with all of their obligations under
this Agreement which are to be performed or complied with by them prior to or on
the Closing Date, except where the failure to perform or comply, individually or
in the aggregate, would not or would not be reasonably likely to result in a
Microfield Material Adverse Effect.
(b) REPRESENTATIONS AND WARRANTIES OF MICROFIELD AND MERGER
SUB. The representations and warranties made by Microfield and Merger Sub in
this Agreement shall be true and correct in all respects when made and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on the Closing Date, except where the effect of any
breaches of the representations and warranties of Microfield and Merger
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Sub made in this Agreement, individually or in the aggregate, would not or would
not be reasonably likely to result in a Material Adverse Effect.
(c) MINIMUM CASH. Microfield shall have cash and cash
equivalents of at least $300,000 immediately prior to Closing (exclusive of
proceeds received under the Common Stock Purchase Agreement).
(d) CLOSING CERTIFICATE. Microfield shall have delivered to
IST (i) a certificate signed on behalf of Microfield by the Chief Executive
Officer of Microfield, dated the Closing Date, to the effect that, to the best
of such officers' knowledge, the conditions set forth in Sections 8.3(a), (b)
and (c) of this Agreement have been satisfied; and (ii) secretary's certificates
of Microfield and Merger Sub as to such corporate matters in connection with the
Merger as IST may reasonably request.
(e) APPOINTMENT OF PRESIDENT. The Board of Directors shall
have appointed Xxxxx Xxxxxx President of Microfield, effective immediately after
the Effective Time.
(f) BOARD OF DIRECTORS. Xxxxxx X. Xxxxxx and R. Xxxxxxx Xxxxxx
shall have been duly elected to Microfield's Board of Directors, effective
immediately after the Effective Time.
ARTICLE IX: TERMINATION AND ABANDONMENT
9.1 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of the Members described
herein:
(a) by mutual written consent of Microfield and IST;
(b) by either Microfield or IST if (i) any Governmental
Authority shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the completion of
the transactions contemplated by this Agreement and such order, decree or ruling
or other action shall have become final and nonappealable, or (ii) the Members
do not approve the Merger at the Special Meeting;
(c) by Microfield if:
(i) IST shall have breached or failed to perform in any
material respect any of its covenants or other agreements contained in this
Agreement, which breach or failure to perform is incapable of being cured or has
not been cured within 5 days after the giving of written notice thereof to IST;
(ii) any representation or warranty of IST shall not
have been true and correct when made (without for this purpose giving effect to
qualifications of materiality contained in such representation and warranty), if
such failure to be true and correct, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect;
30
(iii) any representation or warranty of IST shall cease
to be true and correct at any later date (without for this purpose giving effect
to qualifications of materiality contained in such representation and warranty)
as if made on such date (other than representations and warranties made as of a
specified date) other than as a result of a breach or failure to perform by
Microfield of any of its covenants or agreements under this Agreement if such
failure to be true and correct, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect; provided, however,
that such representation or warranty is incapable of being cured or has not been
cured within 5 days after the giving of written notice thereof to IST;
(iv) since June 30, 2002, IST shall have suffered a
Material Adverse Change;
(d) by IST if:
(i) Microfield or Merger Sub shall have breached or
failed to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in this Agreement, which
breach or failure to perform is incapable of being cured or has not been cured
within 5 days after the giving of written notice thereof to Microfield;
(ii) any representation or warranty of Microfield or
Merger Sub shall not have been true and correct when made (without for this
purpose giving effect to qualifications of materiality contained in such
representation and warranty), if such failure to be true and correct,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect;
(iii) any representation or warranty of Microfield or
Merger Sub shall cease to be true and correct at any later date (without for
this purpose giving effect to qualifications of materiality contained in such
representation and warranty) as if made on such date (other than representations
and warranties made as of a specified date) other than as a result of a breach
or failure to perform by IST of any of its covenants or agreements under this
Agreement if such failure to be true and correct, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect;
provided, however, that such representation or warranty is incapable of being
cured or has not been cured within 5 days after the giving of written notice
thereof to Microfield or Merger Sub;
(iv) since June 29, 2002, Microfield shall have suffered
a Material Adverse Change.
(e) by either Microfield or IST if the Merger is not completed
on or before October 31, 2002, provided that the right to terminate this
Agreement pursuant to this Section 9.1(e) shall not be available to any party
where failure to perform any of its obligations under this Agreement results in
the failure of the Merger to be completed by such time.
The party desiring to terminate this Agreement pursuant to the preceding
paragraphs shall give written notice of such termination to the other party in
accordance with Section 10.5 hereof.
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9.2 EFFECT OF TERMINATION AND ABANDONMENT. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article XI, this Agreement (other than Sections 9.2, 10.1, 10.3, 10.5, 10.6,
10.7, 10.8, 10.10, 10.11, 10.12, 10.14 and 10.15) shall become void and of no
effect with no liability on the part of any party hereto (or of any of its
directors, officers, members, employees, agents, legal or financial advisors or
other representatives); provided, however, that no such termination shall
relieve any party hereto from any liability for any willful breach of this
Agreement prior to termination. If this Agreement is terminated as provided
herein, each party shall use all reasonable best efforts to redeliver all
documents, work papers and other material (including any copies thereof) of any
other party relating to the transactions contemplated hereby, whether obtained
before or after the execution hereof, to the party furnishing the same.
ARTICLE X: MISCELLANEOUS
10.1 CONFIDENTIALITY. (a) Unless (i) otherwise expressly provided in
this Agreement, (ii) required by applicable Law, (iii) necessary to secure any
required Consents as to which the other party has been advised or (iv) consented
to in writing by Microfield and IST, all information (whether oral or written)
and documents furnished in connection herewith together with analyses,
compilations, studies or other documents prepared by such party which contain or
otherwise reflect such information shall be kept strictly confidential by
Microfield, IST, Merger Sub and their respective officers, directors, employees
and agents. Prior to any disclosure permitted pursuant to the preceding
sentence, the party intending to make such disclosure shall consult with the
other party regarding the nature and extent of the disclosure. Nothing contained
herein shall preclude disclosures to the extent necessary to comply with
obligations imposed by applicable Law.
(b) In the event the transactions contemplated by this
Agreement are not completed, each party shall return to the other any documents
furnished by the other and all copies thereof that any of them may have made and
will hold in confidence any information obtained from the other party except to
the extent (i) such party is required to disclose such information by Law or
such disclosure is necessary or desirable in connection with the pursuit or
defense of a claim, (ii) such information was known by such party prior to such
disclosure (and provided that, except with respect to information referred to in
the following clause (iii), such party shall have advised the other party of
such knowledge upon or promptly after its receipt of such information) or was
thereafter developed or obtained by such party independent of such disclosure or
(iii) such information is or becomes generally available to the public other
than by breach of this Section 10.1 (or, to such party's Knowledge, breach of a
confidentiality agreement with the other party). Prior to any disclosure of
information pursuant to the exception in clause (i) of the preceding sentence,
the party intending to disclose the same shall so notify the party which
provided the same in order that such party may seek a protective order or other
appropriate remedy should it choose to do so.
10.2 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by a written agreement among IST, Microfield and
Merger Sub.
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10.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of IST on the one
hand, or Microfield and Merger Sub on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be waived by Microfield
on the one hand, or IST on the other hand, only by a written instrument signed
by the party granting such waiver, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
10.3.
10.4 SURVIVAL. The respective representations, warranties, covenants
and agreements of IST and Microfield contained herein or in any certificates or
other documents delivered prior to or at the Closing shall survive the execution
and delivery of this Agreement, notwithstanding any investigation made or
information obtained by the other party, but shall terminate at the Effective
Time, except for those contained in Article VII and Sections 2.8, 2.9, 2.10,
10.4 and 10.8, which shall survive beyond the Effective Time.
10.5 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given when delivered in person,
by facsimile, receipt confirmed, or on the next business day when sent by
overnight courier or on the second succeeding business day when sent by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) if to IST, to:
Innovative Safety Technologies, LLC
0000 XX 00xx Xxxxxx
Xxxxxxxx, Xxxxxx 00000
Attn: Manager
Fax: (000) 000-0000
Tel: (000) 000-0000
with a copy to:
Xxxx Xxxxxx Xxxxxxx & Tongue LLP
000 XX Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000-0000
Attn: Xxxxxxxx X. Xxxxxxx
Fax: (000) 000-0000
Tel: (000) 000-0000
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(b) if to Microfield or Merger Sub, to:
Microfield Graphics, Inc.
XX Xxx 00000
Xxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxx
Fax: (000) 000-0000
Tel: (000) 000-0000
with a copy to:
Stoel Rives LLP
000 X.X. Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxx
Fax: (000) 000-0000
Tel: (000) 000-0000
10.6 BINDING EFFECT; ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto prior to the Effective Time without the
prior written consent of IST, in the case of a proposed assignment by Microfield
or Merger Sub, or by Microfield, in the case of a proposed assignment by IST.
10.7 FEES AND EXPENSES. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs or expenses.
10.8 GOVERNING LAW. This Agreement shall be deemed to be made in, and
in all respects shall be interpreted, construed and governed by and in
accordance with the laws of, the State of Oregon.
10.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.10 INTERPRETATION. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
10.11 ENTIRE AGREEMENT. This Agreement and the documents or instruments
referred to herein including, but not limited to, the attached Exhibits and
Disclosure Schedules, which Exhibits and Disclosure Schedules are incorporated
herein by reference, embody the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, representations, warranties, covenants, or
34
undertakings other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings among the parties
with respect to such subject matter.
10.12 SEVERABILITY. In case any provision in this Agreement shall be
held invalid, illegal or unenforceable in a jurisdiction, such provision shall
be modified or deleted, as to the jurisdiction involved, only to the extent
necessary to render the same valid, legal and enforceable, and the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired thereby nor shall the validity, legality or
enforceability of such provision be affected thereby in any other jurisdiction.
10.13 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Accordingly, the parties further agree that each party shall be
entitled to an injunction or restraining order to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other right or remedy to which such party may be entitled under
this Agreement, at law or in equity.
10.14 THIRD PARTIES. Nothing contained in this Agreement or in any
instrument or document executed by any party in connection with the transactions
contemplated hereby shall create any rights in, or be deemed to have been
executed for the benefit of, any Person that is not a party hereto or thereto or
a successor or permitted assign of such a party.
10.15 DISCLOSURE SCHEDULES. Each Microfield and IST acknowledges that
the Disclosure Schedules (a) relate to certain matters concerning the
disclosures required and transactions contemplated by this Agreement, (b) are
qualified in their entirety by reference to specific provisions of this
Agreement, and (c) are not intended to constitute and shall not be construed as
indicating that any such matter is required to be disclosed, nor should such
disclosure be construed as an admission that such information is material with
respect to IST or Microfield, as the case may be, except to the extent required
by this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
MICROFIELD GRAPHICS, INC.
By: ___________________________________
Name: Xxxx X. Xxxxxx
Title: Chief Executive Officer
INNOVATIVE SAFETY TECHNOLOGIES, LLC
By: ___________________________________
Name: Xxxxxx X. Xxxxxx
Title: Manager
MICROFIELD MERGER SUB, INC.
By: ___________________________________
Name: Xxxx X. Xxxxxx
Title: President
36
The undersigned Members of Innovative Safety Technologies, LLC agree to
be bound by Section 7.02 of this Agreement.
________________________________ ________________________________
Xxxxxx X. XxXxxxx Xxxxxx X. Jesenik
________________________________ ________________________________
Xxxxxx X. Xxxxxx Xxxxxx X. Xxxx
________________________________ ________________________________
Xxxx X. Xxxx Xxxxxx X. Xxxxxx
________________________________ ________________________________
Xxxxxxx X. Xxxxxx Xxxxx X. Xxxxxx
________________________________ ________________________________
Xxxxx Xxxxxxx Xxxxx X. Xxxxxx
________________________________ ________________________________
Xxxx Xxxxxxxx Xxxxxx X. Xxxxx
________________________________
Xxxx X. Xxxxxxxx
37
