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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date Of Report (Date Of Earliest Event Reported): MAY 10, 2000
-----------------------------
BSQUARE CORPORATION
(Exact Name Of Registrant As Specified In Its Charter)
<TABLE>
<S> <C> <C>
WASHINGTON 000-27687 91-1650880
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(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
</TABLE>
3150 139TH AVENUE S.E., SUITE 500
BELLEVUE, WASHINGTON 98005
(425) 519-5900
(Address And Telephone Number Of Registrant's Principal Executive Offices)
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ITEM 5. OTHER EVENTS.
On May 10, 2000, BSQUARE Corporation, a Washington corporation
("BSQUARE"), Mainbrace Corporation, a California corporation ("Mainbrace"), and
Mainbrace Acquisition, Inc., a Washington corporation and wholly owned
subsidiary of BSQUARE ("Sub"), entered into an Agreement and Plan of Merger (the
"Merger Agreement"), a copy of which is attached hereto as Exhibit 2.1 and
incorporated herein by reference, pursuant to which shareholders of Mainbrace
will receive an aggregate of approximately 460,000 shares of common stock of
BSQUARE ("BSQUARE Common Stock") and an aggregate of $10.8 million cash. The
actual number of shares of BSQUARE Common Stock to be received by Mainbrace
shareholders will fluctuate based on option exercises effected prior to the
closing. Capitalized terms not otherwise defined herein shall have the meaning
set forth in the Merger Agreement.
Pursuant to the terms of the Merger Agreement, Mainbrace will be merged
with and into Sub (the "Merger"), with Sub being the surviving corporation. At
the effective time of the Merger, each outstanding share of common stock of
Mainbrace ("Mainbrace Common Stock") (including shares of Mainbrace Common Stock
issued upon conversion of outstanding shares of Mainbrace Series A Preferred
Stock, which shall automatically be converted into Mainbrace Common Stock
immediately prior to the closing), other than shares of Mainbrace Common Stock
that immediately prior to closing were subject to repurchase by Mainbrace,
dissenting shares and treasury shares (the "Outstanding Common Stock Number"),
will be converted into the right to receive that number of shares of BSQUARE
Common Stock determined by dividing (i) the quotient determined by dividing (A)
the Total Common Stock Consideration minus $10,800,000 by (B) $17.625, by (ii)
the Outstanding Common Stock Number, and an amount in cash determined by
dividing $10,800,000 by the Outstanding Common Stock Number. The "Total Common
Stock Consideration" means the Outstanding Common Stock Number multiplied by the
quotient (the "Exchange Ratio") determined by dividing (x) 24,900,000 by (y) the
Fully Diluted Common Stock Number.
In addition, each option to purchase shares of Mainbrace Common Stock
outstanding at the effective time of the Merger, whether vested or unvested,
will be assumed by BSQUARE and will be treated as an option to purchase that
number of shares of BSQUARE Common Stock equal to the product of the (i)
quotient (the "Option Exchange Ratio") determined by dividing (A) the Total
Option Consideration divided by $17.625, by the total number of shares of
Mainbrace Common Stock subject to options (the "Option Share Number") multiplied
by (ii) the number of shares of Mainbrace Common Stock subject to such option,
at a price per share equal to the aggregate exercise price for the shares of
Mainbrace Common Stock subject to such option divided by the Option Exchange
Ratio. The Total Option Consideration means the product of the Option Share
Number times the Exchange Ratio.
Further, immediately prior to the effective time of the Merger, pursuant
to stock restriction agreements, each share of Mainbrace Common Stock subject to
repurchase by Mainbrace immediately prior to the effective time, shall be
exchanged for the number of shares of BSQUARE Common Stock determined by
dividing (i) the quotient determined by (A) the Total Restricted Stock
Consideration divided by (B) $17.625, by (ii) the total number of shares of
Mainbrace Restricted Stock. The Total Restricted Stock Consideration means the
product of the total number of shares of Mainbrace Restricted Stock times the
Exchange Ratio. The shares of BSQUARE Common Stock issued in exchange for the
shares of Mainbrace Common Stock shall be subject to repurchase pursuant to the
stock restriction agreements on terms similar to the repurchase of such shares
by Mainbrace immediately prior to the effective time.
Pursuant to the Merger Agreement, the shareholders of Mainbrace have
agreed to indemnify and hold BSQUARE, its officers, directors, affiliates,
employees, consultants and agents harmless from losses arising out of (i) any
inaccuracy or misrepresentation in, or breach of, any representation or warranty
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made by Mainbrace in the Merger Agreement or related agreements, and (ii) any
failure by Mainbrace to perform or comply, in whole or in part, with any
covenant or agreement in the Merger Agreement or related agreements. A total of
$2,490,000 of the cash consideration will be deposited with an escrow agent to
secure these indemnification obligations. In addition, at the Closing,
$2,000,000 of the cash consideration will be retained by BSQUARE subject to
release to the shareholders upon Mainbrace entering into certain "e-book
technology" agreements as specified in the Merger Agreement.
It is the intention of BSQUARE and Mainbrace that the Merger for federal
income tax purposes be tax-free to Mainbrace's shareholders. In addition, the
consummation of the Merger is subject to certain conditions contained in the
Merger Agreement, including approval of the Merger by Mainbrace's shareholders.
Pursuant to the Merger Agreement, each of Mainbrace's officers, directors and
vice presidents shall enter into an agreement (the "Voting Agreement") to vote
his or her shares in favor of the Merger. A form of the Voting Agreement is
attached hereto as Exhibit 99.1(a) and incorporated by reference herein.
On May 11, 2000, BSQUARE issued a press release announcing the Merger,
which press release is attached hereto as Exhibit 99.1(b) and incorporated by
reference herein.
THE FOREGOING SUMMARY OF THE MERGER AGREEMENT, WHICH IS FILED AS AN
EXHIBIT TO THIS FORM 8-K, DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE PROVISIONS OF THE MERGER AGREEMENT.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) EXHIBITS.
2.1 Agreement and Plan of Merger by and among BSQUARE Corporation, a
Washington corporation, Mainbrace Corporation, a California corporation and
Mainbrace Acquisition Inc., a Washington corporation and wholly owned subsidiary
of BSQUARE, dated as of May 10, 2000.
99.1(a)Form of Voting Agreement by and among BSQUARE Corporation, a
Washington corporation, and each officer, director and vice president of
Mainbrace Corporation, a California corporation.
99.1(b)Press release dated May 11, 2000 announcing the Merger.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BSQUARE CORPORATION
Date: May 23, 2000
By: /S/ BRIAN V. TURNER
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Brian V. Turner
Chief Financial Officer
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EXHIBIT INDEX
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<CAPTION>
Exhibit No. Description
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2.1 Agreement and Plan of Merger by and among BSQUARE
Corporation, a Washington corporation, Mainbrace
Corporation, a California corporation, and
Mainbrace Acquisition, Inc., a Washington
corporation and wholly owned subsidiary of
BSQUARE, dated as of May 10, 2000.
99.1(a) Form of Voting Agreement by and among BSQUARE
Corporation, a Washington corporation, and each
officer, director and vice president of Mainbrace
Corporation, a California corporation.
99.1(b) Press release dated May 11, 2000 announcing the
Merger.
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
among
BSQUARE CORPORATION,
MAINBRACE ACQUISITION, INC.,
and
MAINBRACE CORPORATION
Dated as of May 10, 2000
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CONTENTS
ARTICLE I - THE MERGER........................................................1
1.1 The Merger.....................................................1
1.2 The Closing....................................................2
1.3 Effective Date and Time........................................2
1.4 Articles of Incorporation of the Surviving Corporation.........2
1.5 Bylaws of the Surviving Corporation............................2
1.6 Directors and Officers.........................................2
1.7 Conversion of Shares...........................................3
1.7.1 Exchange Ratio........................................3
1.7.2 Exchange of Certificate for Merger Consideration......6
1.7.3 No Fractional Shares..................................7
1.7.4 No Further Transfers..................................7
1.8 Shareholder Representative.....................................7
1.9 Amendment to Provide for Alternative Merger Structures.........7
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................8
2.1 Organization...................................................8
2.2 Enforceability.................................................8
2.3 Capitalization.................................................9
2.4 Subsidiaries and Affiliates....................................10
2.5 No Approvals; No Conflicts.....................................10
2.6 Financial Statements...........................................11
2.7 Absence of Certain Changes or Events...........................12
2.8 Taxes..........................................................14
2.9 Property.......................................................17
2.10 Contracts......................................................18
2.10.1 Material Contracts....................................18
2.10.2 Required Consents.....................................20
2.11 Customers and Suppliers........................................20
2.12 Orders; Commitments; Warranties and Returns....................20
2.13 Claims and Legal Proceedings...................................21
2.14 Labor and Employment Matters...................................21
2.15. Employee Benefit Plans.........................................21
2.15.1 Employee Benefit Plan Listing.........................22
2.15.2 Documents Provided....................................22
2.15.3 Compliance............................................23
2.15.4 Qualified Plans.......................................23
2.15.5 Contributions.........................................24
2.15.6 Pension Plans.........................................24
2.15.7 Related Employers.....................................24
2.15.8 Post-Employment Benefits..............................24
2.15.9 Suits, Claims and Investigations......................25
2.15.10 Nondeductible Payments................................25
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2.15.11 Effect of Transaction.................................25
2.16 Personnel......................................................25
2.17 Intellectual Property..........................................26
2.17.1 General...............................................26
2.17.2 Company Technology....................................26
2.17.3 Third Party Technology................................26
2.17.4 Trademarks............................................27
2.17.5 Intellectual Property Rights..........................27
2.17.6 Maintenance of Rights.................................28
2.17.7 Third Party Claims....................................28
2.17.8 Infringement by the Company...........................28
2.17.9 Confidentiality.......................................29
2.17.10 Warranty Against Defects..............................29
2.17.11 Domain Names..........................................29
2.17.12 Year 2000.............................................29
2.17.13 Indemnification.......................................30
2.17.14 Restrictions on Intellectual Property.................30
2.18 Accounts Receivable............................................30
2.19 Corporate Books and Records....................................30
2.20 Licenses, Permits, Authorizations, etc.........................31
2.21 Compliance With Laws...........................................31
2.22 Insurance......................................................31
2.23 Brokers or Finders.............................................32
2.24 Absence of Questionable Payments...............................32
2.25 Bank Accounts..................................................32
2.26 Insider Interests..............................................32
2.27 Compliance With Environmental Laws.............................33
2.28 Information Supplied by the Company............................34
2.29 Full Disclosure................................................34
2.30 Hart-Scott-Rodino Act..........................................35
2.31 Government Contracts...........................................35
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF BSQUARE AND MERGER SUB........35
3.1 Organization...................................................35
3.2 Enforceability.................................................36
3.3 Securities.....................................................36
3.4 No Approvals or Notices Required; No Conflicts With
Instruments....................................................36
3.5 Capitalization.................................................37
3.6 SEC Documents..................................................37
3.7 Absence of Certain Changes.....................................38
3.8 Information Supplied by BSQUARE................................38
3.9 Full Disclosure................................................38
3.10 Brokers or Finders.............................................38
3.11 Claims and Legal Proceedings...................................38
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ARTICLE IV - CONDITIONS PRECEDENT TO OBLIGATIONS OF BSQUARE AND MERGER SUB....39
4.1 Accuracy of Representations and Warranties.....................39
4.2 Performance of Agreements......................................39
4.3 Opinion of Counsel for the Company.............................39
4.4 Compliance Certificate.........................................39
4.5 Company Material Adverse Effect................................39
4.6 Approvals and Consents.........................................40
4.7 Proceedings and Documents; Secretary's Certificate.............40
4.8 Shareholder Approval...........................................40
4.9 Legal Proceedings..............................................40
4.10 Escrow Agreement...............................................40
4.11 Employment and Noncompetition Agreements.......................40
4.12 Affiliate Letters..............................................41
4.13 Termination of Certain Agreements..............................41
4.14 Exercise or Conversion of Convertible Securities...............41
4.15 No Dissenter Rights Exercised Greater Than 5% of Stock.........41
4.16 Transmittal Letters............................................41
4.17 Consents to Merger.............................................42
4.18 Company Restricted Stock Consent...............................42
4.19 Financial Statements...........................................42
4.20 Tax Matter.....................................................42
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY................42
5.1 Accuracy of Representations and Warranties.....................42
5.2 Performance of Agreements......................................43
5.3 Opinion of Counsel.............................................43
5.4 Compliance Certificate.........................................43
5.5 Legal Proceedings..............................................43
5.6 BSQUARE Material Adverse Effect................................43
5.7 Approvals and Consents.........................................43
5.8 Escrow Agreement...............................................44
5.9 Employment and Noncompetition Agreements.......................44
5.10 Tax Matter.....................................................44
ARTICLE VI - COVENANTS........................................................44
6.1 Conduct of Business by the Company Pending the Merger..........44
6.2 Access to Information; Confidentiality.........................46
6.3 No Alternative Transactions....................................46
6.4 Notification of Certain Matters................................47
6.5 Further Action; Commercially Reasonable Efforts................47
6.6 Proxy Statement................................................47
6.7 Shareholder Approval...........................................48
6.8 BSQUARE Common Stock...........................................48
6.9 Securities Act Compliance......................................48
6.10 Dissenting Shares..............................................49
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6.11 Publicity......................................................49
6.12 Voting Agreement...............................................49
6.13 Option Shares; Registration....................................49
6.14 Delivery of Prospectus Materials to Shareholders...............49
6.15 Termination of 401(k) Plan.....................................49
6.16 Employee Matter................................................50
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER...............................50
7.1 Termination....................................................50
7.2 Effect of Termination..........................................50
7.3 Amendment......................................................52
7.4 Waiver.........................................................52
ARTICLE VIII - SURVIVAL AND INDEMNIFICATION...................................52
8.1 Survival.......................................................52
8.2 Indemnification by the Holders of Company Capital Stock........52
8.3 Limitations....................................................53
8.4 Procedure for Indemnification..................................53
8.5 Remedies; Specific Performance.................................56
ARTICLE IX - GENERAL..........................................................56
9.1 Tax Matters....................................................56
9.2 Expenses.......................................................56
9.3 Notices........................................................57
9.4 Severability...................................................58
9.5 Entire Agreement...............................................58
9.6 Assignment.....................................................58
9.7 Parties in Interest............................................58
9.8 Governing Law; Jurisdiction; Venue.............................58
9.9 Counterparts...................................................58
9.10 Waiver of Jury Trial...........................................59
EXHIBITS
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1.3 - Agreement of Merger
1.7.1 - Form of Escrow Agreement
1.7.2 - Form of Letter of Transmittal
2 - Company Disclosure Memorandum
2.17.14 - Form of Confidentiality and Invention Assignment Agreement
4.3 - Opinion of Counsel for the Company
4.8 - Form of Real Property Tax Act Affidavit
4.11.1A - Form of Key Employee Employment Agreement
4.11.1B - Form of Key Employee Confidentiality, Noncompetition and
Inventions Assignment Agreement
4.11.2A - Form of Mr. Moroyan Employment Severance and Consulting
Agreement
4.11.2B - Form of Mr. Moroyan Confidentiality, Noncompetition and
Inventions Assignment Agreement
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4.12 - Form of Affiliate Letter
4.18 - Form of Stock Restriction Agreement
5.3 - Opinion of Counsel
6.12 - Form of Voting Agreement
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and entered
into as of May 10, 2000, by and among BSQUARE Corporation, a Washington
corporation ("BSQUARE"), Mainbrace Acquisition, Inc., a Washington corporation
and wholly owned subsidiary of BSQUARE ("Merger Sub") and Mainbrace Corporation,
a California corporation (the "Company").
RECITALS
A. The Company, BSQUARE, and Merger Sub believe it advisable and in their
respective best interests to effect a merger of the Company and Merger Sub
pursuant to this Agreement (the "Merger").
B. The Board of Directors and the shareholders of the Company have approved
this Agreement and the Merger as required by applicable law.
C. The Boards of Directors of BSQUARE and Merger Sub and the sole
shareholder of Merger Sub have approved this Agreement and the Merger as
required by applicable law.
D. It is intended that the Merger will qualify as a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and as a purchase transaction for accounting purposes.
AGREEMENT
NOW, THEREFORE, in consideration of these premises and of the mutual
agreements, representations, warranties and covenants herein contained, the
parties hereto agree as follows: ARTICLE I - THE MERGER
1.1 THE MERGER
Upon the terms and subject to the conditions hereof, (a) at the Effective
Time (as defined in Section 1.3) the separate existence of the Company shall
cease and the Company shall be merged with and into Merger Sub (Merger Sub as
the surviving corporation after the Merger is sometimes referred to herein as
the "Surviving Corporation") and (b) from and after the Effective Time, the
Merger shall have all the effects of a merger under the laws of the State of
Washington, the State of California and other applicable law.
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1.2 THE CLOSING
Subject to the terms and conditions of this Agreement, the closing of the
Merger (the "Closing") shall take place on the earliest practicable business day
(the "Closing Date") after the satisfaction or waiver of the conditions set
forth in Articles IV and V at 10 a.m. local time at the offices of Perkins Coie
LLP, 1201 Third Avenue, 48th Floor, Seattle, Washington, or such other date,
time or location as BSQUARE and the Company shall agree.
1.3 EFFECTIVE DATE AND TIME
On the Closing Date and subject to the terms and conditions hereof, the
parties hereto shall cause the appropriate certificates (the "Agreement of
Merger") in the form attached as Exhibit 1.3 complying with the applicable
provisions of the Washington Business Corporation Act ("Washington Law") and the
California Corporations Code ("California Law") to be properly executed and
filed with the Secretary of State of the State of Washington (the "Washington
Secretary of State") and the Secretary of State of the State of California (the
"California Secretary of State"). The Merger shall become effective on the date
(the "Effective Date") and at the time (the "Effective Time") of filing of the
Agreement of Merger or at such other time as may be specified in the Agreement
of Merger as filed. If the Washington or California Secretaries of State require
any changes in the Agreement of Merger as a condition to filing or to issuing
its certificate to the effect that the Merger is effective, BSQUARE, Merger Sub
and the Company will execute any necessary revisions incorporating such changes,
provided such changes are not inconsistent with and do not result in any
material change in the terms of this Agreement.
1.4 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION
At the Effective Time, the Articles of Incorporation of Merger Sub as in
effect immediately prior to the Effective Time shall become the Articles of
Incorporation of the Surviving Corporation; provided, however, that Article I
thereof shall be amended to read as follows: "The name of this corporation is
BSQUARE Silicon Valley Corporation." Thereafter, the Articles of Incorporation
of the Surviving Corporation may be amended in accordance with their terms and
as provided by law.
1.5 BYLAWS OF THE SURVIVING CORPORATION
At the Effective Time, the Bylaws of Merger Sub as in effect immediately
prior to the Effective Time shall become the Bylaws of the Surviving
Corporation. Thereafter, the Bylaws may be amended or repealed in accordance
with their terms and the Articles of Incorporation of the Surviving Corporation
and as provided by law.
1.6 DIRECTORS AND OFFICERS
At the Effective Time, the directors of Merger Sub shall continue in office
as the directors of the Surviving Corporation and the officers of Merger Sub
shall continue in office
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as the officers of the Surviving Corporation, and such directors and officers
shall hold office in accordance with and subject to the Articles of
Incorporation and Bylaws of the Surviving Corporation.
1.7 CONVERSION OF SHARES
1.7.1 EXCHANGE RATIO
As of the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof:
(a) All shares of any class of capital stock of the Company held by
the Company as treasury shares shall be canceled.
(b) Each issued and outstanding share of Common Stock of the Company
(the "Company Common Stock"), including each share of Company Common Stock
issued upon conversion of each issued and outstanding share of the Company's
Series A Preferred Stock (the "Company Preferred Stock"), other than (i) shares
of Company Common Stock that immediately prior to Closing were subject to
repurchase by the Company pursuant to the Company's Stock Option Agreements and
Restricted Stock Purchase Agreements (the "Company Restricted Stock"), (ii)
Dissenting Shares (as defined herein), and (iii) as provided in Section
1.7.1(a), shall be converted into the right to receive from BSQUARE:
(1) a number of shares of BSQUARE common stock, par value
$0.01 per share ("BSQUARE Common Stock"), determined by dividing (i) the
quotient determined by dividing (A) the Total Common Stock Consideration minus
the Cash Consideration by (B) the Base Price, by (ii) the Outstanding Common
Stock Number, rounded to ten decimal points, and
(2) cash, in an amount determined by dividing the Cash
Consideration by the Outstanding Common Stock Number, rounded to ten decimal
points.
The "Outstanding Common Stock Number" shall mean the total number of shares
of Company Common Stock outstanding immediately prior to the Effective Time,
including shares of Company Common Stock issued upon conversion of the Company
Preferred Stock, other than shares of the Company Restricted Stock.
The "Exchange Ratio" shall mean the quotient determined by dividing (i)
24,900,000 by (ii) the Fully Diluted Common Stock Number.
"Base Price" equals $17.625.
The "Total Common Stock Consideration" shall mean the product of the
Outstanding Common Stock Number times the Exchange Ratio.
"Cash Consideration" is ten million eight hundred thousand dollars
($10,800,000).
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The "Fully Diluted Common Stock Number" shall mean the total number of
shares of Company Common Stock outstanding immediately prior to the Effective
Time on a fully diluted basis, including (x) the exercise of all outstanding
rights, warrants or options, vested or unvested, to acquire Company Common
Stock, regardless of restrictions on exercise or conversion and (y) the
conversion of all outstanding securities (including, without limitation, the
Company Preferred Stock) and notes convertible at any time into Company Common
Stock (such rights, warrants, notes, options and convertible securities
referenced in clauses (x) and (y) being referred to herein as "Stock Purchase
Rights") but excluding any options granted after the date of this Agreement and
approved by BSQUARE.
The shares of BSQUARE Common Stock so issued and the Cash Consideration
shall be referred to herein as the "Merger Consideration." The Company Common
Stock, together with the Company Preferred Stock, shall be referred to herein as
the "Company Capital Stock."
(c) Notwithstanding the foregoing, a portion of the Cash
Consideration equal to two million four hundred ninety thousand dollars
($2,490,000) (the "Escrow Amount") shall be deposited in escrow with ChaseMellon
Shareholder Services, LLC (the "Escrow Agent"), to be held and administered in
accordance with an escrow agreement in substantially in the form of Exhibit
1.7.1 (the "Escrow Agreement"), such Escrow Amount to be withheld and deducted,
pro rata, from the Cash Consideration otherwise payable at the Effective Time.
The Escrow Amount shall be free of any other escrow or pledge obligation. By
approving the Merger at a special meeting of the shareholders or by written
consent or by delivering their certificates representing shares of Company
Capital Stock to the Escrow Agent in accordance with the provisions of Section
1.7.2, the shareholders shall agree to be bound with respect to the
indemnification obligations of the shareholders and the procedures set forth in
Article VIII. The Escrow Amount shall be available to satisfy any
indemnification obligations pursuant to Article VIII and any obligation of this
Section 1.7.1(c).
Notwithstanding the foregoing, a portion of the Cash Consideration
equal to two million dollars ($2,000,000) (the "Holdback Amount") shall be
retained by BSQUARE. The Holdback Amount shall be released upon the signing of a
definitive agreement with one or more customers other than Microsoft Corporation
to license "e-book technology" to such customers for an aggregate license fee of
at least one million dollars ($1,000,000) invoiceable by the Company by March
31, 2001 on commercially reasonable terms which do not conflict with other
Company agreements and which preserve the Company's interests in the e-book
technology. If such agreement(s) have not been signed within 180 days of the
date of this Agreement, then (i) the Holdback Amount shall be forfeited and
retained by BSQUARE, (ii) a portion of the Escrow Amount equal to one million
dollars ($1,000,000) shall be released from the escrow and paid to BSQUARE and
(iii) the Merger Consideration shall be deemed to have been reduced by the same
amounts.
The "e-book technology" shall mean the existing technology listed
on Exhibit "A" of the draft of the Microsoft Corporation Electronic Book
Strategic Alliance Agreement which has been provided to BSQUARE.
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(d) Each issued and outstanding share of capital stock of Merger Sub
shall continue to remain outstanding as a share of capital stock of the
Surviving Corporation.
(e) Each outstanding option to purchase shares of Company Common Stock
issued pursuant to the Company's 1998 Stock Option Plan (the "Company Option
Plan"), whether or not vested or exercisable (the "Options"), shall be assumed
by BSQUARE and shall constitute an option to acquire BSQUARE Common Stock under
the Company 1998 Stock Option Plan, on the same vesting terms, and on
substantially the same other terms and conditions as were applicable under such
assumed Option, in an amount equal to the product of the (i) quotient determined
by dividing (A) the Total Option Consideration divided by the Base Price by (B)
the Option Share Number (the "Option Exchange Ratio") multiplied by (ii) the
number of shares of Company Common Stock subject to such Option, at a price per
share (rounded to the nearest $0.001) equal to the aggregate exercise price for
the shares of Company Common Stock subject to such Option divided by the Option
Exchange Ratio; provided, however, that (i) subject to the provisions of clause
(ii) below, the number of shares of BSQUARE Common Stock that may be purchased
upon exercise of such Option shall not include any fractional shares, and, at
the time of assumption of such Option, BSQUARE shall pay to the holder thereof
as soon as practicable an amount of cash equal to such fraction multiplied by
the average of the high and low selling price of BSQUARE Common Stock on the
date the Company Option Plan is assumed, and (ii) in the case of any Option to
which Section 421 of the Code applies by reason of its qualification under
Section 422 of the Code, the Option price, the number of shares purchasable
pursuant to such Option and the terms and conditions of exercise of such Option
shall be determined in order to comply with Section 424 of the Code. BSQUARE
shall assume the obligations of the Company under the Company Option Plan and
shall comply with the terms of such plan as they apply to the Options assumed as
set forth above. Notwithstanding anything herein to the contrary, all Options,
whether or not vested, held by persons that are not employees of the Company
shall be cancelled immediately prior to the Closing.
The "Total Option Consideration" shall mean the product of the Option
Share Number times the Exchange Ratio. The "Option Share Number" shall mean the
total number of shares of Company Common Stock subject to the Options.
(f) Immediately prior to the Effective Time, pursuant to Stock
Restriction Agreements (as defined herein) each share of Company Restricted
Stock shall be exchanged for the number of shares of BSQUARE Common Stock
determined by dividing (i) the quotient determined by (A) the Total Restricted
Stock Consideration divided by (B) the Base Price, by (ii) the total number of
shares of Company Restricted Stock. The "Total Restricted Stock Consideration"
shall mean the product of the total number of shares of Company Restricted Stock
times the Exchange Ratio. The shares of BSQUARE Common Stock issued in exchange
for the shares of Company Common Stock shall be subject to repurchase pursuant
to the Stock Restriction Agreements.
(g) Holders of shares of Company Capital Stock who have complied with
all the requirements for perfecting dissenters' rights, as required under
California Law, shall be
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entitled to their rights under California Law with respect to such shares (the
"Dissenting Shares"). Notwithstanding the foregoing, if any holder of Dissenting
Shares shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to dissent, then, as of the later of the Effective Time and
the occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive the Merger Consideration
to which such holder is then entitled under this Agreement and California Law,
without interest thereon and upon surrender of the certificate representing such
shares. Notwithstanding any provision of this Agreement to the contrary, any
Dissenting Shares held by a shareholder who has perfected dissenter's rights for
such shares in accordance with California Law shall not be converted into the
right to receive Merger Consideration pursuant to this Section 1.7.1(g).
(h) If, prior to the Effective Time, BSQUARE recapitalizes through a
split-up of its outstanding shares of capital stock into a greater number, or a
combination of its outstanding shares of capital stock into a lesser number,
reorganizes, reclassifies or otherwise changes its outstanding shares of capital
stock into the same or a different number of shares of other classes of capital
stock, or declares a dividend on its outstanding shares of capital stock payable
in shares or securities convertible into shares, the number of shares of BSQUARE
Common Stock into which the shares of Company Capital Stock are to be converted
or exchanged, and the number of shares of BSQUARE Common Stock issuable upon the
exercise of each assumed Option, will be adjusted appropriately so as to
maintain the proportionate interests of the holders of the Company Capital Stock
and Options and the holders of shares of capital stock of BSQUARE.
1.7.2 EXCHANGE OF CERTIFICATE FOR MERGER CONSIDERATION
ChaseMellon Shareholder Services, LLC (the "Exchange Agent"), as exchange
agent, shall mail prior to the Closing Date to each holder of record as of the
date twenty (20) business days prior to the Closing Date of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Company Capital Stock (other than Company Restricted
Stock) (and as soon as practicable to shareholders that become holders of
Company Capital Stock subsequent to such date), other than shares to be
cancelled in accordance with Section 1.7.1(a), (i) a letter of transmittal (the
"Letter of Transmittal") in substantially the form set forth at Exhibit 1.7.2
and (ii) instructions for effecting the surrender of the certificates in
exchange for the Merger Consideration. Upon surrender of a certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by BSQUARE, together with such Letter of Transmittal, duly executed,
and such other documents as may reasonably be required by the Exchange Agent,
the holder of such certificate shall be entitled to receive in exchange
therefor, by the later of (a) three (3) business days following the Effective
Time and (b) three (3) business days following the surrender of such
certificate, (X) a certificate representing that number of whole shares of
BSQUARE Common Stock which such holder has the right to receive pursuant to the
provisions of Section 1.7.1, and the certificate so surrendered shall forthwith
be cancelled; and (Y) a check representing the amount of Cash Consideration
which such shareholder has the
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right to receive pursuant to the provisions of Section 1.7.1. In the event that
any certificates representing shares of Company Capital Stock shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
shareholder claiming such certificate to be lost, stolen or destroyed, BSQUARE
shall issue in exchange for such lost, stolen or destroyed certificate the
Merger Consideration that such shareholder is entitled to receive pursuant to
Section 1.7.1; provided, however, that BSQUARE may in its discretion and as a
condition precedent to the issuance thereof, require such shareholder to provide
BSQUARE with an indemnity agreement against any claim that may be made against
BSQUARE with respect to the certificate alleged to have been lost, stolen or
destroyed. The shares of BSQUARE Common Stock that each shareholder of the
Company shall be entitled to receive pursuant to the Merger shall be deemed to
have been issued at the Effective Time. No interest shall accrue on the Merger
Consideration. If the Merger Consideration (or any portion thereof) is to be
delivered to any person other than the person in whose name the certificate or
certificates representing shares of Company Capital Stock surrendered in
exchange therefor is registered, it shall be a condition to such exchange that
the person requesting such exchange shall pay to BSQUARE any transfer or other
taxes required by reason of the payment of the Merger Consideration to a person
other than the registered holder of the certificate or certificates so
surrendered, or shall establish to the satisfaction of BSQUARE that such tax has
been paid or is not applicable. Notwithstanding anything to the contrary,
neither BSQUARE nor any other party hereto shall be liable to a holder of shares
of Company Capital Stock for any Merger Consideration delivered to a public
official pursuant to applicable law, including abandoned property, escheat and
similar laws.
1.7.3 NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of BSQUARE Common
Stock shall be issued by virtue of the Merger, and no dividend, stock split or
other distribution with respect to BSQUARE Common Stock shall relate to any such
fractional interest, and any such fractional interests shall not entitle the
owner thereof to vote or to any rights of a security holder. In lieu thereof,
BSQUARE shall pay to the holder of shares of Company Capital Stock who would
otherwise be entitled to a fraction of a share of BSQUARE Common Stock, as soon
as practicable after the Effective Date (and in the same timely manner required
for delivery of certificates of BSQUARE Common Stock provided in Section 1.7.2),
an amount in cash equal to such fraction multiplied by the Base Price.
1.7.4 NO FURTHER TRANSFERS
After the Effective Time, there shall be no transfers of any shares of
Company Capital Stock on the stock transfer books of the Surviving Corporation.
If, after the Effective Time, certificates formerly representing shares of
Company Capital Stock are presented to the Surviving Corporation, they shall be
forwarded to BSQUARE and shall be canceled and exchanged in accordance with this
Section 1.7, subject to applicable law in the case of Dissenting Shares.
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1.8 SHAREHOLDER REPRESENTATIVE
By approving the Merger at a special meeting of shareholders of the Company
or by written consent of the shareholders, each shareholder of the Company shall
have irrevocably authorized and appointed Andrew Moroyan (the "Shareholder
Representative"), with full power of substitution and resubstitution, as his,
her or its representative and true and lawful attorney-in-fact and agent to act
in his, her or its name, place and stead and to execute in the name and on
behalf of such shareholder the Escrow Agreement and any other agreement,
certificate, instrument or document to be delivered by the shareholders in
connection with the Escrow Agreement.
1.9 AMENDMENT TO PROVIDE FOR ALTERNATIVE MERGER STRUCTURES
If at any time prior to the Closing Date, BSQUARE elects to have the
Company be the Surviving Corporation or elects to have the Company merge
directly into BSQUARE or a different subsidiary of BSQUARE merge with and into
the Company in a forward or reverse triangular merger, the parties shall
promptly enter into an amendment to this Agreement to so provide, so long as
such action does not result in a breach of a representation or warranty set
forth in Article II, or the inability to satisfy any of the conditions set forth
in Articles IV and V hereof, or create adverse tax consequences for the
shareholders of the Company.
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as is otherwise set forth with appropriate Section references in the
Company Disclosure Memorandum attached as Exhibit 2 (the "Company Disclosure
Memorandum"), and in order to induce BSQUARE and Merger Sub to enter into and
perform this Agreement and the Escrow Agreement and the other agreements and
certificates that are required to be executed pursuant to this Agreement
(collectively, the "Operative Documents"), the Company represents and warrants
to BSQUARE and Merger Sub as of the date of this Agreement and as of the Closing
as follows in this Article II.
2.1 ORGANIZATION
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. The Company has all
requisite corporate power and authority to own, operate and lease its properties
and assets, to carry on its business as now conducted and as currently proposed
to be conducted, and to enter into and perform its obligations under this
Agreement and the other Operative Documents to which the Company is a party, and
to consummate the transactions contemplated hereby and thereby. The Company is
duly qualified and licensed as a foreign corporation to do business and is in
good standing in each jurisdiction in which the character of the Company's
properties occupied, owned or held under lease or the nature of the business
conducted by the Company makes such qualification or licensing necessary, except
where the failure to be so qualified or in good standing would not have a
Company Material Adverse Effect. For purposes of this
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Agreement, the term "Company Material Adverse Effect" shall mean any adverse
effect on the business, operations, assets, liabilities (absolute, accrued,
contingent or otherwise), condition (financial or other) or prospects of the
Company.
2.2 ENFORCEABILITY
The Company has full corporate power and authority to execute, deliver and
perform its obligations under this Agreement and each of the other Operative
Documents to which it is a party and each of the certificates, instruments and
documents executed or delivered by it pursuant to the terms of this Agreement.
All corporate action on the part of the Company and its officers, directors and
shareholders necessary for the authorization, execution, delivery and
performance of this Agreement and the other Operative Documents to which the
Company is a party, the consummation of the Merger, and the performance of all
the Company's obligations under this Agreement and the other Operative Documents
to which the Company is a party has been taken or will be taken as of or prior
to the Effective Time. All such corporate action by the Board of Directors has
been taken. This Agreement has been, and each of the other Operative Documents
to which the Company is a party at the Closing will have been, duly executed and
delivered by the Company, and this Agreement is, and each of the other Operative
Documents to which the Company is a party will be at the Closing, a legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
(b) rules of law governing specific performance, injunctive relief and other
equitable remedies, and (c) the enforceability of provisions requiring
indemnification in connection with the offering, issuance or sale of securities.
2.3 CAPITALIZATION
(a) The authorized capital stock of the Company consists of 30,000,000
shares of Company Common Stock and 952,380 shares of preferred stock, without
par value, of which 952,380 shares are designated as Company Series A Preferred
Stock.
(b) As of the date of this Agreement, the issued and outstanding capital
stock of the Company consists solely of 15,018,144 shares of Company Common
Stock and 952,380 shares of Company Series A Preferred Stock, such number which
are and as of the Closing will be held of record and, to the knowledge of the
Company, beneficially by the shareholders of the Company as set forth on
Schedule 2.3(b) to the Company Disclosure Memorandum. Schedule 2.3(b) to the
Company Disclosure Memorandum also separately indicates the number of shares of
Company Common Stock into which the outstanding Company Series A Preferred Stock
is convertible. Such outstanding shares are, and immediately prior to the
Closing will be (and immediately prior to the Closing all shares of Company
Common Stock issued upon the conversion of outstanding Company Series A
Preferred Stock will be), duly authorized and validly issued, fully paid and
nonassessable, and issued in compliance with all applicable federal and state
securities laws. To the knowledge of the Company, no Person (as defined in
Section 2.5) other than the shareholders of the
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Company holds any interest in any of the outstanding shares. True and correct
copies of the stock records of the Company, showing all issuances and transfers
of shares of capital stock of the Company since inception, have been provided to
BSQUARE or its counsel.
(c) As of the date of this Agreement, other than Options to purchase up to
2,490,000 shares of Company Common Stock that have been granted under the
Company Option Plan, there are no outstanding rights of first refusal or offer,
preemptive rights, options, warrants, conversion rights or other agreements or
Stock Purchase Rights, either directly or indirectly, for the purchase or
acquisition from the Company or any shareholder of any shares of Company Capital
Stock or any securities convertible into or exchangeable for shares of Company
Capital Stock. Set forth on Schedule 2.3(c) to the Company Disclosure Memorandum
is a spreadsheet accurately reflecting the number of such Optionsand Stock
Purchase Rights outstanding, the grant or issue dates, vesting schedules and
exercise or conversion prices thereof and, in each case, the identities of the
holders and an indication of their relationships to the Company (if any exist
other than a security holder). The Company has delivered to BSQUARE true and
correct copies of the Company Option Plan and the form of stock option
agreements relating to Options granted thereunder and all Stock Purchase Right
agreements and documentation. Schedule 2.3(c) to the Company Disclosure
Memorandum also identifies all Options or other Stock Purchase Rights that have
been offered in connection with any employee or potential employee or consulting
agreement and or still pending but that, as of the date hereof, have not been
issued or granted.
(d) The Company is not a party or subject to any agreement or understanding
and, to the knowledge of the Company (other than voting agreements entered into
in connection with this Agreement), there is no agreement or understanding
between any Persons that affects or relates to the voting or giving of written
consents with respect to any securities of the Company or the voting by any
director of the Company. No shareholder or any affiliate thereof is indebted to
the Company, and the Company is not indebted to any shareholder of the Company
or any affiliate thereof. The Company is not under any contractual or other
obligation to register any of its presently outstanding securities or any of its
securities that may hereafter be issued.
(e) All rights of refusal, co-sale rights and registration rights granted
by the Company with respect to the Company Capital Stockare described on
Schedule 2.3(e) to the Company Disclosure Memorandum.
(f) All Options have been granted or issued at fair market value, as
determined by the Company's Board of Directors at the date of grant or issuance.
2.4 SUBSIDIARIES AND AFFILIATES
The Company does not own or control, and has not in the past owned or
controlled, directly or indirectly, any corporation, partnership, limited
liability company or other business entity. The Company does not own, directly
or indirectly, any ownership, equity, or voting
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interest in, any corporation, partnership, joint venture or other entity, and
has no agreement or commitment to purchase any such interest.
2.5 NO APPROVALS; NO CONFLICTS
The execution, delivery and performance by the Company of this Agreement
and the other Operative Documents to which the Company is a party, the
effectiveness of the Merger and the performance by the Company of its
obligations pursuant to this Agreement and the other Operative Documents to
which it is a party, will not (a) constitute a violation (with or without the
giving of notice or lapse of time, or both) of any provision of law or any
judgment, decree, order, regulation or rule of any court or other governmental
authority applicable to the Company, (b) require any consent, approval or
authorization of, or declaration, filing or registration with, any person,
corporation, partnership, joint venture, association, organization, other entity
or governmental or regulatory authority (a "Person"), except for (i) compliance
with applicable securities laws, (ii) the filing of all documents necessary to
consummate the Merger with the Washington Secretary of State and California
Secretary of State, and (iii) the approval by the shareholders of the
transactions contemplated hereby, as provided under California Law and the
Articles of Incorporation and Bylaws of the Company, (c) result in a default
(with or without the giving of notice or lapse of time, or both) under, or
acceleration or termination of, or the creation in any party of the right to
accelerate, terminate, modify or cancel, any material agreement, lease, note or
other restriction, encumbrance, obligation or liability to which the Company is
a party or by which it is bound or to which any assets of the Company are
subject, (d) result in the creation of any Encumbrance (as defined in Section
2.9(d)) upon any material assets of the Company or, to the knowledge of the
Company, upon any outstanding shares or other securities of the Company, (e)
conflict with or result in a breach of or constitute a default under any
provision of the Articles of Incorporation or Bylaws of the Company, or (f)
invalidate or adversely affect any permit, license or authorization currently
material to the conduct of the business of the Company.
2.6 FINANCIAL STATEMENTS
The Company has delivered to BSQUARE (a) audited balance sheets and
statements of operations, shareholders' equity and cash flows of the Company at
and for the fiscal years ended December 31, 1997 and 1998, and accompanying
notes, audited by Ernst & Young LLP, independent auditors and certified public
accountants, and (b) unaudited balance sheets as of December 31, 1999 and March
31, 2000 and unaudited statements of operations, shareholders' equity and cash
flows of the Company for the twelve (12) and three (3) months then ended,
respectively. All the foregoing financial statements are herein referred to as
the "Financial Statements." The balance sheet of the Company as of December 31,
1999 is herein referred to as the "Company Balance Sheet." The Financial
Statements have been prepared in conformity with generally accepted accounting
principles in the United States ("GAAP") (except for the absence of footnotes in
the unaudited financial statements) on a basis consistent with prior accounting
periods and fairly present the financial position, results of operations and
changes in financial position of the Company as of the dates and for the
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periods indicated. The Company has no liabilities or obligations of any nature
(absolute, contingent or otherwise) that are not fully reflected or reserved
against in the Company Balance Sheet and that would be required under GAAP or
the Financial Accounting Standards Board to be reflected or reserved, except
liabilities or obligations incurred since the date of the Company Balance Sheet
in the ordinary course of business and consistent with past practice. The
Company maintains and will continue to maintain standard systems of accounting
established and administered in accordance with GAAP. The Company is not a
guarantor, indemnitor, surety or other obligor of any indebtedness of any other
Person. Disclosure Schedule 2.6 sets forth all promissory notes, loans, lines of
credits or similar obligations in excess of one thousand dollars ($1,000) per
month, pursuant to which the Company is an obligor, together with all the
amounts owed by the Company under such obligations, as of the Closing, and all
liabilities under equipment leases of the company (the "Operating Lease
Liabilities") as of December 31, 1999. The Company's practices with respect to
capitalizing software development costs, as reflected in the Financial
Statements, are reasonable, in accordance with industry standards and consistent
with the advice of the Company's independent accountants.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except for transactions specifically contemplated in this Agreement, since
the date of the Company Balance Sheet, neither the Company nor any of its
officers or directors in their representative capacities on behalf of the
Company have:
(a) received oral or written notice that there has been, will be or
may be a loss of, or contract cancellation by, any current customer, supplier or
licenser of the Company, which loss or cancellation would result in lost annual
revenues to the Company of at least $25,000;
(b) taken any action or entered into or agreed to enter into any
transaction, agreement or commitment other than in the ordinary course of
business;
(c) forgiven or canceled any indebtedness or waived any claims or
rights of material value (including, without limitation, any indebtedness owing
by any shareholder, officer, director, employee or affiliate of the Company);
(d) granted, other than in the ordinary course of business and
consistent with past practice, any increase in the compensation of directors,
officers, employees or consultants (including any such increase pursuant to any
employment agreement or bonus, pension, profit-sharing, lease payment or other
plan or commitment, which is disclosed on Schedule 2.7(d)) to the Company
Disclosure Memorandum;
(e) borrowed or agreed to borrow any funds, assumed or become
subject to, whether directly or by way of guarantee or otherwise, any
liabilities or obligations (absolute, accrued or contingent), or incurred any
liabilities or obligations (absolute, accrued or contingent) except liabilities
and obligations incurred in the ordinary course of business and
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<PAGE> 19
consistent with past practice not to exceed $25,000 individually, or increased,
or experienced any change in any assumptions underlying or methods of
calculating, any bad debt, contingency or other reserves;
(f) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued or contingent) other than the payment, discharge
or satisfaction in the ordinary course of business and consistent with past
practice of claims, liabilities and obligations reflected or reserved against in
the Balance Sheet or incurred in the ordinary course of business and consistent
with past practice since the date of the Balance Sheet, or prepaid any
obligation having a fixed maturity of more than ninety (90) days from the date
such obligation was issued or incurred;
(g) permitted or allowed any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, institutional control, restriction
or charge, except (i) conditional sales or similar security interests granted in
connection with the purchase of equipment or supplies in the ordinary course of
business, (ii) assessments for current taxes not yet due and payable, (iii)
landlord's liens for rental payments not yet due and payable, and (iv)
mechanics', materialmen's, carriers' and other similar statutory liens securing
indebtedness that is in the aggregate less than $10,000, was incurred in the
ordinary course of business and is not yet due and payable;
(h) written down the value of any inventory (including write-downs
by reason of shrinkage or markdown) or written off as uncollectible any notes or
accounts receivable, except for write-downs and write-offs that are in the
aggregate less than $10,000, incurred in the ordinary course of business and
consistent with past practice;
(i) sold, transferred or otherwise disposed of any of its
properties or assets (real, personal or mixed, tangible or intangible) with an
aggregate net book value in excess of $10,000, except the sale of inventory in
the ordinary course of business and consistent with past practice;
(j) disposed of or permitted to lapse any rights to the use of any
trademark, trade name, patent or copyright, or disposed of or disclosed to any
Person other than representatives of BSQUARE any trade secret, formula, process
or know-how not theretofore a matter of public knowledge;
(k) made any single capital expenditure or commitment in excess of
$10,000 for additions to property, plant, equipment or intangible capital assets
or made aggregate capital expenditures in excess of $30,000 for additions to
property, plant, equipment or intangible capital assets;
(l) made any change in any method of accounting or accounting
practice or internal control procedure;
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<PAGE> 20
(m) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock, or redeemed, purchased or
otherwise acquired, directly or indirectly, any shares of capital stock or other
securities of the Company, or otherwise permitted the withdrawal by any of the
holders of capital stock of the Company of any cash or other assets (real,
personal or mixed, tangible or intangible), in compensation, indebtedness or
otherwise, other than payments of compensation in the ordinary course of
business and consistent with past practice;
(n) except for transactions that are not material in the aggregate,
loaned or advanced any amount to, or sold, transferred or leased any properties
or assets (real, personal or mixed, tangible or intangible) to, or entered into
any agreement or arrangement with, any of the Company's officers, directors or
employees or any affiliate of the Company's officers, directors or employees,
except directors' fees and compensation paid to officers and employees at rates
not exceeding the rates of compensation previously disclosed to BSQUARE/;
(o) entered into or agreed to enter into, or otherwise suffered to
be outstanding, any power of attorney of the Company or any obligations or
liabilities (absolute, accrued or contingent) of the Company, as guarantor,
surety, co-signer, endorser, co-maker, indemnitor or otherwise, in respect of
the obligation of any other Person;
(p) received notice of, or otherwise obtained knowledge of: (i) any
claim, action, suit, arbitration, proceeding or investigation involving, pending
against or threatened against the Company or any employee of the Company before
or by any court or governmental or nongovernmental department, commission,
board, bureau, agency or instrumentality, or any other Person; (ii) any claim,
action, suit, arbitration, proceeding, investigation or the application of any
fine or penalty adverse to the Company or any officer or director of the Company
before or by any Person; or (iii) any outstanding or unsatisfied judgments,
orders, decrees or stipulations to which the Company or any officer, director or
employee of the Company is a party that relate directly to the transactions
contemplated herein or that would have any material adverse effect upon the
business, assets, operations, prospects or condition (financial or other) of the
Company;
(q) other than in the ordinary course of business, entered into or
agreed to any sale, assignment, transfer or license of any patents, trademarks,
copyrights, trade secrets or other intangible assets of the Company to a third
party or any amendment or change to any existing license or other agreement
relating to intellectual property;
(r) incurred, assumed or guaranteed any indebtedness for borrowed
money other than in the ordinary and usual course of business, consistent with
past practice, and in amounts and on terms consistent with past practice;
(s) received notice of, or otherwise obtained knowledge of, any
other event or facts that are likely to have a Company Material Adverse Effect;
or
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<PAGE> 21
(t) agreed, whether in writing or otherwise, to take any action
described in this Section 2.7.
2.8 TAXES
As used in this Agreement, the following terms shall have the following
meanings:
"Taxes" means (A) all foreign, federal, state, county or local taxes,
charges, fees, levies, imposts, duties and other assessments, including, but not
limited to, any income, alternative minimum or add-on, estimated, gross income,
gross receipts, sales, use, transfer, transactions, intangibles, ad valorem,
value-added, franchise, registration, title, license, capital, paid-up capital,
profits, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, real property, recording, personal property, federal highway use,
commercial rent, environmental (including, but not limited to, taxes under
Section 59A of the Code) or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalties or additions to tax and (B) any
liabilities for payments of amounts described in clause (A) whether as a result
of transferee liability, or being a member of an affiliated, consolidated,
combined or unitary group for any period, or otherwise through operation of law
and (C) any liabilities for the payment of amounts described in clauses (A) or
(B) as a result of any tax sharing, tax indemnity or tax allocations agreement
or any other express or implied agreement to indemnify any other person; and
"Tax" means any of the foregoing Taxes.
"Tax Group" means any federal, state, local or foreign consolidated,
affiliated, combined, unitary or other similar group of which the Company is now
or was formerly a member.
"Tax Returns" means any return, declaration, report, claim or refund,
information return, statement or other similar document relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
(a) (i) All Tax Returns (as defined above) required to be filed by or on
behalf of the Company have been filed on a timely basis with the appropriate
governmental authority in all jurisdictions in which such Tax Returns are
required to be filed, and all such Tax Returns were true, correct and complete
in all respects; (ii) all Taxes (as defined above) of the Company (whether or
not reflected on any Tax Return) have been fully and timely paid; (iii) no
waivers of statutes of limitation have been given or requested with respect to
the Company in connection with any Tax Returns covering the Company with respect
to any Taxes payable by it; (iv) no taxing authority in a jurisdiction where the
Company does not file Tax Returns has made a claim, assertion or threat to the
Company that the Company is or may be subject to taxation by such jurisdiction;
(v) the Company has duly and timely withheld from employee salaries, wages and
other compensation and paid over to the appropriate governmental authority all
amounts required to be so withheld and paid over for all periods under all
applicable laws; and no amounts have been or would be required to be withheld
with respect to the lapse of restrictions on Company Capital Stock; (vi) there
are no liens with
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<PAGE> 22
respect to Taxes on any of the Company's property or assets other than liens for
current Taxes not yet payable; (vii) there are no Tax rulings, requests for
rulings, or closing agreements relating to the Company that could affect the
liability for Taxes or the amount of taxable income of the Company for any
period (or portion of a period) after the date hereof; and (viii) any adjustment
of Taxes of the Company made by the IRS in any examination that is required to
be reported to the appropriate state, local or foreign taxing authorities has
been reported, and any additional Taxes due with respect thereto have been paid.
(b) Neither the Company nor any other Person on behalf of the Company (i)
has filed a consent pursuant to Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by the Company;
(ii) has executed or entered into a closing agreement pursuant to Section 7121
of the Code or any predecessor provision thereof or any similar provision of
state, local or foreign law; or (iii) has agreed to or is required to make any
adjustments pursuant to Section 481(a) of the Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or has notice that a governmental authority has proposed any such
adjustment or change in accounting method; or (iv) has made a consent dividend
election under Section 565 of the Code.
(c) There is no dispute or claim concerning any Tax liability of the
Company claimed or raised by any authority. Schedule 2.8 to the Company
Disclosure Memorandum lists all Tax Returns filed with respect to the Company
for taxable periods ended on or after the Company's inception or the inception
of any predecessor that have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Company has delivered to BSQUARE correct
and complete copies of all Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company since the Company's
inception.
(d) The Company has not made any payments, is not obligated to make any
payments and is not a party to any agreement that under certain circumstances
could obligate it to make any payments that will not be deductible under Section
280G or 404 of the Code (or any similar provision of state, local or foreign
law).
(e) The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(f) The Company is not a party to any Tax allocation or sharing agreement.
The Company (i) has not been a member of a Tax Group (as defined above) filing a
consolidated income Tax Return under Section 1501 of the Code (or any similar
provision of state, local or foreign law) and (ii) does not have any liability
for Taxes of any Person under Treasury Regulations Section 1.1502-6 (or any
similar provision of state, local or foreign law) as a transferee or successor
by contract or otherwise.
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(g) The unpaid Taxes of the Company (i) did not, as of March 31, 2000,
exceed the reserve for Tax liability set forth on the face (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) of the Company Balance Sheet (other than any notes thereto)
and (ii) do not exceed that reserve as adjusted for the passage of time and
operations in the ordinary course of business through the Closing Date.
(h) There has been no ownership change, as defined in Section 382(g) of the
Code (or any comparable provision of state, local or foreign law), with respect
to the Company during or after any taxable period in which the Company incurred
a net operating loss.
(i) To the Company's knowledge, all Options that the Company has treated as
incentive stock options under Section 421 of the Code meet the requirements of
Section 422 of the Code.
(j) The Company does not have and has not had a permanent establishment in
any foreign country, as defined in any applicable Tax treaty or conventions
between the United States and such foreign country, and the Company was not
engaged in a trade or business within, or derived any income from, any foreign
country.
(k) The Company has not been a personal holding company under Section 542
of the Code.
(l) The Company has never been a party to a distribution to which Section
355(e) of the Code applies.
2.9 PROPERTY
(a) Schedule 2.9(a) to the Company Disclosure Memorandum contains a
complete and accurate list of all real property owned, leased or currently being
used by the Company (the "Real Property"). The Company has delivered to BSQUARE
or its counsel true and complete copies of all written leases, subleases, rental
agreements, contracts of sale, tenancies or licenses relating to the Real
Property and written summaries of the terms of any oral leases, subleases,
rental agreements, contracts of sale, tenancies or licenses to which the Real
Property is subject.
(b) Schedule 2.9(b) to the Company Disclosure Memorandum contains a
complete and accurate list of each item of personal property having a current
value in excess of $5,000 that is owned, leased, rented or used by the Company
(the "Personal Property"); provided that such list need not describe the
Technology or the IP Rights (as defined in Sections 2.17.2 and 2.17.5,
respectively), listed on Schedule 2.17 to the Company Disclosure Memorandum. The
Company has delivered to BSQUARE true and complete copies of all leases,
subleases, rental agreements, contracts of sale, tenancies or licenses to which
the Personal Property is subject.
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(c) The Real Property and the Personal Property include all the properties
and assets (whether real, personal or mixed, tangible or intangible) (other
than, in the case of the Personal Property, property rights with an individual
current value of less than $5,000 and the Technology and IP Rights) reflected in
the Company Balance Sheet (except for such properties or assets sold since the
date of the Company Balance Sheet in the ordinary course of business and
consistent with past practice) and all the properties and assets purchased by
the Company since the date of the Company Balance Sheet (other than, in the case
of the Personal Property, property rights with an individual value of less than
$5,000 and the Technology and IP Rights). The Real Property and the Personal
Property include all material property used in the business of the Company,
other than the Technology and IP Rights. The Company's offices and other
structures and its Personal Property are of a quality consistent with industry
standards, are in good operating condition and repair, normal wear and tear
excepted, are adequate for the uses to which they are being put, and comply in
all material respects with applicable safety and other laws and regulations.
(d) The Company's title to or leasehold interest in each parcel of the Real
Property is free and clear of all liens, mortgages, pledges, deeds of trust,
security interests, charges, encumbrances and other adverse claims or interests
of any kind (each, an "Encumbrance"), except for Encumbrances related to Taxes
not yet due and payable. Each lease of any portion of the Real Property is
valid, binding and enforceable in accordance with its terms against the parties
thereto and, to the Company's knowledge, against any other Person with an
interest in such Real Property, the Company has performed in all material
respects all obligations imposed on it thereunder, and neither the Company nor,
to the Company's knowledge, any other party thereto is in default thereunder,
nor is there any event that with notice or lapse of time, or both, would
constitute a default thereunder by the Company or, to the Company's knowledge,
by any other party. The Company has not granted any lease, sublease, tenancy or
license of, or entered into any rental agreement or contract of sale with
respect to, any portion of the Real Property.
(e) The Personal Property is free and clear of all Encumbrances (except for
Encumbrances created by the lessors thereof and except for Encumbrances related
to Taxes not yet due and payable by the Company), and, other than leased
Personal Property that is so noted on the list supplied pursuant to Section
2.9(b), the Company owns such Personal Property. Each lease, license, rental
agreement, contract of sale or other agreement to which the Personal Property is
subject is valid, binding and enforceable in accordance with its terms against
the parties thereto, the Company has performed in all material respects all
obligations imposed on it thereunder, and neither the Company nor, to the
Company's knowledge, any other party thereto is in default thereunder, nor is
there any event that with notice or lapse of time, or both, would constitute a
default by the Company or, to the Company's knowledge, any other party
thereunder. The Company has not granted any lease, sublease, tenancy or license
of any portion of the Personal Property, except in the ordinary course of
business.
(f) The Company's offices, manufacturing and production facilities and
other structures and the Company's Personal Property are adequate for the uses
to which they are
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being put and there are no applicable adverse zoning, building or land
use codes or rules, ordinances, regulations or other restrictions relating to
zoning or land use that currently or, to the knowledge of the Company may
prospectively prevent, or cause the imposition of material fines or penalties as
the result of, the use of all or any portion of the Real Property for the
conduct of the business as presently conducted. The Company has received all
necessary approvals with regard to occupancy and maintenance of the Real
Property.
2.10 CONTRACTS
2.10.1 MATERIAL CONTRACTS
Schedule 2.10.1 to the Company Disclosure Memorandum contains a complete
and accurate list (other than the IP Rights listed on Schedule 2.17 to the
Company Disclosure Memorandum) of all contracts, agreements and understandings,
oral or written, to which the Company is currently a party or by which the
Company is currently bound providing for potential payments by or to the Company
in excess of $50,000, including, without limitation, security agreements,
license agreements, software development agreements, distribution agreements,
joint venture agreements, reseller agreements, credit agreements and instruments
relating to the borrowing of money. All contracts set forth on Schedule 2.10.1
are valid, binding and enforceable in accordance with their terms against the
Company and, to the Company's knowledge, each other party thereto, except as to
the effect, if any, of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (b) rules of law governing specific
performance, injunctive relief and other equitable remedies, and (c) the
enforceability of provisions requiring indemnification in connection with the
offering, issuance or sale of securities, and are in full force and effect, the
Company has performed or is continuing to perform subject to the terms thereof,
in all material respects, all obligations imposed on it thereunder, and neither
the Company nor, to the Company's knowledge, any other party thereto is in
default thereunder, nor, to the Company's knowledge, is there any event that
with notice or lapse of time, or both, would constitute a default by the Company
or, to the Company's knowledge, any other party thereunder. True and complete
copies of each such written contract (or written summaries of the terms of any
such oral contract) have been delivered to BSQUARE by the Company. The Company
has no:
(a) contracts with the Company's directors, officers, shareholders,
employees, agents, consultants, advisors, salespeople, sales representatives,
distributors or dealers that cannot be canceled by the Company within thirty
(30) days' notice without liability, penalty or premium, any agreement or
arrangement providing for the payment of any bonus or commission based on sales
or earnings, or any compensation agreement or arrangement affecting or relating
to former employees of the Company;
(b) employment agreement, whether express or implied, or any other
agreement for services that contains severance or termination pay liabilities or
obligations;
(c) noncompetition agreement or other arrangement that would
prevent the Company from carrying on its business anywhere in the world;
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(d) notice that any party to a contract listed on Schedule 2.10.1
intends to cancel, terminate or refuse to renew such contract (if such contract
is renewable);
(e) material dispute with any of its suppliers, customers,
distributors, OEM resellers, licensors or licensees;
(f) product distribution agreement, development agreement or
license agreement as licensor or licensee (except for standard nonexclusive
software licenses granted to end-user customers in the ordinary course of
business, the form of which has been provided to BSQUARE, or standard licenses
purchased by the Company for off-the-shelf software);
(g) joint venture contract or arrangement or any other agreement
that involves a sharing of profits with other persons;
(h) instrument evidencing indebtedness for borrowed money by way
of a direct loan, sale of debt securities, purchase money obligation,
conditional sale or guarantee, or otherwise, except for trade indebtedness
incurred in the ordinary course of business, and except as disclosed in the
Financial Statements; and
(i) agreements or commitments to provide indemnification.
2.10.2 REQUIRED CONSENTS
The execution and delivery of this Agreement and the Operative Documents
and the performance of the obligations of the Company hereunder and thereunder
will not constitute a default under any Material Contract and do not require the
consent of any other party to any Material Contract, except for those consents
listed on Schedule 2.10.2 to the Company Disclosure Memorandum.
2.11 CUSTOMERS AND SUPPLIERS
Schedule 2.11 to the Company Disclosure Memorandum sets forth: (a) a
complete and accurate list of the customers of the Company accounting for 2% or
more of the Company's revenues during the fiscal year last ended and the period
ended March 31, 2000, showing the approximate total revenues from each such
customer during the fiscal year last ended and the period ended March 31, 2000,
and (b) a complete and accurate list of the suppliers of the Company from whom
the Company has purchased 5% or more of the goods or services purchased by the
Company in the fiscal year last ended and the period ended March 31, 2000. The
Company has not received any notice from its customers or suppliers that would
cause it, in its reasonable judgment, to expect any material modification to its
relationship with any customers or suppliers named on such Schedule 2.11.
2.12 ORDERS; COMMITMENTS; WARRANTIES AND RETURNS
Schedule 2.12 to the Company Disclosure Memorandum contains an accurate
summary as of March 31, 2000 of the Company's total backlog (including all
accepted and
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unfulfilled service contracts and research agreements) and the aggregate of all
outstanding purchase orders issued by the Company (which aggregates include all
material contracts or commitments for the purchase by the Company of materials
or other supplies). All such sale and purchase commitments were made in the
ordinary course of business. Schedule 2.17 sets forth the Company's warranties
currently made with respect to its business, products and services, and current
policies with respect to returns of products in the course of the Company's
conduct of the business. The Company has not made any express warranties in
connection with the sale of its products and services. Claims against the
Company for warranty costs (individually or in the aggregate) with respect to
products and services during each of the last three fiscal years did not exceed
$5,000, and there are no outstanding or threatened claims for any such warranty
costs that are likely to exceed $5,000 (individually or in the aggregate). As
used above, the term "warranty cost" shall mean costs and expenses associated
with correcting, returning or replacing defective or allegedly defective
products or services, whether such costs and expenses arise out of claims
sounding in warranty, contract, tort or otherwise.
2.13 CLAIMS AND LEGAL PROCEEDINGS
There are no claims, actions, suits, arbitrations, investigations or
proceedings pending or involving or, to the Company's knowledge, threatened
against the Company before or by any court or governmental or nongovernmental
department, commission, board, bureau, agency or instrumentality, or any other
Person. To the knowledge of the Company's directors and officers, there is no
valid basis for any claim, action, suit, arbitration, proceeding or
investigation before or by any Person. There are no outstanding or unsatisfied
judgments, orders, decrees or stipulations to which the Company is a party.
Schedule 2.13 sets forth a description of any material disputes that have been
settled or resolved by litigation or arbitration since the Company's inception.
2.14 LABOR AND EMPLOYMENT MATTERS
There are no material labor disputes, employee grievances or disciplinary
actions pending or, to the Company's knowledge, threatened against or involving
the Company or any of its present or former employees. The Company has complied
with all provisions of law relating to employment and employment practices,
terms and conditions of employment, wages and hours. The Company is not engaged
in any unfair labor practice and has no liability for any arrears of wages or
Taxes or penalties for failure to comply with any such provisions of law. There
is no labor strike, dispute, slowdown or stoppage pending or, to the Company's
knowledge, threatened against or affecting the Company, and the Company has not
experienced any work stoppage or other labor difficulty since its incorporation.
No collective bargaining agreement is binding on the Company. The Company has no
knowledge of any organizational efforts presently being made or threatened by or
on behalf of any labor union with respect to employees of the Company. Each
employee, officer and consultant of the Company has executed a nondisclosure
agreement in the form provided to BSQUARE. To the Company's knowledge, no
employee (or person performing similar functions) of the Company is in violation
of any such agreement or any employment agreement,
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noncompetition agreement, patent disclosure agreement, invention assignment
agreement, proprietary information agreement or other contract or agreement
relating to the relationship of such employee with the Company or any other
party. All employees of the Company are employed on an "at will" basis, and are
eligible to work and are lawfully employed in the United States.
2.15. EMPLOYEE BENEFIT PLANS
For purposes of this Agreement, the following terms shall have the meanings
set forth below:
"COBRA": The Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended.
"DOL": The United States Department of Labor.
"Employee Benefit Plan": Any retirement, pension, profit sharing, deferred
compensation, stock bonus, savings, bonus, incentive, cafeteria, medical,
dental, vision, hospitalization, life insurance, accidental death and
dismemberment, medical expense reimbursement, dependent care assistance, tuition
reimbursement, disability, sick pay, holiday, vacation, severance, change of
control, stock purchase, stock option, stock appreciation rights, fringe benefit
or other employee benefit plan, fund, policy, program, contract, agreement,
arrangement or payroll practice (including, without limitation, any "employee
benefit plan," as defined in Section 3(3) of ERISA) or any employment,
consulting or personal services contract, whether written or oral, qualified or
nonqualified, or funded or unfunded, (i) sponsored, maintained or contributed to
by the Company or to which the Company is a party, (ii) covering or benefiting
any current or former officer, employee, agent, director or independent
contractor of the Company (or any dependent or beneficiary of any such
individual), or (iii) with respect to which the Company has (or could have) any
obligation or liability.
"ERISA": The Employee Retirement Income Security Act of 1974, as amended.
"HIPAA": The Health Insurance Portability and Accountability Act of 1997,
as amended.
"IRS": The United States Internal Revenue Service.
2.15.1 EMPLOYEE BENEFIT PLAN LISTING
Schedule 2.15.1 of the Company Disclosure Memorandum contains a complete
and accurate list of all Employee Benefit Plans. The Company does not have any
agreement, arrangement, commitment or obligation to create, enter into or
contribute to any additional Employee Benefit Plan or to modify any existing
Employee Benefit Plan. There has been no amendment, interpretation or other
announcement or communication (written or oral) by the
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<PAGE> 29
Company or any other Person relating to, or change in participation or coverage
under, any Employee Benefit Plan that, either alone or together with other such
occurrences or events, could materially increase the expense of maintaining the
Employee Benefit Plans above the level of expense incurred with respect thereto
for the most recent fiscal year included in the Financial Statements. The terms
of each Employee Benefit Plan permit the Company to amend or terminate such
Employee Benefit Plan at any time and for any reason without penalty or material
liability or material expense.
2.15.2 DOCUMENTS PROVIDED
The Company has delivered to BSQUARE true, correct and complete copies (or,
in the case of unwritten Employee Benefit Plans, descriptions) of all Employee
Benefit Plans (and all amendments thereto), along with, to the extent applicable
to the particular Employee Benefit Plan, copies of the following: (i) the last
three annual reports (Form 5500 series) filed with respect to such Employee
Benefit Plan; (ii) all summary plan descriptions, summaries of material
modifications and material employee manuals and communications filed or
distributed with respect to such Employee Benefit Plan during the last three
years; (iii) all contracts and agreements (and all amendments thereto) relating
to such Employee Benefit Plan, including, without limitation, all trust
agreements, investment management agreements, group annuity contracts, insurance
contracts, bonds, indemnification agreements and service provider agreements;
(iv) the most recent determination letter issued by the IRS with respect to such
Employee Benefit Plan; (v) all written communications relating to the amendment,
creation or termination of such Employee Benefit Plan, or an increase or
decrease in benefits, acceleration of payments or vesting or other events that
could result in liability to the Company sent or received during the last three
years; (vi) all correspondence to or from any governmental entity or agency
relating to such Employee Benefit Plan sent or received during the last three
years; (vii) all COBRA and HIPAA forms and form notices currently in use; (viii)
all coverage and nondiscrimination tests performed with respect to such Employee
Benefit Plan for the last three years; and (ix) the most recent registration
statement, annual report (Form 11-K) and prospectus prepared in connection with
such Employee Benefit Plan.
2.15.3 COMPLIANCE
With respect to each Employee Benefit Plan: (i) such Employee Benefit Plan
is, and at all times since inception has been, maintained, administered,
operated and funded in all material respects in accordance with its terms and in
compliance with all applicable requirements of all applicable laws, statutes,
orders, rules and regulations, including, without limitation, ERISA, COBRA,
HIPAA and the Code; (ii) the Company, each fiduciary of such Employee Benefit
Plan and all other Persons have, at all times, properly performed, in all
material respects, all obligations, whether arising by operation of law or by
contract, required to be performed by any of them in connection with such
Employee Benefit Plan; (iii) neither the Company nor any fiduciary of such
Employee Benefit Plan has engaged in any transaction or acted or failed to act
in a manner that violates the fiduciary requirements of ERISA or any other
applicable law; (iv) no transaction or event has occurred or is threatened or,
to the Company's knowledge, about to occur (including, without limitation, any
of the transactions
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contemplated in or by this Agreement) that constitutes or could constitute a
"prohibited transaction," as defined in Section 4975 of the Code or Section 406
or 407 of ERISA; and (v) the Company has not incurred, and, to the Company's
knowledge there exists no condition or set of circumstances in connection with
which the Company, BSQUARE, Merger Sub or any subsidiary or affiliate of BSQUARE
or Merger Sub could incur, directly or indirectly, any material liability or
material expense (except for routine contributions and benefit payments) under
ERISA, the Code or any other applicable law, statute, order, rule or regulation
or pursuant to any indemnification or similar agreement with respect to such
Employee Benefit Plan.
2.15.4 QUALIFIED PLANS
Each Employee Benefit Plan that is intended to be qualified under Section
401(a) of the Code is, and at all times since inception has been, so qualified
and its related trust is, and at all times since inception has been, exempt from
taxation under Section 501(a) of the Code. Each such Employee Benefit Plan
either is the subject of an unrevoked favorable determination, opinion,
notification or advisory letter from the IRS with respect to such Employee
Benefit Plan's qualified status under the Code, or has remaining a period of
time under the Code or under applicable Treasury regulations or IRS
pronouncements in which to apply to the IRS for such a letter and to make any
amendments necessary to obtain such a letter from the IRS. Nothing has occurred
since the most recent favorable determination letter issued with respect to each
such Employee Benefit Plan (or, if no such letter has been issued with respect
to such Employee Benefit Plan, since the inception of such Employee Benefit
Plan), and, to the Company's knowledge, no circumstances exist (nor does the
Company reasonably expect any circumstances to occur) that could adversely
affect the qualification or exemption of such Employee Benefit Plan or its
related trust.
2.15.5 CONTRIBUTIONS
All contributions, premiums and other payments due or required to be paid
to (or with respect to) each Employee Benefit Plan have been timely paid, or, if
not yet due, have been fully reserved for, and specifically identified in, the
Company Balance Sheet.
2.15.6 PENSION PLANS
The Company does not sponsor, maintain or contribute to, nor has it ever
sponsored, maintained or contributed to (or been obligated to contribute to),
any multiemployer plan as defined in Section 3(37) or Section 4001(a)(3) of
ERISA or 414(f) of the Code, any multiple employer plan within the meaning of
Section 4063 or 4064 of ERISA or Section 413(c) of the Code, or any employee
benefit plan, fund, program, contract or arrangement that is (or ever was)
subject to Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA.
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2.15.7 RELATED EMPLOYERS
The Company is not, and has never been, a member of (i) a controlled group
of corporations, within the meaning of Section 414(b) of the Code, (ii) a group
of trades or businesses under common control, within the meaning of Section
414(c) of the Code, (iii) an affiliated service group, within the meaning of
Section 414(m) of the Code, or (iv) any other group of Persons treated as a
single employer under Section 414(o) of the Code.
2.15.8 POST-EMPLOYMENT BENEFITS
Neither the Company nor any Employee Benefit Plan provides or has any
obligation to provide (or contribute toward the cost of) post-employment or
post-termination benefits of any kind, including, without limitation, death and
medical benefits, with respect to any current or former officer, employee,
agent, director or independent contractor of the Company, other than (i)
continuation coverage mandated by Sections 601 through 608 of ERISA and Section
4980B(f) of the Code (or any similar state law), (ii) retirement benefits under
any Employee Benefit Plan that is qualified under Section 401(a) of the Code,
and (iii) deferred compensation that is accrued as a current liability on the
Company Balance Sheet.
2.15.9 SUITS, CLAIMS AND INVESTIGATIONS
There are no actions, suits or claims (other than routine claims for
benefits) pending or, to the Company's knowledge, threatened with respect to (or
against the assets of) any Employee Benefit Plan, nor, to the Company's
knowledge, is there a basis for any such action, suit or claim. No Employee
Benefit Plan is currently under investigation, audit or review, directly or
indirectly, by the IRS, the DOL or any other governmental entity or agency, and,
to the Company's knowledge, no such action is contemplated or under
consideration by the IRS, the DOL or any other governmental entity or agency.
2.15.10 NONDEDUCTIBLE PAYMENTS
No Employee Benefit Plan, either individual or in combination with any
other Employee Benefit Plan, provides for any payment by the Company that would
not be deductible under Section 162(a)(1), 162(m) or 404 of the Code or that
could constitute an "excess parachute payment" within the meaning of Section
280G of the Code.
2.15.11 EFFECT OF TRANSACTION
Neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated in (or by) this Agreement (either alone or
together with any other transaction or event) will (i) entitle any individual to
severance pay, unemployment compensation or any other payment from the Company,
BSQUARE, Merger Sub, any subsidiary or affiliate of BSQUARE or Merger Sub or any
Employee Benefit Plan, (ii) increase the amount of compensation due to any
individual, (iii) result in any benefit or right becoming established or
increased, or accelerate the time of payment or vesting of any
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benefit, under any Employee Benefit Plan, or (iv) require the Company, BSQUARE,
Merger Sub or any subsidiary or affiliate of BSQUARE or Merger Sub to transfer
or set aside any assets to fund or otherwise provide for any benefits for any
individual.
2.16 PERSONNEL
The Company has provided a complete and accurate list to BSQUARE of: (a)
the names and current compensation amounts of all directors and officers of the
Company; (b) the wage rates for nonsalaried and nonofficer salaried employees of
the Company by classification, and all union contracts (if any); (c) all group
insurance programs in effect for employees of the Company; (d) the names and
current compensation packages of all independent contractors and consultants of
the Company. Schedule 2.16 to the Company Disclosure Memorandum sets forth the
family relationships between any employee, officer or director of the Company.
The Company is not in default with respect to any of its obligations relating to
employee compensation matters or under union contracts (if any) and has no, and
will not incur any, material obligation or liability for severance or back pay
owed through or by virtue of the Merger.
2.17 INTELLECTUAL PROPERTY
2.17.1 GENERAL
The Company owns or is licensed and has all rights in and to the following
as required to conduct its business as now conducted and as proposed to be
conducted: (a) all products, tools, computer programs, specifications, source
code, object code, graphics, devices, techniques, algorithms, methods,
processes, procedures, packaging, trade dress, formulae, drawings, designs,
improvements, discoveries, concepts, user interfaces, software, "look and feel,"
development and other tools, content, inventions (whether or not patentable or
copyrightable and whether or not reduced to practice), designs, logos, themes,
know-how, concepts and other technology that are now, or during the two years
prior to the date of this Agreement have been, or currently are proposed to be,
developed, produced, used, marketed or sold by the Company (collectively, the
"Technology-Related Assets"); and (b) all intellectual property and other
proprietary rights in the Technology-Related Assets, including, without
limitation, all trade names, trademarks, domain names, service marks, logos,
brand names and other identifiers, trade secrets, copyrights and domestic and
foreign letters patent, and the registrations, applications, renewals,
extensions and continuations (in whole or in part) thereof, all goodwill
associated therewith and all rights and causes of action for infringement,
misappropriation, misuse, dilution or unfair trade practices associated
therewith.
2.17.2 COMPANY TECHNOLOGY
Schedule 2.17.2 to the Company Disclosure Memorandum sets forth a list of
all products and tools developed, produced, used, marketed or sold by the
Company during the two years prior to the date of this Agreement, together with
all prior versions, predecessors or precursors to such products or tools
(collectively, the "Products"). Except for the Third Party
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Technologies (as defined in Section 2.17.3) and subject to licenses granted to
customers as set forth on Schedule 2.17.6 of the Company Disclosure Memorandum,
the Company owns all right, title and interest in and to the following
(collectively, the "Technology"), free and clear of all Encumbrances: (a) the
Products, together with any and all codes, techniques, software tools, formats,
designs, user interfaces, content and "look and feel" related thereto; (b) any
and all updates, enhancements, corrections, modifications, improvements and new
releases related to the items set forth in clause (a) above; (c) any and all
technology and work in progress related to the items set forth in clauses (a)
and (b) above; and (d) all inventions, discoveries, processes, designs, trade
secrets, know-how and other confidential or proprietary information related to
the items set forth in clauses (a), (b), and (c) above. The Technology,
excluding the Third Party Technologies (as defined below), is sometimes referred
to herein as the "Company Technology."
2.17.3 THIRD PARTY TECHNOLOGY
Schedule 2.17.3 to the Company Disclosure Memorandum sets forth a list of
all Technology used in the Company's business for which the Company does not own
all right, title and interest (collectively, the "Third Party Technologies"),
and all license agreements or other contracts pursuant to which the Company has
the right to use (in the manner used by the Company, or intended or necessary
for use with the Company Technology) the Third Party Technologies (the "Third
Party Licenses"), indicating, with respect to each of the Third Party
Technologies listed therein, the owner thereof and the Third Party License
applicable thereto. The Company has the lawful right to use (free of any
material restriction not expressly set forth in the Third Party Licenses) (a)
all Third Party Technology that is incorporated in or used in the development or
production of the Company Technology and (b) all other Third Party Technology
necessary for the conduct of the Company's business as now conducted and as
proposed to be conducted in any written materials furnished by the Company to
BSQUARE. All Third Party Licenses are valid, binding and in full force and
effect, the Company and, to the Company's knowledge, each other party thereto
have performed in all material respects their obligations thereunder, and
neither the Company nor, to the Company's knowledge, any other party thereto is
in default thereunder, nor to the Company's knowledge has there occurred any
event or circumstance that with notice or lapse of time or both would constitute
a default or event of default on the part of the Company or, to the Company's
knowledge, any other party thereto or give to any other party thereto the right
to terminate or modify any Third Party License. The Company has not received
notice that any party to any Third Party License intends to cancel, terminate or
refuse to renew (if renewable) such Third Party License or to exercise or
decline to exercise any option or right thereunder.
2.17.4 TRADEMARKS
Schedule 2.17.4 to the Company Disclosure Memorandum sets forth a list of
all trademarks, trade names, brand names, service marks, logos or other
identifiers for the Products or otherwise used by the Company in its business
(the "Marks"). The Company has full legal and beneficial ownership, free and
clear of any Encumbrances, of all rights conferred by use of the Marks in
connection with the Products or otherwise in the Company's business
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and, as to those Marks that have been registered in the United States Patent and
Trademark Office, by federal registration of the Marks.
2.17.5 INTELLECTUAL PROPERTY RIGHTS
Schedule 2.17.5 to the Company Disclosure Memorandum sets forth all
patents, patent applications, copyright registrations (and applications
therefor) and trademark registrations (and applications therefor) (collectively,
the "IP Registrations") associated with the Company Technology and the Marks.
The Company owns all right, title and interest, free and clear of any
Encumbrances, in and to the IP Registrations, together with any other rights in
or to any copyrights (registered or unregistered), rights in the Marks
(registered or unregistered), trade secret rights and other intellectual
property rights (including, without limitation, rights of enforcement) contained
or embodied in the Company Technology and the Marks (collectively, the "IP
Rights").
2.17.6 MAINTENANCE OF RIGHTS
The Company has not conducted its business, and has not used or enforced
(or, to its knowledge, failed to use or enforce) the IP Rights, in a manner that
would result in the abandonment, cancellation or unenforceability of any item of
the IP Rights or the IP Registrations, and the Company has not taken (or, to its
knowledge, failed to take) any action that would result in the forfeiture or
relinquishment of any IP Rights or IP Registrations, in each case where such
abandonment, cancellation, unenforceability, forfeiture or relinquishment would
have a Company Material Adverse Effect. Except as set forth in Schedule 2.17.6,
the Company has not granted to any third party any rights or permissions to use
any of the Technology or the IP Rights. To the best of the Company's knowledge,
except pursuant to reasonably prudent safeguards, (a) no third party has
received any confidential information relating to the Technology or the IP
Rights and (b) the Company is not under any contractual or other obligation to
disclose to any third party any Company Technology.
2.17.7 THIRD PARTY CLAIMS
(a) The Company has not received any notice or claim (whether written, oral
or otherwise) challenging the Company's ownership or rights in the Company
Technology or the IP Rights or claiming that any other person or entity has any
legal or beneficial ownership with respect thereto; (b) all the IP Rights are
legally valid and enforceable without any material qualification, limitation or
restriction on their use, and the Company has not received any notice or claim
(whether written, oral or otherwise) challenging the validity or enforceability
of any of the IP Rights; and (c) to the Company's knowledge, no other person or
entity is infringing or misappropriating any part of the IP Rights or otherwise
making any unauthorized use of the Company Technology.
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2.17.8 INFRINGEMENT BY THE COMPANY
(a) The use of any of the Technology in the Company's business does not
infringe, violate or interfere with or constitute an appropriation of any right,
title or interest (including, without limitation, any patent, copyright or trade
secret right) held by any other person or entity, and there have been no claims
made with respect thereto; (b) the use of any of the Marks and other IP Rights
in the Company's business does not infringe, violate or interfere with or
constitute an appropriation of any right, title or interest (including, without
limitation, any patent, copyright, trademark or trade secret right) held by any
other person or entity, and there have been no claims made with respect thereto;
and (c) the Company has not received any notice or claim (whether written, oral
or otherwise) regarding any infringement, misappropriation, misuse, abuse or
other interference with any third party intellectual property or proprietary
rights (including, without limitation, infringement of any patent, copyright,
trademark or trade secret right of any third party) by the Company, the
Technology or the Marks or other IP Rights, or claiming that any other entity
has any claim of infringement with respect thereto.
2.17.9 CONFIDENTIALITY
(a) The Company has not disclosed any source code regarding the Technology
to any person or entity other than an employee of the Company who is under a
written nondisclosure agreement; (b) the Company has at all times maintained and
diligently enforced commercially reasonable procedures to protect all
confidential information relating to the Technology; (c) neither the Company nor
any escrow agent is under any contractual or other obligation to disclose the
source code or any other proprietary information included in or relating to the
Technology; and (d) the Company has not deposited any source code relating to
the Technology into any source code escrows or similar arrangements. If, as
disclosed on Schedule 2.17.9, the Company has deposited any source code to the
Technology into source code escrows or similar arrangements, no event has
occurred that has or could reasonably form the basis for a release of such
source code from such escrows or arrangements.
2.17.10 WARRANTY AGAINST DEFECTS
The Technology is free from known level-one defects (as defined by
Microsoft Corporation) and substantially conforms to the applicable
specifications, documentation and samples of such Technology. Notwithstanding
anything herein to the contrary, in the event the Closing occurs within 10 days
of the date hereof, the Company shall not be obligated to update Schedule
2.17.10.
2.17.11 DOMAIN NAMES
Schedule 2.17.11 sets forth a list of all Internet domain names used by the
Company in its business (collectively, the "Domain Names"). The Company has, and
after the Closing the Surviving Corporation will have, a valid registration and
all material rights (free of any
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material restriction) in and to the Domain Names, including, without limitation,
all rights necessary to continue to conduct the Company's business as it is
currently conducted.
2.17.12 YEAR 2000
All of the Company's products (including products currently under
development): (i) record, store, process, calculate and present calendar dates
falling on and after (and if applicable, spans of time including) January 1,
2000, and calculate any information dependent on or relating to such dates in
the same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, "Year 2000 Compliant");
(ii) have not lost any functionality with respect to the introduction of records
containing dates falling on or after January 1, 2000; and (iii) are
interoperable with other products used and distributed by Parent that deliver
records to the Company's products or receive records from the Company's
products, or interact with the Company's products, including but not limited to
back-up and archived data. All of the Company's Information Technology (as
defined below) is Year 2000 Compliant, and has not caused an interruption in the
ongoing operations of the Company's business on or after January 1, 2000. For
purposes of the foregoing, the term "Information Technology" shall mean and
include all software, hardware, firmware, telecommunications systems, network
systems, embedded systems and other systems, components and/or services (other
than general utility services including gas, electric, telephone and postal)
that are owned or used by the Company in the conduct of its business, or
purchased by the Company from third party suppliers.
2.17.13 INDEMNIFICATION
Other than agreements with customers in the ordinary course of business, as
set forth in Schedule 2.17.13 of the Company Disclosure Memorandum, the Company
has not entered into any agreement or offered to indemnify any Person against
any charge of infringement by the Technology or IP Rights, or any other
intellectual property or right. The Company has not entered into any agreement
granting any Person the right to bring any infringement action with respect to,
or otherwise to enforce, any of the Technology or IP Rights.
2.17.14 RESTRICTIONS ON INTELLECTUAL PROPERTY
To the knowledge of the Company, none of the Company's officers, employees,
consultants, distributors, agents, representatives or advisors has entered into
any agreement relating to the Company's business containing a prohibition or
restriction of competition or solicitation of customers, or any other similar
restrictive agreement or covenant, whether written or oral, with any Person
other than the Company. All employees of the Company have entered into a valid
and binding written agreement with the Company sufficient to vest title in the
Company of all Technology-Related Assets, including all accompanying IP Rights,
created by such employee in the scope of his or her employment by the Company,
substantially in the form of Exhibit 2.17.14.
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2.18 ACCOUNTS RECEIVABLE
All accounts receivable of the Company reflected in the Balance Sheet or
existing at the time of Closing ("Accounts") represent amounts due for services
performed or sales actually made in the ordinary course of business and properly
reflect the amounts due. The bad debt reserves and allowances reflected in the
Balance Sheet have been, and through the time of the Closing shall be,
established and maintained in accordance with GAAP, and in a manner consistent
with past practice. The Company has no reason to believe that all Accounts
existing and remaining unpaid at the time of Closing will not be collectible by
the Company in the ordinary course of business consistent with past practice.
2.19 CORPORATE BOOKS AND RECORDS
The Company has furnished to BSQUARE or its representatives for their
examination true and complete copies of (a) the Articles of Incorporation and
Bylaws of the Company as currently in effect, including all amendments thereto,
(b) the minute books of the Company, and (c) the stock transfer books of the
Company. Such minutes reflect all meetings of the Company's shareholders, Board
of Directors and any committees thereof since the Company's inception, and such
minutes accurately reflect in all material respects the events of and actions
taken at such meetings. Such stock transfer books accurately reflect all
issuances and transfers of shares of capital stock of the Company since its
inception.
2.20 LICENSES, PERMITS, AUTHORIZATIONS, ETC.
The Company has received all required governmental approvals,
authorizations, consents, licenses, orders, registrations and permits of all
agencies, whether federal, state, local or foreign (the "Permits"), the failure
to obtain of which would have a Company Material Adverse Effect. Schedule 2.20
to the Company Disclosure Memorandum contains a list of all Permits with
expiration dates, if any. The Company is in compliance with the terms of all
Permits, and all Permits are valid and in full force and effect, and no
proceeding is pending or, to the knowledge of the Company, threatened, the
object of which is to revoke, limit or otherwise affect any Permit. The Company
has not received any notifications of any asserted failure to obtain any Permit
or any past and unremedied failure to obtain any Permit.
2.21 COMPLIANCE WITH LAWS
The Company is and has been in compliance with all federal, state, local
and foreign laws, rules, regulations, ordinances, decrees and orders applicable
to the operation of its business, to its employees, or to its property, the
failure to comply with which would, individually or in the aggregate, have a
Company Material Adverse Effect, including, without limitation, all such laws,
rules, ordinances, decrees and orders relating to antitrust, consumer
protection, currency exchange, environmental protection, equal opportunity,
health, occupational safety, good laboratory practices, pension, securities and
trading-with-the-enemy matters. The Company has not received any notification of
any asserted present or past
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unremedied failure by the Company to comply with any of such laws, rules,
ordinances, decrees or orders.
2.22 INSURANCE
Schedule 2.22 to the Company Disclosure Memorandum sets forth a true and
correct list of all insurance policies maintained by the Company. The Company
maintains commercially reasonable levels of (a) insurance on its property
(including leased premises) that insures against loss or damage by fire or other
casualty and (b) insurance against liabilities, claims and risks of a nature and
in such amounts as are normal and customary in the Company's industry for
companies of similar size and financial condition. All insurance policies of the
Company are in full force and effect, all premiums with respect thereto covering
all periods up to and including the date this representation is made have been
paid, and no notice of cancellation or termination has been received with
respect to any such policy or binder. Such policies or binders are sufficient
for compliance with all requirements of law currently applicable to the Company
and of all agreements to which the Company is a party, will remain in full force
and effect through the respective expiration dates of such policies or binders
without the payment of additional premiums, and will not in any way be affected
by, or terminate or lapse by reason of, the transactions contemplated by this
Agreement. The Company has not been refused any insurance with respect to its
assets or operations, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance.
2.23 BROKERS OR FINDERS
The Company has not incurred, and will not incur, directly or indirectly,
as a result of any action taken by or on behalf of the Company, any liability
for brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Merger, this Agreement or any transaction contemplated
hereby.
2.24 ABSENCE OF QUESTIONABLE PAYMENTS
Neither the Company nor any director, officer, agent, employee or other
Person acting on behalf of the Company has used any Company funds for improper
or unlawful contributions, payments, gifts or entertainment, or made any
improper or unlawful expenditures relating to political activity to domestic or
foreign government officials or others. The Company has reasonable financial
controls to prevent such improper or unlawful contributions, payments, gifts,
entertainment or expenditures. Neither the Company nor any current director,
officer, agent, employee or other Person acting on behalf of the Company has
accepted or received any improper or unlawful contributions, payments, gifts or
expenditures. The Company has at all times complied, and is in compliance, in
all respects with the Foreign Corrupt Practices Act and all foreign laws and
regulations relating to prevention of corrupt practices and similar matters. The
Company has not received any notice that any transaction was improper or
unlawful within the meaning of this Section 2.24.
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2.25 BANK ACCOUNTS
Schedule 2.25 to the Company Disclosure Memorandum sets forth the names and
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which the Company maintains safe deposit boxes or
accounts of any nature and the names of all Persons authorized to draw thereon,
make withdrawals therefrom or have access thereto.
2.26 INSIDER INTERESTS
No shareholder or officer, director, employee, contractor, consultant or
other representative of the Company has any interest (other than as a
shareholder of the Company) (a) in any Real Property, Personal Property,
Technology or IP Rights used in or directly pertaining to the business of the
Company, including, without limitation, inventions, patents, trademarks or trade
names, or (b) in any agreement, contract, arrangement or obligation relating to
the Company, its present or prospective business or its operations. There are no
agreements, understandings or proposed transactions between the Company and any
of its officers, directors, shareholders, affiliates or any affiliate thereof.
The Company and its officers, directors, employees, contractors, consultants or
other representatives have no interest, either directly or indirectly, in any
entity, including, without limitation, any corporation, partnership, joint
venture, proprietorship, firm, licensee, business or association (whether as an
employee, officer, director, shareholder, agent, independent contractor,
security holder, creditor, consultant or otherwise) that presently (i) provides
any services, produces and/or sells any products or product lines, or engages in
any activity that is the same, similar to or competitive with any activity or
business in which the Company is now engaged or proposes to engage; (ii) is a
supplier, customer or creditor; or (iii) has any direct or indirect interest in
any asset or property, real or personal, tangible or intangible, of the Company
or any property, real or personal, tangible or intangible, that is necessary or
desirable for the present or currently anticipated future conduct of the
Company's business.
2.27 COMPLIANCE WITH ENVIRONMENTAL LAWS
(a) To the knowledge of the Company, the Company is not in violation of,
and has not violated, in connection with the ownership, use, maintenance or
operation of the Real Property or the Personal Property or the conduct of its
business, any applicable foreign, federal, state, county and local statutes,
laws, regulations, guidances, rules, ordinances, codes, licenses, permits,
judgments, writs, decrees, injunctions or orders of any governmental entity
relating to environmental (air, water, groundwater, soil, natural resource,
noise and odor) matters, including, by way of illustration and not by way of
limitation, the Clean Air Act, the Federal Water Pollution Control Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental,
Response, Compensation, and Liability Act, the Clean Water Act, the Endangered
Species Act, the Hazardous Materials Transportation Act, the Toxic Substances
Control Act, the Hazardous Waste Control Act, the Model Toxics Control Act and
other comparable federal, state and local laws, and any and all regulations
issued thereunder (collectively, "Environmental Laws").
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(b) The Company has not transported, stored, treated, managed, recycled,
handled or disposed of, or allowed or arranged for any third party to transport,
store, treat, manage, recycle, handle or dispose of (i) any flammable
substances, explosives, radioactive materials, hazardous substances, hazardous
wastes, toxic substances, pollutants, contaminants or any wastes, materials or
substances identified in or regulated by any Environmental Laws; (ii) asbestos,
polychlorinated biphenyls, urea formaldehyde, nuclear fuel or material, chemical
waste, carcinogens and radon, all to the extent regulated by any Environmental
Laws; and (iii) gasoline, oil and other petroleum products (all of the foregoing
collectively, "Regulated Substances"), to, in, or at any location in violation
of any Environmental Laws.
(c) To the knowledge of the Company, no part of the Real Property,
including, but not limited to, all surface and subsurface soil, sediments,
groundwater and surface water located on, in or under the Real Property, was
during the period of use by the Company or is contaminated with any Regulated
Substances or constituents thereof, which contamination has given or may give
rise to any obligation of the Company under any applicable Environmental Laws,
the common law or otherwise. To the knowledge of the Company, no real property
adjacent to or adjoining the Real Property has been or is being so contaminated.
There are no Regulated Substances (other than gasoline, oil or other petroleum
products as described on Disclosure Schedule 2.27(c)) present in or on the Real
Property or in any equipment located therein.
(d) The Company has reported, recorded or filed, and has provided to
BSQUARE, true, accurate and complete copies of all reports with respect to any
spilling, leaking, releasing, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, migrating, leaching, placing, depositing, dumping or
disposing into the environment (including the abandonment or discarding of
drums, barrels, containers or other closed receptacles) (any of the foregoing, a
"Release"), required by applicable Environmental Laws to be filed by the Company
with any government authority. The Company has maintained all environmental and
operating documents and records in the manner and for the time periods required
by applicable Environmental Laws.
(e) The Company has not caused or permitted the Release of any Regulated
Substances or constituents thereof on, from or off-site of its Real Property, or
of any Release from any facility owned or operated by third parties but with
respect to which the Company is alleged to have any liability, including, but
not limited to, liability for personal injury, injury to natural resources
(including fish and wildlife), cleanup, remediation, or restoration, which
Release caused or could reasonably be Expected to cause a material loss to the
Company.
(f) There are no tanks which, when considered with all associated piping,
are underground storage tanks located either wholly or partially below the
surface of the ground, and, without regard to whether they are in contact with
soil, within a building or containment structure or otherwise are wholly or
partially located in, on or under the Real Property.
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2.28 INFORMATION SUPPLIED BY THE COMPANY
None of the information supplied or to be supplied by the Company for
inclusion in the proxy statement to be delivered to its shareholders in
connection with any written consent by or meeting of such shareholders
(collectively, "Shareholder Materials"), at the date on which such information
was supplied prior to the time the Company's shareholders were requested to
approve the Merger, contained or will contain any untrue statement of a material
fact or omits or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not materially misleading; provided,
however, that the Company makes no representations or warranties regarding
information furnished by or related to BSQUARE or Merger Sub.
2.29 FULL DISCLOSURE
No information furnished by the Company to BSQUARE or its representatives
in connection with this Agreement (including, but not limited to, the Financial
Statements and all information in the Company Disclosure Memorandum and the
other Exhibits hereto) or the other Operative Documents contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements so made or information so delivered not misleading.
2.30 HART-SCOTT-RODINO ACT
The Company is its own ultimate parent entity as defined under the rules
and regulations promulgated under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). The Company is not a $10 million person
as defined thereunder. The Company is not "engaged in manufacturing" for
purposes of the HSR Act.
2.31 GOVERNMENT CONTRACTS
The Company does not have, and has never had, any agreements, contracts or
commitments with the United States Government or any foreign government.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF BSQUARE AND MERGER SUB
In order to induce the Company to enter into and perform this Agreement and
the other Operative Documents, BSQUARE and Merger Sub jointly and severally
represent and warrant to the Company as follows in this Article III:
3.1 ORGANIZATION
Each of BSQUARE and Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Washington. Each of
BSQUARE and Merger Sub has all requisite corporate power and authority to own,
operate and lease its respective properties and assets, to carry on its
respective business as now conducted and as
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proposed to be conducted, to enter into and perform its obligations under this
Agreement and the other applicable Operative Documents to which BSQUARE or
Merger Sub is a party, and to consummate the transactions contemplated hereby
and thereby. Each of BSQUARE and Merger Sub is duly qualified and licensed as a
foreign corporation to do business and is in good standing in each jurisdiction
in which the character of properties occupied, owned or held under lease by
BSQUARE or Merger Sub, as applicable, or the nature of the business conducted by
BSQUARE or Merger Sub, as applicable, makes such qualification or licensing
necessary, except where the failure to be so qualified or in good standing would
not have a material adverse effect on the business, operations, assets,
liabilities (absolute, accrued, contingent or otherwise), condition (financial
or other) or prospects of BSQUARE and its subsidiaries taken as a whole (a
"BSQUARE Material Adverse Effect"); provided, however, that BSQUARE Material
Adverse Effect shall not include any change, circumstance, event or effect that
relates to or results from the announcement or other disclosure or consummation
of the transactions contemplated by this Agreement or general economic
conditions. Each of BSQUARE and Merger Sub has full corporate power and
authority to execute, deliver and perform this Agreement and the other Operative
Documents to which it is a party, and to carry out the transactions contemplated
hereby and thereby. All the issued and outstanding shares of capital stock of
Merger Sub are held of record and beneficially by BSQUARE.
3.2 ENFORCEABILITY
BSQUARE and Merger Sub each have full corporate power and authority to
execute, deliver and perform their obligations under this Agreement and each of
the other Operative Documents to which they are a party and each of the
certificates, instruments and documents executed or delivered by them pursuant
to the terms of this Agreement. All corporate action on the part of BSQUARE and
Merger Sub and their respective officers, directors and shareholders necessary
for the authorization, execution, delivery and performance of this Agreement and
the other applicable Operative Documents to which BSQUARE or Merger Sub is a
party, the consummation of the Merger and the performance of all their
respective obligations under this Agreement and the other applicable Operative
Documents to which BSQUARE or Merger Sub is a party has been taken or will be
taken prior to the Effective Time. This Agreement has been, and each of the
other Operative Documents to which BSQUARE and Merger Sub, respectively is a
party will have been at the Closing, duly executed and delivered by BSQUARE and
Merger Sub, as applicable, and this Agreement is, and each of the other
Operative Documents to which BSQUARE and Merger Sub, respectively is a party
will be at the Closing, a legal, valid and binding obligation of BSQUARE and
Merger Sub, as applicable, enforceable against BSQUARE and Merger Sub, as
applicable in accordance with its terms, except as to the effect, if any, of (a)
applicable bankruptcy and other similar laws affecting the rights of creditors
generally, (b) rules of law governing specific performance, injunctive relief
and other equitable remedies, and (c) the enforceability of provisions requiring
indemnification in connection with the offering, sale or issuance of securities.
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3.3 SECURITIES
The BSQUARE Common Stock to be issued pursuant to this Agreement has been,
or will be prior to the Effective Time, duly authorized for issuance, and such
BSQUARE Common Stock, when issued and delivered to the shareholders pursuant to
this Agreement, shall be validly issued, fully paid and nonassessable.
3.4 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS
The execution, delivery and performance of this Agreement and the other
Operative Documents by BSQUARE and Merger Sub, as applicable, and the
consummation by them of the transactions contemplated hereby and thereby will
not (a) constitute a violation (with or without the giving of notice or lapse of
time, or both) of any provision of law applicable to BSQUARE or Merger Sub; (b)
require any consent, approval or authorization of any Person, except (i)
compliance with applicable securities laws and (ii) the filing of all documents
necessary to consummate the Merger with the Washington Secretary of State and
the California Secretary of State; (c) result in a default (with or without the
giving of notice or lapse of time, or both) under, or acceleration or
termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any agreement, lease, note or other restriction,
encumbrance, obligation or liability to which BSQUARE or Merger Sub is a party
or by which it is bound or to which any assets of BSQUARE or Merger Sub are
subject; or (d) conflict with or result in a breach of or constitute a default
under any provision of the Articles of Incorporation or Bylaws of BSQUARE or the
Articles of Incorporation or Bylaws of Merger Sub.
3.5 CAPITALIZATION
The authorized capital stock of BSQUARE consists of 150,000,000 shares of
BSQUARE Common Stock of which 32,625,346 shares were issued and outstanding as
of May 2, 2000 and 10,000,000 shares of preferred stock, par value $0.01 per
share, none of which is issued or outstanding. Such issued and outstanding
shares of BSQUARE Common Stock are validly issued, fully paid and nonassessable.
The authorized capital stock of Merger Sub consists of 1,000 shares of common
stock, all of which are owned by BSQUARE.
3.6 SEC DOCUMENTS
BSQUARE has made available to the shareholders true and complete copies of
its Annual Report on Form 10-K for the fiscal year ending December 31, 1999, all
Forms 8-K filed after the date of the last of the Form 10-K, and its Proxy
Statement relating to its 2000 Annual Meeting of Shareholders (collectively, the
"SEC Documents"). As of their respective filing dates, each of the SEC Documents
complied in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder,
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements made
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therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected by a document subsequently filed with the SEC.
The financial statements, including the notes thereto, included in the SEC
Documents (the "Parent Financial Statements") comply as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP consistently applied (except
as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and present fairly the
consolidated financial position, results of operations and changes in financial
position of BSQUARE at the dates and for the periods indicated (subject, in the
case of unaudited statements, to normal year-end adjustments and any other
adjustments described therein). There has been no change in BSQUARE accounting
policies except as described in the notes to the BSQUARE Financial Statements;
provided, however, BSQUARE may have restated or may restate one or more of the
BSQUARE Financial Statements to reflect acquisitions entered into subsequent to
the respective dates hereof.
3.7 ABSENCE OF CERTAIN CHANGES
Since the December 31, 1999 financial statements included in the SEC
Documents, there has not been any change that by itself or in conjunction with
all other such changes, has had or could reasonably be expected to have a
BSQUARE Material Adverse Effect, except as disclosed in the SEC Documents, to
the date of this Agreement.
3.8 INFORMATION SUPPLIED BY BSQUARE
None of the information supplied or to be supplied by BSQUARE for inclusion
in the Shareholder Materials, including the SEC Documents, at the date such
information was supplied prior to the time the shareholders of the Company were
requested to approve the Merger at either a special meeting of the Company's
shareholders or by executing a written consent, contained or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not materially
misleading; provided, however, that BSQUARE makes no representations or
warranties regarding information furnished by or related to the Company.
3.9 FULL DISCLOSURE
No information furnished by BSQUARE or Merger Sub to the Company or its
representatives in connection with this Agreement or the other Operative
Documents contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements so made or information
so delivered not misleading.
3.10 BROKERS OR FINDERS
BSQUARE has not incurred, and will not incur, directly or indirectly, as a
result of any action taken by or on behalf of BSQUARE, any liability for
brokerage or finders' fees or
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agents' commissions or any similar charges in connection with the Merger, this
Agreement or any transaction contemplated hereby that would result in a claim
against the Company or its shareholders.
3.11 CLAIMS AND LEGAL PROCEEDINGS
There is no claim, action, suit, arbitration, criminal or civil
investigation or proceeding pending or involving or, to BSQUARE's knowledge,
threatened against BSQUARE or Merger Sub before or by any court or governmental
or nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person, that questions the validity of this
Agreement or any action taken or to be taken by BSQUARE or Merger Sub pursuant
to this Agreement or in connection with the transactions contemplated hereby.
ARTICLE IV - CONDITIONS PRECEDENT TO OBLIGATIONS OF BSQUARE AND MERGER SUB
The obligations of BSQUARE and Merger Sub to perform and observe the
covenants, agreements and conditions hereof to be performed and observed by them
at or before the Closing shall be subject to the satisfaction of the following
conditions, which may be expressly waived only in writing signed by BSQUARE:
4.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company contained herein
(including applicable Exhibits or Schedules to the Company Disclosure
Memorandum) and in the other Operative Documents shall have been true and
correct in all material respects when made and, except (a) for changes
contemplated by this Agreement and the other Operative Documents and (b) to the
extent that such representations and warranties speak as of an earlier date,
shall be true and correct in all material respects as of the Closing Date, as
though made on that date.
4.2 PERFORMANCE OF AGREEMENTS
The Company and the shareholders shall have performed in all material
respects all obligations and agreements and complied with all covenants
contained in this Agreement or any other Operative Document to be performed and
complied with by it at or prior to the Closing.
4.3 OPINION OF COUNSEL FOR THE COMPANY
BSQUARE shall have received the opinion letter of Wilson Sonsini Goodrich
and Rosati, counsel for the Company, dated the Closing Date, in a form
reasonably acceptable to the parties.
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4.4 COMPLIANCE CERTIFICATE
BSQUARE shall have received a certificate of the President and the Chief
Financial Officer of the Company, dated the Closing Date, in form and substance
reasonably satisfactory to BSQUARE, certifying that the conditions to the
obligations of the Company and the shareholders in Sections 4.1, 4.2, 4.5, 4.6,
4.13, 4.14, 4.15 and 4.17 have been fulfilled.
4.5 COMPANY MATERIAL ADVERSE EFFECT
Since the date of this Agreement and through the Closing, there shall not
have occurred any change in the business, properties or prospects of the Company
that would have a Company Material Adverse Effect.
4.6 APPROVALS AND CONSENTS
All transfers of permits or licenses and all approvals of or notices to
public agencies, federal, state, local or foreign, the granting or delivery of
which is necessary for the consummation of the transactions contemplated hereby,
or for the continued operation of the Company, shall have been obtained, and all
waiting periods specified by law shall have passed.
4.7 PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE
All corporate and other proceedings in connection with the transactions
contemplated hereby and by the other Operative Documents, and all documents and
instruments incident to such transactions, shall have been approved by BSQUARE's
counsel. BSQUARE shall have received a certificate of the Secretary of the
Company, in form and substance satisfactory to BSQUARE, as to the authenticity
and effectiveness of the actions of the Board of Directors and shareholders of
the Company authorizing the Merger and the transactions contemplated by this
Agreement and the other Operative Documents. Copies of the Company's Articles of
Incorporation, certified by the California Secretary of State, and Bylaws,
certified by the Secretary of the Company, shall be attached to such
certificate.
4.8 SHAREHOLDER APPROVAL
The principal terms of this Agreement shall have been approved by the
Company's shareholders as required by the Company's Articles of Incorporation
and applicable law.
4.9 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect that
enjoins, restrains, conditions or prohibits consummation of this Agreement or
any other Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or threatened that would enjoin, restrain, condition
or prevent consummation of this Agreement or any other Operative Document.
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4.10 ESCROW AGREEMENT
The Shareholder Representative, on behalf of the Company's shareholders,
and the Escrow Agent shall have executed and delivered the Escrow Agreement.
4.11 EMPLOYMENT AND NONCOMPETITION AGREEMENTS
4.11.1 KEY EMPLOYEES
Roupen Nahabedian, Tom Wong and Milton Ribiero shall have executed an
employment agreement with BSQUARE substantially in the form attached hereto as
Exhibit 4.11.1A, and a confidentiality, noncompetition and inventions assignment
agreement substantially in the form attached hereto as Exhibit 4.11.1B.
4.11.2 TONY MOROYAN
Mr. Tony Moroyan, founder and CEO of the Company ("Mr. Moroyan"), shall
have entered into an employment severance and consulting agreement with BSQUARE
substantially in the form attached hereto as Exhibit 4.11.2A, and a
confidentiality, noncompetition and inventions assignment agreement with BSQUARE
substantially in the form attached hereto as Exhibit 4.11.2B.
4.12 AFFILIATE LETTERS
The Company shall have delivered or caused to be delivered to BSQUARE an
Affiliate Letter substantially in the form of Exhibit 4.12 from each of those
Persons who were, on the date on which the requisite number of consents or votes
has been obtained to approve the Merger, "affiliates" of the Company within the
meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act.
4.13 TERMINATION OF CERTAIN AGREEMENTS
Any and all rights of refusal, co-sale rights and registration rights
(other than pursuant hereto) for the benefit of the holders of Company Capital
Stock, or Stock Purchase Rights, all as set forth in the Company Disclosure
Memorandum, shall have terminated.
4.14 EXERCISE OR CONVERSION OF CONVERTIBLE SECURITIES
Any and all securities and notes convertible at any time into Company
Common Stock, vested and unvested, and regardless of restrictions on exercise or
conversion, shall have been exercised or converted, as the case may be, for
shares of Company Common Stock immediately prior to the Effective Time, except
for Options assumed by BSQUARE pursuant to Section 1.7.1(e).
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4.15 NO DISSENTER RIGHTS EXERCISED GREATER THAN 5% OF STOCK
No holders of Company Series A Preferred Stock shall have delivered to the
Company before the Effective Time timely written notice of such holder's intent
to demand payment for such shares in accordance with California Law, unless such
holder shall have withdrawn or otherwise lost his, her or its right to such
payment as a dissenting shareholder. Holders of not more than 5% of the
outstanding shares of Company Common Stock shall have not voted in favor of the
Merger or not consented thereto in writing and shall have delivered before the
Effective Time timely written notice of such holders' intent to demand payment
as dissenting shareholders for such shares in accordance with California Law.
4.16 TRANSMITTAL LETTERS
All holders of the Company Series A Preferred Stock and holders of at least
95% of the outstanding shares of Company Common Stock shall have executed
Letters of Transmittal, addressing, among other issues, (i) the mechanics of
share exchange, (ii) representations and share ownership, (iii) agreement to be
bound to indemnification obligations hereunder, and (iv) agreement to be bound
by the Escrow Agreement.
4.17 CONSENTS TO MERGER
Schedule 4.17 lists all agreements, leases, notes or other documents
identified on Schedules 2.5, 2.9, 2.10 and 2.14 to the Company Disclosure
Memorandum that treat the Merger as an assignment or otherwise by their terms
require consent. Unless otherwise set forth in Schedule 4.17, the Company shall
have received and shall have delivered to BSQUARE or its counsel written
consents to the Merger from each of the parties (other than the Company) to such
agreements, leases, notes or other documents, which consents shall be reasonably
satisfactory in all respects to BSQUARE.
4.18 COMPANY RESTRICTED STOCK CONSENT
All holders of Company Restricted Stock shall have executed a stock
restriction agreement in substantially the form of Exhibit 4.18 (the "Stock
Restriction Agreement").
4.19 FINANCIAL STATEMENTS
The Company shall have provided an audited balance sheet as of December 31,
1999 and statements of operations, shareholders' equity and cash flows of the
Company for the twelve (12) months then ended; gross revenue and shareholders'
equity as reflected on such audited statements shall not differ by an amount
greater than ten percent (10%) from the gross revenue and shareholders' equity
as reflected on the unaudited financial statements for such period provided to
BSQUARE pursuant to Section 2.6.
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4.20 TAX MATTER
BSQUARE shall have reasonably determined that the Merger will qualify as a
reorganization under Section 368(a) of the Code.
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to perform and observe the covenants,
agreements and conditions hereof to be performed and observed by it at or before
the Closing shall be subject to the satisfaction of the following conditions,
which may be expressly waived only in writing signed by the Company.
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of BSQUARE and Merger Sub contained
herein and in the other Operative Documents shall have been true and correct in
all material respects when made and, except for (a) changes contemplated by this
Agreement and the other Operative Documents and (b) to the extent that such
representations and warranties speak as of an earlier date, shall be true and
correct as of the Closing Date as though made on that date.
5.2 PERFORMANCE OF AGREEMENTS
BSQUARE and Merger Sub shall have performed in all material respects all
obligations and agreements and complied with all covenants contained in this
Agreement or any other Operative Document to be performed and complied with by
them at or prior to the Closing.
5.3 OPINION OF COUNSEL
The Company shall have received the opinion letter of Perkins Coie LLP,
counsel for BSQUARE and Merger Sub, dated the Closing Date, in a form reasonably
acceptable to the parties.
5.4 COMPLIANCE CERTIFICATE
The Company shall have received a certificate of an officer of BSQUARE,
dated the Closing Date, in form and substance reasonably satisfactory to the
Company, certifying that the conditions to the obligations of BSQUARE and Merger
Sub in Sections 5.1, 5.2, 5.6 and 5.7 have been fulfilled.
5.5 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect that
enjoins, restrains, conditions or prohibits consummation of this Agreement or
any other Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or threatened
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which would enjoin, restrain, condition or prevent consummation of this
Agreement or any other Operative Document.
5.6 BSQUARE MATERIAL ADVERSE EFFECT
Since the date of this Agreement and through the Closing, there shall not
have occurred any change in the business, properties or prospects of BSQUARE
that would have a BSQUARE Material Adverse Effect, except for such changes
occurring as a direct result of the execution or announcement of this Agreement.
Changes in the trading prices of BSQUARE Common Stock shall not be deemed to
have a BSQUARE Material Adverse Effect under this Agreement.
5.7 APPROVALS AND CONSENTS
All transfers of permits or licenses and all approvals of or notices to
public agencies, federal, state, local or foreign, the granting or delivery of
which are necessary for the consummation of the transactions contemplated hereby
by shall have been obtained, and all waiting periods specified by law shall have
passed. All other consents, approvals and notices set forth in Schedule 4.6
(which shall include all contracts the Company is a party to that require
consent to assignment) shall have been obtained or delivered.
5.8 ESCROW AGREEMENT
BSQUARE and the Escrow Agent shall have executed the Escrow Agreement.
5.9 EMPLOYMENT AND NONCOMPETITION AGREEMENTS
5.9.1 KEY EMPLOYEES
Each of the Key Employees, and BSQUARE shall have entered into the
Employment Agreement and the Confidentiality, Noncompetition and Inventions
Assignment Agreement substantially in the forms attached hereto as Exhibit
4.11.1A and Exhibit 4.11.1B, respectively.
5.9.2 TONY MOROYAN
Mr. Moroyan and BSQUARE shall have entered into the Employment Severance
and Consulting Agreement and the Confidentiality, Noncompetition and Inventions
Assignment Agreement in substantially the forms attached hereto as Exhibit
4.11.2A and Exhibit 4.11.2B, respectively.
5.10 TAX MATTER
The Company shall have reasonably determined that the Merger will qualify
as a reorganization under Section 368(a) of the Code.
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ARTICLE VI - COVENANTS
Between the date of this Agreement and the Effective Time, or such later
period as set forth in Sections 6.5, 6.8 and 6.9, the parties covenant and agree
as set forth in this Article VI.
6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER
Unless BSQUARE shall otherwise agree in writing, the business of the
Company shall be conducted in and only in, and the Company shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice and in accordance with applicable law; and the Company shall
use commercially reasonable efforts to preserve intact the business organization
of the Company, to keep available the services of the current officers,
employees and consultants of the Company and to preserve the current
relationships of the Company with, and the goodwill of, customers, suppliers and
other Persons with which the Company has significant business relations. By way
of amplification and not limitation, except as otherwise contemplated by this
Agreement, the Company shall not, between the date of this Agreement and the
Effective Time, directly or indirectly do, or propose to do, any of the
following without the prior written consent of BSQUARE:
(a) amend or otherwise change its Articles of Incorporation or Bylaws;
(b) except for the issuance of shares of Company Capital Stock upon the
exercise or conversion of currently outstanding Options or Stock Purchase
Rights, issue, sell, contract to issue or sell, pledge, dispose of, grant,
encumber or authorize the issuance, sale, pledge, disposition, grant or
Encumbrance of (i) any shares of capital stock of any class of the Company, (ii)
any options, warrants, convertible securities or other rights of any kind to
acquire any shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest) of the Company, or (iii)
any assets of the Company;
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock or other securities, property or otherwise, with respect
to any of its capital stock;
(d) reclassify, combine, split, subdivide, redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock or other securities;
(e) (i) acquire (including, without limitation, by merger, consolidation,
or acquisition of stock or assets) any corporation, partnership, other business
organization or division thereof or any material amount of assets; (ii) incur
any indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible for,
the obligations of any Person, or make any loans or advances, except in the
ordinary course of business and consistent with past practice; (iii) enter into
any contract or agreement other than in the ordinary course of business,
consistent with past practice; (iv) authorize any single capital expenditure
which is in excess of $5,000 or capital expenditures which are, in the
aggregate, in excess of $10,000 for the Company taken as a whole; (v) enter into
any agreement in which the obligation of the
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Company exceeds $10,000 or which shall not terminate or be subject to
termination for convenience within thirty (30) days following execution; (vi)
license any Technology or IP Rights except in the ordinary course of business
and consistent with past practice; or (vii) enter into or amend any contract,
agreement, commitment or arrangement with respect to any matter set forth in
this subsection (e);
(f) enter into or amend any employment, consulting or agency agreement, or
increase the compensation payable or to become payable to its officers,
employees, agents or consultants, or grant any severance or termination pay to,
or enter into any employment or severance agreement with, any director, officer
or other employee of the Company, or establish, adopt, enter into or amend any
Employee Benefit Plan, collective bargaining, bonus, profit-sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance, benefit or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any director,
officer or employee;
(g) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect to
accounting methods, policies or procedures (including, without limitation,
procedures with respect to the payment of accounts payable and collection of
accounts receivable);
(h) make any Tax election or settle or compromise any Tax liability;
(i) pay, discharge or satisfy any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice;
(j) take any action that would or is reasonably likely to result in any of
the representations or warranties of the Company set forth in this Agreement
being untrue in any material respect, or in any covenant of the Company set
forth in this Agreement being breached, or in any of the conditions to the
Merger specified in Article IV not being satisfied; or
(k) agree to do any of the foregoing.
6.2 ACCESS TO INFORMATION; CONFIDENTIALITY
From the date hereof to the Effective Time, the Company shall, and shall
cause the officers, directors, employees and agents of the Company to, afford
the officers, employees and agents of BSQUARE access at all reasonable times to
the officers, employees, agents, properties, offices, plants and other
facilities, books and records of the Company and shall furnish BSQUARE with all
financial, operating and other data and information as BSQUARE, through its
officers, employees or agents, may reasonably request. From the date hereof
until the Effective Time, the Company shall provide BSQUARE with monthly and
other financial statements of the Company as they become available internally at
the Company, all of which financial statements shall fairly present the
financial position and
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results of operations of the Company as of the dates and for the periods therein
specified. No investigation pursuant to this Section 6.2 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
6.3 NO ALTERNATIVE TRANSACTIONS
The Company shall not, for a period of thirty (30) days (the "Exclusivity
Period") after termination or expiration of the right of first refusal relating
to the Merger as granted by the Company to Cadence Design Systems, Inc.
("Cadence") pursuant to the Right of First Refusal Agreement dated as of January
1999 (the "Cadence Agreement"), directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any Person relating to any acquisition or purchase of
all or any material portion of the assets of, or any equity interest in, the
Company or any business combination with the Company, or participate in any
negotiations regarding, or furnish to any other Person any information with
respect to, or otherwise cooperate or negotiate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
Person to do or seek any of the foregoing, except as otherwise provided in the
Cadence Agreement. The Exclusivity Period will be automatically extended for one
additional 30-day period if, as of the date the Exclusivity Period would
otherwise terminate, the Company and BSQUARE are each continuing to diligently
negotiate the Agreement in good faith. The Company shall notify BSQUARE promptly
if any such proposal or offer, or any inquiry or contact with any Person with
respect thereto, is made and shall, in any such notice to BSQUARE, indicate in
reasonable detail the identity of the Person making such proposal, offer,
inquiry or contact and the terms and conditions of such proposal, offer, inquiry
or contact. The Company agrees not to release any third party from, or waive any
provision of, any confidentiality or standstill (e.g., agreement not to invest
in or seek change of control of the Company) agreement to which the Company is a
party.
6.4 NOTIFICATION OF CERTAIN MATTERS
Each party shall give prompt notice to the other parties of (a) the
occurrence or nonoccurrence of any event that would be reasonably likely to
cause any representation or warranty made by such party contained in this
Agreement to be untrue or inaccurate in any material respect and (b) any
material failure by such party to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 6.4 shall not
limit or otherwise affect the remedies available to the parties hereunder.
6.5 FURTHER ACTION; COMMERCIALLY REASONABLE EFFORTS
Upon the terms and subject to the conditions hereof, each of the parties
hereto shall use commercially reasonable efforts to take, or cause to be taken,
all appropriate action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereby, including, without limitation,
using commercially reasonable efforts to obtain all waivers,
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licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and parties to contracts with the Company as
are necessary for the consummation of the transactions contemplated hereby and
to fulfill the conditions to the Merger. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement or the other Operative Documents, each party to this Agreement
shall use commercially reasonable efforts to promptly take all such action.
After the Closing, each party hereto, at the request of and without any further
cost or expense to the other parties, will take any further actions reasonably
necessary or desirable to carry out the purposes of this Agreement or any other
Operative Document, to vest in the Surviving Corporation full title to all
properties, assets and rights of the Company and to effect the issuance of the
BSQUARE Common Stock to the shareholders of the Company pursuant to the terms
and conditions hereof.
6.6 PROXY STATEMENT
The Company will send the Shareholder Materials (as defined in Section
2.28) to its shareholders, in a timely manner, for the purposes of considering
approval of the Merger, either at a special meeting of its shareholders or by
their execution of a written consent. The Company and BSQUARE each will promptly
provide all information relating to its respective business or operations
necessary for inclusion in the Shareholder Materials to satisfy all requirements
of applicable state and federal securities laws. The Company and BSQUARE each
shall be solely responsible for any statement, information or omission in the
Shareholder Materials relating to it or its affiliates based on written
information furnished by it. The Company and BSQUARE will not provide or publish
to the Company's shareholders any material concerning them or their affiliates
that violates the Securities Act or the Exchange Act with respect to the
transactions contemplated hereby.
6.7 SHAREHOLDER APPROVAL
The Company will seek the approval at a special meeting of its shareholders
or the written consent of the shareholders at the earliest practicable date
approving this Agreement, the other Operative Documents, the Merger and related
matters, which approval will be recommended by the Board of Directors of the
Company.
6.8 BSQUARE COMMON STOCK
BSQUARE agrees to authorize for listing on the Nasdaq National Market the
shares of BSQUARE Common Stock comprising the Merger Consideration, and those
required to be reserved for issuance upon exercise of Options assumed in
connection with the Merger by filing with the Nasdaq National Market a
Notification of Listing of Additional Shares (or such other form as may be
required by the Nasdaq National Market) as soon as reasonably practicable after
the Closing or otherwise in accordance with the rules and regulations of the
Nasdaq National Market.
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6.9 SECURITIES ACT COMPLIANCE
BSQUARE represents and warrants that it shall use commercially reasonable
efforts to register the issuance of the shares comprising the Merger
Consideration within ninety (90) days following the Closing under the Securities
Act, pursuant to a registration statement on Form S-1. Upon the effectiveness of
such registration, the shares of BSQUARE Common Stock issuable in the Merger
will be freely tradable, without restriction under the Securities Act, other
than those restrictions imposed on affiliates of the Company pursuant to Rule
145 under the Securities Act and those restrictions imposed on affiliates of
BSQUARE pursuant to Rule 144 under the Securities Act. BSQUARE agrees to use
commercially reasonable efforts to cause such registration statement with
respect to the shares comprising the Merger Consideration to remain effective as
of the Effective Date, and to prepare and file with the Securities and Exchange
Commission such amendments to such registration statement and amendments or
supplements to the prospectus used in connection therewith as may be necessary
to comply with the provisions of the Securities Act with respect to the sale of
BSQUARE Common Stock at the Closing. For so long as any shares of BSQUARE Common
Stock issued in connection with the Merger remain subject to Rule 145 of the
Securities Act, BSQUARE agrees to use commercially reasonable efforts to timely
file all required reports under the Exchange Act, and otherwise satisfy the
requirements of Rule 144(c) under the Securities Act.
6.10 DISSENTING SHARES
Prior to the Closing Date, the Company shall furnish BSQUARE with the name
and address of each shareholder of the Company who, prior to the Closing, has
requested appraisal rights pursuant to California Law and the number of
Dissenting Shares owned by such shareholder.
6.11 PUBLICITY
No party hereto shall issue any press release or otherwise make any public
statements with respect to this Agreement or the transactions contemplated
hereby other than the issuance by BSQUARE of a press release announcing this
Agreement and the transactions contemplated hereby or as required by law. Prior
to such issuance, BSQUARE will provide the Company with notice and an
opportunity to review and comment upon such press release.
6.12 VOTING AGREEMENT
The Company shall cause all its directors, officers and vice presidents to
execute the Voting Agreement in the form attached as Exhibit 6.12 hereto.
6.13 OPTION SHARES; REGISTRATION
BSQUARE shall take all corporate action necessary to reserve for issuance a
sufficient number of BSQUARE Common Stock for delivery upon exercise of the
Options assumed in
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accordance with Section 1.7.1(e). BSQUARE shall use commercially reasonable
efforts to cause to be filed with respect to BSQUARE Common Stock subject to
such Options a registration statement on Form S-8 (or any successor form) with
respect to those shares eligible to be registered on a primary basis on such
form to be effective within ten (10) business days of the date on which the
requirements of Items 2, 5 and 7 of Form 8-K have been satisfied and the
responsive Current Report on Form 8-K, as it may be amended, with respect to the
Merger has been filed with the Commission. BSQUARE shall use all commercially
reasonable efforts to maintain the effectiveness of such registration statement
or registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such Options remain outstanding.
6.14 DELIVERY OF PROSPECTUS MATERIALS TO SHAREHOLDERS
The Company will distribute to all of its shareholders, within three (3)
business days of execution of this Agreement by the parties hereto, the current
prospectus included in BSQUARE's registration statement on Form S-1, together
with any SEC Documents and other materials required by the Securities and
Exchange Commission pursuant to the Securities Act.
6.15 TERMINATION OF 401(k) PLAN
Prior to the Effective Date, the Company shall freeze and terminate its
401(k) plan (and adopt any amendments thereto as may be necessary to retain such
plan's tax-qualified status), effective as of a date prior to the Effective
Date. Any resolutions and amendments adopted in connection with such freeze and
termination must be in a form reasonably satisfactory to BSQUARE.
6.16 EMPLOYEE MATTER
All years of service of each employee of the Company that becomes an
employee of BSQUARE that were recognized by the Company for an Employee Benefit
Plan shall be recognized by BSQUARE for all purposes of eligibility and vesting
under any corresponding BSQUARE employee benefit plan.
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time (notwithstanding any approval of this Agreement
by the shareholders of the Company):
(a) by mutual written consent;
(b) by either the Company or BSQUARE, if the Merger has not been
consummated by June 30, 2000; provided, however, that the right to terminate
this Agreement under this subsection (b) shall not be available to any party
whose failure to fulfill any
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obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date;
(c) by either the Company or BSQUARE, if there shall be any law or
regulation that makes consummation of the Merger illegal or if any judgment,
injunction, order or decree enjoining BSQUARE, Merger Sub or the Company from
consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable; provided, however, that the party
seeking to terminate this Agreement pursuant to this subsection (c) shall have
used all reasonable efforts to remove such judgment, injunction, order or
decree;
(d) by the Company, in the event of a material breach by BSQUARE of any
representation, warranty or agreement contained herein that has not been cured
or is not curable by June 30, 2000; or
(e) by BSQUARE, in the event of a material breach by the Company of any
representation, warranty or agreement contained herein that has not been cured
or is not curable by June 30, 2000.
7.2 EFFECT OF TERMINATION
(a) In the event of the termination of this Agreement pursuant to Section
7.1 hereof, there shall be no further obligation on the part of any party
hereto, except that nothing herein shall relieve any party from liability for
any willful breach hereof and provided that the provisions of Section 6.2
(Confidentiality), Section 7.2(b) (Termination Fees) and Article IX (General)
shall survive termination.
(b) The Company agrees to pay BSQUARE a termination fee equal to three
percent (3%) of the Merger Consideration (the "Termination Fee"), in the event
that the Closing does not occur, this Agreement is terminated, and one or more
of the following events, which shall be deemed to be a termination by the
Company, has occurred:
(i) the Company has breached the exclusivity agreement contained in
Section 6.3.1 hereof; or
(ii) the Company enters into any agreement relating to the sale of
substantially all of its assets or more than fifty percent (50%) of the capital
stock of the Company to any party (including Cadence) other than BSQUARE during
the Exclusivity Period.
The Company shall pay the Termination Fee in cash by wire transfer or cashier's
check (or assets, if sufficient cash is not readily available) no later than the
closing date of such other transaction.
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(c) The Company acknowledges and agrees that the agreements contained in
this Section 7.2 are an integral part of the transactions contemplated by this
Agreement. Notwithstanding anything to the contrary contained in this Section
7.2, if the Company fails to pay to BSQUARE any fees or expenses due under this
Section 7.2 within the time required under this Agreement or, if no time period
is specified, within five (5) business days of the event giving rise to the
payment of such fees and expenses, in addition to any other amounts paid or
payable pursuant to this Agreement, the Company shall pay the out-of-pocket
costs and expenses (including reasonable legal fees and expenses) in connection
with any action, including the filing of any lawsuit or other legal action,
taken to collect payment together with interest on the amount of any unpaid fees
and expenses at the publicly announced prime rate of Chase Manhattan Bank from
the date on which such fees and expenses were required to be paid.
(e) The Company acknowledges and agrees that it is difficult or impossible
to determine with precision the amount of damages that would or might be
incurred by BSQUARE if the Company were to terminate this Agreement as
contemplated by paragraph 7.2(b). It is understood and agreed by the Parties
that if the BSQUARE shall be damaged by such a termination, (i) it would be
impracticable or extremely difficult to fix the actual damages resulting
therefrom, (ii) the termination fee is in the nature of liquidated damages, and
not a penalty, and is fair and reasonable, and (iii) the termination fee
represents a reasonable estimate of fair compensation for the losses that may
reasonably be anticipated from such a termination, and shall be the sole and
exclusive measure of damages with respect to any such termination. Once such
liquidated damages have been paid in accordance with the provisions of this
Agreement, the Company and its Affiliates shall be relieved of any further
liability in respect of damages relating to the fact or circumstance giving rise
to such liquidated damages.
7.3 AMENDMENT
This Agreement may be amended by the parties hereto at any time before or
after approval of the Company's shareholders; after such approval, however, no
amendment will be made that by applicable law requires the further approval of
the Company's shareholders without obtaining such further approval.
7.4 WAIVER
At any time prior to the Effective Time, any party hereto may (a) extend
the time for the performance of any obligation or other act of any other party
hereto, (b) waive any inaccuracy in the representations and warranties contained
herein or in any document delivered pursuant hereto, or (c) waive compliance
with any agreement or condition contained herein. Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the party
or parties to be bound thereby.
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ARTICLE VIII - SURVIVAL AND INDEMNIFICATION
8.1 SURVIVAL
All representations and warranties contained in this Agreement or in the
other Operative Documents or in any certificate delivered pursuant hereto or
thereto shall survive the Closing for a period of one (1) year after the
Effective Time (the "Survival Period"), and shall not be deemed waived or
otherwise affected by any investigation made or any knowledge acquired with
respect thereto, or by any notice delivered pursuant to Section 6.4; provided,
however, that any claim based on actual fraud shall survive the Closing
indefinitely. The covenants and agreements contained in this Agreement or in the
other Operative Documents shall survive the Closing and shall continue until all
obligations with respect thereto shall have been performed or satisfied or shall
have been terminated in accordance with their terms.
8.2 INDEMNIFICATION BY THE HOLDERS OF COMPANY CAPITAL STOCK
Subject to the limitations set forth in this Article VIII, from and after
the Closing, each shareholder of the Company severally shall indemnify and hold
BSQUARE, its officers, directors, affiliates (as "affiliate" is defined in Rule
12b-2 of the Exchange Act), employees, consultants and agents (the "Indemnified
Parties") harmless from and against, and shall reimburse the Indemnified Parties
for, any and all losses, claims, damages, debts, liabilities, obligations,
judgments, orders, awards, writs, injunctions, decrees, fines, penalties, Taxes,
costs or expenses (including, but not limited to, any legal or accounting fees
or expenses) (collectively, "Losses") arising out of (i) any inaccuracy or
misrepresentation in, or breach of, any representation or warranty made by the
Company in this Agreement, together with the Company Disclosure Memorandum as
delivered upon execution of this Agreement, or in any other Operative Document;
or (ii) any failure by the Company to perform or comply, in whole or in part,
with any covenant or agreement in this Agreement or in any other Operative
Document.
8.3 LIMITATIONS
(a) Except for Losses based on actual fraud, the aggregate liability of any
shareholder of the Company pursuant to this Article VIII shall be limited to the
Escrow Amount.
(b) An indemnifying party shall not be obligated to defend and hold
harmless an Indemnified Party, or otherwise be liable to such party, with
respect to any claims made by the Indemnified Party after the expiration of the
Survival Period or other applicable time limitation described in Section 8.1,
except that indemnity may be sought after the expiration of the Survival Period
or other applicable time limitation if a Claim Notice (as defined in Section
8.4(a)) shall have been delivered to the Shareholder Representative prior to the
expiration of such time period.
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(c) The indemnification obligations of the shareholders of the Company
under this Article VIII shall be satisfied from the Escrow Amount, in accordance
with the provisions of this Article VIII. The aggregate value of Claims paid
from the Escrow Amount shall be deemed to reduce the total Merger Consideration
otherwise payable to the shareholders of the Company pursuant to Section 1.7 of
this Agreement. Any such claims shall be deemed to reduce the Escrow Amount, pro
rata, with respect to each shareholder of the Company, as determined by
reference to the amount of Merger Consideration such shareholder is entitled to
receive in the Merger as compared to all other shareholders.
8.4 PROCEDURE FOR INDEMNIFICATION
(a) An Indemnified Party shall give written notice (the "Claim Notice") of
any Claim for indemnification under this Article VIII to the Shareholder
Representative, on behalf of the indemnifying parties reasonably promptly after
the assertion against an Indemnified Party of any claim by a third party (a
"Third Party Claim") or, if such Claim is not in respect of a Third Party Claim,
reasonably promptly after the discovery of facts on which the Indemnified Party
intends to base a Claim for indemnification pursuant to Article VIII; provided,
however, that the failure or delay to so notify the Shareholder Representative
shall not relieve the indemnifying party of any obligation or liability that the
indemnifying party may have to the Indemnified Party except to the extent that
the indemnifying party demonstrates that the indemnifying parties' ability to
defend or resolve such Claim is adversely affected thereby. Any such Claim
Notice shall describe the facts and circumstances on which the asserted Claim
for indemnification is based and shall specify how such Indemnified Party
intends to recover such funds pursuant to this Agreement and the basis for the
determination of the amount which the Indemnified Party intends to recover.
(b) If, within thirty (30) days of the receipt by the Shareholder
Representative of a Claim Notice, the Shareholder Representative contests in
writing to the Indemnified Party that Losses identified in such Claim Notice
constitute indemnifiable Claims (the "Representative Notice"), then the
Indemnified Party and the Shareholder Representative, acting in good faith,
shall attempt to reach agreement with respect to the contested portions of such
Claims. Unless a Claim is contested within such 30-day period, the Indemnified
Party shall, subject to the other terms of this Article VIII, be paid the amount
of the Losses related to such Claim or the uncontested portion thereof. The
Shareholder Representative shall not object to any Claim unless (i) it believes
in good faith that the Indemnified Party is not entitled to be indemnified with
respect to the Losses specified therein, or (ii) it lacks sufficient information
to assess the validity or amount of the Claim. If the Shareholder Representative
objects to a Claim on the basis that it lacks sufficient information, it shall
promptly request from the Indemnified Party any additional information
reasonably necessary for it to assess such Claim and the Indemnified Party
shall, to the extent the Indemnified Party reasonably can, provide additional
information reasonably requested. Upon receipt of such additional information,
the Shareholder Representative shall review it as soon as reasonably practicable
and notify the Indemnified Party of any withdrawal or modification of the
objection. If the Indemnified Party and the Shareholder Representative are
unable to reach agreement with respect to any
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contested Claims within forty-five (45) days of the delivery of the
Representative Notice, the matter shall be settled by binding arbitration in
Santa Clara County, California as set forth below. All claims shall be settled
in accordance with the Commercial Arbitration Rules then in effect of the
American Arbitration Association (the "AAA Rules"). The Shareholder
Representative and the Indemnified Party shall each designate one arbitrator
within fifteen (15) days after the termination of such 45-day period. The
Shareholder Representative and the Indemnified Party shall cause such designated
arbitrators mutually to agree upon and designate a third arbitrator; provided,
however, that (i) failing such agreement within seventy (70) days of delivery of
the Representative Notice, the third arbitrator shall be appointed in accordance
with the AAA Rules and (ii) if either the Shareholder Representative or the
Indemnified Party fails to timely designate an arbitrator, the dispute shall be
resolved by the one arbitrator timely designated. All of the fees and expenses
of the arbitrators shall be paid from the Escrow Amount. The Shareholder
Representative and the Indemnified Party shall cause the arbitrators to decide
the matter to be arbitrated pursuant hereto within thirty (30) days after the
appointment of the last arbitrator. The arbitrators' decision shall relate
solely to whether the Indemnified Party is entitled to be indemnified for the
contested Claim, or the contested portion thereof, pursuant to the applicable
terms of this Agreement. The final decision of the majority of the arbitrators
shall be furnished to the Shareholder Representative and the Indemnified Party
in writing and shall constitute the conclusive determination of the issue in
question binding upon the Shareholder Representative, the shareholders of the
Company, and the Indemnified Party, and shall not be contested by any of them.
Such decision may be used in a court of law only for the purpose of seeking
enforcement of the arbitrators' decision.
(c) (i) Subject to the rights of or duties to any insurer or other third
party having potential liability therefor, the Shareholder Representative shall
have the right, upon written notice given to the Indemnified Party within thirty
(30) days after receipt of the notice from the Indemnified Party of any Third
Party Claim, to assume the defense or handling of such Third Party Claim, at the
indemnifying party's sole expense, in which case the provisions of Section
8.4(c)(ii) shall govern; provided, however, that, notwithstanding the foregoing,
BSQUARE may elect to assume the defense and handle any such Third Party Claim if
it determines in good faith that the resolution of such Third Party Claim could
result in an adverse impact on the business, operations, assets, liabilities
(absolute, accrued, contingent or otherwise), condition (financial or otherwise)
or prospects of BSQUARE, in which case the provisions of Section 8.4(d)(ii)
hereof shall govern.
(ii) The Shareholder Representative shall select counsel reasonably
acceptable to the Indemnified Party in connection with conducting the defense or
handling of such Third Party Claim, and the Shareholder Representative shall
defend or handle the same in consultation with the Indemnified Party and shall
keep the Indemnified Party timely apprised of the status of such Third Party
Claim. The Shareholder Representative shall not, without the prior written
consent of the Indemnified Party, agree to a settlement of any Third Party
Claim, unless (A) the settlement provides an unconditional release and discharge
of the Indemnified Party, and the Indemnified Party is reasonably satisfied with
such discharge and
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release and (B) the Indemnified Party shall not have reasonably objected to any
such settlement on the ground that the circumstances surrounding the settlement
could result in an adverse impact on the business, operations, assets,
liabilities (absolute, accrued, contingent or otherwise), condition (financial
or otherwise) or prospects of the Indemnified Party. The Indemnified Party shall
cooperate with the Shareholder Representative and shall be entitled to
participate in the defense or handling of such Third Party Claim with its own
counsel and at its own expense.
(d) (i) If (A) the Shareholder Representative does not give written notice
to the Indemnified Party pursuant to Section 8.4(c)(i) within thirty (30) days
after receipt of the notice from the Indemnified Party of any Third Party Claim
of the indemnifying party's election to assume the defense or handling of such
Third Party Claim or (B) BSQUARE elects to assume the defense or handling of the
Third Party Claim pursuant to Section 8.4(c)(ii), the provisions of Section
8.4(d)(ii) shall govern.
(ii) The Indemnified Party may, at the indemnifying party's expense
(which shall be paid from time to time by the indemnifying party as such
expenses are incurred by the Indemnified Party), select counsel in connection
with conducting the defense or handling of such Third Party Claim and defend or
handle such Third Party Claim in such manner as it may deem appropriate;
provided, however, that the Indemnified Party shall keep the Shareholder
Representative timely apprised of the status of such Third Party Claim and shall
not settle such Third Party Claim without the prior written consent of the
Shareholder Representative, which consent shall not be unreasonably withheld. If
the Indemnified Party defends or handles such Third Party Claim, the Shareholder
Representative shall cooperate with the Indemnified Party and shall be entitled
to participate in the defense or handling of such Third Party Claim with its own
counsel and at its own expense.
8.5 REMEDIES; SPECIFIC PERFORMANCE
Except as otherwise provided, the indemnification provisions of this
Article VIII are the sole and exclusive remedy of any party to this Agreement
for a breach of any representation, warranty or covenant contained herein.
Notwithstanding the preceding sentence, each of the parties acknowledges and
agrees that the other parties hereto would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the parties
hereto agrees that the other parties hereto shall be entitled to an injunction
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof (including the
indemnification provisions hereof) in any competent court having jurisdiction
over the parties, in addition to any other remedy to which they may be entitled
at law or in equity.
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ARTICLE IX - GENERAL
9.1 TAX MATTERS
(a) The Company shall, and shall cause its directors, officers and
employees to, cooperate, as and to the extent reasonably requested, in
connection with the preparation of any Tax Return and any audit, investigation,
litigation or other action with respect to Taxes that may be instituted after
the Closing.
(b) Unless otherwise required by law, the parties hereto shall treat the
Merger as a reorganization under Section 368 of the Code for all Tax reporting
purposes and shall take no action that would cause the Merger to fail to qualify
as a reorganization.
(c) If necessary due to market conditions, the Merger Consideration shall
be equitably adjusted so that the Merger will qualify as a reorganization under
Section 368 of the Code, provided that the number of shares of BSQUARE Common
Stock issued pursuant to Section 1.7.1(b) hereof shall not be increased by more
than ten percent (10%), and there shall be an equivalent reduction in value of
the Cash Consideration.
(d) Notwithstanding anything in this Agreement to the contrary, neither
BSQUARE nor Merger Sub makes any representation or warranty with respect to, and
expressly disclaims any responsibility for, any Tax consequences to the Company
or its shareholders arising out of the transactions contemplated by this
Agreement.
9.2 EXPENSES
Regardless of whether the transactions contemplated by this Agreement are
consummated, each party shall pay its own fees and expenses incident to the
negotiation, preparation and execution of this Agreement and the other Operative
Documents (including legal and accounting fees and expenses); provided, however,
that should any action be brought hereunder, the attorneys' fees and expenses of
the prevailing party shall be paid by the other party to such action.
9.3 NOTICES
Any notice, request or demand desired or required to be given hereunder
shall be in writing given by personal delivery, confirmed facsimile transmission
or overnight courier service, in each case addressed as respectively set forth
below or to such other address as any party shall have previously designated by
such a notice. The effective date of any notice, request or demand shall be the
date of personal delivery, the date on which successful facsimile transmission
is confirmed or the date actually delivered by a reputable overnight courier
service, as the case may be, in each case properly addressed as provided herein
and with all charges prepaid.
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TO BSQUARE OR MERGER SUB:
BSQUARE Corporation
3150 - 139th Avenue SE, Suite 500
Bellevue, WA 98005-40816
Fax: _______________
Attention: President
with a copy to:
Perkins Coie LLP
1201 Third Avenue, 48th Floor
Seattle, Washington 98101-3099
Fax: (206) 583-8500
Attention: Linda Schoemaker
TO THE COMPANY:
Mainbrace Corporation
1136 W. Evelyn Avenue
Sunnyvale, CA 94086
Fax:________________
Attention: Tony Moroyan
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Fax: (650) 496-6811
Attn: Michael Danaher
9.4 SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
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<PAGE> 65
9.5 ENTIRE AGREEMENT
This Agreement and the other Operative Documents constitute the entire
agreement among the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof and thereof.
9.6 ASSIGNMENT
This Agreement shall not be assigned by operation of law or otherwise;
provided, however, that Merger Sub's rights and obligations may be assigned to
and assumed by BSQUARE or any other corporation wholly owned (directly or
through intermediate wholly owned subsidiaries) by BSQUARE.
9.7 PARTIES IN INTEREST
This Agreement shall be binding upon and inure solely to the benefit of
the parties hereto and their respective successors heirs, legal representatives
and permitted assigns, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
9.8 GOVERNING LAW; JURISDICTION; VENUE
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Washington applicable to contracts executed in and to
be performed in that state. The parties irrevocably consent to the jurisdiction
and venue of the state and federal courts located in Santa Clara County,
California in connection with any action relating to this Agreement.
9.9 COUNTERPARTS
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement. To expedite the process of entering into this Agreement,
the parties acknowledge that Transmitted Copies of this Agreement will be
equivalent to original documents until such time as original documents are
completely executed and delivered. "Transmitted Copies" will mean copies that
are reproduced or transmitted via photocopy, facsimile or other process of
complete and accurate reproduction and transmission.
9.10 WAIVER OF JURY TRIAL
Each of BSQUARE, the Company and Merger Sub hereby irrevocably waives
all right to trial by jury in any action, proceeding or counterclaim (whether
based on contract, tort or
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otherwise) arising out of or relating to this Agreement, the transactions
contemplated hereby or the actions of such parties in the negotiation,
administration, performance and enforcement hereof.
(The remainder of this page has been left blank intentionally.)
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IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement and Plan of Merger as of the date and year first above written.
BSQUARE CORPORATION
By
-----------------------------------------------
Brian V. Turner
Senior Vice President, and Chief Financial Officer
MAINBRACE ACQUISITION, INC.
By
-----------------------------------------------
Brian V. Turner
Title:
--------------------------------------------
MAINBRACE CORPORATION
By
-----------------------------------------------
Andrew K. Moroyan
Title:
--------------------------------------------
<PAGE> 1
EXHIBIT 99.1(a)
FORM OF VOTING AGREEMENT
VOTING AGREEMENT, dated as of __________ __, 2000 (the "Voting
Agreement"), by and between BSQUARE Corporation. ("BSQUARE") and the undersigned
shareholder and/or optionholder (the "Shareholder") of Mainbrace Corporation, a
California corporation (the "Company").
WHEREAS, BSQUARE, Mainbrace Acquisition, Inc., a Washington corporation
and wholly owned subsidiary of BSQUARE ("Merger Sub") and the Company are
entering into an Agreement and Plan of Merger of even date herewith (the "Merger
Agreement") which provides (subject to the conditions set forth therein) for the
merger of the Company with and into Merger Sub (the "Merger").
WHEREAS, the execution and delivery of this Voting Agreement and the
attached form of proxy is a material condition to BSQUARE's willingness to enter
into the Merger Agreement.
WHEREAS, the Shareholder is the beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended) of such number of
shares of the outstanding capital stock of the Company and shares subject to
outstanding options, warrants and other rights to purchase capital stock of the
Company as indicated on the signature page to this Voting Agreement (such
shares, together with all shares of Common Stock and Preferred Stock of the
Company, if any, subsequently acquired by the Shareholder during the term of
this Voting Agreement, being referred to as the "Shares"); and
WHEREAS, in order to induce BSQUARE to enter into the Merger Agreement,
the Shareholder has agreed to enter into and perform his, her or its obligations
under this Voting Agreement.
NOW, THEREFORE, in consideration of the agreements and covenants
contained herein, the Shareholder and BSQUARE agree as follows:
1. AGREEMENT TO VOTE SHARES
The Shareholder shall vote or cause to be voted, or execute a written
consent with respect to, the Shares (a) in favor of adoption and approval of the
Merger Agreement and all transactions relating thereto or contemplated thereby
at every meeting of the shareholders of the Company at which such matters are
considered and at every adjournment thereof and in connection with every
proposal to take action by written consent with respect thereto, and (b) against
any proposal by a party other than BSQUARE to merge or consolidate with the
Company or to sell all or substantially all the assets of or any sales of equity
interest in the Company at every meeting of the shareholders of the Company at
which such matters are considered and at every adjournment thereof and in
connection with every proposal to take action by written consent with respect
thereto.
<PAGE> 2
2. NO VOTING TRUSTS
The Shareholder agrees that the Shareholder will not, nor will the
Shareholder permit any entity under the Shareholder's control to, deposit any
Shares in a voting trust or subject the Shares to any agreement, arrangement or
understanding with respect to the voting of the Shares inconsistent with this
Voting Agreement.
3. LIMITATION ON TRANSFER
During the term of this Voting Agreement, the Shareholder shall not
cause or permit any of the Shares to be sold, assigned, transfered, pledged,
encumbered or otherwise disposed of except to BSQUARE.
4. LETTER OF TRANSMITTAL
At the Effective Time (as defined in the Merger Agreement), the
Shareholder shall execute and deliver the Letter of Transmittal in substantially
the form attached hereto as Exhibit A to BSQUARE.
5. WAIVER OF DISSENTER'S RIGHTS
The Shareholder hereby irrevocably and unconditionally waives, and
agrees to cause to be waived and to prevent the exercise of, any rights of
appraisal, any dissenters' rights and any similar rights relating to the Merger
that the Shareholder may have by virtue of the ownership of any Shares.
6. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
The Shareholder represents and warrants to BSQUARE as follows:
A. AUTHORITY; NO APPROVALS; NO CONFLICTS; NO LIENS
The Shareholder has the necessary power or capacity (as the case may be)
and authority to execute this Voting Agreement, to make the representations,
warranties and covenants herein and to perform the obligations hereunder. This
Voting Agreement is duly executed and is a legal, valid and binding obligation
of the Shareholder, enforceable in accordance with its terms.
The execution, delivery and performance of this Voting Agreement by the
Shareholder will not (a) constitute a violation (with or without the giving of
notice or lapse of time or both) of any provision of any law applicable to the
Shareholder, (b) require any consent, approval or authorization of, or notice
to, any person, corporation, partnership, domestic or foreign governmental
authority or other organization or entity, (c) result in a default under, an
acceleration or termination of, or the creation in any party of the right to
accelerate, terminate, modify or cancel, any material agreement, lease, note or
other restriction, encumbrance, obligation or liability to which the Shareholder
is a party or by which the Shareholder is bound, or (d) result in the creation
or imposition of any lien on any of the Shares of Company Capital Stock held by
the Shareholder.
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<PAGE> 3
B. OWNERSHIP OF SHARES
The Shareholder owns beneficially and of record the Shares set forth on
the signature page to this Voting Agreement free and clear of any lien,
encumbrance, preemptive right, right of first offer or refusal, or other prior
claim, and delivery by the Shareholder to BSQUARE or its appointed agent of the
certificates representing the Shares at the Closing (as defined in the Merger
Agreement) will transfer to Merger Sub good and valid title to the Shares and
Merger Sub will acquire record and beneficial ownership of the Shares, free and
clear of any lien, encumbrance, preemptive right, right of first offer or
refusal, or other prior claim.
C. SOPHISTICATION; ACCREDITATION
The Shareholder, either alone or with the assistance of his, her or its
professional advisor, is a sophisticated investor, able to fend for himself,
herself or itself in the transactions contemplated by the Merger Agreement and
the Operative Documents (as defined in the Merger Agreement), and has such
knowledge and experience in financial and business matters that he, she or it is
capable of evaluating the merits and risks of the prospective investment in
BSQUARE Common Stock.
The BSQUARE Common Stock being acquired by the Shareholder in the Merger
is for investment for his, her or its respective account, not as a nominee or
agent; the undersigned has no present intention of selling, granting any
participation in or otherwise distributing any of the BSQUARE Common Stock in a
manner contrary to the Securities Act of 1933, as amended, or to any applicable
state securities law, nor does the undersigned have any contract, undertaking,
agreement or arrangement with any person or entity to sell, transfer or grant a
participation to such person or entity with respect to any of the BSQUARE Common
Stock to be received in the Merger.
D. CLAIMS AGAINST THE COMPANY
The Shareholder does not have any past, present or contemplated claims
against the Company or any of its officers and directors.
E. RESIDENCY
The Shareholder is a resident of the state of his/her or its address as
set forth on the signature page hereto.
G. ACCURACY OF REPRESENTATIONS
The representations and warranties contained in this Voting Agreement
are accurate in all respects as of the date of this Voting Agreement and will be
accurate in all respects at all times through the Effective Time.
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<PAGE> 4
7. SPECIFIC PERFORMANCE
The Shareholder acknowledges that in the event of any breach of this
Voting Agreement by the Shareholder, BSQUARE would be irreparably harmed, no
adequate remedy at law or in damages would exist and damages would be difficult
to determine. Accordingly, the Shareholder agrees that injunctive relief or
other equitable remedy, in addition to all remedies at law or in damages, is the
appropriate remedy for any such failure and will not oppose the granting of such
relief on the basis that BSQUARE has an adequate remedy at law. The Shareholder
agrees that it will not seek, and agrees to waive any requirement for, the
securing or posting of a bond in connection with the seeking or obtaining of
such equitable relief by BSQUARE. In addition to all other rights or remedies to
which BSQUARE may be entitled, in the event of a default in the Shareholder's
performance of the Shareholder's obligations under this Voting Agreement, the
Shareholder shall be liable to BSQUARE for all litigation costs and attorneys'
fees incurred by BSQUARE in connection with the enforcement of any of its rights
or remedies against the Shareholder.
8. NON-EXCLUSIVITY
The rights and remedies of BSQUARE under this Voting Agreement are not
exclusive of or limited by any other rights or remedies which it may have,
whether at law, in equity, by contract or otherwise, all of which shall be
cumulative (and not alternative).
9. TERM OF VOTING AGREEMENT; TERMINATION
The term of this Voting Agreement shall commence on the date hereof and
terminate upon the earlier to occur of (i) the Effective Time, or (ii) the date
on which the Merger Agreement is terminated in accordance with its terms. Upon
such termination, no party shall have any further obligations or liabilities
hereunder; provided, however, such termination shall not relieve any party from
liability for any breach of this Voting Agreement prior to such termination.
10. ENTIRE VOTING AGREEMENT
This Voting Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings between the parties with respect thereto.
11. ASSIGNMENT; BINDING EFFECT
Except as provided herein, neither this Voting Agreement nor any of the
interests or obligations hereunder may be assigned or delegated by the
Shareholder and any attempted or purported assignment or delegation of any of
such interests or obligations shall be void. Subject to the preceding sentence,
this Voting Agreement shall be binding upon the Shareholder and his, her or its
heirs, estate, executors, personal representatives, successors and assigns, and
shall inure to the benefit of BSQUARE and its successors and assigns. This
Voting Agreement shall be binding upon any person or entity to whom any Shares
are transferred.
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<PAGE> 5
12. INDEMNIFICATION
The Shareholder shall hold harmless and indemnify BSQUARE from and
against, and shall compensate and reimburse BSQUARE for, any loss, damage,
claim, liability, fee (including reasonable attorneys' fees), demand, cost or
expense (regardless of whether or not such loss, damage, claim, liability, fee,
demand, cost or expense relates to a third-party claim) that is directly or
indirectly suffered or incurred by BSQUARE, or to which BSQUARE becomes subject,
and that arises directly or indirectly from, or relates directly or indirectly
to, any inaccuracy in or breach of any representation, warranty, covenant or
obligation of the Shareholder contained in this Voting Agreement.
13. EXPENSES
All costs and expenses incurred in connection with the transactions
contemplated by this Voting Agreement shall be paid by the party incurring such
costs and expenses.
14. NOTICES
Any notice or other communication required or permitted to be delivered
to BSQUARE or the Shareholder under this Voting Agreement shall be in writing
and shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by facsimile
confirmation obtained) to the address or facsimile number set forth beneath the
name of such party below (or to such other address or facsimile number as such
party shall have specified in a written notice given to the other party):
IF TO THE SHAREHOLDER:
At the address or facsimile number set forth on the signature
page.
IF TO BSQUARE:
BSQUARE Corporation
3150 139th Avenue SE, Suite 500
Bellevue, WA 98005-4081
Fax: (425) 519-5998
Attention: President
WITH A COPY TO:
Perkins Coie LLP
1201 Third Avenue, 48th Floor
Seattle, WA 98101-3099
Attention: Linda Schoemaker
Fax: (206) 583-8500
-5-
<PAGE> 6
15. MISCELLANEOUS
A. TERMINATION OF RIGHTS
Effective upon, and subject to the consummation of the Merger, any past,
present or future rights that the Shareholder may have pursuant to the Series A
Preferred Stock Purchase Agreement, Investor Rights Agreement, Right of First
Refusal and any other agreement, contract or understanding relating to corporate
governance, registration rights, rights of first refusal or first offer and
similar rights shall terminate.
B. CONVERSION OF PREFERRED STOCK
Immediately prior to, and subject to, the consummation of the Merger,
any Shares of Preferred Stock held by the Shareholder shall automatically
convert into shares of Common Stock.
C. SEVERABILITY
If any provision of this Voting Agreement or the application of such
provision to any person or circumstances shall be held invalid or unenforceable
by a court of competent jurisdiction, such provision or application shall be
unenforceable only to the extent of such invalidity or unenforceability, and the
remainder of this Voting Agreement shall not be affected.
D. CAPACITY
The covenants contained herein shall apply to the Shareholder solely in
his or her capacity as a shareholder of the Company, and no covenant contained
herein shall apply to the Shareholder in his or her capacity as an officer
and/or director of the Company.
E. COUNTERPARTS
This Voting Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
F. HEADINGS
All Section headings herein are for convenience of reference only and
are not part of this Voting Agreement, and no construction or reference shall be
derived therefrom.
G. CHOICE OF LAW
This Voting Agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the State of
Washington, without reference to its conflicts of law principles. The parties
irrevocably consent to the jurisdiction and venue of the state and federal
courts located in Santa Clara County, California in connection with any action
relating to this Voting Agreement.
-6-
<PAGE> 7
H. WAIVER OF JURY TRIAL
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
VOTING AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
F. AMENDMENT OR MODIFICATION
This Voting Agreement may be amended, modified and supplemented only by
written agreement of all parties.
(The remainder of this page has been left blank intentionally.)
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Voting Agreement as of the date first written above.
SHAREHOLDER:
------------------------------------------------
Printed Name:
-----------------------------------
Address:
----------------------------------------
------------------------------------------------
Fax:
--------------------------------------------
Shares benficially owned:
shares of Company Common Stock
------
shares of Company Preferred Stock
------
shares of Company Common Stock issuable
------ upon exercise of outstanding options or
warrants
BSQUARE Corporation
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
-8-
<PAGE> 9
SPOUSAL CONSENT
I am the spouse of the Shareholder named in the Voting Agreement. I
understand that I may consult independent legal counsel as to the effect of this
Voting Agreement and the consequences of my execution of this Voting Agreement
and, to the extent I felt it necessary, I have discussed such matters with legal
counsel. I hereby confirm this Voting Agreement and agree that it shall bind my
interest in the Shares, if any.
SHAREHOLDER'S SPOUSE
------------------------------------
Printed Name:
-----------------------
-9-
<PAGE> 1
EXHIBIT 99.1(b)
BSQUARE to Acquire New Technology, New Customers In Purchase of IP
Licensing Firm, Mainbrace
BELLEVUE, Wash.--(BUSINESS WIRE)--May 11, 2000--
BSQUARE extends its product solutions to new high volume market
segments including Web-enabled phones, electronic book
readers, wireless thin clients, and set-top boxes
BSQUARE Corporation (Nasdaq:BSQR) will add a range of new product technologies
and capabilities to address new and existing market segments through the
acquisition of Mainbrace Corporation, in a cash and stock transaction valued at
approximately $21 million.
Mainbrace is a leading IP-licensing and enabling software firm delivering
product solutions to high volume market segments including set-top boxes,
Web-enabled phones, wireless thin clients, and electronic book readers. By
combining the industry-leading products and service offerings from the two
companies, BSQUARE will now be able to offer a wider range of solutions to
customers in new market segments. Mainbrace, located in Sunnyvale, California,
will become a wholly owned subsidiary of BSQUARE.
The Mainbrace acquisition represents another strategic component for BSQUARE's
leadership in providing complete and innovative software solutions to the
rapidly expanding intelligent device market, a market estimated to grow to over
$18 billion in 2003 by International Data Corporation. This acquisition follows
the acquisition of BlueWater Systems in January 2000, in which BSQUARE expanded
its base of business to offer solutions to developers of devices based on
Windows operating systems outside the embedded family of operating systems,
Windows CE and Windows NT Embedded. In both moves, BSQUARE strategically
expanded its products and service offerings to create a "total solution"
position in which it can take full advantage of the opportunity presented in the
escalating intelligent device market. BSQUARE's new combined offerings are
unmatched in breadth and depth within the industry.
With the acquisition, BSQUARE will add a family of licensable product solutions
to its portfolio, including solutions for Pocket PC, Web Telephone, wireless MSN
Web Companion, and Microsoft TV. Mainbrace also brings an extensive list of
major customers in key target markets. BSQUARE will continue to expand
relationships with key Mainbrace customers including Microsoft, Cadence Design
Systems, Philips, IPM and Askey Computer, among others.
"Mainbrace's team comes with a proven track record of developing and deploying
complete products and have been key contributors to many Windows-based consumer
and Internet-related products. In addition, Mainbrace has a large presence in
Silicon Valley, and provides key relationships to help BSQUARE maintain its
success in the intelligent device development market. We expect great synergies
between our personnel and our product lines that will enable us to service our
OEM customer needs faster and better than ever before," said William Baxter,
president and CEO of BSQUARE. "Together we will be able to provide the
industry's leading products for the development of exciting new intelligent
devices like electronic books, Internet phones, set-top boxes, and web pads, to
name a few. This is an excellent move for both companies."
"The move to BSQUARE enables us to leverage the resources of a proven industry
leader and continue to provide our technology and solutions to our customer
base," said Tony Moroyan, founder, chairman and CEO of Mainbrace. "BSQUARE's
existing breadth of products and services, combined with our software
<PAGE> 2
and system product offerings, will enable intelligent device developers to
comfortably work with a single source for all of their project development
needs. This acquisition is a strong endorsement of our offerings, and we look
forward to continuing to deliver new, innovative solutions to our market as a
subsidiary of BSQUARE."
Mainbrace Brings Extensive Portfolio of Technology, Products, and Talents to
Complement BSQUARE's Existing Product Offerings Mainbrace Corporation is a
premier developer of digital appliance IP and a key Microsoft development
partner in many emerging Internet platforms such as Internet-enabled phones,
electronic books, and other mobile and wireless devices. Mainbrace's expertise
in silicon and system architecture, system software, and tools have helped
customers like Microsoft, Philips, Compaq and Cadence produce award-winning
Windows CE-based products over the last few years. Mainbrace's location in the
heart of Silicon Valley provides early access to important new trends and
technologies. Mainbrace's engineering team consists of proven professionals who
have designed and built several generations of Windows CE products from initial
concept to production. Mainbrace has a well-established technology licensing
business with its SmartBuild (TM) product family that provides OEM's with
unprecedented time-to-market advantage and minimize their development risks as
well as research and development costs.
Mainbrace's licensable technology and tools combined with BSQUARE's application
suites such as bUseful Utilities Pak, tools such as CE Interface Composer and
connectivity products such as CE Remote Updater will enable BSQUARE to offer
differentiation, time to market advantage and powerful product offerings to its
customers.
BSQUARE will continue to market Mainbrace foundation products for rapidly
growing market segments, including:
- -- SmartBuild(TM) Portable Data Terminal
- -- a complete product solution that enables OEMs to quickly and
cost-effectively develop a Microsoft Windows CE-Based Portable Data
Terminal for use in medical, inventory management and data collection
industries
- -- SmartBuild Data Collection Terminal -- a complete product solution that
enables customers to quickly and cost-effectively develop information
kiosks, intelligent displays, internet access terminals, point-of-sale
terminals based on Windows CE technology
- -- SmartBuild Pocket PC -- a complete software and hardware solution for fast,
cost-effective development of a Microsoft Windows CE-based Pocket PC for
both consumer and enterprise Markets
The transaction will be accounted for as a purchase of stock. Consideration will
include the exchange of approximately 460,000 shares of BSQUARE common stock and
approximately $10.8 million in cash for all of the issued and outstanding common
shares of Mainbrace. In addition, each option to purchase shares of Mainbrace
Common Stock outstanding at the effective time of the Merger will be assumed by
BSQUARE and will be treated as an option to purchase that number of shares of
BSQUARE Common Stock as calculated by the exchange ratio.
The definitive agreement has been signed, and closing of the transaction will
occur upon completion of the closing conditions which include obtaining
necessary consents and complying with government filing
<PAGE> 3
requirements. Mainbrace's revenues and net income were approximately $3.5
million and ($0.3) million in 1999, respectively; and had net equity of
approximately $0.4 million at December 31, 1999.
About BSQUARE
BSQUARE (Nasdaq:BSQR) is innovating tomorrow's devices through software
solutions for the development of intelligent computing devices. Specializing in
the Microsoft Windows family of operating systems, BSQUARE supplies software
products and services for the development and use of PC Companions, Internet
appliances, industrial automation devices, Windows-based terminals, and other
mobile and wireless intelligent devices. From development tools to software
infrastructures to end-user applications, the BSQUARE touch is on many embedded
Windows-based devices available in the market today.
For more information, visit BSQUARE at http://www.bsquare.com or call
888/820-4500. BSQUARE is a registered trademark of BSQUARE Corporation. All
names, product names, and tradenames are trademarks or registered trademarks of
their respective holders.
This release contains forward-looking statements relating to our sales that are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected. The words "believe," "expect," "intend,"
"anticipate," variations of such words, and similar expressions identify
forward-looking statements, but their absence does not mean that the statement
is not forward-looking. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict. Factors that could affect BSQUARE's actual results
include the inability to complete the closing conditions, adverse changes in
BSQUARE's relationship with Microsoft, a decline in the market for Windows
CE-based intelligent computing devices or the failure of such market to develop
as anticipated, delays or announcements of delays by Microsoft of Windows CE
product releases, competition and intellectual property risks. A more detailed
description of certain factors that could affect actual results include, but are
not limited to, those discussed in BSQUARE's Quarterly Report on Form 10-Q, in
the section entitled "Risk Factors." Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this release. BSQUARE undertakes no obligation to update publicly any
forward-looking statements to reflect new information, events or circumstances
after the date of this release or to reflect the occurrence of unanticipated
events.
CONTACT: BSQUARE
Michelle Manson, 425/519-5900
[email protected]
