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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): December 12, 1999
Primus Knowledge Solutions, Inc.
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(Exact name of Registrant as specified in its charter)
Washington
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(State or other jurisdiction of incorporation)
0-26273 91-1350484
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(Commission (IRS Employer
File Number) Identification No.)
1601 Fifth Avenue, Suite 1900, Seattle, WA. 98101
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(Address of principal executive offices) (Zip Code)
(206) 292-1000
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(Registrant's telephone number, including area code)
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(Former name or former address, if changed since last report)
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ITEM 5: OTHER EVENTS.
On December 12, 1999, Primus Knowledge Solutions, Inc., a Washington
corporation (the "Company" or "Primus"), Imparto Software Corporation, a
California corporation ("Imparto") and San Antonio Acquisition Inc., a
Washington corporation ("MERGER SUB") entered into an Agreement and Plan of
Merger (the "MERGER AGREEMENT"). Subject to the terms and conditions of the
Merger Agreement, Merger Sub will be merged with and into Imparto (the
"MERGER"), with Imparto to survive the Merger and to become a wholly owned
subsidiary of the Company. At the effective time of the Merger, Primus will
issue 1,000,000 shares of its common stock to the shareholders of Imparto for
each outstanding share of Imparto capital stock, and all outstanding stock
options and warrants to acquire Imparto capital stock. It is the intent of the
parties that the transaction qualify as a tax-free reorganization and be
accounted for as a "pooling of interests."
The foregoing description is qualified in its entirety by reference to the
full text of the Merger Agreement and the agreements executed in connection
therewith. The Merger is subject to several closing conditions, including
approval by Imparto's shareholders.
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ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
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2.01 Agreement and Plan of Merger, dated December 12, 1999, among
Primus, Merger Sub and Imparto.
99.01 Press Release issued by Primus on December 13, 1999, announcing
that Primus and Imparto had signed a definitive merger
agreement.
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SIGNATURE
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.
Date: December 13, 1999 Primus Knowledge Solutions, Inc.
By: /s/ Elizabeth J. Huebner
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Elizabeth J. Huebner
Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
2.01 Agreement and Plan of Merger, dated December 12, 1999, among Primus,
Merger Sub and Imparto.
99.01 Press Release issued by Primus on December 13, 1999, announcing that
Primus and Imparto had signed a definitive merger agreement.
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
among
PRIMUS KNOWLEDGE SOLUTIONS, INC.,
SAN ANTONIO ACQUISITION, INC.,
and
IMPARTO SOFTWARE COPORATION
Dated as of December 12, 1999
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CONTENTS
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ARTICLE I - THE MERGER........................................................... 1
1.1 The Merger.......................................................... 1
1.2 The Closing......................................................... 1
1.3 Effective Date and Time............................................. 2
1.4 Articles of Incorporation of the Surviving
Corporation......................................................... 2
1.5 Bylaws of the Surviving Corporation................................. 2
1.6 Directors and Officers.............................................. 2
1.7 Conversion of Shares................................................ 3
1.7.1 Merger Consideration....................................... 3
1.7.2 Exchange of Certificates................................... 6
1.7.3 No Fractional Shares....................................... 7
1.7.4 No Further Transfers....................................... 7
1.8 Shareholder Matters................................................. 8
1.9 Dissenters' Rights.................................................. 8
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................... 8
2.1 Organization........................................................ 9
2.2 Enforceability...................................................... 9
2.3 Capitalization...................................................... 9
2.4 Subsidiaries and Affiliates......................................... 11
2.5 No Approvals; No Conflicts.......................................... 11
2.6 Financial Statements................................................ 12
2.7 Absence of Certain Changes or Events................................ 12
2.8 Taxes............................................................... 15
2.9 Property............................................................ 17
2.10 Contracts........................................................... 19
2.10.1 Material Contracts......................................... 19
2.10.2 Required Consents.......................................... 21
2.11 Customers and Suppliers.............................................. 21
2.12 Orders; Commitments; Warranties and Returns.......................... 21
2.13 Claims and Legal Proceedings......................................... 21
2.14 Labor and Employment Matters......................................... 22
2.15 Employee Benefit Plans............................................... 22
2.15.1 Employee Benefit Plan Listing.............................. 22
2.15.2 Documents Provided......................................... 23
2.15.3 Compliance................................................. 23
2.15.4 Contributions and Premium Payments......................... 24
2.15.5 Related Employers.......................................... 25
2.15.6 Multiemployer and Title IV Plans........................... 25
2.15.7 Post-Termination Welfare Benefits.......................... 25
2.15.8 Suits, Claims and Investigations........................... 25
2.15.9 Payments Resulting From Transactions....................... 25
2.16 Personnel............................................................ 26
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2.17 Intellectual Property................................................ 26
2.17.1 General.................................................... 26
2.17.2 Company Technology......................................... 26
2.17.3 Third Party Technology..................................... 27
2.17.4 Trademarks................................................. 27
2.17.5 Intellectual Property Rights............................... 28
2.17.6 Maintenance of Rights...................................... 28
2.17.7 Third Party Claims......................................... 28
2.17.8 Infringement by the Company................................ 29
2.17.9 Confidentiality............................................ 29
2.17.10 Domain Names............................................... 29
2.17.11 Year 2000.................................................. 30
2.17.12 Indemnification............................................ 30
2.17.13 Restrictions on Intellectual Property...................... 30
2.18 Accounts Receivable.................................................. 30
2.19 Inventory............................................................ 31
2.20 Corporate Books and Records.......................................... 31
2.21 Permits.............................................................. 31
2.22 Compliance With Laws................................................. 31
2.23 Insurance............................................................ 32
2.24 Brokers or Finders................................................... 32
2.25 Absence of Questionable Payments..................................... 32
2.26 Bank Accounts........................................................ 33
2.27 Insider Interests.................................................... 33
2.28 Compliance With Environmental Laws................................... 33
2.29 Information Supplied by the Company.................................. 34
2.30 Full Disclosure...................................................... 34
2.31 Operating Data....................................................... 34
2.32 Pooling Matters...................................................... 35
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT 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 Full Disclosure...................................................... 37
3.7 Brokers or Finders................................................... 38
3.8 Claims and Legal Proceedings......................................... 38
3.9 Compliance with Laws................................................. 38
3.10 No Material Adverse Event............................................ 38
ARTICLE IV - CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND THE PURCHASER..... 39
4.1 Accuracy of Representations and Warranties........................... 39
4.2 Performance of Agreements............................................ 39
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4.3 Opinion of Company Counsel........................................... 39
4.4 Compliance Certificate............................................... 39
4.5 Material Adverse Change.............................................. 39
4.6 Approvals and Consents............................................... 40
4.7 Proceedings and Documents; Secretary's Certificate................... 40
4.8 Nonforeign Affidavit................................................. 40
4.9 Compliance With Laws................................................. 40
4.10 Legal Proceedings.................................................... 40
[4.11 Intentionally deleted]............................................... 40
4.12 Affiliate Letters.................................................... 40
4.13 Termination of Certain Agreements.................................... 41
4.14 Employee Agreements.................................................. 41
4.15 Shareholder Representation Letters................................... 41
4.16 Pooling of Interests................................................. 41
4.17 Securities Law Exemption............................................. 41
4.18 Shareholder Approval; Dissenters' Rights............................. 41
4.19 Company Shareholder Approval......................................... 42
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY................... 42
5.1 Accuracy of Representations and Warranties........................... 42
5.2 Performance of Agreements............................................ 42
5.3 Opinion of Parent Counsel............................................ 42
5.4 Compliance Certificate............................................... 42
5.5 Legal Proceedings.................................................... 42
5.6 Proceedings and Documents; Secretary's Certificate................... 43
5.7 Material Adverse Change.............................................. 43
5.8 Approvals and Consents............................................... 43
5.9 Compliance With Laws................................................. 43
5.10 Amendment of Registration Rights Agreement........................... 43
ARTICLE VI - COVENANTS........................................................... 43
6.1 Conduct of Business by the Company Pending the Merger............... 43
6.2 Access to Information; Confidentiality............................... 45
6.3 No Alternative Transactions.......................................... 46
6.4 Notification of Certain Matters...................................... 46
6.5 Further Action....................................................... 47
6.6 Nasdaq Listing....................................................... 47
6.7 Publicity............................................................ 47
6.8 Form S-8............................................................. 48
6.9 Registration Rights.................................................. 48
6.10 Company Shareholders Meeting; Affiliate and Voting Agreements........ 48
6.11 Proxy and Information Statement...................................... 49
6.12 Exculpation for Director Liability................................... 49
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER.................................. 49
7.1 Termination.......................................................... 49
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7.2 Effect of Termination................................................ 50
7.3 Amendment............................................................ 50
7.4 Waiver............................................................... 50
7.5 Company Termination Fee.............................................. 51
7.6 Parent Termination Fee............................................... 51
ARTICLE VIII - SURVIVAL AND INDEMNIFICATION...................................... 51
8.1 Survival............................................................. 51
8.2 Indemnification By Shareholders...................................... 51
8.3 Indemnification By Parent or the Surviving Corporation............... 52
8.4 Deductible and Limitations........................................... 52
8.5 Procedure for Indemnification........................................ 53
8.6 Remedies; Specific Performance....................................... 56
8.7 Shareholder Representative........................................... 56
8.8 No Circular Recovery................................................. 57
ARTICLE IX - GENERAL............................................................. 57
9.1 Tax Matters.......................................................... 57
9.2 Expenses............................................................. 57
9.3 Notices.............................................................. 58
9.4 Severability......................................................... 59
9.5 Entire Agreement..................................................... 59
9.6 Assignment........................................................... 59
9.7 Parties in Interest.................................................. 59
9.8 Governing Law; Jurisdiction; Venue................................... 59
9.9 Counterparts......................................................... 59
9.10 Waiver of Jury Trial................................................. 60
9.11 Schedule of Exceptions............................................... 60
9.12 Knowledge............................................................ 60
9.13 Third Party Beneficiaries............................................ 60
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EXHIBITS
1.3(a) - Form of Articles of Merger
1.3(b) - Form of Articles of Merger
1.7.1(c) - Schedule of Conversion Ratios
1.7.1(g) - Form of Escrow Agreement
2 - Schedule of Exceptions
4.3 - Form of Opinion of Company Counsel
4.8 - Form of Real Property Tax Affidavit
4.12 - Form of Affiliate Letter
4.13 - List of Agreements to be Terminated at Closing
4.14(a) - List of Employees Entering Into Noncompetition Agreements
4.14(b) - Form of Noncompetition Agreement
4.15 - Form of Shareholder Representation Letter
5.3 - Form of Opinion of Parent Counsel
6.9 - Form of Affiliate and 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 December 12, 1999, by and among Primus Knowledge Solutions, Inc., a
Washington corporation ("Parent"), San Antonio Acquisition, Inc., a Washington
corporation and wholly owned subsidiary of Parent ("Merger Sub"), and Imparto
Software Corporation., a California corporation (the "Company").
RECITALS
A. The Company, Parent and Merger Sub believe it advisable and in their
respective best interests to effect a merger of the Company and Merger Sub on
the terms and subject to the conditions set forth in this Agreement (the
"Merger").
B. The Board of Directors of the Company has approved this Agreement and
the Merger as required by applicable law.
C. The Boards of Directors of Parent and Merger Sub, and the sole
shareholder of Merger Sub, have approved this Agreement and the Merger as
required by applicable law.
D. The parties intend that the Merger will qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and as a pooling of interests for accounting purposes.
AGREEMENT
In consideration of the terms hereof, the parties hereto agree as follows:
ARTICLE I - THE MERGER
1.1 The Merger
Upon the terms and subject to the conditions hereof, (a) at the Effective
Time (as defined in Section 1.3) the separate corporate existence of Merger Sub
shall cease and Merger Sub shall be merged with and into the Company (the
Company 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 California and other applicable law.
1.2 The Closing
The closing of the Merger (the "Closing") shall take place at the offices
of Perkins Coie LLP, 1201 Third Avenue, 48th Floor, Seattle, Washington, as soon
as practicable after the
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satisfaction or waiver of the conditions set forth in Articles IV and V below,
or such other date, time and location as Parent and the Company shall agree (the
"Closing Date").
1.3 Effective Date and Time
On the Closing Date and subject to the terms and conditions hereof, the
parties hereto shall cause the appropriate agreement of merger and related
documents (collectively, the "Articles of Merger") complying with the applicable
provisions of the Washington Business Corporation Act ("Washington Law") and the
California Corporations Code ("California Law"), substantially in the forms
attached hereto as Exhibit 1.3(a) and 1.3(b), and in such form as required by,
and executed in duplicate in accordance with, Washington Law and California
Law, to be delivered for filing 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 Articles of Merger with the Washington
Secretary of State or the California Secretary of State, whichever is later or
at such other time as may be specified in the Articles of Merger as filed. If
the Washington Secretary of State or the California Secretary of State, requires
any changes in the Articles of Merger as a condition to filing or to issuing its
certificate to the effect that the Merger is effective, Parent, Merger Sub and
the Company will execute any necessary revisions incorporating such changes,
provided such changes are not inconsistent with and do not result in any
material change in the terms of this Agreement.
1.4 Articles of Incorporation of the Surviving Corporation
At the Effective Time, the Articles of Incorporation of the Surviving
Corporation shall be amended and restated in their entirety to conform to the
substantive portions of the Articles of Incorporation of Merger Sub as in effect
immediately prior to the Effective Time; provided, however, that Article I
thereof shall be amended to read as follows: "The name of this corporation is
Imparto Software 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 of the Surviving Corporation 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 become the
directors of the Surviving Corporation, and the officers of the Company and
Merger Sub shall all become the officers of the Surviving Corporation, and such
directors and officers shall hold office in
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accordance with and subject to the Articles of Incorporation and Bylaws of the
Surviving Corporation.
1.7 Conversion of Shares
1.7.1 Merger Consideration
As of the Effective Time, by virtue of the Merger and without any action on
the part of the holders thereof:
(a) All shares of any class of capital stock of the Company held by
the Company as treasury shares or otherwise shall be canceled.
(b) Each issued and outstanding share of capital stock of Merger Sub
shall be converted into one share of common stock of the Surviving Corporation.
(c) Each issued and outstanding share of capital stock of the Company
shall be converted into that portion of the Net Merger Consideration (as defined
below) to which the holder is entitled pursuant to the provisions of the charter
documents of the Company. The holders, if any, of outstanding shares of
preferred stock of the Company ("Company Preferred Stock") shall be entitled to
receive in such conversion such preferential portion of the Net Merger
Consideration as may be determined in accordance with the provisions of the
charter documents of the Company. The holders of the outstanding shares of
common stock of the Company ("Company Common Stock") shall be entitled to
receive in such conversion such residual portion of the Net Merger Consideration
as may be determined in accordance with the provisions of the charter documents
of the Company. The conversion ratio as determined in accordance with the
provisions of the Company's charter documents for each outstanding series of
Company Preferred Stock shall be referred to herein with reference to the
respective series. The conversion ratio as determined in accordance with the
provisions of the Company's charter documents for the Company Common Stock shall
be referred to herein as the "Common Conversion Ratio." The Company shall
calculate the various applicable conversion ratios applicable to the Company
Preferred Stock and Company Common Stock based on a reasonably expected range of
values for Parent Common Stock and shall attach a summary of such calculations
as Exhibit 1.7.1(c).
(d) Each outstanding option to purchase shares of Company Common
Stock, whether or not vested or exercisable ("Company Option") shall be
converted into an option to purchase that portion of the Option Merger
Consideration (as defined below) to which the holder is entitled pursuant to the
provisions of the documents creating and representing such options and shall be
assumed by Parent. Such Company Options shall after the Merger constitute an
option to acquire, on the same vesting terms and on substantially the same other
terms and conditions as were previously applicable, that number of whole shares
of Parent Common Stock determined pursuant to the foregoing sentence at a price
per share (rounded to the nearest $0.01) equal to the aggregate exercise price
of the Company Option divided by the Common Conversion Ratio. Parent shall
assume the obligations of the
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Company under the Company's existing stock option plan and shall comply with the
terms of such plan as they apply to the Company Options assumed as set forth
above. Parent will treat such Company Options consistent with the Company's
treatment thereof for federal income tax purposes.
(e) Each warrant to purchase capital stock of the Company (the
"Company Warrants") that is issued and outstanding as of the Effective Time
shall be converted into a warrant to purchase that portion of the Option Merger
Consideration to which the holder is entitled pursuant to the provisions of the
documents creating and representing such warrants and shall be assumed by
Parent. Such Company Warrants shall after the Merger constitute a warrant to
acquire, on substantially the same terms and conditions as were applicable under
such assumed Company Warrant, that number of whole shares of Parent Common Stock
determined pursuant to the foregoing sentence at a price per share (rounded to
the nearest ($0.01) equal to the exercise price of the Company Warrant divided
by the applicable conversion ratio determined in accordance with the provisions
of the Company's charter documents.
(f) The total number of shares of common stock of Parent ("Parent
Common Stock") issued or issuable pursuant to the Merger shall equal One Million
(1,000,000) (the "Total Merger Consideration"), subject to adjustments for (i)
any increase or decrease in the number of issued shares of Parent Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of such shares or similar transaction affecting such shares
and (ii) any other increase or decrease in the number of issued shares of Parent
Common Stock effected without receipt of consideration by Parent (other than
conversion of any convertible securities of Parent) prior to the Effective Time.
The Total Merger Consideration shall be allocated between that portion
receivable in the Merger by the holders of Company Preferred Stock and Company
Common Stock (the "Net Merger Consideration") and that portion issuable to the
holders of the Company Options and Company Warrants upon the respective exercise
or conversion thereof (the "Option Merger Consideration"). Solely for purposes
of calculating such allocation, the Company Options and Warrants shall be deemed
to constitute outstanding shares of the respective Company Common Stock or
Company Preferred Stock into which they are exercisable or convertible.
(g) Notwithstanding the foregoing:
(i) As collateral security for the indemnification obligations of the
shareholders of the Company pursuant to Article VIII, the shareholders of the
Company, by approving the Merger at a special meeting of shareholders or by
written consent, shall be deemed to have pledged, transferred and assigned to
Parent, and Parent shall withhold from the Net Merger Consideration otherwise
issuable under this Agreement, a number shares of Parent Common Stock equal to
10% of the total number of shares of Parent Common Stock otherwise issuable as
Net Merger Consideration pursuant to this Section 1.7.1 (the "Holdback Shares")
and shall deliver the Holdback Shares to ChaseMellon Shareholder Services, LLC,
as escrow agent (the "Escrow Agent") to be held in escrow pursuant to an escrow
agreement
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substantially in the form of Exhibit 1.7.1(g). Such pledge and holdback is for
the benefit of Parent for purposes of facilitating satisfaction of any
indemnification claims that may be made by Parent under Article VIII below, and
each shareholder shall be deemed to have granted a security interest in such
shareholder's pro rata share of the Holdback Shares, and the certificates and
instruments, if any, representing or evidencing such Holdback Shares. In lieu of
any fractional shares of Parent Common Stock, each shareholder's pro rata share
of the Holdback Shares shall be rounded up to the nearest whole number. Such
Holdback Shares shall be free of any other escrow or pledge obligation. Such
pledge includes all securities hereafter delivered to such shareholder with
respect to or in substitution for such shareholder's Holdback Shares held in
escrow, all certificates and instruments representing or evidencing such
securities, and all nontaxable noncash dividends and other property at any time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such shareholder's Holdback Shares. In the event such shareholder
receives any such property, such shareholder shall hold such property in trust
for Parent and shall immediately deliver such property to the Escrow Agent to be
held as Holdback Shares. Notwithstanding anything herein to the contrary, the
shareholders of the Company shall be entitled to promptly receive any
distribution on the Holdback Shares which constitutes a "dividend" within the
meaning of Section 316 of the Code.
(ii) Each certificate, if any, evidencing a shareholder's pro rata
share of the Holdback Shares issued in his, her or its name in the Merger shall
be delivered to the Escrow Agent directly by Parent's transfer agent, such
certificate bearing no restrictive or cautionary legend other than those
imprinted by the transfer agent at Parent's request or as set forth herein.
Each shareholder shall, at the Closing, deliver to the Escrow Agent, for each
such certificate, a stock power duly signed in blank by him, her or it for
purposes of allowing Parent to exercise its rights under this Section 1.7.1(g)
and Article VIII.
(iii) The shareholders of the Company shall be treated as the owners
of the Holdback Shares for income tax purposes and shall be the holders of
record thereof and entitled to exercise any voting powers incident to such
Holdback Shares until such time, if any, as such Holdback Shares, or any portion
thereof, are forfeited to Parent to satisfy any indemnification obligations
pursuant to Article VIII. In addition, upon the release of any Holdback Shares
pursuant to the terms hereof, the shareholder that is the record owner thereof
shall be entitled to any cash or other proceeds from such Holdback Shares
(including any dividends or other property paid with respect to such Holdback
Shares not previously distributed to such shareholders).
(iv) The Holdback Shares shall be available to satisfy any
indemnification obligations of the shareholders pursuant to Article VIII hereof.
Promptly following the end of the Survival Period (as defined in Section 8.1),
the Escrow Agent shall return or cause to be returned to the former shareholders
of the Company the Holdback Shares, less (A) any Holdback Shares previously
forfeited to Parent to satisfy any indemnification obligations pursuant to
Article VIII and (B) an additional number of Holdback Shares reasonably
sufficient to satisfy any pending Claims for indemnification made by any
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Indemnified Party (as such terms are defined in Article VIII). Any remaining
Holdback Shares shall be released promptly following final resolution of, and
full payment in connection with, any indemnification obligations referred to
above.
(v) Any Holdback Shares forfeited to Parent in order to satisfy
indemnification claims under Article VIII shall be deemed to reduce the Net
Merger Consideration otherwise due to the shareholders under this Section 1.7.1,
and no shareholder shall have any right to such forfeited Holdback Shares by
virtue of the Merger.
(vi) Stop transfer instructions will be given to Parent's transfer
agent with respect to those certificates evidencing the Holdback Shares and
certificates evidencing the Holdback Shares will contain a legend stating in
substance:
These shares have been pledged as collateral pursuant to that certain
Agreement and Plan of Merger dated December 12, 1999 by and among Parent,
San Antonio Acquisition, Inc., and Imparto Software Corporation. Prior to
the expiration of the pledge as set forth in such agreement, these shares
may not be offered, sold, exchanged, transferred or otherwise disposed
of.
Parent will terminate such stop transfer instruction and authorize its transfer
agent to remove such restrictive legend and release with respect to any
certificates representing Holdback Shares that are returned by the Escrow Agent
pursuant to Section 1.7.1(g)(iv).
1.7.2 Exchange of Certificates
As soon as practicable after the Effective Date, Parent shall make
available, and each shareholder of the Company immediately prior to the
Effective Time will be entitled to receive, upon surrender to Parent of one or
more certificates representing Company Common Stock or Company Preferred Stock
for cancellation, certificates representing the number of shares of Parent
Common Stock that such shareholder is entitled to receive pursuant to Section
1.7.1 hereof; provided, however, that the certificates representing the Holdback
Shares shall be delivered to the Escrow Agent in accordance with this Agreement.
The shares of Parent Common Stock that each such shareholder shall be entitled
to receive pursuant to the Merger shall be deemed to have been issued at the
Effective Time. No interest shall accrue on the Total Merger Consideration. If
the Total Merger Consideration (or any portion thereof) is to be delivered to
any person other than the person in whose name the certificate or certificates
representing shares of Company Common Stock or Company Preferred Stock
surrendered in exchange therefor is registered, it shall be a condition to such
exchange that the person requesting such exchange shall pay to Parent any
transfer or other taxes required by reason of the payment of the Total Merger
Consideration (or any portion thereof) to a person other than the registered
holder of the certificate or certificates so surrendered, or shall establish to
the satisfaction of Parent that such tax has been paid or is not applicable.
Notwithstanding the foregoing, neither Parent nor any other party hereto shall
be liable to a holder of shares of Company Common Stock or Company Preferred
Stock for any portion of the Total Merger
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Consideration delivered to a public official pursuant to applicable abandoned
property, escheat and similar laws. In the event that any certificates
representing shares of Company Common Stock or Company Preferred Stock shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the shareholder claiming such certificate to be lost, stolen or
destroyed, Parent shall issue in exchange for such lost, stolen or destroyed
certificate the shares of Parent Common Stock that such shareholder is entitled
to receive pursuant to Section 1.7.1; provided, however, that Parent may in its
discretion and as a condition precedent to the issuance thereof, require such
shareholder to provide Parent with an indemnity agreement against any claim that
may be made against Parent with respect to the certificate alleged to have been
lost, stolen or destroyed.
1.7.3 No Fractional Shares
(a) No certificates or scrip representing fractional shares of Parent
Common Stock shall be issued in the Merger, and no dividend, stock split or
other distribution with respect to Parent Common Stock shall relate to any such
fractional interest, and any such fractional interests shall not entitle the
owner thereof to vote or to any rights of a security holder. In lieu thereof,
Parent shall pay to the holder of shares of Company Common Stock or Company
Preferred Stock who would otherwise be entitled to a fraction of a share of
Parent Common Stock, as soon as practicable after the Effective Date (and in the
same timely manner required for delivery of certificates of Parent Common Stock
provided in Section 1.7.2), an amount in cash equal to such fraction multiplied
by the Closing Average (as defined below).
(b) Subject to the provisions of clause (ii) below with respect to certain
of the Company Options, the number of shares of Parent Common Stock issuable
upon exercise of any Company Option or Company Warrant shall not include any
fractional shares. Instead, (i) promptly following the Closing Date, Parent
shall pay to the holder of such Company Option or Company Warrant, cash equal to
such fraction multiplied by the Closing Average, or (ii) in the case of any
Company Option to which Section 421 of the Code applies by reason of its
qualification under Section 422 of the Code, the exercise 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.
(c) For purposes of this Agreement, the value of a fractional share of
Parent Common Stock (the "Closing Average") shall be average of the high and low
selling price of Parent Common Stock as reported on the Nasdaq National Market
on the Closing Date.
1.7.4 No Further Transfers
After the Effective Time, there shall be no transfers of any shares of
Company Common Stock or Company Preferred Stock on the stock transfer books of
the Surviving Corporation. If, after the Effective Time, certificates formerly
representing shares of Company Common Stock or Company Preferred Stock are
presented to the Surviving Corporation, they shall be forwarded to Parent and
shall be canceled and exchanged in accordance with this Section 1.7.
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1.8 Shareholder Matters
The approval by a shareholder of the Company of this Agreement and the
transactions contemplated hereby (whether by written consent or by vote) shall
constitute the agreement by such shareholder who so approves: (a) to enter into
and be bound by the Shareholder Representation Letter (as defined in Section
4.15 below and in the form attached hereto as Exhibit 4.15); (b) to appoint the
Shareholder Representative (as defined in Section 8.6 below) to act on such
shareholder's behalf as set forth herein; and (c) to waive any and all rights of
appraisal or dissent that may be available to such shareholder under California
Law with respect to the Merger.
1.9 Dissenters' Rights
Holders of shares of Company Common Stock or Company Preferred Stock who
have complied with all the requirements for perfecting appraisal rights for such
shares as required under California Law ("Dissenting Shareholders") shall not be
entitled to any Merger Consideration under this Agreement with respect to such
shares notwithstanding the foregoing provisions of this Article I, and in lieu
thereof shall be entitled to receive from the Surviving Corporation whatever is
determined to be due to them under California Law with respect to such shares
(the "Dissenting Shares"); provided, however, that Dissenting Shares outstanding
at the Effective Time and held by a Dissenting Shareholder who shall after the
Effective Time withdraw such Dissenting Shareholder's demand for appraisal or
lose such Dissenting Shareholder's right of appraisal as provided by California
Law shall be deemed to be converted as of the Effective Time into the right to
receive the consideration that would otherwise have been payable in respect
thereof under, and on the terms and conditions set forth in, this Agreement if
no dissent had been made. Promptly after execution and delivery of this
Agreement, the Company shall take such actions as are necessary to comply with
the requirements of Section 1301 of California Law . Prior to the Effective
Time, the Company will not settle any demand with respect to any Dissenting
Shares without the consent of Parent. The Company shall give notice to Parent
promptly after it is notified that any shareholder of the Company has elected or
attempted to exercise appraisal rights. Nothing in this Agreement is intended
or shall be construed as an agreement or admission that any statutory appraisal
rights are or may be available with respect to the transactions contemplated
hereby.
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as is otherwise specifically set forth with appropriate cross-
references in the Schedule of Exceptions attached hereto as Exhibit 2 (the
"Schedule of Exceptions"), and in order to induce Parent and Merger Sub to enter
into and perform this Agreement and the other agreements and certificates that
are required to be executed pursuant to this Agreement (collectively, the
"Operative Documents"), the Company represents and warrants to Parent and Merger
Sub as of the date of this Agreement and as of the Closing as follows in this
Article II.
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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 has not had and could
not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. For purposes of this Agreement, the term "Company
Material Adverse Effect" shall mean any material adverse effect on the business,
operations, assets, liabilities (absolute, accrued, contingent or otherwise),
condition (financial or other) or prospects, identified in materials provided to
Parent by the Company, of the Company and its subsidiaries taken as a whole;
provided, however, that a Company Material Adverse Effect shall not include any
change in general economic conditions or changes that affect the Company's
industry generally.
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.
2.3 Capitalization
(a) The authorized capital stock of the Company consists of 14,900,000
shares of Company Common Stock and 9,300,000 shares of Company Preferred Stock
designated as 200,000 shares of Series A Preferred Stock ("Series A Stock"),
250,000 shares of Series B
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Preferred Stock ("Series B Stock"), 3,500,000 shares of Series C Preferred Stock
("Series C Stock") and 5,350,000 shares of Series D Preferred Stock ("Series D
Stock").
(b) As of the date hereof, the issued and outstanding capital stock of the
Company consists solely of 2,198,685 shares of Company Common Stock, 200,000
shares of Series A Stock, 230,000 shares of Series B Stock, 3,361,000 shares of
Series C Stock and 3,891,075 shares of Series D Stock. The issued and
outstanding shares, respectively, of Company Common Stock and of each series of
Company Preferred Stock are held of record and, to the knowledge of the Company,
beneficially by the shareholders of the Company as set forth in Section 2.3(b)
of the Schedule of Exceptions. Such issued and outstanding shares are duly
authorized and validly issued, fully paid and nonassessable, and were issued in
compliance with all applicable federal and state securities laws. To the
knowledge of the Company, no Person (as defined in Section 2.5) other than the
shareholders of the Company holds any interest in any of the outstanding shares.
True and correct copies of the stock records of the Company, showing all
issuances and transfers of shares of capital stock of the Company since
inception, have been provided to Parent or its counsel.
(c) As of the date hereof, other than (i) Company Options to purchase up to
1,129,566 shares of Company Common Stock that have been granted under the
Company's 1996 Stock Option Plan (the "Company Option Plan") and (ii) Company
Warrants to purchase up to 20,000 shares of Series B Stock and 10,000 shares of
Series C Stock, there are no outstanding rights of first refusal or offer,
preemptive rights, options, warrants, conversion rights or other agreements,
either directly or indirectly, for the purchase or acquisition from the Company
or any shareholder of any shares of Company Common Stock, Company Preferred
Stock or any securities convertible into or exchangeable for shares of Company
Common Stock or Company Preferred Stock. Set forth in Section 2.3(c) of the
Schedule of Exceptions is a schedule accurately reflecting the shares of Company
Common Stock and Company Preferred Stock (by series) issuable upon exercise or
conversion of the outstanding Company Options and Company Warrants, 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). All
Company Options and Company Warrants have been granted with exercise prices
equal to the fair market value per share of Company Common Stock or Company
Preferred Stock (as applicable) on the date of grant, as determined by the
Company's Board of Directors. The Company has delivered to Parent or its
counsel true and correct copies of the Company Option Plan, the form of stock
option agreements relating to the Company Options granted thereunder and all
Company Warrant certificates.
(d) Except as disclosed in Section 2.3(d) of the Schedule of Exceptions,
the Company is not a party to any agreement or understanding and, to the
knowledge of the Company, there is no agreement or understanding between any
Persons that affects or relates to the voting or giving of written consents with
respect to any securities of the Company or the voting by any director of the
Company. Except as disclosed in Section 2.3(d) of the Schedule of Exceptions,
no shareholder of the Company or to the Company's knowledge any affiliate
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thereof is indebted to the Company, and the Company is not indebted to any
shareholder of the Company or to the Company's knowledge any affiliate thereof.
Except as described in Section 2.3(d) of the Schedule of Exceptions, the Company
is not under any contractual or other obligation to register any of its
presently outstanding securities or any of its securities that may hereafter be
issued. All agreements or arrangements providing for rights of refusal and co-
sale rights and other rights relating to transfer of stock granted by the
Company with respect to the Company Common Stock, Company Preferred Stock,
Company Options or Company Warrants are listed in Section 2.3(d) of the Schedule
of Exceptions.
2.4 Subsidiaries and Affiliates
Except as disclosed in Section 2.4 of the Schedule of Exceptions, the
Company does not own or control, and has not in the past owned or controlled,
directly or indirectly, any corporation, partnership, limited liability company
or other business entity. The Company does not own, directly or indirectly, any
ownership, equity, or voting interest in, any corporation, partnership, joint
venture or other entity, and has no agreement or commitment to purchase any such
interest.
2.5 No Approvals; No Conflicts
The execution, delivery and performance by the Company of this Agreement
and the other Operative Documents to which the Company is a party and the
consummation of the transactions contemplated hereby and thereby, the
effectiveness of the Merger will not, except as set forth in Section 2.5 of the
Schedule of Exceptions, (a) constitute a violation (with or without the giving
of notice or lapse of time, or both) of any statute, regulation, rule or other
provision of law or any judgment, decree, order or other requirement of any
court or other governmental authority applicable to the Company, (b) require any
consent, approval or authorization of, or declaration, filing or registration
with, any person, corporation, partnership, joint venture, association,
organization, other entity or governmental or regulatory authority (a "Person"),
except for (i) compliance with applicable securities laws 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) constitute a breach of or
conflict with or result in a default (with or without the giving of notice or
lapse of time, or both) under, or acceleration or termination of, or the
creation in any party of the right to accelerate, terminate, modify or cancel,
any Material Contract, (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 the
Company Option Plan, or (f) invalidate or adversely affect any permit, license
or authorization currently material to the conduct of the business of the
Company.
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2.6 Financial Statements
The Company has delivered to Parent (a) audited balance sheets, statements
of income and expense for the fiscal year ended December 31, 1998 (the "Year End
Financials"), and (b) unaudited balance sheets, and unaudited statements of
income and expense, statements of cash flow and statements of shareholders'
equity of the Company as of and for the ten-month period ended October 31, 1999
(the "Interim Financials"). The Year End Financials and the Interim Financials
are collectively referred to as (the "Financial Statements"). The balance sheet
of the Company as of October 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") on a
basis consistent with prior accounting periods (except that the Interim
Financials do not contain all footnotes and other presentation items that may be
required by GAAP). The Financial Statements were prepared from the books and
records of the Company and fairly present the financial position, results of
operations and changes in financial position of the Company as of the dates and
for the periods indicated, subject, in the case of Interim Financials, to normal
year-end adjustments, which will not be material or significant. 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 to be reflected or reserved
in a balance sheet prepared in accordance with GAAP, except liabilities or
obligations incurred since the date of the Company Balance Sheet in the ordinary
course of business and consistent with past practice that are not in excess of
$40,000 in the aggregate or $20,000 individually. The Company maintains
standard systems of accounting established and administered in accordance with
GAAP. Except as set forth in Section 2.6 of the Schedule of Exceptions, the
Company is not a guarantor, indemnitor, surety or other obligor of any
indebtedness of any other Person. Section 2.6 of the Schedule of Exceptions
sets forth all promissory notes, loans, lines of credits or similar obligations
pursuant to which the Company is an obligor, together with all the amounts owed
by the Company under such obligations, and all liabilities under equipment
leases of the Company as of October 31, 1999. Section 2.6 of the Schedule of
Exceptions sets forth all indebtedness and other obligations of the shareholders
relating to the Company, together with all the amounts owed by such shareholders
in respect thereof, as of the Closing. The Company's practices with respect to
recognizing software licensing revenue and 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 as set forth in Section 2.7 of the Schedule of Exceptions, since the
date of the Company Balance Sheet, no event has occurred and no state of facts
has developed or is continuing that has had or could reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect, and
neither the Company nor any of its officers or directors in their representative
capacities, nor to the Company's knowledge any shareholder on behalf of the
Company have:
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(a) received written notice, or to the Company's knowledge any other
notice, that there has been, will be or may be a loss of, or contract
cancellation by, any current customer, supplier or licensor of the Company,
which loss or cancellation would result in lost annual revenues to the Company
of at least $50,000, or formed a belief that there may be such a loss or
cancellation;
(b) taken any action or entered into or agreed to enter into any
transaction, agreement or commitment other than in the ordinary course of
business and consistent with past practice;
(c) forgiven or canceled any indebtedness for borrowed money or waived
any claims or rights of material value (including, without limitation, any
indebtedness owing to the Company by any shareholder, officer, director,
employee or affiliate of the Company);
(d) granted, other than in the ordinary course of business and
consistent with past practice, any increase in the compensation of directors,
officers, employees or consultants;
(e) borrowed or agreed to borrow any funds, assumed or become subject
to, whether directly or by way of guarantee or otherwise, any liabilities or
obligations (absolute, accrued or contingent), or incurred any liabilities or
obligations (absolute, accrued or contingent) except liabilities and obligations
incurred in the ordinary course of business and consistent with past practice
not to exceed $50,000 in the aggregate or $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 Company Balance Sheet or incurred in the ordinary course of business and
consistent with past practice since the date of the Company Balance Sheet, or
prepaid any obligation having a fixed maturity of more than 90 days from the
date such obligation was issued or incurred;
(g) knowingly permitted or allowed any of its property or assets
(real, personal or mixed, tangible or intangible) to be subjected to any
mortgage, pledge, lien, security interest, encumbrance, institutional control,
restriction or charge, except (i) conditional sales or similar security
interests granted in connection with the purchase of equipment or supplies in
the ordinary course of business, (ii) Encumbrances for current taxes not yet due
and payable, (iii) landlord's liens for rental payments not yet due and payable,
and (iv) mechanics', materialmen's, carriers' and other similar statutory liens
securing indebtedness that is in the aggregate less than $25,000, was incurred
in the ordinary course of business and is not yet due and payable;
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(h) written down the value of any inventory or written off as
uncollectible any notes or accounts receivable, except for write-downs and
write-offs that are in the aggregate less than $25,000, 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 $25,000, 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 currently or reasonably expected to
be material to the conduct of the business of the Company, or disposed of or
disclosed to any Person other than representatives of Parent any trade secret,
formula, process or know-how not theretofore a matter of public knowledge
without obtaining an appropriate confidentiality agreement from such person;
(k) made any single capital expenditure or commitment in excess of
$25,000 for additions to property, plant, equipment or intangible capital assets
or made aggregate capital expenditures in excess of $50,000 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, except for any such change after the date hereof
required by reason of a concurrent change in GAAP and consented to by Parent;
(m) issued any capital stock, other securities or options or other
rights to acquire capital stock or other securities, or declared, paid or set
aside for payment any dividend or other distribution in respect of its capital
stock, or redeemed, purchased or otherwise acquired, directly or indirectly, any
shares of capital stock or other securities of the Company, or otherwise
permitted the withdrawal by any of the holders of capital stock of the Company
of any cash or other assets (real, personal or mixed, tangible or intangible),
in compensation, indebtedness or otherwise, other than payments of compensation
or issuance of options 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 to the Company's knowledge, any affiliate of the Company's officers
or employees, except directors' fees and compensation paid to officers and
employees at rates consistent with past practice, and except stock purchase
agreements and stock option agreements with such individuals;
(o) entered into or agreed to enter into, or otherwise suffered to be
outstanding, any power of attorney of the Company or any obligations or
liabilities (absolute,
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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 written notice, or to the Company's knowledge any other
of notice of, or otherwise obtained knowledge of: (i) any claim, action, suit,
arbitration, proceeding or investigation involving, pending against or
threatened against the Company or any employee of the Company in his or her
capacity as a representative of the Company before or by any court or
governmental or nongovernmental department, commission, board, bureau, agency or
instrumentality, or by any other Person; (ii) any valid basis for any material
claim, action, suit, arbitration, proceeding, investigation or the application
of any fine or penalty adverse to the Company before or by any Person; or (iii)
any outstanding or unsatisfied judgments, orders, decrees or stipulations to
which the Company or any officer, director or employee of the Company is a party
that relate directly to the transactions contemplated herein or that have had or
could reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect;
(q) entered into or agreed to any sale, assignment, transfer or
license of any IP Rights or Technology (as defined in Section 2.17 below) or
other intangible assets of the Company to a third party, except for non
exclusive licenses granted to customers in the ordinary course of business (true
and complete copies of which have been provided to Parent or its counsel), or
any amendment or change to any existing license or other agreement relating to
IP Right or Technology;
(r) incurred, assumed or guaranteed any indebtedness for borrowed
money other than in the ordinary and usual course of business, consistent with
past practice, and in amounts and on terms consistent with past practice; or
(s) agreed, whether in writing or otherwise, to take any action
described in this Section 2.7.
2.8 Taxes
(a) (i) All Tax Returns (as defined below) required to be filed by or on
behalf of the Company have been filed on a timely basis with the appropriate
governmental authority in all jurisdictions in which such Tax Returns are
required to be filed, and all such Tax Returns were (at the time they were
filed) true, correct and complete in all respects; (ii) all Taxes (as defined
below) of the Company due and payable for periods ending on or prior to the
Closing Date (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
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applicable laws; and no amounts have been or would be required to be withheld
with respect to the lapse of restrictions on capital stock of the Company to
which Section 83(a) of the Code applies and for which an election by the holder
pursuant to Section 83(b) has not been made; (vi) there are no liens with
respect to Taxes on any of the Company's property or assets other than liens for
current Taxes not yet payable; (vii) there are no Tax rulings, requests for
rulings, or closing agreements 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 written notice, or to the knowledge of the Company any
other notice, that a governmental authority has proposed any such adjustment or
change in accounting method.
(c) There is no outstanding dispute or claim concerning any Tax liability
of the Company either (i) claimed or raised by any authority in writing or (ii)
as to which any of the directors and officers (and employees responsible for Tax
matters) of the Company have knowledge based on contact or correspondence with
any agent of such authority, nor to the knowledge of the Company is any such
claim or dispute pending. Section 2.8 of the Schedule of Exceptions lists all
Tax Returns filed with respect to the Company for taxable periods ended on or
after the Company's inception or the inception of any predecessor that have been
audited, and indicates those Tax Returns that currently are the subject of
audit. The Company has made available to Parent or its counsel 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
would obligate it to make any payments that will not be deductible under Section
280G of the Code (or any similar provision of state, local or foreign law).
(e) The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(f) The Company is not a party to any Tax allocation or sharing agreement.
The Company (i) has not been a member of a Tax Group (as defined below) filing a
consolidated
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income Tax Return under Section 1501 of the Code (or any similar provision of
state, local or foreign law) and (ii) does not have any liability for Taxes of
any Person under Treasury Regulations Section 1.1502-6 (or any similar provision
of state, local or foreign law) as a transferee or successor by contract or
otherwise.
(g) The unpaid Taxes of the Company (i) did not, as of October 31, 1999,
exceed the reserve for Tax liability set forth on the face (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) of the Company Balance Sheet and (ii) do not exceed by a
material amount 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.
As used in this Agreement, the following terms shall have the following
meanings:
"Taxes" means all foreign, federal, state, county or local taxes, charges,
fees, levies, imposts, duties and other assessments, including, but not limited
to, any income, alternative minimum or add-on, estimated, gross income, gross
receipts, sales, use, transfer, transactions, intangibles, ad valorem, value-
added, franchise, registration, title, license, capital, paid-up capital,
profits, withholding, payroll, employment, excise, severance, stamp, occupation,
Pension Benefit Guaranty Corporation premiums, real property, recording,
personal property, federal highway use, commercial rent, environmental
(including, but not limited to, taxes under Section 59A of the Code) or windfall
profit tax, custom, duty or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest, penalties or
additions to tax; and "Tax" means any of the foregoing Taxes.
"Tax Group" means any federal, state, local or foreign consolidated,
affiliated, combined, unitary or other similar group of which the Company is now
or was formerly a member.
"Tax Returns" means any return, declaration, report, claim or refund,
information return, statement or other similar document relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
2.9 Property
(a) Section 2.9(a) of the Schedule of Exceptions contains a complete and
accurate list of all real property owned, leased or currently being used by the
Company (the "Real Property"). The Company has delivered to Parent 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
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agreements, contracts of sale, tenancies or licenses to which the Company's use
of the Real Property is subject.
(b) Section 2.9(b) of the Schedule of Exceptions contains a complete and
accurate list of each item of personal property having a current value in excess
of $10,000 that is owned, leased, rented or used by the Company (the "Personal
Property"); provided, however, 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
in Section 2.17 of the Schedule of Exceptions. The Company has delivered to
Parent or its counsel true and complete copies of all leases, subleases, rental
agreements, contracts of sale, tenancies or licenses to which the Company's use
of the Personal Property is subject.
(c) The Real Property and the Personal Property include all the properties
and assets (whether real, personal or mixed, tangible or intangible) (other
than, in the case of the Personal Property, property rights with an individual
current value of less than $10,000 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
$10,000 and the Technology and IP Rights). The Real Property and the Personal
Property include all material property used in the business of the Company,
other than the Technology and IP Rights. The Company's offices and other
structures and its Personal Property are in good operating condition and repair,
normal wear and tear excepted, are adequate for the uses to which they are being
put, and, to the Company's knowledge, comply in all material respects with
applicable safety and other laws and regulations.
(d) Except as set forth in Section 2.9(d) of the Schedule of Exceptions,
the Company's leasehold interest in 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 (i) Encumbrances related to Taxes not yet due and
payable, (ii) landlords' liens for rental payments not yet due and payable,
(iii) Encumbrances reflected in the Company Balance Sheet and (iv) Encumbrances
created by the lessors thereof (each a "Permitted Encumbrance"). Each lease of
any portion of the Real Property is valid, binding and enforceable in accordance
with its terms against the Company and to the Company's knowledge, against the
other the parties thereto and against any other Person with an interest in such
Real Property, the Company has performed in all material respects all
obligations imposed on it thereunder, and neither the Company nor, to the
Company's knowledge, any other party thereto is in material default thereunder,
nor is there any event that with notice or lapse of time, or both, would
constitute a material default thereunder by the Company or, to the Company's
knowledge, by any other party. The Company has not granted any lease, sublease,
tenancy or license of, or entered into any rental agreement or contract of sale
with respect to, any portion of the Real Property.
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(e) Except as set forth in Section 2.9(e) of the Schedule of Exceptions,
the Personal Property is free and clear of all Encumbrances except (i) as
reflected in the Financial Statements, (ii) Encumbrances created by the lessors
thereof, and (iii) 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 Company and to the Company's knowledge,
against the other 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 material default
thereunder, nor is there any event that with notice or lapse of time, or both,
would constitute a material default by the Company or, to the Company's
knowledge, any other party thereunder. The Company has not granted any lease,
sublease, tenancy or license of any portion of the Personal Property, except in
the ordinary course of business.
(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 being put and to the Company's knowledge 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, except where the failure to
receive such approval would not cause a Company Material Adverse Effect.
2.10 Contracts
2.10.1 Material Contracts
Section 2.10.1 of the Schedule of Exceptions contains a list that is
complete and accurate in all material respects (other than the IP Rights listed
in Section 2.17 of the Schedule of Exceptions) of all contracts, agreements and
understandings, oral or written, to which the Company is currently a party or by
which the Company is currently bound that (x) provide for potential payments by
or to the Company in excess of $10,000, (y) are otherwise material to the
Company's business or (z) the loss of which could reasonably be expected to
cause a Company Material Adverse Effect (collectively, "Material Contracts"),
including, without limitation, acquisition agreements, strategic alliance
agreements, stock purchase agreements, shareholders agreements, security
agreements, license agreements, software development agreements, distribution
agreements, joint venture agreements, reseller agreements, credit agreements,
and instruments relating to the borrowing of money. All such Material Contracts
set forth in Section 2.10.1 of the Schedule of Exceptions are valid, binding and
enforceable in accordance with their terms against the Company and, to the
Company's knowledge, each other party thereto, and are in full force and effect,
the Company has performed in all material respects all obligations imposed on it
thereunder, and neither the Company nor, to the
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Company's knowledge, any other party thereto is in material default thereunder,
nor to the Company's knowledge is there any event that with notice or lapse of
time, or both, would constitute a material default by the Company or, to the
Company's knowledge, any other party thereunder. True and complete copies of
each such Material Contract (or written summaries of the terms of any such oral
contract) have been delivered to Parent or its counsel by the Company. Except as
set forth in Section 2.10.1 of the Schedule of Exceptions (which shall be
considered Material Contracts), the Company has none of the following:
(a) contracts with directors, officers, shareholders, employees,
agents, consultants, advisors, salespeople, sales representatives, distributors
or dealers that cannot be canceled by the Company within 30 days' notice without
liability, penalty or premium, any agreement or arrangement providing for the
payment of any bonus or commission based on sales or earnings, or any
compensation agreement or arrangement with former employees of the Company;
(b) employment agreements, whether express or implied, or any other
agreements for services that contain severance or termination pay liabilities or
obligations;
(c) noncompetition agreements or other arrangements that would prevent
the Company from carrying on its business anywhere in the world;
(d) written notices, or to the Company's knowledge any other notices,
that any party to a contract listed in Section 2.10.1 of the Schedule of
Exceptions intends to cancel, terminate or refuse to renew such contract (if
such contract is renewable);
(e) material disputes with any of its suppliers, customers,
distributors, OEM resellers, licensors or licensees;
(f) product distribution agreements, development agreements or license
agreements as licensor or licensee (except for standard nonexclusive software
licenses granted to end-user customers in the ordinary course of business, the
form of which has been provided to Parent or its counsel, or standard licenses
purchased by the Company for off-the-shelf software);
(g) joint venture contracts or arrangements or any other agreements
that involve a sharing of profits with other persons; and
(h) instruments evidencing indebtedness for borrowed money by way of a
direct loan, sale of debt securities, purchase money obligation, conditional
sale or guarantee, or otherwise, except for trade indebtedness incurred in the
ordinary course of business, and except as disclosed in the Financial
Statements.
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2.10.2 Required Consents
The execution and delivery of this Agreement and the performance of the
obligations of the Company hereunder will not constitute a default under any
Material Contract and do not require the consent of any other party to any
Material Contract, except for those consents listed in Section 2.10.2 of the
Schedule of Exceptions, all of which will be obtained at or prior to the
Closing.
2.11 Customers and Suppliers
Section 2.11 of the Schedule of Exceptions sets forth: (a) a list that is
complete and accurate in all material respects of the customers of the Company
accounting for 5% or more of the Company's revenues during the fiscal year last
ended and the ten-month period ended October 31, 1999, showing the approximate
total revenues from each such customer during the fiscal year last ended and the
ten-month period ended October 31, 1999, and (b) a list that is complete and
accurate in all material respects 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 ten-month period ended October 31,
1999. The Company has not received written notice, or to the Company's
knowledge any other 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 in Section 2.11 of the
Schedule of Exceptions.
2.12 Orders; Commitments; Warranties and Returns
Section 2.12 of the Schedule of Exceptions 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. The Company has
experienced no actual or, to its knowledge, threatened claims against it for
warranty costs exceeding $50,000 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, to the Company's knowledge, threatened against or
involving the Company before or by any court or governmental or nongovernmental
department, commission, board, bureau, agency or instrumentality, or by any
other Person. To the Company's knowledge, there is no valid basis for any
claim, action, suit, arbitration, proceeding or investigation before or by any
Person, except as has not had and could not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. There are
no material outstanding or unsatisfied judgments, orders, decrees or
stipulations to which the Company is a party. Section 2.13 of the Schedule of
Exceptions sets forth a description of any material disputes that have been
settled or resolved by litigation or arbitration since the Company's inception.
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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 in connection with their
employment at the Company. The Company has complied in all material respects
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 material 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 materially affecting the Company, and
the Company has not experienced any work stoppage since its inception. No
collective bargaining agreement is binding on the Company. The Company has no
knowledge of any organizational efforts presently being made or threatened by or
on behalf of any labor union with respect to employees of the Company. Each
employee, officer and consultant of the Company has executed a nondisclosure and
invention assignment agreement in the form provided to Parent or its counsel.
To the Company's knowledge, no employee or consultant of the Company is in
violation of any such agreement or any employment agreement, 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. Except as
disclosed in Section 2.14 of the Schedule of Exceptions all employees of the
Company are employed on an "at will" basis, and to the knowledge of the Company
are eligible to work and are lawfully employed in the United States.
2.15 Employee Benefit Plans
2.15.1 Employee Benefit Plan Listing
Section 2.15.1 of the Schedule of Exceptions accurately lists all of the
Company's retirement, pension, profit sharing, deferred compensation, savings,
bonus, incentive, cafeteria, flexible benefits, medical, dental, vision,
hospitalization, life insurance, group insurance, medical expense reimbursement,
dependent care assistance, tuition reimbursement, disability, accident, sick
pay, holiday, vacation, severance, stock purchase, stock option, stock
appreciation rights, fringe benefit and other employee benefit plans, funds,
policies, programs, contracts, arrangements and payroll practices (including,
but not limited to, all "employee benefit plans," as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and
all employment, consulting and personal service contracts and agreements,
whether formal or informal, whether written or unwritten, (a) sponsored,
maintained or contributed to by the Company, (b) covering or benefiting any
current or former officer, employee, agent, director or independent contractor
of the Company (or any dependent or beneficiary of any such individual), or (c)
with respect to which the Company has (or could have) any obligation or
liability (such plans, funds, policies, programs, contracts, arrangements and
payroll practices are hereinafter referred to collectively as "Employee
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Benefit Plans" and each individually as an "Employee Benefit Plan"). The Company
does not have any agreement, arrangement, commitment or obligation, whether
formal or informal, whether written or unwritten to create (or contribute to)
any additional employee benefit plan, fund, policy, program, contract,
arrangement or payroll practice, or to modify or amend any existing Employee
Benefit Plan. There has been no amendment, interpretation or other announcement
by the Company (written or oral) relating to, or change in participation or
coverage under, any Employee Benefit Plan that, either alone or together with
other such items or events, would 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. Also set
forth in such Section 2.15.1 of the Schedule of Exceptions is the annual amount
expected to be paid by the Company pursuant to each Employee Benefit Plan for
the fiscal year last ended. The Company does not have any agreement, arrangement
or commitment, whether formal or informal and whether legally binding or not, to
create any additional Employee Benefit Plan. Except as set forth in Section
2.15.1 of the Schedule of Exceptions, 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, except for benefits protected under Section
411(d) of the Code.
2.15.2 Documents Provided
The Company has delivered to Parent or its counsel true, correct and
complete copies (or, in the case of unwritten Employee Benefit Plans,
descriptions) of all Employee Benefit Plans (and all amendments thereto), along
with, to the extent applicable to the particular Employee Benefit Plan, the
following information: (a) copies of the last three annual reports (Form 5500
series) filed with respect to such Employee Benefit Plan; (b) copies of the
summary plan descriptions, summaries of material modifications and all material
employee manuals or communications filed or distributed with respect to such
Employee Benefit Plan during the last three years; (c) copies of all contracts
(and any amendments thereto) relating to such Employee Benefit Plan, including,
but not limited to, service provider agreements, administrative service
agreements, insurance contracts, annuity contracts, investment management
agreements and record-keeping agreements; (d) copies of all documents relating
to any loans to the Employee Benefit Plan, including, but not limited to, any
and all notes, security agreements and guarantees; (e) the most recent
determination, opinion, notification or advisory letter issued by the IRS with
respect to such Employee Benefit Plan and (f) notice of any material adverse
change occurring with respect to the Employee Benefit Plan since the date of the
most recently completed and filed annual report.
2.15.3 Compliance
With respect to each Employee Benefit Plan, (a) such Employee Benefit Plan
is, and at all times since its inception has been, maintained, administered and
operated in all material respects in accordance with its terms and in compliance
in all material respects with all applicable laws, statutes, orders, rules and
regulations, and all requirements prescribed thereby, including, but not limited
to, ERISA and the Code; (b) all amendments and actions required to bring such
Employee Benefit Plan into conformity with the applicable provisions of ERISA,
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the Code and other applicable laws and regulations have been made or taken
within the time prescribed by law, except to the extent that such amendments or
actions are not required by law to be made or taken until after the Closing Date
and are disclosed in Section 2.15.3 of the Schedule of Exceptions; (c) the
Company, and, to the Company's knowledge, each fiduciary of such Employee
Benefit Plan and, to the Company's knowledge, all other Persons have, at all
times, properly performed all obligations, whether arising by operation of law
or by contract, required to be performed by each of them in connection with such
Employee Benefit Plan; (d) all returns, reports and other disclosures relating
to such Employee Benefit Plan required to be filed with any governmental entity
or agency or furnished to any participant or beneficiary have been properly
completed or prepared and timely filed or furnished in accordance with
applicable law; (e) neither the Company nor to the Company's knowledge any other
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; and (f) no event has occurred or is threatened or
about to occur that constitutes or could constitute a nonexempt prohibited
transaction under Section 406 or 407 of ERISA or under Section 4975 of the Code.
Each Employee Benefit Plan that constitutes a "group health plan," as defined in
Section 607(1) or 733(a)(1) of ERISA or Section 4980B(g)(2) of the Code, has
been maintained, administered and operated at all times since its inception in
compliance with (and the Company has never violated any of) the requirements of
Parts 6 and 7 of Subtitle B of Title I of ERISA, Section 4980B(f) of the Code,
any regulations under such ERISA and Code sections and any other applicable
federal, state, local or foreign law regarding the provision or continuation of
health insurance coverage or other welfare benefits (within the meaning of
Section 3(1) of ERISA). Each Employee Benefit Plan that is intended to be
qualified under Section 401(a) of the Code is, and at all times since its
inception has been, so qualified, and its related trust or annuity contract is,
and at all times since its inception has been, exempt from taxation under
Section 501(a) of the Code, and each such Employee Benefit Plan (and its related
trust(s) and/or annuity contract(s)) is the subject of an unrevoked favorable
determination letter from the IRS to that effect. Nothing has occurred since
the most recent favorable determination letter issued with respect to each such
Employee Benefit Plan, and no circumstances exist, or are reasonably expected by
the Company to occur, that could cause the Company (or such Employee Benefit
Plan) to lose its ability to rely on such determination letter or could cause
the IRS to revoke such determination letter. No event or omission has occurred,
or is reasonably expected by the Company to occur (including, but not limited
to, any of the transactions contemplated in or by this Agreement), with respect
to any Employee Benefit Plan that has or could subject, directly or indirectly,
the Company or any other Person to a tax under Chapter 43 of Subtitle D of the
Code or a penalty under Part 5 of Subtitle B of Title I of ERISA.
2.15.4 Contributions and Premium Payments
All contributions, premiums and other payments due or required to be made
to each Employee Benefit Plan under the terms of such Employee Benefit Plan,
ERISA, the Code or other applicable law have been timely paid, or, if not yet
due, have been properly recorded on the books of the Company.
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2.15.5 Related Employers
The Company is not, and has never been, a member of (a) a controlled group
of corporations, within the meaning of Section 414(b) of the Code, (b) a group
of trades or businesses under common control, within the meaning of Section
414(c) of the Code, (c) an affiliated service group, within the meaning of
Section 414(m) of the Code, or (d) any other group of Persons treated as a
single employer under Section 414(o) of the Code.
2.15.6 Multiemployer and Title IV Plans
The Company does not maintain or contribute to, and has never maintained or
contributed to (or been obligated to contribute to), any multiemployer plan as
defined in Section 3(37) or Section 4001(a)(3) of ERISA or 414(f) of the Code,
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 subject to Section 412 of the Code, Section 302
of ERISA or Title IV of ERISA.
2.15.7 Post-Termination Welfare Benefits
Neither the Company nor any Employee Benefit Plan provides or has any
obligation to provide (or contribute toward the cost of) health, severance or
any other welfare benefits (within the meaning of Section 3(1) of ERISA) with
respect to any current or former officer, employee, agent, director or
independent contractor of the Company or any other entity beyond such
individual's retirement or other termination of service, other than continuation
coverage mandated by Sections 601 through 608 of ERISA or Section 4980B(f) of
the Code.
2.15.8 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. To the
Company's knowledge no Employee Benefit Plan is currently under investigation,
audit or review, directly or indirectly, by the IRS, the Department of Labor
(the "DOL") or any other governmental entity or agency, and no such action is
contemplated or under consideration by the IRS, the DOL or any other
governmental entity or agency.
2.15.9 Payments Resulting From Transactions
Except as disclosed in Section 2.15.9 of the Schedule of Exceptions,
neither the execution and delivery of this Agreement or any of the other
Operative Documents nor the consummation of the transactions contemplated in (or
by) this Agreement or any of the other Operative Documents will (a) entitle any
current or former officer, employee, agent, director or independent contractor
of the Company to severance pay, unemployment compensation or any other payment
from the Company or to the Company's knowledge any other Person, or otherwise
increase the amount of compensation due to any such individual, or (b) result in
any
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benefit or right becoming established or increased, or accelerate the time of
payment or vesting of any benefit, under any Employee Benefit Plan.
2.16 Personnel
Section 2.16 of the Schedule of Exceptions lists (a) the names and current
compensation amounts of all directors and officers of the Company; (b) the wage
rates for nonsalaried and nonofficer salaried employees of the Company by
classification, and all union contracts (if any); (c) 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; and (e) the family relationships, if any, among such personnel of which
the Company has knowledge. The Company is not in default with respect to any of
its obligations referred to in clause (b) above and, except as disclosed in
Section 2.16 of the Schedule of Exceptions, 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 in any written materials furnished by the Company to Parent: (a) all
products, tools, computer programs, specifications, source code, object code,
graphics, devices, techniques, algorithms, methods, processes, procedures,
packaging, trade dress, formulae, drawings, designs, improvements, discoveries,
concepts, user interfaces, software, "look and feel," development and other
tools, content, inventions (whether or not patentable or copyrightable and
whether or not reduced to practice), designs, logos, know-how, concepts and
other technology that are now, 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
Section 2.17.2 of the Schedule of Exceptions 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 as set forth in Section 2.17.2 of the
Schedule of Exceptions and except for the Third Party Technologies (as defined
in
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Section 2.17.3), the Company owns all right, title and interest in and to the
following (collectively, the "Technology"), free and clear of all Encumbrances,
other than Permitted 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
Section 2.17.3 of the Schedule of Exceptions sets forth a list of all
Technology used in the Company's business for which the Company does not own all
right, title and interest (collectively, the "Third Party 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
Parent. All Third Party Licenses are valid, binding and in full force and
effect, the Company and, to the Company's knowledge, each other party thereto
have performed in all material respects their obligations thereunder, and
neither the Company nor, to the Company's knowledge, any other party thereto is
in material 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 material default or event of material 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 written notice or to the Company's
knowledge any other 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
Section 2.17.4 of the Schedule of Exceptions 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").
Except as set forth in Section 2.17.4 of the Schedule of Exceptions, the Company
has full legal and beneficial ownership, free and clear
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of any Encumbrances other than Permitted Encumbrances, of all rights conferred
by use of the Marks in connection with the Products or otherwise in the
Company's business 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
Section 2.17.5 of the Schedule of Exceptions 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. Except as set forth in
Section 2.17.5 of the Schedule of Exceptions, 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 has
had or could reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. Except as set forth in Section 2.17.6 of the
Schedule of Exceptions, 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
The Company has not received written notice or to the Company's knowledge
any other 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. 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 written notice, or to the Company's knowledge
any other notice or claim (whether written, oral or otherwise) challenging the
validity or enforceability of any of the IP Rights. 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
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,
trademark or trade secret right) held by any other person or entity, and there
have been no claims made with respect thereto. 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. The Company has not received any written notice, or to
the Company's knowledge any other kind of 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
The Company has not disclosed any source code regarding the Technology to
any person or entity other than those persons or entities set forth on Section
2.17.9 of the Schedule of Exceptions, all of whom have entered into a written
nondisclosure agreement with the Company. The Company has at all times
maintained and diligently enforced commercially reasonable procedures to protect
all confidential information relating to the Technology. 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. The Company has not deposited any source code relating to the
Technology into any source code escrows or similar arrangements. If, as
disclosed in Section 2.17.9 of the Schedule of Exceptions, 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 Domain Names
Section 2.17.10 of the Schedule of Exceptions sets forth a list of all
Internet domain names used by the Company in its business (collectively, the
"Domain Names"). The Company has, and upon the Closing the Surviving
Corporation will have, a valid registration and all material rights (free of any
material restriction) in and to the Domain Names, including, without limitation,
all rights necessary to continue to conduct the Company's business as it is
currently conducted.
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2.17.11 Year 2000
The Company Technology, and to the Company's knowledge the Third Party
Technology that is incorporated in or used in the development or production of
the Company Technology (the "Incorporated Third Party Technology") is Year 2000
Compliant. The Company's business, financial condition and results of
operations will not be materially adversely affected by Year 2000 Compliance
related issues. The term "Year 2000 Compliant" as used herein means that (i)
each item of Company Technology, and, to the Company's knowledge, the
Incorporated Third Party Technology, on dates on and after January 1, 2000 (the
"Millennial Dates"), will calculate any information dependent on or relating to
dates on or after January 1, 2000 in the same manner, and with the same
functionality, data integrity and performance, as such Company Technology, and
to the Company's knowledge, Incorporated Third Party Technology records, stores,
processes, calculates and presents calendar dates on or before any Millennial
Date, and (ii) the Millennial Dates will not adversely affect the operation of
such Company Technology, and to the Company's knowledge, such Incorporated Third
Party Technology, with respect to date-dependent data or computations, output,
or other routines or functions.
2.17.12 Indemnification
Except pursuant to standard end user licenses, (true and correct copies of
which have been provided to Parent or its counsel), 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.
2.17.13 Restrictions on Intellectual Property
To the knowledge of the Company, none of the Company's officers or
employees has entered into any agreement regarding know-how, trade secrets,
assignment of rights in inventions, or prohibition or restriction of competition
or solicitation of customers, or any other similar restrictive agreement or
covenant, whether written or oral, with any Person other than the Company.
2.18 Accounts Receivable
All accounts receivable of the Company reflected in the Company 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 Company Balance Sheet are adequate. Except as set forth in
Section 2.18 of the Schedule of Exceptions, all Accounts existing and remaining
unpaid at the time of Closing are expected to be collectible by the Surviving
Corporation or Parent in the ordinary course of business consistent with past
practice in 90 days or less.
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2.19 Inventory
All items in the inventory reflected in the Company Balance Sheet or as
currently owned by the Company for use in the operation of the business (a) have
been valued in accordance with GAAP and (b) are of a quality and quantity usable
and salable in the ordinary course of business. All items of inventory of
finished products meet the Company's current specifications and consist of items
of a quality and quantity that are salable in the ordinary course of the
business as currently conducted by the Company, and all inventories of raw
materials, intermediates, work in process, supplies, parts and packaging and
labeling materials consist of items of a quality and quantity that are usable in
the ordinary course of the business as heretofore and currently conducted by the
Company and appropriate for their intended use, including, where applicable,
processing into inventories of finished products.
2.20 Corporate Books and Records
The Company has furnished to Parent or its representatives for their
examination copies that are true and complete in all material respects of (a)
the Articles of Incorporation and Bylaws of the Company as currently in effect,
including all amendments thereto, (b) the minute books of the Company, and (c)
the stock issuance and transfer books of the Company and (d) the stock option
and warrant records. Such minutes reflect all meetings of and actions by the
Company's shareholders, Board of Directors and any committees thereof since the
Company's inception, 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, and the stock option and warrant records accurately reflect all
grants of options and warrants, since the Company's inception.
2.21 Permits
The Company has received all required governmental approvals,
authorizations, consents, licenses, orders, registrations and permits of all
agencies, whether federal, state, local or foreign (the "Permits"), the failure
to obtain of which has had or could reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect. Section 2.21 of the
Schedule of Exceptions contains a list of all Permits with expiration dates, if
any. The Company is in compliance with the material terms of all Permits, and
all Permits are valid and in full force and effect, and no proceeding is pending
or, to the knowledge of the Company, threatened, the object of which is to
revoke, limit or otherwise affect any Permit, all except as has not had or could
not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. The Company has not received any notifications of any
asserted failure to obtain any Permit or any past and unremedied failure to
obtain any Permit.
2.22 Compliance With Laws
The Company is and has at all times been in compliance with all federal,
state, local and foreign laws, rules, regulations, ordinances, decrees, orders
and similar mandates applicable to
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the Company and its business, assets and employees, except as has not had and
could not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect, including, without limitation, all such laws,
rules, ordinances, decrees, orders or mandates relating to antitrust, consumer
protection and privacy, intellectual property, unfair trade, false advertising,
currency exchange, environmental protection, equal opportunity, health,
occupational safety, pension, securities and trading-with-the-enemy matters. The
Company has not received any notification of any asserted present or past
unremedied failure by the Company to comply with any of such laws, rules,
ordinances, decrees, orders or mandates.
2.23 Insurance
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 due as of the date this representation is made have been paid, and no
written notice or to the knowledge of the Company any other notice of
cancellation or termination has been received with respect to any such policy or
binder. Such policies or binders are sufficient for compliance with all
requirements of law currently applicable to the Company and of all agreements to
which the Company is a party (except as has not had and could not reasonably be
expected to have a Company Material Adverse Effect), will remain in full force
and effect through the respective expiration dates of such policies or binders
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 any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance limited its coverage.
2.24 Brokers or Finders
Except as disclosed in Section 2.24 of the Schedule of Exemptions, 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.
2.25 Absence of Questionable Payments
Neither the Company nor to the knowledge of the Company, 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
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the Company nor any current director or officer, nor to the Company's knowledge,
any 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 written notice, or to the knowledge of the Company
any other notice, that any transaction was improper or unlawful within the
meaning of this Section 2.25.
2.26 Bank Accounts
Section 2.26 of the Schedule of Exceptions sets forth the names and
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which the Company maintains safe deposit boxes or
accounts of any nature and the names of all Persons authorized to draw thereon,
make withdrawals therefrom or have access thereto.
2.27 Insider Interests
Except as set forth in Section 2.27 of the Schedule of Exceptions, no
shareholder, officer or director of the Company has any direct 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.
Except as set forth in Section 2.27 of the Schedule of Exceptions, there are no
agreements, understandings or proposed transactions between the Company and any
of its officers and directors, shareholders, affiliates or to the Company's
knowledge any affiliate thereof. The Company and its officers and directors and
to the Company's knowledge, its employees, contractors, consultants or other
representatives have no direct interest 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 material 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.
2.28 Compliance With Environmental Laws
Neither the Company nor, to the Company's knowledge, any other Person
(including, without limitation, any previous owner, lessee or sublessee) has
treated, stored or disposed of any material amounts of petroleum products,
hazardous waste, hazardous substances,
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pollutants or contaminants on the Real Property, or any real property previously
owned, leased, subleased or used by the Company in the operation of its
business, in violation of any applicable foreign, federal, state or local
statutes, regulations or ordinances, or common law, in each case as in existence
at or prior to the Closing. To the Company's knowledge, there have been no
releases of any material amounts of petroleum, petroleum products, hazardous
waste, hazardous substances, pollutants or contaminants on, at or from any
assets or properties, including, without limitation, the Real Property, owned,
leased, subleased or used by the Company in the operation of its business during
the time such assets or properties were owned, leased, subleased or used by the
Company (or, to the Company's knowledge, prior to such time), including, without
limitation, any releases of any material amounts of petroleum, petroleum
products, hazardous waste, hazardous substances, pollutants or contaminants in
violation of any law.
2.29 Information Supplied by the Company
The information supplied or to be supplied by the Company to its
shareholders in connection with any written consent by or meeting of such
shareholders, at the date on which such information was supplied prior to the
time the Company's shareholders were requested to approve the Merger, taken as a
whole did not and will not contain any untrue statement of a material fact or
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 Parent or Merger Sub.
2.30 Full Disclosure
The information furnished by the Company to Parent or its representatives
in connection with this Agreement (including, but not limited to, the Financial
Statements and all information in the Schedule of Exceptions and the other
Exhibits hereto) or the other Operative Documents, taken as a whole, does not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements so made or information so delivered
not misleading.
2.31 Operating Data
The Company has delivered to Parent or its counsel certain of its
operating data and certain performance data for its web site, including without
limitation: number of hits, conversion rates (if applicable), performance
information (including average download times per page, system resource usage
per page), error rates and uptime and availability downloads, users, page views
and click-through rates, all as set forth in Section 2.31 of the Schedule of
Exceptions. Such data, taken as a whole, accurately and fairly present the
operations of and other data related to the Company, taken as a whole, and the
performance of its web site and does not contain any material misstatements or
omissions of material facts.
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2.32 Pooling Matters
To its knowledge, the Company has not taken, directly or indirectly, and
the Company has no knowledge that any other Person has taken, any actions
involving any recapitalization or repurchase or redemption of any securities of
the Company, or any grant or acceleration of any options to acquire securities
of the Company, or any purchase or sale of securities of Parent, and to the
Company's knowledge there have occurred no other events with respect to or
involving the Company or its shareholders which, taken individually or together,
would affect the ability of Parent to account for the Merger as a "pooling of
interests" transaction in accordance with GAAP, and the Company is not aware of
any facts which otherwise could prevent such accounting treatment. Section 2.32
of the Schedule of Exceptions contains a complete list of those persons who may
be deemed to be, in the Company's reasonable judgment, affiliates of the Company
within the meaning of Rule 145 promulgated under the Securities Act of the 1933,
as amended (the "Securities Act").
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
In order to induce the Company to enter into and perform this Agreement and
the other Operative Documents, Parent and Merger Sub jointly and severally
represent and warrant to the Company as of the date of this Agreement and as of
the Closing as follows in this Article III:
3.1 Organization
Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington. Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. Each of Parent and Merger Sub has all requisite corporate
power and authority to own, operate and lease its respective properties and
assets, to carry on its respective business as now conducted and as proposed to
be conducted, to enter into and perform its obligations under this Agreement and
the other applicable Operative Documents to which Parent or Merger Sub is a
party, and to consummate the transactions contemplated hereby and thereby. Each
of Parent and Merger Sub is duly qualified and licensed as a foreign corporation
to do business and is in good standing in each jurisdiction in which the
character of properties occupied, owned or held under lease by Parent or Merger
Sub, as applicable, or the nature of the business conducted by Parent or Merger
Sub, as applicable, makes such qualification or licensing necessary, except
where the failure to be so qualified or in good standing has not had and could
not reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the business, operations, assets, liabilities (absolute,
accrued, contingent or otherwise), condition (financial or other) or prospects
of Parent and its subsidiaries taken as a whole (a "Parent Material Adverse
Effect"); provided, however, that Parent Material Adverse Effect shall not
include any change in general economic conditions, the trading price of Parent
Common Stock or changes that affect the Company's industry generally. Each of
Parent and Merger Sub has full corporate power and authority to execute, deliver
and perform this Agreement and the other Operative Documents
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to which it is a party, and to carry out the transactions contemplated hereby
and thereby. Parent holds all the issued and outstanding shares of capital stock
of Merger Sub of record and beneficially.
3.2 Enforceability
Parent and Merger Sub each have full corporate power and authority to
execute, deliver and perform their obligations under this Agreement and each of
the other Operative Documents to which they are a party and each of the
certificates, instruments and documents executed or delivered by them pursuant
to the terms of this Agreement. All corporate action on the part of Parent and
Merger Sub and their respective officers, directors and shareholders necessary
for the authorization, execution, delivery and performance of this Agreement and
the other applicable Operative Documents to which Parent or Merger Sub is a
party, the consummation of the Merger and the performance of all their
respective obligations under this Agreement and the other applicable Operative
Documents to which Parent or Merger Sub is a party has been taken or will be
taken prior to the Effective Time. All such corporate action by the Board of
Directors of Parent has been taken. This Agreement has been, and each of the
other Operative Documents to which Parent or Merger Sub is a party will have
been at the Closing, duly executed and delivered by Parent or Merger Sub, as the
case may be, and this Agreement is, and each of the other Operative Documents to
which Parent or Merger Sub is a party will be at the Closing, a legal, valid and
binding obligation of Parent or Merger Sub, as the case may be, enforceable
against Parent or Merger Sub, as the case may be, in accordance with its terms.
3.3 Securities
The Parent Common Stock to be issued pursuant to this Agreement has been,
or will be prior to the Effective Time, duly authorized for issuance, and such
Parent Common Stock, when issued and delivered to the Company's shareholders
pursuant to this Agreement, shall be validly issued, fully paid and
nonassessable and free and clear of all Encumbrances arising by or through
Parent except as contemplated by this Agreement with respect to the Holdback
Shares.
3.4 No Approvals or Notices Required; No Conflicts With Instruments
The execution, delivery and performance of this Agreement and the other
Operative Documents by Merger Sub and Parent, as applicable, and the
consummation by them of the transactions contemplated hereby and thereby will
not (a) constitute a violation (with or without the giving of notice or lapse of
time, or both) of any statute, regulation, rule or other provision of law or any
judgment, decree, order or other requirement of any court or other governmental
authority applicable to Parent or Merger Sub; (b) require any consent, approval
or authorization of any Person, except (i) compliance with applicable securities
laws and (ii) the filing of all documents necessary to consummate the Merger
with the California Secretary of State; (c) constitute a breach of or conflict
with or result in a default (with or without the giving of notice or lapse of
time, or both) under, or acceleration or termination of,
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or the creation in any party of the right to accelerate, terminate, modify or
cancel, any agreement, lease, note or other restriction, encumbrance, obligation
or liability to which Parent or Merger Sub is a party or by which it is bound or
to which any assets of Parent or Merger Sub are subject; (d) conflict with or
result in a breach of or constitute a default under any provision of the
Articles of Incorporation or Bylaws of Parent or Merger Sub.
3.5 Capitalization
The authorized capital stock of Parent consists of 50,000,000 shares of
Parent Common Stock, of which 14,318,999 shares were issued and outstanding as
of November 10, 1999, and 15,000,000 shares of preferred stock, none of which
are issued or outstanding. As of September 30, 1999, other than (i) options to
purchase up to 3,498,556 shares of Parent Common Stock that have been granted
under Parent's stock option plans, (ii) warrants to purchase up to 11,666
shares of Parent Common Stock, and (iii) rights granted to employees of Parent
or its subsidiaries under Parent's Employee Stock Purchase Plan, there are no
outstanding rights of first refusal or offer, preemptive rights, options,
warrants, conversion rights or other agreements, either directly or indirectly,
for the purchase or acquisition from the Parent of any shares of Parent Common
Stock or any securities convertible into or exchangeable for shares of Parent
Common Stock.
3.6 Full Disclosure
The information furnished by Parent or Merger Sub in connection with this
Agreement or the other Operative Documents, including information furnished for
inclusion in the Company's Consent Solicitation together with the documents
previously filed by Parent with the Securities and Exchange Commission ("SEC"),
taken as a whole, as of the date of the respective document did not, and as of
the date hereof do not, contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements so made, in
light of the circumstances in which they were made, not misleading. Parent's
Registration Statement on Form S-1, as declared effective by the (the SEC), and
Parent's Quarterly Reports on Form 10-Q for the quarters ended June 30, 1999 and
September 30, 1999, and all other reports or registration statements filed by it
under the Securities Act, or under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in the form
filed with the SEC (collectively, the "Parent SEC Reports"), as of the date
filed, (a) complied in all material respects as to form with the applicable
requirements under the Securities Act or the Exchange Act and the Rules and
Regulations thereunder, as the case may be, and (b) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Parent included in such reports comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except as may be indicated in the notes to such financial
statements and, in the case of unaudited statements, as permitted by Form 10-Q
of the SEC, and except that unaudited financial statements may not
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contain footnotes and are subject to year-end audit adjustments) and fairly
present the financial position of Parent as and at the date thereof and the
results of its operations and cash flows for the periods then ended. Since
September 30, 1999, neither Parent nor any of its subsidiaries has incurred any
liabilities or obligations of any nature (whether absolute, accrued, fixed,
contingent, liquidated or unliquidated, known or unknown) except liabilities,
obligations and contingencies (a) which are reflected in the consolidated
balance sheet of Parent at September 30, 1999, or (b) which (i) were incurred in
the ordinary course of business since September 30, 1999 and consistent with
past practices, (ii) are disclosed in the Parent SEC Reports filed since
September 30, 1999, (copies of which have been provided or will be provided to
the Company within one business day of the date such report is filed) or (iii)
would not individually or in the aggregate have a Material Adverse Effect on
Parent. Since September 30, 1999, except as described in any Parent SEC Reports,
(copies of which have been provided or will be provided to the Company within
one business day of the date such report is filed), there has been no change in
any of the significant accounting policies, practices or procedures of Parent
except changes resulting from changes in accounting pronouncements of the
Financial Accounting Standards Board or changes in applicable laws. Parent has
timely filed all SEC Reports required to be filed by Parent.
3.7 Brokers or Finders
Parent and Merger Sub have not incurred, and will not incur, directly or
indirectly, as a result of any action taken by or on behalf of Parent or Merger
Sub, any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with the Merger, this Agreement or any transaction
contemplated hereby that would result in a claim against the Company or its
shareholders.
3.8 Claims and Legal Proceedings
There is no claim, action, suit, arbitration, criminal or civil
investigation or proceeding pending or, to Parent's or Merger Sub's knowledge,
threatened against or involving Parent or Merger Sub before or by any court or
governmental or nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person, that questions the validity of this
Agreement or any action taken or to be taken by Parent pursuant to this
Agreement or in connection with the transactions contemplated hereby.
3.9 Compliance with Laws
Parent has complied with, is not in violation of, and has not received any
written notices of violation with respect to, any foreign, federal, state or
local statute, law or regulation, except where the failure to comply will not
have a Parent Material Adverse Effect.
3.10 No Material Adverse Event
Since September 30, 1999, no event has occurred and no state of facts has
developed or is continuing that has had or could reasonably be expected to have,
individually or in the
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aggregate, a Parent Material Adverse Effect, except for such events or facts
that have been disclosed in filings made with the SEC.
ARTICLE IV - CONDITIONS PRECEDENT TO OBLIGATIONS OF
PARENT AND THE PURCHASER
The obligations of Parent and Merger Sub to perform and observe the
covenants, agreements and conditions hereof to be performed and observed by them
at or before the Closing shall be subject to the satisfaction of the following
conditions, which may be expressly waived only in writing signed by Parent:
4.1 Accuracy of Representations and Warranties
The representations and warranties of the Company contained herein
(including the Schedule of Exceptions and other Exhibits) and in the other
Operative Documents shall have been true and correct when made and, except to
the extent that such representations and warranties speak as of an earlier date,
shall be true and correct in all material respects as of the Closing Date, as
though made on that date.
4.2 Performance of Agreements
The Company shall have performed in all material respects all obligations
and agreements and complied in all material respects with all covenants
contained in this Agreement or any other Operative Document to be performed and
complied with by it at or prior to the Closing.
4.3 Opinion of Company Counsel
Parent shall have received the opinion letter of Morrison & Foerster LLP,
counsel for the Company, dated the Closing Date, substantially in the form of
Exhibit 4.3.
4.4 Compliance Certificate
Parent shall have received a certificate of the President of the Company,
dated the Closing Date, in form and substance reasonably satisfactory to Parent,
certifying that the conditions to the obligations of Parent and Merger Sub in
Sections 4.1, 4.2, 4.5, 4.6, 4.13, 4.14, 4.18 and 4.19 have been fulfilled.
4.5 Material Adverse Change
Since the date of this Agreement and through the Closing, no event shall
have occurred and no state of facts shall have developed or be continuing that
has had or could reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
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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
by the Company, or for the continued operation of the Company, shall have been
obtained, and all waiting periods specified by law shall have passed. All other
consents, approvals and notices referred to in this Agreement or in the Schedule
of Exceptions and required to be obtained by the Company, including without
limitation any consents required under any of the Material Contracts in
connection with the Merger, shall have been obtained or delivered and shall be
satisfactory to Parent.
4.7 Proceedings and Documents; Secretary's Certificate
Parent shall have received a certificate of the Secretary of the Company,
in form and substance reasonably satisfactory to Parent, as to the authenticity
and effectiveness of the actions of the Board of Directors and shareholders of
the Company authorizing the Merger and the transactions contemplated by this
Agreement and the other Operative Documents. Copies of the Company's Articles
of Incorporation, certified by the California Secretary of State, and Bylaws,
certified by the Secretary of the Company, shall be attached to such
certificate.
4.8 Nonforeign Affidavit
Parent shall have received from the Company, pursuant to Section 1445 of
the Code, a Foreign Investment in Real Property Tax Act Affidavit substantially
in the form of Exhibit 4.8.
4.9 Compliance With Laws
All laws and regulations to which Parent or the Company is subject shall
legally permit the consummation of the transactions contemplated by this
Agreement and the other Operative Documents.
4.10 Legal Proceedings
No order of any court or administrative agency shall be in effect that
enjoins, restrains, materially conditions or prohibits consummation of this
Agreement or any other Operative Document, and no litigation, investigation or
administrative proceeding shall be pending that would enjoin, restrain,
materially condition or prevent consummation of this Agreement or any other
Operative Document.
[4.11 Intentionally deleted]
4.12 Affiliate Letters
Parent shall have received Affiliate Letters 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
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meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act, as amended, and who have not previously signed Affiliate and
Voting Agreements as contemplated by Section 6.10, and the Affiliate and Voting
Agreements contemplated by Section 6.10and executed as of the date of this
Agreement by the shareholders of the Company who are affiliates shall be in full
force and effect.
4.13 Termination of Certain Agreements
Any and all rights of refusal, co-sale rights and registration rights for
the benefit of the holders of Company Common Stock, Company Preferred Stock,
Company Options, Company Warrants or other stock purchase rights, all as set
forth in Exhibit 4.13, shall have terminated automatically in accordance with
their terms or shall have been terminated effective at or prior to Closing.
4.14 Employee Agreements
The employees of the Company listed on Exhibit 4.14(a) shall have entered
into noncompetition agreement with Parent in substantially the form of Exhibit
4.14(b).
4.15 Shareholder Representation Letters
Shareholders of the Company owning 90% or more of the Company's capital
stock shall have executed a Shareholder Representation Letter in substantially
the form attached hereto as Exhibit 4.15, addressing, among other issues, (i)
securities law representations, (ii) share ownership, (iii) appointment of the
Shareholder Representative (as defined in Section 8.6 below), (iv) waiver of
rights relating to Company Common Stock and/or Company Preferred Stock, (v)
waiver of dissenters' rights, (vi) agreement to be bound by the indemnification,
pledge and holdback provisions of Section 1.7.1 and Article VIII of this
Agreement, and a Shareholder Representative shall have been appointed and notice
of such appointment provided to Parent as provided in the Shareholder
Representation Letters.
4.16 Pooling of Interests
Parent shall have received from its independent auditors an opinion in
form and substance reasonably satisfactory to Parent that the Merger will
qualify for "pooling of interests" treatment under applicable accounting
standards.
4.17 Securities Law Exemption
The issuance of the Parent Common Stock in the Merger shall be exempt from
the registration and qualification requirements of federal and applicable state
securities laws.
4.18 Shareholder Approval; Dissenters' Rights
Holders of at least 93% of the outstanding voting securities of the
Company shall have voted their shares in favor of the Merger, thereby waiving
their dissenters' rights.
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4.19 Company Shareholder Approval
The shareholders of the Company shall have approved the Merger in
accordance with California Law.
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS OF
THE COMPANY
The obligations of the Company to perform and observe the covenants,
agreements and conditions hereof to be performed and observed by it at or before
the Closing shall be subject to the satisfaction of the following conditions,
which may be expressly waived only in writing signed by the Company.
5.1 Accuracy of Representations and Warranties
The representations and warranties of Parent and Merger Sub contained
herein and in the other Operative Documents shall have been true and correct
when made and, except to the extent that such representations and warranties
speak as of an earlier date, shall be true and correct in all material respects
as of the Closing Date, as though made on that date.
5.2 Performance of Agreements
Parent and Merger Sub shall have performed in all material respects all
obligations and agreements and complied in all material respects with all
covenants contained in this Agreement or any other Operative Document to be
performed and complied with by them at or prior to the Closing.
5.3 Opinion of Parent Counsel
The Company shall have received the opinion letter of Perkins Coie LLP,
counsel for Parent, dated the Closing Date, substantially in the form of Exhibit
5.3.
5.4 Compliance Certificate
The Company shall have received a certificate of an officer of Parent,
dated the Closing Date, substantially in form and substance reasonably
satisfactory to the Company, certifying that the conditions to the obligations
of the Company in Sections 5.1, 5.2, 5.6 and 5.7 have been fulfilled.
5.5 Legal Proceedings
No order of any court or administrative agency shall be in effect that
enjoins, restrains, materially conditions or prohibits consummation of this
Agreement or any other Operative Document, and no litigation, investigation or
administrative proceeding shall be pending which would enjoin, restrain,
materially condition or prevent consummation of this Agreement or any other
Operative Document.
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5.6 Proceedings and Documents; Secretary's Certificate
The Company shall have received a certificate of the Secretary of Parent,
in form and substance reasonably satisfactory to the Company, as to the
authenticity and effectiveness of the actions of the Board of Directors of
Parent authorizing the Merger and the transactions contemplated by this
Agreement and the other Operative Documents,
5.7 Material Adverse Change
Since the date of this Agreement and through the Closing, no event shall
have occurred and no state of facts shall have developed or be continuing that
has had or could reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect, except for such changes occurring
as a direct result of the execution or announcement of this Agreement. Changes
in the trading prices of Parent Common Stock shall not be deemed to have a
Parent Material Adverse Effect under this Agreement.
5.8 Approvals and Consents
All transfers of permits or licenses and all approvals of or notices to
public agencies, federal, state, local or foreign, the granting or delivery of
which is necessary for the consummation of the transactions contemplated hereby
by shall have been obtained, and all waiting periods specified by law shall have
passed. All other consents, approvals and notices referred to in this Agreement
shall have been obtained or delivered.
5.9 Compliance With Laws
All laws and regulations to which Parent or the Company is subject shall
legally permit the consummation of transactions contemplated by this Agreement
and under the other Operative Documents.
5.10 Amendment of Registration Rights Agreement
Holders of at least a majority of the Registrable Securities under
Parent's Registration Rights Agreement shall have consented to the granting of
registration rights to the Company's shareholders with respect to the shares of
Parent Common Stock constituting the Net Merger Consideration as contemplated in
Section 6.9 below.
ARTICLE VI - COVENANTS
The parties covenant and agree as follows in this Article VI.
6.1 Conduct of Business by the Company Pending the Merger
Unless Parent shall otherwise agree in writing, the business of the Company
shall be conducted in and only in, and the Company shall not take any action
except in, the ordinary course of business and in a manner consistent with past
practice and in accordance with
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applicable law. 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 Parent,
which consent shall not be unreasonably withheld or delayed:
(a) amend or otherwise change its Articles of Incorporation or Bylaws;
(b) except for the issuance of shares of Company Common Stock or
Company Preferred Stock upon the exercise or conversion of currently outstanding
options, warrants or convertible notes, 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 $25,000 or capital expenditures which
are, in the aggregate, in excess of $100,000 for the Company taken as a whole;
(v) enter into any agreement in which the obligation of the Company exceeds
$25,000 or which shall not terminate or be subject to termination for
convenience within 30 days following execution; (vi) license any Technology or
IP Rights, except nonexclusive licenses to end users of the Company's products
granted in the ordinary course of the Company's business, consistent with past
practice; or (vii) enter into or amend any contract, agreement, commitment or
arrangement with respect to any matter set forth in this subsection (e);
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(f) enter into or amend any employment, consulting or agency
agreement, or increase the compensation payable or to become payable to its
officers, employees, agents or consultants, or grant any severance or
termination pay to, or enter into any employment or severance agreement with,
any director, officer or other employee of the Company, or establish, adopt,
enter into or amend any Employee Benefit Plan, collective bargaining, bonus,
profit-sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance, benefit
or other plan, agreement, trust, fund, policy or arrangement for the benefit of
any director, officer or employee;
(g) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect to
accounting methods, policies or procedures (including, without limitation,
procedures with respect to the payment of accounts payable and collection of
accounts receivable);
(h) take any action that would prevent Parent from being able to
account for the Merger as a pooling of interests whether or not permitted by the
provisions of this Article VI;
(i) make any material Tax election or settle or compromise any Tax
liability;
(j) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice;
(k) take any action that would or is reasonably likely to result in
any of the representations or warranties of the Company set forth in this
Agreement being untrue in any material respect, or in any covenant of the
Company set forth in this Agreement being breached, or in any of the conditions
to the Merger specified in Article IV not being satisfied;
(l) take any action of the type covered in Section 2.7 above; or
(m) agree to do any of the foregoing.
6.2 Access to Information; Confidentiality
From the date hereof to the Effective Time, the Company shall, and shall
cause the officers, directors, employees and agents of the Company to, afford
the officers, employees and agents of Parent access at all reasonable times and
upon reasonable prior notice to the Company to the officers, employees, agents,
properties, offices, plants and other facilities, books and records of the
Company and shall furnish Parent with all financial, operating and other data
and information as Parent, through its officers, employees or agents, may
reasonably request. From the date hereof until the Effective Time, the Company
shall provide Parent with monthly and other financial statements of the Company
as they become available internally at the Company, all of which financial
statements shall fairly present the financial position and
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results of operations of the Company as of the dates and for the periods therein
specified. No investigation or due diligence efforts of any party hereto (or
such party's representatives) pursuant to this Section 6.2 or otherwise in
connection with the transactions contemplated by this Agreement shall affect, or
limit in any way such party's ability to rely on, any representation or warranty
of the other parties in this Agreement or any condition to the obligations of
the parties hereto. The parties shall continue to comply with and to perform
their respective obligations under the Mutual Nondisclosure Agreement between
Parent and the Company entered into as of November 2, 1999.
6.3 No Alternative Transactions
The Company shall immediately cease and cause to be terminated any existing
discussions or negotiations with any parties (other than Parent) conducted
heretofore with respect to any Alternative Transaction (as defined below).
Unless this Agreement shall have been terminated in accordance with its terms,
the Company shall not, except to the extent required in the opinion of counsel
in the exercise of fiduciary duties of the Board of Directors of the Company,
directly or indirectly, through any officer, director, agent or otherwise,
solicit, initiate or encourage the submission of any proposal or offer from any
Person relating to any Alternative Transaction, or participate in any
negotiations regarding any Alternative Transaction, or furnish to any other
Person any information with respect to, or otherwise cooperate or negotiate in
any way with, or assist or participate in, facilitate or encourage, any effort
or attempt by any other Person with regard to any Alternative Transaction;
provided, however, that an acknowledgement only of an unsolicited inquiry by the
Company to an inquiring party advising such party of the Company's obligations
hereunder shall not be deemed to be a violation of this Section 6.3. The
Company shall notify Parent promptly if any such proposal or offer, or any
inquiry or contact with any Person with respect thereto, is made and shall, in
any such notice to Parent, indicate in reasonable detail the identity of the
Person making such proposal, offer, inquiry or contact and the terms and
conditions of such proposal, offer, inquiry or contact. The Company agrees not
to release any third party from, or waive any provision of, any confidentiality
or standstill (e.g., agreement not to invest in or seek change of control of the
Company) agreement to which the Company is a party. The term "Alternative
Transaction" shall mean either (a) a transaction pursuant to which any Person
other than Parent or an affiliate of Parent (a "Third Party") acquires or would
acquire more than 25% of the capital stock of the Company either from the
Company or its shareholders, (b) a merger or other business combination
involving the Company pursuant to which any Third Party acquires or would
acquire more than 25% of the equity ownership of the Company or the entity
surviving such merger or other business combination, or (c) any other
transaction pursuant to which any Third Party acquires control of all or a
substantial amount of the assets or business of the Company.
6.4 Notification of Certain Matters
Each party shall give prompt written notice to the other parties if (a)
such party obtains knowledge that any representation or warranty by such party
in this Agreement was inaccurate
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when made or will be inaccurate as of the Closing; (b) there occurs or fails to
occur any event or state of facts that would be reasonably likely to cause any
representation or warranty made by such party contained in this Agreement to be
untrue or inaccurate as of the Closing Date; (c) such party fails to comply
with, perform or satisfy any covenant, condition or agreement to be complied
with, performed or satisfied by such party hereunder; or (d) there occurs or
fails to occur any event or state of facts that would render any condition to
the obligations of the other party to this Agreement reasonably incapable of
being satisfied on or prior to the reasonably anticipated Closing Date or, if
none, January 31, 2000; provided, however, that the delivery of any notice
pursuant to this Section 6.4 shall not limit or otherwise negatively affect the
remedies available to the parties hereunder.
6.5 Further Action
Upon the terms and subject to the conditions hereof, each of the parties
hereto shall use its best efforts to take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated hereby, including, without limitation, using
commercially reasonable efforts to obtain all waivers, licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company as are necessary for the
consummation of the transactions contemplated hereby and to fulfill the
conditions to the Merger. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or the other Operative Documents, each party to this Agreement shall
use commercially reasonable efforts to promptly take all such action. After the
Closing, each party hereto, at the request of and without any further cost or
expense to the other parties, will take any further actions reasonably necessary
or desirable to carry out the purposes of this Agreement or any other Operative
Document, to vest in the Surviving Corporation full title to all properties,
assets and rights of the Company and to effect the issuance of the Parent Common
Stock to the shareholders of the Company pursuant to the terms and conditions
hereof.
6.6 Nasdaq Listing
Parent agrees to authorize for listing on the Nasdaq National Market the
shares of Parent Common Stock constituting the Merger Consideration, and the
shares of Parent Common Stock required to be reserved for issuance upon exercise
of Options and Warrants assumed in connection with the Merger, by filing with
the Nasdaq National Market a Notification of Listing of Additional Shares (or
such other form as may be required by the Nasdaq National Market) as soon as
reasonably practicable after the Closing or otherwise in accordance with the
rules and regulations of the Nasdaq National Market.
6.7 Publicity
No party hereto shall issue any press release or otherwise make any public
statements to any third party with respect to this Agreement or the transactions
contemplated hereby other
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than the issuance by Parent of a press release announcing this Agreement and the
transactions contemplated hereby or as required by law. Prior to such issuance,
Parent will provide a draft of the press release to the Company, consult with
the Company regarding the content of the press release and obtain the Company's
reasonable approval to such press release.
6.8 Form S-8
Parent agrees to file a registration statement on Form S-8 for the shares
of Parent Common Stock issuable with respect to the Company Options as soon as
is reasonably practicable after the Effective Time and shall maintain the
effectiveness of such registration statement thereafter for so long as any the
Company Options remain outstanding.
6.9 Registration Rights
From and after the Closing, the shareholders of the Company as of the
Closing will be granted the piggyback registration rights under Section 3 of
Parent's Registration Rights Agreement, as amended, and the Form S-3
registration rights under Section 15 of such agreement, and shall be deemed as
of Closing to be parties to such Registration Rights Agreement as necessary for
them to enforce such rights and with respect to the obligations, limitations and
restrictions imposed on the holders of registration rights thereunder. In
furtherance and not in limitation of the foregoing, Parent shall file and shall
use commercially reasonable efforts to cause a registration statement covering
the sale or other proposed disposition of the shares of Parent Common Stock
issued in the Merger (including Holdback Shares still in Escrow) to be declared
effective on or promptly after July 1, 2000 pursuant to the terms of such
Registration Rights Agreement, as amended, but without regard to any minimum
requirement as to the value or number of securities to be so registered. In
addition, should Parent grant, in any acquisition of an operating business
during the period ending on the date the registration statement referenced in
the previous sentence becomes effective, registration rights to the recipients
of securities of Parent in such acquisition, which registration rights are more
favorable to such recipients than the registration rights granted to the
shareholders of the Company ("Future Acquisition Registration Rights"), then the
shareholders of the Company shall be entitled to registration rights that are
substantially equivalent to the Future Acquisition Registration Rights.
6.10 Company Shareholders Meeting; Affiliate and Voting Agreements
The Company will take all action necessary in accordance with applicable
law and its Articles of Incorporation and Bylaws to provide notice of solicit
the consent or convene a meeting of its shareholders (the "Company Shareholders
Meeting") within the shortest time permitted by law after the date hereof to
consider and vote upon the Merger. The Board of Directors of the Company, in
connection with its approval of this Agreement, has resolved to recommend and
declare advisable such approval, and the Company shall as promptly as possible
take all lawful action to solicit, and use all reasonable efforts to obtain,
such approval. Pursuant to the terms of the Affiliate and Voting Agreements in
the form attached hereto as Exhibit 6.10 (the "Affiliate and Voting Agreement")
and dated the date of this Agreement,
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Affiliates who are shareholders of the Company each have agreed to vote all
shares of Company Common Stock owned by them or over which they have voting
control, or to execute or cause to be executed consents, to grant their approval
of the Merger and this Agreement.
6.11 Proxy and Information Statement
The Company and Parent will, as promptly as practicable, prepare and
distribute to the Company's shareholders a Consent Solicitation Statement that
will constitute a consent in connection with the vote of the Company's
shareholders with respect to the Merger and an information statement for
purposes of providing disclosure to such shareholders concerning Parent and its
securities (the "Consent Solicitation"). The Company and Parent will use all
reasonable efforts to cause the Consent Solicitation to be distributed to the
shareholders of the Company at the earliest practicable date. If at any time
prior to the Effective Time any event relating to or affecting the Company or
Parent shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for Parent, to supplement or amend the
Consent Solicitation in order to make such document not misleading in light of
the circumstances existing at the time approval of the shareholders of the
Company is sought, the Company and Parent will forthwith prepare and distribute
an amendment or supplement so that such document, as so supplemented or amended,
will not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
6.12 Exculpation for Director Liability
Merger Sub shall, and Merger Sub shall cause the Surviving Corporation to,
keep in effect provisions of the Articles of Incorporation and Bylaws of the
Company providing for exculpation of director liability and indemnification of
directors, officers and agents of the Company to the fullest extent permitted
under California Law, which provisions shall not be amended except as required
by applicable law. Merger Sub shall, and Merger Sub shall cause the Surviving
Corporation to, keep in effect and cause compliance with the terms and
conditions of the indemnification agreements, if any between the Company and
each of its directors and officers in effect as of the date of this Agreement.
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER
7.1 Termination
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time (notwithstanding any approval of this Agreement
by the shareholders of the Company):
(a) by mutual written consent of the Company and Parent;
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(b) by either the Company or Parent, if the Merger has not been
consummated by January 31, 2000; provided, however, that the right to terminate
this Agreement under this subsection (b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the cause
of, or resulted in, the failure of the Effective Time to occur on or before such
date;
(c) by either the Company or Parent, if there shall be any law or
regulation that makes consummation of the Merger illegal or if any judgment,
injunction, order or decree enjoining Parent, Merger Sub or the Company from
consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable; provided, however, that the party
seeking to terminate this Agreement pursuant to this subsection (c) shall have
used all reasonable efforts to remove such judgment, injunction, order or
decree;
(d) by the Company, in the event of a material breach by Parent of any
representation or warranty, which breach constitutes a Parent Material Adverse
Effect, or any agreement contained herein that has not been cured or is not
curable within 15 days after notice of such material breach or if any condition
to the obligations of the Company pursuant to Article V becomes incapable of
being satisfied on or before January 31, 2000; or
(e) by Parent, in the event of a material breach by the Company of any
representation or warranty, which breach constitutes a Company Material Adverse
Effect, or any agreement contained herein that has not been cured or is not
curable within 15 days after notice of such material breach or if any condition
of the obligations of Parent pursuant to Article IV becomes incapable of being
satisfied on or before January 31, 2000.
7.2 Effect of Termination
In the event of the termination of this Agreement pursuant to Section 7.1
hereof, there shall be no further obligation on the part of any party hereto,
except that nothing herein shall relieve any party from liability for any
willful breach hereof.
7.3 Amendment
This Agreement may be amended only in writing signed by each of the parties
hereto and after approval of this Agreement by the Shareholders, by the
Shareholder Representative.
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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7.5 Company Termination Fee
The Company shall pay to Parent a cash fee (the "Company Fee") in the event
that (a) this Agreement is terminated by Parent pursuant to Section 7.1(e) above
and (b) the Company enters into an agreement relating to, or consummates, an
Alternative Transaction (as defined in Section 6.3 above) either prior to the
date such termination occurs or within one year thereafter. The Company Fee
shall be an amount equal to five percent (5%) of the product of the Total Merger
Consideration times the higher of (i) the Closing Average on the date of this
Agreement or (ii) the Closing Average on the date that this Agreement is
terminated. The Company Fee shall be payable no later than the earliest of (x)
five days after Parent notifies the Company of termination of this Agreement and
(y) the date on which the Company enters into a definitive agreement relating to
an Alternative Transaction.
7.6 Parent Termination Fee
Parent shall pay to the Company a cash fee (the "Parent Fee") in the event
that this Agreement is terminated by the Company pursuant to Section 7.1(d).
The Parent Fee shall be an amount equal to five percent (5%) of the product of
the Total Merger Consideration times the higher of (i) the Closing Average on
the date of this Agreement or (ii) the Closing Average on the date that this
Agreement is terminated by Parent. The Parent Fee shall be payable no later
than five days after the Company notifies Parent of termination of this
Agreement.
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 until the first anniversary of the Effective
Time (the "Survival Period"); provided, however, that the representations and
warranties of the Company set forth in Section 2.6 above shall survive until the
earlier of (a) the first anniversary of the Effective Time and (b) the date on
which Parent completes and publicly releases audited financial statements of
combined operations of the Company and Parent, and shall not be deemed waived or
otherwise affected by any investigation made or any knowledge acquired with
respect thereto. 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 Shareholders
Subject to the limitations set forth in this Article VIII, from and after
the Closing, the shareholders of the Company as of the Effective Time (the
"Shareholders") jointly and severally (as to the indemnified parties identified
herein, but severally and not jointly as among such Shareholders) shall
indemnify and hold Parent, its officers, directors and affiliates (as
"affiliate" is defined in Rule 12b-2 of the Exchange Act) (the "Parent
Indemnified Parties")
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harmless from and against, and shall reimburse the Indemnified Parties for, any
and all losses, damages, debts, liabilities, obligations, judgments, orders,
awards, writs, injunctions, decrees, fines, penalties, Taxes, costs or expenses
(including, but not limited to, any reasonable legal or accounting fees or
expenses) ("Losses") arising out of (a) any inaccuracy or misrepresentation in,
or breach of, any representation or warranty made by the Company in this
Agreement, together with the Schedule of Exceptions as delivered upon execution
of this Agreement, or in any other Operative Document; (b) any failure by the
Company or such Shareholder to perform or comply, in whole or in part, with any
covenant or agreement in this Agreement or in any other Operative Document; or
(c) the amount by which the Company's aggregate fees and expenses incurred in
connection with this Agreement and paid by Parent or the Surviving Corporation,
the Operative Documents and the transactions contemplated hereby and thereby
exceed $900,000 (the "Company Expenses").
8.3 Indemnification By Parent or the Surviving Corporation
Parent shall indemnify and hold the Shareholders (the "Shareholder
Indemnified Parties" and, together with the Parent Indemnified Parties, the
"Indemnified Parties") harmless from and against, and shall reimburse the
Shareholder Indemnified Parties for, any and all Losses arising out of or in
connection with (a) any inaccuracy or misrepresentation in, or breach of, any
representation or warranty made by Parent or Merger Sub in this Agreement or in
any Operative Document or (b) any failure by Parent or Merger Sub to perform or
comply, in whole or in part, with any covenant or agreement in this Agreement in
or any Operative Document.
8.4 Deductible and Limitations
(a) Except for Losses based on fraud, until the date upon which a
registration statement covering the sale or other proposed disposition of the
shares of Parent Common Stock (including the Holdback Shares) is declared
effective under the Securities Act of 1933, as amended, or the Company Expenses,
the Indemnified Parties shall be not be entitled to receive any indemnification
payment with respect to any claims for indemnification under this Article VIII
("Claims") until the aggregate Losses for which such Indemnified Parties would
be otherwise entitled to receive indemnification exceed $100,000 (the
"Deductible") and only to the extent such Losses exceed $100,000.
(b) Except for Losses based on fraud (with respect to which there shall be
no limitation of liability until the date upon which a registration statement
covering the sale or other proposed disposition of the shares of Parent Common
Stock (including the Holdback Shares) is declared effective under the Securities
Act of 1933, as amended), the aggregate liability of the Shareholder pursuant to
this Article VIII shall be limited to the Holdback Shares of such Shareholder.
(c) An indemnifying party shall not be obligated to defend and hold
harmless an Indemnified Party, or otherwise be liable to such party, with
respect to any claims made by the Indemnified Party after the expiration of the
Survival Period or other applicable time limitation
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described in Section 8.1, except that indemnity may be sought after the
expiration of the Survival Period or other applicable time limitation if a Claim
Notice (as defined in Section 8.5(a)) shall have been delivered to the
Shareholder Representative (as defined in Section 8.6 below) prior to the
expiration of such time period.
(d) The indemnification obligations of the Shareholders under this Article
VIII shall be satisfied by forfeiture to Parent of the Holdback Shares, in
accordance with the provisions of this Article VIII. The number of Holdback
Shares to be forfeited to Parent in payment of any Claims shall be determined by
dividing (x) the aggregate dollar amount of such Claims by (y) the closing
average of Parent Common Stock as of the Closing Date. The aggregate value of
Claims paid by means of the forfeiture to Parent of Holdback Shares shall be
deemed to reduce the Net 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 Holdback Shares, pro rata, with respect to
each Shareholder, as determined by reference to the number of shares of Parent
Common Stock that such shareholder is entitled to receive in the Merger as
compared to all other Shareholders.
(e) Payments by an indemnifying party pursuant to this Article VIII shall
be (i) limited to the amount of any Losses after deducting therefrom any Tax
benefit to the Indemnified Party or any affiliate thereof; and (ii) increased to
take account of any Tax cost incurred by the Indemnified Party arising from
receipt or accrual of indemnity payments (grossed up for such increase). For
purposes of this Section 8.3(e), a Tax benefit or Tax cost will be considered to
be recognized by the Indemnified Party or any Affiliate in the tax period in
which an actual Tax benefit or Tax cost occurs, and the amount of the Tax
benefit or Tax cost shall be determined by using the actual tax rates applicable
to the Indemnified Party and its affiliates, on a with and without basis after
any deductions, credits, allowances or other tax attributes reportable with
respect to a payment hereunder. At such time as an Indemnified Party makes a
request for indemnification, the Indemnified Party shall provide the
indemnifying party with a detailed schedule of the tax benefits and the
incurrence of the indemnified liability. The schedule shall set forth the
amounts and anticipated tax years to which the tax benefits or costs will be
recognized (based on the current experience and internal financial projections
of the Indemnified Party) and, based on current federal and state tax rates, the
resulting estimated tax benefits or detriments. The present value of the
estimated tax benefits and detriments then shall be determined by discounting
each year's estimated benefit or detriment using a discount rate equal to the
current prime lending rate as published on the date of payment in the Wall
Street Journal. The indemnity payment shall be increased or decreased so that
the net after-tax present value of the payment equals the net after-tax loss to
the Indemnified Party. Any indemnity payments made pursuant to this Article
VIII will be treated as an adjustment to the purchase price for Tax purposes.
8.5 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 Escrow Agent and
the indemnifying parties reasonably promptly after the assertion against an
Indemnified Party of any claim by a
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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
Escrow Agent and the indemnifying parties shall not relieve the indemnifying
parties of any obligation or liability that the indemnifying parties may have to
the Indemnified Party except to the extent, and only to the extent, that the
indemnifying parties demonstrate that the indemnifying parties' ability to
defend or resolve such Claim is materially adversely affected thereby. Any such
Claim Notice shall describe the facts and circumstances on which the asserted
Claim for indemnification is based (to the extent then known by the Indemnified
Party) 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. Notwithstanding the
foregoing, any Claim Notice submitted by Parent Indemnified Parties or Parent as
indemnifying party to the Shareholder Representative shall be deemed to have
been delivered to the Shareholder Indemnified Parties or the Shareholders as
indemnifying parties upon delivering of such Claim Notice to the Shareholder
Representative.
(b) If, within 30 days of the effective date under this Agreement of a
Claim Notice, the indemnifying party contests in writing to the Indemnified
Party and the Escrow Agent that Losses identified in such Claim Notice
constitute indemnifiable Claims (the "Contest Notice"), then the Indemnified
Party and the indemnifying parties, acting in good faith, shall attempt to reach
agreement with respect to the contested portions of such Claims. Unless a Claim
is contested within such 30-day period (meaning the Contest Notice is effective
on or prior to the 30th day after the effective date of the Claim Notice to
which such Contest Notice relates), 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 indemnifying parties shall
not object to any Claim unless (i) they believe in good faith that the
Indemnified Party is not entitled to be indemnified with respect to the Losses
specified therein, or (ii) they lack sufficient information to assess the
validity or amount of the Claim. If the indemnifying parties object to a Claim
on the basis that they lack sufficient information, they shall promptly request
from the Indemnified Party any additional information reasonably necessary for
them 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 indemnifying
parties 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 indemnifying parties are unable to reach agreement
with respect to any contested Claims within 45 days of the delivery of the
Contest Notice, the matter shall be settled by binding arbitration in Seattle,
Washington as set forth below. All claims shall be settled in accordance with
the Commercial Arbitration Rules then in effect of the American Arbitration
Association (the "AAA Rules"). The indemnifying parties and the Indemnified
Party shall each designate one arbitrator within 15 days after the termination
of such 45-day period. The indemnifying parties 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 70 days of
delivery of the Contest Notice, the third arbitrator
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<PAGE>
shall be appointed in accordance with the AAA Rules and (ii) if either the
indemnifying parties 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 in
accordance with the determination of the arbitrators based on the outcome of the
dispute, with any portion thereof that is payable by the Shareholders being paid
by Parent and reimbursed from the Holdback Shares in the same manner as other
Claims. The indemnifying parties and the Indemnified Party shall cause the
arbitrators to decide the matter to be arbitrated pursuant hereto within 30 days
after the appointment of the last arbitrator. The arbitrators' decision shall
relate solely to whether the 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 indemnifying parties and the Indemnified
Party in writing and shall constitute the conclusive determination of the issue
in question binding upon the indemnifying parties, the Shareholders, 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 indemnifying parties shall have
the right, upon written notice given to the Indemnified Party within 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 8.5(c)(ii) shall
govern; provided, however, that, notwithstanding the foregoing, Parent or the
Shareholder Representative may elect to assume the defense and handle any such
Third Party Claim by providing notice to the other party stating the basis for
such election if it determines in good faith that the resolution of such Third
Party Claim could result in a material adverse impact on the business,
operations, assets, liabilities (absolute, accrued, contingent or otherwise),
condition (financial or otherwise) or prospects of Parent or the Shareholders,
as applicable, in which case the provisions of Section 8.5(d)(ii) hereof shall
govern.
(ii) The indemnifying parties shall select counsel reasonably
acceptable to the Indemnified Party in connection with conducting the defense or
handling of such Third Party Claim, and the indemnifying parties 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
indemnifying parties 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 (B) the Indemnified Party shall not have reasonably
objected to any such settlement on the ground that the circumstances surrounding
the settlement could reasonably 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 indemnifying parties 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.
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(d) (i) If (A) the indemnifying parties do not give written notice to the
Indemnified Party pursuant to Section 8.5(c)(i) within 30 days after the
effective date 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) Parent or the Shareholder Representative elects to
assume the defense or handling of the Third Party Claim pursuant to Section
8.5(c)(ii), the provisions of Section 8.5(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 parties as such
expenses are incurred by the Indemnified Party), select counsel reasonably
acceptable to the indemnifying party in connection with conducting the defense
or handling of such Third Party Claim and defend or handle such Third Party
Claim in such manner as it may deem appropriate; provided, however, that the
Indemnified Party shall keep the indemnifying parties 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 indemnifying parties, which consent
shall not be unreasonably withheld, unless the settlement provides an
unconditional release and discharge of the indemnifying parties. If the
Indemnified Party defends or handles such Third Party Claim, the indemnifying
parties 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.
8.6 Remedies; Specific Performance
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.
8.7 Shareholder Representative
The term "Shareholder Representative" shall mean the Person appointed by
the Shareholders pursuant to the Shareholder Representation Letters referred to
in Section 4.15 above or pursuant to the Merger, or any successor thereto of
which the Surviving Corporation and Parent are notified in writing. The
Shareholder Representatives shall have authority to act for and on behalf of all
Shareholders with respect to all matters arising in connection with this
Agreement, including, without limitation, the power and authority, in their sole
discretion, to: (a) take any action contemplated to be taken by the Shareholder
Representative under this Article VIII; (b) negotiate, determine, defend and
settle any Third Party Claim and any dispute which may arise under or in
connection with this Agreement; and (c) make, execute, acknowledge and deliver
any releases, assurances, receipts, requests, instructions, notices,
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agreements, certificates and any other instruments, and to generally do any and
all things and to take any and all actions which may be requisite, proper or
advisable in connection with this Agreement.
8.8 No Circular Recovery
No Shareholder will be entitled to make any claim for indemnification
against the Surviving Corporation or any of its Affiliates by reason of the fact
that such Shareholder (or any of his, her or its officers, directors, agents or
other representatives) was a controlling person, director, officer, employee,
agent or other representative of the Company or of any of its Affiliates or was
serving as such for another Person at the request of the Company or any of its
shareholders or Affiliates (whether such claim is for Losses of any kind or
otherwise and whether such claim is pursuant to any statute, charter, by-law,
contractual obligation or otherwise) with respect to any action brought by
Parent or the Surviving Corporation against such Shareholder or the Shareholders
generally (whether such action is pursuant to this Agreement, applicable law, or
otherwise).
ARTICLE IX - GENERAL
9.1 Tax Matters
(a) Each of Parent, Merger Sub and the Company hereby represent, warrant
and covenant that it shall use its best efforts to cause the Merger to qualify,
and will not (whether before or after consummation of the Merger) take any
actions that could prevent the Merger from qualifying, as a "reorganization"
under the provisions of Section 1.368 of the Code.
(b) Except where otherwise required by law, the parties shall not take a
position on any tax returns inconsistent with the treatment of the Merger for
tax purposes as a reorganization within the meaning of Section 368(a)(1)(A) of
the Code by reason of Section 368(a)(2)(E) of the Code and Parent and Merger Sub
will comply with the record keeping and information filing requirements of
Section 1.368-3 of the Treasury Regulations in accordance therewith; provided,
however, that neither Parent nor Merger Sub makes any representation or warranty
with respect to any Tax consequences to the Company or its shareholders arising
under this Agreement.
9.2 Expenses
Upon consummation of the transaction contemplated hereby, Parent shall pay
all fees and expenses of Parent, Merger Sub and the Company 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 the Company Expenses paid by Parent or the Surviving Corporation shall
constitute Losses of Parent and shall not be subject to the Deductible;
provided, further, 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.
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9.3 Notices
Any notice, request or demand desired or required to be given hereunder
shall be in writing given by personal delivery, confirmed facsimile transmission
or overnight courier service, in each case addressed as respectively set forth
below or to such other address as any party shall have previously designated by
such a notice. The effective date of any notice, request or demand shall be the
date of personal delivery, the date on which successful facsimile transmission
is confirmed or the date actually delivered by a reputable overnight courier
service, as the case may be, in each case properly addressed as provided herein
and with all charges prepaid.
To Parent or Merger Sub:
Primus Knowledge Solutions, Inc
1601 Fifth Avenue, Suite 1900
Seattle, WA 98101
Fax: (206) 292-1825
Attention: Michael A. Brochu
with a copy to:
Perkins Coie LLP
1201 Third Avenue, 48th Floor
Seattle, WA 98101-3099
Fax: (206) 583-8500
Attention: Gregory Gorder
Daniel F. Vaughn
To:
Imparto Software Corporation
2300 Geng Road, Suuite 200
Palo Alto, CA 94303
Fax: (650) 493-2203
Attention: Daniel N. Rudolph
with a copy to:
Morrison & Foerster LLP
5200 Republic Plaza
370 17th Street
Denver, Colorado 80202-5638
Fax: (303) 592-1510
Attention: Warren L. Troupe
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9.4 Severability
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
9.5 Entire Agreement
This Agreement, the Mutual Nondisclosure Agreement and the other Operative
Documents constitute the entire agreement among the parties with respect to the
subject matter hereof and thereof and supersede all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof and thereof.
9.6 Assignment
This Agreement shall not be assigned by operation of law or otherwise;
provided, however, that Merger Sub's rights and obligations may be assigned to
and assumed by Parent or any other corporation wholly owned by Parent.
9.7 Parties in Interest
Except as set forth in Section 9.13, 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 nonexclusive
jurisdiction and venue of the state and federal courts located in King County,
Washington and 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
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which when executed and delivered shall be deemed to be an original but all of
which taken together shall constitute one and the same agreement.
9.10 Waiver of Jury Trial
Each of Parent, the Company and Merger Sub hereby irrevocably waives all
right to trial by jury in any action, proceeding or counterclaim (whether based
on contract, tort or otherwise) arising out of or relating to this Agreement,
the transactions contemplated hereby or the actions of such parties in the
negotiation, administration, performance and enforcement hereof.
9.11 Schedule of Exceptions
The Schedule of Exceptions shall be arranged in separate parts
corresponding to the numbered and lettered sections contained in Article II.
The information disclosed in any numbered or lettered part shall be deemed to be
disclosed and incorporated in any other numbered or lettered part provided that
such disclosure is cross-referenced elsewhere as applicable or unless it is
apparent from the express disclosure made that an exception is being made to
such representation or warranty.
9.12 Knowledge
Whenever the term to the "knowledge of the Company" or similar phrase, is
used in this Agreement, such phrase shall mean the actual knowledge of the
Company's directors and executive officers and knowledge that could have been
obtained by the Company's executive officers with respect to those matters that
would cause a reasonable person, in a similar position, to investigate the
matter further and that could have been obtained from such investigation without
undue effort.
9.13 Third Party Beneficiaries
It is the intention of the parties that the Shareholders be considered
third party beneficiaries of the terms and provisions contained in this
Agreement, including but not limited to the rights, obligations and agreements
contained in Article I herein. Further, such Shareholders shall have a vested
right to enforce the provisions of Article I hereof upon compliance with the
terms and provisions contained in this Agreement.
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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.
PRIMUS KNOWLEDGE SOLUTIONS, INC.
By /s/ Michael A. Brochu
-------------------------------
Its
-------------------------------
SAN ANTONIO ACQUISITION, INC.
By /s/ Michael A. Brochu
-------------------------------
Its
-------------------------------
IMPARTO SOFTWARE CORPORATION
By /s/ Daniel N. Rudolph
-------------------------------
Its
-------------------------------
<PAGE>
EXHIBIT 99.1
For more information, contact:
Financial Inquiries:
- --------------------
David Parker Liz Huebner
Primus Primus
(206) 834-8477 (206) 834-8451
[email protected] [email protected]
- -----------------
Trade Press Inquiries:
- ----------------------
Ann Dupuis Norman Guadagno
KVO Public Relations Primus
(503) 221-2367 (206) 834-8110
[email protected] [email protected]
Primus and Imparto Software Sign Definitive Merger Agreement
Strategic Combination to Provide Innovative eService Software for both dot.com
and Enterprise Customers
Seattle, WA - December 13, 1999 - Primus (NASDAQ:PKSI), a leading provider of
eService software and services, today announced the signing of a definitive
merger agreement with privately-held Imparto Software, Inc of Palo Alto, CA, a
leading provider of eMarketing solutions. The strategic combination will create
a leader in innovative eService and eMarketing software for both dot.com and
enterprise customers. Under the terms of the agreement, Primus will acquire all
outstanding stock of Imparto in exchange for one million shares of Primus common
stock. The merger is intended to be a pooling-of-interests and is subject to
approval by the shareholders of Imparto and other customary conditions.
Executives of Imparto have agreed to vote their shares in favor of the proposed
transaction. As a result of the transaction, Imparto will become a wholly owned
subsidiary of Primus.
The acquisition will enable Primus to expand and enhance the company's existing
eService software and service offerings, such as Primus(R) Interchange, with the
addition of the Imparto(TM) Web Marketing Suite. This combination will create a
powerful link between the marketing focus before the sale and the critical
issues encountered by those same users after the sale, forming the eService
cycle essential to successful eBusiness. All of the key contact points between
customer and business can be integrated through the Primus eService software
infrastructure.
The combined companies will have approximately 225 employees worldwide and over
85 customers that span the new economy from dot.com startup to Global 2000
enterprise, including such progressive companies as 3M, 3Com, Brio Technology,
Cirrus Logic, Compaq, Fair Isaac, GTE Internetworking, New Century Mortgage and
Novell.
"The market is quickly realizing that the success of eBusiness depends on world-
class eService being delivered to online customers at every stage in their
lifecycle, along with measurable ROI for the company. With this acquisition,
Primus will be able to extend our eService software infrastructure from the
marketing department through to the support center," said Michael Brochu, Primus
President and CEO. "The combination of Primus and Imparto will allow businesses
to have an integrated software suite that manages
<PAGE>
all of the essential contact points with the online customer, in both business-
to-business and business-to-consumer environments, and sets new standards for
eService."
"This acquisition will create exceptional value for the employees, shareholders,
and customers of both companies," said Dan Rudolph, President and CEO of
Imparto. "Primus and Imparto have both realized that the promise of eService
needs something beyond simple email routing and stand-alone marketing campaigns
to be truly successful. Our complementary product families both deliver on this
promise and stand out in the market due to their powerful underlying technology
and strong focus on value creation."
Primus Provides Complete eService Software Infrastructure
Primus(R) Interchange is the first eService solution to allow both sides of the
eBusiness transaction - business and customer - to receive real value from every
interaction. With Primus Interchange, a user submits an email inquiry, and the
system automatically searches the knowledgebase and returns an email message
that both contains suggested answers to the user's question and performs
intelligent routing on the backend. The product couples these eService
capabilities with the Primus(R) Associative Search Engine to deliver fast,
accurate answers to users, and capture that information for use by the company
in the future. Alternatively, users may opt to search the customer service
knowledgebase directly through the company's web site. All self-service options
are available 24 hours a day, seven days a week.
The Imparto(TM) Web Marketing Suite provides an end-to-end integrated solution
for creating content and managing personalized marketing campaigns to precisely
targeted audiences along with building and maintaining a powerful web marketing
database. The software suite includes the following components:
Imparto(TM) Programs: to manage email and other online marketing campaigns
Imparto(TM) Audience: to segment customers and learn more about them
Imparto(TM) Website: to create and maintain content for a website
Imparto(TM) Reporter: to create reports for tracking effectiveness and ROI
Imparto(TM) Administrator: to customize the Imparto Suite to meet specific
needs
The Imparto Web Marketing Suite drives eMarketing that moves beyond the
opportunity to just sell and focuses on the opportunity to enable a relationship
between business and customer.
About Imparto
Imparto is a leading provider of B2B mid-market solutions for building
relationship-enabled websites that drive customer acquisition and customer
satisfaction.. Based in Palo Alto, Calif., Imparto has provided applications and
services for the web infrastructure since its founding in 1995. Privately held,
principal investors in Imparto include: Aspen Ventures, Athena Technology
Ventures, GCI Technology and Red Rock Ventures. For more information, please
visit www.imparto.com.
---------------
About Primus
Primus is a leading provider of eService software and services. The company's
applications enable organizations to create, capture, reuse and share knowledge
worldwide. Primus customers include 3Com, 3M, AT&T Wireless, ClientLogic
Corporation, Compaq, EDS (formerly SHL/MCI Systemhouse), EMC Corporation, Entex,
Ericsson Inc., Fujitsu Limited, Inc., GTE Internetworking, Micron Electronics,
Inc., Motorola, Network Associates, Novell, Origin Managed Services, PSInet, QAD
Inc., Simplex Time Recorder Co., and SGI. All Primus products integrate easily
with leading customer relationship management applications, including those from
Clarify, Onyx Software, Remedy, Siebel Systems and Vantive. Based in Seattle,
Washington, Primus has offices in Atlanta, Boston, Chicago, Dallas, Los
<PAGE>
Angeles, San Francisco and Washington, D.C. Primus Solutions UK Ltd., a wholly
owned subsidiary of Primus, has offices in London. Primus KK, a joint venture
with Trans Cosmos, Inc., markets and sells SolutionSeries products in Japan. For
more information, contact Primus at 1601 Fifth Avenue, Suite 1900, Seattle,
Washington, 98101; (206) 292-1000; or visit the Primus Web site at
www.primus.com.
- --------------
As a result of an equity investment in Imparto, Ernst & Young LLP will be
required to resign as Primus' independent auditor. After the closing, Ernst &
Young LLP will own more than one percent of Primus' outstanding stock and would
therefore no longer be considered "independent" under applicable accounting and
auditing rules. Primus' board of directors has accepted the resignation and
plans to begin selection of replacement auditors immediately.
This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 with respect to the anticipated outcomes and impact of the
proposed transaction. These statements are subject to significant risks and
uncertainties that may cause actual results to vary from expectations. Such
factors include: the possibility of adverse changes in the markets the companies
serve; substantial delay in the expected closing of the merger; unexpected costs
in connection with the combination, including diversion of management time;
risks relating to integrating Primus and Imparto, risks involved in retaining
and motivating key personnel, difficulties in obtaining any of the expected
benefits of the combination; risks and uncertainties regarding the operations of
Primus are described in it most recent report on Form 10-Q for the quarter ended
September 30, 1999 filed with the SEC; in addition, as part of its growth
strategy, Primus intends to pursue the acquisition of other companies that
either compliment of expand its existing business. Acquisitions involve a number
of risks, including expansion into new markets and business areas and diversion
of management's attention to the integration of the operations and personnel of
the acquired companies.
