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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
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DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) FEBRUARY 23, 2000
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N2H2, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
WASHINGTON 000-26825 91-1686754
(STATE OR OTHER JURISDICTION (COMMISSION FILE (I.R.S. EMPLOYER
OF INCORPORATION) NUMBER) IDENTIFICATION NO.)
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900 FOURTH AVENUE, SUITE 3400, SEATTLE, WA 98164
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (206) 336-1501
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INAPPLICABLE
(FORMER NAME OR FORMER ADDRESS IF CHANGED SINCE LAST REPORT)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 23, 2000, N2H2, Inc. ("Registrant" or "N2H2") completed its
acquisition of iseek, Limited, a privately held company incorporated in
Queensland, Australia, in an all-stock transaction. Pursuant to the Share Sale
Agreement dated February 23, 2000 among the Registrant, and Jason Alan
Gomersall, Bevan Andrew Slattery, Lee Gomersall, Roar Investments Pty Limited
ACN 072098572, an Australian corporation, and Drives and Controls Services, Inc.
a Texas corporation, who are all the Shareholders of iseek Limited
(collectively, the "Shareholders"), the Registrant offered and agreed to buy
from each Shareholder and each Shareholder as beneficial owner agreed to sell to
the Registrant all shares of iseek, Limited.
Under the terms of the acquisition, the shareholders of iseek will
receive 925,000 shares of N2H2 common stock. The transaction is valued at
approximately $16 million and will be accounted for using the purchase
accounting approach. Immediately following the acquisition, all employees and
offices will remain in operation, and N2H2 plans on injecting capital for
marketing and infrastructure rollout to accelerate growth in Australia and the
Asia-Pacific region. N2H2 CEO Peter Nickerson and another N2H2 representative
will join the iseek board.
The information that is set forth in the Registrant's Press Releases
dated February 24, 2000 is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
(1) Information required pursuant to Rule 3-05 (b) of
Regulation S-X is not currently available and will be
filed on or before May 5, 2000.
(b) PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(1) Information required pursuant to Article 11 of Regulation S-X is
not currently available and will be filed on or before May 5,
2000.
(c) EXHIBITS
10.1 Share Sale Agreement dated February 23, 2000 among N2H2, Inc., Jason
Alan Gomersall, Bevan Andrew Slattery, Lee Gomersall, Roar Investments
Pty Limited ACN 072098572, and Drives and Controls Services, Inc.*
99.1 Text of Press release dated February 24, 2000, regarding the completion
of the acquisition of iseek, Limited.
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* The Registrant hereby undertakes to furnish supplementally a copy of omitted
schedules to the Commission upon request.
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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.
N2H2, INC.
By: /s/ PETER H. NICKERSON
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Peter H. Nickerson
Chairman, President and
Chief Executive Officer
Dated: March 24, 2000
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.1 Share Sale Agreement dated February 23, 2000 among N2H2, Inc., Jason
Alan Gomersall, Bevan Andrew Slattery, Lee Gomersall, Roar Investments
Pty Limited ACN 072098572, and Drives and Controls Services, Inc.
99.1 Text of Press release dated February 24, 2000, regarding the completion
of the acquisition of iseek, Limited.
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* INFORMATION HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
SHARE SALE AGREEMENT
This Share Sale Agreement (this "Agreement") is made and entered into
as of February 23, 2000, by and among N2H2, Inc., a Washington corporation
("N2H2"), and Jason Alan Gomersall, Bevan Andrew Slattery, Lee Gomersall, Roar
Investments Pty Limited ACN 072098572, an Australian corporation, and Drives &
Controls Services, Inc. a Texas corporation, who are all the Shareholders of
iseek Limited ACN 083 996 070 (each a "Shareholder" and collectively, the
"Shareholders").
RECITALS
A. N2H2 has offered to buy and the Shareholders believe it advisable
and in their respective best interests to effect a sale of the Company Capital
Stock by the Shareholders to N2H2 in return for N2H2 agreeing to issue N2H2
Common Stock to the Shareholders on the terms and conditions set out in this
Agreement (the "Acquisition").
B. The Board of Directors of N2H2 has approved this Agreement and the
Acquisition as required by applicable law.
AGREEMENT
In consideration of the terms hereof, the parties hereto agree as
follows:
ARTICLE I - DEFINITIONS
1.1 DEFINITIONS
Except as the context shall otherwise require, the following terms when used
shall have the following meanings:
"Acquisition" has the meaning set forth in Recital A to this Agreement.
"Affiliate" is as defined in Rule 12b-2 of the Securities Exchange Act
of 1934.
"Agreement" means this Agreement, including the Disclosure Memorandum,
Schedules and Exhibits attached hereto.
"Claim Notice" has the meaning set forth in Section 9.5(a).
"Claims" refers to any claims for indemnification under Article IX
hereunder.
"Closing" has the meaning set forth in Section 2.2.
"Closing Date" has the meaning set forth in Section 2.2.
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"Code" shall mean the Internal Revenue Code of 1986, as amended
(including any successor code), and the rules and regulations promulgated
thereunder.
"Common Stock Exchange Ratio" has the meaning set forth in Section
2.5.2(a).
"Company" means iseek Limited ACN 083 996 070, a company incorporated
in Queensland, Australia.
"Company Balance Sheet" shall have the meaning set forth in Section
3.6.
"Company Capital Stock" means Company Common Stock, outstanding
immediately prior to the Closing.
"Company Common Stock" means all the ordinary shares in the Company.
"Company Indemnified Parties" has the meaning set forth in Section 9.3.
"Company Material Adverse Effect" means an effect which is materially
adverse to either (i) the business, financial condition, assets, liabilities,
results of operations or prospects of operations of the Company, taken as a
whole, or (ii) the legal ability of the parties hereto to consummate the
transactions contemplated hereby.
"Company Technology" means those Technology-Related Assets that are not
Third Party Technology.
"Confidentiality Agreement" means the Confidentiality and Exclusive
Dealing Agreement dated January 3, 2000, between N2H2 and the Company.
"Disclosure Memorandum" means the disclosure schedules delivered by the
Company to N2H2 in connection with the execution and delivery of this Agreement.
"Domain Names" means all Internet domain names with respect to which
the Company hosts HTML pages or otherwise operates a web site in connection with
its business.
"Employee Benefit Plan" has the meaning set forth in Section 3.13.
"Encumbrance" shall mean all liens, mortgages, pledges, deeds of trust,
security interests, charges, encumbrances and other adverse claims or interests
of any kind, except for Encumbrances related to Taxes not yet due and payable.
"Escrow Agent" means ChaseMellon Shareholder Services L.L.C.
"Escrow Agreement" means that certain escrow agreement among the
parties hereto and the Escrow Agent as described in Section 2.5.2(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Financial Statements" has the meaning set forth in Section 3.6.
"Fund " means Suncorp Easy Superannuation.
"GAAP" means generally accepted accounting principles in Australia as
in effect on the date of this Agreement.
"Gomersall Escrow Agreement" means that certain escrow agreement among
N2H2, Jason Gomersall and the Escrow Agent as described in Section 2.5.2(b).
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
"Indemnified Parties" has the meaning set forth in Section 9.3.
"Intellectual Property Rights" means all intellectual and other
proprietary rights used by the Company in the conduct of its business including,
without limitation, all trade names, trademarks, domain names, service marks,
logos, 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.
"IP Registrations" has the meaning set forth in Section 3.14.4.
"Letter of Transmittal" has the meaning set forth in Section 2.5.3(c).
"Knowledge" means an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) it can be reasonably expected that such fact or other
matter would come to the attention of such individual in the course of
conducting a reasonable comprehensive investigation concerning the
existence of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving
as a director, officer, partner, executor, or trustee of such Person
(or in any similar capacity) has Knowledge of such fact or other
matter. References to "the Shareholders' and the Company's Knowledge"
includes the Knowledge of any one of them.
"Marks" means the list of all of the Company's trademarks, trade names,
business names, service marks, or logos for the Products used by the Company in
its business.
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"N2H2" means N2H2, Inc., a Washington corporation.
"N2H2 Common Stock" means shares of unregistered common stock, no par
value, of N2H2.
"N2H2 Indemnified Parties" has the meaning set forth in Section 9.2.
"N2H2 Material Adverse Effect" means an effect which is materially
adverse to either (i) the business, financial condition, assets, liabilities,
results of operations or prospects of operations of the N2H2, taken as a whole,
or (ii) the legal ability of the parties hereto to consummate the transactions
contemplated hereby.
"New N2H2 Shares" means 925,000 shares of N2H2 Common Stock to be
issued by N2H2 to the Shareholders pursuant to Section 2.5.2.
"Operative Documents" means the Confidentiality Agreement, Escrow
Agreement, the Gomersall Escrow Agreement, the Slattery Escrow Agreement and the
other agreements and certificates required to be executed pursuant thereto or to
this Agreement.
"Percentage Share" means with respect to each Shareholder, such
Shareholder's percentage ownership of outstanding Company Common Stock as of the
Closing as set forth on Schedule 3.3(b).
"Person" means and includes any natural person, corporation, limited
liability company, partnership, limited partnership, firm, joint venture,
association, joint stock company, trust, business trust, unincorporated
organization, government or political subdivision, regulatory body or other
entity.
"Personal Property" has the meaning set forth in Section 3.9(b).
"Purchase Consideration" means the New N2H2 Shares to be issued by N2H2
to the Shareholders in accordance with Section 2.5.2(a).
"Real Property" has the meaning set forth in Section 3.9(a).
"S-1" has the meaning set forth in Section 4.6.
"SEC Documents" has the meaning set forth in Section 4.6.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholder Materials" has the meaning set forth in Section 3.24.
"Shareholder Representative" has the meaning set forth in Section 2.6.
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"Slattery Escrow Agreement" means that certain escrow agreement among
N2H2, Bevan Slattery and the Escrow Agent as described in Section 2.5.2(b).
"Software" means each software program that is a part of the Company
Technology and used by the Company in its business as currently conducted.
"Superannuation Arrangement" means any fund, plan, scheme, agreement or
arrangement under which superannuation benefits, retirement benefits, life
assurance benefits, death or disability benefits, pensions, annuities or other
allowances, gratuities or benefits are or may be provided to or in respect of
any present or former employees of the Company or their respective dependents.
"Survival Period" has the meaning set forth in Section 9.1.
"1936 Tax Act" means the Income Tax Assessment Act 1936 (Cth).
"1997 Tax Act" the Income Tax Assessment Act 1997 (Cth).
"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.
"Tax" means all forms of taxes, duties, imposts, charges, withholdings,
rates levies or other governmental imposition of whatever nature and by whatever
authority imposed, assessed or charged together with all costs, charges,
interest, penalties, fines, expenses and other additional statutory charges
incidental or related to the imposition and "Taxation" has a corresponding
meaning;
"Technology-Related Assets" means 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, development and other tools, content, inventions (whether
or not patentable or copyrightable and whether or not reduced to practice),
designs, logos, themes, know-how, concepts and other technology that have been
or are to be developed, produced, used, marketed or sold by the Company.
"Third Party Claim" has the meaning set forth in Section 9.5.
"Third Party Licenses" has the meaning set forth in Section 3.14.2.
"Third Party Technology" means those Technology-Related Assets for
which the Company does not own all right, title and interest (including, without
limitation, any such assets that are in the public domain), as listed in
Schedule 3.14.2 of the Disclosure Memorandum.
"Threshold" has the meaning set forth in Section 9.4(c).
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"Transmitted Copies" has the meaning set forth in Section 10.10.
"Unissued Patents" has the meaning set forth in Section 3.14.7.
"Year 2000 capabilities" has the meaning set forth in Section 3.14.11.
1.2 "Including" and other forms of such terms, with respect to any other
matter or thing, shall be construed to mean "including but not limited to" such
matter or thing.
1.3 All accounting terms not otherwise defined herein have the meaning
assigned to them in accordance with GAAP (whether or not such is indicated).
ARTICLE II - THE ACQUISITION
2.1 SALE AND PURCHASE
N2H2 offers and agrees to buy from each Shareholder and each
Shareholder as beneficial owner, or in the case of Roar Investments as trustee
for the beneficial owners, agrees to sell to N2H2 the Company Capital Stock
listed against the Shareholder's name in Schedule 3.3(b) to the Disclosure
Memorandum:
(a) free from Encumbrances;
(b) with all rights, including dividend and voting rights,
attached or accrued to them on or after the date of this
Agreement; and
(c) with effect from the Closing Date.
2.2 THE CLOSING
Subject to the satisfaction or waiver of the conditions set forth in
Articles V and VI and the termination provisions of Article VIII, completion of
the Acquisition pursuant to this Agreement (the "Closing") shall take place on
the earliest practicable business day (the "Closing Date") at 10:00 a.m. local
time at the offices of Lane Powell Spears Lubersky LLP, 1420 Fifth Avenue, 41st
Floor, Seattle, Washington, or such other date, time or location as N2H2 and the
Company shall agree.
2.3 CONSTITUTION OF THE COMPANY
The Constitution of the Company, as in effect at the Closing Date,
shall continue in effect as the Constitution of the Company immediately
following Closing. Thereafter, the Constitution of the Company may be amended in
accordance with its terms and as provided by law.
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2.4 DIRECTORS AND SECRETARY
2.4.1 NEW APPOINTMENTS
At or before the Closing, the Shareholders must ensure directors of the
Company cause the persons named in Schedule 2.4.1 (or any other persons notified
in writing by N2H2 to the Shareholders prior to Closing) to be appointed as
directors and/or secretary of the Company with effect from the Closing Date.
2.4.2 RESIGNATIONS
At or before the Closing, the Shareholders must ensure directors of the
Company cause the resignation of each of the persons named in Schedule 2.4.2 as
directors and secretary of the Company with effect from the Closing.
2.5 PURCHASE OF SHARES
2.5.1 PURCHASE CONSIDERATION
The Purchase Consideration for the Company Capital Stock is the issue
by N2H2 of the New N2H2 Shares, to be credited as fully paid, in accordance with
Section 2.5.2.
2.5.2 EXCHANGE RATIO
At the Closing:
(a) N2H2 must issue to the Shareholders the number of shares
of N2H2 Common Stock set forth below opposite their names:
Shareholder Number of N2H2 Common Stock
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Jason Alan Gomersall 284,327
Bevan Andrew Slattery 284,327
Lee Gomersall 9,911
Roar Investments Pty Limited 336,524
Drives & Controls Services, Inc. 9,911
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925,000
(b) Notwithstanding the foregoing, ten percent (10%) of the
shares of N2H2 Common Stock issued to the Shareholders pursuant to this Section
2.5.2 (the "Escrow Shares") shall be deposited in escrow with ChaseMellon
Shareholder Services L.L.C. ("ChaseMellon" or the "Escrow Agent"), to be held
and administered in accordance with an Escrow Agreement in substantially the
same form attached hereto as Exhibit 2.5.2 (the "Escrow Agreement"), such Escrow
Shares to be withheld and deducted, pro rata, from the shares of N2H2 Common
Stock otherwise issued to each holder of Company Capital Stock at Closing. In
addition, the remaining ninety percent (90%) of the shares of N2H2 Common Stock
issued to Jason Gomersall and Bevan Slattery pursuant to this Section 2.5.2
shall be deposited in escrow with the Escrow Agent
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to be held and administered in accordance with escrow agreements in
substantially the form attached hereto as Exhibits 2.5.2A and 2.5.2B (the
"Gomersall Escrow Agreement" and the "Slattery Escrow Agreement," respectively.)
At Closing, the Shareholders shall execute and deliver to the Escrow Agent duly
executed stock powers in blank for their respective N2H2 Common Stock held
pursuant to the Escrow Agreement, the Gomersall Escrow Agreement or the Slattery
Escrow Agreement. Notwithstanding the escrow of the Escrow Shares, dividends or
other distributions declared and paid on such shares shall continue to be paid
by N2H2 to the stockholders and all voting rights with respect to such shares
shall inure to the benefit of and be enjoyed by such stockholders. Any
securities received by the Escrow Agent in respect of any Escrow Shares held in
escrow as a result of any stock split or combination of shares of N2H2 Common
Stock, payment of a stock dividend or other stock distribution in or on shares
of N2H2 Common Stock, or change of N2H2 Common Stock into any other securities
pursuant to or as a part of a merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation of N2H2, or otherwise, shall be
held by the Escrow Agent as, and shall be included within the definition of,
Escrow Shares. Each share of N2H2 Common Stock issued hereunder shall further be
subject to the indemnification obligations of Article IX hereto.
(c) If, prior to the Closing, N2H2 recapitalizes through
split-up of its outstanding shares of capital stock into a greater number, or a
combination of its outstanding shares of capital stock into a lesser number,
reorganizes, reclassifies or otherwise changes its outstanding shares of capital
stock into the same or a different number of shares of other classes of capital
stock, or declares a dividend on its outstanding shares of capital stock payable
in shares or securities convertible into shares, the number of shares of N2H2
Common Stock issuable pursuant to Sections 2.5.2(a) in exchange for the shares
of Company Capital Stock, will be adjusted appropriately so as to maintain the
proportionate interest of the holders of the Company Capital Stock, in the total
number of shares of capital stock of N2H2.
(d) Each share of N2H2 Common Stock shall bear a restrictive
legend as provided in Section 7.6
2.5.3 EXCHANGE OF CERTIFICATES
As soon as practicable after the Closing, ChaseMellon, as exchange
agent, shall make available, and each Shareholder of the Company will be
entitled to receive, in no event more than three business days after surrender
to ChaseMellon of a letter of transmittal together with the certificates
representing shares of Company Capital Stock for cancellation, certificates
representing the number of shares of N2H2 Common Stock that such Shareholder is
entitled to receive pursuant to Section 2.5.2 hereof; provided, however, that
the certificates representing the Escrow Shares shall be retained by ChaseMellon
in accordance with the Escrow Agreement. In the event that any certificates
representing shares of Company Capital Stock shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Shareholder
claiming such certificate to be lost, stolen or destroyed, N2H2 shall issue in
exchange for such lost, stolen or destroyed certificate the shares of N2H2
Common Stock that such Shareholder is entitled to receive pursuant to Section
2.5.2 hereof; provided, however, that N2H2 may in its discretion and as a
condition precedent to the issuance thereof, require such Shareholder to provide
N2H2 with an indemnity agreement against any claim that may be made against N2H2
with respect to the
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certificate alleged to have been lost, stolen or destroyed. The shares of N2H2
Common Stock that each Shareholder of the Company shall be entitled to receive
pursuant to the Acquisition shall be deemed to have been issued at the Closing.
No interest shall accrue on the Purchase Consideration. If the Purchase
Consideration (or any portion thereof) is to be delivered to any person other
than the person in whose name the certificate or certificates representing
shares of Company Capital Stock surrendered in exchange therefor is registered,
it shall be a condition to such exchange that the person requesting such
exchange shall pay to N2H2 any transfer or other taxes required by reason of the
payment of the Purchase Consideration to a person other than the registered
holder of the certificate or certificates so surrendered, or shall establish to
the satisfaction of N2H2 that such tax has been paid or is not applicable.
Notwithstanding the foregoing, neither N2H2 nor any other party hereto shall be
liable to a holder of shares of Company Capital Stock for any Purchase
Consideration delivered to a public official pursuant to applicable abandoned
property, escheat and similar laws.
2.5.4 NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of N2H2 Common
Stock shall be issued by virtue of the Acquisition, and no dividend, stock split
or other distribution with respect to N2H2 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,
N2H2 shall pay to the holder of shares of Company Capital Stock who would
otherwise be entitled to a fraction of a share of N2H2 Common Stock, as soon as
practicable after the Closing (and in the same timely manner required for
delivery of certificates of N2H2 Common Stock provided in Section 2.5.3), an
amount in cash equal to such fraction multiplied by the closing price of N2H2
Common Stock as reported on the Nasdaq National Market on the trading day prior
to the Closing Date.
2.6 SHAREHOLDER REPRESENTATIVE
Each of the Shareholders hereby irrevocably authorizes and appoints
Jason Gomersall (the "Shareholder Representative"), with full power of
substitution and resubstitution, as his, her or its representative and true and
lawful attorney-in-fact and agent to act in his, her or its name, place and
stead and to execute in the name and on behalf of such Shareholder the Escrow
Agreement and any other agreement, certificate, instrument or document to be
delivered by the Shareholders in connection with the Escrow Agreement.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS
Except as is otherwise specifically set forth with appropriate Section
references in the Disclosure Memorandum attached hereto as Exhibit 3 (the
"Disclosure Memorandum"), and in order to induce N2H2 to enter into and perform
this Agreement and the Operative Documents, the Shareholders severally in
proportion to each Shareholder's Percentage Share, represent, warrant and
covenant to N2H2 as of the date of this Agreement and as of the Closing Date as
follows in this Article III.
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3.1 ORGANIZATION
The Company is a corporation duly organized, validly existing and in
good standing under the laws of Queensland, Australia. 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. The Company is duly qualified and licensed as a foreign
corporation to do business and is in good standing in each jurisdiction in which
the character of the Company's properties occupied, owned or held under lease or
the nature of the business conducted by the Company makes such qualification or
licensing necessary, except where the failure to be so qualified or in good
standing would not have a Company Material Adverse Effect.
3.2 SHARE CAPITAL
(a) The Company Common Stock (i) comprise the entire share capital of
the Company; (ii) are fully paid; and (iii) were validly issued.
(b) Each Shareholder has complete and unrestricted power and right to
sell, assign and transfer the Company Common Stock set out against its name in
Schedule 3.3(b) to N2H2, and all record and beneficial interest therein to N2H2
at Closing free and clear of all Encumbrances .
(c) The Shareholders are, and will be on the Closing Date, the
registered and beneficial owners (or in the case of Roar Investments, the
trustee for the beneficial owners) and holders of the Company Common Stock, free
and clear of all Encumbrances.
(d) There are no (i) securities convertible into Company Common Stock;
(ii) options or other entitlements (a) over the Company Common Stock; or (b) to
have Company Common Stock issued; or (iii) restrictions (except as set forth in
Schedule 3.2(d) of the Disclosure Memorandum) on the transfer of any Company
Common Stock.
(e) Each Shareholder (other than Drives & Controls Services, Inc.) is
not a "U.S. Person" within the meaning of Regulation S of the Securities Act and
as defined in Rule 902 of the Securities Act. Drives and Controls Services, Inc.
is a U.S. person within the meaning of Regulation S.
(f) Each Shareholder, either alone or with the assistance of the
Shareholder's professional advisor, has such knowledge and experience in
financial and business matters that the Shareholder is capable of evaluating the
merits and risks of the prospective investment in N2H2 Common Stock.
(g) Each Shareholder is an "accredited investor" as defined in
Regulation D of the Securities Act of 1933 or is not a "U.S. Person" within the
meaning of Regulation S of the Securities Act and as defined in Rule 902 of the
Securities Act.
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(h) Each Shareholder has received and reviewed copies of the SEC
Documents. Each Shareholder acknowledges and agrees that N2H2 has not and will
not provide the Shareholder or any other party with a prospectus for use by the
undersigned in selling N2H2 Common Stock.
(i) Each Shareholder will not sell, transfer, or otherwise dispose of
or make any offer or agreement relating to any of the foregoing with respect to,
any shares of N2H2 Common Stock that the Shareholder may acquire pursuant to
this Agreement, except: (i) in a transaction permitted pursuant to Rule 145
under the Securities Act; (ii) in a transaction otherwise exempt from the
registration requirements of the Securities Act; or (iii) pursuant to a
registration statement under the Securities Act.
3.3 CAPITALIZATION
(a) Intentionally Omitted.
(b) As of the date of this Agreement, the issued and outstanding
capital stock of the Company consists solely of 29,999,999 shares of Company
Common Stock, which are and as of the Closing will be held of record and, to the
Knowledge of the Company, beneficially by the Shareholders as set forth on
Schedule 3.3(b) to the Disclosure Memorandum, or in the case of Roar Investments
Pty Limited as trustee for the beneficial owners. The Company Common Stock is,
and immediately prior to the Closing will be, duly authorized and validly
issued, fully paid and nonassessable, and issued in compliance with all
applicable Australian laws. To the Knowledge of the Shareholders and the
Company, no Person other than the Shareholders holds any interest in any of the
Company Common Stock. True and correct copies of the stock records of the
Company, showing all issuances and transfers of shares of capital stock of the
Company since inception, have been provided to N2H2 or its counsel.
(c) As of the date of this Agreement, 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 Capital
Stock or any securities convertible into or exchangeable for shares of Company
Capital Stock, except as set forth in Schedule 3.3(c) of the Disclosure
Memorandum.
(d) Except as set forth in Schedule 3.3(d) to the Disclosure
Memorandum, the Company is not a party or subject to any agreement or
understanding, and 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 set forth in Schedule 3.3(d) to the Disclosure Memorandum, no
Shareholder of the Company or any Affiliate thereof is indebted to the Company,
and the Company is not indebted to any Shareholder of the Company or any
Affiliate thereof. The Company is not under any contractual or other obligation
to register any of its presently outstanding securities or any of its securities
that may hereafter be issued.
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3.4 SUBSIDIARIES AND AFFILIATES
The Company does not own or control, and has not in the past owned or
controlled, directly or indirectly, any corporation, partnership, limited
liability company or other business entity. The Company does not own, directly
or indirectly, any ownership, equity, or voting interest in, or otherwise
control, any corporation, partnership, joint venture or other entity, and has no
agreement or commitment to purchase any such interest.
3.5 NO APPROVALS; NO CONFLICTS
(a) The execution, delivery and performance by the Shareholders of this
Agreement and the other Operative Documents to which the Shareholders are a
party, the effectiveness of the Acquisition and the performance by the Company
of its obligations pursuant to this Agreement and the other Operative Documents
to which it is a party will not (a) constitute a violation (with or without the
giving of notice or lapse of time, or both) of any provision of law or any
judgment, decree, order, regulation or rule of any court or other governmental
authority applicable to the Shareholders or the Company, (b) require any
consent, approval or authorization of, or declaration, filing or registration
with, any Person, except (i) compliance with applicable securities laws, (ii)
the filing of all documents necessary to consummate the Acquisition with the
Australian Securities and Investments Commission, and (iii) as set forth on
Schedule 3.5(a) to the Disclosure Memorandum, (c) result in a default (with or
without the giving of notice or lapse of time, or both) under, or acceleration
or termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any agreement, lease, note or other restriction,
encumbrance, obligation or liability to which the Company is a party or by which
it is bound or to which any assets of the Company are subject, (d) result in the
creation of any Encumbrance upon any assets of the Company or the Company Common
Stock, (e) conflict with or result in a breach of or constitute a default under
any provision of the Constitution of the Company, or (f) invalidate or adversely
affect any permit, license or authorization currently material to the conduct of
the business of the Company.
(b) Each Shareholder that is a corporate entity ("Corporate
Shareholder") (i) is validly existing and in good standing; and (ii) has full
authority and all necessary consents to enter into and perform this Agreement.
(c) This Agreement and all other agreements contemplated by this
Agreement will, when executed by the Shareholders, constitute binding
obligations of the Shareholders in accordance with their respective terms,
except as to the effect, if any, of (a) applicable bankruptcy and other similar
laws affecting the rights of creditors generally, and (b) rules of law governing
specific performance, injunctive relief and other equitable remedies.
(d) The execution, delivery and performance by the Corporate
Shareholders of this Agreement will not (i) result in a breach of any provision
of the constitution of a Corporate Shareholder; (ii) result in a breach of, or
constitute a default under, any instrument to which a Corporate Shareholder is a
party or by which a Corporate Shareholder is bound and which is material in the
context of the transactions contemplated by this Agreement; or (iii) result in a
breach of any order, judgment or decree of any court or governmental agency to
which a
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Corporate Shareholder is a party or by which a Corporate Shareholder is bound
and which is material in the context of the transactions contemplated by this
Agreement.
(e) No (i) meeting has been convened, resolution proposed, petition
presented or order made for the winding up of a Corporate Shareholder; (ii)
receiver, receiver and manager, provisional liquidator, liquidator or other
officer of the Court has been appointed in relation to all or any material asset
of a Corporate Shareholder; or (iii) mortgagee or chargee has taken, attempted
or indicated an intention to exercise its rights under any security of which a
Corporate Shareholder is the mortgagor or chargor.
(f) Each Corporate Shareholder (i) is not insolvent within the
meaning of section 95A of the Corporations Law; (ii) has not stopped paying its
debts as and when they fall due; or (iii) is not subject to voluntary
administration under Part 5.3A of the Corporations Law.
3.6 FINANCIAL STATEMENTS
The Company has delivered to N2H2 (a) audited balance sheets, and
statements of income and expense of the Company as of or for the fiscal year
ended June 30, 1999 and (b) an unaudited balance sheet (the "Company Balance
Sheet"), and statement of income and expense of the Company as of and for the
five-month period ended November 30, 1999. All the foregoing financial
statements are herein referred to as the "Financial Statements." The Financial
Statements have been prepared in accordance with GAAP on a basis consistent with
prior accounting periods and fairly present the financial position, results of
operations and changes in financial position of the Company as of the dates and
for the periods indicated. The Company has no liabilities or obligations of any
nature (absolute, contingent or otherwise) that are not fully reflected or
reserved against in the Company Balance Sheet, 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 would not individually or in the
aggregate have a Company Material Adverse Effect. The Company maintains systems
of accounting that are adequate for its business. The Company is not a
guarantor, indemnitor, surety or other obligor of any indebtedness of any other
Person. The Company has not capitalized software development costs.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except for transactions specifically contemplated in this Agreement,
since the date of the Company Balance Sheet ("Accounts Date"), neither the
Company nor any of its officers or directors in their representative capacities
on behalf of the Company have:
(a) taken any action or entered into or agreed to enter into
any transaction, agreement or commitment other than in the ordinary course of
business;
(b) forgiven or canceled any indebtedness or waived any claims
or rights of material value (including, without limitation, any indebtedness
owing by any Shareholder, officer, director, employee or affiliate of the
Company);
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(c) granted, other than in the ordinary course of business and
consistent with past practice, any increase in the compensation of directors,
officers, employees or consultants (including any such increase pursuant to any
employment agreement or bonus, pension, profit-sharing, lease payment or other
plan or commitment) or any increase in the compensation payable or to become
payable to any director, officer, employee or consultant;
(d) suffered any change having a Company Material Adverse
Effect;
(e) borrowed or agreed to borrow any funds, incurred or become
subject to, whether directly or by way of assumption or guarantee or otherwise,
any obligations or liabilities (absolute, accrued, contingent or otherwise),
except liabilities and obligations (i) that are incurred in the ordinary course
of business and consistent with past practice or (ii) that would not be required
to be reflected or reserved against in a balance sheet prepared in accordance
with GAAP, or increased, or experienced any change in any assumptions underlying
or methods of calculating, any bad debt, contingency or other reserves;
(f) paid, discharged or satisfied any material claims,
liabilities or obligations (absolute, accrued, contingent or otherwise) other
than the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of claims, liabilities and obligations
reflected or reserved against in the 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 as issued or incurred or as
disclosed in Schedule 3.7(f) to the Disclosure Memorandum;
(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, restriction or charge,
except in the ordinary course of business and consistent with past practice;
(h) purchased or sold, transferred or otherwise disposed of
any of its material properties or assets (real, personal or mixed, tangible or
intangible);
(i) disposed of or permitted to lapse any rights to the use of
any trademark, trade name, patent or copyright, or disposed of or disclosed to
any Person without obtaining an appropriate confidentiality agreement from any
such Person any trade secret, formula, process or know-how not theretofore a
matter of public Knowledge;
(j) except as disclosed in Schedule 3.7(j) to the Disclosure
Memorandum made any single capital expenditure or commitment in excess of
$10,000 for additions to property, plant, equipment or intangible capital assets
or made aggregate capital expenditures in excess of $20,000 for additions to
property, plant, equipment or intangible capital assets;
(k) made any change in accounting methods or practices or
internal control procedure;
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(1) issued any capital stock or other securities, or declared,
paid or set aside for payment any dividend or other distribution in respect of
its capital stock, or deemed, purchased or otherwise acquired, directly or
indirectly, any shares of capital stock or other securities of the Company, or
otherwise permitted the withdrawal by any of the holders of Company Capital
Stock of any cash or other assets (real, personal or mixed, tangible or
intangible), in compensation, indebtedness or otherwise, other than payments of
compensation in the ordinary course of business and consistent with past
practice;
(m) paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to any of the Company's Shareholders, officers,
directors or employees or any affiliate of any of the Company's Shareholders,
officers, directors or employees, except compensation paid to officers and
employees at rates not exceeding the rates of compensation paid during the
fiscal year last ended and except for advances for travel and other
business-related expenses; or
(n) agreed, whether in writing or otherwise, to take any
action described in this Section 3.7.
3.8 TAXES
(a) (i) All Tax Returns 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 material respects; (ii) all Taxes of the Company (whether or
not reflected on any Tax Return) have been fully and timely paid; (iii) no
waivers of statutes of limitation have been given or requested with respect to
the Company in connection with any Tax Returns covering the Company with respect
to any Taxes payable by it; and (iv) no taxing authority in a jurisdiction where
the Company does not file Tax Returns has made a claim, assertion, or threat to
the Company that the Company is or may be subject to taxation by such
jurisdiction; (v) the Company has duly and timely withheld from employee
salaries, wages and other compensation and paid over to the appropriate
governmental authority all amounts required to be so withheld and paid over for
all periods under all applicable laws; and no amounts have been or would be
required to be withheld with respect to the lapse of restrictions on Company
Capital Stock; (vi) there are no liens with 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 which 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 a
Taxation authority in any examination which is required to be reported to the
appropriate state, local or foreign taxing authorities has been reported, and
any additional Taxes due with respect hereto have been paid.
(b) There is no 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 (except as disclosed on
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Schedule 3.8(b) to the Disclosure Memorandum). Schedule 3.8 to the Disclosure
Memorandum lists all Tax Returns filed with respect to the Company for taxable
periods ended on or after the Company's incorporation or the incorporation of
any predecessor that have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Company has delivered to N2H2 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.
(c) The Company has complied with any applicable obligation to register
for the purposes of any purchase, value added, sales or other similar Tax in any
part of the world and has complied in all material respects with its obligations
under any Tax law relating to such Tax.
(d) The Company books and records contain all material information and
records pertaining to 1997 income Tax year onwards (including copies of any
lodged Tax Returns) along with schedule 25A and franking accounts that have been
maintained for the Company.
(e) Except as set forth on Schedule 3.8(e) to the Disclosure
Memorandum, for the period (i) up to the Accounts Date, there is no liability to
Tax in excess of the Tax already assessed and paid by the Company; and (ii)
after the Accounts Date, the only liabilities for Tax of the Company that have
arisen or may arise on or before the Closing Date are, or will be, liabilities
arising out of the normal business and trading activities of the Company.
(f) The Company (i) is not involved in any audit of any of its Tax
Returns or any dispute with the Commissioner of Taxation of the Commonwealth of
Australia or any other Federal, State or municipal body or authority responsible
for the collection of Tax or duty and no Shareholder is aware of any
circumstances which may give rise to such an audit or dispute; (ii) has not
entered into or been a party to any transaction which contravenes the
anti-avoidance provisions of any Tax law including the 1936 Tax Act and the 1997
Tax Act; (iii) has not taken any action which has or might alter or prejudice
any arrangement, agreement or Tax ruling which has previously been negotiated
with or obtained from any Taxation authority; and (iv) has not made any income
Tax private binding ruling requests, objections or amended assessments with
respect to its lodged income Tax Returns.
(g) All documents (i) which are necessary to establish the title of the
Company to an asset have had stamp duty or other Taxes of a similar nature paid
in full in accordance with all applicable laws; (ii) required to be created by
the Company under a law relating to stamp duty or a Tax of a similar nature have
been created and have had stamp duty or other Taxes of a similar nature paid in
full in accordance with all applicable laws.
(h) The Company records contain all material information pertaining to
the amounts of prior year income Tax and carry forward losses, as allowed under
the 1936 Tax Act, for each income Tax year after 1 July 1997 for the Company.
(i) Nothing has occurred to cause the disallowance of deductions for
prior year losses for income Tax purposes (including in particular capital and
revenue losses) as allowed under the 1936 Tax Act or 1997 Tax Act as at the
Closing Date or the deduction of losses incurred since the date of this
Agreement (other than a transfer of shares as contemplated by this Agreement).
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(j) Except as set out in Schedule 3.8 of the Disclosure Memorandum, no
asset of the Company has, prior to the completion of this Agreement, been the
subject of a claim for roll-over relief under Part IIIA of the 1936 Tax Act.
(k) To the extent that Division 20 of Part IIIA of the 1936 Tax Act has
been applied, the Shareholders will provide to N2H2, at the date of this
Agreement, the market value of the assets (as that term is used in the 1936 Tax
Act), to which Division 20 of Part IIIA of the 1936 Tax Act applies, at the time
that Division 20 applied.
(l) The Company has (i) maintained sufficient Tax depreciation
schedules and sufficient Tax building allowance schedules of its assets; (ii)
maintained accurate cost bases of those assets for Tax purposes; and (iii)
provided to N2H2 all material information relevant to the matters referred in
Sections 3.8(l)(i) and (ii) above.
(m) No dividend has been paid by the Company (i) in respect of which
the required franking amount (as provided for in section 160AQE of the 1936 Tax
Act) has exceeded the franked amount (as defined in section 160APA of the 1936
Tax Act) of the dividend; or (ii) which has been franked with franking credits
or exempting credits (whichever is applicable) in excess of the required
franking amount; (iii) which would result in the Company being liable to pay
franking deficit Tax or additional Tax under the 1936 Tax Act, and (iv) in
respect of which the required franking amount (as provided for in section 160AQE
of the 1936 Tax Act) was less than the franked amount (as defined in section
160APA of the 1936 Tax Act) of the dividend; or (v) which has been franked with
franking credits or exempting credits (whichever is applicable) in excess of the
required franking amount.
(n) No asset of the Company has been the subject to (i) a claim for
rollover relief under Part IIIA of the 1936 Tax Act; or (ii) the operation of
section 160ZZS of the 1936 Tax Act.
(o) All deductions for research and development expenditure, as allowed
under the 1936 Tax Act, made by the Company in any income Tax Returns referred
to under Section 3.8(b) are supported by the following (i) registration with the
Industry Research and Development Board within the required statutory
requirements on companies making such claims; (ii) the maintenance of an annual
register with the Industry Research and Development Board; and (iii) approvals
by the Industry Research and Development Board.
(p) The Shareholders have provided to N2H2 all information or details
relevant to any deductions claimed in accordance with Section 3.8(o).
(q) To the Shareholders' and the Company's Knowledge, no event has
occurred which has prevented or could prevent the Company obtaining the benefit
of any future income Tax benefit provided for in the Financial Statements.
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3.9 PROPERTY
(a) The Company owns no real property other than the leasehold
interests described on Schedule 3.9(a) to the Disclosure Memorandum, which
contains a complete and accurate list of all real property owned, leased or
currently being used by the Company (the "Real Property"). The Company has
delivered to N2H2 or its counsel true and complete copies of all written leases,
subleases, rental agreements, contracts of sale, tenancies or licenses relating
to the Real Property and written summaries of the terms of any oral leases,
subleases, rental agreements, contracts of sale, tenancies or licenses to which
the Real Property is subject.
(b) Schedule 3.9(b) to the Disclosure Memorandum contains a complete
and accurate list of each item of personal property having a current value in
excess of $5,000 which is owned, leased, rented or used by the Company (the
"Personal Property"); provided that such list need not describe the Third Party
Technology or the Intellectual Property Rights listed on Schedules 3.14.2 and
3.14.4 to the Disclosure Memorandum. The Company has delivered to N2H2 true and
complete copies of all leases, subleases, rental agreements, contracts of sale,
tenancies or licenses to which the Personal Property is subject.
(c) The Real Property and the Personal Property include all the
properties and assets (whether real, personal or mixed, tangible or intangible)
(other than, in the case of the Personal Property, property rights with an
individual current value of less than $5,000 and the Technology and Intellectual
Property Rights) reflected in the Company Balance Sheet (except for such
properties or assets sold since the date of the Company Balance Sheet in the
ordinary course of business and consistent with past practice) and all the
properties and assets purchased by the Company since the date of the Company
Balance Sheet (other than, in the case of the Personal Property, property rights
with an individual value of less than $5,000 and the Company Technology and the
Intellectual Property Rights). The Real Property and the Personal Property
include all material property used in the business of the Company, other than
the Company Technology and Intellectual Property Rights. The Company's offices
and other structures and its Personal Property are of a quality consistent with
industry standards, are in good operating condition and repair, normal wear and
tear excepted, are adequate for the uses to which they are being put, and, to
the Company's Knowledge, comply in all material respects with applicable safety
and other laws and regulations.
(d) The Company's leasehold interest in each parcel of the Real
Property is free and clear of all Encumbrances except for Encumbrances related
to Taxes not yet due and payable. Each lease of any portion of the Real Property
is valid, binding and enforceable in accordance with its terms against the
parties thereto and, to the Company's Knowledge, any other Person with an
interest in such Real Property, the Company has performed in all material
respects all obligations imposed upon it thereunder, and neither the Company
nor, to the Company's Knowledge, any other party thereto is in default
thereunder, nor is there any event which with notice or lapse of time, or both,
would constitute a default thereunder by the Company or, to the Company's
Knowledge, by any other party. The Company has not granted any lease, sublease,
tenancy or license of, or entered into any rental agreement or contract of sale
with respect to, any portion of the Real Property.
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(e) The Personal Property is free and clear of all Encumbrances (except
as reflected in the Company Financial Statements, except for Encumbrances
created by the Lessors thereof, and except for Encumbrances related to Taxes not
yet due and payable by the Company, and, other than leased Personal Property
which is so noted on the list supplied pursuant to Section 3.9(b) hereof, the
Company owns such Personal Property. Each lease, license, rental agreement,
contract of sale or other agreement to which the Personal Property is subject is
valid, binding and enforceable in accordance with its terms against the parties
thereto, the Company has performed in all material respects all obligations
imposed upon it thereunder, and neither the Company nor, to the Company's
Knowledge, any other party thereto is in default thereunder, nor is there any
event which with notice or lapse of time, or both, would constitute a default by
the Company or, to the Company's Knowledge, any other party thereunder. The
Company has not granted any lease, sublease, tenancy or license of any portion
of the Personal Property, except in the ordinary course of business.
3.10 CONTRACTS
Schedule 3.10 to the Disclosure Memorandum contains a complete and
accurate list (other than the Intellectual Property Rights listed on Schedule
3.14 to the Disclosure Memorandum) of all contracts, agreements and
understandings, oral or written, to which the Company is currently a party or by
which the Company is currently bound providing for potential payments by or to
the Company in excess of $10,000, including, without limitation, security
agreements, license agreements, software development agreements, distribution
agreements, joint venture agreements, reseller agreements, credit agreements and
instruments relating to the borrowing of money. All contracts set forth on
Schedule 3.10 are valid, binding and enforceable in accordance with their terms
against the Company and, to the Shareholders' and the Company's Knowledge, each
other party thereto, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
(b) rules of law governing specific performance, injunctive relief and other
equitable remedies, and (c) the enforceability of provisions requiring
indemnification in connection with the offering, issuance or sale of securities,
and are in full force and effect, the Company has performed in all material
respects all obligations imposed on it thereunder, and neither the Company or,
to the Shareholders' and the Company's Knowledge, any other party thereto is in
default thereunder, nor to the Shareholders' and the Company's Knowledge is
there any event which with notice or lapse of time, or both, would constitute a
default by the Company or, to the Shareholders' and the Company's Knowledge, any
other party thereunder. True and complete copies of each such written contract
(or written summaries of the terms of any such oral contract) have been
delivered to N2H2 by the Company. Except as set forth on Schedule 3.10, the
Company has no:
(a) contracts with directors, officers, stockholders, 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 affecting or relating to former employees
of the Company;
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(b) employment agreement, whether express or implied, or any other
agreement for services that contains severance or termination pay liabilities or
obligations;
(c) noncompetition agreement or other arrangement that would prevent
the Company from carrying on its business anywhere in the world;
(d) notice that any party to a contract listed on Schedule 3.10 intends
to cancel, terminate or refuse to renew such contract (if such contract is
renewable);
(e) material dispute with any of its suppliers, customers,
distributors, OEM resellers, licensors or licensees;
(f) product distribution agreement, development agreement, or license
agreement as licensor or licensee (except for standard nonexclusive software
licenses granted to end-user customers in the ordinary course of business the
form of which has been provided to N2H2 or standard licenses purchased by the
Company for off-the-shelf software);
(g) joint venture contract or arrangement or any other agreement that
involves a sharing of profits with other persons; and
(h) instrument evidencing indebtedness for borrowed money by way of a
direct loan, sale of debt securities, purchase money obligation, conditional
sale or guarantee, or otherwise, except for trade indebtedness incurred in the
ordinary course of business, and except as disclosed in the Financial
Statements.
3.11 CLAIMS AND LEGAL PROCEEDINGS
There are no claims, actions, suits, arbitrations, investigations or
proceedings pending or involving or, to the Shareholders' and the Company's
Knowledge, threatened against the Company before or by any court or governmental
or nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person. To the Shareholders' and the Company's
Knowledge, there is no valid basis for any claim, action, suit, arbitration,
proceeding or investigation before or by any Person which could reasonably be
expected to have a Company Material Adverse Effect. There are no outstanding or
unsatisfied judgments, orders, decrees or stipulations to which the Company is a
party. No material disputes have been settled or resolved by litigation or
arbitration since the Company's inception.
3.12 LABOR AND EMPLOYMENT MATTERS
3.12.1 EMPLOYEES
There are no material labor disputes, employee grievances or
disciplinary actions pending or, to the Shareholders' and the Company's
Knowledge, threatened against or involving the Company or any of its present or
former employees. The Company has complied with all applicable 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
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practice and has no liability for any arrears of wages or Taxes or penalties or
failure to comply with any such provisions of law. There is no coordinated labor
strike, dispute, slowdown or stoppage involving more than one employee pending
or, to the Company's Knowledge, threatened against or affecting the Company, and
the Company has not experienced any coordinated work stoppage involving more
than one employee or other labor difficulty since its incorporation. No
collective bargaining agreement is binding on the Company. The Company has no
Knowledge of any organizational efforts presently being made or threatened by or
on behalf of any labor union with respect to employees of the Company. Each
employee, officer and consultant of the Company has executed a nondisclosure
agreement in the form provided to N2H2. To the Company's Knowledge, no employee
(or person performing similar functions) of the Company is in violation of any
such agreement or my 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. The Company has previously
provided N2H2 with (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 labor
union contracts (if any); and (c) the names and current compensation packages of
all independent contractors and consultants of the Company. The Company is not
in default with respect to any of its obligations referred to in clause (b)
above and has no obligation or liability for severance or back pay owed through
or by virtue of the Acquisition. Except as disclosed on Schedule 3.12, no
employees of the Company other than Jason Gomersall and Bevan Slattery, have any
employment contract or other right to continued employment with the Company and
their employment may be terminated at any time without cause and without any
severance or other payment by the Company, except as required under applicable
law.
3.12.2 APPLICABLE INSTRUMENTS
Except as set out in Schedule 3.12.2 to the Disclosure Memorandum:
(a) there are no awards, enterprise agreements or other instruments
made or approved under law which apply to employees of the Company;
(b) there are no contracts, arrangements or understandings in place
which apply to any or all Company employees and provide for terms or conditions
of employment above those specified in any award, enterprise agreement or other
instrument made or approved under any law;
(c) there are no contracts, arrangements or understandings with any
employees of the Company who are not covered by any award, enterprise agreement
or other instrument made or approved under any law; and
(d) there are no contracts, arrangements or understandings with
independent contractors of the Company.
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3.13 EMPLOYEE BENEFIT PLANS AND SUPERANNUATION
3.13.1 EMPLOYEE BENEFIT PLAN LISTING
The Company, except in accordance with statutory obligations under
applicable laws or as disclosed on Schedule 3.13.1 to the Disclosure Memorandum,
has no retirement, pension, profit sharing, deferred compensation, savings,
bonus, medical, insurance, sick pay, holiday, vacation, severance, stock option,
fringe benefit and other employee benefit plans, funds, policies or practices
benefiting any current or former officer, employee, director or independent
contractor of the Company, or (b) with respect to which the Company has (or
could have) any obligation or liability (such plans, funds, and arrangements are
hereinafter referred to collectively as "Employee Benefit Plans" and each
individually as an "Employee Benefit Plan").
3.13.2 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 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 as required by Australian law.
3.13.3 PAYMENTS RESULTING FROM TRANSACTIONS
Except as set forth in Schedule 3.13.3 of the Disclosure Memorandum and
except for the Consulting Agreement described in Section 5.5, 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 any other Person, or otherwise increase the amount of compensation due to any
such individual, or (b) result in any benefit or right becoming established or
increased, or accelerate the time of payment or vesting of any benefit, under
any be required to trigger any of the items specified in (a) or (b) above.
3.13.4 SUPERANNUATION
Except for its commitment to contribute to the Fund, the Company does
not contribute to, or have any obligation, liability or duty to make any payment
to any person in respect of, any Superannuation Arrangements.
The Company has complied with all of its obligations, duties and
liabilities under all of its Superannuation Arrangements and (without
limitation) under the governing rules of the Fund, including making all
contributions to the Fund required to be made under its rules and under any
applicable law.
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3.14 INTELLECTUAL PROPERTY
3.14.1 GENERAL
The Company (i) owns free and clear of any Encumbrance all right, title
and interest in and to the Company Technology, including all Intellectual
Property Rights therein and thereto, and (ii) has sufficient rights, including
licenses under Intellectual Property Rights, in all Third Party Technology that
is used to conduct its business as currently conducted. The Company Technology
includes without limitation the items listed on Schedule 3.14.1 to the
Disclosure Memorandum.
3.14.2 THIRD PARTY TECHNOLOGY
Schedule 3.14.2 to the Disclosure Memorandum sets forth a list of all
Third Party Technology 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
Technology (the "Third Party Licenses"), indicating, with respect to each of the
Third Party Technologies listed therein, the licensor thereof and the Third
Party License applicable hereto. 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. All Third Party Licenses are valid, binding and in full force and
effect, the Company and, each other party thereto have performed in all material
aspects their obligations thereunder, and neither the Company nor any other
party thereto is in default thereunder, nor to the Shareholders and the
Company's Knowledge, has there occurred any event or circumstance which with
notice or lapse of time or both would constitute a default or event of default
on the part of the Company or any other party thereto or give to any other party
hereto the right to terminate or modify any Third Party License. The Company has
not received notice that any party to any Third Party License intends to cancel,
terminate or refuse to renew (if renewable) such Third Party License or to
exercise or decline to exercise any option or right thereunder.
3.14.3 TRADEMARKS
Schedule 3.14.3 and Schedule 3.14.10 to the Disclosure Memorandum sets
forth a list of all of the Company's trademarks, trade names, business names,
service marks, or logos for the products used by the Company in its business
(the "Marks"). The Company has full legal and beneficial ownership, free and
clear of any Encumbrances, of all rights conferred by use of the Marks in
connection with the Company's products or otherwise in the Company's business.
3.14.4 INTELLECTUAL PROPERTY REGISTRATIONS
Schedule 3.14.4 to the Disclosure Memorandum sets forth all patents,
patent applications, copyright registrations (and applications therefor) and
trademark registrations (and applications therefor) (collectively, the "IP
Registrations") associated with the Company Technology and the
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Marks. The Company owns all right, title and interest, free and clear of any
Encumbrances, in and to the IP Registrations.
3.14.5 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) Intellectual Property
Rights in and to Company Technology, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of such Intellectual
Property 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 such Intellectual Property Rights or the IP Registrations,
in each case where such abandonment, cancellation, unenforceability, forfeiture
or relinquishment would have a Company Material Adverse Effect. The Company has
not granted to any third party any rights or permissions to use any of the
Technology-Related Assets or the Intellectual Property Rights therein and
thereto. To the Company's Knowledge, except pursuant to reasonably prudent
safeguards, (a) no third party has received from or through the Company any
confidential information relating to the Technology-Related Assets or the
Intellectual Property Rights therein and thereto, and (b) the Company is not
under any contractual or other obligation to disclose to any third party any
Company Technology.
3.14.6 THIRD PARTY INFRINGEMENT
To the Company's Knowledge, no other person or entity is infringing or
misappropriating any part of the Intellectual Property Rights in and to the
Company Technology or otherwise making any unauthorized use of the Company
Technology.
3.14.7 INFRINGEMENT BY THE COMPANY; VALIDITY OF INTELLECTUAL PROPERTY
RIGHTS
As to patents not issued on or prior to the Closing Date ("Unissued
Patents"), the use of any of the Company Technology and/or the Marks in the
Company's business does not infringe or violate any Intellectual Property Right
held by any other person or entity, and there have been no claims made with
respect thereto. The Company has not received any notice or claim (whether
written, oral or otherwise) (a) regarding any infringement, misappropriation,
misuse, abuse or other interference with any third party Intellectual Property
Rights by the Company, the Technology-Related Assets or the Marks or claiming
that any other entity has any claim of infringement with respect thereto, (b)
challenging the Company's ownership or rights in the Company Technology or the
Intellectual Property Rights therein or thereto or claiming that any other
person or entity has any legal or beneficial ownership with respect thereto or
(c) challenging the validity or enforceability of any IP Registrations or any of
the Intellectual Property rights in and to the Company Technology. To Company's
Knowledge, the Company Technology does not infringe any Unissued Patents.
3.14.8 CONFIDENTIALITY
(a) The Company has not disclosed any source code regarding the Company
Technology to any person or entity other than an employee of the Company or
under a written nondisclosure
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agreement; (b) the Company has at all times maintained and diligently enforced
commercially reasonable procedures to protect all confidential information
relating to the Technology-Related Assets; (c) neither the Company nor any
escrow agent is under any contractual or other obligation to disclose the source
code or any other proprietary information included in or relating to the
Technology Related-Assets; and (d) the Company has not deposited any source code
relating to the Technology-Related Assets into any source code escrows or
similar arrangements.
3.14.9 WARRANTY AGAINST DEFECTS
Except as set forth in Schedule 3.14.9 to the Disclosure Memorandum,
the Technology-Related Assets are free from known material defects and
substantially conform to the applicable specifications, documentation and
samples of such Technology-Related Assets.
3.14.10 DOMAIN NAMES
Schedule 3.14.10 sets forth a list of all Domain Names. The Company
has, and after the Closing the Company 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.
3.14.11 YEAR 2000
The Software will accurately process date data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries, including, without limitation, leap year
calculations, without a material decrease in the functionality of the Software.
The Software is designed to be used prior to, during and after the calendar year
2000 A.D. and will operate during each such time period without error relating
to date data, specifically including any error relating to, or the product of,
date data which represents or references different centuries or more than one
century. Without limiting the generality of the foregoing, the Software (a) will
not normally end or provide invalid or incorrect results as a result of date
data, specifically including date data which represents or references different
centuries or more than one century; (b) has been designed to ensure year 2000
compatibility, including, but not limited to, date data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, and date data interface values that reflect the century; and (c)
includes "Year 2000 capabilities," meaning that the Software (i) will manage and
manipulate data involving dates, including single century formulas and
multicentury formulas, and will not cause an normally ending scenario within the
application or generate incorrect values or valid results involving such dates;
(ii) provides that all date-related user interface functionalities and data
fields include the indication of century; and (iii) provides that all
date-related data interface functionalities include the indication of century.
The foregoing warranty shall not apply to the extent the nonconformance is
caused by the failure of any other software or hardware (other than the Third
Party Technology) with which the Company Technology is used to have Year 2000
Capabilities and the noncompliance would not have occurred but for such failure.
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3.15 CORPORATE BOOKS AND RECORDS
The Company has furnished to N2H2 or its representatives for their
examination true and complete copies of (a) the Constitution of the Company as
currently in effect, including all amendments thereto through the date of this
Agreement, (b) the minute books of the Company, and (c) the stock transfer books
of the Company. Such minutes reflect all meetings of the Company's Shareholders,
Board of Directors and any committees thereof since the Company's inception, and
such minutes accurately reflect in all material respects the events of and
actions taken at such meetings. Such stock transfer books accurately reflect all
issuances and transfers of shares of capital stock of the Company since its
incorporation.
3.16 LICENSES, PERMITS, AUTHORIZATIONS, ETC.
The Company has received all currently required governmental approvals,
authorizations, consents, licenses, orders, registrations and permits of all
agencies, whether federal, state, local or foreign, the failure to obtain of
which would have a Company Material Adverse Effect. The Company has not received
any notifications of any asserted present failure by it to have obtained any
such governmental approval, authorization, consent, license, order, registration
or permit, or past and unremedied failure to obtain such items.
3.17 COMPLIANCE WITH LAWS
The Company is in compliance with all federal, state, local and foreign
laws, rules, regulations, ordinances, decrees and orders applicable to it, to
its employees or to the Real Property and the Personal Property, including,
without limitation, all such laws, rules, regulations, ordinances, decrees and
orders relating to intellectual property protection, anti-competition matters,
consumer protection, currency exchange, environmental protection, equal
employment opportunity, health and occupational safety, pension and employee
benefit matters, securities and investor protection matters, labor and
employment matters and trading-with-the-enemy matters. The Company has not
received any notification of any asserted present or past unremedied failure by
the Company to comply with any of such laws, rules, ordinances, decrees or
orders.
3.18 INSURANCE
Schedule 3.18 to the Disclosure Memorandum sets forth a true and
correct list of all insurance policies maintained by the Company. All insurance
policies of the Company are in full force and effect, all premiums with respect
thereto covering all periods up to and including the date this representation is
made have been paid, and no notice of cancellation or termination has been
received with respect to any such policy or binder. Such policies or binders are
sufficient for compliance with all requirements of law currently applicable to
the Company and of all agreements to which the Company is a party, will remain
in full force and effect through the respective expiration dates of such
policies or binders without the payment of additional premiums, and will not in
any way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. The Company has not been refused any insurance
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with respect to its assets or operations, nor has its coverage been limited, by
any insurance carrier to which it has applied for any such insurance or with
which it has carried insurance.
3.19 BROKERS OR FINDERS
The Company has not incurred, and will not incur, directly or
indirectly, as a result of any action taken by or on behalf of the Company, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with the Acquisition, this Agreement or any transaction
contemplated hereby.
3.20 ABSENCE OF QUESTIONABLE PAYMENTS
Neither the Company nor any director, officer, agent, employee or other
Person acting on behalf of the Company has used any Company funds for improper
or unlawful contributions, payments, gifts or entertainment, or made any
improper or unlawful expenditures relating to political activity to domestic or
foreign government officials or others. The Company has reasonable financial
controls to prevent such improper or unlawful contributions, payments, gifts,
entertainment or expenditures. Neither the Company nor any current director,
officer, agent, employee or other Person acting on behalf of the Company has
accepted or received any improper or unlawful contributions, payments, gifts or
expenditures.
3.21 BANK ACCOUNTS
Schedule 3.21 to the Disclosure Memorandum sets forth the names and
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which the Company maintains safe deposit boxes or
accounts of any nature and the names of all Persons authorized to draw thereon,
make withdrawals therefrom or have access thereto.
3.22 INSIDER INTERESTS
Except as set forth on Schedule 3.22 to the Disclosure Memorandum, no
Shareholder officer, director or employee of the Company has any interest (other
than as a Shareholder of the Company) (a) in any Real Property, Personal
Property, Company Technology or Intellectual Property 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 on Schedule 3.22,
there are no agreements, understandings or proposed transactions between the
Company and any of its officers, directors, Shareholders, affiliates or any
affiliate thereof. The Company and its officers and directors have no interest,
either directly or indirectly, in any entity, including, without limitation, any
corporation, partnership, joint venture, proprietorship, firm, licensee,
business or association (whether as an employee, officer, director, Shareholder,
agent, independent contractor, security holder, creditor, consultant or
otherwise) that presently (i) provides any services, produces and/or sells any
products or product lines, or engages in any activity that is the same, similar
to or competitive with any activity or business in which the Company is now
engaged or proposes to engage; (ii) is a supplier, customer or creditor; or
(iii) has any direct or indirect interest in any asset or property,
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real or personal, tangible or intangible, of the Company or any property, real
or personal, tangible or intangible, that is necessary or desirable for the
present or currently anticipated future conduct of the Company's business.
3.23 COMPLIANCE WITH ENVIRONMENTAL LAWS
Neither the Company nor, to the Company's Knowledge, any other Person
(including, without limitation, any previous owner, lessee or sublessee) has
treated, stored or disposed of any material amounts of petroleum products,
hazardous waste, hazardous substances, pollutants or contaminants on the Real
Property, or any real property previously owned, leased, subleased or used by
the Company in the operation of its business, in violation of any applicable
foreign, federal, state or local statutes, regulations or ordinances, or common
law, in each case as in existence at or prior to the Closing. 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.
3.24 INFORMATION SUPPLIED BY THE COMPANY
None of the information supplied or to be supplied by the Company for
inclusion in the notices to be delivered to its Shareholders in connection with
any written consent by or meeting of such Shareholders (collectively,
"Shareholder Materials"), at the date on which such information was supplied
prior to the time the Company's Shareholders were requested to approve the
Acquisition, contained or will contain any untrue statement of a material fact
or omits or will omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
the Company makes no representations or warranties regarding information
furnished by or related to N2H2.
3.25 FULL DISCLOSURE
None of the representations or warranties made by the Company in this
Agreement (including the Financial Statements and the Disclosure Memorandum, and
any exhibits hereto and thereto), when taken together, contains as of the date
of this Agreement any untrue statement of a material fact, or omits to state any
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
3.26 HART-SCOTT-RODINO
The Company's "ultimate parent entity" as that term is defined under
the rules and regulations promulgated under the Hart-Scott-Rodino Act has less
than $100 million in "net
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sales" and less than $100 million in "total assets" as such terms are defined
under the Hart-Scott-Rodino Act.
3.27 COMPUTER SYSTEMS AND SOFTWARE
(a) All the computers and computer systems owned or used by the Company
(i) are in full operating order and are fulfilling the purposes for which they
were acquired or established in an efficient manner without material downtime or
errors; (ii) have adequate capacity for the Company's present needs;(iii) have
adequate security, back-ups, hardware and software support and maintenance and
trained personnel to ensure so far as is reasonable (a) that breaches of
security, errors and breakdowns are kept to a minimum; and (b) that to the
Knowledge of the Shareholders and the Company there are no circumstances which
would lead to material disruption to the business of the Company or any material
part of the business in the event of a breach of security, error or breakdown;
(iv) are properly documented so as to enable them to be used and operated by any
reasonably qualified personnel; and (v) are owned and under the sole control of
the Company, are located in premises (except as disclosed in Schedule 3.27 to
the Disclosure Memorandum) occupied by the Company, are not shared with or used
by or on behalf of or accessible by any other person.
(b) All records and data stored by electronic means are capable of
ready access through the present computer systems of the Company.
(c) No person, other than employees or agents of the Company, is in a
position, by virtue of his or her rights in, knowledge of or access to any of
the computer systems used by the Company or any part of them (including
Software) to (i) prevent or impair the proper and efficient functioning of the
computer systems or to demand any payment in excess of any current licence fee
or in excess of reasonable remuneration for services rendered; or (ii) impose
any onerous condition, in order to preserve the proper and efficient functioning
of the computer systems in the future.
(d) All software used on the computers used by the Company (i) performs
efficiently in accordance with its specification and to the Knowledge of the
Shareholders and the Company does not contain any defect or feature which may
adversely affect its performance; and (ii) as to the copyright in the software
or source code: (a) in the case of software written or commissioned by the
Company, is owned exclusively by the Company, and no other person has rights in
or rights to use that software or source code or copies of that software or
source code; (b) in the case of standard packaged software purchased outright,
is licensed to the Company on an express or implied licence which does not
require the Company to make any further payments, is not terminable without the
consent of the Company and imposes no material restrictions on the use or
transfer of the software; and (c) in the case of all other software, is licensed
to the Company on the terms of a valid written licence which requires payment by
the Company of a fixed annual licence fee at a rate not exceeding that paid in
the previous financial year, and (except for reasonable fees for software
support) requires the Company to make no further or other payment, is not
terminable (except for failure to pay the licence fee) without the consent of
the Company and imposes no material restrictions on the use or transfer of the
software.
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3.28 TRADE PRACTICES
Neither the Company nor any of its officers or employees has committed
or omitted to do any act or thing the commission or omission of which is a
contravention of the Trade Practices Act 1974 (Cth), Fair Trading Act 1989 (Qld)
or like legislation in any other state or territories of Australia.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
OF N2H2
In order to induce the Shareholders to enter into and perform this
Agreement and the other Operative Documents, N2H2 represents and warrants to the
Shareholders as follows in this Article IV:
4.1 ORGANIZATION
N2H2 is a corporation duly organized validity existing and in good
standing under the laws of the state of Washington. N2H2 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 and to enter into and perform its obligations under
this Agreement and the other applicable Operative Documents to which N2H2 is a
party, and to consummate the transactions contemplated hereby and thereby. N2H2
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 N2H2, as applicable, or the nature of the
business conducted by N2H2 makes such qualification or licensing necessary,
except where the failure to be so qualified or in good standing would not have
N2H2 Material Adverse Effect. N2H2 has full corporate power and authority to
execute, deliver and perform this Agreement and the other Operative Documents to
which it is a party, and to carry out the transactions contemplated hereby and
thereby.
4.2 ENFORCEABILITY
N2H2 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 them pursuant to the terms of this Agreement.
All corporate action on the part of N2H2 and its officers, directors and
stockholders necessary for the authorization, execution, delivery and
performance of this Agreement and the other applicable Operative Documents to
which N2H2 is a party, the consummation of the Acquisition and the performance
of all of its respective obligations under this Agreement and the other
applicable Operative Documents to which N2H2 is a party has been taken or will
be taken prior to Closing. This Agreement has been, and each of the other
Operative Documents) which N2H2 is a party will have been at the Closing, duly
executed and delivered by N2H2, and this Agreement is, and each of the other
Operative documents to which N2H2 is a party will be at the Closing, a legal,
valid and binding obligation of N2H2, enforceable against N2H2 in accordance
with its terms, except as to the effect, if any,
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of (a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies.
4.3 SECURITIES
The N2H2 Common Stock to be issued pursuant to this Agreement has been,
or will be prior to the Closing, duly authorized for issuance, and such N2H2
Common Stock, when issued and delivered to the Shareholders pursuant to this
Agreement, shall be validly issued, fully paid and nonassessable.
4.4 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS
The execution, delivery and performance of this Agreement and the other
Operative Documents by N2H2 and the consummation by them of the transactions
contemplated hereby and thereby will not (a) constitute a violation (with or
without the giving of notice or lapse of time, or both) of any provision of law
applicable to N2H2; (b) require any consent, approval or authorization of any
Person, except compliance with applicable securities laws and the filing of all
documents necessary to consummate the Acquisition with the Australian Securities
and Investments Commission (all such consents, approvals or authorizations to be
duly obtained at or prior to the Closing); (c) result in a default (with or
without the giving of notice or lapse of time, or both) under, or acceleration
or termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any agreement, lease, note or other restriction,
encumbrance, obligation or liability to which N2H2 is a party or by which it is
bound or to which any assets of N2H2 are subject; or (d) conflict with or result
in a breach of or constitute a default under any provision of the Certificate of
Incorporation or Bylaws of N2H2.
4.5 CAPITALIZATION
The authorized capital stock of N2H2 consists of 250,000,000 shares of
N2H2 Common Stock of which 21,174,022 shares were issued and outstanding as of
January 14, 2000 and 50,000,000 shares of preferred stock, par value $0.00 per
share, none of which is issued or outstanding. Such issued and outstanding
shares of N2H2 Common Stock are validly issued, fully paid and nonassessable.
4.6 SEC DOCUMENTS
N2H2 has furnished the Shareholders with true and complete copies of
its prospectus dated July 29, 1999, all exhibits related thereto, and its Annual
Report on Form 10-K for the fiscal year ended September 30, 1999, its quarterly
report on Form 10-Q for the quarter ended December 31, 1999, and its proxy
statement for its annual meeting of Shareholders to be held March 9, 2000
(collectively, the "SEC Documents"). As of their respective filing dates, each
of the SEC Documents contained all statements required to be stated therein and
in accordance with, and complied in all material respects with the requirements
of the Securities Act or Exchange Act, as applicable, and the rules and
regulations of the Securities and Exchange Commission thereunder. Since the
respective dates of the SEC Documents, there has been no
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material adverse change in the financial condition or results of operations of
N2H2, taken as whole.
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS
OF N2H2
The obligations of N2H2 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 executed by N2H2:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Shareholders and the Company
contained herein (including applicable Exhibits or Schedules to the Disclosure
Memorandum) and in the other Operative Documents shall have been true and
correct in all material respects when made and (except (a) to the extent that
such representations and warranties speak as of a specific earlier date, and (b)
for the representations and warranties set forth in Section 3.7(d)), shall be
true and correct in all material respects as of the Closing Date as though made
on that date. In addition, the representations and warranties of the
Shareholders contained in Section 3.7(d) shall be true and correct as of the
Closing Date as though made on that date.
5.2 PERFORMANCE OF AGREEMENTS
The Shareholders and the Company shall have performed in all material
respects all obligations and agreements and complied with all covenants
contained in this Agreement or any other Operative Document to be performed and
complied with by them at or prior to the Closing.
5.3 OPINION OF COUNSEL FOR THE COMPANY AND THE SHAREHOLDERS
N2H2 shall have received the opinion letter of Deacons Graham & James,
counsel for the Company and the Shareholders, dated the Closing Date, in a form
reasonably acceptable to the N2H2.
5.4 COMPLIANCE CERTIFICATE
N2H2 shall have received a certificate from the Shareholders and a
certificate from the Managing Director and Company Secretary of the Company each
dated the Closing Date, in form and substance reasonably satisfactory to N2H2,
certifying that the conditions to the obligations of N2H2 in Sections 5.1 and
5.2 hereof have been fulfilled. N2H2 shall have received a certificate of the
Managing Director and Company Secretary of the Company certifying that the
conditions to the obligations of N2H2 in Section 5.5 hereof have been fulfilled.
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5.5 APPROVALS AND CONSENTS
All transfers of permits or licenses and all approvals of or notices to
public agencies, federal, state, local or foreign, the granting or delivery of
which is necessary for the consummation of the transactions contemplated hereby,
or for the continued operation of the Company, shall have been obtained, and all
waiting periods specified by law shall have passed. All other consents,
approvals and notices referred to in this Agreement shall have been obtained or
delivered.
5.6 PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE
N2H2 shall have received a certificate of the Secretary of the Company,
in form and substance reasonably satisfactory to N2H2, as to the authenticity
and effectiveness of the actions of the Board of Directors and Shareholders of
the Company authorizing the Acquisition and the transactions contemplated by
this Agreement and the other Operative Documents.
5.7 COMPLIANCE WITH LAWS
The effectiveness of the Acquisition and the performance by N2H2, the
Company and the Shareholders of their respective obligations pursuant to this
Agreement and the other Operative Documents shall be legally permitted by all
laws and regulations to which N2H2, the Company or the Shareholders are subject.
5.8 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect which
enjoins, restrains, conditions or prohibits consummation of this Agreement or
any other Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or threatened which would enjoin, restrain,
condition or prevent consummation of this Agreement or any other Operative
Document.
5.9 ESCROW AGREEMENT
The Shareholders' Representative, on behalf of the Company's
stockholders, shall have executed and delivered the Escrow Agreement.
5.10 EMPLOYMENT AND CONFIDENTIALITY ARRANGEMENTS
Jason Gomersall and Bevan Slattery shall have each executed and
delivered to the Company an Employment Agreement in the forms attached hereto as
Exhibit 5.10. All the other employees of the Company shall have executed
Confidentiality Agreements in the form attached hereto as Exhibit 5.10B.
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5.11 AFFILIATE LETTERS
The Shareholders shall have delivered or caused to be delivered to N2H2
an Affiliate Letter in a form reasonably acceptable to N2H2 from each of those
Persons who were, on the date on which the requisite number of consents has been
obtained to approve the Acquisition, "affiliates" of the Company within the
meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act.
5.12 TERMINATION OF CERTAIN AGREEMENTS
Any and all rights of refusal, co-sale rights and registration rights
for the benefit of the holders of Company Capital Stock, if any, set forth in
the Disclosure Memorandum shall have been terminated.
5.13 CONVERSION OF CONVERTIBLE SECURITIES AND EXERCISE OF OPTIONS
Any and all stock purchase rights, including options to acquire stock,
and any and all securities convertible at any time into Company Capital Stock,
vested and unvested, and regardless of restrictions on exercise or conversion,
shall have been exercised or converted, as the case may be, for shares of
Company Capital Stock immediately prior to the Closing.
5.14 GOMERSALL AND SLATTERY ESCROW AGREEMENTS
Jason Gomersall and Bevan Slattery shall have executed and delivered to
the Escrow Agent the Gomersall Escrow Agreement and the Slattery Escrow
Agreement, respectively.
5.15 CONSULTING AGREEMENT
The Company shall have entered into a Consulting Agreement with Advicom
Pty Limited ACN 091 099 731 in substantially the form attached hereto as Exhibit
5.15.
5.16 OTHER CONDITIONS
At or before Closing, the Shareholders must:
(a) deliver to N2H2 duly executed and completed transfers in favour of
N2H2 of the Company Common Stock in registrable form (except for the impression
of stamp duty or other Taxes of a similar nature) together with the relevant
share certificates (if any);
(b) produce to N2H2 any power of attorney or other authority under
which the transfers of the Company Common Stock are executed;
(c) deliver to N2H2 duly executed instruments irrevocably waiving in
favour of N2H2 all rights of pre-emption which any person has in respect of any
of the Company Common Stock;
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(d) deliver to N2H2 copies of any other applicable consents and waivers
required under this Agreement;
(e) cause the Board of Directors of the Company to resolve that the
transfers of the Company Common Stock (subject only to the payment of stamp
duties or other Taxes of a similar nature on the transfers) be approved and
registered;
(f) deliver to N2H2 a letter (in the form required by N2H2) from each
resigning officer of the Company acknowledging that he or she has no claim
against the Company for breach of contract, loss of office, redundancy,
compensation, payment or repayment of loans or otherwise, except for payments
properly payable as an employee for accrued salary, holiday pay and long service
leave up to the Closing Date;
(g) subject to any consent which may be required from the Australian
Securities and Investments Commission (which, if required, must be sought by the
Shareholders before Closing) use reasonable efforts to cause the resignation of
the auditors of the Company with effect from Closing;
(h) cause the revocation, with effect from Closing, of all authorities
relating to bank accounts of the Company other than signature authorities for
Jason Gomersall and Bevan Slattery;
(i) deliver to N2H2 the common seal (if any) of the Company;
(j) do all other things necessary or desirable to transfer the Company
Common Stock, to complete any other transaction contemplated by this Agreement
and to place N2H2 in effective control of the Company.
ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDERS
The obligations of the Shareholders 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 executed by a majority
of the Shareholders.
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of N2H2 contained herein and in the
other Operative Documents shall have been true and correct in all material
respects when made and, except for (a) changes contemplated by this Agreement
and the other Operative Documents, and (b) to the extent that such
representations and warranties speak as of a specific earlier date, shall be
true and correct as of the Closing Date as though made on that date.
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6.2 PERFORMANCE OF AGREEMENTS
N2H2 shall have performed all obligations and agreements and complied
with all covenants contained in this Agreement or any other Operative Document
to be performed and complied with by them at or prior to the Closing.
6.3 OPINION OF COUNSEL
The Company shall have received the opinion letter of Lane Powell
Spears Lubersky LLP, counsel for N2H2, dated the Closing Date, in a form
reasonably acceptable to the Company.
6.4 COMPLIANCE CERTIFICATE
The Company shall have received a certificate of an appropriately
authorized officer of N2H2, dated the Closing Date, substantially in form and
substance satisfactory to the Company, certifying that the conditions to the
obligations of the Shareholders in Sections 6.1, 6.2 and 6.13 have been
fulfilled.
6.5 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect which
enjoins, restrains, conditions or prohibits consummation of this Agreement or
any other Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or threatened which would enjoin, restrain,
condition or prevent consummation of this Agreement or any other Operative
Document.
6.6 APPROVALS AND CONSENTS
All transfers of permits or licenses and all approvals of or notices to public
agencies, federal, state, local or foreign, the granting or delivery of which is
necessary for the consummation of the transactions contemplated hereby or for
the continued operation of the Company, shall have been obtained, and all
waiting periods specified by law shall have passed. All other consents,
approvals and notices referred to in this Agreement shall have been obtained or
delivered.
6.7 COMPLIANCE WITH LAWS
The effectiveness of the Acquisition and the performance by N2H2 and
the Shareholders of the obligations hereunder and under the other Operative
Documents shall be legally permitted by all laws and regulations to which N2H2
or the Company is subject.
6.8 ESCROW AGREEMENT
N2H2 and the Escrow Agent shall have executed the Escrow Agreement.
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6.9 EMPLOYMENT AGREEMENT
The Company shall have executed and delivered an Employment Agreement
with each of Jason Gomersall and Bevan Slattery in the forms attached hereto as
Exhibit 5.10.
6.10 NASDAQ NATIONAL MARKET APPROVAL
Subject to any restrictions provided herein, all applicable filings
shall have been made with and all fees shall have been paid to the NASDAQ
National Market with respect to the N2H2 Common Stock to be issued pursuant to
this Agreement for trading on the Nasdaq National Market subject to notice of
issuance.
6.11 CONSULTING AGREEMENT
The Company shall have entered into a Consulting Agreement with Advicom
Pty Limited ACN 091 099 731 in substantially the form attached hereto as Exhibit
5.15.
6.12 REGISTRATION RIGHTS AGREEMENT
N2H2 shall have executed and delivered to the Shareholders the
Registration Rights Agreement in substantially the form attached hereto as
Exhibit 6.12.
6.13 PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE
The Shareholders shall have received a certificate of the Secretary of
N2H2, in form and substance reasonably satisfactory to the Shareholders, as to
the authenticity and effectiveness of the actions of the Board of Directors of
N2H2 authorizing the Acquisition and the transactions contemplated by this
Agreement and the other Operative Documents.
ARTICLE VII - COVENANTS
Between the date of this Agreement and the Closing, the parties
covenant and agree as set forth in this Article VII.
7.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE ACQUISITION
Unless N2H2 shall otherwise agree in writing, the business of the
Company shall be conducted in and only in, and the Company shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice and in accordance with applicable law; and the Shareholders
must ensure that the Company shall use its best efforts to preserve intact the
business organization of the Company, to keep available the services of the
current officers, employees and consultants of the Company and to preserve the
current relationships of the Company with, and the goodwill of, customers,
suppliers and other Persons with which the Company has significant business
relations. By way of amplification and not limitation, except as otherwise
contemplated by this Agreement, the Company shall not, between
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the date of this Agreement and the Closing, directly or indirectly do, or
propose to do, any of the following without the prior written consent of N2H2:
(a) amend or otherwise change its Constitution;
(b) 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,
or 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 (ii)
any assets of the Company (except in the ordinary course of business and in a
manner consistent with past practice);
(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 $10,000 or capital expenditures which
are, in the aggregate, in excess of $20,000 for the Company taken as a whole;
(v) enter into any agreement in which the obligation of the Company exceeds
$10,000 or which shall not terminate within 180 days following execution; (vi)
license any Company Technology or Intellectual Property Rights other than in the
ordinary course of 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);
(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
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
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procedures (including, without limitation, procedures with respect to the
payment of accounts payable and collection of accounts receivable);
(h) make any Tax election or settle or compromise any Tax liability;
(i) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice;
(j) take any action that would or is reasonably likely to result in any
of the representations and 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
Acquisition specified in Article V hereof not being satisfied; or
(k) agree to do any of the foregoing.
7.2 ACCESS TO INFORMATION; CONFIDENTIALITY
From the date hereof to the Closing, the Shareholders shall ensure
Company causes the officers, directors, employees and agents of the Company to,
afford the officers, employees and agents of N2H2 access at all reasonable times
to the officers, employees, agents, properties, offices, plants and other
facilities, books and records of the Company and shall furnish N2H2 with all
financial, operating and other data and information as N2H2, through its
officers, employees or agents, may reasonably request. From the date hereof
until the Closing, the Shareholders shall ensure the Company provides N2H2 with
financial statements of the Company as they become available internally at the
Company, all of which financial statements the Company represents and warrants
shall fairly present the financial position and results of operations of the
Company as of the dates and for the periods therein specified. No investigation
pursuant to this Section 7.2 shall affect any representation or warranty in this
Agreement of any party hereto or any condition to the obligations of the parties
hereto. The parties shall continue to comply with and to perform their
respective obligations under the Confidentiality Agreement between N2H2 and the
Company entered into as of January 3, 2000.
7.3 NO ALTERNATIVE TRANSACTIONS
Unless this Agreement shall have been terminated in accordance with its
terms, the Shareholders shall ensure the Company does not, directly or
indirectly, through any officer, director, agent or otherwise, solicit, initiate
or encourage the submission of any proposal or offer from any Person relating to
any acquisition or purchase of all or (other than in the ordinary course of
business) any material portion of the assets of, or any equity interest in, the
Company or any business combination with the Company or participate in any
negotiations regarding, or furnish to any other Person any information with
respect to, or otherwise cooperate or negotiate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
Person to do or seek any of the foregoing. The Shareholders shall ensure the
Company notifies N2H2 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 N2H2, indicate in reasonable detail
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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
Shareholders shall ensure that the Company does not 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.
7.4 NOTIFICATION OF CERTAIN MATTERS
Each party shall give prompt notice to the other parties of (a) the
occurrence or nonoccurrence of any event which would be reasonably likely to
cause any representation or warranty made by such party contained in this
Agreement to be untrue or inaccurate in any material respect, and (b) any
material failure by such party to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 7.4 shall not
limit or otherwise affect the remedies available to the parties hereunder.
7.5 FURTHER ACTION; COMMERCIALLY REASONABLE EFFORTS
Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use its commercially reasonable efforts to take, or cause
to be taken, all appropriate action, and to, do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby, including,
without limitation, using its best 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 Acquisition. In case at any time after the Closing
any further action is necessary or desirable to carry out the purposes of this
Agreement, each party to this Agreement shall use its commercially reasonable
efforts to take all such action. After the Closing Date, 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
Company full title to all properties, assets and rights of the Company and to
effect the issuance of the N2H2 Common Stock to the Shareholders of the Company
pursuant to the terms and conditions hereof.
7.6 RESTRICTIVE LEGEND
(a) Each certificate of N2H2 Common Stock issued under this Agreement
to a Shareholder who is not a "U.S. Person" as defined in Rule 902 of the
Securities Act, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND ARE ACQUIRED BY THE HOLDER
PURSUANT TO A REPRESENTATION THAT THE HOLDER IS NOT A U.S. PERSON AND
IS NOT ACQUIRING THE SECURITIES FOR THE ACCOUNT OR BENEFIT OF ANY U.S.
PERSON.
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THESE SHARES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OFFERED FOR SALE IN THE UNITED STATES, OR TO U.S. PERSONS EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S OF THE ACT, PURSUANT TO
REGISTRATION UNDER THE ACT, PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT, OR UPON. DELIVERY TO THE COMPANY
OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION
IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE COMPANY OF
SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO IT AND TO ITS COUNSEL TO
THE EFFECT THAT ANY SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE ACT.
HEDGING TRANSACTIONS INVOLVING THESE SHARES MAY NOT BE CONDUCTED UNLESS
IN COMPLIANCE WITH THE ACT.
(b) Each certificate of N2H2 Common Stock issued under this Agreement
to a Shareholder who is a "U.S. Person" as defined in Rule 902 of the Securities
Act, shall be stamped or otherwise imprinted with a legend in substantially the
following form:
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE `ACT') NOR IS SUCH REGISTRATION CONTEMPLATED.
SUCH SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED AT ANY TIME WHATSOEVER UNLESS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION
IS AVAILABLE, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
FOR SUCH TRANSFER OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER
EVIDENCE AS MAY BE SATISFACTORY TO IT AND TO ITS COUNSEL TO THE EFFECT
THAT ANY SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE ACT, OR
APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED
THEREUNDER.
7.7 PUBLICITY
No party hereto shall issue any press release or otherwise make any
statements to any third party with respect to this Agreement or the transactions
contemplated hereby until the issuance by N2H2 and the Company of a joint press
release announcing this Agreement and the transactions contemplated hereby
except as required by applicable law. The joint press release shall be made at a
time selected by N2H2.
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7.8 THIRD PARTY CONSENTS
The Shareholders shall use its best efforts to obtain all third-party
consents required to consummate the transactions contemplated herein.
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION
This Agreement may be terminated and the Acquisition may be abandoned
at any time prior to Closing (notwithstanding any approval of this Agreement by
the Shareholders):
(a) by mutual written consent;
(b) by either the Shareholders or N2H2, if the Acquisition has
not been consummated by February 28, 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 Closing to occur on or before such
date;
(c) by either the Shareholders or N2H2, if there shall be any
law or regulation that makes consummation of the Acquisition illegal or if any
judgment, injunction, order or decree enjoining N2H2 or the Company from
consummating the Acquisition 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 Shareholders, in the event of a material breach by
N2H2 of any representation, warranty or agreement contained herein which has not
been cured or is not curable by February 28, 2000; or
(e) by N2H2, in the event of a material breach by the
Shareholders of any representation, warranty or agreement contained herein which
has not been cured or is not curable by February 28, 2000.
8.2 EFFECT OF TERMINATION
In the event of the termination of this Agreement pursuant to Section
8.1 hereof, there shall be no further obligation on the part of any party
hereto, except that nothing herein shall relieve any party from liability for
any willful breach hereof.
8.3 AMENDMENT
This Agreement may be amended by the parties hereto at any time before
or after approval of the Company's Shareholders; but after such approval,
however, no amendment
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will be made which by applicable law requires the further approval of the
Company's Shareholders without obtaining such further approval.
8.4 WAIVER
At any time prior to the Closing, 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.
ARTICLE IX - SURVIVAL AND INDEMNIFICATION
9.1 SURVIVAL
All representations and warranties contained in this Agreement or in
the other Operative Documents or in any certificate delivered pursuant hereto or
thereto shall survive the Closing for a period of one year after the Closing
Date (the "Survival Period"), and shall not be deemed waived or otherwise
affected by any investigation made or any knowledge acquired with respect
thereto, or by any notice delivered pursuant to Section 7.4 hereof; provided,
however, that any claim based on fraud shall survive the Closing without
limitation to the Survival Period. 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.
9.2 INDEMNIFICATION BY THE COMPANY AND HOLDERS OF COMPANY CAPITAL STOCK
Subject to the limitations set forth in this Article IX, from and after
the Closing, the Shareholders shall severally, in proportion to each
Shareholders' Percentage Share, indemnify, defend and hold the Company, N2H2,
and their respective officers, directors and affiliates (as "affiliate" is
defined in Rule 12b-2 of the Securities Exchange Act of 1934) (collectively the
"N2H2 Indemnified Parties") harmless from and against, and shall reimburse the
N2H2 Indemnified Parties for, any and all losses, damages, debts, liabilities,
obligations, diminution of value, 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), whether or not arising
out of third-party claims (collectively, "Losses") asserted against or incurred
by any of the N2H2 Indemnified Parties in connection with or arising out of or
resulting from (i) any inaccuracy or misrepresentation in, or breach of, any
representation or warranty made by the Company or the Shareholders in this
Agreement together with the Disclosure Memorandum, or in any other Operative
Document or in any certificate delivered pursuant hereto or thereto, or (ii) any
failure by the Company or the Shareholders to perform or comply, in whole or in
part, with any covenant or agreement in this Agreement or in any other Operative
Document.
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9.3 INDEMNIFICATION BY N2H2
N2H2 shall indemnify, defend and hold the Shareholders (collectively
the "Company Indemnified Parties" and, together with the N2H2 Indemnified
Parties, the "Indemnified Parties") harmless from and against, and shall
reimburse the Company Indemnified Parties for, any and all Losses asserted
against or incurred by any of the Company Indemnified Parties in connection with
or arising out of or resulting from (i) any inaccuracy, misrepresentation or
breach in any representation or warranty made by N2H2 in this Agreement or in
any other Operative Document or in any certificate delivered pursuant hereto or
thereto, or (ii) any failure by N2H2 to perform or comply, in whole or in part,
with any covenant or agreement in this Agreement or in any other Operative
Document.
9.4 THRESHOLD AND LIMITATIONS
(a) Except for liability based on fraud or breach of any representation
or warranty with respect to Tax (with respect to which there shall be no
limitation) and breach of Section 3.3 (Capitalization), each Shareholder's
aggregate indemnification obligations pursuant to this Article IX shall be
limited to that Shareholder's Percentage Share of the "Maximum Liability
Amount." The Maximum Liability Amount shall be **** Australian
dollars; provided, however, on the date that the initial Federal Securities laws
transfer restrictions applicable to the N2H2 Common Stock received by a
Shareholder at Closing cease, the Maximum Liability Amount applicable to that
Shareholder shall become the Australian dollar equivalent of an amount equal to
the product of the number of shares of N2H2 Common Stock issued to the
Shareholder at Closing times the average of the high and low daily price per
share of N2H2 Common Stock as reported on the NASDAQ national market on the
trading day that such transfer restrictions cease, but in no event shall the
maximum liability amount exceed **** Australian Dollars. If the
Maximum Liability Amount for any Shareholder is reduced in accordance with the
foregoing, and that Shareholder has previously paid indemnity obligations under
this Article IX to N2H2 Indemnified Parties in excess of the Shareholder's
Percentage Share of the reduced Maximum Liability Amount, the N2H2 Indemnified
Parties shall refund such excess to that Shareholder.
(b) The Escrow Shares shall be held for the Survival Period, except
that, to the extent permitted under the Escrow Agreement, Escrow Shares may be
withheld after the expiration of the Survival Period to satisfy claims for
indemnification which are the subject of an indemnity claim by an N2H2
Indemnified Party pursuant to a Claim Notice (as defined below) delivered to the
Shareholder Representative prior to the expiration of the applicable Survival
Period.
(c) No Indemnified Party shall be entitled to receive any
indemnification payment with respect to any claims for indemnification under
this Article IX ("Claims") until the aggregate Losses for which such Indemnified
Parties would be otherwise entitled to receive indemnification exceed ****
Australian dollars (the "Threshold"); provided, however, that once such
aggregate Losses exceed the Threshold, such Indemnified Parties shall be
entitled to indemnification for the aggregate amount of all Losses without
regard to the Threshold.
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(d) In seeking indemnification for Losses under Section 9.2 hereof, the
N2H2 Indemnified Parties shall first exercise their remedies with respect to the
Escrow Shares.
(e) An indemnifying party shall not be obligated to defend and hold
harmless an Indemnified Party, or otherwise be liable to such party, with
respect to any claims made by the Indemnified Party after the expiration of the
applicable time period as set forth in Section 9.1 hereof.
9.5 PROCEDURE FOR INDEMNIFICATION
(a) The Indemnified Party shall give written notice (the "Claim
Notice") of any Claim for indemnification under this Article IX to the
indemnifying party as promptly as practicable, but in any event: (i) if such
Claim relates to the assertion against an Indemnified Party of any claim by a
third party (a "Third Party Claim"), within 45 days after the assertion of such
Third Party Claim, or (ii) if such Claim is not in respect of a Third Party
Claim, within 45 days after the discovery of facts upon which the Indemnified
Party intends to base a Claim for indemnification pursuant to Article IX hereof;
provided, however, that the failure or delay to so notify the indemnifying party
shall not relieve the indemnifying party of any obligation or liability that the
indemnifying party may have to the Indemnified Party except to the extent that
the indemnifying party demonstrates that the indemnifying parties' ability to
defend or resolve such Claim is adversely affected thereby. Any such Claim
Notice shall describe the facts and circumstances on which the asserted Claim
for indemnification is based and shall specify how such Indemnified Party
intends to recover such funds pursuant to this Agreement and the basis for the
determination of the amount which the Indemnified Party intend to recover.
(b) (i) Subject to the rights of or duties to any insurer or other
third party having potential liability therefor, the indemnifying party 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 defence or handling of such Third Party Claim, at the
indemnifying party's sole expense, in which case the provisions of Section
9.5(b)(ii) hereof shall govern.
(ii) The indemnifying party shall select counsel reasonably
acceptable to the Indemnified Party in connection with conducting the defence or
handling of such Third Party Claim, and the indemnifying party 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 party shall not, without the prior written consent of the
Indemnified Party, agree to a settlement of any Third Party Claim, unless (A)
the settlement provides an unconditional release and discharge of the
Indemnified Party and the Indemnified Party is reasonably satisfied with such
discharge and release and (B) the Indemnified Party shall not have reasonably
objected to any such settlement on the ground that the circumstances surrounding
the settlement could result in an adverse impact on the business, operations,
assets, liabilities (absolute, accrued, contingent or otherwise), condition
(financial or otherwise) or prospects of the Indemnified Party. The Indemnified
Party shall cooperate with the indemnifying party and shall be entitled to
participate in the defence or handling of such Third Party Claim with its own
counsel and at its own expense.
45
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(c) (i) If the indemnifying party does not give written notice to the
Indemnified Party within 30 days after receipt of the notice from the
Indemnified Party of any Third Party Claim of the indemnifying party's election
to assume the defence or handling of such Third Party Claim, the provisions of
Section 9.5(c)(ii) hereof shall govern.
(ii) The Indemnified Party may, at the indemnifying party's
expense (which shall be paid from time to time by the indemnifying party as such
expenses are incurred by the Indemnified Party), select counsel in connection
with conducting the defence 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 party
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
party, which consent shall not be unreasonably withheld. If the Indemnified
Party defends or handles such Third Party Claim, the indemnifying party shall
cooperate with the Indemnified Party and shall be entitled to participate in the
defence or handling of such Third Party Claim with its own counsel and at its
own expense.
(d) At the Closing, the Escrow Shares shall be deposited in an escrow
account to secure potential claims by the N2H2 Indemnified Parties under this
Article IX.
(e) The Indemnified Party shall utilize reasonable efforts, consistent
with normal practices and policies and good commercial practice, to mitigate
Losses, including reasonably pursuing other available indemnity rights, and to
the extent of any recovery obtained as a result of such mitigation, the
Indemnifying Party shall be discharged from its indemnity obligations under this
Agreement.
9.6 REMEDIES
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.
ARTICLE X - GENERAL
10.1 EXPENSES
Regardless of whether the transactions contemplated by this Agreement
are consummated, each party shall pay their own fees and expenses incident to
the negotiation, preparation and execution of this Agreement and the other
Operative Documents (including legal and accounting fees and expenses);
provided, however, that, should any action be brought
46
<PAGE> 47
hereunder, the attorneys' fees and expenses of the prevailing party shall be
paid by the other party to such action; and provided, further, that the legal
fees incurred by the Company in connection with the negotiation, preparation and
execution of this Agreement and the other Operative Documents in excess of
**** Australian Dollars or that N2H2 determines in its reasonable judgment
are not directly related to the negotiation, preparation and execution of this
Agreement and the Other Operative Documents shall be paid by the Shareholders of
the Company. The Company shall cause its attorneys to render to the Company
(with copies to N2H2) statements for services rendered in a form reasonably
satisfactory to N2H2.
10.2 NOTICES
Any notice or demand desired or required to be given hereunder shall be
in writing given by personal delivery, certified or registered mail, 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 or
request shall be the date of personal delivery, four days after the date of
mailing by certified or registered mail, 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 N2H2 OR THE PURCHASER:
N2H2, Inc.
900 Fourth Avenue, Suite 3400
Seattle, Washington 98164
Facsimile: (206) 336-2934
Attention: David Arnold, Chief Operating Officer
with a copy to:
Lane Powell Spears Lubersky LLP
1420 Fifth Avenue, Suite 4100
Seattle, Washington 98101-2338
Telephone: (206) 223-7000
Facsimile: (206) 223-7107
Attention: Jim D. Johnson
TO THE COMPANY:
iseek Limited
Level 21, AXA Building
144 Edward Street
Brisbane, Qld 4000 Australia
Facsimile: (617) 3003 0866
Attention: Jason Gomersall
47
<PAGE> 48
with a copy to:
Deacons Graham & James
Level 2, Gold Fields House
Circular Quay, Sydney 2000, Australia
Telephone: (612) 9330 8000
Facsimile: (612) 9330 8111
Attention: Ross Ramsay
TO THE SHAREHOLDERS:
To the addresses set forth on Schedule 10.2 to this Agreement
10.3 SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
10.4 ENTIRE AGREEMENT
This Agreement, the Confidentiality 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,
undertakings and representations, both written and oral, by or among the
parties, or any of them, with respect to the subject matter hereof and thereof.
10.5 ASSIGNMENT
This Agreement shall not be assigned by operation of law or otherwise;
provided, however, that Purchaser's rights and obligations may be assigned to
and assumed by any other corporation wholly owned (directly or through
intermediate wholly-owned subsidiaries) by N2H2.
10.6 PARTIES IN INTEREST
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, 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.
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<PAGE> 49
10.7 GOVERNING LAW
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. All actions and proceedings arising out of or
relating to this Agreement may be heard and determined in any Washington state
or federal court thereof.
10.8 SUBMISSION TO JURISDICTION
Each of the parties to this Agreement irrevocably submits to the
jurisdiction of (i) the Superior Court of the State of Washington, King County
and (ii) the United States District Court for the Western District of Washington
for the purpose of any suit, action or other proceeding arising out of this
Agreement, the Escrow Agreement, any Operative Document or any transaction
contemplated hereby or thereby and each agrees that no such suit, action or
proceeding shall be brought by it or its Affiliates except in such courts. In
addition, each such party irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of such suit, action or proceeding brought in any such court or any claim that
any such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum, and agrees not to plead or claim the same.
Each party hereto further agrees that service of any process, summons,
notice or document by U.S. registered mail to such party's address set forth
herein shall be effective service of process for any suit, action or proceeding
in Washington with respect to the matters to which it has submitted to
jurisdiction as set forth in the preceding paragraph. Nothing herein contained
shall preclude any party from effecting service of process in any lawful manner
in any other state, country or place.
10.9 HEADINGS
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.10 COUNTERPARTS
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement. To expedite the process of entering into this Agreement,
the parties acknowledge that Transmitted Copies of this Agreement or any
Operative Document will be equivalent to original documents until such time as
original documents are completely executed and delivered. "Transmitted Copies"
will mean copies that are reproduced or transmitted via photocopy, facsimile or
other process of complete and accurate reproduction and transmission.
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<PAGE> 50
10.11 WAIVER OF JURY TRIAL
N2H2 AND THE SHAREHOLDERS HEREBY IRREVOCABLY WAIVE 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 OR THE ACTIONS
OF SUCH PARTIES IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT
THEREOF.
10.12 GOODS AND SERVICES TAX
The calculation of any loss, damage or cost suffered or incurred by an
N2H2 Indemnified Party arising from the breach of any warranty given under
Article III or other Losses for which the N2H2 Indemnified Party is entitled to
indemnification under Article IX shall include any amount payable by the N2H2
Indemnified Party as GST so that the amount the N2H2 Indemnified Party retains
after payment of GST is no less than the amount it would have retained but for
the imposition of GST. For the purposes of this Section 10.12, "GST" has the
same meaning as in A New Tax System (Goods and Services) Act 1999
(Commonwealth).
IN WITNESS WHEREOF, the parties hereto have entered into and signed
this Agreement as of the date and year first above written.
SHAREHOLDERS: N2H2, INC.
/s/ JASON ALLAN GOMERSALL By /s/ PETER H. NICKERSON
- --------------------------------- -------------------------------
Jason Allan Gomersall Its Chief Executive Officer
/s/ BEVAN ANDREW SLATTERY
- ---------------------------------
Bevan Andrew Slattery
/s/ LEE GOMERSALL
- ---------------------------------
Lee Gomersall
50
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ROAR INVESTMENTS PTY LIMITED
By /s/ LAURIE STAPLETON
---------------------------------
Its Director
DRIVES & CONTROLS SERVICES, INC.
By /s/ DON PATTERSON
---------------------------------
Its President
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<PAGE> 52
SCHEDULE 10.2
Company Shareholder
Jason Gomersall
130 Lunga Street
Camp Hill, Queensland 4152 Australia
Telephone: (617) 3003 0855
Facsimile: (617) 3003 0855
Bevan Slattery
4/101 Oxford Terrace
Taringa, Queensland 4068 Australia
Telephone: (617) 3003 0855
Facsimile: (617) 3003 0866
Roar Investments Pty Limited
93 Surrey Street
Darlinghurst NSW 2010 Australia
Telephone: (612) 9287 6343
Facsimile: (612) 8282 6712
Lee Gomersall
14A Barraclough Crescent
Moronboh Queensland 4T44 Australia
Telephone: (07) 4941 8057
Facsimile: (07) 4941 9858
Drives & Controls Services, Inc.
7206 Pinetree Place
Tyler, Texas USA 75703
Telephone: (972) 772-5407
Facsimile: (972) 772-5409
52
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EXHIBITS 2.52, 2.52A, 2.52B
ESCROW AGREEMENTS
Intentionally Omitted
EXHIBIT 3
DISCLOSURE MEMORANDUM
The contents of the Disclosure Memorandum are generally described throughout
this Share Sale Agreement where the Disclosure Memorandum is referred to.
EXHIBIT 5.10
EMPLOYMENT AGREEMENT
Intentionally Omitted
EXHIBIT 5.10B
CONFIDENTIALITY AGREEMENT
Intentionally Omitted
EXHIBIT 5.15
CONSULTING AGREEMENT
Intentionally Omitted
EXHIBIT 6.12
REGISTRATION RIGHTS AGREEMENT
Intentionally Omitted
53
<PAGE> 1
EXHIBIT 99.1
NTWO : N2H2 INC (NASDAQ)
All Headlines
N2H2 Acquires iseek, Ltd.
Strategic Combination Expands Services into Asia-Pacific Markets; Top
Australia-based Portal, Search and Filtering Company Furthers N2H2's Global
Strategy
SEATTLE--(BUSINESS WIRE)--Feb. 24, 2000--Leading Internet infrastructure
company N2H2, Inc. (Nasdaq: NTWO) announced today the acquisition of
privately-held iseek, Ltd., in an all-stock transaction.
This strategic combination gives N2H2 a substantial presence in Australia and
New Zealand markets at a time when local regulatory requirements for content
filtering are providing a strong impetus for rapid customer adoption and revenue
growth. With a strong regional base located in Australia, N2H2 intends to pursue
significant opportunities in Asian markets where deregulation and cultural
differences are expected to create an unprecedented demand for Internet
filtering services.
Throughout Australia and New Zealand, iseek serves homes, businesses, and
schools through a number of strategic partnerships, including facilities-based
telecommunications providers and such network providers as Telstra, SchoolsNet,
and Cable and Wireless Optus. The company is positioned to take advantage of
Australian legislative requirements mandating nationwide filtering that took
effect January 1, 2000. iseek currently has 1.1 million users, operates a
consumer portal with localized content (http://www.iseek.com.au/), and provides
the default search engine for Australian schools.
Founded in Brisbane as Infopro in 1998, iseek's products utilize N2H2's
proprietary categorization technology and operate through N2H2's content
delivery network, the Internet gateway for more than 11 million users worldwide.
N2H2's acquisition also includes iseek's Internet Content Filtering Network
technology, which allows any user, irrespective of location or ISP, to obtain
filtered access to the Internet. iseek's product for homes and families, branded
iFilter, was co-developed with N2H2 and provides the ability to set different
filtering levels for each family member. N2H2 plans to deploy customizable
versions of this product in Asia, North America, Europe, and other customer
locations worldwide.
States N2H2 CEO Peter Nickerson, "iseek brings to N2H2 a leading market presence
with a significant customer base, technology which will accelerate the global
expansion of our filtering and content management technologies, and a strong
regional platform for Asia-Pacific growth opportunities."
"Our combination of ISP relationships, client (PC) product and existing school
contracts -- coupled with our growing reputation throughout the Asia-Pacific
region -- means we are poised to serve the demand for content management and Web
delivery services in all markets: business, consumer and education," said Jason
Gomersall, managing director of iseek.
Under the terms of the acquisition, the shareholders of iseek will receive
925,000 shares of N2H2 common stock. The transaction is valued at approximately
$16 million and will be accounted for using the purchase accounting approach.
This combination will be additive to N2H2's revenues on a per share basis.
Immediately following the acquisition, all employees and offices will remain in
operation, and N2H2 plans on injecting capital for marketing and infrastructure
rollout to accelerate growth in Australia and the Asia-Pacific region. N2H2 CEO
Peter Nickerson and COO David Arnold will join the iseek board.
For N2H2, the iseek acquisition, combined with the recent announcement of N2H2's
alliance with Japan's Nissho Electronics, reinforces the company's position as
the growing global leader in delivering value-added Internet services that
empower choice -- assuring safety, productivity, privacy and a positive Web
experience while promoting bandwidth efficiency.
<PAGE> 2
"The sun never sets on N2H2's premier technology," added Nickerson. "Our balance
between advanced Internet technology and human review that delivers the Internet
to users the way they want to see it is now supported round-the-world by
round-the-clock service."
ABOUT N2H2
Founded in 1995, N2H2, Inc. is a leading Internet infrastructure company. N2H2
provides categorization of Internet Web sites that its customers use to manage
their end-users' Internet experience. Its database is built and managed by a
sophisticated combination of proprietary technology and human review, providing
the best way of keeping pace with the rapidly growing content on the Internet.
The database is the largest and most dynamic of its kind, covering millions of
Web sites from around the world. N2H2's product offerings include Bess(R)-brand
filtering and the Searchopolis(SM) educational portal with filtered search for
schools, and enterprise-level filtering, caching and filtered search solutions
for businesses and ISPs. Additional information about the company, which is
based in Seattle, Washington, is available at www.n2h2.com or by calling
206/336-1501 or 800/971-2622.
Except for the historical information contained herein, this press release
contains forward-looking statements. Such forward-looking statements including
statements containing the words "executes," "opportunity," "intends" and similar
words are subject to various known and unknown risks and uncertainties and are
therefore not a guarantee of future performance. The potential risks and
uncertainties which could cause actual growth and results to differ materially
include but are not limited to, the volatile and competitive nature of the
Internet filtering industry, changes in domestic and international market
conditions, the success of the company's brand development systems efforts, and
customer acceptance of the company's services, products and fee structures.
Further information on the factors and risks that could affect N2H2's business,
financial condition and results of operations are included under the Risk
Factor's Sections of N2H2's public filings with the Securities and Exchange
Commission, including the Registration Statement on Form S-1 (File No.
333-78495), that are available at http://www.sec.gov.
- ----------------------------------------------------------------------------
Contact:
N2H2
Elizabeth Ward, 206/336-1509
[email protected]
