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EXHIBIT 1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
WEBVAN GROUP, INC.,
ROBIN MERGER CORPORATION
AND
HOMEGROCER.COM, INC.
DATED AS OF JUNE 25, 2000
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ARTICLE I THE MERGER............................................................................ 2
1.1 The Merger....................................................................... 2
1.2 Effective Time; Closing.......................................................... 2
1.3 Effect of the Merger............................................................. 2
1.4 Articles of Incorporation; Bylaws................................................ 2
1.5 Directors and Officers........................................................... 3
1.6 Effect on Capital Stock.......................................................... 3
1.7 Surrender of Certificates; Payment of Stock Consideration........................ 5
1.8 No Further Ownership Rights in Company Common Stock.............................. 6
1.9 Lost, Stolen or Destroyed Certificates........................................... 6
1.10 Tax and Accounting Consequences.................................................. 7
1.11 Taking of Necessary Action; Further Action....................................... 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY............................................ 7
2.1 Organization of Company; Subsidiaries............................................ 7
2.2 Company Capital Structure........................................................ 8
2.3 Obligations With Respect to Capital Stock........................................ 9
2.4 Authority........................................................................ 9
2.5 SEC Filings; Company Financial Statements........................................ 10
2.6 Absence of Certain Changes or Events............................................. 11
2.7 Taxes............................................................................ 12
2.8 Tax Returns and Audits........................................................... 12
2.9 Company Intellectual Property.................................................... 13
2.10 Compliance; Permits; Restrictions................................................ 14
2.11 Litigation....................................................................... 15
2.12 Brokers' and Finders' Fees; Schedule of Fees and Expenses........................ 15
2.13 Employee Benefit Plans........................................................... 15
2.14 Absence of Liens and Encumbrances................................................ 17
2.15 Environmental Matters............................................................ 17
2.16 Labor Matters.................................................................... 18
2.17 Agreements, Contracts and Commitments............................................ 18
2.18 Insurance........................................................................ 19
2.19 Registration Statement; Joint Proxy Statement/Prospectus......................... 20
2.20 Board Approval................................................................... 20
2.21 State Takeover Statutes.......................................................... 20
2.22 Fairness Opinion................................................................. 21
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............................. 21
3.1 Organization of Parent; Subsidiaries............................................. 21
3.2 Parent Capital Structure......................................................... 22
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3.3 Obligations With Respect to Capital Stock........................................ 22
3.4 Authority........................................................................ 23
3.5 SEC Filings; Parent Financial Statements......................................... 24
3.6 Absence of Certain Changes or Events............................................. 25
3.7 Taxes............................................................................ 25
3.8 Parent Intellectual Property..................................................... 26
3.9 Compliance; Permits; Restrictions................................................ 27
3.10 Litigation....................................................................... 28
3.11 Brokers' and Finders' Fees; Schedule of Fees and Expenses........................ 28
3.12 Employee Benefit Plans........................................................... 28
3.13 Absence of Liens and Encumbrances................................................ 30
3.14 Environmental Matters............................................................ 30
3.15 Labor Matters.................................................................... 30
3.16 Agreements, Contracts and Commitments............................................ 30
3.17 Insurance........................................................................ 32
3.18 Registration Statement; Joint Proxy Statement/Prospectus......................... 32
3.19 Board Approval................................................................... 32
3.20 Fairness Opinion................................................................. 33
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.................................................. 33
4.1 Conduct of Business by Company................................................... 33
4.2 Conduct of Business by Parent.................................................... 36
ARTICLE V ADDITIONAL AGREEMENTS................................................................. 38
5.1 Joint Proxy Statement/Prospectus; Registration Statement......................... 38
5.2 Shareholder and Stockholder Meetings............................................. 39
5.3 Confidentiality; Access to Information........................................... 39
5.4 No Solicitation.................................................................. 40
5.5 Public Disclosure................................................................ 43
5.6 Reasonable Efforts; Notification................................................. 44
5.7 Third Party Consents............................................................. 45
5.8 Stock Options; Warrants; Employee Stock Purchase Plan; 401(k) Plan............... 45
5.9 Form S-8; Section 16............................................................. 46
5.10 Indemnification.................................................................. 47
5.11 Nasdaq Listing................................................................... 47
5.12 Affiliates....................................................................... 47
5.13 Regulatory Filings; Reasonable Efforts........................................... 48
5.14 Board of Directors............................................................... 48
ARTICLE VI CONDITIONS TO THE MERGER............................................................. 48
6.1 Conditions to Obligations of Each Party to Effect the Merger..................... 48
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6.2 Additional Conditions to Obligations of Company.................................. 49
6.3 Additional Conditions to the Obligations of Parent and Merger Sub................ 50
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER................................................... 51
7.1 Termination...................................................................... 51
7.2 Notice of Termination; Effect of Termination..................................... 52
7.3 Fees and Expenses................................................................ 53
7.4 Amendment........................................................................ 55
7.5 Extension; Waiver................................................................ 55
ARTICLE VIII GENERAL PROVISIONS................................................................. 56
8.1 Survival of Representations and Warranties....................................... 56
8.2 Notices.......................................................................... 56
8.3 Interpretation; Definitions...................................................... 57
8.4 Counterparts..................................................................... 58
8.5 Entire Agreement; Third Party Beneficiaries...................................... 58
8.6 Severability..................................................................... 58
8.7 Other Remedies; Specific Performance............................................. 58
8.8 Governing Law.................................................................... 58
8.9 Rules of Construction............................................................ 59
8.10 Assignment....................................................................... 59
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INDEX OF EXHIBITS
Exhibit A-1 Form of Company Voting Agreement
Exhibit A-2 Form of Parent Voting Agreement
Exhibit B-1 Form of Company Lock-Up Agreement
Exhibit B-2 Form of Parent Lock-Up Agreement
Exhibit C Form of Affiliate Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
June 25, 2000, among Webvan Group, Inc., a Delaware corporation ("PARENT"),
Robin Merger Corporation, a Washington corporation and a wholly-owned subsidiary
of Parent ("MERGER SUB") and HomeGrocer.com, Inc., a Washington corporation
("COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement
(as defined in Section 1.2 below) and in accordance with the Washington Business
Corporations Act ("WASHINGTON LAW"), Parent and Company intend to enter into a
business combination transaction.
B. The Board of Directors of Company unanimously (i) has determined
that the Merger (as defined in Section 1.1) is consistent with and in
furtherance of the long-term business strategy of Company and fair to, and in
the best interests of, Company and its shareholders, (ii) has approved this
Agreement, the Merger (as defined in Section 1.1) and the other transactions
contemplated by this Agreement, and (iii) has determined to recommend that the
shareholders of Company adopt and approve this Agreement and approve the Merger.
C. The Board of Directors of Parent unanimously (i) has determined
that the Merger is consistent with and in furtherance of the long-term business
strategy of Parent and is fair to, and in the best interests of, Parent and its
stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement, and (iii) has determined to
recommend that the stockholders of Parent approve the issuance of shares of
Parent Common Stock (as defined below) pursuant to the Merger (the "SHARE
ISSUANCE").
D. Concurrently with the execution of this Agreement, (i) as a
condition and inducement to Parent's willingness to enter into this Agreement,
certain affiliates of Company are entering into Voting Agreements in the form
attached hereto as Exhibit A-1 (the "COMPANY VOTING AGREEMENTS") and (ii) as a
condition and inducement to Company's willingness to enter into this Agreement,
certain affiliates of Parent are entering into Voting Agreements in the form
attached hereto as Exhibit A-2 (the "PARENT VOTING AGREEMENTS").
E. Concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's willingness to enter into this Agreement,
certain key employees of Company are entering into Employment and Noncompetition
Agreements with Parent and Company.
F. Concurrently with the execution of this Agreement, (i) as a
condition and inducement to Parent's willingness to enter into this Agreement,
the chief executive officer and certain other significant shareholders of
Company are entering into Lock-Up Agreements in favor of Parent in the form
attached hereto as Exhibit B-1 and (ii) as a condition and inducement to
Company's willingness to enter into this Agreement, the chief executive officer
and certain other significant shareholders of Parent are entering into Lock-Up
Agreements in favor of Company in the form attached hereto as Exhibit B-2.
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G. The parties intend, by executing this Agreement, to adopt a plan
of reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "CODE").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I.
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Washington Law, Merger Sub shall be merged with and
into Company (the "MERGER"), the separate corporate existence of Merger Sub
shall cease and Company shall continue as the surviving corporation and as a
wholly-owned subsidiary of Parent. Company as the surviving corporation after
the Merger is hereinafter sometimes referred to as the "SURVIVING CORPORATION."
1.2 Effective Time; Closing. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by filing
an agreement and plan of merger and articles, certificates or other appropriate
filing documents with the Secretary of State of the State of Washington in
accordance with the relevant provisions of Washington Law (collectively, the
"CERTIFICATE OF MERGER") (the time of such filing (or such later time as may be
agreed in writing by Company and Parent and specified in the Certificate of
Merger) being the "EFFECTIVE TIME") as soon as practicable on or after the
Closing Date (as herein defined). Unless the context otherwise requires, the
term "AGREEMENT" as used herein refers collectively to this Agreement and Plan
of Reorganization and the Certificate of Merger. The closing of the Merger (the
"CLOSING") shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California at a time
and date to be specified by the parties, which shall be no later than the second
business day after the satisfaction or waiver of the conditions set forth in
Article VI, or at such other time, date and location as the parties hereto agree
in writing (the "CLOSING DATE").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
Washington Law. Without limiting the generality of the foregoing and subject
thereto, at the Effective Time, all the property, rights, privileges, powers,
and franchises of Company and Merger Sub shall vest in the Surviving Corporation
and all debts, liabilities and duties of Company and Merger Sub shall become the
debts, liabilities, and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the Articles of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by law and such Articles of Incorporation of the
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Surviving Corporation; provided, however, that at the Effective Time the
Articles of Incorporation of the Surviving Corporation shall be amended so that
the name of the Surviving Corporation shall be "HomeGrocer.com, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified. The initial officers of
the Surviving Corporation shall be the officers of Merger Sub immediately prior
to the Effective Time, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation until their respective
successors are duly appointed.
1.6 Effect on Capital Stock. Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, Company or the holders of any of the following
securities, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common
Stock, no par value per share, of Company (the "COMPANY COMMON STOCK") issued
and outstanding immediately prior to the Effective Time, other than any shares
of Company Common Stock ("SHARES") to be cancelled pursuant to Section 1.6(b)
and Dissenting Shares (as defined in Section 1.6(g)), will be cancelled and
extinguished and automatically converted (subject to Sections 1.6(e) and (f))
into the right to receive that number of shares of Common Stock, $0.0001 par
value per share, of Parent (the "PARENT COMMON STOCK") equal to 1.07605 (the
"EXCHANGE RATIO"), upon surrender of the certificate representing such share of
Company Common Stock in the manner provided in Section 1.7 (or in the case of a
lost, stolen or destroyed certificate, upon delivery of an affidavit (and bond,
if required) in the manner provided in Section 1.9). If any shares of Company
Common Stock outstanding immediately prior to the Effective Time are unvested or
are subject to a repurchase option, risk of forfeiture or other condition under
any applicable restricted stock purchase agreement or other agreement with the
Company, then, subject to the terms of the plan or agreement pursuant to which
such shares were issued, the shares of Parent Common Stock issued in exchange
for such shares of Company Common Stock will also be unvested and subject to the
same repurchase option, risk of forfeiture or other condition and the
certificates representing such shares of Parent Common Stock may accordingly be
marked with appropriate legends. Company shall take all action that may be
necessary to ensure that, from and after the Effective Time, Parent is entitled
to exercise any such repurchase option or other right set forth in any such
restricted stock purchase agreement or other agreement.
(b) Cancellation of Parent-Owned Stock. Each share of Company
Common Stock held by Company or owned by Merger Sub, Parent or any direct or
indirect wholly-owned subsidiary of Company or of Parent immediately prior to
the Effective Time shall be cancelled and extinguished without any conversion
thereof.
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(c) Stock Options and Warrants. At the Effective Time, all
options to purchase Company Common Stock and stock appreciation rights then
outstanding under Company's 1997 Stock Incentive Compensation Plan (the "1997
PLAN"), 1999 Stock Incentive Plan (the "1999 PLAN") and 1999 Directors' Stock
Option Plan (the "DIRECTORS PLAN" and, together with the 1997 Plan and the 1999
Plan, the "COMPANY OPTION PLANS"), each of the Company Option Plans and all
warrants to purchase Company Common Stock shall be assumed by Parent in
accordance with Section 5.8 hereof.
(d) Capital Stock of Merger Sub. Each share of Common Stock, no
par value, of Merger Sub (the "MERGER SUB COMMON STOCK") issued and outstanding
immediately prior to the Effective Time shall be converted into or exercisable
for one validly issued, fully paid and nonassessable share of Common Stock, no
par value, of the Surviving Corporation. Each certificate evidencing ownership
of shares of Merger Sub Common Stock shall evidence ownership of such shares of
capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into or exercisable for Parent Common Stock or Company Common
Stock), reorganization, recapitalization, reclassification or other like change
with respect to Parent Common Stock or Company Common Stock occurring on or
after the date hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued by virtue of the Merger, but in lieu thereof, each holder
of shares of Company Common Stock who would otherwise be entitled to a fraction
of a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock that otherwise would be received by such holder) shall, upon
surrender of such holder's Certificates(s) (as defined in Section 1.7(c)),
receive from Parent an amount of cash (rounded to the nearest whole cent),
without interest, equal to the product of (i) such fraction and (ii) the average
closing price of Parent Common Stock for the five trading days immediately
preceding the last full trading day prior to the Effective Time, as reported on
the Nasdaq National Market System ("NASDAQ").
(g) Dissenting Shares. Notwithstanding any provision of this
Agreement to the contrary, each outstanding share of Company Common Stock, the
holder of which has demanded and perfected such holder's right to dissent from
the Merger and to be paid the fair value of such shares by Company in accordance
with Sections 23B.13.010 et seq. of Washington Law ("DISSENTING SHARES") and, as
of the Effective Time, has not effectively withdrawn or lost such dissenters'
rights, shall not be converted into or represent a right to receive the merger
consideration described in Section 1.6(a), but the holder thereof shall be
entitled only to such rights as are granted by Washington Law. Company shall
give Parent (i) prompt written notice of any notice of intent to demand fair
value for any shares of Company Common Stock, withdrawals of such notices and
any other instruments served pursuant to Washington Law and received by Company,
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for fair value for shares of Company Common Stock under Washington
Law. Company shall not, except with the
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prior written consent of Parent, voluntarily make any payment with respect to
any demands for fair value for shares of Company Common Stock or offer to settle
or settle any such demands.
1.7 Surrender of Certificates; Payment of Stock Consideration.
(a) Exchange Agent. Parent shall select a bank or trust company
reasonably acceptable to Company to act as the exchange agent (the "EXCHANGE
AGENT") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent, for exchange in
accordance with this Article I, (i) the shares of Parent Common Stock issuable
pursuant to Section 1.6 in exchange for outstanding shares of Company Common
Stock and (ii) cash in an amount sufficient for payment in lieu of fractional
shares pursuant to Section 1.6(f) and any dividends or distributions to which
holders of shares of Company Common Stock may be entitled pursuant to Section
1.7(d).
(c) Exchange Procedures. As soon as practicable after the
Effective Time (and in any event within five business days after Parent's
receipt of all necessary shareholder list and other supporting information),
Parent shall cause the Exchange Agent to mail to each holder of record (as of
the Effective Time) of a certificate or certificates (the "CERTIFICATES"), which
immediately prior to the Effective Time represented outstanding Shares whose
Shares were converted into the right to receive shares of Parent Common Stock
pursuant to Section 1.6, cash in lieu of any fractional shares pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.7(d), (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall contain such other
provisions as Parent may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock, cash in lieu of any fractional
shares pursuant to Section 1.6(f) and any dividends or other distributions
pursuant to Section 1.7(d). Upon surrender of Certificates for cancellation to
the Exchange Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holders of such
Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Parent Common Stock into which their
shares of Company Common Stock were converted at the Effective Time, payment in
lieu of fractional shares which such holders have the right to receive pursuant
to Section 1.6(f) and any dividends or distributions payable pursuant to Section
1.7(d), and the Certificates so surrendered shall forthwith be cancelled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.7(d) as to the
payment of dividends and other distributions, to evidence only the ownership of
the number of full shares of Parent Common Stock into which such shares of
Company Common Stock shall have been so converted and the right to receive an
amount in cash in lieu of the issuance of any fractional shares in accordance
with Section 1.6(f).
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holders of any unsurrendered
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Certificate(s) with respect to the shares of Parent Common Stock represented
thereby until the holders of record of such Certificate(s) shall surrender such
Certificate(s). Subject to applicable law, following surrender of any such
Certificate(s), the Exchange Agent shall deliver to the record holders thereof,
without interest, a certificate(s) representing whole shares of Parent Common
Stock issued in exchange therefor along with payment in lieu of fractional
shares pursuant to Section 1.6(f) hereof and the amount of any such dividends or
other distributions with a record date after the Effective Time payable with
respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate representing
shares of Parent Common Stock is to be issued in a name other than that in which
the Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
representing shares of Parent Common Stock in any name other than that of the
registered holder of the Certificates surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(f) Required Withholding. Each of the Exchange Agent, Parent, and
the Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or under any provision of
state, local or foreign tax law or under any other applicable legal requirement.
To the extent such amounts are so deducted or withheld, such amounts shall be
treated for all purposes under this Agreement as having been paid to the person
to whom such amounts would otherwise have been paid.
(g) No Liability. Notwithstanding anything to the contrary in
this Section 1.7, none of the Exchange Agent, Parent, the Surviving Corporation,
or any party hereto shall be liable to a holder of shares of Parent Common Stock
or Company Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Company Common Stock. All shares
of Parent Common Stock issued upon the surrender for exchange of Shares of
Company Common Stock in accordance with the terms hereof (together with any cash
paid in respect thereof pursuant to Section 1.6(f), 1.6(g) and 1.7(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as provided in
this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event that any
Certificate shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificate, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock
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represented by such Certificates were converted pursuant to Section 1.6, cash
for fractional shares, if any, as may be required pursuant to Section 1.6(f) and
any dividends or distributions payable pursuant to Section 1.7(d); provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance of such certificates representing shares of Parent Common Stock, cash
and other distributions, require the owner of such lost, stolen or destroyed
Certificate to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent, the Surviving
Corporation, or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
1.10 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax
Regulations.
(b) It is also intended by the parties hereto that the Merger
shall qualify for accounting treatment as a purchase.
1.11 Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title, and possession to all assets, property, rights, privileges,
powers and franchises of Company and Merger Sub, the officers and directors of
Company and Merger Sub are fully authorized in the manner of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent and Merger Sub, subject to
such exceptions as are (i) specifically disclosed in writing in the disclosure
letter and schedules thereto (each such exception to reference the specific
section number of this Article II to which it applies and each other section
number of this Article II to the extent such applicability is reasonably
apparent on the face of such exception), dated as of the date hereof (the
"COMPANY SCHEDULE") or (ii) described in the Company SEC Reports (as defined
below) filed on or prior to the date hereof, as follows:
2.1 Organization of Company; Subsidiaries.
(a) Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to own,
lease and operate its assets and property and to carry on its business as now
being conducted and as proposed to be conducted; and is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect (as
defined in Section 8.3) on Company.
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(b) Company has delivered to Parent a true and complete list of
all of Company's subsidiaries, indicating the jurisdiction of incorporation of
each subsidiary and Company's equity interest therein. Neither Company nor any
of its subsidiaries directly or indirectly owns an equity, membership,
partnership or similar interest in, or any interest convertible into, or
exchangeable or exercisable for any such interest in, any corporation,
partnership, joint venture, limited liability company or other business
association or entity.
(c) Company has delivered or made available to Parent a true and
correct copy of the Certificate of Incorporation and Bylaws of Company and
similar governing instruments of each of its subsidiaries, each as amended to
date, and each such instrument is in full force and effect. Neither Company nor
any of its subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation or Bylaws or equivalent governing instruments.
(d) All of the outstanding shares of capital stock of each of
Company's subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and are not subject to preemptive rights created by statute, the
charter documents of any such subsidiary or any agreement or document to which
any such subsidiary is party or by which its is bound, and all such shares
(other than directors' qualifying shares in the case of applicable foreign
subsidiaries) are owned, of record and beneficially, by Company or another
subsidiary of Company free and clear of all security interests, liens, claims,
pledges, agreements, limitations on voting rights, charges or other encumbrances
of any nature.
2.2 Company Capital Structure. The authorized capital stock of
Company consists of 1,000,000,000 shares of Common Stock, no par value, of which
there were 128,282,596 shares issued and outstanding as of June 12, 2000, and
10,000,000 shares of Preferred Stock, no par value, of which no shares are
issued or outstanding. All outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws of
Company or any agreement or document to which Company is a party or by which it
is bound. As of June 12, 2000, Company had reserved an aggregate of 19,491,960
shares of Company Common Stock, net of exercises, for issuance to employees,
consultants and non-employee directors pursuant to the Company Option Plans,
under which options are outstanding for an aggregate of 9,995,378 shares and
under which 9,496,582 shares are available for grant as of June 12, 2000. As of
June 12, 2000, Company had reserved an aggregate of 685,582 shares of Company
Common Stock for issuance to holders of warrants to purchase Company Common
Stock ("COMPANY WARRANTS"). All shares of Company Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. Section 2.2 of the Company
Schedule lists (i) each outstanding option to acquire shares of Company Common
Stock at June 12, 2000, the name of the holder of such option, the number of
shares subject to such option, the exercise price of such option, the number of
shares as to which such option will have vested at such date, the vesting
schedule for such option and whether the exercisability of such option will be
accelerated in any way by the transactions contemplated by this Agreement or for
any other reason, and indicates the extent of acceleration, if
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any, and (ii) each outstanding Company Warrant at June 12, 2000, the name of the
holder of such Company Warrant and the exercise price therefor.
2.3 Obligations With Respect to Capital Stock. Except as set forth
in Section 2.2, as of the date hereof, there are no equity securities,
partnership interests or similar ownership interests of any class of Company, or
any securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests issued,
reserved for issuance or outstanding. Except for securities Company owns,
directly or indirectly through one or more subsidiaries, there are no equity
securities, partnership interests or similar ownership interests of any class of
any subsidiary of Company, or any security exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests issued, reserved for issuance or outstanding. Except as set
forth in Section 2.2, there are no stock appreciation rights, phantom stock or
other similar rights of Company and no options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which Company
or any of its subsidiaries is a party or by which it is bound obligating Company
or any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition, of any shares of capital stock of Company
or any of its subsidiaries or obligating Company or any of its subsidiaries to
grant, extend, accelerate the vesting of or enter into any such stock
appreciation rights, phantom stock or other similar rights or any such option,
warrant, equity security, partnership interest or similar ownership interest,
call, right, commitment or agreement. There are no registration rights and, to
the knowledge of Company there are no voting trusts, proxies or other agreements
or understandings with respect to any equity security of any class of Company or
with respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries.
2.4 Authority.
(a) Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Company, subject only to the approval and
adoption of this Agreement and the approval of the Merger by Company's
shareholders and the filing and recordation of the Certificate of Merger
pursuant to Washington Law. A vote of the holders of at least two-thirds of the
outstanding shares of the Company Common Stock is required for Company's
shareholders to approve and adopt this Agreement and approve the Merger. This
Agreement has been duly executed and delivered by Company and, assuming the due
authorization, execution and delivery by Parent and Merger Sub, constitutes the
valid and binding obligations of Company, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy and other similar
laws and general principles of equity. The execution and delivery of this
Agreement by Company do not, and the performance of this Agreement by Company
will not, (i) conflict with or violate the Articles of Incorporation or Bylaws
of Company or the equivalent organizational documents of any of its
subsidiaries, (ii) subject to obtaining the approval of the Merger by Company's
shareholders as contemplated in Section 5.2 and compliance with the
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<PAGE> 14
requirements set forth in Section 2.4(b) below, conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected, or (iii) result in any breach of, or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or impair Company's rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of Company or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Company or any of its
subsidiaries is a party or by which Company or any of its subsidiaries or its or
any of their respective properties are bound or affected, except to the extent
such conflict, violation, breach, default, impairment or other effect could not,
in the case of clause (ii) or (iii), individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Company or a
material adverse effect on the ability of Company to perform its obligations
under this Agreement.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with any court, administrative agency or
commission or other governmental authority or instrumentality ("GOVERNMENTAL
ENTITY") is required by or with respect to Company in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby or thereby, except for (i) the filing of a Form S-4
Registration Statement (the "REGISTRATION STATEMENT") with the Securities and
Exchange Commission ("SEC") in accordance with the Securities Act of 1933, as
amended (the "SECURITIES Act"), (ii) the filing of the Certificate of Merger
with the Secretary of State of Washington, (iii) the filing of the Joint Proxy
Statement/Prospectus (as defined in Section 2.18) with the SEC in accordance
with the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), (iv)
such consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable federal and state securities
laws and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR ACT"), (v) compliance with applicable requirements of state liquor
laws and (vi) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Company
or a material adverse effect on the ability of Company to perform its
obligations under this Agreement.
2.5 SEC Filings; Company Financial Statements.
(a) Company has filed all forms, reports and documents required
to be filed with the SEC since March 9, 2000, and has made available to Parent
such forms, reports and documents in the form filed with the SEC. All such
required forms, reports and documents (including those that Company may file
subsequent to the date hereof) are referred to herein as the "COMPANY SEC
REPORTS." As of their respective dates, the Company SEC Reports (i) were
prepared in all material respects in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Company SEC Reports, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material
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<PAGE> 15
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. None of Company's subsidiaries is required
to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the Company SEC Reports (the
"COMPANY FINANCIALS"), including any Company SEC Reports filed after the date
hereof until the Closing, (i) complied as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited interim financial
statements, as may be permitted by the SEC on Form 10-Q under the Exchange Act)
and (iii) fairly presented the consolidated financial position of Company and
its subsidiaries at the respective dates thereof and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not, or are not expected to be,
material in amount. The balance sheet of Company contained in the Company SEC
Reports as of April 1, 2000 is hereinafter referred to as the "COMPANY BALANCE
SHEET." Except as disclosed in the Company Financials, neither Company nor any
of its subsidiaries has any liabilities (absolute, accrued, contingent or
otherwise) of a nature required to be disclosed on a balance sheet or in the
related notes to the consolidated financial statements prepared in accordance
with GAAP which are, individually or in the aggregate, material to the business,
results of operations or financial condition of Company and its subsidiaries
taken as a whole, except liabilities (i) provided for in the Company Balance
Sheet, or (ii) incurred since the date of the Company Balance Sheet in the
ordinary course of business and (A) immaterial in the aggregate or (B) incurred
in compliance with the terms of this Agreement in connection with the
construction, operation, financing or equipping of distribution centers.
(c) Company has heretofore furnished to Parent a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Company with the SEC
pursuant to the Securities Act or the Exchange Act.
2.6 Absence of Certain Changes or Events. Since the date of the
Company Balance Sheet, there has not been: (i) any Material Adverse Effect on
Company, (ii) any change by Company in its accounting methods, principles or
practices, except as required by concurrent changes in GAAP, or (iii) any
revaluation by Company of any of its assets other than as required by GAAP in
the ordinary course of business, (iv) any increase prior to the date of this
Agreement by Company or any of its subsidiaries in the compensation or fringe
benefits of any officers or employees, (v) any payment by Company or any of its
subsidiaries of, or entry into any understanding or agreement to pay, any bonus,
severance or termination payment to any officers or employees, or (vi) any grant
of stock options prior to the date of this Agreement other than grants to new
employees in connection with the commencement of their employment
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<PAGE> 16
2.7 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement,
"TAX" or "TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
2.8 Tax Returns and Audits.
(a) Company and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information statements and
reports ("RETURNS") and/or extensions relating to Taxes required to be filed by
Company and each of its subsidiaries with any Tax authority, except such Returns
which are not material to Company. Company and each of its subsidiaries have
paid all Taxes shown to be due on such Returns.
(b) Company and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state income
Taxes, Taxes pursuant to the Federal Insurance Contribution Act, Taxes pursuant
to the Federal Unemployment Tax Act and other Taxes required to be withheld,
except such Taxes which are not material to Company.
(c) Neither Company nor any of its subsidiaries has been
delinquent in the payment of any material Tax nor is there any material Tax
deficiency outstanding, proposed or assessed against Company or any of its
subsidiaries, nor has Company or any of its subsidiaries executed any unexpired
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(d) No audit or other examination of any Return of Company or any
of its subsidiaries by any Tax authority is presently in progress, nor has
Company or any of its subsidiaries been notified of any request for such an
audit or other examination.
(e) No adjustment relating to any Returns filed by Company or any
of its subsidiaries has been proposed in writing formally or informally by any
Tax authority to Company or any of its subsidiaries or any representative
thereof.
(f) Neither Company nor any of its subsidiaries has any liability
for any material unpaid Taxes which has not been accrued for or reserved on
Company Balance Sheet in accordance with GAAP, whether asserted or unasserted,
contingent or otherwise, which is material to Company, other than any liability
for unpaid Taxes that may have accrued since March 31, 2000 in connection with
the operation of the business of Company and its subsidiaries in the ordinary
course.
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<PAGE> 17
(g) There is no contract, agreement, plan or arrangement to which
Company or any of its subsidiaries is a party as of the date of this Agreement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of Company or any of its subsidiaries that,
individually or collectively, would reasonably be expected to give rise to the
payment of any amount that would not be deductible pursuant to Sections 280G,
404 or 162(m) of the Code. There is no contract, agreement, plan or arrangement
to which Company is a party or by which it is bound to compensate any individual
for excise taxes paid pursuant to Section 4999 of the Code.
(h) Neither Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by Company or any of its
subsidiaries.
(i) Neither Company nor any of its subsidiaries is party to or
has any obligation under any Tax-sharing, Tax indemnity or Tax allocation
agreement or arrangement.
(j) None of Company's or its subsidiaries' assets are tax exempt
use property within the meaning of Section 168(h) of the Code.
(k) Company has (a) never been a member of an affiliated group
(within the meaning of Code Section 1504(a)) filing a consolidated federal
income Tax Return (other than a group the common parent of which was Company),
(b) with respect to the Taxes of any person (other than Company or any of its
subsidiaries) (i) no liability under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local or foreign law) and (ii) no material liability
as a transferee or successor and (c) never been a party to any joint venture,
partnership or other agreement that should be treated as a partnership for Tax
purposes.
(l) Company has not been either a "distributing corporation" or a
"controlled corporation" in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code.
2.9 Company Intellectual Property. For the purposes of this
Agreement, the following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights registrations
and applications therefor, and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, common law trademarks
and service marks, trademark and service mark registrations and applications
therefor throughout the world; (vi) all databases and data
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<PAGE> 18
collections and all rights therein throughout the world; (vii) all moral and
economic rights of authors and inventors, however denominated, throughout the
world, and (viii) any similar or equivalent rights to any of the foregoing
anywhere in the world.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, Company.
(a) No Company Intellectual Property or product or service of
Company or any of its subsidiaries is subject to any proceeding or outstanding
decree, order, judgment, contract, license, agreement, or stipulation
restricting in any manner the use, transfer, or licensing thereof by Company or
any of its subsidiaries, or which may affect the validity, use or enforceability
of such Company Intellectual Property.
(b) To the knowledge of Company, Company owns, or has license or
other rights to use (sufficient for the conduct of its business as currently
conducted), each material item of Company Intellectual Property or other
Intellectual Property used by Company free and clear of any lien or encumbrance
(excluding licenses and related restrictions).
(c) Neither Company nor any of its subsidiaries has transferred
ownership of or granted any license with respect to, any material Company
Intellectual Property to any third party.
(d) To the knowledge of Company, the operation of the business of
Company and its subsidiaries as such business currently is conducted does not
infringe the Intellectual Property of any third party.
(e) Neither Company nor any of its subsidiaries has received
notice from any third party that the operation of the business of Company or any
of its subsidiaries or any act, product or service of Company or any of its
subsidiaries, infringes the Intellectual Property of any third party.
(f) To the knowledge of Company, no person has or is infringing
any material Company Intellectual Property.
(g) Company and each of its subsidiaries has taken reasonable
steps to protect Company's and its subsidiaries' rights in Company's
confidential information and trade secrets that it wishes to protect or any
trade secrets or confidential information of third parties provided to Company
or any of its subsidiaries, and, without limiting the foregoing, each of Company
and its subsidiaries has and enforces a policy requiring each employee and
contractor to execute a proprietary information/confidentiality agreement
substantially in the form provided to Parent and all current and former
employees and contractors of Company and any of its subsidiaries have executed
such an agreement, except where the failure to do so is not reasonably expected
to be material to Company.
2.10 Compliance; Permits; Restrictions.
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(a) Neither Company nor any of its subsidiaries is, in any
material respect, in conflict with, or in default or violation of (i) any law,
rule, regulation, order, judgment or decree applicable to Company or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected, or (ii) any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Company or any of its subsidiaries is a party or by which Company or
any of its subsidiaries or its or any of their respective properties is bound or
affected. To the knowledge of Company, no investigation or review by any
Governmental Entity is pending or threatened against Company or its
subsidiaries, nor has any Governmental Entity indicated an intention to conduct
the same. There is no material agreement, judgment, injunction, order or decree
binding upon Company or any of its subsidiaries which has or would reasonably be
expected to have the effect of prohibiting or materially impairing any current
business practice of Company or any of its subsidiaries, any acquisition of
material property by Company or any of its subsidiaries or the conduct of
business by Company as currently conducted.
(b) Company and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from governmental authorities which
are material to the operation of the business of Company (collectively, the
"COMPANY PERMITS"). Company and its subsidiaries are in compliance in all
material respects with the terms of the Company Permits.
2.11 Litigation. As of the date of this Agreement, there is no
action, suit, proceeding, claim, arbitration or investigation pending, or as to
which Company or any of its subsidiaries has received any notice of assertion
nor, to Company's knowledge, is there a threatened action, suit, proceeding,
claim, arbitration or investigation against Company or any of its subsidiaries
which in each case reasonably would be likely to be material to Company, or
which in any manner challenges or seeks to prevent, enjoin, alter or delay any
of the transactions contemplated by this Agreement.
2.12 Brokers' and Finders' Fees. Except for fees payable to Morgan
Stanley & Co. Incorporated pursuant to an engagement letter dated May 22, 2000,
a copy of which has been provided to Parent, Company has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
2.13 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit
plans, programs, policies, commitments, agreements or other arrangements
(whether or not set forth in a written document and including, without
limitation, all "employee benefit plans" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
covering any active or former employee, director or consultant of Company
("COMPANY EMPLOYEE" which shall for this purpose mean an employee of Company or
an Affiliate (as defined below)), any subsidiary of Company or any trade or
business (whether or not incorporated) which is a member of a controlled group
or which is under common control with Company within the meaning of Section 414
of the Code (an "AFFILIATE"), or with respect to which Company has or, to its
knowledge, may in the future have liability, are listed in Section 2.13(a) of
the Company Schedules (the "COMPANY PLANS"). Company has provided or will make
available to Parent: (i) correct and complete copies of
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all documents embodying each Company Plan including (without limitation) all
amendments thereto, all related trust documents, and all material written
agreements and contracts relating to each such Company Plan; (ii) the most
recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Company Plan; (iii) the most recent summary plan
description together with the summary(ies) of material modifications thereto, if
any, required under ERISA with respect to each Company Plan; (iv) all IRS
determination, opinion, notification and advisory letters; (v) all material
correspondence to or from any governmental agency relating to any Company Plan;
(vi) the most recent discrimination tests for each Company Plan; (vii) the most
recent actuarial valuations, if any, prepared for each Company Plan; (viii) if
the Company Plan is funded, the most recent annual and periodic accounting of
the Company Plan assets; and (ix) all communication to Company Employees
relating to any Company Plan and any proposed Company Plan, in each case,
relating to any amendments, terminations, establishments, increases or decreases
in benefits, acceleration of payments or vesting schedules, or other events
which would result in any material liability to Company or any Affiliate.
(b) Each Company Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (foreign or
domestic), including but not limited to ERISA and the Code, which are applicable
to such Company Plans. No suit, action or other litigation (excluding claims for
benefits incurred in the ordinary course of Company Plan activities) has been
brought, or to the knowledge of Company, is threatened, against or with respect
to any such Company Plan. There are no audits, inquiries or proceedings pending
or, to the knowledge of Company, threatened by the Internal Revenue Service (the
"IRS") or Department of Labor (the "DOL") with respect to any Company Plans. All
contributions, reserves or premium payments required to be made or accrued as of
the date hereof to the Company Plans have been timely made or accrued. Any
Company Plan intended to be qualified under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code (i) has either
obtained a favorable determination, notification, advisory and/or opinion
letter, as applicable, as to its qualified status from the IRS or still has a
remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such letter and to make any amendments
necessary to obtain a favorable determination, and (ii) incorporates or has been
amended to incorporate all provisions required to comply with the Tax Reform Act
of 1986 and subsequent legislation. To the knowledge of Company, no condition or
circumstance exists giving rise to a material likelihood that any such Company
Plan would not be treated as qualified by the IRS. Company does not have any
plan or commitment to establish any new Company Plan, to modify any Company Plan
(except to the extent required by law or to conform any such Company Plan to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by the terms of any Company Plan or this
Agreement), or to enter into any new Company Plan. Each Company Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Parent, Company or any of its
Affiliates (other than ordinary administration expenses).
(c) Neither Company, any of its subsidiaries, nor any of their
Affiliates has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan subject to
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Title IV of ERISA or Section 412 of the Code and at no time has Company
contributed to or been requested to contribute to any "multiemployer plan," as
such term is defined in ERISA. Neither Company, any of its subsidiaries, nor any
officer or director of Company or any of its subsidiaries is subject to any
material liability or penalty under Section 4975 through 4980B of the Code or
Title I of ERISA. No "prohibited transaction," within the meaning of Section
4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt
under Section 4975 of the Code and Section 408 of ERISA, has occurred with
respect to any Company Plan which could subject Company or its Affiliates to
material liability.
(d) None of the Company Plans promises or provides retiree
medical or other retiree welfare benefits to any person except as required by
applicable law, and neither Company nor any of its subsidiaries has represented,
promised or contracted (whether in oral or written form) to provide such retiree
benefits to any Company Employee, former employee, director, consultant or other
person, except to the extent required by statute.
(e) Company is in compliance in all material respects with all
applicable material foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours.
(f) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any shareholder, director or Company Employee or
any of its subsidiaries under any Company Plan or otherwise, (ii) increase any
benefits otherwise payable under any Company Plan, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
2.14 Absence of Liens and Encumbrances. Company and each of its
subsidiaries has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its tangible properties and
assets, real, personal and mixed, used in its business, free and clear of any
liens or encumbrances except as reflected in the Company Financials and except
for liens for Taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which would not be material to Company.
2.15 Environmental Matters.
(a) Except as would not reasonably be likely to result in a
Material Adverse Effect on Company, (i) neither Company nor any of its
subsidiaries has generated, transported, stored, used, manufactured, disposed
of, released or exposed its employees or others to pollutants, contaminants,
wastes, or any toxic, radioactive or otherwise hazardous materials ("HAZARDOUS
MATERIALS") in violation of, or in a manner that would be reasonably likely to
result in liability under, any rule, regulation, treaty or statute promulgated
by any Governmental Entity in effect as of the date hereof to protect the
environment or to prohibit, regulate or control Hazardous Materials
("ENVIRONMENTAL LAWS") and (ii) no Hazardous Materials are located in, on or
under any real property or facility now or previously owned, leased or operated
by Company or any of its
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<PAGE> 22
subsidiaries in a manner which would reasonably be expected to result in
liability under, or a violation of, any Environmental Law.
(b) Except for matters which would not reasonably be expected to
result in a Material Adverse Effect on Company, no action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to Company's knowledge, threatened concerning any Company Permit
relating to any environmental matter, or otherwise relating to any Environmental
Law.
2.16 Labor Matters. (i) There are no controversies pending or, to the
knowledge of each of Company and its respective subsidiaries, threatened,
between Company or any of its subsidiaries and any of their respective
employees; (ii) as of the date of this Agreement, neither Company nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by Company or its subsidiaries nor
does Company or its subsidiaries know of any activities or proceedings of any
labor union to organize any such employees; and (iii) as of the date of this
Agreement, neither Company nor any of its subsidiaries has any knowledge of any
strikes, slowdowns, work stoppages or lockouts, or threats thereof, by or with
respect to any employees of Company or any of its subsidiaries.
2.17 Agreements, Contracts and Commitments. As of the date hereof,
neither Company nor any of its subsidiaries is a party to or is bound by:
(a) (i) any employment or consulting agreement, contract or
commitment with any officer or director or higher level employee or member of
Company's Board of Directors, other than those that are terminable by Company or
any of its subsidiaries on no more than thirty (30) days' notice without
liability or financial obligation to Company, (ii) any such agreement, contract
or commitment with any employee, consultant, shareholder or other person that
will result in any obligation of Company or any of its subsidiaries to make any
payments as a result of the transactions contemplated hereby, (iii) any
agreement with any employee, consultant or shareholder of Company pursuant to
which Company has loaned or is obligated to loan any money thereto or (iv) any
agreement or arrangement providing for severance or termination pay;
(b) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;
(c) any agreement of indemnification of officers, directors or
employees of Company or any guaranty of third party indebtedness or of
obligations of officers, directors, employees or agents of Company;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Company or any of its subsidiaries to
engage in any line of business in any
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geographic area or to compete with any person or granting to any person any
interest in Company's distribution rights;
(e) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by Company or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Company has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Company's subsidiaries;
(f) any agreement, contract or commitment containing exclusivity
provisions pursuant to which Company has agreed not to purchase the goods (other
than local grocery products) or services of, or enter into a commercial
relationship with, another person;
(g) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit;
(h) any settlement agreement relating to any claim or suit;
(i) any real property lease covering more than 20,000 square
feet;
(j) any agreement, contract or commitment obligating Company to
make any payments based on (i) the number of users accessing any website
operated by Company or any of its subsidiaries (whether measured by
registrations, click-throughs or purchases by such users) or (ii) revenues
generated by purchases on any such website; or
(k) any other agreement, contract or commitment that involves
remaining obligations of Company of $1,000,000 or more individually.
Neither Company nor any of its subsidiaries, nor to Company's knowledge
any other party to a Company Contract (as defined below), is in breach,
violation or default under, and neither Company nor any of its subsidiaries has
received written notice that it has breached, violated or defaulted under, any
of the terms or conditions of any of the agreements, contracts or commitments to
which Company or any of its subsidiaries is a party or by which it is bound that
are required to be disclosed in the Company Schedules (any such agreement,
contract or commitment, a "COMPANY CONTRACT") in such a manner as would permit
any other party to cancel or terminate any such Company Contract, or would
permit any other party to seek material damages or other remedies (for any or
all of such breaches, violations or defaults, in the aggregate).
2.18 Insurance. There is no material claim by Company or any of its
subsidiaries pending under any of the insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Company and its subsidiaries as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds.
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2.19 Registration Statement; Joint Proxy Statement/Prospectus. None
of the information supplied or to be supplied by Company for inclusion in (i)
the Registration Statement (as defined in Section 2.5(b)) will at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading and (ii) the
proxy statement/prospectus to be sent to the shareholders of Company and
stockholders of Parent in connection with the meeting of Company's shareholders
to consider the approval and adoption of this Agreement and the approval of the
Merger (the "COMPANY SHAREHOLDERS' MEETING") and in connection with the meeting
of Parent's stockholders to consider the approval of the issuance of shares of
Parent Common Stock pursuant to the terms of the Merger (the "PARENT
STOCKHOLDERS' MEETING") (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "JOINT PROXY STATEMENT/PROSPECTUS")
shall not, on the date the Joint Proxy Statement/Prospectus is first mailed to
Company's shareholders and Parent's stockholders, at the time of the Company
Shareholders' Meeting or the Parent Stockholders' Meeting and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
false or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Shareholders' Meeting or the Parent Stockholders'
Meeting which has become false or misleading. The Joint Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder. If at
any time prior to the Effective Time, any event relating to Company or any of
its affiliates, officers or directors should be discovered by Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, Company shall promptly
inform Parent. Notwithstanding the foregoing, Company makes no representation or
warranty with respect to any information supplied by Parent or Merger Sub which
is contained in any of the foregoing documents.
2.20 Board Approval. The Board of Directors of Company has, as of the
date of this Agreement, unanimously (i) determined that the Merger is fair to,
advisable and in the best interests of Company and its shareholders, (ii)
determined to recommend that the shareholders of Company approve this Agreement
and (iii) duly approved the Merger, this Agreement and the transactions
contemplated hereby.
2.21 State Takeover Statutes. The Board of Directors of Company has
approved the Merger, this Agreement, the Company Voting Agreements and the
transactions contemplated hereby and thereby, and such approval is sufficient to
render inapplicable to the Merger, this Agreement, the Company Voting Agreements
and the transactions contemplated hereby and thereby the provisions of Chapter
19 of Washington Law to the extent, if any, such section is applicable to the
Merger, this Agreement, the Company Voting Agreements and the transactions
contemplated hereby and thereby. No other state takeover statute or similar
statute or regulation applies to or purports to apply to the Merger, this
Agreement, the Company Voting Agreements or the transactions contemplated hereby
and thereby.
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2.22 Fairness Opinion. Company has received a written opinion from
Morgan Stanley & Co. Incorporated, dated as of the date hereof, to the effect
that as of the date hereof, the Exchange Ratio is fair to Company's shareholders
from a financial point of view and has provided to Parent a copy of such
opinion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to
Company, subject to such exceptions as are (i) specifically disclosed in writing
in the disclosure letter and schedules thereto (each such exception to reference
the specific section number of this Article III to which it applies and each
other section number of this Article III to the extent such applicability is
reasonably apparent on the face of such exception), dated as of the date hereof
(the "PARENT SCHEDULE") or (ii) described in the Parent SEC Reports (as defined
below) filed on or prior to the date hereof, as follows:
3.1 Organization of Parent; Subsidiaries.
(a) Parent and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to own,
lease and operate its assets and property and to carry on its business as now
being conducted and as proposed to be conducted; and is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect (as
defined in Section 8.3) on Parent.
(b) Parent has delivered to Company a true and complete list of
all of Parent's subsidiaries, indicating the jurisdiction of incorporation of
each subsidiary and Parent's equity interest therein. Neither Parent nor any of
its subsidiaries directly or indirectly owns an equity, membership, partnership
or similar interest in, or any interest convertible into, or exchangeable or
exercisable for any such interest in, any corporation, partnership, joint
venture, limited liability company or other business association or entity.
(c) Parent has delivered or made available to Company a true and
correct copy of the Certificate of Incorporation and Bylaws of Parent and
similar governing instruments of each of its subsidiaries, each as amended to
date, and each such instrument is in full force and effect. Neither Parent nor
any of its subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation or Bylaws or equivalent governing instruments.
(d) All of the outstanding shares of capital stock of each of
Parent's subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and are not subject to preemptive rights created by statute, the
charter documents of any such subsidiary or any agreement or document to which
any such subsidiary is party or by which its is bound, and all such shares
(other than directors' qualifying shares in the case of applicable foreign
subsidiaries) are owned, of record and beneficially, by Parent or another
subsidiary of Parent free and clear of all security interests, liens,
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<PAGE> 26
claims, pledges, agreements, limitations on voting rights, charges or other
encumbrances of any nature.
3.2 Parent Capital Structure. The authorized capital stock of Parent
consists of 800,000,000 shares of Common Stock, par value $0.0001 per share, of
which 332,405,516 shares are issued and outstanding as of June 21, 2000 and
10,000,000 shares of Preferred Stock, no par value, of which no shares are
issued or outstanding. The authorized capital stock of Merger Sub consists of
1,000 shares of Common Stock, no par value, all of which, as of the date hereof,
are issued and outstanding and are held by Parent. All outstanding shares of
Parent Common Stock are duly authorized, validly issued, fully paid and
non-assessable and are not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of Parent or any agreement or document to
which Parent is a party or by which it is bound. As of June 21, 2000, Parent had
reserved an aggregate of 85,182,398 shares of Parent Common Stock, net of
exercises, for issuance to employees, consultants and non-employee directors
pursuant to Parent's 1997 Stock Plan and Parent's 1999 Nonstatutory Stock Option
Plan (the "PARENT STOCK OPTION PLANS"), under which options are outstanding for
65,682,345 shares and under which 19,500,033 shares are available for grant as
of June 21, 2000. As of June 21, 2000, Parent had reserved an aggregate of
2,892,052 shares of Parent Common Stock for issuance to holders of warrants to
purchase Parent Common Stock ("PARENT WARRANTS"). All shares of Parent Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
would be duly authorized, validly issued, fully paid and nonassessable.
3.3 Obligations With Respect to Capital Stock. Except as set forth
in Section 3.2, as of the date hereof, there are no equity securities,
partnership interests or similar ownership interests of any class of Parent, or
any securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests issued,
reserved for issuance or outstanding. Except for securities Parent owns,
directly or indirectly through one or more subsidiaries, there are no equity
securities, partnership interests or similar ownership interests of any class of
any subsidiary of Parent, or any security exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests issued, reserved for issuance or outstanding. Except as set
forth in Section 3.2, there are no stock appreciation rights, phantom stock or
other similar rights of Parent and no options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which Parent
or any of its subsidiaries is a party or by which it is bound obligating Parent
or any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition, of any shares of capital stock of Parent
or any of its subsidiaries or obligating Parent or any of its subsidiaries to
grant, extend, accelerate the vesting of or enter into any such stock
appreciation rights, phantom stock or other similar rights or any such option,
warrant, equity security, partnership interest or similar ownership interest,
call, right, commitment or agreement. There are no registration rights and, to
the knowledge of Parent there are no voting trusts, proxies or other agreements
or understandings with respect to any equity security of any class of Parent or
with respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries.
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<PAGE> 27
3.4 Authority.
(a) Parent has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action on the part of Parent, subject only to the approval and
adoption of this Agreement and the approval or the Share Issuance by Parent's
stockholders and the filing and recordation of the Certificate of Merger
pursuant to Washington Law. A vote of the holders of at least a majority of the
shares of Parent Common Stock present or represented by proxy at the Parent
Stockholders' Meeting is required for Parent's stockholders to approve and adopt
a Share Issuance. This Agreement has been duly executed and delivered by Parent
and Merger Sub and, assuming the due authorization, execution and delivery by
Company, constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws and general principles of equity.
The execution and delivery of this Agreement by Parent do not, and the
performance of this Agreement by Parent will not, (i) conflict with or violate
the Certificate of Incorporation or Bylaws of Parent or the equivalent
organizational documents of any of its subsidiaries, (ii) subject to obtaining
the approval of the Share Issuance by Parent's stockholders as contemplated in
Section 5.2 and compliance with the requirements set forth in Section 3.4(b)
below, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Parent or any of its subsidiaries or by which its or any of
their respective properties is bound or affected, or (iii) result in any breach
of, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or impair Parent's rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Parent
or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or any of its subsidiaries is a party or by which
Parent or any of its subsidiaries or its or any of their respective properties
are bound or affected, except to the extent such conflict, violation, breach,
default, impairment or other effect could not, in the case of clause (ii) or
(iii), individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent or a material adverse effect on Parent's
ability to perform its obligations under this Agreement.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with any Governmental Entity is required by
or with respect to Parent in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of a Registration Statement with the SEC in accordance with
the Securities Act, (ii) the filing of the Certificate of Merger with the
Secretary of State of Washington, (iii) the filing of the Joint Proxy
Statement/Prospectus with the SEC in accordance with the Exchange Act, (iv) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws
and the HSR Act, (v) the filing with Nasdaq of a Notification Form for Listing
of Additional Shares with respect to the shares of Parent Common Stock issuance,
or to be reserved for issuance, in connection with the Merger, (vi) applicable
requirements of state liquor laws and (vii) such other consents, authorizations,
filings,
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approvals and registrations which, if not obtained or made, would not be
material to Parent or Company or have a material adverse effect on the ability
of the parties to consummate the Merger.
3.5 SEC Filings; Parent Financial Statements.
(a) Parent has filed all forms, reports and documents required to
be filed with the SEC since November 4, 1999, and has made available to Company
such forms, reports and documents in the form filed with the SEC. All such
required forms, reports and documents (including those that Parent may file
subsequent to the date hereof) are referred to herein as the "PARENT SEC
REPORTS." As of their respective dates, the Parent SEC Reports (i) were prepared
in all material respects in accordance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Parent SEC Reports, and (ii) did not at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
Parent's subsidiaries is required to file any forms, reports or other documents
with the SEC.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the Parent SEC Reports (the
"PARENT FINANCIALS"), including any Parent SEC Reports filed after the date
hereof until the Closing, (i) complied as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q under the Exchange Act) and (iii) fairly presented the consolidated
financial position of Parent and its subsidiaries at the respective dates
thereof and the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments which were not, or
are not expected to be, material in amount. The balance sheet of Parent
contained in the Parent SEC Reports as of March 31, 2000 is hereinafter referred
to as the "PARENT BALANCE SHEET." Except as disclosed in the Parent Financials,
neither Parent nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise) of a nature required to be disclosed on a
balance sheet or in the related notes to the consolidated financial statements
prepared in accordance with GAAP which are, individually or in the aggregate,
material to the business, results of operations or financial condition of Parent
and its subsidiaries taken as a whole, except liabilities (i) provided for in
the Parent Balance Sheet, or (ii) incurred since the date of the Parent Balance
Sheet in the ordinary course of business and (A) immaterial in the aggregate or
(B) incurred in connection with the construction, operation, financing or
equipping of distribution centers.
(c) Parent has heretofore furnished to Company a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
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3.6 Absence of Certain Changes or Events. Since the date of the
Parent Balance Sheet, there has not been: (i) any Material Adverse Effect on
Parent, (ii) any change by Parent in its accounting methods, principles or
practices, except as required by concurrent changes in GAAP, or (iii) any
revaluation by Parent of any of its assets other than as required by GAAP in the
ordinary course of business, (iv) any increase prior to the date of this
Agreement by Parent or any of its subsidiaries in the compensation or fringe
benefits of any officers or employees, (v) any payment by Parent or any of its
subsidiaries of, or entry into any understanding or agreement to pay, any bonus,
severance or termination payment to any officers or employees, or (vi) any grant
of stock options prior to the date of this Agreement other than grants to new
employees in connection with the commencement of their employment.
3.7 Taxes.
(a) Parent and each of its subsidiaries have timely filed all
Returns and/or extensions relating to Taxes required to be filed by Parent and
each of its subsidiaries with any Tax authority, except such Returns which are
not material to Parent. Parent and each of its subsidiaries have paid all Taxes
shown to be due on such Returns.
(b) Parent and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state income
Taxes, Taxes pursuant to the Federal Insurance Contribution Act, Taxes pursuant
to the Federal Unemployment Tax Act and other Taxes required to be withheld,
except such Taxes which are not material to Parent.
(c) Neither Parent nor any of its subsidiaries has been
delinquent in the payment of any material Tax nor is there any material Tax
deficiency outstanding, proposed or assessed against Parent or any of its
subsidiaries, nor has Parent or any of its subsidiaries executed any unexpired
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(d) No audit or other examination of any Return of Parent or any
of its subsidiaries by any Tax authority is presently in progress, nor has
Parent or any of its subsidiaries been notified of any request for such an audit
or other examination.
(e) No adjustment relating to any Returns filed by Parent or any
of its subsidiaries has been proposed in writing formally or informally by any
Tax authority to Parent or any of its subsidiaries or any representative
thereof.
(f) Neither Parent nor any of its subsidiaries has any liability
for any material unpaid Taxes which has not been accrued for or reserved on
Parent Balance Sheet in accordance with GAAP, whether asserted or unasserted,
contingent or otherwise, which is material to Parent, other than any liability
for unpaid Taxes that may have accrued since March 31, 2000 in connection with
the operation of the business of Parent and its subsidiaries in the ordinary
course.
(g) There is no contract, agreement, plan or arrangement to which
Parent or any of its subsidiaries is a party as of the date of this Agreement,
including but not limited to the provisions
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of this Agreement, covering any employee or former employee of Parent or any of
its subsidiaries that, individually or collectively, would reasonably be
expected to give rise to the payment of any amount that would not be deductible
pursuant to Sections 280G, 404 or 162(m) of the Code. There is no contract,
agreement, plan or arrangement to which Parent is a party or by which it is
bound to compensate any individual for excise taxes paid pursuant to Section
4999 of the Code.
(h) Neither Parent nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by Parent or any of its
subsidiaries.
(i) Neither Parent nor any of its subsidiaries is party to or has
any obligation under any Tax-sharing, Tax indemnity or Tax allocation agreement
or arrangement.
(j) None of Parent's or its subsidiaries' assets are tax exempt
use property within the meaning of Section 168(h) of the Code.
(k) Parent has (a) never been a member of an affiliated group
(within the meaning of Code Section 1504(a)) filing a consolidated federal
income Tax Return (other than a group the common parent of which was Parent),
(b) with respect to the Taxes of any person (other than Parent or any of its
subsidiaries) (i) no liability under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local or foreign law) and (ii) no material liability
as a transferee or successor and (c) never been a party to any joint venture,
partnership or other agreement that should be treated as a partnership for Tax
purposes.
(l) Parent has not been either a "distributing corporation" or a
"controlled corporation" in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code.
3.8 Parent Intellectual Property. For the purposes of this
Agreement, the following terms have the following definitions:
"PARENT INTELLECTUAL PROPERTY" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, Parent.
(a) No Parent Intellectual Property or product or service of
Parent or any of its subsidiaries is subject to any proceeding or outstanding
decree, order, judgment, contract, license, agreement, or stipulation
restricting in any manner the use, transfer, or licensing thereof by Parent or
any of its subsidiaries, or which may affect the validity, use or enforceability
of such Parent Intellectual Property.
(b) To the knowledge of Parent, Parent owns, or has license or
other rights to use (sufficient for the conduct of its business as currently
conducted), each material item of Parent Intellectual Property or other
Intellectual Property used by Parent free and clear of any lien or encumbrance
(excluding licenses and related restrictions).
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(c) Neither Parent nor any of its subsidiaries has transferred
ownership of, or granted any license with respect to any material Parent
Intellectual Property to any third party.
(d) To the knowledge of Parent, the operation of the business of
Parent and its subsidiaries as such business currently is conducted does not
infringe the Intellectual Property of any third party.
(e) Neither Parent nor any of its subsidiaries has received
notice from any third party that the operation of the business of Parent or any
of its subsidiaries or any act, product or service of Parent or any of its
subsidiaries, infringes the Intellectual Property of any third party.
(f) To the knowledge of Parent, no person has or is infringing or
misappropriating any material Parent Intellectual Property.
(g) Parent and each of its subsidiaries has taken reasonable
steps to protect Parent's and its subsidiaries' rights in Parent's confidential
information and trade secrets that it wishes to protect or any trade secrets or
confidential information of third parties provided to Parent or any of its
subsidiaries, and, without limiting the foregoing, each of Parent and its
subsidiaries has and enforces a policy requiring each employee and contractor to
execute a proprietary information/confidentiality agreement substantially in the
form provided to Company and all current and former employees and contractors of
Parent and any of its subsidiaries have executed such an agreement, except where
the failure to do so is not reasonably expected to be material to Parent.
3.9 Compliance; Permits; Restrictions.
(a) Neither Parent nor any of its subsidiaries is, in any
material respect, in conflict with, or in default or violation of (i) any law,
rule, regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected, or (ii) any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or any of its subsidiaries is a party or by which Parent or any
of its subsidiaries or its or any of their respective properties is bound or
affected. To the knowledge of Parent, no investigation or review by any
Governmental Entity is pending or threatened against Parent or its subsidiaries,
nor has any Governmental Entity indicated an intention to conduct the same.
There is no material agreement, judgment, injunction, order or decree binding
upon Parent or any of its subsidiaries which has or could reasonably be expected
to have the effect of prohibiting or materially impairing any current business
practice of Parent or any of its subsidiaries, any acquisition of material
property by Parent or any of its subsidiaries or the conduct of business by
Parent as currently conducted.
(b) Parent and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from governmental authorities which
are material to the operation of the business of Parent (collectively, the
"PARENT PERMITS"). Parent and its subsidiaries are in compliance in all material
respects with the terms of the Parent Permits.
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3.10 Litigation. As of the date of this Agreement, there is no action,
suit, proceeding, claim, arbitration or investigation pending, or as to which
Parent or any of its subsidiaries has received any notice of assertion nor, to
Parent's knowledge, is there a threatened action, suit, proceeding, claim,
arbitration or investigation against Parent or any of its subsidiaries which
reasonably would be likely to be material to Parent, or which in any manner
challenges or seeks to prevent, enjoin, alter or delay any of the transactions
contemplated by this Agreement.
3.11 Brokers' and Finders' Fees. Except for fees payable to Goldman,
Sachs & Co. pursuant to an engagement letter dated June 22, 2000, a copy of
which has been provided to Company, Parent has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
3.12 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit
plans, programs, policies, commitments, agreements or other arrangements
(whether or not set forth in a written document and including, without
limitation, all "employee benefit plans" within the meaning of Section 3(3) of
ERISA) covering any active or former employee, director or consultant of Parent
("PARENT EMPLOYEE" which shall for this purpose mean an employee of Company or
any Affiliate (as defined below)), any subsidiary of Parent or any trade or
business (whether or not incorporated) which is an Affiliate, or with respect to
which Parent has or, to its knowledge, may in the future have liability, are
listed in Section 3.12(a) of the Parent Schedules (the "PARENT PLANS"). Parent
has provided or will make available to Company: (i) correct and complete copies
of all documents embodying each Parent Plan including (without limitation) all
amendments thereto, all related trust documents, and all material written
agreements and contracts relating to each such Parent Plan; (ii) the most recent
annual reports (Form Series 5500 and all schedules and financial statements
attached thereto), if any, required under ERISA or the Code in connection with
each Parent Plan; (iii) the most recent summary plan description together with
the summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each Parent Plan; (iv) all IRS determination, opinion,
notification and advisory letters; (v) all material correspondence to or from
any governmental agency relating to any Parent Plan; (vi) the most recent
discrimination tests for each Parent Plan; (vii) the most recent actuarial
valuations, if any, prepared for each Parent Plan; (viii) if the Parent Plan is
funded, the most recent annual and periodic accounting of the Parent Plan
assets; and (ix) all communication to Parent Employees relating to any Parent
Plan and any proposed Parent Plan, in each case relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules, or other events which would result in any
material liability to Parent or any Affiliate.
(b) Each Parent Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (foreign or
domestic), including but not limited to ERISA and the Code, which are applicable
to such Parent Plans. No suit, action or other litigation (excluding claims for
benefits incurred in the ordinary course of Parent Plan activities) has been
brought, or to the
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knowledge of Parent, is threatened, against or with respect to any such Parent
Plan. There are no audits, inquiries or proceedings pending or, to the knowledge
of Parent, threatened by the IRS or the DOL with respect to any Parent Plans.
All contributions, reserves or premium payments required to be made or accrued
as of the date hereof to the Parent Plans have been timely made or accrued. Any
Parent Plan intended to be qualified under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code (i) has either
obtained a favorable determination, notification, advisory and/or opinion
letter, as applicable, as to its qualified status from the IRS or still has a
remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such letter and to make any amendments
necessary to obtain a favorable determination, and (ii) incorporates or has been
amended to incorporate all provisions required to comply with the Tax Reform Act
of 1986 and subsequent legislation. To the knowledge of Parent, no condition or
circumstance exists giving rise to a material likelihood that any such Parent
Plan would not be treated as qualified by the IRS. Parent does not have any plan
or commitment to establish any new Parent Plan, to modify any Parent Plan
(except to the extent required by law or to conform any such Parent Plan to the
requirements of any applicable law, in each case as previously disclosed to
Company in writing, or as required by the terms of any Parent Plan or this
Agreement), or to enter into any new Parent Plan. Each Parent Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Company, Parent or any of its
Affiliates (other than ordinary administration expenses).
(c) Neither Parent, any of its subsidiaries, nor any of their
Affiliates has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan subject to Title IV of ERISA or Section 412 of
the Code and at no time has Parent contributed to or been requested to
contribute to any "multiemployer plan," as such term is defined in ERISA.
Neither Parent, any of its subsidiaries, nor any officer or director of Parent
or any of its subsidiaries is subject to any material liability or penalty under
Section 4975 through 4980B of the Code or Title I of ERISA. No "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 4975 of the Code and
Section 408 of ERISA, has occurred with respect to any Parent Plan which could
subject Parent or its Affiliates to material liability.
(d) None of the Parent Plans promises or provides retiree medical
or other retiree welfare benefits to any person except as required by applicable
law, and neither Parent nor any of its subsidiaries has represented, promised or
contracted (whether in oral or written form) to provide such retiree benefits to
any Parent Employee, former employee, director, consultant or other person,
except to the extent required by statute.
(e) Parent is in compliance in all material respects with all
applicable material foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours.
(f) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any
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stockholder, director or Parent Employee or any of its subsidiaries under any
Parent Plan or otherwise, (ii) increase any benefits otherwise payable under any
Parent Plan, or (iii) result in the acceleration of the time of payment or
vesting of any such benefits.
3.13 Absence of Liens and Encumbrances. Parent and each of its
subsidiaries has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its tangible properties and
assets, real, personal and mixed, used in its business, free and clear of any
liens or encumbrances except as reflected in the Parent Financials and except
for liens for Taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which would not be material to Parent.
3.14 Environmental Matters.
(a) Except as would not reasonably be likely to result in a
Material Adverse Effect on Parent, (i) neither Parent nor any of its
subsidiaries has generated, transported, stored, used, manufactured, disposed
of, released or exposed its employees or others to Hazardous Materials in
violation of, or in a manner that would reasonably be likely to result in
liability under, any Environmental Law, and (ii) no Hazardous Materials are
located in, on or under any real property or facility now or previously owned,
leased or operated by Parent or any of its subsidiaries in a manner which would
reasonably be expected to result in liability under, or in violation of, any
Environmental Law.
(b) Except for matters which would not reasonably be expected to
result in a Material Adverse Effect on Parent, no action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to
Parent's knowledge, threatened concerning any Parent Permit relating to any
environmental matter, or otherwise relating to any Hazardous Material or any
Environmental Law.
3.15 Labor Matters. (i) There are no controversies pending or, to the
knowledge of each of Parent and its respective subsidiaries, threatened, between
Parent or any of its subsidiaries and any of their respective employees; (ii) as
of the date of this Agreement, neither Parent nor any of its subsidiaries is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by Parent or its subsidiaries nor does Parent or
its subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and (iii) as of the date of this Agreement, neither
Parent nor any of its subsidiaries has any knowledge of any strikes, slowdowns,
work stoppages or lockouts, or threats thereof, by or with respect to any
employees of Parent or any of its subsidiaries.
3.16 Agreements, Contracts and Commitments. As of the date hereof,
neither Company nor any of its subsidiaries is a party to or is bound by:
(a) (i) any employment or consulting agreement, contract or
commitment with any officer or director or higher level employee or member of
Parent's Board of Directors, other than those that are terminable by Parent or
any of its subsidiaries on no more than thirty (30) days' notice without
liability or financial obligation to Parent, (ii) any such agreement, contract
or commitment
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with any employee, consultant, stockholder or other person that will result in
any obligation of Parent or any of its subsidiaries to make any payments as a
result of the transactions contemplated hereby, (iii) any agreement with any
employee, consultant or stockholder of Parent pursuant to which Parent has
loaned or is obligated to loan any money thereto or (iv) any arrangement or
agreement providing for severance or termination pay;
(b) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;
(c) any agreement of indemnification of officers, directors or
employees of Parent or any guaranty of third party indebtedness or of
obligations of officers, directors, employees or agents of Parent;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Parent or any of its subsidiaries to engage
in any line of business in any geographic area or to compete with any person or
granting to any person any interest in Parent's distribution rights;
(e) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by Parent or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Parent has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Parent's subsidiaries;
(f) any contract containing exclusivity provisions pursuant to
which Parent has agreed not to purchase the goods (other than local grocery
products) or services of, or enter into a commercial relationship with, another
person;
(g) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit;
(h) any settlement agreement relating to any claim or suit;
(i) any real property lease covering more than 20,000 square
feet;
(j) any agreement, contract or commitment obligating Parent to
make any payments based on (i) the number of users accessing any website
operated by Parent or any of its subsidiaries (whether measured by
registrations, click-throughs or purchases by such users) or (ii) revenues
generated by purchases on any such website; or
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(k) any other agreement, contract or commitment that involves
remaining obligations of Parent of $5,000,000 or more individually.
Neither Parent nor any of its subsidiaries, nor to Parent's knowledge
any other party to a Parent Contract (as defined below), is in breach, violation
or default under, and neither Parent nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
terms or conditions of any of the agreements, contracts or commitments to which
Parent or any of its subsidiaries is a party or by which it is bound that are
required to be disclosed in the Parent Schedules (any such agreement, contract
or commitment, a "PARENT CONTRACT") in such a manner as would permit any other
party to cancel or terminate any such Parent Contract, or would permit any other
party to seek material damages or other remedies (for any or all of such
breaches, violations or defaults, in the aggregate).
3.17 Insurance. There is no material claim by Parent or any of its
subsidiaries pending under any of the insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Parent and its subsidiaries as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds.
3.18 Registration Statement; Joint Proxy Statement/Prospectus. None of
the information supplied or to be supplied by Parent for inclusion in (i) the
Registration Statement will at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading and (ii) the Joint Proxy
Statement/Prospectus shall not, on the date the Joint Proxy Statement/Prospectus
is first mailed to Parent's stockholders and Company's shareholders, at the time
of the Parent Stockholders' Meeting or the Company Shareholders' Meeting and at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Parent Stockholders' Meeting or the Company
Shareholders' Meeting which has become false or misleading. The Joint Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder. If at
any time prior to the Effective Time, any event relating to Parent or any of its
affiliates, officers or directors should be discovered by Parent which should be
set forth in an amendment to the Registration Statement or a supplement to the
Joint Proxy Statement/Prospectus, Parent shall promptly inform Company.
Notwithstanding the foregoing, Parent makes no representation or warranty with
respect to any information supplied by Company which is contained in any of the
foregoing documents.
3.19 Board Approval. The Board of Directors of Parent has, as of the
date of this Agreement, unanimously (i) determined that the Merger is fair to
and in the best interests of Parent and its stockholders, (ii) determined to
recommend that the stockholders of Parent approve the Share Issuance and (iii)
duly approved the Merger, this Agreement and the transactions contemplated
hereby.
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3.20 Fairness Opinion. Parent has received an opinion from Goldman,
Sachs & Co., dated as of the date hereof, to the effect that as of the date
hereof, the Exchange Ratio is fair to Parent from a financial point of view and
will provide to Company a copy of the written confirmation of such opinion
promptly after Parent's receipt thereof.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing, carry on its business, in the ordinary course, in substantially the
same manner as heretofore conducted and in compliance with all applicable laws
and regulations, pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, pay or perform other material obligations when due,
and use its commercially reasonable efforts consistent with past practices and
policies to (i) preserve intact its present business organization, (ii) keep
available the services of its present officers and employees and (iii) preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings.
In addition, except as expressly permitted by the terms of this
Agreement and except as set forth on Section 4.1 of the Company Schedule(1),
without the prior written consent of Parent, during the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company shall not do any
of the following and shall not permit its subsidiaries to do any of the
following:
(a) Waive any stock repurchase rights, accelerate, amend or
change the period of exercisability of options or restricted stock, or reprice
options granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Grant any severance or termination pay to any officer or
employee except pursuant to written agreements outstanding, or policies
existing, on the date hereof and as previously disclosed in writing or made
available to Parent, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the Company Intellectual Property other
than in the ordinary course of business consistent with past practices;
--------
(1) Will include parameters of agreed upon stay bonus program.
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(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of Company or its subsidiaries, except
repurchases of unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or purchase
agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber
any shares of capital stock or any securities convertible into shares of capital
stock, or subscriptions, rights, warrants or options to acquire any shares of
capital stock or any securities convertible into shares of capital stock, or
enter into other agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than (x) the issuance,
delivery and/or sale of shares of Company Common Stock pursuant to the exercise
of stock options and Company Warrants outstanding as of the date of this
Agreement or stock options granted pursuant to clause (y) hereof and (y) the
granting of stock options to new hires, in the ordinary course of business and
consistent with past practices (but in no event to include any provision
providing for accelerated vesting), in an amount not to exceed options to
purchase 250,000 shares in the aggregate;
(g) Cause, permit or propose any amendments to the Company
Charter Documents (or similar governing instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets (other than in the ordinary course of business consistent
with past practice) or enter into any joint ventures, strategic partnerships or
alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary course of
business consistent with past practice, except for the sale, lease or
disposition (other than through licensing) of property or assets which are not
material, individually or in the aggregate, to the business of Company and its
subsidiaries;
(j) Incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company, enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect of
any of the foregoing other than in connection with the financing of ordinary
course trade payables and truck lease financing, in each case consistent with
past practice;
(k) Adopt or amend any employee benefit plan, policy or
arrangement, any employee stock purchase or employee stock option plan, or enter
into any employment contract or collective bargaining agreement (other than as
required by law or offer letters and letter agreements
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entered into in the ordinary course of business consistent with past practice
with employees who are terminable "at will"), pay any special bonus or special
remuneration (it being understood by the parties that payments pursuant to
Company's quarterly bonus program as conducted in the ordinary course of
business consistent with past practice do not constitute special bonuses or
special remuneration) to any director or employee, or increase the salaries or
wage rates or fringe benefits (including rights to severance or indemnification)
of its directors, officers, employees or consultants other than annual review
salary increases for non-officer employees in the ordinary course of business
consistent with past practice;
(l) (i) Pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), or litigation (whether or not commenced prior to the
date of this Agreement) in which Company is a defendant other than the payment,
discharge, settlement or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, or liabilities
recognized or disclosed in the most recent consolidated financial statements (or
the notes thereto) of Company included in the Company SEC Reports or incurred in
the ordinary course of business consistent with past practice since the date of
such financial statements, or (ii) waive the benefits of, agree to modify in any
manner, terminate, release any person from or fail to enforce any
confidentiality or similar agreement to which Company or any of its subsidiaries
is a party or of which Company or any of its subsidiaries is a beneficiary;
(m) Make any individual or series of related payments outside of
the ordinary course of business in excess of $50,000;
(n) Except in the ordinary course of business consistent with
past practice, modify, amend or terminate any material contract or agreement to
which Company or any subsidiary thereof is a party or waive, delay the exercise
of, release or assign any material rights or claims thereunder;
(o) Enter into any agreement, contract or commitment which if in
existence on the date hereof would be required to be listed on Section 2.17 of
the Company Schedule;
(p) Revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices;
(q) Incur or enter into any agreement, contract or commitment
outside of the ordinary course of business in excess of $50,000 individually;
(r) Engage in any action that would reasonably be expected to
cause the Merger to fail to qualify as a "reorganization" under Section 368(a)
of the Code, whether or not otherwise permitted by the provisions of this
Article IV;
(s) Make any Tax election that, individually or in the aggregate,
is reasonably likely to adversely affect in any material respect the Tax
liability or Tax attributes of Company or any of its subsidiaries or settle or
compromise any material income Tax liability;
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(t) Make or authorize (i) any capital expenditure in excess of $5
million with respect to any distribution center or $15 million in the aggregate
or (ii) any marketing expenditure in excess of $6 million in the aggregate
during any successive thirty (30) day period following the date hereof or $15
million in the aggregate during any successive ninety (90) day period following
the date hereof;
(u) Enter into any collective bargaining agreements; or
(v) Agree in writing or otherwise to take any of the actions
described in Section 4.1 (a) through (u) above.
4.2 Conduct of Business by Parent. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Parent and each of its
subsidiaries shall, except to the extent that Company shall otherwise consent in
writing, carry on its business, in the ordinary course, in substantially the
same manner as heretofore conducted and in compliance with all applicable laws
and regulations, pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, pay or perform other material obligations when due,
and use its commercially reasonable efforts consistent with past practices and
policies to (i) preserve intact its present business organization, (ii) keep
available the services of its present officers and employees and (iii) preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings.
In addition, except as expressly permitted by the terms of this
Agreement and except as set forth on Section 4.2 of the Parent Schedule, without
the prior written consent of Company, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Parent shall not do any of the
following and shall not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or
change the period of exercisability of options or restricted stock, or reprice
options granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock, except for intercompany dividends or distributions, or
split, combine or reclassify any capital stock or, except with respect to
securities of wholly owned subsidiaries, issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for any capital
stock;
(c) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of Parent, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof;
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(d) Except as would not result in a delay of three weeks or more
in the Effective Time, issue, deliver, sell, authorize, pledge or otherwise
encumber any shares of capital stock or any securities convertible into shares
of capital stock, or subscriptions, rights, warrants or options to acquire any
shares of capital stock or any securities convertible into shares of capital
stock, or enter into other agreements or commitments of any character obligating
it to issue any such shares or convertible securities, other than (x) the
issuance, delivery and/or sale of shares of Parent Common Stock pursuant to the
exercise of stock options and Parent Warrants outstanding as of the date of this
Agreement or stock options granted pursuant to clause (y) hereof, (y) the
granting of stock options, in the ordinary course of business and consistent
with past practices and (z) in connection with transactions permitted by section
(f) hereof;
(e) Cause, permit or propose any amendments to the Parent Charter
Documents (or similar governing instruments of any of its subsidiaries) that
would have an adverse effect on the rights of holders of Parent Common Stock
(including the Parent Common Stock to be issued in the Merger);
(f) Except as would not result in a delay of three weeks or more
in the Effective Time, acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or material portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets (other than in the ordinary course of
business consistent with past practice);
(g) Except as would not result in a delay of three weeks or more
in the Effective Time, incur any indebtedness for borrowed money (other than
borrowings under Parent's existing credit facility) or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of Parent, enter
into any "keep well" or other agreement to maintain any financial statement
condition or enter into any arrangement having the economic effect of any of the
foregoing other than in connection with the financing of ordinary course trade
payables and truck lease financing, in each case consistent with past practice;
(h) (i) Pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), or litigation (whether or not commenced prior to the
date of this Agreement) in which Parent is a defendant other than the payment,
discharge, settlement or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, or liabilities
recognized or disclosed in the most recent consolidated financial statements (or
the notes thereto) of Parent included in the Parent SEC Reports or incurred in
the ordinary cause of business consistent with past practice since the date of
such financial statements, or (ii) waive the benefits of, agree to modify in any
manner, terminate, release any person from or fail to enforce any
confidentiality or similar agreement to which Parent or any of its subsidiaries
is a party or of which Parent or any of its subsidiaries is a beneficiary;
(i) Revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices;
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(j) Engage in any action that would reasonably be expected to
cause the Merger to fail to qualify as a "reorganization" under Section 368(a)
of the Code, whether or not otherwise permitted by the provisions of this
Article IV;
(k) Make any Tax election that, individually or in the aggregate,
is reasonably likely to adversely affect in any material respect the Tax
liability or Tax attributes of Parent or any of its subsidiaries or settle or
compromise any material income Tax liability; or
(l) Agree in writing or otherwise to take any of the actions
described in Sections 4.1(a) through (k) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Joint Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practicable after the execution of this
Agreement, Parent and Company shall jointly prepare and shall file with the SEC
a document or documents that will constitute (i) the S-4 and (ii) the Joint
Proxy Statement/Prospectus. Each of the parties hereto shall use commercially
reasonable efforts to cause the S-4 to become effective as promptly as
practicable after the date hereof, and, prior to the effective date of the S-4,
the parties hereto shall take all action required under any applicable Laws in
connection with the issuance of shares of Parent Common Stock pursuant to the
Merger. Parent or Company, as the case may be, shall furnish all information
concerning Parent or Company as the other party may reasonably request in
connection with such actions and the preparation of the S-4 and the Joint Proxy
Statement/Prospectus. As promptly as practicable after the effective date of the
S-4, the Joint Proxy Statement/Prospectus shall be mailed to the shareholders of
Company and of Parent. Each of the parties hereto shall cause the Joint Proxy
Statement/Prospectus to comply as to form and substances to such party in all
material respects with the applicable requirements of (i) the Exchange Act, (ii)
the Securities Act, (iii) the rules and regulations of the Nasdaq.
(b) The Joint Proxy Statement/Prospectus shall include the
approval of this Agreement and the Merger and the recommendation of the Board of
Directors of Company to Company's shareholders that they vote in favor of
approval of this Agreement and the Merger, subject to the right of the Board of
Directors of Company to withdraw at any time prior to the date of the Company
Shareholders' Meeting its recommendation and to recommend a Superior Proposal
determined to be such in compliance with Section 5.4(a) of this Agreement. The
Joint Proxy Statement/Prospectus shall include the approval of the Share
Issuance and the recommendation of the Board of Directors of Parent to Parent's
stockholders that they vote in favor of approval of the Share Issuance.
(c) No amendment or supplement to the Joint Proxy
Statement/Prospectus or the S-4 shall be made without the approval of Parent and
Company, which approval shall not be unreasonably withheld or delayed. Each of
the parties hereto shall advise the other parties hereto,
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promptly after it receives notice thereof, of the time when the S-4 has become
effective or any supplement or amendment has been filed, of the issuance of any
stop order, of the suspension of the qualification of the Parent Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or of any request by the SEC for amendment of the Joint Proxy
Statement/Prospectus or the S-4 or comments thereon and responses thereto or
requests by the SEC for additional information.
5.2 Shareholder and Stockholder Meetings. Company shall call and hold
the Company Shareholders' Meeting and Parent shall call and hold the Parent
Stockholders' Meeting as promptly as practicable after the date hereof for the
purpose of voting upon the adoption and approval of this Agreement and the
approval of the Merger (in the case of the Company Shareholders' Meeting) and
the Share Issuance (in the case of the Parent Stockholders' Meeting) pursuant to
the Joint Proxy Statement/Prospectus, and Company and Parent shall use all
reasonable efforts to hold the Parent Stockholders' Meeting and the Company
Shareholders' Meeting on the same day and as soon as practicable after the date
on which the S-4 becomes effective. Nothing herein shall prevent Company or
Parent from adjourning or postponing the Company Shareholders' Meeting or the
Parent Stockholders' Meeting, as the case may be, if there are insufficient
shares of Company Common Stock or Parent Common Stock, as the case may be,
necessary to conduct business at their respective meetings of the shareholders
or stockholders. The Board of Directors of Company shall submit this Agreement
and the Merger for shareholder approval pursuant to Section 23B.11.030(b)(3) of
the Washington Law subject only to the condition of shareholder approval as
described in Section 2.4. Unless Company's Board of Directors has withdrawn its
recommendation of this Agreement and the Merger in compliance with Section
5.4(a), Company shall use commercially reasonable efforts to solicit from its
shareholders proxies in favor of the adoption and approval of this Agreement and
the approval of the Merger pursuant to the Joint Proxy Statement/Prospectus and
shall take all other commercially reasonable action necessary or advisable to
secure the vote or consent of shareholders required by Washington Law or
applicable Nasdaq requirements to obtain such approval. Parent shall use
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the Share Issuance pursuant to the Joint Proxy Statement/Prospectus and
shall take all other commercially reasonable action necessary or advisable to
secure the vote or consent of stockholders required by the Delaware Law or
applicable Nasdaq requirements to obtain such approval. Company shall call and
hold the Company Shareholders' Meeting for the purpose of voting upon the
adoption and approval of this Agreement and the approval of the Merger whether
or not Company's Board of Directors at any time subsequent to the date hereof
withdraws its recommendation of this Agreement and the Merger.
5.3 Confidentiality; Access to Information.
(a) The parties acknowledge that Company and Parent have
previously executed a Confidentiality Agreement, dated as of May 22, 2000 (the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms.
(b) Each of Company and Parent will afford the other and the
other's accountants, counsel and other representatives reasonable access to its
properties, books, records, shareholder lists
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and personnel during the period prior to the Effective Time to obtain all
information concerning its business as such other party may reasonably request.
No information or knowledge obtained in any investigation pursuant to this
Section 5.3 will affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.4 No Solicitation.
(a) By Company. (i) From and after the date of this Agreement
until the Effective Time or termination of this Agreement pursuant to Article
VII, Company and its subsidiaries will not, nor will they authorize or permit
any of their respective officers, directors, affiliates or employees or any
investment banker, attorney or other advisor or representative retained by any
of them to, directly or indirectly, (A) solicit, initiate, encourage or induce
the making, submission or announcement of any Acquisition Proposal (as defined
below), (B) participate in any discussions or negotiations regarding, or furnish
to any person any information with respect to, or knowingly take any other
action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to, any Acquisition Proposal,
(C) engage in discussions with any person with respect to any Acquisition
Proposal, (D) approve, endorse or recommend any Acquisition Proposal or (E)
enter into any letter of intent or similar document or any contract, agreement
or commitment contemplating or otherwise relating to any Acquisition Transaction
(as defined below); provided, however, that nothing contained in this Section
5.4(a) shall prohibit the Board of Directors of Company from (m) complying with
Rule 14d-9 or 14e-2(a) promulgated under the Exchange Act with regard to a
tender or exchange offer not made after a violation of this Section 5.4(a) or
(n) at any time prior to the date of the Company Shareholders' Meeting, in
response to a bona fide written Acquisition Proposal received without the prior
occurrence of a breach of this Section 5.4(a) that Company's Board of Directors
reasonably concludes constitutes a Superior Proposal (as defined below),
engaging in discussions or participating in negotiations with and furnishing
information to the party making such Acquisition Proposal to the extent (1) the
Board of Directors of Company determines in good faith after consultation with
its outside legal counsel that its fiduciary obligations under applicable law
require it to do so, (2) (x) at least two business days prior to furnishing any
such nonpublic information to, or entering into discussions or negotiations
with, such party, Company gives Parent written notice of Company's intention to
furnish nonpublic information to, or enter into discussions or negotiations
with, such party and (y) Company receives from such party an executed
confidentiality agreement containing customary limitations on the use and
disclosure of all nonpublic written and oral information furnished to such party
by or on behalf of Company, and (3) contemporaneously with furnishing any such
nonpublic information to such party, Company furnishes such nonpublic
information to Parent (to the extent such nonpublic information has not been
previously furnished by Company to Parent). Company and its subsidiaries will
immediately cease any and all existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any Acquisition Proposal.
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in this Section 5.4(a) by any officer, director,
affiliate or employee of Company or any of its subsidiaries or any investment
banker, attorney or other advisor or representative of
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Company or any of its subsidiaries shall be deemed to be a breach of this
Section 5.4(a) by Company.
(ii) For purposes of this Agreement, (A) "ACQUISITION
PROPOSAL" shall mean any offer, inquiry or proposal (other than an offer,
inquiry or proposal by Parent) relating to any Acquisition Transaction. For the
purposes of this Agreement; (B) "ACQUISITION TRANSACTION" shall mean any
transaction or series of related transactions other than the transactions
contemplated by this Agreement involving: (X) any acquisition or purchase from
Company by any person or "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) of more than a 15% interest in the
total outstanding voting securities of Company or any of its subsidiaries or any
tender offer or exchange offer that if consummated would result in any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) beneficially owning 15% or more of the total outstanding
voting securities of Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving Company
pursuant to which the shareholders of Company immediately preceding such
transaction hold less than 85% of the equity interests in the surviving or
resulting entity of such transaction; (Y) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than 15% of the
assets of Company; or (Z) any liquidation, dissolution, recapitalization or
other significant corporate reorganization of the Company; and (C) "SUPERIOR
PROPOSAL" shall mean an Acquisition Proposal with respect to which (x) if any
cash consideration is involved, shall not be subject to any financing
contingency or with respect to which Company's Board of Directors shall have
reasonably determined (based upon the advice of Company's financial advisors)
that the acquiring party is capable of consummating the proposed Acquisition
Transaction on the terms proposed, and (y) Company's Board of Directors shall
have reasonably determined that the proposed Acquisition Transaction provides
greater value to the shareholders of Company than the Merger (based upon a
written opinion, subject to customary qualifications, of Company's financial
advisor).
(iii) In addition to the obligations of Company set forth
in paragraph (i) of this Section 5.4(a), Company as promptly as practicable, and
in any event within 24 hours, shall advise Parent orally and in writing of any
request for information which Company reasonably believes would lead to an
Acquisition Proposal or of any Acquisition Proposal, or any inquiry with respect
to or which Company reasonably believes would lead to any Acquisition Proposal,
the material terms and conditions of such request, Acquisition Proposal or
inquiry, and the identity of the person or group making any such request,
Acquisition Proposal or inquiry. Company will keep Parent informed in all
material respects of the status and details (including material amendments or
proposed amendments) of any such request, Acquisition Proposal or inquiry. In
addition to the foregoing, Company shall (A) provide Parent with at least 48
hours prior notice (or such lesser prior notice as provided to the members of
Company's Board of Directors but in no event less than eight hours) of any
meeting of Company's Board of Directors at which Company's Board of Directors is
reasonably expected to consider an Acquisition Proposal and (B) provide Parent
with at least three (3) business days prior written notice of a meeting of
Company's Board of Directors at which Company's Board of Directors is reasonably
expected to recommend a Superior Proposal to its
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shareholders and together with such notice a copy of the definitive
documentation relating to such Superior Proposal.
(b) By Parent.
(i) From and after the date of this Agreement until the
Effective Time or termination of this Agreement pursuant to Article VII, Parent
and its subsidiaries will not, nor will they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them to,
directly or indirectly, (A) solicit, initiate, encourage or induce the making,
submission or announcement of any Parent Acquisition Proposal (as defined
below), (B) participate in any discussions or negotiations regarding, or furnish
to any person any information with respect to, or knowingly take any other
action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to, any Parent Acquisition
Proposal, (C) engage in discussions with any person with respect to any Parent
Acquisition Proposal, (D) approve, endorse or recommend any Parent Acquisition
Proposal or (E) enter into any letter of intent or similar document or any
contract, agreement or commitment contemplating or otherwise relating to any
Parent Acquisition Transaction (as defined below); provided, however, that
nothing contained in this Section 5.4(b) shall prohibit the Board of Directors
of Parent from (m) complying with Rule 14d-9 or 14e-2(a) promulgated under the
Exchange Act with regard to a tender or exchange offer not made after a
violation of this Section 5.4(b) or (n) at any time prior to the date of the
Parent Stockholders' Meeting, in response to a bona fide written Parent
Acquisition Proposal received without the prior occurrence of a breach of this
Section 5.4(b) that Parent's Board of Directors reasonably concludes constitutes
a Parent Superior Proposal (as defined below), engaging in discussions or
participating in negotiations with and furnishing information to the party
making such Parent Acquisition Proposal to the extent (1) the Board of Directors
of Parent determines in good faith after consultation with its outside legal
counsel that its fiduciary obligations under applicable law require it to do so,
(2) (x) at least two business days prior to furnishing any such nonpublic
information to, or entering into discussions or negotiations with, such party,
Parent gives Company written notice of Parent's intention to furnish nonpublic
information to, or enter into discussions or negotiations with, such party and
(y) Parent receives from such party an executed confidentiality agreement
containing customary limitations on the use and disclosure of all nonpublic
written and oral information furnished to such party by or on behalf of Parent,
and (3) contemporaneously with furnishing any such nonpublic information to such
party, Parent furnishes such nonpublic information to Company (to the extent
such nonpublic information has not been previously furnished by Parent to
Company). Parent and its subsidiaries will immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Parent Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
this Section 5.4(b) by any officer, director, affiliate or employee of Parent or
any of its subsidiaries or any investment banker, attorney or other advisor or
representative of Parent or any of its subsidiaries shall be deemed to be a
breach of this Section 5.4(b) by Parent.
(ii) For purposes of this Agreement, (A) "PARENT
ACQUISITION PROPOSAL" shall mean any offer, inquiry or proposal relating to any
Parent Acquisition Transaction. For the purposes
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of this Agreement; (B) "PARENT ACQUISITION TRANSACTION" shall mean any
transaction or series of related transactions that (m) is (1) conditioned upon
termination of the Merger Agreement or (2) structured in a manner that makes it
impossible to consummate such transaction or series of related transactions and
the Merger and (n) involves: (x) any acquisition or purchase from Parent by any
person or "group" (as defined under Section 13(d) of the Exchange Act and the
rules and regulations thereunder) of more than a 15% interest in the total
outstanding voting securities of Parent or any of its subsidiaries or any tender
offer or exchange offer that if consummated would result in any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) beneficially owning 15% or more of the total outstanding
voting securities of Parent or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving Parent
pursuant to which the shareholders of Parent immediately preceding such
transaction hold less than 85% of the equity interests in the surviving or
resulting entity of such transaction; (y) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than 15% of the
assets of Parent; or (z) any liquidation, dissolution, recapitalization or other
significant corporate reorganization of the Parent; and (C) "PARENT SUPERIOR
PROPOSAL" shall mean an Parent Acquisition Proposal with respect to which (x) if
any cash consideration is involved, shall not be subject to any financing
contingency or with respect to which Parent's Board of Directors shall have
reasonably determined (based upon the advice of Parent's financial advisors)
that the acquiring party is capable of consummating the proposed Parent
Acquisition Transaction on the terms proposed, and (y) Parent's Board of
Directors shall have reasonably determined that the proposed Parent Acquisition
Transaction provides greater value to the shareholders of Parent than the Merger
(based upon a written opinion, subject to customary qualifications, of Parent's
financial advisor).
(iii) In addition to the obligations of Parent set forth
in paragraph (i) of this Section 5.4(b), Parent as promptly as practicable, and
in any event within 24 hours, shall advise Company orally and in writing of any
request for information which Parent reasonably believes would lead to an Parent
Acquisition Proposal or of any Parent Acquisition Proposal, or any inquiry with
respect to or which Parent reasonably believes would lead to any Parent
Acquisition Proposal, the material terms and conditions of such request, Parent
Acquisition Proposal or inquiry, and the identity of the person or group making
any such request, Parent Acquisition Proposal or inquiry. Parent will keep
Company informed in all material respects of the status and details (including
material amendments or proposed amendments) of any such request, Parent
Acquisition Proposal or inquiry. In addition to the foregoing, Parent shall (A)
provide Company with at least 48 hours prior notice (or such lesser prior notice
as provided to the members of Parent's Board of Directors but in no event less
than eight hours) of any meeting of Parent's Board of Directors at which
Parent's Board of Directors is reasonably expected to consider an Parent
Acquisition Proposal and (B) provide Company with at least three (3) business
days prior written notice of a meeting of Parent's Board of Directors at which
Parent's Board of Directors is reasonably expected to recommend a Parent
Superior Proposal to its shareholders and together with such notice a copy of
the definitive documentation relating to such Parent Superior Proposal.
5.5 Public Disclosure. Parent and Company will consult with each other
and agree before issuing any press release or otherwise making any public
statement with respect to the Merger, this
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Agreement or an Acquisition Proposal and will not issue any such press release
or make any such public statement prior to such agreement, except as may be
required by law or any listing agreement with a national securities exchange, in
which case reasonable efforts to consult with the other party will be made prior
to any such release or public statement. The parties have agreed to the text of
the joint press release announcing the signing of this Agreement.
5.6 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including using commercially reasonable efforts
to accomplish the following: (i) the taking of all reasonable acts necessary to
cause the conditions precedent set forth in Article VI to be satisfied, (ii) the
obtaining of all necessary actions or nonactions, waivers, consents, approvals,
orders and authorizations from Governmental Entities and the making of all
necessary registrations, declarations and filings (including registrations,
declarations and filings with Governmental Entities, if any) and the taking of
all reasonable steps as may be necessary to avoid any suit, claim, action,
investigation or proceeding by any Governmental Entity, (iii) the obtaining of
all necessary consents, approvals or waivers from third parties, (iv) the
defending of any suits, claims, actions, investigations or proceedings, whether
judicial or administrative, challenging this Agreement or the consummation of
the transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (v) the execution or delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. In connection with and without
limiting the foregoing, Company and its Board of Directors shall, if any state
takeover statute or similar statute or regulation is or becomes applicable to
the Merger, this Agreement, the Company Voting Agreements or any of the
transactions contemplated hereby and thereby, use commercially reasonable
efforts to ensure that the Merger, this Agreement, the Company Voting Agreements
and the other transactions contemplated hereby and thereby may be consummated as
promptly as practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such statute or regulation on the Merger,
this Agreement, the Company Voting Agreements and the transactions contemplated
hereby and thereby. Notwithstanding anything herein to the contrary, nothing in
this Agreement shall be deemed to require Parent or Company or any subsidiary or
affiliate thereof to agree to any divestiture by itself or any of its affiliates
of shares of capital stock or of any business, assets or property, or the
imposition of any material limitation on the ability of any of them to conduct
their business or to own or exercise control of such assets, properties and
stock.
(b) Company shall give prompt notice to Parent of any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate, or any failure of Company to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the conditions set
forth in Section 6.3(a) or 6.3(b) would not be satisfied; provided, however,
that no such notification shall
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affect the representations, warranties, covenants or agreements of the parties
or the conditions to the obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to Company of any
representation or warranty made by it or Merger Sub contained in this Agreement
becoming untrue or inaccurate, or any failure of Parent or Merger Sub to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Section 6.2(a) or 6.2(b) would not be
satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.7 Third Party Consents. As soon as practicable following the date
hereof, Parent and Company will each use commercially reasonable efforts to
obtain any consents, waivers and approvals under any of its or its subsidiaries'
respective agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
5.8 Stock Options; Warrants; Employee Stock Purchase Plan; 401(k) Plan.
(a) At the Effective Time, each outstanding option to purchase
shares of Company Common Stock (each, a "COMPANY STOCK OPTION") under any of the
Company Option Plans, whether or not vested, and each outstanding Company
Warrant, whether or not then exercisable, shall by virtue of the Merger be
assumed by Parent. Each Company Stock Option and each Company Warrant so assumed
by Parent under this Agreement will continue to have, and be subject to, the
same terms and conditions of such options or warrants immediately prior to the
Effective Time (including, without limitation, any repurchase rights or vesting
provisions, including, to the extent not otherwise waived, accelerated vesting
on the terms provided in Company's 1997 Stock Option Plan for options granted
prior to January 10, 2000), except that (i) each Company Stock Option and each
Company Warrant will be exercisable (or will become exercisable in accordance
with its terms) for that number of whole shares of Parent Common Stock equal to
the product of the number of shares of Company Common Stock that were issuable
upon exercise of such Company Stock Option or Company Warrant, as applicable,
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock and
(ii) the per share exercise price for the shares of Parent Common Stock issuable
upon exercise of such assumed Company Stock Option or Company Warrant will be
equal to the quotient determined by dividing the exercise price per share of
Company Common Stock at which such Company Stock Option or Company Warrant, as
applicable, was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent.
(b) Prior to the Effective Time, outstanding purchase rights
under the Company ESPP shall be exercised in accordance with Section 20(b) of
the 1999 Employee Stock Purchase Plan (the "COMPANY ESPP") and each share of
Company Common Stock purchased pursuant to such exercise shall by virtue of the
Merger, and without any action on the part of the holder thereof, be converted
into the right to receive a number of shares of Parent Common Stock equal to the
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product of the number of shares of Company Common Stock that were issuable upon
exercise of such purchase rights under the Company ESPP immediately prior to the
Effective Time multiplied by the Exchange Ratio without issuance of certificates
representing issued and outstanding shares of Company Common Stock to Company
ESPP participants. Company agrees that it shall terminate the Company ESPP
immediately following the aforesaid purchase of shares of Company Common Stock
thereunder.
(c) Company agrees to terminate its 401(k) Plans immediately
prior to the Effective Time. Parent agrees to take, or cause to be taken, such
actions as are necessary to permit participants in Company's 401(k) plans to
roll over their accounts under such plans, after the Effective Time (and after
completion of the termination of Company's 401(k) plan), into a qualified plan
or plans maintained by Parent.
(d) Parent shall cause employees of Company and its subsidiaries
as of the Effective Time ("AFFECTED EMPLOYEES") to be credited with service with
Company and each of its subsidiaries for purposes of eligibility and vesting
under each employee benefit plan maintained by Parent or its subsidiaries after
the Effective Time to the extent of their service with Company provided,
however, that such service shall not be recognized to the extent that such
recognition would result in duplication of benefits. To the extent permitted by
the Parent Plans and applicable law, Parent will, or will cause Company to (i)
waive all limitations as to preexisting conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable to
the Affected Employees under any welfare benefit plans that such employees may
be eligible to participate in after the Effective Time, other than limitations
or waiting periods that are already in effect with respect to such employees and
that have not been satisfied as of the Effective Time under any welfare plan
maintained for the Affected Employees immediately prior to the Effective Time,
and (ii) provide each Affected Employee with credit for any co-payments and
deductibles paid prior to the Effective Time in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans that such
employees are eligible to participate in after the Effective Time. Affected
Employees shall be eligible to participate in the stock option and other stock
incentive plans maintained by Parent after the Effective Time to the same extent
as similarly situated employees of Parent. Without limiting the foregoing,
Affected Employees shall be able to participate in the employee stock purchase
plan of Parent as promptly as practicable following the Effective Time.
(e) Parent shall provide Affected Employees with severance benefits in
accordance with the terms set forth in Section 5.8(e) of the Company Schedule.
5.9 Form S-8; Section 16. Parent agrees to file, if available for use by
Parent, a registration statement on Form S-8 for the shares of Parent Common
Stock issuable with respect to assumed Company Stock Options as soon as is
reasonably practicable (and in any event within ten business days) after the
Effective Time. In addition, Parent shall use its best efforts to cause Parent's
Board of Directors to approve the issuance of such shares of Parent Common
Stock, with respect to any employees of the Company who will become Section 16
insiders of Parent to the extent necessary for such issuance to be an exempt
acquisition pursuant to SEC Rule 16b-3.
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5.10 Indemnification.
(a) From and after the Effective Time, Parent will cause the
Surviving Corporation to fulfill and honor in all respects the obligations of
Company pursuant to any indemnification agreements between Company and its
directors and officers in effect immediately prior to the Effective Time and any
indemnification provisions under the Company Charter Documents as in effect on
the date hereof. The Articles of Incorporation and Bylaws of the Surviving
Corporation will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the indemnified parties
thereunder (the "INDEMNIFIED PARTIES") as those contained in the Company Charter
Documents as in effect on the date hereof, which provisions will not be amended,
repealed or otherwise modified for a period of six years from the Effective Time
in any manner that would adversely affect the rights thereunder of the
Indemnified Parties, unless such modification is required by law.
(b) For a period of six years after the Effective Time, Parent
will cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who are
currently covered by the Company's directors' and officers' liability insurance
policy in an amount and on terms comparable to those applicable to the current
directors and officers of the Company; provided, however, that in no event will
Parent or the Surviving Corporation be required to expend an annual premium for
such coverage in excess of 150% of the annual premium currently paid by the
Company.
(c) In the event that Parent or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers all or substantially all of its properties and assets to any
person in a single transaction or a series of transactions, then, and in each
such case, Parent shall make or cause to be made proper provisions so that the
successors and assigns of Parent assume the indemnification obligations of
Parent under this Section 5.10 for the benefit of the Indemnified Parties.
(d) This Section 5.10 shall survive the consummation of the
merger, is intended to benefit the Company, the Surviving Corporation and each
Indemnified Party, shall be binding on all successors and assigns of the
Surviving Corporation and Parent, and shall be enforceable by the Indemnified
Parties.
5.11 Nasdaq Listing. Parent agrees to file with the Nasdaq a
Notification Form for Listing of Additional Shares with regards to the shares of
Parent Common Stock issuable, and those required to be reserved for issuance, in
connection with the Merger.
5.12 Affiliates. Set forth in Section 5.12(a) of the Company Schedule is
a list of those persons who may be deemed to be, in Company's reasonable
judgment, affiliates of Company within the meaning of Rule 145 promulgated under
the Securities Act (each, a "COMPANY AFFILIATE"). Company will promptly provide
Parent with updates to such list with respect to persons who may deemed to
become after the date hereof, in Company's reasonable judgment, Company
Affiliates. Company has provided Parent with such information and documents as
Parent reasonably requests
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for purposes of reviewing such list and any such updates. Company has provided
to Parent (with respect to current Company Affiliates), and will use its
commercially reasonable efforts to deliver or cause to be delivered to Parent,
as promptly as practicable on or following the date any person who subsequently
becomes a Company Affiliate, from each person who becomes a Company Affiliate
after the date hereof, an executed affiliate agreement in substantially the form
attached hereto as Exhibit C (the "AFFILIATE AGREEMENT"), each of which will be
in full force and effect as of the Effective Time. Parent will be entitled to
place appropriate legends on the certificates evidencing any Parent Common Stock
to be received by a Company Affiliate pursuant to the terms of this Agreement,
and to issue appropriate stop transfer instructions to the transfer agent for
the Parent Common Stock, consistent with the terms of the Affiliate Agreement.
5.13 Regulatory Filings; Reasonable Efforts. As soon as may be
reasonably practicable, Company and Parent each shall file with the United
States Federal Trade Commission (the "FTC") and the Antitrust Division of the
United States Department of Justice ("DOJ") Notification and Report Forms
relating to the transactions contemplated herein as required by the HSR Act, as
well as comparable pre-merger notification forms required by the merger
notification or control laws and regulations of any applicable jurisdiction, as
agreed to by the parties. Company and Parent each shall promptly (a) supply the
other with any information which may be required in order to effectuate such
filings and (b) supply any additional information which reasonably may be
required by the FTC, the DOJ or the competition or merger control authorities of
any other jurisdiction and which the parties may reasonably deem appropriate;
provided, however, that neither Parent nor Company shall be required to agree to
any divestiture by Parent or Company or any of Parent's subsidiaries or
affiliates of shares of capital stock or of any business, assets or property of
Parent or its subsidiaries or affiliates or of Company, its affiliates, or the
imposition of any material limitation on the ability of any of them to conduct
their businesses or to own or exercise control of such assets, properties and
stock.
5.14 Board of Directors. The Board of Directors of Parent will take all
actions necessary such that (a) James Barksdale and one other individual to be
mutually agreed upon by Parent and Company (or in the event that either or both
of such individuals is unable or unwilling to serve on Parent's Board of
Directors, then other individuals designated by Company and reasonably
acceptable to Parent) shall be appointed to Parent's Board of Directors as of
the Effective Time with terms expiring at the 2002 and 2003 annual meetings of
Parent's stockholders and (b) upon such appointment the Board of Directors of
Parent will be comprised of eight members.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
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(a) Shareholder and Stockholder Approvals. This Agreement shall
have been approved and adopted, and the Merger shall have been duly approved, by
the requisite vote under applicable law, by the shareholders of Company. The
Share Issuance shall have been approved by the requisite vote under applicable
Nasdaq rules by the stockholders of Parent.
(b) Registration Statement Effective; Joint Proxy Statement. The
SEC shall have declared the S-4 effective. No stop order suspending the
effectiveness of the S-4 or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of the Joint
Proxy Statement/Prospectus, shall have been initiated or threatened in writing
by the SEC.
(c) No Order; HSR Act. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger. All
waiting periods, if any, under the HSR Act relating to the transactions
contemplated hereby will have expired or terminated early and all material
foreign antitrust approvals required to be obtained prior to the Merger in
connection with the transactions contemplated hereby shall have been obtained.
(d) Tax Opinions. Each of Parent and Company shall have received
a written opinion from its tax counsel (Wilson Sonsini Goodrich & Rosati,
Professional Corporation, and Davis Polk & Wardwell, respectively, or other
nationally recognized tax counsel), in form and substance reasonably
satisfactory to it, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and such
opinions shall not have been withdrawn. The parties to this Agreement agree to
make such reasonable representations as requested by such counsel for the
purpose of rendering such opinions.
6.2 Additional Conditions to Obligations of Company. The obligation of
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Company:
(a) Representations and Warranties. Each representation and
warranty of Parent and Merger Sub contained in this Agreement (i) shall have
been true and correct as of the date of this Agreement and (ii) shall be true
and correct on and as of the Closing Date with the same force and effect as if
made on the Closing Date except, in the case of clauses (i) and (ii), (A) for
such failures to be true and correct that do not in the aggregate constitute a
Material Adverse Effect on Parent and Merger Sub provided, however, that such
Material Adverse Effect qualifier shall be inapplicable with respect to the
representations and warranties contained in Sections 3.2 and 3.19 (which
representations and warranties shall have been true and correct in all material
respects as of the date of this Agreement and shall be true and correct in all
material respects as of the Closing Date), and (B) for those representations and
warranties which address matters only as of a particular date (which
representations shall have been true and correct (subject to the qualifications
set forth in the preceding clause (A)) as of such particular date) (it being
understood that, for purposes of determining the accuracy of such
representations and warranties in connection with clauses (i) and (ii), (x) all
"Material Adverse Effect" qualifications and other qualifications based on the
word
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"material" or similar phrases contained in such representations and warranties
shall be disregarded and (y) any update of or modification to the Parent
Schedule made or purported to have been made after the date of this Agreement
shall be disregarded). Company shall have received a certificate with respect to
the foregoing signed on behalf of Parent by an authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Closing Date, and Company shall have received a certificate to such
effect signed on behalf of Parent by an authorized officer of Parent.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate and effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. Each representation and
warranty of Company contained in this Agreement (i) shall have been true and
correct as of the date of this Agreement and (ii) shall be true and correct on
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date except, in the case of clauses (i) and (ii), (A) for such
failures to be true and correct that do not in the aggregate constitute a
Material Adverse Effect on the Company provided, however, that such Material
Adverse Effect qualifier shall be inapplicable with respect to the
representations and warranties contained in Section 2.2 and 2.20 (which
representations and warranties shall have been true and correct in all material
respects as of the date of this Agreement and shall be true and correct in all
material respects as of the Closing Date) and (B) for those representations and
warranties which address matters only as of a particular date (which
representations shall have been true and correct (subject to the qualifications
set forth in the preceding clause (A)) as of such particular date) (it being
understood that, for purposes of determining the accuracy of such
representations and warranties in connection with clauses (i) and (ii), (x) all
"Material Adverse Effect" qualifications and other qualifications based on the
word "material" or similar phrases contained in such representations and
warranties shall be disregarded and (y) any update of or modification to the
Company Schedule made or purported to have been made after the date of this
Agreement shall be disregarded). Parent shall have received a certificate with
respect to the foregoing signed on behalf of Company by an authorized officer of
Company.
(b) Agreements and Covenants. Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of Company by the Chief Executive Officer and the Chief Financial Officer
of Company.
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(c) Consents. Company shall have obtained all consents, waivers
and approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses or
leases set forth on Schedule 6.3(c)(2).
(d) Dissenting Shares. No more than 5% of the outstanding shares
of Company Common Stock shall be Dissenting Shares.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after the requisite approval of the
shareholders of Company and the stockholders of Parent:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and Company;
(b) by either Company or Parent if the Merger shall not have been
consummated by November 30, 2000 for any reason; provided, however, that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a principal cause
of or resulted in the failure of the Merger to occur on or before such date and
such action or failure to act constitutes a material breach of this Agreement;
(c) by either Company or Parent if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger, which order, decree, ruling or other action is final and
nonappealable;
(d) by either Company or Parent if (i) required approval of the
shareholders of Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting of
Company shareholders duly convened therefor or at any adjournment thereof; or
(ii) the required approval by the stockholders of Parent of the Share Issuance
required under applicable Nasdaq rules shall not have been obtained by reason of
the failure to obtain the required vote at a meeting of Parent stockholders duly
convened therefor or at any adjournment or postponement thereof;
(e) by Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or if
any representation or warranty of Parent shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
would not be satisfied as of the time of such breach or as of the time such
----------
(2) Including, without limitation, certain landlord consents.
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representation or warranty shall have become untrue, provided, that if such
inaccuracy in Parent's representations and warranties or breach by Parent is
curable by Parent, then Company may not terminate this Agreement under this
Section 7.1(e) for thirty (30) days after delivery of written notice from
Company to Parent of such breach, provided Parent continues to exercise best
efforts to cure such breach (it being understood that Company may not terminate
this Agreement pursuant to this paragraph (e) if such breach by Parent is cured
during such thirty (30)-day period);
(f) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of Company set forth in this Agreement, or if
any representation or warranty of Company shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in Company's representations and warranties or breach by Company is
curable by Company, then Parent may not terminate this Agreement under this
Section 7.1(f) for thirty (30) days after delivery of written notice from Parent
to Company of such breach, provided Company continues to exercise best efforts
to cure such breach (it being understood that Parent may not terminate this
Agreement pursuant to this paragraph (f) such breach by Company is cured during
such thirty (30)-day period);
(g) by Parent, if (i) the Board of Directors of Company
withdraws, modifies or changes its recommendation of this Agreement or the
Merger in a manner adverse to Parent or its stockholders, (ii) the Board of
Directors of Company shall have recommended to the shareholders of Company an
Acquisition Proposal, (iii) the Company fails to comply with Section 5.4(a),
(iv) an Acquisition Proposal shall have been announced or otherwise become
publicly known and the Board of Directors of Company shall have (A) failed to
recommend against acceptance of such by its shareholders (including by taking no
position, or indicating its inability to take a position, with respect to the
acceptance by its shareholders of an Acquisition Proposal involving a tender
offer or exchange offer) or (B) failed to reconfirm its approval and
recommendation of this Agreement and the transactions contemplated hereby within
five business days thereafter or (v) the Board of Directors of Company resolves
to take any of the actions described above; or
(h) by Company, if (i) the Board of Directors of Parent
withdraws, modifies or changes its recommendation of the Share Issuance in a
manner adverse to Company and its shareholders, (ii) the Board of Directors of
Parent shall have recommended to the stockholders of Parent a Parent Acquisition
Proposal, (iii) Parent fails to comply with Section 5.4(b), (iv) a Parent
Acquisition Proposal shall have been announced or otherwise become publicly
known and the Board of Directors of Parent shall have (A) failed to recommend
against acceptance of such by its stockholders (including by taking no position,
or indicating its inability to take a position, with respect to the acceptance
by its shareholders of a Parent Acquisition Proposal involving a tender offer or
exchange offer) or (B) failed to reconfirm its approval and recommendation of
the Share Issuance within five business days thereafter or (v) the Board of
Directors of Parent resolves to take any of the actions described above.
7.2 Notice of Termination; Effect of Termination. Any termination of
this Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the
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terminating party to the other parties hereto (or such later time as may be
required by Section 7.1). In the event of the termination of this Agreement as
provided in Section 7.1, this Agreement shall be of no further force or effect,
except (i) as set forth in this Section 7.2, Section 5.3(a), Section 7.3 and
Article 8, each of which shall survive the termination of this Agreement, and
(ii) nothing herein shall relieve any party from liability for fraud in
connection with, or any willful breach of, this Agreement.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses whether
or not the Merger is consummated; provided, however, that Parent and Company
shall share equally all fees and expenses, other than attorneys' and accountants
fees and expenses, incurred (i) in relation to the printing and filing of the
Joint Proxy Statement/Prospectus (including any preliminary materials related
thereto) and the S-4 (including financial statements and exhibits) and any
amendments or supplements thereto or (ii) for the premerger notification and
report forms under the HSR Act.
(b) Termination Fee Payable by Company.
(i) In the event that (A) Parent shall terminate this
Agreement pursuant to Section 7.1(g), or (B) this Agreement shall be terminated
(x) pursuant to Section 7.1(b) or (y) pursuant to Section 7.1(d)(i) and (1) at
or prior to such termination, there shall exist or have been proposed an
Acquisition Proposal that has not been publicly, irrevocably and unconditionally
withdrawn prior to such termination and (2) within 6 months after any such
termination pursuant to Section 7.1(b) or within 12 months after any such
termination pursuant to Section 7.1(d)(i), as the case may be, Company shall
enter into a definitive agreement with respect to any Company Acquisition (which
Company Acquisition is later consummated) or any Company Acquisition shall be
consummated, then, in the case of clause (A), promptly after such termination,
or in the case of clause (B), concurrently with the consummation of such Company
Acquisition, Company shall pay to Parent $36 million in cash (the "TERMINATION
FEE").
(ii) In the event that this Agreement shall be terminated
pursuant to Section 7.1(d)(i), then promptly after such termination Company
shall pay to Parent $15 million in cash; provided, however, that no fee shall be
payable pursuant to this Section 7.3(b)(ii) if (A) prior to the payment of such
fee, Company shall have paid or become obligated to pay the Termination Fee
pursuant to Section 7.3(b)(i) or (B) at the time of such vote of Company's
shareholders, the representations of Parent or Merger Sub contained in this
Agreement shall have become untrue or inaccurate, or Parent or Merger Sub shall
have failed to comply with in any material respect any covenant or agreement to
be complied with by it under this Agreement, in each case such that the
conditions set forth in Section 6.2(a) or 6.2(b) would not be satisfied
(excluding, for purposes of this analysis, clause (B)(z) of Section 8.3(b)(ii)).
Any fee payable pursuant to this Section 7.3(b)(ii) will be credited against any
Termination Fee that Company becomes obligated to pay pursuant to Section
7.3(b)(i).
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(iii) In the event that Parent shall terminate this
Agreement pursuant to Section 7.1(f), then Company shall promptly reimburse
Parent for Parent's costs and expenses in connection with this Agreement and the
transactions contemplated hereby.
(iv) Company acknowledges that the agreements contained in
this Section 7.3(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent would not enter into
this Agreement; accordingly, if Company fails to pay in a timely manner the
amounts due pursuant to this Section 7.3(b) and, in order to obtain such
payment, Parent makes a claim that results in a judgment against Company for the
amounts set forth in this Section 7.3(b), Company shall pay to Parent its costs
and expenses (including attorneys' fees and expenses) in connection with such
suit, together with interest on the amounts set forth in this Section 7.3(b) at
the prime rate of Citibank, N.A. in effect on the date such payment was required
to be made. Payment of the fees described in this Section 7.3(b) shall not be in
lieu of damages incurred in the event of willful breach of this Agreement. For
the purposes of this Agreement, "COMPANY ACQUISITION" shall mean any of the
following transactions (other than the transactions contemplated by this
Agreement): (A) a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Company pursuant to
which the shareholders of Company immediately preceding such transaction hold
less than 60% of the aggregate equity interests in the surviving or resulting
entity of such transaction, (B) a sale or other disposition by Company of assets
representing in excess of 40% of the aggregate fair market value of Company's
business immediately prior to such sale or (C) the acquisition by any person or
group (including by way of a tender offer or an exchange offer or issuance by
Company), directly or indirectly, of beneficial ownership or a right to acquire
beneficial ownership of shares representing in excess of 40% of the voting power
of the then outstanding shares of capital stock of Company.
(c) Termination Fee Payable by Parent.
(i) In the event that (A) Company shall terminate this
Agreement pursuant to Section 7.1(h), or (B) this Agreement shall be terminated
(x) pursuant to Section 7.1(b) or (y) pursuant to Section 7.1(d)(ii) and (1) at
or prior to such termination, there shall exist or have been proposed a Parent
Acquisition Proposal (it being understood that for purposes of this Section
7.3(c)(i) the definition of "Parent Acquisition Proposal" (and the related
definition of "Parent Acquisition Transaction" shall not include the phrase "(m)
is (1) conditioned upon termination of the Merger Agreement or (2) structured in
a manner that makes is impossible to consummate such transaction or series of
related transactions and the Merger and (n)") that has not been publicly,
irrevocably and unconditionally withdrawn prior to such termination and (2)
within 6 months after any such termination pursuant to Section 7.1(b) or within
12 months after any such termination pursuant to Section 7.1(d)(ii), as the case
may be, Parent shall enter into a definitive agreement with respect to any
Parent Acquisition (which Parent Acquisition is later consummated) or any Parent
Acquisition shall be consummated, then, in the case of clause (A), promptly
after such termination, or in the case of clause (B), concurrently with the
consummation of such Parent Acquisition, Parent shall pay to Company the
Termination Fee.
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(ii) In the event that this Agreement shall be terminated
pursuant to Section 7.1(d)(ii), then promptly after such termination Company
shall pay to Parent $15 million in cash; provided, however, that no fee shall be
payable pursuant to this Section 7.3(c)(ii) if (A) prior to the payment of such
fee, Parent shall have paid or become obligated to pay the Termination Fee
pursuant to Section 7.3(c)(i) or (B) at the time of such vote of Parent's
shareholders, the representations of Company contained in this Agreement shall
have become untrue or inaccurate, or Company shall have failed to comply with in
any material respect any covenant or agreement to be complied with by it under
this Agreement, in each case such that the conditions set forth in Section
6.3(a) or 6.3(b) would not be satisfied (excluding clause (B)(z) of Section
8.3(b)(ii) for the purpose of this analysis)). Any fee payable pursuant to this
Section 7.3(c)(ii) will be credited against any Termination Fee that Parent
becomes obligated to pay pursuant to Section 7.3(c)(i).
(iii) In the event that Company shall terminate this
Agreement pursuant to Section 7.1(e), then Parent shall promptly reimburse
Company for Company's costs and expenses in connection with this Agreement and
the transactions contemplated hereby.
(iv) Parent acknowledges that the agreements contained in
this Section 7.3(c) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Company would not enter into
this Agreement; accordingly, if Parent fails to pay in a timely manner the
amounts due pursuant to this Section 7.3(c) and, in order to obtain such
payment, Company makes a claim that results in a judgment against Parent for the
amounts set forth in this Section 7.3(c), Parent shall pay to Company its costs
and expenses (including attorneys' fees and expenses) in connection with such
suit, together with interest on the amounts set forth in this Section 7.3(c) at
the prime rate of Citibank, N.A. in effect on the date such payment was required
to be made. Payment of the fees described in this Section 7.3(c) shall not be in
lieu of damages incurred in the event of willful breach of this Agreement. For
the purposes of this Agreement, "PARENT ACQUISITION" shall mean any of the
following transactions (other than the transactions contemplated by this
Agreement): (A) a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Parent pursuant to
which the stockholders of Parent immediately preceding such transaction hold
less than 60% of the aggregate equity interests in the surviving or resulting
entity of such transaction, (B) a sale or other disposition by Parent of assets
representing in excess of 40% of the aggregate fair market value of Parent's
business immediately prior to such sale or (C) the acquisition by any person or
group (including by way of a tender offer or an exchange offer or issuance by
Parent ), directly or indirectly, of beneficial ownership or a right to acquire
beneficial ownership of shares representing in excess of 40% of the voting power
of the then outstanding shares of capital stock of Parent.
7.4 Amendment. Subject to applicable law, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of Parent, Merger Sub and Company.
7.5 Extension; Waiver. At any time prior to the Effective Time, any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties
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made to such party contained herein or in any document delivered pursuant hereto
and (iii) waive compliance with any of the agreements or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. Delay in exercising any
right under this Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Survival of Representations and Warranties. The representations and
warranties of Company, Parent and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Webvan Group, Inc.
310 Lakeside Drive
Foster City, California 94404
Attention: General Counsel
Telecopy No.: (650) 627-3921
with copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Jeffrey D. Saper/J. Robert Suffoletta
Telecopy No.: (650) 493-6811
and
Wilson Sonsini Goodrich & Rosati
Professional Corporation
One Market
Spear Tower, Suite 3300
San Francisco, California 94105
Attention: Steve L. Camahort
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Telecopy No.: (415) 947-2099
(b) if to Company, to:
HomeGrocer.com, Inc.
10230 NE Points Drive
Kirkland, Washington 98033
Attention: Mary Alice Taylor
Telecopy No.: (425) 201-7575
with a copy to:
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, California 94025
Attention: Daniel G. Kelly, Jr.
Telecopy No.: (650) 752-2111
8.3 Interpretation; Definitions.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
Reference to the subsidiaries of an entity shall be deemed to include all direct
and indirect subsidiaries of such entity.
(b) For purposes of this Agreement:
(i) the term "KNOWLEDGE" means with respect to a party
hereto, with respect to any matter in question, the actual knowledge of the
executive officers of such party;
(ii) the term "MATERIAL ADVERSE EFFECT" when used in
connection with an entity means any change, event, violation, inaccuracy,
circumstance or effect that is, or is reasonably likely to be, materially
adverse to the business, assets, liabilities, financial condition or results of
operations of such entity and its subsidiaries taken as a whole; provided,
however, that in no event shall (A) a decrease in such entity's stock price or
the failure to meet or exceed Wall Street research analysts' or such entity's
internal earnings or other estimates or projections in and of itself constitute
a Material Adverse Effect or (B) any change, event, violation, inaccuracy,
circumstance or effect that results from (x) changes affecting the industry in
which such entity operates generally (which changes do not disproportionately
affect such entity), (y) changes affecting the United States
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economy generally or (z) the public announcement or pendency of the Merger,
constitute a Material Adverse Effect;
(iii) the term "PERSON" shall mean any individual,
corporation (including any non-profit corporation), general partnership, limited
partnership, limited liability partnership, joint venture, estate, trust,
company (including any limited liability company or joint stock company), firm
or other enterprise, association, organization, entity or Governmental Entity.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
and the Parent Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically provided in Section 5.10.
8.6 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 Governing Law. Except to the extent mandatorily governed by
Washington Law, this Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware,
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regardless of the laws that might otherwise govern under applicable principles
of conflicts of law thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
*****
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
WEBVAN GROUP, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
ROBIN MERGER CORPORATION
By:________________________________________
Name:______________________________________
Title:_____________________________________
HOMEGROCER.COM, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
[SIGNATURE PAGE OF AGREEMENT AND PLAN OF REORGANIZATION]
