Exhibit 2
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
EXCHANGE APPLICATIONS, INC.,
a Delaware corporation;
BORLAND ACQUISITION CORP.,
a Washington corporation;
▇▇▇▇ ▇▇▇▇▇▇▇, INC.,
a Washington corporation;
▇▇▇▇ ▇▇▇▇▇▇▇,
an individual currently
residing in Seattle, Washington; AND
certain other shareholders of
▇▇▇▇ ▇▇▇▇▇▇▇, INC.
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Dated as of August 13, 1999
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AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("AGREEMENT") is made
and entered into as of August 13, 1999, among: EXCHANGE APPLICATIONS, INC., a
Delaware corporation ("PARENT"); BORLAND ACQUISITION CORP., a Washington
corporation and a wholly owned subsidiary of Parent ("MERGER SUB"); ▇▇▇▇
▇▇▇▇▇▇▇, INC., a Washington corporation (the "COMPANY"); ▇▇▇▇ ▇▇▇▇▇▇▇, an
individual currently residing in Seattle, Washington (the "SHAREHOLDER"); and
the other shareholders of the Company listed on the signature pages hereto
("INVESTORS"). Certain other capitalized terms used in this Agreement are
defined in Exhibit A.
RECITALS
1.1 Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company in accordance with this Agreement and the Washington
Business Corporation Act (the "MERGER"). Upon consummation of the Merger,
Merger Sub will cease to exist, and the Company will become a wholly owned
subsidiary of Parent.
1.2 It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE"). For accounting purposes, it is intended that the Merger
be treated as a "pooling of interests."
1.3 This Agreement has been approved by the respective boards of directors
of Parent, Merger Sub and the Company.
1.4 ▇▇. ▇▇▇▇▇▇▇ owns a total of 1,600,000 shares of the common stock, par
value $.01 per share, of the Company ("COMPANY COMMON STOCK") and, upon
conversion of the convertible promissory notes of the Company in accordance
with their terms immediately prior to the consummation of the Merger, the
Investors will own a total of 165,906 shares of Company Common Stock. The
shares of Company Common Stock described in the foregoing sentence represent
all of the outstanding shares of capital stock of the Company immediately prior
to the Merger.
AGREEMENT
The parties to this Agreement agree as follows:
1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined
in Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "SURVIVING CORPORATION").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the Washington Business
Corporation Act (the "WBCA").
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of ▇▇▇▇▇▇▇ ▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇, on Monday,
August 16, 1999, or on the first practicable date thereafter following the
satisfaction or waiver of the conditions precedent set forth herein (the
"CLOSING DATE"). Contemporaneously with or as promptly as practicable after the
Closing, properly executed articles of merger conforming to the requirements of
Section 050 of Chapter 23B.11 of the WBCA shall be filed with the Secretary of
State of the State of Washington. The Merger shall become effective at the time
such articles of merger are filed with and accepted by the Secretary of State
of the State of Washington (the "EFFECTIVE TIME").
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless
otherwise determined by Parent and the Company prior to the Effective Time:
(A) the Articles of Incorporation of the Surviving Corporation shall
be amended and restated as of the Effective Time to conform to Exhibit B;
(B) the Bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to the Bylaws of Merger Sub as in
effect immediately prior to the Effective Time; and
(C) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit C.
1.5 CONVERSION OF SHARES.
(A) Subject to Section 1.8(c), at the Effective Time, by virtue of the
Merger and without any further action on the part of Parent, Merger Sub, the
Company or any shareholder of the Company:
(I) each share of Company Common Stock outstanding immediately
prior to the Effective Time shall be converted into the right to receive
.343896 of a share ("APPLICABLE FRACTION") of the common stock, par value $.001
per share, of Parent ("PARENT COMMON STOCK"); and
(II) each share of the common stock (with no par value) of
Merger Sub outstanding immediately prior to the Effective Time shall be
converted into one share of common stock of the Surviving Corporation.
1.6 EMPLOYEE STOCK OPTIONS. At the Effective Time, each stock option that
is then outstanding under the Company's 1998 Stock Incentive Plan, whether
vested or unvested (a "COMPANY OPTION"), shall be assumed by Parent in
accordance with the terms (as in effect as of the date of this Agreement) of
the Company's 1998 Stock Incentive Plan and the stock option agreement by which
such Company Option is evidenced. All rights with respect to Company Common
Stock under outstanding Company Options shall thereupon be converted into
rights with respect to Parent Common Stock as set forth below. Accordingly,
from and after the Effective Time, (a) each Company Option assumed by Parent
may be exercised solely for shares of Parent Common Stock, (b) the number of
shares of Parent Common Stock subject to each such assumed Company Option shall
be equal to the number of shares of Company Common Stock that were subject to
such Company Option immediately prior to the Effective Time multiplied by the
Applicable Fraction, rounded down to the nearest whole number of shares of
Parent Common Stock, (c) the per share exercise price for the Parent Common
Stock issuable upon exercise of each such assumed Company Option shall be
determined by dividing the exercise price per share of Company Common Stock
subject to such Company Option, as in effect immediately prior to the Effective
Time, by the Applicable Fraction, and rounding the resulting exercise price up
to the nearest whole cent, and (d) all restrictions on the exercise of each
such assumed Company Option shall continue in full force and effect, and the
term, exercisability, vesting schedule and other provisions of such Company
Option shall otherwise remain unchanged; provided, however, that each such
assumed Company Option shall, in accordance with its terms, be subject to
further adjustment as appropriate to reflect any stock split, reverse stock
split, stock dividend, recapitalization or other similar transaction effected
by Parent after the Effective Time. The Company and Parent shall take all
action that may be necessary (under the Company's 1998 Stock Incentive Plan and
otherwise) to effectuate the provisions of this Section 1.6. Following the
Closing, Parent will send to each holder of an assumed Company Option a written
notice setting forth (i) the number of shares of Parent Common Stock subject to
such assumed Company Option, and (ii) the exercise price per share of Parent
Common Stock issuable upon exercise of such assumed Company Option. To the
extent necessary, Parent shall file with the SEC, as soon as reasonably
practical but in any event within thirty (30) days after the Closing Date, a
registration statement on Form S-8 registering the exercise of the Company
Options assumed by Parent pursuant to this Section 1.6.
1.7 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have
any rights as shareholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "COMPANY STOCK CERTIFICATE") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.8.
1.8 EXCHANGE OF CERTIFICATES.
(A) At or as soon as practicable after the Effective Time, Parent will
send to the holders of Company Stock Certificates and Convertible Notes (i) a
letter of transmittal in customary form and containing such provisions as
Parent may reasonably specify, and (ii) instructions for use in effecting the
surrender of Company Stock Certificates and Convertible Notes in exchange for
certificates representing Parent Common Stock. Upon surrender of a Company
Stock Certificate or Convertible Note to Parent for exchange, together with a
duly executed letter of transmittal and such other documents as may be
reasonably required by Parent the holder of such Company Stock Certificate or
Convertible Note shall be entitled to receive in exchange therefor (subject to
Section 8.3) a certificate representing the number of whole shares of Parent
Common Stock that such holder has the right to receive pursuant to the
provisions of this Section 1 (assuming, in the case of the Convertible Notes,
that such Convertible Notes had been converted, immediately prior to the
Effective Time in accordance with the terms thereof, into shares of Company
Common Stock), and the Company Stock Certificate or Convertible Note so
surrendered shall be canceled. Until surrendered as contemplated by this
Section 1.8, each Company Stock Certificate or Convertible Note shall be
deemed, from and after the Effective Time, to represent only the right to
receive upon such surrender a certificate representing shares of Parent Common
Stock (and cash in lieu of any fractional share of Parent Common Stock as
described in Section 1.8(c)) as contemplated by this Section 1. If any Company
Stock Certificate or Convertible Note shall have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the
issuance of any certificate representing Parent Common Stock, require the owner
of such lost, stolen or destroyed Company Stock Certificate or Convertible Note
to provide an appropriate affidavit and to deliver a bond (in such sum as
Parent may reasonably direct) as indemnity against any claim that may be made
against Parent or the Surviving Corporation with respect to such Company Stock
Certificate or Convertible Note.
(B) No dividends or other distributions declared or made with respect
to Parent Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Company Stock Certificate or
Convertible Note with respect to the shares of Parent Common Stock represented
thereby, and no cash payment in lieu of any fractional share shall be paid to
any such holder, until such holder surrenders such Company Stock Certificate or
Convertible Note in accordance with this Section 1.8 (at which time such holder
shall be entitled to receive all such dividends and distributions and such cash
payment). No interest shall accrue on any Convertible Note after the Effective
Time.
(C) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional shares
shall be issued. In lieu of such fractional shares, any holder of capital stock
or other securities of the Company who would otherwise be entitled to receive a
fraction of a share of Parent Common Stock (after aggregating all fractional
shares of Parent Common Stock issuable to such holder) shall, upon surrender of
such holder's Company Stock Certificate(s) or Convertible Notes, be paid in
cash the dollar amount (rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by the Parent Stock Price.
(D) Parent and the Surviving Corporation shall be entitled to deduct
and withhold from any consideration payable or otherwise deliverable to any
holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent or the Surviving Corporation may be required
to deduct or withhold therefrom under the Code or under any provision of state,
local or foreign tax law. 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.
(E) Neither Parent nor the Surviving Corporation shall be liable to
any holder or former holder of capital stock of the Company for any shares of
Parent Common Stock (or dividends or distributions with respect thereto), or
for any cash amounts, delivered to any public official pursuant to any
applicable abandoned property, escheat or similar law.
1.9 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of
the Code. The parties to this Agreement hereby 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 Treasury Regulations.
1.10 ACCOUNTING TREATMENT. For accounting purposes, the Merger is intended
to be treated as a "pooling of interests."
1.11 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation or Parent with
full right, title and possession of and to all rights and property of Merger
Sub and the Company, the officers and directors of the Surviving Corporation
and Parent shall be fully authorized (in the name of Merger Sub, in the name of
the Company and otherwise) to take such action.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER
The Company and the Shareholder jointly and severally represent and
warrant, to and for the benefit of the Indemnitees that, except as set forth in
the disclosure schedule that has been prepared by the Company in accordance
with the requirements of Section 10.4 and that has been delivered by the
Company to Parent on and as of the date of this Agreement and signed on behalf
of the Company by the President of the Company (the "COMPANY DISCLOSURE
SCHEDULE"):
2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(A) The Company has no Subsidiaries and the Company does not own any
capital stock of, or any equity interest of any nature in, any other Entity.
The Company has not agreed and is not obligated to make, nor is bound by any
Contract under which it may become obligated to make, any future investment in
or capital contribution to any other Entity. The Company has not, at any time,
been a general partner of any general partnership, limited partnership or other
Entity.
(B) The Company is duly organized and validly existing under the laws
of the State of Washington and has all necessary power and authority: (i) to
conduct its business in the manner in which its business is currently being
conducted; (ii) to own and use its assets in the manner in which its assets are
currently owned and used; and (iii) to perform its obligations under all
Contracts by which it is bound.
(C) The Company is qualified to do business as a foreign corporation,
and is in good standing, under the laws of all jurisdictions where the nature
of its business requires such qualification and where the failure to so qualify
would have a Material Adverse Effect on the Company.
2.2 ARTICLES OF INCORPORATION AND BYLAWS. The Company has delivered to
Parent accurate and complete copies of its articles of incorporation, bylaws
and other charter and organizational documents, including all amendments
thereto. The Company is not in violation of any of the provisions of its
articles of incorporation or bylaws or equivalent governing instruments.
2.3 CAPITALIZATION, ETC.
(A) The authorized capital stock of the Company consists of: (i)
10,000,000 shares of Company Common Stock, of which 1,600,000 shares have been
issued and are outstanding as of the date of this Agreement, and 165,906 are
issuable upon conversion of the Convertible Notes immediately prior to the
Effective Time. All of the outstanding shares of Company Common Stock have been
and, as of the Effective Time, will be duly authorized and validly issued, and
fully paid and nonassessable. As of the date of this Agreement, there are no
shares of Company Common Stock held in treasury by the Company. Except as set
forth in Part 2.3(a)(i) of the Company Disclosure Schedule: (i) none of the
outstanding shares of Company Common Stock is entitled or subject to any
preemptive right, right of participation, right of maintenance or any similar
right; (ii) none of the outstanding shares of Company Common Stock is subject
to any right of first refusal in favor of the Company; and (iii) there is no
Company Contract relating to the voting or registration of, or restricting any
Person from purchasing, selling, pledging or otherwise disposing of (or
granting any option or similar right with respect to), any shares of Company
Common Stock. Upon consummation of the Merger, (A) the shares of Parent Common
Stock issued in exchange for any shares of Company Common Stock that are
subject to a Contract pursuant to which the Company has the right to
repurchase, redeem or otherwise reacquire any shares of Company Common Stock
will, without any further act of Parent, the Company or any other Person,
become subject to the restrictions, conditions and other provisions contained
in such Contract, and (B) Parent will automatically succeed to and become
entitled to exercise the Company's rights and remedies under any such Contract.
The Company is not under any obligation to repurchase, redeem or otherwise
acquire any outstanding shares of Company Common Stock. No shares of Company
Common Stock outstanding on the date of this Agreement 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.
(B) As of the date of this Agreement: (i) 404,000 shares of Company
Common Stock are subject to issuance pursuant to outstanding options to
purchase Company Common Stock (collectively, the "COMPANY OPTIONS"), 186,025
shares of which are subject to issuance pursuant to Company Options that are
vested (assuming the consummation of the Merger); and (ii) 165,906 of Company
Common Stock are subject to issuance upon the conversion of convertible
promissory notes made by the Company (the "CONVERTIBLE NOTES"), which
Convertible Notes will be so converted immediately prior to the Closing.
Part 2.3(b)(i) of the Company Disclosure Schedule sets forth the following
information with respect to each Company Option outstanding as of the date of
this Agreement: (i) the particular plan pursuant to which such Company Option
was granted; (ii) the name of the optionee; (iii) the number of shares of
Company Common Stock subject to such Company Option; (iv) the exercise price of
such Company Option; (v) the date upon which such Company Option was granted;
and (vi) the applicable vesting schedule and extent to which such Company
Option is vested and exercisable as of the date of this Agreement. The Company
has delivered to Parent accurate and complete copies of all stock option plans
pursuant to which the Company has ever granted stock options and the form of
all stock option agreements evidencing such options. Except as set forth in
Part 2.3(b) of the Company Disclosure Schedule, there are no commitments or
agreements of any character to which the Company is bound obligating the
Company to accelerate the vesting of any Company Option as a result of the
Merger or otherwise.
Part 2.3(b)(ii) of the Company Disclosure Schedule sets forth the
following information with respect to each Convertible Note outstanding as of
the date of this Agreement: (i) the principal of each such note; (ii) the name
of the note holder; (iii) the number of shares of Company Common Stock into
which the note will be converted immediately prior to the Closing; (iv) the
interest rate and payment terms of the note; and (v) the date upon which such
note was issued. The Company has delivered to Parent accurate and complete
copies of all Convertible Notes. The warrants issued in connection with the
financing arrangements contemplated by the Convertible Notes will automatically
terminate as of the Effective Time, and no shares of Company Common Stock (or
Parent Common Stock) shall thereafter be issuable thereunder.
(C) Except as set forth in Part 2.3(c) of the Company Disclosure
Schedule there is no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of the Company from the Company; (ii)
outstanding security, instrument or obligation that is or may become
convertible into or exchangeable for any shares of the capital stock or other
securities of the Company; (iii) shareholder rights plan (or similar plan
commonly referred to as a "poison pill") or Contract under which the Company is
or may become obligated to sell or otherwise issue any shares of its capital
stock or any other securities; or (iv) condition or circumstance that may give
rise to or provide a basis for the assertion of a claim by any Person to the
effect that such Person is entitled to acquire or receive from the Company any
shares of capital stock or other securities of the Company.
(D) All outstanding shares of Company Common Stock, all outstanding
Company Options and all outstanding Convertible Notes have been issued and
granted in compliance with (i) all applicable securities laws and other
applicable Legal Requirements, and (ii) all requirements set forth in
applicable Contracts.
2.4 FINANCIAL STATEMENTS.
(A) The Company has delivered to Parent the following financial
statements and notes (collectively, the "COMPANY FINANCIAL STATEMENTS"):
(I) the unaudited balance sheets of the Company as of December
31, 1998 (the "BALANCE SHEET DATE") and December 31, 1997, and the related
unaudited income statements of the Company for the years then ended,
together with the notes thereto; and
(II) the unaudited balance sheet of the Company as of June 30,
1999 (the "JUNE 30, 1999 BALANCE SHEET") and the related unaudited income
statement of the Company for the six months then ended.
(B) The Company Financial Statements are accurate and complete in all
material respects and present fairly the financial position of the Company as
of the respective dates thereof and the results of operations of the Company
for the periods covered thereby. The Company Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods covered (except that the
financial statements do not contain footnotes and are subject to normal and
recurring year-end audit adjustments, that will not, individually or in the
aggregate, be material in magnitude).
2.5 ABSENCE OF CHANGES. Since the Balance Sheet Date:
(A) there has not been any material adverse change in the business,
condition, assets, liabilities, operations, financial performance or prospects
of the Company, and no event has occurred that could reasonably be expected to
have a Material Adverse Effect on the Company;
(B) there has not been any material loss, damage or destruction to, or
any material interruption in the use of, any of the assets of the Company;
(C) the Company has not (i) declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, or (ii) repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(D) the Company has not sold, issued, granted or authorized the
issuance or grant of (i) any capital stock or other security (except for
Company Common Stock issued upon the exercise of outstanding Company Options
and the Convertible Notes), (ii) any option, call, warrant or right to acquire
any capital stock or any other security (except for Company Options described
in Part 2.3(b)(i) of the Company Disclosure Schedule), or (iii) any instrument
convertible into or exchangeable for any capital stock or other security;
(E) the Company has not amended or waived any of its rights under, or
permitted the acceleration of vesting under, any provision of the Company's
stock option plan, or (ii) any provision of any agreement evidencing any
outstanding Company Option, Convertible Note or Company Warrant;
(F) there has been no amendment to the articles of incorporation,
bylaws or other charter or organizational documents of the Company, and the
Company has not effected or been a party to any merger, consolidation, share
exchange, business combination, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction;
(G) the Company has not accepted any Acquisition Proposal;
(H) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(I) the Company has not made any capital expenditures that exceed
$50,000 in the aggregate;
(J) except in the ordinary course of business and consistent with past
practices, the Company has not (i) entered into or permitted any of the assets
owned or used by it to become bound by any Material Contract (as defined in
Section 2.10), or (ii) amended or prematurely terminated, or waived any
material right or remedy under, any Material Contract;
(K) the Company has not (i) acquired, leased or licensed any material
right or other material asset from any other Person, (ii) sold or otherwise
disposed of, or leased or licensed, any material right or other material asset
to any other Person, or (iii) waived or relinquished any right, except in each
case for rights or other assets acquired, leased, licensed or disposed of in
the ordinary course of business and consistent with past practices;
(L) the Company has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness in excess of $10,000 with respect to any single matter, or in
excess of $25,000 in the aggregate;
(M) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with past practices;
(N) the Company has not (i) lent money to any Person, or (ii) incurred
or guaranteed any indebtedness for borrowed money;
(O) except as set forth on Schedule 2.5(o) of the Company Disclosure
Schedule, the Company has not (i) established or adopted any Plan (as defined
in Section 2.16(a)), (ii) caused or permitted any Plan to be amended in any
material respect (except as required to maintain the qualified status of the
Plan under Code Section 401(a)), or (iii) paid any bonus or made any
profit-sharing or similar payment to, or materially increased the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees;
(P) the Company has not changed any of its methods of accounting or
accounting practices in any respect;
(Q) the Company has not made any material election with respect to
Taxes;
(R) the Company has not commenced or settled any Legal Proceeding;
(S) the Company has not entered into an employment, severance or other
agreement with any of its officers, directors or key employees not reflected on
Schedule 2.5(s) of the Company Disclosure Schedule;
(T) the Company has not entered into any transaction that has had, or
could reasonably be expected to have, a Material Adverse Effect on the Company;
and
(U) the Company has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(t)" above.
2.6 LEASEHOLD; EQUIPMENT. The Company does not own any real property or
any interest in real property, except for the leaseholds created under the real
property leases identified in Part 2.6 of the Company Disclosure Schedule. All
such real property is being leased pursuant to lease agreements that are in
full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default) that would result in a Material Adverse
Effect on the Company. All material items of equipment and other tangible
assets owned by or leased to the Company are adequate for the uses to which
they are being put, are in good condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of the business of the Company in
the manner in which such business is currently being conducted.
2.7 TITLE TO ASSETS. The Company owns, and has good, valid and marketable
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 or held for use in its business except as reflected in the
Company's Financial Statements and Unaudited Interim Balance Sheet, including:
(i) all assets reflected on the Unaudited Interim Balance Sheet; and (ii) all
other assets reflected in the books and records of the Company as being owned
or leased by the Company. All of such assets are owned or leased by the Company
free and clear of any Encumbrances, except for (x) any lien for current taxes
not yet due and payable, and (y) minor liens that have arisen in the ordinary
course of business and that do not (in any case or in the aggregate) materially
detract from the value of the assets subject thereto or materially impair the
operations of the Company.
2.8 RECEIVABLES; SIGNIFICANT CUSTOMERS.
(A) Part 2.8 of the Company Disclosure Schedule provides an accurate
and complete breakdown and aging of all accounts receivable of the Company as
of the Balance Sheet Date. All existing accounts receivable of the Company
(including those accounts receivable reflected on the June 30, 1999 Balance
Sheet that have not yet been collected and those accounts receivable that have
arisen since the date of the Unaudited Interim Balance Sheet and have not yet
been collected) (i) represent valid obligations of customers of the Company
arising from bona fide transactions entered into in the ordinary course of
business, (ii) are current and collectible in full when due, without any
counterclaim or set off (net of an allowance for doubtful accounts recorded and
set forth in the Unaudited Balance Sheet), and (iii) represent revenues that
have been recognized strictly in accordance with GAAP (including, without
limitation, SOP 91-1 and SOP 97-2) and (iv) are not subject to any dispute or
threat of nonpayment.
(B) Part 2.8(b) of the Company Disclosure Schedule contains an
accurate and complete list as of the date of this Agreement of all loans and
advances made by the Company to any employee, director, consultant or
independent contractor of the Company, other than routine travel or relocation
advances made to employees in the ordinary course of business.
(C) For the purposes of this Agreement, "SIGNIFICANT CUSTOMERS" are
the ten (10) customers of the Company that have effected the most purchases, in
dollar terms, and accounted for the most revenues, in dollar terms, during each
of the past four (4) fiscal quarters. None of the Company's Significant
Customers has canceled, returned or substantially reduced or, to the knowledge
of the Company, is currently attempting or threatening to cancel, return or
substantially reduce, any purchases from, orders to or services provided by the
Company. The Company has not received any material customer complaints
concerning its products and/or services, nor has it had any of its products
returned by a customer or threatened to be returned by a customer or is aware
that any customer may return any products, except for normal warranty returns
consistent with past history for which adequate reserves have been made and
that would not result in a reversal of any material revenue.
2.9 PROPRIETARY ASSETS.
(A) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth, with
respect to each Proprietary Asset owned by the Company and registered with any
Governmental Body or for which an application has been registered or filed with
any Governmental Body, (i) a brief description of such Proprietary Asset, and
(ii) the names of the jurisdictions covered by the applicable registration or
application. Part 2.9(a)(ii) of the Company Disclosure Schedule identifies and
provides a brief description of all other Proprietary Assets owned by the
Company that are material to the business of the Company. Part 2.9(a)(iii) of
the Company Disclosure Schedule (i) identifies and provides a brief description
of, and identifies any ongoing royalties or payment obligations with respect
to, each Proprietary Asset that is licensed or otherwise made available to the
Company by any Person, (ii) identifies the Contract under which such
Proprietary Asset is being licensed or otherwise made available to the Company
and (iii) provides a brief description of how the Company uses such Proprietary
Asset. The Company has good, valid and marketable title to all of the Company
Proprietary Assets identified in Parts 2.9(a)(i) and 2.9(a)(ii) of the Company
Disclosure Schedule, free and clear of all Encumbrances, except for those
described in Parts 2.9(a)(i) and 2.9(a)(ii) of the Company Disclosure Schedule.
The Company has a valid right to use, license and otherwise exploit all
Proprietary Assets identified in Part 2.9(a)(iii) of the Company Disclosure
Schedule. Except as set forth in Part 2.9(a)(iv) of the Company Disclosure
Schedule, the Company has not developed jointly with any other Person any
Company Proprietary Asset with respect to which such other Person has any
rights.
(B) Part 2.9(b)(i) of the Company Disclosure Schedule sets forth a
true, accurate and complete copy of the Company's standard form of license,
software maintenance and support, and services agreements (the "COMPANY'S
STANDARD LICENSE AGREEMENTS"). Part 2.9(b)(ii) of the Company Disclosure
Schedule identifies each Company Contract pursuant to which the Company has
licensed or transferred any right (whether or not currently exercisable) to
use, license or otherwise exploit any Company Proprietary Asset to any Person
(other than those Contracts entered into in the ordinary course of business on
terms that do not deviate in any material respect from the Company's Standard
License Agreements). Part 2.9(b)(iii) of the Company Disclosure Schedule
identifies each Contract, pursuant to which the Company has licensed or
transferred any right (whether or not currently exercisable) to use, license or
otherwise exploit any Company Proprietary Asset to any Person, which Company
Contract is neither the Company's Standard License Agreements nor identified in
Part 2.9(b)(ii) of the Company Disclosure Schedule.
(C) The Company has taken reasonable measures and precautions to
protect and maintain the confidentiality, secrecy and value of all material
Company Proprietary Assets (except Company Proprietary Assets whose value would
be unimpaired by disclosure). Without limiting the generality of the foregoing,
except as set forth in Part 2.9(c) of the Company Disclosure Schedule, (i) all
current and former employees of the Company who are or were involved in, or who
have contributed to, the creation or development of any Company Proprietary
Asset have executed and delivered to the Company an agreement (containing no
exceptions to or exclusions from the scope of its coverage) that is
substantially identical to the form of employment agreement previously
delivered by the Company to Parent, and (ii) all current and former consultants
and independent contractors to the Company who are or were involved in, or who
have contributed to, the creation or development of any Company Proprietary
Asset have executed and delivered to the Company an agreement (containing no
exceptions to or exclusions from the scope of its coverage) that is identical
in all material respects to the form of consultant agreement previously
delivered to Parent. No current or former employee, officer, director,
shareholder, consultant or independent contractor has any right, claim or
interest, including, without limitation, any moral rights, in or with respect
to any Company Proprietary Asset.
(D) (i) All patents, trademarks, tradenames, service marks, maskwork
rights, copyrights and trade secrets held by the Company are valid, enforceable
and subsisting; (ii) none of the Company Proprietary Assets and no Proprietary
Asset that is currently being developed by the Company (either by itself or
with any other Person) infringes, misappropriates or conflicts with any
Proprietary Asset owned or used by any other Person; (iii) none of the products
that are or have been designed, created, developed, assembled, manufactured or
sold by the Company is infringing, misappropriating or making any unlawful or
unauthorized use of any Proprietary Asset owned or used by any other Person,
and none of such products has at any time infringed, misappropriated or made
any unlawful or unauthorized use of, and none of the Company or any of its
Representatives has received any notice or other communication (in writing or
otherwise) of any actual, alleged, possible or potential infringement,
misappropriation or unlawful or unauthorized use of, any Proprietary Asset
owned or used by any other Person; and (iv) no other Person is infringing,
misappropriating or making any unlawful or unauthorized use of, and no
Proprietary Asset owned or used by any other Person infringes or conflicts
with, any Company Proprietary Asset.
(E) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. Except as set forth in
Part 2.9(e) of the Company Disclosure Schedule, the Company has not (i)
licensed any Company Proprietary Assets to any Person on an exclusive basis,
(ii) entered into any covenant not to compete or (iii) entered into any
Contract limiting its ability to exploit fully any Company Proprietary Assets
or to transact business in any market or geographical area or with any Person.
(F) All software (and related Company Proprietary Assets) that is
sold, licensed or transferred by the Company to any Person ("PRODUCTS") is
designed to be used prior to, during and after the year 2000 ("YEAR 2000"), and
are Year 2000 Compliant (as defined below). To the best of the knowledge of the
Company, the Company has taken adequate steps to ensure that all software (and
related Proprietary Assets) used in its operations is Year 2000 Compliant (as
defined below). For purposes of this Agreement, "YEAR 2000 COMPLIANT" shall
mean, with respect to a computer, computer program or other item of software
(i) the functions, calculations, and other computing processes of the computer,
program or software (collectively, "PROCESSES") perform in a consistent and
correct manner without interruption regardless of the date on which the
Processes are actually performed and regardless of the date input to the
applicable computer system, whether before, on, or after January 1, 2000; (ii)
the computer, program or software accepts, calculates, compares, sorts,
extracts, sequences, and otherwise processes date inputs and date values, and
returns and displays date values, in a consistent and correct manner regardless
of the dates used whether before, on, or after January 1, 2000; (iii) the
computer, program or software accepts and responds to year input, if any, in a
manner that resolves any ambiguities as to century in a defined, predetermined,
and appropriate manner; (iv) the computer, program or software stores and
displays date information in ways that are unambiguous as to the determination
of the century; and (v) leap years will be determined by the following standard
(A) if dividing the year by 4 yields an integer, it is a leap year, except for
years ending in 00, but (B) a year ending in 00 is a leap year if dividing it
by 400 yields an integer.
(G) Except as set forth in Part 2.9(g) of the Company Disclosure
Schedule, each product, system, program, Proprietary Asset or other asset
designed, developed, manufactured, assembled, sold, installed, repaired,
licensed or otherwise made available by the Company to any Person conformed and
complied in all material respects with the terms and requirements of any
applicable warranty or other Contract and with all applicable Legal
Requirements. All installation services, programming services, repair services,
maintenance services, support services, training services, upgrade services and
other services that have been performed by the Company were performed properly
and in full conformity with the terms and requirements of all applicable
warranties and other Contracts and with all applicable Legal Requirements.
(H) Except as set forth in Part 2.9(h) of the Company Disclosure
Schedule, since the Measurement Date (as defined in Section 2.12), no customer
or other Person has asserted or, to the Company's knowledge, threatened to
assert, any claim against the Company (i) under or based upon any warranty
provided by or on behalf of the Company, or (ii) under or based upon any other
warranty relating to any product, system, program, Proprietary Asset or other
asset designed, developed, manufactured, assembled, sold, installed, repaired,
licensed or otherwise made available by the Company or any services performed
by the Company.
(I) The technical documentation (the "TECHNICAL DOCUMENTATION") of the
software products or programs currently being marketed by the Company and all
the software products or programs under development by the Company but not
currently marketed (collectively, the "SOFTWARE PROGRAMS") includes the source
code (with comments) for all Software Programs, as well as any pertinent
comments by or explanation that may be necessary to render such materials
understandable and usable to a reasonably skilled programmer trained in the
computer language in which the Software Program is written. The Technical
Documentation also includes any programs (including compilers), "workbenches,"
tools and higher level (or "proprietary") languages necessary for the
development, maintenance and implementation of the Software Programs.
2.10 CONTRACTS.
(A) Part 2.10 of the Company Disclosure Schedule identifies each
Company Contract that constitutes a "Material Contract." For purposes of this
Agreement, each of the following shall be deemed to constitute a "MATERIAL
CONTRACT":
(I) (A) any Contract or outstanding offer relating to the
employment of, or the performance of services by, any employee, (B) any
Contract pursuant to which the Company is required to make any severance,
termination or similar payment, bonus or relocation payment or any other
payment (other than payments in respect of salary) to any current or former
employee or director of the Company and (C) any Contract or Plan (including,
without limitation, any stock option plan, stock appreciation plan or stock
purchase plan), any of the benefits of which may be increased, or the vesting
of benefits of which may be accelerated as a result of the Merger or otherwise;
(II) any Contract (A) relating to the acquisition, transfer,
development, sharing, license (to or by the Company), use or other exploitation
of any Proprietary Asset (except for any such Contract pursuant to which any
Proprietary Asset is licensed to the Company for internal use under any third
party software license generally available to the public); or (B) with respect
to the distribution or marketing of any products of the Company;
(III) any Contract that provides for indemnification of any
officer, director, employee or agent of the Company;
(IV) any Contract imposing any restriction on the right or
ability of the Company (A) to compete in any market or geographic area with any
other Person, (B) to acquire any product or other asset or any services from
any other Person, to sell any product or other asset to or perform any services
for any other Person or to transact business or deal in any other manner with
any other Person, or (C) to develop or distribute any technology;
(V) any Contract (A) relating to the acquisition, issuance,
voting, registration, sale or transfer of any securities (other than the
issuance of Company Common Stock upon the valid exercise of Company Options
outstanding as of the date of this Agreement), (B) providing any Person with
any preemptive right, right of participation, right of maintenance or any
similar right with respect to any securities, or (C) providing the Company with
any right of first refusal with respect to, or right to repurchase or redeem,
any securities;
(VI) any Contract requiring that the Company give any notice or
provide any information to any Person prior to accepting any Acquisition
Proposal;
(VII) any Contract that contemplates or involves payment or
delivery of cash or other consideration in an amount or having a value in
excess of $50,000 in the aggregate, or contemplates or involves the performance
of services having a value in excess of $50,000 in the aggregate;
(VIII) any Contract or Plan (including, without limitation, any
stock option plan, stock appreciation 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 execution of this Agreement or the consummation 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;
(IX) any joint marketing or development Contract currently in
force under which the Company has continuing obligations to jointly market any
product, technology or service and which may not be canceled without penalty
upon notice of thirty (30) days or less, or any material Contract pursuant to
which the Company has continuing obligations to jointly develop any Proprietary
Asset that will not be owned, in whole or in part, by the Company and that may
not be canceled without penalty upon notice of ninety (90) days or less;
(X) any Contract currently in force to disclose or deliver to
any Person, or permit the disclosure or delivery to any escrow agent or other
Person, of the source code, or any portion or aspect of the source code, or any
proprietary information or algorithm contained in or relating to any source
code, of any Company Proprietary Asset; and
(XI) any Contract (not otherwise identified in clauses "(i)"
through "(x)" of this sentence) that is or would be material to the Company, to
the business, condition, capitalization or operations of the Company or to any
of the transactions contemplated by this Agreement.
(B) Each Material Contract is valid and in full force and effect, and
is enforceable by the Company in accordance with its terms, subject to (i) laws
of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.
(C) Except as set forth in Part 2.10 of the Company Disclosure
Schedule: (i) the Company has not violated or breached, or committed any
default under, any Company Contract, and, to the best of the knowledge of the
Company, no other Person has violated or breached, or committed any default
under, any Company Contract; (ii) to the best of the knowledge of the Company,
no event has occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time) will, or could reasonably be expected to, (A)
result in a violation or breach of any of the provisions of any Company
Contract, (B) give any Person the right to declare a default or exercise any
remedy under any Company Contract, (C) give any Person the right to a rebate,
chargeback, penalty or change in delivery schedule under any Company Contract,
(D) give any Person the right to accelerate the maturity or performance of any
Company Contract, or (E) give any Person the right to cancel, terminate or
modify any Company Contract; (iii) neither the Company nor any of their
Representatives has received any notice or other communication regarding any
actual or possible violation or breach of, or default under, any Company
Contract; and (iv) the Company has obtained all necessary export licenses
related to the export of its products.
(D) There is no Company Contract to which any Governmental Body is a
party or under which any Governmental Body has any rights or obligations, or
directly or indirectly benefiting any Governmental Body (including any
subcontract or other Contract between the Company and any contractor or
subcontractor to any Governmental Body).
(E) No Person is renegotiating, or has a right pursuant to the terms
of any Company Contract to renegotiate, any amount paid or payable to the
Company under any Material Contract or any other material term or provision of
any Material Contract.
2.11 LIABILITIES. The Company has no accrued, contingent or other
liabilities of any nature, either matured or unmatured, including, without
limitation, any liabilities relating to costs associated with insuring that the
Products, computer systems, any software utilized by the Company or other
components of the Company' information technology infrastructure are Year 2000
Compliant (whether or not required to be reflected in financial statements in
accordance with GAAP, and whether due or to become due), except for: (a)
liabilities identified as such in the "liabilities" column of the June 30, 1999
Balance Sheet; and (b) normal and recurring liabilities that have been incurred
by the Company since the date of the June 30, 1999 Balance Sheet in the
ordinary course of business and consistent with past practices.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times since January 23, 1990, the Company's inception (the "MEASUREMENT DATE")
been, in compliance with all applicable Legal Requirements, except where the
failure to comply with such Legal Requirements has not had and will not have a
Material Adverse Effect on the Company. Since the Measurement Date, the Company
has not received any notice or other communication from any Governmental Body
regarding any actual or possible violation of, or failure to comply with, any
Legal Requirement, except where such violation did not and would not have a
Material Adverse Effect on the Company.
2.13 CERTAIN BUSINESS PRACTICES. Neither the Company nor any director,
officer, agent or employee of the Company has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
2.14 GOVERNMENTAL AUTHORIZATIONS. The Company holds all Governmental
Authorizations necessary to enable the Company to conduct its business in the
manner in which such business is currently being conducted. All such
Governmental Authorizations are valid and in full force and effect. The Company
is, and at all times since the Measurement Date has been, in substantial
compliance with the terms and requirements of such Governmental Authorizations.
Since the Measurement Date, the Company has not received any notice or other
communication from any Governmental Body regarding (a) any actual or possible
violation of or failure to comply with any term or requirement of any material
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
material Governmental Authorization.
2.15 TAX MATTERS.
(A) All Tax Returns required to be filed by or on behalf of the
Company with any Governmental Body on or before the Closing Date, taking into
account any extensions that may have been granted with respect to such Tax
Returns before the Closing Date (the "COMPANY RETURNS") (i) have been or will
be filed on or before the applicable due date (including any extensions of such
due date if properly obtained), and (ii) have been, or will be when filed,
prepared in all material respects in compliance with all applicable Legal
Requirements. All amounts shown on the Company Returns to be due on or before
the Closing Date have been or will be paid on or before the Closing Date.
(B) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with GAAP. The Company will establish, in the ordinary
course of business and consistent with its past practices, reserves adequate
for the payment of all Taxes for the period from the date of this Agreement
through the Closing Date.
(C) Since the Measurement Date, no Company Return has ever been
examined or audited by any Governmental Body. No extension or waiver of the
limitation period applicable to any of the Company Returns has been granted (by
the Company or any other Person), and no such extension or waiver has been
requested from the Company.
(D) No claim or Legal Proceeding is pending or, to the best of the
knowledge of the Company, has been threatened against or with respect to the
Company in respect of any material Tax. There are no unsatisfied liabilities
for material Taxes with respect to any notice of deficiency or similar document
received by the Company with respect to any material Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document that are being contested in good faith by the Company and with respect
to which adequate reserves for payment have been established). There are no
liens for material Taxes upon any of the assets of the Company except liens for
current Taxes not yet due and payable. The Company has not entered into or
become bound by any agreement or consent pursuant to Section 341(f) of the
Code. The Company has not been, and will not be, required to include any
adjustment in taxable income for any tax period (or portion thereof) pursuant
to Section 481 or 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions or events occurring, or accounting
methods employed, prior to the Closing.
(E) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could
reasonably be expected to, give rise directly or indirectly to the payment of
any amount that would not be deductible pursuant to Section 280G or Section 162
of the Code. The Company is not, and never has been, a party to or bound by any
tax indemnity agreement, tax sharing agreement, tax allocation agreement or
similar Contract.
2.16 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(A) Part 2.16(a) of the Company Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, medical, life or
other insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "PLANS") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any current or former employee of the Company.
(B) Except as set forth in Part 2.16(a) of the Company Disclosure
Schedule, the Company does not maintain, sponsor or contribute to, and the
Company has not at any time in the past maintained, sponsored or contributed
to, any employee pension benefit plan (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether
or not excluded from coverage under specific Titles or Subtitles of ERISA) for
the benefit of employees or former employees of the Company (a "PENSION Plan").
None of the Plans identified in Part 2.16(a) of the Company Disclosure Schedule
is subject to Title IV of ERISA or Section 412 of the Code.
(C) Except as set forth in Part 2.16(a) of the Company Disclosure
Schedule, the Company does not maintain, sponsor or contribute to any: (i)
employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Subtitles of ERISA) for the
benefit of any employees or former employees of the Company (a "WELFARE PLAN"),
or (ii) self-funded medical, dental or other similar Plan. None of the Plans
identified in Section 2.16(a) of the Company Disclosure Schedule is a
multi-employer plan (within the meaning of Section 3(37) of ERISA).
(D) With respect to each Plan, the Company has delivered to Parent:
(i) an accurate and complete copy of such Plan (including all amendments
thereto); (ii) an accurate and complete copy of the annual report, if required
under ERISA, with respect to such Plan for the last two years; (iii) an
accurate and complete copy of the most recent summary plan description,
together with each Summary of Material Modifications, if required under ERISA,
with respect to such Plan, (iv) if such Plan is funded through a trust or any
third party funding vehicle, an accurate and complete copy of the trust or
other funding agreement (including all amendments thereto) and accurate and
complete copies the most recent financial statements thereof; (v) accurate and
complete copies of all Contracts relating to such Plan, including service
provider agreements, insurance contracts, minimum premium contracts, stop-loss
agreements, investment management agreements, subscription and participation
agreements and recordkeeping agreements; and (vi) an accurate and complete copy
of the most recent determination letter received from the Internal Revenue
Service with respect to such Plan (if such Plan is intended to be qualified
under Section 401(a) of the Code).
(E) The Company is not and never has been required to be treated as a
single employer with any other Person under Section 4001(b)(1) of ERISA or
Section 414(b), (c), (m) or (o) of the Code. The Company has never been a
member of an "affiliated service group" within the meaning of Section 414(m) of
the Code. The Company has never made a complete or partial withdrawal from a
multi-employer plan, as such term is defined in Section 3(37) of ERISA,
resulting in "withdrawal liability," as such term is defined in Section 4201 of
ERISA (without regard to subsequent reduction or waiver of such liability under
either Section 4207 or 4208 of ERISA).
(F) The Company has no plan or commitment to create any Welfare Plan
or any additional Pension Plan, or to modify or change any existing Pension
Plan (other than to comply with applicable law, including, without limitation,
amendments to the Code and ERISA made by the Uniformed Services Employment and
Reemployment Rights Act of 1994 ("USERRA"), the Uruguay Round Agreement Act
("GATT"), the Small Business Job Protection Act of 1996 ("SBJPA") and the
Taxpayer Relief Act of 1997 (TRA '97")) in a manner that would affect any
employee of the Company.
(G) No Plan provides death, medical or health benefits (whether or not
insured) with respect to any current or former employee of the Company after
any such employee's termination of service (other than (i) benefit coverage
mandated by applicable law, including coverage provided pursuant to Section
4980B of the Code, (ii) deferred compensation benefits accrued as liabilities
on the Company Balance Sheet, and (iii) benefits the full cost of which are
borne by current or former employees of the Company (or the employees'
beneficiaries)).
(H) With respect to any Plan constituting a group health plan within
the meaning of Section 4980B(g)(2) of the Code, the provisions of Section 4980B
of the Code ("COBRA") have been complied with in all material respects. Part
2.16(h) of the Company Disclosure Schedule describes all obligations of the
Company as of the date of this Agreement under any of the provisions of COBRA.
(I) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
but not limited to ERISA and the Code.
(J) Each of the Plans intended to be qualified under Section 401(a) of
the Code has either received a favorable determination from the Internal
Revenue Service as to its qualified status under the Code (or relies on a
favorable opinion letter issued by the Internal Revenue Service with respect to
a standardized form of prototype plan adopted by the Company) or the requisite
period under applicable Treasury Regulations or Internal Revenue Service
pronouncements in which to apply for such determination letter and to make any
amendments necessary to obtain a favorable determination with respect to the
Plan has not expired, and the Company is not aware of any reason why any such
determination letter should be revoked.
(K) Neither the execution, delivery or performance of this Agreement,
nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will result in any payment (including any
bonus, golden parachute or severance payment) to any current or former employee
or director of the Company (whether or not under any Plan), or materially
increase the benefits payable under any Plan, or result in any acceleration of
the time of payment or vesting of any such benefits (other than as required
under Section 411(d)(3) of the Code in connection with the termination or
partial termination of a Plan).
(L) Part 2.16(l) of the Company Disclosure Schedule contains a list of
all salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their base salaries, their
targeted annual bonus amounts, their dates of employment and their positions.
The Company is not a party to any collective bargaining contract or other
Contract with a labor union involving any of its employees. All of the
employees of the Company are "at will" employees.
(M) Part 2.16(m) of the Company Disclosure Schedule identifies each
Employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.
(N) Each Plan complies in all material respects with all applicable
Legal Requirements. The Company is in compliance in all material respects with
all Contracts relating to employment, employment practices, wages, bonuses and
terms and conditions of employment, including employee compensation matters.
(O) The Company has good labor relations, and the Company does not
have any knowledge of any facts indicating that (i) the consummation of the
Merger or any of the other transactions contemplated by this Agreement will
have a material adverse effect on the labor relations of the Company, or (ii)
any of the employees of the Company intends to terminate his or her employment
with the Company.
2.17 ENVIRONMENTAL MATTERS. The Company is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that the Company is not in
compliance with any Environmental Law, and, to the best of the knowledge of the
Company, there are no circumstances that may prevent or interfere with the
compliance by the Company with any Environmental Law in the future. To the best
knowledge of the Company, no current or prior owner of any property leased or
controlled by the Company has received any notice or other communication (in
writing or otherwise), whether from a Government Body, citizens group, employee
or otherwise, that alleges that such current or prior owner or the Company is
not in compliance with any Environmental Law. To the best knowledge of the
Company, all property that is leased to, controlled by or used by the Company,
and all surface water, groundwater and soil associated with or adjacent to such
property is in clean and healthful condition and is free of any material
environmental contamination of any nature.
2.18 INSURANCE. The Company has delivered to Parent a copy of each
insurance policy and each self insurance program relating to the business,
assets or operations of the Company. Each such insurance policy is in full
force and effect. Since the Measurement Date, the Company has not received any
notice or other communication regarding any actual or possible (a) cancellation
or invalidation of any insurance policy, (b) refusal of any coverage or
rejection of any material claim under any insurance policy, or (c) material
adjustment in the amount of the premiums payable with respect to any insurance
policy. There is no pending claim (including any workers' compensation claim)
under or based upon any insurance policy of the Company; and no event has
occurred, and no condition or circumstance exists, that might (with or without
notice or lapse of time) directly or indirectly give rise to or serve as a
basis for any such claim.
2.19 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.19 of the
Company Disclosure Schedule, (a) no Related Party has, and no Related Party has
at any time since the Measurement Date had, any direct or indirect interest in
any material asset used in or otherwise relating to the business of the
Company; (b) no Related Party is, or has at any time since the Measurement Date
been, indebted to the Company; (c) since the Measurement Date, no Related Party
has entered into, or has had any direct or indirect financial interest in, any
material Contract, transaction or business dealing involving the Company; (d)
no Related Party is competing, or has at any time since the Measurement Date
competed, directly or indirectly, with the Company; and (e) no Related Party
has any claim or right against the Company (other than rights under Company
Options and rights to receive compensation for services performed as an
employee of the Company).
2.20 LEGAL PROCEEDINGS; ORDERS.
(A) There is no pending Legal Proceeding, and no Person has threatened
to commence any Legal Proceeding: (i) that involves the Company or any of the
assets owned or used by the Company, including, without limitation, any Company
Proprietary Asset; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the Merger
or any of the other transactions contemplated by this Agreement. To the best of
the knowledge of the Company, no event has occurred, and no claim, dispute or
other condition or circumstance exists, that will, or that could reasonably be
expected to, give rise to or serve as a basis for the commencement of any such
Legal Proceeding. To the best knowledge of the Company, no event has occurred,
and no claim, dispute or other condition or circumstance exists, that will, or
that could reasonably be expected to, cause or provide a basis for a director,
officer or other Representative of the Company to seek indemnification from, or
commence a Legal Proceeding against or involving, the Company.
(B) There is no order, writ, injunction, judgment or decree to which
the Company, or any of the assets owned or used by the Company, is subject. To
the best of the knowledge of the Company, no officer or other employee of the
Company is subject to any order, writ, injunction, judgment or decree that
prohibits such officer or other employee from engaging in or continuing any
conduct, activity or practice relating to the business of the Company.
2.21 AUTHORITY; INAPPLICABILITY OF ANTI-TAKEOVER STATUTES; BINDING NATURE
OF AGREEMENT. The Company has the absolute and unrestricted right, power and
authority to enter into and to perform its obligations under this Agreement.
The Board of Directors of the Company (at a meeting duly called and held) has
(a) unanimously determined that the Merger is advisable and fair and in the
best interests of the Company and its shareholders, (b) unanimously approved
the execution, delivery and performance of this Agreement by the Company and
has unanimously approved the Merger, (c) unanimously recommended the adoption
and approval of this Agreement and the Merger by the holders of Company Common
Stock and directed that this Agreement and the Merger be submitted for
consideration by the Company's shareholders at a shareholders' meeting duly
called and held (the "COMPANY SHAREHOLDERS' MEETING") or by action by written
consent in lieu of the Company Shareholders' Meeting, and (d) adopted a
resolution having the effect of causing the Company not to be subject to any
state takeover law or similar Legal Requirement that might otherwise apply to
the Merger or any of the other transactions contemplated by this Agreement.
This Agreement constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to (i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies. Each of the Investors and
Shareholder has delivered a valid consent to the Merger and a valid waiver of
dissenters' rights in connection therewith.
2.22 NO EXISTING DISCUSSIONS. Neither the Company nor any Representative
of the Company, is engaged, directly or indirectly, in any discussions or
negotiations with any other Person relating to any Acquisition Proposal other
than the Merger.
2.23 ACCOUNTING MATTERS. To the best of the knowledge of the Company,
neither the Company nor any of its affiliates has taken or agreed to, or plans
to, take any action that would prevent Parent from accounting for the Merger as
a "pooling of interests."
2.24 VOTE REQUIRED. The affirmative vote of the holders of a two-thirds
majority of the shares of Company Common Stock outstanding on the record date
for the Company Shareholders' Meeting or, if applicable, a written consent of
all Company shareholders (the "REQUIRED COMPANY SHAREHOLDER VOTE") is the only
vote of the holders of any class or series of the Company's capital stock
necessary to adopt and approve this Agreement, the Merger and the other
transactions contemplated by this Agreement.
2.25 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.25 of the
Company Disclosure Schedule, neither (1) the execution, delivery or performance
of this Agreement or any of the other agreements referred to in this Agreement,
nor (2) the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(A) contravene, conflict with or result in a violation of (i) any of
the provisions of the articles of incorporation, bylaws or other charter or
organizational documents of the Company, or (ii) any resolution adopted by the
shareholders, the board of directors or any committee of the board of directors
of the Company;
(B) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge the Merger or any of
the other transactions contemplated by this Agreement or to exercise any remedy
or obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which the Company, or any of the assets owned
or used by the Company, is subject;
(C) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the business of the
Company or to any of the assets owned or used by the Company;
(D) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Company Contract, or give
any Person the right to (i) declare a default or exercise any remedy under any
such Company Contract, (ii) a rebate, chargeback, penalty or change in delivery
schedule under any such Company Contract, (iii) accelerate the maturity or
performance of any such Company Contract, or (iv) cancel, terminate or modify
any term of such Company Contract;
(E) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by the Company (except for minor liens
that will not, in any case or in the aggregate, materially detract from the
value of the assets subject thereto or materially impair the operations of the
Company); or
(F) result in the disclosure or delivery to any Person (other than
Parent or Merger Sub) of the source code, or any portion or aspect of the
source code, or any proprietary information or algorithm contained in or
relating to any source code, of any material Company Proprietary Asset, or the
transfer of any material asset of the Company to any Person (other than Parent
or Merger Sub).
Except as may be required by the WBCA, the Company was not, is not and
will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement.
2.26 BROKERS. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
any of the other transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
2.27 FULL DISCLOSURE. This Agreement (including the Company Disclosure
Schedule) does not, and the certificate referred to in Section 6.5(g) will not,
(i) contain any representation, warranty or information that is false or
misleading with respect to any material fact, or (ii) omit to state any
material fact necessary in order to make the representations, warranties and
information contained and to be contained herein and therein (in the light of
the circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading.
2.28 CUSTOMS. The Company has acted with reasonable care to properly value
and classify, in accordance with applicable tariff laws, rules and regulations,
all goods that the Company imports into the United States or any other country
(the "IMPORTED GOODS"). To the Company's knowledge, there are currently no
claims for material amounts pending against the Company by the U.S. Customs
Service (or other foreign customs authorities) relating to the valuation,
classification or marking of the Imported Goods. To the Company's knowledge,
there have not been any material penalties assessed or claimed by the U.S.
Customs Service or foreign customs authorities with respect to the Imported
Goods. To the Company's knowledge, the Company has paid to the U.S. Customs
Service and relevant foreign customs authorities, with such exceptions as are
not material, all duties, tariffs and excise taxes assessed, due and payable
with such exceptions as would not result, in any individual case or series of
related cases in a Material Adverse Effect on the Company.
2.29 LEGENDS. All technical data, computer software and Company
Proprietary Assets delivered or otherwise provided or made available by or on
behalf of the Company to Governmental Bodies in connection with Government
Contracts have been marked with all markings and legends (including any
"restricted rights" legend and any "government purpose license rights" legend)
appropriate (under the Federal Acquisition Regulations, under other applicable
Legal Requirements or otherwise) to ensure that no Governmental Body or other
Person is able to acquire any unlimited rights with respect to any of such
technical data, computer software or Company Proprietary Assets and to ensure
that the Company has not lost or relinquished and will not lose or relinquish
any material rights with respect thereto.
3. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER AND THE
INVESTORS
Each of the Shareholder and the Investors represents and warrants to
Parent and Merger Sub as follows (such representations and warranties do not
lessen or obviate the representations and warranties of the Company and the
Shareholder set forth in Section 2 of this Agreement):
3.1 REQUISITE POWER AND AUTHORITY. Such party has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and to carry out its provisions. All action on the part of such party
required for the lawful execution and delivery of this Agreement has been or
will be taken prior to the Closing. Upon execution and delivery, this Agreement
will be the valid and binding obligation of such party, enforceable in
accordance with its terms, subject to (i) laws of general application relating
to the bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
3.2 TRANSFER RESTRICTIONS. Such party acknowledges and agrees that the
shares of Parent Common Stock to be issued to such party in the Merger (the
"SHARES") have not been registered under the Securities Act and are subject to
restrictions on transfer as follows:
(A) Such party agrees not to make any disposition of all or any
portion of the Shares received by such party unless and until:
(I) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(II) (A) The transferee has agreed in writing to be bound by the
terms of Section 3.2 of this Agreement, (B) the Shareholder shall have notified
Parent of the proposed disposition and shall have furnished Parent with a
detailed statement of the circumstances surrounding the proposed disposition,
and (C) if reasonably requested by Parent, the Shareholder shall have furnished
Parent with an opinion of counsel, reasonably satisfactory to Parent, that such
disposition will not require registration of such shares under the Securities
Act. It is agreed that Parent will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances.
(III) Notwithstanding the provisions of paragraphs (i) and (ii)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by any such party that is to a family member or trust for the
benefit of such party or, in the case of any such party that is a limited
partnership or similar entity, for any transfer as part of a general
distribution to such party's limited partners or members; provided that in each
case described above in this clause (iii), the transferee will be subject to
the terms of Section 3.2 of this Agreement to the same extent as if such
transferee were the original party hereunder.
(B) Each certificate representing Parent Common Stock issued in
accordance with this Agreement shall (unless otherwise permitted by the
provisions of the Agreement) be stamped or otherwise imprinted with a legend
substantially similar to the following (in addition to any legend required
under applicable state securities laws or as provided elsewhere in this
Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
(C) Parent shall be obligated to reissue promptly unlegended
certificates at the request of such party if such party shall have obtained an
opinion of counsel (which counsel may be counsel to Parent) reasonably
acceptable to Parent to the effect that the securities proposed to be disposed
of may lawfully be so disposed of without registration, qualification or
legend.
(D) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by Parent of an order of the
appropriate blue sky authority authorizing such removal.
(E) Such party has received and reviewed the Parent SEC Documents.
3.3 ACCOUNTING TREATMENT. Each of the Shareholder and the Investors
understands and agrees that it is intended that the Merger will be treated as a
"pooling of interests" in accordance with GAAP and the applicable General Rules
and Regulations published by the SEC. The Shareholder further understands that
he may be deemed to be an "affiliate" of the Company for purposes of
application of the pooling-of-interests requirements, although nothing
contained herein should be construed as an admission of either such conclusion.
Accordingly, the shares of Company Common Stock held, and Parent Common Stock
to be held, by the Shareholder may only be disposed of in conformity with the
limitations described herein.
3.4 RELIANCE UPON REPRESENTATIONS, WARRANTIES AND COVENANTS. The
Shareholder has been informed that the treatment of the Merger as a pooling of
interests for financial accounting purposes is dependent upon the accuracy of
the Shareholder's representations and warranties set forth herein, and upon the
Shareholder's compliance with the Shareholder's covenants set forth herein. The
Shareholder understands that the representations, warranties and covenants of
the Shareholder set forth herein will be relied upon by Parent, the Company and
their respective counsel and accounting firms.
3.5 POOLING OF INTEREST. Notwithstanding any other provision of this
Agreement to the contrary, the Shareholder will not sell, transfer, exchange,
pledge or otherwise dispose of, or in any other way reduce the Shareholder's
risk of ownership or investment in, or make any offer or agreement relating to
any of the foregoing with respect to, any Company Common Stock or any rights,
options or warrants to purchase Company Common Stock, or any Parent Common
Stock: (i) during the thirty-day period immediately preceding the Closing Date
of the Merger and (ii) until such time after the Effective Time of the Merger
as Parent has publicly released a report including the combined financial
results of Parent and for a period of at least thirty days of combined
operations of Parent and the Company within the meaning of Accounting Series
Release No. 135, as amended, of the SEC. Nothing in this paragraph will be
deemed to prohibit charitable contributions of such securities without
consideration to transferees who agree to all of the restrictions in this
Agreement.
3.6 ENTITIES CONTROLLED BY THE SHAREHOLDER. A true and complete list of
all Entities beneficially owned or Controlled by the Shareholder, together with
a description of the business activities of such Entity, the type of entity and
jurisdiction of incorporation of such Entity, is set forth on Part 3.6 of the
Company Disclosure Schedule.
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to the
Company, the Shareholder and the Investors, as follows:
4.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized and validly existing under
the laws of the State of Washington. Each of Parent and Merger Sub has the
corporate power to own its properties and to carry on its business as now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the ability of Parent and Merger Sub to consummate the
transactions contemplated hereby.
4.2 SEC FILINGS; FINANCIAL STATEMENTS.
(A) Parent has made available to the Company accurate and complete
copies (excluding copies of exhibits) of each report, registration statement
(on a form other than Form S-8) and definitive proxy statement filed by Parent
with the SEC between January 1, 1999 and the date of this Agreement (the
"PARENT SEC DOCUMENTS"). As of the time it was filed with the SEC (or, if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing): (i) each of the Parent SEC Documents complied in all
material respects with the applicable requirements of the Securities Act or the
Exchange Act (as the case may be); and (ii) none of the Parent SEC Documents
contained any untrue statement of a material fact or omitted 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.
(B) The consolidated financial statements contained in the Parent SEC
Documents: (i) complied as to form in all material respects with the published
rules and regulations of the SEC applicable thereto; (ii) were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered, except as may be indicated in the notes to such financial statements
and (in the case of unaudited statements) as permitted by Form 10-Q of the SEC,
and except that unaudited financial statements may not contain footnotes and
are subject to year-end audit adjustments; and (iii) fairly present in all
material respects the consolidated financial position of Parent and its
subsidiaries as of the respective dates thereof and the consolidated results of
operations of Parent and its subsidiaries for the periods covered thereby.
4.3 ABSENCE OF CERTAIN CHANGES OR EVENTS. Between June 30, 1999 and the
date hereof, except as disclosed in the Parent SEC Documents, there has not
been any event that has had or could reasonably be expected to have a Material
Adverse Effect on Parent.
4.4 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have the
absolute and unrestricted right, power and authority to perform their
obligations under this Agreement, and the execution, delivery and performance
by Parent and Merger Sub of this Agreement have been duly authorized by all
necessary action on the part of Parent and Merger Sub and their respective
boards of directors. This Agreement constitutes the legal, valid and binding
obligation of Parent and Merger Sub, enforceable against them in accordance
with its terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
4.5 VALID ISSUANCE. The Parent Common Stock to be issued in the Merger
will, when issued in accordance with the provisions of this Agreement, be
validly issued, fully paid and nonassessable.
4.6 NON-CONTRAVENTION; CONSENTS. Neither (i) Parent or Merger Sub's
execution, delivery or performance of this Agreement or any of the other
agreements contemplated by this Agreement nor (ii) the consummation of the
Merger will directly or indirectly (with or without the lapse of time) (a)
conflict with or result in any breach of any provision of the certificate of
incorporation or bylaws of Parent or the certificate of incorporation or bylaws
of Merger Sub, or (b) result in a default by Parent or Merger Sub under any
Contract to which either Parent or Merger Sub is a party, except for any
default that has not had and will not have a Material Adverse Effect on Parent,
or (c) result in a violation by Parent or Merger Sub of any laws, order, writ,
injunction, judgment or decree to which Parent or Merger Sub is subject, except
for any violation that has not had and will not have a Material Adverse Effect
on Parent. To Parent's Knowledge, except as may be required by the Securities
Act, the Exchange Act, state securities or "blue sky" laws, the Delaware
General Corporation Law and the HSR Act, Parent is not and will not be required
to make any filing with or give any notice to, or to obtain any Consent from,
any Person in connection with the execution and delivery of this Agreement, or
the consummation of the Merger.
4.7 NO VOTE REQUIRED. No vote of Parent's stockholders is necessary to
adopt and approve this Agreement, the Merger and the other transactions
contemplated by this Agreement, or to issue the Parent Common Stock to be
issued in the Merger.
4.8 ACCOUNTING MATTERS. To the best of the knowledge of Parent, Parent has
not taken and has not agreed, and does not plan, to take any action that would
prevent Parent from accounting for the Merger as a "pooling of interests."
4.9 OWNERSHIP OF MERGER SUB; NO PRIOR ACTIVITIES. Merger Sub is a newly
formed corporation that has conducted no business activity and was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement. As of the date hereof and the Effective Time, except for obligations
or liabilities incurred in connection with its incorporation or organization
and the transactions contemplated by this Agreement and except for this
Agreement, Merger Sub has not and will not have incurred, directly or
indirectly, through any subsidiary or affiliate, any obligations or liabilities
or engaged in any business activities of any type or kind whatsoever or entered
into any agreements or arrangements with any Person. Parent has no present plan
or intention to sell or otherwise dispose of any of the assets of the Company
acquired in the Merger, except for dispositions in the ordinary course of
business or transfers described in Section 368(a)(2)(C) of the Code.
5. CERTAIN COVENANTS OF THE PARTIES
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement and the Effective Time (except as
otherwise provided herein), the parties hereto agree (except to the extent that
the other parties hereto shall otherwise consent in writing) that:
5.1 CONDUCT OF BUSINESS OF THE COMPANY. The Company shall carry on its
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and, to the extent consistent with such
business, use all commercially reasonable efforts consistent with past practice
and policies to preserve intact its present business organization, keep
available the services of its present officers and key employees and preserve
its relationships with key customers, suppliers, distributors, licensors,
licensees and others having business dealings with it so that its goodwill and
ongoing businesses shall be unimpaired at the Effective Time. The Company shall
promptly notify Parent of any event or occurrence not in the ordinary course of
business of the Company, and any event of which the Company is aware which
reasonably would be expected to have a Material Adverse Effect on the Company
(even if the likelihood of such event has previously been disclosed in the
Company Disclosure Schedule). Except as expressly contemplated by this
Agreement or disclosed in the Company Disclosure Schedule, the Company shall
not, without the prior written consent of Parent:
(A) except pursuant to mandatory terms under options outstanding on
the date hereof, accelerate, amend or change the period of exercisability of
such options, or authorize cash payments in exchange for any such options or
warrants;
(B) enter into any commitment or transaction not in the ordinary
course of business to be performed over a period longer than six months in
duration, or to make any capital expenditure in excess of $10,000;
(C) grant any severance or termination pay to any director, officer,
employee or consultant;
(D) transfer to any person or entity any rights to any of the
Company's Proprietary Assets;
(E) enter into or amend any agreements pursuant to which any other
party is granted manufacturing, marketing, distribution or other similar rights
of any type or scope with respect to any products of the Company unless such
agreement is entered into in the ordinary course of business and at least two
(2) days prior written notice has been delivered to Parent;
(F) violate, amend or otherwise modify the terms of any of the
Company's Material Contracts or Governmental Authorizations;
(G) commence a lawsuit other than for the routine collection of bills
or for breach of this Agreement;
(H) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for any shares of its capital stock, or repurchase or otherwise acquire,
directly or indirectly, any shares of its capital stock;
(I) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating the Company to issue any such shares or other convertible
securities, other than upon the exercise of employee stock options outstanding
on the date hereof and the conversion of the Convertible Notes in accordance
with their terms immediately prior to the Effective Time;
(J) cause or permit any amendments to its articles of incorporation or
bylaws;
(K) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof;
(L) sell, lease, license or otherwise dispose of any of the Company's
properties or assets unless such sale, lease, license or disposition is in the
ordinary course of business and consistent with past practice, and at least two
(2) days prior written notice has been delivered to Parent;
(M) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(N) adopt or amend any employee benefit plans, programs, policies or
other arrangements, or enter into any employment contract, pay any special
bonus or special remuneration to any director, employee or consultant, or
increase the salaries or wage rates of its employees;
(O) revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business and consistent with past practice;
(P) pay, discharge or satisfy in an amount in excess of $10,000 in any
one case any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of obligations in the ordinary course of business;
(Q) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, enter into any
closing agreement, settle any tax claim or assessment, or consent to any
extension or waiver of the limitation period applicable to any tax claim or
assessment;
(R) engage in any activities or transactions that are outside the
ordinary course of its business;
(S) waive or commit to waive any rights with a value in excess of
$10,000;
(T) cancel, materially amend or renew any insurance policy other than
in the ordinary course of business;
(U) alter, or enter into any commitment to alter, its interest in any
corporation, association, joint venture, partnership or business entity in
which the Company directly or indirectly holds any interest on the date hereof;
(V) take any action which, to the best of the Company's Knowledge,
would cause the Merger not to be accounted for as a pooling of interests by
Parent; or
(W) take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1(a) through (v) above.
5.2 COMBINED FINANCIALS. Parent agrees and covenants that Parent will use
its best efforts to publish financial results covering at least thirty (30)
days of combined operations of Parent and the Company after the Effective Time
no later than forty-five (45) days after the end of Parent's first fiscal
quarter that includes at least thirty (30) days of such combined operations
after the Effective Time.
5.3 REGISTRATION STATEMENT.
(A) As soon as possible after December 10, 1999, but no later than
January 31, 2000, Parent shall file with the SEC a Registration Statement on
Form S-3 (the "REGISTRATION STATEMENT") registering the resale of the shares of
Parent Common Stock issued (or issuable) to the Company shareholders at the
Closing (other than shares of Parent Common Stock to be held in escrow pursuant
to the Escrow Agreement attached hereto as Exhibit J). Parent shall use its
best efforts to cause such Registration Statement to become effective as soon
as practicable thereafter. Each of the Shareholder and the Investors agrees to
provide to Parent all information reasonably required by Parent, and otherwise
to cooperate in good faith with Parent, in the preparation of such Registration
Statement.
(B) Parent shall use its reasonable efforts to cause the Registration
Statement to remain effective until the earliest of (i) the date upon which all
shares covered by the Registration Statement have been sold to the public
pursuant to the Registration Statement, (ii) one year after the effective date
of the Registration Statement and (iii) the date on which all of the shares
covered by the Registration Statement may be sold in any 3-month period
pursuant to Rule 144.
(C) Parent shall not be obligated to effect a registration pursuant
to Section 5.3(a) and may suspend the Company shareholders' rights to make
sales pursuant to an effective registration pursuant to Section 5.3(a), at any
time when Parent, in the good faith judgment of its Board of Directors,
reasonably believes that the filing thereof at the time requested, or the
offering of securities pursuant thereto, would (i) materially and adversely
affect a pending or proposed acquisition, merger, recapitalization,
consolidation, reorganization or similar transaction, or negotiations,
discussions or pending proposals related thereto, or (ii) be seriously
detrimental to Parent and its shareholders, in which event (under clause (i) or
(ii) above) Parent's sole relief from its registration obligations is the right
to defer filing of the Registration Statement (or to suspend the Company
shareholder's rights to make sales pursuant to the Registration Statement if it
is already effective) for a period of not more than 60 days; provided, however,
that Parent shall not utilize the right described in this Section 5.3(c) more
than twice.
5.4 EXCLUSIVITY; ACQUISITION PROPOSALS. Unless and until this Agreement
shall have been terminated by either party pursuant to Section 9.1 hereof, the
Company shall not, directly or indirectly, through any officer, director, agent
or otherwise, (a) solicit, initiate or encourage submission of proposals or
offers from any person relating to (i) any acquisition or purchase of all or
substantially all of the assets of, or any equity interest in, the Company or
any merger, consolidation, business combination or similar transaction with the
Company, or (ii) any other material transaction incompatible with the Merger
(including, without limitation, a joint venture or other similar transaction),
or (b) participate in any discussions or negotiations regarding, furnish to any
other person any confidential information with respect to, or otherwise
cooperate in any way with, or participate in, facilitate or encourage, any
effort or attempt by any other person to do or seek any of the foregoing.
5.5 EMPLOYEE MATTERS. Parent shall offer to all employees of the Company
as of the Closing Date who are also employees of the Company immediately prior
to the Effective Time employment by the Parent after the Effective Time, and
each such offer shall (i) include a compensation package in accordance with
Parent's compensation policy, (ii) to the extent permitted by Parent's employee
benefit programs, enable such eligible employee to participate in Parent's
employee benefit programs and other individual benefits as outlined in each
employee's individual offer, such as life insurance, Parent's 401(k) plan and
Parent's Employee Stock Purchase Plan ("PARENT PLANS"), and (iii) be in the
form of an individual offer letter prepared in accordance with Parent's
customary form (such letter to confirm such employee's initial position,
compensation, location and reporting relationship). Parent agrees that for
purposes of all Parent Plans (including all policies and employee fringe
benefit programs) under which an employee's benefit depends in whole or in part
on length of service, credit will be given to such employee for service
previously credited with the Company prior to the Effective Time; provided,
that such crediting of services does not result in duplication of benefits.
Such persons, if they accept such employment, shall be "at will" employees and
may be terminated by Parent for any reason or for no reason. The Company
represents that it has taken all steps necessary to terminate its 401(k) plan
prior to the Effective Time. Parent has set aside options for 200,000 shares of
Parent Common Stock, to be issued pursuant to Parent's stock incentive plan to
employees of the Company. Such options will be granted to such employees
promptly after the Effective Time as equity compensation pursuant to Parent's
compensation policies.
5.6 POOLING ACCOUNTING. Parent and the Company shall each use commercially
reasonable efforts to cause the Merger to be accounted for as a pooling of
interests.
5.7 CONSENTS. Each of Parent and the Company shall promptly apply for or
otherwise seek, and use its commercially reasonable efforts to obtain (and the
Company will assist Parent and Merger Sub in obtaining), all consents and
approvals required to be obtained by it for the consummation of the Merger. The
Company shall use its best efforts to obtain approval of its shareholders of
the Merger and to obtain all necessary consents, waivers and approvals under
any of the Company's Contracts and Permits in connection with the Merger,
except such consents and approvals as Parent and the Company mutually agree the
Company shall not seek to obtain.
5.8 LEGAL CONDITIONS TO THE MERGER. The Company shall take all reasonable
actions (a) to defend all lawsuits or other legal proceedings challenging this
Agreement or the consummation of the transactions contemplated hereby, (b) to
lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions
contemplated hereby, (c) to effect all necessary registrations and filings and
submissions of information requested by any governmental entity, and (d) to
fulfill all conditions to this Agreement.
5.9 NASDAQ LISTING. Parent shall use its best efforts to have the shares
of Parent Common Stock issuable to the shareholders of the Company pursuant to
the Agreement and such other shares required to be reserved for issuance in
connection with the Merger authorized for listing on Nasdaq upon official
notice of issuance.
5.10 PUBLIC ANNOUNCEMENTS. Each party will consult in advance with the
other concerning the timing and content of any announcements, press releases
and public statements concerning the Merger and will not make any such
announcement, release or statement without the other's prior written consent;
provided, however, that Parent may make any public statement concerning the
Merger without the Company's prior written consent if, in the opinion of
counsel for Parent, such statement or announcement is required to comply with
applicable law and Parent has provided to the Company a copy of any such
written statement or announcement that it proposes to make before making such
announcement and reasonably considers requests for changes made by the Company.
5.11 LOCATION OF THE COMPANY. It is the current intention of the parties
that the Company's current operations will be based in Seattle, Washington
immediately after the Closing.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are
subject to the satisfaction (or waiver by Parent), at or prior to the Closing,
of each of the following conditions:
6.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company, the Shareholder and the Investors in this
Agreement and in each of the other agreements and instruments delivered to
Parent in connection with the transactions contemplated by this Agreement shall
be accurate in all material respects as of the Closing Date as if made at the
Closing Date (without giving effect to any "Material Adverse Effect" or other
materiality qualifications, or any similar qualifications, contained or
incorporated directly or indirectly in such representations and warranties).
6.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
the Company, the Shareholder and the Investors are required to comply with or
to perform at or prior to the Closing shall have been complied with and
performed in all material respects.
6.3 SHAREHOLDER APPROVAL. The principal terms of the Merger shall have
been duly approved by the affirmative vote of 100% of the shares of Company
Common Stock outstanding immediately prior to the Effective Time, and by each
of the Investors.
6.4 CONSENTS. All Consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement, including
those identified in Part 2.21 of the Company Disclosure Schedule, shall have
been obtained and shall be in full force and effect.
6.5 AGREEMENTS AND DOCUMENTS. Parent (and, where applicable, the Company)
shall have received the following agreements and documents, each of which shall
be in full force and effect:
(A) letters setting forth offers of employment with the Company,
executed by Parent and each of ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇'▇▇▇▇▇ and
each of the employees set forth on Schedule 6.5;
(B) a Release in the form of Exhibit E, executed by each of the
Company's shareholders;
(C) Investment Representation Letters in the form of Exhibit F,
executed by each of the Company's shareholders;
(D) ratification of the Company's employment agreements, reasonably
satisfactory in form and content to Parent, executed by all current employees
of the Company, and by all current consultants and independent contractors to
the Company (or, if any such Person has not signed such an agreement, a
proprietary information and inventions agreement in the Company's standard form
(with appropriate adjustments to be applicable to Parent), executed by each
such Person), in the form of Exhibit G;
(E) a legal opinion of Venture Law Group, a Professional Corporation,
dated as of the Closing Date, in the form of Exhibit H;
(F) a certificate executed by the Shareholder containing the
representation and warranty of the Shareholder that each of the conditions set
forth in Sections 6.1, 6.2, 6.3 and 6.4, and to the best of his Knowledge,
Sections 6.8 and 6.9 have been duly satisfied (the "SHAREHOLDER'S CLOSING
CERTIFICATE");
(G) written resignations of all directors of the Company, effective as
of the Effective Time;
(H) an Escrow Agreement in the form of Exhibit J, executed by the
parties thereto.
(I) Affiliate Agreements in the form of Exhibit K, executed the
Persons identified on Exhibit L and by any other Person who could be reasonably
be deemed to be an "affiliate" of the Company as of the Effective Time within
the meaning of the Securities Act;
(J) a letter from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, auditors for the Parent, in a
form reasonably satisfactory to the Parent, to the effect that (i) the Parent
and the Company are "poolable" for accounting purposes under Accounting
Principles Board Opinion No. 16 and (ii) the Parent may treat the Merger as a
"pooling of interests" for accounting purposes under Accounting Principles
Board Opinion No. 16.
(K) written consent of the shareholders of the Company approving the
principal terms of the Merger and other transactions contemplated by this
Agreement and other agreements prepared in connection with the Merger,
certified by the Secretary of the Company; and
(L) a letter from the Shareholder, dated as of the Closing Date and
addressed to Parent and Merger Sub, in the form of Exhibit M, confirming that
the Shareholder does not meet the "size of person" threshold required under
Section 7a(a)(2)(B) of the ▇▇▇▇▇▇▇ Act.
6.6 FIRPTA COMPLIANCE. The Company shall have delivered to Parent a
statement (in such form as may be reasonably requested by counsel to Parent)
conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the United
States Treasury Regulations, and (b) the Company shall have delivered to the
Internal Revenue Service the notification required under ▇▇▇▇▇▇▇ ▇.▇▇▇ -
▇(▇)(▇) ▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Treasury Regulations.
6.7 LISTING. Arrangements satisfactory to Parent shall have been made for
the shares of Parent Common Stock to be issued in the Merger to be authorized
for listing on Nasdaq, subject to notice of issuance.
6.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.9 NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened to
commence any Legal Proceeding challenging or seeking the recovery of a material
amount of damages in connection with the Merger or seeking to prohibit or limit
the exercise by Parent of any material right pertaining to its ownership of
stock of the Surviving Corporation.
6.10 EMPLOYEES. Each of ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇'▇▇▇▇▇ and the
employees listed on Schedule 6.5 shall have agreed to become employees of
Parent on terms acceptable to Parent.
6.11 REGULATORY APPROVALS. The Company and Parent shall have filed all
notices, reports and other documents required to be filed with any Governmental
Body with respect to the Merger and the other transactions contemplated by this
Agreement, and submitted promptly any additional information requested by any
such Governmental Body. Each of the Company and Parent shall (1) have given the
other party prompt notice of the commencement of any Legal Proceeding by or
before any Governmental Body with respect to the Merger or any of the other
transactions contemplated by this Agreement, (2) kept the other party informed
as to the status of any such Legal Proceeding, and (3) promptly informed the
other party of any communication to or from the Federal Trade Commission, the
Department of Justice or any other Governmental Body regarding the Merger.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction (or waiver by the Company), at or prior to the Closing, of the
following conditions:
7.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate in all material respects as of the Closing Date as if made at the
Closing Date (without giving effect to any materiality or similar
qualifications contained in such representations and warranties).
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.
7.3 DOCUMENTS. The Company and the Shareholder shall have received the
following documents:
(A) a legal opinion of ▇▇▇▇▇▇▇ ▇▇▇▇ LLP, dated as of the Closing Date,
in the form of Exhibit I; and
(B) certificates executed by Parent and Merger Sub containing the
representation and warranty of each such party that the conditions set forth in
Sections 7.1 and 7.2 and to the best of their Knowledge, Section 7.4 have been
duly satisfied (the "PARENT'S CLOSING CERTIFICATE").
7.4 LISTING. Arrangements satisfactory to the Company shall have been made
for the shares of Parent Common Stock to be issued in the Merger to be
authorized for listing on Nasdaq, subject to notice of issuance.
7.5 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.6 REGULATORY APPROVALS. The Company and Parent shall have filed all
notices, reports and other documents required to be filed with any Governmental
Body with respect to the Merger and the other transactions contemplated by this
Agreement, and submitted promptly any additional information requested by any
such Governmental Body. Each of the Company and Parent shall (1) have given the
other party prompt notice of the commencement of any Legal Proceeding by or
before any Governmental Body with respect to the Merger or any of the other
transactions contemplated by this Agreement, (2) kept the other party informed
as to the status of any such Legal Proceeding, and (3) promptly informed the
other party of any communication to or from the Federal Trade Commission, the
Department of Justice or any other Governmental Body regarding the Merger.
8. INDEMNIFICATION, ETC.
8.1 SURVIVAL OF REPRESENTATIONS, ETC.
(A) The representations and warranties made by the Company, the
Shareholder and the Investors in Sections 2 and 3 (other than Sections 2.1(a),
2.3 and 2.9 (the "DESIGNATED REPRESENTATIONS")) shall survive the Closing and
shall expire at 5:00 p.m. Eastern time on the Audit Release Date. The
Designated Representations shall survive the Closing and shall expire on the
first anniversary of the Closing Date. Notwithstanding the foregoing, if, at
any time prior to such Audit Release Date or first anniversary, as the case may
be, any Indemnitee (acting in good faith) delivers to the Shareholder
Representative (as defined below) a written notice alleging the existence of an
inaccuracy in or a breach of any of the representations and warranties made by
the Company, the Shareholder or any Investor (and setting forth in reasonable
detail the basis for such Indemnitee's belief that such an inaccuracy or breach
may exist) and asserting a claim for recovery under Section 8.2 based on such
alleged inaccuracy or breach, then the claim asserted in such notice shall
survive such Audit Release Date or first anniversary, as the case may be, until
such time as such claim is fully and finally resolved. All representations and
warranties made by Parent and Merger Sub shall terminate and expire as of the
Effective Time, and any liability of Parent or Merger Sub with respect to such
representations and warranties shall thereupon cease.
(B) The representations, warranties, covenants and obligations of the
Company, the Shareholder and the Investors, and the rights and remedies that
may be exercised by the Indemnitees, shall not be limited or otherwise affected
by or as a result of any information furnished to, or any investigation made by
or Knowledge of, any of the Indemnitees or any of their Representatives.
(C) For purposes of this Agreement, each statement or other item of
information set forth in the Company Disclosure Schedule or in any update to
the Company Disclosure Schedule shall be deemed to be a representation and
warranty, or a qualification of a representation and warranty, made by the
Company, the Shareholder or the Investors, as the case may be, in this
Agreement.
8.2 INDEMNIFICATION BY THE SHAREHOLDER AND THE INVESTORS.
(A) From and after the Effective Time (but subject to Section
8.1(a)), the Shareholder and the Investors, severally and not jointly (on their
own behalf and on behalf of their heirs, successors and assigns, the
"INDEMNITORS") shall hold harmless and indemnify each of the Indemnitees from
and against, and shall compensate and reimburse each of the Indemnitees for,
any Damages that are directly or indirectly suffered or incurred by any of the
Indemnitees or to which any of the Indemnitees may otherwise become subject
(regardless of whether or not such Damages relate to any third-party claim) and
that arise from or as a result of, or are directly or indirectly connected
with: (i) any inaccuracy in or breach of any representation or warranty set
forth in Section 2 or in the Shareholder's Closing Certificate (without giving
effect, in any such case, to any "Material Adverse Effect" or other materiality
qualification or any similar qualification contained or incorporated directly
or indirectly in such representation or warranty, but giving effect to any
update to the Company Disclosure Schedule delivered by the Company to Parent
prior to the Closing); (ii) any breach of any covenant or obligation of the
Company or the Shareholder (including the covenants set forth in Section 5); or
(iii) any Legal Proceeding relating to any inaccuracy or breach of the type
referred to in clause "(i)" or "(ii)" above (including any Legal Proceeding
commenced by any Indemnitee for the purpose of enforcing any of its rights
under this Section 8). Each Indemnitor shall be responsible under this Article
8 only for such Indemnitors pro rata portion of any indemnification claim,
based on the number of shares of Parent Common Stock to be issued to the
Indemnitors in the Merger. No Indemnitor shall be responsible hereunder for any
obligations of any other Indemnitor.
(B) Each of the Indemnitors acknowledges and agrees that, if the
Surviving Corporation suffers, incurs or otherwise becomes subject to any
Damages as a result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation, then (without limiting any of
the rights of the Surviving Corporation as an Indemnitee) Parent shall also be
deemed, by virtue of its ownership of the stock of the Surviving Corporation,
to have incurred Damages as a result of and in connection with such inaccuracy
or breach.
8.3 SATISFACTION OF INDEMNIFICATION CLAIM. Upon the Effective Time, each
of the Indemnitors hereby agrees that Parent may deposit shares of Parent
Common Stock issuable to the Indemnitors in accordance with Section 1.5 into an
escrow ("ESCROW FUND") established pursuant to an Escrow Agreement between
Parent and the Shareholder in the form attached as Exhibit J (the "ESCROW
AGREEMENT"). The number of shares of Parent Common Stock to be deposited in the
Escrow Fund (the "ESCROW SHARES") shall be equal to 10% of the total number of
shares of Parent Common Stock issued to the Indemnitors, pursuant to Section
1.5, and shall be allocated on a pro rata basis to all Indemnitors based on the
number of shares of Parent Common Stock to be issued to each Indemnitor
pursuant to the Merger. In accordance with the terms of the Escrow Agreement,
the Escrow Shares shall be released to satisfy a portion or all claims for
indemnification pursuant to Section 8.2, with any shares of Parent Common Stock
that are not the subject of a claim under the Escrow Agreement to be released
from such Escrow Agreement on the Audit Release Date.
8.4 NO CONTRIBUTION. Each Indemnitor hereby waives, and acknowledges and
agrees that such Indemnitor shall not have and shall not exercise or assert (or
attempt to exercise or assert), any right of contribution, right of indemnity
or other right or remedy against the Surviving Corporation in connection with
any indemnification obligation or any other liability to which he may become
subject under or in connection with this Agreement or the Shareholder's Closing
Certificate.
8.5 MATTERS INVOLVING THIRD PARTIES.
(A) If any third party shall notify any Indemnitee about any matter (a
"THIRD PARTY CLAIM") that may give rise to a claim for indemnification against
the Indemnitors under this Section 8, then the Indemnitee shall promptly notify
the Shareholder Representative in writing, provided, however, that no delay on
the part of any Indemnitee in notifying the Shareholder Representative shall
relieve the Indemnitors from any obligation hereunder unless (and then solely
to the extent) the Indemnitors are prejudiced by the delay.
(B) The Shareholder Representative will have the right to defend the
Indemnitee against the Third Party Claim (other than a Third Party Claim in
respect of a breach of any representation or warranty under Section 2.9) with
counsel of its choice reasonably satisfactory to the Indemnitee so long as (i)
the Shareholder Representative notifies the Indemnitee in writing within 15
days after Indemnitee has given notice of the Third Party Claim that the
Indemnitors will indemnify the Indemnitee from and against the entirety of any
Damages the Indemnitee may suffer resulting from, arising out of, relating to,
in the nature of, or caused by the Third Party Claim, (ii) the Third Party
Claim involves only money damages and does not seek an injunction or other
equitable relief, and (iii) the Indemnitors conduct the defense of the Third
Party Claim actively and diligently.
(C) So long as Parent reasonably believes the Indemnitors are
conducting the defense of the Third Party Claim in accordance with Section
8.5(b) above, (i) the Indemnitee may retain separate co-counsel at its sole
cost and expense and participate in the defense of the Third Party Claim and
(ii) the Indemnitee will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Shareholder Representative (which consent shall not be
unreasonably withheld).
(D)If the Indemnitors are not actively and diligently conducting the
defense of the Third Party Claim, or in the case of any Third Party Claim in
respect of a breach of any representation or warranty under Section 2.9, then
(i) the Indemnitee may defend against, and consent to the entry of any judgment
or enter into any settlement with respect to the Third Party Claim in any
manner it may deem reasonable (and the Indemnitee need not consult with, or
obtain any consent from, the Shareholder Representative or any Indemnitor in
connection therewith), (ii) the Indemnitors will reimburse the Indemnitee
promptly and periodically for the costs of defending against the Third Party
Claim (including attorney's fees and expenses) and (iii) the Indemnitors will
remain responsible for any Damages the Indemnitee may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third Party
Claim to the fullest extent provided in this Section 8.
8.6 LIMITATIONS ON INDEMNIFICATION. Notwithstanding anything herein to the
contrary:
(A) Except as set forth in this Section 8.6, the Indemnitees shall not
assert any claim for indemnification against the Indemnitors until such time
as, and only to the extent that, the aggregate of all claims that the
Indemnitees may have against the Indemnitors shall exceed $100,000.
(B) The aggregate amount of all indemnification payments made pursuant
to this Section 8 by the Indemnitors (other than payments made pursuant to
Designated Claims (defined below) and claims described in clause (e)(iii)
below) shall not exceed ten percent (10%) of the total consideration actually
received by the Indemnitors pursuant to this Agreement (valued at the time of
receipt thereof).
(C) The aggregate amount of all indemnification payments made pursuant
to this Section 8 arising out of claims based on any breach of the
representations of the Company in Section 2.9 (other than payments made
pursuant to this Section 8 arising out of claims for intentional
misrepresentation, intentional misconduct or fraud) shall not exceed
thirty-three (33%) of the total consideration actually received by the
Indemnitors pursuant to this Agreement (valued at the time of receipt thereof).
(D) The aggregate amount of all indemnification payments made pursuant
to this Section 8 arising out of claims based on any breach of the
representations of the Company in Section 2.1(a) and 2.3 (other than payments
made pursuant to this Section 8 arising out of claims for intentional
misrepresentation, intentional misconduct or fraud) shall not exceed 33% of the
total consideration actually received by the Indemnitors pursuant to this
Agreement (valued at the time of receipt thereof).
(E) The aggregate amount of all indemnification payments made pursuant
to this Section 8 arising out of claims for intentional misrepresentations;
intentional misconduct or fraud shall not exceed 100% of the total
consideration actually received by the Indemnitors pursuant to this Agreement
(valued at the time of receipt thereof).
(F) The limitations contained in Section 8.6(a) shall not apply to any
indemnification claims arising out of (i) any breach of any Designated
Representations, (ii) any intentional misrepresentation, intentional
midsconduct or fraud (claims described in clauses (i) and (ii) being referred
to herein as "DESIGNATED CLAIMS") or (iii) any breach of the covenants set
forth herein prior to termination if this Agreement is terminated pursuant to
Section 9. In addition, payments by the Indemnitors in respect of Designated
Claims shall not be counted toward the cap on indemnification payments for
other claims set forth in Section 8.6 (b).
8.7 EXCLUSIVE REMEDY. In the absence of fraud, willful misconduct or
intentional misrepresentation, the indemnification provisions of this Section 8
and under the Escrow Agreement will be the sole and exclusive remedy of Parent
and the other Indemnitees after the Closing Date for any Damages suffered by
the Indemnitees in connection with this transaction.
8.8 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No Indemnitee
(other than Parent or any successor thereto or assign thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy
under this Agreement unless Parent (or any successor thereto or assign thereof)
shall have consented to the assertion of such indemnification claim or the
exercise of such other remedy.
8.9 SHAREHOLDER REPRESENTATIVE.
(A) Shareholder shall be constituted and appointed as agent
("SHAREHOLDER REPRESENTATIVE") for and on behalf of the Company stockholders to
give and receive notices and communications, to agree to, negotiate, and enter
into, on behalf of all Investors, amendments, consents and waivers under this
Agreement, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to indemnification claims, to enter into and
administer, on behalf of all Indemnitors, the terms of this Section 8 and the
Escrow Agreement, to authorize delivery to Parent of the Parent Common Stock or
other property from the Escrow Fund in satisfaction of indemnification claims,
to object to such deliveries, and to take all actions necessary or appropriate
in the judgment of the Shareholder Representative for the accomplishment of the
foregoing. Such agency may be changed by the holders of a majority in interest
of the Company stockholders from time to time upon not less than 10 days' prior
written notice to Parent. No bond shall be required of the Shareholder
Representative, and the Shareholder Representative shall receive no
compensation for his services. Notices or communications to or from the
Shareholder Representative shall constitute notice to or from each of the
Company stockholders.
(B) The Shareholder Representative shall not be liable for any act
done or omitted hereunder or under the Escrow Agreement as Shareholder
Representative while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the advice of counsel shall
be conclusive evidence of such good faith. The Company stockholders shall
severally indemnify the Shareholder Representative and hold him harmless
against any loss, liability or expense incurred without gross negligence or bad
faith on the part of the Shareholder Representative and arising out of or in
connection with the acceptance or administration of his duties hereunder.
(C) The Shareholder Representative shall have reasonable access to
information about the Company and the reasonable assistance of the Company's
and Parent's officers and employees for purposes of performing its duties and
exercising its rights hereunder, provided that the Shareholder Representative
shall treat confidentially and not disclose any nonpublic information from or
about the Company or Parent to anyone (except on a need to, know basis to
individuals who agree to treat such information confidentially).
8.10 ACTIONS OF THE SHAREHOLDER REPRESENTATIVE. A decision, act, consent
or instruction of the Shareholder Representative in respect of any action under
this Agreement or the Escrow Agreement shall constitute a decision of all
Company stockholders and Indemnitors and shall be final, binding and conclusive
upon each such Company stockholder and other Indemnitor and the Escrow Agent
and Parent may rely upon any decision, act, consent or instruction of the
Shareholder Representative hereunder or under the Escrow Agreement as being the
decision, act, consent or instruction of each and every such Company
stockholder and other Indemnitor. The Escrow Agent and Parent are hereby
relieved from any liability to any Person (including any Company stockholder or
other Indemnitor) for any acts done by them in accordance with such decision,
act, consent or instruction of the Shareholder Representative.
9. TERMINATION
9.1 TERMINATION.
(A) This Agreement may be terminated at any time prior to the
Effective Time:
(I) by mutual agreement of the Boards of Directors of Parent and
the Company;
(II) by Parent (provided Parent is not otherwise in breach), if
there has been a breach by the Company of any representation, warranty,
covenant or agreement set forth in this Agreement on the part of the Company
which is material and which the Company fails to cure within five business days
after notice thereof is given by Parent (except that no cure period shall be
provided for a breach by the Company which by its nature cannot be cured);
(III) by the Company (provided the Company is not otherwise in
breach), if there has been a breach by Parent or Sub of any representation,
warranty, covenant or agreement set forth in this Agreement on the part of
Parent or Sub which is material and which Parent or Sub, as the case may be,
fails to cure within five business days after notice thereof is given by the
Company (except that no cure period shall be provided for a breach by Parent or
Sub which by its nature cannot be cured); or
(IV) by Parent or the Company, if the Closing shall not have
occurred before 5:00 p.m. (Boston time) on August 27, 1999, provided that no
party that is then in breach of this Agreement may terminate this Agreement
under this clause (iv).
(B) Where action is taken to terminate this Agreement pursuant to this
Section 9.1, it shall be sufficient for such action to be authorized by the
Board of Directors of the party taking such action.
9.2 If either Parent or the Company terminates this Agreement pursuant to
this Section 9.1, all obligations of the parties hereunder shall terminate
without any liability of any party to any other party (except for any liability
of any party for breach by such party of one of its covenants under this
Agreement prior to termination), provided that the agreements contained in
Section 10.2 and 10.6 hereof shall survive. Notwithstanding the foregoing, in
the event of the termination of this Agreement prior to the Closing, no party
may ▇▇▇ or assert any claim against any other party based upon a breach of such
other party's representations contained herein unless such breach involves one
or more intentional misrepresentations or fraud.
10. MISCELLANEOUS PROVISIONS
10.1 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
10.2 FEES AND EXPENSES. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its Representatives with
respect to the Company's business (and the furnishing of information to Parent
and its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement (including the
Company Disclosure Schedule) and all agreements, certificates, opinions and
other instruments and documents delivered or to be delivered in connection with
the transactions contemplated by this Agreement, (c) the preparation and
submission of any filing or notice required to be made or given in connection
with any of the transactions contemplated by this Agreement, and the obtaining
of any Consent required to be obtained in connection with any of such
transactions, (d) the consummation of the Merger, and (e) the filing of any
required premerger notification and report forms relating to the Merger under
the HSR Act.
10.3 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
10.4 DISCLOSURE SCHEDULE. The Company Disclosure Schedule shall be
arranged in separate parts corresponding to the numbered and lettered sections
contained in the applicable section of this Agreement, and the information
disclosed in any numbered or lettered part shall be deemed to relate to and to
qualify only the particular representation or warranty set forth in the
corresponding numbered or lettered section of the Agreement, and shall not be
deemed to relate to or to qualify any other representation or warranty.
10.5 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Parent: Exchange Applications, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇ ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
if to Merger Sub: GBI Acquisition Corp.
c/o Exchange Applications, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇ ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Company, the ▇▇▇▇ ▇▇▇▇▇▇▇, Inc.
Shareholder or any Investor: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇, #▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Venture Law Group, a Professional Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
10.6 CONFIDENTIALITY. Without limiting the generality of anything
contained in this Agreement, on and at all times after the Closing Date, the
Shareholder and each Investor shall keep confidential, and shall not use or
disclose to any other Person, any non-public document or other non-public
information in such Person's possession that relates to the business of the
Company or Parent.
10.7 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
10.8 HEADINGS. The headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.9 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
10.10 GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the Commonwealth of
Massachusetts (without giving effect to principles of conflicts of laws).
10.11 COOPERATION. The Company agrees to cooperate fully with Parent and
to execute and deliver such further documents, certificates, agreements and
instruments and to take such other actions as may be reasonably requested by
Parent to evidence or reflect the transactions contemplated by this Agreement
and to carry out the intent and purposes of this Agreement.
10.12 LIABILITY. Notwithstanding anything to the contrary in this
Agreement or any of the agreements attached hereto as exhibits (collectively,
the "MERGER AGREEMENTS"), the parties hereto agree that no officer, director,
stockholder or shareholder of any of the parties hereto shall be personally
liable with respect to any of the Merger Agreements or any of the transactions
contemplated thereby, other than with respect to their personal obligations
under the Merger Agreements.
10.13 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); the Shareholder and each
Investor and their respective personal representatives, executors,
administrators, estates, heirs, successors and assigns (if any); Parent and its
successors and assigns (if any); and Merger Sub and its successors and assigns
(if any). This Agreement shall inure to the benefit of: the Company; the
Company's shareholders (to the extent set forth in Section 1.5); the holders of
assumed Company Options (to the extent set forth in Section 1.6); Parent;
Merger Sub; the other Indemnitees (subject to Section 8.7); and the respective
successors and assigns (if any) of the foregoing. Parent may freely assign any
or all of its rights under this Agreement (including its indemnification rights
under Section 8), in whole or in part, to any subsidiary or successor without
obtaining the consent or approval of any other party hereto or of any other
Person.
10.14 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies of
the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus
to enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
10.15 WAIVER.
(A) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy.
(B) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except
in the specific instance in which it is given.
10.16 AMENDMENTS. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of the Company, Parent, Merger Sub and the Shareholder
Representative.
10.17 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.18 PARTIES IN INTEREST. Except for the provisions of Sections 1.5, 1.6
and 8, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
10.19 ENTIRE AGREEMENT. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof; provided, however, that the Non-Disclosure Agreement
executed on behalf of Parent on and the Company on May 21, 1999 shall not be
superseded by this Agreement and shall remain in effect in accordance with its
terms until the earlier of (a) the Effective Time, or (b) the date on which
such Non-Disclosure Agreement is terminated in accordance with its terms.
10.20 CONSTRUCTION.
(A) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(B) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(C) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(D) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
The parties hereto have caused this Agreement to be executed and delivered
as of the date first above written.
EXCHANGE APPLICATIONS, INC.,
a Delaware corporation
By:____________________________________
Printed Name:__________________________
Title:_________________________________
BORLAND ACQUISITION CORP.,
a Washington corporation
By:____________________________________
Printed Name:__________________________
Title:_________________________________
▇▇▇▇ ▇▇▇▇▇▇▇, INC.,
a Washington corporation
By:____________________________________
Printed Name:__________________________
Title:_________________________________
▇▇▇▇ ▇▇▇▇▇▇▇
_______________________________________
Shares of Company Common
Stock Held: 1,600,000
INVESTORS:
MADRONA INVESTMENT GROUP,
LLC
By:____________________________________
Name: ▇▇▇ ▇▇▇▇▇▇
Title: Principal
ARCH VENTURE FUND IV, L.P.
By:____________________________________
Name:
Title: Managing Director
INVESTORS:
_______________________________________
(Print Name of Investor)
By:____________________________________
Name:__________________________________
(Print Name)
Title:_________________________________
Address:_______________________________
LIST OF EXHIBITS
Exhibit A Certain Definitions
Exhibit B Articles of Incorporation of the Surviving Corporation
Exhibit C Directors and Officers of the Surviving Corporation
Exhibit D [Intentionally Deleted]
Exhibit E Form of Release
Exhibit F Form of Investment Representation Letter
Exhibit G Form of Ratification of Employee Agreement (or language to be
inserted in offer letters to that effect)
Exhibit H Form of Opinion of Venture Law Group, a Professional Corporation
Exhibit I Form of Opinion of ▇▇▇▇▇▇▇ ▇▇▇▇ LLP
Exhibit J Escrow Agreement
Exhibit K Company Affiliate Agreement
Exhibit L List of Affiliates Signing Company Affiliate Agreement
Exhibit M Shareholder Letter Regarding HSR
SCHEDULES
Company Disclosure Schedule
Schedule 6.5 - Employees Signing Employee Offer Letters