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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
CROSSROADS SYSTEMS, INC.,
NORTH STAR ACQUISITION CORP.
AND
POLARIS COMMUNICATIONS, INC.
FEBRUARY 3, 2000
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
CROSSROADS SYSTEMS, INC.,
NORTH STAR ACQUISITION CORP.
AND
POLARIS COMMUNICATIONS, INC.
TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER....................................................................... 1
1.1 The Merger............................................................... 1
1.2 Closing; Effective Time.................................................. 2
1.3 Effect of the Merger..................................................... 2
1.4 Articles of Incorporation; Bylaws........................................ 2
1.5 Directors and Officers................................................... 2
1.6 Effect on Capital Stock.................................................. 2
1.7 Surrender of Certificates................................................ 4
1.8 Further Ownership Rights in Target Capital Stock......................... 6
1.9 Lost, Stolen or Destroyed Certificates................................... 6
1.10 Tax Consequences......................................................... 6
1.11 Withholding Rights....................................................... 6
1.12 Taking of Necessary Action; Further Action............................... 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET........................................ 7
2.1 Organization, Standing and Power......................................... 7
2.2 Capitalization........................................................... 8
2.3 Authority................................................................ 9
2.4 Financial Statements..................................................... 9
2.5 Absence of Certain Changes............................................... 10
2.6 Absence of Undisclosed Liabilities....................................... 10
2.7 Litigation............................................................... 10
2.8 Restrictions on Business Activities...................................... 10
2.9 Governmental Authorization............................................... 11
2.10 Title to Property........................................................ 11
2.11 Intellectual Property.................................................... 11
2.12 Environmental Matters.................................................... 13
2.13 Taxes.................................................................... 14
2.14 Employee Benefit Plans................................................... 15
2.15 Certain Agreements Affected by the Merger................................ 17
2.16 Employee Matters......................................................... 17
2.17 Related-Party Transactions............................................... 18
2.18 Insurance................................................................ 18
2.19 Compliance With Laws..................................................... 18
2.20 Minute Books............................................................. 18
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2.21 Complete Copies of Materials............................................. 19
2.22 Brokers' and Finders' Fees............................................... 19
2.23 Target Affiliates........................................................ 19
2.24 Shareholder Agreements; Irrevocable Proxies.............................. 19
2.25 Vote Required............................................................ 19
2.26 Board Approval........................................................... 19
2.27 Inventory................................................................ 19
2.28 Accounts Receivable...................................................... 20
2.29 Customers and Suppliers.................................................. 20
2.30 Material Contracts....................................................... 20
2.31 No Breach of Material Contracts.......................................... 21
2.32 Third Party Consents..................................................... 21
2.33 Export Control Laws...................................................... 22
2.34 Product Releases and Milestones.......................................... 22
2.35 Year 2000................................................................ 22
2.36 Tax Matters.............................................................. 23
2.37 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇........................................................ 23
2.38 Representations Complete................................................. 23
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB...................... 23
3.1 Organization, Standing and Power......................................... 23
3.2 Capitalization........................................................... 23
3.3 Authority................................................................ 23
3.4 SEC Documents; Target Financial Statements............................... 24
3.5 Absence of Undisclosed Liabilities....................................... 25
3.6 Litigation............................................................... 25
3.7 Broker's and Finders' Fees............................................... 25
3.8 Board Approval........................................................... 25
3.9 Tax Matters.............................................................. 25
3.10 Representations Complete................................................. 25
ARTICLE IV CONDUCT OF TARGET PRIOR TO THE EFFECTIVE TIME................................... 26
4.1 Conduct of Business of Target............................................ 26
4.2 Restrictions on Conduct of Business of Target............................ 26
4.3 No Solicitation.......................................................... 29
ARTICLE V ADDITIONAL AGREEMENTS............................................................ 29
5.1 Shareholder Approval..................................................... 29
5.2 Access to Information.................................................... 29
5.3 Confidentiality.......................................................... 30
5.4 Public Disclosure........................................................ 30
5.5 Consents; Cooperation.................................................... 30
5.6 Shareholder Agreements; Irrevocable Proxies.............................. 31
5.7 Legal Requirements....................................................... 31
5.8 Blue Sky Laws............................................................ 31
5.9 Employee Benefit Plans................................................... 31
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5.10 Escrow Agreement......................................................... 32
5.11 Listing of Additional Shares............................................. 32
5.12 Employees................................................................ 32
5.13 Expenses................................................................. 32
5.14 Treatment as Reorganization.............................................. 32
5.15 Further Assurances....................................................... 33
5.16 [Intentionally omitted].................................................. 33
5.17 [Intentionally omitted].................................................. 33
5.18 Fairness Hearing......................................................... 33
5.19 Stock Option Grants...................................................... 33
5.20 Delivery of Financial Statements......................................... 33
5.21 Spreadsheet.............................................................. 33
ARTICLE VI CONDITIONS TO THE MERGER........................................................ 34
6.1 Conditions to Obligations of Each Party to Effect the Merger............. 34
6.2 Additional Conditions to Obligations of Target........................... 35
6.3 Additional Conditions to the Obligations of Acquiror and Merger Sub...... 35
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.............................................. 37
7.1 Termination.............................................................. 37
7.2 Effect of Termination.................................................... 39
7.3 Expenses and Termination Fees............................................ 39
7.4 Amendment................................................................ 40
7.5 Extension; Waiver........................................................ 40
ARTICLE VIII ESCROW AND INDEMNIFICATION.................................................... 40
8.1 Escrow Fund.............................................................. 40
8.2 Indemnification.......................................................... 40
8.3 Damage Threshold......................................................... 41
8.4 Escrow Period............................................................ 41
8.5 Claims upon Escrow Fund.................................................. 42
8.6 Objections to Claims..................................................... 42
8.7 Resolution of Conflicts; Arbitration..................................... 43
8.8 Shareholders' Representative............................................. 43
8.9 Actions of the Shareholders' Representative.............................. 44
8.10 Third-Party Claims....................................................... 44
ARTICLE IX GENERAL PROVISIONS.............................................................. 45
9.1 Non-Survival at Effective Time........................................... 45
9.2 Notices.................................................................. 45
9.3 Interpretation........................................................... 46
9.4 Counterparts............................................................. 46
9.5 Entire Agreement; Non-Assignability; Parties in Interest................. 46
9.6 Severability............................................................. 46
9.7 Remedies Cumulative...................................................... 47
9.8 Governing Law............................................................ 47
9.9 Rules of Construction.................................................... 47
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SCHEDULES AND EXHIBITS
TO
AGREEMENT AND PLAN
OF
MERGER AND REORGANIZATION
SCHEDULES
Schedule II - Target Disclosure Schedule
Schedule 2.1 - Target Qualifications and Target Subsidiaries
Schedule 2.2 - Target Securityholders
Schedule 2.7 - Target Litigation
Schedule 2.10 - Target Real Property
Schedule 2.11 - Target Intellectual Property
Schedule 2.14 - Target Employee Plans
Schedule 2.18 - Target Insurance
Schedule 2.23 - Target Affiliates
Schedule 2.30 - List of Material Contracts
Schedule 2.32 - Third Party Consents
Schedule 2.34 - Product Releases and Milestones
Acquiror Disclosure Schedule
Schedule 5.9(a) - Holders of Outstanding Target Options
Schedule 5.12 - List of Employees
Schedule 5.19 - Option Grants
EXHIBITS
Exhibit A - Form of Articles of Merger
Exhibit B - [Omitted]
Exhibit C - Form of Shareholder and Voting Agreement
Exhibit D - Confidentiality Agreement
Exhibit E - Form of Escrow Agreement
Exhibit F - Form of Acquiror's Legal Opinion
Exhibit G - Form of Registration Rights Agreement
Exhibit H - [Omitted]
Exhibit I - Form of Target's Legal Opinion
Exhibit J - Form of FIRPTA Notice
Exhibit K - Form of Indemnification Agreement
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement") is made and entered into as of February 3, 2000, by and among
Crossroads Systems, Inc., a Delaware corporation ("Acquiror"), North Star
Acquisition Corp., an Oregon corporation and a wholly-owned subsidiary of
Acquiror ("Merger Sub"), and Polaris Communications, Inc., an Oregon corporation
("Target").
RECITALS:
A. The Boards of Directors of Acquiror, Target and Merger Sub believe
it is in the best interests of their respective companies and the stockholders
and shareholders of their respective companies that Target and Merger Sub
combine into a single company through the statutory merger of Merger Sub with
and into Target (the "Merger") and, in furtherance thereof, have approved the
Merger.
B. Pursuant to the Merger, among other things, each outstanding share
of the Common Stock, no par value, of Target ("Target Common Stock") shall be
converted into the right to receive shares of the Common Stock, par value $0.001
per share, of Acquiror ("Acquiror Common Stock"), at the rate set forth herein.
C. Target, Acquiror and Merger Sub desire to make certain
representations, warranties, covenants and other agreements in connection with
the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a) of the Code.
E. As an inducement to Acquiror to enter into this Agreement, the
officers and directors and certain of the shareholders of Target have previously
entered into an agreement to, among other things, vote the shares of Target's
Capital Stock owned by such person to approve the Merger.
AGREEMENT:
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the Articles of
Merger attached hereto as Exhibit A (the "Articles of Merger") and the
applicable provisions of the Oregon Business Corporation Act ("Oregon Law"),
Merger Sub shall be merged with and into Target, the separate corporate
existence of Merger Sub shall cease and Target shall continue as the surviving
corporation. Target as the surviving
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corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Article
VI hereof or at such other time as the parties hereto agree. The Closing shall
take place at the offices of ▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇, or at such other location as the parties
hereto agree. In connection with the Closing, the parties hereto shall cause the
Merger to be consummated by filing the Articles of Merger with the Secretary of
State of the State of Oregon, in accordance with the relevant provisions of
Oregon Law (the time of such filing with the Secretary of State of Oregon being
the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Articles of Merger and the
applicable provisions of Oregon Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Target and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the Articles of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by Oregon Law and such Articles of Incorporation; provided that
Article I of such Articles of Incorporation of Merger Sub shall be amended to
read as follows: "The name of the corporation is Crossroads Systems (Oregon),
Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. At the Effective Time, the directors of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
directors of the Surviving Corporation, until their respective successors are
duly elected or appointed and qualified. The officers of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the officers of the
Surviving Corporation, until their respective successors are duly elected or
appointed and qualified.
1.6 Effect on Capital Stock. By virtue of the Merger and without any
action on the part of Acquiror, Target or the holders of any of Target's
securities:
(a) Target Common Stock. At the Effective Time, and subject to
subparagraph (c) below, each share of Target Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares, if any, held by
persons who have not voted such shares for approval of the Merger and have
perfected dissenters' rights in accordance with Oregon Law ("Dissenting Shares")
and any treasury shares) shall be converted into and exchanged for the right to
receive such number of shares of Acquiror Common Stock as is equal to the
Exchange Ratio (as defined below). Each share of Target Common Stock issued and
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outstanding immediately prior to the Effective Time that is restricted or not
fully vested shall upon such conversion and exchange have the same restrictions
or vesting arrangements applicable to such shares prior to the conversion. The
"Exchange Ratio" shall be equal to the number (expressed to four decimal places)
obtained by dividing (i) 450,000 (the "Total Acquiror Shares") by (ii) the Total
Target Shares (as defined below). The "Total Target Shares" shall be equal to
the sum of (i) 1,905 (the number of shares of Target Common Stock outstanding on
the date hereof), plus (ii) 95 (the number of shares of Target Common Stock
issuable upon the exercise of options or warrants or other rights (each, a
"Target Option") to acquire Target Common Stock outstanding as the date hereof),
plus (iii) a number equal to (A) the number of shares of Target Common Stock
issuable upon the exercise of Target Options (if any) issued after the date
hereof and outstanding at the Effective Time and (B) the number of shares of
Target Common Stock (if any) issued after the date hereof and outstanding at the
Effective Time (provided that any such issuance shall be subject to the
restrictions imposed herein). The Final Exchange Ratio shall be set forth as a
certificate agreed to by the parties prior to Closing.
(b) Target Options. At the Effective Time, each Target Option
granted and outstanding immediately prior to the Effective Time shall be assumed
by Acquiror in accordance with Section 5.9 and thereafter shall constitute the
right to receive options to purchase such number of shares of Acquiror Common
Stock as shall be determined as follows: (i) such option will be exercisable for
that number of whole shares of Acquiror Common Stock equal to the product of the
number of shares of Target Common Stock that were issuable upon exercise of such
option immediately prior to the Effective Time multiplied by the Exchange Ratio
and rounded down to the nearest whole number of shares of Acquiror Common Stock,
and (ii) the per share exercise price for the shares of Acquiror Common Stock
issuable upon exercise of such assumed option will be equal to the quotient
determined by dividing the exercise price per share of Target Common Stock at
which such option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent.
(c) Cancellation of Target Capital Stock Owned by Target. At the
Effective Time, all shares of Target Capital Stock that are authorized but
unissued, and each share of Target Capital Stock owned by any direct or indirect
wholly-owned subsidiary of Target immediately prior to the Effective Time shall
be canceled and extinguished without any conversion thereof.
(d) Capital Stock of Merger Sub. At the Effective Time, each
share of common stock of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock of the Surviving Corporation,
and the Surviving Corporation shall be a wholly-owned subsidiary of Acquiror.
Each stock certificate of Merger Sub evidencing ownership of any such shares
shall continue to evidence ownership of such shares of capital stock of the
Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Acquiror Common Stock or Target Capital Stock), reorganization, recapitalization
or other like change with respect to Acquiror Common Stock or Target Capital
Stock occurring after the date hereof and prior to the Effective Time.
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(f) Fractional Shares. No fraction of a share of Acquiror Common
Stock will be issued, but in lieu thereof each holder of shares of Target
Capital Stock who would otherwise be entitled to a fraction of a share of
Acquiror Common Stock (after aggregating all fractional shares of Acquiror
Common Stock to be received by such holder) shall receive from Acquiror an
amount of cash (rounded to the nearest whole cent, with 0.5 being rounded up)
equal to the product of (i) such fraction, multiplied by (ii) the average of the
closing prices for a share of Acquiror Common Stock as quoted in the Nasdaq
National Market for the ten (10) trading days immediately preceding and ending
on the trading day that is three (3) calendar days prior to the Effective Time
(or if such day is not a trading day, the first preceding trading day).
(g) Dissenters' Rights. Any Dissenting Shares shall not be
converted into Acquiror Common Stock but shall instead be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to Oregon Law. Target agrees that, except
with the prior written consent of Acquiror, or as required under Oregon Law, it
will not voluntarily make any payment with respect to, or settle or offer to
settle, any such purchase demand. Each holder of Dissenting Shares ("Dissenting
Shareholder") who, pursuant to the provisions of Oregon Law, becomes entitled to
payment of the fair value for shares of Target Capital Stock shall receive
payment therefor (but only after the value therefor shall have been agreed upon
or finally determined pursuant to such provisions). If, after the Effective
Time, any Dissenting Shares shall lose their status as Dissenting Shares,
Acquiror shall issue and deliver, upon surrender by such shareholder of
certificate or certificates representing shares of Target Capital Stock, the
number of shares of Acquiror Common Stock to which such shareholder would
otherwise be entitled under this Section 1.6 and the Articles of Merger less the
number of shares allocable to such shareholder that have been deposited in the
Escrow Fund (as defined below) in respect of such shares of Acquiror Common
Stock pursuant to Section 1.7(c) and Article VIII hereof.
1.7 Surrender of Certificates.
(a) Exchange Agent. Acquiror's transfer agent shall act as
exchange agent (the "Exchange Agent") in the Merger.
(b) Acquiror to Provide Common Stock and Cash. Within five (5)
days after the Effective Time, and in any event subject to Acquiror's receiving
the Spreadsheet (as such term is defined in Section 5.21 below), Acquiror shall
make available to the Exchange Agent for exchange in accordance with this
Article I, through such reasonable procedures as Acquiror may adopt, (i) the
shares of Acquiror Common Stock issuable pursuant to Section 1.6(a) in exchange
for shares of Target Capital Stock outstanding immediately prior to the
Effective Time less the number of shares of Acquiror Common Stock to be
deposited into an escrow fund (the "Escrow Fund") pursuant to the requirements
of Article VIII and (ii) cash in an amount sufficient to permit payment of cash
in lieu of fractional shares pursuant to Section 1.6(f).
(c) Exchange Procedures. Promptly after the Effective Time, and
in any event subject to Acquiror's receiving the Spreadsheet (as such term is
defined in Section 5.21 hereof), Acquiror shall cause to be mailed to each
holder of record of a certificate or certificates (the "Certificates") which
immediately prior to the Effective Time represented
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outstanding shares of Target Capital Stock, whose shares were converted into the
right to receive shares of Acquiror Common Stock (and cash in lieu of fractional
shares) pursuant to Section 1.6, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon receipt of the Certificates by the Exchange
Agent, and shall be in such form and have such other provisions as Acquiror may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates (or book entries in the case of
shares that have not yet vested) representing shares of Acquiror Common Stock
(and cash in lieu of fractional shares). Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Acquiror, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holder of
such Certificate shall be entitled to receive in exchange therefor a certificate
(or a book entry in the case of shares that have not yet vested in full)
representing the number of whole shares of Acquiror Common Stock less the number
of shares of Acquiror Common Stock to be deposited in the Escrow Fund on such
holder's behalf pursuant to Article VIII hereof and payment in lieu of
fractional shares which such holder has the right to receive pursuant to Section
1.6, and the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Target Capital Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of Acquiror Common Stock
into which such shares of Target Capital Stock shall have been so converted and
the right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6. As soon as practicable after the
Effective Time, and subject to and in accordance with the provisions of Article
VIII hereof, Acquiror shall cause to be distributed to the Escrow Agent (as
defined in Article VIII hereof) a certificate or certificates representing ten
percent (10%), or 45,000 (the "Escrow Shares") of the Total Acquiror Shares,
which shall be registered in the name of the Escrow Agent as nominee for the
holders of Certificates cancelled pursuant to this Section 1.7. The Escrow
Shares shall be vested shares not subject to any repurchase rights, shall be
held in escrow and shall be available to compensate Acquiror for certain damages
as provided in Article VIII. To the extent not used for such purposes, such
shares shall be released, all as provided in Article VIII hereof.
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions with respect to Acquiror Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Acquiror Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of any such dividends or other distributions with a record date after the
Effective Time theretofore payable (but for the provisions of this Section
1.7(d)) with respect to such shares of Acquiror Common Stock.
(e) Transfers of Ownership. If any certificate for shares of
Acquiror Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or any agent designated by
it any
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transfer or other taxes required by reason of the issuance of a certificate for
shares of Acquiror Common Stock in any name other than that of the registered
holder of the Certificate surrendered, or established to the satisfaction of
Acquiror or any agent designated by it that such tax has been paid or is not
payable.
(f) No Liability. Notwithstanding anything to the contrary in
this Section 1.7, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(g) Dissenting Shares. The provisions of this Section 1.7 shall
also apply to Dissenting Shares that lose their status as such, except that the
obligations of Acquiror under this Section 1.7 shall commence on the date of
loss of such status and the holder of such shares shall be entitled to receive
in exchange for such shares the number of shares of Acquiror Common Stock and
cash in lieu of any fractional shares to which such holder is entitled pursuant
to Section 1.6 hereof.
1.8 Further Ownership Rights in Target Capital Stock. All shares of
Acquiror Common Stock issued upon the surrender for exchange of shares of Target
Capital Stock in accordance with the terms hereof (including any cash paid in
lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Target Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Target Capital Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of
Acquiror Common Stock (and cash in lieu of fractional shares) as may be required
pursuant to Section 1.6; provided, however, that Acquiror may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity or an indemnification agreement in form and
substance to Acquiror's satisfaction against any claim that may be made against
Acquiror, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code.
1.11 Withholding Rights. Acquiror and the Surviving Corporation shall
be entitled to deduct and withhold from the number of shares of Acquiror Common
Stock otherwise deliverable under this Agreement, and from any other payments
made pursuant to this Agreement, such amounts as Acquiror and the Surviving
Corporation are required to deduct and withhold with respect to such delivery
and payment under the Code or any provision of state, local, provincial or
foreign tax law. To the extent that amounts are so withheld, such withheld
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amounts shall be treated for all purposes of this Agreement as having been
delivered and paid to the holder of shares of Target Common Stock in respect of
which such deduction and withholding was made by Acquiror and the Surviving
Corporation.
1.12 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Target and the Surviving Corporation, the officers and
directors of Target and the Surviving Corporation are fully authorized in the
name of their respective corporations or otherwise to take, and will take, all
such lawful and necessary action, so long as such action is not inconsistent
with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the condition (financial or otherwise),
properties, assets, liabilities, business, operations or results of operations
of such entity and its subsidiaries, taken as a whole.
In this Agreement, any reference to a party's "knowledge" means actual
knowledge of such party's officers and directors, provided that such persons
shall have made due and diligent inquiry of those employees of such party whom
such officers and directors reasonably believe would have actual knowledge of
the matters represented.
Except as disclosed in the Disclosure Schedule of Target attached
hereto as Schedule II (the "Target Disclosure Schedule") to this Agreement,
delivered by Target to Acquiror prior to the execution and delivery of this
Agreement, corresponding to the Section of this Agreement to which any of the
following representations and warranties specifically relate, Target represents
and warrants to Acquiror as follows:
2.1 Organization, Standing and Power. Each of Target and its
subsidiaries is a corporation duly organized, validly existing and in good
standing (which for purposes of Oregon law shall mean that it has filed its
annual report pursuant to ORS 60.787 for the year ended on the date of the most
recent anniversary of its incorporation and has paid the fee required to be paid
in connection therewith) under the laws of its jurisdiction of organization.
Schedule 2.1 to the Target Disclosure Schedule lists each jurisdiction in which
Target or any subsidiary is qualified to do business. Each of Target and its
subsidiaries has the corporate power to own its properties and to carry on its
business as now being conducted and as currently proposed to be conducted and is
duly qualified to do business and is in good standing in each jurisdiction
specified on Schedule 2.1 and in each jurisdiction in which the failure to be so
qualified and in good standing would have a Material Adverse Effect on Target.
Target has delivered a true and correct copy of the Articles of Incorporation
and Bylaws or other charter documents, as
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applicable, of Target and each of its subsidiaries, each as amended to date, to
Acquiror. Neither Target nor any of its subsidiaries is in violation of any of
the provisions of its Articles of Incorporation or Bylaws or equivalent
organizational documents. Target is the owner of all outstanding shares of
capital stock of each of its subsidiaries set forth in Schedule 2.1 to the
Target Disclosure Schedule and all such shares are duly authorized, validly
issued, fully paid and nonassessable. All of the outstanding shares of capital
stock of each such subsidiary are owned by Target free and clear of all liens,
charges, claims or encumbrances or rights of others. There are no outstanding
subscriptions, options, warrants, puts, calls, rights, exchangeable or
convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock or other securities of any such
subsidiary, or otherwise obligating Target or any such subsidiary to issue,
transfer, sell, purchase, redeem or otherwise acquire any such subsidiary
securities. Target does not directly or indirectly own any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
2.2 Capitalization. The authorized capital stock of Target consists of
4,000 shares of Target Common Stock, without par value. There are issued and
outstanding 1,905 shares of Common Stock, and no shares of Preferred Stock.
There are no other outstanding shares of capital stock or voting securities and
no outstanding commitments to issue any shares of capital stock or voting
securities, other than pursuant to the exercise of options outstanding as of
such date under the Target Options. Attached to or as set forth in Schedule 2.2
to the Target Disclosure Schedule is a true and correct list of Target's
shareholders and any persons with rights to acquire Target securities, which
list will be promptly updated from time to time prior to Closing to reflect any
changes thereto (which changes are in any event subject to the restrictions
imposed under Section 4.2 below). All outstanding shares of Target Capital Stock
are duly authorized, validly issued, fully paid and non-assessable and are free
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof, and are not subject to preemptive rights or
rights of first refusal created by statute, the Articles of Incorporation or
Bylaws of Target or any agreement to which Target is a party or by which it is
bound. Target has reserved 95 shares of Target Common Stock for issuance to
employees and consultants pursuant to outstanding non-qualified stock options of
which no shares have been issued pursuant to option exercises or direct stock
purchases, and 95 shares are subject to outstanding, unexercised options. Except
for (i) the rights created pursuant to this Agreement and (ii) Target's right to
repurchase any unvested shares under the Target Options, there are no other
options, warrants, calls, rights, commitments or agreements of any character to
which Target is a party or by which it is bound obligating Target to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of capital stock of Target or obligating
Target to grant, extend, change the price of, or otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. Except for the
agreements contemplated by this Agreement, there are no contracts, commitments
or agreements relating to voting, purchase or sale of Target's capital stock (i)
between or among Target and any of its securityholders or (ii) to Target's
knowledge, between or among any of Target's securityholders. The terms of the
Target Options and the applicable stock option agreements permit the assumption
or substitution of options to purchase Acquiror Common Stock as provided in this
Agreement, without the consent or approval of the holders of such securities,
the Target shareholders, or otherwise. Vesting on all outstanding Target Options
will accelerate in full upon the Closing of the Merger. True and complete copies
of all agreements
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and instruments relating to the Target Options have been provided to Acquiror
and such agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments in any case from the form provided to Acquiror. All
outstanding shares of Target Common Stock were issued in compliance with all
applicable federal and state securities laws.
2.3 Authority. Target has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Target. This Agreement, has been duly
executed and delivered by Target and constitutes the valid and binding
obligation of Target enforceable against Target in accordance with its terms.
The execution and delivery of this Agreement by Target does not, and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (i)
any provision of the Articles of Incorporation or Bylaws of Target or any of its
subsidiaries, as amended, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Target
or any of its subsidiaries or any of their properties or assets. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality ("Governmental Entity") is required by or with
respect to Target or any of its subsidiaries in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby or thereby, except for (i) the filing of the Articles of
Merger, together with the required officers' certificates, as provided in
Section 1.2; (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the securities laws of any foreign country, including
the fairness hearing contemplated by Section 5.18 below; and (iii) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not have a Material Adverse Effect on Target and would
not prevent, or materially alter or delay any of the transactions contemplated
by this Agreement.
2.4 Financial Statements. Target has delivered to Acquiror its audited
financial statements as of December 31, 1997 and 1998 and for each of the two
years in the period ended December 31, 1998 and its unaudited financial
statements (balance sheet and statement of operations) as at and for the
ten-month period ended October 31, 1999 (the "Target Financial Statements"). The
Target Financial Statements have been prepared in accordance with generally
accepted accounting principles (except that the unaudited financial statements
do not have notes thereto or any of normal year-end adjustments) applied on a
consistent basis throughout the periods indicated and with each other. The
Target Financial Statements fairly present the financial condition and operating
results of Target as of the dates, and for the periods, indicated therein,
subject, with respect to the unaudited Target Financial Statements, to normal
year-end audit adjustments. Target maintains and will continue to maintain an
adequate system of internal controls established and administered in accordance
with generally accepted accounting principles.
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2.5 Absence of Certain Changes. Since October 31, 1999 (the "Target
Balance Sheet Date"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect to Target;
(ii) any acquisition, sale or transfer of any material asset of Target or any of
its subsidiaries; (iii) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by Target or any
revaluation by Target of any of its or any of its subsidiaries' assets; (iv) any
declaration, setting aside, or payment of a dividend or other distribution with
respect to the shares of Target, or any direct or indirect redemption, purchase
or other acquisition by Target of any of its shares of capital stock, other than
repurchases of stock as a result of termination of employees in accordance with
the Target Options; (v) any material contract entered into by Target or any of
its subsidiaries, or any material amendment or termination of, or default under,
any material contract to which Target or any of its subsidiaries is a party or
by which it is bound; (vi) any amendment or change to the Articles of
Incorporation or Bylaws of Target; (vii) any increase in or modification of the
compensation or benefits payable or to become payable by Target to any of its
directors or employees; or (viii) any negotiation or agreement by Target or any
of its subsidiaries to do any of the things described in the preceding clauses
(i) through (vii) (other than negotiations with Acquiror and its representatives
regarding the transactions contemplated by this Agreement).
2.6 Absence of Undisclosed Liabilities. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet included in the Target Financial Statements as of the Target
Balance Sheet Date (the "Target Balance Sheet"); (ii) those incurred in the
ordinary course of business and not required to be set forth in the Target
Balance Sheet under generally accepted accounting principles; (iii) those
incurred in the ordinary course of business since the Target Balance Sheet Date
and consistent with past practice; and (iv) those incurred in connection with
the execution of this Agreement.
2.7 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target or any of its
subsidiaries, threatened against Target or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such). There is no judgment, decree or order against Target
or any of its subsidiaries, or, to the knowledge of Target and its subsidiaries,
any of their respective directors or officers (in their capacities as such),
that could prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Material Adverse Effect on Target. Schedule 2.7 to the Target Disclosure
Schedule lists any litigation, potential litigation, or any other such
proceeding or possible proceeding described above.
2.8 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Target or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or impairing any current or future business practice of Target or
any of its subsidiaries, any acquisition of property by Target or any of its
subsidiaries or the conduct of business by Target or any of its subsidiaries as
currently conducted or as proposed to be conducted by Target or any of its
subsidiaries.
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2.9 Governmental Authorization. Target and each of its subsidiaries
have obtained each federal, state, county, local or foreign governmental
consent, license, permit, grant, or other authorization of a Governmental Entity
(i) pursuant to which Target or any of its subsidiaries currently operates or
holds any interest in any of its properties or (ii) that is required for the
operation of Target's or any of its subsidiaries' business or the holding of any
such interest ((i) and (ii) herein collectively called "Target Authorizations"),
and all of such Target Authorizations are in full force and effect, except where
the failure to obtain or have any such Target Authorizations could not
reasonably be expected to have a Material Adverse Effect on Target.
2.10 Title to Property. Target and its subsidiaries have good and
marketable title to all of their respective properties, interests in properties
and assets, real and personal, reflected in the Target Balance Sheet or acquired
after the Target Balance Sheet Date (except properties, interests in properties
and assets sold or otherwise disposed of since the Target Balance Sheet Date in
the ordinary course of business), or with respect to leased properties and
assets, valid leasehold interests in, free and clear of all mortgages, liens,
pledges, charges or encumbrances of any kind or character, except (i) the lien
of current taxes and other charges set forth on Schedule 2.10 to the Target
Disclosure Schedule that are not yet due and payable, (ii) such imperfections of
title, liens and easements as do not and will not materially detract from or
interfere with the use of the properties subject thereto or affected thereby, or
otherwise materially impair business operations involving such properties and
(iii) liens securing debt which is reflected on the Target Balance Sheet. The
plants, property and equipment of Target and its subsidiaries that are used in
the operations of their businesses are in good operating condition and repair,
subject to normal wear and tear. All properties used in the operations of Target
and its subsidiaries are reflected in the Target Balance Sheet to the extent
generally accepted accounting principles require the same to be reflected.
Schedule 2.10 to the Target Disclosure Schedule identifies each parcel of real
property owned or leased by Target or any of its subsidiaries.
2.11 Intellectual Property.
(a) Target and its subsidiaries own, or are licensed or otherwise
possess legally enforceable rights to use all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, mask works, net lists,
schematics, technology, know-how, trade secrets, inventions, ideas, algorithms,
processes, computer software programs or applications (in source code and/or
object code form), and tangible or intangible proprietary information or
material ("Intellectual Property") that are used or proposed to be used in the
business of Target and its subsidiaries as currently conducted or as proposed to
be conducted by Target and its subsidiaries. Target has not (i) licensed any of
its Intellectual Property in source code form to any party or (ii) entered into
any exclusive agreements relating to its Intellectual Property with any party.
(b) Schedule 2.11 to the Target Disclosure Schedule lists: (i)
all patents and patent applications and all registered and unregistered
trademarks, trade names and service marks, registered and unregistered
copyrights, and mask works, included in the Intellectual Property, including the
jurisdictions in which each such Intellectual Property right has been issued or
registered or in which any application for such issuance and registration has
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been filed; (ii) all licenses, sublicenses and other agreements as to which
Target is a party and pursuant to which any person is authorized to use any
Intellectual Property; and (iii) all licenses, sublicenses and other agreements
as to which Target is a party and pursuant to which Target is authorized to use
any third party patents, trademarks or copyrights, including software ("Third
Party Intellectual Property Rights"), which are incorporated in, are, or form a
part of any Target product.
(c) There is no unauthorized use, disclosure, infringement or
misappropriation of any Intellectual Property rights of Target or any of its
subsidiaries, or any Third Party Intellectual Property Rights, by any third
party, including any employee or former employee of Target or any of its
subsidiaries. Neither Target nor any of its subsidiaries has entered into any
agreement to indemnify any other person against any charge of infringement of
any Intellectual Property, other than indemnification provisions contained in
purchase orders or license agreements arising in the ordinary course of
business.
(d) Target is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement relating to
the Intellectual Property or Third Party Intellectual Property Rights.
(e) All patents, registered trademarks, service marks and
copyrights held by Target are valid and subsisting. Target has not been sued in
any suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party. The manufacturing, marketing,
licensing or sale of Target's products do not infringe any patent, trademark,
service ▇▇▇▇, copyright, trade secret or other proprietary right of any third
party. Target has not brought any action, suit or proceeding for infringement of
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party.
(f) Target has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that Target does not
already own by operation of law.
(g) Target has taken all necessary and appropriate steps to
protect and preserve the confidentiality of all Intellectual Property not
otherwise protected by patents, patent applications or copyright ("Confidential
Information"). All use, disclosure or appropriation of Confidential Information
owned by Target by or to a third party has been pursuant to the terms of a
written agreement between Target and such third party. All use, disclosure or
appropriation of Confidential Information not owned by Target has been pursuant
to the terms of a written agreement between Target and the owner of such
Confidential Information, or is otherwise lawful.
(h) Except as set forth on Schedule 2.11 to the Target Disclosure
Schedule, there are no actions that must be taken by Target or any subsidiary
within sixty (60) days of the Closing that, if not taken, will result in the
loss of any Intellectual Property, including the payment of any registration,
maintenance or renewal fees or the filing of any responses to
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PTO office actions, documents, applications or certificates for the purposes of
obtaining, maintaining, perfecting or preserving or renewing any Intellectual
Property.
2.12 Environmental Matters.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal,
state or local laws, ordinances, codes, regulations, rules, policies
and orders that are intended to assure the protection of the
environment, or that classify, regulate, call for the remediation of,
require reporting with respect to, or list or define air, water,
groundwater, solid waste, hazardous or toxic substances, materials,
wastes, pollutants or contaminants, or which are intended to assure
the safety of employees, workers or other persons, including the
public.
(ii) "Hazardous Materials" shall mean any toxic or hazardous
substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without
limitation, those substances, materials and wastes defined in or
regulated under any Environmental and Safety Laws.
(iii) "Property" shall mean all real property leased or
owned by Target or its subsidiaries either currently or in the past.
(iv) "Facilities" shall mean all buildings and improvements
on the Property of Target or its subsidiaries.
(b) Target represents and warrants as follows: (i) to Target's
knowledge, no methylene chloride or asbestos is contained in or has been used at
or released from the Facilities; (ii) to Target's knowledge, all Hazardous
Materials and wastes have been disposed of in accordance with all Environmental
and Safety Laws; and (iii) Target and its subsidiaries have received no notice
(applicable verbal or written) of any noncompliance of the Facilities or its
past or present operations with Environmental and Safety Laws; (iv) no notices,
administrative actions or suits are pending or threatened relating to a
violation of any Environmental and Safety Laws; (v) neither Target nor its
subsidiaries are a potentially responsible party under the federal Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), or state analog
statute, arising out of events occurring prior to the Closing; (vi) to the
knowledge of Target, there have not been in the past, and are not now, any
Hazardous Materials on, under or migrating to or from the Facilities or
Property, except as are present in full compliance with all Environmental and
Safety Laws or in amounts otherwise permitted in this subsection (b); (vii) to
the knowledge of Target, there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under the Property
including without limitation, treatment or storage tanks, sumps, or water, gas
or oil ▇▇▇▇▇; (viii) to the knowledge of Target, there are no polychlorinated
biphenyls (PCBs) deposited, stored, disposed of or located on the Property or
Facilities or any equipment on the Property containing PCBs at levels in excess
of 50 parts per million; (ix) to Target's knowledge, there is no formaldehyde on
the Property or in the Facilities, nor any insulating material containing urea
formaldehyde in the Facilities; (x) Target's and its subsidiaries uses and
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activities in the Facilities and, to Target's knowledge, the Facilities have at
all times complied with all Environmental and Safety Laws; and (xi) Target and
its subsidiaries have all the permits and licenses required to be issued under
Federal, State or local laws regarding Environmental and Safety Laws and are in
full compliance with the terms and conditions of those permits.
2.13 Taxes. Target and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax (as defined below) purposes of
which Target or any of its subsidiaries is or has been a member, have timely
filed all Tax Returns (as defined below) required to be filed by them and have
paid all Taxes shown thereon to be due. Such Tax Returns are true, correct and
complete in all material respects. Target has provided adequate accruals in
accordance with generally accepted accounting principles in its Target Financial
Statements for any Taxes that have not been paid, whether or not shown as being
due on any Tax Returns. Target has no material liability for unpaid Taxes
accruing after the date of its latest Target Financial Statements except for
Taxes incurred in the ordinary course subsequent to the Target Balance Sheet
Date. There is (i) no material claim for Taxes that is a lien against the
property of Target or any of its subsidiaries or is being asserted against
Target or any of its subsidiaries other than liens for Taxes not yet due and
payable; (ii) no audit of any Tax Return of Target or any of its subsidiaries
being conducted by a Tax Authority; (iii) no extension of the statute of
limitations on the assessment of any Taxes granted by Target or any of its
subsidiaries and currently in effect; and (iv) no agreement, contract or
arrangement to which Target or any of its subsidiaries is a party that may
result in the payment of any amount that would not be deductible by reason of
Section 280G or Section 404 of the Code. Target has not been and will not be
required to include any material 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 Merger.
Neither Target nor any of its subsidiaries has filed or will file any consent to
have the provisions of paragraph 341(f)(2) of the Code (or comparable provisions
of any state Tax laws) apply to Target or any of its subsidiaries. Neither
Target nor any of its subsidiaries is a party to any Tax sharing or Tax
allocation agreement nor does Target or any of its subsidiaries have any
liability or potential liability to another party under any such agreement.
Neither Target nor any of its subsidiaries has filed any disclosures under
Section 6662 of the Code or comparable provisions of state, local or foreign law
to prevent the imposition of penalties with respect to any Tax reporting
position taken on any Tax Return. Neither Target nor any of its subsidiaries has
ever been a member of a consolidated, combined or unitary group of which Target
was not the ultimate parent corporation. For purposes of this Agreement, the
following terms have the following meanings: "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") means (i) any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any governmental entity (a "Tax
Authority") responsible for the imposition of any such tax (domestic or
foreign), (ii) any liability for the payment of any amounts of the type
described in (i) as a result of being a member of an affiliated, consolidated,
combined or unitary group for any Taxable period, and (iii) any liability for
the payment of any amounts of the type described in (i) or (ii) as a result of
being a transferee of or successor to any person or as a result of any express
or implied obligation to indemnify any other person. As used
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herein, "Tax Return" shall mean any return, statement, report or form
(including, without limitation, estimated tax returns and reports, withholding
tax returns and reports and information reports and returns) required to be
filed with respect to Taxes. Target and each of its subsidiaries have in their
possession receipts for any Taxes paid to foreign Tax authorities. Neither
Target nor any of its subsidiaries has ever been a "United States real property
holding corporation" within the meaning of Section 897 of the Code.
2.14 Employee Benefit Plans.
(a) Schedule 2.14 to the Target Disclosure Schedule lists, with
respect to Target, any subsidiary of Target and any trade or business (whether
or not incorporated) which is treated as a single employer with Target (an
"ERISA Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the
Code: (i) all material employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (ii) each
loan to a non-officer employee in excess of $10,000, loans to officers and
directors and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical, medical,
dental, vision care, disability, employee relocation, cafeteria benefit (Code
Section 125) or dependent care (Code Section 129), life insurance or accident
insurance plans, programs or arrangements; (iii) all bonus, pension, profit
sharing, savings, deferred compensation or incentive plans, programs or
arrangements; (iv) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of Target and that do not generally
apply to all employees; and (v) any current or former employment or executive
compensation or severance agreements, written or otherwise, as to which
unsatisfied obligations of Target of greater than $5,000 remain for the benefit
of, or relating to, any present or former employee, consultant or director of
Target (the items in clauses (i) through (v) being referred to as the "Target
Employee Plans").
(b) Target has furnished to Acquiror a copy of each of the Target
Employee Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and any material employee communications relating
thereto) and has, with respect to each Target Employee Plan which is subject to
ERISA reporting requirements, provided copies of the Form 5500 reports filed for
the last three plan years. Schedule 2.14(b) to the Target Disclosure Schedule
contains an accurate description of all terms of any unwritten Target Employee
Plan, including, but not limited to, Target's Simplified Employee Pension Plan
(the "Target SEP Plan"). Any Target Employee Plan intended to be qualified under
Section 401(a) of the Code has either obtained from the Internal Revenue Service
a favorable determination letter as to its qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation, or has applied (or has time remaining in which to apply)
to the Internal Revenue Service for such a determination letter prior to the
expiration of the requisite period under applicable U.S. Department of 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 or has been established under a standardized prototype
plan for which an Internal Revenue Service opinion letter has been obtained by
the plan sponsor and is valid as to the adopting employer. Target has also
furnished Acquiror with the most recent Internal Revenue Service determination
or opinion letter issued with respect to each such Target Employee Plan, and
nothing has occurred since the issuance of
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each such letter which could reasonably be expected to cause the loss of the
tax-qualified status of any Target Employee Plan subject to Code Section 401(a).
Target has also furnished Acquiror with all registration statements and
prospectuses (if any) prepared in connection with each Target Employee Plan.
(c) (i) None of the Target Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person other than as
required under the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"); (ii) there has been no "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Target Employee Plan, which could reasonably be expected to have, in the
aggregate, a Material Adverse Effect on Target; (iii) each Target Employee Plan
has been administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate, a
Material Adverse Effect on Target, and Target and each subsidiary or ERISA
Affiliate have performed all obligations required to be performed by them under,
are not in any material respect in default under or violation of, and have no
knowledge of any material default or violation by any other party to, any of the
Target Employee Plans; (iv) neither Target nor any subsidiary or ERISA Affiliate
is subject to any liability or penalty under Sections 4976 through 4980 of the
Code or Title I of ERISA with respect to any of the Target Employee Plans; (v)
all material contributions required to be made by Target or any subsidiary or
ERISA Affiliate to any Target Employee Plan have been made on or before their
due dates and a reasonable amount has been accrued for contributions to each
Target Employee Plan for the current plan years; (vi) with respect to each
Target Employee Plan, no "reportable event" within the meaning of Section 4043
of ERISA (excluding any such event for which the thirty (30) day notice
requirement has been waived under the regulations to Section 4043 of ERISA) nor
any event described in Section 4062, 4063 or 4041 or ERISA has occurred; (vii)
no Target Employee Plan is covered by, and neither Target nor any subsidiary or
ERISA Affiliate has incurred or expects to incur any liability under Title IV of
ERISA or Section 412 of the Code; and (viii) each Target Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Acquiror (other than ordinary
administrative expenses typically incurred in a termination event). With respect
to each Target Employee Plan subject to ERISA as either an employee pension plan
within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan
within the meaning of Section 3(1) of ERISA, Target has prepared in good faith
and timely filed all requisite governmental reports (which were true and correct
as of the date filed) and has properly and timely filed and distributed or
posted all notices and reports to employees required to be filed, distributed or
posted with respect to each such Target Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or to the best
knowledge of Target is threatened, against or with respect to any such Target
Employee Plan, including any audit or inquiry by the Internal Revenue Service or
United States Department of Labor. No payment or benefit which will or may be
made by Target to any Employee will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.
(d) With respect to each Target Employee Plan, Target and each of
its United States subsidiaries have complied with (i) the applicable health care
continuation and notice provisions of COBRA, and the regulations (including
proposed regulations) thereunder except to the extent that such failure to
comply would not, in the aggregate, have a Material
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Adverse Effect on Target, (ii) the applicable requirements of the Family Medical
and Leave Act of 1993 and the regulations thereunder, except to the extent that
such failure to comply would not, in the aggregate, have a Material Adverse
Effect on Target and (iii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996, as amended, and the regulations
(including proposed regulations) thereunder, except to the extent that such
failure to comply would not, in the aggregate, have a Material Adverse Effect on
Target.
(e) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target, any Target subsidiary or other
ERISA Affiliate relating to, or change in participation or coverage under, any
Target Employee Plan which would materially increase the expense of maintaining
such plan above the level of expense incurred with respect to that plan for the
most recent fiscal year included in the Target Financial Statements.
(f) Target does not currently maintain, sponsor, participate in
or contribute to, nor has it ever maintained, established, sponsored,
participated in, or contributed to, any employee pension benefit plan (within
the meaning of Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B
of Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
(g) Neither Target nor any Target subsidiary or other ERISA
Affiliate is a party to, or has made any contribution to or otherwise incurred
any obligation under, any "multiemployer plan" as defined in Section 3(37) of
ERISA.
2.15 Certain Agreements Affected by the Merger. Neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of Target or any of its
subsidiaries; (ii) materially increase any benefits otherwise payable by Target;
or (iii) result in the acceleration of the time of payment or vesting of any
such benefits except as required under Code Section 411(d)(3).
2.16 Employee Matters. Target and each of its subsidiaries are in
compliance in all material respects with all currently applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice. Target
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries, and other payments to employees; and is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing. Target is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending claims against
Target or any of its subsidiaries under any workers compensation plan or policy
or for long term disability. There are no controversies pending or, to the
knowledge of Target or any of its subsidiaries, threatened, between Target or
any of its subsidiaries and any of their respective employees, which
controversies have or could reasonably be expected to result in an action, suit,
proceeding, claim,
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arbitration or investigation before any agency, court or tribunal, foreign or
domestic. Neither Target nor any of its subsidiaries is a party to any
collective bargaining agreement or other labor union contract nor does Target
nor any of its subsidiaries know of any activities or proceedings of any labor
union to organize any of Target's employees. To Target's knowledge, no employees
of Target are in violation of any term of any employment contract, patent
disclosure agreement, enforceable noncompetition agreement, or any enforceable
restrictive covenant to a former employer relating to the right of any such
employee to be employed by Target because of the nature of the business
conducted or presently proposed to be conducted by Target or to the use of trade
secrets or proprietary information of others. No employees of Target have given
notice to Target, nor is Target otherwise aware, that any such employee intends
to terminate his or her employment with Target.
2.17 Related-Party Transactions. No employee, officer or director of
Target or member of his or her immediate family is indebted to Target, nor is
Target indebted (or committed to make loans or extend or guarantee credit to any
such employee, officer or director or member of his or her immediate family. To
Target's knowledge, none of such persons has any direct or indirect ownership
interest in any firm or corporation with which Target is affiliated or with
which Target has a material business relationship, except to the extent that
employees, officers, or directors of Target and members of their immediate
families own stock in publicly traded companies. To Target's knowledge, no
member of the immediate family of any officer or director of Target is directly
or indirectly interested in any Material Contract (as defined below) of Target.
2.18 Insurance. Schedule 2.18 to the Target Disclosure Schedule
contains a complete list of all insurance policies maintained by Target. Target
and each of its subsidiaries have policies of insurance and bonds of the type
and in amounts customarily carried by persons conducting businesses or owning
assets similar to those of Target and its subsidiaries. There is no material
claim pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies and bonds have been paid
and Target and its subsidiaries are otherwise in compliance with the terms of
such policies and bonds. Target has no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
2.19 Compliance With Laws. Each of Target and its subsidiaries has
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
could not be reasonably expected to have a Material Adverse Effect on Target.
2.20 Minute Books. The minute books of Target and its subsidiaries
made available to Acquiror contain a complete and accurate summary of all
meetings of directors and shareholders or actions by written consent since the
time of incorporation of Target and the respective subsidiaries through the date
of this Agreement, and reflect all transactions referred to in such minutes
accurately in all material respects.
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2.21 Complete Copies of Materials. Target has delivered or made
available true and complete copies of each document which has been requested by
Acquiror or its counsel in connection with their legal and accounting review of
Target and its subsidiaries.
2.22 Brokers' and Finders' Fees. Target has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.23 Target Affiliates. Schedule 2.23 to the Target Disclosure
Schedule contains a true and correct list of each of the directors and officers
of Target and each of the persons and/or entities that beneficially own greater
than 10% of the Target Capital Stock or that are otherwise deemed "affiliates"
of Target ("Target Affiliates") within the meaning of Rule 145 promulgated under
the Securities Act.
2.24 Shareholder Agreements; Irrevocable Proxies. All of the Target
Affiliates and certain shareholders of Target who collectively hold more than
50% of the outstanding Target Common Stock have agreed in writing to vote for
approval of the Merger pursuant to Shareholder and Voting Agreement attached
hereto as Exhibit C (the "Shareholder Agreement"), and pursuant to Irrevocable
Proxies attached thereto as Exhibit A ("Irrevocable Proxies").
2.25 Vote Required. The affirmative vote of the holders of at least a
majority of the Target Common Stock outstanding on the record date set for the
Target Shareholders Meeting is the only vote of the holders of any of Target's
Capital Stock necessary to approve this Agreement and the transactions
contemplated hereby.
2.26 Board Approval. The Board of Directors of Target has (i)
approved, this Agreement and the Merger, (ii) determined that the Merger is in
the best interests of the shareholders of Target and is on terms that are fair
to such shareholders and (iii) recommended that the shareholders of Target
approve this Agreement and the Merger.
2.27 Inventory. The inventories shown on the Target Financial
Statements or thereafter acquired by Target, consisted of items of a quantity
and quality usable or saleable in the ordinary course of business. Since the
Target Balance Sheet Date, Target has continued to replenish inventories in a
normal and customary manner consistent with past practices. Target has not
received written or oral notice that it will experience in the foreseeable
future any difficulty in obtaining, in the desired quantity and quality and at a
reasonable price and upon reasonable terms and conditions, the raw materials,
supplies or component products required for the manufacture, assembly or
production of its products. The values at which inventories are carried reflect
the inventory valuation policy of Target, which is consistent with its past
practice and in accordance with generally accepted accounting principles applied
on a consistent basis. Since the Balance Sheet Date, due provision was made on
the books of Target in the ordinary course of business consistent with past
practices to provide for all slow-moving, obsolete, or unusable inventories to
their estimated useful or scrap values and such inventory reserves are adequate
to provide for such slow-moving, obsolete or unusable inventory and inventory
shrinkage. As of the date hereof, Target has no inventory in the distribution
channel and Target has no commitments to purchase inventory.
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2.28 Accounts Receivable. Subject to any reserves set forth in the
Target Financial Statements, the accounts receivable shown on the Target
Financial Statements represent bona fide claims against debtors for sales and
other charges, and are not subject to discount except for normal cash and
immaterial trade discounts. The amount carried for doubtful accounts and
allowances disclosed in the Target Financial Statements was calculated in
accordance with generally accepted accounting principles and in a manner
consistent with prior periods is sufficient to provide for any losses which may
be sustained on realization of the receivables.
2.29 Customers and Suppliers. No customer which individually accounted
for more than 5% of Target's gross revenues during the 12-month period preceding
the date hereof, and no supplier of Target, has canceled or otherwise
terminated, or made any written threat to Target to cancel or otherwise
terminate its relationship with Target, or has decreased materially its services
or supplies to Target in the case of any such supplier, or its usage of the
services or products of Target in the case of such customer, and to Target's
knowledge, no such supplier or customer intends to cancel or otherwise terminate
its relationship with Target or to decrease materially its services or supplies
to Target or its usage of the services or products of Target, as the case may
be. Target has not knowingly breached, so as to provide a benefit to Target that
was not intended by the parties, any agreement with, or engaged in any
fraudulent conduct with respect to, any customer or supplier of Target.
2.30 Material Contracts. Except for the contracts and agreements
described in Schedule 2.30 to the Target Disclosure Schedule (collectively, the
"Material Contracts"), Target is not a party to or bound by any material
contract, including, without limitation:
(a) any distributor, sales, advertising, agency or manufacturer's
representative contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contact more
than $20,000 over the life of the contract;
(c) any contract that expires or may be renewed at the option of
any person other than Target so as to expire more than one year after the date
of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP;
(e) any contract for capital expenditures in excess of $20,000 in
the aggregate;
(f) any contract limiting the freedom of Target to engage in any
line of business or to compete with any other person, or any confidentiality,
secrecy or non-disclosure contract;
(g) any contract pursuant to which Target leases any real
property;
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(h) any contract pursuant to which Target is a lessor of any
machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property;
(i) any contract with any person with whom Target does not deal
at arm's length within the meaning of the Code;
(j) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other person;
(k) any license, sublicense or other agreement to which Target is
a party (or by which it or any Target Intellectual Property is bound or subject)
and pursuant to which any person has been or may be assigned, authorized to Use,
or given access to any Target Intellectual Property other than (A) access to or
Use of standard object code product pursuant to a customary non-exclusive
end-user, object code, internal-use software license and support/maintenance
agreements entered into in the ordinary course of business or (B) access
provided in the ordinary course of business under a customary
nondisclosure/nonuse agreement;
(l) any license, sublicense or other agreement pursuant to which
Target has been or may be assigned or authorized to Use, or has incurred or may
incur any obligation in connection with, (A) any third party Intellectual
Property that is incorporated in or form a part of any current or proposed
product, service or Intellectual Property offering of Target or (B) any Target
Intellectual Property;
(m) any agreement pursuant to which Target has deposited or is
required to deposit with an escrow holder or any other person or entity, all or
part of the source code (or any algorithm or documentation contained in or
relating to any source code) of any Target Intellectual Property ("Source
Materials"); and
(n) any agreement to indemnify, hold harmless or defend any other
person with respect to any assertion of personal injury, damage to property or
Intellectual Property infringement, misappropriation or violation or warranting
the lack thereof, other than indemnification provisions contained in a customary
purchase orders/purchase agreements/product licenses arising in the ordinary
course of business.
2.31 No Breach of Material Contracts. All Material Contracts are in
written form. Target has performed all of the obligations required to be
performed by it and is entitled to all benefits under, and is not alleged to be
in default in respect of any Material Contract. Each of the Material Contracts
is in full force and effect, unamended, and there exists no default or event of
default or event, occurrence, condition or act, with respect to Target or to
Target's knowledge with respect to the other contracting party, which, with the
giving of notice, the lapse of the time or the happening of any other event or
conditions, would become a default or event of default under any Material
Contract. True, correct and complete copies of all Material Contracts have been
delivered to the Acquiror.
2.32 Third Party Consents. Schedule 2.32 to the Target Disclosure
Schedule lists all contracts, that require a novation or consent to assignment,
as the case may be, prior to the Effective Time so that Acquiror shall be made a
party in place of Target or as assignee.
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2.33 Export Control Laws. Target has conducted its export transactions
in accordance with applicable provisions of United States export control laws
and regulations, including but not limited to the Export Administration Act and
implementing Export Administration Regulations. Without limiting the foregoing,
Target represents and warrants that:
(a) Target has obtained all export licenses and other approvals
required for its exports of products, software and technologies from the United
States;
(b) Target is in compliance with the terms of all applicable
export licenses or other approvals;
(c) There are no pending or, to Target's knowledge, threatened
claims against Target with respect to such export licenses or other approvals;
(d) To Target's knowledge there are no actions, conditions or
circumstances pertaining to Target's export transactions that may give rise to
any future claims; and
(e) No consents or approvals for the transfer of export licenses
to Acquiror are required, or such consents and approvals can be obtained
expeditiously without material cost.
2.34 Product Releases and Milestones. Target has provided Acquiror a
schedule of product releases and certain other technology and engineering
milestones, which schedule is attached as Schedule 2.34 to the Target Disclosure
Schedule. Target (i) believes that using commercially reasonable efforts it can
achieve the release of products and reach the other technology and engineering
milestones on the time schedule set forth in Schedule 2.34 to the Target
Disclosure Schedule and (ii) is not currently aware of any change in its
circumstances or other fact that has occurred that would cause it to believe
that using commercially reasonable efforts it will be unable to meet any such
time schedules.
2.35 Year 2000. None of the products and services sold, licensed,
rendered, or otherwise provided by Target or by any of its subsidiaries in the
conduct of their respective businesses has malfunctioned or will malfunction,
has ceased or will cease to function, has generated or will generate materially
incorrect data, or has produced or will produce materially incorrect results,
and has not caused and will not cause any of the above, with respect to the
property or business of third parties using such products or services when
processing, providing or receiving (i) date-related data from, into and between
the Twentieth (20th) and Twenty-First (21st) centuries, or (ii) date-related
data in connection with any valid date in the Twentieth (20th) and Twenty-First
(21st) centuries, causing a Material Adverse Effect on Target. Neither Target
nor any subsidiary has made any other representations or warranties specifically
relating to the ability of any product or service sold, licensed, rendered, or
otherwise provided by Target (or by any of its subsidiaries) in the conduct of
their respective businesses to operate without malfunction, to operate without
ceasing to function, to generate correct data or to produce correct results when
processing, providing or receiving (i) date-related data from, into and between
the Twentieth (20th) and Twenty-First (21st) centuries, and (ii) date-related
data in connection with any valid date in the Twentieth (20th) and Twenty-First
(21st) centuries.
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2.36 Tax Matters. Neither Target nor any Target Affiliate has taken or
agreed to take any action, nor does Target have knowledge of any fact or
circumstance, that would prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
2.37 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. The "total assets" and the "annual net sales"
of the "ultimate parent entity" (as such terms are used within the meaning of
Section 7A(a)(2)(A) of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976)
of Target are less than $100,000,000.
2.38 Representations Complete. None of the representations or
warranties made by Target herein or in any Schedule hereto, including the Target
Disclosure Schedule, or certificate furnished by Target pursuant to this
Agreement, when all such documents are read together in their entirety, contains
or will contain at the Effective Time any untrue statement of a material fact,
or omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Except as disclosed in the "Acquiror Disclosure Schedule" to this
Agreement, delivered by Acquiror to Target prior to the execution and delivery
of this Agreement, corresponding to the section of this Agreement to which any
of the following representations and warranties specifically relate, Acquiror
and Merger Sub represent and warrant to Target as follows:
3.1 Organization, Standing and Power. Each of Acquiror and Merger Sub
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of Acquiror and Merger Sub has
the corporate power to own its properties and to carry on its business as now
being conducted and as proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on
Acquiror. Neither Acquiror nor Merger Sub is in violation of, nor will either
be, as a result of the transaction contemplated by this Agreement, in violation
of any of the provisions of its Articles of Incorporation or Bylaws or
equivalent organizational documents.
3.2 Capitalization. The authorized capital stock of Acquiror consists
of 175,000,000 shares of Common Stock, par value $0.001 per share, and
25,000,000 shares of Preferred Stock, par value $0.001 per share, of which there
were issued and outstanding as of the close of business on January 31, 2000
26,590,821 shares of Acquiror Common Stock and no shares of Preferred Stock. The
authorized capital stock of Merger Sub consists of 1,000 shares of common stock,
no par value, all of which are issued and outstanding and held by Acquiror. The
shares of Acquiror Common Stock to be issued pursuant to the Merger will be duly
authorized, validly issued, fully paid and non-assessable.
3.3 Authority. Acquiror and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated
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hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Acquiror and Merger Sub. This Agreement has been
duly executed and delivered by Acquiror and Merger Sub and constitutes the valid
and binding obligations of Acquiror and Merger Sub enforceable against Acquiror
and Merger Sub in accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a benefit
under (i) any provision of the Articles of Incorporation or Bylaws of Acquiror
or any of its subsidiaries, as amended, or (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Acquiror or Merger Sub or their properties or assets.
No consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, is required by or with respect to Acquiror
or Merger Sub in connection with the execution and delivery of this Agreement by
Acquiror or Merger Sub or the consummation by Acquiror or Merger Sub of the
transactions contemplated hereby or thereby, except for: (i) the filing of the
Articles of Merger as provided in Section 1.2; (ii) the filing of a Form 8-K
with the SEC and National Association of Securities Dealers ("NASD") within 15
days after the Closing; (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the securities laws of any foreign country, including
the fairness hearing contemplated by Section 5.18 below; (iv) the filing with
the Nasdaq Stock Market of a Notification Form for Listing of Additional Shares
with respect to the shares of Acquiror Common Stock issuable upon conversion of
the Target Common Stock in the Merger and upon exercise of the options under the
Target Options assumed by Acquiror; and (v) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on Acquiror and would not prevent, materially
alter or delay any of the transactions contemplated by this Agreement.
3.4 SEC Documents; Target Financial Statements. Acquiror has made
available to Target each statement, report, final registration statement (with
the final prospectus in the form filed pursuant to Rule 424(b) of the Securities
Act), definitive proxy statement, and other filing filed with the SEC by
Acquiror since August 18, 1999 (collectively, the "Acquiror SEC Documents"). In
addition, Acquiror has made available to Target all exhibits to the Acquiror SEC
Documents filed prior to the date hereof, and will promptly make available to
Target all additional Acquiror SEC Documents, and all exhibits to any such
additional Acquiror SEC Documents, filed prior to the Effective Time. As of
their respective filing dates, the Acquiror SEC Documents complied in all
material respects with the requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the Securities Act of 1933, as amended (the
"Securities Act"), and none of the Acquiror SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Acquiror SEC Document. The financial
statements of Acquiror, including the notes thereto, included in the Acquiror
SEC Documents (the "Acquiror Financial Statements") were complete and correct in
all material respects as of their respective dates, complied as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC
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with respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements). The Acquiror Financial Statements fairly present the consolidated
financial condition and operating results of Acquiror at the dates and during
the periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments).
3.5 Absence of Undisclosed Liabilities. Acquiror has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than: (i) those set forth or adequately provided for in
Acquiror's audited Balance Sheet included in Acquiror's Annual Report on Form
10-K for the fiscal year ended October 31, 1999 (the "Acquiror Balance Sheet");
(ii) those incurred in the ordinary course of business and not required to be
set forth in the Acquiror Balance Sheet under generally accepted accounting
principles; and (iii) those incurred in the ordinary course of business since
the Acquiror Balance Sheet Date and consistent with past practice.
3.6 Litigation. There is no private or government proceeding pending
before any agency, court or tribunal, foreign or otherwise, against Acquiror or
any of its subsidiaries or, to the knowledge of Acquiror, threatened against
Acquiror or any of its subsidiaries that would prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement, or that
would have a Material Adverse Effect on the ability of Acquiror to consummate
the transactions contemplated by this Agreement. There is no judgment, decree or
order against Acquiror or any of its subsidiaries, or, to the knowledge of
Acquiror, any of their respective directors or officers (in their capacities as
such), that would prevent, enjoin, alter or materially delay any of the
transactions contemplated by this Agreement, or that would have a Material
Adverse Effect on the ability of Acquiror to consummate the transactions
contemplated by this Agreement.
3.7 Broker's and Finders' Fees. Acquiror has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.8 Board Approval. The Board of Directors of Acquiror and Merger Sub
have approved this Agreement and the Merger.
3.9 Tax Matters. Neither Acquiror nor any affiliates has taken or
agreed to take any action, nor does Acquiror have knowledge of any fact or
circumstance that would prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
3.10 Representations Complete. None of the representations or
warranties made by Acquiror or Merger Sub herein or in any Schedule hereto,
including the Acquiror Disclosure Schedule, or certificate furnished by Acquiror
or Merger Sub pursuant to this Agreement, when all such documents are read
together in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the
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Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE IV
CONDUCT OF TARGET PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Target. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Target agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by Acquiror), to
carry on its and its subsidiaries' business in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted. Without
limiting the generality of the foregoing sentence, Target further agrees (i) to
pay and to cause its subsidiaries to pay debts and Taxes when due subject (A) to
good faith disputes over such debts or Taxes and (B) to Acquiror's consent to
the filing of material Tax Returns (which consent shall not be unreasonably
withheld or delayed); (ii) to pay or perform other obligations when due; (iii)
to use all reasonable efforts consistent with past practice and policies to
preserve intact its and its subsidiaries' present business organizations, keep
available the services of its and its subsidiaries' present officers and key
employees, and preserve its and its subsidiaries' relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it or its subsidiaries, to the end that its and its subsidiaries'
good will and ongoing businesses shall be unimpaired in any material respect at
the Effective Time; and (iv) not to take any act, or permit any of its
directors, officers, employees, shareholders and agents to take any act, or
cause any act to be done which would jeopardize the tax-free treatment of the
Merger. Target agrees to promptly notify Acquiror of any event or occurrence not
in the ordinary course of its or its subsidiaries' business, and of any event
which could have a Material Adverse Effect on Target.
4.2 Restrictions on Conduct of Business of Target. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, except as set forth in the
Target Disclosure Schedule and as expressly contemplated by this Agreement,
Target shall not do, cause or permit any of the following, or allow, cause or
permit any of its subsidiaries to do, cause or permit any of the following,
without the prior written consent of Acquiror:
(a) Charter Documents. Cause or permit any amendments to its
Articles of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. 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 shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries;
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(c) Stock Option Plans, Etc. Accelerate, amend or change the
period of exercisability or vesting of options (except for permitting the
acceleration currently provided in the option agreements evidencing the Target
Options) or other rights granted under its stock plans or authorize cash
payments in exchange for any options or other rights granted under any of such
plans;
(d) Material Contracts. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its material contracts; provided, however, that Target shall not enter
into any manufacturing agreement or any agreement or commitment for the purchase
of products or supplies in an amount in excess of $25,000 in any one case or
$100,000 in the aggregate;
(e) Issuance of Securities. Issue, deliver or sell or 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 it to issue any such shares or other
convertible securities, other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement;
(f) Intellectual Property. Transfer to any person or entity any
rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;
(g) Exclusive Rights. Enter into or amend any agreements pursuant
to which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of its products or technology;
(h) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually or in
the aggregate, to its and its parent's/subsidiaries' business, taken as a whole
except for sales of products in the ordinary course;
(i) Indebtedness. Incur any indebtedness for borrowed money in
excess of $20,000 (other than the endorsement of checks and other instruments
for deposit given or made in the ordinary course of business and consistent with
past practice and for items which otherwise would not be restricted or
prohibited under the terms of this Agreement) or guarantee any such indebtedness
or issue or sell any debt securities or guarantee any debt securities of others;
(j) Leases. Enter into any operating lease in excess of $20,000;
(k) Payment of Obligations. Pay, discharge or satisfy in an
amount in excess of $10,000 in any one case or $25,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the Target Financial Statements;
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(l) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements except in the ordinary course of business and
consistent with past practice;
(m) Insurance. Materially reduce the amount of any insurance
coverage provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of
substantial value;
(o) Employee Benefit Plans; New Hires; Pay Increases. Adopt or
amend any employee benefit or stock purchase or option plan, except as required
under ERISA or except as necessary to maintain the qualified status of such plan
under the Code, or hire any new director level or officer level employee, pay
any special bonus or special remuneration to any employee or director or
increase the salaries or wage rates of its employees (other than normal year-end
bonuses in accordance with past practice), nor make any payments to the Target
SEP Plan in accordance with the plan provisions;
(p) Severance Arrangements. Grant any severance or termination
pay (i) to any director or officer or (ii) to any other employee except payments
made pursuant to written agreements outstanding on the date hereof;
(q) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of its business, provided that it consults with Acquiror prior to the
filing of such a suit, or (iii) for a breach of this Agreement;
(r) Acquisitions. 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, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its and its subsidiaries' business, taken as a whole;
(s) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes, file any material Tax Return or any material
amendment to a Tax Return, enter into any closing agreement, settle any claim or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
(t) Notices. Target shall give all notices and other information
required to be given to the employees of Target, any collective bargaining unit
representing any group of employees of Target, and any applicable government
authority under the WARN Act, the National Labor Relations Act, the Internal
Revenue Code, COBRA and other applicable law in connection with the transactions
provided for in this Agreement;
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(u) Revaluation. 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; or
(v) Other. Take or agree in writing or otherwise to take, any of
the actions described in Sections 4.2(a) through (u) above, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
4.3 No Solicitation. Target and its subsidiaries and the officers,
directors, employees or other agents of Target and its subsidiaries will not,
directly or indirectly, (i) take any action to solicit, initiate or encourage
any Takeover (as defined in Section 7.3(d)) or (ii) engage in negotiations with,
or disclose any nonpublic information relating to Target or any of it
subsidiaries to, or afford access to the properties, books or records of Target
or any of its subsidiaries to, any person that has advised Target that it may be
considering making, or that has made, a Takeover. Target shall not, and shall
not permit any of its officers, directors, employees or other representatives to
agree to or endorse any Takeover. Target will promptly notify Acquiror after
receipt of any Takeover or any notice that any person is considering making a
Takeover or any request for nonpublic information relating to Target or any of
its subsidiaries or for access to the properties, books or records of Target or
any of its subsidiaries by any person that has advised Target that it may be
considering making, or that has made, a Takeover and will keep Acquiror fully
informed of the status and details of any such Takeover, request or any
correspondence or communications related thereto and shall provide Acquiror with
a true and complete copy of such Takeover notice or request or correspondence or
communications related thereto, if it is in writing, or a written summary
thereof, if it is not in writing.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Shareholder Approval. Target shall promptly after the date hereof
take all action necessary in accordance with Oregon Law and its Articles of
Incorporation and Bylaws to convene a meeting of the Target shareholders (the
"Target Shareholders Meeting") or to secure the written consent of its
shareholders in lieu thereof as soon as practicable following completion of the
Fairness Hearing (as such term is defined in Section 5.18 below). Target shall
consult with Acquiror regarding the date of the Target Shareholders Meeting (or
written consent in lieu thereof) and shall not postpone or adjourn (other than
for the absence of a quorum) the Target Shareholders Meeting without the consent
of Acquiror. Target shall use its best efforts to solicit from shareholders of
Target proxies in favor of the Merger and shall take all other action necessary
or advisable to secure the vote or consent of shareholders of Target required to
effect the Merger.
5.2 Access to Information.
(a) Target shall afford Acquiror and its accountants, counsel and
other representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of Target's and its subsidiaries'
properties, books, contracts, commitments and records, and (ii) all other
information concerning the business, properties and
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personnel of Target and its subsidiaries as Acquiror may reasonably request.
Target agrees to provide to Acquiror and its accountants, counsel and other
representatives copies of internal financial statements promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.2 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
(d) Target shall provide Acquiror and its accountants, counsel
and other representatives reasonable access, during normal business hours during
the period prior to the Effective Time, to all of Target's and subsidiaries' Tax
Returns and other records and workpapers relating to Taxes, including the
following: (i) the types of Tax Returns being filed by Target and each of its
subsidiaries in each taxing jurisdiction; (ii) the year of the commencement of
the filing of each such type of Tax Return; (iii) all closed years with respect
to each such type of Tax Return filed in each jurisdiction; (iv) all material
Tax elections filed in each jurisdiction by Target and each of its subsidiaries;
(v) any deferred intercompany gain with respect to transactions to which Target
or any of its subsidiaries has been a party; and (vi) receipts for any Taxes
paid to foreign Tax authorities.
5.3 Confidentiality. The parties acknowledge that Acquiror and Target
have previously executed a mutual Non-Disclosure Agreement dated June 17, 1999
(the "Confidentiality Agreement"), a copy of which is attached hereto as Exhibit
D, which Confidentiality Agreement shall continue in full force and effect in
accordance with its terms.
5.4 Public Disclosure. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASD.
5.5 Consents; Cooperation. Each of Acquiror and Target shall promptly
apply for or otherwise seek, and use its commercially reasonable efforts to
obtain, all consents and approvals required to be obtained by it for the
consummation of the Merger, including any consent required under the Fairness
Hearing contemplated by Section 5.18. Target shall use its commercially
reasonable efforts to obtain all necessary consents, waivers and approvals under
any of its material contracts in connection with the Merger for the assignment
thereof or otherwise.
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5.6 Shareholder Agreements; Irrevocable Proxies. Target shall use its
best efforts, on behalf of Acquiror, and pursuant to the request of Acquiror, to
cause all Target Affiliates and certain shareholders of Target who collectively
hold more than 50% of the outstanding Target Common Stock to execute and deliver
to Acquiror a Shareholder Agreement and an Irrevocable Proxy substantially in
the form of Exhibit A attached thereto concurrently with the execution of this
Agreement.
5.7 Legal Requirements. Each of Acquiror and Target will, and will
cause their respective subsidiaries to, take all reasonable actions necessary to
comply promptly with all legal requirements which may be imposed on them with
respect to the consummation of the transactions contemplated by this Agreement
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon such other party
in connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.
5.8 Blue Sky Laws. Acquiror shall take such steps as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Acquiror Common Stock in connection with the
Merger. Target shall use its best efforts to assist Acquiror as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
5.9 Employee Benefit Plans.
(a) Assumption of Options. At the Effective Time, the Target
Options, whether vested or unvested, will be assumed by Acquiror. Schedule
5.9(a) hereto sets forth a true and complete list as of the date hereof of all
holders of outstanding Target Options, including (i) the number of shares of
Target Capital Stock subject to each such option, (ii) the exercise or vesting
schedule, (iii) the exercise price per share and (iv) the term of each such
option. On the Closing, Target shall deliver to Acquiror an updated Schedule
5.9(a) hereto current as of such date. Each such option so assumed by Acquiror
under this Agreement shall continue to have, and be subject to, the same terms
and conditions set forth in the agreements evidencing the Target Options
immediately prior to the Effective Time, except that (i) such option will be
exercisable for that number of whole shares of Acquiror Common Stock equal to
the product of the number of shares of Target Common Stock that were issuable
upon exercise of such option immediately prior to the Effective Time multiplied
by the Exchange Ratio and rounded down to the nearest whole number of shares of
Acquiror Common Stock, and (ii) the per share exercise price for the shares of
Acquiror Common Stock issuable upon exercise of such assumed option will be
equal to the quotient determined by dividing the exercise price per share of
Target Common Stock at which such option was exercisable immediately prior to
the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
Consistent with the documents governing the Target Options, the Merger will not
terminate any of the outstanding options under the Target Options. Within 30
business days after the Effective Time, Acquiror will issue to each person who,
immediately prior to the Effective Time was a holder of
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an outstanding Target Option a document in form and substance satisfactory to
Target evidencing the foregoing assumption of such option by Acquiror.
(b) Form S-8. Acquiror agrees to file, after the Closing, no
later than 20 business days after Acquiror's receipt of the Spreadsheet
(provided that Acquiror has received within five (5) business days after the
Closing all option documentation relating to the outstanding options), a
registration statement on Form S-8 covering the shares of Acquiror Common Stock
issuable pursuant to outstanding options under the Target Options assumed by
Acquiror, provided that such options qualify for registration on such Form S-8.
Target shall cooperate with and assist Acquiror in the preparation of such
registration statement.
(c) Termination of Target SEP Plan. Target shall take all actions
necessary to terminate the Target SEP Plan prior to Closing.
5.10 Escrow Agreement. On or before the Effective Time, the Escrow
Agent, the Shareholders' Representative (as defined in Article VIII hereto),
Target and Acquiror will execute the Escrow Agreement contemplated by Article
VIII in substantially the form attached hereto as Exhibit E (the "Escrow
Agreement").
5.11 Listing of Additional Shares. Prior to the Effective Time,
Acquiror shall file with the Nasdaq National Market a Notification Form for
Listing of Additional Shares with respect to the shares of Acquiror Common Stock
issuable upon conversion of the Target Common Stock in the Merger and upon
exercise of the options under the Target Options assumed by Acquiror.
5.12 Employees. Set forth on Schedule 5.12 is a list of employees of
Target to whom Acquiror will make an offer of employment. Target shall cooperate
with Acquiror to assist Acquiror in making offers to, and receiving the
acceptance of, such employees. Acquiror shall have no obligation to make an
offer of employment to any employee of Target except those listed on Schedule
5.12.
5.13 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement, the Articles of Merger and
the transactions contemplated hereby and thereby shall be paid by the party
incurring such expense; provided, however, that if the Merger is consummated,
any expenses incurred by Target after November 15, 1999 in excess of $150,000
(including, but not limited to, any fees and expenses of legal counsel,
financial advisors and accountants) shall remain an obligation of Target's
shareholders. If Acquiror or Target receives any invoices for amounts in excess
of such $150,000, it may, with approval from Acquiror and the Shareholders'
Representative (as defined below), pay such fees; provided, however, that such
payment shall, if not promptly reimbursed by the Target shareholders at
Acquiror's request, constitute "Damages" recoverable under the Escrow Agreement
and such Damages shall not be subject to the limitations on recoverability of
Damages set forth in Article VIII.
5.14 Treatment as Reorganization. Neither Target nor Acquiror shall
take any action prior to or following the Closing that would cause the merger to
fail to qualify as a "reorganization" within the meaning of Section 368(a) of
the Code.
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5.15 Further Assurances. Each of the parties to this Agreement shall
use its reasonable best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.
5.16 [Intentionally omitted]
5.17 [Intentionally omitted]
5.18 Fairness Hearing. Acquiror shall, within 10 days after the
execution hereof (but in any event subject to the receipt from Target of any
information required to be included therein), file (i) a registration statement,
as provided by Section 59.065 of the Oregon Revised Statutes and (ii) request a
hearing to be held by the Oregon Director of the Department of Consumer and
Business Services to consider the terms and conditions and fairness of the
transaction contemplated by this Agreement pursuant to Section 59.095 of the
Oregon Revised Statutes (the "Fairness Hearing"). As soon as permitted by the
Oregon Director of the Department of Consumer and Business Services, Acquiror
will cause the mailing of the Fairness Hearing notice to all holders of
securities of Target entitled to receive such notice pursuant to Section 59.095
of the Oregon Revised Statutes. Target shall promptly furnish to Acquiror such
information and data concerning Target as is reasonably necessary for Acquiror's
preparation and filing of the registration statement for the Fairness Hearing,
and shall use its best efforts to furnish such information on a timely basis so
that Acquiror may meet the 10-day deadline imposed hereby. Target represents,
warrants and agrees that all such information supplied by Target shall be true
and correct in all material respects, shall not be misleading in any material
respect, and shall not omit any information necessary to make any other facts or
statements supplied by Target not misleading in light of the circumstances in
which they were made.
5.19 Stock Option Grants. Effective upon the Closing, Acquiror shall
grant stock options under its 1999 Stock Incentive Plan to certain individuals
as set forth on a Schedule 5.19 to be agreed to prior to Closing. Such options
shall be governed by Acquiror's standard agreements and shall vest over four
years in accordance with Acquiror's standard terms.
5.20 Delivery of Financial Statements. Target shall use all
commercially reasonable efforts to deliver to Acquiror its audited financial
statements as of December 31, 1998 and 1999 and for each of the three years in
the period ended December 31, 1999, prepared in accordance with Regulation S-X
promulgated by the Securities and Exchange Commission (the "S-X Financial
Statements") prior to Closing. In any event, the S-X Financial Statements shall
be delivered to Acquiror no later than the fifteenth day following the date of
Closing. Target shall cause to be delivered within thirty days following the
date of Closing an audited balance sheet as of the date of Closing (the "Closing
Balance Sheet").
5.21 Spreadsheet Target shall use all reasonable efforts to prepare a
spreadsheet in form acceptable to the Exchange Agent (the "Spreadsheet"), which
Spreadsheet shall list, as of the Closing, all Target shareholders and
optionholders and their respective addresses, taxpayer identification numbers,
the number of Target shares or options to purchase
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shares held by such persons (including in the case of shares, the respective
certificate numbers), the Exchange Ratio applicable to each holder, the number
of shares of Acquiror Common Stock (or options to purchase Acquiror Common
Stock) to be issued to each holder, the number of shares of Acquiror Common
Stock to be deposited into the Escrow Fund on behalf of each holder. The
Spreadsheet shall be certified as complete and correct by a duly elected officer
of Target at the Closing.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Shareholder Approval. This Agreement and the Merger shall
have been approved and adopted by the requisite vote of the Target shareholders.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking any of the foregoing be
pending; nor shall there be any action taken, or any statute, rule, regulation
or order enacted, entered, enforced or deemed applicable to the Merger, which
makes the consummation of the Merger illegal. In the event an injunction or
other order shall have been issued, each party agrees to use its reasonable
efforts to have such injunction or other order lifted.
(c) Governmental Approvals. Acquiror and Target and their
respective subsidiaries shall have timely obtained from each Governmental Entity
all approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Merger and the several transactions contemplated hereby,
including such approvals, waivers and consents as may be required under the
Securities Act and under state Blue Sky laws.
(d) Tax Opinions. Acquiror and Target shall have received written
opinions of Acquiror's legal counsel and Target's legal counsel, respectively,
in form and substance reasonably satisfactory to them, and dated on or about the
Closing to the effect that the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code, and such opinions shall not have been
withdrawn. In rendering such opinions, counsel shall be entitled to rely upon,
among other things, reasonable assumptions as well as representations of
Acquiror and Target.
(e) Escrow Agreement. Acquiror, Target, Escrow Agent, the Target
Shareholders and the Shareholder's Agent (as defined in Article VIII hereto)
shall have entered into the Escrow Agreement substantially in the form attached
hereto as Exhibit E.
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6.2 Additional Conditions to Obligations of Target. The obligations of
Target to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
Target:
(a) Representations, Warranties and Covenants. Except as
disclosed in the Acquiror Disclosure Schedule dated the date of this Agreement,
(i) the representations and warranties of Acquiror in this Agreement shall be
true and correct in all material respects (except for such representations and
warranties that are qualified by their terms by a reference to materiality which
representations and warranties as so qualified shall be true in all respects) on
and as of the Effective Time as though such representations and warranties were
made on and as of such time and (ii) Acquiror and Merger Sub shall have
performed and complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed and complied with by
them as of the Effective Time.
(b) Certificate of Acquiror. Target shall have been provided with
a certificate executed on behalf of Acquiror by an authorized officer to the
effect set forth in Section 6.2(a).
(c) [Intentionally omitted]
(d) Acquiror Legal Opinion. Target shall have received a legal
opinion from Acquiror's legal counsel, in substantially the form attached hereto
as Exhibit F.
(e) Fairness Hearing. The Fairness Hearing shall have been held;
provided that if, after compliance with the procedures specified in Section 5.18
above, the Oregon Director of the Department of Consumer and Business Services
either (i) shall decline to hold the Fairness Hearing or (ii) after holding the
Fairness Hearing shall determine not to issue an order permitting the issuance
of the Acquiror Common Stock under Section 3(a)(10) of the Securities Act, then
the condition in subsection 6.2(f) below shall apply instead.
(f) Registration Rights Agreement. Subject to subsection 6.2(e)
above, in the event the Oregon Director of the Department of Consumer and
Business Services does not issue an order authorizing Acquiror to issue the
Acquiror Common Stock in connection with the Merger, Acquiror shall have entered
into the Registration Rights Agreement substantially in the form attached hereto
as Exhibit G.
(g) Stock Options. Acquiror shall have approved the stock option
grants referenced in Section 5.19 above.
(h) Listing of Additional Shares. Acquiror shall have fulfilled
its obligations pursuant to Section 5.11 above.
6.3 Additional Conditions to the Obligations of Acquiror and Merger
Sub. The obligations of Acquiror and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:
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(a) Representations, Warranties and Covenants. Except as
disclosed in the Target Disclosure Schedule dated the date of this Agreement (i)
the representations and warranties of Target in this Agreement shall be true and
correct in all material respects (except for such representations and warranties
that are qualified by their terms by a reference to materiality which
representations and warranties as so qualified shall be true in all respects) on
and as of the Effective Time as though such representations and warranties were
made on and as of such time, (ii) Target has suffered no Material Adverse
Effect, and (iii) Target shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by it as of the Effective Time.
(b) Certificate of Target. Acquiror shall have been provided with
a certificate executed on behalf of Target by its President to the effect set
forth in Section 6.3(a).
(c) Third Party Consents. Acquiror shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under the
contracts of Target set forth on Schedule 2.32 to the Target Disclosure
Schedule.
(d) Injunctions or Restraints on Conduct of Business. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation of
the business of Target and its subsidiaries, following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(e) Target Legal Opinion. Acquiror shall have received a legal
opinion from Target's legal counsel, in substantially the form attached hereto
as Exhibit I.
(f) No Material Adverse Changes. There shall not have occurred
any material adverse change in the condition, (financial or otherwise)
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Target and its subsidiaries,
taken as a whole.
(g) [Intentionally omitted]
(h) Shareholder Agreements. Acquiror shall have received from
each of the Target Affiliates and from shareholders of Target who collectively
hold more than 50% of the outstanding Target Common Stock an executed
Shareholder Agreement in substantially the form attached hereto as Exhibit C.
(i) FIRPTA Certificate. Target shall, prior to the Closing,
provide Acquiror with a properly executed FIRPTA Notification Letter,
substantially in the form attached hereto as Exhibit J which states that shares
of capital stock of Target do not constitute "United States real property
interests" under Section 897(c) of the Code, for purposes of satisfying
Acquiror's obligations under Treasury Regulation Section 1.1445-2(c)(3). In
addition, simultaneously with delivery of such Notification Letter, Target shall
have provided to Acquiror, as agent for Target, a form of notice to the Internal
Revenue Service in accordance with the
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requirements of Treasury Regulation Section 1.897-2(h)(2) and substantially in
the form included in Exhibit J along with written authorization for Acquiror to
deliver such notice form to the Internal Revenue Service on behalf of Target
upon the Closing of the Merger.
(j) Resignation of Directors and Officers. The directors and
officers of Target in office immediately prior to the Effective Time shall have
resigned as directors and officers, as applicable, of Target effective as of the
Effective Time.
(k) Employment. The employees of Target set forth on Schedule
5.12 shall have accepted employment with Acquiror and shall have entered into
Acquiror's standard form of Proprietary Information and Investors Agreement.
(l) Certificates of Existence and Good Standing. Target shall,
prior to the Closing, provide Acquiror a certificates of existence and good
standing (or in the case of Oregon, a tax status certificate regarding the
payment of applicable taxes) in each jurisdiction in which Target or any
subsidiary in organized or qualified.
(m) Termination of Target SEP Plan. Target shall, immediately
prior to the Closing, terminate the Target SEP Plan and no further contributions
shall have been made to such plan. Target shall have provided to Acquiror (i)
executed resolutions by the Board of Directors of Target authorizing the
termination and (ii) an executed amendment to the Target SEP Plan sufficient to
assure compliance with all applicable requirements of the Code and regulations
thereunder so that the tax-qualified status of the Target SEP Plan will be
maintained at the time of termination.
(n) [Intentionally omitted]
(o) Product Releases and Milestones. Target shall be in
compliance with the schedule for product releases and certain technology and
other engineering milestones set forth on Schedule 2.34 to the Target Disclosure
Schedule.
(p) Dissenters' Rights. Holders of not more than 5% of the
outstanding, shall have elected to exercise Dissenters' Rights.
(q) Indemnification Agreement. Each of the Target shareholders
and the Shareholders' Representative shall have executed and delivered to
Acquiror the Indemnification Agreement in the form attached hereto as Exhibit K
(the "Indemnification Agreement").
(r) Spreadsheet. Acquiror shall have received the Spreadsheet,
which shall have been certified as true and correct by an authorized officer of
Target.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the shareholders of Target, this Agreement may be terminated:
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(a) by mutual consent duly authorized by the Boards of Directors
of Acquiror and Target in accordance with this Agreement;
(b) by either Acquiror or Target, if the Closing shall not have
occurred on or before March 31, 2000 (provided that a later date may be agreed
upon in writing by the parties hereto, and provided further that the right to
terminate this Agreement under this Section 7.1(b) shall not be available to any
party whose action or failure to act has been the cause or resulted in the
failure of the Merger to occur on or before such date and such action or failure
to act constitutes a breach of this Agreement);
(c) by Acquiror, if (i) Target shall breach in any material
respect (except for those representations qualified with respect to materiality,
in which case a breach in any respect shall be sufficient) any representation,
warranty, obligation or agreement hereunder and such breach shall not have been
cured within five business days of receipt by Target of written notice of such
breach, provided that the right to terminate this Agreement by Acquiror under
this Section 7.1(c)(i) shall not be available to Acquiror when Acquiror is at
that time in breach of this Agreement; (ii) the Board of Directors of Target
shall have withdrawn or modified its recommendation of this Agreement or the
Merger in a manner adverse to Acquiror or recommended, endorsed, accepted or
agreed to a Takeover or shall have resolved to do any of the foregoing; (iii)
Target or any of its subsidiaries officers, directors or other agents shall have
failed to comply with Section 4.3, or (iv) for any reason Target fails to call
and hold the Target Shareholders Meeting (or receive an effective written
consent in lieu thereof) in the manner specified in Section 5.1;
(d) by Target, if Acquiror shall breach in any material respect
(except for those representations qualified with respect to materiality, in
which case a breach in any respect shall be sufficient) any representation,
warranty, obligation or agreement hereunder and such breach shall not have been
cured within five days following receipt by Acquiror of written notice of such
breach, provided that the right to terminate this Agreement by Target under this
Section 7.1(d) shall not be available to Target when Target is at that time in
breach of this Agreement;
(e) by Acquiror if a Takeover shall have occurred and the Board
of Directors of Target in connection therewith does not, within five business
days of such occurrence, (i) reconfirm its approval and recommendation of this
Agreement and the transactions contemplated hereby and (ii) reject such a
Takeover;
(f) by Acquiror if (i) any permanent injunction or other order of
a court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable or (ii) if any required approval of
the shareholders of Target shall not have been obtained by reason of the failure
to obtain the required vote upon a vote held at a duly held meeting of
shareholders or at any adjournment thereof; or
(g) by Target if (i) any permanent injunction or other order of a
court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable or (ii) if any required approval of
the shareholders of Target shall not have been obtained by reason of the failure
to obtain the required vote upon a vote held at a duly
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held meeting of shareholders or at any adjournment thereof (provided that the
right to terminate this Agreement under this Section 7.1(g) shall not be
available to Target where the failure to obtain Target shareholder approval
shall have been caused by the action or failure to act of Target and such action
or failure to act constitutes a breach by Target of this Agreement).
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror, Merger
Sub or Target or their respective officers, directors, shareholders or
affiliates, except to the extent that such termination results from the breach
by a party hereto of any of its representations, warranties or covenants set
forth in this Agreement; provided that the provisions of Sections 5.3, 5.4,
5.13, 7.3, 7.4, Article IX and this Section 7.2 shall remain in full force and
effect and survive any termination of this Agreement.
7.3 Expenses and Termination Fees.
(a) Subject to Sections 7.3(b), 7.3(c) and Section 5.15, whether
or not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisers, accountants and legal
counsel) shall be paid by the party incurring such expense.
(b) In the event that: (i) Acquiror shall terminate this
Agreement pursuant to Section 7.1(c)(ii), 7.1(c)(iii), 7.1(c)(iv) (unless at the
time of termination there is a permanent injunction or other court order
preventing Target from convening the Target Shareholders Meeting, or solitary or
necessary a written consent in lieu thereof), 7.1(e) or 7.1(f)(ii); (ii) Target
shall terminate this Agreement pursuant to Section 7.1(g)(ii); or (iii) Acquiror
shall terminate this Agreement pursuant to Section 7.1(c)(i), due in whole or in
part to any failure by Target to perform and comply in all respects with its
agreements set forth in Article V of this Agreement, then Target shall promptly
(but in no event later than five business days after the occurrence of the event
giving Acquiror the right to so terminate this Agreement) pay to Acquiror all of
its actual and reasonable expenses (including attorney's and accountants fees
and expenses) incurred after November 15, 1999 in connection with the
negotiation and preparation of this Agreement and the Summary of Terms dated
December 16, 1999.
(c) In the event that this Agreement is terminated pursuant to
any of the provisions described in section 7.3(b) or pursuant to Section
7.1(c)(i) for any reason, and, in the event any Takeover is consummated (as
defined in Section 7.3(e)) within twelve months of the later of (x) such
termination of this Agreement and (y) the payment of the above described
expenses, Target shall promptly pay to Acquiror the additional amount of
$1,783,125, with credit for any amount previously paid pursuant to Section
7.3(b) above.
(d) For purposes of this Agreement, "Takeover" means any offer or
proposal for, any indication of interest in, or the execution of any agreement
with respect to a merger or other business combination involving Target or any
of its subsidiaries or the acquisition of 30% or more of the outstanding shares
of capital stock of Target, or a significant portion of the assets of, Target or
any of its subsidiaries, other than the transactions contemplated by this
Agreement.
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(e) For purposes of this Section 7.3, "consummation" of a
Takeover shall occur on the date a written agreement is entered into with
respect to such Takeover.
7.4 Amendment. The boards of directors of the parties hereto may cause
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of the Agreement by the shareholders of
Target shall not (i) alter or change the amount or kind of consideration to be
received on conversion of the Target Capital Stock, (ii) alter or change any
term of the Articles of Incorporation of the Surviving Corporation to be
effected by the Merger, or (iii) alter or change any of the terms and conditions
of the Agreement if such alteration or change would materially adversely affect
the holders of Target Capital Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
ESCROW AND INDEMNIFICATION
8.1 Escrow Fund. As soon as practicable after the Effective Time, the
Escrow Shares shall be registered in the name of, and be deposited with,
American Stock Transfer & Trust Company (or other institution selected by
Acquiror with the reasonable consent of Target), as escrow agent (the "Escrow
Agent"), such deposit (together with interest and other income thereon) to
constitute the Escrow Fund and to be governed by the terms set forth herein and
in the Escrow Agreement attached hereto as Exhibit E. The Escrow Fund shall be
available to compensate Acquiror pursuant to the indemnification obligations of
the shareholders of Target.
8.2 Indemnification.
(a) Prior to Closing, the shareholders of Target and the
Shareholders' Representative shall have executed the Indemnification Agreement
and the Shareholders' Representative shall have executed the Escrow Agreement,
pursuant to which agreement the shareholders of Target agree, subject to the
limitations set forth in this Article VIII, to indemnify and hold harmless
Acquiror and the Surviving Corporation and its respective officers, directors,
agents and employees, and each person, if any, who controls or may control
Acquiror or the Surviving Corporation within the meaning of the Securities Act
(hereinafter referred to individually as an "Indemnified Person" and
collectively as "Indemnified Persons") from and against any and all losses,
costs, damages, liabilities and expenses arising from claims, demands, actions,
causes of action, including, without limitation, reasonable legal fees, net of
any recoveries by Acquiror or the Surviving Corporation under existing insurance
policies or indemnities from third parties (collectively, "Damages") arising out
of any misrepresentation or breach of or default in connection with any of the
representations, warranties, covenants and
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agreements given or made by Target in this Agreement, the Target Disclosure
Schedule or any exhibit or schedule to this Agreement. The Escrow Fund shall be
security for this indemnity obligation subject to the limitations in this
Agreement. If the Merger is consummated, recovery from the Escrow Fund shall be
the exclusive remedy under this Agreement for any breach or default in
connection with any of the representations, warranties, covenants or agreements
set forth in this Agreement or any exhibit hereto, except for (i) tax matters,
matters related to Target capitalization, each of which shall survive for the
applicable statutes of limitation, and (ii) fraud or intentional
misrepresentation, which shall survive indefinitely; provided that Acquiror
shall first proceed against the Escrow Fund and only after exhausting such fund
shall it be permitted to pursue its other remedies. In any event, the maximum
liability of any Target shareholder shall not exceed the aggregate value of the
consideration received by such shareholder pursuant to the Merger, except for
fraud and intentional misrepresentation. Such value shall be calculated based on
the Acquiror Stock Price (as defined below).
(b) Acquiror and Target each acknowledge that such Damages, if
any, would relate to unresolved contingencies existing at the Effective Time,
which if resolved at the Effective Time would have led to a reduction in the
total number of shares Acquiror would have agreed to issue in connection with
the Merger. Nothing in this Agreement shall limit the liability (i) of Target
for any breach of any representation, warranty or covenant if the Merger does
not close, or (ii) of any Target shareholder in connection with any breach by
such shareholder of the Shareholder Agreement.
8.3 Damage Threshold. Notwithstanding the foregoing, Acquiror may not
receive any shares from the Escrow Fund unless and until an Officer's
Certificate (as defined in Section 8.5 below) identifying Damages the aggregate
amount of which exceeds $40,000 has been delivered to the Escrow Agent as
provided in Section 8.5 below and such amount is determined pursuant to this
Article VIII to be payable, in which case Acquiror shall receive shares equal to
the full amount of Damages in excess of $40,000; provided, however, that in no
event shall Acquiror receive more than the number of shares of Acquiror Common
Stock originally placed in the Escrow Fund. In determining the amount of any
Damage attributable to a breach, (i) any materiality standard contained in a
representation, warranty or covenant shall be disregarded and (ii) any excess
expenses considered Damages pursuant to Section 5.13 above, such items shall not
be subject to the limitations on the threshold amount of Damages or the limit on
Damages which are recoverable under this Section 8.3.
8.4 Escrow Period. The Escrow Period shall terminate (i) for those
matters that are not expected to be encountered and resolved in the audit of
Acquiror's financial statements for the fiscal year ending October 31, 2000
because of materiality considerations or otherwise, at the one year anniversary
of the Effective Time or (ii) for all other matters, at the earlier of (A) the
one year anniversary of the Effective Time or (B) the issuance of the audited
consolidated financial statements of Acquiror for the fiscal year ending October
31, 2000 which include the results of Target; provided, however, that a portion
of the Escrow Shares, which is necessary to satisfy any unsatisfied claims
specified in any Officer's Certificate theretofore delivered to the Escrow Agent
prior to termination of the Escrow Period with respect to facts and
circumstances existing prior to expiration of the Escrow Period, shall remain in
the Escrow Fund until such claims have been resolved. Acquiror shall deliver to
the Escrow Agent a certificate specifying the Effective Time; provided, however,
that a portion of the Escrow Shares, which is
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necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate theretofore delivered to the Escrow Agent prior to termination of
the Escrow Period with respect to facts and circumstances existing prior to
expiration of the Escrow Period, shall remain in the Escrow Fund until such
claims have been resolved. Acquiror shall deliver to the Escrow Agent a
certificate specifying the Effective Time.
8.5 Claims upon Escrow Fund.
(a) Upon receipt by the Escrow Agent on or before the last day of
the Escrow Period of a certificate signed by any officer of Acquiror (an
"Officer's Certificate"):
(i) in the case of the first such Officer's Certificate,
stating that, Damages exist in an aggregate amount greater than $40,000
(except for any excess expenses considered Damages pursuant to Section 5.13
above, neither of which shall be subject to this limitation); and
(ii) specifying in reasonable detail the individual items of
such Damages included in the amount so stated, the date each such item was
paid, or properly accrued or arose, the nature of the misrepresentation,
breach of warranty or claim to which such item is related; whereupon
(iii) the Escrow Agent shall, subject to the provisions of
Section 8.6 and 8.7 below, deliver to Acquiror out of the Escrow Fund, as
promptly as practicable, Acquiror Common Stock or other assets held in the
Escrow Fund having a value equal to such Damages in excess of $40,000
(except for any excess expenses considered Damages pursuant to Section 5.13
above, neither of which shall be subject to this limitation).
(b) For the purpose of compensating Acquiror for its Damages
pursuant to this Agreement, the Acquiror Common Stock in the Escrow Fund to be
used to compensate Acquiror for such Damages shall be valued at the average
closing price of the Acquiror Common Stock on the Nasdaq National Market for the
three trading days ending on the date immediately preceding Closing (the
"Acquiror Stock Price").
8.6 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Shareholders' Representative (defined in Section 8.8
below) and for a period of forty-five (45) days after such delivery to the
Escrow Agent of such Officer's Certificate, the Escrow Agent shall make no
delivery of Acquiror Common Stock or other property pursuant to Section 8.5
hereof unless the Escrow Agent shall have received written authorization from
the Shareholders' Representative to make such delivery. After the expiration of
such forty-five (45) day period, the Escrow Agent shall make delivery of the
Acquiror Common Stock or other property in the Escrow Fund in accordance with
Section 8.5 hereof, provided that no such payment or delivery may be made if the
Shareholders' Representative shall object in a written statement to the claim
made in the Officer's Certificate, and such statement shall have been delivered
to the Escrow Agent and to Acquiror prior to the expiration of such forty-five
(45) day period.
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8.7 Resolution of Conflicts; Arbitration.
(a) In case the Shareholders' Representative shall so object in
writing to any claim or claims by Acquiror made in any Officer's Certificate,
Acquiror shall have forty-five (45) days after receipt by the Escrow Agent of an
objection by the Shareholders' Representative to respond in a written statement
to the objection of the Shareholders' Representative. If after such forty-five
(45) day period there remains a dispute as to any claims, the Shareholders'
Representative and Acquiror shall attempt in good faith for sixty (60) days to
agree upon the rights of the respective parties with respect to each of such
claims. If the Shareholders' Representative and Acquiror should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and shall distribute the Acquiror Common
Stock or other property from the Escrow Fund in accordance with the terms
thereof.
(b) If no such agreement can be reached after good faith
negotiation, either Acquiror or the Shareholders' Representative may, by written
notice to the other, demand arbitration of the matter unless the amount of the
damage or loss is at issue in pending litigation with a third party, in which
event arbitration shall not be commenced until such amount is ascertained or
both parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Within fifteen (15) days
after such written notice is sent, Acquiror and the Shareholders' Representative
shall each select one arbitrator, and the two arbitrators so selected shall
select a third arbitrator. The decision of the arbitrators as to the validity
and amount of any claim in such Officer's Certificate shall be binding and
conclusive upon the parties to this Agreement, and notwithstanding anything in
Section 8.6 hereof, the Escrow Agent shall be entitled to act in accordance with
such decision and make or withhold payments out of the Escrow Fund in accordance
therewith.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Denver, Colorado under the commercial rules then in effect of the American
Arbitration Association. For purposes of this Section 8.7(c), in any arbitration
hereunder in which any claim or the amount thereof stated in the Officer's
Certificate is at issue, Acquiror shall be deemed to be the Non-Prevailing Party
unless the arbitrators award Acquiror more than three-fourths (3/4) of the
amount in dispute, plus any amounts not in dispute; otherwise, the Target
shareholders for whom shares of Target Common Stock otherwise issuable to them
have been deposited in the Escrow Fund shall be deemed to be the Non-Prevailing
Party. The Non-Prevailing Party to an arbitration shall pay its own expenses,
the fees of each arbitrator, the administrative fee of the American Arbitration
Association, and the expenses, including without limitation, attorneys' fees and
costs, reasonably incurred by the other party to the arbitration.
8.8 Shareholders' Representative.
(a) ▇▇▇▇▇▇ Trim shall be constituted and appointed as agent
("Shareholders' Representative") for and on behalf of the Target shareholders to
give and receive notices and communications, to authorize delivery to Acquiror
of the Acquiror Common Stock or other property from the Escrow Fund in
satisfaction of claims by Acquiror, to object to such
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deliveries, 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 such claims, and to take all actions necessary or
appropriate in the judgment of the Shareholders' Representative for the
accomplishment of the foregoing. Such agency may be changed by the holders of a
majority in interest of the Escrow Fund from time to time upon not less than ten
(10) days' prior written notice to Acquiror. No bond shall be required of the
Shareholders' Representative, and the Shareholders' Representative shall receive
no compensation for his services. Notices or communications to or from the
Shareholders' Representative shall constitute notice to or from each of the
Target shareholders.
(b) The Shareholders' Representative shall not be liable for any
act done or omitted hereunder as Shareholders' 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 Target shareholders shall severally indemnify the Shareholders'
Representative and hold him harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the Shareholders'
Representative and arising out of or in connection with the acceptance or
administration of his duties hereunder.
(c) The Shareholders' Representative shall have reasonable access
to information about Target and the reasonable assistance of Target's officers
and employees for purposes of performing its duties and exercising its rights
hereunder, provided that the Shareholders' Representative shall treat
confidentially and not disclose any nonpublic information from or about Target
to anyone (except on a need to know basis to individuals who agree to treat such
information confidentially).
8.9 Actions of the Shareholders' Representative. A decision, act,
consent or instruction of the Shareholders' Representative shall constitute a
decision of all Target shareholders for whom shares of Acquiror Common Stock
otherwise issuable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each such Target shareholder, and the Escrow Agent
and Acquiror may rely upon any decision, act, consent or instruction of the
Shareholders' Representative as being the decision, act, consent or instruction
of each and every such Target shareholder. The Escrow Agent and Acquiror are
hereby relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Shareholders'
Representative.
8.10 Third-Party Claims. In the event Acquiror becomes aware of a
third-party claim which Acquiror believes may result in a demand against the
Escrow Fund, Acquiror shall promptly notify the Shareholders' Representative of
such claim, and the Shareholders' Representative and the Target shareholders for
whom shares of Acquiror Common Stock otherwise issuable to them are deposited in
the Escrow Fund shall be entitled, at their expense, to participate in any
defense of such claim. Acquiror shall have the right in its sole discretion to
settle any such claim; provided, however, that Acquiror may not effect the
settlement of any such claim without the consent of the Shareholders'
Representative, which consent shall not be unreasonably withheld. In the event
that the Shareholders' Representative has consented to any such settlement, the
Shareholders' Representative shall have no power or authority to object
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under Section 8.6 or any other provision of this Article VIII to the amount of
any claim by Acquiror against the Escrow Fund for indemnity with respect to such
settlement.
ARTICLE IX
GENERAL PROVISIONS
9.1 Non-Survival at Effective Time. The representations and warranties
set forth in Articles II and III will survive until the first anniversary of the
Closing, except that all representations and warranties with respect to Target
tax matters and Target's capitalization shall survive for the applicable
statutes of limitation. The agreements set forth in this Agreement shall
terminate at the Effective Time, except that the agreements set forth in Article
I; Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.9, 5.12, 5.13, 5.14, 5.15, 5.20, 5.21,
7.3 and 7.4; Article VIII; and this Article IX shall survive the Effective Time
and the Closing.
9.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror, to:
Crossroads Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇-▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇, P.C.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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(b) if to Target, to:
Polaris Communications, Inc.
▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ Trim
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇ LLP
▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
9.3 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof", and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to February 3, 2000. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.5 Entire Agreement; Non-Assignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, the Target Disclosure Schedule and the Acquiror Disclosure Schedule:
(a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing except as otherwise provided herein, in accordance with its terms; (b)
are not intended to confer upon any other person any rights or remedies
hereunder; and (c) shall not be assigned by operation of law or otherwise except
as otherwise specifically provided.
9.6 Severability. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the
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application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto. The
parties further agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such void or
unenforceable provision.
9.7 Remedies Cumulative. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
9.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas without reference to such
state's principles of conflicts of law.
9.9 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
[Signature page follows.]
47
53
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Merger and Reorganization to be executed and delivered by their respective
officers, thereunto duly authorized, all as of the date first written above.
CROSSROADS SYSTEMS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Executive Officer
NORTH STAR ACQUISITION CORP.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Executive Officer
POLARIS COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
Chief Executive Officer
[Signature Page to Agreement and Plan of Merger and Reorganization]
54
Schedule 5.9(a)
Holders of Outstanding Target Options
Vesting
Exercise Commencement
Employee Options Price Date Vesting Schedule
-------- ------- -------- ------------ ----------------
▇▇▇▇▇▇ ▇▇▇▇ 20 $1,125/share 09/01/97 10 shares vest immediately;
thereafter 2 shares on each
anniversary of the vesting
commencement date thereafter for 5
years until fully vested 9/01/02
▇▇▇▇▇▇ ▇▇▇▇ 25 $1,125/share 3/01/99 5 shares on each anniversary of
the vesting commencement date for
5 years until fully vested 3/01/04
▇▇▇▇▇ ▇▇▇▇▇▇▇ 30 $1,125/share 9/28/98 12 shares on the second
anniversary of the vesting
commencement date; then 6 shares
on each anniversary of the vesting
commencement date thereafter until
fully vested 9/28/03
▇▇▇▇▇ ▇▇▇▇ 10 $1,125/share 9/01/97 2 shares on each anniversary of
the vesting commencement date for
5 years until fully vested 9/01/02
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 10 $1,125/share 9/01/97 2 shares on each anniversary of
the vesting commencement date for
5 years until fully vested 9/01/02
Each option will expire on March 2, 2007, unless earlier terminated.
55
SCHEDULE 5.12
Polaris Employee Offers
Group 1 Employees
All of the following shall
have accepted
employment:
▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
Group 2 Employees
7 of 8 of the following shall
have accepted
employment:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ Chess
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Group 3 Employees
5 of 7 of the following shall
have accepted
employment:
▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ Gaenakakis
M-▇▇▇▇ ▇▇▇▇▇▇-▇▇▇▇▇▇▇
56
SCHEDULE 5.19
Option Grants to Polaris Employees
(contingent on acceptance of employment)
Employee Options
-------- -------
▇▇▇▇▇ ▇▇▇▇▇▇ 1,020
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 3,410
▇▇▇▇▇▇ ▇▇▇▇▇ 10,000
▇▇▇▇ ▇▇▇▇▇▇ 9,000
▇▇▇▇▇ Chess 3,750
▇▇▇▇▇▇▇ ▇▇▇▇ 2,620
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 8,000
▇▇▇▇▇ ▇▇▇▇ 3,320
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 1,630
▇▇▇▇▇▇ ▇▇▇▇ 10,000
▇▇▇▇▇ ▇▇▇▇▇▇▇ 8,000
▇▇▇▇▇ ▇▇▇▇▇▇▇ 1,310
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 1,000
▇▇▇▇▇▇▇ ▇▇▇ 3,160
M-▇▇▇▇ ▇▇▇▇▇▇-▇▇▇▇▇▇▇ 1,630
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 2,940
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 3,650
▇▇▇▇▇ ▇▇▇▇ 8,000
▇▇▇▇ ▇▇▇▇▇▇▇ 40,000