AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG:
ACCRUE SOFTWARE, INC.,
A DELAWARE CORPORATION;
MARKETWAVE ACQUISITION CORP.,
A WASHINGTON CORPORATION;
MARKETWAVE CORPORATION
A WASHINGTON CORPORATION;
AND
SHAREHOLDERS OF MARKETWAVE CORPORATION
------------------------------
DATED AS OF SEPTEMBER 14, 1999
------------------------------
<PAGE> 2
EXHIBITS
Exhibit A - Certain definitions
Exhibit B* - Form of Amended and Restated Articles of Incorporation of
Surviving Corporation
Exhibit C* - Directors and officers of Surviving Corporation
Exhibit D* - Form of Escrow Agreement
Exhibit E-1* - Persons to execute Affiliate Agreements
Exhibit E-2* - Form of Affiliate Agreement
Exhibit F-1* - Persons to sign Noncompetition Agreements
Exhibit F-2* - Form of Noncompetition Agreement
Exhibit G* - Form of legal opinion of Venture Law Group
Exhibit H - Investor Rights Agreement
Exhibit I* - Form of Opinion of Orrick, Herrington & Sutcliffe LLP
SCHEDULES
* - Disclosure Schedule of Marketwave Corporation
[*The indicated exhibit or schedule has not been included in this filing but a
copy will be furnished supplementally to the Securities and Exchange Commission
upon request.]
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
Section 1. Description of Transaction.....................................................1
1.1 Merger of Merger Sub into the Company.........................................1
1.2 Effect of the Merger..........................................................2
1.3 Closing; Effective Time.......................................................2
1.4 Articles of Incorporation and Bylaws; Directors and Officers..................2
1.5 Conversion of Shares..........................................................2
1.6 Employee Stock Options........................................................3
1.7 Closing of the Company's Transfer Books.......................................4
1.8 Exchange of Certificates......................................................4
1.9 Dissenting Shares.............................................................6
1.10 Holdback Shares...............................................................6
1.11 Tax Consequences..............................................................7
1.12 Accounting Treatment..........................................................7
1.13 Further Action................................................................7
Section 2. Representations and Warranties of the Company and the Company Executives.......7
2.1 Due Organization; No Subsidiaries; Etc........................................7
2.2 Articles of Incorporation and Bylaws; Records.................................8
2.3 Capitalization, Etc...........................................................8
2.4 Financial Statements.........................................................10
2.5 Absence of Changes...........................................................10
2.6 Title to Assets..............................................................12
2.7 Bank Accounts; Receivables...................................................12
2.8 Equipment; Leasehold.........................................................13
2.9 Proprietary Assets...........................................................13
2.10 Contracts....................................................................14
2.11 Liabilities..................................................................16
2.12 Compliance with Legal Requirements...........................................17
2.13 Governmental Authorizations..................................................17
2.14 Tax Matters..................................................................17
2.15 Employee and Labor Matters; Benefit Plans....................................18
2.16 Environmental Matters........................................................21
2.17 Insurance....................................................................21
2.18 Related Party Transactions...................................................22
2.19 Legal Proceedings; Orders....................................................22
2.20 Authority; Binding Nature of Agreement.......................................23
2.21 Non-Contravention; Consents..................................................23
2.22 Brokers......................................................................24
2.23 Pooling Matters..............................................................24
2.24 Financial Performance........................................................25
</TABLE>
-i-
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
2.25 Compliance with the Hart-Scott-Rodino Act....................................25
2.26 Full Disclosure..............................................................25
Section 3. Representations and warranties of the shareholders............................25
3.1 Title; Absence of Certain Agreements.........................................25
3.2 Authority....................................................................25
3.3 Investment Representations...................................................26
Section 4. Representations and Warranties of Parent and Merger Sub.......................27
4.1 Organization; Good Standing; Qualification and Power.........................27
4.2 Parent Capitalization........................................................28
4.3 No Conflict; Required Filings and Consents...................................28
4.4 SEC Filings; Financial Statements............................................29
4.5 Absence of Undisclosed Liabilities...........................................30
4.6 Absence of Certain Changes...................................................30
4.7 Litigation...................................................................30
4.8 Governmental Authorization...................................................30
4.9 Compliance With Laws.........................................................30
4.10 Accounting and Tax Matters; Pooling of Interests.............................31
4.11 Authority; Binding Nature of Agreement.......................................31
4.12 Valid Issuance...............................................................31
Section 5. Certain Covenants of the Company and the Shareholders.........................31
5.1 Access and Investigation.....................................................31
5.2 Operation of the Company's Business..........................................32
5.3 Notification; Updates to the Company Disclosure Schedule.....................33
5.4 Support of Merger by Shareholders............................................34
5.5 Approval of Merger; Waiver of Dissenter's Rights.............................34
5.6 Conversion of Company Preferred Stock........................................35
Section 6. Additional Covenants of the Parties...........................................35
6.1 Filings and Consents.........................................................35
6.2 Public Announcements.........................................................35
6.3 Pooling of Interests.........................................................35
6.4 Affiliate Agreements.........................................................35
6.5 Commercially Reasonable Efforts..............................................35
6.6 Noncompetition Agreements....................................................35
6.7 FIRPTA Matters...............................................................36
6.8 Advice of Changes............................................................36
6.9 Reorganization Treatment.....................................................36
6.10 Certain Employee Benefits Matters............................................36
</TABLE>
-ii-
<PAGE> 5
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.11 Section 16 Matters...........................................................36
Section 7. Conditions Precedent to Obligations of Parent and Merger Sub..................37
7.1 Accuracy of Representations..................................................37
7.2 Performance of Covenants.....................................................37
7.3 Shareholder Approval.........................................................37
7.4 Consents.....................................................................37
7.5 Agreements and Documents.....................................................37
7.6 Exemption from Applicable Securities Laws....................................39
7.7 No Restraints................................................................39
7.8 No Legal Proceedings.........................................................39
7.9 No Material Adverse Change...................................................39
7.10 Tax Opinion..................................................................39
Section 8. Conditions Precedent to Obligations of the Company............................40
8.1 Accuracy of Representations..................................................40
8.2 Performance of Covenants.....................................................40
8.3 Documents....................................................................40
8.4 Listing......................................................................40
8.5 No Restraints................................................................40
8.6 Board Seat...................................................................41
8.7 No Material Adverse Change...................................................41
8.8 Tax Opinion..................................................................41
Section 9. Termination...................................................................41
9.1 Termination..................................................................41
9.2 Effect of Termination........................................................42
Section 10. Indemnification, Etc.........................................................42
10.1 Survival of Representations, Etc.............................................42
10.2 Indemnification..............................................................43
10.3 Exclusive Remedy.............................................................43
10.4 No Contribution..............................................................44
10.5 Defense of Third Party Claims................................................44
Section 11. Miscellaneous Provisions.....................................................45
11.1 Restrictions on Transfer.....................................................45
11.2 Shareholders' Agent..........................................................47
11.3 Further Assurances...........................................................47
11.4 Fees and Expenses............................................................47
</TABLE>
-iii-
<PAGE> 6
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
11.5 Attorneys' Fees..............................................................48
11.6 Notices......................................................................48
11.7 Confidentiality..............................................................49
11.8 Time of the Essence..........................................................49
11.9 Headings.....................................................................49
11.10 Counterparts.................................................................49
11.11 Governing Law................................................................49
11.12 Successors and Assigns.......................................................49
11.13 Waiver of Jury Trial.........................................................50
11.14 Remedies Cumulative; Specific Performance....................................50
11.15 Waiver.......................................................................50
11.16 Amendments...................................................................50
11.17 Severability.................................................................50
11.18 Parties in Interest..........................................................50
11.19 Entire Agreement.............................................................50
11.20 Construction.................................................................51
</TABLE>
-iv-
<PAGE> 7
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("AGREEMENT") is
made and entered into as of September 14, 1999 by and among: ACCRUE SOFTWARE,
INC., a Delaware corporation ("PARENT"); MARKETWAVE ACQUISITION CORP., a
Washington corporation and a wholly owned subsidiary of Parent ("MERGER SUB");
MARKETWAVE CORPORATION, a Washington corporation (the "COMPANY"); and the
holders of all the outstanding capital stock of the Company (the
"SHAREHOLDERS"). Certain other capitalized terms used in this Agreement are
defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub with and into the Company in accordance with this Agreement and the
Washington Business Corporation Act (the "MERGER"). Upon consummation of the
Merger, Merger Sub will cease to exist, and the Company will become a wholly
owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE"). For accounting purposes, it is intended that the Merger be
treated as a "pooling of interests."
C. This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and the Company.
D. The Shareholders own a total of (i) 8,398,845 shares of the Common
Stock (par value $.001 per share) of the Company ("COMPANY COMMON STOCK"), (ii)
2,352,950 shares of the Series A Preferred Stock (par value $.001 per share) of
the Company ("SERIES A PREFERRED STOCK"), and (iii) 4,558,822 shares of the
Series B Preferred Stock (par value $.001 per share) of the Company ("SERIES B
PREFERRED STOCK" and, together with the Company Common Stock and the Series A
Preferred Stock, the "COMPANY STOCK"), which shares are all of the issued and
outstanding shares of capital stock of the Company.
AGREEMENT
For good and valuable consideration, the receipt of which is hereby
acknowledged, the parties to this Agreement agree as follows: SECTION 1.
DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation after the Merger (the "SURVIVING CORPORATION").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the Washington Business
Corporation Act.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of Orrick, Herrington & Sutcliffe LLP, 400 Capitol Mall, Suite 3000, Sacramento,
California 95814 at 10:00 a.m. on September 30, 1999, or at such other time and
date as Parent and the Company may agree. The
<PAGE> 8
date on which the Closing actually takes place is referred to in this Agreement
as the "Closing Date." Contemporaneously with or as promptly as practicable
after the Closing, a properly executed agreement of merger conforming to the
requirements of Chapter 23B.11 of the Washington Business Corporation Act shall
be filed with the Secretary of State of the State of Washington. The Merger
shall become effective at the time such agreement of merger is filed with the
Secretary of State of the State of Washington (the "EFFECTIVE TIME").
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless
otherwise determined by Parent and the Company prior to the Effective Time:
(a) the Articles of Incorporation of the Surviving Corporation shall
be amended and restated as of the Effective Time to conform to Exhibit B;
(b) the Bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to the Bylaws of Merger Sub as in
effect immediately prior to the Effective Time; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit C.
1.5 CONVERSION OF SHARES.
(a) Subject to Section 1.8(c), at the Effective Time, by virtue of
the Merger and without any further action on the part of Parent, Merger Sub, the
Company or any Shareholder:
(i) each share of Company Common Stock outstanding immediately
prior to the Effective Time (including the shares of Company Common Stock issued
upon conversion of all shares of the Company's Series A Preferred Stock and
Series B Preferred Stock) shall be converted into the right to receive the
"Applicable Fraction" (as defined in Section 1.5(b)) of a share of the common
stock (par value $.001 per share) of Parent ("PARENT COMMON STOCK"); and
(ii) each share of the common stock (par value $.001 per share)
of Merger Sub outstanding immediately prior to the Effective Time shall be
converted into one share of common stock of the Surviving Corporation.
(b) For purposes of this Agreement:
(i) the "APPLICABLE FRACTION" shall be calculated by dividing
the Net Merger Shares (as defined below) by the aggregate number of outstanding
shares of Company Common Stock (after giving effect to the conversion of all
outstanding shares of the Company's Series A Preferred Stock and Series B
Preferred Stock into Common Stock) plus the aggregate number of shares
represented by Company Options (as defined in Section 1.6), in each case as of
the Effective Time;
-2-
<PAGE> 9
(ii) the term "TOTAL MERGER SHARES" shall mean 3,479,375 shares
of Parent Common Stock;
(iii) the term "NET MERGER SHARES" shall mean the Total Merger
Shares less the number of Expense Shares (as defined below); and
(iv) the term "EXPENSE SHARES" shall mean the number of shares
of Parent Common Stock calculated by dividing the amount of the Company Expenses
reflected on the Schedule of Expenses delivered pursuant to Section 7.5(j) (less
$300,000 of the Broadview Expenses (as defined in Section 2.22) and all
accounting and legal fees and expenses incurred by the Company in connection
with the transactions contemplated by this Agreement and reflected on the
Schedule of Expenses) by the Stipulated Value (as defined in Section 1.8(c)).
(c) The Applicable Fraction shall be adjusted to reflect fully the
effect of any stock split, stock dividend (including any dividend or
distribution of stock convertible into Parent Common Stock or Company Common
Stock), reorganization, recapitalization or other similar change with respect to
Parent Common Stock or Company Common Stock after the date hereof and prior to
the Effective Time.
(d) If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the Company after giving effect to
any provisions providing for acceleration as a result of the Merger contained in
any applicable restricted stock agreement or other agreement with the Company,
then the shares of Parent Common Stock issued in exchange for such shares of
Company Common Stock will also be unvested and subject to the same repurchase
option, risk of forfeiture or other condition, and the certificates representing
such shares of Parent Common Stock may accordingly be marked with appropriate
legends.
1.6 EMPLOYEE STOCK OPTIONS. At the Effective Time, each stock option
that is then outstanding under the Company's 1997 Stock Option Plan (the
"COMPANY OPTION PLAN"), whether vested or unvested (a "COMPANY OPTION"), shall
be assumed by Parent in accordance with the terms (as in effect as of the date
of this Agreement) of the Company Option Plan and the stock option agreement by
which such Company Option is evidenced. All rights with respect to Company
Common Stock under outstanding Company Options shall thereupon be converted into
rights with respect to Parent Common Stock. Accordingly, from and after the
Effective Time, (a) each Company Option assumed by Parent may be exercised
solely for shares of Parent Common Stock, (b) the number of shares of Parent
Common Stock subject to each such assumed Company Option shall be equal to the
number of shares of Company Common Stock that were subject to such Company
Option immediately prior to the Effective Time multiplied by the Applicable
Fraction, rounded down to the nearest whole number of shares of Parent Common
Stock (collectively, the "OPTION SHARES"), (c) the per share exercise price for
the Parent Common Stock issuable upon exercise of each such assumed Company
Option shall be determined by dividing the exercise price per share of Company
Common Stock subject to such Company Option, as in effect immediately prior to
the Effective Time, by the Applicable
-3-
<PAGE> 10
Fraction, and rounding the resulting exercise price up to the nearest whole
cent, and (d) all restrictions on the exercise of each such assumed Company
Option shall continue in full force and effect, and the term, exercisability,
vesting schedule and other provisions of such Company Option shall otherwise
remain unchanged; provided, however, that each such assumed Company Option
shall, in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction effected by Parent after the
Effective Time. The Company and Parent shall take all action that may be
necessary (under the Company Option Plan and otherwise) to effectuate the
provisions of this Section 1.6. It is the intention of the parties that the
Company Options assumed by Parent qualify following the Effective Time as
incentive stock options as defined in Section 422 of the Code to the extent such
Company Options qualified as incentive stock options prior to the Effective
Time, and this Section 1.6 shall be interpreted consistent with such intent.
Following the Closing, Parent will send to each holder of an assumed Company
Option a written notice setting forth (i) the number of shares of Parent Common
Stock subject to such assumed Company Option, and (ii) the exercise price per
share of Parent Common Stock issuable upon exercise of such assumed Company
Option. No later than February 1, 2000, Parent shall file a registration
statement on Form S-8 for the shares of Parent Common Stock issuable with
respect to assumed Company Options that are eligible for inclusion on Form S-8
and shall maintain the effectiveness of such registration statement thereafter
for so long as any such options or other rights remain outstanding.
1.7 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of the Company and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "COMPANY STOCK CERTIFICATE") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.8.
1.8 EXCHANGE OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time, Parent
will send to the holders of Company Stock Certificates (i) a letter of
transmittal in customary form and containing such provisions as Parent may
reasonably specify, and (ii) instructions for use in effecting the surrender of
Company Stock Certificates in exchange for certificates representing Parent
Common Stock. Upon surrender of a Company Stock Certificate to Parent for
exchange, together with a duly executed letter of transmittal and such other
documents as may be reasonably requested by Parent, the holder of such Company
Stock Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Parent Common Stock (and
cash in lieu of any fractional share of Parent Common Stock in accordance with
Section 1.8(c)) that such holder has the right to receive pursuant to the
provisions of this Section 1, and the Company Stock Certificate so surrendered
shall be canceled. Until
-4-
<PAGE> 11
surrendered as contemplated by this Section 1.8, each Company Stock Certificate
shall be deemed, from and after the Effective Time, to represent only the right
to receive upon such surrender a certificate representing shares of Parent
Common Stock (and cash in lieu of any fractional share of Parent Common Stock in
accordance with Section 1.8(c)) as contemplated by this Section 1. If any
Company Stock Certificate shall have been lost, stolen or destroyed, Parent may,
in its discretion and as a condition precedent to the issuance of any
certificate representing Parent Common Stock, require the owner of such lost,
stolen or destroyed Company Stock Certificate to provide an appropriate
affidavit and to deliver a bond (in such sum as Parent may reasonably direct) as
indemnity against any claim that may be made against Parent or the Surviving
Corporation with respect to such Company Stock Certificate.
(b) No dividends or other distributions declared or made with
respect to Parent Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Company Stock Certificate with
respect to the shares of Parent Common Stock represented thereby and no cash
payment in lieu of any fractional share shall be paid to any such holder, until
such holder surrenders such Company Stock Certificate in accordance with this
Section 1.8 (at which time such holder shall be entitled to receive all such
dividends and distributions and such cash payment).
(c) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger and no certificates for any such fractional shares
shall be issued. In lieu of such fractional shares, any holder of capital stock
of the Company who would otherwise be entitled to receive a fraction of a share
of Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock issuable to such holder) shall, upon surrender of such holder's Company
Stock Certificate(s), be paid in cash the dollar amount (rounded to the nearest
whole cent), without interest, determined by multiplying such fraction by the
closing price per share of Parent Common Stock on The Nasdaq Stock Market (as
reported in The Wall Street Journal, or, if not reported therein, any other
authoritative source) on the business day immediately prior to the Closing Date
(the "STIPULATED VALUE").
(d) Parent and the Surviving Corporation shall be entitled to deduct
and withhold from any consideration payable or otherwise deliverable to any
holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent or the Surviving Corporation may be required to
deduct or withhold therefrom under the Code or under any provision of state,
local or foreign tax law. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been
paid.
(e) Neither Parent nor the Surviving Corporation shall be liable to
any holder or former holder of capital stock of the Company for any shares of
Parent Common Stock (or dividends or distributions with respect thereto) or for
any cash amounts if, on or after the expiration of one (1) year after the
Effective Time, such shares are delivered to any public official pursuant to any
applicable abandoned property, escheat or similar law.
-5-
<PAGE> 12
1.9 DISSENTING SHARES.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of capital stock of the Company that, as of the Effective
Time, are or may become held by a "dissenter" within the meaning of Chapter
23B.13 of the Washington Business Corporation Act shall not be converted into or
represent the right to receive Parent Common Stock in accordance with Section
1.5 (or cash in lieu of fractional shares in accordance with Section 1.8(c)),
and the holder or holders of such shares shall be entitled only to such rights
as may be granted to such holder or holders in Chapter 23B.13 of the Washington
Business Corporation Act; provided, however, that if the status of any such
holder as a "dissenter" shall not be perfected, or if such holder shall lose
his, her or its status as a "dissenter," then, as of the later of the Effective
Time or the time of the failure to perfect such status or the loss of such
status, such shares shall automatically be converted into and shall represent
only the right to receive (upon the surrender of the certificate or certificates
representing such shares) Parent Common Stock in accordance with Section 1.5
(and cash in lieu of fractional shares in accordance with Section 1.8(c)).
(b) The Company shall give Parent (i) prompt notice of any written
demand received by the Company prior to the Effective Time to require the
Company to purchase shares of capital stock of the Company pursuant to Chapter
23B.13 of the Washington Business Corporation Act and of any other demand,
notice or instrument delivered to the Company prior to the Effective Time
pursuant to the Washington Business Corporation Act, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to any such demand,
notice or instrument. The Company shall not make any payment (unless such
payment is pursuant to a court order in which event the Company shall give
Parent notice of any such court order or request therefor as soon as
practicable) or settlement offer prior to the Effective Time with respect to any
such demand unless Parent shall have consented in writing to such payment or
settlement offer.
1.10 HOLDBACK SHARES.
(a) Parent shall establish and maintain an escrow (the "ESCROW
ACCOUNT") comprised of ten percent (10%) of the Net Merger Shares less the
Option Shares (the "HOLDBACK SHARES"). Parent shall designate and appoint U.S.
Stock Transfer Corporation or such other third party escrow agent that is
mutually and reasonably acceptable to Parent and the Shareholders' Agent (as
hereinafter defined) in connection therewith (the "ESCROW AGENT") to serve in
accordance with the Escrow Agreement substantially in the form attached as
Exhibit D hereto (the "ESCROW AGREEMENT") to be entered into among Parent, the
Escrow Agent and the Shareholders' Agent at Closing. Such escrow of the Holdback
Shares shall be maintained for purposes of satisfying claims brought pursuant to
Section 10 and for the period of time set forth in such Section 10.1 (the
"HOLDBACK PERIOD").
(b) The right to receive the Holdback Shares upon expiration of the
Holdback Period (i) is an integral part of the consideration in the Merger, and
(ii) shall be transferable or assignable only upon submission of evidence of
such transfer or assignment reasonably satisfactory to Parent and the Escrow
Agent. The value of any shares of Parent Common Stock
-6-
<PAGE> 13
ultimately retained by Parent hereunder shall be treated for purposes of this
Agreement as a reduction of the consideration paid to the Shareholders in the
Merger.
1.11 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.12 ACCOUNTING TREATMENT. For accounting purposes, the Merger is
intended to be treated as a "pooling of interests."
1.13 FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by Parent to be reasonably necessary or desirable
to carry out the purposes of this Agreement or to vest the Surviving Corporation
or Parent with full right, title and possession of and to all rights and
property of Merger Sub and the Company, the officers and directors of the
Surviving Corporation and Parent shall be fully authorized (in the name of
Merger Sub, in the name of the Company and otherwise) to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY
EXECUTIVES
The Company and Steve Podradchik and Barry Allen (collectively, the
"COMPANY EXECUTIVES") jointly and severally represent and warrant, to and for
the benefit of the Indemnitees, that, except as set forth in the Company
Disclosure Schedule:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of Washington and has all necessary corporate power
and authority to: (i) conduct its business in the manner in which its business
is currently being conducted; (ii) own and use its assets in the manner in which
its assets are currently owned and used; and (iii) perform its obligations under
all Company Contracts.
(b) The Company has not conducted any business under or otherwise
used, for any purpose or in any jurisdiction, any fictitious name, assumed name,
trade name or other name, other than the names "Marketwave" and
"Marketwave.com."
(c) The Company is not, and has not been required to be, qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1(c) of the
Company Disclosure Schedule, except where the failure to be so qualified,
authorized, registered or licensed has not had and could not reasonably be
expected to result in a Company Material Adverse Effect. The Company is in good
standing as a foreign corporation in each of the jurisdictions identified in
Part 2.1(c) of the Company Disclosure Schedule.
-7-
<PAGE> 14
(d) Part 2.1(d) of the Company Disclosure Schedule accurately sets
forth (i) the names of the members of the Company's board of directors, (ii) the
names of the members of each committee of the Company's board of directors, and
(iii) the names and titles of the Company's officers.
(e) Except as set forth in Part 2.1(e) of the Company Disclosure
Schedule, the Company does not own any controlling interest in any Entity and
the Company has never owned, beneficially or otherwise, any shares or other
securities of, or any direct or indirect equity interest in, any Entity. The
Company has not agreed and is not obligated to make any future investment in, or
capital contribution to, any Entity.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent accurate, complete and up-to-date copies of: (a) the
Company's articles of incorporation and bylaws, including all amendments
thereto; (b) the stock records of the Company; and (c) the minutes and other
records of the meetings and other proceedings (including any actions taken by
written consent or otherwise without a meeting) of the shareholders of the
Company, the board of directors of the Company and all committees of the board
of directors of the Company since the date of the Company's incorporation. There
have been no formal meetings or other proceedings of the shareholders of the
Company, the board of directors of the Company or any committee of the board of
directors of the Company that are not fully reflected in such minutes or other
records. There has not been any violation of any of the provisions of the
Company's articles of incorporation or bylaws, and the Company has not taken any
action that is inconsistent in any material respect with any resolution adopted
by the Company's shareholders, the Company's board of directors or any committee
of the Company's board of directors. The books of account, stock records, minute
books and other records of the Company are accurate, up-to-date and complete in
all material respects, and have been maintained in accordance with prudent
business practices.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of: (i)
22,500,000 shares of Common Stock, of which 8,398,845 shares have been issued
and are outstanding as of the date of this Agreement; and (ii) 7,500,000 shares
of Preferred Stock, 2,500,000 of which have been designated "Series A Preferred
Stock," of which 2,352,950 shares have been issued and are outstanding as of the
date of this Agreement, and 5,000,000 of which have been designated "Series B
Preferred Stock," of which 4,558,822 shares have been issued and are outstanding
as of the date of this Agreement. Each outstanding share of Series A Preferred
Stock is convertible into approximately 1.08 shares of Company Common Stock and
each share of Series B Preferred Stock is convertible into one share of Company
Common Stock. All of the outstanding shares of Company Stock have been duly
authorized and validly issued, and are fully paid and non-assessable. Part 2.3
of the Company Disclosure Schedule (i) sets forth the name of each Shareholder
of the Company and the number and type of all shares of Company Common Stock,
Series A Preferred Stock and Series B Preferred Stock held by such Shareholder
and (ii) provides an accurate and complete description of the terms of each
repurchase option which is held by the Company and to which any of such shares
is subject.
-8-
<PAGE> 15
(b) The Company has reserved 4,750,000 shares of Company Common
Stock for issuance under the Company Option Plan. As of the date of this
Agreement, of such reserved shares of Company Common Stock, options to purchase
3,045,958 shares have been granted and are outstanding, 1,067,595 shares have
been granted and exercised and 636,447 shares remain available for issuance to
officers, directors, employees and consultants pursuant to the Company Option
Plan. Part 2.3(b) of the Company Disclosure Schedule accurately sets forth, with
respect to each Company Option that is outstanding as of the date of this
Agreement: (i) the name of the holder of such Company Option; (ii) the total
number of shares of Company Common Stock that are subject to such Company Option
and the number of shares of Company Common Stock with respect to which such
Company Option is immediately exercisable; (iii) the date on which such Company
Option was granted and the term of such Company Option; (iv) the vesting
schedule for such Company Option; (v) the exercise price per share of Company
Common Stock purchasable under such Company Option; and (vi) whether such
Company Option has been designated an "incentive stock option" as defined in
Section 422 of the Code. Each Company Option designated as an "incentive stock
option" as defined in Section 422 of the Code on the applicable books and
records of the Company qualified as an "incentive stock option" within the
meaning of Section 422 of the Code on the date of grant of such Company Option.
Except as set forth in Part 2.3(b) of the Company Disclosure Schedule, there is
no: (i) outstanding subscription, option, call, warrant or right (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of the Company; (ii) outstanding security, instrument or obligation
that is or may become convertible into or exchangeable for any shares of the
capital stock or other securities of the Company; (iii) Contract under which the
Company is or may become obligated to sell or otherwise issue any shares of its
capital stock or any other securities; or (iv) to the knowledge of the Company,
condition or circumstance that may give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is entitled to
acquire or receive any shares of capital stock or other securities of the
Company.
(c) All outstanding shares of Company Stock and all outstanding
Company Options have been issued and granted in compliance with (i) all
applicable securities laws and other applicable Legal Requirements, and (ii) all
requirements set forth in applicable Contracts.
(d) Except as set forth in Part 2.3(d) of the Company Disclosure
Schedule, the Company has never repurchased, redeemed or otherwise reacquired
any shares of capital stock or other securities of the Company. All securities
so reacquired by the Company were reacquired in compliance with (i) the
applicable provisions of the Washington Business Corporation Act and all other
applicable Legal Requirements, and (ii) all requirements set forth in applicable
restricted stock purchase agreements and other applicable Contracts.
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the following financial
statements and the notes, if any, thereto (collectively, the "COMPANY FINANCIAL
STATEMENTS"):
(i) The audited balance sheets of the Company as of December 31,
1997 and 1998, and the related audited income statements, statements of
shareholders' equity
-9-
<PAGE> 16
and statements of cash flows of the Company for the years then ended, together
with the notes thereto and the unqualified report and opinion of Deloitte &
Touche LLP relating thereto; and
(ii) the unaudited balance sheet of the Company as of August 31,
1999, (the "UNAUDITED INTERIM BALANCE SHEET"), and the related unaudited income
statement of the Company for the eight months then ended.
(b) The Company Financial Statements are accurate and complete in
all material respects and present fairly the financial position of the Company
as of the respective dates thereof and the results of operations and (in the
case of the financial statements referred to in Section 2.4(a)(i)) cash flows of
the Company for the periods covered thereby. The Company Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered (except that the
financial statements referred to in Section 2.4(a)(ii) do not contain footnotes
and are subject to normal and recurring year end audit adjustments, which will
not, individually or in the aggregate, be material in magnitude).
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Company
Disclosure Schedule, since August 31, 1999:
(a) there has not been any material adverse change in the Company's
business, condition, assets, liabilities, operations, financial performance or
prospects, and, to the knowledge of the Company, no event has occurred that will
or could reasonably be expected to result in a Company Material Adverse Effect;
(b) there has not been any material loss, damage or destruction to,
or any material interruption in the use of, any of the Company's assets (whether
or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of its capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
its capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance of
(i) any shares of its capital stock or other security (except for Company Common
Stock issued upon the exercise of outstanding Company Options), (ii) any option
or right to acquire any shares of its capital stock or any other security
(except for Company Options described in Part 2.3(b) of the Company Disclosure
Schedule), or (iii) any instrument convertible into or exchangeable for any
capital stock or other security;
(e) the Company has not amended or waived any of its rights under,
or modified the vesting provisions under, (i) any provision of the Company
Option Plan, (ii) any provision of any agreement evidencing any outstanding
Company Option, or (iii) any restricted stock purchase agreement;
-10-
<PAGE> 17
(f) there has been no amendment to the Company's articles of
incorporation or bylaws, and the Company has not effected or been a party to any
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(g) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(h) the Company has not made any capital expenditure which, when
added to all other capital expenditures made on behalf of the Company since
August 31, 1999, exceeds $50,000;
(i) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined in Section 2.10(a)), or (ii) amended
or prematurely terminated, or waived any material right or remedy under, any
such Contract;
(j) the Company has not (i) acquired, leased or licensed any right
or other asset from any other Person, (ii) sold or otherwise disposed of, or
leased or licensed, any right or other asset to any other Person, or (iii)
waived or relinquished any right, except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Company's past practices;
(k) the Company has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness;
(l) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with the Company's past practices and Permitted Liens;
(m) the Company has not (i) lent money to any Person (other than
pursuant to routine advances for business expenses made to employees in the
ordinary course of business), or (ii) incurred or guaranteed any indebtedness
for borrowed money;
(n) the Company has not (i) established or adopted any Employee
Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar payment
to, or increased the amount of the wages, salary, commissions, fringe benefits
or other compensation or remuneration payable to, any of its directors,
officers, employees or consultants, or (iii) hired any new employee;
(o) the Company has not changed any of its methods of accounting or
accounting practices in any respect;
(p) the Company has not made any Tax election;
(q) the Company has not commenced or settled any Legal Proceeding;
-11-
<PAGE> 18
(r) the Company has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(s) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(r)" above.
2.6 TITLE TO ASSETS.
(a) The Company owns, and has good and valid title to, all assets
purported to be owned by it, including: (i) all assets reflected on the
Unaudited Interim Balance Sheet; (ii) all assets referred to in Parts 2.7(b) and
2.9 of the Company Disclosure Schedule; and (iii) all other assets reflected in
the Company's books and records as being owned by the Company. Except as set
forth in Part 2.6(a) of the Company Disclosure Schedule, all of said assets are
owned by the Company free and clear of any liens or other Encumbrances, except
for Permitted Liens.
(b) Part 2.6(b) of the Company Disclosure Schedule identifies all
assets that are material to the business of the Company and that are being
leased or licensed to the Company.
2.7 BANK ACCOUNTS; RECEIVABLES.
(a) Part 2.7(a) of the Company Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.
(b) Part 2.7(b) of the Company Disclosure Schedule provides an
accurate and complete breakdown and aging of all accounts receivable, notes
receivable and other receivables of the Company as of August 31, 1999. Except as
set forth in Part 2.7(b) of the Company Disclosure Schedule, all existing
accounts receivable of the Company (including the accounts receivable reflected
on the Unaudited Interim Balance Sheet that have not yet been collected and
those accounts receivable that have arisen since August 31, 1999 and have not
yet been collected) (i) represent valid obligations of customers of the Company
arising from bona fide transactions entered into in the ordinary course of
business, and (ii) are current and, except to the extent of a reserve which the
Company has established specifically for doubtful accounts receivable (which
reserve is set forth on the Unaudited Interim Balance Sheet, is reasonable under
the circumstances and is consistent with the Company's past practice) will be
collected in full when due, without any counterclaim or set off.
2.8 EQUIPMENT; LEASEHOLD.
(a) All material items of equipment and other tangible assets owned
by or leased to the Company are adequate for the uses to which they are being
put, are in good condition and repair (ordinary wear and tear excepted) and
constitute all of the material items of
-12-
<PAGE> 19
equipment and other tangible assets reasonably necessary for the conduct of the
Company's business in the manner in which such business is currently being
conducted.
(b) The Company does not own any real property or any interest in
real property, except for the leasehold created under the real property lease
identified in Part 2.10 of the Company Disclosure Schedule.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth,
with respect to each Company Proprietary Asset registered with any Governmental
Body or for which an application has been filed with any Governmental Body, (i)
a brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Part
2.9(a)(ii) of the Company Disclosure Schedule identifies and provides a brief
description of all other Company Proprietary Assets owned by the Company that
are material to the Company's business. Part 2.9(a)(iii) of the Company
Disclosure Schedule identifies and provides a brief description of each
Proprietary Asset licensed to the Company by any Person (except for any
Proprietary Asset that is licensed to the Company under any third party software
license generally available to the public at a cost of less than $10,000), and
identifies the license agreement under which such Proprietary Asset is being
licensed to the Company. Except as set forth in Part 2.9(a)(iv) of the Company
Disclosure Schedule, the Company has good and valid title to all of the Company
Proprietary Assets identified in Parts 2.9(a)(i) and 2.9(a)(ii) of the Company
Disclosure Schedule, free and clear of all liens and other Encumbrances other
than Permitted Liens, and has a valid right to use all Proprietary Assets
identified in Part 2.9(a)(iii) of the Company Disclosure Schedule. Except as set
forth in Part 2.9(a)(v) of the Company Disclosure Schedule, the Company is not
obligated to make any payment to any Person for the use of any Company
Proprietary Asset. Except as set forth in Part 2.9(a)(vi) of the Company
Disclosure Schedule, the Company has not developed jointly with any other Person
any Company Proprietary Asset with respect to which such other Person has any
rights.
(b) The Company has taken all reasonable steps to protect and
maintain the confidentiality and secrecy of all Company Proprietary Assets and
otherwise to maintain and protect the value of all Company Proprietary Assets.
Except as set forth in Part 2.9(b) of the Company Disclosure Schedule, the
Company has not (other than pursuant to license agreements identified in Part
2.10(a)(iii) of the Company Disclosure Schedule) disclosed or delivered to any
Person, or permitted the disclosure or delivery to any Person of, the source
code, or any portion or aspect of the source code, of any Company Proprietary
Asset.
(c) None of the Company Proprietary Assets infringe or conflict with
any Proprietary Asset owned or used by any other Person. The Company is not
infringing, misappropriating or making any unlawful use of, and the Company has
not at any time infringed, misappropriated or made any unlawful use of, or
received any written notice (including written notices in electronic form) of
any actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person. To the
knowledge of the Company, no other Person is infringing, misappropriating or
making
-13-
<PAGE> 20
any unlawful use of, and no Proprietary Asset owned or used by any other Person
infringes or conflicts with, any Company Proprietary Asset.
(d) Except as set forth in Part 2.9(d) of the Company Disclosure
Schedule: (i) each Company Proprietary Asset conforms in all material respects
with any specification, documentation, performance standard, representation or
statement made or provided with respect thereto by or on behalf of the Company;
and (ii) there has not been any written claim (including written claims in
electronic form) by any customer or other Person alleging that any Company
Proprietary Asset (including each version thereof that has ever been licensed or
otherwise made available by the Company to any Person) does not conform in all
material respects with any specification, documentation, performance standard,
representation or statement made or provided by or on behalf of the Company,
and, to the knowledge of the Company, there is no basis for any such claim. The
Company has established adequate reserves on the Unaudited Interim Balance Sheet
to cover all costs associated with any obligations that the Company may have
with respect to the correction or repair of programming errors or other defects
in the Company Proprietary Assets.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business is being conducted and as presently proposed to be
conducted. Except as set forth in Part 2.9(e) of the Company Disclosure
Schedule, (i) the Company has not licensed any of the Company Proprietary Assets
to any Person on an exclusive basis, and (ii) the Company has not entered into
any covenant not to compete or Contract limiting its ability to exploit fully
any of its Proprietary Assets or to transact business in any market or
geographical area or with any Person.
(f) Except as set forth in Part 2.9(f) of the Company Disclosure
Schedule, (i) all current and former employees of the Company have executed and
delivered to the Company an agreement (containing no exceptions to or exclusions
from the scope of its coverage) that is substantially identical to the form of
Proprietary Information and Inventions Agreement previously delivered to Parent,
and (ii) all current and former consultants and independent contractors to the
Company have executed and delivered to the Company an agreement (containing no
exceptions to or exclusions from the scope of its coverage) that is
substantially identical to the form of Consultant Proprietary Information and
Inventions Agreement previously delivered to Parent.
(g) Each item of software and hardware that has been developed by or
for the Company is Year 2000 Compliant and, to the knowledge of the Company,
each other item of software and hardware that is owned or used by the Company is
Year 2000 Compliant.
2.10 CONTRACTS.
(a) Part 2.10(a) of the Company Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of, or the
performance of services by, any employee, consultant or independent contractor;
-14-
<PAGE> 21
(ii) each Company Contract relating to the acquisition,
transfer, use, development, sharing or license of any technology or any
Proprietary Asset;
(iii) each Company Contract imposing any restriction on the
Company's right or ability (A) to compete with any other Person, (B) to acquire
any product or other asset or any services from any other Person, to sell any
product or other asset to or perform any services for any other Person or to
transact business or deal in any other manner with any other Person, or (C)
develop or distribute any technology;
(iv) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
(v) each Company Contract relating to the acquisition, issuance
or transfer of any securities;
(vi) each Company Contract relating to the creation of any
Encumbrance with respect to any asset of the Company;
(vii) each Company Contract involving or incorporating any
guaranty, any pledge, any performance or completion bond, any indemnity or any
surety arrangement;
(viii) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses, costs
or liabilities;
(ix) each Company Contract relating to the purchase or sale of
any product or other asset by or to, or the performance of any services by or
for, any Related Party (as defined in Section 2.18);
(x) any Company Contract that was entered into outside the
ordinary course of business or was inconsistent with the Company's past
practices and is material to the Company;
(xi) any Company Contract that is material to the Company and
that has a term of more than 60 days and that may not be terminated by the
Company (without penalty) within 60 days after the delivery of a termination
notice by the Company;
(xii) any other Company Contract that is material to the
Company. For purposes of this Section 2.10, "material" shall mean any Company
Contract that contemplates or involves (A) the payment or delivery of cash or
other consideration in an amount or having a value in excess of $25,000 in the
aggregate, or (B) the performance of services having a value in excess of
$25,000 in the aggregate. Contracts in the respective categories described in
clauses "(i)" through "(xii)" above are referred to in this Agreement as
"Material Contracts."
(b) The Company has delivered to Parent accurate and complete copies
of all written Contracts identified in Part 2.10(a) of the Company Disclosure
Schedule, including all
-15-
<PAGE> 22
amendments thereto. Part 2.10(a) of the Company Disclosure Schedule provides an
accurate description of the terms of each Material Contract that is not in
written form. Each Material Contract identified in Part 2.10(a) of the Company
Disclosure Schedule is valid and in full force and effect and is enforceable by
the Company in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
(c) Except as set forth in Part 2.10(c) of the Company Disclosure
Schedule:
(i) the Company has not violated or breached, in any material
respect, or committed any material default under, any Material Contract and, to
the knowledge of the Company, no other Person has violated or breached, in any
material respect, or committed any material default under, any Material
Contract;
(ii) to the knowledge of the Company, no event has occurred, and
no circumstance or condition exists, that (with or without notice or lapse of
time) will, or could reasonably be expected to, (A) result in a material
violation or breach of any of the provisions of any Material Contract, (B) give
any Person the right to declare a default or exercise any other material remedy
under any Material Contract, (C) give any Person the right to accelerate the
maturity or performance of any Material Contract, or (D) give any Person the
right to cancel, terminate or modify any Material Contract;
(iii) the Company has not received any written notice (including
written notices in electronic form) regarding any actual or possible violation
or breach of, or default under, any Material Contract; and
(iv) the Company has not waived any of its material rights under
any Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the terms
of any Company Contract to renegotiate, any amount paid or payable to the
Company under any Material Contract or any other material term or provision of
any Material Contract.
(e) The Material Contracts identified in Part 2.10(a) of the Company
Disclosure Schedule collectively constitute all of the Contracts reasonably
necessary to enable the Company to conduct its business in the manner in which
its business is currently being conducted.
2.11 LIABILITIES. The Company has no accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for
liabilities: (a) identified as such in the "liabilities" column of the Unaudited
Interim Balance Sheet; (b) incurred by the Company since August 31, 1999 in the
ordinary course of business and consistent with the Company's past practices;
(c) under the Company Contracts identified in Part 2.10 of the Company
Disclosure Schedule, to the extent the
-16-
<PAGE> 23
nature of such liabilities can be specifically ascertained by reference to the
text of such Company Contracts; and (d) identified in Part 2.11 of the Company
Disclosure Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times been, in compliance with all applicable Legal Requirements, except where
the failure to comply with such Legal Requirements has not had and could not
reasonably be expected to result in a Company Material Adverse Effect. Except as
set forth in Part 2.12 of the Company Disclosure Schedule, the Company has not
received any written notice (including written notices in electronic form) from
any Governmental Body regarding any actual or possible violation of, or failure
to comply with, any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Company Disclosure
Schedule identifies each material Governmental Authorization held by the
Company, and the Company has delivered to Parent accurate and complete copies of
all Governmental Authorizations identified in Part 2.13 of the Company
Disclosure Schedule. The Governmental Authorizations identified in Part 2.13 of
the Company Disclosure Schedule are valid and in full force and effect, and
collectively constitute all Governmental Authorizations reasonably necessary to
enable the Company to conduct its business in the manner in which its business
is currently being conducted. The Company is, and at all times has been, in
compliance with the terms and requirements of the respective Governmental
Authorizations identified in Part 2.13 of the Company Disclosure Schedule,
except where the failure to comply with such Governmental Authorizations has not
had and could not reasonably be expected to result in a Company Material Adverse
Effect. The Company has not received any notice or other communication from any
Governmental Body regarding (a) any actual or possible violation of or failure
to comply with any term or requirement of any Governmental Authorization, or (b)
any actual or possible revocation, withdrawal, suspension, cancellation,
termination or modification of any Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of the
Company (taking into account extensions) with any Governmental Body prior to the
Closing Date (the "COMPANY RETURNS") (i) have been filed or will be filed, and
(ii) have been, or will be when filed, accurately and completely prepared in all
material respects in compliance with all applicable Legal Requirements. All
amounts shown on the Company Returns to be due on or before the Closing Date
have been or will be paid on or before the Closing Date. The Company has
delivered to Parent accurate and complete copies of all Company Returns which
have been requested by Parent.
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles. The Company
will establish, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes for the period from
August 31, 1999 through the Closing Date.
-17-
<PAGE> 24
(c) Except as set forth in Part 2.14 of the Company Disclosure
Schedule, there have been no examinations or audits of any Company Return. The
Company has delivered to Parent accurate and complete copies of all audit
reports and similar documents (to which the Company has access) relating to the
Company Returns. Except as set forth in Part 2.14 of the Company Disclosure
Schedule, no extension or waiver of the limitation period applicable to any of
the Company Returns has been granted that is still in effect (by the Company or
any other Person), and no request for such extension or waiver from the Company
is pending.
(d) Except as set forth in Part 2.14 of the Company Disclosure
Schedule, no claim or Legal Proceeding is pending or has been threatened against
or with respect to the Company in respect of any Tax. There are no unsatisfied
liabilities for Taxes with respect to any notice of deficiency or similar
document received by the Company with respect to any Tax (other than liabilities
for Taxes asserted under any such notice of deficiency or similar document which
are being contested in good faith by the Company and with respect to which
adequate reserves for payment have been established). There are no liens for
Taxes upon any of the assets of the Company except liens for current Taxes not
yet due and payable. The Company has not entered into or become bound by any
agreement or consent pursuant to Section 341(f) of the Code. The Company has not
been, and the Company will not be, required to include any adjustment in taxable
income for any tax period (or portion thereof) pursuant to Section 481 or 263A
of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions or events occurring, or accounting methods employed,
prior to the Closing.
(e) Except as set forth in Part 2.14 of the Company Disclosure
Schedule, there is no agreement, plan, arrangement or other Contract covering
any employee or independent contractor or former employee or independent
contractor of the Company that, considered individually or considered
collectively with any other such Contracts, will, or could reasonably be
expected to, give rise directly or indirectly to the payment of any amount that
would not be deductible pursuant to Section 280G or Section 162 of the Code. The
Company is not liable for the Taxes of any other Person.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Company Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, medical, life or
other insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "PLANS") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any employee of the Company ("EMPLOYEE"), except for Plans which
would not require the Company to make payments or provide benefits having a
value in excess of $25,000 in the aggregate.
(b) Except as set forth in Part 2.15(a) of the Company Disclosure
Schedule, the Company does not maintain, sponsor or contribute to, and, to the
knowledge of the Company, has not at any time in the past maintained, sponsored
or contributed to, any employee pension benefit plan (as defined in Section 3(2)
of the Employee Retirement Income Security Act of
-18-
<PAGE> 25
1974, as amended ("ERISA"), whether or not excluded from coverage under specific
Titles or Merger Subtitles of ERISA) for the benefit of Employees or former
Employees (a "PENSION PLAN").
(c) The Company maintains, sponsors or contributes only to those
employee welfare benefit plans (as defined in Section 3(1) of ERISA) for the
benefit of Employees or former Employees which are described in Part 2.15(c) of
the Company Disclosure Schedule (the "WELFARE PLANS"), none of which is a
multiemployer plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to Parent:
(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent summary
plan description, together with each Summary of Material Modifications, if
required under ERISA, with respect to such Plan, and all material employee
communications relating to such Plan;
(iv) if such Plan is funded through a trust or any third party
funding vehicle, an accurate and complete copy of the trust or other funding
agreement (including all amendments thereto) and accurate and complete copies
the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to
such Plan, including service provider agreements, insurance contracts, minimum
premium contracts, stop-loss agreements, investment management agreements,
subscription and participation agreements and recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
(e) The Company is not required to be, and, to the knowledge of the
Company, has never been required to be, treated as a single employer with any
other Person under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or
(o) of the Code. The Company has never been a member of an "affiliated service
group" within the meaning of Section 414(m) of the Code. To the knowledge of the
Company, the Company has never made a complete or partial withdrawal from a
multiemployer plan, as such term is defined in Section 3(37) of ERISA, resulting
in "withdrawal liability," as such term is defined in Section 4201 of ERISA
(without regard to subsequent reduction or waiver of such liability under either
Section 4207 or 4208 of ERISA).
-19-
<PAGE> 26
(f) The Company does not have any plan or commitment to create any
additional Welfare Plan or any Pension Plan, or to modify or change any existing
Welfare Plan or Pension Plan (other than to comply with applicable law) in a
manner that would affect any Employee.
(g) Except as set forth in Part 2.15(g) of the Company Disclosure
Schedule, no Welfare Plan provides death, medical or health benefits (whether or
not insured) with respect to any current or former Employee after any such
Employee's termination of service (other than (i) benefit coverage mandated by
applicable law, including coverage provided pursuant to Section 4980B of the
Code, (ii) deferred compensation benefits accrued as liabilities on the
Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which are
borne by current or former Employees (or the Employees' beneficiaries)).
(h) With respect to each of the Welfare Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, to the
knowledge of the Company, the provisions of Section 4980B of the Code ("COBRA")
have been complied with in all material respects.
(i) To the knowledge of the Company, each of the Plans has been
operated and administered in all material respects in accordance with applicable
Legal Requirements, including but not limited to ERISA and the Code.
(j) Each of the Plans intended to be qualified under Section 401(a)
of the Code has received a favorable determination from the Internal Revenue
Service or has time remaining in which to apply for such favorable determination
within the remedial amendment period under Section 401(b) of the Code and the
regulations thereunder, and the Company is not aware of any reason why any such
determination letter should be revoked or denied.
(k) Except as set forth in Part 2.15(k) of the Company Disclosure
Schedule, neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, will result in any payment (including any bonus, golden
parachute or severance payment) to any current or former Employee or director of
the Company (whether or not under any Plan), or materially increase the benefits
payable under any Plan, or result in any acceleration of the time of payment or
vesting of any such benefits.
(l) Part 2.15(l) of the Company Disclosure Schedule contains a list
of all salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees.
All of the Company's employees are "at will" employees.
-20-
<PAGE> 27
(m) Part 2.15(m) of the Company Disclosure Schedule identifies each
Employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.
(n) To the knowledge of the Company, the Company is in compliance in
all material respects with all applicable Legal Requirements and Contracts
relating to employment, employment practices, wages, bonuses and terms and
conditions of employment, including employee compensation matters.
(o) Except as set forth in Part 2.15(o) of the Company Disclosure
Schedule, to the knowledge of the Company, the Company has good labor relations
and (i) the consummation of the Merger or any of the other transactions
contemplated by this Agreement could not reasonably be expected to result in a
material adverse effect on the Company's labor relations, and (ii) none of the
Company's employees intends to terminate his or her employment with the Company
as a result of the Merger.
2.16 ENVIRONMENTAL MATTERS. The Company is in compliance with all
applicable Environmental Laws, which compliance includes the possession by the
Company of all permits and other Governmental Authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof, except where the failure to comply with such Environmental Laws has not
had and could not reasonably be expected to result in a Company Material Adverse
Effect. The Company has not received any written notice (including written
notices in electronic form), whether from a Governmental Body, citizens group,
employee or otherwise, that alleges that the Company is not in compliance with
any Environmental Law and, to the knowledge of the Company, there are no
circumstances that may prevent or interfere with the Company's compliance with
any Environmental Law in the future. To the knowledge of the Company, no current
or prior owner of any property leased or controlled by the Company has received
any notice or other communication (in writing or otherwise), whether from a
Government Body, citizens group, employee or otherwise, that alleges that such
current or prior owner or the Company is not in compliance with any
Environmental Law. All Governmental Authorizations currently held by the Company
pursuant to Environmental Laws are identified in Part 2.16 of the Company
Disclosure Schedule. For purposes of this Section 2.16: (i) "Environmental Law"
means any federal, state, local or foreign Legal Requirement relating to
pollution or protection of human health or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata), including
any law or regulation relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern; and (ii) "Materials
of Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is regulated by any Environmental Law.
2.17 INSURANCE. Part 2.17 of the Company Disclosure Schedule identifies
all insurance policies maintained by, at the expense of or for the benefit of
the Company and identifies any material claims made thereunder, and the Company
has delivered to Parent
-21-
<PAGE> 28
accurate and complete copies of the insurance policies identified on Part 2.17
of the Company Disclosure Schedule. Each of the insurance policies identified in
Part 2.17 of the Company Disclosure Schedule is in full force and effect. The
Company has not received any notice or other communication regarding any actual
or possible (a) cancellation or invalidation of any insurance policy, (b)
refusal of any coverage or rejection of any claim under any insurance policy, or
(c) material adjustment in the amount of the premiums payable with respect to
any insurance policy.
2.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.18 of the
Company Disclosure Schedule, to the knowledge of the Company: (a) no Related
Party has, and no Related Party has at any time had, any direct or indirect
interest in any material asset used in or otherwise relating to the business of
the Company; (b) no Related Party is, or has at any time been, indebted to the
Company; (c) no Related Party has entered into, or has had any direct or
indirect financial interest in, any Material Contract, transaction or business
dealing involving the Company; (d) no Related Party is competing, or has at any
time competed, directly or indirectly, with the Company; and (e) no Related
Party has any claim or right against the Company (other than rights under
Company Options and rights to receive compensation for services performed as an
employee of the Company). For purposes of this Agreement each of the following
shall be deemed to be a "Related Party": (i) each of the Shareholders; (ii) each
individual who is an officer of the Company; (iii) each member of the immediate
family of each of the individuals referred to in clauses (i) and (ii) above; and
(iv) any trust or other Entity (other than the Company) in which any one of the
individuals referred to in clauses (i), (ii) and (iii) above holds (or in which
more than one of such individuals collectively hold), beneficially or otherwise,
a material voting, proprietary or equity interest.
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.19(a) of the Company Disclosure
Schedule, there is no pending Legal Proceeding and, to the knowledge of the
Company, no Person has threatened to commence any Legal Proceeding: (i) that
involves the Company or any of the assets owned or used by the Company or any
Person whose liability the Company has retained or assumed, either contractually
or by operation of law; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the Merger
or any of the other transactions contemplated by this Agreement. To the
knowledge of the Company, except as set forth in Part 2.19(a) of the Company
Disclosure Schedule, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that will, or that could reasonably be
expected to, give rise to or serve as a basis for the commencement of any such
Legal Proceeding.
(b) Except as set forth in Part 2.19(b) of the Company Disclosure
Schedule, no Legal Proceeding has ever been commenced by or has ever been
pending against the Company.
(c) There is no order, writ, injunction, judgment or decree to which
the Company, or any of the assets owned or used by the Company, is subject. To
the knowledge of
-22-
<PAGE> 29
the Company, no officer or other employee of the Company is subject to any
order, writ, injunction, judgment or decree that prohibits such officer or other
employee from engaging in or continuing any conduct, activity or practice
relating to the Company's business.
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the
absolute and unrestricted right, power and authority to enter into and, subject
only to the approval by the Company's shareholders of this Agreement, the Merger
and each Related Agreement to which the Company is a party, to perform its
obligations under this Agreement and each Related Agreement to which the Company
is a party and the transactions contemplated hereby and thereby; and the
execution, delivery and, subject only to the approval by the Company's
shareholders of this Agreement and the Merger, performance by the Company of
this Agreement has been duly authorized by all necessary action on the part of
the Company and its board of directors. This Agreement constitutes a legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, and the Related Agreements to which the Company is a
party, when executed and delivered by the company, shall be legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
2.21 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.21 of
the Company Disclosure Schedule and subject to the approval of this Agreement
and the Merger by the Company's shareholders, neither (1) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to herein or therein, nor (2) the consummation of the Merger or any of
the other transactions contemplated by this Agreement, will directly or
indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the Company's articles of incorporation or bylaws, or (ii) any
currently effective resolution adopted by the Company's shareholders, the
Company's board of directors or any committee of the Company's board of
directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction, judgment
or decree to which the Company, or any of the assets owned or used by the
Company, is subject, other than such contravention, conflict, violation or right
to exercise any remedy that could not be reasonably likely to result in a
Company Material Adverse Effect;
(c) give any Governmental Body or other Person the right to
challenge any of the transactions contemplated by this Agreement;
(d) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that
-23-
<PAGE> 30
otherwise relates to the Company's business or to any of the assets owned or
used by the Company, other than any such contravention, conflict, violation or
right to revoke, withdraw, suspend, cancel, terminate or modify any such
Governmental Authorization which could not reasonably be expected to result in a
Company Material Adverse Effect;
(e) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Material Contract, or give
any Person the right to (i) declare a default or exercise any remedy under any
such Material Contract, (ii) accelerate the maturity or performance of any such
Material Contract, or (iii) cancel, terminate or modify any such Material
Contract; or
(f) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens, pledges, hypothecations, charges, mortgage, and
security interests that will not, individually or in the aggregate, materially
detract from the value of the assets subject thereto or materially impair the
operations of the Company).
Except as set forth in Part 2.21 of the Company Disclosure Schedule and except
for (i) the filing of the Agreement of Merger with the Washington Secretary of
State and appropriate documents in other states where the Company is qualified
to do business, and (ii) obtaining the approval by the Company's shareholders of
this Agreement and the Merger, the Company is not and will not be required to
make any filing with or give any notice to, or to obtain any Consent from, any
Person in connection with (x) the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement, or (y)
the consummation of the Merger or any of the other transactions contemplated by
this Agreement.
2.22 BROKERS. The Company has not, nor have any of its directors,
officers, securityholders or employees, employed any broker or finder (other
than Broadview International LLC) or incurred any liability (other than to
Broadview International LLC) for any brokerage fees, commissions or finders'
fees in connection with the transactions contemplated hereby. The Company has
previously furnished to Parent a complete and correct copy of all agreements
between the Company and Broadview International LLC pursuant to which such firm
would be entitled to any payment relating to the transactions contemplated by
this Agreement (collectively, the "BROADVIEW EXPENSES").
2.23 POOLING MATTERS. Neither the Company nor any of its Affiliates has,
to its knowledge and based upon consultation with its independent accountants,
taken or agreed to take any action that (without giving effect to any action
taken or agreed to be taken by Parent or any of its Affiliates) would affect the
ability of Parent to account for the business combination to be effected by the
Merger as a pooling of interests.
-24-
<PAGE> 31
2.24 FINANCIAL PERFORMANCE. During the period from July 1, 1999 to
September 10, 1999, the Company received binding customer orders arising from
bona fide transactions entered into in the ordinary course of business in an
aggregate amount of at least $1,298,000.
2.25 COMPLIANCE WITH THE HART-SCOTT-RODINO ACT. The Company's total
assets and annual net sales do not exceed $10,000,000 within the meaning of, and
calculated in accordance with, the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, Section 7A(a)(3) of the Clayton Act, 15 U.S.C. Section 18A,
and the regulations promulgated thereunder.
2.26 FULL DISCLOSURE.
(a) This Agreement (including the Company Disclosure Schedule) does
not, and the Officer's Closing Certificate will not, (i) contain any
representation, warranty or information that is false or misleading with respect
to any material fact, or (ii) omit to state any material fact necessary in order
to make the representations, warranties and information contained and to be
contained herein and therein (in the light of the circumstances under which such
representations, warranties and information were or will be made or provided)
not false or misleading.
(b) In the event that information regarding the Merger is prepared
by the Company and distributed to its shareholders, such information will not
contain any statement that is inaccurate or misleading with respect to any
material fact.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each of the Shareholders, severally (and not jointly), represents and
warrants to Parent and Merger Sub with respect to himself, herself or itself as
follows:
3.1 TITLE; ABSENCE OF CERTAIN AGREEMENTS. Such Shareholder is the lawful
and record and beneficial owner of, and has good and valid title to, the shares
of Company Stock set forth opposite the name of such Shareholder in Part 2.3(a)
of the Company Disclosure Schedule, with the full power and authority to vote
such shares and transfer and otherwise dispose of such shares, and any and all
rights and benefits incident to the ownership thereof free and clear of all
Encumbrances. Except as set forth in Part 3.1 of the Company Disclosure
Schedule, there are no agreements or understandings between such Shareholder and
the Company and/or any other Shareholder or any other person with respect to the
voting, sale or other disposition of Company Common Stock or any other matter
relating to Company Stock.
3.2 AUTHORITY. Such Shareholder has full and absolute power and
authority to enter into this Agreement and each Related Agreement to which such
Shareholder is a party and this Agreement and each Related Agreement to which
such Shareholder is a party have been duly executed and delivered by such
Shareholder, and are valid and binding obligations of such Shareholder,
enforceable against such Shareholder in accordance with their respective terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies. Neither the execution, delivery
and performance of this Agreement or any Related
-25-
<PAGE> 32
Agreement to which such Shareholder is a party, nor the consummation of the
transactions contemplated hereby or thereby nor compliance by such Shareholder
with any of the provisions hereof or thereof will (i) (A) conflict with, (B)
result in any violations of, (C) cause a default under (with or without due
notice, lapse of time or both), (D) give rise to any right of termination,
amendment, cancellation or acceleration of any obligation contained in or the
loss of any material benefit under or (E) result in the creation of any
Encumbrance upon or against any assets, rights or property of the Company (or
against any Company Stock, Parent capital stock or common stock of the Surviving
Corporation), under any term, condition or provision of (x) any agreement or
instrument to which such Shareholder is a party, or by which such Shareholder or
any of his, her or its properties, assets or rights may be bound, or (y) any
law, statute, rule, regulation, order, writ, injunction, decree, permit,
concession, license or franchise of any Governmental Body applicable to such
Shareholder or any of his, her or its properties, assets or rights, which
conflict, breach, default or violation or other event would prevent the
consummation of the transactions contemplated by this Agreement or any Related
Agreement. No permit, authorization, consent or approval of or by, or any
notification of or filing with, any Governmental Body or other person is
required in connection with the execution, delivery and performance by such
Shareholder of this Agreement and each Related Agreement to which such
Shareholder is a party or the consummation by such Shareholder of the
transactions contemplated hereby or thereby.
3.3 INVESTMENT REPRESENTATIONS. Such Shareholder:
(a) is acquiring the Parent Common Stock being issued to such
Shareholder in connection with the Merger (the "MERGER SHARES") for investment
and for such Shareholder's own account and not as a nominee or agent for any
other person and with no present intention of distributing or reselling such
shares or any part thereof in any transactions that would be in violation of the
Securities Act or any state securities or "blue-sky" laws;
(b) understands (A) that the Parent Common Stock to be issued to
him, her or it have not been registered for sale under the Securities Act or any
state securities or "blue-sky" laws in reliance upon exemptions therefrom, which
exemptions depend upon, among other things, the bona fide nature of the
investment intent of such Shareholder as expressed herein, (B) that such Merger
Shares must be held indefinitely and not sold until such shares are registered
under the Securities Act and any applicable state securities or "blue-sky" laws,
unless an exemption from such registration is available, (C) that, except as
provided in the Investor Rights Agreement (as defined in Section 7.5(n) below),
Parent is under no obligation to register such Merger Shares and (D) that the
certificates evidencing such Merger Shares will be imprinted with a legend in
the form set forth in Section 11.1 that prohibits the transfer of such shares,
except as provided in Section 11.1;
(c) has been furnished with, and has read and reviewed, the Parent's
SEC Documents;
-26-
<PAGE> 33
(d) has had an opportunity to ask questions of and has received
satisfactory answers from the officers of Parent or persons acting on Parent's
behalf concerning Parent and the terms and conditions of an investment in Parent
Common Stock;
(e) is aware of Parent's business affairs and financial condition
and has acquired sufficient information about Parent to reach an informed and
knowledgeable decision to acquire the Merger Shares to be issued to such
Shareholder;
(f) can afford to suffer a complete loss of his, her or its
investment in such Merger Shares;
(g) is familiar with the provisions of Rule 144 promulgated under
the Securities Act which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof, in a non-public offering subject to the satisfaction of certain
requirements, including, among other things: (A) the availability of certain
public information about the issuer, (B) the resale occurring not less than one
year after the party has purchased, and made full payment for, within the
meaning of Rule 144, the securities to be sold; and, in the case of an
affiliate, or of a non-affiliate who has held the securities less than two
years, the amount of securities being sold during any three month period not
exceeding the specified limitations stated therein, and (C) the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a "market maker" (as such term is defined under the Exchange Act);
(h) understands that in the event all of the applicable requirements
of Rule 144 are not satisfied, registration under the Securities Act, compliance
with Regulation A, or some other registration exemption will be required; and
that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the
SEC has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk;
(i) has such knowledge and experience in financial and business
matters that he, she or it is capable of evaluating the merits and risks of
acquiring and holding the shares of Parent Common Stock to be issued in
connection with the Merger; and
(j) except as set forth in Part 3.3(j) of the Company Disclosure
Schedule, is an "accredited investor" within the meaning of Rule 501(a) under
the Securities Act.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to the
Company and the Shareholders as follows:
-27-
<PAGE> 34
4.1 ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. Each of Parent
and Merger Sub (i) is a corporation duly organized, validly existing and in good
standing under the laws of its respective state of incorporation and (ii) has
all requisite corporate power and corporate authority to own, lease and operate
its properties and assets and to carry on its business as now being conducted,
to enter into this Agreement and each Related Agreement to which it is a party,
to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby or thereby. Parent has delivered to the Company
true and correct copies of Parent's Certificate of Incorporation and Bylaws and
Merger Sub's Articles of Incorporation and Bylaws, each as amended to date.
Neither Parent nor any of its subsidiaries is in violation of any material
provisions of its Certificate of Incorporation or Bylaws or equivalent
organizational documents.
4.2 PARENT CAPITALIZATION. The authorized capital stock of Parent
consists of 75,000,000 shares of Common Stock, $.001 par value per share, of
which 21,874,844 shares were issued and outstanding as of the close of business
on August 31, 1999, and 5,000,000 shares of Preferred Stock, $.001 par value per
share, of which no shares were issued and outstanding as of the close of
business on August 31, 1999. As of the close of business on August 31, 1999,
Parent had reserved (a) 6,330,000 shares of Common Stock for issuance to
employees and independent contractors pursuant to Parent's 1996 Stock Option
Plan (the "PARENT EMPLOYEE STOCK OPTION PLAN"), of which, as of August 31, 1999,
4,073,942 shares had been issued pursuant to option exercises and 1,375,774
shares were subject to outstanding, unexercised options and (b) 250,000 shares
of Common Stock for issuance to directors pursuant to Parent's 1999 Directors'
Stock Option Plan (the "PARENT DIRECTORS STOCK OPTION PLAN"), of which, as of
August 31, 1999, no shares had been issued pursuant to option exercises and
50,000 shares were subject to outstanding, unexercised options. As of August 31,
1999, 20,000 shares of Common Stock were issuable pursuant to an outstanding
warrant. There are no other outstanding shares of capital stock or voting
securities of Parent other than shares of Parent Common Stock issued after the
date of this Agreement upon the exercise of options issued under the Parent
Employee Stock Option Plan or the Parent Directors Stock Option Plan. Other than
as contemplated under this Agreement, there are no other options, warrants,
calls, rights, commitments or agreements of any character to which Parent or
Merger Sub is a party or by which either of them is bound obligating Parent or
Merger Sub to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
Parent or Merger Sub or obligating Parent or Merger Sub to grant, extend or
enter into any such option, warrant, call, right, commitment or agreement.
4.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement and the Related
Agreements do 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 Certificate of Incorporation or Bylaws of Parent
or the Articles of Incorporation of Bylaws of Merger Sub, as amended, or (ii)
any material mortgage, indenture, lease, contract or other material agreement or
instrument, permit, concession,
-28-
<PAGE> 35
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or Merger Sub or their properties or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Body, is required by
or with respect to Parent or Merger Sub in connection with the execution and
delivery of this Agreement by Parent and Merger Sub or the consummation by
Parent and Merger Sub of the transactions contemplated hereby, except for (i)
the filing of appropriate merger documents as required by Washington law, (ii)
the filing of a Form 8-K with the SEC and National Association of Securities
Dealers ("NASD") within 15 days after the Closing Date, (iii) any filings as may
be required under applicable state securities laws and the securities laws of
any foreign country and (iv) the filing with the Nasdaq National Market of a
Notification Form for Listing of Additional Shares with respect to the shares of
Parent Common Stock to be issued to the Shareholders in connection with the
Merger and upon exercise of the options under the Company Stock Option Plan
assumed by Parent, and (vi) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Parent Material Adverse Effect and would not prevent, materially alter or
materially delay any the transactions contemplated by this Agreement.
4.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company accurate and complete copies
of each report, registration statement (on a form other than Form S-8 or 8-A)
and definitive proxy statement filed by Parent with the SEC between May 1, 1999
and the date of this Agreement, which are all the documents (other than
preliminary material) that Parent was required to file (or otherwise did file)
with the SEC in accordance with Section 6(a) of the Securities Act or Sections
13, 14 and 15(d) of the Exchange Act since May 1, 1999 (collectively, the
"PARENT'S SEC DOCUMENTS"). As of the time it was filed with the SEC (or, if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing): (i) each of the Parent's SEC Documents complied in all
material respects with the applicable requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations promulgated by
the SEC thereunder; and (ii) none of the Parent's SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(b) The financial statements (including the notes thereto) contained
in the Parent's SEC Documents: (i) complied as to form in all material respects
with the published rules and regulations of the SEC applicable thereto; (ii)
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered, except as may be
indicated in the notes to such financial statements and (in the case of
unaudited statements) as permitted by Form 10-Q of the SEC, and except that
unaudited financial statements may not contain footnotes and are subject to
normal and recurring year-end audit adjustments, which will not, individually or
in the aggregate, be material in magnitude; and (iii) fairly present in all
material respects the financial position of Parent as of the respective dates
thereof and the results of operations, shareholders' equity and cash flows of
Parent for the
-29-
<PAGE> 36
periods covered thereby. There has been no material change in Parent's
accounting policies except as described in the notes to the financial statements
included as part of Parent's final Prospectus dated July 30, 1999.
4.5 ABSENCE OF UNDISCLOSED LIABILITIES. Parent 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 Parent's Quarterly Report on Form 10-Q heretofore
provided to the Company for the period ended June 30, 1999 (the "PARENT BALANCE
SHEET"), (ii) those incurred in the ordinary course of business and not required
to be set forth in the Parent Balance Sheet under United States generally
accepted accounting principles, and (iii) those incurred in the ordinary course
of business since the Parent Balance Sheet Date and consistent with past
practice.
4.6 ABSENCE OF CERTAIN CHANGES. Since June 30, 1999 (the "PARENT BALANCE
SHEET DATE"), Parent has conducted its business in the ordinary course in a
manner 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 Parent Material Adverse Effect;
(ii) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of Parent, or any direct or indirect
redemption, purchase or other acquisition by Parent of any of its shares of
capital stock; (iii) any material amendment or change to Parent's Certificate of
Incorporation or Bylaws; or (iv) any negotiation or agreement by Parent to do
any of the things described in the preceding clauses (i) through (iii) (other
than negotiations with the Company and its representatives regarding the
transactions contemplated by this Agreement).
4.7 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 Parent, threatened
against Parent or any of its subsidiaries or any of their respective properties
or any of their respective officers or directors (in their capacities as such)
that, individually or in the aggregate, could reasonably be expected to have a
Parent Material Adverse Effect. There is no judgment, decree or order against
Parent or any of its subsidiaries or, to the knowledge of Parent or any of its
subsidiaries, any of their respective directors or officers (in their capacities
as such) that could reasonably be expected to prevent, enjoin, or materially
alter or delay any of the transactions contemplated by this Agreement, or that
could reasonably be expected to have a Parent Material Adverse Effect.
4.8 GOVERNMENTAL AUTHORIZATION. Each of Parent and its subsidiaries has
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Body that is
required for the operation of Parent's or any of its subsidiaries' business
("PARENT AUTHORIZATIONS"), and all of such Parent Authorizations are in full
force and effect, except where the failure to obtain or have any of such Parent
Authorizations could not reasonably be expected to have a Parent Material
Adverse Effect.
4.9 COMPLIANCE WITH LAWS. Each of Parent and its subsidiaries has
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal,
-30-
<PAGE> 37
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 reasonably be expected to have a
Parent Material Adverse Effect.
4.10 ACCOUNTING AND TAX MATTERS; POOLING OF INTERESTS.
(a) Parent is not aware of any agreement, plan or other circumstance
that would prevent the Merger from constituting a reorganization under Section
368(a) of the Code.
(b) Neither Parent nor any of its subsidiaries nor, to the knowledge
of Parent, any of their respective directors, officers or stockholders has taken
any action which would interfere with Parent's ability to account for the Merger
as a "pooling-of-interests."
4.11 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the right, power and authority to perform their obligations under this Agreement
and the Related Agreements to which Parent or Merger Sub, as applicable, is a
party and the transactions contemplated hereby and thereby; and the execution,
delivery and performance by each of Parent and Merger Sub of this Agreement, the
Related Agreements to which it is a party and the transactions contemplated
hereby and thereby (including the contemplated issuance of Parent Common Stock
in the Merger in accordance with this Agreement) have been duly authorized by
all necessary corporate action on the part of Parent and Merger Sub, their
respective boards of directors and the shareholder of Merger Sub. No vote of
Parent's Shareholders is required to approve the Merger. This Agreement
constitutes the legal, valid and binding obligation of Parent and Merger Sub,
enforceable against them in accordance with its terms, and the Related
Agreements to which they are a party, when executed and delivered by Parent and
Merger Sub, as applicable, shall be legal, valid and binding obligations of
Parent and Merger Sub, as applicable, enforceable against them in accordance
with their respective terms, in each case subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
4.12 VALID ISSUANCE. The Merger Shares will, when issued in accordance
with the provisions of this Agreement and the Agreement of Merger, be duly
authorized, validly issued, fully paid and nonassessable and free of preemptive
rights and Encumbrances. Parent owns all the outstanding shares of capital stock
of Merger Sub and all of such shares are duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights or Encumbrances.
SECTION 5. CERTAIN COVENANTS OF THE COMPANY AND THE SHAREHOLDERS
5.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time or the earlier termination of this
Agreement pursuant to Section 9.1 (the "PRE-CLOSING PERIOD"), the Company shall,
and shall cause its Representatives to, (a) provide Parent and Parent's
Representatives with reasonable access to the Company's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the Company; and (b)
provide Parent and
-31-
<PAGE> 38
Parent's Representatives with copies of such existing books, records, Tax
Returns, work papers and other documents and information relating to the
Company, and with such additional financial, operating and other data and
information regarding the Company, as Parent may reasonably request.
5.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing Period,
without the prior written consent of Parent:
(a) the Company shall conduct its business and operations in the
ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(b) the Company shall use all commercially reasonable efforts to
preserve intact its current business organization, keep available the services
of its current officers and employees and maintain its relations and good will
with all suppliers, customers, landlords, creditors, employees and other Persons
having business relationships with the Company;
(c) the Company shall use all commercially reasonable efforts to
keep in full force all insurance policies identified in Part 2.17 of the Company
Disclosure Schedule;
(d) the Company shall cause its officers to respond to reasonable
requests from Parent and Parent's Representatives for information concerning the
status of the Company's business;
(e) the Company shall not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, and shall not repurchase, redeem or otherwise reacquire any shares of
capital stock or other securities (except that the Company may repurchase
Company Common Stock from former employees pursuant to the terms of existing
restricted stock purchase agreements);
(f) the Company shall not sell, issue or authorize the issuance of
(i) any capital stock or other security, (ii) any option or right to acquire any
capital stock or other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security (except that the Company
shall be permitted (x) to grant stock options to employees in accordance with
its past practices, (y) to issue Company Common Stock to employees upon the
exercise of outstanding Company Options, and (z) to issue shares of Company
Common Stock upon the conversion of shares of Series A Preferred Stock or Series
B Preferred Stock);
(g) the Company shall not amend or waive any of its rights under, or
modify the vesting provisions under, (i) any provision of the Company Option
Plan, (ii) any provision of any agreement evidencing any outstanding Company
Option, or (iii) any provision of any restricted stock purchase agreement;
(h) neither the Company nor any of the Shareholders shall amend or
permit the adoption of any amendment to the Company's articles of incorporation
or bylaws, or effect or permit the Company to become a party to any Acquisition
Transaction, recapitalization,
-32-
<PAGE> 39
reclassification of shares, stock split, reverse stock split or similar
transaction (except that the Company may issue shares of Company Common Stock
upon the conversion of shares of Series A Preferred Stock or Series B Preferred
Stock);
(i) the Company shall not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(j) the Company shall not amend or prematurely terminate, or waive
any material right or remedy under, any Material Contract;
(k) the Company shall not (i) acquire, lease or license any right or
other asset from any other Person other than in the ordinary course of business
consistent with past practice, or (ii) sell or otherwise dispose of, or lease or
license, any right or other asset to any other Person other than in the ordinary
course