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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
STAMPS.COM INC.,
ROCKET ACQUISITION CORP.
AND
ISHIP.COM, INC.
Dated as of October 22, 1999
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 22, 1999, by and among
Stamps.com Inc., a Delaware corporation (the "Parent"), Rocket Acquisition
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Corp., a Washington corporation and a wholly owned subsidiary of the Parent
("Merger Sub"), and iShip.com, Inc., a Washington corporation (the "Company"),
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and with respect to Section 7.2 only, U.S. Stock Transfer Corporation, as
Depositary. Capitalized terms used and not otherwise defined herein have the
meanings ascribed to them in Article 10.
RECITALS
A. The Boards of Directors of each of the Parent, Merger Sub and the
Company believe it is in the best interests of the Parent, Merger Sub and the
Company (as applicable) and their respective shareholders that the Parent
acquire the Company through the merger of Merger Sub with and into the Company
(the "Merger").
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B. The Boards of Directors of each of the Parent, Merger Sub and the
Company have approved this Agreement, the Merger and the other transactions
contemplated hereby.
C. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, (i) all of the issued and outstanding shares
of capital stock of the Company shall be converted into the right to receive
shares of common stock, par value $0.001 per share, of the Parent ("Parent
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Common Stock"), and (ii) all outstanding Company Options and Company Warrants
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will become exercisable for Parent Common Stock, subject to the terms and
conditions set forth herein.
D. As an inducement to the Parent and Merger Sub to enter into this
Agreement, certain shareholders of the Company have, concurrently herewith,
entered into Support Agreements with the Parent in substantially the form
attached hereto as Exhibit A (the "Support Agreements") pursuant to which, among
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other things, such shareholders have agreed to vote the shares of Company
Capital Stock owned by them in favor of the Merger.
E. The Parent, Merger Sub and the Company intend that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Code,
and in furtherance thereof, intend that this Agreement shall be a "Plan of
Reorganization" within the meaning of Sections 354(a) and 361(a) of the Code.
F. The Company, the Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
G. A portion of the shares of Parent Common Stock otherwise issuable or
reserved for issuance by the Parent in connection with the Merger shall be
placed in escrow as set forth in Article 7 herein.
H. As an inducement to the Parent and Merger Sub to enter into this
Agreement, certain officers and employees of the Company have entered into
employment agreements with the Parent (the "Employment Agreements") whose term
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will commence on the Closing Date.
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NOW, THEREFORE, in consideration of the covenants, agreements,
representations and warranties set forth herein, the parties, intending to be
legally bound hereby, agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time and subject to and upon the terms
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and conditions of this Agreement and the applicable provisions of the Washington
Code, Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease, and the Company shall continue as
the surviving corporation (sometimes referred to herein as the "Surviving
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Corporation").
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1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
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to Section 8.1, the closing of the Merger (the "Closing") will take place as
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promptly as practicable, but no later than five Business Days following
satisfaction or waiver of the conditions set forth in Article 6, at the offices
of Brobeck, Phleger & Harrison LLP, 38 Technology Drive, Irvine, California,
unless another place or time is agreed to by the Parent and the Company. The
date upon which the Closing actually occurs is herein referred to as the
"Closing Date." On the Closing Date, the parties hereto shall cause the Merger
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to be consummated by filing Articles of Merger (or like instrument), in
substantially the form attached hereto as Exhibit B (the "Articles of Merger"),
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with the Secretary of State of the State of Washington, in accordance with
applicable Laws (the date and time of acceptance by the Secretary of State of
the State of Washington of such filing, or such later time agreed to by the
parties and set forth in the Articles of Merger, being referred to herein as the
"Effective Time").
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1.3 Effect of the Merger on Constituent Corporations. At the Effective
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Time, the Merger shall have the effects provided for in the applicable
provisions of the Washington Code. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Merger Sub and the Company shall vest in
the Surviving Corporation, and all debts, liabilities, obligations,
restrictions, disabilities and duties of Merger Sub and the Company shall become
the debts, liabilities, obligations, restrictions, disabilities and duties of
the Surviving Corporation.
1.4 Articles of Incorporation and Bylaws of Surviving Corporation.
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(a) At the Effective Time, the articles of incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the articles
of incorporation of the Surviving Corporation until thereafter amended as
provided by law and such articles of incorporation and bylaws of the Surviving
Corporation, except that Article I thereof shall be amended to read in its
entirety as follows: "The name of the Corporation is iShip.com, Inc."
(b) The bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter amended as provided by such bylaws, the articles of incorporation and
applicable law.
1.5 Directors and Officers of Surviving Corporation. The directors of
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Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, each to hold office in accordance with the articles of
incorporation and bylaws of the Surviving
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Corporation. The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, each to hold office in
accordance with the bylaws of the Surviving Corporation.
1.6 Maximum Number of Shares of Parent Common Stock to be Issued; Effect
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on Outstanding Securities of the Company.
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(a) The maximum number of shares of Parent Common Stock to be issued
(including Parent Common Stock to be reserved for issuance upon exercise of any
of the Company Options or Company Warrants to be assumed by the Parent as
provided herein) in the Merger and in exchange for all vested and unvested
Company Options and Company Warrants shall be the Aggregate Merger Share Number.
No increase shall be made in the number of shares of Parent Common Stock
issuable as a result of the transactions contemplated by this Agreement arising
from any consideration (except for deemed share consideration arising from the
net exercise provisions of any Company Options or Company Warrants, which share
consideration shall continue to be outstanding shares of Company Capital Stock
at the Closing and through the Escrow Period) received by the Company from the
date hereof to the Effective Time as a result of any exercise, conversion or
exchange of Company Options, or Company Warrants.
(b) Subject to the terms and conditions of this Agreement, as of the
Effective Time, by virtue of the Merger and without any action on the part of
the Parent or Merger Sub, the Company or the holder of any shares of the Company
Capital Stock and Company Options or Company Warrants, the following shall
occur:
(i) Conversion of Company Common Stock. At the Effective
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Time, each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of Company Common Stock to be
canceled pursuant to Section 1.6(b)(iv) and any Dissenting Shares (as provided
in Section 1.7)) will be converted automatically into the right to receive that
number of shares of Parent Common Stock equal to the Common Stock Exchange
Ratio, rounded down to the nearest whole share of Parent Common Stock.
(ii) Conversion of Series A Preferred Stock. At the Effective
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Time, each share of Company Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Company Series
A Preferred Stock to be cancelled pursuant to Section 1.6(b)(iv) and any
Dissenting Shares (as provided in Section 1.7)) will be automatically converted
into the right to receive that number of shares of Parent Common Stock equal to
the Series A Exchange Ratio, rounded down to the nearest whole share of Parent
Common Stock.
(iii) Conversion of Series B Preferred Stock. At the Effective
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Time, each share of Company Series B Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Company Series
B Preferred Stock to be cancelled pursuant to Section 1.6(b)(iv) and any
Dissenting Shares (as provided in Section 1.7)) will be automatically converted
into the right to receive that number of shares
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of Parent Common Stock equal to the Series B Exchange Ratio, rounded down to the
nearest whole share of Parent Common Stock.
(iv) Cancellation of Parent-Owned and Company-Owned Stock. Each
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share of Company Capital Stock owned by the Parent or the Company or any
Subsidiary of the Parent or the Company immediately prior to the Effective Time
shall be automatically canceled and extinguished without any consideration in
respect thereof and without any further action on the part of the Parent, Merger
Sub or the Company.
(v) Company Options and Stock Plan. At the Effective Time all
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unexpired and unexercised Company Options and Company Warrants then outstanding,
whether vested or unvested, together with the Company's Amended and Restated
1997 Stock Plan (the "Stock Plan"), shall be assumed by the Parent in accordance
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with provisions described below.
(A) At the Effective Time, each unexpired and unexercised
Company Option and Company Warrant then outstanding, whether vested or
unvested, together with the Stock Plan, shall be, in connection with the
Merger, assumed by the Parent. Each Company Option and Company Warrant so
assumed by the Parent under this Agreement shall continue to have, and be
subject to, the same terms and conditions as were applicable to such
Company Option or Company Warrant immediately prior to the Effective Time;
provided that (1) such Company Option or Company Warrant, as the case may
be, shall be exercisable for that number of whole shares of Parent Common
Stock equal to the product of the number of shares of Company Capital Stock
that were issuable upon exercise of such Company Option or Company Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio
applicable to the series or class of Company Capital Stock subject to the
Company Option or Company Warrant (rounded down to the nearest whole number
of shares of Parent Common Stock) and (2) the per share exercise price for
the shares of Parent Common Stock issuable upon exercise of such assumed
Company Option or Company Warrant, as the case may be, shall be equal to
the quotient determined by dividing the exercise price per share of Company
Capital Stock at which such Company Option or Company Warrant was
exercisable immediately prior to the Effective Time by the Exchange Ratio
applicable to the series or class of Company Capital Stock subject to the
Company Option or Company Warrant (rounded up to the nearest whole cent).
(B) It is the intention of the parties that the Company
Options assumed by the Parent shall qualify following the Effective Time as
incentive stock options as defined in Section 422 of the Code to the same
extent the Company Options qualified as incentive stock options immediately
prior to the Effective Time and the provisions of this Section 1.6(b)(v)
shall be applied consistent with this intent.
(C) At the Effective Time, the Parent shall succeed to the
Company's rights and assume the Company's obligations under any Restricted
Stock Purchase Agreements. Any and all restrictions on the Company
Restricted Stock issued pursuant to the Stock Plan or such other agreements
which do not lapse in
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accordance with their terms as in effect on the date of this Agreement
shall continue in full force and effect until such restrictions lapse
pursuant to the terms of such agreements.
(D) Notwithstanding the foregoing, the Series B Preferred
Stock Purchase Warrant, dated April 27, 1999 (the "MBE Warrant"), by and
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between the Company and Mail Boxes Etc. USA, Inc. ("MBE"), shall, subject
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to the consent of MBE, be modified, at the Effective Time, to be a warrant
of the Parent on terms and subject to conditions identical to the MBE
Warrant, except that such warrant shall be exercisable for the number of
whole shares of Parent Common Stock equal to the product of the number of
shares of Series B Preferred Stock that were issuable upon exercise of the
MBE Warrant immediately prior to the Effective Time multiplied by the
Series B Exchange Ratio (rounded down to the nearest whole number of shares
of Parent Common Stock) and the per share exercise price for the shares of
Parent Common Stock issuable upon exercise of such warrant shall be equal
to the quotient determined by dividing the exercise price per share of
Series B Preferred Stock under the MBE Warrant by the Series B Exchange
Ratio (rounded up to the nearest whole cent).
(vi) Adjustments to Exchange Ratios. The Exchange Ratios
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shall be equitably adjusted to reflect fully the effect of any stock split,
reverse split, stock combination, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock or Company
Capital Stock), reorganization, reclassification, recapitalization or other like
change with respect to Parent Common Stock or Company Capital Stock occurring on
or after the date hereof and prior to the Effective Time.
(vii) Capital Stock of Merger Sub. Each share of common stock,
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no par value per share, of Merger Sub, issued and outstanding immediately prior
to the Effective Time shall be converted into and exchanged for one validly
issued, fully paid and nonassessable share of common stock, no par value per
share, of the Surviving Corporation. Each share certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation.
1.7 Dissenting Shares.
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(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Capital Stock held by a holder who has demanded and
perfected dissenters' rights for such shares in accordance with Washington Code
and who, as of the Effective Time, has not effectively withdrawn or lost such
dissenters' rights ("Dissenting Shares") shall not be converted into or
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represent a right to receive shares of Parent Common Stock pursuant to Section
1.6, but the holder thereof shall only be entitled to such rights as are granted
by the Washington Code.
(b) Notwithstanding the provisions of subsection (a) above, if any
holder of shares of Company Capital Stock who demands purchase of such shares
under the Washington Code shall effectively withdraw or lose (through failure to
perfect or otherwise) such holder's dissenters' rights, then, as of the later of
(i) the Effective Time or (ii) the occurrence of such withdrawal or loss, such
holder's shares shall automatically be converted
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into and represent only the right to receive shares of Parent Common Stock as
provided in Section 1.6, without interest thereon, upon surrender of the
certificate representing such shares.
(c) The Company shall give the Parent (i) prompt notice of its
receipt of any written demands for appraisal of any shares of Company Capital
Stock, withdrawals of such demands, and any other instruments relating to the
Merger served pursuant to the Washington Code and received by the Company and
(ii) the opportunity to participate in all negotiations and proceedings with
respect to demands for appraisal of any shares of Company Capital Stock under
the Washington Code. The Company shall not, except with the prior written
consent of the Parent or as may be required under applicable law, voluntarily
make any payment with respect to any demands for appraisal of Company Capital
Stock or offer to settle or settle any such demands.
1.8 Exchange Procedures.
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(a) Parent Common Stock. On the Closing Date, the Parent shall issue
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in accordance with this Article 1, the aggregate number of shares of Parent
Common Stock issuable in exchange for outstanding shares of Company Capital
Stock; provided, however, that, on behalf of the holders of Company Capital
Stock, the Parent shall deposit into an escrow account a number of shares of
Parent Common Stock equal to the Escrow Amount. The portion of the Escrow
Amount contributed on behalf of each holder of Company Capital Stock shall be in
proportion to the aggregate number of shares of Parent Common Stock which such
holder would otherwise be entitled to receive by virtue of ownership of
outstanding shares of Company Capital Stock.
(b) Exchange Procedures. At the Closing, each holder of record of a
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certificate or certificates (the "Certificates") which immediately prior to the
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Effective Time represented outstanding shares of Company Capital Stock and which
shares were converted into the right to receive shares of Parent Common Stock
pursuant to Section 1.6, shall deliver the Certificates to the Parent. Upon
surrender of a Certificate for cancellation and a stock power indorsed in blank
with respect to the shares held pursuant to Article 7, the Parent shall deliver
to the holder of such Certificate in exchange therefor a certificate
representing the number of whole shares of Parent Common Stock (less the number
of shares of Parent Common Stock to be deposited in the Escrow Fund on such
holder's behalf pursuant to Article 7 hereof), to which such holder is entitled
pursuant to Section 1.6, and the Certificate so surrendered shall be canceled.
As soon as practicable after the Effective Time, and subject to and in
accordance with the provisions of Article 7 hereof, the Parent shall cause to be
distributed to the Depositary a certificate or certificates (in such
denominations as may be requested by the Depositary), registered in the name of
each former shareholder of the Company, representing that number of shares of
Parent Common Stock equal to the Escrow Amount. Such shares shall be
beneficially owned by the holders on whose behalf such shares were deposited in
the Escrow Fund and shall be available to compensate the Parent as provided in
Article 7. Until surrendered, each outstanding Certificate will be deemed, from
and after the Effective Time, for all corporate purposes, other than the payment
of dividends, to evidence the ownership of the number of full shares of Parent
Common Stock into which such shares of Company Capital Stock shall have been so
converted.
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(c) Distributions With Respect to Unexchanged Shares of Company
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Capital Stock. No dividends or other distributions with respect to Parent
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Common Stock declared or made after the Effective Time and with a record date
after the Effective Time will be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock represented
thereby until the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange for any such
unsurrendered Certificates, without interest, at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such shares of Parent Common
Stock.
(d) Transfers of Ownership. If any certificate for shares of Parent
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Common Stock is to be issued pursuant to the Merger in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it will be
a condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to the Parent, or any agent designated
by it, any transfer or other taxes required by reason of the issuance of a
certificate for shares of Parent Common Stock in any name other than that of the
registered holder of the Certificate surrendered, or established to the
satisfaction of the Parent or any agent designated by it that such tax has been
paid or is not payable.
1.9 No Further Ownership Rights in Company Capital Stock. All shares of
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Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of Company
Capital Stock, and there shall be no further registration of transfers on the
records of the Company of shares of Company Capital Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article 1.
1.10 Lost, Stolen or Destroyed Certificates. In the event any
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certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Parent shall issue certificates representing such
shares of Parent Common Stock in exchange for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the holder
thereof; provided, however, that the Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to provide an indemnity or deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may be
made against the Parent with respect to the Certificates alleged to have been
lost, stolen or destroyed.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and Merger
Sub, subject to such exceptions as are specifically disclosed with respect to
specific sections of this Article 2 in the Disclosure Letter as follows:
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2.1 Organization and Qualification. The Company is a corporation duly
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organized, validly existing under the laws of the State of Washington, and has
full corporate power and authority to conduct its business as now conducted and
as currently proposed to be conducted and to own, use, license and lease its
Assets and Properties. The Company is duly qualified, licensed or admitted to do
business and is in good standing in each jurisdiction in which the ownership,
use, licensing or leasing of its Assets and Properties, or the conduct or nature
of its business, makes such qualification, licensing or admission necessary,
except for such failures to be so duly qualified, licensed or admitted and in
good standing that could not reasonably be expected to have a material adverse
effect on the Business or Condition of the Company. Section 2.1 of the
Disclosure Letter sets forth each jurisdiction where the Company is so
qualified, licensed or admitted to do business and separately lists each other
jurisdiction in which the Company owns, uses, licenses or leases its Assets and
Properties, or conducts business or has employees or engages independent
contractors.
2.2 Authority Relative to this Agreement. Subject only to the requisite
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approval of the Merger and this Agreement by the shareholders of the Company,
the Company has full corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery by the Company of
this Agreement and the consummation by the Company of the transactions
contemplated hereby, and the performance by the Company of its obligations
hereunder, have been duly and validly authorized by all necessary action by the
Board of Directors of the Company, and no other action on the part of the Board
of Directors of the Company is required to authorize the execution, delivery and
performance of this Agreement and the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery hereof by Parent and Merger Sub, constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its respective terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar Laws relating to the enforcement of creditors'
rights generally and by general principles of equity.
2.3 Capital Stock.
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(a) The authorized capital stock of the Company consists only of
60,000,000 shares of Common Stock, $0.0005 par value per share (the "Company
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Common Stock"), of which 7,492,720 shares of Company Common Stock are issued and
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outstanding as of the date hereof, and 21,786,668 shares of Preferred Stock,
$0.0005 par value per share (the "Company Preferred Stock"). The designation
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and status of the Company Preferred Stock is as follows: (i) 8,986,668 shares
are designated as Series A Preferred Stock, all of which are issued and
outstanding as of the date hereof, and (ii) 12,800,000 shares are designated as
Series B Preferred Stock, 10,133,334 of which are issued and outstanding as of
the date hereof. All of the issued and outstanding shares of Company Common
Stock and Company Preferred Stock are validly issued, fully paid and
nonassessable, and have not been issued in violation of any applicable federal,
state and foreign securities Laws or preemptive rights. Except for shares
issuable upon conversion of the Series A Preferred Stock or the Series B
Preferred Stock or upon exercise of Company Options or Company
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Warrants, no shares of Company Common Stock or Company Preferred Stock are
reserved for issuance. Section 2.3(a) of the Disclosure Letter lists the name
and state of residence of each holder of Company Common Stock and Company
Preferred Stock provided to the Company by such holder. With respect to any
Company Common Stock or Company Preferred Stock that has been issued subject to
a repurchase option on the part of the Company, Section 2.3(a) of the Disclosure
Letter sets forth the holder thereof, the number and type of securities covered
thereby, and the vesting schedule thereof (including a description of the
circumstances under which such vesting schedule can or will be accelerated).
(b) As of the date hereof, there are no outstanding Company Options
or Company Warrants or agreements, arrangements or understandings to which the
Company is a party (written or oral) to issue Options with respect to the
Company and there are no preemptive rights or agreements, arrangements or
understandings to issue preemptive rights with respect to the issuance or sale
of Company Capital Stock created by statute, the articles of incorporation or
bylaws of the Company, or any agreement or other arrangement to which the
Company is a party or to which it is bound and there are no agreements,
arrangements or understandings to which the Company is a party (written or oral)
pursuant to which the Company has the right to elect to satisfy any Liability by
issuing Company Common Stock or Equity Equivalents. With respect to each
Company Option and Company Warrant, Section 2.3(b) of the Disclosure Letter sets
forth the holder thereof, the number and type of securities issuable thereunder,
and, if applicable, the exercise price therefor, the exercise period and vesting
schedule thereof (including a description of the circumstances under which such
vesting schedule can or will be accelerated). All of the Company Options and
Company Warrants were issued in compliance with all applicable federal, state
and foreign securities Laws. The Company is not a party or subject to any
agreement or understanding, and, to the Company's knowledge, there is no
agreement, arrangement or understanding between or among any Persons which
affects, restricts or relates to voting, giving of written consents, dividend
rights or transferability of shares with respect to the Company Capital Stock,
including without limitation any voting trust agreement or proxy.
2.4 No Subsidiaries. The Company has no Subsidiaries and does not
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otherwise hold any equity, membership, partnership, joint venture or other
ownership interest in any Person.
2.5 No Conflicts. The execution and delivery by the Company of this
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Agreement does not, the performance by the Company of its obligations under this
Agreement and the consummation of the transactions contemplated hereby do not
and will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the articles of incorporation or bylaws of
the Company;
(b) except as could not reasonably be expected to have a material
adverse effect on the Business or Condition of the Company or be expected to
prevent or materially delay the consummation of the transactions contemplated by
this Agreement and subject to obtaining the consents, approvals and actions,
making the filings and giving the notices disclosed in Section 2.5 of the
Disclosure Letter, if any, conflict with or result in a violation
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or breach of any Law or Order applicable to the Company or any of its Assets and
Properties; or
(c) except as could not reasonably be expected to have a material
adverse effect on the Business or Condition of the Company or be expected to
prevent or materially delay the consummation of the transactions contemplated by
this Agreement, (i) conflict with or result in a violation or breach of, (ii)
constitute a default (or an event that, with or without notice or lapse of time
or both, would constitute a default) under, (iii) require the Company to obtain
any consent, approval or action of, make any filing with or give any notice to
any Person as a result or under the terms of, (iv) result in or give to any
Person any right of termination, cancellation, acceleration or modification in
or with respect to, (v) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments or
performance under, (vi) result in the creation or imposition of (or the
obligation to create or impose) any Lien upon the Company or any of its Assets
and Properties under or (vii) result in the loss of a material benefit under,
any of the terms, conditions or provisions of any Contract or License to which
the Company is a party or by which any of the Company's Assets and Properties is
bound.
2.6 Books and Records; Organizational Documents. The minute books and
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stock record books and other similar records of the Company that have been
provided or made available to the Parent or its counsel prior to the execution
of this Agreement are complete and correct in all respects and have been
maintained in accordance with sound business practices. Such minute books
contain a true and complete record of all actions taken at all meetings and by
all written consents in lieu of meetings of the directors, shareholders and
committees of the board of directors of the Company through the date hereof. The
Company has prior to the execution of this Agreement delivered to the Parent
true and complete copies of its articles of incorporation and bylaws, both as
amended through the date hereof. The Company is not in violation of any
provision of its articles of incorporation or bylaws.
2.7 Company Financial Statements.
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(a) Section 2.7 of the Disclosure Letter sets forth the Company
Financials. The Company Financials are correct and complete in all material
respects and have been prepared in accordance with GAAP applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto, and, in the case of the
Interim Financial Statements, subject to normal year-end adjustments, which
adjustments will not be material in amount or significance). The Company
Financials present fairly and accurately the financial condition and operating
results of the Company as of the dates and during the periods indicated therein,
subject, in the case of the Interim Financial Statements, to normal year-end
adjustments, which adjustments will not be material in amount or significance
and except that the Interim Financial Statements may not contain footnotes.
Since the Company's inception, there has been no change in any accounting
policies, principles, methods or practices, including any change with respect to
reserves (whether for bad debts, contingent liabilities or otherwise), of the
Company.
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(b) The Company does not have as of the date hereof nor as of the
Audited Financial Statement Date assets with a book value greater than or equal
to $10 million, and, with respect to the fiscal year ended on the Audited
Financial Statement Date, the Company, did not have revenues greater than or
equal to $10 million.
2.8 Absence of Changes. Since the date of the Interim Financial
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Statements, there has not been any material adverse change in the Business or
Condition of the Company or any occurrence or event which, individually or in
the aggregate, could be reasonably expected to have any material adverse change
in the Business or Condition of the Company. In addition, without limiting the
foregoing, except as expressly contemplated hereby, there has not occurred since
the date of the Interim Financial Statements:
(a) the entering into of any Contract, commitment or transaction or
the incurrence of any Liabilities outside of the ordinary course of business
consistent with past practice;
(b) the entering into of any Contract in connection with any
transaction involving a Business Combination;
(c) the entering into of any Contract or other commitment relating to
any interest of the Company in any corporation, association, joint venture,
partnership or business entity;
(d) the entering into of any strategic alliance, joint development or
joint marketing Contract (other than joint marketing efforts in the ordinary
course of business consistent with past practice with its customers with whom
the Company had such a relationship at the date of the Interim Financial
Statements);
(e) any material amendment or other modification (or agreement to do
so), except in the ordinary course of business consistent with past practice, or
violation of the terms of, any of the Contracts disclosed in the Disclosure
Letter;
(f) the entering into of any transaction with any officer, director,
shareholder, Affiliate or Associate of the Company, other than pursuant to any
Contract in effect on the date of the Interim Financial Statements and disclosed
to the Parent pursuant to Section 2.18 of the Disclosure Letter or other than
pursuant to any contract of employment and listed in Section 2.16(a) of the
Disclosure Letter;
(g) the entering into or amendment of any Contract pursuant to which
any other Person is granted manufacturing, marketing, distribution, licensing or
similar rights of any type or scope with respect to any products of the Company
or Company Intellectual Property other than as contemplated by the Company's
Contracts or Licenses disclosed in the Disclosure Letter or otherwise in the
ordinary course of business consistent with past practice with a Person with
whom the Company had such a relationship at the date of the Interim Financial
Statements;
(h) the commencement of any Action or Proceeding involving or which
could reasonably be expected to involve the Company, or insofar as it relates to
their capacity as such, any officer, director, Affiliate or Associate of the
Company;
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(i) the declaration, setting aside or payment of any dividends on or
making of any other distributions (whether in cash, stock or property) in
respect of any Company Capital Stock or Equity Equivalents, or any split,
combination or reclassification of any Company Capital Stock or Equity
Equivalents or issuance or authorization of the issuance of any other securities
in respect of, in lieu of or in substitution for shares of Company Capital Stock
or Equity Equivalents, or the repurchase, redemption or other acquisition,
directly or indirectly, of any shares of Company Capital Stock or Equity
Equivalents;
(j) except for (i) the issuance of shares of Company Capital Stock
upon exercise or conversion of then-outstanding Company Options, Company
Warrants or Company Preferred Stock listed in Section 2.3 of the Disclosure
Letter, or (ii) the issuance of options available for grant under the Stock Plan
in the ordinary course of business to employees who are not officers of the
Company consistent with past practice, the issuance, grant, delivery, sale or
authorization of or proposal to issue, grant, deliver or sell, or purchase or
proposal to purchase, any shares of Company Capital Stock, Equity Equivalents or
modification or amendment of the rights of any holder of any outstanding shares
of Company Capital Stock of Equity Equivalents (including to reduce or alter the
consideration to be paid to the Company upon the exercise of any outstanding
Company Options, Company Warrants or other Equity Equivalents), nor have there
been any agreements, arrangements, plans or understandings with respect to any
such modification or amendment;
(k) any amendments to the Company's articles of incorporation or
bylaws;
(l) any transfer (by way of a License or otherwise) to any Person of
rights to any Company Intellectual Property other than non-exclusive transfers
to the Company's customers, distributors or other licensees at the date of the
Interim Financial Statements in the ordinary course of business consistent with
past practice;
(m) any disposition or sale of, waiver of rights to, license or lease
of, or incurrence of any Lien on, any Assets and Properties of the Company,
other than dispositions of inventory, or licenses of products to Persons to whom
the Company had granted licenses of its products at the date of the Interim
Financial Statements, in the ordinary course of business of the Company
consistent with past practice;
(n) any purchase of any Assets and Properties of any Person other
than acquisitions of inventory, or licenses of products, in the ordinary course
of business of the Company consistent with past practice;
(o) the making of any capital expenditures or commitments by the
Company for additions to property, plant or equipment of the Company
constituting capital assets individually or in the aggregate in an amount
exceeding $50,000;
(p) the write-off or write-down or making of any determination to
write off or write-down, or revalue, any of the Assets and Properties of the
Company, or change in any reserves or liabilities associated therewith,
individually or in the aggregate in an amount exceeding $50,000;
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(q) the payment, discharge or satisfaction, in an amount in excess of
$25,000, in any one case, or $50,000 in the aggregate, of any claim or
Liability, other than the payment, discharge or satisfaction in the ordinary
course of business of Liabilities reflected or reserved against in the Company
Financial Statements or incurred in the ordinary course of business since the
date of the Interim Financial Statements;
(r) the failure to pay or otherwise satisfy Liabilities of the
Company consistent with the Company's past practices, except such as are being
contested in good faith;
(s) the incurrence of any Indebtedness or guarantee of any
Indebtedness in an aggregate amount exceeding $50,000 or issuance or sale of any
debt securities of the Company or guarantee any debt securities of others;
(t) the grant of any severance or termination pay to any director,
officer employee or consultant, except payments made pursuant to written
Contracts outstanding on the date hereof, the terms of which are disclosed in
the Disclosure Letter;
(u) the increase of greater than five percent in salary, rate of
commissions, rate of consulting fees or any other compensation of any current or
former officer, director, shareholder, employee, independent contractor or
consultant of the Company;
(v) the payment of any consideration of any nature whatsoever (other
than salary, commissions or consulting fees and customary benefits paid to any
current or former officer, director, shareholder, employee or consultant of the
Company) to any current or former officer, director, shareholder, employee,
independent contractor or consultant of the Company;
(w) the establishment or modification of (i) targets, goals, pools or
similar provisions under any Plan, employment Contract or other employee
compensation arrangement or independent contractor Contract or other
compensation arrangement or (ii) salary ranges, increased guidelines or similar
provisions in respect of any Plan, employment Contract or other employee
compensation arrangement or independent contractor Contract or other
compensation arrangement;
(x) the adoption, entering into, amendment, modification or
termination (partial or complete) of any Plan (other than as required to comply
with applicable Laws or to maintain the qualified status of such plan under
Section 401(a) of the Code);
(y) the payment of any discretionary or stay bonus;
(z) any action, including the acceleration of vesting of any Company
Options or Company Warrants, or other rights to acquire shares of capital stock
of the Company, which could jeopardize the tax-free reorganization hereunder,
except as expressly required by any Contract set forth in the Disclosure Letter;
(aa) the making or changing of any material election in respect of
Taxes, adoption or change of any accounting method in respect of Taxes, the
entering into of any
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tax allocation agreement, tax sharing agreement, tax indemnity agreement or
closing agreement, settlement or compromise of any claim or assessment in
respect of Taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes with any Taxing
Authority or otherwise;
(bb) other than in the ordinary course of business, the making of any
representation or proposal to, or engagement in substantive discussions with,
any of the holders (or their representatives) of any Indebtedness, or to or with
any party which has issued a letter of credit which benefits the Company;
(cc) the commencement or termination of, or change in, any line of
business;
(dd) the cancellation, material amendment or failure to renew any
insurance policy other than in the ordinary course of business consistent with
past practice, or failure to use commercially reasonable efforts to give all
notices and present all claims under all such policies in a timely fashion;
(ee) any material amendment, failure to renew, or failure to use
commercially reasonable efforts to maintain, its existing Approvals or failure
to observe any Law or Order applicable to the conduct of the Company's business
or the Company's Assets and Properties;
(ff) any physical damage, destruction or other casualty loss (whether
or not covered by insurance) affecting any of the real or personal property or
equipment of the Company individually or in the aggregate in an amount exceeding
$50,000;
(gg) the repurchase, cancellation or modification of the terms of any
Company Capital Stock, Equity Equivalents, Company Options or Company Warrants
or other financial instrument that derives the majority of its value from its
convertibility into Company Capital Stock or Equity Equivalents, other than
transactions entered into in the ordinary course of business and pursuant to
either (i) contractual provisions or (ii) the Stock Plan, in either case as in
effect at the date of this Agreement; or
(hh) any entering into of any Contract, or acquiescence by the Company
in respect of, an arrangement or understanding to do, engage in, cause or having
the effect of any of the foregoing, including with respect to any Business
Combination not otherwise restricted by the foregoing paragraphs.
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2.9 No Undisclosed Liabilities. Except as reflected or reserved against
--------------------------
in the Company Financials, there are no Liabilities of, relating to or affecting
the Company or any of its Assets and Properties, other than Liabilities incurred
in the ordinary course of business consistent with past practice since the date
of the Interim Financial Statements and in accordance with the provisions of
this Agreement which, individually and in the aggregate, are not material to the
Business or Condition of the Company, and are not for tort or for breach of
contract.
2.10 Taxes.
-----
(a) All Tax Returns required to have been filed by or with respect to
the Company or any affiliated, consolidated, combined, unitary or similar group
of which the Company is or was a member (a "Relevant Group") have been duly and
--------------
timely filed (including any extensions), and each such Tax Return correctly and
completely reflects Tax liability and all other material information required to
be reported thereon. All Taxes due and payable by the Company or any member of
a Relevant Group, whether or not shown on any Tax Return, or claimed to be due
by any Tax Authority, have been paid or accrued on the Company Financials for
all periods (or portions thereof) through and including the date thereof. All
such Tax Returns are true, complete and correct in all material respects.
(b) The Company has not incurred any material liability for Taxes
other than as reflected on the Interim Financial Statements for all periods (or
portions thereof) through and including the date thereof and will not incur
additional Liabilities for Taxes through and including the Closing Date, other
than in the ordinary course of business. The unpaid Taxes of the Company (i)
did not, as of the most recent fiscal month end, exceed by any material amount
the reserve for liability for Income Tax (other than the reserve for deferred
taxes established to reflect timing differences between book and tax income) set
forth on the face of the Company's most recent balance sheet and (ii) will not
exceed by any material amount that reserve as adjusted for operations and
transactions through the Closing Date.
(c) The Company is not a party to any agreement extending the time
within which to file any Tax Return. No claim has ever been made by a Taxing
Authority of any jurisdiction in which the Company does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction.
(d) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor or independent contractor.
(e) The Company does not have knowledge of any actions by any Taxing
Authority in connection with assessing additional Taxes against or in respect of
it for any past period. There is no dispute or claim concerning any Tax
liability of the Company either (i) threatened, claimed or raised by any Taxing
Authority or (ii) of which the Company is aware. There are no Liens for Taxes
upon the Assets and Properties of the Company other than Liens for Taxes not yet
due. Section 2.10 of the Disclosure Letter indicates those Tax Returns, if any,
of the Company that have been audited or examined by Taxing Authorities, and
indicates those Tax Returns of the Company that currently are the subject of
audit or
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examination. The Company has delivered to the Parent complete and
correct copies of all federal, state, local and foreign income Tax Returns filed
by, and all Tax examination reports and statements of deficiencies assessed
against or agreed to by, the Company since the fiscal year ended December 31,
1997.
(f) There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Returns required to be
filed by, or which include or are treated as including, the Company or with
respect to any Tax assessment or deficiency affecting the Company or any
Relevant Group.
(g) The Company has not received any written ruling related to Taxes
or entered into any agreement with a Taxing Authority relating to Taxes.
(h) The Company has no liability for the Taxes of any Person other
than the Company (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provision of state, local or foreign Law), (ii) as a transferee or
successor, (iii) by Contract or (iv) otherwise.
(i) The Company (i) has neither agreed to make nor is required to
make any adjustment under Section 481 of the Code by reason of a change in
accounting method and (ii) is not a "consenting corporation" within the meaning
of Section 341(f)(1) of the Code.
(j) The Company is not a party to or bound by any obligations under
any tax sharing, tax allocation, tax indemnity or similar agreement or
arrangement.
(k) The Company is not involved in, subject to, or a party to any
joint venture, partnership, Contract or other arrangement that is treated as a
partnership for federal, state, local or foreign Income Tax purposes.
(l) The Company was not included and is not includible in the Tax
Return of any Relevant Group with any corporation other than such a return of
which the Company is the common parent corporation.
(m) The Company has not made any payments, is not obligated to make
any payments, nor is a party to any Contract that under certain circumstances
could require it to make any payments that are not deductible as a result of the
provisions set forth in Section 280G of the Code or the treasury regulations
thereunder or would result in an excise tax to the recipient of any such payment
under Section 4999 of the Code (other than payments for which shareholder
approval meeting the requirements of Section 280G(c)(5) of the Code will be
obtained prior to the Closing Date).
(n) The Company is not nor has it ever been a United States real
property holding corporation within the meaning of Section 897(c)(1)(A)(ii) of
the Code.
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2.11 Legal Proceedings.
-----------------
(a) Except as set forth in Section 2.11 of the Disclosure Letter:
(i) there are no Actions or Proceedings pending or, to the
knowledge of the Company, threatened against, relating to or affecting the
Company or its Assets and Properties; and
(ii) the Company has not received notice, and does not otherwise
have knowledge, of any Orders outstanding against the Company.
(b) Prior to the execution of this Agreement, the Company has
delivered to the Parent all responses of counsel for the Company to auditor's
requests for information since the Company's inception (together with any
updates provided by such counsel) regarding Actions or Proceedings pending or
threatened against, relating to or affecting the Company. Section 2.11(b) of
the Disclosure Letter sets forth all Actions or Proceedings relating to or
affecting the Company or any of its Assets and Properties since the Company's
inception and prior to the date hereof.
2.12 Compliance with Laws and Orders. The Company has not violated, and
-------------------------------
is not currently in default under, any Law or Order applicable to the Company or
any of its Assets and Properties, except for any such violations or defaults
that could not reasonably be expected to have a material adverse effect on the
Business or Condition of the Company.
2.13 Plans; ERISA.
------------
(a) For purposes of this Agreement, the term "Plans" shall mean (i)
-----
all "employee benefit plans" (as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of which
-----
any of the Company or any member of the same controlled group of businesses as
the Company within the meaning of Section 4001(a)(14) of ERISA (an "ERISA
-----
Affiliate") is or ever was a sponsor or participating employer or as to which
---------
the Company or any of its ERISA Affiliates makes contributions or is or has been
required to make contributions, and (ii) any similar employment, severance or
other arrangement or policy of any of the Company or any of its ERISA Affiliates
(whether written or oral) providing for health, life, vision or dental insurance
coverage (including self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits or
retirement benefits, fringe benefits, or for profit sharing, deferred
compensation, bonuses, stock options, stock appreciation or other forms of
incentive compensation or post-retirement insurance, compensation or benefits.
Except as disclosed on Section 2.13 of the Disclosure Letter, (i) neither the
Company nor any of its ERISA Affiliates maintains or sponsors (or ever
maintained or sponsored), or makes or is required to make contributions to, any
Plans, (ii) none of the Plans is or was a "multi-employer plan", as defined in
Section 3(37) of ERISA, (iii) none of the Plans is or was a "defined benefit
pension plan" within the meaning of Section 3(35) of ERISA, (iv) none of the
Plans provides or provided post-retirement medical or health benefits, other
than as required under applicable Laws, (v) none of the Plans is or was a
"welfare benefit fund," as defined in Section 419(e) of the Code, or an
organization described in Sections 501(c)(9) or 501(c)(20) of the Code, (vi)
neither the
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Company nor any of its ERISA Affiliates is or was a party to any collective
bargaining agreement and (vii) neither the Company nor any of its ERISA
Affiliates has announced or otherwise made any commitment to create or amend any
Plan (other than as required to comply with applicable Laws or to maintain the
qualified status of a Plan under Section 401(a) of the Code). Notwithstanding
any statement or indication in this Agreement to the contrary, there are no
Plans (a) as to which the Parent will be required to make any contributions or
with respect to which the Parent shall have any obligation or liability
whatsoever, whether on behalf of any of the current employees of the Company or
on behalf of any other Person, after the Closing (other than current deferred
contributions to the Company's 401(k) plan and the current month's premium for
health plan coverage), or (b) which the Parent or the Surviving Corporation will
not be able to terminate immediately after the Closing in accordance with their
terms, ERISA and the Code. With respect to each of such Plans, at the Closing
there will be no unrecorded liabilities with respect to the establishment,
implementation, operation, administration or termination of any such Plan, or
the termination of the participation in any such Plan by the Company or its
ERISA Affiliates. The Company has delivered to the Parent true and complete
copies of: (i) each of the Plans and any related funding agreements thereto
(including insurance contracts) including all amendments, all of which are
legally valid and binding and in full force and effect and there are no defaults
thereunder, (ii) the currently effective Summary Plan Description pertaining to
each of the Plans, (iii) the annual reports filed for each of the Plans since
inception (including all related schedules), if applicable, (iv) the most
recently filed PBGC Form 1 (if applicable), (v) the most recent Internal Revenue
Service determination letter for each Plan which is intended to constitute a
qualified plan under Section 401 of the Code and each amendment to each of the
foregoing documents and (vi) for each unfunded Plan, if any, financial
statements consisting of (A) the consolidated statement of assets and
liabilities of such Plan as of its most recent valuation date, and (B) the
statement of changes in fund balance and in financial position or the statement
of changes in net assets available for benefits under such Plan for the most
recently-ended plan year, which such financial statements shall fairly present
the financial condition and the results of operations of such Plan in accordance
with GAAP, consistently applied, as of such dates.
(b) The present value of all accrued benefits under any Plans subject
to Title IV of ERISA shall not, as of the Closing Date, exceed the value of the
assets of such Plans allocated to such accrued benefits, based upon the
applicable provisions of the Code and ERISA, and each such Plan shall be capable
of being terminated as of the Closing Date in a "standard termination" under
Section 4041(b) of ERISA. With respect to each Plan that is subject to Title IV
of ERISA, (i) no amount is due or owing from the Company or any of its ERISA
Affiliates to the PGBC or to any "multi-employer Plan" as defined in Section
3(37) of ERISA on account of any withdrawal therefrom and (ii) no such Plan has
been terminated other than in accordance with ERISA or at a time when the Plan
was not sufficiently funded. The transactions contemplated hereunder,
including, without limitation, the termination of any Plan at or prior to the
Closing, shall not result in any such withdrawal or other liability under any
applicable Laws.
(c) Neither the Company nor any of its ERISA Affiliates is subject to
any material liability, tax or penalty whatsoever to any person or agency
whomsoever as a result of engaging in a prohibited transaction under ERISA or
the Code, and neither the Company nor any of its ERISA Affiliates has any
knowledge of any circumstances which reasonably
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might result in any material liability, tax or penalty, including, but not
limited to, a penalty under Section 502 of ERISA, as a result of a breach of any
duty under ERISA or under other Laws. Each Plan which is required to comply with
the provisions of Sections 4980B and 4980C of the Code, or with the requirements
referred to in Section 4980D of the Code, has complied in all material respects.
No event has occurred which could subject any Plan to Tax under Section 511 of
the Code. None of the Plans subject to Title IV of ERISA has been completely or
partially terminated nor has there been any "reportable event," as such term is
defined in Section 4043(b) of ERISA, with respect to any of the Plans since the
effective date of ERISA nor has any notice of intent to terminate been filed or
given with respect to any such Plan. There has been no (i) withdrawal by the
Company or any of its ERISA Affiliates that is a substantial employer from a
single-employer plan which is a Plan and which has two or more contributing
sponsors at least two of whom are not under common control, as referred to in
Section 4063(b) of ERISA, or (ii) cessation by the Company or any of its ERISA
Affiliates of operations at a facility causing more than twenty percent of Plan
participants to be separated from employment, as referred to in Section 4062(f)
of ERISA. Neither the Company nor any of its ERISA Affiliates, nor any other
organization of which any of them are a successor or parent corporation as
defined in Section 4069(b) of ERISA, have engaged in any transaction described
in Section 4069(a) of ERISA.
(d) None of the Plans nor any trust created thereunder has incurred
any "accumulated funding deficiency" as such term is defined in Section 412 of
the Code, whether or not waived, since the effective date of said Section 412,
and no condition has occurred or exists which by the passage of time could be
expected to result in an accumulated funding deficiency as of the last day of
the current plan year of any such Plan. Furthermore, neither the Company nor
any of its ERISA Affiliates has any unfunded liability under ERISA in respect of
any of the Plans (except with respect to current deferred contributions under
the Company's 401(k) plan and the current month's premium for health plan
coverage). Each of the Plans which is intended to be a qualified plan under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service or has time remaining to apply for a determination
letter and make such changes as may be required under the remedial amendment
period of Section 401(b) of the Code. Each Plan has been operated in accordance
with its terms and with the provisions of the Code. All of the Plans have been
administered and maintained in compliance with ERISA, the Code and all other
applicable Laws, except as could not have a material adverse effect on the
Business or Condition of the Company. All contributions required to be made to
each of the Plans under the terms of that Plan, ERISA, the Code or any other
applicable Laws have been timely made. Each Plan intended to meet the
requirements for tax-favored treatment under Subchapter B of Chapter 1 of the
Code meet such requirements. There are no Liens against the property of the
Company or any of its ERISA Affiliates under Section 412(n) of the Code or
Section 302(f) or 4068 of ERISA. The Interim Financial Statements properly
reflect all amounts required to be accrued as liabilities to date under each of
the Plans. There is no contract, agreement or benefit arrangement covering any
employee of the Company or any Subsidiary which, individually or collectively,
could give rise to the payment of any amount which would constitute an "excess
parachute payment" (as defined in Section 280G of the Code) (other than payments
for which shareholder approval meeting the requirements of Section 280G(c)(5) of
the Code will be obtained prior to the Closing Date). Except as disclosed in
Section 2.13(d) of the Disclosure Letter, the execution and
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performance of this Agreement will not (i) result in any obligation or liability
(with respect to accrued benefits or otherwise) of the Parent or the Surviving
Corporation to the PBGC, any Plan, or any present or former employee of the
Parent or the Surviving Corporation, (ii) be a trigger event under any Plan that
will result in any payment (whether of severance pay or otherwise) becoming due
to any present or former employee, officer, director, shareholder, contractor,
or consultant, or any of their dependents, or (iii) accelerate the time of
payment or vesting, or increase the amount, of compensation due to any employee,
officer, director, shareholder, contractor, or consultant of the Company (except
as required in connection with any termination or partial termination of a
qualified Plan and except for acceleration of options under the Stock Plan and
accelerated lapsing of repurchase rights under Company Common Stock purchase
agreements). With respect to any insurance policy which provides, or has
provided, funding for benefits under any Plan, (i) there is and will be no
liability of the Company or the Parent in the nature of a retroactive or
retrospective rate adjustment, loss sharing arrangement, or actual or contingent
liability as of the Closing Date, nor would there be any such liability if such
insurance policy were terminated as of the Closing Date, and (ii) no insurance
company issuing any such policy is in receivership, conservatorship, bankruptcy,
liquidation, or similar proceeding, and, to the knowledge of the Company, no
such proceedings with respect to any insurer are imminent.
(e) Other than routine claims for benefits under the Plans, there are
no pending, or, to the best knowledge of the Company, threatened, Actions or
Proceedings involving the Plans, or the fiduciaries, administrators, or trustees
of any of the Plans or the Company or any of its ERISA Affiliates as the
employer or sponsor under any Plan, with any of the IRS, the Department of
Labor, the PBGC, any participant in or beneficiary of any Plan or any other
person whomsoever. The Company knows of no reasonable basis for any such claim,
lawsuit, dispute, action or controversy.
2.14 Title to Property. The Company has good and marketable title to all
-----------------
of its properties, interests in properties and assets, real and personal,
reflected in the Company Financials or acquired after the Financial Statement
Date (except properties, interests in properties and assets sold or otherwise
disposed of since the Financial Statement Date in the ordinary course of
business), or with respect to leased properties and assets, valid leasehold
interests in, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current taxes not
yet due and payable, (ii) such imperfections of title, liens and easements as do
not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties and (iii) liens securing debt
which is reflected on the Company Financials. The plants, property and equipment
of Company that are used in the operations of its business are in good operating
condition and repair, subject to normal wear and tear. All properties used as of
the applicable date in the operations of Company are reflected in the Company
Financials to the extent generally accepted accounting principles require the
same to be reflected.
2.15 Intellectual Property.
---------------------
(a) Section 2.15(a) of the Disclosure Letter lists all Company
Registered Intellectual Property and lists any proceedings or actions pending as
of the date hereof
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<PAGE>
before any court, tribunal (including the PTO or equivalent authority anywhere
in the world) related to any of the Company Registered Intellectual Property.
(b) Each item of Company Intellectual Property, including all Company
Registered Intellectual Property listed in Section 2.15(a) of the Disclosure
Letter is owned exclusively by the Company (excluding Intellectual Property
licensed to the Company under any License) and is free and clear of any Liens.
The Company (i) owns exclusively all trademarks, service marks and trade names
used in connection with the operation or conduct of the business of the Company,
including the sale of any products or technology or the provision of any
services by the Company and (ii) owns exclusively, and has good title to, all
copyrighted works that are Company products or other works of authorship that
the Company otherwise purports to own; provided, however, that such works may
incorporate copyrighted works or works of authorship of third parties which are
licensed to the Company or are in the public domain.
(c) To the extent that any Company Intellectual Property has been
developed or created by any Person other than the Company, the Company has a
written agreement with such Person with respect thereto and the Company has
either (i) obtained ownership of, and is the exclusive owner of, all such
Intellectual Property by operation of law or by valid assignment of any such
rights or (ii) has obtained a License under or to such Intellectual Property.
(d) Except pursuant to agreements listed in Section 2.15(d) of the
Disclosure Letter, the Company has not transferred ownership of or granted any
License or other right to use or authorized the retention of any rights to use
any Intellectual Property that is or was Company Intellectual Property, to any
other Person.
(e) The Company Intellectual Property constitutes all the
Intellectual Property used in and/or necessary to the conduct of the Company's
business as it currently is conducted, including, without limitation, the
design, development, distribution, marketing, manufacture, use, import, license,
and sale of the products, technology and services of the Company (including
products, technology, or services currently under development).
(f) The Contracts and Licenses listed in Section 2.15(f) of the
Disclosure Letter include all Contracts and Licenses to which the Company is a
party with respect to any Intellectual Property. No Person other than the
Company has ownership rights to improvements made by the Company in Intellectual
Property which has been licensed to the Company.
(g) Section 2.15(g) of the Disclosure Letter lists all Contracts,
Licenses and agreements between the Company and any other Person wherein or
whereby the Company has agreed to, or assumed, any obligation or duty to
warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or Liability or provide a right of rescission with respect
to the infringement or misappropriation by the Company or such other Person of
the Intellectual Property of any Person other than the Company.
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<PAGE>
(h) To the knowledge of the Company, the operation of the business of
the Company as currently conducted or as presently proposed to be conducted,
including the Company's design, development, use, import, manufacture and sale
of the products, technology or services (including products, technology or
services currently under development) of the Company does not infringe or
misappropriate the Intellectual Property of any Person, violate the rights of
any Person (including rights to privacy or publicity and moral rights), or
constitute unfair competition or trade practices under any Laws, and the Company
has not received notice from any Person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Company infringes or misappropriates the
Intellectual Property of any Person or constitutes unfair competition or trade
practices under any Law, including notice of third party patent or other
Intellectual Property rights from a potential licensor of such rights.
(i) Each item of Company Registered Intellectual Property is valid
and subsisting, and all necessary registration, maintenance, renewal fees,
annuity fees and taxes in connection with such Registered Intellectual Property
have been paid and all necessary documents and certificates in connection with
such Company Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property. In each case in which the Company has acquired
any Intellectual Property rights from any Person, the Company has obtained a
valid and enforceable assignment sufficient to irrevocably transfer all rights
in such Intellectual Property (including the right to seek past and future
damages with respect to such Intellectual Property) to the Company and, to the
maximum extent provided for by, and in accordance with, applicable Laws, the
Company has recorded each such assignment with the relevant Governmental or
Regulatory Authority, including the PTO, the U.S. Copyright Office, or their
respective equivalents in any relevant foreign jurisdiction, as the case may be.
(j) There are no Contracts or Licenses between the Company and any
other Person with respect to Company Intellectual Property under which there is
any dispute known to the Company regarding the scope of such Contract or
License, or performance under such Contract or License, including with respect
to any payments to be made or received by the Company thereunder.
(k) To the knowledge of the Company, no Person is infringing or
misappropriating any Company Intellectual Property.
(l) The Company has taken all reasonable steps to protect the
Company's rights in confidential information and trade secrets of the Company or
provided by any other Person to the Company subject to a duty of
confidentiality. Without limiting the foregoing, the Company has, and enforces,
a policy requiring each employee, consultant and independent contractor to
execute proprietary information, confidentiality and invention and copyright
assignment agreements substantially in the form set forth in Section 2.15(l) of
the Disclosure Letter, and all current and former employees, consultants and
independent contractors of the Company have executed such an agreement.
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<PAGE>
(m) No Company Intellectual Property or product, technology or
service of the Company is subject to any Order or Action or Proceeding that
restricts, or that is reasonably expected to restrict in any manner, the use,
transfer or licensing of any Company Intellectual Property by the Company or
that may affect the validity, use or enforceability of such Company Intellectual
Property.
(n) To the knowledge of the Company, no (i) product, technology,
service or publication of the Company, (ii) material published or distributed by
the Company or (iii) conduct or statement of the Company constitutes material,
false advertising or otherwise violates any Law.
(o) To the knowledge of the Company, the Company has taken all
actions necessary and appropriate to assure that there shall be no material
adverse change to its business or electronic systems or material interruptions
in the delivery of the Company's products and services by reason of the advent
of the year 2000, including, without limitation, that all of its products
(including products currently under development) will, without interruption or
manual intervention, continue to consistently, predictably and accurately
record, store, process, calculate and present calendar dates falling on and
after (and if applicable, spans of time including) January 1, 2000, and will
consistently, predictably and accurately calculate any information dependent on
or relating to such dates in the same manner, and with the same functionality,
data integrity and performance, as such products record, store, process,
calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates.
(p) Neither this Agreement nor any transactions contemplated by this
Agreement will result in the Parent's granting any rights or licenses with
respect to the Intellectual Property of the Parent to any Person pursuant to any
Contract to which the Company is a party or by which any of its Assets and
Properties are bound.
(q) Neither this Agreement nor any transactions contemplated by this
Agreement will result in the Company losing any rights or licenses with respect
to any Intellectual Property pursuant to any Contract to which the Company is a
party or by which it has any rights or licenses with respect any Intellectual
Property.
2.16 Contracts.
---------
(a) Section 2.16(a)(1) of the Disclosure Letter contains a true and
complete list of each of the Contracts (true and complete copies or, if none,
reasonably complete and accurate written descriptions of which, together with
all amendments and supplements thereto and all waivers of any terms thereof,
have been made available to the Parent prior to the execution of this
Agreement). Section 2.16(a)(2) of the Disclosure Letter contains a true and
complete list of each Contract of the Company not terminable by the Company upon
thirty days (or less) notice by the Company without penalty or obligation to
make payments based on such termination.
(b) Each Contract required to be disclosed in Section 2.16(a) of the
Disclosure Letter is in full force and effect and constitutes a legal, valid and
binding agreement, enforceable against the Company in accordance with its terms,
except as the
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<PAGE>
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar Laws relating to the
enforcement of creditors' rights generally and by general principles of equity.
To the knowledge of the Company, no other party to such Contract is, nor has
received notice that it is, in material violation or material breach of or
default under any such Contract (or with notice or lapse of time or both, would
be in material violation or material breach of or default under any such
Contract). To the knowledge of the Company, each such contract is a legal, valid
and binding obligation of each other party to such Contract, enforceable against
each other party to such contract, except as the enforceability thereof may be
limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar Laws relating to the enforcement of creditors'
rights generally and by general principles of equity.
(c) The Company is not a party to or bound by any Contract that (i)
automatically terminates or allows termination by the other party thereto upon
consummation of the transactions contemplated by this Agreement or (ii) contains
any covenant or other provision which limits the Company's ability to compete
with any Person in any line of business or in any area or territory.
2.17 Insurance. The Company has policies of insurance and bonds of the
---------
type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of Company. There is no material claim pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
is otherwise in compliance with the terms of such policies and bonds. The
Company has no knowledge of any threatened termination of, or material premium
increase with respect to, any of such policies.
2.18 Affiliate Transactions.
----------------------
(a) Except as disclosed in Section 2.18(a) of the Disclosure Letter,
(i) there are no Contracts or Liabilities between the Company, on the one hand,
and (A) any current or former officer, director, shareholder, or to the
Company's knowledge, any Affiliate or Associate of the Company or (B) any Person
who, to the Company's knowledge, is an Associate of any such officer, director,
shareholder or Affiliate, on the other hand, (ii) the Company does not provide
or cause to be provided any assets, services or facilities to any such current
or former officer, director, shareholder, Affiliate or Associate, (iii) neither
the Company nor any such current or former officer, director, shareholder,
Affiliate or Associate provides or causes to be provided any assets, services or
facilities to the Company and (iv) the Company does not beneficially own,
directly or indirectly, any Investment Assets of any such current or former
officer, director, shareholder, Affiliate or Associate.
(b) Each of the Contracts and Liabilities listed in Section 2.18(a)
of the Disclosure Letter were entered into or incurred, as the case may be, on
terms no less favorable to the Company (in the reasonable judgment of the
Company) than if such Contract or Liability was entered into or incurred on an
arm's-length basis on competitive terms. Any Contract to which the Company is a
party and in which any director of the Company has a financial interest in such
Contract was approved in accordance with the Washington Code.
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<PAGE>
2.19 Employees; Labor Relations.
--------------------------
(a) Except as set forth in Section 2.19(a) of the Disclosure Letter,
the Company is not a party to any collective bargaining agreement and there is
no unfair labor practice or labor arbitration proceedings pending with respect
to the Company, or, to the knowledge of the Company, threatened, and there are
no facts or circumstances known to the Company that could reasonably be expected
to give rise to such complaint or claim. To the knowledge of the Company, there
are no organizational efforts presently underway or threatened involving any
employees of the Company or any of the employees performing work for the Company
but provided by an outside employment agency, if any. There has been no work
stoppage, strike or other concerted action by employees of the Company.
(b) All employees of the Company are employed at will. Section
2.19(b) of the Disclosure Letter sets forth, individually and by category, the
name of each officer, employee and consultant, together with such person's
position or function, annual base salary or wage and any incentive, severance or
bonus arrangements with respect to such person. Except as set forth in Section
2.19(b) of the Disclosure Letter, the completion of the transactions
contemplated by this Agreement will not result in any payment or increased
payment becoming due from the Company to any officer, director, or employee of,
or consultant to, the Company, and to the knowledge of the Company no employee
of the Company has made any threat, or otherwise revealed an intent, to
terminate such employee's relationship with the Company, for any reason,
including because of the consummation of the transactions contemplated by this
Agreement. The Company is not a party to any agreement for the provision of
labor from any outside agency. To the knowledge of the Company, there have been
no claims by employees of such outside agencies, if any, with regard to
employees assigned to work for the Company, and no claims by any governmental
agency with regard to such employees except as set forth in Section 2.19(b) of
the Disclosure Letter.
(c) Since the Company's inception, except as set forth in Section
2.19(c) of the Disclosure Letter, there have been no federal or state claims
based on sex, sexual or other harassment, age, disability, race or other
discrimination or common law claims, including claims of wrongful termination,
by any employees of the Company or by any of the employees performing work for
the Company but provided by an outside employment agency, and there are no facts
or circumstances known to the Company that could reasonably be expected to give
rise to such complaint or claim. Except as could not reasonably be expected to
have a material adverse effect on the Business or Condition of the Company, the
Company has complied with all laws related to the employment of employees.
Except as set forth in Section 2.19(c) of the Disclosure Letter, the Company has
not received any notice of any claim that it has not complied in any material
respect with any Laws relating to the employment of employees, including,
without limitation, any provisions thereof relating to wages, hours, collective
bargaining, the payment of Social Security and similar taxes, equal employment
opportunity, employment discrimination, the WARN Act, employee safety, or that
it is liable for any arrearages of wages or any taxes or penalties for failure
to comply with any of the foregoing.
(d) The Company has no written policies and/or employee handbooks or
manuals except as set forth in Section 2.19(d) of the Disclosure Letter.
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<PAGE>
(e) To the knowledge of the Company, no officer, employee or
consultant of the Company is obligated under any Contract or other agreement or
subject to any Order or Law that would interfere with the Company's business as
currently conducted. Neither the execution nor delivery of this Agreement, nor
the carrying on of the Company's business as presently conducted nor any
activity of such officers, employees or consultants in connection with the
carrying on of the Company's business as presently conducted, will conflict with
or result in a breach of the terms, conditions or provisions of, constitute a
default under, or trigger a condition precedent to any rights under any Contract
or other agreement under which any of such officer's, employees or consultants
is now bound.
2.20 Environmental Matters.
---------------------
(a) The Company possesses any and all Environmental Permits necessary
to or required for the operation of its business. The Company will obtain any
Environmental Permits that must be obtained as of or immediately after the
Closing in order for the Surviving Corporation to conduct the business of the
Company as it was conducted prior to the Closing.
(b) The Company is in compliance with (i) all terms, conditions and
provisions of its Environmental Permits and (ii) all Environmental Laws.
(c) Neither the Company nor any predecessor of the Company nor any
entity previously owned by the Company has received any notice of alleged,
actual or potential responsibility for, or any inquiry regarding, (i) any
Release or threatened or suspected Release of any Hazardous Material, or (ii)
any violation of Environmental Law.
(d) Neither the Company nor any predecessor of the Company nor any
entity previously owned by the Company has any obligation or liability with
respect to any Hazardous Material, including any Release or threatened or
suspected Release of any Hazardous Material, and there are no past or present
events, facts or circumstances which could form the basis of any such obligation
or liability.
(e) No Releases of Hazardous Material(s) have occurred at, from, in,
to, on, or under any Site and no Hazardous Material is present in, on, about or
migrating to or from any Site.
(f) Neither the Company, nor any predecessor of the Company, nor any
entity previously owned by the Company, has transported or arranged for the
treatment, storage, handling, disposal or transportation of any Hazardous
Material at or to any location.
(g) No Site is a current or proposed Environmental Clean-up Site.
(h) There are no Liens under or pursuant to any Environmental Law on
any Site.
(i) There is no (i) underground storage tank, active or abandoned,
(ii) polychlorinated biphenyl containing equipment, (iii) asbestos-containing
material, (iv) radon, (v) lead-based paint or (vi) urea formaldehyde at any
Site. Any underground storage tank meets all 1998 upgrade requirements.
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<PAGE>
(j) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted with respect to any Site which have
not been delivered to the Parent prior to execution of this Agreement.
(k) The Company is not a party, whether as a direct signatory or as
successor, assign, third party beneficiary or otherwise, to, and is not
otherwise bound by, any lease or other contract under which the Company is
obligated or may be obligated by any representation, warranty, covenant,
restriction, indemnification or other undertaking respecting Hazardous Materials
or under which any other person is or has been released respecting Hazardous
Materials.
(l) The Company and any predecessors of the Company and any entity
previously owned by the Company have provided all notifications and warnings,
made all reports, and kept and maintained all records required pursuant to
Environmental Laws.
2.21 Substantial Partnerships. None of United Parcel Service General
------------------------
Services Co. ("UPS"), MBE and eBay Incorporated ("eBay") intend, and none of
--- ----
the foregoing have threatened, to terminate or refuse to perform their
obligations to, or adversely affect their relationship with, the Company as a
result of the execution of this Agreement or the consummation of the
transactions contemplated hereby. In addition, each of UPS, MBE and eBay have
waived any express or implied rights of first refusal, rights of first offer or
termination rights which may be triggered by the execution of this Agreement and
the contemplation and consummation of the transactions described in this
Agreement.
2.22 Accounts Receivable. The accounts and notes receivable of the
-------------------
Company reflected on the Company Financials, and all accounts and notes
receivable arising subsequent to the Unaudited Financial Statement Date, (a)
arose from bona fide sales transactions in the ordinary course of business,
consistent with past practice, and are payable on ordinary trade terms, (b) are
legal, valid and binding obligations of the respective debtors enforceable in
accordance with their respective terms, (c) are not subject to any valid set-off
or counterclaim and (d) do not represent obligations for goods sold on
consignment, on approval or on a sale-or-return basis or subject to any other
repurchase or return arrangement.
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<PAGE>
2.23 Other Negotiations; Brokers; Third Party Expenses. Neither the
-------------------------------------------------
Company nor, to the knowledge of the Company, any of its Affiliates (nor any
investment banker, financial advisor, attorney, accountant or other Person
retained by or acting for or on behalf of the Company or any such Affiliate) (a)
has entered into any Contract that conflicts with, or could be expected to delay
or prevent, any of the transactions contemplated by this Agreement or (b) has
entered into any Contract or had any discussions with any Person regarding any
transaction involving the Company which could result in the Parent, the Company
or any general partner, limited partner, manager, officer, director, employee,
agent or Affiliate of any of them being subject to any claim for liability to
said Person as a result of entering into this Agreement or consummating the
transactions contemplated hereby. Section 2.23 of the Disclosure Letter sets
forth the principal terms and conditions of any Contract with respect to, and a
reasonable estimate of, all Third Party Expenses expected to be incurred by the
Company in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby.
2.24 Foreign Corrupt Practices Act. Neither the Company, nor to the
-----------------------------
knowledge of the Company, any agent, employee or other Person associated with or
acting on behalf of the Company has, directly or indirectly, used any corporate
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns from corporate funds, violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff,
influence payment, kickback or other similar unlawful payment.
2.25 Financial Projections. The Company has made available to the Parent
---------------------
certain financial projections with respect to the Company's business which
projections were prepared for internal use only. The Company makes no
representation or warranty regarding the accuracy of such projections or as to
whether such projections will be achieved, except that the Company represents
and warrants that such projections were prepared in good faith and are based on
assumptions believed by it to be reasonable.
2.26 Approvals.
---------
(a) Section 2.26(a) of the Disclosure Letter contains a list of all
material Approvals of Governmental or Regulatory Authorities relating to the
business conducted by the Company which are required to be given to or obtained
by the Company from any and all Governmental or Regulatory Authorities in
connection with the consummation of the transactions contemplated by this
Agreement.
(b) Section 2.26(b) of the Disclosure Letter contains a list of all
material non-Governmental or Regulatory Authority Approvals which are required
to be given to or obtained by the Company from any and all third parties in
connection with the consummation of the transactions contemplated by this
Agreement.
(c) The Company has obtained all material Approvals from Governmental
or Regulatory Authorities necessary to conduct the business conducted by the
Company in the manner as it is currently being conducted and since its
inception, there has been no written notice received by the Company of any
material violation or material non-
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<PAGE>
compliance with any such Approvals. All material Approvals from Governmental or
Regulatory Authorities necessary to conduct the business conducted by the
Company as it is currently being conducted are set forth in Section 2.26(c) of
the Disclosure Letter.
(d) The affirmative vote or consent of the holders of two-thirds of
the outstanding shares of each of (i) the Company Common Stock and (ii) the
Series A Preferred Stock and the Series B Preferred Stock, voting together as a
class, are the only votes of the holders of any of the Company Capital Stock
necessary to approve this Agreement and the Merger and the transactions
contemplated hereby.
(e) The shareholders of Company that have concurrently herewith
entered into Support Agreements constitute (x) the holders of a majority of the
Company Common Stock and (y) the Holders of two-thirds of the Series A Preferred
Stock and the Series B Preferred Stock, voting together as a class, in each case
approving this Agreement and the Merger and the transactions contemplated
hereby.
2.27 Takeover Statutes. No Takeover Statute applicable to the Company is
-----------------
applicable to the Merger or the transactions contemplated hereby. The Company
has not adopted any shareholder rights plan or similar "poison pill"
arrangement, provision or understanding.
2.28 Registration Statement; Information Sheet/Prospectus. The
----------------------------------------------------
information supplied by the Company for inclusion in the Registration Statement
on Form S-4 of the Parent relating to the offer and sale of shares of Parent
Common Stock in connection with the transactions contemplated by this Agreement
(the "Registration Statement") pursuant to which the shares of Parent Common
----------------------
Stock issuable hereunder will be registered for public resale shall not at the
time the Registration Statement is declared effective by the SEC contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, not
misleading. The information supplied by the Company for inclusion in the joint
proxy statement/prospectus to be sent to the stockholders of the Parent in
connection with the approval, under the NASD's rules, of the issuance of shares
of Parent Common Stock hereunder (such information statement/prospectus as
amended or supplemented is referred to herein as the "Proxy
Statement/Prospectus") shall not, on the date the Proxy Statement/Prospectus is
--------------------------
first mailed to the Parent's stockholders, on the date of the special meeting of
the stockholders of Parent convened for the purpose of voting on (a) this
Agreement and (b) an amendment to the Parent's 1999 Stock Incentive Plan to
increase the number of shares of Parent Common Stock issuable thereunder (the
"Parent Stockholders' Meeting") and at the Effective Time, contain any
----------------------------
statement which, at such time, is false or misleading, with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which they
are made, not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication which has become false or
misleading. If at any time prior to the Effective Time any event or information
should be discovered by the Company which should be set forth in an amendment to
the Registration Statement or a supplement to the Proxy Statement/Prospectus,
the Company shall promptly inform the Parent. Notwithstanding the foregoing,
the Company makes no representation, warranty or covenant
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<PAGE>
with respect to any information supplied by the Parent or Merger Sub which is
contained in any of the foregoing documents.
2.29 Disclosure. No representation or warranty contained in this
----------
Agreement, and no statement contained in the Disclosure Letter or in any
certificate delivered to the Parent pursuant to this Agreement (including the
Company Financials including the notes thereto) contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements herein or therein, in the light
of the circumstances under which they were made, not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company as
follows:
3.1 Organization and Qualification. Each of the Parent and Merger Sub is
------------------------------
a corporation duly organized, validly existing and in good standing under the
Laws of its jurisdiction of incorporation, each with full corporate power and
authority to conduct its business as now conducted and as currently proposed to
be conducted and to own, use and lease its Assets and Properties. Each of the
Parent and Merger Sub are duly qualified, licensed or admitted to do business
and are in good standing in each jurisdiction in which the ownership, use,
licensing or leasing of its Assets and Properties, or the conduct or nature of
its business, makes such qualification, licensing or admission necessary, except
for such failures to be so duly qualified, licensed or admitted and in good
standing that could not reasonably be expected to have a material adverse effect
on the Business or Condition of the Parent and its subsidiaries, taken as a
whole.
3.2 Authority Relative to this Agreement. Each of the Parent and Merger
------------------------------------
Sub has full corporate power and authority to execute and deliver this
Agreement, to perform their obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery by the Parent and
Merger Sub of this Agreement and the consummation by the Parent and Merger Sub
of the transactions contemplated hereby have been duly and validly authorized by
all necessary action by the Board of Directors of each of the Parent and Merger
Sub, and no other action on the part of the Board of Directors of either the
Parent or Merger Sub is required to authorize the execution, delivery and
performance of this Agreement and the consummation by the Parent and Merger Sub
of the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by the Parent and Merger Sub and, assuming the
due authorization, execution and delivery hereof by the Company, constitutes a
legal, valid and binding obligation of the Parent and Merger Sub enforceable
against the Parent and Merger Sub in accordance with its respective terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar Laws relating
to the enforcement of creditors' rights generally and by general principles of
equity.
3.3 SEC Documents; the Parent Financial Statements.
----------------------------------------------
(a) As of their respective filing dates, all SEC Documents filed by
the Parent since June 30, 1999 and all SEC Documents filed after the date hereof
but before the
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<PAGE>
Closing complied or will comply in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
SEC thereunder, as the case may be, and none of the SEC Documents contained or
will contain any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances in which they were made, not
misleading, except to the extent such SEC Documents are corrected, updated or
superseded by a document subsequently filed with the SEC.
(b) The financial statements of the Parent, including the notes
thereto, included in the SEC Documents (the "Parent Financial Statements")
---------------------------
comply as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP consistently applied (except as may be indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q under the
Exchange Act) and present fairly the financial position of the Parent at the
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited financial statements, to normal
year-end adjustments). There has been no change in the Parent's accounting
policies except as described in the notes to the Parent Financial Statements.
(c) Except as reflected or reserved against in the Parent Financial
Statements, the Parent has no material Liabilities or other obligations, except
for Liabilities and obligations (i) incurred in the ordinary course of business
since the date of the most recent Parent Financial Statements or (ii) that would
not be required to be reflected or reserved against in the balance sheet of the
Parent prepared in accordance with GAAP.
3.4 No Conflicts. The execution and delivery by the Parent and Merger
------------
Sub of this Agreement does not, and the performance by the Parent of its
obligations under this Agreement and the consummation of the transactions
contemplated hereby do not and will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the certificate of incorporation of the
Parent, articles of incorporation of Merger Sub or bylaws of each of the Parent
or Merger Sub;
(b) conflict with or result in a violation or breach of any Law or
Order applicable to the Parent or Merger Sub or their respective Assets or
Properties;
(c) except as would not have a material adverse effect on the
Business or Condition of the Parent or Merger Sub, (i) conflict with or result
in a violation or breach of, (ii) constitute a default (or an event that, with
or without notice or lapse of time or both, would constitute a default) under,
(iii) require the Parent to obtain any consent, approval or action of, make any
filing with or give any notice to any Person as a result of the terms of, (iv)
result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to, (v) result in or give to any
person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments or performance under, (vi) result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
the Parent or Merger Sub or any of their respective Assets or Properties or
(vii) result in the loss of a material benefit under, any of the terms,
conditions or provisions of
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<PAGE>
any Contract or License to which the Parent or Merger Sub is a party or by which
any of their Assets and Properties are bound, except for (A) the expiration or
termination of any waiting period under the HSR Act and (B) consents, approvals
or actions of third parties that have been obtained.
3.5 Ownership of Merger Sub; No Prior Activities. As of the date hereof
--------------------------------------------
and the Effective Time, except for obligations or Liabilities incurred in
connection with its incorporation or organization and the transactions
contemplated by this Agreement and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Merger Sub has not
and will not have incurred, directly or indirectly, through any subsidiary or
affiliate, any obligations or liabilities or engaged in any business activities
of any type or kind whatsoever or entered into any agreements or arrangements
with any Person.
3.6 Investment Advisors. Except for Thomas Weisel Partners LLC, no
-------------------
broker, investment banker, financial advisor or other Person is entitled to any
broker's, finder's, financial advisor's or similar fee or commission in
connection with this Agreement and the transactions contemplated hereby based on
arrangements made by or on behalf of the Parent.
3.7 Absence of Certain Changes or Events. Since June 30, 1999 ("Parent
------------------------------------ ------
Balance Sheet Date"), the Parent has conducted its business in the ordinary
------------------
course in a manner consistent with past practice and there has not occurred: (i)
any declaration, setting aside, or payment of a dividend or other distribution
with respect to the shares of the Parent, or any direct or indirect redemption,
purchase or other acquisition by the Parent of any of its shares of capital
stock; (ii) any material amendment or change to the Parent's certificate of
incorporation or bylaws; or (iii) any negotiation or agreement by the Parent to
do any of the things described in the preceding clauses (i) or (ii) (other than
negotiations with the Company and its representatives regarding the transactions
contemplated by this Agreement).
3.8 Compliance with Laws. The Parent and its subsidiaries have complied
--------------------
with, are not in violation of, and have not received any notices of violation
with respect to, any federal, state, local or foreign statute, law or regulation
with respect to the conduct of their business, or the ownership or operation of
their business, except for such violations or failures to comply which would not
reasonably be expected to have a material adverse effect on the Parent and its
subsidiaries, taken as a whole.
3.9 Tax Matters. Neither the Parent nor any of its subsidiaries nor, to
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the knowledge of the Parent, any of their respective Affiliates or agents is
aware of any agreement, plan or other circumstance that would prevent the Merger
from constituting a reorganization under Section 368(a) of the Code.
3.10 Intellectual Property Rights. Except as otherwise described in the
----------------------------
Parent's SEC Documents: (a) the Parent owns or possesses adequate rights to use
all patents, patent rights or licenses, inventions, collaborative research
agreements, trade secrets, know-how, trademarks, service marks, trade names and
copyrights which are necessary to conduct its businesses as currently conducted,
(b) the expiration of any patents, patent rights, trade secrets, trademarks,
service marks, trade names or copyrights would not reasonably be
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<PAGE>
expected to result in a material adverse effect on the Parent and its
subsidiaries, taken as a whole, (c) the Parent has not received any notice of,
and has no knowledge of, any infringement of or conflict with asserted rights of
the Parent by others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names or copyrights
and (d) the Parent has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would reasonably be
expected to have a material adverse effect on the Parent and its subsidiaries,
taken as a whole. Except as otherwise disclosed in the Parent's SEC Documents,
there is no claim being made against the Parent regarding patents, patent rights
or licenses, inventions, collaborative research, trade secrets, know-how,
trademarks, service marks, trade names or copyrights. Except as otherwise
disclosed in the Parent's SEC Documents, the Parent, to its knowledge, does not
in the current conduct of its business nor as or currently proposed to be
conducted infringe or conflict with any right or patent of any third party, or
any discovery, invention, product or process which is the subject of a patent
application filed by any third party, known to the Parent, which such
infringement or conflict is reasonably likely to result in a material adverse
effect on the Parent and its subsidiaries, taken as a whole.
3.11 Year 2000 Preparedness. There are no issues related to the Parent's
----------------------
preparedness for the Year 2000 that (a) are of a character required to be
described or referred to in the Parent's SEC Documents which have not been
accurately described in the Parent's SEC documents or (b) would reasonably be
expected to result in any material adverse effect on the Parent and its
subsidiaries, taken as a whole, or that would reasonably be expected to
materially affect their Assets or Properties. To the Parent's knowledge, all
internal computer systems and each Constituent Component of those systems and
all computer-related products and each Constituent Component of those products
of the Parent fully comply with Year 2000 Qualification Requirements. "Year 2000
---------
Qualification Requirements" means that the internal computer systems and each
--------------------------
Constituent Component of those systems and all computer-related products and
each Constituent Component of those products of the Parent (i) have been
reviewed to confirm that they store, process (including sorting and performing
mathematical operations, calculations and computations), input and output data
containing date and information correctly regardless of whether the date
contains dates and times before, on or after January 1, 2000, (ii) have been
designated to ensure date and time entry recognition and calculations, and date
data interface values that reflect the century, (iii) accurately manage and
manipulate data involving dates and times, including single century formulas and
multi-century formulas, and will not cause an abnormal ending scenario within
the application or generate incorrect values or invalid results involving such
dates, (iv) accurately process any date rollover and (v) accept and respond to
two-digit year date input in a manner that resolves any ambiguities as to the
century. "Constituent Component" means all software (including operating
---------------------
systems, programs, packages and utilities), firmware, hardware, networking
components, and peripherals provided as part of the configuration. The Parent
has inquired of material vendors as to their preparedness for the Year 2000 and
has disclosed in the Parent's SEC Documents any issues that would reasonably be
expected to result in a material adverse effect on the Parent and its
subsidiaries, taken as a whole.
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ARTICLE 4
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
----------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (unless the Parent shall
give its prior consent in writing) to carry on its business in the ordinary
course consistent with past practice, to pay its Liabilities, including, but not
limited to, Taxes consistent with the Company's past practices, to pay or
perform other obligations when due consistent with the Company's past practices,
subject to any good faith disputes over such Liabilities and, to the extent
consistent with such business, to use reasonable efforts and institute all
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees,
independent contractors, shareholders and other Persons having business dealings
with it, all with the express purpose and intent of preserving unimpaired its
goodwill and ongoing businesses at the Effective Time. Except as expressly
contemplated by this Agreement and as set forth in Section 4.1 of the Disclosure
Letter, the Company shall not, without the prior written consent of the Parent,
take, or agree in writing or otherwise to take, any of the actions described in
Sections 2.9(a) through (ii) above, or any other action that could make any of
its representations or warranties contained in this Agreement untrue or
incorrect or prevent the Company from performing or cause the Company not to
perform its agreements and covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time and the
---------------
date of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, shareholders, attorneys, investment advisors, agents,
representatives, Affiliates or Associates to) directly or indirectly, take any
of the following actions with any Person other than the Parent and its
designees: (a) solicit, initiate, entertain, review, or encourage any proposals
or offers from, or conduct discussions with or engage in negotiations with, any
Person relating to any possible Business Combination with the Company or any of
its Subsidiaries (whether such Subsidiaries are in existence on the date hereof
or are hereafter organized), (b) provide information with respect to the Company
to any Person, other than the Parent, relating to, or otherwise cooperate with,
facilitate or encourage any effort or attempt by any such Person with regard to,
any possible Business Combination with the Company or any Subsidiary of the
Company (whether such Subsidiaries are in existence on the date hereof or are
hereafter organized), (c) enter into a Contract with any Person, other than the
Parent, providing for a Business Combination with the Company or any Subsidiary
(whether such Subsidiaries are in existence on the date hereof or are hereafter
organized), or (d) make or authorize any statement, recommendation or
solicitation in support of any possible Business Combination with the Company or
any Subsidiary (whether such Subsidiary is in existence on the date hereof or
are hereafter organized) other than by the Parent. Each of th