Agreement and Plan of Merger and Reorganization - Quokka Sports Inc. and ZoneNetwork.com Inc.
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
QUOKKA SPORTS, INC.,
a Delaware corporation;
MONTANA ACQUISITION CORPORATION,
a Washington corporation;
and
ZONENETWORK.COM, INC.,
a Washington corporation.
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Dated as of March 1, 2000
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EXHIBITS
Exhibit A Certain definitions
Exhibit B Form of Agreement of Merger and Articles of Merger
Exhibit C Form of Amended and Restated Articles of Incorporation of
Surviving Corporation
Exhibit D Directors and officers of Surviving Corporation
Exhibit E Form of Escrow Agreement
Exhibit F List of Company Shareholders to sign Voting Agreement
Exhibit G Form of Voting Agreement
Exhibit H Form of tax representation letters
Exhibit I List of Persons to sign Noncompetition Agreement
Exhibit J Form of Noncompetition Agreement
Exhibit K List of Company Shareholders to sign Release
Exhibit L Form of Release (for employees and other shareholders)
Exhibit M Investor Rights Agreement
Exhibit N Form of legal opinion of Dorsey & Whitney LLP
Exhibit O Certain employees
Exhibit P Form of legal opinion of Cooley Godward LLP
Exhibit Q Form of Shareholder Certification (for entities and
natural persons)
Exhibit R List of Company Option holders and Warrant holders to sign
Agreement Regarding Cancellation of Options and Warrants
Exhibit S Form of Agreement Regarding Cancellation of Options and Warrants
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SECTION 1 DESCRIPTION OF TRANSACTION....................................................1
1.1 Merger of Merger Sub with and into the Company................................1
1.2 Effect of the Merger..........................................................1
1.3 Closing; Effective Time.......................................................1
1.4 Articles of Incorporation and Bylaws; Directors and Officers..................2
1.5 Conversion of Shares..........................................................3
1.6 Stock Options and Warrants....................................................6
1.7 Closing of the Company's Transfer Books.......................................8
1.8 Exchange of Certificates......................................................8
1.9 Dissenting Shares.............................................................9
1.10 Tax Consequences.............................................................10
1.11 Accounting Treatment.........................................................10
1.12 Further Action...............................................................10
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................10
2.1 Due Organization; No Subsidiaries; Etc.......................................10
2.2 Articles of Incorporation and Bylaws; Records................................11
2.3 Capitalization, Etc..........................................................12
2.4 Financial Statements.........................................................13
2.5 Absence of Changes...........................................................14
2.6 Title to Assets..............................................................15
2.7 Bank Accounts; Receivables...................................................16
2.8 Equipment; Leasehold.........................................................16
2.9 Proprietary Assets...........................................................16
2.10 Contracts....................................................................18
2.11 Liabilities..................................................................20
2.12 Compliance with Legal Requirements...........................................20
2.13 Governmental Authorizations..................................................20
2.14 Tax Matters..................................................................20
2.15 Employee and Labor Matters; Benefit Plans....................................22
2.16 Environmental Matters........................................................24
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2.17 Insurance....................................................................25
2.18 Related Party Transactions...................................................25
2.19 Legal Proceedings; Orders....................................................25
2.20 Authority; Binding Nature of Agreement.......................................26
2.21 Non-Contravention; Consents..................................................26
2.22 Full Disclosure..............................................................27
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB......................27
3.1 SEC Filings; Financial Statements............................................27
3.2 Authority; Binding Nature of Agreement.......................................28
3.3 Valid Issuance...............................................................28
3.4 Tax Matters..................................................................28
3.5 Offering Valid...............................................................28
SECTION 4. CERTAIN COVENANTS OF THE COMPANY.............................................28
4.1 Access and Investigation.....................................................28
4.2 Operation of the Company's Business..........................................29
4.3 Notification; Updates to Disclosure Schedule.................................31
4.4 No Negotiation...............................................................31
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES..........................................32
5.1 Filings and Consents; Nasdaq Application.....................................32
5.2 Company Shareholders' Meeting................................................32
5.3 Public Announcements.........................................................33
5.4 Best Efforts.................................................................33
5.5 Tax Matters..................................................................33
5.6 Offer Letters and Noncompetition Agreements..................................33
5.7 Termination of Agreements....................................................33
5.8 Intentionally Omitted........................................................34
5.9 FIRPTA Matters...............................................................34
5.10 Release......................................................................34
5.11 Completion of Company Audits.................................................34
5.12 Intentionally Omitted........................................................34
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5.13 Intentionally Omitted........................................................34
5.14 Fingerhut Business Services, Inc. Fulfillment Agreement......................35
5.15 Parachute Payments...........................................................35
5.16 S-8 Registration Statement...................................................35
5.17 Registration Rights..........................................................35
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB.................35
6.1 Accuracy of Representations..................................................35
6.2 Performance of Covenants.....................................................35
6.3 Shareholder Approval.........................................................35
6.4 Consents.....................................................................35
6.5 Agreements and Documents.....................................................36
6.6 FIRPTA Compliance............................................................36
6.7 Intentionally Omitted........................................................36
6.8 No Restraints................................................................37
6.9 No Legal Proceedings.........................................................37
6.10 Employees....................................................................37
6.11 Escrow Agreement.............................................................37
6.12 Investor Rights Agreement....................................................37
6.13 Appointment of Purchaser Representative; Securities Compliance...............37
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY...........................37
7.1 Accuracy of Representations..................................................37
7.2 Performance of Covenants.....................................................38
7.3 Documents....................................................................38
7.4 Listing......................................................................38
7.5 Investor Rights Agreement....................................................38
7.6 No Restraints................................................................38
SECTION 8. TERMINATION..................................................................38
8.1 Termination Events...........................................................38
8.2 Termination Procedures.......................................................39
8.3 Effect of Termination........................................................39
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SECTION 9. INDEMNIFICATION, ETC.........................................................39
9.1 Survival of Representations, Etc.............................................39
9.2 Indemnification by the Company...............................................40
9.3 Threshold....................................................................41
9.4 Satisfaction of Indemnification Claim........................................41
9.5 No Contribution..............................................................43
9.6 Defense of Third-Party Claims................................................43
9.7 Tax Contests.................................................................43
9.8 Exercise of Remedies by Indemnitees Other Than Parent........................43
SECTION 10. MISCELLANEOUS PROVISIONS.....................................................43
10.1 Designated Company Agent.....................................................43
10.2 Further Assurances...........................................................44
10.3 Fees and Expenses............................................................44
10.4 Attorneys' Fees..............................................................44
10.5 Notices......................................................................45
10.6 Confidentiality..............................................................46
10.7 Time of the Essence..........................................................46
10.8 Headings.....................................................................46
10.9 Counterparts.................................................................46
10.10 Governing Law................................................................46
10.11 Successors and Assigns.......................................................46
10.12 Remedies Cumulative; Specific Performance....................................46
10.13 No Waiver....................................................................46
10.14 Amendments...................................................................47
10.15 Severability.................................................................47
10.16 Parties in Interest..........................................................47
10.17 Entire Agreement.............................................................47
10.18 Construction.................................................................47
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AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is
made and entered into as of March 1, 2000, by and among: QUOKKA SPORTS, INC., a
Delaware corporation ("Parent"); MONTANA ACQUISITION CORPORATION, a Washington
corporation and a wholly owned subsidiary of Parent ("Merger Sub"); and
ZONENETWORK.COM, INC., a Washington corporation (the "Company"). Certain other
capitalized terms used in this Agreement are defined in EXHIBIT A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub with and into the Company in accordance with this Agreement and the
Washington Business Corporation Act (the "Merger"). Upon consummation of the
Merger, Merger Sub will cease to exist, and the Company will become a wholly
owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). For accounting purposes, it is intended that the Merger be
treated as a "purchase."
C. This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and the Company.
AGREEMENT
The parties to this Agreement agree as follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB WITH AND INTO THE COMPANY. Upon the terms and
subject to the conditions set forth in this Agreement, at the Effective Time (as
defined in Section 1.3), Merger Sub will be merged with and into the Company,
and the separate existence of Merger Sub will cease. The Company will continue
as the surviving corporation in the Merger (the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger will have the effects set forth in
this Agreement and in the applicable provisions of the Washington Business
Corporation Act.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") will take place at the offices of
Cooley Godward LLP, One Maritime Plaza, 20th Floor, San Francisco, California
94111 at 10:00 a.m. on March 30, 2000 (provided, however, that beginning on
March 16, 2000, such March 30 date shall be automatically extended one business
day for each day the start of the February 29, 2000 balance sheet audit is
delayed), or at such other time and date as Parent and the Company may mutually
agree, such agreement not to be unreasonably withheld (the "Scheduled Closing
Time"). (The
1.
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date on which the Closing actually takes place is referred to in this Agreement
as the "Closing Date.")
If the Closing does not occur at any Scheduled Closing Time as a result
of any failure on the part of the Company to comply with or perform any covenant
or obligation of the Company set forth in this Agreement or as a result of any
other condition set forth in Section 6 of this Agreement not being met as of the
Scheduled Closing Time, the Scheduled Closing Time shall be automatically
postponed until the second business day following notice from the Company to
Parent that the Company is in compliance with all such covenants and/or has
performed all such obligations and/or that all conditions set forth in Section 6
of this Agreement have been met. If all the conditions set forth in Section 6 of
this Agreement have been met as of the Scheduled Closing Time, but the Closing
does not occur at any Scheduled Closing Time solely as a result of any failure
on the part of Parent to satisfy the conditions set forth in Sections 7.1, 7.2,
7.3(a), 7.3(b) or 7.5, Parent shall deliver to the Company on the date of such
Scheduled Closing Time a notice of such failure stating either (i) that Parent
wishes to reach agreement with the Company on a new Scheduled Closing Time at
which Parent expects that Parent will be in compliance with all such identified
conditions (any such notice, a "Parent Reschedule Notice"), or (ii) that Parent
irrevocably and permanently waives all of its rights under Section 4.4 of this
Agreement and the operation of any provision of this Agreement or any other
agreement that purports to limit or prohibit the Company's ability to discuss or
consummate an Acquisition Transaction involving any Person other than Parent
(any such notice, a "Parent Release Notice"). Parent's failure to timely deliver
a Parent Reschedule Notice to the Company shall be deemed a delivery of a Parent
Release Notice to the Company unless otherwise specifically agreed between the
Company and Parent in writing. If, following delivery of a Parent Release
Notice, the Company shall notify Parent in writing that the Company remains
ready for the Closing to occur, and if within three business days after such
notice is delivered neither the Closing has occurred nor has Parent provided the
Company with a loan bearing interest at 12% per annum at a rate of $50,000 per
day as described below, then the Company shall be free to consummate an
alternative Acquisition Transaction. Parent agrees that if it delivers a Parent
Reschedule Notice it will thereafter provide the Company with a loan bearing
interest at 12% per annum at a rate of $50,000 per day until the earliest of (i)
the date Parent satisfies the conditions described above, (ii) the date Parent
delivers a Parent Release Notice to the Company and (iii) April 21, 2000.
Notwithstanding the foregoing, Parent will not be required to deliver a Parent
Reschedule Notice, Parent Release Notice or provide any loan to the Company if
the Company has failed to comply with or perform any covenant or obligation of
the Company set forth in this Agreement as of any Scheduled Closing Time.
Contemporaneously with or as promptly as practicable after the Closing,
the parties shall execute and file a duly executed Agreement of Merger and duly
executed Articles of Merger (collectively the "Merger Documents") with respect
to the Merger, in substantially the forms attached as EXHIBIT B, with the
Secretary of State of the State of Washington in accordance with the relevant
provisions of the Washington Business Corporation Act. The time upon which such
filing becomes effective in accordance with the Washington Business Corporation
Act is referred to herein as the "Effective Time".
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless
otherwise determined by Parent and the Company prior to the Effective Time:
2.
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(a) the Articles of Incorporation of the Surviving Corporation
will be amended and restated as of the Effective Time to conform to
EXHIBIT C;
(b) the Bylaws of the Surviving Corporation will be amended and
restated as of the Effective Time to conform to the Bylaws of Merger Sub
as in effect immediately prior to the Effective Time; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time will be the individuals identified
on EXHIBIT D.
1.5 CONVERSION OF SHARES.
(a) Subject to Sections 1.8(c) and 1.9, at the Effective Time, by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or any shareholder of the Company:
(i) each share of the Common Stock of the Company (the
"Company Common Stock"), each share of the Series A Preferred Stock of
the Company (the "Series A Preferred Stock") and each share of the
Series A-1 Preferred Stock of the Company (the "Series A-1 Preferred
Stock") outstanding immediately prior to the Effective Time will be
converted into the right to receive the "Applicable Fraction" (as
defined in Section 1.5(b)(i)) of a share of the common stock, par value
$0.0001 per share, of Parent ("Parent Common Stock");
(ii) each share of Series B Preferred Stock of the Company
(the "Series B Preferred Stock" and, together with the Series A
Preferred Stock and the Series A-1 Preferred Stock, the "Company
Preferred Stock"), if any, outstanding immediately prior to the
Effective Time will be converted into the right to receive the fraction
of a share of Parent Common Stock equal to the Class B Fraction (as
defined in Section 1.5(b)(vii)); and
(iii) each share of the common stock, par value $0.0001
per share, of Merger Sub outstanding immediately prior to the Effective
Time will be converted into one share of common stock of the Surviving
Corporation.
(b) For purposes of this Agreement:
(i) The "Applicable Fraction" will be the fraction: (A)
having a numerator equal to the amount by which the Total Purchase Price
(as defined in Section 1.5(b)(v)) exceeds the sum of the Aggregate
Series B Preferred Stock Liquidation Preference (as defined in Section
1.5(b)(ii)) and the Aggregate Series B Warrant Amount (as defined in
Section 1.5(b)(vi)); and (B) having a denominator equal to the amount
determined by multiplying (1) the Adjusted Fully Diluted Company Share
Amount (as defined in Section 1.5(b)(iii)) by (2) the Designated Parent
Stock Price (as defined in Section 1.5(b)(iv)).
(ii) The "Aggregate Series B Preferred Stock Liquidation
Preference" will be the amount determined by multiplying (A) $1.7699
(representing the "Liquidation
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Preference" of each share of Series B Preferred Stock under the
Company's Articles of Incorporation) by (B) the aggregate number of
shares of Series B Preferred Stock outstanding immediately prior to the
Effective Time.
(iii) The "Adjusted Fully Diluted Company Share Amount"
will be the sum of (A) the aggregate number of shares of Company Common
Stock, Series A Preferred Stock and Series A-1 Preferred Stock
outstanding immediately prior to the Effective Time (including any such
shares that are subject to a repurchase option or risk of forfeiture
under any restricted stock purchase agreement or other agreement), and
(B) the aggregate number of shares of Company Common Stock and Company
Preferred Stock purchasable under or otherwise subject to all Company
Options and Common Warrants outstanding immediately prior to the
Effective Time (including all shares of Company Common Stock or Company
Preferred Stock that may ultimately be purchased under Company Options
and Common Warrants that are unvested or are otherwise not then
exercisable).
(iv) The "Designated Parent Stock Price" is $12.579. Upon
the happening of an Extraordinary Common Stock Event between the date of
this Agreement and the Effective Time, the Designated Parent Stock Price
shall, simultaneously with the happening of such Extraordinary Common
Stock Event, be adjusted by multiplying the then effective Designated
Parent Stock Price by a fraction, the numerator of which shall be the
number of shares of Parent Common Stock outstanding immediately prior
such Extraordinary Common Stock Event and the denominator of which shall
be the number of shares of Parent Common Stock outstanding immediately
after to such Extraordinary Common Stock Event, and the product so
obtained shall thereafter be the Designated Parent Stock Price. The
Designated Parent Stock Price, as so adjusted, shall be readjusted in
the same manner upon the happening of any successive Extraordinary
Common Stock Event or Events. "Extraordinary Common Stock Event" shall
mean (x) the issuance of additional shares of Parent Common Stock as a
dividend or other distribution on outstanding Parent Common Stock, (y) a
subdivision of outstanding shares of Parent Common Stock into a greater
number of shares of Parent Common Stock, or (z) a combination of
outstanding shares of Parent Common Stock into a smaller number of
shares of Parent Common Stock.
(v) The "Total Purchase Price" will be the amount equal to
(A) twenty-five million dollars ($25,000,000) minus (B) the amount of
the Company's fees and expenses payable to FleetBoston Robertson
Stephens, Inc. minus (C) the amount by which the Company's legal,
accounting and other third-party professional expenses relating to the
Merger exceed $15,000 minus (D) the amount by which the net worth
deficit of the Company (defined as the Company's total assets minus the
Company's total liabilities) as of February 29, 2000 exceeds four
million five hundred thousand dollars ($4,500,000) minus (E) $169,001.
The Company will prepare and will cause Pricewaterhousecoopers LLP, the
Company's independent auditor, to audit the financial statements of the
Company as of February 29, 2000 (the "Bring-Down Financial Statements")
no later than five days prior to the Scheduled Closing Date for the
purposes of determining the net worth deficit of the Company. The
Bring-Down Financial Statements shall be subject to the approval by
Parent prior to the final determination of
4.
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the Company's net deficit for use hereunder, which approval shall not be
unreasonably withheld. In the event Parent, in its sole discretion,
elects to waive the provision of Section 5.11 regarding the completion
of the Bring-Down Financial Statements, then an estimate of the net
worth deficit shall be prepared by the Company and, subject to Parent's
approval of such estimate, shall be used for purposes of calculating the
Total Purchase Price hereunder (any such estimate so used is referred to
herein as the "Net Worth Deficit Estimate"). Further, the Company will
prepare, no later than two days prior to the Scheduled Closing Date, an
estimate of the fees and expenses payable by the Company to FleetBoston
Robertson Stephens, Inc. and the Company's legal and accounting expenses
relating to the Merger (the "Estimated Fees"). The Estimated Fees shall
be subject to the approval of the Parent prior to the use of such
estimate hereunder, which approval shall not be unreasonably withheld.
(vi) The "Aggregate Series B Warrant Amount" will be the
amount determined by multiplying (A) $1.7699 (representing the
"Liquidation Preference" of each share of Series B Preferred Stock under
the Company's Articles of Incorporation) by (B) the aggregate number of
shares of Series B Preferred Stock underlying any Series B Preferred
Warrant (as defined in Section 1.6(c)) immediately prior to the
Effective Time.
(vii) The "Class B Fraction" is 0.1407.
(c) If any shares of Company Common Stock, Series A Preferred
Stock or Series A-1 Preferred Stock outstanding immediately prior to the
Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company, then the shares of Parent Common
Stock issued in exchange for such shares will also be unvested and subject to
the same repurchase option, risk of forfeiture or other condition, and the
certificates representing such shares of Parent Common Stock may accordingly be
marked with appropriate legends.
(d) Parent shall deposit 10% of the aggregate number of shares
issuable to the holders of the Company Common Stock and Company Preferred Stock
hereunder (the "Escrowed Shares") with State Street Bank and Trust Company of
California, N.A. (the "Escrow Agent") to be held and disbursed by the Escrow
Agent in accordance with the form of escrow agreement (the "Escrow Agreement")
attached as EXHIBIT E. Execution and delivery of a Shareholder Certification in
substantially the form attached as EXHIBIT Q, an Escrow Agreement (with all
documents required thereunder), and the Investor Rights Agreement in
substantially the form attached as EXHIBIT M by a shareholder is a condition
precedent to such shareholder receiving any certificate evidencing Parent Common
Shares. Subject to the preceding sentence, the Escrow Shares will be represented
by a certificate or certificates issued in the name of each holder of Company
Common Stock and Company Preferred Stock in proportion to each such
shareholder's ("Escrow Shareholder") interest in the Escrow Shares. To the
extent that any dividend or distribution, or other transaction, with respect to
the Escrow Shares results in a liability for Tax, such Tax liability shall be
that of the Escrow Shareholders (in proportion to each such shareholder's
interest in the Escrow Shares), and not of Parent or the Company. Any and all
voting rights with respect to the Escrow Shares shall be exercisable by the
Escrow Shareholders or their authorized agent as of the Effective Time. Parent,
Merger Sub, the Company, and the Escrow Shareholders hereby agree and
acknowledge that the Escrow Shares
5.
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shall be treated as transferred to and owned by the Escrow Shareholders as of
the Effective Time and at all times thereafter for all Tax purposes.
1.6 STOCK OPTIONS AND WARRANTS.
(a) At the Effective Time, each stock option that is then
outstanding under the Company's 1996 Stock Option Plan, whether vested or
unvested (a "Company Option"), will be assumed by Parent in accordance with the
terms (as in effect as of the date of this Agreement) of the Company's 1996
Stock Option Plan and the stock option agreement by which such Company Option is
evidenced. All rights with respect to Company Common Stock under outstanding
Company Options will thereupon be converted into rights with respect to Parent
Common Stock. Accordingly, from and after the Effective Time, (i) each Company
Option assumed by Parent may be exercised solely for shares of Parent Common
Stock, (ii) the number of shares of Parent Common Stock subject to each such
assumed Company Option will be equal to the number of shares of Company Common
Stock that were subject to such Company Option immediately prior to the
Effective Time multiplied by the Applicable Fraction, rounded down to the
nearest whole number of shares of Parent Common Stock, (iii) the per share
exercise price for the Parent Common Stock issuable upon exercise of each such
assumed Company Option will be determined by dividing the exercise price per
share of Company Common Stock subject to such Company Option, as in effect
immediately prior to the Effective Time, by the Applicable Fraction, and
rounding the resulting exercise price up to the nearest whole cent, and (iv) all
restrictions on the exercise of each such assumed Company Option will continue
in full force and effect, and the term and other provisions of such Company
Option will otherwise remain unchanged (except that the vesting of each such
assumed Company Option will, in accordance with the Company's 1996 Stock Option
Plan, become fully vested and exercisable at the Effective Time); provided,
however, that each such assumed Company Option will, in accordance with its
terms, be subject to further adjustment as appropriate to reflect any stock
split, reverse stock split, stock dividend, recapitalization or other similar
transaction effected by Parent after the Effective Time. The Company and Parent
will take all action that may be necessary (under the Company's 1996 Stock
Option Plan and otherwise) to effectuate the provisions of this Section 1.6(a).
Following the Closing, Parent will send to each holder of an assumed Company
Option a written notice setting forth (x) the number of shares of Parent Common
Stock subject to such assumed Company Option, and (y) the exercise price per
share of Parent Common Stock issuable upon exercise of such assumed Company
Option. The adjustment provided herein with respect to any options that are
"incentive stock options" (as defined in the Code) shall be and is intended to
be effected in a manner consistent with Section 424(b) of the Code.
In the event any person listed on EXHIBIT R exercises any Company Option
prior to the Termination Date (as such term is defined in the Escrow Agreement),
upon such exercise, Parent shall deposit the Option and Warrant Holder Fraction
of the aggregate number of shares of Parent Common Stock with respect to which
such Company Option was exercised with the Escrow Agent to be held and disbursed
by the Escrow Agent in accordance with the Escrow Agreement. Prior to the
Closing, each person listed on EXHIBIT R shall execute and deliver an Agreement
Regarding Cancellation of Options and Warrants in substantially the form
attached as EXHIBIT S hereto and an Escrow Agreement. For purposes of this
Agreement, the "Option and Warrant Holder Fraction" shall mean a fraction, the
numerator of which is equal to 10% of the
6.
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number of shares of Company stock (on an as-converted-to-Common-Stock basis)
subject to all options and warrants outstanding as of the Effective Time, and
the denominator of which is equal to the number of shares of Company stock (on
an as-converted-to-Common-Stock basis) subject to all options and warrants held
by all persons set forth on EXHIBIT R outstanding as of the Effective Time.
(b) At the Effective Time, each warrant to purchase the Company
Common Stock which survives the Merger, whether vested or unvested (each, a
"Common Warrant"), will be assumed by Parent in accordance with the terms (as in
effect as of the date of this Agreement) of any agreement by which such Common
Warrant is evidenced. All rights with respect to Company Common Stock under
outstanding Common Warrants will thereupon be converted into rights with respect
to Parent Common Stock. Accordingly, from and after the Effective Time, (i) each
Common Warrant assumed by Parent may be exercised solely for shares of Parent
Common Stock, (ii) the number of shares of Parent Common Stock subject to each
such assumed Common Warrant will be equal to the number of shares of Company
Common Stock that were subject to such Common Warrant immediately prior to the
Effective Time multiplied by the Applicable Fraction, rounded up to the nearest
whole number of shares of Parent Common Stock, (iii) the per share exercise
price for the Parent Common Stock issuable upon exercise of each such assumed
Common Warrant will be determined by dividing the exercise price per share of
Company Common Stock subject to such Common Warrant, as in effect immediately
prior to the Effective Time, by the Applicable Fraction, and rounding the
resulting exercise price up to the nearest whole cent, and (iv) all restrictions
on the exercise of each such assumed Common Warrant will continue in full force
and effect, and the term, exercisability, vesting schedule and other provisions
of such Common Warrant will otherwise remain unchanged; provided, however, that
each such assumed Common Warrant will, in accordance with its terms, be subject
to further adjustment as appropriate to reflect any stock split, reverse stock
split, stock dividend, recapitalization or other similar transaction effected by
Parent after the Effective Time. The Company and Parent will take all action
that may be necessary to effectuate the provisions of this Section 1.6(b).
Following the Closing, Parent will send to each holder of an assumed Common
Warrant a written notice setting forth (x) the number of shares of Parent Common
Stock subject to such assumed Common Warrant, and (y) the exercise price per
share of Parent Common Stock issuable upon exercise of such assumed Common
Warrant.
In the event any person listed on EXHIBIT R exercises any Common Warrant
prior to the Termination Date (as such term is defined in the Escrow Agreement),
upon such exercise, Parent shall deposit the Option and Warrant Holder Fraction
of the aggregate number of shares of Parent Common Stock with respect to which
such Common Warrant was exercised with the Escrow Agent to be held and disbursed
by the Escrow Agent in accordance with the Escrow Agreement. Prior to the
Closing, each person listed on EXHIBIT R shall execute and deliver an Agreement
Regarding Cancellation of Options and Warrants in substantially the form
attached as EXHIBIT S hereto and an Escrow Agreement.
(c) At the Effective Time, each warrant to purchase the Series B
Preferred Stock of the Company which survives the Merger, whether vested or
unvested (each, a "Series B Preferred Warrant" and, together with the Common
Warrants, the "Company Warrants"), will be assumed by Parent in accordance with
the terms (as in effect as of the date of this Agreement) of any agreement by
which such Series B Preferred Warrant is evidenced. All rights with respect to
7.
<PAGE> 14
Series B Preferred Stock under outstanding Series B Preferred Warrants will
thereupon be converted into rights with respect to Parent Common Stock.
Accordingly, from and after the Effective Time, (i) each Series B Preferred
Warrant assumed by Parent may be exercised solely for shares of Parent Common
Stock, (ii) the number of shares of Parent Common Stock subject to each such
assumed Series B Preferred Warrant will be equal to (A) the number of shares of
Series B Preferred Stock that were subject to such Series B Preferred Warrant
immediately prior to the Effective Time multiplied by (B) the Series B Fraction
(as defined in Section 1.5(a)(ii)), rounded up to the nearest whole number of
shares of Parent Common Stock, (iii) the per share exercise price for the Parent
Common Stock issuable upon exercise of each such assumed Series B Preferred
Warrant will be determined by dividing the exercise price per share of Series B
Preferred Stock subject to such Series B Preferred Warrant, as in effect
immediately prior to the Effective Time, by the Series B Fraction (as defined in
Section 1.5(a)(ii)), and rounding the resulting exercise price up to the nearest
whole cent, and (iv) all restrictions on the exercise of each such assumed
Series B Preferred Warrant will continue in full force and effect, and the term,
exercisability, vesting schedule and other provisions of such Series B Preferred
Warrant will otherwise remain unchanged; provided, however, that each such
assumed Series B Preferred Warrant will, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split, reverse
stock split, stock dividend, recapitalization or other similar transaction
effected by Parent after the Effective Time. The Company and Parent will take
all action that may be necessary to effectuate the provisions of this Section
1.6(c). Following the Closing, Parent will send to each holder of an assumed
Series B Preferred Warrant a written notice setting forth (x) the number of
shares of Parent Common Stock subject to such assumed Series B Preferred
Warrant, and (y) the exercise price per share of Parent Common Stock issuable
upon exercise of such assumed Series B Preferred Warrant.
1.7 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time will cease to have any
rights as shareholders of the Company, and the stock transfer books of the
Company will be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock will be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "Company Stock Certificate") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate will be canceled and will be exchanged
as provided in Section 1.8.
1.8 EXCHANGE OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time, Parent
will authorize one or more persons to act as Exchange Agent hereunder (the
"Exchange Agent"). As soon as practicable thereafter, Parent shall cause the
Exchange Agent to send to the former holders of record of Company Common Stock
or preferred stock (i) a letter of transmittal in customary form and containing
such provisions as Parent may reasonably specify, and (ii) instructions for use
in effecting the surrender of Company Stock Certificates in exchange for
certificates representing Parent Common Stock. Upon surrender of a Company Stock
Certificate to Exchange Agent for exchange, together with a duly executed letter
of transmittal and such other documents as may be reasonably required by Parent,
the holder of such Company Stock
8.
<PAGE> 15
Certificate will be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Parent Common Stock that such holder
has the right to receive pursuant to the provisions of this Section 1 (taking
into account the deposit into escrow of the Escrow Shares), and the Company
Stock Certificate so surrendered will be canceled. Until surrendered as
contemplated by this Section 1.8, each Company Stock Certificate will be deemed,
from and after the Effective Time, to represent only the right to receive upon
such surrender a certificate representing shares of Parent Common Stock (and
cash in lieu of any fractional share of Parent Common Stock) as contemplated by
this Section 1 (taking into account the deposit into escrow of the Escrow
Shares). If any Company Stock Certificate will have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the
issuance of any certificate representing Parent Common Stock, require the owner
of such lost, stolen or destroyed Company Stock Certificate to provide an
appropriate affidavit and to deliver a bond (in such sum as Parent may
reasonably direct) as indemnity against any claim that may be made against
Parent or the Surviving Corporation with respect to such Company Stock
Certificate.
(b) No dividends or other distributions declared or made with
respect to Parent Common Stock with a record date after the Effective Time will
be paid to the holder of any unsurrendered Company Stock Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of any fractional share will be paid to any such holder, until
such holder surrenders such Company Stock Certificate in accordance with this
Section 1.8 (at which time such holder will be entitled to receive all such
dividends and distributions and such cash payment).
(c) No fractional shares of Parent Common Stock will be issued in
connection with the Merger, and no certificates for any such fractional shares
will be issued. In lieu of such fractional shares, any holder of capital stock
of the Company who would otherwise be entitled to receive a fraction of a share
of Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock issuable to such holder) will, upon surrender of such holder's Company
Stock Certificate(s), be paid in cash the dollar amount (rounded to the nearest
whole cent), without interest, determined by multiplying such fraction by the
Designated Parent Stock Price.
(d) Parent and the Surviving Corporation will be entitled to
deduct and withhold from any consideration payable or otherwise deliverable to
any holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent or the Surviving Corporation may be required to
deduct or withhold therefrom under the Code or under any provision of state,
local or foreign tax law. To the extent such amounts are so deducted or
withheld, such amounts will be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been
paid.
(e) Neither Parent nor the Surviving Corporation will be liable
to any holder or former holder of capital stock of the Company for any shares of
Parent Common Stock (or dividends or distributions with respect thereto), or for
any cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
9.
<PAGE> 16
1.9 DISSENTING SHARES.
(a) Notwithstanding anything to the contrary contained in this
Agreement, the shares of any shareholder of the Company that, as of the
Effective Time, is or may become a "dissenter" within the meaning of RCW 23.B.13
("RCW 23.B.13") will not be converted into or represent the right to receive
Parent Common Stock in accordance with Section 1.5 (or cash in lieu of
fractional shares in accordance with Section 1.8(c)), and the holder or holders
of such shares will be entitled only to such rights as may be granted to such
holder or holders in RCW 23.B.13; provided, however, that if the status of any
such shareholder as a "dissenter" will not be perfected, or if any such
shareholder loses its status as a "dissenter," then, as of the later of the
Effective Time or the time of the failure to perfect such status or the loss of
such status, the shares of such shareholder will automatically be converted into
and will represent only the right to receive (upon the surrender of the
certificate or certificates representing such shares) Parent Common Stock in
accordance with Section 1.5 (and cash in lieu of fractional shares in accordance
with Section 1.8(c)).
(b) The Company will give Parent (i) prompt notice of any written
demand received by the Company prior to the Effective Time to require the
Company to purchase shares of capital stock of the Company pursuant to RCW
23.B.13 and of any other demand, notice or instrument delivered to the Company
prior to the Effective Time pursuant to the Washington Business Corporation Act,
and (ii) the opportunity to participate in all negotiations and proceedings with
respect to any such demand, notice or instrument. The Company will not make any
payment or settlement offer prior to the Effective Time with respect to any such
demand unless Parent will have consented in writing to such payment or
settlement offer.
1.10 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations. Notwithstanding the foregoing or anything
else to the contrary contained in this Agreement, the parties acknowledge and
agree that no party is making any representation or warranty as to the status of
the Merger as a tax-free reorganization under Section 368 of the Code or as to
the effect, if any, that any transaction consummated prior to the Effective Time
has or may have on any such tax-free status. Without limiting the foregoing, it
is understood that each of the Company and Parent are expected to execute and
deliver tax representation letters as set forth in Section 5.5.
1.11 ACCOUNTING TREATMENT. For accounting purposes, the Merger is
intended to be treated as a "purchase."
1.12 FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by Parent to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation or Parent
with full right, title and possession of and to all rights and property of
Merger Sub and the Company, the officers and directors of the Surviving
Corporation and Parent will be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.
10.
<PAGE> 17
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants, to and for the benefit of
the Indemnitees, as follows:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Washington and has all
necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own and use its assets
in the manner in which its assets are currently owned and used; and (iii) to
perform its obligations under all Company Contracts.
(b) Except as set forth in Part 2.1 of the Disclosure Schedule,
the Company has not conducted any business under or otherwise used, for any
purpose or in any jurisdiction, any fictitious name, assumed name, trade name or
other name, other than the name "ZoneNetwork.com."
(c) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1 of the
Disclosure Schedule, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a Material Adverse Effect
on the Company. The Company is in good standing as a foreign corporation in each
of the jurisdictions identified in Part 2.1 of the Disclosure Schedule.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth (i)
the names of the members of the Company's board of directors, (ii) the names of
the members of each committee of the Company's board of directors, and (iii) the
names and titles of the Company's officers.
(e) The Company does not own any controlling interest in any
Entity and, except for the equity interests identified in Part 2.1 of the
Disclosure Schedule, the Company has never owned, beneficially or otherwise, any
shares or other securities of, or any direct or indirect equity interest in, any
Entity. The Company has not agreed and is not obligated to make any future
investment in or capital contribution to any Entity. The Company has not
guaranteed and is not responsible or liable for any obligation of any of the
Entities in which it owns or has owned any equity interest.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent or its Representatives accurate and complete copies of: (1)
the Company's articles of incorporation and bylaws, including all amendments
thereto; (2) the stock records of the Company; and (3) the minutes and other
records of the meetings and other proceedings (including any actions taken by
written consent or otherwise without a meeting) of the shareholders of the
Company, the board of directors of the Company and all committees of the board
of directors of the Company. There have been no formal meetings or other formal
proceedings of the shareholders of the Company, the board of directors of the
Company or any committee of the board of directors of the Company that are not
fully reflected in such minutes or other records. There has not been any
violation of any of the provisions of the Company's
11.
<PAGE> 18
articles of incorporation or bylaws, and the Company has not taken any action
that is inconsistent in any material respect with any resolution adopted by the
Company's shareholders, the Company's board of directors or any committee of the
Company's board of directors. The books of account, stock records, minute books
and other records of the Company are accurate, up-to-date and complete in all
material respects, and have been maintained in accordance with prudent business
practices.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of: (i)
50,000,000 shares of Common Stock, without par value, of which 10,123,313 shares
have been issued and are outstanding as of the date of this Agreement; and (ii)
25,000,000 shares of Preferred Stock, without par value, 5,771,788 of which have
been designated "Series A Preferred Stock," all of which have been issued and
are outstanding as of the date of this Agreement, 3,690,986 of which have been
designated "Series A-1 Preferred Stock," all of which have been issued and are
outstanding as of the date of this Agreement, and 12,500,000 of which have been
designated "Series B Preferred Stock," none of which have been issued or are
outstanding as of the date of this Agreement. Each outstanding share of Series A
Preferred Stock and Series A-1 Preferred Stock is convertible into one share of
Company Common Stock. All of the outstanding shares of Company Common, Stock
Series A Preferred Stock and Series A-1 Preferred Stock have been duly
authorized and validly issued, and are fully paid and non-assessable. Part 2.3
of the Disclosure Schedule provides an accurate and complete description of the
terms of each repurchase option which is held by the Company and to which any of
such shares is subject.
(b) The Company has reserved 5,628,875 shares of Company Common
Stock for issuance under its 1996 Stock Option Plan, of which options to
purchase 4,669,162 shares are outstanding as of the date of this Agreement and
options to purchase 303,943 shares have been exercised. Part 2.3 of the
Disclosure Schedule accurately sets forth, with respect to each Company Option
that is outstanding as of the date of this Agreement: (i) the name of the holder
of such Company Option; (ii) the total number of shares of Company Common Stock
that are subject to such Company Option and the number of shares of Company
Common Stock with respect to which such Company Option is immediately
exercisable; (iii) the date on which such Company Option was granted and the
term of such Company Option; (iv) the vesting schedule for such Company Option;
(v) the exercise price per share of Company Common Stock purchasable under such
Company Option; and (vi) whether such Company Option has been designated an
"incentive stock option" as defined in Section 422 of the Code. Part 2.3 of the
Disclosure Schedule also accurately sets forth, with respect to each Company
Warrant that is outstanding as of the date of this Agreement: (i) the name of
the holder of such Company Warrant; (ii) the total number of shares of Company
Common Stock or Preferred Stock that are subject to such Company Warrant and the
number of shares of Company Common Stock or Preferred Stock with respect to
which such Company Warrant is immediately exercisable; (iii) the date on which
such warrant was granted and the term of such Company Warrant; (iv) the vesting
schedule for such Company Warrant (if any); and (v) the purchase price per share
of Company Common Stock or Preferred Stock purchasable under such Company
Warrant. Except as set forth in Part 2.3 of the Disclosure Schedule, there is
no: (i) outstanding subscription, option, call, warrant or right (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of the Company; (ii) outstanding security, instrument or
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<PAGE> 19
obligation that is or may become convertible into or exchangeable for any shares
of the capital stock or other securities of the Company; (iii) Contract under
which the Company is or may become obligated to sell or otherwise issue any
shares of its capital stock or any other securities; or (iv) to the Company's
Knowledge, condition or circumstance that may give rise to or provide a basis
for the assertion of a claim by any Person to the effect that such Person is
entitled to acquire or receive any shares of capital stock or other securities
of the Company from the Company or any shareholder of the Company.
(c) All outstanding shares of Company Common Stock, Series A
Preferred Stock and Series A-1 Preferred Stock, and all outstanding Company
Options and Company Warrants, have been issued and granted in compliance with
(i) all applicable securities laws and other applicable Legal Requirements
(excluding Legal Requirements for jurisdictions outside the U.S.), and (ii) all
requirements set forth in applicable Contracts.
(d) Except as set forth in Part 2.3 of the Disclosure Schedule,
the Company has never repurchased, redeemed or otherwise reacquired any shares
of capital stock or other securities of the Company. All securities so
reacquired by the Company were reacquired in compliance with (i) the applicable
provisions of the Washington Business Corporation Act and all other applicable
Legal Requirements (excluding Legal Requirements for jurisdictions outside the
U.S.), and (ii) all requirements set forth in applicable restricted stock
purchase agreements and other applicable Contracts.
(e) Set forth in Part 2.3 of the Disclosure Schedule is a true,
accurate and complete list of the Company's shareholders as of the date hereof,
including the number of shares of Common Stock and Preferred Stock (indicating
the applicable series) held by each, together with each such shareholder's
address of record.
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent or its Representatives
the following financial statements and notes (collectively, the "Company
Financial Statements", provided, however, that following delivery of the audited
balance sheet of the Company as of December 31, 1999, and the related audited
income statement, statement of shareholders' equity and statement of cash flows
of the Company for the year then ended (the "1999 Audited Financials"), "Company
Financial Statements" shall also include such 1999 Audited Financials):
(i) the draft audited balance sheets of the Company as of
December 31, 1997 and 1998, and the related draft audited income
statements, statements of shareholders' equity and statements of cash
flows of the Company for the years then ended, together with the notes
thereto and the draft unqualified report and opinion of
Pricewaterhousecoopers LLP relating thereto;
(ii) the unaudited balance sheet of the Company as of
December 31, 1999, and the related unaudited income statement, statement
of shareholders' equity and statement of cash flows of the Company for
the year then ended; and
13.
<PAGE> 20
(iii) the unaudited balance sheet of the Company as of
January 31, 2000 (the "Unaudited Interim Balance Sheet"), and the
related unaudited income statement of the Company for the one month then
ended.
(b) The Company Financial Statements are accurate and complete in
all material respects and present fairly the financial position of the Company
as of the respective dates thereof and the results of operations and (in the
case of the financial statements referred to in Section 2.4(a)(i) and (ii)) cash
flows of the Company for the periods covered thereby. The Company Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered (except
that the financial statements referred to in Section 2.4(a)(ii) and Section
2.4(a)(iii) do not contain footnotes and are subject to normal and recurring
year-end audit adjustments, which will not, individually or in the aggregate, be
material in magnitude).
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the
Disclosure Schedule, since January 31, 2000:
(a) there has not been any material adverse change in the
Company's business, condition, assets, liabilities, operations,
financial performance or prospects, and, to the Company's Knowledge, no
event has occurred that will, or could reasonably be expected to, have a
Material Adverse Effect on the Company;
(b) there has not been any material loss, damage or destruction
to, or any material interruption in the use of, any of the Company's
assets (whether or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of
capital stock, and has not repurchased, redeemed or otherwise reacquired
any shares of capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance
of (i) any capital stock or other security (except for Company Common
Stock issued upon the exercise of outstanding Company Options and
Company Warrants), (ii) any option or right to acquire any capital stock
or any other security (except for Company Options described in Part 2.3
of the Disclosure Schedule), or (iii) any instrument convertible into or
exchangeable for any capital stock or other security;
(e) the Company has not amended or waived any of its rights
under, or permitted the acceleration of vesting under, (i) any provision
of its 1996 Stock Option Plan, (ii) any provision of any agreement
evidencing any outstanding Company Option or Company Warrant, or (iii)
any restricted stock purchase agreement;
(f) there has been no amendment to the Company's articles of
incorporation or bylaws, and the Company has not effected or been a
party to any Acquisition Transaction, recapitalization, reclassification
of shares, stock split, reverse stock split or similar transaction;
14.
<PAGE> 21
(g) the Company has not formed any subsidiary or acquired any
equity interest or other interest in any other Entity;
(h) the Company has not made any capital expenditure which, when
added to all other capital expenditures made on behalf of the Company
since January 31, 2000 exceeds $50,000;
(i) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or
would constitute a Material Contract (as defined in Section 2.10(a)), or
(ii) amended or prematurely terminated, or waived any material right or
remedy under, any such Contract;
(j) the Company has not (i) acquired, leased or licensed any
right or other asset from any other Person, (ii) sold or otherwise
disposed of, or leased or licensed, any right or other asset to any
other Person, or (iii) waived or relinquished any right, except for
immaterial rights or other immaterial assets acquired, leased, licensed
or disposed of in the ordinary course of business and consistent with
the Company's past practices;
(k) the Company has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account
receivable or other indebtedness;
(l) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any
Encumbrance, except for pledges of immaterial assets made in the
ordinary course of business and consistent with the Company's past
practices;
(m) the Company has not (i) lent money to any Person (other than
pursuant to routine travel advances made to employees in the ordinary
course of business), or (ii) incurred or guaranteed any indebtedness for
borrowed money;
(n) the Company has not (i) established or adopted any Employee
Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of
its directors, officers or employees, or (iii) hired any new employee;
(o) the Company has not changed any of its methods of accounting
or accounting practices in any respect;
(p) the Company has not made any Tax election;
(q) the Company has not commenced or settled any Legal
Proceeding;
(r) the Company has not entered into any material transaction or
taken any other material action outside the ordinary course of business
or inconsistent with its past practices; and
15.
<PAGE> 22
(s) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(r)" above.
2.6 TITLE TO ASSETS.
(a) The Company owns, and has good, valid and marketable title
to, all assets purported to be owned by it, including: (i) all assets reflected
on the Unaudited Interim Balance Sheet; (ii) all assets referred to in Parts
2.1, 2.7(b) and 2.9 of the Disclosure Schedule and all of the Company's rights
under the Contracts identified in Part 2.10 of the Disclosure Schedule; and
(iii) all other assets reflected in the Company's books and records as being
owned by the Company. Except as set forth in Part 2.6 of the Disclosure
Schedule, all of said assets are owned by the Company free and clear of any
liens or other Encumbrances, except for (x) any lien for current taxes not yet
due and payable, and (y) minor liens that have arisen in the ordinary course of
business and that do not (in any case or in the aggregate) materially detract
from the value of the assets subject thereto or materially impair the operations
of the Company.
(b) Part 2.6 of the Disclosure Schedule identifies all assets
that are material to the business of the Company and that are being leased or
licensed to the Company.
2.7 BANK ACCOUNTS; RECEIVABLES.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides an accurate
and complete breakdown and aging of all accounts receivable, notes receivable
and other receivables of the Company as of January 31, 2000. Except as set forth
in Part 2.7(b) of the Disclosure Schedule, all existing accounts receivable of
the Company (including those accounts receivable reflected on the Unaudited
Interim Balance Sheet that have not yet been collected and those accounts
receivable that have arisen since January 31, 2000 and have not yet been
collected) (i) represent valid obligations of customers of the Company arising
from bona fide transactions entered into in the ordinary course of business,
(ii) are current and will be collected in full when due, without any
counterclaim or set off (net of an allowance for doubtful accounts not to exceed
$77,500 in the aggregate).
2.8 EQUIPMENT; LEASEHOLD.
(a) All material items of equipment and other tangible assets
owned by or leased to the Company are adequate for the uses to which they are
being put, are in good condition and repair (ordinary wear and tear excepted)
and are adequate for the conduct of the Company's business in the manner in
which such business is currently being conducted.
(b) The Company does not own any real property or any interest in
real property, except for the leasehold created under the real property lease
identified in Part 2.10 of the Disclosure Schedule.
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2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Disclosure Schedule sets forth, with
respect to each Company Proprietary Asset registered with any Governmental Body
or for which an application has been filed with any Governmental Body, (i) a
brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Part
2.9(a)(ii) of the Disclosure Schedule identifies and provides a brief
description of all other Company Proprietary Assets owned by the Company. Part
2.9(a)(iii) of the Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to the Company by any Person
(except for any Proprietary Asset that is licensed to the Company under any
third party software license generally available to the public at a cost of less
than $10,000), and identifies the license agreement under which such Proprietary
Asset is being licensed to the Company. Except as set forth in Part 2.9(a)(iv)
of the Disclosure Schedule, the Company has good, valid and marketable title to
all of the Company Proprietary Assets identified in Parts 2.9(a)(i) and
2.9(a)(ii) of the Disclosure Schedule, free and clear of all liens and other
Encumbrances, and has a valid right to use all Proprietary Assets identified in
Part 2.9(a)(iii) of the Disclosure Schedule. Except as set forth in Part
2.9(a)(v) of the Disclosure Schedule, the Company is not obligated to make any
payment to any Person for the use of any Company Proprietary Asset. Except as
set forth in Part 2.9(a)(vi) of the Disclosure Schedule, the Company has not
developed jointly with any other Person any Company Proprietary Asset with
respect to which such other Person has any rights.
(b) The Company has taken all measures and precautions reasonably
necessary to protect and maintain the confidentiality and secrecy of all Company
Proprietary Assets (except Company Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the value
of all Company Proprietary Assets. Except as set forth in Part 2.9(b) of the
Disclosure Schedule, the Company has not (other than pursuant to license
agreements identified in Part 2.10 of the Disclosure Schedule) disclosed or
delivered to any Person, or permitted the disclosure or delivery to any Person
of, (i) the source code, or any portion or aspect of the source code, of any
Company Proprietary Asset, or (ii) the object code, or any portion or aspect of
the object code, of any Company Proprietary Asset.
(c) None of the Company Proprietary Assets infringes or conflicts
with any Proprietary Asset owned or used by any other Person. The Company is not
infringing, misappropriating or making any unlawful use of, and the Company has
not at any time infringed, misappropriated or made any unlawful use of, or
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person. To the
Company's Knowledge, no other Person is infringing, misappropriating or making
any unlawful use of, and no Proprietary Asset owned or used by any other Person
infringes or conflicts with, any Company Proprietary Asset.
(d) Except as set forth in Part 2.9(d) of the Disclosure
Schedule: (i) each Company Proprietary Asset conforms in all material respects
with any specification, documentation, performance standard, representation or
statement made or provided with respect thereto by or on behalf of the Company;
and (ii) there has not been any claim by any customer or other Person alleging
that any Company Proprietary Asset (including each version thereof that
17.
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has ever been licensed or otherwise made available by the Company to any Person)
does not conform in all material respects with any specification, documentation,
performance standard, representation or statement made or provided by or on
behalf of the Company, and, to the Company's Knowledge, there is no basis for
any such claim. The Company has established adequate reserves on the Unaudited
Interim Balance Sheet to cover all costs associated with any obligations that
the Company may have with respect to the correction or repair of programming
errors or other defects in the Company Proprietary Assets.
(e) Except as set forth in part 2.9(e) of the Disclosure Schedule
and except for Proprietary Assets licensed to the Company under third party
software licenses generally available to the public, the Company Proprietary
Assets constitute all the Proprietary Assets necessary to enable the Company to
conduct its business in the manner in which such business has been and is being
conducted. Except as set forth in Part 2.9(e) of the Disclosure Schedule, (i)
the Company has not licensed any of the Company Proprietary Assets to any Person
on an exclusive basis, and (ii) the Company has not entered into any covenant
not to compete or Contract limiting its ability to exploit fully any of its
Proprietary Assets or to transact business in any market or geographical area or
with any Person.
(f) Except as set forth in Part 2.9(f) of the Disclosure
Schedule, (i) all current and former employees of the Company have executed and
delivered to the Company an agreement (containing no exceptions to or exclusions
from the scope of its coverage) that is substantially identical to the form of
Confidential Information and Invention Assignment Agreement previously delivered
to Parent or its Representatives, and (ii) all current and former consultants
and independent contractors to the Company have executed and delivered to the
Company an agreement (containing no exceptions to or exclusions from the scope
of its coverage) that is substantially identical to the form of Consultant
Confidential Information and Invention Assignment Agreement previously delivered
to Parent or its Representatives.
2.10 CONTRACTS.
(a) Part 2.10 of the Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of,
or the performance of services by, any employee, consultant or
independent contractor;
(ii) each Company Contract relating to the acquisition,
transfer, use, development, sharing or license of any technology or any
Proprietary Asset;
(iii) each Company Contract imposing any restriction on
the Company's right or ability (A) to compete with any other Person, (B)
to acquire any product or other asset or any services from any other
Person, to sell any product or other asset to or perform any services
for any other Person or to transact business or deal in any other manner
with any other Person, or (C) develop or distribute any technology;
(iv) each Company Contract creating or involving any
agency relationship, distribution arrangement or franchise relationship;
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(v) each Company Contract relating to the acquisition,
issuance or transfer of any securities;
(vi) each Company Contract relating to the creation of any
Encumbrance with respect to any asset of the Company;
(vii) each Company Contract involving or incorporating any
guaranty, any pledge, any performance or completion bond, any indemnity
or any surety arrangement;
(viii) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits,
losses, costs or liabilities;
(ix) each Company Contract relating to the purchase or
sale of any product or other asset by or to, or the performance of any
services by or for, any Related Party (as defined in Section 2.18);
(x) any other Company Contract that was entered into
outside the ordinary course of business or was inconsistent with the
Company's past practices; and
(xi) any other Company Contract that contemplates or
involves (A) the payment or delivery of cash or other consideration in
an amount or having a value in excess of $50,000 in the aggregate, or
(B) the performance of services having a value in excess of $50,000 in
the aggregate.
(Contracts in the respective categories described in clauses "(i)" through
"(xi)" above are referred to in this Agreement as "Material Contracts.")
(b) The Company has delivered to Parent or its Representatives
accurate and complete copies of all written Contracts identified in Part 2.10 of
the Disclosure Schedule, including all amendments thereto. Part 2.10 of the
Disclosure Schedule provides an accurate description of the terms of each
Material Contract that is not in written form. Each Contract identified in Part
2.10 of the Disclosure Schedule is valid and in full force and effect, and, to
the Company's Knowledge, is enforceable by the Company in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.10 of the Disclosure Schedule:
(i) the Company has not violated or breached, or committed
any default under, any Company Contract, and, to the Company's
Knowledge, no other Person has violated or breached, or committed any
default under, any Company Contract;
(ii) to the Company's Knowledge, no event has occurred,
and no circumstance or condition exists, that (with or without notice or
lapse of time) will, or could reasonably be expected to, (A) result in a
violation or breach of any of the provisions of any Company Contract,
(B) give any Person the right to declare a default or exercise any
remedy under any Company Contract, (C) give any Person the right to
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accelerate the maturity or performance of any Company Contract, or (D)
give any Person the right to cancel, terminate or modify any Company
Contract;
(iii) since December 31, 1998, the Company has not
received any notice or other communication regarding any actual or
possible violation or breach of, or default under, any Company Contract;
and
(iv) the Company has not waived any of its material rights
under any Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the
terms of any Company Contract to renegotiate, any amount paid or payable to the
Company under any Material Contract or any other material term or provision of
any Material Contract.
(e) The Contracts identified in Part 2.10 of the Disclosure
Schedule collectively constitute all of the Contracts necessary to enable the
Company to conduct its business in the manner in which its business is currently
being conducted.
(f) Part 2.10 of the Disclosure Schedule identifies and provides
a brief description of each proposed Contract as to which any bid, offer, award,
written proposal, term sheet or similar document has been submitted or received
by the Company since January 1, 2000.
2.11 LIABILITIES. The Company has no accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for: (a)
liabilities identified as such in the "liabilities" column of the Unaudited
Interim Balance Sheet; (b) accounts payable or accrued salaries that have been
incurred by the Company since January 31, 2000 in the ordinary course of
business and consistent with the Company's past practices; (c) liabilities under
the Company Contracts identified in Part 2.10 of the Disclosure Schedule, to the
extent the nature and magnitude of such liabilities can be specifically
ascertained by reference to the text of such Company Contracts; and (d) the
liabilities identified in Part 2.11 of the Disclosure Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times since December 31, 1997 been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on the Company. Except
as set forth in Part 2.12 of the Disclosure Schedule, since December 31, 1997,
the Company has not received any notice or other communication from any
Governmental Body regarding any actual or possible violation of, or failure to
comply with, any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to Parent or its Representatives accurate and complete
copies of all Governmental Authorizations identified in Part 2.13 of the
Disclosure Schedule. The Governmental Authorizations identified in Part 2.13 of
the Disclosure Schedule are valid and in full force and effect, and collectively
constitute all Governmental Authorizations necessary to enable the
20.
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Company to conduct its business in the manner in which its business is currently
being conducted. The Company is, and at all times since December 31, 1997 has
been, in substantial compliance with the terms and requirements of the
respective Governmental Authorizations identified in Part 2.13 of the Disclosure
Schedule. Since December 31, 1997, the Company has not received any notice or
other communication from any Governmental Body regarding (a) any actual or
possible violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of the
Company with any Governmental Body with respect to any taxable period ending on
or before the Closing Date (the "Company Returns") (i) have been or will be
filed on or before the applicable due date (including any extensions of such due
date), and (ii) have been, or will be when filed, accurately and completely
prepared in all material respects in compliance with all applicable Legal
Requirements. All amounts shown on the Company Returns to be due on or before
the Closing Date have been or will be paid on or before the Closing Date. The
Company has delivered to Parent or its Representatives accurate and complete
copies of all Company Returns previously filed (other than Company Returns filed
with local authorities which are not material in the aggregate and each of which
does not represent a tax liability (or exposure for penalties) in excess of
$5,000).
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles. The Company
will establish, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes for the period from
January 31, 2000 through the Closing Date, and the Company will disclose the
dollar amount of such reserves to Parent on or prior to the Closing Date.
(c) Except as set forth in Part 2.14 of the Disclosure Schedule,
there have been no examinations or audits of any Company Return. The Company has
delivered to Parent or its Representatives accurate and complete copies of all
audit reports and similar documents (to which the Company has access) relating
to the Company Returns. Except as set forth in Part 2.14 of the Disclosure
Schedule, no extension or waiver of the limitation period applicable to any of
the Company Returns has been granted (by the Company or any other Person), and
no such extension or waiver has been requested from the Company.
(d) Except as set forth in Part 2.14 of the Disclosure Schedule,
no claim or Proceeding is pending or has been threatened against or with respect
to the Company in respect of any Tax. There are no unsatisfied liabilities for
Taxes (including liabilities for interest, additions to tax and penalties
thereon and related expenses) with respect to any notice of deficiency or
similar document received by the Company with respect to any Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document which are being contested in good faith by the Company and with respect
to which adequate reserves for payment have been established). There are no
liens for Taxes upon any of the assets of the Company except liens for current
Taxes not yet due and payable. The Company has not entered
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into or become bound by any agreement or consent pursuant to Section 341(f) of
the Code. The Company has not been, and the Company will not be, required to
include any adjustment in taxable income for any tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions or events occurring, or
accounting methods employed, prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the
Code. The Company is not, and has never been, a party to or bound by any tax
indemnity agreement, tax sharing agreement, tax allocation agreement or similar
Contract.
(f) When delivered, the statements set forth in the tax
representation certificate to be delivered by the Company pursuant to Section
5.5 shall be true and correct.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, medical, life or
other insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any employee of the Company ("Employee"), except for Plans which
would not require the Company to make payments or provide benefits having a
value in excess of $50,000 in the aggregate.
(b) The Company does not maintain, sponsor or contribute to, and,
to the Company's Knowledge, has not at any time in the past maintained,
sponsored or contributed to, any employee pension benefit plan (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not excluded from coverage under specific Titles or Merger
Subtitles of ERISA) for the benefit of Employees or former Employees (a "Pension
Plan").
(c) The Company maintains, sponsors or contributes only to those
employee welfare benefit plans (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of Employees or former Employees which are described in Part
2.15(c) of the Disclosure Schedule (the "Welfare Plans"), none of which is a
multiemployer plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to
Parent or its Representatives:
(i) an accurate and complete copy of such Plan (including
all amendments thereto);
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(ii) an accurate and complete copy of the annual report,
if required under ERISA, with respect to such Plan for the last two
years;
(iii) an accurate and complete copy of the most recent
summary plan description, together with each Summary of Material
Modifications, if required under ERISA, with respect to such Plan, and
all material employee communications relating to such Plan;
(iv) if such Plan is funded through a trust or any third
party funding vehicle, an accurate and complete copy of the trust or
other funding agreement (including all amendments thereto) and accurate
and complete copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating
to such Plan, including service provider agreements, insurance
contracts, minimum premium contracts, stop-loss agreements, investment
management agreements, subscription and participation agreements and
recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with
respect to such Plan (if such Plan is intended to be qualified under
Section 401(a) of the Code).
(e) The Company is not required to be, and, to the Company's
Knowledge, has never been required to be, treated as a single employer with any
other Person under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or
(o) of the Code. The Company has never been a member of an "affiliated service
group" within the meaning of Section 414(m) of the Code. To the Company's
Knowledge, the Company has never made a complete or partial withdrawal from a
multiemployer plan, as such term is defined in Section 3(37) of ERISA, resulting
in "withdrawal liability," as such term is defined in Section 4201 of ERISA
(without regard to subsequent reduction or waiver of such liability under either
Section 4207 or 4208 of ERISA).
(f) The Company does not have any plan or commitment to create
any additional Welfare Plan or any Pension Plan, or to modify or change any
existing Welfare Plan or Pension Plan (other than to comply with applicable law)
in a manner that would materially affect any Employee.
(g) Except as set forth in Part 2.15(g) of the Disclosure
Schedule, no Welfare Plan provides death, medical or health benefits (whether or
not insured) with respect to any current or former Employee after any such
Employee's termination of service (other than (i) benefit coverage mandated by
applicable law, including coverage provided pursuant to Section 4980B of the
Code, (ii) deferred compensation benefits accrued as liabilities on the
Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which are
borne by current or former Employees (or the Employees' beneficiaries)).
(h) With respect to each of the Welfare Plans constituting a
group health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
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(i) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
but not limited to ERISA and the Code.
(j) Each of the Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service, and the Company is not aware of any reason why any such
determination letter should be revoked.
(k) Except as set forth in Part 2.15(k) of the Disclosure
Schedule, neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, will result in any payment (including any bonus, golden
parachute or severance payment) to any current or former Employee or director of
the Company (whether or not under any Plan), or materially increase the benefits
payable under any Plan, or result in any acceleration of the time of payment or
vesting of any such benefits.
(l) Part 2.15(l) of the Disclosure Schedule contains a list of
all salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees.
All of the Company's employees are "at will" employees.
(m) Part 2.15(m) of the Disclosure Schedule identifies each
Employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.
(n) The Company is in compliance in all material respects with
all applicable Legal Requirements and Contracts relating to employment,
employment practices, wages, bonuses and terms and conditions of employment,
including employee compensation matters.
(o) Except as set forth in Part 2.15(o) of the Disclosure
Schedule, the Company has good labor relations, and (i) the Company does not
have reason to believe that the consummation of the Merger or any of the other
transactions contemplated by this Agreement will have a material adverse effect
on the Company's labor relations, and (ii) to the Company's Knowledge none of
the Company's employees intends to terminate his or her employment with the
Company.
2.16 ENVIRONMENTAL MATTERS. The Company is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that the Company is not in
compliance with any Environmental Law, and, to the Company's Knowledge, there
are no circumstances that may prevent or interfere with the Company's compliance
with any
24.
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Environmental Law in the future. To the Company's Knowledge, no current or prior
owner of any property leased or controlled by the Company has received any
notice or other communication (in writing or otherwise), whether from a
Government Body, citizens' group, employee or otherwise, that alleges that such
current or prior owner or the Company is not in compliance with any
Environmental Law. All Governmental Authorizations currently held by the Company
pursuant to Environmental Laws are identified in Part 2.16 of the Disclosure
Schedule. (For purposes of this Section 2.16: (i) "Environmental Law" means any
federal, state, local or foreign Legal Requirement relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata), including any law or
regulation relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern; and (ii) "Materials of
Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is now or hereafter regulated by any Environmental Law or that is otherwise a
danger to health, reproduction or the environment.)
2.17 INSURANCE. Part 2.17 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of the
Company and identifies any material claims made thereunder, and the Company has
delivered to Parent or its Representatives accurate and complete copies of the
insurance policies identified on Part 2.17 of the Disclosure Schedule. Each of
the insurance policies identified in Part 2.17 of the Disclosure Schedule is in
full force and effect. Since December 31, 1998, the Company has not received any
notice or other communication regarding any actual or possible (a) cancellation
or invalidation of any insurance policy, (b) refusal of any coverage or
rejection of any claim under any insurance policy, or (c) material adjustment in
the amount of the premiums payable with respect to any insurance policy.
2.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.18 of the
Disclosure Schedule: (a) no Related Party has, and no Related Party has at any
time since December 31, 1997 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of the Company; (b)
no Related Party is, or has at any time since December 31, 1997 been, indebted
to the Company; (c) since December 31, 1997, no Related Party has entered into,
or has had any direct or indirect financial interest in (other than through de
minimis stock ownership in public companies), any material Contract, transaction
or business dealing involving the Company; (d) no Related Party is competing, or
has at any time since December 31, 1997 competed, directly or indirectly, with
the Company; and (e) no Related Party has any claim or right against the Company
(other than rights under Company Options, Company Warrants and rights to receive
compensation for services performed as an employee of the Company). (For
purposes of the Section 2.18 each of the following will be deemed to be a
"Related Party": (i) each individual who is, or who has at any time since
December 31, 1997 been, an officer of the Company; (ii) each member of the
immediate family of each of the individuals referred to in clause "(i)" above;
and (iii) any trust or other Entity (other than the Company) in which any one of
the individuals referred to in clauses "(i)" and "(ii)" above holds (or in which
more than one of such individuals collectively hold), beneficially or otherwise,
a material voting, proprietary or equity interest.)
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2.19 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.19 of the Disclosure Schedule,
there is no pending Legal Proceeding, and (to the Company's Knowledge) no Person
has threatened to commence any Legal Proceeding: (i) that involves the Company
or any of the assets owned or used by the Company or any Person whose liability
the Company has or may have retained or assumed, either contractually or by
operation of law; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the Merger
or any of the other transactions contemplated by this Agreement. To the
Company's Knowledge, except as set forth in Part 2.19 of the Disclosure
Schedule, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that will, or that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
(b) Except as set forth in Part 2.19 of the Disclosure Schedule,
no Legal Proceeding has ever been commenced by or has ever been pending against
the Company.
(c) There is no order, writ, injunction, judgment or decree to
which the Company, or any of the assets owned or used by the Company, is
subject. To the Company's Knowledge, no officer or other employee of the Company
is subject to any order, writ, injunction, judgment or decree that prohibits
such officer or other employee from engaging in or continuing any conduct,
activity or practice relating to the Company's business.
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the
absolute and unrestricted right, power and authority to enter into and to
perform its obligations under this Agreement; and the execution, delivery and
performance by the Company of this Agreement have been duly authorized by all
necessary action on the part of the Company and its board of directors. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
2.21 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.21 of
the Disclosure Schedule, neither (1) the execution, delivery or performance of
this Agreement or any of the other agreements referred to in this Agreement, nor
(2) the consummation of the Merger or any of the other transactions contemplated
by this Agreement, will directly or indirectly (with or without notice or lapse
of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the Company's articles of incorporation or bylaws,
or (ii) any resolution adopted by the Company's shareholders, the
Company's board of directors or any committee of the Company's board of
directors;
(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of
the transactions contemplated by this Agreement or to exercise any
remedy or obtain any relief under, any Legal Requirement or any order,
writ, injunction, judgment or decree to which the Company, or any of the
assets owned or used by the Company, is subject;
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(c) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to
the Company's business or to any of the assets owned or used by the
Company;
(d) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any Company Contract
that is or would constitute a Material Contract, or give any Person the
right to (i) declare a default or exercise any remedy under any such
Company Contract, (ii) accelerate the maturity or performance of any
such Company Contract, or (iii) cancel, terminate or modify any such
Company Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the
Company (except for minor liens that will not, in any case or in the
aggregate, materially detract from the value of the assets subject
thereto or materially impair the operations of the Company).
Except as set forth in Part 2.21 of the Disclosure Schedule, the Company is not
and will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement, other than the
shareholders of the Company in accordance with Washington Business Corporation
Act.
2.22 FULL DISCLOSURE.
(a) This Agreement (including the Disclosure Schedule) does not
(i) contain any representation, warranty or information that is false or
misleading with respect to any material fact, or (ii) omit to state any material
fact or necessary in order to make the representations, warranties and
information contained and to be contained herein and therein (in the light of
the circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading.
(b) The information with respect to the Company, its shareholders
or the transactions contemplated by this Agreement supplied by the Company for
inclusion in the Information Statement (as defined in Section 5.2) will not, as
of the date of the Information Statement or as of the date of the Company
Shareholders' Meeting (as defined in Section 5.2), (i) contain any statement
that is inaccurate or misleading with respect to any material fact, or (ii) omit
to state any material fact necessary in order to make such information (in the
light of the circumstances under which it is provided) not false or misleading.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant
to the Company as follows:
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3.1 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company accurate and complete
copies (excluding copies of exhibits) of each report, registration statement (on
a form other than Form S-8) and definitive proxy statement filed by Parent with
the SEC between July 27, 1999 and the date of this Agreement (the "Parent SEC
Documents"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the Parent SEC Documents complied in all respects with
the applicable requirements of the Securities Act or the Exchange Act (as the
case may be); and (ii) none of the Parent SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) The consolidated financial statements contained in the Parent
SEC Documents: (i) complied as to form in all respects with the published rules
and regulations of the SEC applicable thereto; (ii) were prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods covered, except as may be indicated in the notes to such
financial statements and (in the case of unaudited statements) as permitted by
Form 10-Q of the SEC, and except that unaudited financial statements may not
contain footnotes and are subject to year-end audit adjustments; and (iii)
fairly present the consolidated financial position of Parent and its
subsidiaries as of the respective dates thereof and the consolidated results of
operations of Parent and its subsidiaries for the periods covered thereby.
(c) The information set forth in Parent's press release dated
January 20, 2000 was true and correct in all material respects when made.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the absolute and unrestricted right, power and authority to perform their
obligations under this Agreement; and the execution, delivery and performance by
Parent and Merger Sub of this Agreement (including the contemplated issuance of
Parent Common Stock in the Merger in accordance with this Agreement) have been
duly authorized by all necessary action on the part of Parent and Merger Sub and
their respective boards of directors. No vote of Parent's stockholders is needed
to approve the Merger. This Agreement constitutes the legal, valid and binding
obligation of Parent and Merger Sub, enforceable against them in accordance with
its terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
3.3 VALID ISSUANCE. Subject to Section 1.5(c), the Parent Common Stock
to be issued in the Merger will, when issued in accordance with the provisions
of this Agreement, be validly issued, fully paid and nonassessable.
3.4 TAX MATTERS. When delivered, the statements set forth in the tax
representation certificate to be delivered by the Parent pursuant to Section 5.5
shall be true and correct.
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3.5 OFFERING VALID. Assuming the accuracy of the representations and
warranties of each Company shareholder contained in such shareholder's
Shareholder Certification and the appointment of a Shareholder Representative by
all non-accredited shareholders of the Company (which number shall not exceed
thirty-five), the offer, sale and issuance of the Parent Common Stock in
connection with the Merger will be exempt from the registration requirements of
the Securities Act and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.
SECTION 4. CERTAIN COVENANTS OF THE COMPANY
4.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), the Company
will, and will cause its Representatives to: (a) provide Parent and Parent's
Representatives with reasonable access to the Company's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the Company; and (b)
provide Parent and Parent's Representatives with copies of such existing books,
records, Tax Returns, work papers and other documents and information relating
to the Company, and with such additional financial, operating and other data and
information regarding the Company, as Parent may reasonably request.
4.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing Period:
(a) the Company will conduct its business and operations in the
ordinary course and in substantially the same manner as such business
and operations have been conducted prior to the date of this Agreement;
(b) the Company will use reasonable efforts to preserve intact
its current business organization, keep available the services of its
current officers and employees and maintain its relations and good will
with all suppliers, customers, landlords, creditors, employees and other
Persons having business relationships with the Company;
(c) the Company will keep in full force all insurance policies
identified in Part 2.17 of the Disclosure Schedule;
(d) the Company will cause its officers to report regularly (but
in no event less frequently than weekly) to Parent concerning the status
of the Company's business;
(e) the Company will not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of
capital stock, and will not repurchase, redeem or otherwise reacquire
any shares of capital stock or other securities (except that the Company
may repurchase Company Common Stock from former employees pursuant to
the terms of existing restricted stock purchase agreements);
(f) the Company will not sell, issue or authorize the issuance of
(i) any capital stock or other security, (ii) any option or right to
acquire any capital stock or other security, or (iii) any instrument
convertible into or exchangeable for any capital stock or other security
(except that the Company will be permitted (x) to grant stock options to
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employees in accordance with its past practices, (y) to issue Company
Common Stock or Company Preferred Stock upon the exercise of outstanding
Company Options and outstanding Company Warrants, and (z) to issue
shares of Company Common Stock upon the conversion of outstanding shares
of Series A Preferred Stock, Series A-1 Preferred Stock and Series B
Preferred Stock);
(g) the Company will not amend or waive any of its rights under,
or permit the acceleration of vesting (exclusive of the automatic
vesting that will occur at the Effective Time pursuant to the provisions
of its 1996 Stock Option Plan) under, (i) any provision of its 1996
Stock Option Plan, (ii) any provision of any agreement evidencing any
outstanding Company Option or outstanding Company Warrant, or (iii) any
provision of any restricted stock purchase agreement;
(h) the Company will not amend or permit the adoption of any
amendment to the Company's articles of incorporation or bylaws, or
effect or permit the Company to become a party to any Acquisition
Transaction, recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction (except that the Company may
issue shares of Company Common Stock upon the conversion of shares of
Series A Preferred Stock, Series A-1 Preferred Stock and Series B
Preferred Stock);
(i) the Company will not form any subsidiary or acquire any
equity interest or other interest in any other Entity;
(j) the Company will not make any capital expenditure, except for
capital expenditures that, when added to all other capital expenditures
made on behalf of the Company during the Pre-Closing Period, do not
exceed $50,000 in aggregate;
(k) the Company will not (i) enter into, or permit any of the
assets owned or used by it to become bound by, any Contract that is or
would constitute a Material Contract, or (ii) amend or prematurely
terminate, or waive any material right or remedy under, any Material
Contract;
(l) the Company will not (i) acquire, lease or license any right
or other asset from any other Person, (ii) sell or otherwise dispose of,
or lease or license, any right or other asset to any other Person, or
(iii) waive or relinquish any right, except for assets acquired, leased,
licensed or disposed of by the Company pursuant to Contracts that are
not Material Contracts;
(m) the Company will not (i) lend money to any Person (except
that the Company may make routine travel advances to employees in the
ordinary course of business and may, consistent with its past practices,
allow employees to acquire Company Common Stock in exchange for
promissory notes upon exercise of Company Options), or (ii) incur or
guarantee any indebtedness for borrowed money (except that the Company
may make routine borrowings in the ordinary course of business under a
line of credit with Silicon Valley Bank);
(n) the Company will not (i) establish, adopt or amend any
Employee Benefit Plan (except that the Company will adopt the employee
retention program referred to in
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Section 5.8), (ii) pay any bonus or make any profit-sharing payment,
cash incentive payment or similar payment to, or increase the amount of
the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees, or
(iii) hire any new employee whose aggregate annual cash compensation is
expected to exceed $50,000;
(o) the Company will not change any of its methods of accounting
or accounting practices in any material respect;
(p) the Company will not make any Tax election;
(q) the Company will not commence or settle any material Legal
Proceeding;
(r) the Company will not agree or commit to take any of the
actions described in clauses "(e)" through "(q)" above.
Notwithstanding the foregoing, the Company may take any action described in
clauses "(e)" through "(r)" above if Parent gives its prior written consent to
the taking of such action by the Company, which consent will not be unreasonably
withheld (it being understood that Parent's withholding of consent to any action
will not be deemed unreasonable if Parent determines in good faith that the
taking of such action would not be in the best interests of Parent or would not
be in the best interests of the Company).
4.3 NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, the Company will promptly
notify Parent in writing of:
(i) the discovery by the Company of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of
this Agreement and that caused or constitutes an inaccuracy in or breach
of any representation or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that would
cause or constitute an inaccuracy in or breach of any representation or
warranty made by the Company in this Agreement if (A) such
representation or warranty had been made as of the time of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such event, condition, fact or circumstance had
occurred, arisen or existed on or prior to the date of this Agreement;
(ii) any breach of any covenant or obligation of the
Company; and
(iv) any event, condition, fact or circumstance that would
make the timely satisfaction of any of the conditions set forth in
Section 6 or Section 7 impossible or unlikely.
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(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 4.3(a) requires any change in the
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Disclosure Schedule were dated as of the date
of the occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company will promptly deliver to Parent an update to the
Disclosure Schedule specifying such change. No such update will be deemed to
supplement or amend the Disclosure Schedule for the purpose of (i) determining
the accuracy as of the date of this Agreement of any of the representations and
warranties made by the Company in this Agreement or (ii) determining whether any
of the conditions set forth in Section 6 has been satisfied. Such update will
however be deemed to supplement or amend the Disclosure Schedule for the purpose
of determining the accuracy as of the Effective Time of any of the
representations and warranties made by the Company, solely in connection with
Section 9.
4.4 NO NEGOTIATION. During the Pre-Closing Period, the Company will not,
directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal
or offer from any Person (other than Parent) relating to a possible
Acquisition Transaction;
(b) participate in any discussions or negotiations or enter into
any agreement with, or provide any non-public information to, any Person
(other than Parent) relating to or in connection with a possible
Acquisition Transaction; or
(c) consider, entertain or accept any proposal or offer from any
Person (other than Parent) relating to a possible Acquisition
Transaction.
The Company will promptly notify Parent in writing of any material inquiry,
proposal or offer relating to a possible Acquisition Transaction that is
received by the Company during the Pre-Closing Period.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 FILINGS AND CONSENTS; NASDAQ APPLICATION. As promptly as practicable
after the execution of this Agreement, each party to this Agreement (a) will
make all filings (if any) and give all notices (if any) required to be made and
given by such party in connection with the Merger and the other transactions
contemplated by this Agreement, and (b) will use all commercially reasonable
efforts to obtain all Consents (if any) required to be obtained (pursuant to any
applicable Legal Requirement or Contract, or otherwise) by such party in
connection with the Merger and the other transactions contemplated by this
Agreement. The Company will (upon request) promptly deliver to Parent a copy of
each such filing made, each such notice given and each such Consent obtained by
the Company during the Pre-Closing Period. Parent shall promptly submit a
request to Nasdaq that the shares of Parent Common Stock to be issued in the
Merger be approved for listing (subject to notice of issuance) on the Nasdaq
National Market.
5.2 COMPANY SHAREHOLDERS' MEETING. The Company will, in accordance with
its articles of incorporation and bylaws and the applicable requirements of the
Washington Business Corporation Act, call and hold a special meeting of its
shareholders as promptly as practicable
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for the purpose of permitting them to consider and to vote upon and approve the
Merger and this Agreement (the "Company Shareholders' Meeting"). The Company
will use its best efforts (i) to cause each of its shareholders who is not an
"accredited investor" (as defined in Rule 501 under the Securities Act) to
appoint a "purchaser representative" (as defined in Rule 501 under the
Securities Act) in connection with evaluating the merits and risks of investing
in Parent Common Stock and (ii) to cause each such shareholder and each other
shareholder approving the Merger to complete, execute and deliver a Shareholder
Certification in substantially the form attached hereto as EXHIBIT Q. The
Company will cause a copy of an information statement or other disclosure
document in such form as reasonably approved by the Parent (the "Information
Statement") to be delivered to each shareholder of the Company who is entitled
to vote at the Company Shareholders' Meeting. Without limiting the generality of
the foregoing, the board of directors of the Company will recommend to the
Company's shareholders a vote in favor of the adoption of this Agreement and the
Merger. The Company and each of the Company's shareholders set forth on EXHIBIT
F shall execute a Voting Agreement, in the form attached hereto as EXHIBIT G,
contemporaneously with the execution of this Agreement. The Company shall use
reasonable efforts to obtain certificates representing the shares held by the
shareholders approving the Merger, duly endorsed in blank or accompanied by
stock powers duly endorsed in blank in proper form for transfer.
5.3 PUBLIC ANNOUNCEMENTS. During the Pre-Closing Period, (i) the Company
shall not (and the Company will not permit any of its Representatives to) issue
any press release or make any public statement regarding this Agreement or the
Merger, or regarding any of the other transactions contemplated by this
Agreement, without Parent's prior written consent and (ii) the Company and
Parent shall not (and they will not permit any of their respective
Representatives to) issue any press release or make any public statement
regarding this Agreement or the Merger, or regarding any of the other
transactions contemplated by this Agreement, that names Fingerhut Companies,
Inc. ("Fingerhut") or Federated Department Stores Inc. ("Federated") without
Fingerhut's or Federated's (as the case may be) written consent.
5.4 BEST EFFORTS. During the Pre-Closing Period, (a) the Company will
use its best efforts to cause the conditions set forth in Section 6 to be
satisfied on a timely basis, and (b) Parent and Merger Sub will use their best
efforts to cause the conditions set forth in Section 7 to be satisfied on a
timely basis.
5.5 TAX MATTERS. Prior to the Closing, Parent and the Company will
execute and deliver, to Cooley Godward LLP and to Dorsey & Whitney LLP, tax
representation letters in substantially the form of EXHIBIT H (which will be
used in connection with the legal opinions contemplated by Sections 6.5(h) and
7.3(c)). After the Merger, Parent and the Surviving Corporation shall: (A)
report on their respective tax returns and tax filings the transactions
contemplated by this Agreement as a tax-free reorganization (except for cash
paid in lieu of fractional shares) under Section 368(a)(1) of the Code; (B) keep
their records and file in connection with their federal and state income tax
returns all such information as may be required by Section 1.368-3 of the
Treasury Regulations (and corresponding state rules and regulations) with
respect to the transactions contemplated by this Agreement; (C) refrain from
taking any position in connection with their federal or state income tax
liability that would be inconsistent with such qualification of the transactions
contemplated hereunder as a tax-free reorganization (except for cash paid in
lieu of fractional shares) under Section 368(a)(1) of the
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Code; and (D) comply with all of the requirements of Section 368(a)(1) of the
Code and the existing administrative pronouncements thereunder applicable to the
transactions contemplated by this Agreement.
5.6 OFFER LETTERS AND NONCOMPETITION AGREEMENTS. At or prior to the
Closing, each of the Persons identified on EXHIBIT I will execute and deliver to
the Company and Parent a Noncompetition Agreement in the form of EXHIBIT J.
5.7 TERMINATION OF AGREEMENTS. Prior to the Closing:
(a) the Company will use all commercially reasonable efforts to
cause Fingerhut to enter into an agreement with the Company, reasonably
satisfactory in form and content to Parent (and conditioned and
effective upon the Closing), terminating all of the rights of Fingerhut
under (i) the Investor Subscription Agreement dated December 4, 1998, by
and between the Company and Fingerhut, (ii) the Stockholders Agreement
dated December 4, 1998, by and between the Company, Skip Franklin,
Richard Thompson, Todd Tibbets, Greg Prosl, Jeffrey Schoenfeld, Vans,
Inc. ("Vans") and Fingerhut, (iii) the Warrant Agreement dated December
4, 1998, by and between the Company and Fingerhut and (iv) the Investor
Subscription Agreement dated February 18, 1999, by and between the
Company and Fingerhut;
(b) the Company will use all commercially reasonable efforts to
cause Dawntreader Fund I, L.P. ("Dawntreader") to enter into an
agreement with the Company, reasonably satisfactory in form and content
to Parent (and conditioned and effective upon the Closing), terminating
all of the rights of Dawntreader under (i) the Investor Subscription
Agreement dated February 12, 1999, between the Company and Dawntreader
and (ii) the Shareholders Agreement dated February 12, 1999, between the
Company and Dawntreader; and
(c) the Company will use all commercially reasonable efforts to
cause Vans to enter into an agreement with the Company, reasonably
satisfactory in form and content to Parent (and conditioned and
effective upon the Closing), terminating all of the rights of Vans under
(i) the Subscription Agreement dated July 8, 1997, between the Company
and Vans and (ii) the Investor Rights Agreement dated July 8, 1997,
between the Company and Vans; and
(d) the Company will use all commercially reasonable efforts to
cause KLAS, Inc. ("KLAS") to enter into an agreement with the Company,
reasonably satisfactory in form and content to Parent (and conditioned
and effective upon the Closing), terminating all of the rights of KLAS
under (i) the Stockholders Agreement dated November 15, 1999, between
the Company, KLAS, Skip Franklin, Greg Prosl, Todd Tibbets, and Charles
Gottschalk and (ii) the Registration Rights Agreement dated November 15,
1999, between the Company and KLAS.
5.8 INTENTIONALLY OMITTED.
5.9 FIRPTA MATTERS. At the Closing, (a) the Company will deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the
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requirements of Section 1.897 - 2(h)(1)(i) of the United States Treasury
Regulations, and (b) the Company will deliver to the Internal Revenue Service
the notification required under Section 1.897 - 2(h)(2) of the United States
Treasury Regulations.
5.10 RELEASE. At the Closing, each of the Company's shareholders
identified on EXHIBIT K shall execute and deliver to the Company a Release in
the form of EXHIBIT L.
5.11 COMPLETION OF COMPANY AUDITS. At least five (5) days prior to the
Closing, the Company will deliver to Parent a copy of the 1999 Audited
Financials and the Bring-Down Financial Statements.
5.12 INTENTIONALLY OMITTED.
5.13 INTENTIONALLY OMITTED.
5.14 FINGERHUT BUSINESS SERVICES, INC. FULFILLMENT AGREEMENT. The
Company shall use its best efforts to secure from Fingerhut Business Services,
Inc. ("FBS") a written agreement which documents the current business
relationship between the Company and FBS and pursuant to which FBS is obligated
for a period not less than one year following the Effective Time, which
agreement shall be in substantially the form as the most current version of the
draft sent by FBS to the Company on February 29, 2000.
5.15 PARACHUTE PAYMENTS. The Company shall solicit, and shall use its
best efforts to obtain, the approval of its shareholders pursuant to Section
280G(b)(5) of the Code for all "parachute payments" payable to officers,
significant shareholders or highly compensated individuals of the Company.
5.16 S-8 REGISTRATION STATEMENT. Parent agrees that within sixty (60)
days after the Closing Date it will cause to be filed one or more registration
statements on Form S-8 under the Securities Act, or amendments to its existing
registration statements on Form S-8 or amendments to such other registration
statements as may be available, in order to register the Common Stock of Parent
issuable upon exercise of the assumed Company Options (other than such Company
Options ineligible for registration on Form S-8).
5.17 REGISTRATION RIGHTS. Parent shall seek and use reasonable efforts
to obtain the stockholder consents necessary to amend Parent's existing Amended
and Restated Investor Rights Agreement as set forth in the Amended and Restated
Investor Rights Agreement in substantially the form attached as EXHIBIT M (the
"Investor Rights Agreement").
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
6.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company in this Agreement and in each of the other
agreements and instruments delivered to Parent or its Representatives in
connection with the transactions contemplated by
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this Agreement will have been accurate in all respects as of the date of this
Agreement, and will be accurate in all material respects as of the Scheduled
Closing Time as if made at the Scheduled Closing Time.
6.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
the Company are required to comply with or to perform at or prior to the Closing
will have been complied with and performed in all material respects.
6.3 SHAREHOLDER APPROVAL. The principal terms of the Merger will have
been duly approved by the affirmative vote of at least (a) two-thirds of each
outstanding class of the Company's stock and (b) 92% of the outstanding shares
of the Company (calculated on an as-converted-to-Common-Stock basis).
6.4 CONSENTS. All Consents required to be obtained in connection with
the Merger and the other transactions contemplated by this Agreement (including
the Consents identified in Part 2.21 of the Disclosure Schedule) will have been
obtained and will be in full force and effect.
6.5 AGREEMENTS AND DOCUMENTS. Parent and the Company will have received
the following agreements and documents, each of which will be in full force and
effect:
(a) Noncompetition Agreements in the form of EXHIBIT J, executed
by the individuals identified on EXHIBIT I;
(b) Releases in the form of EXHIBIT L, executed by the
individuals and entities identified on EXHIBIT K
(c) the agreements or other documents referred to in Sections
5.7, 5.11 and 5.14;
(d) confidential invention and assignment agreements, reasonably
satisfactory in form and content to Parent, executed by all employees
and former employees of the Company and by all consultants and
independent contractors and former consultants and former independent
contractors to the Company who have not already signed such agreements
(excluding the individuals identified in Part 2.9(f) of the Disclosure
Schedule);
(e) the statement referred to in Section 5.9(a), executed by the
Company;
(f) an estoppel certificate satisfactory in form and content to
Parent, executed by Pacific Trustee Ltd. U/T/A dated August 27, 1997 for
the sole benefit of Market Square L.L.C.;
(g) a legal opinion of Dorsey & Whitney LLP, dated as of the
Closing Date, in the form of EXHIBIT N;
(h) a legal opinion of Cooley Godward LLP, dated as of the
Closing Date, to the effect that the Merger will constitute a
reorganization within the meaning of Section
36.
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368 of the Code (it being understood that, in rendering such opinion,
such counsel may rely upon the tax representation letters referred to in
Section 5.5;
(i) a certificate executed by the Company's Chief Executive
Officer and Chief Financial Officer certifying that (1) each of the
representations and warranties set forth in Section 2 is accurate in all
respects as of the Closing Date as if made on the Closing Date, and (2)
that the conditions set forth in Sections 6.1, 6.2, 6.3, 6.4, 6.6, 6.9,
6.10, 6.11, and 6.14 have been duly satisfied (the "Company Closing
Certificate"); and
(j) written resignations of all directors of the Company,
effective as of the Effective Time.
6.6 FIRPTA COMPLIANCE. The Company will have filed with the Internal
Revenue Service the notification referred to in Section 5.9(b).
6.7 INTENTIONALLY OMITTED.
6.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
will have been issued by any court of competent jurisdiction and remain in
effect, and there will not be any Legal Requirement enacted or deemed applicable
to the Merger that makes consummation of the Merger illegal.
6.9 NO LEGAL PROCEEDINGS. No Person will have commenced or threatened to
commence any Legal Proceeding challenging or seeking the recovery of a material
amount of damages in connection with the Merger or seeking to prohibit or limit
the exercise by Parent of any material right pertaining to its ownership of
stock of the Surviving Corporation.
6.10 EMPLOYEES. No more than two of the individuals identified on
EXHIBIT O, will have ceased to be employed by, or expressed an intention to
terminate their employment with, the Company.
6.11 ESCROW AGREEMENT. The Designated Company Agent, the shareholders of
the Company who have approved the Merger and the persons set forth on EXHIBIT R
shall have executed and delivered the Escrow Agreement.
6.12 INVESTOR RIGHTS AGREEMENT. The shareholders of the Company who have
approved the Merger and the requisite stockholders of Parent who were parties to
the Prior Rights Agreement (as defined in the Investor Rights Agreement) shall
have entered into the Investor Rights Agreement.
6.13 APPOINTMENT OF PURCHASER REPRESENTATIVE; SECURITIES COMPLIANCE.
Each holder of the Company Common Stock or Company Preferred Stock as of the
Effective Time that is not an "accredited investor" shall have appointed Jeffrey
Schoenfeld as his "purchaser representative" in connection with the Merger and
issuance of Parent Common Shares hereunder and shall have completed, executed
and delivered a Shareholder Certification in substantially the form attached as
EXHIBIT Q hereto. Each holder of the Company Common Stock or Company
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Preferred Stock voting in favor of the Merger shall have completed, executed and
delivered a Shareholder Certification in substantially the form attached as
EXHIBIT Q hereto.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement will have been
accurate in all material respects as of the date of this Agreement (without
giving effect to any materiality or similar qualifications contained in such
representations and warranties), and will be accurate in all material respects
as of the Scheduled Closing Time as if made at the Scheduled Closing Time
(without giving effect to any materiality or similar qualifications contained in
such representations and warranties).
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing will have been complied with and performed in all respects.
7.3 DOCUMENTS. The Company will have received the following documents:
(a) a legal opinion of Cooley Godward LLP, dated as of the
Closing Date, in the form of EXHIBIT P;
(b) a certificate executed by Parent's Chief Financial Officer
certifying that (1) each of the representations and warranties set forth
in Section 3 is accurate in all respects as of the Closing Date as if
made on the Closing Date, and (2) that the conditions set forth in
Sections 7.1, 7.2, 7.4 and 7.5 have been duly satisfied (the "Parent
Closing Certificate"); and
(c) a legal opinion of Dorsey & Whitney LLP, dated as of the
Closing Date, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code (it being
understood that, in rendering such opinion, such counsel may rely upon
the tax representation letters referred to in Section 5.5.
7.4 LISTING. The shares of Parent Common Stock to be issued in the
Merger will have been approved for listing (subject to notice of issuance) on
the Nasdaq National Market.
7.5 INVESTOR RIGHTS AGREEMENT. Parent and the requisite stockholders of
Parent who were parties to the Prior Rights Agreement (as defined in the
Investor Rights Agreement) shall have entered into the Investor Rights
Agreement.
7.6 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
will have been issued by any court of competent jurisdiction and remain in
effect, and there will not be any Legal Requirement enacted or deemed applicable
to the Merger that makes consummation of the Merger illegal.
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SECTION 8. TERMINATION
8.1 TERMINATION EVENTS. This Agreement may be terminated prior to the
Closing:
(a) by Parent if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 6 has become
impossible (other than as a result of any failure on the part of Parent
or Merger Sub to comply with or perform any covenant or obligation of
Parent or Merger Sub set forth in this Agreement);
(b) by the Company if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 7 has become
impossible (other than as a result of any failure on the part of the
Company to comply with or perform any covenant or obligation set forth
in this Agreement or in any other agreement or instrument delivered to
Parent or its Representatives);
(c) by Parent if the Closing has not taken place on or before
April 21, 2000 (other than as a result of any failure on the part of
Parent to comply with or perform any covenant or obligation of Parent
set forth in this Agreement);
(d) by the Company if the Closing has not taken place on or
before April 21, 2000 (other than as a result of the failure on the part
of the Company to comply with or perform any covenant or obligation set
forth in this Agreement or in any other agreement or instrument
delivered to Parent or its Representatives); or
(e) by the mutual consent of Parent and the Company.
8.2 TERMINATION PROCEDURES. If Parent wishes to terminate this Agreement
pursuant to Section 8.1(a) or Section 8.1(c), Parent will deliver to the Company
a written notice stating that Parent is terminating this Agreement and setting
forth a brief description of the basis on which Parent is terminating this
Agreement. If the Company wishes to terminate this Agreement pursuant to Section
8.1(b) or Section 8.1(d), the Company will deliver to Parent a written notice
stating that the Company is terminating this Agreement and setting forth a brief
description of the basis on which the Company is terminating this Agreement.
8.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 8.1 or by Parent pursuant to Section 1.3, all further obligations of the
parties under this Agreement will terminate; provided, however, that: (a)
neither the Company nor Parent will be relieved of any obligation or liability
arising from any prior breach by such party of any provision of this Agreement;
(b) the parties will, in all events, remain bound by and continue to be subject
to the provisions set forth in Section 10; and (c) the Company will, in all
events, remain bound by and continue to be subject to Section 5.3.
SECTION 9. INDEMNIFICATION, ETC.
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9.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made by the Company will
survive the Closing and will expire on the earlier of (i) the date 30 days
following the receipt by Parent of four full fiscal quarters of audited
financial statements of the Surviving Company, or (ii) May 15, 2001 (such
earlier date will be referred to as the "Survival Expiration Date"); provided,
however, that if, at any time prior to the Survival Expiration Date, any
Indemnitee (acting in good faith) delivers to the Designated Company Agent (as
defined in Section 10.1) a written notice alleging the existence of an
inaccuracy in or a breach of any of the representations and warranties made by
the Company (and setting forth in reasonable detail the basis for such
Indemnitee's belief that such an inaccuracy or breach may exist) and asserting a
claim for recovery under Section 9.2 based on such alleged inaccuracy or breach,
then the claim asserted in such notice will survive the Survival Expiration Date
until such time as such claim is fully and finally resolved. All representations
and warranties made by Parent and Merger Sub will terminate and expire as of the
Effective Time, and any liability of Parent or Merger Sub with respect to such
representations and warranties will thereupon cease.
(b) The representations, warranties, covenants and obligations of
the Company, and the rights and remedies that may be exercised by the
Indemnitees, will not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, any of
the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item
of information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule will be deemed to be a representation and warranty made by
the Company in this Agreement. Without limiting the foregoing however, it is
understood by the parties that as set forth in Section 4.3(b), no updated
Disclosure Schedule will be deemed to supplement or amend the Disclosure
Schedule for the purposed of determining the accuracy as of the date of this
Agreement of any of the representations and warranties made by the Company in
this Agreement.
9.2 INDEMNIFICATION BY THE COMPANY.
(a) From and after the Effective Time (but subject to Section
9.1(a)), the Company and, jointly but not severally, the Company's shareholders
(by reason of the approval of the Company's shareholders of the Merger and each
such shareholder's acceptance of the consideration provided for in Section 1.5
of this Agreement) and those persons set forth on EXHIBIT R (by reason of their
execution of an agreement in substantially the form attached as EXHIBIT S),
shall defend, indemnify, protect and hold harmless each of the Indemnitees from
and against, and will compensate and reimburse each of the Indemnitees for any
losses, damages, liabilities, claims, judgments, settlements, fines, costs and
expenses (including attorney's fees) ("Damages") which are directly or
indirectly suffered or incurred by any of the Indemnitees or to which any of the
Indemnitees may otherwise become subject (regardless of whether or not such
Damages relate to any third-party claim) and which arise from or as a result of,
or are directly or indirectly connected with: (i) any inaccuracy in or breach of
any representation or warranty set forth in Section 2 or in the Company Closing
Certificate; (ii) any breach of any covenant or obligation of the Company
(including the covenants set forth in Sections 4 and 5); (iii) any amount by
which actual fees and expenses payable by the Company in connection with the
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<PAGE> 47
Merger to attorneys, accountants or other third parties and to FleetBoston
Robertson Stephens, Inc. exceeded the Estimated Fees; (iv) any claims from any
person set forth on Part 2.9(f) of the Disclosure Schedule regarding
intellectual property, any claims from any person regarding overtime or minimum
wage violations and any claim from any person claiming that they were
incorrectly classified as a consultant to the Company and instead should be
classified as an employee of the Company; (v) in the event a Net Worth Deficit
Estimate is used in the calculation of the Total Purchase Price in accordance
with Section 1.5(b)(v), the amount (if any) by which the actual net worth
deficit of the Company as set forth in audited financial statements exceeded the
Net Worth Deficit Estimate; (vi) any claim by any shareholder or former
shareholder of the Company in connection with such shareholder's acquisition of
shares of the Company's capital stock or in connection with any shareholders
agreement, investors rights agreement, registration rights agreement or similar
agreement between the Company and such shareholder; and (vii) any Legal
Proceeding relating to any inaccuracy or breach of the type referred to in
clause "(i)," "(ii)", "(iii)", "(iv)", "(v)" or "(vi)" above (including any
Legal Proceeding commenced by any Indemnitee for the purpose of enforcing any of
its rights under this Section 9). As against the Company and the Company's
shareholders, indemnification pursuant to this Section 9.2 shall be the
exclusive remedy available to the Indemnitees for Damages of the type referred
to in the foregoing sentence, provided however that (except with respect to
Dawntreader) such limitation shall not apply in the event of fraud, willful
misstatements or willful omissions of the Company or any of its Representatives.
(b) The Company acknowledges and agrees that, if the Surviving
Corporation suffers, incurs or otherwise becomes subject to any Damages as a
result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation, then (without limiting any of
the rights of the Surviving Corporation as an Indemnitee) Parent will also be
deemed, by virtue of its ownership of the stock of the Surviving Corporation, to
have incurred Damages as a result of and in connection with such inaccuracy or
breach (it being understood that Parent shall not be entitled to indemnification
for Damages incurred solely by virtue of its ownership of the stock of the
Surviving Corporation in the event that the Surviving Corporation is also
seeking indemnification for the same Damages).
9.3 THRESHOLD. The Indemnitees shall be entitled to indemnification only
if the aggregate Damages that have been directly or indirectly suffered or
incurred by any one or more of the Indemnitees, or to which any one or more of
the Indemnitees has or have otherwise become subject, exceeds Fifty Thousand
Dollars ($50,000) (the "Threshold Amount"), provided that at such time as the
amount to which the Indemnitees are entitled to be indemnified exceeds the
Threshold Amount, the Indemnitees shall be entitled to be indemnified up to the
full Damages including the Threshold Amount. The Threshold Amount shall not
apply to any Damages arising out of fraud, willful misstatements or willful
omissions of the Company or any of its Representatives or any claim under
Section 9.2(a)(iii).
9.4 SATISFACTION OF INDEMNIFICATION CLAIM.
(a) All claims under this Agreement from and after the Effective
Time shall be satisfied exclusively and, to the extent possible given such
limitation, in full from the shares held pursuant to the Escrow Agreement in
accordance with the Escrow Agreement and from the persons set forth on EXHIBIT R
in accordance with Section 9.4(b) and no person shall have any
41.
<PAGE> 48
right to recovery from any person who was a holder of Company Common Stock or
Preferred Stock prior to the Effective Time. Without limiting the foregoing, the
maximum liability of any former holder of Company Common Stock or Preferred
Stock prior to the Effective Time for any breach of a representation, warranty
or covenant of the Company shall be limited to those Parent Common Shares in
which such holder has an interest that are held pursuant to the Escrow
Agreement. Except with respect to Dawntreader, the limitations set forth in this
Section 9 shall not apply to any Damages arising out of fraud, willful
misstatements or willful omissions of the Company or any of its Representatives,
in which event the maximum liability of any former holder of Company Common
Stock or Preferred Stock prior to the Effective Time for any breach of a
representation, warranty or covenant of the Company shall be limited to the
Parent Common Shares received by such former holder hereunder. In the event any
Indemnitee recovers shares of Parent Common Stock from any former holder of
Company Common Stock or Preferred Stock for Damages arising out of fraud,
willful misstatements or willful omissions of the Company or any of its
Representatives, such former holder shall be entitled to seek contribution from
the other former shareholders of the Company (other than Dawntreader).
(b) In the event Parent is the Indemnitee claiming Damages and
there is a release of shares to Parent under Section 3(b), (c), (d) or (e) of
the Escrow Agreement, then Parent shall be entitled to cancel a portion of each
outstanding Company Option or Company Warrant (it being understood that pursuant
to Section 1.6 hereof such options and warrants became options and warrants to
purchase shares of Parent Common Stock) held by each person set forth on EXHIBIT
R to the extent of the Cancellation Amount. The Cancellation Amount with respect
to each person set forth on EXHIBIT R shall be equal to (i) the full Claimed
Amount (in the event of a release under such Section 3(b) or (c)), the Agreed
Amount (in the event of a release under such Section 3(d)), the Settlement
Amount (in the event of a release under such Section 3(e)) or the Contested
Amount (in the event of a release under such Section 3(g)), multiplied by (ii)
the Option and Warrant Holder Percentage applicable in connection with such
release of Shares, multiplied by (iii) such person's Pro Rata Share, divided by
(iv) the Designated Parent Stock Price.
For purposes hereof, "Option and Warrant Holder Percentage" shall mean
the number of shares of Company stock (on an as-converted-to-Common-Stock basis)
subject to all options and warrants outstanding as of the Effective Time,
divided by the sum of (x) all outstanding shares of Company stock (on an
as-converted-to-Common-Stock basis) as of the Effective Time and (y) the number
of shares of Company stock (on an as-converted-to-Common-Stock basis) subject to
all options and warrants for Company stock outstanding of the Effective Time;
provided, however, such amounts shall be adjusted in the event any person set
forth on EXHIBIT R shall exercise any option or warrant prior to the Termination
Date (as such term is defined in the Escrow Agreement) (so, by way of
explanation only, if an option which was respect to 10,000 shares of Company
Common Stock as of the Effective Time was exercised after the Effective Time but
prior to the Termination Date, the numerator would decrease by 10,000 and the
denominator would remain unchanged. However, if an option was terminated without
being exercised, there would be no change in the numerator.)
For purposes hereof, "Shareholder Percentage" shall mean 100% minus the
Option and Warrant Holder Percentage, as calculated by Parent from time to time.
42.
<PAGE> 49
For purposes hereof, "Pro Rata Share" of a person set forth on EXHIBIT R
shall mean a fraction, the numerator of which is equal to (i) the number of
shares of Company stock (on an as-converted-to-Common-Stock basis) subject to
all options and warrants held by such person outstanding as of the Effective
Time, minus (ii) the number of shares of Company stock (on an
as-converted-to-Common-Stock basis) that had been subject to any option or
warrant exercised by such person after the Effective Time but before the
Termination Date and the denominator of which is equal to (x) the number of
shares of Company stock (on an as-converted-to-Common-Stock basis) subject to
all options and warrants held by all persons set forth on EXHIBIT R outstanding
as of the Effective Time, minus (y) the number of shares of Company stock (on an
as-converted-to-Common-Stock basis) that had been subject to any option or
warrant exercised by any person set forth on EXHIBIT R after the Effective Time
but before the Termination Date (so, by way of explanation only, in the event
any such person exercises all options and warrants held by him after the
Effective Time but prior to the Termination Date, such person's Pro Rata Share
would be zero and each other person's Pro Rata Share would increase, however the
Option and Warrant Holder Percentage would decrease and the Shareholder
Percentage would increase).
9.5 NO CONTRIBUTION. The Company waives, and acknowledges and agrees
that it will not have and will not exercise or assert (or attempt to exercise or
assert), any right of contribution, right of indemnity or other right or remedy
against the Surviving Corporation in connection with any indemnification
obligation or any other liability to which the Company may become subject under
or in connection with this Agreement or the Company Closing Certificate.
9.6 DEFENSE OF THIRD-PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against Parent or against any other Person) with respect
to which the Company may become obligated to hold harmless, indemnify,
compensate or reimburse any Indemnitee pursuant to this Section 9, Parent will
have the right, at its election, to proceed with the defense of such claim or
Legal Proceeding on its own. If Parent so proceeds with the defense of any such
claim or Legal Proceeding:
(a) all reasonable expenses relating to the defense of such claim
or Legal Proceeding will be indemnifiable under Section 9.2(a)(vii);
(b) The Designated Company Agent will make available to Parent
any documents and materials in his possession or control that may be
necessary to the defense of such claim or Legal Proceeding; and
(c) Parent will have the right to settle, adjust or compromise
such claim or Legal Proceeding with the consent of the Designated
Company Agent (defined below); provided, however, that such consent will
not be unreasonably withheld.
Parent will give the Designated Company Agent prompt notice of the commencement
of any such Legal Proceeding against Parent or the Surviving Corporation.
9.7 TAX CONTESTS. Parent shall have the sole right to conduct any tax
audit or other tax contest relating to tax return of the Parent or the Surviving
Corporation, provided, however, prior to the termination of the Escrow, Parent
shall consult with the Designated Company Agent
43.
<PAGE> 50
regarding any tax contest relating to a tax return of the Company and shall have
the right to settle, adjust or compromise any such tax contest with the consent
of the Designated Company Agent, which consent will not be unreasonably
withheld. In the event any Damages arise out of such tax audits, Parent will
notify the Designated Company Agent and allow him to comment on any written
submissions relating to any Damages and will consider such written comments in
good faith.
9.8 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No Indemnitee
(other than Parent or any successor thereto or assign thereof) will be permitted
to assert any indemnification claim or exercise any other remedy under this
Agreement unless Parent (or any successor thereto or assign thereof) will have
consented to the assertion of such indemnification claim or the exercise of such
other remedy.
SECTION 10. MISCELLANEOUS PROVISIONS
10.1 DESIGNATED COMPANY AGENT. The Company and the Company's
shareholders (by reason of the approval of the Company's shareholders of the
Merger and each such shareholder's acceptance of the consideration provided for
in Section 1.5 of this Agreement), hereby irrevocably appoint Fingerhut (Michael
P. Sherman, as representative of Fingerhut) as their agent for purposes of
Section 9 (the "Designated Company Agent"), and Fingerhut (Michael P. Sherman,
as representative of Fingerhut) hereby accepts its appointment as the Designated
Company Agent. Parent will be entitled to deal exclusively with the Designated
Company Agent on all matters relating to Section 9, and will be entitled to rely
conclusively (without further evidence of any kind whatsoever) on any document
executed or purported to be executed on behalf of the Company and the Company's
former shareholders by the Designated Company Agent, and on any other action
taken or purported to be taken on behalf of the Company and the Company's former
shareholders by the Designated Company Agent, as fully binding upon the Company.
If the person acting as the representative of the Designated Company Agent
should die, become disabled or otherwise be unable to fulfill his
responsibilities as agent of the Company, then the Board of Directors of
Fingerhut shall appoint a new representative to carry out Fingerhut's
responsibilities as the Designated Company Agent. In the event Fingerhut is no
longer able to carry out its responsibilities as the Designated Company Agent, a
majority in interest of the Company's former shareholders (based on holdings on
an as-converted-to-Common-Stock basis) immediately prior to the Effective Time),
will, within ten days after such inability (as set forth in any written notice
from Fingerhut or its successor in interest), appoint a successor agent and,
promptly thereafter, will notify Parent of the identity of such successor. Any
such successor will become the "Designated Company Agent" for purposes of
Section 9 and this Section 10.1. If for any reason there is no Designated
Company Agent at any time, all references herein to the Designated Company Agent
will be deemed to refer to such person designated by the Board of Directors of
Fingerhut.
10.2 FURTHER ASSURANCES. Each party hereto will execute and cause to be
delivered to each other party hereto such instruments and other documents, and
will take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
44.
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10.3 FEES AND EXPENSES. Each party to this Agreement will bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its Representatives with
respect to the Company's business (and the furnishing of information to Parent
and its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement (including the
Disclosure Schedule) and all agreements, certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
transactions contemplated by this Agreement, (c) the preparation and submission
of any filing or notice required to be made or given in connection with any of
the transactions contemplated by this Agreement, and the obtaining of any
Consent required to be obtained in connection with any of such transactions, and
(d) the consummation of the Merger.
10.4 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party will be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
10.5 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement will be in writing and will be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party will
have specified in a written notice given to the other parties hereto):
IF TO PARENT:
Quokka Sports, Inc.
525 Brannan Street, Ground Floor
San Francisco, CA 94107
Fax: (415) 908-4069
Attention: General Counsel
With a copy to:
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Fax: (415) 951-3699
Attention: Kenneth L. Guernsey, Esq.
45.
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IF TO THE COMPANY:
ZoneNetwork.com, Inc.
1415 Western Avenue, Suite 300
Seattle, WA 90101
Fax: (206) 621-0651
Attention: Chief Executive Officer
With a copy to:
Dorsey & Whitney LLP
U.S. Bank Centre
1420 Fifth Avenue, Suite 3400
Seattle, Washington 98101
Fax: 206-903-8820
Attention: Bryce L. Holland, Jr., Esq.
IF TO THE DESIGNATED COMPANY AGENT:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Fax: (612) 936-5412
Attn: Michael P. Sherman
10.6 CONFIDENTIALITY. Without limiting the generality of anything
contained in Section 5.4, on and at all times after the Closing Date, each party
hereto will keep confidential, and will not use or disclose to any other Person,
any non-public document or other non-public information in such party's
possession that relates to the business of the Company or Parent.
10.7 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
10.8 HEADINGS. The headings contained in this Agreement are for
convenience of reference only, will not be deemed to be a part of this Agreement
and will not be referred to in connection with the construction or
interpretation of this Agreement.
10.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which will constitute an original and all of which, when
taken together, will constitute one agreement.
10.10 GOVERNING LAW. This Agreement will be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of choice of law or conflict of
laws).
10.11 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon: the
Company and its successors and assigns (if any); Parent and its successors and
assigns (if any); and Merger Sub and its successors and assigns (if any). This
Agreement will inure to the benefit of: the Company; the Company's shareholders
(to the extent set forth in Section 1.5); the holders of
46.
<PAGE> 53
assumed Company Options and Company Warrants (to the extent set forth in Section
1.6); Parent; Merger Sub; the other Indemnitees (subject to Section 9.8); and
the respective successors and assigns (if any) of the foregoing. After Closing,
Parent may freely assign any or all of its rights under this Agreement
(including its indemnification rights under Section 9), in whole or in part, to
any successor to Parent's business without obtaining the consent or approval of
any other party hereto or of any other Person.
10.12 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. Except as set forth in
Section 9, the rights and remedies of the parties hereto will be cumulative (and
not alternative). The parties to this Agreement agree that, in the event of any
breach or threatened breach by any party to this Agreement of any covenant,
obligation or other provision set forth in this Agreement for the benefit of any
other party to this Agreement, such other party will be entitled (in addition to
any other remedy that may be available to it) to (a) a decree or order of
specific performance or mandamus to enforce the observance and performance of
such covenant, obligation or other provision, and (b) an injunction restraining
such breach or threatened breach.
10.13 NO WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
will operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy will
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person will be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver will not be applicable or have any
effect except in the specific instance in which it is given.
10.14 AMENDMENTS. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.15 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
will be determined to be invalid, unlawful, void or unenforceable to any extent,
the remainder of this Agreement, and the application of such provision to
Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, will not be impaired or otherwise
affected and will continue to be valid and enforceable to the fullest extent
permitted by law.
10.16 PARTIES IN INTEREST. Except for the provisions of Sections 1.5,
1.6 and 9, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
10.17 ENTIRE AGREEMENT. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and
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thereof and supersede all prior agreements and understandings among or between
any of the parties relating to the subject matter hereof and thereof; provided,
however, that the Mutual Non-Disclosure Agreement executed on behalf of Parent
and the Company effective as of January 12, 2000 will not be superseded by this
Agreement and will remain in effect in accordance with its terms until the
earlier of (a) the Effective Time, or (b) the date on which such Mutual
Non-Disclosure Agreement is terminated in accordance with its terms.
10.18 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number will include the plural, and vice versa; the
masculine gender will include the feminine and neuter genders; the feminine
gender will include the masculine and neuter genders; and the neuter gender will
include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party will not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, will not be deemed to be terms of
limitation, but rather will be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
48.
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The parties hereto have caused this Agreement and Plan of Merger and
Reorganization to be executed and delivered as of March 1, 2000.
QUOKKA SPORTS, INC.,
a Delaware corporation
/s/ Les Schmidt
By: ___________________________________
Les Schmidt,
Executive Vice President and
Chief Financial Officer
MONTANA ACQUISITION CORPORATION,
a Washington corporation
/s/ Les Schmidt
By: ___________________________________
Les Schmidt,
Chief Financial Officer
ZONENETWORK.COM, INC.,
a Washington corporation
/s/ Charles Gottschalk
By: ___________________________________
Charles Gottschalk,
President and
Chief Executive Officer
49.
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EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION TRANSACTION. "Acquisition Transaction" will mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or a
material portion of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any capital
stock or other equity security of the Company (other than common stock
issued to employees of the Company, upon exercise of Company Options or
otherwise, in routine transactions in accordance with the Company's past
practices), (ii) any option, call, warrant or right (whether or not
immediately exercisable) to acquire any capital stock or other equity
security of the Company (other than stock options granted to employees
of the Company in routine transactions in accordance with the Company's
past practices), or (iii) any security, instrument or obligation that is
or may become convertible into or exchangeable for any capital stock or
other equity security of the Company; or
(c) any merger, consolidation, business combination,
reorganization or similar transaction involving the Company.
AGREEMENT. "Agreement" will mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Disclosure
Schedule), as it may be amended from time to time.
COMPANY CONTRACT. "Company Contract" will mean any Contract: (a) to
which the Company is a party; (b) by which the Company or any of its assets is
or may become bound or under which the Company has, or may become subject to,
any obligation; or (c) under which the Company has or may acquire any right or
interest.
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" will mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
COMPANY'S KNOWLEDGE. "Company's Knowledge" will mean the Knowledge of
any director of the Company, officer of the Company or employee of the Company
with the title of director or a more senior title (including without limitation
any founder of the Company).
CONSENT. "Consent" will mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" will mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
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DAMAGES. "Damages" will include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
DISCLOSURE SCHEDULE. "Disclosure Schedule" will mean the schedule (dated
as of the date of the Agreement) delivered to Parent or its Representatives on
behalf of the Company.
ENCUMBRANCE. "Encumbrance" will mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" will mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
EXCHANGE ACT. "Exchange Act" will mean the Securities Exchange Act of
1934, as amended.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" will mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" will mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
INDEMNITEES. "Indemnitees" will mean the following Persons: (a) Parent;
(b) Parent's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)", "(b)" and "(c)" above; provided,
however, that the securityholders of the Company immediately prior to the
Effective Time (the "Company Securityholders") will not be deemed to be
"Indemnitees."
KNOWLEDGE. An individual will be deemed to have "Knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or other matter or (b) a prudent individual could be expected to
discover or otherwise become aware of such fact or other matter
2.
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in the course of conducting a reasonably comprehensive investigation concerning
the existence of such fact or other matter.
LEGAL PROCEEDING. "Legal Proceeding" will mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" will mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company if such violation or other
matter would have a material adverse effect on the Company's business,
condition, assets, liabilities, operations, financial performance or prospects.
PERSON. "Person" will mean any individual, Entity or Governmental Body.
PROPRIETARY ASSET. "Proprietary Asset" will mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (b) right to use or exploit any of the
foregoing.
REPRESENTATIVES. "Representatives" will mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" will mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" will mean the Securities Act of 1933,
as amended.
TAX. "Tax" will mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TAX RETURN. "Tax Return" will mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate
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or other document or information filed with or submitted to, or required to be
filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with any
Legal Requirement relating to any Tax.
4.