\n 11.5 Attorneys’ Fees……………………………………………………..48
\n 11.6 Notices…………………………………………………………….48
\n 11.7 Confidentiality……………………………………………………..49
\n 11.8 Time of the Essence………………………………………………….49
\n 11.9 Headings……………………………………………………………49
\n 11.10 Counterparts………………………………………………………..49
\n 11.11 Governing Law……………………………………………………….49
\n 11.12 Successors and Assigns……………………………………………….49
\n 11.13 Waiver of Jury Trial…………………………………………………50
\n 11.14 Remedies Cumulative; Specific Performance………………………………50
\n 11.15 Waiver……………………………………………………………..50
\n 11.16 Amendments………………………………………………………….50
\n 11.17 Severability………………………………………………………..50
\n 11.18 Parties in Interest………………………………………………….50
\n 11.19 Entire Agreement…………………………………………………….50
\n 11.20 Construction………………………………………………………..51
\n<\/c><\/c><\/s><\/caption>\n<\/table>\n -iv-
\n 7<\/p>\n
AGREEMENT AND PLAN
\n OF MERGER AND REORGANIZATION<\/p>\n
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (“AGREEMENT”) is
\nmade and entered into as of September 14, 1999 by and among: ACCRUE SOFTWARE,
\nINC., a Delaware corporation (“PARENT”); MARKETWAVE ACQUISITION CORP., a
\nWashington corporation and a wholly owned subsidiary of Parent (“MERGER SUB”);
\nMARKETWAVE CORPORATION, a Washington corporation (the “COMPANY”); and the
\nholders of all the outstanding capital stock of the Company (the
\n“SHAREHOLDERS”). Certain other capitalized terms used in this Agreement are
\ndefined in Exhibit A.<\/p>\n
RECITALS<\/p>\n
A. Parent, Merger Sub and the Company intend to effect a merger of
\nMerger Sub with and into the Company in accordance with this Agreement and the
\nWashington Business Corporation Act (the “MERGER”). Upon consummation of the
\nMerger, Merger Sub will cease to exist, and the Company will become a wholly
\nowned subsidiary of Parent.<\/p>\n
B. It is intended that the Merger qualify as a tax-free reorganization
\nwithin the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
\namended (the “CODE”). For accounting purposes, it is intended that the Merger be
\ntreated as a “pooling of interests.”<\/p>\n
C. This Agreement has been approved by the respective boards of
\ndirectors of Parent, Merger Sub and the Company.<\/p>\n
D. The Shareholders own a total of (i) 8,398,845 shares of the Common
\nStock (par value $.001 per share) of the Company (“COMPANY COMMON STOCK”), (ii)
\n2,352,950 shares of the Series A Preferred Stock (par value $.001 per share) of
\nthe Company (“SERIES A PREFERRED STOCK”), and (iii) 4,558,822 shares of the
\nSeries B Preferred Stock (par value $.001 per share) of the Company (“SERIES B
\nPREFERRED STOCK” and, together with the Company Common Stock and the Series A
\nPreferred Stock, the “COMPANY STOCK”), which shares are all of the issued and
\noutstanding shares of capital stock of the Company.<\/p>\n
AGREEMENT<\/p>\n
For good and valuable consideration, the receipt of which is hereby
\nacknowledged, the parties to this Agreement agree as follows: SECTION 1.
\nDESCRIPTION OF TRANSACTION<\/p>\n
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
\nthe conditions set forth in this Agreement, at the Effective Time (as defined in
\nSection 1.3), Merger Sub shall be merged with and into the Company and the
\nseparate existence of Merger Sub shall cease. The Company will continue as the
\nsurviving corporation after the Merger (the “SURVIVING CORPORATION”).<\/p>\n
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
\nthis Agreement and in the applicable provisions of the Washington Business
\nCorporation Act.<\/p>\n
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
\ncontemplated by this Agreement (the “CLOSING”) shall take place at the offices
\nof Orrick, Herrington & Sutcliffe LLP, 400 Capitol Mall, Suite 3000, Sacramento,
\nCalifornia 95814 at 10:00 a.m. on September 30, 1999, or at such other time and
\ndate as Parent and the Company may agree. The <\/p>\n
8<\/p>\n
date on which the Closing actually takes place is referred to in this Agreement
\nas the “Closing Date.” Contemporaneously with or as promptly as practicable
\nafter the Closing, a properly executed agreement of merger conforming to the
\nrequirements of Chapter 23B.11 of the Washington Business Corporation Act shall
\nbe filed with the Secretary of State of the State of Washington. The Merger
\nshall become effective at the time such agreement of merger is filed with the
\nSecretary of State of the State of Washington (the “EFFECTIVE TIME”).<\/p>\n
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless
\notherwise determined by Parent and the Company prior to the Effective Time:<\/p>\n
(a) the Articles of Incorporation of the Surviving Corporation shall
\nbe amended and restated as of the Effective Time to conform to Exhibit B;<\/p>\n
(b) the Bylaws of the Surviving Corporation shall be amended and
\nrestated as of the Effective Time to conform to the Bylaws of Merger Sub as in
\neffect immediately prior to the Effective Time; and<\/p>\n
(c) the directors and officers of the Surviving Corporation
\nimmediately after the Effective Time shall be the individuals identified on
\nExhibit C.<\/p>\n
1.5 CONVERSION OF SHARES.<\/p>\n
(a) Subject to Section 1.8(c), at the Effective Time, by virtue of
\nthe Merger and without any further action on the part of Parent, Merger Sub, the
\nCompany or any Shareholder:<\/p>\n
(i) each share of Company Common Stock outstanding immediately
\nprior to the Effective Time (including the shares of Company Common Stock issued
\nupon conversion of all shares of the Company’s Series A Preferred Stock and
\nSeries B Preferred Stock) shall be converted into the right to receive the
\n“Applicable Fraction” (as defined in Section 1.5(b)) of a share of the common
\nstock (par value $.001 per share) of Parent (“PARENT COMMON STOCK”); and<\/p>\n
(ii) each share of the common stock (par value $.001 per share)
\nof Merger Sub outstanding immediately prior to the Effective Time shall be
\nconverted into one share of common stock of the Surviving Corporation.<\/p>\n
(b) For purposes of this Agreement:<\/p>\n
(i) the “APPLICABLE FRACTION” shall be calculated by dividing
\nthe Net Merger Shares (as defined below) by the aggregate number of outstanding
\nshares of Company Common Stock (after giving effect to the conversion of all
\noutstanding shares of the Company’s Series A Preferred Stock and Series B
\nPreferred Stock into Common Stock) plus the aggregate number of shares
\nrepresented by Company Options (as defined in Section 1.6), in each case as of
\nthe Effective Time;<\/p>\n
-2-
\n 9<\/p>\n
(ii) the term “TOTAL MERGER SHARES” shall mean 3,479,375 shares
\nof Parent Common Stock;<\/p>\n
(iii) the term “NET MERGER SHARES” shall mean the Total Merger
\nShares less the number of Expense Shares (as defined below); and<\/p>\n
(iv) the term “EXPENSE SHARES” shall mean the number of shares
\nof Parent Common Stock calculated by dividing the amount of the Company Expenses
\nreflected on the Schedule of Expenses delivered pursuant to Section 7.5(j) (less
\n$300,000 of the Broadview Expenses (as defined in Section 2.22) and all
\naccounting and legal fees and expenses incurred by the Company in connection
\nwith the transactions contemplated by this Agreement and reflected on the
\nSchedule of Expenses) by the Stipulated Value (as defined in Section 1.8(c)).<\/p>\n
(c) The Applicable Fraction shall be adjusted to reflect fully the
\neffect of any stock split, stock dividend (including any dividend or
\ndistribution of stock convertible into Parent Common Stock or Company Common
\nStock), reorganization, recapitalization or other similar change with respect to
\nParent Common Stock or Company Common Stock after the date hereof and prior to
\nthe Effective Time.<\/p>\n
(d) If any shares of Company Common Stock outstanding immediately
\nprior to the Effective Time are unvested or are subject to a repurchase option,
\nrisk of forfeiture or other condition under any applicable restricted stock
\npurchase agreement or other agreement with the Company after giving effect to
\nany provisions providing for acceleration as a result of the Merger contained in
\nany applicable restricted stock agreement or other agreement with the Company,
\nthen the shares of Parent Common Stock issued in exchange for such shares of
\nCompany Common Stock will also be unvested and subject to the same repurchase
\noption, risk of forfeiture or other condition, and the certificates representing
\nsuch shares of Parent Common Stock may accordingly be marked with appropriate
\nlegends.<\/p>\n
1.6 EMPLOYEE STOCK OPTIONS. At the Effective Time, each stock option
\nthat is then outstanding under the Company’s 1997 Stock Option Plan (the
\n“COMPANY OPTION PLAN”), whether vested or unvested (a “COMPANY OPTION”), shall
\nbe assumed by Parent in accordance with the terms (as in effect as of the date
\nof this Agreement) of the Company Option Plan and the stock option agreement by
\nwhich such Company Option is evidenced. All rights with respect to Company
\nCommon Stock under outstanding Company Options shall thereupon be converted into
\nrights with respect to Parent Common Stock. Accordingly, from and after the
\nEffective Time, (a) each Company Option assumed by Parent may be exercised
\nsolely for shares of Parent Common Stock, (b) the number of shares of Parent
\nCommon Stock subject to each such assumed Company Option shall be equal to the
\nnumber of shares of Company Common Stock that were subject to such Company
\nOption immediately prior to the Effective Time multiplied by the Applicable
\nFraction, rounded down to the nearest whole number of shares of Parent Common
\nStock (collectively, the “OPTION SHARES”), (c) the per share exercise price for
\nthe Parent Common Stock issuable upon exercise of each such assumed Company
\nOption shall be determined by dividing the exercise price per share of Company
\nCommon Stock subject to such Company Option, as in effect immediately prior to
\nthe Effective Time, by the Applicable <\/p>\n
-3-
\n 10<\/p>\n
Fraction, and rounding the resulting exercise price up to the nearest whole
\ncent, and (d) all restrictions on the exercise of each such assumed Company
\nOption shall continue in full force and effect, and the term, exercisability,
\nvesting schedule and other provisions of such Company Option shall otherwise
\nremain unchanged; provided, however, that each such assumed Company Option
\nshall, in accordance with its terms, be subject to further adjustment as
\nappropriate to reflect any stock split, reverse stock split, stock dividend,
\nrecapitalization or other similar transaction effected by Parent after the
\nEffective Time. The Company and Parent shall take all action that may be
\nnecessary (under the Company Option Plan and otherwise) to effectuate the
\nprovisions of this Section 1.6. It is the intention of the parties that the
\nCompany Options assumed by Parent qualify following the Effective Time as
\nincentive stock options as defined in Section 422 of the Code to the extent such
\nCompany Options qualified as incentive stock options prior to the Effective
\nTime, and this Section 1.6 shall be interpreted consistent with such intent.
\nFollowing the Closing, Parent will send to each holder of an assumed Company
\nOption a written notice setting forth (i) the number of shares of Parent Common
\nStock subject to such assumed Company Option, and (ii) the exercise price per
\nshare of Parent Common Stock issuable upon exercise of such assumed Company
\nOption. No later than February 1, 2000, Parent shall file a registration
\nstatement on Form S-8 for the shares of Parent Common Stock issuable with
\nrespect to assumed Company Options that are eligible for inclusion on Form S-8
\nand shall maintain the effectiveness of such registration statement thereafter
\nfor so long as any such options or other rights remain outstanding.<\/p>\n
1.7 CLOSING OF THE COMPANY’S TRANSFER BOOKS. At the Effective Time,
\nholders of certificates representing shares of the Company’s capital stock that
\nwere outstanding immediately prior to the Effective Time shall cease to have any
\nrights as shareholders of the Company and the stock transfer books of the
\nCompany shall be closed with respect to all shares of such capital stock
\noutstanding immediately prior to the Effective Time. No further transfer of any
\nsuch shares of the Company’s capital stock shall be made on such stock transfer
\nbooks after the Effective Time. If, after the Effective Time, a valid
\ncertificate previously representing any of such shares of the Company’s capital
\nstock (a “COMPANY STOCK CERTIFICATE”) is presented to the Surviving Corporation
\nor Parent, such Company Stock Certificate shall be canceled and shall be
\nexchanged as provided in Section 1.8.<\/p>\n
1.8 EXCHANGE OF CERTIFICATES.<\/p>\n
(a) At or as soon as practicable after the Effective Time, Parent
\nwill send to the holders of Company Stock Certificates (i) a letter of
\ntransmittal in customary form and containing such provisions as Parent may
\nreasonably specify, and (ii) instructions for use in effecting the surrender of
\nCompany Stock Certificates in exchange for certificates representing Parent
\nCommon Stock. Upon surrender of a Company Stock Certificate to Parent for
\nexchange, together with a duly executed letter of transmittal and such other
\ndocuments as may be reasonably requested by Parent, the holder of such Company
\nStock Certificate shall be entitled to receive in exchange therefor a
\ncertificate representing the number of whole shares of Parent Common Stock (and
\ncash in lieu of any fractional share of Parent Common Stock in accordance with
\nSection 1.8(c)) that such holder has the right to receive pursuant to the
\nprovisions of this Section 1, and the Company Stock Certificate so surrendered
\nshall be canceled. Until <\/p>\n
-4-
\n 11<\/p>\n
surrendered as contemplated by this Section 1.8, each Company Stock Certificate
\nshall be deemed, from and after the Effective Time, to represent only the right
\nto receive upon such surrender a certificate representing shares of Parent
\nCommon Stock (and cash in lieu of any fractional share of Parent Common Stock in
\naccordance with Section 1.8(c)) as contemplated by this Section 1. If any
\nCompany Stock Certificate shall have been lost, stolen or destroyed, Parent may,
\nin its discretion and as a condition precedent to the issuance of any
\ncertificate representing Parent Common Stock, require the owner of such lost,
\nstolen or destroyed Company Stock Certificate to provide an appropriate
\naffidavit and to deliver a bond (in such sum as Parent may reasonably direct) as
\nindemnity against any claim that may be made against Parent or the Surviving
\nCorporation with respect to such Company Stock Certificate.<\/p>\n
(b) No dividends or other distributions declared or made with
\nrespect to Parent Common Stock with a record date after the Effective Time shall
\nbe paid to the holder of any unsurrendered Company Stock Certificate with
\nrespect to the shares of Parent Common Stock represented thereby and no cash
\npayment in lieu of any fractional share shall be paid to any such holder, until
\nsuch holder surrenders such Company Stock Certificate in accordance with this
\nSection 1.8 (at which time such holder shall be entitled to receive all such
\ndividends and distributions and such cash payment).<\/p>\n
(c) No fractional shares of Parent Common Stock shall be issued in
\nconnection with the Merger and no certificates for any such fractional shares
\nshall be issued. In lieu of such fractional shares, any holder of capital stock
\nof the Company who would otherwise be entitled to receive a fraction of a share
\nof Parent Common Stock (after aggregating all fractional shares of Parent Common
\nStock issuable to such holder) shall, upon surrender of such holder’s Company
\nStock Certificate(s), be paid in cash the dollar amount (rounded to the nearest
\nwhole cent), without interest, determined by multiplying such fraction by the
\nclosing price per share of Parent Common Stock on The Nasdaq Stock Market (as
\nreported in The Wall Street Journal, or, if not reported therein, any other
\nauthoritative source) on the business day immediately prior to the Closing Date
\n(the “STIPULATED VALUE”).<\/p>\n
(d) Parent and the Surviving Corporation shall be entitled to deduct
\nand withhold from any consideration payable or otherwise deliverable to any
\nholder or former holder of capital stock of the Company pursuant to this
\nAgreement such amounts as Parent or the Surviving Corporation may be required to
\ndeduct or withhold therefrom under the Code or under any provision of state,
\nlocal or foreign tax law. To the extent such amounts are so deducted or
\nwithheld, such amounts shall be treated for all purposes under this Agreement as
\nhaving been paid to the Person to whom such amounts would otherwise have been
\npaid.<\/p>\n
(e) Neither Parent nor the Surviving Corporation shall be liable to
\nany holder or former holder of capital stock of the Company for any shares of
\nParent Common Stock (or dividends or distributions with respect thereto) or for
\nany cash amounts if, on or after the expiration of one (1) year after the
\nEffective Time, such shares are delivered to any public official pursuant to any
\napplicable abandoned property, escheat or similar law.<\/p>\n
-5-
\n 12<\/p>\n
1.9 DISSENTING SHARES.<\/p>\n
(a) Notwithstanding anything to the contrary contained in this
\nAgreement, any shares of capital stock of the Company that, as of the Effective
\nTime, are or may become held by a “dissenter” within the meaning of Chapter
\n23B.13 of the Washington Business Corporation Act shall not be converted into or
\nrepresent the right to receive Parent Common Stock in accordance with Section
\n1.5 (or cash in lieu of fractional shares in accordance with Section 1.8(c)),
\nand the holder or holders of such shares shall be entitled only to such rights
\nas may be granted to such holder or holders in Chapter 23B.13 of the Washington
\nBusiness Corporation Act; provided, however, that if the status of any such
\nholder as a “dissenter” shall not be perfected, or if such holder shall lose
\nhis, her or its status as a “dissenter,” then, as of the later of the Effective
\nTime or the time of the failure to perfect such status or the loss of such
\nstatus, such shares shall automatically be converted into and shall represent
\nonly the right to receive (upon the surrender of the certificate or certificates
\nrepresenting such shares) Parent Common Stock in accordance with Section 1.5
\n(and cash in lieu of fractional shares in accordance with Section 1.8(c)).<\/p>\n
(b) The Company shall give Parent (i) prompt notice of any written
\ndemand received by the Company prior to the Effective Time to require the
\nCompany to purchase shares of capital stock of the Company pursuant to Chapter
\n23B.13 of the Washington Business Corporation Act and of any other demand,
\nnotice or instrument delivered to the Company prior to the Effective Time
\npursuant to the Washington Business Corporation Act, and (ii) the opportunity to
\nparticipate in all negotiations and proceedings with respect to any such demand,
\nnotice or instrument. The Company shall not make any payment (unless such
\npayment is pursuant to a court order in which event the Company shall give
\nParent notice of any such court order or request therefor as soon as
\npracticable) or settlement offer prior to the Effective Time with respect to any
\nsuch demand unless Parent shall have consented in writing to such payment or
\nsettlement offer.<\/p>\n
1.10 HOLDBACK SHARES.<\/p>\n
(a) Parent shall establish and maintain an escrow (the “ESCROW
\nACCOUNT”) comprised of ten percent (10%) of the Net Merger Shares less the
\nOption Shares (the “HOLDBACK SHARES”). Parent shall designate and appoint U.S.
\nStock Transfer Corporation or such other third party escrow agent that is
\nmutually and reasonably acceptable to Parent and the Shareholders’ Agent (as
\nhereinafter defined) in connection therewith (the “ESCROW AGENT”) to serve in
\naccordance with the Escrow Agreement substantially in the form attached as
\nExhibit D hereto (the “ESCROW AGREEMENT”) to be entered into among Parent, the
\nEscrow Agent and the Shareholders’ Agent at Closing. Such escrow of the Holdback
\nShares shall be maintained for purposes of satisfying claims brought pursuant to
\nSection 10 and for the period of time set forth in such Section 10.1 (the
\n“HOLDBACK PERIOD”).<\/p>\n
(b) The right to receive the Holdback Shares upon expiration of the
\nHoldback Period (i) is an integral part of the consideration in the Merger, and
\n(ii) shall be transferable or assignable only upon submission of evidence of
\nsuch transfer or assignment reasonably satisfactory to Parent and the Escrow
\nAgent. The value of any shares of Parent Common Stock <\/p>\n
-6-
\n 13<\/p>\n
ultimately retained by Parent hereunder shall be treated for purposes of this
\nAgreement as a reduction of the consideration paid to the Shareholders in the
\nMerger.<\/p>\n
1.11 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
\nintended to constitute a reorganization within the meaning of Section 368 of the
\nCode. The parties to this Agreement hereby adopt this Agreement as a “plan of
\nreorganization” within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
\nUnited States Treasury Regulations.<\/p>\n
1.12 ACCOUNTING TREATMENT. For accounting purposes, the Merger is
\nintended to be treated as a “pooling of interests.”<\/p>\n
1.13 FURTHER ACTION. If, at any time after the Effective Time, any
\nfurther action is determined by Parent to be reasonably necessary or desirable
\nto carry out the purposes of this Agreement or to vest the Surviving Corporation
\nor Parent with full right, title and possession of and to all rights and
\nproperty of Merger Sub and the Company, the officers and directors of the
\nSurviving Corporation and Parent shall be fully authorized (in the name of
\nMerger Sub, in the name of the Company and otherwise) to take such action.<\/p>\n
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY
\n EXECUTIVES<\/p>\n
The Company and Steve Podradchik and Barry Allen (collectively, the
\n“COMPANY EXECUTIVES”) jointly and severally represent and warrant, to and for
\nthe benefit of the Indemnitees, that, except as set forth in the Company
\nDisclosure Schedule:<\/p>\n
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.<\/p>\n
(a) The Company is a corporation duly organized and validly existing
\nunder the laws of the State of Washington and has all necessary corporate power
\nand authority to: (i) conduct its business in the manner in which its business
\nis currently being conducted; (ii) own and use its assets in the manner in which
\nits assets are currently owned and used; and (iii) perform its obligations under
\nall Company Contracts.<\/p>\n
(b) The Company has not conducted any business under or otherwise
\nused, for any purpose or in any jurisdiction, any fictitious name, assumed name,
\ntrade name or other name, other than the names “Marketwave” and
\n“Marketwave.com.”<\/p>\n
(c) The Company is not, and has not been required to be, qualified,
\nauthorized, registered or licensed to do business as a foreign corporation in
\nany jurisdiction other than the jurisdictions identified in Part 2.1(c) of the
\nCompany Disclosure Schedule, except where the failure to be so qualified,
\nauthorized, registered or licensed has not had and could not reasonably be
\nexpected to result in a Company Material Adverse Effect. The Company is in good
\nstanding as a foreign corporation in each of the jurisdictions identified in
\nPart 2.1(c) of the Company Disclosure Schedule.<\/p>\n
-7-
\n 14<\/p>\n
(d) Part 2.1(d) of the Company Disclosure Schedule accurately sets
\nforth (i) the names of the members of the Company’s board of directors, (ii) the
\nnames of the members of each committee of the Company’s board of directors, and
\n(iii) the names and titles of the Company’s officers.<\/p>\n
(e) Except as set forth in Part 2.1(e) of the Company Disclosure
\nSchedule, the Company does not own any controlling interest in any Entity and
\nthe Company has never owned, beneficially or otherwise, any shares or other
\nsecurities of, or any direct or indirect equity interest in, any Entity. The
\nCompany has not agreed and is not obligated to make any future investment in, or
\ncapital contribution to, any Entity.<\/p>\n
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. The Company has
\ndelivered to Parent accurate, complete and up-to-date copies of: (a) the
\nCompany’s articles of incorporation and bylaws, including all amendments
\nthereto; (b) the stock records of the Company; and (c) the minutes and other
\nrecords of the meetings and other proceedings (including any actions taken by
\nwritten consent or otherwise without a meeting) of the shareholders of the
\nCompany, the board of directors of the Company and all committees of the board
\nof directors of the Company since the date of the Company’s incorporation. There
\nhave been no formal meetings or other proceedings of the shareholders of the
\nCompany, the board of directors of the Company or any committee of the board of
\ndirectors of the Company that are not fully reflected in such minutes or other
\nrecords. There has not been any violation of any of the provisions of the
\nCompany’s articles of incorporation or bylaws, and the Company has not taken any
\naction that is inconsistent in any material respect with any resolution adopted
\nby the Company’s shareholders, the Company’s board of directors or any committee
\nof the Company’s board of directors. The books of account, stock records, minute
\nbooks and other records of the Company are accurate, up-to-date and complete in
\nall material respects, and have been maintained in accordance with prudent
\nbusiness practices.<\/p>\n
2.3 CAPITALIZATION, ETC.<\/p>\n
(a) The authorized capital stock of the Company consists of: (i)
\n22,500,000 shares of Common Stock, of which 8,398,845 shares have been issued
\nand are outstanding as of the date of this Agreement; and (ii) 7,500,000 shares
\nof Preferred Stock, 2,500,000 of which have been designated “Series A Preferred
\nStock,” of which 2,352,950 shares have been issued and are outstanding as of the
\ndate of this Agreement, and 5,000,000 of which have been designated “Series B
\nPreferred Stock,” of which 4,558,822 shares have been issued and are outstanding
\nas of the date of this Agreement. Each outstanding share of Series A Preferred
\nStock is convertible into approximately 1.08 shares of Company Common Stock and
\neach share of Series B Preferred Stock is convertible into one share of Company
\nCommon Stock. All of the outstanding shares of Company Stock have been duly
\nauthorized and validly issued, and are fully paid and non-assessable. Part 2.3
\nof the Company Disclosure Schedule (i) sets forth the name of each Shareholder
\nof the Company and the number and type of all shares of Company Common Stock,
\nSeries A Preferred Stock and Series B Preferred Stock held by such Shareholder
\nand (ii) provides an accurate and complete description of the terms of each
\nrepurchase option which is held by the Company and to which any of such shares
\nis subject.<\/p>\n
-8-
\n 15<\/p>\n
(b) The Company has reserved 4,750,000 shares of Company Common
\nStock for issuance under the Company Option Plan. As of the date of this
\nAgreement, of such reserved shares of Company Common Stock, options to purchase
\n3,045,958 shares have been granted and are outstanding, 1,067,595 shares have
\nbeen granted and exercised and 636,447 shares remain available for issuance to
\nofficers, directors, employees and consultants pursuant to the Company Option
\nPlan. Part 2.3(b) of the Company Disclosure Schedule accurately sets forth, with
\nrespect to each Company Option that is outstanding as of the date of this
\nAgreement: (i) the name of the holder of such Company Option; (ii) the total
\nnumber of shares of Company Common Stock that are subject to such Company Option
\nand the number of shares of Company Common Stock with respect to which such
\nCompany Option is immediately exercisable; (iii) the date on which such Company
\nOption was granted and the term of such Company Option; (iv) the vesting
\nschedule for such Company Option; (v) the exercise price per share of Company
\nCommon Stock purchasable under such Company Option; and (vi) whether such
\nCompany Option has been designated an “incentive stock option” as defined in
\nSection 422 of the Code. Each Company Option designated as an “incentive stock
\noption” as defined in Section 422 of the Code on the applicable books and
\nrecords of the Company qualified as an “incentive stock option” within the
\nmeaning of Section 422 of the Code on the date of grant of such Company Option.
\nExcept as set forth in Part 2.3(b) of the Company Disclosure Schedule, there is
\nno: (i) outstanding subscription, option, call, warrant or right (whether or not
\ncurrently exercisable) to acquire any shares of the capital stock or other
\nsecurities of the Company; (ii) outstanding security, instrument or obligation
\nthat is or may become convertible into or exchangeable for any shares of the
\ncapital stock or other securities of the Company; (iii) Contract under which the
\nCompany is or may become obligated to sell or otherwise issue any shares of its
\ncapital stock or any other securities; or (iv) to the knowledge of the Company,
\ncondition or circumstance that may give rise to or provide a basis for the
\nassertion of a claim by any Person to the effect that such Person is entitled to
\nacquire or receive any shares of capital stock or other securities of the
\nCompany.<\/p>\n
(c) All outstanding shares of Company Stock and all outstanding
\nCompany Options have been issued and granted in compliance with (i) all
\napplicable securities laws and other applicable Legal Requirements, and (ii) all
\nrequirements set forth in applicable Contracts.<\/p>\n
(d) Except as set forth in Part 2.3(d) of the Company Disclosure
\nSchedule, the Company has never repurchased, redeemed or otherwise reacquired
\nany shares of capital stock or other securities of the Company. All securities
\nso reacquired by the Company were reacquired in compliance with (i) the
\napplicable provisions of the Washington Business Corporation Act and all other
\napplicable Legal Requirements, and (ii) all requirements set forth in applicable
\nrestricted stock purchase agreements and other applicable Contracts.<\/p>\n
2.4 FINANCIAL STATEMENTS.<\/p>\n
(a) The Company has delivered to Parent the following financial
\nstatements and the notes, if any, thereto (collectively, the “COMPANY FINANCIAL
\nSTATEMENTS”):<\/p>\n
(i) The audited balance sheets of the Company as of December 31,
\n1997 and 1998, and the related audited income statements, statements of
\nshareholders’ equity <\/p>\n
-9-
\n 16<\/p>\n
and statements of cash flows of the Company for the years then ended, together
\nwith the notes thereto and the unqualified report and opinion of Deloitte & Touche LLP relating thereto; and<\/p>\n
(ii) the unaudited balance sheet of the Company as of August 31,
\n1999, (the “UNAUDITED INTERIM BALANCE SHEET”), and the related unaudited income
\nstatement of the Company for the eight months then ended.<\/p>\n
(b) The Company Financial Statements are accurate and complete in
\nall material respects and present fairly the financial position of the Company
\nas of the respective dates thereof and the results of operations and (in the
\ncase of the financial statements referred to in Section 2.4(a)(i)) cash flows of
\nthe Company for the periods covered thereby. The Company Financial Statements
\nhave been prepared in accordance with generally accepted accounting principles
\napplied on a consistent basis throughout the periods covered (except that the
\nfinancial statements referred to in Section 2.4(a)(ii) do not contain footnotes
\nand are subject to normal and recurring year end audit adjustments, which will
\nnot, individually or in the aggregate, be material in magnitude).<\/p>\n
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Company
\nDisclosure Schedule, since August 31, 1999:<\/p>\n
(a) there has not been any material adverse change in the Company’s
\nbusiness, condition, assets, liabilities, operations, financial performance or
\nprospects, and, to the knowledge of the Company, no event has occurred that will
\nor could reasonably be expected to result in a Company Material Adverse Effect;<\/p>\n
(b) there has not been any material loss, damage or destruction to,
\nor any material interruption in the use of, any of the Company’s assets (whether
\nor not covered by insurance);<\/p>\n
(c) the Company has not declared, accrued, set aside or paid any
\ndividend or made any other distribution in respect of any shares of its capital
\nstock, and has not repurchased, redeemed or otherwise reacquired any shares of
\nits capital stock or other securities;<\/p>\n
(d) the Company has not sold, issued or authorized the issuance of
\n(i) any shares of its capital stock or other security (except for Company Common
\nStock issued upon the exercise of outstanding Company Options), (ii) any option
\nor right to acquire any shares of its capital stock or any other security
\n(except for Company Options described in Part 2.3(b) of the Company Disclosure
\nSchedule), or (iii) any instrument convertible into or exchangeable for any
\ncapital stock or other security;<\/p>\n
(e) the Company has not amended or waived any of its rights under,
\nor modified the vesting provisions under, (i) any provision of the Company
\nOption Plan, (ii) any provision of any agreement evidencing any outstanding
\nCompany Option, or (iii) any restricted stock purchase agreement;<\/p>\n
-10-
\n 17<\/p>\n
(f) there has been no amendment to the Company’s articles of
\nincorporation or bylaws, and the Company has not effected or been a party to any
\nAcquisition Transaction, recapitalization, reclassification of shares, stock
\nsplit, reverse stock split or similar transaction;<\/p>\n
(g) the Company has not formed any subsidiary or acquired any equity
\ninterest or other interest in any other Entity;<\/p>\n
(h) the Company has not made any capital expenditure which, when
\nadded to all other capital expenditures made on behalf of the Company since
\nAugust 31, 1999, exceeds $50,000;<\/p>\n
(i) the Company has not (i) entered into or permitted any of the
\nassets owned or used by it to become bound by any Contract that is or would
\nconstitute a Material Contract (as defined in Section 2.10(a)), or (ii) amended
\nor prematurely terminated, or waived any material right or remedy under, any
\nsuch Contract;<\/p>\n
(j) the Company has not (i) acquired, leased or licensed any right
\nor other asset from any other Person, (ii) sold or otherwise disposed of, or
\nleased or licensed, any right or other asset to any other Person, or (iii)
\nwaived or relinquished any right, except for immaterial rights or other
\nimmaterial assets acquired, leased, licensed or disposed of in the ordinary
\ncourse of business and consistent with the Company’s past practices;<\/p>\n
(k) the Company has not written off as uncollectible, or established
\nany extraordinary reserve with respect to, any account receivable or other
\nindebtedness;<\/p>\n
(l) the Company has not made any pledge of any of its assets or
\notherwise permitted any of its assets to become subject to any Encumbrance,
\nexcept for pledges of immaterial assets made in the ordinary course of business
\nand consistent with the Company’s past practices and Permitted Liens;<\/p>\n
(m) the Company has not (i) lent money to any Person (other than
\npursuant to routine advances for business expenses made to employees in the
\nordinary course of business), or (ii) incurred or guaranteed any indebtedness
\nfor borrowed money;<\/p>\n
(n) the Company has not (i) established or adopted any Employee
\nBenefit Plan, (ii) paid any bonus or made any profit-sharing or similar payment
\nto, or increased the amount of the wages, salary, commissions, fringe benefits
\nor other compensation or remuneration payable to, any of its directors,
\nofficers, employees or consultants, or (iii) hired any new employee;<\/p>\n
(o) the Company has not changed any of its methods of accounting or
\naccounting practices in any respect;<\/p>\n
(p) the Company has not made any Tax election;<\/p>\n
(q) the Company has not commenced or settled any Legal Proceeding;<\/p>\n
-11-
\n 18<\/p>\n
(r) the Company has not entered into any material transaction or
\ntaken any other material action outside the ordinary course of business or
\ninconsistent with its past practices; and<\/p>\n
(s) the Company has not agreed or committed to take any of the
\nactions referred to in clauses “(c)” through “(r)” above.<\/p>\n
2.6 TITLE TO ASSETS.<\/p>\n
(a) The Company owns, and has good and valid title to, all assets
\npurported to be owned by it, including: (i) all assets reflected on the
\nUnaudited Interim Balance Sheet; (ii) all assets referred to in Parts 2.7(b) and
\n2.9 of the Company Disclosure Schedule; and (iii) all other assets reflected in
\nthe Company’s books and records as being owned by the Company. Except as set
\nforth in Part 2.6(a) of the Company Disclosure Schedule, all of said assets are
\nowned by the Company free and clear of any liens or other Encumbrances, except
\nfor Permitted Liens.<\/p>\n
(b) Part 2.6(b) of the Company Disclosure Schedule identifies all
\nassets that are material to the business of the Company and that are being
\nleased or licensed to the Company.<\/p>\n
2.7 BANK ACCOUNTS; RECEIVABLES.<\/p>\n
(a) Part 2.7(a) of the Company Disclosure Schedule provides accurate
\ninformation with respect to each account maintained by or for the benefit of the
\nCompany at any bank or other financial institution.<\/p>\n
(b) Part 2.7(b) of the Company Disclosure Schedule provides an
\naccurate and complete breakdown and aging of all accounts receivable, notes
\nreceivable and other receivables of the Company as of August 31, 1999. Except as
\nset forth in Part 2.7(b) of the Company Disclosure Schedule, all existing
\naccounts receivable of the Company (including the accounts receivable reflected
\non the Unaudited Interim Balance Sheet that have not yet been collected and
\nthose accounts receivable that have arisen since August 31, 1999 and have not
\nyet been collected) (i) represent valid obligations of customers of the Company
\narising from bona fide transactions entered into in the ordinary course of
\nbusiness, and (ii) are current and, except to the extent of a reserve which the
\nCompany has established specifically for doubtful accounts receivable (which
\nreserve is set forth on the Unaudited Interim Balance Sheet, is reasonable under
\nthe circumstances and is consistent with the Company’s past practice) will be
\ncollected in full when due, without any counterclaim or set off.<\/p>\n
2.8 EQUIPMENT; LEASEHOLD.<\/p>\n
(a) All material items of equipment and other tangible assets owned
\nby or leased to the Company are adequate for the uses to which they are being
\nput, are in good condition and repair (ordinary wear and tear excepted) and
\nconstitute all of the material items of<\/p>\n
-12-
\n 19<\/p>\n
equipment and other tangible assets reasonably necessary for the conduct of the
\nCompany’s business in the manner in which such business is currently being
\nconducted.<\/p>\n
(b) The Company does not own any real property or any interest in
\nreal property, except for the leasehold created under the real property lease
\nidentified in Part 2.10 of the Company Disclosure Schedule.<\/p>\n
2.9 PROPRIETARY ASSETS.<\/p>\n
(a) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth,
\nwith respect to each Company Proprietary Asset registered with any Governmental
\nBody or for which an application has been filed with any Governmental Body, (i)
\na brief description of such Proprietary Asset, and (ii) the names of the
\njurisdictions covered by the applicable registration or application. Part
\n2.9(a)(ii) of the Company Disclosure Schedule identifies and provides a brief
\ndescription of all other Company Proprietary Assets owned by the Company that
\nare material to the Company’s business. Part 2.9(a)(iii) of the Company
\nDisclosure Schedule identifies and provides a brief description of each
\nProprietary Asset licensed to the Company by any Person (except for any
\nProprietary Asset that is licensed to the Company under any third party software
\nlicense generally available to the public at a cost of less than $10,000), and
\nidentifies the license agreement under which such Proprietary Asset is being
\nlicensed to the Company. Except as set forth in Part 2.9(a)(iv) of the Company
\nDisclosure Schedule, the Company has good and valid title to all of the Company
\nProprietary Assets identified in Parts 2.9(a)(i) and 2.9(a)(ii) of the Company
\nDisclosure Schedule, free and clear of all liens and other Encumbrances other
\nthan Permitted Liens, and has a valid right to use all Proprietary Assets
\nidentified in Part 2.9(a)(iii) of the Company Disclosure Schedule. Except as set
\nforth in Part 2.9(a)(v) of the Company Disclosure Schedule, the Company is not
\nobligated to make any payment to any Person for the use of any Company
\nProprietary Asset. Except as set forth in Part 2.9(a)(vi) of the Company
\nDisclosure Schedule, the Company has not developed jointly with any other Person
\nany Company Proprietary Asset with respect to which such other Person has any
\nrights.<\/p>\n
(b) The Company has taken all reasonable steps to protect and
\nmaintain the confidentiality and secrecy of all Company Proprietary Assets and
\notherwise to maintain and protect the value of all Company Proprietary Assets.
\nExcept as set forth in Part 2.9(b) of the Company Disclosure Schedule, the
\nCompany has not (other than pursuant to license agreements identified in Part
\n2.10(a)(iii) of the Company Disclosure Schedule) disclosed or delivered to any
\nPerson, or permitted the disclosure or delivery to any Person of, the source
\ncode, or any portion or aspect of the source code, of any Company Proprietary
\nAsset.<\/p>\n
(c) None of the Company Proprietary Assets infringe or conflict with
\nany Proprietary Asset owned or used by any other Person. The Company is not
\ninfringing, misappropriating or making any unlawful use of, and the Company has
\nnot at any time infringed, misappropriated or made any unlawful use of, or
\nreceived any written notice (including written notices in electronic form) of
\nany actual, alleged, possible or potential infringement, misappropriation or
\nunlawful use of, any Proprietary Asset owned or used by any other Person. To the
\nknowledge of the Company, no other Person is infringing, misappropriating or
\nmaking<\/p>\n
-13-
\n 20<\/p>\n
any unlawful use of, and no Proprietary Asset owned or used by any other Person
\ninfringes or conflicts with, any Company Proprietary Asset.<\/p>\n
(d) Except as set forth in Part 2.9(d) of the Company Disclosure
\nSchedule: (i) each Company Proprietary Asset conforms in all material respects
\nwith any specification, documentation, performance standard, representation or
\nstatement made or provided with respect thereto by or on behalf of the Company;
\nand (ii) there has not been any written claim (including written claims in
\nelectronic form) by any customer or other Person alleging that any Company
\nProprietary Asset (including each version thereof that has ever been licensed or
\notherwise made available by the Company to any Person) does not conform in all
\nmaterial respects with any specification, documentation, performance standard,
\nrepresentation or statement made or provided by or on behalf of the Company,
\nand, to the knowledge of the Company, there is no basis for any such claim. The
\nCompany has established adequate reserves on the Unaudited Interim Balance Sheet
\nto cover all costs associated with any obligations that the Company may have
\nwith respect to the correction or repair of programming errors or other defects
\nin the Company Proprietary Assets.<\/p>\n
(e) The Company Proprietary Assets constitute all the Proprietary
\nAssets necessary to enable the Company to conduct its business in the manner in
\nwhich such business is being conducted and as presently proposed to be
\nconducted. Except as set forth in Part 2.9(e) of the Company Disclosure
\nSchedule, (i) the Company has not licensed any of the Company Proprietary Assets
\nto any Person on an exclusive basis, and (ii) the Company has not entered into
\nany covenant not to compete or Contract limiting its ability to exploit fully
\nany of its Proprietary Assets or to transact business in any market or
\ngeographical area or with any Person.<\/p>\n
(f) Except as set forth in Part 2.9(f) of the Company Disclosure
\nSchedule, (i) all current and former employees of the Company have executed and
\ndelivered to the Company an agreement (containing no exceptions to or exclusions
\nfrom the scope of its coverage) that is substantially identical to the form of
\nProprietary Information and Inventions Agreement previously delivered to Parent,
\nand (ii) all current and former consultants and independent contractors to the
\nCompany have executed and delivered to the Company an agreement (containing no
\nexceptions to or exclusions from the scope of its coverage) that is
\nsubstantially identical to the form of Consultant Proprietary Information and
\nInventions Agreement previously delivered to Parent.<\/p>\n
(g) Each item of software and hardware that has been developed by or
\nfor the Company is Year 2000 Compliant and, to the knowledge of the Company,
\neach other item of software and hardware that is owned or used by the Company is
\nYear 2000 Compliant.<\/p>\n
2.10 CONTRACTS.<\/p>\n
(a) Part 2.10(a) of the Company Disclosure Schedule identifies:<\/p>\n
(i) each Company Contract relating to the employment of, or the
\nperformance of services by, any employee, consultant or independent contractor;<\/p>\n
-14-
\n 21<\/p>\n
(ii) each Company Contract relating to the acquisition,
\ntransfer, use, development, sharing or license of any technology or any
\nProprietary Asset;<\/p>\n
(iii) each Company Contract imposing any restriction on the
\nCompany’s right or ability (A) to compete with any other Person, (B) to acquire
\nany product or other asset or any services from any other Person, to sell any
\nproduct or other asset to or perform any services for any other Person or to
\ntransact business or deal in any other manner with any other Person, or (C)
\ndevelop or distribute any technology;<\/p>\n
(iv) each Company Contract creating or involving any agency
\nrelationship, distribution arrangement or franchise relationship;<\/p>\n
(v) each Company Contract relating to the acquisition, issuance
\nor transfer of any securities;<\/p>\n
(vi) each Company Contract relating to the creation of any
\nEncumbrance with respect to any asset of the Company;<\/p>\n
(vii) each Company Contract involving or incorporating any
\nguaranty, any pledge, any performance or completion bond, any indemnity or any
\nsurety arrangement;<\/p>\n
(viii) each Company Contract creating or relating to any
\npartnership or joint venture or any sharing of revenues, profits, losses, costs
\nor liabilities;<\/p>\n
(ix) each Company Contract relating to the purchase or sale of
\nany product or other asset by or to, or the performance of any services by or
\nfor, any Related Party (as defined in Section 2.18);<\/p>\n
(x) any Company Contract that was entered into outside the
\nordinary course of business or was inconsistent with the Company’s past
\npractices and is material to the Company;<\/p>\n
(xi) any Company Contract that is material to the Company and
\nthat has a term of more than 60 days and that may not be terminated by the
\nCompany (without penalty) within 60 days after the delivery of a termination
\nnotice by the Company;<\/p>\n
(xii) any other Company Contract that is material to the
\nCompany. For purposes of this Section 2.10, “material” shall mean any Company
\nContract that contemplates or involves (A) the payment or delivery of cash or
\nother consideration in an amount or having a value in excess of $25,000 in the
\naggregate, or (B) the performance of services having a value in excess of
\n$25,000 in the aggregate. Contracts in the respective categories described in
\nclauses “(i)” through “(xii)” above are referred to in this Agreement as
\n“Material Contracts.”<\/p>\n
(b) The Company has delivered to Parent accurate and complete copies
\nof all written Contracts identified in Part 2.10(a) of the Company Disclosure
\nSchedule, including all <\/p>\n
-15-
\n 22<\/p>\n
amendments thereto. Part 2.10(a) of the Company Disclosure Schedule provides an
\naccurate description of the terms of each Material Contract that is not in
\nwritten form. Each Material Contract identified in Part 2.10(a) of the Company
\nDisclosure Schedule is valid and in full force and effect and is enforceable by
\nthe Company in accordance with its terms, subject to (i) laws of general
\napplication relating to bankruptcy, insolvency and the relief of debtors, and
\n(ii) rules of law governing specific performance, injunctive relief and other
\nequitable remedies.<\/p>\n
(c) Except as set forth in Part 2.10(c) of the Company Disclosure
\nSchedule:<\/p>\n
(i) the Company has not violated or breached, in any material
\nrespect, or committed any material default under, any Material Contract and, to
\nthe knowledge of the Company, no other Person has violated or breached, in any
\nmaterial respect, or committed any material default under, any Material
\nContract;<\/p>\n
(ii) to the knowledge of the Company, no event has occurred, and
\nno circumstance or condition exists, that (with or without notice or lapse of
\ntime) will, or could reasonably be expected to, (A) result in a material
\nviolation or breach of any of the provisions of any Material Contract, (B) give
\nany Person the right to declare a default or exercise any other material remedy
\nunder any Material Contract, (C) give any Person the right to accelerate the
\nmaturity or performance of any Material Contract, or (D) give any Person the
\nright to cancel, terminate or modify any Material Contract;<\/p>\n
(iii) the Company has not received any written notice (including
\nwritten notices in electronic form) regarding any actual or possible violation
\nor breach of, or default under, any Material Contract; and<\/p>\n
(iv) the Company has not waived any of its material rights under
\nany Material Contract.<\/p>\n
(d) No Person is renegotiating, or has a right pursuant to the terms
\nof any Company Contract to renegotiate, any amount paid or payable to the
\nCompany under any Material Contract or any other material term or provision of
\nany Material Contract.<\/p>\n
(e) The Material Contracts identified in Part 2.10(a) of the Company
\nDisclosure Schedule collectively constitute all of the Contracts reasonably
\nnecessary to enable the Company to conduct its business in the manner in which
\nits business is currently being conducted.<\/p>\n
2.11 LIABILITIES. The Company has no accrued, contingent or other
\nliabilities of any nature, either matured or unmatured (whether or not required
\nto be reflected in financial statements in accordance with generally accepted
\naccounting principles, and whether due or to become due), except for
\nliabilities: (a) identified as such in the “liabilities” column of the Unaudited
\nInterim Balance Sheet; (b) incurred by the Company since August 31, 1999 in the
\nordinary course of business and consistent with the Company’s past practices;
\n(c) under the Company Contracts identified in Part 2.10 of the Company
\nDisclosure Schedule, to the extent the <\/p>\n
-16-
\n 23<\/p>\n
nature of such liabilities can be specifically ascertained by reference to the
\ntext of such Company Contracts; and (d) identified in Part 2.11 of the Company
\nDisclosure Schedule.<\/p>\n
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
\ntimes been, in compliance with all applicable Legal Requirements, except where
\nthe failure to comply with such Legal Requirements has not had and could not
\nreasonably be expected to result in a Company Material Adverse Effect. Except as
\nset forth in Part 2.12 of the Company Disclosure Schedule, the Company has not
\nreceived any written notice (including written notices in electronic form) from
\nany Governmental Body regarding any actual or possible violation of, or failure
\nto comply with, any Legal Requirement.<\/p>\n
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Company Disclosure
\nSchedule identifies each material Governmental Authorization held by the
\nCompany, and the Company has delivered to Parent accurate and complete copies of
\nall Governmental Authorizations identified in Part 2.13 of the Company
\nDisclosure Schedule. The Governmental Authorizations identified in Part 2.13 of
\nthe Company Disclosure Schedule are valid and in full force and effect, and
\ncollectively constitute all Governmental Authorizations reasonably necessary to
\nenable the Company to conduct its business in the manner in which its business
\nis currently being conducted. The Company is, and at all times has been, in
\ncompliance with the terms and requirements of the respective Governmental
\nAuthorizations identified in Part 2.13 of the Company Disclosure Schedule,
\nexcept where the failure to comply with such Governmental Authorizations has not
\nhad and could not reasonably be expected to result in a Company Material Adverse
\nEffect. The Company has not received any notice or other communication from any
\nGovernmental Body regarding (a) any actual or possible violation of or failure
\nto comply with any term or requirement of any Governmental Authorization, or (b)
\nany actual or possible revocation, withdrawal, suspension, cancellation,
\ntermination or modification of any Governmental Authorization.<\/p>\n
2.14 TAX MATTERS.<\/p>\n
(a) All Tax Returns required to be filed by or on behalf of the
\nCompany (taking into account extensions) with any Governmental Body prior to the
\nClosing Date (the “COMPANY RETURNS”) (i) have been filed or will be filed, and
\n(ii) have been, or will be when filed, accurately and completely prepared in all
\nmaterial respects in compliance with all applicable Legal Requirements. All
\namounts shown on the Company Returns to be due on or before the Closing Date
\nhave been or will be paid on or before the Closing Date. The Company has
\ndelivered to Parent accurate and complete copies of all Company Returns which
\nhave been requested by Parent.<\/p>\n
(b) The Company Financial Statements fully accrue all actual and
\ncontingent liabilities for Taxes with respect to all periods through the dates
\nthereof in accordance with generally accepted accounting principles. The Company
\nwill establish, in the ordinary course of business and consistent with its past
\npractices, reserves adequate for the payment of all Taxes for the period from
\nAugust 31, 1999 through the Closing Date.<\/p>\n
-17-
\n 24<\/p>\n
(c) Except as set forth in Part 2.14 of the Company Disclosure
\nSchedule, there have been no examinations or audits of any Company Return. The
\nCompany has delivered to Parent accurate and complete copies of all audit
\nreports and similar documents (to which the Company has access) relating to the
\nCompany Returns. Except as set forth in Part 2.14 of the Company Disclosure
\nSchedule, no extension or waiver of the limitation period applicable to any of
\nthe Company Returns has been granted that is still in effect (by the Company or
\nany other Person), and no request for such extension or waiver from the Company
\nis pending.<\/p>\n
(d) Except as set forth in Part 2.14 of the Company Disclosure
\nSchedule, no claim or Legal Proceeding is pending or has been threatened against
\nor with respect to the Company in respect of any Tax. There are no unsatisfied
\nliabilities for Taxes with respect to any notice of deficiency or similar
\ndocument received by the Company with respect to any Tax (other than liabilities
\nfor Taxes asserted under any such notice of deficiency or similar document which
\nare being contested in good faith by the Company and with respect to which
\nadequate reserves for payment have been established). There are no liens for
\nTaxes upon any of the assets of the Company except liens for current Taxes not
\nyet due and payable. The Company has not entered into or become bound by any
\nagreement or consent pursuant to Section 341(f) of the Code. The Company has not
\nbeen, and the Company will not be, required to include any adjustment in taxable
\nincome for any tax period (or portion thereof) pursuant to Section 481 or 263A
\nof the Code or any comparable provision under state or foreign Tax laws as a
\nresult of transactions or events occurring, or accounting methods employed,
\nprior to the Closing.<\/p>\n
(e) Except as set forth in Part 2.14 of the Company Disclosure
\nSchedule, there is no agreement, plan, arrangement or other Contract covering
\nany employee or independent contractor or former employee or independent
\ncontractor of the Company that, considered individually or considered
\ncollectively with any other such Contracts, will, or could reasonably be
\nexpected to, give rise directly or indirectly to the payment of any amount that
\nwould not be deductible pursuant to Section 280G or Section 162 of the Code. The
\nCompany is not liable for the Taxes of any other Person.<\/p>\n
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.<\/p>\n
(a) Part 2.15(a) of the Company Disclosure Schedule identifies each
\nsalary, bonus, deferred compensation, incentive compensation, stock purchase,
\nstock option, severance pay, termination pay, hospitalization, medical, life or
\nother insurance, supplemental unemployment benefits, profit-sharing, pension or
\nretirement plan, program or agreement (collectively, the “PLANS”) sponsored,
\nmaintained, contributed to or required to be contributed to by the Company for
\nthe benefit of any employee of the Company (“EMPLOYEE”), except for Plans which
\nwould not require the Company to make payments or provide benefits having a
\nvalue in excess of $25,000 in the aggregate.<\/p>\n
(b) Except as set forth in Part 2.15(a) of the Company Disclosure
\nSchedule, the Company does not maintain, sponsor or contribute to, and, to the
\nknowledge of the Company, has not at any time in the past maintained, sponsored
\nor contributed to, any employee pension benefit plan (as defined in Section 3(2)
\nof the Employee Retirement Income Security Act of <\/p>\n
-18-
\n 25<\/p>\n
1974, as amended (“ERISA”), whether or not excluded from coverage under specific
\nTitles or Merger Subtitles of ERISA) for the benefit of Employees or former
\nEmployees (a “PENSION PLAN”).<\/p>\n
(c) The Company maintains, sponsors or contributes only to those
\nemployee welfare benefit plans (as defined in Section 3(1) of ERISA) for the
\nbenefit of Employees or former Employees which are described in Part 2.15(c) of
\nthe Company Disclosure Schedule (the “WELFARE PLANS”), none of which is a
\nmultiemployer plan (within the meaning of Section 3(37) of ERISA).<\/p>\n
(d) With respect to each Plan, the Company has delivered to Parent:<\/p>\n
(i) an accurate and complete copy of such Plan (including all
\namendments thereto);<\/p>\n
(ii) an accurate and complete copy of the annual report, if
\nrequired under ERISA, with respect to such Plan for the last two years;<\/p>\n
(iii) an accurate and complete copy of the most recent summary
\nplan description, together with each Summary of Material Modifications, if
\nrequired under ERISA, with respect to such Plan, and all material employee
\ncommunications relating to such Plan;<\/p>\n
(iv) if such Plan is funded through a trust or any third party
\nfunding vehicle, an accurate and complete copy of the trust or other funding
\nagreement (including all amendments thereto) and accurate and complete copies
\nthe most recent financial statements thereof;<\/p>\n
(v) accurate and complete copies of all Contracts relating to
\nsuch Plan, including service provider agreements, insurance contracts, minimum
\npremium contracts, stop-loss agreements, investment management agreements,
\nsubscription and participation agreements and recordkeeping agreements; and<\/p>\n
(vi) an accurate and complete copy of the most recent
\ndetermination letter received from the Internal Revenue Service with respect to
\nsuch Plan (if such Plan is intended to be qualified under Section 401(a) of the
\nCode).<\/p>\n
(e) The Company is not required to be, and, to the knowledge of the
\nCompany, has never been required to be, treated as a single employer with any
\nother Person under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or
\n(o) of the Code. The Company has never been a member of an “affiliated service
\ngroup” within the meaning of Section 414(m) of the Code. To the knowledge of the
\nCompany, the Company has never made a complete or partial withdrawal from a
\nmultiemployer plan, as such term is defined in Section 3(37) of ERISA, resulting
\nin “withdrawal liability,” as such term is defined in Section 4201 of ERISA
\n(without regard to subsequent reduction or waiver of such liability under either
\nSection 4207 or 4208 of ERISA).<\/p>\n
-19-
\n 26<\/p>\n
(f) The Company does not have any plan or commitment to create any
\nadditional Welfare Plan or any Pension Plan, or to modify or change any existing
\nWelfare Plan or Pension Plan (other than to comply with applicable law) in a
\nmanner that would affect any Employee.<\/p>\n
(g) Except as set forth in Part 2.15(g) of the Company Disclosure
\nSchedule, no Welfare Plan provides death, medical or health benefits (whether or
\nnot insured) with respect to any current or former Employee after any such
\nEmployee’s termination of service (other than (i) benefit coverage mandated by
\napplicable law, including coverage provided pursuant to Section 4980B of the
\nCode, (ii) deferred compensation benefits accrued as liabilities on the
\nUnaudited Interim Balance Sheet, and (iii) benefits the full cost of which are
\nborne by current or former Employees (or the Employees’ beneficiaries)).<\/p>\n
(h) With respect to each of the Welfare Plans constituting a group
\nhealth plan within the meaning of Section 4980B(g)(2) of the Code, to the
\nknowledge of the Company, the provisions of Section 4980B of the Code (“COBRA”)
\nhave been complied with in all material respects.<\/p>\n
(i) To the knowledge of the Company, each of the Plans has been
\noperated and administered in all material respects in accordance with applicable
\nLegal Requirements, including but not limited to ERISA and the Code.<\/p>\n
(j) Each of the Plans intended to be qualified under Section 401(a)
\nof the Code has received a favorable determination from the Internal Revenue
\nService or has time remaining in which to apply for such favorable determination
\nwithin the remedial amendment period under Section 401(b) of the Code and the
\nregulations thereunder, and the Company is not aware of any reason why any such
\ndetermination letter should be revoked or denied.<\/p>\n
(k) Except as set forth in Part 2.15(k) of the Company Disclosure
\nSchedule, neither the execution, delivery or performance of this Agreement, nor
\nthe consummation of the Merger or any of the other transactions contemplated by
\nthis Agreement, will result in any payment (including any bonus, golden
\nparachute or severance payment) to any current or former Employee or director of
\nthe Company (whether or not under any Plan), or materially increase the benefits
\npayable under any Plan, or result in any acceleration of the time of payment or
\nvesting of any such benefits.<\/p>\n
(l) Part 2.15(l) of the Company Disclosure Schedule contains a list
\nof all salaried employees of the Company as of the date of this Agreement, and
\ncorrectly reflects, in all material respects, their salaries, any other
\ncompensation payable to them (including compensation payable pursuant to bonus,
\ndeferred compensation or commission arrangements), their dates of employment and
\ntheir positions. The Company is not a party to any collective bargaining
\ncontract or other Contract with a labor union involving any of its Employees.
\nAll of the Company’s employees are “at will” employees.<\/p>\n
-20-
\n 27<\/p>\n
(m) Part 2.15(m) of the Company Disclosure Schedule identifies each
\nEmployee who is not fully available to perform work because of disability or
\nother leave and sets forth the basis of such leave and the anticipated date of
\nreturn to full service.<\/p>\n
(n) To the knowledge of the Company, the Company is in compliance in
\nall material respects with all applicable Legal Requirements and Contracts
\nrelating to employment, employment practices, wages, bonuses and terms and
\nconditions of employment, including employee compensation matters.<\/p>\n
(o) Except as set forth in Part 2.15(o) of the Company Disclosure
\nSchedule, to the knowledge of the Company, the Company has good labor relations
\nand (i) the consummation of the Merger or any of the other transactions
\ncontemplated by this Agreement could not reasonably be expected to result in a
\nmaterial adverse effect on the Company’s labor relations, and (ii) none of the
\nCompany’s employees intends to terminate his or her employment with the Company
\nas a result of the Merger.<\/p>\n
2.16 ENVIRONMENTAL MATTERS. The Company is in compliance with all
\napplicable Environmental Laws, which compliance includes the possession by the
\nCompany of all permits and other Governmental Authorizations required under
\napplicable Environmental Laws, and compliance with the terms and conditions
\nthereof, except where the failure to comply with such Environmental Laws has not
\nhad and could not reasonably be expected to result in a Company Material Adverse
\nEffect. The Company has not received any written notice (including written
\nnotices in electronic form), whether from a Governmental Body, citizens group,
\nemployee or otherwise, that alleges that the Company is not in compliance with
\nany Environmental Law and, to the knowledge of the Company, there are no
\ncircumstances that may prevent or interfere with the Company’s compliance with
\nany Environmental Law in the future. To the knowledge of the Company, no current
\nor prior owner of any property leased or controlled by the Company has received
\nany notice or other communication (in writing or otherwise), whether from a
\nGovernment Body, citizens group, employee or otherwise, that alleges that such
\ncurrent or prior owner or the Company is not in compliance with any
\nEnvironmental Law. All Governmental Authorizations currently held by the Company
\npursuant to Environmental Laws are identified in Part 2.16 of the Company
\nDisclosure Schedule. For purposes of this Section 2.16: (i) “Environmental Law”
\nmeans any federal, state, local or foreign Legal Requirement relating to
\npollution or protection of human health or the environment (including ambient
\nair, surface water, ground water, land surface or subsurface strata), including
\nany law or regulation relating to emissions, discharges, releases or threatened
\nreleases of Materials of Environmental Concern, or otherwise relating to the
\nmanufacture, processing, distribution, use, treatment, storage, disposal,
\ntransport or handling of Materials of Environmental Concern; and (ii) “Materials
\nof Environmental Concern” include chemicals, pollutants, contaminants, wastes,
\ntoxic substances, petroleum and petroleum products and any other substance that
\nis regulated by any Environmental Law.<\/p>\n
2.17 INSURANCE. Part 2.17 of the Company Disclosure Schedule identifies
\nall insurance policies maintained by, at the expense of or for the benefit of
\nthe Company and identifies any material claims made thereunder, and the Company
\nhas delivered to Parent <\/p>\n
-21-
\n 28<\/p>\n
accurate and complete copies of the insurance policies identified on Part 2.17
\nof the Company Disclosure Schedule. Each of the insurance policies identified in
\nPart 2.17 of the Company Disclosure Schedule is in full force and effect. The
\nCompany has not received any notice or other communication regarding any actual
\nor possible (a) cancellation or invalidation of any insurance policy, (b)
\nrefusal of any coverage or rejection of any claim under any insurance policy, or
\n(c) material adjustment in the amount of the premiums payable with respect to
\nany insurance policy.<\/p>\n
2.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.18 of the
\nCompany Disclosure Schedule, to the knowledge of the Company: (a) no Related
\nParty has, and no Related Party has at any time had, any direct or indirect
\ninterest in any material asset used in or otherwise relating to the business of
\nthe Company; (b) no Related Party is, or has at any time been, indebted to the
\nCompany; (c) no Related Party has entered into, or has had any direct or
\nindirect financial interest in, any Material Contract, transaction or business
\ndealing involving the Company; (d) no Related Party is competing, or has at any
\ntime competed, directly or indirectly, with the Company; and (e) no Related
\nParty has any claim or right against the Company (other than rights under
\nCompany Options and rights to receive compensation for services performed as an
\nemployee of the Company). For purposes of this Agreement each of the following
\nshall be deemed to be a “Related Party”: (i) each of the Shareholders; (ii) each
\nindividual who is an officer of the Company; (iii) each member of the immediate
\nfamily of each of the individuals referred to in clauses (i) and (ii) above; and
\n(iv) any trust or other Entity (other than the Company) in which any one of the
\nindividuals referred to in clauses (i), (ii) and (iii) above holds (or in which
\nmore than one of such individuals collectively hold), beneficially or otherwise,
\na material voting, proprietary or equity interest.<\/p>\n
2.19 LEGAL PROCEEDINGS; ORDERS.<\/p>\n
(a) Except as set forth in Part 2.19(a) of the Company Disclosure
\nSchedule, there is no pending Legal Proceeding and, to the knowledge of the
\nCompany, no Person has threatened to commence any Legal Proceeding: (i) that
\ninvolves the Company or any of the assets owned or used by the Company or any
\nPerson whose liability the Company has retained or assumed, either contractually
\nor by operation of law; or (ii) that challenges, or that may have the effect of
\npreventing, delaying, making illegal or otherwise interfering with, the Merger
\nor any of the other transactions contemplated by this Agreement. To the
\nknowledge of the Company, except as set forth in Part 2.19(a) of the Company
\nDisclosure Schedule, no event has occurred, and no claim, dispute or other
\ncondition or circumstance exists, that will, or that could reasonably be
\nexpected to, give rise to or serve as a basis for the commencement of any such
\nLegal Proceeding.<\/p>\n
(b) Except as set forth in Part 2.19(b) of the Company Disclosure
\nSchedule, no Legal Proceeding has ever been commenced by or has ever been
\npending against the Company.<\/p>\n
(c) There is no order, writ, injunction, judgment or decree to which
\nthe Company, or any of the assets owned or used by the Company, is subject. To
\nthe knowledge of<\/p>\n
-22-
\n 29<\/p>\n
the Company, no officer or other employee of the Company is subject to any
\norder, writ, injunction, judgment or decree that prohibits such officer or other
\nemployee from engaging in or continuing any conduct, activity or practice
\nrelating to the Company’s business.<\/p>\n
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the
\nabsolute and unrestricted right, power and authority to enter into and, subject
\nonly to the approval by the Company’s shareholders of this Agreement, the Merger
\nand each Related Agreement to which the Company is a party, to perform its
\nobligations under this Agreement and each Related Agreement to which the Company
\nis a party and the transactions contemplated hereby and thereby; and the
\nexecution, delivery and, subject only to the approval by the Company’s
\nshareholders of this Agreement and the Merger, performance by the Company of
\nthis Agreement has been duly authorized by all necessary action on the part of
\nthe Company and its board of directors. This Agreement constitutes a legal,
\nvalid and binding obligation of the Company, enforceable against the Company in
\naccordance with its terms, and the Related Agreements to which the Company is a
\nparty, when executed and delivered by the company, shall be legal, valid and
\nbinding obligations of the Company, enforceable against the Company in
\naccordance with their respective terms, subject to (i) laws of general
\napplication relating to bankruptcy, insolvency and the relief of debtors, and
\n(ii) rules of law governing specific performance, injunctive relief and other
\nequitable remedies.<\/p>\n
2.21 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.21 of
\nthe Company Disclosure Schedule and subject to the approval of this Agreement
\nand the Merger by the Company’s shareholders, neither (1) the execution,
\ndelivery or performance of this Agreement or any of the other agreements
\nreferred to herein or therein, nor (2) the consummation of the Merger or any of
\nthe other transactions contemplated by this Agreement, will directly or
\nindirectly (with or without notice or lapse of time):<\/p>\n
(a) contravene, conflict with or result in a violation of (i) any of
\nthe provisions of the Company’s articles of incorporation or bylaws, or (ii) any
\ncurrently effective resolution adopted by the Company’s shareholders, the
\nCompany’s board of directors or any committee of the Company’s board of
\ndirectors;<\/p>\n
(b) contravene, conflict with or result in a violation of, or give
\nany Governmental Body or other Person the right to challenge any of the
\ntransactions contemplated by this Agreement or to exercise any remedy or obtain
\nany relief under, any Legal Requirement or any order, writ, injunction, judgment
\nor decree to which the Company, or any of the assets owned or used by the
\nCompany, is subject, other than such contravention, conflict, violation or right
\nto exercise any remedy that could not be reasonably likely to result in a
\nCompany Material Adverse Effect;<\/p>\n
(c) give any Governmental Body or other Person the right to
\nchallenge any of the transactions contemplated by this Agreement;<\/p>\n
(d) contravene, conflict with or result in a violation of any of the
\nterms or requirements of, or give any Governmental Body the right to revoke,
\nwithdraw, suspend, cancel, terminate or modify, any Governmental Authorization
\nthat is held by the Company or that <\/p>\n
-23-
\n 30<\/p>\n
otherwise relates to the Company’s business or to any of the assets owned or
\nused by the Company, other than any such contravention, conflict, violation or
\nright to revoke, withdraw, suspend, cancel, terminate or modify any such
\nGovernmental Authorization which could not reasonably be expected to result in a
\nCompany Material Adverse Effect;<\/p>\n
(e) contravene, conflict with or result in a violation or breach of,
\nor result in a default under, any provision of any Material Contract, or give
\nany Person the right to (i) declare a default or exercise any remedy under any
\nsuch Material Contract, (ii) accelerate the maturity or performance of any such
\nMaterial Contract, or (iii) cancel, terminate or modify any such Material
\nContract; or<\/p>\n
(f) result in the imposition or creation of any lien or other
\nEncumbrance upon or with respect to any asset owned or used by the Company
\n(except for minor liens, pledges, hypothecations, charges, mortgage, and
\nsecurity interests that will not, individually or in the aggregate, materially
\ndetract from the value of the assets subject thereto or materially impair the
\noperations of the Company).<\/p>\n
Except as set forth in Part 2.21 of the Company Disclosure Schedule and except
\nfor (i) the filing of the Agreement of Merger with the Washington Secretary of
\nState and appropriate documents in other states where the Company is qualified
\nto do business, and (ii) obtaining the approval by the Company’s shareholders of
\nthis Agreement and the Merger, the Company is not and will not be required to
\nmake any filing with or give any notice to, or to obtain any Consent from, any
\nPerson in connection with (x) the execution, delivery or performance of this
\nAgreement or any of the other agreements referred to in this Agreement, or (y)
\nthe consummation of the Merger or any of the other transactions contemplated by
\nthis Agreement.<\/p>\n
2.22 BROKERS. The Company has not, nor have any of its directors,
\nofficers, securityholders or employees, employed any broker or finder (other
\nthan Broadview International LLC) or incurred any liability (other than to
\nBroadview International LLC) for any brokerage fees, commissions or finders’
\nfees in connection with the transactions contemplated hereby. The Company has
\npreviously furnished to Parent a complete and correct copy of all agreements
\nbetween the Company and Broadview International LLC pursuant to which such firm
\nwould be entitled to any payment relating to the transactions contemplated by
\nthis Agreement (collectively, the “BROADVIEW EXPENSES”).<\/p>\n
2.23 POOLING MATTERS. Neither the Company nor any of its Affiliates has,
\nto its knowledge and based upon consultation with its independent accountants,
\ntaken or agreed to take any action that (without giving effect to any action
\ntaken or agreed to be taken by Parent or any of its Affiliates) would affect the
\nability of Parent to account for the business combination to be effected by the
\nMerger as a pooling of interests.<\/p>\n
-24-
\n 31<\/p>\n
2.24 FINANCIAL PERFORMANCE. During the period from July 1, 1999 to
\nSeptember 10, 1999, the Company received binding customer orders arising from
\nbona fide transactions entered into in the ordinary course of business in an
\naggregate amount of at least $1,298,000.<\/p>\n
2.25 COMPLIANCE WITH THE HART-SCOTT-RODINO ACT. The Company’s total
\nassets and annual net sales do not exceed $10,000,000 within the meaning of, and
\ncalculated in accordance with, the Hart-Scott-Rodino Antitrust Improvements Act
\nof 1976, as amended, Section 7A(a)(3) of the Clayton Act, 15 U.S.C. Section 18A,
\nand the regulations promulgated thereunder.<\/p>\n
2.26 FULL DISCLOSURE.<\/p>\n
(a) This Agreement (including the Company Disclosure Schedule) does
\nnot, and the Officer’s Closing Certificate will not, (i) contain any
\nrepresentation, warranty or information that is false or misleading with respect
\nto any material fact, or (ii) omit to state any material fact necessary in order
\nto make the representations, warranties and information contained and to be
\ncontained herein and therein (in the light of the circumstances under which such
\nrepresentations, warranties and information were or will be made or provided)
\nnot false or misleading.<\/p>\n
(b) In the event that information regarding the Merger is prepared
\nby the Company and distributed to its shareholders, such information will not
\ncontain any statement that is inaccurate or misleading with respect to any
\nmaterial fact.<\/p>\n
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS<\/p>\n
Each of the Shareholders, severally (and not jointly), represents and
\nwarrants to Parent and Merger Sub with respect to himself, herself or itself as
\nfollows:<\/p>\n
3.1 TITLE; ABSENCE OF CERTAIN AGREEMENTS. Such Shareholder is the lawful
\nand record and beneficial owner of, and has good and valid title to, the shares
\nof Company Stock set forth opposite the name of such Shareholder in Part 2.3(a)
\nof the Company Disclosure Schedule, with the full power and authority to vote
\nsuch shares and transfer and otherwise dispose of such shares, and any and all
\nrights and benefits incident to the ownership thereof free and clear of all
\nEncumbrances. Except as set forth in Part 3.1 of the Company Disclosure
\nSchedule, there are no agreements or understandings between such Shareholder and
\nthe Company and\/or any other Shareholder or any other person with respect to the
\nvoting, sale or other disposition of Company Common Stock or any other matter
\nrelating to Company Stock.<\/p>\n
3.2 AUTHORITY. Such Shareholder has full and absolute power and
\nauthority to enter into this Agreement and each Related Agreement to which such
\nShareholder is a party and this Agreement and each Related Agreement to which
\nsuch Shareholder is a party have been duly executed and delivered by such
\nShareholder, and are valid and binding obligations of such Shareholder,
\nenforceable against such Shareholder in accordance with their respective terms,
\nsubject to (i) laws of general application relating to bankruptcy, insolvency
\nand the relief of debtors, and (ii) rules of law governing specific performance,
\ninjunctive relief and other equitable remedies. Neither the execution, delivery
\nand performance of this Agreement or any Related <\/p>\n
-25-
\n 32<\/p>\n
Agreement to which such Shareholder is a party, nor the consummation of the
\ntransactions contemplated hereby or thereby nor compliance by such Shareholder
\nwith any of the provisions hereof or thereof will (i) (A) conflict with, (B)
\nresult in any violations of, (C) cause a default under (with or without due
\nnotice, lapse of time or both), (D) give rise to any right of termination,
\namendment, cancellation or acceleration of any obligation contained in or the
\nloss of any material benefit under or (E) result in the creation of any
\nEncumbrance upon or against any assets, rights or property of the Company (or
\nagainst any Company Stock, Parent capital stock or common stock of the Surviving
\nCorporation), under any term, condition or provision of (x) any agreement or
\ninstrument to which such Shareholder is a party, or by which such Shareholder or
\nany of his, her or its properties, assets or rights may be bound, or (y) any
\nlaw, statute, rule, regulation, order, writ, injunction, decree, permit,
\nconcession, license or franchise of any Governmental Body applicable to such
\nShareholder or any of his, her or its properties, assets or rights, which
\nconflict, breach, default or violation or other event would prevent the
\nconsummation of the transactions contemplated by this Agreement or any Related
\nAgreement. No permit, authorization, consent or approval of or by, or any
\nnotification of or filing with, any Governmental Body or other person is
\nrequired in connection with the execution, delivery and performance by such
\nShareholder of this Agreement and each Related Agreement to which such
\nShareholder is a party or the consummation by such Shareholder of the
\ntransactions contemplated hereby or thereby.<\/p>\n
3.3 INVESTMENT REPRESENTATIONS. Such Shareholder:<\/p>\n
(a) is acquiring the Parent Common Stock being issued to such
\nShareholder in connection with the Merger (the “MERGER SHARES”) for investment
\nand for such Shareholder’s own account and not as a nominee or agent for any
\nother person and with no present intention of distributing or reselling such
\nshares or any part thereof in any transactions that would be in violation of the
\nSecurities Act or any state securities or “blue-sky” laws;<\/p>\n
(b) understands (A) that the Parent Common Stock to be issued to
\nhim, her or it have not been registered for sale under the Securities Act or any
\nstate securities or “blue-sky” laws in reliance upon exemptions therefrom, which
\nexemptions depend upon, among other things, the bona fide nature of the
\ninvestment intent of such Shareholder as expressed herein, (B) that such Merger
\nShares must be held indefinitely and not sold until such shares are registered
\nunder the Securities Act and any applicable state securities or “blue-sky” laws,
\nunless an exemption from such registration is available, (C) that, except as
\nprovided in the Investor Rights Agreement (as defined in Section 7.5(n) below),
\nParent is under no obligation to register such Merger Shares and (D) that the
\ncertificates evidencing such Merger Shares will be imprinted with a legend in
\nthe form set forth in Section 11.1 that prohibits the transfer of such shares,
\nexcept as provided in Section 11.1;<\/p>\n
(c) has been furnished with, and has read and reviewed, the Parent’s
\nSEC Documents;<\/p>\n
-26-
\n 33<\/p>\n
(d) has had an opportunity to ask questions of and has received
\nsatisfactory answers from the officers of Parent or persons acting on Parent’s
\nbehalf concerning Parent and the terms and conditions of an investment in Parent
\nCommon Stock;<\/p>\n
(e) is aware of Parent’s business affairs and financial condition
\nand has acquired sufficient information about Parent to reach an informed and
\nknowledgeable decision to acquire the Merger Shares to be issued to such
\nShareholder;<\/p>\n
(f) can afford to suffer a complete loss of his, her or its
\ninvestment in such Merger Shares;<\/p>\n
(g) is familiar with the provisions of Rule 144 promulgated under
\nthe Securities Act which, in substance, permits limited public resale of
\n“restricted securities” acquired, directly or indirectly, from the issuer
\nthereof, in a non-public offering subject to the satisfaction of certain
\nrequirements, including, among other things: (A) the availability of certain
\npublic information about the issuer, (B) the resale occurring not less than one
\nyear after the party has purchased, and made full payment for, within the
\nmeaning of Rule 144, the securities to be sold; and, in the case of an
\naffiliate, or of a non-affiliate who has held the securities less than two
\nyears, the amount of securities being sold during any three month period not
\nexceeding the specified limitations stated therein, and (C) the sale being made
\nthrough a broker in an unsolicited “broker’s transaction” or in transactions
\ndirectly with a “market maker” (as such term is defined under the Exchange Act);<\/p>\n
(h) understands that in the event all of the applicable requirements
\nof Rule 144 are not satisfied, registration under the Securities Act, compliance
\nwith Regulation A, or some other registration exemption will be required; and
\nthat, notwithstanding the fact that Rule 144 is not exclusive, the staff of the
\nSEC has expressed its opinion that persons proposing to sell private placement
\nsecurities other than in a registered offering and otherwise than pursuant to
\nRule 144 will have a substantial burden of proof in establishing that an
\nexemption from registration is available for such offers or sales, and that such
\npersons and their respective brokers who participate in such transactions do so
\nat their own risk;<\/p>\n
(i) has such knowledge and experience in financial and business
\nmatters that he, she or it is capable of evaluating the merits and risks of
\nacquiring and holding the shares of Parent Common Stock to be issued in
\nconnection with the Merger; and<\/p>\n
(j) except as set forth in Part 3.3(j) of the Company Disclosure
\nSchedule, is an “accredited investor” within the meaning of Rule 501(a) under
\nthe Securities Act.<\/p>\n
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB<\/p>\n
Parent and Merger Sub jointly and severally represent and warrant to the
\nCompany and the Shareholders as follows:<\/p>\n
-27-
\n 34<\/p>\n
4.1 ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. Each of Parent
\nand Merger Sub (i) is a corporation duly organized, validly existing and in good
\nstanding under the laws of its respective state of incorporation and (ii) has
\nall requisite corporate power and corporate authority to own, lease and operate
\nits properties and assets and to carry on its business as now being conducted,
\nto enter into this Agreement and each Related Agreement to which it is a party,
\nto perform its obligations hereunder and thereunder and to consummate the
\ntransactions contemplated hereby or thereby. Parent has delivered to the Company
\ntrue and correct copies of Parent’s Certificate of Incorporation and Bylaws and
\nMerger Sub’s Articles of Incorporation and Bylaws, each as amended to date.
\nNeither Parent nor any of its subsidiaries is in violation of any material
\nprovisions of its Certificate of Incorporation or Bylaws or equivalent
\norganizational documents.<\/p>\n
4.2 PARENT CAPITALIZATION. The authorized capital stock of Parent
\nconsists of 75,000,000 shares of Common Stock, $.001 par value per share, of
\nwhich 21,874,844 shares were issued and outstanding as of the close of business
\non August 31, 1999, and 5,000,000 shares of Preferred Stock, $.001 par value per
\nshare, of which no shares were issued and outstanding as of the close of
\nbusiness on August 31, 1999. As of the close of business on August 31, 1999,
\nParent had reserved (a) 6,330,000 shares of Common Stock for issuance to
\nemployees and independent contractors pursuant to Parent’s 1996 Stock Option
\nPlan (the “PARENT EMPLOYEE STOCK OPTION PLAN”), of which, as of August 31, 1999,
\n4,073,942 shares had been issued pursuant to option exercises and 1,375,774
\nshares were subject to outstanding, unexercised options and (b) 250,000 shares
\nof Common Stock for issuance to directors pursuant to Parent’s 1999 Directors’
\nStock Option Plan (the “PARENT DIRECTORS STOCK OPTION PLAN”), of which, as of
\nAugust 31, 1999, no shares had been issued pursuant to option exercises and
\n50,000 shares were subject to outstanding, unexercised options. As of August 31,
\n1999, 20,000 shares of Common Stock were issuable pursuant to an outstanding
\nwarrant. There are no other outstanding shares of capital stock or voting
\nsecurities of Parent other than shares of Parent Common Stock issued after the
\ndate of this Agreement upon the exercise of options issued under the Parent
\nEmployee Stock Option Plan or the Parent Directors Stock Option Plan. Other than
\nas contemplated under this Agreement, there are no other options, warrants,
\ncalls, rights, commitments or agreements of any character to which Parent or
\nMerger Sub is a party or by which either of them is bound obligating Parent or
\nMerger Sub to issue, deliver, sell, repurchase or redeem, or cause to be issued,
\ndelivered, sold, repurchased or redeemed, any shares of the capital stock of
\nParent or Merger Sub or obligating Parent or Merger Sub to grant, extend or
\nenter into any such option, warrant, call, right, commitment or agreement.<\/p>\n
4.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.<\/p>\n
(a) The execution and delivery of this Agreement and the Related
\nAgreements do not, and the consummation of the transactions contemplated hereby
\nwill not, conflict with, or result in any violation of, or default under (with
\nor without notice or lapse of time, or both), or give rise to a right of
\ntermination, cancellation or acceleration of any obligation or loss of a benefit
\nunder (i) any provision of the Certificate of Incorporation or Bylaws of Parent
\nor the Articles of Incorporation of Bylaws of Merger Sub, as amended, or (ii)
\nany material mortgage, indenture, lease, contract or other material agreement or
\ninstrument, permit, concession, <\/p>\n
-28-
\n 35<\/p>\n
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
\nregulation applicable to Parent or Merger Sub or their properties or assets.<\/p>\n
(b) No consent, approval, order or authorization of, or
\nregistration, declaration or filing with, any Governmental Body, is required by
\nor with respect to Parent or Merger Sub in connection with the execution and
\ndelivery of this Agreement by Parent and Merger Sub or the consummation by
\nParent and Merger Sub of the transactions contemplated hereby, except for (i)
\nthe filing of appropriate merger documents as required by Washington law, (ii)
\nthe filing of a Form 8-K with the SEC and National Association of Securities
\nDealers (“NASD”) within 15 days after the Closing Date, (iii) any filings as may
\nbe required under applicable state securities laws and the securities laws of
\nany foreign country and (iv) the filing with the Nasdaq National Market of a
\nNotification Form for Listing of Additional Shares with respect to the shares of
\nParent Common Stock to be issued to the Shareholders in connection with the
\nMerger and upon exercise of the options under the Company Stock Option Plan
\nassumed by Parent, and (vi) such other consents, authorizations, filings,
\napprovals and registrations which, if not obtained or made, would not have a
\nParent Material Adverse Effect and would not prevent, materially alter or
\nmaterially delay any the transactions contemplated by this Agreement.<\/p>\n
4.4 SEC FILINGS; FINANCIAL STATEMENTS.<\/p>\n
(a) Parent has delivered to the Company accurate and complete copies
\nof each report, registration statement (on a form other than Form S-8 or 8-A)
\nand definitive proxy statement filed by Parent with the SEC between May 1, 1999
\nand the date of this Agreement, which are all the documents (other than
\npreliminary material) that Parent was required to file (or otherwise did file)
\nwith the SEC in accordance with Section 6(a) of the Securities Act or Sections
\n13, 14 and 15(d) of the Exchange Act since May 1, 1999 (collectively, the
\n“PARENT’S SEC DOCUMENTS”). As of the time it was filed with the SEC (or, if
\namended or superseded by a filing prior to the date of this Agreement, then on
\nthe date of such filing): (i) each of the Parent’s SEC Documents complied in all
\nmaterial respects with the applicable requirements of the Securities Act or the
\nExchange Act, as the case may be, and the rules and regulations promulgated by
\nthe SEC thereunder; and (ii) none of the Parent’s SEC Documents contained any
\nuntrue statement of a material fact or omitted to state a material fact required
\nto be stated therein or necessary in order to make the statements therein, in
\nthe light of the circumstances under which they were made, not misleading.<\/p>\n
(b) The financial statements (including the notes thereto) contained
\nin the Parent’s SEC Documents: (i) complied as to form in all material respects
\nwith the published rules and regulations of the SEC applicable thereto; (ii)
\nwere prepared in accordance with generally accepted accounting principles
\napplied on a consistent basis throughout the periods covered, except as may be
\nindicated in the notes to such financial statements and (in the case of
\nunaudited statements) as permitted by Form 10-Q of the SEC, and except that
\nunaudited financial statements may not contain footnotes and are subject to
\nnormal and recurring year-end audit adjustments, which will not, individually or
\nin the aggregate, be material in magnitude; and (iii) fairly present in all
\nmaterial respects the financial position of Parent as of the respective dates
\nthereof and the results of operations, shareholders’ equity and cash flows of
\nParent for the <\/p>\n
-29-
\n 36<\/p>\n
periods covered thereby. There has been no material change in Parent’s
\naccounting policies except as described in the notes to the financial statements
\nincluded as part of Parent’s final Prospectus dated July 30, 1999.<\/p>\n
4.5 ABSENCE OF UNDISCLOSED LIABILITIES. Parent has no material
\nobligations or liabilities of any nature (matured or unmatured, fixed or
\ncontingent) other than (i) those set forth or adequately provided for in the
\nbalance sheet included in Parent’s Quarterly Report on Form 10-Q heretofore
\nprovided to the Company for the period ended June 30, 1999 (the “PARENT BALANCE
\nSHEET”), (ii) those incurred in the ordinary course of business and not required
\nto be set forth in the Parent Balance Sheet under United States generally
\naccepted accounting principles, and (iii) those incurred in the ordinary course
\nof business since the Parent Balance Sheet Date and consistent with past
\npractice.<\/p>\n
4.6 ABSENCE OF CERTAIN CHANGES. Since June 30, 1999 (the “PARENT BALANCE
\nSHEET DATE”), Parent has conducted its business in the ordinary course in a
\nmanner consistent with past practice and there has not occurred: (i) any change,
\nevent or condition (whether or not covered by insurance) that has resulted in,
\nor might reasonably be expected to result in, a Parent Material Adverse Effect;
\n(ii) any declaration, setting aside, or payment of a dividend or other
\ndistribution with respect to the shares of Parent, or any direct or indirect
\nredemption, purchase or other acquisition by Parent of any of its shares of
\ncapital stock; (iii) any material amendment or change to Parent’s Certificate of
\nIncorporation or Bylaws; or (iv) any negotiation or agreement by Parent to do
\nany of the things described in the preceding clauses (i) through (iii) (other
\nthan negotiations with the Company and its representatives regarding the
\ntransactions contemplated by this Agreement).<\/p>\n
4.7 LITIGATION. There is no private or governmental action, suit,
\nproceeding, claim, arbitration or investigation pending before any agency, court
\nor tribunal, foreign or domestic, or, to the knowledge of Parent, threatened
\nagainst Parent or any of its subsidiaries or any of their respective properties
\nor any of their respective officers or directors (in their capacities as such)
\nthat, individually or in the aggregate, could reasonably be expected to have a
\nParent Material Adverse Effect. There is no judgment, decree or order against
\nParent or any of its subsidiaries or, to the knowledge of Parent or any of its
\nsubsidiaries, any of their respective directors or officers (in their capacities
\nas such) that could reasonably be expected to prevent, enjoin, or materially
\nalter or delay any of the transactions contemplated by this Agreement, or that
\ncould reasonably be expected to have a Parent Material Adverse Effect.<\/p>\n
4.8 GOVERNMENTAL AUTHORIZATION. Each of Parent and its subsidiaries has
\nobtained each federal, state, county, local or foreign governmental consent,
\nlicense, permit, grant, or other authorization of a Governmental Body that is
\nrequired for the operation of Parent’s or any of its subsidiaries’ business
\n(“PARENT AUTHORIZATIONS”), and all of such Parent Authorizations are in full
\nforce and effect, except where the failure to obtain or have any of such Parent
\nAuthorizations could not reasonably be expected to have a Parent Material
\nAdverse Effect.<\/p>\n
4.9 COMPLIANCE WITH LAWS. Each of Parent and its subsidiaries has
\ncomplied with, are not in violation of, and have not received any notices of
\nviolation with respect to, any federal,<\/p>\n
-30-
\n 37<\/p>\n
state, local or foreign statute, law or regulation with respect to the conduct
\nof its business, or the ownership or operation of its business, except for such
\nviolations or failures to comply as could not reasonably be expected to have a
\nParent Material Adverse Effect.<\/p>\n
4.10 ACCOUNTING AND TAX MATTERS; POOLING OF INTERESTS.<\/p>\n
(a) Parent is not aware of any agreement, plan or other circumstance
\nthat would prevent the Merger from constituting a reorganization under Section
\n368(a) of the Code.<\/p>\n
(b) Neither Parent nor any of its subsidiaries nor, to the knowledge
\nof Parent, any of their respective directors, officers or stockholders has taken
\nany action which would interfere with Parent’s ability to account for the Merger
\nas a “pooling-of-interests.”<\/p>\n
4.11 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
\nthe right, power and authority to perform their obligations under this Agreement
\nand the Related Agreements to which Parent or Merger Sub, as applicable, is a
\nparty and the transactions contemplated hereby and thereby; and the execution,
\ndelivery and performance by each of Parent and Merger Sub of this Agreement, the
\nRelated Agreements to which it is a party and the transactions contemplated
\nhereby and thereby (including the contemplated issuance of Parent Common Stock
\nin the Merger in accordance with this Agreement) have been duly authorized by
\nall necessary corporate action on the part of Parent and Merger Sub, their
\nrespective boards of directors and the shareholder of Merger Sub. No vote of
\nParent’s Shareholders is required to approve the Merger. This Agreement
\nconstitutes the legal, valid and binding obligation of Parent and Merger Sub,
\nenforceable against them in accordance with its terms, and the Related
\nAgreements to which they are a party, when executed and delivered by Parent and
\nMerger Sub, as applicable, shall be legal, valid and binding obligations of
\nParent and Merger Sub, as applicable, enforceable against them in accordance
\nwith their respective terms, in each case subject to (i) laws of general
\napplication relating to bankruptcy, insolvency and the relief of debtors, and
\n(ii) rules of law governing specific performance, injunctive relief and other
\nequitable remedies.<\/p>\n
4.12 VALID ISSUANCE. The Merger Shares will, when issued in accordance
\nwith the provisions of this Agreement and the Agreement of Merger, be duly
\nauthorized, validly issued, fully paid and nonassessable and free of preemptive
\nrights and Encumbrances. Parent owns all the outstanding shares of capital stock
\nof Merger Sub and all of such shares are duly authorized, validly issued, fully
\npaid and nonassessable and not subject to preemptive rights or Encumbrances.<\/p>\n
SECTION 5. CERTAIN COVENANTS OF THE COMPANY AND THE SHAREHOLDERS<\/p>\n
5.1 ACCESS AND INVESTIGATION. During the period from the date of this
\nAgreement through the Effective Time or the earlier termination of this
\nAgreement pursuant to Section 9.1 (the “PRE-CLOSING PERIOD”), the Company shall,
\nand shall cause its Representatives to, (a) provide Parent and Parent’s
\nRepresentatives with reasonable access to the Company’s Representatives,
\npersonnel and assets and to all existing books, records, Tax Returns, work
\npapers and other documents and information relating to the Company; and (b)
\nprovide Parent and <\/p>\n
-31-
\n 38<\/p>\n
Parent’s Representatives with copies of such existing books, records, Tax
\nReturns, work papers and other documents and information relating to the
\nCompany, and with such additional financial, operating and other data and
\ninformation regarding the Company, as Parent may reasonably request.<\/p>\n
5.2 OPERATION OF THE COMPANY’S BUSINESS. During the Pre-Closing Period,
\nwithout the prior written consent of Parent:<\/p>\n
(a) the Company shall conduct its business and operations in the
\nordinary course and in substantially the same manner as such business and
\noperations have been conducted prior to the date of this Agreement;<\/p>\n
(b) the Company shall use all commercially reasonable efforts to
\npreserve intact its current business organization, keep available the services
\nof its current officers and employees and maintain its relations and good will
\nwith all suppliers, customers, landlords, creditors, employees and other Persons
\nhaving business relationships with the Company;<\/p>\n
(c) the Company shall use all commercially reasonable efforts to
\nkeep in full force all insurance policies identified in Part 2.17 of the Company
\nDisclosure Schedule;<\/p>\n
(d) the Company shall cause its officers to respond to reasonable
\nrequests from Parent and Parent’s Representatives for information concerning the
\nstatus of the Company’s business;<\/p>\n
(e) the Company shall not declare, accrue, set aside or pay any
\ndividend or make any other distribution in respect of any shares of capital
\nstock, and shall not repurchase, redeem or otherwise reacquire any shares of
\ncapital stock or other securities (except that the Company may repurchase
\nCompany Common Stock from former employees pursuant to the terms of existing
\nrestricted stock purchase agreements);<\/p>\n
(f) the Company shall not sell, issue or authorize the issuance of
\n(i) any capital stock or other security, (ii) any option or right to acquire any
\ncapital stock or other security, or (iii) any instrument convertible into or
\nexchangeable for any capital stock or other security (except that the Company
\nshall be permitted (x) to grant stock options to employees in accordance with
\nits past practices, (y) to issue Company Common Stock to employees upon the
\nexercise of outstanding Company Options, and (z) to issue shares of Company
\nCommon Stock upon the conversion of shares of Series A Preferred Stock or Series
\nB Preferred Stock);<\/p>\n
(g) the Company shall not amend or waive any of its rights under, or
\nmodify the vesting provisions under, (i) any provision of the Company Option
\nPlan, (ii) any provision of any agreement evidencing any outstanding Company
\nOption, or (iii) any provision of any restricted stock purchase agreement;<\/p>\n
(h) neither the Company nor any of the Shareholders shall amend or
\npermit the adoption of any amendment to the Company’s articles of incorporation
\nor bylaws, or effect or permit the Company to become a party to any Acquisition
\nTransaction, recapitalization,<\/p>\n
-32-
\n 39<\/p>\n
reclassification of shares, stock split, reverse stock split or similar
\ntransaction (except that the Company may issue shares of Company Common Stock
\nupon the conversion of shares of Series A Preferred Stock or Series B Preferred
\nStock);<\/p>\n
(i) the Company shall not form any subsidiary or acquire any equity
\ninterest or other interest in any other Entity;<\/p>\n
(j) the Company shall not amend or prematurely terminate, or waive
\nany material right or remedy under, any Material Contract;<\/p>\n
(k) the Company shall not (i) acquire, lease or license any right or
\nother asset from any other Person other than in the ordinary course of business
\nconsistent with past practice, or (ii) sell or otherwise dispose of, or lease or
\nlicense, any right or other asset to any other Person other than in the ordinary
\ncourse of business consistent with past practice;<\/p>\n
(l) the Company shall not (i) lend money to any Person (except that
\nthe Company may make routine advances for business expenses to employees in the
\nordinary course of business, make loans to Robert Wyman in an aggregate amount
\nnot to exceed $1,500 consistent with past practice and may, consistent with its
\npast practices, allow employees to acquire Company Common Stock in exchange for
\npromissory notes upon exercise of Company Options), or (ii) incur or guarantee
\nany indebtedness for borrowed money;<\/p>\n
(m) the Company shall not (i) establish, adopt or amend any Employee
\nBenefit Plan (other than such amendments as may be required to comply with
\napplicable law and as to which Parent is notified in writing), (ii) pay any
\nbonus or make any profit-sharing payment, cash incentive payment or similar
\npayment to, or increase the amount of the wages, salary, commissions, fringe
\nbenefits or other compensation or remuneration payable to, any of its directors,
\nofficers or employees other than in the ordinary course of business consistent
\nwith past practice, or (iii) hire any new employee whose aggregate annual
\ncompensation is expected to exceed $75,000;<\/p>\n
(n) the Company shall not change any of its methods of accounting or
\naccounting practices in any material respect;<\/p>\n
(o) the Company shall not make any Tax election; provided that
\nParent shall not unreasonably withhold its consent for any tax election the
\nCompany may propose to make;<\/p>\n
(p) the Company shall not commence or settle any material Legal
\nProceeding; provided that Parent shall not unreasonably withhold its consent to
\nthe commencement or settlement of any such legal proceeding; and<\/p>\n
(q) the Company shall not agree or commit to take any of the actions
\ndescribed in clauses (e) through (p) above.<\/p>\n
-33-
\n 40<\/p>\n
5.3 NOTIFICATION; UPDATES TO THE COMPANY DISCLOSURE SCHEDULE.<\/p>\n
(a) During the Pre-Closing Period, the Company shall promptly notify
\nParent in writing of:<\/p>\n
(i) the discovery by the Company of any event, condition, fact
\nor circumstance that occurred or existed on or prior to the date of this
\nAgreement and that caused or constitutes an inaccuracy in or breach of any
\nrepresentation or warranty made by the Company or any of the Shareholders in
\nthis Agreement;<\/p>\n
(ii) the discovery by the Company of any event, condition, fact
\nor circumstance that occurs, arises or exists after the date of this Agreement
\nand that would cause or constitute an inaccuracy in or breach of any
\nrepresentation or warranty made by the Company or any of the Shareholders in
\nthis Agreement if (A) such representation or warranty had been made as of the
\ntime of the occurrence, existence or discovery of such event, condition, fact or
\ncircumstance, or (B) such event, condition, fact or circumstance had occurred,
\narisen or existed on or prior to the date of this Agreement;<\/p>\n
(iii) the discovery by the Company of any breach of any covenant
\nor obligation of the Company or, to the best knowledge of the Company, any of
\nthe Shareholders; and<\/p>\n
(iv) the discovery by the Company of any event, condition, fact
\nor circumstance that would make the satisfaction of any of the conditions set
\nforth in Section 7 or Section 8 on or prior to the Closing Date impossible or
\nunlikely (a notice under this Section 5.3(a)(iv) is hereinafter referred to as a
\n“NOTICE OF BREACH”).<\/p>\n
(b) If any event, condition, fact or circumstance that is required
\nto be disclosed pursuant to Section 5.3(a) requires any change in the Company
\nDisclosure Schedule, or if any such event, condition, fact or circumstance would
\nrequire such a change assuming the Company Disclosure Schedule were dated as of
\nthe date of the occurrence, existence or discovery of such event, condition,
\nfact or circumstance, then the Company shall promptly deliver to Parent an
\nupdate to the Company Disclosure Schedule specifying such change. Except for
\nupdates to the Company Disclosure Schedule that arise out of facts and
\ncircumstances arising after the date hereof, which, as of the date hereof, could
\nnot reasonably have been expected by the Company or the Company Executives to
\narise and which updates could not reasonably be expected individually or in the
\naggregate to result in a Company Material Adverse Effect (a “PERMITTED UPDATE”),
\nno such update shall be deemed to supplement or amend the Company Disclosure
\nSchedule for the purpose of determining (i) the accuracy of any of the
\nrepresentations and warranties made by the Company or any of the Shareholders in
\nthis Agreement and (ii) whether any of the conditions set forth in Section 7 has
\nbeen satisfied.<\/p>\n
SUPPORT OF MERGER BY SHAREHOLDERS. The Shareholders shall use all
\nreasonable efforts to cause the Company to duly observe and perform its
\nobligations under this Agreement.<\/p>\n
-34-
\n 41<\/p>\n
APPROVAL OF MERGER; WAIVER OF DISSENTER’S RIGHTS. By signing this
\nAgreement, each Shareholder hereby consents to, and votes all shares of Company
\nStock that are owned, of record or beneficially by such Shareholder in favor of,
\nthe Merger, this Agreement and the other transactions contemplated hereby and
\nthereby and each Shareholder hereby waives any dissenter’s rights such
\nShareholder may otherwise have pursuant to applicable law.<\/p>\n
5.4 CONVERSION OF COMPANY PREFERRED STOCK. Each holder of the Company’s
\nSeries A Preferred Stock or Series B Preferred Stock agrees to convert such
\nshares into Company Common Stock prior to the Effective Time.<\/p>\n
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES<\/p>\n
6.1 FILINGS AND CONSENTS. As promptly as practicable after the execution
\nof this Agreement, each party to this Agreement (a) shall make all filings (if
\nany) and give all notices (if any) required to be made and given by such party
\nin connection with the Merger and the other transactions contemplated by this
\nAgreement, and (b) shall use all commercially reasonable efforts to obtain all
\nConsents (if any) required to be obtained (pursuant to any applicable Legal
\nRequirement or Contract, or otherwise) by such party in connection with the
\nMerger and the other transactions contemplated by this Agreement. Each party
\nshall (upon request) promptly deliver to the other party a copy of each such
\nfiling made, each such notice given and each such Consent obtained by such party
\nduring the Pre-Closing Period.<\/p>\n
6.2 PUBLIC ANNOUNCEMENTS. During the Pre-Closing Period, but subject to
\napplicable legal and regulatory obligations, neither Parent, the Company nor any
\nof the Shareholders shall, and Parent, the Company and the Shareholders shall
\nnot permit any of their respective Representatives to, issue any press release
\nor make any public statement regarding this Agreement, the Merger or any of the
\nother transactions contemplated by this Agreement, without the prior written
\nconsent of Parent, with respect to disclosures by the Company or any Shareholder
\nor their respective Representative, and the Company, with respect to disclosures
\nby Parent (which consents shall not be unreasonably withheld or delayed).<\/p>\n
6.3 POOLING OF INTERESTS. No party to this Agreement shall take any
\naction that could reasonably be expected to have an adverse effect on the
\nability of Parent to account for the Merger as a “pooling of interests.”<\/p>\n
6.4 AFFILIATE AGREEMENTS. Each Shareholder identified on Exhibit E-1
\nshall execute and deliver to Parent, and the Company shall use all commercially
\nreasonable efforts to cause each other Person identified on Exhibit E-1 (and any
\nother Person that could reasonably be deemed to be an “affiliate” of the Company
\nfor purposes of the Securities Act), to execute and deliver to Parent, as
\npromptly as practicable after the execution of this Agreement, an Affiliate
\nAgreement in the form of Exhibit E-2.<\/p>\n
6.5 COMMERCIALLY REASONABLE EFFORTS. During the Pre-Closing Period, (a)
\nthe Company and the Shareholders shall use all commercially reasonable efforts
\nto cause the conditions set forth in Section 7 to be satisfied on a timely
\nbasis, and (b) Parent and Merger Sub<\/p>\n
-35-
\n 42<\/p>\n
shall use all commercially reasonable efforts to cause the conditions set forth
\nin Section 8 to be satisfied on a timely basis.<\/p>\n
6.6 NONCOMPETITION AGREEMENTS. At or prior to the Closing, each of the
\nindividuals identified on Exhibit F-1 shall execute and deliver to the Company
\nand Parent a Noncompetition Agreement in the form of Exhibit F-2.<\/p>\n
6.7 FIRPTA MATTERS. At the Closing, the Company shall deliver to Parent
\nseparate statements (in such form as may be reasonably requested by counsel to
\nParent) signed under penalty of perjury by each of the Shareholders, certifying
\nas to such Shareholder’s non-foreign status for purposes of U.S. income taxation
\nand setting forth such Shareholder’s tax identification number and home or
\nprincipal address.<\/p>\n
6.8 ADVICE OF CHANGES. Parent will promptly advise the Company in
\nwriting of (a) any event occurring subsequent to the date of this Agreement that
\nwould render any representation or warranty of Parent or Merger Sub contained in
\nthis Agreement, if made on or as of the date of such event or the Closing Date,
\nuntrue or inaccurate in any material respect and (ii) any Material Adverse
\nChange in Parent’s business or financial condition, taken as a whole.<\/p>\n
6.9 REORGANIZATION TREATMENT. Neither Parent, the Shareholders nor the
\nCompany shall take any action (either before or after the Closing) that would
\ncause the Merger to fail to qualify as a reorganization within the meaning of
\nSection 368(a) of the Code. Parent shall, and shall use its reasonable best
\nefforts to cause the Surviving Corporation to, report to the extent required by
\nthe Code or the regulations thereunder, the Merger for United States federal
\nincome tax purposes as a reorganization within the meaning of Section 368(a) of
\nthe Code.<\/p>\n
6.10 CERTAIN EMPLOYEE BENEFITS MATTERS. Employees of the Company at the
\nEffective Time will be provided with welfare benefits by the Surviving
\nCorporation, Parent or one of its subsidiaries which welfare benefits shall be
\nsubstantially similar to such welfare benefits provided to similarly situated
\nemployees of Parent immediately prior to the Closing. If any employee of the
\nCompany becomes a participant in any employee benefit plan, program, policy or
\narrangement of Parent or one of its subsidiaries, such employee shall, to the
\nextent permitted by such plan, program, policy or arrangement, be given credit
\nfor all service with the Company prior to the Effective Time for purposes of
\nvesting eligibility but not for benefit accrual purposes. Parent shall pay, or
\ncause the Company to pay, severance payments in the following amounts, on such
\nterms as Parent shall request (including a general release agreement), to any
\nemployees of the Company and\/or Officers who are terminated in connection with
\nthe Merger: (a) each such employee shall receive a severance payment equal to at
\nleast two (2) months of his or her regular straight-time salary as of the
\nEffective Date, and (b) each such Officer shall receive a severance payment
\nequal to at least three (3) months of his or her regular straight-time salary as
\nof the Effective Date. For purposes of this Section 6.10, “Officer” shall mean
\nSteve Podradchik, Barry Allen, Bob Wyman, Mike McClure and Richard Bryan. Parent
\nagrees to provide continuation coverage of medical benefits (as described in
\nsections 601 through 609 of ERISA and section 4980B of the Code) to employees of
\nthe Company who are terminated<\/p>\n
-36-
\n 43<\/p>\n
in connection with the Merger and who elect such coverage notwithstanding
\nwhether such employees are entitled to elect continuation coverage under ERISA
\nor the Code.<\/p>\n
6.11 SECTION 16 MATTERS. The Board of Directors of Parent shall, to the
\nextent permitted by applicable law, take or cause to be taken all actions
\nnecessary to obtain approval in the form required by Rule 16b-3 of the Exchange
\nAct so that, with respect to persons who will or may become officers or
\ndirectors of Parent, the transactions relating to the Merger that may be
\nconsidered acquisitions under such Rule for such persons will be exempt from
\nSection 16(b) of the Exchange Act.<\/p>\n
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB<\/p>\n
The obligations of Parent and Merger Sub to effect the Merger and
\notherwise consummate the transactions contemplated by this Agreement are subject
\nto the satisfaction, at or prior to the Closing, of each of the following
\nconditions:<\/p>\n
7.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
\nwarranties made by the Company and the Shareholders in this Agreement shall have
\nbeen accurate in all material respects as of the date of this Agreement (without
\ngiving effect to any materiality qualifications contained or incorporated
\ndirectly or indirectly in such representations and warranties), and shall be
\naccurate in all material respects as of the Closing Date as if made at the
\nClosing Date (without giving effect to any update to the Company Disclosure
\nSchedule other than Permitted Updates, and without giving effect to any
\nmateriality qualifications contained or incorporated, directly or indirectly, in
\nsuch representations and warranties).<\/p>\n
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
\nthe Company and the Shareholders are required to comply with or to perform at or
\nprior to the Closing Date shall have been complied with and performed in all
\nmaterial respects.<\/p>\n
7.3 SHAREHOLDER APPROVAL. The principal terms of the Merger shall have
\nbeen duly approved by the affirmative vote of at least eighty percent (80%) of
\nthe shares of Company Common Stock, Series A Preferred Stock and Series B
\nPreferred Stock entitled to vote with respect thereto, each voting as a separate
\nclass.<\/p>\n
7.4 CONSENTS. All Consents required to be obtained in connection with
\nthe Merger and the other transactions contemplated by this Agreement (including
\nthe Consents identified in Part 2.21 of the Company Disclosure Schedule and
\nthose set forth in Section 4.3) shall have been obtained and shall be in full
\nforce and effect.<\/p>\n
7.5 AGREEMENTS AND DOCUMENTS. Parent shall have received the following
\nagreements and documents, each of which shall be in full force and effect:<\/p>\n
(a) Affiliate Agreements substantially in the form of Exhibit E-2
\n(each, an “AFFILIATE AGREEMENT”), executed by the Persons identified on Exhibit
\nE-1;<\/p>\n
-37-
\n 44<\/p>\n
(b) Noncompetition Agreements substantially in the form of Exhibit
\nF-2 (each a “NONCOMPETITION AGREEMENT”), executed by the individuals identified
\non Exhibit F-1;<\/p>\n
(c) Proprietary information and inventions agreements, reasonably
\nsatisfactory in form and content to Parent, executed by all employees and former
\nemployees of the Company and by all consultants and independent contractors and
\nformer consultants and former independent contractors to the Company who have
\nnot already signed such agreements (including the individuals identified in Part
\n2.9(f) of the Company Disclosure Schedule);<\/p>\n
(d) the statements referred to in Section 6.7, executed by each of
\nthe Shareholders;<\/p>\n
(e) a legal opinion of Venture Law Group, counsel to the Company and
\nthe Shareholders, dated as of the Closing Date, substantially in the form of
\nExhibit G;<\/p>\n
(f) a letter from PricewaterhouseCoopers LLC, dated as of the
\nClosing Date, confirming that Parent may account for the Merger as a “pooling of
\ninterests” in accordance with generally accepted accounting principles,
\nAccounting Principles Board Opinion No. 16, and all published rules, regulations
\nand policies of the SEC;<\/p>\n
(g) a letter from Deloitte & Touche LLP, dated as of the Closing
\nDate, confirming that no transaction entered into by the Company, and no other
\nfact or circumstance relating to the Company, will prevent Parent from
\naccounting for the Merger as a “pooling of interests” in accordance with
\ngenerally accepted principles, Accounting Principles Board Opinion No. 16 and
\nall published rules, regulations and policies of the SEC;<\/p>\n
(h) a certificate executed by the President and Chief Executive
\nOfficer of the Company that each of the representations and warranties set forth
\nin Section 2 is accurate in all material respects as of the Closing Date as if
\nmade on the Closing Date and that the conditions set forth in Sections 7 have
\nbeen duly satisfied in all material respects (the “COMPANY OFFICER’S CLOSING
\nCERTIFICATE”);<\/p>\n
(i) a written opinion from Thomas Weisel Partners LLC, in a form
\nsatisfactory to the Board of Directors of Parent, stating that the issuance of
\nthe Merger Shares to the Shareholders is fair to Parent from a financial point
\nof view;<\/p>\n
(j) A true, correct and complete schedule (the “SCHEDULES OF
\nEXPENSES”) of all Company Expenses paid or incurred by or on behalf of the
\nCompany or the Shareholders through the Closing Date, accompanied by a
\ncertificate signed by the President and Chief Financial Officer of the Company
\ncertifying the accuracy and completeness thereof, shall have been delivered by
\nthe Company.<\/p>\n
(k) written resignations of all officers and directors of the
\nCompany, effective as of the Effective Time;<\/p>\n
-38-
\n 45<\/p>\n
(l) a counterpart signature page to this Agreement executed by the
\nShareholders set forth on Schedule 7.5(l);<\/p>\n
(m) the Escrow Agreement substantially in the form of Exhibit D (the
\n“ESCROW AGREEMENT”) executed by the Shareholders’ Agent;<\/p>\n
(n) the Investor Rights Agreement substantially in the form of
\nExhibit H (the “INVESTOR RIGHTS AGREEMENT”) executed by the Shareholders;<\/p>\n
(o) the consent of the holders of at least a majority of the
\noutstanding “Registrable Securities” (as such term is defined in Section 2.1(b)
\nof the Second Amended and Restated Investor Rights Agreement dated as of August
\n13, 1998 by and among Parent, Organic and the other shareholders of Parent
\nlisted on the signature pages thereto (the “EXISTING REGISTRATION RIGHTS
\nAGREEMENT”)) to the Parent’s grant of registration rights to the Shareholders
\npursuant to the Investor Rights Agreement, as required by Section 2.14 of the
\nExisting Registration Rights Agreement (the “CONSENT OF THE EXISTING
\nREGISTRATION RIGHTS HOLDERS”); and<\/p>\n
(p) If requested by Parent, Steve Podradchik shall have executed an
\namendment of that certain License Agreement, dated as of February 27, 1997,
\nbetween Steve Podradchik and the Company or shall have executed a new license
\nagreement, in each case, in form and substance reasonably satisfactory to Parent
\nto ensure that the Company has the absolute, royalty free and perpetual right to
\nuse, sublicense, transfer and modify the software program Hit List and any and
\nall derivative works thereof and all modifications, enhancements and upgrades
\nthereto.<\/p>\n
7.6 EXEMPTION FROM APPLICABLE SECURITIES LAWS. The issuance of shares of
\nParent Common Stock and the other transactions contemplated by this Agreement in
\nthe Merger shall be exempt from applicable state and federal securities laws.<\/p>\n
7.7 NO RESTRAINTS. No temporary restraining order, preliminary or
\npermanent injunction or other order preventing the consummation of the Merger
\nshall have been issued by any court of competent jurisdiction and remain in
\neffect, and there shall not be any Legal Requirement enacted or deemed
\napplicable to the Merger that makes consummation of the Merger illegal.<\/p>\n
7.8 NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened
\nto commence any Legal Proceeding challenging or seeking the recovery of a
\nmaterial amount of damages in connection with the Merger or seeking to prohibit
\nor limit the exercise by Parent of any material right pertaining to its
\nownership of stock of the Surviving Corporation.<\/p>\n
7.9 NO MATERIAL ADVERSE CHANGE. There shall have been no material
\nadverse change in the Company’s business, condition, assets, liabilities,
\noperations, financial performance or prospects since the date of this Agreement
\n(it being understood that none of the following shall be deemed, in and of
\nitself, to constitute a material adverse change in the business, condition,
\nassets, liabilities, operations, financial or prospects performance of the<\/p>\n
-39-
\n 46<\/p>\n
Company since the date of this Agreement: (a) a change that results from
\nconditions affecting the U.S. economy or the world economy, (b) a change that
\nresults from conditions affecting the Internet or the e-commerce industry so
\nlong as such conditions do not affect the Company in a disproportionate manner
\nas compared with companies of a similar size, (c) a change that results from the
\nannouncement or pendency of the Merger or the transactions contemplated hereby
\nand (d) a change that results from the taking of any action required by this
\nAgreement).<\/p>\n
7.10 TAX OPINION. Parent shall have received a written opinion of
\nParent’s legal counsel in form and substance reasonably satisfactory to it and
\ndated on or about the Closing Date to the effect that the Merger will constitute
\na reorganization within the meaning of Section 368(a) of the Code, and such
\nopinion shall not have been withdrawn. In rendering such opinion, counsel shall
\nbe entitled to rely upon, among other things, reasonable assumptions as well as
\ncustomary representations of Parent and the Company.<\/p>\n
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY<\/p>\n
The obligations of the Company to effect the Merger and otherwise
\nconsummate the transactions contemplated by this Agreement are subject to the
\nsatisfaction, at or prior to the Closing, of the following conditions:<\/p>\n
8.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
\nwarranties made by Parent and Merger Sub in this Agreement shall have been
\naccurate in all material respects as of the date of this Agreement (without
\ngiving effect to any materiality or similar qualifications contained in such
\nrepresentations and warranties), and shall be accurate in all material respects
\nas of the Closing Date as if made at the Closing Date (without giving effect to
\nany materiality or similar qualifications contained in such representations and
\nwarranties).<\/p>\n
8.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
\nParent and Merger Sub are required to comply with or to perform at or prior to
\nthe Closing Date shall have been complied with and performed in all respects.<\/p>\n
8.3 DOCUMENTS. The Company shall have received the following documents:<\/p>\n
(a) the Escrow Agreement executed by Parent and the Escrow Agent;<\/p>\n
(b) the Investor Rights Agreement executed by Parent;<\/p>\n
(c) the Consent of the Existing Registration Rights Holders;<\/p>\n
(d) a certificate executed by the President and Chief Executive
\nOfficer of Parent that each of the representations and warranties set forth in
\nSection 4 is accurate in all material respects as of the Closing Date as if made
\non the Closing Date and that the conditions set forth in Sections 8 have been
\nduly satisfied in all material respects (the “PARENT OFFICER’S CLOSING
\nCERTIFICATE”); and<\/p>\n
-40-
\n 47<\/p>\n
(e) a legal opinion of Orrick, Herrington & Sutcliffe LLP, counsel
\nto Parent and Merger Sub, dated as of the Closing Date, substantially in the
\nform of Exhibit I.<\/p>\n
8.4 LISTING. The Merger Shares shall have been approved for listing
\n(subject to notice of issuance) on the Nasdaq National Market.<\/p>\n
8.5 NO RESTRAINTS. No temporary restraining order, preliminary or
\npermanent injunction or other order preventing the consummation of the Merger
\nshall have been issued by any court of competent jurisdiction and remain in
\neffect, and there shall not be any Legal Requirement enacted or deemed
\napplicable to the Merger that makes consummation of the Merger illegal.<\/p>\n
8.6 BOARD SEAT. Parent shall have offered Steve Podradchik a position on
\nParent’s Board of Directors, such board position to be effective at the Closing
\nDate and to be subject to re-election at the discretion of Parent’s
\nshareholders.<\/p>\n
8.7 NO MATERIAL ADVERSE CHANGE. There shall have been no material
\nadverse change in Parent’s business, condition, assets, liabilities, operations,
\nfinancial performance or prospects since the date of this Agreement (it being
\nunderstood that none of the following shall be deemed, in and of itself, to
\nconstitute a material adverse change in the business, condition, assets,
\nliabilities, operations or financial performance of Parent since the date of
\nthis Agreement: (a) a change in the market price or trading volume of Parent’s
\nCommon Stock, (b) a failure by Parent to meet any securities analyst estimates
\nof Parent’s financial results for any period (c) a change that results from
\nconditions affecting the U.S. economy or the world economy, (d) a change that
\nresults from conditions affecting the Internet or the e-commerce industry so
\nlong as such conditions do not affect Parent in a disproportionate manner as
\ncompared with companies of a similar size, (e) a change that results from the
\nannouncement or pendency of the Merger or the transactions contemplated hereby
\nand (f) a change that results from the taking of any action required by this
\nAgreement).<\/p>\n
8.8 TAX OPINION. The Company shall have received a written opinion of
\nthe Company’s legal counsel in form and substance reasonably satisfactory to it
\nand dated on or about the Closing Date to the effect that the Merger will
\nconstitute a reorganization within the meaning of Section 368(a) of the Code,
\nand such opinion shall not have been withdrawn. In rendering such opinion,
\ncounsel shall be entitled to rely upon, among other things, reasonable
\nassumptions as well as customary representations of Parent and the Company.<\/p>\n
SECTION 9. TERMINATION<\/p>\n
TERMINATION. This Agreement may be terminated, and the Merger
\nabandoned, notwithstanding the approval by Parent, Merger Sub and the Company of
\nthis Agreement, at any time prior to the Effective Time, by:<\/p>\n
(a) the mutual consent of Parent, Merger Sub and the Company; or<\/p>\n
-41-
\n 48<\/p>\n
(b) Parent and Merger Sub if the conditions set forth in Section 7
\nhereof shall not have been satisfied by October 15, 1999, except if such
\nconditions have not been satisfied solely as a result of the action or inaction
\nof Parent or Merger Sub, or such earlier date upon which Parent receives a
\nNotice of Breach from the Company; or<\/p>\n
(c) the Company if the conditions set forth in Section 8 hereof
\nshall not have been satisfied by October 15, 1999, except if such conditions
\nhave not been satisfied solely as a result of the action or inaction of the
\nCompany or the Shareholders; or<\/p>\n
(d) Parent and Merger Sub or the Company if, without fault of the
\nterminating party, there shall be any applicable federal or state law that makes
\nconsummation of the Merger illegal or otherwise prohibited or if any court of
\ncompetent jurisdiction or Governmental Body shall have issued an order, decree,
\nruling or taken any other action restraining, enjoining or otherwise prohibiting
\nthe Merger and such order, decree, ruling or other action shall have become
\nfinal and nonappealable.<\/p>\n
Any termination pursuant to this Section 9.1 (other than a termination pursuant
\nto Section 9.1(a) hereof) shall be effected by written notice from the party or
\nparties so terminating to the other parties hereto.<\/p>\n
9.2 EFFECT OF TERMINATION. In the event of the termination of this
\nAgreement as provided in Section 9.1, this Agreement shall be of no further
\nforce or effect, except for this Section 9.2 and Section 11, each of which shall
\nsurvive the termination of this Agreement; provided, however, that the liability
\nof any party for any breach by such party of the representations, warranties,
\ncovenants or agreements of such party set forth in this Agreement occurring
\nprior to the termination of this Agreement shall survive the termination of this
\nAgreement.<\/p>\n
SECTION 10. INDEMNIFICATION, ETC.<\/p>\n
10.1 SURVIVAL OF REPRESENTATIONS, ETC.<\/p>\n
(a) The representations and warranties made by the Company and the
\nCompany Executives set forth in Section 2 shall survive the Closing and shall
\nexpire on the earlier of (i) the date of the issuance of the audit report on the
\nfirst financial statements of Parent containing combined operations of the
\nCompany and Parent and (ii) the first anniversary of the Closing Date (the
\n“TERMINATION DATE”); provided, however, that if, at any time prior to the
\nTermination Date, any Indemnitee (acting in good faith) delivers to the
\nShareholders’ Agent a written notice alleging the existence of an inaccuracy in
\nor a breach of any of the representations and warranties made by the Company and
\nthe Company Executives set forth in Section 2 (and setting forth in reasonable
\ndetail the basis for such Indemnitee’s belief that such an inaccuracy or breach
\nmay exist) and asserting a claim for recovery under Section 10.2 based on such
\nalleged inaccuracy or breach, then the claim asserted in such notice shall
\nsurvive the Termination Date until such time as such claim is fully and finally
\nresolved. All representations and warranties made by Parent shall terminate and
\nexpire as of the Closing Date, and any liability of Parent with respect to such
\nrepresentations and warranties shall thereupon cease.<\/p>\n
-42-
\n 49<\/p>\n
(b) The representations, warranties, covenants and obligations of
\nCompany and the Shareholders, and the rights and remedies that may be exercised
\nby the Indemnitees, shall not be limited or otherwise affected by or as a result
\nof any information furnished to, or any investigation made by or knowledge of,
\nany of the Indemnitees or any of their Representatives.<\/p>\n
(c) For purposes of this Agreement, each statement or other item of
\ninformation set forth in the Company Disclosure Schedule shall be deemed to be a
\nrepresentation and warranty made by the Company and the Shareholders in this
\nAgreement.<\/p>\n
10.2 INDEMNIFICATION.<\/p>\n
(a) Indemnification by Company Indemnitors. From and after the
\nClosing Date (but subject to Section 10.1(a)), the Merger Shareholders (the
\n“INDEMNITORS”), jointly and severally, shall hold harmless and indemnify each of
\nthe Indemnitees from and against, and the Holdback Shares shall be available to
\ncompensate and reimburse each of the Indemnitees for, any Damages that are
\ndirectly or indirectly suffered or incurred by any of the Indemnitees or to
\nwhich any of the Indemnitees may otherwise become subject (regardless of whether
\nor not such Damages relate to any third-party claim) and that arise from or as a
\nresult of, or are directly or indirectly connected with: (i) any breach of any
\nrepresentation or warranty set forth in Section 2 (without giving effect to any
\n“Company Material Adverse Effect” or other materiality qualification or any
\nsimilar qualification contained or incorporated directly or indirectly in such
\nrepresentation or warranty), or (ii) any Legal Proceeding relating to any breach
\nof the type referred to in clause (i) above (including any Legal Proceeding
\ncommenced by any Indemnitee for the purpose of enforcing any of its rights under
\nthis Section 10).<\/p>\n
(b) Deductible. The Indemnitors shall not be required to make any
\nindemnification payment pursuant to Section 10.2(a) for any inaccuracy in or
\nbreach of any representation and warranty set forth in Section 2 until such time
\nas the total amount of all Damages (including the Damages arising from such
\ninaccuracy or breach and all other Damages arising from any other inaccuracies
\nin or breaches of any representations or warranties) that have been directly or
\nindirectly suffered or incurred by any one or more of the Indemnitees, or to
\nwhich any one or more of the Indemnitees has or have otherwise become subject,
\nexceeds $500,000 in the aggregate. (If the total amount of such Damages exceeds
\n$500,000, then the Indemnitees shall be entitled to be indemnified against and
\ncompensated and reimbursed for the entire amount of such Damages up to a maximum
\nof the full amount of the Holdback Shares.)<\/p>\n
(c) Limitation Due to Post-Closing Actions. None of the Indemnitors
\nshall have any liability for Damages which arise solely as a result of (i)
\nactions taken by or on behalf of, or omissions of, Parent or the Surviving
\nCorporation after the Closing; (ii) changes in accounting methods or policies of
\nthe Surviving Corporation after the Closing; or (iii) the passing of, or any
\nchange in, after the Closing, any law or administrative practice of any
\nGovernmental Body in any such case not actually in force as of the date of this
\nAgreement (even if retroactive in effect), including any increase in the tax
\nrates in effect on the date of this Agreement or the imposition of any Tax not
\nin effect on the date of this Agreement.<\/p>\n
-43-
\n 50<\/p>\n
10.3 EXCLUSIVE REMEDY. With the exception of claims based upon fraud,
\nfrom and after the Closing, recourse of the Indemnitees to the Holdback Shares
\npursuant to this Agreement and the Escrow Agreement shall be the sole and
\nexclusive remedy of the Indemnitees for monetary damages for any inaccuracy in
\nor breach of any representation or, warranty contained in Section 2 of this
\nAgreement or any Legal Proceeding related thereto. Any distribution of Holdback
\nShares to satisfy a claim hereunder shall be done so as to reduce the Escrow
\nAccount. Any Holdback Shares remaining upon termination of the Escrow Account
\nshall be distributed to the Merger Shareholders in accordance with the Escrow
\nAgreement.<\/p>\n
10.4 NO CONTRIBUTION. No Indemnitors shall have any right of
\ncontribution, right of indemnity or other right or remedy against the Company in
\nconnection with any indemnification obligation or any other liability to which
\nshe, he or it may become subject under or in connection with this Agreement.<\/p>\n
10.5 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
\ncommencement by any Person of any claim or Legal Proceeding (whether against the
\nCompany, Parent or against any other Person) with respect to which any of the
\nIndemnitors may become obligated to hold harmless, indemnify, compensate or
\nreimburse any Indemnitee pursuant to this Section 10, Parent shall have the
\nright, at its election, to proceed with the defense of such claim or Legal
\nProceeding on its own. If Parent so proceeds with the defense of any such claim
\nor Legal Proceeding:<\/p>\n
(a) all reasonable expenses relating to the defense of such claim or
\nLegal Proceeding by counsel reasonably satisfactory to the Shareholders’ Agent
\nshall be borne and paid exclusively from the Holdback Shares;<\/p>\n
(b) each Indemnitor shall make available to Parent any documents and
\nmaterials in his, her or its possession or control that reasonably may be
\nnecessary to the defense of such claim or Legal Proceeding; and<\/p>\n
(c) Parent shall have the right to settle, adjust or compromise such
\nclaim or Legal Proceeding with the written consent of the Shareholders’ Agent
\n(as defined in Section 11.2); provided, however, that such consent shall not be
\nunreasonably withheld.<\/p>\n
Parent shall give the Shareholders’ Agent prompt notice of the commencement of
\nany such Legal Proceeding against Parent or the Company; provided, however, that
\nany failure on the part of Parent to so notify the Shareholders’ Agent shall not
\nlimit any of the obligations of the Indemnitors under this Section 10 (except to
\nthe extent such failure materially prejudices the defense of such Legal
\nProceeding). Parent shall conduct the defense of such claim or Legal Proceeding
\ndiligently and in good faith using all reasonable means and defenses available
\nto it or to the Company. The Shareholders’ Agent shall have the right, if it so
\nnotifies Parent with reasonable promptness after receipt of Parent’s claim
\nnotice, to assist at its own expense and with counsel of its choice in the
\ndefense of such claim or Legal Proceeding by Parent (or in the case of a claim
\nor Legal Proceeding against the Company, by the Company). In such event, Parent
\nshall afford the Shareholders’ Agent and its counsel a reasonable opportunity to
\ncomment and the right to object (which right shall not be unreasonably
\nexercised) with respect to the conduct of the <\/p>\n
-44-
\n 51<\/p>\n
defense of such claim or Legal Proceeding. Parent shall keep the Shareholders’
\nAgent reasonably informed of the progress of any claim or Legal Proceeding and
\nits defense, and shall with reasonable promptness provide the Shareholders’
\nAgent with copies of all material notices, written communications and filings
\n(including court papers) made by or on behalf of any of the parties to the
\nunderlying claim or Legal Proceeding. If Parent does not elect to proceed with
\nthe defense of any such claim or Legal Proceeding, the Shareholders’ Agent may
\nproceed with the defense of such claim or Legal Proceeding with counsel
\nreasonably satisfactory to Parent; provided, however, that the Shareholders’
\nAgent may not settle, adjust or compromise any such claim or Legal Proceeding
\nwithout the prior written consent of the Parent (which consent may not be
\nunreasonably withheld).<\/p>\n
SECTION 11. MISCELLANEOUS PROVISIONS<\/p>\n
11.1 RESTRICTIONS ON TRANSFER<\/p>\n
(a) The shares of Parent Common Stock to be issued to each
\nShareholder at the Effective Time pursuant to Section 1 of this Agreement and
\nany shares of capital stock or other securities received with respect thereto
\n(collectively, the “RESTRICTED SECURITIES”) shall not be sold, transferred,
\nassigned, pledged, encumbered or otherwise disposed of (each, a “TRANSFER”)
\nexcept upon the conditions specified in this Section 11.1, which conditions are
\nintended to insure compliance with the provisions of the Securities Act. Each
\nShareholder shall observe and comply with the Securities Act and the rules and
\nregulations promulgated by the SEC thereunder as now in effect or hereafter
\nenacted or promulgated, and as from time to time amended, in connection with any
\nTransfer of Restricted Securities beneficially owned by the Shareholder.<\/p>\n
(b) Each certificate representing the Restricted Securities issued
\nto a Shareholder and each certificate for such securities issued to subsequent
\ntransferees of any such certificate shall (unless otherwise permitted by the
\nprovisions of Sections 11.1(c) and 11.1(d) hereof) be stamped or otherwise
\nimprinted with a legend in substantially the following form:<\/p>\n
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
\n INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
\n 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR “BLUE-SKY” LAWS.
\n THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
\n ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
\n OR AN EXEMPTION THEREFROM. ADDITIONALLY, THE TRANSFER OF THESE
\n SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 11.1 OF THE
\n AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF SEPTEMBER 14, 1999
\n AMONG ACCRUE SOFTWARE, INC., MARKETWAVE ACQUISITION CORP. AND MARKETWAVE
\n CORPORATION AND THE OTHER SIGNATORIES THERETO AND NO TRANSFER OF THESE<\/p>\n
-45-
\n 52<\/p>\n
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
\n FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF SUCH CONDITIONS, PUBLIC
\n CO, INC. HAS AGREED TO DELIVER TO THE HOLDER HEREOF A NEW CERTIFICATE,
\n NOT BEARING THIS LEGEND, FOR THE SECURITIES REPRESENTED HEREBY
\n REGISTERED IN THE NAME OF THE HOLDER HEREOF. COPIES OF SUCH AGREEMENT
\n MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF
\n RECORD OF THIS CERTIFICATE TO THE SECRETARY OF ACCRUE SOFTWARE, INC.”<\/p>\n
(c) Each Shareholder agrees, prior to any Transfer of Restricted
\nSecurities, to give written notice to Parent of such Shareholder’s intention to
\neffect such Transfer and to comply in all other respects with the provisions of
\nthis Section 11.1. Each such notice shall describe the manner and circumstances
\nof the proposed Transfer and shall be accompanied by the written opinion,
\naddressed to Parent, of counsel for the holder of such Restricted Securities,
\nstating that in the opinion of such counsel (which opinion and counsel shall be
\nreasonably satisfactory to Parent) such proposed transfer does not involve a
\ntransaction requiring registration or qualification of such Restricted
\nSecurities under the Securities Act or the securities or “blue-sky” laws of any
\nrelevant state of the United States. The holder thereof shall thereupon, with
\nthe written consent of Parent, be entitled to Transfer such Restricted
\nSecurities in accordance with the terms of the notice delivered by it to Parent.
\nEach certificate or other instrument evidencing the securities issued upon the
\nTransfer of any such Restricted Securities (and each certificate or other
\ninstrument evidencing any untransferred balance of such Restricted Securities)
\nshall bear the legend set forth in Section 11.1(b) unless (x) in such opinion of
\ncounsel of Parent registration of any future Transfer is not required by the
\napplicable provisions of the Securities Act or (y) Parent shall have waived the
\nrequirement of such legends. No Shareholder shall Transfer any Restricted
\nSecurities until such opinion of counsel has been given (unless waived by Parent
\nor unless such opinion is not required in accordance with the provisions of this
\nSection 11.1(c)).<\/p>\n
(d) Notwithstanding the foregoing provisions of this Section 11.1,
\nthe restrictions imposed by this Section 11.1 upon the transferability of
\nRestricted Securities shall cease and terminate when (i) any such shares are
\nsold or otherwise disposed of pursuant to an effective registration statement
\nunder the Securities Act or as otherwise contemplated by Section 11.1(c) and,
\npursuant to Section 11.1(c), the securities so transferred are not required to
\nbear the legend set forth in Section 11.1(b) or (ii) the holder of such
\nRestricted Securities has met the requirements for Transfer of such Restricted
\nSecurities pursuant to Rule 144. Whenever the restrictions imposed by this
\nSection 11.1 shall terminate, as herein provided, the holder of Restricted
\nSecurities as to which such restrictions have terminated shall be entitled to
\nreceive from Parent, without expense, a new certificate not bearing the
\nrestrictive legend set forth in Section 11.1(b) and not containing any other
\nreference to the restrictions imposed by this Section 11.1.<\/p>\n
(e) Each Shareholder understands and agrees that Parent, at its
\ndiscretion, may cause stop transfer orders to be placed with its transfer agent
\nwith respect to certificates for <\/p>\n
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\n 53<\/p>\n
Restricted Securities owned by such Shareholder but not as to certificates for
\nsuch shares of Parent Common Stock as to which the legend set forth in this
\nSection 11.1(b) is no longer required because one or more of the conditions set
\nforth in Section 11.2(d) shall have been satisfied.<\/p>\n
(f) The provisions of this Section 11.1 shall be in addition to, and
\nshall not alter or otherwise limit, the provisions set forth in the Affiliate
\nAgreements.<\/p>\n
11.2 SHAREHOLDERS’ AGENT. The Company and the Shareholders hereby
\nirrevocably appoint Steve Podradchik as their agent and as the agent for the
\nIndemnitors for purposes of all matters relating to Section 1.9, Section 10 and
\nthe Escrow Agreement (the “SHAREHOLDERS’ AGENT”), and Steve Podradchik hereby
\naccepts his appointment as the Shareholders’ Agent. Parent shall be entitled to
\ndeal exclusively with the Shareholders’ Agent on all matters relating to Section
\n1.9, Section 10 and the Escrow Agreement, and shall be entitled to rely
\nconclusively (without further evidence of any kind whatsoever) on any document
\nexecuted or purported to be executed on behalf of any Shareholder or Indemnitor
\nby the Shareholders’ Agent, and on any other action taken or purported to be
\ntaken on behalf of any Shareholder or Indemnitor by the Shareholders’ Agent, as
\nfully binding upon such Shareholder or Indemnitor. If the Shareholders’ Agent
\nshall die, become disabled or otherwise be unable to fulfill his
\nresponsibilities as agent of the Shareholders and Indemnitors, then the
\nShareholders shall, within ten days after such death or disability, appoint a
\nsuccessor agent and, promptly thereafter, shall notify Parent of the identity of
\nsuch successor. Any such successor shall become the “Shareholders’ Agent” in
\naccordance with this Section 11.2. If for any reason there is no Shareholders’
\nAgent at any time, all references herein to the Shareholders’ Agent shall be
\ndeemed to refer to the Shareholders. The Shareholders’ Agent shall be reimbursed
\nout of the Holdback Shares for his reasonable out-of-pocket expenses incurred in
\nconnection with serving as the Shareholders’ Agent under this Agreement and the
\nEscrow Agreement. Shareholders’ Agent shall not be liable for any act done or
\nomitted hereunder as Shareholders’ Agent while acting in good faith and in the
\nexercise of reasonable judgment. The Shareholders on whose behalf Holdback
\nShares were contributed to the Escrow Account shall severally indemnify
\nShareholders’ Agent and hold Shareholders’ Agent harmless against any loss,
\nliability or expense incurred without gross negligence, bad faith or willful
\nmisconduct on the part of Shareholders’ Agent and arising out of or in
\nconnection with the acceptance or administration of Shareholders’ Agent’s duties
\nhereunder and under the Escrow Agreement, including the reasonable fees and
\nexpenses of any legal counsel retained by Shareholders’ Agent.<\/p>\n
11.3 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
\ndelivered to each other party hereto such instruments and other documents, and
\nshall take such other actions, as such other party may reasonably request (prior
\nto, at or after the Closing) for the purpose of carrying out or evidencing any
\nof the transactions contemplated by this Agreement.<\/p>\n
11.4 FEES AND EXPENSES. As used in this Agreement, “TRANSACTION COSTS”
\nshall mean, with respect to any party, all actual, out-of-pocket expenses
\nincurred by such party to third parties in connection with this Agreement, the
\nAgreement of Merger, the Related Agreements, the Merger and all other
\ntransactions provided for herein and therein but shall not in any event <\/p>\n
-47-
\n 54<\/p>\n
include general overhead; the time spent by employees of such party internally;
\npostage, telephone, telecopy, photocopy and delivery expenses of such party;
\npermit and filing fees; and other non-material expenses that are incidental to
\nthe ordinary course of business. Each party hereto shall bear its own
\nTransaction Costs; provided, however, that in the event the Merger shall be
\nconsummated, the Shareholders shall bear all Transaction Costs of the Company
\n(other than any severance payments paid by Parent in connection with the
\nMerger), whether or not such fees and expenses have been paid by the Company on
\nor before the Closing Date and whether or not such fees and expenses are
\nreflected in the Company Disclosure Schedule or the Schedule of Expenses (such
\nTransaction Costs of the Company being herein collectively referred to as the
\n“COMPANY EXPENSES”), other than $300,000 of the Broadview Expenses and all legal
\nand accounting fees incurred by the Company in connection with the transactions
\ncontemplated by this Agreement.<\/p>\n
11.5 ATTORNEYS’ FEES. If any action or proceeding relating to this
\nAgreement or the enforcement of any provision of this Agreement is brought
\nagainst any party hereto, the prevailing party shall be entitled to recover
\nreasonable attorneys’ fees, costs and disbursements (in addition to any other
\nrelief to which the prevailing party may be entitled).<\/p>\n
11.6 NOTICES. Any notice or other communication required or permitted to
\nbe delivered to any party under this Agreement shall be in writing and shall be
\ndeemed properly delivered, given and received when delivered (by hand, by
\nregistered mail, by courier or express delivery service or by facsimile) to the
\naddress or facsimile telephone number set forth beneath the name of such party
\nbelow (or to such other address or facsimile telephone number as such party
\nshall have specified in a written notice given to the other parties hereto):<\/p>\n
if to Parent:
\n Accrue Software, Inc.
\n 48634 Milmont Drive
\n Fremont, CA 94538-7353
\n Facsimile: 510-580-4509
\n Attn: Chief Executive Officer<\/p>\n
with a copy (not constituting notice ) to:
\n Orrick, Herrington & Sutcliffe LLP
\n 400 Capitol Mall, Suite 3000
\n Sacramento, CA 95814
\n Facsimile: (916) 329-4900
\n Attn: Iain Mickle, Esq.<\/p>\n
-48-
\n 55<\/p>\n
if to the Company:
\n Marketwave Corporation
\n 201 Queen Anne Avenue North
\n Suite 401
\n Seattle, WA 98109
\n Facsimile: 206-281-5005
\n Attn: Chief Executive Officer<\/p>\n
with a copy (not constituting notice ) to:
\n Venture Law Group
\n 4750 Carillon Point
\n Kirkland, Washington 98033
\n Facsimile: (415) 739-8750
\n Attn: Craig Sherman, Esq.<\/p>\n
if to any of the Shareholders:
\n Steven T. Podradchik
\n 1615 N.E. 63rd Street
\n Seattle, WA 98115<\/p>\n
11.7 CONFIDENTIALITY. Without limiting the generality of anything
\ncontained in Section 6.3, on and at all times after the Closing Date, each
\nShareholder shall keep confidential, and shall not use or disclose to any other
\nPerson, any non-public document or other non-public information in such
\nShareholder’s possession that relates to the business of the Company or Parent.<\/p>\n
11.8 TIME OF THE ESSENCE. Time is of the essence of this Agreement.<\/p>\n
11.9 HEADINGS. The headings contained in this Agreement are for
\nconvenience of reference only, shall not be deemed to be a part of this
\nAgreement and shall not be referred to in connection with the construction or
\ninterpretation of this Agreement.<\/p>\n
11.10 COUNTERPARTS. This Agreement may be executed in several
\ncounterparts, each of which shall constitute an original and all of which, when
\ntaken together, shall constitute one agreement.<\/p>\n
11.11 GOVERNING LAW. This Agreement shall be construed in accordance
\nwith, and governed in all respects by, the internal laws of the State of
\nCalifornia (without giving effect to principles of conflicts of laws).<\/p>\n
11.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: the
\nCompany and its successors and assigns (if any); the Shareholders and their
\nrespective personal representatives, executors, administrators, estates, heirs,
\nsuccessors and assigns (if any); Parent and its successors and assigns (if any);
\nand Merger Sub and its successors and assigns (if any). This Agreement shall
\ninure to the benefit of: the Company; the Shareholders (to the extent set <\/p>\n
-49-
\n 56<\/p>\n
forth in Section 1.5); the holders of assumed Company Options (to the extent set
\nforth in Section 1.6); Parent; Merger Sub; the other Indemnitees (subject to
\nSection 10); and the respective successors and assigns (if any) of the
\nforegoing. Parent may freely assign any or all of its rights under this
\nAgreement (including its indemnification rights under Section 10), in whole or
\nin part, to any other Person without obtaining the consent or approval of any
\nother party hereto or of any other Person.<\/p>\n
WAIVER OF JURY TRIAL. Each of the parties hereto irrevocably and
\nunconditionally waives trial by jury in any Action relating to this Agreement,
\nthe Related Agreements, the Agreement of Merger or any transaction contemplated
\nhereby or thereby, and for any counterclaim with respect thereto.<\/p>\n
11.13 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies
\nof the parties hereto shall be cumulative (and not alternative). The parties to
\nthis Agreement agree that, in the event of any breach or threatened breach by
\nany party to this Agreement of any covenant, obligation or other provision set
\nforth in this Agreement for the benefit of any other party to this Agreement,
\nsuch other party shall be entitled (in addition to any other remedy that may be
\navailable to it) to (a) a decree or order of specific performance or mandamus to
\nenforce the observance and performance of such covenant, obligation or other
\nprovision, and (b) an injunction restraining such breach or threatened breach.<\/p>\n
11.14 WAIVER.<\/p>\n
(a) No failure on the part of any Person to exercise any power,
\nright, privilege or remedy under this Agreement, and no delay on the part of any
\nPerson in exercising any power, right, privilege or remedy under this Agreement,
\nshall operate as a waiver of such power, right, privilege or remedy; and no
\nsingle or partial exercise of any such power, right, privilege or remedy shall
\npreclude any other or further exercise thereof or of any other power, right,
\nprivilege or remedy.<\/p>\n
(b) No Person shall be deemed to have waived any claim arising out
\nof this Agreement, or any power, right, privilege or remedy under this
\nAgreement, unless the waiver of such claim, power, right, privilege or remedy is
\nexpressly set forth in a written instrument duly executed and delivered on
\nbehalf of such Person; and any such waiver shall not be applicable or have any
\neffect except in the specific instance in which it is given.<\/p>\n
11.15 AMENDMENTS. This Agreement may not be amended, modified, altered
\nor supplemented other than by means of a written instrument duly executed and
\ndelivered on behalf of all of the parties hereto.<\/p>\n
11.16 SEVERABILITY. In the event that any provision of this Agreement,
\nor the application of any such provision to any Person or set of circumstances,
\nshall be determined to be invalid, unlawful, void or unenforceable to any
\nextent, the remainder of this Agreement, and the application of such provision
\nto Persons or circumstances other than those as to which it is determined to be
\ninvalid, unlawful, void or unenforceable, shall not be impaired or otherwise
\naffected and shall continue to be valid and enforceable to the fullest extent
\npermitted by law.<\/p>\n
-50-
\n 57<\/p>\n
11.17 PARTIES IN INTEREST. Except for the provisions of Sections 1.6 and
\n10, none of the provisions of this Agreement is intended to provide any rights
\nor remedies to any Person other than the parties hereto and their respective
\nsuccessors and assigns (if any).<\/p>\n
11.18 ENTIRE AGREEMENT. This Agreement and the other agreements referred
\nto herein set forth the entire understanding of the parties hereto relating to
\nthe subject matter hereof and thereof and supersede all prior agreements and
\nunderstandings among or between any of the parties relating to the subject
\nmatter hereof and thereof; provided, however, that the letter agreement executed
\non behalf of Parent and the Company on July 8, 1999 relating to nondisclosure
\n(the “NON-DISCLOSURE AGREEMENT”) and the letter agreement executed on behalf of
\nParent and the Company on August 26, 1999 relating to restrictions on third
\nparty negotiations (the “NO-SHOP AGREEMENT”) shall not be superseded by this
\nAgreement and shall remain in effect in accordance with their terms until the
\nearlier of (a) the Effective Time, or (b) the date on which such Non-Disclosure
\nAgreement and No-Shop Agreement, as applicable, are terminated in accordance
\nwith their terms.<\/p>\n
11.19 CONSTRUCTION.<\/p>\n
(a) For purposes of this Agreement, whenever the context requires:
\nthe singular number shall include the plural, and vice versa; the masculine
\ngender shall include the feminine and neuter genders; the feminine gender shall
\ninclude the masculine and neuter genders; and the neuter gender shall include
\nthe masculine and feminine genders.<\/p>\n
(b) The parties hereto agree that any rule of construction to the
\neffect that ambiguities are to be resolved against the drafting party shall not
\nbe applied in the construction or interpretation of this Agreement.<\/p>\n
(c) As used in this Agreement, the words “include” and “including,”
\nand variations thereof, shall not be deemed to be terms of limitation, but
\nrather shall be deemed to be followed by the words “without limitation.”<\/p>\n
(d) Except as otherwise indicated, all references in this Agreement
\nto “Sections” and “Exhibits” are intended to refer to Sections of this Agreement
\nand Exhibits to this Agreement.<\/p>\n
(e) Any references in this Agreement to the “knowledge” of the
\nCompany, or to matters “known” to the Company, shall mean, with respect to a
\ngiven matter, the actual knowledge of the Company Executives, such knowledge
\nthat could have been obtained by the Company Executives after due inquiry and a
\nreasonable investigation and any information contained in the files of the
\nCompany. Any references in this Agreement to the “knowledge” of Parent, or the
\nmatters “known” to Parent, shall mean, with respect to a given matter, the
\nactual knowledge of the executive officers of Parent listed on Schedule 11.20
\n(the “Parent Executives”), such knowledge that could have been obtained by the
\nParent Executives after due inquiry and a reasonable investigation and a
\nreasonable investigation and any information contained in the files of Parent.<\/p>\n
-51-
\n 58<\/p>\n
The parties hereto have caused this Agreement to be executed and
\ndelivered as of September 14, 1999.<\/p>\n
ACCRUE SOFTWARE, INC.,
\n a Delaware corporation<\/p>\n
————————————-
\n Richard Kreysar
\n President and Chief Executive Officer<\/p>\n
MARKETWAVE ACQUISITION CORP.,
\n a Washington corporation<\/p>\n
————————————-
\n Richard Kreysar
\n President and Chief Executive Officer<\/p>\n
MARKETWAVE CORPORATION,
\n a Washington corporation<\/p>\n
————————————-
\n Steve Podradchik
\n Chief Executive Officer<\/p>\n
[Signature page to Agreement and Plan of Merger and Reorganization]<\/p>\n
59<\/p>\n
EXHIBIT A<\/p>\n
CERTAIN DEFINITIONS<\/p>\n
For purposes of the Agreement (including this Exhibit A):<\/p>\n
“ACQUISITION TRANSACTION” shall mean any transaction involving:<\/p>\n
(a) the sale, license, disposition or acquisition of all or a
\nmaterial portion of the Company’s business or assets;the issuance, disposition
\nor acquisition of (i) any capital stock or other equity security of the Company
\n(other than common stock issued to employees of the Company, upon exercise of
\nCompany Options or otherwise, in routine transactions in accordance with the
\nCompany’s past practices), (ii) any option, call, warrant or right (whether or
\nnot immediately exercisable) to acquire any capital stock or other equity
\nsecurity of the Company (other than stock options granted to employees of the
\nCompany in routine transactions in accordance with the Company’s past
\npractices), or (iii) any security, instrument or obligation that is or may
\nbecome convertible into or exchangeable for any capital stock or other equity
\nsecurity of the Company; or any merger, consolidation, business combination,
\nreorganization or similar transaction involving the Company.<\/p>\n
“AGREEMENT” shall mean the Agreement and Plan of Merger and
\nReorganization to which this Exhibit A is attached (including the Company
\nDisclosure Schedule), as it may be amended from time to time.<\/p>\n
“COMPANY CONTRACT” shall mean any Contract: (a) to which the Company is
\na party; (b) by which the Company or any of its assets is or may become bound or
\nunder which the Company has, or may become subject to, any obligation; or (c)
\nunder which the Company has or may acquire any right or interest.<\/p>\n
“COMPANY PROPRIETARY ASSET” shall mean any Proprietary Asset owned by or
\nlicensed to the Company or otherwise used by the Company.<\/p>\n
“CONSENT” shall mean any approval, consent, ratification, permission,
\nwaiver or authorization (including any Governmental Authorization).<\/p>\n
“CONTRACT” shall mean any written, oral or other agreement, contract,
\nsubcontract, lease, understanding, instrument, note, warranty, insurance policy,
\nbenefit plan or legally binding commitment or undertaking of any nature.<\/p>\n
“COMPANY DISCLOSURE SCHEDULE” shall mean the schedule (dated as of the
\ndate of the Agreement) delivered to Parent on behalf of the Company and the
\nShareholders.<\/p>\n
“COMPANY MATERIAL ADVERSE EFFECT” shall mean a violation or other matter
\nthat could reasonably be expected to result in a material adverse effect on the
\nCompany’s business, condition, assets, liabilities, operations, financial
\nperformance or prospects (it being understood that none of the following shall
\nbe deemed, in and of itself, to constitute a material adverse effect on the
\nbusiness, condition, assets, liabilities, operations or financial performance of
\nthe Company: (a) a change that results from conditions affecting the U.S.
\neconomy or the world economy, (b) a change that results from conditions
\naffecting the Internet or the e-commerce industry so long as such conditions do
\nnot affect the Company in a disproportionate manner as compared with companies
\nof a similar size, (c) a change that results from the announcement or pendency
\nof the Merger or the transactions contemplated hereby and (d) a change that
\nresults from the taking of any action required by this Agreement).<\/p>\n
60<\/p>\n
“DAMAGES” shall include any loss, damage, injury, decline in value, lost
\nopportunity, liability, claim, demand, settlement, judgment, award, fine,
\npenalty, Tax, fee (including reasonable attorneys’ fees), charge, cost
\n(including costs of investigation) or expense of any nature.<\/p>\n
“ENCUMBRANCE” shall mean any lien, pledge, hypothecation, charge,
\nmortgage, security interest, encumbrance, claim, infringement, interference,
\noption, right of first refusal, preemptive right, community property interest or
\nrestriction of any nature (including any restriction on the voting of any
\nsecurity, any restriction on the transfer of any security or other asset, any
\nrestriction on the receipt of any income derived from any asset, any restriction
\non the use of any asset and any restriction on the possession, exercise or
\ntransfer of any other attribute of ownership of any asset).<\/p>\n
“ENTITY” shall mean any corporation (including any non-profit
\ncorporation), general partnership, limited partnership, limited liability
\npartnership, joint venture, estate, trust, company (including any limited
\nliability company or joint stock company), firm or other enterprise,
\nassociation, organization or entity.<\/p>\n
“EXCHANGE ACT” shall mean the Securities Exchange Act of 1934, as
\namended.<\/p>\n
“GOVERNMENTAL AUTHORIZATION” shall mean any: (a) permit, license,
\ncertificate, franchise, permission, clearance, registration, qualification or
\nauthorization issued, granted, given or otherwise made available by or under the
\nauthority of any Governmental Body or pursuant to any Legal Requirement; or (b)
\nright under any Contract with any Governmental Body.<\/p>\n
“GOVERNMENTAL BODY” shall mean any: (a) nation, state, commonwealth,
\nprovince, territory, county, municipality, district or other jurisdiction of any
\nnature; (b) federal, state, local, municipal, foreign or other government; or
\n(c) governmental or quasi-governmental authority of any nature (including any
\ngovernmental division, department, agency, commission, instrumentality,
\nofficial, organization, unit, body or Entity and any court or other tribunal).<\/p>\n
“INDEMNITEES” shall mean the following Persons: (a) Parent; (b) Parent’s
\ncurrent and future affiliates (including the Surviving Corporation); (c) the
\nrespective Representatives of the Persons referred to in clauses “(a)” and “(b)”
\nabove; and (d) the respective successors and assigns of the Persons referred to
\nin clauses “(a)”, “(b)” and “(c)” above; provided, however, that the
\nShareholders shall not be deemed to be “Indemnitees.”<\/p>\n
“LEGAL PROCEEDING” shall mean any action, suit, litigation, arbitration,
\nproceeding (including any civil, criminal, administrative, investigative or
\nappellate proceeding), hearing, inquiry, audit, examination or investigation
\ncommenced, brought, conducted or heard by or before, or otherwise involving, any
\ncourt or other Governmental Body or any arbitrator or arbitration panel.<\/p>\n
“LEGAL REQUIREMENT” shall mean any federal, state, local, municipal,
\nforeign or other law, statute, constitution, principle of common law,
\nresolution, ordinance, code, edict, decree, rule, regulation, ruling or
\nrequirement issued, enacted, adopted, promulgated, implemented or otherwise put
\ninto effect by or under the authority of any Governmental Body.<\/p>\n
“PARENT MATERIAL ADVERSE EFFECT” shall mean a violation or other matter
\nthat could reasonably be expected to result in a material adverse effect on
\nParent’s business, condition, assets, liabilities, operations, financial
\nperformance or prospects (it being understood that none of the following shall
\nbe deemed, in and of itself, to constitute a material adverse effect on the
\nbusiness, condition, assets, liabilities, operations or financial performance of
\nParent: (a) a change in the market price or trading volume of Parent’s Common
\nStock, (b) a failure by Parent to meet <\/p>\n
-2-
\n 61<\/p>\n
any securities analyst estimates of Parent’s financial results for any period
\n(c) a change that results from conditions affecting the U.S. economy or the
\nworld economy, (d) a change that results from conditions affecting the Internet
\nor the e-commerce industry so long as such conditions do not affect Parent in a
\ndisproportionate manner as compared with companies of a similar size, (e) a
\nchange that results from the announcement or pendency of the Merger or the
\ntransactions contemplated hereby and (f) a change that results from the taking
\nof any action required by this Agreement).<\/p>\n
“PERMITTED LIENS” shall mean (i) taxes or other charges which are not
\ndue and payable; and (ii) minor liens that have arisen in the ordinary course of
\nbusiness and that do not individually, or in the aggregate, materially detract
\nfrom the value of the asset subject thereto or materially impair the operations
\nof the Company.<\/p>\n
“PERSON” shall mean any individual, Entity or Governmental Body.<\/p>\n
“PROPRIETARY ASSET” shall mean any: (a) patent, patent application,
\ntrademark (whether registered or unregistered), trademark application, trade
\nname, fictitious business name, service mark (whether registered or
\nunregistered), service mark application, copyright (whether registered or
\nunregistered), copyright application, maskwork, maskwork application, trade
\nsecret, know-how, customer list, franchise, system, computer software, computer
\nprogram, invention, design, blueprint, engineering drawing, proprietary product,
\ntechnology, proprietary right or other intellectual property right or intangible
\nasset; or (b) right to use or exploit any of the foregoing.<\/p>\n
“RELATED AGREEMENTS” shall mean the Agreement of Merger, the Escrow
\nAgreement, the Affiliate Agreements and the Investor Rights Agreement.<\/p>\n
“REPRESENTATIVES” shall mean officers, directors, employees, agents,
\nattorneys, accountants, advisors and representatives.<\/p>\n
“SEC” shall mean the United States Securities and Exchange Commission.<\/p>\n
“SECURITIES ACT” shall mean the Securities Act of 1933, as amended.<\/p>\n
“TAX” shall mean any tax (including any income tax, franchise tax,
\ncapital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
\nvalorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
\ntax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
\nany customs duty), deficiency or fee, and any related charge or amount
\n(including any fine, penalty or interest), imposed, assessed or collected by or
\nunder the authority of any Governmental Body.<\/p>\n
“TAX RETURN” shall mean any return (including any information return),
\nreport, statement, declaration, estimate, schedule, notice, notification, form,
\nelection, certificate or other document or information filed with or submitted
\nto, or required to be filed with or submitted to, any Governmental Body in
\nconnection with the determination, assessment, collection or payment of any Tax
\nor in connection with the administration, implementation or enforcement of or
\ncompliance with any Legal Requirement relating to any Tax.<\/p>\n
“YEAR 2000 COMPLIANT”, for purposes of the Agreement, shall mean an item
\nof software or hardware shall be deemed to be “Year 2000 Compliant” only if
\noperating on a stand-alone basis without reference to dates supplied by third
\nparty software or hardware: (i) the functions, calculations, and other computing
\nprocesses of such item of software or hardware (collectively, “PROCESSES”)
\nperform in a consistent and correct manner without interruption regardless of
\nthe date on which the Processes are actually performed and regardless of the
\ndate input to the applicable computer system (before, on or after January 1,
\n2000 until December 31, 2099); (ii) <\/p>\n
-3-
\n 62<\/p>\n
such item of software or hardware accepts, calculates, compares, sorts,
\nextracts, sequences and otherwise processes date inputs and date values, and
\nreturns and displays date values, in a consistent and correct manner regardless
\nof the dates used (before, on or after January 1, 2000 until December 31, 2099);
\n(iii) such item of software or hardware accepts and can respond to year input,
\nif any, in a manner that resolves any ambiguities as to century in a defined,
\npredetermined and appropriate manner; (iv) such item of software or hardware
\nstores and displays date information in ways that are unambiguous as to the
\ndetermination of the century; and (v) if such item of software or hardware
\ndetermines leap years, it uses the following standard: (A) if dividing the year
\nby four yields an integer, it is a leap year, except for years ending in 00, but
\n(B) a year ending in 00 is a leap year if dividing it by 400 yields an integer.<\/p>\n
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