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EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
CORILLIAN CORPORATION,
QUANTUM ACQUISITION CORPORATION,
QUARRY ACQUISITION LLC,
QBT SYSTEMS INC.,
AND
THE SHAREHOLDERS OF QBT SYSTEMS INC.
DATED AS OF AUGUST 5, 2005
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TABLE OF CONTENTS
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ARTICLE I -
DEFINITIONS...................................................................
2
1.1
Certain Defined
Terms.....................................................
2
1.2
Certain Additional Defined
Terms..........................................
8
ARTICLE II - TRANSACTION AND TERMS OF THE
MERGERS.........................................
10
2.1 The Step One
Merger...........................................................
10
2.1.1
The
Closing..........................................................
10
2.1.2
Effective
Time.......................................................
10
2.1.3
Effects of the Step One
Merger.......................................
10
2.1.4
Certificate of Incorporation and Bylaws of the Interim
Surviving
Corporation................................................
11
2.1.5
Directors and Officers of the Interim Surviving
Corporation..........
11
2.2 Step Two
Merger................................................................
11
2.2.1 Step Two Merger
Effective Time.......................................
11
2.2.2 Effects of the
Step Two Merger.......................................
12
2.2.3 Articles of
Organization and Operating Agreement of the
Surviving
LLC........................................................
12
2.2.4 Manager and
Officers of the Surviving LLC............................
12
2.2.5 Treatment of
Capital Stock in Step Two Merger........................
12
2.3 Conversion of Company
Capital Stock............................................
13
2.4 Options; Exchange
Procedures...................................................
14
2.4.1
Options..............................................................
14
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2.4.2 Receipt of
Certificates..............................................
14
2.4.3 No Fractional
Shares.................................................
15
2.4.4 Dissenting
Shares....................................................
15
2.5 Escrow
Fund....................................................................
16
2.5.1 Withholding of
Escrow Amount; Escrow Fund............................
16
2.5.2 Deposit of
Escrow Amount.............................................
16
2.5.3 Release of
Escrow Fund...............................................
16
2.5.4 No Transfer or
Encumbrance...........................................
17
2.5.6 No Liability of
Parent...............................................
17
2.6 Shareholder
Representative.....................................................
17
2.7 Tax Free
Reorganization........................................................
18
2.8 Tax
Withholding................................................................
18
ARTICLE III - REPRESENTATIONS AND
WARRANTIES OF THE COMPANY...............................
19
3.1
Organization...................................................................
19
3.2
Enforceability.................................................................
19
3.3
Capitalization.................................................................
20
3.4 Subsidiaries and
Affiliates....................................................
21
3.5 No Approvals; No
Conflicts.....................................................
22
3.6 Financial
Statements...........................................................
23
3.7 Absence of Certain
Changes or Events...........................................
23
3.8
Taxes..........................................................................
25
3.9
Property.......................................................................
29
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3.10
Contracts...................................................................
30
3.11 Claims and
Legal Proceedings................................................
32
3.12 Labor and
Employment Matters................................................
32
3.13 Employee
Benefit Plans......................................................
33
3.13.1
Employee Benefit Plan
Listing........................................
33
3.13.2
Documents
Provided...................................................
34
3.13.3
Compliance...........................................................
34
3.13.4
Qualification........................................................
35
3.13.5
Contributions and Premium
Payments...................................
35
3.13.6
Related
Employers....................................................
36
3.13.7
Multiemployer and Title IV
Plans.....................................
36
3.13.8
Post-Termination
Benefits............................................
36
3.13.9
Suits, Claims and
Investigations.....................................
36
3.13.10 Payments
Resulting From Transactions.................................
37
3.14 Intellectual
Property..........................................................
37
3.14.1
General..............................................................
37
3.14.2 No
Encumbrances; Protection..........................................
37
3.14.3
Internet Domain
Names................................................
38
3.14.4
Ownership of Employee
Works..........................................
38
3.14.5
Non-Infringement.....................................................
39
3.14.6
Intellectual Property
Registrations..................................
39
3.14.7
Maintenance of
Rights................................................
39
3.14.8
Confidentiality......................................................
40
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3.14.9
Warranty Against
Defects.............................................
40
3.14.10
Indemnification......................................................
40
3.14.11
Restrictions on Intellectual
Property................................
41
3.15 Warranties and
Maintenance.....................................................
41
3.16 Corporate Books and
Records....................................................
41
3.17 Licenses, Permits,
Authorizations, etc.........................................
42
3.18 Compliance With
Laws...........................................................
42
3.19
Insurance......................................................................
42
3.20 Brokers or
Finders.............................................................
43
3.21 Absence of Questionable
Payments...............................................
43
3.22 Bank
Accounts..................................................................
43
3.23 Insider
Interests..............................................................
43
3.24 Compliance With
Environmental Laws.............................................
44
3.25 Accounts
Receivable............................................................
44
3.26 Information to
Shareholders....................................................
45
3.27 Full
Disclosure................................................................
45
3.28 Disclaimer Regarding
Projections...............................................
45
3.29 MemberBridge Acquisition
Expenses..............................................
46
ARTICLE IIIA - REPRESENTATIONS AND
WARRANTIES OF THE SHAREHOLDERS.........................
46
3A.1
Accreditation..................................................................
46
3A.2
Ownership......................................................................
46
3A.3 Enforceability; No
Conflicts...................................................
46
3A.4 Claims Against the
Company.....................................................
47
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3A.5 Brokers or
Agents..............................................................
47
3A.7 Investment for Own
Account.....................................................
48
3A.8
Residency......................................................................
48
3A.9
Litigation.....................................................................
48
3A.10 SEC Documents; Access to
Information...........................................
48
3A.11
Indemnity......................................................................
49
3A.12 Restricted
Securities..........................................................
49
3A.13 Tax
Consequences...............................................................
49
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
OF THE PARENT.................................
49
4.1
Organization...................................................................
49
4.2
Enforceability.................................................................
50
4.3
Securities.....................................................................
50
4.4 No Approvals or
Notices Required; No Conflicts With Instruments................
51
4.5
Capitalization.................................................................
51
4.6 SEC
Documents..................................................................
51
4.7 Absence of Certain
Changes.....................................................
52
4.8 Full
Disclosure................................................................
52
4.9 Shareholders
Consent...........................................................
52
4.10 Brokers or
Finders.............................................................
52
4.11
Litigation.....................................................................
52
4.12 Compliance with
Laws...........................................................
53
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ARTICLE V - CONDITIONS PRECEDENT TO
OBLIGATIONS OF THE PARENT.............................
53
5.1 Accuracy of
Representations and Warranties.....................................
53
5.2 Performance of
Agreements......................................................
53
5.3 Approvals and
Consents.........................................................
54
5.4 Secretary's
Certificate........................................................
54
5.5 Officer's
Certificate..........................................................
54
5.6 Nonforeign
Affidavit...........................................................
54
5.7 Compliance with
Laws...........................................................
54
5.8 Legal
Proceedings..............................................................
54
5.9 Termination of Certain
Agreements..............................................
55
5.10 Exercise of Stock Purchase
Rights; Conversion of Convertible Securities........
55
5.11 Nondisclosure
Agreements.......................................................
55
5.12 Consulting Agreement and
Non-Competition Agreement.............................
55
5.13 Securities
Laws................................................................
55
5.14 Legal Opinion of Counsel to
Company............................................
55
5.15 Resignation of Officers and
Directors..........................................
56
5.16 Company Shareholder
Approval...................................................
56
ARTICLE VI - CONDITIONS PRECEDENT TO
OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS......
56
6.1 Accuracy of
Representations and Warranties.....................................
56
6.2 Performance of
Agreements......................................................
56
6.3 Legal
Proceedings..............................................................
56
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6.4 Compliance with
Laws...........................................................
57
6.5 Secretary's
Certificates.......................................................
57
6.6 Securities
Laws................................................................
57
6.7 Legal Opinion of
Counsel to Parent.............................................
57
6.8 Officer's
Certificate..........................................................
57
6.9 Consulting Agreement
and Non-Competition Agreement.............................
57
6.10 Company Shareholder
Approval...................................................
57
ARTICLE VII -
COVENANTS...................................................................
58
7.1 Conduct of Business by
the Company Pending the Mergers.........................
58
7.2 Access to Information;
Confidentiality.........................................
60
7.3 No Alternative
Transactions....................................................
60
7.4 Notification of
Certain Matters................................................
61
7.5 Further Action;
Commercially Reasonable Efforts................................
61
7.6
Publicity......................................................................
62
7.7 Blue Sky
Laws..................................................................
62
7.8 Repayment of Debt,
Releases of Liens...........................................
62
7.9 Piggyback
Registration.........................................................
62
7.10 Parent Payment of Certain
Liabilities..........................................
69
7.11 Execution of All Ancillary
Documents...........................................
69
7.12 Termination of 401(k)
Plan.....................................................
69
ARTICLE VIIA - COVENANTS OF THE
SHAREHOLDERS..............................................
70
7A.1 Restrictions on
Transfer.......................................................
70
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7A.2 Execution of All Ancillary
Documents...........................................
70
7A.3 No Alternative
Transactions....................................................
70
7A.4 Limitation on
Sales............................................................
70
7A.5 Agreement to Vote
Shares.......................................................
70
ARTICLE VIII - TERMINATION, AMENDMENT AND
WAIVER..........................................
71
8.1
Termination....................................................................
71
8.2 Effect of
Termination..........................................................
72
8.3
Amendment......................................................................
72
8.4
Waiver.........................................................................
72
ARTICLE IX - SURVIVAL AND
INDEMNIFICATION.................................................
73
9.1
Survival.......................................................................
73
9.2 Indemnification by the
Shareholders............................................
73
9.3 Indemnification by the
Parent..................................................
74
9.4 Threshold and
Limitations; Adjustment of Merger Consideration..................
74
9.5 Procedure for
Indemnification..................................................
75
9.5.1 Claim
Notice.........................................................
75
9.5.2 Defense of
Third-Party Claims........................................
75
9.5.3 Resolution of
Claim Notice...........................................
77
9.6 Remedies; Specific
Performance; No Contribution from the Company...............
78
ARTICLE X -
GENERAL.......................................................................
78
10.1 Tax
Matters....................................................................
78
10.2
Expenses.......................................................................
80
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10.3
Notices........................................................................
80
10.4
Severability...................................................................
81
10.5 Entire
Agreement...............................................................
82
10.6
Assignment.....................................................................
82
10.7 Parties in
Interest............................................................
82
10.8 Governing
Law..................................................................
83
10.9
Headings.......................................................................
83
10.10
Counterparts...................................................................
83
10.11 Waiver of Jury
Trial...........................................................
83
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EXHIBITS
--------
A-1 - Consulting Agreement
A-2 - Non-Competition
Agreement
3.12 - Form of Company Employee
Confidentiality Agreement
5.6 - Real Property Tax
Affidavit
5.15 - Form of Company Counsel
Legal Opinion
6.7 - Form of Parent Counsel Legal
Opinion
SCHEDULES
---------
2.3 - Merger Consideration
Allocation for Closing Distribution
3 -
Company
Disclosure Schedule
3A - Shareholder Disclosure
Schedule
5.3 - List of Consents, Approvals
and Notices
7.8 - Permitted Debt
7.10 - Liabilities to be Assumed by
Parent
10.2 - Company Expenses
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AGREEMENT AND PLAN OF REORGANIZATION
This
Agreement and Plan of Reorganization (this "Agreement") is made
and
entered into as of August 5, 2005, by and
among Corillian Corporation, an Oregon
corporation (the "Parent"), Quantum
Acquisition Corporation, a New York
corporation and wholly owned subsidiary of
Parent ("Merger Sub"), Quarry
Acquisition LLC, a single member Oregon
limited liability company and wholly
owned subsidiary of Parent (the "Surviving
LLC"), qbt Systems Inc., a New York
corporation (the "Company"), and each of
the shareholders of the Company who
have signed this Agreement (the
"Shareholders").
RECITALS
A. The
Parent, the Company and the Shareholders believe it advisable
and
in their respective best interests to
effect the acquisition of the Company
pursuant to the merger of Merger Sub with
and into the Company (the "Step One
Merger") with the Company surviving the
Step One Merger (the "Interim Surviving
Corporation"), followed by a merger of the
Interim Surviving Corporation with
and into the Surviving LLC with the
Surviving LLC surviving (the "Step Two
Merger" and, together with the Step One
Merger, the "Mergers").
B. The
Board of Directors of the Company has approved this Agreement
and
the Mergers as required by applicable
law.
C. The
Board of Directors of the Parent and Merger Sub and the manager
of
the Surviving LLC have approved this
Agreement and the Mergers as required by
applicable law.
D. It is intended that,
unless the Closing Date Share Price is less than
90% of the Share Price, the Mergers,
together, will qualify as a reorganization
under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the
"Code").
AGREEMENT
In
consideration of the terms hereof, the parties hereto agree as
follows:
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ARTICLE I - DEFINITIONS
1.1
CERTAIN DEFINED TERMS
As used in
this Agreement, the following terms shall have the following
meanings (such definitions to be equally
applicable to both the singular and
plural forms of the terms defined):
"Ancillary
Documents" means, collectively, the Consulting Agreement, the
Non-Competition Agreement and the other
agreements and certificates that are
required to be executed pursuant to this
Agreement.
"Aggregate
Cash Consideration" means (i) the Initial Aggregate Cash
Consideration, or (ii), if the Closing Date
Share Price is less than 90% of the
Share Price, the product of the Merger
Consideration Value multiplied by 0.75.
"Aggregate
Stock Consideration" means (i) the Initial Aggregate Stock
Consideration, or (ii), if the Closing Date
Share Price is less than 90% of the
Share Price, the number of shares of the
Parent Common Stock determined by
dividing (a) the Merger Consideration
Value, minus the Aggregate Cash
Consideration, by (b) the Share Price.
"Business"
means the business of the Company as currently conducted.
"Business
Day" means any day that is not a Saturday, a Sunday or any
other
day on which banks generally are required
or authorized to be closed in New
York, New York.
"Cash
Fraction" means the lesser of (i) 0.60 or (ii) the quotient of
(x)
the Share Price Fraction divided by (y) the
sum of (A) 0.40 and (B) the Share
Price Fraction.
"Closing
Date Share Price" means the closing price of Parent Common
Stock
as quoted on the NASDAQ Stock Market's
National Market on the last trading day
immediately prior to the Closing Date.
"Code"
means the Internal Revenue Code of 1986, and all rules and
regulations promulgated thereunder, all as
in effect from time to time.
"Company
Capital Stock" means the outstanding shares of the Company
Common
Stock and any other classes and series of
capital stock of the Company (in each
case on a fully diluted, as-converted to
Company Common Stock basis).
"Company
Common Stock" means the Company's Common Stock, par value $.001
per share.
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"Company
Intellectual Property" means, all Intellectual Property used
in,
developed for use in, or necessary to the
conduct of the business of the Company
and the Company Subsidiaries as it is
currently conducted or as it is
contemplated to be conducted.
"Company
Material Adverse Effect" means any material adverse effect on
the
business, operations, assets, liabilities,
condition (financial or otherwise) or
prospects of the Company.
"Company
Preferred Stock" means the Company's Preferred Stock, par value
$.001 per share.
"Company
Shareholder Approval" meant the affirmative vote, at a meeting
of
the Company's shareholders, of the holders
of a sufficient percentage of the
Company Capital Stock necessary under the
New York Business Corporation Law, the
Company's Certificate, the Bylaws of the
Company and any other agreement,
documents or law that governs the voting
rights of the Company's shareholders to
approve the Mergers, this Agreement and the
transactions contemplated hereby.
"Company's
Certificate" means the Company's Certificate of Incorporation,
as amended.
"Consulting Agreement" means the consulting agreement attached to
this
Agreement as Exhibit A-1 and to be entered
into between the Parent and Bret
Schlussman as of the Closing Date.
"Debt" of
any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed
money, (ii) all obligations of such
Person evidenced by bonds (other than
surety or performance bonds), debentures,
notes or other similar instruments, (iii)
all obligations of such Person to pay
the deferred purchase price of property or
services, except trade accounts
payable arising in the ordinary course of
business, (iv) all capitalized lease
obligations of such Person, (v) all
non-contingent reimbursement, indemnity or
similar obligations of such Person in
respect of amounts paid under a letter of
credit, surety bond or similar instrument,
other than letters of credit to
suppliers of the Company for property or
services to be provided to the Company
in the ordinary course of business, (vi)
all Debt of others secured by an
Encumbrance on any asset of such Person,
whether or not such Debt is assumed by
such Person, and (vii) all Debt of others
guaranteed by such Person.
"Employee
Benefit Plan" means any retirement, pension, profit sharing,
deferred compensation, stock bonus,
savings, bonus, incentive, cafeteria,
medical, dental, vision, hospitalization,
life insurance, accidental death and
dismemberment, medical expense
reimbursement, dependent care assistance, tuition
reimbursement,
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disability, sick pay, holiday, vacation,
severance, change of control, stock
purchase, stock option, restricted stock,
phantom stock, stock appreciation
rights, fringe benefit or other employee
benefit plan, program, policy,
practice, contract, agreement, fund or
arrangement (including, without
limitation, any "employee benefit plan," as
defined in Section 3(3) of ERISA) or
any employment, consulting or personal
services contract, whether written or
oral, funded or unfunded or domestic or
foreign, (a) sponsored, maintained or
contributed to by the Company or to which
the Company is a party, (b) covering
or benefiting any current or former
officer, employee, agent, director or
independent contractor of the Company (or
any dependent or beneficiary of any
such individual), or (c) with respect to
which the Company has (or could have)
any obligation or liability.
"Encumbrance" means, with respect to any asset, any mortgage, deed
of
trust, lien, pledge, charge, security
interest, title retention device,
conditional sale or other security
arrangement, collateral assignment, claim,
charge, adverse claim of title, ownership
or right to use, restriction or other
encumbrance of any kind in respect of such
asset (including any restriction on
(a) the voting of any security or the
transfer, other than pursuant to
applicable federal and state securities
laws, of any security or other asset,
(b) the receipt of any income derived from
any asset, (c) the use of any asset,
and (d) the possession, exercise or
transfer of any other attribute of ownership
of any asset).
"Environmental Laws" means all state, local, and federal laws,
statutes,
regulations, and ordinances of any kind
relating to environmental protection or
compliance, including but not limited to,
the federal Clean Water Act; Clean Air
Act; Toxic Substances Control Act;
Comprehensive Environmental Response,
Compensation and Liability Act; Resource
Conservation and Recovery Act; Federal
Insecticide, Fungicide, and Rodenticide
Act; Safe Drinking Water Act; Hazardous
Materials Transportation Act; and common
law including, but not limited to,
causes of action arising in tort.
"ERISA"
means the Employee Retirement Income Security Act of 1974, and
all
rules and regulations promulgated
thereunder, all as in effect from time to
time.
"Escrow
Amount" means an amount equal to $200,000.
"Exchange
Act" means the Securities and Exchange Act of 1934, as amended.
"Fully
Diluted Common Stock Number" means the total number of shares
of
Company Common Stock issued and outstanding
immediately prior to the Closing
Date, including the total number of shares
of Company Common Stock issuable upon
exercise of Options and other Stock
Purchase Rights outstanding immediately
prior to
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the Closing Date, other than Options
terminated pursuant to Section 2.4.1(b),
and regardless of restrictions on
exercise.
"Governmental Entity" means any United States or non-United
States
federal, national, state or local
governmental or quasi-governmental,
administrative, regulatory or judicial
court, department, commission, agency,
board, bureau, instrumentality or other
authority.
"Hazardous
Substances" means petroleum, petroleum products, hazardous
waste, pollutants, contaminants or
substances that constitute hazardous
substances under the Comprehensive
Environmental Response, Compensation and
Liability Act.
"Initial
Aggregate Cash Consideration" means the product of (i) the
Purchase Price multiplied by (ii) the Cash
Fraction.
"Initial
Aggregate Stock Consideration" means the number of shares of
the
Parent Common Stock determined by dividing
(a) the Purchase Price, minus the
Aggregate Cash Consideration, by (b) the
Share Price.
"Intellectual Property" means, collectively, all worldwide
industrial and
intellectual property rights, including
patents, patent applications, patent
rights, trademarks, trademark registrations
and applications therefore, trade
dress rights, trade names, service marks,
service mark registrations and
applications therefore, Internet domain
names, Internet and World Wide Web URLs
or addresses, copyrights, copyright
registrations and applications therefore,
mask work rights, mask work registrations
and applications therefore,
inventions, trade secrets, know-how,
customer lists, supplier lists, proprietary
processes and formulae, software source
code and object code, hardware
description language ("HDL") code,
netlists, design databases, design
methodologies, design schematics, ASICs,
cores, transceivers, interconnects,
equalizers, algorithms, architectures,
structures, technology, screen displays,
photographs, images, layouts, development
tools, designs, blueprints,
specifications, technical drawings (or
similar information in electronic format)
and all documentation and media
constituting, describing, embodying or relating
to any of the foregoing, including manuals,
programmers' notes, memoranda and
records.
"Knowledge" means, with respect to a corporation, all facts,
circumstances, events or other matters that
at any time were known to any
officer or director of the corporation, or
any agents representing the
corporation with respect to the Mergers, or
which could be ascertained by a
reasonable review of the documents,
records, books and files of the corporation
(in each case, whether written or
electronic), or by making inquiry to the
officers, senior managers, project managers
or site managers of the corporation
likely to have knowledge concerning the
facts, circumstances, events or matter
at issue. "To the knowledge of," or any
similar phrase with respect to, any
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other person or entity means that such
other person or entity has no actual
knowledge contrary to the facts or matters
so referenced.
"Law"
means any constitution, law, ordinance, principle of common
law,
code, regulation, statute or treaty of any
Governmental Entity.
"MemberBridge Acquisition Expenses" means the Company's
expenses
(including the purchase price and all other
payment obligations) in connection
with its acquisition of certain assets
constituting the MemberBridge application
from Corporate Network eCom, LLC, a Kansas
limited liability company.
"Merger
Consideration Value" means (i) the product of the Initial
Aggregate Stock Consideration, multiplied
by the Closing Date Share Price, plus
(ii) the Initial Aggregate Cash
Consideration.
"Merger
Consideration" means (i) the Aggregate Stock Consideration plus
(ii) the Aggregate Cash Consideration.
"Non-Competition Agreement" means the non-competition agreement
attached
to this Agreement as Exhibit A-2 and to be
entered into between the Parent and
Bret Schlussman as of the Closing Date.
"Parent
Common Stock" means the Parent's Common Stock, no par value per
share.
"Parent
Material Adverse Effect" means any material adverse effect on
the
business, operations, assets, liabilities,
condition (financial or otherwise) or
prospects of the Parent.
"Person"
means a person, corporation, partnership, joint venture,
association, organization, limited
liability company or other entity or a
governmental or regulatory authority.
"Piggyback
Registrable Shares" means the shares of Parent Common Stock
issued to the Shareholders as the Aggregate
Stock Consideration.
"Pre-Closing Straddle Period" means that portion of any Straddle
Period
that extends before the Closing Date
through the Closing Date.
"Pre-Closing Tax Period" means any Tax period ending on or before
the
Closing Date.
"Pre-Closing Taxes" means (i) all Taxes (or the nonpayment thereof)
of he
Company for any Pre-Closing Tax Period and
any Pre-Closing Straddle Period; (ii)
all
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Taxes of any member of an affiliated,
combined or unitary group of which the
Company is or was a member on or prior to
the Closing Date, including pursuant
to Treasury Regulation Section 1.1502-6 or
any analogous or similar state, local
or foreign Law; (iii) any and all Taxes of
any Person (other than the Company)
imposed on the Company as a transferee or
successor, by contract or pursuant to
any Law, which Taxes relate to an event or
transaction occurring on or before
the Closing Date; (iv) any Tax incurred or
suffered by the Company, the Parent
or any of their Affiliates arising out of a
breach of any representation or
warranty in Section 3.8 hereof, or any
covenant or agreement contained in
Section 10.1; and (v) all Losses arising
out of or incident to the imposition,
assessment or assertion of any Tax
described in clauses (i), (ii), (iii) and
(iv) above.
"Purchase
Price" means $5,330,000, less any transaction expenses of the
Company paid or payable pursuant to Section
10.2 hereof, except to the extent
that such transaction expenses are paid out
of the proceeds from the exercise of
any Options.
"SEC"
means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Share
Price" means $3.26, calculated based on the average closing
price
of Parent Common Stock as quoted on the
NASDAQ Stock Market's National Market
for the ten trading days immediately
preceding July 5, 2005. The Share Price
shall be adjusted appropriately to reflect
any stock splits, recapitalizations
or stock dividends with respect to the
Parent Common Stock that occur after the
date of this Agreement.
"Share
Price Fraction" means the product of (i) 0.60 multiplied by
(ii)
the ratio of the Closing Date Share Price
to the Share Price.
"Stock
Purchase Rights" means all rights, warrants or options, vested
or
unvested, to acquire Company Capital Stock,
regardless of restrictions or
exercise, and securities and notes
convertible or exchangeable at any time, into
Company Capital Stock, regardless of
restrictions on conversion.
"Straddle
Period" means any Tax period that begins on or before the
Closing Date and ends after the Closing
Date.
PAGE 7
<PAGE>
1.2
CERTAIN ADDITIONAL DEFINED TERMS
In
addition to terms defined in Section 1.1, the following
capitalized
terms are used as defined in the Sections
set forth opposite such terms:
<TABLE>
<CAPTION>
Defined Terms
Section Reference
-------------
-----------------
<S>
<C>
Agreement
Introduction
Blue Sky Laws
7.9(iii)(4)
Certificate of Merger
2.1.2
ChaseMellon
2.4.2
Claim Notice
9.5(a)
Claims
9.4(a)
Closing
2.1.1
Closing Date
2.1.1
Code
Recitals
Company
Introduction
Company Disclosure Schedule
Article III
Company Subsidiary
3.4
Confidentiality Agreement
7.2
Dissenting Shares
2.4.4
DOL
3.13.8
Domain Names
3.14.11
Effective Time
2.1.2
Effective Time Holder
2.5.1
Employee Benefit Plans
3.13.1
Escrow Earnings
2.5.2
Escrow Fund
2.5.1
Escrow Period
2.5.1
Financial Statements
3.6
Indemnified Party
9.4(a)
Independent Accounting Firm
2.5(c)
Interim Surviving Corporation
Recitals
IP Registrations
3.14.5
IRS
2.6(a)
Losses
9.2
Option
2.4.1(b)
Major Shareholders
9.4(b)
Merger Sub
Introduction
Mergers
Recitals
Nondisclosure Agreement
3.12
Parent Contested Claim
9.5.3(c)
Permitted Debt
7.9
</TABLE>
PAGE 8
<PAGE>
<TABLE>
<CAPTION>
Defined Terms
Section Reference
-------------
-----------------
<S>
<C>
Per Shareholder Cash Consideration
2.3
Per Shareholder Stock Consideration
2.3
Personal Property
3.9(b)
Piggyback Registering Shareholder
7.9(a)
Primary Indemnitors
9.4(b)
Pro Rata Share
2.5.1
Parent
Introduction
Parent Indemnified Parties
9.2
Real Property
3.9(a)
Registration Claim
7.9
Registration Indemnified Person
7.9
Registration Indemnifying Person
7.9
Registration Statement
7.9
Risk Factors
3A.10
SEC Documents
4.6
Shareholder Contested Claim
9.5.3(b)
Shareholder Disclosure Schedule
Article IIIA
Shareholder Indemnified Party
9.3
Shareholder Representative
2.6
Shareholders
Introduction
Step One Merger
Recitals
Step Two Certificate of Merger
2.2.1
Step Two Merger
Recitals
Step Two Merger Effective Time
2.2.1
Surrender
2.3(a)
Survival Period
9.1
Surviving LLC
Introduction
Taxes
3.8
Tax Returns
3.8
Third Party Claim
9.5(a)
Threshold
9.4(a)
Transfer Agent
2.4.2
Transfer Taxes
10.1(c)
Transmitted Copies
10.10
</TABLE>
PAGE 9
<PAGE>
ARTICLE II - TRANSACTION AND TERMS OF THE
MERGERS
2.1 THE
STEP ONE MERGER
Subject to
the terms and conditions of this Agreement, at the Effective
Time (as defined in Section 2.1.2 hereof),
Merger Sub shall be merged with and
into the Company in accordance with the
applicable provisions of the New York
Business Corporation Law, whereupon the
separate corporate existence of Merger
Sub shall cease, with the Company surviving
the Step One Merger as the Interim
Surviving Corporation and as a wholly owned
subsidiary of Parent under the laws
of the state of New York.
2.1.1 THE CLOSING
Subject to
the satisfaction or waiver of the conditions set forth in
Articles V and VI and the termination
provisions of Article VIII, the closing of
the Step One Merger and the transactions
contemplated hereby (the "Closing")
shall take place at the offices of Perkins
Coie LLP, 1120 N.W. Couch Street,
10th Floor, Portland, Oregon at 10:00 a.m.
on a date specified by the parties
(the "Closing Date"), which shall be no
later than the second business day after
satisfaction or waiver of the conditions
set forth in Articles V and VI (other
than those conditions that by their terms
are to be satisfied at the Closing,
but subject to the satisfaction or waiver
of those conditions).
2.1.2 EFFECTIVE TIME
At the
time of the Closing, the Company and Merger Sub shall file, or
cause to be filed, with the Secretary of
State of the state of New York a
Certificate of Merger for the Step One
Merger, which Certificate shall be in the
form required by and executed in accordance
with the applicable provisions of
the New York Business Corporation Law and
in form and substance acceptable to
the Parent (the "Certificate of Merger").
The Step One Merger shall become
effective at the time such filing is made
or, if agreed to by the Parent and the
Company, at such later time or date set
forth in the Certificate of Merger (the
"Effective Time").
2.1.3 EFFECTS OF THE STEP ONE MERGER
The Step
One Merger shall have the effects set forth under the New York
Business Corporation Law. From and after
the Effective Time, the Interim
Surviving Corporation shall possess all the
rights, privileges, powers, and
franchises, and be subject to all the
restrictions, disabilities, and duties, of
the Company and Merger Sub, all as more
fully described under the New York
Business Corporation Law.
PAGE 10
<PAGE>
2.1.4 CERTIFICATE OF INCORPORATION AND BYLAWS OF THE INTERIM
SURVIVING CORPORATION
The
Certificate of Incorporation of Merger Sub shall, by virtue of
the
Merger, become and thereafter be the
Certificate of Incorporation of the Interim
Surviving Corporation until amended in
accordance with such Certificate of
Incorporation and the New York Business
Corporation Law. The Bylaws of Merger
Sub in effect immediately prior to the
Effective Time shall be the Bylaws of the
Interim Surviving Corporation, until
amended in accordance with such Bylaws, the
Certificate of Incorporation and the New
York Business Corporation Law.
2.1.5 DIRECTORS AND OFFICERS OF THE INTERIM SURVIVING
CORPORATION
The
directors and officers of Merger Sub immediately prior to the
Effective Time shall be the directors and
officers of the Interim Surviving
Corporation until their respective
successors shall be duly elected and
qualified or appointed.
2.2 STEP TWO MERGER
Immediately following the Step One Merger, the Interim
Surviving
Corporation shall be merged with and into
the Surviving LLC in accordance with
the applicable provisions of the New York
Business Corporation Law and the
Oregon Limited Liability Company Act,
whereupon the separate corporate existence
of the Interim Surviving Corporation shall
cease, with the Surviving LLC
surviving as a wholly owned subsidiary of
Parent under the laws of the state of
Oregon.
2.2.1 STEP TWO MERGER EFFECTIVE TIME
On the
Closing Date, immediately following the Effective Time, the
Interim
Surviving Corporation and the Surviving LLC
shall file, or cause to be filed,
with the Secretary of State of the states
of New York and Oregon a Certificate
of Merger for the Step Two Merger, which
Certificate shall be in the form
required by and executed in accordance with
the applicable provisions of the New
York Business Corporation Law and the
Oregon Limited Liability Company Act and
in form and substance acceptable to the
Parent (the "Step Two Certificate of
Merger"). The Step Two Merger shall become
effective at the time such filing is
made or, if agreed to by the Parent and the
Company (or the Interim Surviving
Corporation, as successor in interest of
the Company), at such later time or
date set forth in the Step Two Certificate
of Merger (the "Step Two Merger
Effective Time").
PAGE 11
<PAGE>
2.2.2 EFFECTS OF THE STEP TWO MERGER
The Step
Two Merger shall have the effects set forth under the New York
Business Corporation Law and the Oregon
Limited Liability Company Act. From and
after the Step Two Merger Effective Time,
the Surviving LLC shall possess all
the rights, privileges, powers, and
franchises, and be subject to all the
restrictions, disabilities, and duties, of
the Interim Surviving Corporation and
the Surviving LLC, all as more fully
described under the New York Business
Corporation Law and the Oregon Limited
Liability Company Act.
2.2.3 ARTICLES OF ORGANIZATION AND OPERATING AGREEMENT OF THE
SURVIVING LLC
The
Articles of Organization of the Surviving LLC shall, by virtue of
the
Step Two Merger, become and thereafter be
the Articles of Organization of the
Surviving LLC until amended in accordance
with such Articles of Organization and
the Oregon Limited Liability Company Act,
except that the Articles of
Organization of the Surviving LLC may be
amended upon the Step Two Merger
Effective Time to change the name of the
Surviving LLC. The Operating Agreement
of the Surviving LLC in effect immediately
prior to the Step Two Merger
Effective Time shall be the Operating
Agreement of the Surviving LLC, until
amended in accordance with such Operating
Agreement, the Articles of
Organization and the Oregon Limited
Liability Company Act.
2.2.4 MANAGER AND OFFICERS OF THE SURVIVING LLC
The
manager and officers of the Surviving LLC immediately prior to
the
Step Two Merger Effective Time shall be the
manager and officers of the
Surviving LLC until their respective
successors shall be duly elected and
qualified or appointed.
2.2.5 TREATMENT OF CAPITAL STOCK IN STEP TWO MERGER
Subject to
the provisions of this Agreement, at the Step Two Merger
Effective Time, automatically by virtue of
the Step Two Merger and without any
action on the part of any shareholder, (a)
each membership interest of the
Surviving LLC common stock outstanding
immediately prior to the Step Two Merger
Effective Time shall be unchanged and shall
remain issued and outstanding, and
(b) each share of the Interim Surviving
Corporation common stock outstanding
immediately prior to the Step Two Merger
Effective Time shall be cancelled
without consideration and shall cease to be
an issued and outstanding share of
Interim Surviving Corporation common
stock.
PAGE 12
<PAGE>
2.3
CONVERSION OF
COMPANY CAPITAL STOCK
(a).Subject to the terms and condition of this Agreement, at the
Effective
Time, each share of the Company Capital
Stock (including Company Common Stock
issued upon exercise of an Option prior to
the Effective Time) that is issued
and outstanding immediately prior to the
Effective Time shall, by virtue of the
Step One Merger and without the need for
further action on the part of the
holder thereof, be cancelled and
extinguished and automatically converted into
the right to receive a portion of the
Merger Consideration, upon surrender of
the certificate representing such shares of
Company Capital Stock, or if shares
are held in book entry form, irrevocable
instructions from the holder thereof
surrendering such shares (either, the
"Surrender"), together with any required
Form W-9 or Form W-8, as follows: (i) by
wire transfer in accordance with the
wire instructions set forth on Schedule
2.3, an amount of cash consideration
equal to the Aggregate Cash Consideration,
multiplied by a fraction, the
numerator of which is the aggregate number
of shares of Company Capital Stock
held by such Shareholder (on an
as-converted to Company Common Stock basis) and
the denominator of which is the Fully
Diluted Common Stock Number (the "Per
Shareholder Cash Consideration"), subject
to the provisions of Section 2.5
(regarding the withholding of the Escrow
Amount), and (ii) the number of fully
paid and nonassessable shares of the Parent
Common Stock equal to Aggregate
Stock Consideration, multiplied by a
fraction, the numerator of which is the
aggregate number of shares of Capital
Common Stock (on an as-converted to
Company Common Stock basis) held by such
Shareholder and the denominator of
which is the Fully Diluted Common Stock
Number, with cash paid in lieu of any
fractional share of the Parent Common Stock
pursuant to Section 2.4.3 hereof.
The Per Shareholder Cash Consideration and
the Per Shareholder Stock
Consideration allocable to each Shareholder
is set forth on Schedule 2.3.
(b) If,
prior to the Closing Date, the Parent recapitalizes through a
split-up of its outstanding shares of
capital stock into a greater number, or a
combination of its outstanding shares of
capital stock into a lesser number,
reorganizes, reclassifies or otherwise
changes its outstanding shares of capital
stock into the same or a different number
of shares of other classes of capital
stock, or declares a dividend on its
outstanding shares of capital stock payable
in shares or securities convertible into
shares, the number of shares of the
Parent Common Stock into which the shares
of Company Capital Stock are to be
converted will be adjusted appropriately so
as to maintain the proportionate
interests of the holders of the Company
Capital Stock and the holders of shares
of capital stock of the Parent.
PAGE 13
<PAGE>
2.4
OPTIONS;
EXCHANGE PROCEDURES
2.4.1 OPTIONS
Effective as of the Closing, each option to purchase shares of
the
Company Common Stock, whether or not vested
or exercisable, that is outstanding
immediately prior to the Closing (each, an
"Option"), and that has not been
exercised prior to the Closing, shall be
terminated. No Options will continue
after the Closing or be assumed or
continued by the Parent. Prior to the
Closing, the Company shall take all action
necessary to effect the termination
of all Options as contemplated by this
Section 2.4.1.
2.4.2 RECEIPT OF CERTIFICATES
The Parent
shall, on the Closing Date, issue irrevocable instructions to
ChaseMellon (the "Transfer Agent") to issue
certificates representing the number
of shares of the Parent Common Stock that
such Shareholder is entitled to
receive pursuant to Section 2.3(a) hereof
upon Surrender of such Shareholder's
shares of Company Capital Stock. In the
event that any certificates representing
shares of Company Capital Stock shall have
been lost, stolen or destroyed, upon
the making of an affidavit of that fact by
the Shareholder claiming such
certificate to be lost, stolen or
destroyed, the Parent shall issue in exchange
for such lost, stolen or destroyed
certificate the shares of the Parent Common
Stock that such Shareholder is entitled to
receive pursuant to Section 2.3(a)
hereof; provided, however, that the Parent
may in its discretion and as a
condition precedent to the issuance
thereof, require such Shareholder to provide
the Parent with an indemnity agreement
against any claim that may be made
against the Parent with respect to the
certificate alleged to have been lost,
stolen or destroyed. The shares of the
Parent Common Stock that each Shareholder
of the Company shall be entitled to receive
in connection with the Mergers
pursuant to Section 2.3(a) shall be deemed
to have been issued on the Closing
Date. If the Merger Consideration (or any
part thereof) is to be delivered to
any Person other than the Person in whose
name the certificate or certificates
representing shares of Company Capital
Stock surrendered in exchange therefor is
registered, it shall be a condition to such
exchange that (a) the prior written
consent of Parent is obtained, such consent
not unreasonably withheld or delayed
and (b) the person requesting such exchange
shall pay to the Parent any transfer
or other taxes required by reason of the
payment of the Merger Consideration to
a Person other than the registered holder
of the certificate or certificates so
surrendered, or shall establish to the
satisfaction of the Parent that such tax
has been paid or is not applicable.
Notwithstanding anything to the contrary,
neither the Parent nor any other party
hereto shall be liable to a holder of
shares of Company Capital Stock for any
Merger
PAGE 14
<PAGE>
Consideration delivered to a public
official pursuant to applicable law,
including, without limitation, abandoned
property, escheat and similar laws.
2.4.3 NO FRACTIONAL SHARES
No
certificates or scrip representing fractional shares of the
Parent
Common Stock shall be issued by virtue of
the Mergers, and no dividend, stock
split or other distribution with respect to
the Parent Common Stock shall relate
to any such fractional interest, and any
such fractional interests shall not
entitle the owner thereof to vote or to any
rights of a security holder. In lieu
thereof, the Parent shall pay to the holder
of shares of Company Capital Stock
who would otherwise be entitled to a
fraction of a share of the Parent Common
Stock, as soon as practicable after the
Closing Date (and in the same timely
manner required for delivery of
certificates of the Parent Common Stock provided
in Section 2.4.2), an amount in cash equal
to such fraction multiplied by the
Share Price.
2.4.4 DISSENTING SHARES
Holders of issued and outstanding shares of Company Common Stock
who
have complied with all the requirements for
perfecting dissenters' rights, as
required under the New York Business
Corporation Law, shall not receive a
portion of the Merger Consideration, as set
forth in Section 2.3(a), but shall
be entitled to their rights under New York
Business Corporation Law with respect
to such shares (the "Dissenting Shares").
Notwithstanding the foregoing, if any
holder of Dissenting Shares shall
effectively withdraw or lose (through failure
to perfect or otherwise) the right to
dissent, then, as of the later of the
Effective Time and the occurrence of such
event, such holder's issued and
outstanding shares of Company Common Stock
shall automatically be converted into
and represent only the right to receive the
portion of the Merger Consideration
to which such holder is then entitled under
this Agreement and the New York
Business Corporation Law, without interest
thereon and upon Surrender of the
certificate representing such shares of
Company Common Stock. Notwithstanding
any provision of this Agreement to the
contrary, any Dissenting Shares held by a
shareholder of the Company who has
perfected dissenter's rights for such shares
in accordance with the New York Business
Corporation Law shall not be entitled
to its portion of the Merger Consideration
pursuant to this Section 2.4.4. Each
holder of Dissenting Shares who, pursuant
to the New York Business Corporation
Law, becomes entitled to payment of the
value of the Dissenting Shares owned by
such holder will receive payment therefor
but only after the value therefor has
been agreed upon or finally determined
pursuant to the New York Business
Corporation Law. Any portion of the Merger
Consideration, as adjusted, that
would otherwise have been payable with
respect to Dissenting Shares if such
shares were not Dissenting Shares will be
retained by Parent.
PAGE 15
<PAGE>
2.5
ESCROW FUND
2.5.1 WITHHOLDING OF ESCROW AMOUNT; ESCROW FUND
At the
Effective Time, the Parent shall withhold the Escrow Amount
from
the Aggregate Cash Consideration payable
pursuant to Section 2.3(a) to the
Company's shareholders (other than holders
of solely shares of Company Common
Stock which constitute and remain
Dissenting Shares) (each, an "Effective Time
Holder" and collectively, the "Effective
Time Holders") on a pro rata basis
based upon the amount of cash each such
Effective Time Holder is entitled to
receive pursuant to Section 2.3(a) with
respect to such holder's shares of
Company Common Stock (other than Dissenting
Shares) relative to the amount of
cash all such Effective Time Holders are
entitled to receive pursuant to Section
2.3(a) with respect to their shares of
Company Common Stock (other than
Dissenting Shares) (the "Pro Rata Share").
The Parent shall hold the Escrow
Amount, plus any Escrow Earnings paid in
accordance with Section 2.5.2
(together, the "Escrow Fund"), for twelve
(12) months following the Effective
Time (the "Escrow Period") as partial
security for the indemnification
obligations of the Company and the
Shareholders under Article IX of this
Agreement.
2.5.2 DEPOSIT OF ESCROW AMOUNT
On the
Effective Date, the Parent shall cause the Escrow Amount to be
deposited in a segregated interest-bearing
account of the Parent at a bank of
its selection. The interest, earnings and
income that accrue upon the Escrow
Amount during the period of time during
which the Escrow Amount is held in such
account (the "Escrow Earnings") shall be
added to the Escrow Fund and become a
part thereof. For tax reporting and
withholding purposes, each Effective Time
Holder shall be treated as having received
and contributed to the Escrow Fund
income earned on such Effective Time
Holder's Pro Rata Portion and shall be
liable and responsible for any Taxes due
with respect to such income. The Parent
shall exercise reasonable care in
investing, holding and safeguarding the Escrow
Fund.
2.5.3 RELEASE OF ESCROW FUND
As soon as
reasonably practicable (but in any event within 10 business
days) following the expiration of the
Escrow Period, the Parent shall release to
the Effective Time Holders, at their
respective addresses and in accordance with
their respective Pro Rata Shares, all of
the remaining Escrow Fund, if any, in
excess of (i) any portion of the Escrow
Fund retained by the Parent in
satisfaction of Claims for Losses by Parent
Indemnified Parties and (ii) any
portion of the Escrow Fund that is
necessary to satisfy all unresolved,
unsatisfied or disputed Claims for Losses
specified in any Claim Notice
delivered to the Shareholder Representative
before the expiration of the Escrow
Period. If any Claims are unresolved,
unsatisfied or disputed as of the
expiration of
PAGE 16
<PAGE>
the Escrow Period, then the Parent shall
retain possession and custody of that
portion of the Escrow Fund that equals the
total maximum amount of Losses then
being claimed by Parent Indemnified Parties
in all such unresolved, unsatisfied
or disputed Claims, and as soon as
reasonably practicable (but in any event
within 10 business days) following
resolution of all such Claims, the Parent
shall release to the Effective Time
Holders, at their respective addresses and
in accordance with their respective Pro
Rata Shares, the remaining Escrow Fund,
if any, not required to satisfy such
Claims. Such releases of the Escrow Fund
shall be made by check.
2.5.4 NO TRANSFER OR ENCUMBRANCE
No portion
of the Escrow Amount, Escrow Earnings or any beneficial
interest therein may be pledged,
encumbered, sold, assigned or transferred
(including any transfer by operation of
law), by the Parent or an Effective Time
Holder or be taken or reached by any legal
or equitable process in satisfaction
of any debt or other liability of the
Parent or such Effective Time Holder or
used for any reason, prior to (i) in the
case of the Parent, the retention of
all or a portion of the Escrow Fund in
satisfaction of a Claim for Losses in
accordance with this Agreement or (ii) in
the case of the Effective Time
Holders, the release by the Parent to the
Effective Time Holders of the Escrow
Fund in accordance with this Agreement,
except that Effective Time Holders shall
be entitled to assign their rights to the
Escrow Fund by will, by the laws of
intestacy or by other operation of law.
2.5.6 NO LIABILITY OF PARENT
In holding
and administering the Escrow Fund, the Parent will incur no
liability with respect to any action taken
by it in reliance upon any written
notice, direction, instruction, consent,
statement or other document believed by
it to be genuine and to have been signed by
the Shareholder Representative (and
shall have no responsibility to determine
the authenticity thereof), nor for any
other action or inaction, except the
Parent's own willful misconduct or gross
negligence. In all questions arising under
this Agreement with respect to the
Escrow Fund, the Parent may rely on the
advice of counsel, and the Parent will
not be liable to anyone for anything done,
omitted or suffered in good faith by
the Parent based on such advice, except for
the Parent's own willful misconduct
or gross negligence.
2.6 SHAREHOLDER
REPRESENTATIVE
Each
Shareholder hereby irrevocably authorizes and appoints Robin
Gross
(the "Shareholder Representative"), as such
Shareholder's representative and
true and lawful attorney-in-fact and agent
to (a) act in such Shareholder's
name, place and stead as contemplated by
Sections 7.6 and 8.1 and Articles VI
and IX, (b) execute in the name and on
behalf of such Shareholder any other
agreement, certificate, instrument or
PAGE 17
<PAGE>
document to be delivered by the
Shareholders in connection with this Agreement,
(c) authorize the release of delivery to
the Parent of the Escrow Fund in
amounts in satisfaction of Claims by the
Parent Indemnified Parties pursuant to
Article IX (including by not objecting to
such Claims), and (d) agree to, object
to, negotiate, resolve, enter into
settlements and compromises of, demand
litigation of, and comply with orders of
court with respect to Claims. If the
Shareholder Representative or any successor
shall resign, die, or become unable
to act as the Shareholder Representative, a
replacement shall promptly be
appointed by a writing signed by
Shareholders who initially received a majority
of the Aggregate Stock Consideration. Any
such successor Shareholder
Representative shall have the same powers
and duties as if appointed as the
original Shareholder Representative
hereunder. The Shareholder Representative or
the Shareholders shall promptly notify the
Parent of the appointment of a
successor Shareholder Representative. The
Shareholders (other than the
Shareholder Representative) shall, jointly
and severally, indemnify the
Shareholder Representative for, and hold
him harmless against, any loss,
liability, claim or expense, including
reasonable attorney's fees, arising out
of or in connection with his duties as
Shareholder Representative under this
Agreement, including the costs and expenses
of defending himself against any
such loss, liability, claim or expense in
connection herewith.
2.7
TAX FREE
REORGANIZATION
Except as
otherwise required by the Internal Revenue Service (the "IRS")
pursuant to a determination (as defined in
Section 1313 of the Code) or
otherwise, and unless the Closing Date
Share Price is less than 90% of the Share
Price, the parties shall not take a
position on any tax returns inconsistent
with the treatment of the Mergers for tax
purposes as a reorganization within
the meaning of Section 368(a) of the Code;
provided, however, that nothing else
contained herein shall constitute a
representation, warranty or agreement with
respect to any Tax consequences to the
Company or its Shareholders arising under
this Agreement or as a result of the
transactions contemplated hereby.
Notwithstanding the foregoing, if the
Closing Date Share Price is less than 90%
of the Share Price, the parties acknowledge
that the Mergers and the
transactions contemplated hereby will not
constitute a "reorganization" within
the meaning of Section 368(a) of the
Code.
2.8
TAX
WITHHOLDING
Parent
shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this
Agreement to any holder of shares of Company
Common Stock such amounts as it is required
to deduct and withhold with respect
to the making of such payments under the
Code, or any provision of state, local
or foreign tax Law. To the extent that
amounts are so withheld by Parent, such
withheld amounts shall be
PAGE 18
<PAGE>
treated for all purposes of this Agreement
as having been paid to the holder of
shares of Company Common Stock in respect
of which such deduction and
withholding was made by Parent.
ARTICLE III - REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
Except as
is otherwise set forth with appropriate Section references in
the Company Disclosure Schedule attached as
Schedule 3 (the "Company Disclosure
Schedule"), and in order to induce the
Parent to enter into and perform this
Agreement and the Ancillary Documents, the
Company, and the Shareholders with
respect to Sections 3.13.4 and 3.13.9 as
applicable to the Shareholders,
represents and warrants to the Parent as of
the date of this Agreement and as of
the Closing as follows in this Article
III.
3.1
ORGANIZATION
The
Company is a corporation duly organized, validly existing and in
good
standing under the laws of the State of New
York. The Company has all requisite
corporate power and authority to own,
operate and lease its properties and
assets, to carry on its business as now
conducted and as currently proposed to
be conducted, and to enter into and perform
its obligations under this Agreement
and the Ancillary Documents to which the
Company is a party, and to consummate
the transactions contemplated hereby and
thereby. The Company is duly qualified
and licensed as a foreign corporation to do
business and is in good standing in
each jurisdiction in which the character of
the Company's properties occupied,
owned or held under lease or the nature of
the business conducted by the Company
makes such qualification or licensing
necessary, except where the failure to be
so qualified or in good standing would not
have a Company Material Adverse
Effect.
3.2
ENFORCEABILITY
The
Company has all requisite corporate power and authority to
execute,
deliver and perform its obligations under
this Agreement and each of the
Ancillary Documents to which it is a party
and each of the certificates,
instruments and documents executed or
delivered by it pursuant to the terms of
this Agreement. Subject to obtaining the
Company Shareholder Approval, all
corporate action on the part of the Company
necessary for the authorization,
execution, delivery and performance of this
Agreement and the Ancillary
Documents to which the Company is a party,
the consummation of the Mergers, and
the performance of all the Company's
obligations under this Agreement and the
Ancillary Documents to which the Company is
a party has been taken. This
Agreement has been, and each of the
Ancillary Documents to which the Company is
a party at the Closing will have been,
duly
PAGE
19
<PAGE>
executed and delivered by the Company, and
this Agreement is, and, when executed
and delivered by the Company, each of the
Ancillary Documents to which the
Company is a party will be at the Closing,
a legal, valid and binding obligation
of the Company, enforceable against the
Company in accordance with its terms,
except as to the effect, if any, of (a)
applicable bankruptcy and other similar
laws affecting the rights of creditors
generally and (b) rules of law governing
specific performance, injunctive relief and
other equitable remedies.
3.3
CAPITALIZATION
(a) The
authorized capital stock of the Company consists of 20,000,000
shares of Company Common Stock and
1,000,000 shares of Company Preferred Stock.
(b) As of
the date of this Agreement, the issued and outstanding capital
stock of the Company consists solely of
12,319,940 shares of Company Common
Stock and no shares of Company Preferred
Stock. All of such shares are, and
immediately prior to the Closing Date will
be, held of record and beneficially
by the Shareholders of the Company as set
forth on Section 3.3(b) of the Company
Disclosure Schedule. The outstanding shares
of Company Capital Stock as of the
date hereof are, and immediately prior to
the Closing Date all then outstanding
shares of Company Capital Stock will be,
duly authorized and validly issued,
fully paid and nonassessable, and issued in
compliance with all applicable
federal and state securities laws. No
Person other than the Shareholders holds
any interest in any of the outstanding
shares of Company Capital Stock. True and
correct copies of the stock records of the
Company, showing all issuances and
transfers of shares of capital stock of the
Company since inception, have been
provided to the Parent or its counsel.
(c) As of
the date of this Agreement, other than Options to purchase up
to
1,845,000 shares of Company Common Stock or
other Stock Purchase Rights set
forth in Section 3.3(c) of the Company
Disclosure Schedule, there are no
outstanding rights of first refusal or
offer, co-sale rights, preemptive rights,
Stock Purchase Rights or other agreements,
either directly or indirectly, for
the purchase or acquisition from the
Company or any Shareholder of any shares of
Company Capital Stock or any securities
convertible into or exchangeable for
shares of Company Capital Stock, and the
Company is not committed to issue or
grant any such rights, Stock Purchase
Rights or other agreements. Set forth in
Section 3.3(c) of the Company Disclosure
Schedule is a spreadsheet accurately
reflecting the number of such Options and
other Stock Purchase Rights
outstanding, the grant or issue dates,
vesting schedules and exercise or
conversion prices thereof, and, in each
case, the identities of the holders and
an indication of their relationships to the
Company. The Company has delivered
to the Parent true and correct copies of
the form of stock option agreements
relating to Options granted thereunder, all
other agreements with respect to
Stock Purchase
PAGE 20
<PAGE>
Rights, and all material deviations
therefrom. Section 3.3(c) of the Company
Disclosure Schedule also identifies all
Options and Stock Purchase Rights that
have been offered in connection with any
employee or consulting agreement,
arrangement or understanding but that, as
of the date hereof, have not been
issued or granted.
(d) The
Company is not a party or subject to any agreement or
understanding, and, to the knowledge of the
Company, there is no agreement or
understanding between any Persons that
affects or relates to the voting or
giving of written consents with respect to
any securities of the Company or the
voting by any director of the Company. No
Shareholder or any affiliate thereof
is indebted to the Company, and the Company
is not indebted to any Shareholder
or any affiliate thereof. The Company is
not under any contractual or other
obligation to register, repurchase or
redeem any of its presently outstanding
securities or any of its securities that
may hereafter be issued.
(e)
Section 3.3(e) of the Company Disclosure Schedule describes all
rights
granted in favor of the Company to
repurchase or to receive upon forfeiture any
securities of the Company.
(f) Except as
described on Section 3.3(f) of the Company Disclosure
Schedule, all Options and Stock Purchase
Rights have been granted or issued with
a purchase or exercise price of not less
than fair market value, as determined
by the Company's Board of Directors at the
date of grant or issuance.
3.4
SUBSIDIARIES AND
AFFILIATES
Section
3.4 of the Company Disclosure Schedule sets forth each
corporation, partnership, limited liability
company or other business entity,
(a) which the Company owns or controls, or
has in the past owned or controlled,
directly or indirectly, (b) in which the
Company owns, directly or indirectly,
any ownership, equity, or voting interest
in, or (c) in which the Company has an
agreement or commitment to purchase any
such interest (any of the foregoing, a
"Company Subsidiary" and collectively, the
"Company Subsidiaries"). Each entity
listed on Section 3.4 of the Company
Disclosure Schedule that is no longer in
existence has been duly dissolved in
accordance with its charter documents and
the laws of the jurisdiction of its
incorporation or organization. Each Company
Subsidiary is duly organized, validly
existing and in good standing under the
laws of the jurisdiction of its
incorporation or organization. All of the
outstanding shares of capital stock,
membership interests or other equity
interests of each Company Subsidiary are
owned of record and beneficially by the
Company, free and clear of any and all
Encumbrances. All outstanding shares of
each Company Subsidiary, membership
interests or other equity interests are duly
authorized, validly issued, fully paid and
non-assessable and not subject to
preemptive rights created by statute, the
charter documents or bylaws of
PAGE 21
<PAGE>
such Company Subsidiary, or any agreement
to which such Company Subsidiary is a
party or by which it is bound. There are no
options, warrants, calls, rights,
commitments or agreements of any character,
written or oral, to which any
Company Subsidiary is a party or by which
it is bound obligating such Company
Subsidiary to issue, deliver, sell,
purchase or redeem, or cause to be issued,
sold, repurchased or redeemed, any shares
of the capital stock of the Company
Subsidiary, membership interests or other
equity interests or obligating such
Company Subsidiary to grant, extend,
accelerate the vesting of, change the price
of, otherwise amend or enter into any such
option, warrant, call right,
commitment or agreement. There are no
outstanding or authorized stock
appreciation, phantom stock, profit
participation, or other similar rights with
respect to any Company Subsidiary. There
are no outstanding liabilities or
obligations (outstanding, contingent or
otherwise), direct or indirect,
including taxes, with respect to any
Company Subsidiary. Neither the Company nor
any Company Subsidiary has agreed or is
obligated to make any future investment
in or capital contribution to any
Person.
3.5
NO APPROVALS; NO
CONFLICTS
Except as
set forth in Section 3.5 of the Company Disclosure Schedule,
the
execution, delivery and performance by the
Company of this Agreement and the
Ancillary Documents to which the Company is
a party and the consummation of the
transactions contemplated hereby and
thereby will not (a) constitute a violation
(with or without the giving of notice or
lapse of time, or both) of any
provision of law or any judgment, decree,
order, regulation or rule of any court
or other governmental authority applicable
to the Company, (b) require any
consent, approval or authorization of, or
declaration, filing or registration
with, any Person, except compliance with
applicable securities laws, (c) result
in a default (with or without the giving of
notice or lapse of time, or both)
under, or acceleration or termination of,
or the creation in any party of the
right to accelerate, terminate, modify or
cancel, any material agreement, lease,
note or other restriction, Encumbrance,
obligation or liability to which the
Company is a party or by which it is bound
or to which any assets of the Company
are subject, (d) result in the creation of
any Encumbrance upon any material
assets of the Company or, to the Knowledge
of the Company, upon any outstanding
shares or other securities of the Company,
(e) conflict with or result in a
breach of or constitute a default under any
provision of the Company's
Certificate or the Company's Bylaws, or (f)
invalidate or, to the Company's
Knowledge, adversely affect any permit,
license or authorization currently
material to the conduct of the business of
the Company.
PAGE 22
<PAGE>
3.6
FINANCIAL
STATEMENTS
(i) The
Company has delivered to the Parent statements of income and
expense prepared on a cash basis for the
fiscal year ended December 31, 2004 and
statements of income and expense prepared
on an accrual basis for the five-month
period ended May 31, 2005 (the "Financial
Statements"). The Financial Statements
have been prepared on a basis consistent
with prior accounting periods and
fairly present in all material respects the
financial position, results of
operations and changes in financial
position of the Company as of the dates and
for the periods indicated therein. To the
Company's knowledge, there is no basis
for the assertion against the Company of
any liability, obligation or claim that
is likely to result or cause a Company
Material Adverse Effect that is not
fairly reflected in the Financial
Statements or otherwise disclosed in Section
3.6 of the Company Disclosure Schedule. The
Company is not a guarantor,
indemnitor, surety or other obligor of any
Debt of any other Person.
(ii) The
Company has no liabilities or obligations of any nature
(absolute, contingent or otherwise) that
are not fully reflected or reserved
against in the Financial Statements, except
(x) liabilities or obligations
incurred since May 31, 2005 in the ordinary
course of business and consistent
with past practice that are not in excess
of $20,000 in the aggregate or $10,000
individually and (y) as otherwise set forth
on Section 3.6 of the Company
Disclosure Schedule, provided, however, the
Company shall have no liability
pursuant to this representation for current
liabilities incurred in the ordinary
course of business, unless the negative
working capital exceeds $293,000.
3.7
ABSENCE OF
CERTAIN CHANGES OR EVENTS
Except for
transactions specifically contemplated in this Agreement or as
set forth on Section 3.7 of the Company
Disclosure Schedule, since May 31, 2005,
neither the Company nor any of its officers
or directors in their representative
capacities on behalf of the Company
has:
(a) taken any action or entered into or agreed to enter into
any
transaction, agreement or commitment other
than in the ordinary course of
business;
(b) forgiven or canceled any Debt or waived any claims or rights
of
material value (including, without
limitation, any Debt owing by any
Shareholder, officer, director, employee or
affiliate of the Company);
(c) granted, other than in the ordinary course of business and
consistent with past practice, any increase
in the compensation of directors,
officers, employees or consultants
(including any such increase pursuant to any
employment or consulting agreement or
bonus, pension, profit-sharing, lease
payment or other plan or
PAGE 23
<PAGE>
commitment) or any increase in the
compensation payable or to become payable to
any director, officer, employee or
consultant;
(d) suffered any change having, or reasonably likely to have, a
Company Material Adverse Effect;
(e) borrowed or agreed to borrow any funds, incurred or become
subject to, whether directly or by way of
assumption or guarantee or otherwise,
any Debt, or any other obligations or
liabilities (absolute, accrued, contingent
or otherwise) individually in excess of
$5,000 or in excess of $10,000 in the
aggregate, except liabilities and
obligations (other than Debt) that are
incurred in the ordinary course of business
and consistent with past practice or
increased, or experienced any change in any
assumptions underlying or methods of
calculating, any bad debt, contingency or
other reserves;
(f) paid, discharged or satisfied any material claims,
liabilities
or obligations (absolute, accrued,
contingent or otherwise) other than the
payment, discharge or satisfaction in the
ordinary course of business and
consistent with past practice of claims,
liabilities and obligations reflected
or reserved against in the Financial
Statements or incurred in the ordinary
course of business and consistent with past
practice since March 31, 2005;
(g) permitted or
allowed any of its property or assets (real,
personal or mixed, tangible or intangible)
to be subjected to any Encumbrance,
restriction or charge which remains in
existence on the date hereof, except in
the ordinary course of business and
consistent with past practice;
(h) purchased or sold, transferred or otherwise disposed of any
of
its material properties or assets (real,
personal or mixed, tangible or
intangible) other than as contemplated by
this Agreement or sales or licenses of
software and services in the ordinary
course of business;
(i) disposed of or permitted to lapse any rights to the use of
any
trademark, trade name, patent or copyright,
or disposed of or disclosed to any
Person without obtaining an appropriate
confidentiality agreement from any such
Person any material trade secret, formula,
process or know-how not theretofore a
matter of public knowledge;
(j) made any single capital expenditure or commitment in excess
of
$5,000 for additions to property, plant,
equipment or intangible capital assets
or made aggregate capital expenditures in
excess of $10,000 for additions to
property, plant, equipment or intangible
capital assets;
PAGE 24
<PAGE>
(k) made any election or change in any election concerning
Taxes,
any adoption or change in any Tax
accounting method or practice, or any change
in any Tax accounting period, or any other
change in accounting methods or
practices or internal control
procedure;
(l) issued any capital stock or other securities, or declared,
paid
or set aside for payment any dividend or
other distribution in respect of its
capital stock, or redeemed, purchased or
otherwise acquired, directly or
indirectly, any shares of capital stock or
other securities of the Company, or
otherwise permitted the withdrawal by any
of the holders of Company Capital
Stock of any cash or other assets (real,
personal or mixed, tangible or
intangible), in compensation, Debt or
otherwise, other than payments of
compensation to employees in the ordinary
course of business and consistent with
past practice;
(m) paid, loaned or advanced any amount to, or sold, transferred
or
leased any properties or assets (real,
personal or mixed, tangible or
intangible) to or from any of the Company's
Shareholders, officers, directors,
employees or consultants or any affiliate
of any of the Company's Shareholders,
officers, directors, employees or
consultants, except compensation and expense
allowances (for travel and other
business-related expenses) in the ordinary
course of business paid to officers,
directors, employees or consultants of the
Company; or
(n) agreed, whether in writing or otherwise, to take any action
described in this Section 3.7.
3.8
TAXES
(a) Except
as set forth in Section 3.8 of the Company Disclosure Schedule,
each of the Company and the Company
Subsidiaries has (i) properly prepared and
timely filed all Tax Returns required to be
filed (taking into account any
extension of time to file); (ii) paid all
Taxes required to be paid (whether or
not shown to be due on such Tax Returns);
and (iii) paid all Taxes for which a
notice of assessment or collection has been
received by the Company or any
Company Subsidiary (other than those being
contested or which the Company
intends to contest in good faith by
appropriate proceedings, and for which
adequate reserves have been established for
such Taxes on the books and records
of the Company. All such Tax Returns are
true, correct and complete and have
been prepared in accordance with applicable
Law. There are no Encumbrances for
Taxes (other than Taxes not yet due and
payable) on any of the assets of the
Company or any of the Company
Subsidiaries.
(b) Each
of the Company and the Company Subsidiaries has withheld or
collected and paid over to appropriate
governmental entities (or are properly
holding
PAGE 25
<PAGE>
for such payment) all Taxes required by law
to be withheld or collected by it in
connection with amounts paid or owing to
any Person.
(c) Except
as set forth in Section 3.8(c) of the Company Disclosure
Schedule, no dispute or claim concerning
any Tax liability of the Company or any
Company Subsidiary has been proposed or
claimed in writing or, to the Knowledge
of the Company, threatened by any
authority, including a claim that the Company
or any Company Subsidiary is subject to Tax
in a jurisdiction where it does not
currently file a Tax Return. The Company
has made available to the Parent
correct and complete copies of all Tax
Returns for Taxable years for which the
applicable statute of limitations has not
expired, and all examination reports,
and statements of deficiencies, if any,
assessed against or agreed to by the
Company and any Company Subsidiary.
(d)
Neither the Company nor any Company Subsidiary has waived any
statute
of limitations in respect of Taxes or
agreed to any extension of time with
respect to a Tax assessment or deficiency,
which is currently effective. No
power of attorney that currently is in
effect has been granted by the Company or
any Company Subsidiary with respect to any
Tax matter.
(e)
Neither the Company nor any Company Subsidiary has ever been a
United
States real property holding corporation
within the meaning of Section
897(c)(1)(A)(ii) of the Code. Neither the
Company nor any of the Company
Subsidiaries is a party to any Tax
allocation, indemnity, sharing or similar
agreement (excluding any lease or similar
agreement to the extent it provides
for the payment of property taxes by the
lessee or similar user of property)
that will survive the Closing. Neither the
Company nor any of the Company
Subsidiaries (i) has been a member of any
affiliated, consolidated, combined,
unitary or similar group (other than the
group, the common parent of which is
the Company) that filed or was required to
file a consolidated, combined,
unitary or similar Tax Return, or (ii) has
or will have any liability for the
Taxes (excluding any contractual obligation
to pay property taxes as a lessee or
similar user of property) of any Person
(other than the Company and any of the
Company Subsidiaries that is currently a
member of the Company's affiliated
group filing a consolidated federal income
Tax Return) under Treas. Reg. Section
1.1502-6 (or any similar provision of any
other Law), as a transferee or
successor, by contract, assumption,
transferee liability, operation of Law or
otherwise.
(f) The
unpaid Taxes of the Company (i) did not, as of May 31, 2005,
exceed the reserve for Tax liability set
forth on the face (rather than any
reserve for deferred Taxes established to
reflect timing differences between
book and Tax income) of the Financial
Statements and (ii) do not exceed that
reserve as adjusted for the passage of time
and operations in the ordinary
course of business through the Closing
Date.
PAGE 26
<PAGE>
(g) The
Company and each Company Subsidiary has disclosed on its Tax
Returns any Tax reporting position taken
therein which reasonably could result
in the imposition of penalties under
Section 6662 of the Code or any comparable
provisions of state, local or foreign
Law.
(h)
Neither the Company nor any Company Subsidiary has consummated,
has
participated in, or is currently
participating in any transaction which was or
is a "Tax shelter" transaction as defined
in Sections 6662, 6011 or 6111 (before
amendment by the American Jobs Creation Act
of 2004) of the Code or the treasury
regulations promulgated thereunder or which
was or is a "Listed Transaction" or
a "Reportable Transaction" as those terms
are defined in the Code and the
treasury regulations thereunder.
(i)
Neither the Company nor any Company Subsidiary is required to
include
in income, or exclude any item of deduction
from, Taxable income for any Taxable
period ending after the Closing Date by
reason of any (i) change in accounting
method for a Taxable period ending on or
prior to the Closing Date (nor does the
Company or any Company Subsidiary have any
Knowledge that the Internal Revenue
Service (or other Governmental Entity) has
proposed or is considering proposing,
any such change), (ii) "closing agreement"
described in Section 7121 of the Code
(or any similar provision of any other
Law), (iii) installment sale or open
transaction disposition made on or prior to
the Closing, or (iv) prepaid amount
received on or prior to the Closing.
(j)
Neither the Company nor any Company Subsidiary has made any payment
or
payments, is obligated to make any payment
or payments, or is a party to any
contract that, individually or
collectively, could give rise to the payment of
any amount (whether in cash or property) as
a result of the Mergers that may not
be deductible pursuant to the terms of
Section 162(m) or 280G of the Code.
(k) Except
as set forth in Section 3.8(k) of the Company Disclosure
Schedule, neither the Company nor any
Company Subsidiary is involved in, subject
to, or a party to any joint venture,
partnership, limited liability company
agreement or other arrangement that is
treated as a "partnership" for federal,
state, local or foreign income Tax
purposes. Neither the Company nor any Company
Subsidiary owns an entity that is treated
as "disregarded as an entity separate
from its owner" pursuant to Section
301.7701-3 of the treasury regulations.
(l)
Neither the Company nor any Company Subsidiary has been either
a
"distributing corporation" or a "controlled
corporation" (within the meaning of
Section 355(a)(1)(A) of the Code) in a
distribution of stock qualifying for
tax-free treatment under Section 355 of the
Code (i) in the two years prior to
the date of this Agreement or (ii) in a
distribution that could otherwise
constitute part of a "plan" or "series
of
PAGE 27
<PAGE>
related transactions" (within the meaning
of Section 355(e) of the Code) in
conjunction with the Mergers.
(m) Except
as set forth in Section 3.8(m) of the Company Disclosure
Schedule, there currently is no limitation
on the utilization of the net
operating losses, built-in losses, capital
losses, Tax credits or other similar
items of the Company under Section 382,
383, 384 and 1502 of the Code and
treasury regulations promulgated
thereunder. Neither the Company nor any of the
Company Subsidiaries is or has been a party
to any transaction where a deferred
intercompany gain was generated under
Section 1502 of the Code and the treasury
regulations promulgated thereunder. The
unpaid Taxes of the Company (i) did not,
as of December 31, 2004, exceed the reserve
for Tax liability set forth on the
face (rather than any reserve for deferred
Taxes established to reflect timing
differences between book and Tax income) of
the Financial Statements and (ii) do
not exceed that reserve as adjusted for the
passage of time and operations in
the ordinary course of business through the
Closing Date.
As used in
this Agreement, the following terms shall have the following
meanings:
"Taxes"
means (i) all foreign, federal, state, county or local taxes,
charges, fees, levies, imposts, duties, and
other assessments, including, but
not limited to, any income, alternative
minimum or add-on tax, estimated, gross
income, gross receipts, sales, use,
transfer, transactions, intangibles, ad
valorem, value-added, franchise,
registration, title, license, capital, paid-up
capital, profits, withholding, payroll,
employment, excise, severance, stamp,
occupation, premium, real property,
recording, personal property, federal
highway use, commercial rent, environmental
(including, but not limited to,
taxes under Section 59A of the Code) or
windfall profit tax, custom, duty or
other tax, governmental fee or other like
assessment or charge of any kind
whatsoever, together with any interest,
penalties or additions to tax; (ii) any
liability for the payment of any amounts of
the type described in clause (i) of
this sentence as a result of being a member
of an affiliated, consolidated,
combined, unitary or aggregate group for
any Taxable period, and (iii) any
liability for the payment of any amounts of
the type described in clause (i) or
(ii) of this sentence as a result of being
a transferee of or successor to any
Person or as a result of any express or
implied obligation to assume such Taxes
or to indemnify any other Person. "Tax"
means any of the foregoing Taxes.
"Tax
Returns" means any return, declaration, report, claim or
refund,
information return, statement, or other
similar document relating to Taxes,
including any schedule or attachment
thereto, and including any amendment
thereof.
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<PAGE>
3.9
PROPERTY
(a) The
Company owns no real property other than the leasehold
interests
described on Section 3.9(a) of the Company
Disclosure Schedule, which contains a
complete and accurate list of all real
property owned, leased or currently being
used by the Company (the "Real Property").
The Company has delivered to the
Parent or its counsel true and complete
copies of all written leases, subleases,
rental agreements, contracts of sale,
tenancies or licenses relating to the Real
Property and written summaries of the terms
of any oral leases, subleases,
rental agreements, contracts of sale,
tenancies or licenses to which the Real
Property is subject.
(b)
Section 3.9(b) of the Company Disclosure Schedule contains a
complete
and accurate list of each item of personal
property having a net book value in
excess of $5,000 which is owned, leased,
rented or used by the Company, as of
the date hereof (the "Personal Property");
provided that such list need not
describe the Company Intellectual Property
listed in Section 3.14 to the Company
Disclosure Schedule. The Company has
delivered to the Parent true and complete
copies of all leases, subleases, rental
agreements, contracts of sale, tenancies
or licenses to which the Personal Property
is subject.
(c) The
Real Property and the Personal Property include all the
properties
and assets (whether real, personal or
mixed, tangible or intangible) (other
than, in the case of the Personal Property,
property rights with an individual
value of less than $5,000 and the Company
Intellectual Property) reflected in
the Financial Statements (except for such
properties or assets sold since May
31, 2005 in the ordinary course of business
and consistent with past practice)
and all the properties and assets purchased
or otherwise acquired by the Company
since May 31, 2005 (other than, in the case
of the Personal Property, property
rights with an individual value of less
than $5,000 and the Company Intellectual
Property). The Real Property and the
Personal Property include all material
property used in the business of the
Company, other than the Company
Intellectual Property. The Company's Real
Property and its Personal Property are
in good operating condition and repair,
normal wear and tear excepted, are
adequate for the uses to which they are
being put, and comply in all material
respects with applicable safety and other
laws and regulations.
(d) The
Company's leasehold interest in each parcel of the Real
Property
is free and clear of all Encumbrances,
except for Encumbrances related to Taxes
not yet due and payable, and Encumbrances
relating to the owner of any such Real
Property that do not adversely affect the
Company's possession or use thereof.
Each lease of any portion of the Real
Property is valid, binding and enforceable
in accordance with its terms against the
Company and, to the Company's
knowledge, against each other party
thereto, except as to the effect, if any, of
(i) applicable bankruptcy and other
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<PAGE>
similar laws affecting the rights of
creditors generally and (ii) rules of law
governing specific performance, injunctive
relief and other equitable remedies.
The Company has performed in all material
respects all obligations imposed upon
it under each lease, and neither the
Company nor, to the Company's knowledge,
any other party thereto is in material
default thereunder, nor is there any
event which with notice or lapse of time,
or both, would constitute a material
default thereunder by the Company or, to
the Company's knowledge, by any other
party. The Company has not granted any
lease, sublease, tenancy or license of,
or entered into any rental agreement or
contract of sale with respect to, any
portion of the Real Property.
(e) The
Personal Property is free and clear of all Encumbrances, and,
other than leased Personal Property which
is so noted on the list supplied
pursuant to Section 3.9(b) hereof, the
Company owns such Personal Property. Each
lease, license, rental agreement, contract
of sale or other agreement to which
the Personal Property is subject is valid,
binding and enforceable in accordance
with its terms against the Company and, to
the Company's knowledge, against each
other party thereto, except as to the
effect, if any, of (i) applicable
bankruptcy and other similar laws affecting
the rights of creditors generally
and (ii) rules of law governing specific
performance, injunctive relief and
other equitable remedies. The Company has
performed in all material respects all
obligations imposed upon it under each such
agreement, and neither the Company
nor, to the Company's knowledge, any other
party thereto is in material default
thereunder, nor is there any event which
with notice or lapse of time, or both,
would constitute a material default by the
Company or, to the Company's
knowledge, any other party thereunder. The
Company has not granted any lease,
sublease, tenancy or license of any portion
of the Personal Property, except in
the ordinary course of business.
3.10
CONTRACTS
Section
3.10 of the Company Disclosure Schedule contains a complete and
accurate list (other than the Company
Intellectual Property listed on Section
3.14 of the Company Disclosure Schedule) of
all contracts, agreements and
understandings, oral or written, to which
the Company is currently a party or by
which the Company is currently bound
providing for potential payments by or to
the Company in excess of $10,000,
including, without limitation, consulting
agreements, license agreements, software
development agreements, distribution
agreements, joint venture agreem
