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Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CYBERGOLD, INC.,
XXXXXXX.XXX, INC.,
CYBERGOLD ACQUISITION CORPORATION,
THE INDIVIDUALS NAMED HEREIN
AND
X.X. Xxxxxxx Escrow Company, Inc.
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AS ESCROW AGENT
DATED AS OF FEBRUARY 27, 2000
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TABLE OF CONTENTS
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ARTICLE I The Merger............................................................................ 1
1.1 THE MERGER....................................................................... 1
1.2 EFFECTIVE TIME................................................................... 1
1.3 EFFECT OF THE MERGER............................................................. 2
1.4 CERTIFICATE OF INCORPORATION; BYLAWS............................................. 2
1.5 DIRECTORS AND OFFICERS........................................................... 2
1.6 EFFECT ON CAPITAL STOCK.......................................................... 2
1.7 DISSENTING SHARES................................................................ 3
1.8 SURRENDER OF CERTIFICATES........................................................ 4
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK AND PREFERRED STOCK.......... 5
1.10 DISSENTING SHARES AFTER PAYMENT OF FAIR VALUE.................................... 6
1.11 TAX AND ACCOUNTING CONSEQUENCES.................................................. 6
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION....................................... 6
ARTICLE II Representations and Warranties of the Company........................................ 6
2.1 ORGANIZATION OF THE COMPANY...................................................... 6
2.2 COMPANY CAPITAL STRUCTURE........................................................ 6
2.3 SUBSIDIARIES..................................................................... 7
2.4 AUTHORITY........................................................................ 7
2.5 NO CONFLICT...................................................................... 7
2.6 CONSENTS......................................................................... 8
2.7 COMPANY FINANCIAL STATEMENTS..................................................... 8
2.8 NO UNDISCLOSED LIABILITIES....................................................... 8
2.9 NO CHANGES....................................................................... 9
2.10 TAX MATTERS...................................................................... 10
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES.............................................. 12
2.12 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF
EQUIPMENT........................................................................ 12
2.13 INTELLECTUAL PROPERTY............................................................ 13
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS............................................ 15
2.15 INTERESTED PARTY TRANSACTIONS.................................................... 16
2.16 GOVERNMENTAL AUTHORIZATION....................................................... 16
2.17 LITIGATION....................................................................... 17
2.18 ACCOUNTS RECEIVABLE.............................................................. 17
2.19 MINUTE BOOKS..................................................................... 17
2.20 ENVIRONMENTAL MATTERS............................................................ 17
2.21 BROKERS' AND FINDERS' FEES; COMPANY PARTY EXPENSES............................... 18
2.22 EMPLOYEE BENEFIT PLANS AND COMPENSATION.......................................... 18
2.23 NO INTERFERENCE OR CONFLICT...................................................... 22
2.24 INSURANCE........................................................................ 22
2.25 COMPLIANCE WITH LAWS............................................................. 22
2.26 COMPLETE COPIES OF MATERIALS..................................................... 22
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2.27 YEAR 2000 COMPLIANCE............................................................. 22
2.28 REPRESENTATIONS COMPLETE......................................................... 23
ARTICLE III Representations and Warranties of Parent and Sub.................................... 23
3.1 ORGANIZATION, STANDING AND POWER................................................. 23
3.2 AUTHORITY........................................................................ 23
3.3 CAPITAL STRUCTURE................................................................ 24
3.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS....................................... 24
3.5 LITIGATION....................................................................... 25
3.6 OWNERSHIP OF THE COMPANY......................................................... 25
3.7 BROKERS' AND FINDERS' FEES....................................................... 25
3.8 NO MATERIAL ADVERSE CHANGE....................................................... 25
3.9 CONSENTS......................................................................... 25
3.10 INFORMATION SUPPLIED............................................................. 25
3.11 OTHER MATTERS.................................................................... 26
ARTICLE IV Conduct Prior to the Effective Time.................................................. 26
4.1 CONDUCT OF BUSINESS OF THE COMPANY............................................... 27
4.2 NO SOLICITATION.................................................................. 28
ARTICLE V Additional Agreements................................................................. 29
5.1 REGULATORY APPROVALS............................................................. 29
5.2 ACCESS TO INFORMATION............................................................ 29
5.3 CONFIDENTIALITY.................................................................. 30
5.4 EXPENSES......................................................................... 30
5.5 PUBLIC DISCLOSURE................................................................ 30
5.6 CONSENTS......................................................................... 30
5.7 FIRPTA COMPLIANCE................................................................ 30
5.8 REASONABLE EFFORTS............................................................... 30
5.9 NOTIFICATION OF CERTAIN MATTERS.................................................. 31
5.10 COMPANY DISSENTING SHARES........................................................ 31
5.11 CERTAIN EMPLOYEE BENEFITS........................................................ 31
5.12 COMPANY BENEFIT PLANS............................................................ 31
5.13 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES...................................... 31
5.14 TAX FREE REORGANIZATION.......................................................... 32
5.15 PROPRIETARY INFORMATION AND CONFIDENTIALITY AGREEMENTS........................... 32
5.16 REGISTRATION..................................................................... 32
5.17 NON-COMPETITION......................................................................... 32
ARTICLE VI Conditions to the Merger............................................................. 33
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER..................... 33
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY.............................. 33
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND SUB....................... 34
ARTICLE VII Survival of Representations and Warranties; Escrow.................................. 36
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES....................................... 36
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7.2 ESCROW ARRANGEMENTS.............................................................. 36
7.3 STOCKHOLDER REPRESENTATIVE....................................................... 43
ARTICLE VIII Termination, Amendment and Waiver.................................................. 44
8.1 TERMINATION...................................................................... 44
8.2 EFFECT OF TERMINATION............................................................ 44
8.3 AMENDMENT........................................................................ 45
8.4 EXTENSION; WAIVER................................................................ 45
ARTICLE IX General Provisions................................................................... 45
9.1 NOTICES.......................................................................... 45
9.2 INTERPRETATION................................................................... 46
9.3 COUNTERPARTS..................................................................... 46
9.4 ENTIRE AGREEMENT................................................................. 46
9.5 SEVERABILITY..................................................................... 46
9.6 OTHER REMEDIES................................................................... 47
9.7 GOVERNING LAW.................................................................... 47
9.8 RULES OF CONSTRUCTION............................................................ 47
9.9 RECOVERY OF ATTORNEYS' FEES AND Costs............................................ 48
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and entered
into as of February 27, 2000 among Cybergold, Inc., a Delaware corporation
("PARENT"), CYBERGOLD ACQUISITION CORPORATION, a California corporation and a
wholly owned subsidiary of Parent ("Sub"), Xxxxxxx.xxx, Inc., a California
corporation (the "COMPANY"), the individuals named herein, and X.X. Xxxxxxx
Escrow Company, Inc. as Escrow Agent.
RECITALS
A. The Boards of Directors of each of the Company, Parent and Sub
believe it is in the best interests of each company and the stockholders of each
company that Parent acquire the Company through the statutory merger of Sub with
and into the Company (the "MERGER").
B. Pursuant to the Merger, among other things, all of the issued and
outstanding shares of capital stock of the Company shall be converted into the
right to receive shares of Common Stock of Parent.
C. A portion of the shares of Common Stock of Parent otherwise payable
by Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and conditions.
D. It is intended by the parties hereto that the Merger shall constitute
a reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "CODE"). NOW, THEREFORE, in consideration of the
covenants, promises and representations set forth herein, and for other good and
valuable consideration, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware General Corporation Law (the "DELAWARE LAW")
and the applicable provisions of the California Corporations Code (the
"CALIFORNIA LAW"), Sub shall be merged with and into the Company, the separate
corporate existence of Sub shall cease and the Company shall continue as the
surviving corporation and as a wholly owned subsidiary of Parent. The surviving
corporation after the Merger is hereinafter sometimes referred to as the
"SURVIVING CORPORATION."
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing of the Merger (the "CLOSING") will take place as
promptly as practicable, but no later than three (3) business days following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Duane, Morris & Heckscher, LLP, 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxxxx,
Xxxxxxxxxx, or by exchange of original documentation by each of the respective
parties' attorneys via Federal Express or similar overnight courier service,
unless another place, manner or time is agreed to in writing by Parent and the
Company. The date upon which the Closing actually occurs is herein referred to
as the "CLOSING DATE." On the Closing Date, the parties hereto shall cause the
Merger to be consummated by filing of a Certificate of Merger (or like
instrument) in a form reasonably acceptable to the parties (the "MERGER
CERTIFICATE") with the Secretary of State of Delaware and the Secretary of State
of California, in accordance with the relevant provisions of applicable law (the
time of acceptance by the Secretary of State of Delaware and the Secretary of
State of California of such filing, or such other time as may be agreed upon by
the parties and set forth in the Merger Certificate, being referred to herein as
the "EFFECTIVE TIME").
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1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law and
California Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Articles of Incorporation of Sub shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended.
(b) The Bylaws of Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 DIRECTORS AND OFFICERS. The directors of Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and Bylaws
of the Surviving Corporation. The officers of Sub immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, each
to hold office in accordance with the Bylaws of the Surviving Corporation.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Sub, the Company or the holders of
any of the following securities:
(a) Conversion of the Company Common Stock and Preferred Stock.
Each share of common stock, $0.01 par value per share, of the Company (the
"COMPANY COMMON STOCK") , each share of Series A Preferred Stock, $0.01 par
value per share, of the Company (the "COMPANY SERIES A PREFERRED STOCK") and
each share of Series B Preferred Stock, $0.01 par value per share, of the
Company (the "COMPANY SERIES B PREFERRED STOCK" and, together with the Series A
Preferred Stock, the "COMPANY PREFERRED STOCK") issued and outstanding
immediately prior to the Effective Time, other than shares, if any, for which
dissenters rights have been or may be perfected in compliance with applicable
law, will be canceled and extinguished and be converted automatically into the
right to receive 5.033 shares of Parent Common Stock. The shares of Parent
Common Stock issued pursuant to this Section 1.6(a) are referred to as the
"MERGER SHARES." Notwithstanding anything to the contrary contained in this
Agreement, in no event shall Parent be obligated to issue, pursuant to this
Section 1.6(a) , any shares of Parent Common Stock in excess of 1,850,000 shares
of Common Stock (the "Total Parent Shares to be Issued") .
(b) Capital Stock of Sub. Each share of common stock, $.0001 par
value per share, of Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, no par value, of the
Surviving Corporation. Each stock certificate of Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
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(c) Adjustments to Merger Shares. The number of Merger Shares
shall be adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities convertible
into Parent Common Stock, Company Common Stock or Company Preferred Stock),
reorganization, recapitalization or other like change with respect to Parent
Common Stock, Company Common Stock or Company Preferred Stock occurring after
the date hereof and prior to the Effective Time, except for any anticipated
recapitalization expressly contemplated by this Agreement.
(d) Fractional Shares. No fractional shares of Parent Common Stock
shall be issued in the Merger. In lieu thereof, each holder of shares of the
Company Common Stock or Company Preferred Stock (each, a "COMPANY STOCKHOLDER")
who would otherwise be entitled to a fraction of a share of Parent Common Stock,
shall (after aggregating all fractional shares of Parent Common Stock to be
received by such holder), receive from Parent, promptly after the Effective
Time, an amount of cash equal to the price of Parent Common Stock at the
Effective Time multiplied by the fraction of a share of Parent Common Stock to
which such holder would otherwise be entitled.
(e) Xxxxxxx Escrow Shares. Parent and Sub acknowledge and
understand that pursuant to a Stock Swap Agreement dated January 20, 2000 (the
"Stock Swap Agreement"), the Company placed in escrow 10,593 shares of the
Company Series B Preferred Stock (the "Xxxxxxx Escrow Shares"). The Xxxxxxx
Escrow Shares are to be released to Xxxxxxx Communications, Inc. ("Xxxxxxx")
upon the occurrence of certain events set forth in the Stock Swap Agreement, and
if such events do not occur, the Xxxxxxx Escrow Shares are to be released back
to the Company. The shares of Parent Common Stock issued in respect of the
Xxxxxxx Escrow Shares (the "Exchanged Xxxxxxx Escrow Shares") shall be held in
escrow by the escrow agent named in the Stock Swap Agreement on the same terms,
and subject to the same conditions, as the Xxxxxxx Escrow Shares, except that if
the Exchanged Xxxxxxx Escrow Shares are to be released to the Company under the
terms of the Stock Swap Agreement, such Exchanged Xxxxxxx Escrow Shares shall be
distributed pro rata to the holders of Company Common Stock and Company
Preferred Stock based on their holdings as of the Effective Date. Parent and Sub
shall take such actions as may be necessary to effect the distribution of the
Exchanged Xxxxxxx Escrow Shares in accordance with the Stock Swap Agreement and
this Section 1.6(e).
1.7 DISSENTING SHARES. Notwithstanding any provision of this Agreement
to the contrary, any shares of the Company Common Stock or Company Preferred
Stock that are outstanding immediately prior to the Effective Time and that are
held by Company Stockholders who have not voted such shares in favor of the
approval and adoption of this Agreement and who shall have delivered a written
demand for appraisal of such shares in accordance with Section 1301 of the
California Law ("DISSENTING SHARES"), shall not be converted into or represent
the right to receive the Parent Common Stock as provided in Section 1.6 of this
Agreement, but the holders of such shares shall only be entitled to such rights
as are granted by California Law; provided, however, that (i) if any holder of
Dissenting Shares shall subsequently deliver a written withdrawal of his demand
for appraisal of such shares (with the written approval of the Surviving
Corporation, if such withdrawal is not tendered within 60 days after the
Effective Time), or (ii) if any holder fails to perfect or loses his appraisal
rights as provided under California Law, or (iii) if any holder of Dissenting
Shares fails to demand payment within the time period provided under California
Law, such holder shall forfeit the right to appraisal of such shares and such
shares shall thereupon be
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deemed to have been converted into and to have become exchangeable for, as of
the Effective Time, the right to receive Parent Common Stock as provided in
Section 1.6 of this Agreement and in accordance with Section 1.8 of this
Agreement. The Company shall give Parent (i) prompt notice of any written
demands received by the Company to require the Company to purchase shares of the
Company Common Stock or Company Preferred Stock, withdrawals of such demands,
and any other instruments served pursuant to California Law and received by the
Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to such demands.
1.8 SURRENDER OF CERTIFICATES.
(a) Exchange Agent. U.S. Stock Transfer Corporation shall serve
as exchange agent (the "EXCHANGE AGENT") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I the shares of Parent Common Stock issuable
pursuant to Section 1.6(a) in exchange for outstanding shares of the Company
Common Stock and Company Preferred Stock; provided, however, that, on behalf of
the Company Stockholders, pursuant to Section 7.2 hereof, Parent shall deposit
into an escrow account 10% of the Merger Shares issued to the Escrow Agent on
behalf of the Company Stockholders pursuant to Section 1.6(a) (the "ESCROW
AMOUNT"). The portion of the Escrow Amount contributed on behalf of each
Company Stockholder shall be in proportion to the aggregate number of Merger
Shares which such Company Stockholder would otherwise be entitled to receive in
the Merger by virtue of ownership of outstanding shares of Company Common Stock
and Company Preferred Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed or provided at the Closing to
each Company Stockholder (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates (the
"CERTIFICATES"), which immediately prior to the Effective Time represented
outstanding shares of the Company Common Stock or Company Preferred Stock whose
shares were converted into the right to receive Merger Shares pursuant to
Section 1.6(a), shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions
consistent herewith as Parent may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing Merger Shares; provided, however, that such letter of transmittal
shall be substantially in the form and substance of a letter of transmittal and
instructions approved by counsel for the Company at or before the Closing. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, a Company Stockholder shall be entitled to receive in
exchange therefor a certificate representing the number of whole Merger Shares
(less the number of shares of Parent Common Stock to be deposited in the Escrow
Fund on such holder's behalf pursuant to paragraph (b) above) to which such
Company Stockholder is entitled pursuant to Section 1.6, and the Certificate so
surrendered shall forthwith be canceled. As soon as practicable after the
Effective Time, and subject to and in accordance with the provisions of Article
VII hereof, Parent shall cause to be distributed to the Escrow Agent a
certificate or certificates representing that number of shares of Parent Common
Stock equal to the Escrow Amount, which shall be registered in
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the name of the Escrow Agent. Such shares shall be beneficially owned by the
holders on whose behalf such shares were deposited in the Escrow Fund and shall
be available to compensate Parent as provided in Article VII. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of the Company Common Stock or Company Preferred Stock will
be deemed from and after the Effective Time, for all corporate purposes, other
than the payment of dividends, to evidence the ownership of the number of full
shares of Parent Common Stock into which such shares of the Company Common Stock
or Company Preferred Stock shall have been so converted.
(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Parent Common Stock in any name other than that of the registered
holder of the certificate surrendered, or established to the satisfaction of
Parent or any agent designated by it that such tax has been paid or is not
payable.
(f) Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of the Company Common Stock or Company Preferred
Stock shall have been lost, stolen or destroyed, the Exchange Agent shall issue
in exchange for such lost, stolen or destroyed certificates, upon the making of
an affidavit of that fact by the holder thereof, such shares of Parent Common
Stock; provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
(g) No Liability. Notwithstanding anything to the contrary in this
Section 1.8, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Parent Common Stock, Company
Common Stock or Company Preferred Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK AND PREFERRED
STOCK. All shares of Parent Common Stock issued upon the surrender for exchange
of shares of the Company Common Stock and Company Preferred Stock in accordance
with the terms hereof shall be deemed
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to be in full satisfaction of all rights pertaining to such shares of the
Company Common Stock and Company Preferred Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation of shares
of the Company Common Stock and Company Preferred Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.10 DISSENTING SHARES AFTER PAYMENT OF FAIR VALUE. Dissenting Shares,
if any, after payments in respect thereto have been made pursuant to the
California Law, shall be canceled.
1.11 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368 of the Code and constitute a pooling of interest for accounting
purposes and each of the parties agrees to take all actions reasonably necessary
to assure that the Merger will qualify for such treatment. Each party has
consulted with its own tax advisors and accountants with respect to the tax and
accounting consequences, respectively, of the Merger.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Sub, the officers and directors of the
Company and Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub, subject to such
exceptions as are specifically disclosed in the Disclosure Schedule supplied by
the Company to Parent (the "DISCLOSURE SCHEDULE") and dated as of the date
hereof, as set forth below. "TO THE KNOWLEDGE OF THE COMPANY" means to the
actual knowledge, after reasonable inquiry, of the officers of the Company.
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business and in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would have a material adverse effect on
the business, assets (including intangible assets) , financial condition,
results of operations or prospects of the Company, taken as a whole (hereinafter
referred to as a "MATERIAL ADVERSE Effect") . The Company has delivered a true
and correct copy of its Articles of Incorporation and Bylaws, each as amended to
date, to Parent. Section 2.1 of the Disclosure Schedule lists the directors and
officers of the Company. The operations now being conducted by the Company have
not been conducted under any other name.
2.2 COMPANY CAPITAL STRUCTURE.
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(a) The authorized capital stock of the Company consists of
1,191,391 shares, 1,000,000 shares of which are designated as Common Stock, of
which 241,361.2 shares are issued and outstanding on the date hereof, 41,391
shares of Series A Preferred Stock, of which 41,391 shares are issued and
outstanding on the date hereof, and 150,000 shares of Series B Preferred Stock,
of which 78,155 shares are issued and outstanding on the date hereof. The
Company's capital stock is held by the Company Stockholders, with the domicile
addresses and in the amounts set forth on Schedule 2.2(a) of the Disclosure
Schedule. All outstanding shares of the Company's capital stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws of
the Company or any agreement to which the Company is a party or by which it is
bound.
(b) Except as listed in Section 2.2(b) of the Disclosure Schedule,
there are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or obligating the Company 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. As a result of
the transactions contemplated by the Agreement, Parent will be the record and
beneficial owner of all outstanding capital stock of the Company and rights to
acquire capital stock of the Company.
2.3 SUBSIDIARIES. The Company does not have, and never has had, any
subsidiaries or affiliated companies and does not otherwise own, and has not
otherwise owned, any shares in the capital of or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 AUTHORITY. The Company has all requisite power and authority to
enter into this Agreement and any Related Agreements (as hereinafter defined) to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Related Agreements
to which it is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of the Company, and no further action is required on the part of the
Company to authorize the Agreement, any Related Agreements to which it is a
party and the transactions contemplated hereby and thereby. This Agreement and
any Related Agreements to which the Company is a party have been duly executed
and delivered by the Company, and, assuming the due authorization, execution and
delivery by the other parties hereto and thereto, constitute the valid and
binding obligation of the Company, enforceable in accordance with their
respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and to rules of law governing
specific performance, injunctive relief or other equitable remedies. The
"RELATED AGREEMENTS" shall mean all such ancillary agreements required in this
Agreement to be executed and delivered in connection with the transactions
contemplated hereby, including, without limitation, the Registration Rights
Agreement.
2.5 NO CONFLICT. The execution and delivery by the Company of this
Agreement and any Related Agreements to which it is a party do not, and the
consummation of the transactions contemplated hereby and thereby will not,
materially conflict with, or result in any material violation
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of, or material default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"CONFLICT") (i) any provision of the Articles of Incorporation and Bylaws of the
Company, (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise or license to which the Company or any
of its properties or assets are subject, or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or its
properties or assets.
2.6 CONSENTS. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any
third party, including a party to any agreement with the Company (so as not to
trigger any Conflict), is required by or with respect to the Company in
connection with the execution and delivery of this Agreement and any Related
Agreements to which the Company is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable securities laws thereby, and (ii)
the filing of the Merger Certificate with the Secretary of State of the State of
Delaware and the Secretary of State of California.
2.7 COMPANY FINANCIAL STATEMENTS. Section 2.7 of the Disclosure Schedule
sets forth the Company's audited balance sheet as of December 31, 1999, the
audited income statements and cash flows for the years ended December 31, 1998
and 1999 (collectively, the "AUDITED FINANCIALS"), and the Company's unaudited
balance sheet as of January 31, 2000 and unaudited income statement and cash
flow for the period from January 1, 2000 through January 31, 2000 (collectively,
the "UNAUDITED FINANCIALS" and, together with the Audited Financials, the
"FINANCIAL STATEMENTS"). The Financial Statements (a) are in accordance with
the books and records of the Company, (b) have been prepared in accordance with
generally accepted accounting principles ("GAAP"), applied on a basis
consistent throughout the periods indicated and consistent with each other,
provided that the Unaudited Financials do not contain footnotes in accordance
with GAAP, and (c) fairly and accurately represent in all material respects the
financial condition of the Company at the respective dates specified therein and
the results of operations for the respective periods specified therein, subject
in the case of the Unaudited Financials, to normal year-end adjustments, which
will not be material in amount or significance. The Company's unaudited balance
sheet as of January 31, 2000 shall be referred to as the "CURRENT BALANCE
SHEET." The Company has no material debt, liability or obligation of any nature,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due, that is not reflected, reserved against or disclosed in the Financial
Statements or Section 2.7 of the Disclosure Schedule, except for those that may
have been incurred after the date of the Current Balance Sheet in the ordinary
course of the Company's business, consistent with past practice.
2.8 NO UNDISCLOSED LIABILITIES. The Company does not have any material
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with GAAP), which individually or in the aggregate (i)
has not been reflected in the Current Balance Sheet, or (ii) has not arisen in
the ordinary course of business consistent with past practices.
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2.9 NO CHANGES. Since December 31, 1999, there has not been, occurred or
arisen any:
(a) transaction by the Company involving in excess of $10,000,
except in the ordinary course of business as conducted on that date and
consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $25,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance) ,
either individually or in the aggregate, in excess of $25,000;
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the Company Common Stock or Company Preferred
Stock, or any direct or indirect redemption, purchase or other acquisition by
the Company of any of its Common Stock or Preferred Stock;
(i) increase in the salary or other compensation payable or to
become payable by the Company to any of its officer, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person;
(j) any agreement, contract, lease or commitment or any extension
or modification the terms of any such agreement, contract, lease or commitment,
involving, either individually or in the aggregate, $25,000;
(k) sale, lease, license or other disposition of any of the assets
or properties of the Company, or any creation of any security interest in such
assets or properties, in excess of $10,000, except in the ordinary course of
business as conducted on that date and consistent with past practices;
(l) amendment or termination of any material contract, agreement
or license to which the Company is a party or by which it is bound;
(m) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt
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securities of the Company or guaranteeing of any debt securities of others,
except for advances to employees for travel and business expenses in the
ordinary course of business, consistent with past practices;
(n) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company, either individually or in the aggregate, exceeding $25,000;
(o) the commencement or notice or threat of commencement of any
lawsuit or proceeding against investigation of the Company or its affairs;
(p) notice of any claim of ownership by a third party of any
Company Intellectual Property (as defined in Section 2.13 below) or of
infringement by the Company of any third party's Intellectual Property rights;
(q) issuance or sale, or contract to issue or sell, by the Company
of any of its shares of capital stock, or securities exchangeable, convertible
or exercisable therefor, or of any other of its securities;
(r) material change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or charged
by persons who have licensed Intellectual Property (as defined in Section 2.13
below) to the Company;
(s) any event or condition of any character that has had or could
reasonably be expected to have a Material Adverse Effect on the Company; or
(t) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement) .
2.10 TAX MATTERS.
(a) Definition of Taxes. For the purposes of this Agreement, "TAX"
or, collectively, "TAXES," means (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts; (ii) any liability for the payment of any amounts of
the type described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits.
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(i) The Company as of the Effective Time will have prepared
and timely filed or made a timely request for extension for all required
federal, state, local and foreign returns, estimates, information statements and
reports ("RETURNS") relating to any and all Taxes concerning or attributable to
the Company, or its operations and such Returns are true and correct in all
material respects and have been completed in accordance with applicable law.
(ii) The Company as of the Effective Time (A) will have
paid or accrued all Taxes it is required to pay or accrue and (B) will have
withheld and timely remitted with respect to its employees all income taxes and
other Taxes required to be withheld and remitted.
(iii) The Company has not been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, assessed or proposed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified in writing
of any request for such an audit or other examination.
(v) The Company has no liabilities for unpaid federal,
state, local and foreign Taxes which have not been accrued or reserved against
in accordance with GAAP on the Current Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company has not incurred any
liability for Taxes since the date of the Current Balance Sheet other than in
the ordinary course of business.
(vi) The Company has made available to Parent or its legal
counsel, copies of all foreign, federal and state income and all state sales and
use Returns filed for all years as to which any applicable statute of
limitations has not expired.
(vii) There are (and immediately following the Effective
Time there will be) no liens, pledges, charges, claims, restrictions on
transfer, mortgages, security interests or other encumbrances of any sort
(collectively, "LIENS") on the assets of the Company relating to or attributable
to Taxes relating to tax periods prior to the Effective Time other than Liens
for taxes not yet due and payable.
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
(ix) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible by the Company as an expense under
applicable law.
(x) The Company is not a party to any tax sharing,
indemnification or allocation agreement nor does the Company owe any amount
under any such agreement.
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(xi) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
(xii) The Company is not, and has not been at any time, a
"United States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code.
(xiii) The Company is an accrual basis taxpayer and its tax
basis and its assets for purposes of determining its future amortization,
depreciation and other federal income tax deductions is accurately reflected on
the Company's tax books and records.
(c) Executive Compensation Tax. The Company does not have, or will
not have as a result of the transactions contemplated by this Agreement, any
liabilities for Taxes (for example under Section 280G of the Code) as a result
of the amount of remuneration paid or to be paid to its employees.
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(non-competition or otherwise), commitment, judgment, injunction, order or
decree to which the Company is a party or otherwise binding upon the Company
that has or may have the effect of prohibiting or impairing any business
practice of the Company, any acquisition of property (tangible or intangible) by
the Company or the conduct of business by the Company. Without limiting the
foregoing, the Company has not entered into any agreement under which the
Company is restricted from providing services to customers or potential
customers or any class of customers, in any geographic area, during any period
of time or in any segment of the market.
2.12 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION
OF EQUIPMENT.
(a) The Company does not own any real property, nor has it ever
owned any real property. Section 2.12(a) of the Disclosure Schedule sets forth a
list of all real property currently leased by the Company, the name of the
lessor, the date of the lease and each amendment thereto and, with respect to
any current lease, the aggregate annual rental and/or other fees payable under
any such lease. To the Company's knowledge, all such current leases are in full
force and effect in accordance with their respective terms, and to the Company's
knowledge there is not, under any of such leases, any existing material default
or material event of default (or event which with notice or lapse of time, or
both, would constitute a material default).
(b) The Company has good and marketable title to, or, in the case
of leased properties and assets, enforceable leasehold interests in, all of its
tangible properties and assets used or held for use in its business, free and
clear of any Liens, except as reflected in the Current Balance Sheet and except
for liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
(c) Section 2.12(c) of the Disclosure Schedule lists all material
items of equipment (the "EQUIPMENT") owned or leased by the Company and such
Equipment is, (i) adequate for the
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conduct of the business of the Company as currently conducted and (ii) in good
operating condition, regularly and properly maintained, subject to normal wear
and tear.
(d) The Company has sole and exclusive ownership, free and clear
of any Liens, of all customer files and other customer information relating to
the Company's current customers (the "CUSTOMER INFORMATION"). No third party
possesses any claims or rights with respect to use of the Customer Information.
2.13 INTELLECTUAL PROPERTY.
(a) For the purposes of this Agreement, the following terms have
the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and
all rights in, arising out of, or associated therewith anywhere in the world:
(i) all United States, international and foreign patents and applications
therefor and all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof; (ii) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing; (iii) all
copyrights, copyrights registrations and applications therefor; (iv) all
industrial designs and any registrations and applications therefor throughout
the world; (v) all trade names, logos, common law trademarks and service marks;
trademark and service xxxx registrations and applications therefor and all
goodwill associated therewith throughout the world; (vi) all databases and data
collections and all rights therein throughout the world; and (vii) all computer
software including all source code, object code, firmware, development tools,
files, records and data, all media on which any of the foregoing is recorded,
(viii) any similar, corresponding or equivalent rights to any of the foregoing
and (ix) all documentation related to any of the foregoing.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual
Property that is owned by, or exclusively licensed to, the Company.
"REGISTERED INTELLECTUAL PROPERTY" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; and (iv) any other Company Intellectual Property that is
the subject of an application, certificate, filing, registration or other
document issued by, filed with, or recorded by, any state, government or other
public legal authority.
(b) Section 2.13(b) of the Disclosure Schedule lists all
Registered Intellectual Property owned by, or filed in the name of, the Company
(the "COMPANY REGISTERED INTELLECTUAL PROPERTY").
(c) Except as set forth in Section 2.13(c) of the Disclosure
Schedule, the Company (i) owns and has good and exclusive title to, or has
exclusive license to use, each item of the Company Intellectual Property,
including all Company Registered Intellectual Property listed on Section 2.13(b)
of the Disclosure Schedule, free and clear of any Liens, (ii) is the exclusive
owner of all trademarks and trade names used in connection with the operation or
conduct of the business of the Company, including the sale of any products or
the provision of any services by the Company and (iii) owns exclusively, and has
good title to, all copyrighted works that are Company products. To the extent
that any work, invention or material has been developed or created by a third
party for the Company, the Company has a written agreement with such third party
with respect thereto and the Company thereby has obtained ownership of, and is
the exclusive owner of, all Intellectual Property in such work, material or
invention by operation of law or by valid assignment.
(d) Except as set forth in Section 2.13(d) of the Disclosure
Agreement, the Company has not transferred ownership of, or granted any
exclusive license with respect to, any Intellectual Property that is or was
Company Intellectual Property, to any third party.
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(e) The operation of the business of the Company as it currently
is conducted, including to the extent applicable the Company's design,
development, manufacture and sale of the products (including products currently
under development) or services of the Company, does not infringe or
misappropriate the Intellectual Property of any other person, violate the rights
of any person (including rights to privacy or publicity), or constitute unfair
competition or trade practices under the laws of any jurisdiction, and the
Company has not received written notice from any person claiming that such
operation or any act, product or service of the Company infringes or
misappropriates the Intellectual Property of any third party or constitutes
unfair competition or trade practices under the laws of any jurisdiction.
(f) The Company owns or has the right to use all Intellectual
Property necessary to the conduct of its business as it is currently conducted
including, without limitation, the design, development, manufacture and sale of
all products currently manufactured or sold by the Company or under development
by the Company and the performance of all services provided or contemplated to
be provided by the Company.
(g) Each item of the Company Registered Intellectual Property is
valid and subsisting, all necessary registration, maintenance and renewal fees
in connection with such Company Registered Intellectual Property have been paid
and all necessary documents and certificates in connection with such Company
Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such Company
Registered Intellectual Property.
(h) There are no contracts, licenses and agreements between the
Company and any other person with respect to Company Intellectual Property under
which there is any dispute known to the Company regarding the scope of such
agreement, or performance under such agreement including with respect to any
payments to be made or received by the Company thereunder.
(i) To the knowledge of the Company, no person is infringing or
misappropriating any of the Company Intellectual Property.
(j) Except as set forth in Section 2.13(j) of the Disclosure
Schedule, the Company has taken all steps that are reasonably required to
protect the Company's rights in confidential information and trade secrets of
the Company or provided by any third party to the Company. Without limiting the
foregoing, the Company has, and enforces, a policy requiring each employee and
contractor to execute proprietary information and confidentiality agreements
substantially in the Company's standard forms, and all current employees and
contractors of the Company have executed such an agreement.
(k) There are no proceedings or actions instituted by the Company
or of which the Company has received written notice before any court, tribunal
(including the United States Patent and Trademark Office (the "PTO") or
equivalent authority anywhere in the world) related to any Company Intellectual
Property.
(l) No Company Intellectual Property or product or service of the
Company is subject to any proceeding or outstanding decree, order, judgment,
agreement or stipulation that restricts in
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any manner the use, transfer or licensing thereof by the Company or may affect
the validity, use or enforceability of such Company Intellectual Property.
(m) To the Company's knowledge, no (i) product, service or
publication of the Company, (ii) material published or distributed by the
Company or (iii) conduct or statement of the Company, constitutes obscene
material or a defamatory statement or material.
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) The Company does not have, or is not bound by:
(i) any contract, license or agreement to which the Company
is a party (A) with respect to Company Intellectual Property licensed or
transferred to any third party or (B) pursuant to which a third party has
licensed or transferred any Intellectual Property to the Company, with a value
or cost in excess of $25,000;
(ii) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization;
(iii) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement;
(iv) any fidelity or surety bond or completion bond;
(v) any lease of personal property with fixed annual rental
payments in excess of $25,000;
(vi) any contract, license or agreement between the Company
and any third party wherein or whereby the Company has agreed to, or assumed,
any obligation or duty to warrant, indemnify, hold harmless or otherwise assume
or incur any obligation or liability with respect to the infringement or
misappropriation by the Company or such third party of the Intellectual Property
of any third party;
(vii) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person;
(viii) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $25,000;
(ix) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business;
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(x) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit other than trade credit;
(xi) any purchase order or contract for the purchase of
materials involving $25,000 or more;
(xii) any construction contracts;
(xiii) any distribution, joint marketing or development
agreement; or
(xiv) any other agreement, contract or commitment that
involves $25,000 or more or is not cancelable without penalty within thirty (30)
days.
(b) The Company is in compliance with and has not breached,
violated or defaulted under, or received notice that it has breached, violated
or defaulted under, any of the terms or conditions of any material agreement,
contract, license or commitment to which it is a party or by which it is bound
(any such material agreement, contract, license or commitment, a "CONTRACT"),
and the Company is not aware of any event that would constitute such a breach,
violation or default with the lapse of time, giving of notice or both. To the
knowledge of the Company, each Contract is in full force and effect, and, to the
knowledge of the Company, all other parties to each Contract are in compliance
with, and have not breached any term of, such Contract. The Company has obtained
or will obtain prior to the Closing Date, all necessary consents, waivers and
approvals of parties to any Contract as are required thereunder in connection
with the Merger or to remain in effect without modification after the Closing.
Following the Effective Time, the Company will be permitted to exercise all of
the Company's rights under the Contracts to the same extent the Company would
have been able to had the Merger not occurred and without the payment of any
additional amounts or consideration other than ongoing fees, royalties or
payments which the Company would otherwise be required to pay.
2.15 INTERESTED PARTY TRANSACTIONS. No officer or director of the
Company (nor any ancestor, sibling, descendant or spouse of any of such persons,
or any trust, partnership or corporation in which any of such persons has or has
had an interest), has or has had, directly or indirectly, (i) any interest in
any entity that furnished or sold, or furnishes or sells, services or products
that the Company furnishes or sells, or proposes to furnish or sell, or (ii) any
interest in any entity that purchases from or sells or furnishes to the Company
any goods or services or (iii) a beneficial interest in any Contract; provided,
however, that ownership of no more than 2.5% of the outstanding voting stock of
a publicly traded corporation and no more than 5% of the outstanding equity of
any other entity shall not be deemed an "interest in any entity" for purposes of
this Section 2.15.
2.16 GOVERNMENTAL AUTHORIZATION. Section 2.16 of the Disclosure Schedule
accurately lists each material consent, license, permit, grant or other
authorization issued to the Company by a governmental entity (i) pursuant to
which the Company currently operates or holds any interest in any of its
properties or (ii) which is required for the operation of its business or the
holding of any such interest (herein collectively called "COMPANY
AUTHORIZATIONS"). The Company Authorizations
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are in full force and effect and constitute all Company Authorizations required
to permit the Company to operate or conduct its business or hold any interest in
its properties or assets.
2.17 LITIGATION. There is no action, suit or proceeding of any nature
pending, or to the Company's knowledge threatened, against the Company, its
properties or any of its officers or directors in their capacity as such, nor,
to the knowledge of the Company, is there any reasonable basis therefor. To the
Company's knowledge, there is no investigation pending or threatened against the
Company, its properties or any of its officers or directors (nor, to the
knowledge of the Company, is there any reasonable basis therefor) by or before
any governmental entity. No governmental entity has at any time challenged or
questioned the legal right of the Company to conduct its operations as presently
or previously conducted.
2.18 ACCOUNTS RECEIVABLE.
(a) The Company has made available to Parent a list of all
accounts receivable of the Company ("ACCOUNTS RECEIVABLE") as of December 31,
1999 along with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Company arose in the ordinary
course of business, are carried at values determined in accordance with GAAP
consistently applied and are, to the Company's knowledge, collectible except to
the extent of reserves therefor set forth in the Current Balance Sheet. No
person has any Lien on any of such Accounts Receivable and no request or
agreement for deduction or discount has been made with respect to any of such
Accounts Receivable.
2.19 MINUTE BOOKS. The minute books of the Company made available to
counsel for Parent are the only minutes of the Company and contain a reasonably
accurate summary of all meetings of the Board of Directors (or committees
thereof) of the Company and its stockholders or actions by written consent since
the incorporation of the Company.
2.20 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) illegally released any material
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, and urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws, but
excluding office and janitorial supplies properly and safely maintained (a
"HAZARDOUS MATERIAL"). No Hazardous Materials are present as a result of the
deliberate actions of the Company or, to the Company's knowledge, as a result of
any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company has at any time owned, operated, occupied or leased.
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(b) Hazardous Materials Activities. The Company has not
transported, stored, used, manufactured, disposed of, released or, to the
Company's knowledge, exposed its employees or others to Hazardous Materials in
violation of any law in effect on or before the Effective Time, nor has the
Company disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (any or all of the foregoing being collectively referred to
as "HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to or
as of the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of the Company's Hazardous Materials
Activities and other businesses of the Company as such activities and businesses
are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company. The Company is not
aware of any fact or circumstance which could involve the Company in any
environmental litigation or impose upon the Company any environmental liability.
2.21 BROKERS' AND FINDERS' FEES; MERGER PARTY EXPENSES. Except as set
forth in Section 2.21 of the Disclosure Schedule, the Company has not incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
the Agreement or any transaction contemplated hereby. Section 2.21 of the
Disclosure Schedule sets forth the principal terms and conditions of any
agreement, written or oral, with respect to such fees. Section 2.21 of the
Disclosure Schedule sets forth the Company's current reasonable estimate of all
Merger Party Expenses (as defined in Section 5.4 of this Agreement) expected to
be incurred by the Company in connection with the negotiation and effectuation
of the terms and conditions of this Agreement and the transactions contemplated
hereby.
2.22 EMPLOYEE BENEFIT PLANS AND COMPENSATION.
(a) For purposes of this Section 2.22, the following terms shall
have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations thereunder;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iii) "EMPLOYEE PLAN" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
bonuses, severance, termination pay, deferred compensation, pensions, profit
sharing, performance awards, stock or stock-related awards, fringe
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benefits or other employee benefits of any kind, whether formal or informal,
written or otherwise, funded or unfunded and whether or not legally binding,
including without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") which is or has been maintained, contributed to, or required
to be contributed to, by the Company or any Affiliate for the benefit of any
Employee (as defined below), and pursuant to which the Company or any Affiliate
has or may have any liability, contingent or otherwise;
(iv) "EMPLOYEE" shall mean any current, former, or retired
employee, consultant, officer, or director of the Company or any Affiliate;
(v) "EMPLOYEE AGREEMENT" shall refer to each employment,
severance, consulting or similar agreement or contract between the Company or
any Affiliate and any Employee;
(vi) "FMLA" shall mean the Family Medical Leave Act of
1993, as amended;
(vii) "INTERNATIONAL PLAN" shall mean each Company Employee
Plan that has been adopted or maintained by the Company or any Affiliate,
whether informally or formally, or with respect to which the Company or any
Affiliate will or may have any liability, for the benefit of Employees who
perform services outside the United States;
(viii) "IRS" shall mean the Internal Revenue Service;
(ix) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(x) "PBGC" shall mean the Pension Benefit Guaranty
Corporation; and
(xi) "PENSION PLAN" shall mean each Company Employee Plan
which is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Section 2.22(b) of the Disclosure Schedule contains
an accurate and complete list of each Employee Plan and each Employee Agreement,
together with a schedule of all liabilities, whether or not accrued, under each
such Employee Plan or Employee Agreement. The Company does not have any plan or
commitment, whether legally binding or not, to establish any new Employee Plan
or Employee Agreement, to modify any Employee Plan or Employee Agreement (except
to the extent required by law or to conform any such Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to adopt
or enter into any Employee Plan or Employee Agreement, nor does it have any
intention or commitment to do any of the foregoing.
(c) Documents. The Company has provided to Parent, (i) correct and
complete copies of all documents embodying each Employee Plan and each Employee
Agreement including all amendments thereto all related trust documents and
copies of all forms of agreement and enrollment used therewith; (ii) the most
recent annual actuarial valuations, if any, prepared for each Employee
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Plan; (iii) the three most recent annual reports (Series 5500 and all schedules
thereto), if any, required under ERISA or the Code in connection with each
Employee Plan or related trust; (iv) the most recent summary plan description
together with the most recent summary of material modifications, if any,
required under ERISA with respect to each Employee Plan; (v) all IRS
determination letters and rulings relating to Employee Plans and copies of all
applications and correspondence to or from the IRS, the Department of Labor
("DOL") or any other governmental agency, with respect to any Employee Plan;
(vi) if the Employee Plan is funded, the most recent annual and periodic
accounting of Employee Plan assets; (vii) all material agreements and contracts
relating to each Employee Plan, including but not limited to, administrative
service agreements, group annuity contracts and group insurance contracts;
(viii) all communications material to any Employee or Employees relating to any
Employee Plan and any proposed Employee Plan, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would result
in any liability to the Company and (ix) all COBRA forms and related notices (or
such forms and notices as required under comparable law); (x) all policies
pertaining to fiduciary liability insurance covering the fiduciaries for each
Company Employee Plan; (xi) all registration statements, annual reports (Form
11-K and all attachments thereto) and prospectuses prepared in connection with
each Company Employee Plan.
(d) Employee Plan Compliance. (i) To the knowledge of the Company,
the Company has performed all material obligations required to be performed by
it under each Employee Plan and each Employee Plan has been established and
maintained in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including ERISA and the Code;
(ii) each Employee Plan intended to qualify under Section 401(a) of the Code and
each trust intended to qualify under Section 501(a) of the Code has either
received a favorable determination, opinion, notification or advisory letter
with respect to each such Employee Plan from the IRS or has remaining a period
of time under applicable Treasury regulations or IRS pronouncements in which to
apply for such letter and make any amendments necessary to obtain a favorable
determination as to the qualified status of each such Employee Plan; (iii) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 or 407 of ERISA, and not otherwise exempt under Section 4975 of the
Code or Section 408 of ERISA (or any administrative class exemption issued
thereunder) has occurred with respect to any Employee Plan; (iv) there are no
actions, suits or claims pending, or, to the knowledge of the Company,
threatened or anticipated (other than routine claims for benefits), against any
Employee Plan or against the assets of any Employee Plan; (v) each Employee Plan
can be amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without resulting in, as a consequence of such
amendment, termination or discontinuance, liability to the Company, Parent, Sub
or any Affiliate (other than ordinary administration expenses typically incurred
in a termination event); (vi) there are no inquiries or proceedings pending or,
to the knowledge of the Company or any Affiliates, threatened by the IRS or DOL
with respect to any Employee Plan; and (vii) neither the Company nor any
Affiliate is subject to any penalty or tax with respect to any Employee Plan
under Section 502(i) of ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. Neither the Company nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
pension plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
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(f) Multiemployer and Multiple Employer Plans. At no time has the
Company contributed to or been obligated to contribute to any Multiemployer
Plan. Neither the Company nor any Affiliate has at any time ever maintained,
established, sponsored, participated in, or contributed to any multiple employer
plan, as described in Section 413(c) of the Code.
(g) No Post-Employment Obligations. No Employee Plan provides, or
has any liability to provide, life insurance, medical or other employee welfare
benefits to any Employee upon his or her retirement or termination of employment
for any reason, except as may be required by statute, and the Company has not
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) or any other person
that such Employee(s) or any other person would be provided with life insurance,
medical or other employee welfare benefits upon their retirement or termination
of employment, except to the extent required by statute.
(h) Health Care Compliance. To the knowledge of the Company,
neither the Company nor any Affiliate has, prior to the Effective Time and in
any material respect, violated any of the health care continuation requirements
of COBRA, the requirements of FMLA, the requirements of the Health Insurance
Portability and Accountability Act of 1996, the requirements of the Women's
Health and Cancer Rights Act, the requirements of the Newborns' and Mothers'
Health Protection Act of 1996, or any amendment to each such Act, or any similar
provisions of state law applicable to its Employees.
(i) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby, with the exception of the
termination of the Company's 401(k) plan pursuant hereto, will not (either alone
or upon the occurrence of any additional or subsequent events) constitute an
event under any Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting (except to the extent
required by the Company's 401(k) plan as a result of its termination),
distribution, increase in benefits or obligation to fund benefits with respect
to any Employee.
(j) Employment Matters. The Company (i) is in compliance with all
applicable laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not liable
for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits for Employees (other than routine payments to
be made in the normal course of business and consistent with past practice).
There are no pending, threatened or reasonably anticipated claims or actions
against the Company under any worker's compensation policy or long-term
disability plan.
(k) Labor. No work stoppage or labor strike against the Company is
pending, threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. The
Company is not involved in or threatened with
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any labor dispute, grievance, or litigation relating to labor, safety or
discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, result in
liability to the Company, Parent or Sub. The Company has not engaged in any
unfair labor practices which could, individually or in the aggregate, directly
or indirectly result in a liability to the Company, Parent, Sub or any
Affiliate. The Company is not presently, nor has it in the past, been a party
to, or bound by, any collective bargaining agreement or union contract with
respect to Employees and no collective bargaining agreement is being negotiated
by the Company.
(l) International Plan. The Company does not now, nor has it ever
had the obligation to, maintain, establish, sponsor, participate in, or
contribute to any International Plan.
2.23 NO INTERFERENCE OR CONFLICT. No stockholder or officer or, to the
knowledge of the Company, any employee of the Company, is obligated under any
contract or agreement or subject to any judgment, decree or order of any court
or administrative agency, that would interfere with such person's efforts to
promote the interests of the Company or that would interfere with the Company's
business. Neither the execution nor delivery of this Agreement, nor the carrying
on of the Company's business as presently conducted nor any activity of such
officers or employees in connection with the carrying on of the Company's
business as presently conducted will, to the Company's knowledge, conflict with
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract or agreement under which any of such officers or
employees are currently bound.
2.24 INSURANCE. Section 2.24 of the Disclosure Schedule lists all
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. There
is no claim by the Company pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid, and the Company and its Affiliates are otherwise in
compliance with the terms of such policies and bonds (or other policies and
bonds providing substantially similar insurance coverage). The Company has no
knowledge of any threatened termination of, or premium increase with respect to,
any of such policies.
2.25 COMPLIANCE WITH LAWS. The Company has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
foreign, federal, state or local statute, law or regulation, the violation of
which would have a Material Adverse Effect on the Company's business.
2.26 COMPLETE COPIES OF MATERIALS. The Company has delivered or made
available true and complete copies of each document (or summaries of same) that
has been reasonably requested by Parent or its counsel.
2.27 YEAR 2000 COMPLIANCE. The Company has conducted a reasonable review
of all of its software products and all material operating codes, programs,
utilities and other software, as well as all hardware and systems, utilized by
it (collectively, "SYSTEMS") to determine whether such software products and
Systems are designed to record, store, process and present millennial dates in
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the same manner, and with the same functionality, as provided on or before
December 31, 1999, and are designed to not lose functionality or degrade in
performance as a consequence of such software operating at a millennial date
(such design and performance being referred to as "Y-2000 COMPLIANT"). To the
extent such review identified software products or Systems that are not Y-2000
Compliant, (a) the Company has taken appropriate corrective action with respect
to such software products and Systems, and to the knowledge of the Company, as
of the date hereof, the costs of such corrective action do not exceed, in the
aggregate, $50,000, and (b) such software products and Systems and the related
appropriate corrective action is described in Section 2.27 of the Disclosure
Schedule. To the knowledge of the Company, all suppliers of technology or other
critical products or services to Company are Y-2000 Compliant. The Company has
not provided to its customers any express warranties related to Y-2000 Compliant
issues.
2.28 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by the Company (as modified by the Disclosure Schedule), nor any statement
made in any schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the Company Stockholders for use in soliciting their consent to this
Agreement and the Merger contains or will contain at the Effective Time, any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
2.29 MEMBERSHIPS. The Company has a membership base consisting of over 1,300,000
valid, unique members and active e-mail addresses and the Company's membership
base has grown at an average rate of 10,000 per day for the period from February
1, 2000 through February 25, 2000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company, subject to such exceptions
as are specifically disclosed in the Disclosure Schedule (referencing the
appropriate section and paragraph numbers) supplied by Parent to the Company
(the "PARENT DISCLOSURE SCHEDULE") and dated as of the date hereof, as set forth
below:
3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. Each of Parent and Sub has
the corporate power to own its properties and to carry on its business as now
being conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on the ability of Parent and Sub to consummate the transactions
contemplated hereby.
3.2 AUTHORITY. Each of Parent and Sub has all requisite corporate power
and authority to enter into this Agreement and any Related Agreement to which it
is a party and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and any Related Agreement to which
it is a party and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the boards of directors of Parent and Sub
and by
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Parent as the sole stockholder of Sub, and no other corporate proceedings on the
part of Parent or Sub are necessary to authorize this Agreement and any Related
Agreement to which it is a party or to consummate the transactions contemplated
hereby and thereby. This Agreement and any Related Agreement to which it is a
party have been duly executed and delivered by Parent and Sub and constitute the
valid and binding obligations of Parent and Sub, enforceable in accordance with
their terms, except as such enforceability may be limited by principles of
public policy and subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.3 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 75,000,000 shares
of Common Stock, $.00015 par value, of which 19,340,420 shares were issued and
outstanding as of December 31, 1999, and 5,000,000 shares of undesignated
Preferred Stock, $.00015 par value. No shares of Preferred Stock are issued or
outstanding. Parent has also reserved (i) 1,500,000 shares of Common Stock for
issuance to employees and consultants pursuant to Parent's 1999 Omnibus Equity
Incentive Plan, and (ii) 300,000 shares (subject to annual increases) of Common
Stock for issuance under Parent's 1999 Employee Stock Purchase Plan.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, non-assessable and
free of preemptive rights.
3.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished the
Company, and will furnish the Company Stockholders prior to the Closing, with a
true and complete copy of the following filings with the Securities and Exchange
Commission (the "SEC"): (i) its quarterly report on Form 10-Q for the quarter
ended September 30, 1999, and (ii) its Form S-1 Registration Statement
originally filed on May 21, 1999, as amended (the "SEC DOCUMENTS"). As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933, as amended (the "SECURITIES
ACT") and the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"),
as applicable and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading as of the Effective Time. Parent has
filed in a timely manner all reports required to be filed during the preceding
twelve calendar months pursuant to the Exchange Act. The financial statements of
Parent, including the notes thereto, included in the SEC Documents (the "PARENT
FINANCIAL STATEMENTS") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles consistently applied (except as may be indicated
in the notes thereto) and present fairly the consolidated financial position of
Parent at the dates thereof and of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal audit
adjustments). The Parent does not have any liability, indebtedness, obligation,
expense, claim, deficiency, guaranty or endorsement of any type, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be reflected in financial statements in accordance with GAAP),
which individually or in the aggregate (i) has not been reflected in the balance
sheet for the fiscal year ended September 30, 1999,
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or (ii) has not arisen since September 30, 1999 in the ordinary course of
business consistent with past practices.
3.5 NO 8-K EVENT. Since September 30, 1999, Parent has not filed nor has
been obligated to file a Form 8-K under the Exchange Act which Form 8-K filing
reported or would have reported an event, action or other circumstance having or
likely to have a Material Adverse Effect on Parent.
3.6 LITIGATION. To the knowledge of Parent, there is no action, suit or
proceeding of any nature pending, or to the Parent's knowledge threatened,
against the Parent, its properties or any of its officers or directors, nor, to
the knowledge of the Parent, is there any reasonable basis therefor. To the
Parent's knowledge, there is no investigation pending or threatened against the
Parent, its properties or any of its officers or directors (nor, to the
knowledge of the Parent, is there any reasonable basis therefor) by or before
any governmental entity. No governmental entity has at any time challenged or
questioned the legal right of the Parent to conduct its operations as presently
or previously conducted.
3.7 OWNERSHIP OF THE COMPANY. As of the date hereof, neither Parent nor
Sub, nor any subsidiary of Parent, is the beneficial owner of any shares of
Company Common Stock.
3.8 BROKERS' AND FINDERS' FEES. Parent has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.9 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
business, assets (including intangible assets), financial conditions or results
of operations of Parent and Sub, taken as a whole, has occurred since December
31, 1999.
3.10 CONSENTS. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity or any
third party, including a party to any agreement with Parent or Sub (so as not to
trigger any Conflict), is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement and any Related
Agreements to which Parent or Sub is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable securities laws thereby, (ii) the
filing of the Merger Certificate with the Secretary of State of the State of
Delaware and the Secretary of State of California, (iii) such consents, waivers,
approvals, orders or authorizations which if not obtained, or registrations,
declarations or filings which if not made, would not have a Material Adverse
Effect on the business, assets (including intangible assets), financial
conditions or results of operations of either Parent or Sub, taken as a whole.
3.11 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by Parent or Sub for inclusion or incorporation by reference in any
documents to be provided to the Company Stockholders in connection with the
transaction contemplated under the terms of this Agreement will, at the date
mailed to such Company Stockholders at the times of the meeting or meetings of
Company Stockholders to be held in connection with the Merger and at the
Closing, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or
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necessary in order to make the statements therein in light of the circumstances
under which they are made not misleading. Notwithstanding the foregoing, neither
Parent nor Sub makes any representation, warranty or covenant with respect to
any information supplied or required to be supplied by the Company that is
contained in or omitted from such documents.
3.12 OTHER MATTERS. Sub has been formed for the sole purpose of
effecting the Merger and, except as contemplated by this Agreement, Sub has not
conducted any business activities and does not have any material liabilities or
obligations.
3.13 NO CONFLICT. The execution and deliver by either Parent or Sub of
this Agreement and any Related Agreements to which either Parent or Sub is a
party do not, and the consummation of the transactions contemplated hereby and
thereby will not, conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a rights of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under (i) any provision of the Articles of Incorporation,
Certificate of Incorporation and Bylaws of either Parent or Sub, (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise or license to which either Parent or Sub or any of their
properties or assets are subject, or (iii) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to either Parent of Sub or their
properties or assets.
3.14 CERTAIN TAX MATTERS. Prior to the Closing, Parent will be in
control of Sub within the meaning of Section 368(c) of the Code. Parent has no
plan or intention to issue additional shares of capital stock of the Company.
Parent has no plan or intention to reacquire any of its stock issued in
connection with this transaction. Parent has no plan or intention to liquidate
the Company; to merge the Company with or into another corporation; to sell or
otherwise dispose of the stock of the Company, except for transfers of stock to
corporations controlled by Parent; to cause the Company to sell or otherwise
dispose of any of its assets, except for dispositions made in ordinary course of
business or transfers of assets to a corporation controlled by the Company. Sub
will have no liabilities assumed by the Company, and will not transfer to the
Company any assets subject to liabilities, in the transaction. Upon the Closing,
the Company will continue its historic business or use a significant portion of
its historic business assets in a business. Parent will not take any action that
would result in the transaction failing to qualify as a tax-free reorganization
under Section 368 of the Internal Revenue Code.
3.15 NO VOTE REQUIRED. No vote of the holders of Parent capital stock
are necessary to approve this Agreement and the transactions contemplated
hereby.
3.16 FINDER'S FEES. There is no investment banker, broker, finder or
other intermediary who might be entitled to any fee or commission from the
Parent or any of its affiliates upon consummation of the transactions
contemplated by this Agreement.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
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4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing), to carry on the Company's business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes before they become delinquent,
to pay or perform other obligations when due, and, to the extent consistent with
such business, use all reasonable efforts consistent with past practice and
policies to keep available the services of the Company's present officers and
key employees, preserve intact the Company's present business organization, and
preserve the Company's relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it, all with the
goal of preserving unimpaired the Company's goodwill and ongoing business at the
Effective Time. The Company shall promptly notify Parent of any material event
or occurrence or emergency not in the ordinary course of business of the
Company, and any material event involving the Company. Except as expressly
contemplated by this Agreement, the Company shall not, without the prior written
consent of Parent:
(a) Enter into any material commitment or transaction not in the
ordinary course of business;
(b) Transfer to any person or entity any rights to the Company
Intellectual Property;
(c) Enter into or amend any material agreements pursuant to which
any other party is granted marketing, distribution or similar rights of any type
or scope with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or materially violate the terms of, any of the
agreements set forth or described in the Disclosure Schedule;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor);
(g) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(h) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation,
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partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to its business;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and consistent
with past practices;
(k) Except, in each case for borrowing under existing lines of
credit in the ordinary course of business consistent with past practice, but not
to exceed $100,000 in the aggregate, incur any indebtedness for borrowed money
or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others other than trade debt;
(l) Grant any loans to others or purchase debt securities of
others or amend the terms of any outstanding loan agreement, except in the
ordinary course of business and consistent with past practices;
(m) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof;
(n) Adopt or amend any employee benefit plan, or enter into any
employment agreement, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees;
(o) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(p) Take any action which could jeopardize the tax-free
reorganization hereunder;
(q) Pay, discharge or satisfy, in an amount in excess of $10,000
(in any one case) or $20,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in the Current Balance
Sheet;
(r) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(s) Enter into any strategic alliance or joint marketing
arrangement or agreement; or
(t) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (s) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2 NO SOLICITATION. Until the earlier of the Effective Time or the date
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, agents, representatives or affiliates to),
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without the express written consent of Parent, directly or indirectly, take any
of the following actions with any party other than Parent and its designees: (a)
solicit, conduct discussions with or engage in negotiations with any person,
relating to the possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its capital stock or assets, (b) provide information with respect to
it to any person, other than Parent and Parent's and the Company's counsel,
accountants and representatives, relating to the possible acquisition of the
Company (whether by way of merger, purchase of capital stock, purchase of assets
or otherwise) or any material portion of its capital stock or assets, (c) enter
into an agreement with any person, other than Parent, providing for the
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its capital stock or
assets or (d) make or authorize any statement, recommendation or solicitation in
support of any possible acquisition of the Company or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its or their capital stock or assets by
any person, other than by Parent. In addition to the foregoing, if the Company
receives prior to the Effective Time or the termination of this Agreement any
written offer or proposal relating to any of the above, the Company shall
immediately notify Parent thereof, including information as to the identity of
the offeror or the party making any such offer or proposal and the specific
terms of such offer or proposal, as the case may be, and such other information
related thereto as Parent may reasonably request.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 REGULATORY APPROVALS. The Company and Parent will execute and file,
or join in the execution and filing, of any application or other document that
may be necessary in order to obtain the authorization, approval or consent of
any governmental body, federal, state, local or foreign, which may be reasonably
required, or which the Company or Parent may reasonably request, in connection
with the consummation of the transactions provided for in this Agreement. The
Company and Parent will use all reasonable efforts to obtain or assist Parent or
the Company in obtaining all such authorizations, approvals and consents.
5.2 ACCESS TO INFORMATION. The Company shall afford Parent and its
accountants, counsel and other representatives reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of the
Company's properties, books, contracts, commitments and records, and (b) all
other information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of the Company as Parent may reasonably
request. The Company agrees to provide to Parent and its accountants, counsel
and other representatives copies of internal financial statements promptly upon
request. Parent shall provide the Company with copies of such publicly available
information about Parent as the Company may request and shall provide the
Company with reasonable access to its executive officers in this regard. No
information or knowledge obtained in any investigation pursuant to this Section
5.2 shall affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
Merger.
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5.3 CONFIDENTIALITY.
(a) Each of the parties hereto hereby agrees that the information
obtained in any investigation pursuant to Section 5.2, or pursuant to the
negotiation and execution of this Agreement or the effectuation of the
transaction contemplated hereby, shall be treated by the party receiving it as
confidential ("CONFIDENTIAL INFORMATION").
(b) If this Agreement is terminated (i) any Confidential
Information obtained by a party shall not be used in competition with the other
parties and (ii) each of the parties hereto shall, and shall cause its officers,
employees, representatives, advisors and agents to, destroy or deliver to the
other parties all Confidential Information of such parties.
5.4 EXPENSES. If the Merger is not consummated, all fees and expenses
incurred in connection with the Merger including, without limitation, all legal,
accounting, financial advisory, consulting, Xxxx-Xxxxx-Xxxxxx filing and all
other fees and expenses ("COMPANY MERGER EXPENSES") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses. Parent agrees that if
the Merger is consummated, Parent will pay all Company Merger Expenses up to the
aggregate maximum amount of $1,000,000.00 which are estimated in Section 2.21 of
the Disclosure Schedule and which are incurred and accrued for but not paid by
the Company on or prior to the Effective Time. The parties agree that the
Company will pay any sales tax, alternate minimum tax and wind up costs
associated with the Merger.
5.5 PUBLIC DISCLOSURE. Unless otherwise required by law, prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release; provided, however, that
such approval shall not be unreasonably withheld, subject, in the case of
Parent, to Parent's obligation to comply with applicable securities laws and the
rules and regulations of the National Association of Securities Dealers, Inc.
5.6 CONSENTS. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Disclosure Schedule) so as to preserve all rights of, and benefits to,
the Company thereunder.
5.7 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.8 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this
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Agreement for the purpose of securing to the parties hereto the benefits
contemplated by this Agreement; provided, however, that Parent shall not be
required to agree to any divestiture by Parent or the Company or any of Parent's
subsidiaries or affiliates of shares of capital stock or of any business, assets
or property of Parent or its subsidiaries or affiliates or of the Company, its
affiliates, or the imposition of any material limitation on the ability of any
of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
5.9 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company and
Parent, respectively, contained in this Agreement to be untrue or inaccurate in
any material respect at or prior to the Effective Time and (ii) any failure of
the Company or Parent, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.9 shall not limit or otherwise affect any remedies available to the
party receiving such notice.
5.10 COMPANY DISSENTING SHARES. As promptly as practicable and prior to
the Closing Date, Company shall furnish Parent with the name and address of each
Company Stockholder who has up to such time dissented and the number of shares
owned by such Company Stockholders.
5.11 CERTAIN EMPLOYEE BENEFITS. As soon as practicable after the
execution of this Agreement, the Company and Parent shall confer and work
together in good faith to agree upon mutually acceptable employee benefit and
compensation arrangements for the Company's employees following the Merger. The
Company and its Affiliates, as applicable, shall take such actions as are
necessary to terminate such Employee Plans as are requested by Parent to be
terminated. The Company and its Affiliates, as applicable, each agrees to
terminate any and all group severance, separation, retention and salary
continuation plans, programs or arrangements that are covered under ERISA
immediately prior to the Closing. Parent shall receive from the Company evidence
that the Company's and each Affiliate's (as applicable) plan(s) has been
terminated pursuant to resolution of each such entity's Board of Directors (the
form and substance of which resolutions shall be subject to review and approval
of Parent), effective as of the day immediately preceding the Effective Time.
5.12 COMPANY BENEFIT PLANS. The Board of Directors of the Company and
its Affiliates, as applicable, shall take all actions necessary to terminate the
Company 401(k) Plan effective upon as of the day immediately preceding the
Effective Time. Parent shall receive from the Company evidence that the
Company's and each Affiliate's (as applicable) plan(s) has been terminated
pursuant to resolution of each such entity's Board of Directors (the form and
substance of which resolutions shall be subject to review and approval of
Parent), effective as of the day immediately preceding the Closing Date.
5.13 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of the transactions
contemplated hereby.
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5.14 TAX FREE REORGANIZATION. The parties intend to adopt this Agreement
and the Merger as a tax-free plan of reorganization under the Code. The parties
shall not take a position on any tax return inconsistent with the intentions of
the parties set forth in this Section 5.14.
5.15 PROPRIETARY INFORMATION AND CONFIDENTIALITY AGREEMENTS. Prior to
the Effective Time, each current employee and consultant of the Company will
execute a proprietary information and confidentiality agreement in form
reasonably acceptable to Parent.
5.16 REGISTRATION. Parent shall use its best efforts to file within 180
days after the Closing Date a registration statement covering the Merger Shares
pursuant to the terms and conditions of a mutually acceptable registration
rights agreement (the "Registration Rights Agreement").
5.17 NON-COMPETITION.
(a) Each of Xxxxxxxx Xxxxx and Xxxxx Xxxxxxxx agrees that neither
he nor any of his affiliates shall directly or indirectly, whether as principal,
agent, consultant, stockholder or investor, alone or in association with any
individual or entity for a period of three (3) years after the Effective Time
(the "Restricted Period") (i) manage, operate, participate in, enter into,
engage in, assist, or own any interest in, any business that competes with the
business of Parent or Sub (including any online incentive business or online
direct marketing business) within the United States; (ii) use or license or
authorize any individual or entity to use the name "ITarget" (or any variation
or derivative thereof) in any business that competes with the business of Parent
or Sub; or (iii) employ or solicit, or receive or accept the performance of
services by, any individual that as of the date hereof or as of the Effective
Time is an employee of the Parent or Sub (a "Company Employee").
(b) Each of Xxxxxxxx Xxxxx and Xxxxx Xxxxxxxx hereby acknowledges
that his agreeing to provide his services as an employee of Parent is an
important inducement for Parent to enter into this Agreement and consummate the
Merger and that each of them hereby agrees to use his best efforts to remain an
employee of Parent for a period commencing on the Effective Time and continuing
until the earlier of (A) six months after the closing date for any Capital
Transaction (as defined below), or (B) two years after the Effective Time.
"Capital Transaction" shall mean (i) any merger, acquisition, or sale of voting
control in which the shareholders of Parent immediately prior to such merger,
acquisition or sale do not own a majority of the outstanding shares of the
surviving corporation, or (ii) sale of substantially all of the assets of
Parent.
(c) If any provision contained in this Section shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Section, but this Section shall be construed as if such invalid, illegal
or unenforceable provision had never been contained herein. It is the intention
of the parties that if any of the restrictions or covenants contained herein is
held to cover a geographic area or to be for a length of time which is not
permitted by applicable law, or in any way construed to be too broad or to any
extent invalid, such provision shall not be construed to be null, void and of no
effect, but to the extent such provision would be valid or enforceable under
applicable law, a court of competent jurisdiction shall construe and interpret
or reform this Section to provide for a covenant having the maximum enforceable
geographic area, time period and other provisions (not greater than those
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contained herein) as shall be valid and enforceable under such applicable law.
Each of Xxxxxxxx Xxxxx and Xxxxx Xxxxxxxx and Parent agree that the provisions
of this Section are reasonable and are necessary to protect the valid interests
of Parent. Each of Xxxxxxxx Xxxxx and Xxxxx Xxxxxxxx acknowledges that Parent
would be irreparably harmed by any breach of this Section and that there would
be no adequate remedy at law or in damages to compensate Parent for any such
breach. Each of Xxxxxxxx Xxxxx and Xxxxx Xxxxxxxx agrees that Parent shall be
entitled to injunctive relief requiring specific performance by him of this
Section, and consents to the entry thereof.
(d) Notwithstanding anything herein to the contrary, nothing
contained in this Section 5.17 shall prevent Xxxxxxxx Xxxxx and Xxxxx Xxxxxxxx
from owning up to a two-and-a-half percent (2.5%) interest in any entity the
securities of which are publicly traded.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal.
(b) Xxxx-Xxxxx-Xxxxxx Compliance. All applicable waiting periods
(if any) under the HSR Act shall have expired or early termination shall have
been granted by both the Federal Trade Commission (the "FTC") and the United
States Department of Justice (the "DOJ").
(c) Letter of Transmittal. Parent shall have prepared, in a form
reasonably acceptable to legal counsel for each of Parent and the Company, the
letter of transmittal specified in Section 1.8(c).
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations
and warranties of Parent and Sub in this Agreement were true and correct in all
material respects when made and shall be true and correct in all material
respects on and as of the Effective Time as though such representations and
warranties were made on and as of such time and each of Parent and Sub shall
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have performed and complied in all material respects with all covenants and
obligations of this Agreement required to be performed and complied with by it
as of the Effective Time.
(b) Claims. There shall not have occurred any claims (whether or
not asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or the business, assets
(including intangible assets), financial condition, results of operations or
prospects of Parent and its subsidiaries, taken as a whole.
(c) No Material Adverse Changes. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
financial condition, results of operations of Parent and its subsidiaries, taken
as a whole, since December 31, 1999; provided, that none of the following shall
be deemed, either alone or in combination, to constitute a Material Adverse
Effect with respect to Parent: (i) events affecting the industry in which Parent
operates as a whole; (ii) a failure by Parent to meet internal earnings or
revenue projections; or (iii) any disruptions of customer or supplier
relationships arising out of or resulting from actions contemplated by the
parties in connection with, or which are attributable to, the execution and
announcement of this Agreement by, or to the identity of the Company.
(d) Legal Opinion. The Company shall have received a legal opinion
from Duane, Morris & Heckscher, LLP, legal counsel to Parent, in a form
reasonably acceptable to the Company's legal counsel.
(e) Certificate of Parent. Company shall have been provided with a
certificate executed on behalf of Parent by an officer of Parent to the effect
that, as of the Effective Time:
(i) all representations and warranties made by Parent and
Sub in this Agreement are true and correct in all material respects;
(ii) all covenants and obligations of this Agreement to be
performed by Parent on or before such date have been so performed in all
material respects.
(iii) the conditions set forth in Section 6.2(b) and (c)
have been satisfied.
(f) Approval by the Company Stockholders. The holders of a
majority of each of the outstanding shares of Company Common Stock, the
outstanding shares of Series A Preferred Stock and the outstanding shares of
Series B Preferred Stock entitled to vote thereon, voting together as a single
class, shall have approved the Merger, this Agreement and the transactions
contemplated thereby.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND SUB. The
obligations of Parent and Sub to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Company in this Agreement were true and correct in all
material respects when made and shall be true and correct in all material
respects on and as of the Effective Time as though such
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representations and warranties were made on and as of the Effective Time and the
Company shall have performed and complied in all material respects with all
covenants and obligations of this Agreement required to be performed and
complied with it as of the Effective Time.
(b) Claims. There shall not have occurred any third-party claims
(whether or not asserted in litigation) which may materially and adversely
affect the consummation of the transactions contemplated hereby or may have a
Material Adverse Effect.
(c) Third Party Consents. Any and all consents, waivers, and
approvals listed in the Disclosure Schedule shall have been obtained.
(d) Legal Opinion/Accountant Opinions. Parent shall have received
(i) a legal opinion from Xxxx, Forward, Xxxxxxxx & Scripps LLP, legal counsel to
the Company, in a form reasonably acceptable to Parent's legal counsel, and (ii)
accounting opinions from Xxxxxx Xxxxxxxx, LLP and Singer Lewak Xxxxxxxxx &
Xxxxxxxxx LLP satisfying Parent that the Merger constitutes a pooling of
interests for accounting purposes.
(e) Employment Agreements. Each of Xxxxxxxx Xxxxx and Xxxxx
Xxxxxxxx shall have executed and delivered to Parent an Employment Agreement in
substantially the form attached hereto as EXHIBIT 6.3A and EXHIBIT 6.3B,
respectively, and such Employment Agreements shall be in full force and effect.
(f) No Material Adverse Changes. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
results of operations, liabilities (contingent or accrued), financial condition
or prospects of the Company since December 31, 1999; provided that none of the
following shall be deemed, either alone or in combination, to constitute a
Material Adverse Effect with respect to the Company: (i) events affecting the
industry in which the Company currently operates as a whole; (ii) a failure by
the Company to meet internal earnings or revenue projections; or (iii) any
disruptions of customer or supplier relationships arising out of or resulting
from actions contemplated by the parties in connection with, or which are
attributable to, the execution and announcement of this Agreement by, or to the
identity of, Parent.
(g) Stockholder Approval. Company Stockholders holding at least
90% of the Company Common Stock shall have approved this Agreement, the Merger
and the transactions contemplated thereby, and holders of not more than 10% of
the Company Common Stock shall continue to have a right to exercise appraisal,
dissenters or similar rights under applicable law with respect to their Company
Common Stock by virtue of the Merger.
(h) Certificate of the Company. Parent shall have been provided
with a certificate executed on behalf of the Company by its Chief Executive
Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by the Company
in this Agreement are true and correct in all material respects.
(ii) all covenants and obligations of this Agreement to be
performed by the Company on or before such date have been so performed in all
material respects.
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(iii) the provisions set forth in Section 6.3(b), (c),
(f) and (g) have been satisfied.
(i) Resignation of the Company Directors. Each of the directors of
the Company shall have delivered to Parent a letter of resignation from the
Board of Directors of the Company effective as of the Closing.
(j) Termination of Rights. Any registration rights, rights of
first refusal, rights to any liquidation preference, or preemptive or redemption
rights of any Company Stockholder shall have been terminated or waived as of the
Closing.
(k) Litigation. There shall be no action, suit, claim or
proceeding of any nature pending, or overtly threatened, against Parent, Sub or
the Company, their respective properties or any of their officers or directors,
arising out of, or in any way connected with, the Merger or the other
transactions contemplated by the terms of this Agreement.
(l) Securities Laws. Parent shall be reasonably satisfied
regarding the exemption of the issuance of the Merger Shares from the
registration requirements of the Securities Act by virtue of Section 4(2) of the
Securities Act and by applicable state securities laws.
(m) Termination of 401(k) Plan. The Board of Directors of the
Company shall have taken all necessary steps to terminate the Company's 401(k)
Plan effective as of the day immediately preceding the Effective Time.
(n) Unanimous Board Approval. The Board of Directors of the
Company shall not have revoked or modified its unanimous approval of this
Agreement, the Merger and the transactions contemplated hereby.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger and continue until the date
which is one (1) year following the Closing Date (the "Expiration Date");
provided, however, the Company's representations and warranties contained in (i)
Section 2.4 (Authority), (ii) Section 2.10 (Tax Matters) and (iii) the first
sentence of subsection (a) and all of subsections (b) and (d) of Section 2.12
(Title of Properties, Etc.) (collectively, the "Extended Representations and
Warranties") shall survive indefinitely. All of Parent's and Sub's
representations and warranties contained herein or in any instrument delivered
pursuant to this Agreement shall terminate at the Expiration Date.
7.2 ESCROW ARRANGEMENTS.
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(a) Escrow Fund. As security for the indemnity provided for in
this Section 7.2 and by virtue of this Agreement, the Company Stockholders will
be deemed to have received and deposited with the Escrow Agent (as defined
below) the Escrow Amount (plus any additional shares as may be issued upon any
stock split, stock dividend or recapitalization effected by Parent after the
Effective Time) without any act of any Company Stockholder. As soon as
practicable after the Effective Time, the Escrow Amount, without any act of any
Company Stockholder, will be deposited with X.X. Xxxxxxx Escrow Company, Inc.
(or other institution acceptable to Parent and the Company Stockholders) as
Escrow Agent (the "ESCROW AGENT"), such deposit to constitute an escrow fund
(the "ESCROW FUND") to be governed by the terms set forth herein. The Escrow
Agent may execute this Agreement following the date hereof and prior to the
Effective Time, and such later execution, if so executed after the date hereof,
shall not affect the binding nature of this Agreement as of the date hereof
between the other signatories hereto. The portion of the Escrow Amount
contributed on behalf of each Company Stockholder shall be in proportion to the
aggregate Parent Common Stock which such holder would otherwise be entitled
under Section 1.6(a). The Company and the Company Stockholders jointly agree to
indemnify and hold Parent and its officers, directors and affiliates (the
"INDEMNIFIED PARTIES") harmless against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses of investigation (hereinafter individually a "LOSS" and
collectively "LOSSES") incurred by Parent, its officers, directors, or
affiliates (including the Surviving Corporation) directly or indirectly as a
result of (i) any inaccuracy or breach of a representation or warranty of the
Company contained in this Agreement, or (ii) any failure by the Company to
perform or comply with any covenant contained in this Agreement or any failure
by Xxxxxxxx Xxxxx or Xxxxx Xxxxxxxx to comply with the provisions of Section
5.17 herein; provided, however, that (except for indemnification obligations due
to any breach of the Extended Representations and Warranties for which there is
no limitation) the aggregate amount for which the Company and the Company
Stockholders are required to indemnify the Indemnified Parties shall not exceed
the amount held by the Escrow Agent in the Escrow Fund; and provided, further,
that (except for indemnification obligations due to any breach of the Extended
Representations and Warranties) the sole recourse of the Indemnified Parties for
indemnification obligations of the Company and the Company Stockholders shall be
to make claims upon the Escrow Fund pursuant to Section 7.2(d) hereof. The
Escrow Fund shall be available to compensate Parent and its affiliates for any
such Losses. The Company Stockholders shall not have any right of contribution
from the Company with respect to any Loss claimed by Parent after the Effective
Time. Nothing herein shall limit the liability of the Company for any breach of
any representation, warranty or covenant if the Merger does not close for
reasons other than Parent's breach of its obligations hereunder; but the Company
Stockholders shall not be personally liable therefor. Parent may not receive any
shares from the Escrow Fund unless and until an Officer's Certificate (as
defined in paragraph (d) below) identifying Losses has been delivered to the
Escrow Agent as provided in paragraph (d) below.
(b) Escrow Period; Distribution upon Termination of Escrow
Periods. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate on the
Expiration Date (the "ESCROW PERIOD"); provided, however, that the Escrow Period
shall not terminate with respect to any amount which, in the reasonable
judgement of Parent, subject to the objection of the Stockholder Representative
(as defined in Section 7.3 below) and the subsequent arbitration of the matter
in the manner provided in Section 7.2(f) hereof, is
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necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate delivered to the Escrow Agent prior to termination of such Escrow
Period with respect to facts and circumstances existing prior to the termination
of such Escrow Period. As soon as all such claims have been resolved, the Escrow
Agent shall deliver to the Company Stockholders the remaining portion of the
Escrow Fund not required to satisfy such claims. Deliveries of Escrow Amounts to
the Company Stockholders pursuant to this Section 7.2(b) shall be made in
proportion to their respective original contributions to the Escrow Fund.
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split) ("NEW SHARES") in respect of Parent Common Stock in the Escrow Fund which
have not been released from the Escrow Fund shall be added to the Escrow Fund
and become a part thereof. New Shares issued in respect of shares of Parent
Common Stock which have been released from the Escrow Fund shall not be added to
the Escrow Fund but shall be distributed to the record holders thereof. Cash
dividends on Parent Common Stock shall not be added to the Escrow Fund but shall
be distributed to the record holders thereof.
(iii) Each Company Stockholder shall have voting rights
with respect to the shares of Parent Common Stock contributed to the Escrow Fund
by such Company Stockholder (and on any voting securities added to the Escrow
Fund in respect of such shares of Parent Common Stock).
(d) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of a certificate signed by any officer
of Parent (an "OFFICER'S CERTIFICATE"): (A) stating that Parent has paid or
properly accrued or reasonably anticipates that it will have to pay or accrue
Losses, and (B) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, or the basis for such anticipated liability, the nature of the
misrepresentation, breach of warranty or covenant to which such item is related,
and including copies of any relevant supporting documentation, the Escrow Agent
shall, subject to the provisions of Section 7.2(e) hereof, deliver to Parent out
of the Escrow Fund, as promptly as practicable, shares of Parent Common Stock
held in the Escrow Fund with a value equal to such Losses; provided, however,
that Parent may not receive any shares from the Escrow Fund unless and until the
aggregate amount of Losses (subject to the provisions for resolution of
conflicts regarding such losses set forth below) exceeds Two Hundred Thousand
Dollars ($200,000) in the aggregate (the "BASKET AMOUNT"). In the event such
losses exceed the Basket Amount, Parent shall be entitled to recover only the
amount by which such Losses exceed the Basket Amount. The Officer's Certificate
shall be provided by Parent as soon as reasonably
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practicable but in no event more than thirty (30) days after Parent is notified
of the facts or circumstances specified therein.
(ii) For the purposes of determining the number of shares
of Parent Common Stock to be delivered to Parent out of the Escrow Fund as
indemnity pursuant to Section 7.2(d)(i) hereof for any claim, the shares of
Parent Common Stock shall be valued for each such claim based on the average of
the closing sale prices (last trade) of Parent Common Stock on the Nasdaq
National Market on the twenty (20) trading days ending on one (1) day before the
date Parent receives any shares from the Escrow Fund in satisfaction of
indemnification obligations set forth in Section 7.2(a).
(iii) Any indemnification payments made pursuant to this
Article VII shall be net of benefits received by Parent on account of insurance
in respect of such Losses.
(e) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate and copies
of any relevant supporting documentation shall be delivered to the Stockholder
Representative, and for a period of thirty (30) days after such delivery to the
Stockholder Representative, the Escrow Agent shall make no delivery to Parent of
any Escrow Amounts pursuant to Section 7.2(d) hereof unless the Escrow Agent
shall have received written authorization from the Stockholder Representative to
make such delivery. After the expiration of such thirty (30) day period, the
Escrow Agent shall make delivery of shares of Parent Common Stock from the
Escrow Fund in accordance with Section 7.2(d) hereof; provided, however, that no
such payment or delivery may be made if the Stockholder Representative shall
object in a written statement to the claim made in the Officer's Certificate,
and such statement shall have been delivered to the Escrow Agent prior to the
expiration of such thirty (30) day period.
(f) Resolution of Conflicts; Arbitration.
(i) In case the Stockholder Representative shall object in
writing to any claim or claims made in any Officer's Certificate, the
Stockholder Representative and Parent shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If the
Stockholder Representative and Parent should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any
such memorandum and distribute shares of Parent Common Stock from the Escrow
Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached within twenty (20)
days after a written statement of objection has been delivered by the
Stockholder Representative to the Escrow Agent, either Parent or the Stockholder
Representative may demand arbitration of the matter unless the amount of the
damage or Loss is at issue in pending litigation with a third party, in which
event arbitration shall not be commenced until such amount is ascertained or
both parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by one arbitrator mutually agreeable to Parent
and the Stockholder Representative. In the event that within forty-five (45)
days after submission of any dispute to arbitration, Parent and the Stockholder
Representative cannot mutually agree on one arbitrator, Parent and the
Stockholder Representative shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. The arbitrator or
arbitrators, as the case may be, shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing the
parties an opportunity,
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adequate in the sole judgment of the arbitrator or majority of the three
arbitrators, as the case may be, to discover relevant information from the
opposing parties about the subject matter of the dispute. The arbitrator or a
majority of the three arbitrators, as the case may be, shall rule upon motions
to compel or limit discovery and shall have the authority to impose sanctions,
including attorneys' fees and costs, to the same extent as a competent court of
law or equity, should the arbitrators or a majority of the three arbitrators, as
the case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator or a majority of the three
arbitrators, as the case may be, as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement. Such decision shall be written and shall be supported by written
findings of fact and conclusions which shall set forth the award, judgment,
decree or order awarded by the arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s)
may be entered in any court having jurisdiction. Any such arbitration shall be
held in San Francisco County, California, under the rules then in effect of the
American Arbitration Association. The arbitrator(s) shall determine how all
expenses relating to the arbitration shall be paid, including without
limitation, the respective expenses of each party, the fees of each arbitrator
and the administrative fee of the American Arbitration Association.
(g) Third-Party Claims. In the event Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall notify the Stockholder Representative of such claim,
and shall give the Company Stockholders an opportunity to defend such
third-party claim with counsel selected by the Stockholder Representative and
reasonably satisfactory to Parent. Notwithstanding the foregoing, Parent shall
at all times have the right to participate fully in the defense or settlement at
its own expense. A failure by the Stockholder Representative to give Parent
written notice of the Company Stockholders' election to defend such third-party
claim within thirty (30) days after receipt of notice from Parent shall be a
waiver of the Company Stockholders' right to defend such third-party claim. In
that event, Parent shall undertake to defend such third-party claim. The party
that undertakes the defense, shall periodically apprise the other party of the
progress of such defense. If the Company Stockholders undertake the defense of a
third-party claim, they shall not consent to the entry of any judgment or enter
into any settlement (except with the consent of Parent, which consent shall not
be unreasonably withheld) which does not include the giving by the claimant to
Parent a release from all liability in respect of such third-party claim (which
release may exclude only any obligations incurred in connection with any such
settlement).
(h) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Stockholder Representative, and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of
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reasonable judgment, and any act done or omitted pursuant to the advice of
counsel shall be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect
on account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or expenses,
except for negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any instrument, including any written statement of affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by him/her in good faith in accordance with
the advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
shall hold all documents and shares of Parent Common Stock and shall wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and shares of
Parent Common Stock held in escrow, except all cost, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action and which the parties jointly and severally agree to pay. Upon initiating
such
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action, the Escrow Agent shall be fully released and discharged of and from all
obligations and liability imposed by the terms of this Agreement.
(vii) The parties and their respective successors and
assigns agree jointly and severally to indemnify and hold Escrow Agent harmless
against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, including allocated
costs of in-house counsel and disbursements that may be imposed on Escrow Agent
or incurred by Escrow Agent in connection with the performance of his/her duties
under this Agreement, including but not limited to any litigation arising from
this Agreement or involving its subject matter other than arising out of its
negligence or willful misconduct.
(viii) The Escrow Agent may resign at any time upon giving
at least thirty (30) days written notice to the parties; provided, however, that
no such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use their
best efforts to mutually agree on a successor escrow agent within thirty (30)
days after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the State of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. Upon appointment of a successor escrow
agent, the Escrow Agent shall be discharged from any further duties and
liability under this Agreement.
(i) Fees. All fees of the Escrow Agent for performance of its
duties hereunder shall be split equally between Parent and the Stockholder
Representative in accordance with the standard fee schedule of the Escrow Agent.
It is understood that the fees and usual charges agreed upon for services of the
Escrow Agent shall be considered compensation for ordinary services as
contemplated by this Agreement. In the event that the conditions of this
Agreement are not promptly fulfilled, or if the Escrow Agent renders any service
not provided for in this Agreement, or if the parties request a substantial
modification of its terms, or if any controversy arises, or if the Escrow Agent
is made a party to, or intervenes in, any litigation pertaining to the Escrow
Fund or its subject matter, the Escrow Agent shall be reasonably compensated for
such extraordinary services and reimbursed for all costs, attorney's fees,
including allocated costs of in-house counsel, and expenses occasioned by such
default, delay, controversy or litigation.
(j) Consequential Damages. In no event shall the Escrow Agent be
liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Escrow
Agent has been advised of the likelihood of such loss or damage and regardless
of the form of action.
(k) Successor Escrow Agents. Any corporation into which the Escrow
Agent in its individual capacity may be merged or converted or with which it may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.
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7.3 STOCKHOLDER REPRESENTATIVE.
(a) In the event that the Merger is approved, effective upon such
vote, and without further act of any Company Stockholder, Xxxxxxxx Xxxxx shall
be appointed as agent and attorney-in-fact (the "STOCKHOLDER REPRESENTATIVE")
for each Company Stockholder, for and on behalf of the Company Stockholders, to
give and receive notices and communications, to authorize delivery to Parent of
shares of Parent Common Stock from the Escrow Fund in satisfaction of claims by
Parent, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of the Stockholder
Representative for the accomplishment of the foregoing. The identity of the
Stockholder Representative may be changed by the Company Stockholders from time
to time upon not less than ten (10) days prior written notice to Parent;
provided, however, that the Stockholder Representative may not be removed unless
holders of a two-thirds interest in the Escrow Fund agree to such removal and to
the identity of the substituted Stockholder Representative. If the Stockholder
Representative resigns, the holders of a majority in interest in the Escrow Fund
shall promptly appoint a successor Stockholder Representative. No bond shall be
required of the Stockholder Representative, and a Stockholder Representative
shall not receive compensation for his or her services. Notices or
communications to or from the Stockholder Representative shall constitute notice
to or from each of the Company Stockholders.
(b) The Stockholder Representative shall not be liable for any act
done or omitted hereunder as Stockholder Representative while acting in good
faith and in the exercise of reasonable judgment. The Company Stockholders on
whose behalf the Escrow Amount was contributed to the Escrow Fund shall
severally indemnify the Stockholder Representative and hold the Stockholder
Representative harmless against any loss, liability or expense incurred without
negligence or bad faith on the part of the Stockholder Representative and
arising out of or in connection with the acceptance or administration of the
Stockholder Representative's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Stockholder Representative.
(c) A decision, act, consent or instruction of the Stockholder
Representative shall constitute a decision of all Company Stockholders for whom
a portion of the Escrow Amount otherwise issuable to them are deposited in the
Escrow Fund and shall be final, binding and conclusive upon each of such Company
Stockholders, and the Escrow Agent and Parent may rely upon any such decision,
act, consent or instruction of the Stockholder Representatives as being the
decision, act, consent or instruction of each and every such Company
Stockholder. The Escrow Agent and Parent are hereby relieved from any liability
to any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Stockholder Representative.
(d) The Stockholder Representative shall be and hereby is
authorized to retain counsel, accountants, or other professional assistants to
assist in determining the validity of claims or in otherwise acting hereunder as
a Stockholder Representative. Any such expenses (the "Stockholder Representative
Expenses") shall be borne by the Company Stockholders, and the Stockholder
Representative is hereby authorized to receive and liquidate, from the Parent
Common Stock held in the Escrow Fund which is distributed to the Company
Stockholders upon the Expiration Date pursuant to Section 7.2(b) hereof, if any,
that number of shares of Parent Common
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Stock which when promptly liquidated would satisfy such Stockholder
Representative Expenses. To the extent that such shares of Parent Common Stock
are insufficient to satisfy the Stockholder Representative Expenses, each
Company Stockholder shall contribute all sums demanded to pay the Stockholder
Representative Expenses incurred on their behalf. The amount contributed by each
Company Stockholder shall be in proportion to such Company Stockholder's
Proportionate Escrow Amount.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred by Xxxxx 00, 0000, (xx) there shall be a final nonappealable order of a
federal or state court in effect preventing consummation of the Merger; or (iii)
there shall be any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any Governmental Entity that would
make consummation of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity, which would: (i) prohibit Parent's or
Sub's ownership or operation of any portion of the business of the Company or
(ii) compel Parent or the Company to dispose of or hold separate all or a
portion of the business or assets of the Company or Parent as a result of the
Merger;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and such breach has not been cured within ten (10) calendar days after
written notice to the Company; provided, however, that, no cure period shall be
required for a breach which by its nature cannot be cured; or
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent or Sub and such breach has not been cured within ten (10)
calendar days after written notice to Parent; provided, however, that, no cure
period shall be required for a breach which by its nature cannot be cured. Where
action is taken to terminate this Agreement pursuant to this Section 8.1, it
shall be sufficient for such action to be authorized by the Board of Directors
(as applicable) of the party taking such action.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Sub, the Company, or
their respective officers, directors or stockholders; provided, however, that
each party shall remain liable for any breaches of this Agreement prior to its
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termination; and provided, further, that the provisions of Sections 5.3, 5.4,
5.5 and Articles VIII and IX of this Agreement shall remain in full force and
effect and survive any termination of this Agreement; provided, however, the
Company shall not be liable for punitive, indirect or consequential damages or
lost profits arising out of the termination of this Agreement.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent
and Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
Cybergold, Inc.
0000 Xxxxxxxx
Xxxxxxx, XX 00000
Attention: Xx. Xxxxx Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Duane, Morris & Heckscher, LLP
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(b) if to the Company, to:
Xxxxxxx.xxx, Inc.
0000 Xxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Attention: Xx. Xxxxxxxx Xxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
00
00
Xxxx, Xxxxxxx, Xxxxxxxx & Scripps, LLP
000 Xxxx Xxxxxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(c) if to the Stockholder Representative, Xxxxxxxx Xxxxx or Xxxxx
Xxxxxxxx to:
Xxxxxxxx Xxxxx
00000 Xxxxxxxxx Xxxxx Xxxx
Xxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(d) if to the Escrow Agent, to:
X.X. Xxxxxxx Escrow Company, Inc.
0000 Xxxx Xxxxxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
9.2 INTERPRETATION. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 ENTIRE AGREEMENT. This Agreement, the Related Agreements, the
Employment Agreements, the Disclosure Schedule, the Amended and Restated Secured
Loan Agreement dated February 21, 2000 between the Company and Parent, the
Amended and Restated Pledge Agreement dated February 21, 2000 between the
Company and Parent, the Amended and Restated Secured Promissory Note executed by
the Company dated February 21, 2000, the letter agreement dated February 21,
2000 between Company and Parent, and the documents and instruments and other
agreements among the parties hereto referenced herein constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings both written and oral, among
the parties with respect to the subject matter hereof.
9.5 ASSIGNMENT. The rights under this Agreement shall not be assignable
nor the duties delegable by any party without the written consent of the other
parties and nothing contained in this Agreement, express or implied, is intended
to confer upon any person or entity, other than the parties hereto and their
permitted successors in interest and permitted assignees, any rights or remedies
under or by reason of this Agreement unless so stated to the contrary; provided,
however, that Parent and Sub may assign this Agreement in whole or in part to
any entity directly or indirectly controlled by, controlling or under common
control of Parent or Sub; provided, further, that such assignment
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shall not in any way affect Parent or Sub's obligations under this Agreement.
Subject to the foregoing, all the terms and conditions contained herein shall
inure to the benefit of and shall be binding upon the parties hereto and their
respective permitted successors in interest and permitted assignees.
9.6 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.7 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within San Francisco County, California, in connection
with any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of California for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction, venue and such process.
9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.10 RECOVERY OF ATTORNEYS' FEES AND COSTS. If any legal action or
arbitration or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of the Agreement, the
successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
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IN WITNESS WHEREOF, Parent, Sub, the Company, the Stockholder Representative and
the Escrow Agent have caused this Agreement to be signed by their duly
authorized respective officers, all as of the date first written above.
CYBERGOLD, INC. XXXXXXX.XXX, INC.
By: /s/ Xxxx Xxxxxxx, CFO By: /s/ Xxxxxxxx Xxxxx, CEO
--------------------------------- -----------------------------------
CYBERGOLD ACQUISITION CORPORATION
AS TO SECTION 5.17, SECTION 7.2 AND
ARTICLE IX HEREOF ONLY:
By: /s/ Xxxx Xxxxxxx, CFO /s/ Xxxxxxxx Xxxxx
--------------------------------- ------------------------------------
Xxxxxxxx Xxxxx
[ESCROW AGENT] AS TO SECTION 5.17, SECTION 7.2 AND
ARTICLE IX HEREOF ONLY:
X.X. Xxxxxxx Escrow Company, Inc.
A California Corporation
By: /s/ Xxxxx X. Xxxxxxx /s/ Xxxxx Xxxxxxxx
--------------------------------- ------------------------------------
Xxxxx Xxxxxxxx
Name: Xxxxx X. Xxxxxxx
-------------------------------
Title: President
------------------------------
