Exhibit 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among
XXXXX.XXX, INC.,
BDS ACQUISITION CORP.,
AND
SOMBASA MEDIA INC.
Dated as of March 20, 2000
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS.............................................................................................1
SECTION 1.01 Certain Defined Terms.......................................................................1
ARTICLE II THE MERGER.............................................................................................5
SECTION 2.01 The Merger..................................................................................5
SECTION 2.02 Closing.....................................................................................5
SECTION 2.03 Effective Time..............................................................................5
SECTION 2.04 Effect of the Merger........................................................................5
SECTION 2.05 Certificate of Incorporation; Bylaws; Directors and Officers
of Surviving Corporation....................................................................5
ARTICLE III CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES....................................................6
SECTION 3.01 Conversion of Shares........................................................................6
SECTION 3.02 Exchange of Shares Other than Treasury Shares...............................................7
SECTION 3.03 Stock Transfer Books........................................................................8
SECTION 3.04 No Fractional Share Certificates............................................................9
SECTION 3.05 Options to Purchase Company Common Stock....................................................9
SECTION 3.06 Certain Adjustments.........................................................................9
SECTION 3.07 Lost, Stolen or Destroyed Certificates.....................................................10
SECTION 3.08 Taking of Necessary Action; Further Action.................................................10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................10
SECTION 4.01 Organization and Qualification; No Subsidiaries............................................10
SECTION 4.02 Certificate of Incorporation and Bylaws....................................................11
SECTION 4.03 Capitalization.............................................................................11
SECTION 4.04 Authority Relative to This Agreement.......................................................11
SECTION 4.05 No Conflicts; Required Filings and Consents................................................12
SECTION 4.06 Permits; Compliance with Laws..............................................................12
SECTION 4.07 Financial Statements.......................................................................13
SECTION 4.08 Absence of Certain Changes or Events.......................................................13
SECTION 4.09 Employee Matters...........................................................................14
SECTION 4.10 Certain Tax Matters........................................................................15
SECTION 4.11 Contracts..................................................................................16
SECTION 4.12 Litigation.................................................................................17
SECTION 4.13 Environmental Matters......................................................................17
SECTION 4.14 Intellectual Property......................................................................17
SECTION 4.15 Taxes......................................................................................20
SECTION 4.16 Insurance..................................................................................21
SECTION 4.17 Properties; Bank Accounts..................................................................21
i
Page
----
SECTION 4.18 Affiliates.................................................................................22
SECTION 4.19 Brokers....................................................................................22
SECTION 4.20 Certain Business Practices.................................................................22
SECTION 4.21 (INTENTIONALLY OMITTED)....................................................................23
SECTION 4.22 Business Activity Restriction..............................................................23
SECTION 4.23 Accounts Receivable........................................................................23
SECTION 4.24 Merchants and Suppliers....................................................................23
SECTION 4.25 Employee Matters...........................................................................23
SECTION 4.26 (INTENTIONALLY OMITTED)....................................................................24
SECTION 4.27 Representations Complete...................................................................24
SECTION 4.28 Knowledge of the Company...................................................................24
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB................................................24
SECTION 5.01 Organization and Qualification.............................................................24
SECTION 5.02 Capitalization.............................................................................25
SECTION 5.03 Authority Relative to this Agreement.......................................................25
SECTION 5.04 No Conflict; Required Filings and Consents.................................................25
SECTION 5.05 SEC Filings; Financial Statements..........................................................26
SECTION 5.06 Absence of Certain Changes or Events.......................................................27
SECTION 5.07 Certain Tax Matters........................................................................27
SECTION 5.08 Brokers....................................................................................27
SECTION 5.09 Representations Complete...................................................................27
SECTION 5.10 Indemnification of Directors and Officers..................................................27
ARTICLE VI COVENANTS.............................................................................................28
SECTION 6.01 Conduct of Business by the Company Pending the Closing.....................................28
SECTION 6.02 Notices of Certain Events..................................................................30
SECTION 6.03 Access to Information; Confidentiality.....................................................30
SECTION 6.04 Other Negotiations.........................................................................31
SECTION 6.05 Tax-Free Transaction.......................................................................31
SECTION 6.06 Further Action; Consents; Filings..........................................................31
ARTICLE VII ADDITIONAL AGREEMENTS................................................................................32
SECTION 7.01 Public Announcements.......................................................................32
SECTION 7.02 Legend.....................................................................................32
SECTION 7.03 Registration Statement.....................................................................32
SECTION 7.04 Form S-8...................................................................................32
SECTION 7.05 Employees..................................................................................33
SECTION 7.06 Directors..................................................................................33
ii
Page
----
ARTICLE VIII CONDITIONS TO THE MERGER............................................................................34
SECTION 8.01 Conditions to the Obligations of Each Party to Consummate the Merger.......................34
SECTION 8.02 Conditions to the Obligations of the Company...............................................34
SECTION 8.03 Conditions to the Obligations of Parent and Merger Sub.....................................35
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.....................................................................37
SECTION 9.01 Termination................................................................................37
SECTION 9.02 Effect of Termination......................................................................38
SECTION 9.03 Amendment..................................................................................38
SECTION 9.04 Waiver.....................................................................................38
SECTION 9.05 Expenses...................................................................................39
ARTICLE X INDEMNIFICATION AND ESCROW.............................................................................39
SECTION 10.01 Indemnification...........................................................................39
SECTION 10.02 Procedures................................................................................40
SECTION 10.03 Damage Limitations........................................................................41
SECTION 10.04 Escrow Fund; Exclusive Remedy.............................................................42
ARTICLE XI GENERAL PROVISIONS....................................................................................42
SECTION 11.01 Duration of Survival of Representations and Warranties....................................42
SECTION 11.02 Notices...................................................................................42
SECTION 11.03 Severability..............................................................................43
SECTION 11.04 Assignment; Binding Effect; Benefit.......................................................43
SECTION 11.05 Incorporation of Exhibits.................................................................44
SECTION 11.06 Governing Law.............................................................................44
SECTION 11.07 Waiver of Jury Trial......................................................................44
SECTION 11.08 Headings; Interpretation..................................................................44
SECTION 11.09 Counterparts..............................................................................44
SECTION 11.10 Entire Agreement..........................................................................45
iii
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of
March 20, 2000 (as amended, supplemented or otherwise modified from time to
time, this "AGREEMENT"), among XXXXX.XXX, INC., a Delaware corporation
("PARENT"), BDS ACQUISITION CORP., a Delaware corporation and a direct wholly
owned Subsidiary of Parent ("MERGER SUB") and SOMBASA MEDIA INC., a Delaware
corporation (the "COMPANY"):
W I T N E S S E T H:
WHEREAS, the boards of directors of Parent, Merger Sub and the
Company have determined that it is advisable and in the best interests of their
respective companies and stockholders to enter into a business combination by
means of the merger of Merger Sub with and into the Company (the "MERGER") and
have approved and adopted this Agreement;
WHEREAS, upon the terms and subject to the conditions of this
Agreement and in accordance with the General Corporation Law of the State of
Delaware (the "DELAWARE CODE"), Parent will acquire all of the capital stock of
the Company through the Merger; and
WHEREAS, for United States Federal income tax purposes, it is
intended that the Merger shall qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (together with
the rules and regulations promulgated thereunder, the "CODE"), and that this
Agreement shall be, and hereby is, adopted as a plan of reorganization for
purposes of Section 368 of the Code;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 CERTAIN DEFINED TERMS
Unless the context otherwise requires, the following terms,
when used in this Agreement, shall have the respective meanings specified below
(such meanings to be equally applicable to the singular and plural forms of the
terms defined):
"AFFILIATE" shall mean, with respect to any person, any other
person that controls, is controlled by or is under common control with the first
person.
"BLUE SKY LAWS" shall mean state securities or "blue sky"
laws.
"BUSINESS DAY" shall mean any day on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or, in the
case of determining a date when any payment is due, any day on which banks are
not required or authorized by law or executive order to close in New York, New
York or Boston, Massachusetts.
"COMPANY DISCLOSURE SCHEDULE" shall mean the disclosure
schedule delivered by the Company to Parent simultaneously with this Agreement
and forming a part hereof.
"COMPANY INTELLECTUAL PROPERTY" shall mean all patents
(including, without limitation, all U.S. and foreign patents, patent
applications, patent disclosures, and any and all divisions, continuations,
continuations-in-part, reissues, re-examinations and extensions thereof), design
rights, trademarks, trade names and service marks (whether or not registered),
trade dress, Internet domain names, copyrights (whether or not registered) and
any renewal rights therefor, SUI GENERIS database rights, statistical models,
technology, inventions, supplier lists, trade secrets, know-how, computer
software programs or applications in both source and object code form,
databases, technical documentation of such software programs ("TECHNICAL
DOCUMENTATION"), registrations and applications for any of the foregoing and all
other tangible or intangible proprietary information or materials that were
material to the Company's business or are currently used in the Company's
business in any product, technology or process (i) currently being or formerly
manufactured, published or marketed by the Company or (ii) previously or
currently under development for possible future manufacturing, publication,
marketing or other use by the Company.
"COMPANY MATERIAL ADVERSE EFFECT" shall mean any change in or
effect on the business of the Company that, individually or in the aggregate
(taking into account all other such changes or effects), is, or is reasonably
likely to be, materially adverse to the business, assets, liabilities, financial
condition or results of operations of the Company.
"COMPANY STOCK" shall mean Company Common Stock and Company
Preferred Stock.
"COMPANY STOCK PLAN" shall mean the Company's 1999 Stock Plan,
as adopted September 17, 1999.
"CONFIDENTIALITY AGREEMENT" shall mean the mutual
nondisclosure agreement dated February 7, 2000 between Parent and the Company.
"$" shall mean United States Dollars.
"EHTML SCRIPTING LANGUAGE" shall mean the technology described
on Exhibit A to that certain License Agreement, dated as of September 16, 1999
between Xxxxxx Xxxxxxxx and the Company.
"ENVIRONMENTAL LAW" shall mean any Law and any enforceable
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution or
protection of the environment or natural resources,
2
including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Material, as in effect as of the date hereof.
"ENVIRONMENTAL PERMIT" shall mean any permit, approval,
identification number, license or other authorization required under or issued
pursuant to any applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, together with the rules and regulations promulgated thereunder.
"EXPENSES" shall mean, with respect to any party hereto, all
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its Affiliates) incurred by such party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of its obligations pursuant to this Agreement and the consummation
of the Merger, the filings of HSR Act notice and all other matters related to
the transactions contemplated hereby and the closing of the Merger.
"FOUNDERS" shall mean the persons listed on Schedule I hereto.
"GOVERNMENTAL ENTITY" shall mean any United States Federal,
state or local or any foreign governmental, regulatory or administrative
authority, agency or commission or any court, tribunal or arbitral body.
"GOVERNMENTAL ORDER" shall mean any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Entity.
"HAZARDOUS MATERIAL" shall mean (i) any petroleum, petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials or polychlorinated biphenyls or (ii) any
chemical, material or substance defined or regulated as toxic or
hazardous or as a pollutant or contaminant or waste under any
applicable Environmental Law. "IRS" shall mean the United States
Internal Revenue Service.
"LAW" shall mean any Federal, state, foreign or local statute,
law, ordinance, regulation, rule, code, order, judgment, decree, other
requirement or rule of law of the United States or any other jurisdiction, and
any other similar act or law.
"PARENT COMMON STOCK" shall mean the common stock, par value
$.001 per share, of Parent.
"PARENT MATERIAL ADVERSE EFFECT" shall mean any change in or
effect on the business of Parent and the Parent Subsidiaries that, individually
or in the aggregate (taking into
3
account all other such changes or effects), is, or is reasonably likely to be,
materially adverse to the business, assets, liabilities, financial condition or
results of operations of Parent and the Parent Subsidiaries, taken as a whole.
"PERSON" shall mean an individual, corporation, partnership,
limited partnership, limited liability company, limited liability partnership,
syndicate, person (including, without limitation, a "person" as defined in
Section 13(d)(3) of the Exchange Act), trust, association, entity or government
or political subdivision, agency or instrumentality of a government.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, together with the rules and regulations promulgated thereunder.
"SEC" shall mean the Securities and Exchange Commission.
"STOCKHOLDERS" shall mean all holders of Company Stock or
warrants convertible into Company Common Stock.
"SUBSIDIARY" shall mean, with respect to any person, any
corporation, partnership, limited partnership, limited liability company,
limited liability partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary of such
person) owns, directly or indirectly, a majority of the stock or other equity
interests.
"TAX" shall mean (i) any and all taxes, fees, levies, duties,
tariffs, imposts and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Entity or taxing authority,
including, without limitation, taxes or other charges on or with respect to
income, franchises, windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes;
license, registration and documentation fees; and customers' duties, tariffs and
similar charges; (ii) any liability for the payment of any amounts of the type
described in (i) as a result of being a member of an affiliated, combined,
consolidated or unitary group for any taxable period; and (iii) any liability
for the payment of amounts of the type described in (i) or (ii) as a result of
being a transferee of, or a successor in interest to, any Person or as a result
of an express or implied obligation to indemnify any person.
"TAX RETURN" shall mean any return, statement or form
(including, without limitation, any estimated tax reports or return, withholding
tax reports or return and information report or return) required to be filed
with respect to any Taxes.
4
ARTICLE II
THE MERGER
SECTION 2.01 THE MERGER
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Delaware Code, at the Effective Time (as
defined in Section 2.03), Merger Sub shall be merged with and into the Company.
As a result of the Merger, the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving corporation of the Merger
as a wholly owned Subsidiary of Parent (the "SURVIVING CORPORATION").
SECTION 2.02 CLOSING
Unless this Agreement shall have been terminated and the
Merger herein contemplated shall have been abandoned pursuant to Section 9.01
and subject to the satisfaction or waiver of the conditions set forth in Article
VIII, the consummation of the Merger shall take place as promptly as practicable
(and in any event within three Business Days) after satisfaction or waiver of
the conditions set forth in Article VIII, at a closing (the "CLOSING") to be
held at the offices of Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, 0000 Xxxxxxxx, Xxx Xxxx,
Xxx Xxxx 00000, unless another date, time or place is agreed to by Parent and
the Company.
SECTION 2.03 EFFECTIVE TIME
At and after the time of the Closing, the parties shall cause
the Merger to be consummated by filing a certificate of merger (the "CERTIFICATE
OF MERGER") with the Secretary of State of the State of Delaware in such form as
required by, and executed in accordance with the relevant provisions of, the
Delaware Code (the date and time of such filing, or such later date and time as
may be set forth therein, being the "EFFECTIVE TIME").
SECTION 2.04 EFFECT OF THE MERGER
At the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of the Delaware Code. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, except
as otherwise provided herein, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Company as the
Surviving Corporation, and all debts, liabilities and duties of the Company and
Merger Sub shall become the debts, liabilities and duties of the Company as the
Surviving Corporation.
SECTION 2.05 CERTIFICATE OF INCORPORATION; BYLAWS;
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
Unless otherwise agreed by Parent and the Company before the
Effective Time, at the Effective Time:
5
(a) the Certificate of Incorporation and the Bylaws of Merger
Sub in effect immediately prior to the Effective Time shall be the Certificate
of Incorporation and the bylaws of the Surviving Corporation, until thereafter
amended as provided by Law and such Certificate of Incorporation or bylaws,
PROVIDED, HOWEVER, that Article I of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read as follows: "The name of the
corporation is Sombasa Media Inc.";
(b) the officers of Merger Sub immediately prior to the
Effective Time shall serve in their respective offices of the Surviving
Corporation from and after the Effective Time, in each case until their
successors are elected or appointed and qualified or until their resignation or
removal; and
(c) the directors of Merger Sub immediately prior to the
Effective Time shall serve as the directors of the Surviving Corporation from
and after the Effective Time, in each case until their successors are elected or
appointed and qualified or until their resignation or removal.
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01 CONVERSION OF SHARES
At the Effective Time, by virtue of the Merger, and without
any action on the part of Parent, Merger Sub, the Company or the holders of any
of the following securities:
(a) Each share of common stock, par value $0.01 per share, of
the Company ("COMPANY COMMON STOCK") issued and outstanding immediately prior to
the Effective Time (excluding those held in the treasury of the Company), and
all rights in respect thereof, shall forthwith cease to exist and be converted
into the fraction of a share (the "EXCHANGE RATIO") of Parent Common Stock (1)
the numerator of which fraction shall equal 35,000,000, and (2) the denominator
of which shall be the product obtained by multiplying the Parent Stock Price (as
defined below) by the number of Fully Diluted Shares (as defined below) (the
"MERGER SHARES"). Each share of Company Stock issued and outstanding immediately
prior to the Effective Time that is restricted or not fully vested shall upon
such conversion and exchange have the same restrictions or vesting arrangements
applicable to such shares prior to the conversion, subject to any acceleration
in vesting or removal of restrictions as a result of this Agreement and the
transactions contemplated hereby. An aggregate of ten percent (10%) of the
Merger Shares shall be subject to escrow pursuant to Article X hereof.
(b) As used herein, (i) "PARENT STOCK PRICE" shall mean
$79.88125 (it being understood that such price equals the average closing sale
price on the Nasdaq National Market of a share of Parent Common Stock as
reported in THE WALL STREET JOURNAL for the thirty (30) trading day period
ending two (2) days immediately prior to the date hereof) and (ii) "FULLY
DILUTED SHARES" shall mean all of the issued and outstanding shares of Company
Common Stock
6
(on an as-converted basis) at the Effective Time, plus the number of shares of
Company Common Stock issuable upon exercise of all outstanding options (both
vested and unvested), excluding all options granted after March 3, 2000.
(c) Each share of Company Common Stock held in the treasury of
the Company or owned by any wholly owned Subsidiary of the Company immediately
prior to the Effective Time shall be canceled and retired and no shares of stock
or other securities of Parent, the Surviving Corporation or any other
corporation shall be issuable, and no payment of other consideration shall be
made, with respect thereto.
(d) Each issued and outstanding share of capital stock of
Merger Sub shall be converted into and become one fully paid and nonassessable
share of common stock of the Surviving Corporation. From and after the Effective
Time, each outstanding certificate theretofore representing shares of Merger Sub
common stock shall be deemed for all purposes to evidence ownership of and to
represent the number of shares of Surviving Corporation common stock into which
such shares of Merger Sub common stock shall have been converted. Promptly after
the Effective Time, the Surviving Corporation shall issue to Parent a stock
certificate representing 100 shares of Surviving Corporation common stock in
exchange for the certificate that formerly represented shares of Merger Sub
common stock, which shall be surrendered by Parent and canceled.
SECTION 3.02 EXCHANGE OF SHARES OTHER THAN TREASURY
SHARES
(a) EXCHANGE AGENT. American Stock and Transfer Company shall
act as exchange agent for the Merger (the "EXCHANGE AGENT").
(b) PARENT TO PROVIDE COMMON STOCK. Promptly after the
Effective Time, Parent shall issue certificates of Parent Common Stock ("PARENT
CERTIFICATES") representing the number of whole shares of Parent Common Stock
issuable pursuant to Section 3.01(a) in exchange for shares of Company Common
Stock outstanding immediately prior to the Effective Time, less the Escrow Fund
(as defined in Section 10.04), to the Stockholders or their nominees in the
amounts set forth opposite their names on Schedule II hereto. Such shares, when
issued, shall be fully paid and non-assessable.
(c) EXCHANGE PROCEDURES. On or prior to the Effective Time, each holder of
record of a certificate or certificates (the "COMPANY CERTIFICATES") which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock, whose shares were converted into the right to receive
shares of Parent Common Stock pursuant to Section 3.01(a) shall surrender each
such Company Certificate for cancellation, together with a letter of
transmittal, to Parent or to such other agent or agents as may be appointed by
Parent. The holder of such Company Certificate shall be entitled to receive in
exchange therefor, and Parent shall cause to be delivered to such holder, or its
nominee, within a reasonable period of time following the Effective Time, a
certificate representing the number of whole shares of Parent Common Stock which
such holder has the right to receive pursuant to Section 3.01(a) (less any
shares subject to escrow pursuant to Section 3.01(a)), and the Company
Certificate so surrendered shall
7
forthwith be canceled. Until so surrendered, each outstanding Company
Certificate that, prior to the Effective Time, represented shares of Company
Common 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 Company
Common Stock shall have been so converted.
(d) DISTRIBUTION WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Parent Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Company Certificate with respect to the shares of Parent Common
Stock represented thereby until the holder of record of such Company Certificate
shall surrender such Company Certificate. Subject to the effect of applicable
escheat or similar laws, following surrender of any such Company Certificate,
there shall be paid to the record holder of the Parent Certificates issued in
exchange therefor, without interest, at the time of such surrender, the amount
of any such dividends or other distributions with a record date after the
Effective Time theretofore payable (but for the provisions of this Section
3.02(d)) with respect to such shares of Parent Common Stock.
(e) TRANSFER OF OWNERSHIP. If any Parent Certificate is to be
issued in a name other than that in which the Company Certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance thereof
that the Company 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 Parent Certificate for
shares of Parent Common Stock in any name other than that of the registered
holder of the Company 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) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 3.02, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person in respect of any shares of Parent
Common Stock delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
SECTION 3.03 STOCK TRANSFER BOOKS
At the Effective Time, the stock transfer book of the Company
shall be closed, and there shall be no further registration of transfers of
shares of the Company Common Stock thereafter on the records of any such stock
transfer books. In the event of a transfer of ownership of shares of Company
Common Stock that is not registered in the stock transfer records of the Company
at the Effective Time, a certificate or certificates representing the number of
full shares of Parent Common Stock into which such shares of Company Common
Stock shall have been converted shall be issued to the transferee, if the
certificate or certificates representing such shares of Company Common Stock is
or are surrendered as provided in Section 3.02(c) hereof, accompanied by all
documents required to evidence and effect such transfer and by evidence of
payment of any applicable stock transfer tax.
8
SECTION 3.04 NO FRACTIONAL SHARE CERTIFICATES
No scrip or fractional share Parent Certificate shall be
issued upon the surrender for exchange of Company Certificates in connection
with the conversion of Company Common Stock. The number of shares of Parent
Common Stock into which the Company Common Stock shall be converted shall be
rounded up, if necessary, to the next whole share.
SECTION 3.05 OPTIONS TO PURCHASE COMPANY COMMON STOCK
At the Effective Time, the Company Stock Plan and each option
granted by Company to purchase shares of Company Common Stock pursuant to the
Company Stock Plan or otherwise listed in Section 4.09 of the Company Disclosure
Schedule ("COMPANY STOCK OPTIONS"), which is outstanding and unexercised
immediately prior to the Effective Time, shall be assumed by Parent and
converted into an option ("PARENT OPTION") to purchase shares of Parent Common
Stock in such number and at such exercise price as provided below and otherwise
having the same terms and conditions as in effect immediately prior to the
Effective Time (except to the extent that such terms, conditions and
restrictions may be altered in accordance with their terms as a result of the
Merger contemplated hereby and except that all references in each such Company
Stock Option to Company shall be deemed to refer to Parent):
(a) the number of shares of Parent Common Stock to be subject
to the Parent Option shall be equal to the product of (x) the number of shares
of Company Common Stock subject to the original Company Stock Option immediately
prior to the Effective Time and (y) the Exchange Ratio;
(b) the exercise price per share of Parent Common Stock under
the Parent Option shall be equal to (x) the exercise price per share of Company
Common Stock in effect under the original Company Stock Option immediately prior
to the Effective Time divided by (y) the Exchange Ratio; and
(c) in effecting such assumption and conversion, the aggregate
number of shares of Parent Common Stock to be subject to each assumed Company
Stock Option will be rounded up, if necessary, to the next whole share and the
aggregate exercise price shall be rounded down, if necessary, to the next whole
cent.
The adjustments provided herein with respect to any options
that are "incentive stock options" (as defined in Section 422 of the Code) shall
be effected in a manner consistent with the requirements of Section 424(a) of
the Code
SECTION 3.06 CERTAIN ADJUSTMENTS
If, between the date of this Agreement and the Effective Time,
the outstanding shares of Parent Common Stock or Company Common Stock shall be
changed into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock or other securities shall be declared thereon with a record
date within such period, or the number of shares of Company Common Stock on a
9
fully diluted basis is in excess of that specified in Section 4.03 and disclosed
in Section 4.03 of the Company Disclosure Schedule (regardless of whether such
excess is a result of an additional issuance of capital stock or a correction to
such Section), then the number of Merger Shares to be issued pursuant to the
provisions of Section 3.01 shall be adjusted accordingly to provide to Parent
the same economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange, dividend or
increase.
SECTION 3.07 LOST, STOLEN OR DESTROYED CERTIFICATES
In the event any Company Certificates shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Company Certificates, upon the making of an affidavit of
that fact by the holder thereof, such shares of Parent Common Stock as may be
required pursuant to Section 3.01(a); 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 Company Certificates to deliver a signed
certificate agreeing to indemnify Parent, the Surviving Corporation and the
Exchange Agent against any claim that may be made against Parent, the Surviving
Corporation or the Exchange Agent with respect to the Company Certificates
alleged to have been lost, stolen or destroyed.
SECTION 3.08 TAKING OF NECESSARY ACTION; FURTHER ACTION
If, at any time after the Effective Time, any 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, the officers
and directors of the Company are fully authorized in the name of their
corporation or otherwise to take, and will use good faith efforts to take, all
such lawful and necessary action, so long as such action is not inconsistent
with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and
Merger Sub, subject to the exceptions specifically disclosed in writing in the
Company Disclosure Schedule, all such exceptions to be referenced to a specific
representation set forth in this Article IV, that:
SECTION 4.01 ORGANIZATION AND QUALIFICATION; NO
SUBSIDIARIES
(a) The Company has been duly organized and is validly
existing and in good standing under the laws of Delaware and has the requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted. The Company is duly
qualified or licensed to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so
10
qualified or licensed and in good standing that could not reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect.
(b) The Company does not own an equity interest in any
corporation, partnership or joint venture arrangement or other business entity.
SECTION 4.02 CERTIFICATE OF INCORPORATION AND BYLAWS
True, complete and correct copies of the Company's Certificate
of Incorporation and bylaws, each as amended to date, are included in Section
4.02 of the Company Disclosure Schedule. Such Certificate of Incorporation and
bylaws are in full force and effect. The Company is not in violation of any
material provisions of its Certificate of Incorporation or bylaws.
SECTION 4.03 CAPITALIZATION
The authorized capital stock of the Company consists of
10,250,000 shares of Company Common Stock and 2,750,000 shares of Company
Preferred Stock. As of the date hereof, 5,000,000 shares of Company Common Stock
and 2,750,000 shares of Company Preferred Stock are issued and outstanding, all
of which are duly authorized, validly issued, fully paid and nonassessable.
Except for the Company Stock, there are no shares of capital stock or other
equity securities of the Company outstanding. Except as set forth in Section
4.03 of the Company Disclosure Schedule, there are no options, warrants or other
rights, agreements, arrangements or commitments of any character to which the
Company is a party or by which the Company is bound relating to the issued or
unissued capital stock of the Company or obligating the Company to issue or sell
any shares of capital stock of, or other equity interests in, the Company. There
are no outstanding contractual obligations of the Company to repurchase, redeem
or otherwise acquire any shares of Company Stock. There are no material
outstanding contractual obligations of the Company to provide funds to, or make
any material investment (in the form of a loan, capital contribution or
otherwise) in, any other person.
SECTION 4.04 AUTHORITY RELATIVE TO THIS AGREEMENT
The Company has all necessary corporate power and authority to
execute and deliver this Agreement and the Escrow Agreement (as defined in
Section 8.01(c)), to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Escrow Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate action, and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or the Escrow Agreement or to consummate the
transactions contemplated hereby or thereby (other than the filing of the
Certificate of Merger as required by the Delaware Code). This Agreement has
been, and the Escrow Agreement will be, duly and validly executed and delivered
by the Company. This Agreement constitutes, and the Escrow Agreement will
constitute, assuming the due authorization, execution and delivery by the other
parties hereto, the legal, valid and binding obligations of the Company,
enforceable against it in accordance with their respective terms,
11
except to the extent that its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally or by general equitable principles.
SECTION 4.05 NO CONFLICTS; REQUIRED FILINGS AND CONSENTS
(a) Except where such violation, breach or conflict would
not result in a Company Material Adverse Effect, the execution and delivery of
this Agreement and the Escrow Agreement by the Company do not, and the
performance by the Company of its obligations hereunder and thereunder, and the
consummation of the Merger will not, (i) conflict with or violate any provision
of the Certificate of Incorporation or bylaws of the Company, (ii) conflict with
or violate any Law applicable to the Company or by which any property or asset
of the Company is bound or affected or (iii) result in any breach of or
constitute a default (or an event which with the giving of notice or lapse of
time or both could reasonably be expected to become a default) under, or give to
others any right of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or other encumbrance on any material property
or asset of the Company pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation.
(b) No filing or registration with, or notification to,
and no permit, authorization, consent or approval of, any Government Entity is
necessary for the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated by this Agreement
except, (i) the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware, (ii) such filings and consents as may be required
under any Environmental Law pertaining to any notification, disclosure or
required approval triggered by the Merger or the transactions contemplated by
this Agreement, (iii) such filings, registrations, notifications, permits,
authorizations, consents or approvals that result from the specific legal or
regulatory status of Parent or as a result of any other facts that specifically
relate to the business or activities in which Parent is engaged other than the
business of the Company and (iv) such other filings, registrations, notices,
permits, authorizations, consents and approvals that if not obtained, made or
given would not, individually or in the aggregate, have a Company Material
Adverse Effect or impair the Company's ability to consummate the transactions
contemplated hereby.
(c) Except as set forth in Section 4.05(c) of the Company
Disclosure Schedule, no consent of any third party is required by reason of the
transactions contemplated by this Agreement.
SECTION 4.06 PERMITS; COMPLIANCE WITH LAWS
Except for such Company Permits the non-compliance with which
would not have a Company Material Adverse Effect, the Company is in possession
of all franchises, grants, authorizations, licenses, establishment
registrations, product listings, permits, easements, variances, exceptions,
consents, certificates, identification and registration numbers, approvals and
orders of any Governmental Entity necessary for the Company to own, lease and
operate its
12
properties or to offer or perform its services or to develop, produce, store,
distribute and market its products or otherwise to carry on its business as it
is now being conducted (collectively, the "COMPANY PERMITS"), and, as of the
date of this Agreement, none of the Company Permits has been suspended or
cancelled nor is any such suspension or cancellation pending or, to the
knowledge of the Company, threatened. All of the Company Permits are set forth
in Section 4.06 of the Company Disclosure Schedule. The Company is not in
conflict with, or in default or violation of, (i) any Law applicable to the
Company or by which any property or asset of the Company is bound or affected or
(ii) any Company Permits, except where such conflict would not have a Company
Material Adverse Effect. Section 4.06 of the Company Disclosure Schedule sets
forth, as of the date of this Agreement, all actions, proceedings,
investigations or surveys pending or, to the knowledge of the Company,
threatened against the Company that could reasonably be expected to result in
the suspension or cancellation of any other Company Permit. Since its inception,
the Company has not received from any Governmental Entity any written
notification with respect to possible conflicts, defaults or violations of Laws.
The Merger will not result in the suspension or cancellation of any Company
Permit.
SECTION 4.07 FINANCIAL STATEMENTS
(a) Section 4.07 of the Company Disclosure Schedule includes
copies of the unaudited balance sheets of the Company at December 31, 1999
andJanuary 31, 2000, together with the related statements of operations,
Stockholders' equity and cash flows for the year ended December 31, 1999 and the
month ended January 31, 2000 and the notes thereto (the "COMPANY FINANCIAL
STATEMENTS"). The Company Financial Statements: (i) were prepared in accordance
with United States generally accepted accounting principles ("GAAP") applied on
a consistent basis throughout the periods covered thereby (except for the
absence of footnotes); (ii) present fairly the financial position, results of
operations and cash flows of the Company as of such dates and for the periods
then ended; and (iii) are correct and complete in all material respects, and can
be reconciled with the books of account and records of the Company. The Company
maintains and will continue to maintain an adequate system of internal controls
established and administered substantially in accordance with GAAP.
(b) Except as disclosed on Section 4.07 of the Company
Disclosure Schedule and to the extent set forth or reserved against on the
balance sheets of the Company as reported in the Company Financial Statements,
the Company does not have any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on a balance sheet or in notes thereto prepared in accordance with
GAAP, except for immaterial liabilities or obligations incurred in the ordinary
course of business consistent with past practice since December 31, 1999.
SECTION 4.08 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except as set forth in Section 4.08 of the Company Disclosure
Schedule, since December 31, 1999, the Company has conducted its business only
in the ordinary course consistent with past practice and, since such date, there
has not been (i) any Company Material Adverse Effect, (ii) any event that could
reasonably be expected to prevent or materially delay
13
the performance of the Company's obligations pursuant to this Agreement and the
consummation of the Merger by the Company, (iii) any change by the Company in
its accounting methods, principles or practices, (iv) any declaration, setting
aside or payment of any dividend or distribution in respect of the shares of
Company Common Stock or any redemption, purchase or other acquisition of any of
the Company's securities, (v) any increase in the compensation or benefits or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other employee
benefit plan, or any other increase in the compensation payable or to become
payable to any employees, officers, consultants or directors of the Company,
(vi) any issuance or sale of any stock, notes, bonds or other securities, or
entering into any agreement with respect thereto, (vii) any amendment to the
Company's Certificate of Incorporation or bylaws, (viii) other than in the
ordinary course of business consistent with past practice, any (x) purchase,
sale, assignment or transfer of any material assets, (y) mortgage, pledge or
existence of any lien, encumbrance or charge on any material assets or
properties, tangible or intangible, except for liens for Taxes not yet due and
such other liens, encumbrances or charges which do not, individually or in the
aggregate, have a Company Material Adverse Effect, or (z) waiver of any rights
of material value or cancellation or any material debts or claims, (ix) any
incurrence of any material liability(absolute or contingent), except for current
liabilities and obligations incurred in the ordinary course of business
consistent with past practice, (x) any incurrence of any damage, destruction or
similar loss, whether or not covered by insurance, materially affecting the
business or properties of the Company, (xi) any entering into any transaction of
a material nature other than in the ordinary course of business, consistent with
past practice, or (xii) any negotiation or agreement by the Company to do any of
the things described in the preceding clauses (i) through (xi).
SECTION 4.09 EMPLOYEE MATTERS
(a) Section 4.09 of the Company Disclosure Schedule lists each
employee benefit fund, plan, program, arrangement and contract (including,
without limitation, any "pension" plan, fund or program, as defined in Section
3(2) of ERISA, and any "employee benefit plan", as defined in Section 3(3) of
ERISA and any plan, program, arrangement or contract providing for severance;
medical, dental or vision benefits; life insurance or death benefits; disability
benefits, sick pay or other wage replacement; vacation, holiday or sabbatical;
pension or profit-sharing benefits; stock options or other equity compensation;
bonus or incentive pay or other material fringe benefits), whether written (or
not written, to the extent material) maintained, sponsored or contributed to or
required to be contributed to by the Company (the "COMPANY BENEFIT PLANS"). With
respect to each Company Benefit Plan, the Company has delivered or made
available to Parent a true, complete and correct copy of (i) such Company
Benefit Plan (or, if not written, a written summary of its material terms) and
the most recent summary plan description, if any, related to such Company
Benefit Plan, (ii) each trust agreement or other funding arrangement relating to
such Company Benefit Plan, (iii) the most recent annual report (Form 5500) filed
with the IRS with respect to such Company Benefit Plan (and, if the most recent
annual report is a Form 5500R, the most recent Form 5500C filed with respect to
such Company Benefit Plan), (iv) the most recent actuarial report or financial
statement relating to such Company Benefit
14
Plan, if any, and (v) the most recent determination letter, if any, issued by
the IRS with respect to such Company Benefit Plan and any pending request for
such a determination letter. Neither the Company, nor any other person or
entity, has any express or implied commitment, whether legally enforceable or
not, to modify, change or terminate any Company Benefit Plan, other than with
respect to a modification, change or termination required by ERISA or the Code.
(b) No Company Benefit Plan is a multiemployer pension plan
(as defined in Section 3(37) of ERISA) or other pension plan subject to Title IV
of ERISA and the Company has not sponsored or contributed to or been required to
contribute to a multiemployer pension plan or other pension plan subject to
Title IV of ERISA. No material liability under Title IV of ERISA has been
incurred by the Company that has not been satisfied in full, and no condition
exists that presents a material risk to the Company of incurring or being
subject (whether primarily, jointly or secondarily) to a material liability
thereunder. None of the assets of the Company is or may reasonably be expected
to become, the subject of any lien arising under ERISA or Section 412(n) of the
Code.
(c) The Company has delivered to Parent true, complete and
correct copies of (i) all employment agreements with officers and all consulting
agreements of the Company, (ii) all severance plans, agreements, programs and
policies of the Company with or relating to its employees, directors or
consultants, (iii) all plans, programs, agreements and other arrangements of the
Company with or relating to their respective employees, directors or consultants
which contain "change of control" provisions, and (iv) a list setting forth the
names and annual salaries of all current employees of the Company. Except as set
forth on Section 4.09 of the Disclosure Schedule, no payment or benefit which
may be required to be made by the Company or which otherwise may be required to
be made under the terms of any Company Benefit Plan or other arrangement will
constitute a parachute payment under Section 280(G)(1) of the Code, and the
consummation of the transactions contemplated by this Agreement will not, alone
or in conjunction with any other possible event (including termination of
employment), (i) entitle any current or former employee or other service
provider of the Company to severance benefits or any other payment, compensation
or benefit (including forgiveness of indebtedness), except as expressly provided
by this Agreement, or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation or benefit due any such employee or service
provider.
SECTION 4.10 CERTAIN TAX MATTERS
Neither the Company nor any of its Affiliates has taken or
agreed to take any action (other than actions contemplated by this Agreement)
that could be expected to prevent the Merger from constituting a
"reorganization" under Section 368(a) of the Code. The Company is not aware of
any agreement or plan to which the Company or any of its Affiliates is a party
or other circumstances relating to the Company or any of its Affiliates that
could reasonably be expected to prevent the Merger from so qualifying as a
reorganization under Section 368(a) of the Code.
15
SECTION 4.11 CONTRACTS
Except for the contracts and agreements described in Section
4.11 of the Company Disclosure Schedule (collectively, the "MATERIAL
CONTRACTS"), the Company is not a party to or bound by any material contract or
agreement, including without limitation:
(a) any sales, advertising or agency contract other than
contracts with merchants in excess of $10,000 per year;
(b) any contract with one of the Company's ten largest
merchants (as determined by revenue received by the Company through February 29,
2000)
(c) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contact more
than $10,000 per year;
(d) any contract that expires or may be renewed at the option
of any person other than the Company so as to expire more than one year after
the date of this Agreement;
(e) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP;
(f) any contract for capital expenditures in excess of $10,000
in the aggregate;
(g) any contract limiting the freedom of the Company to engage
in any line of business or to compete with any other corporation, partnership,
limited liability company, trust, individual or other entity, or any
confidentiality, secrecy or non-disclosure contract;
(h) any contract pursuant to which the Company is a lessor of
any machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property, pursuant to which payments in excess of $10,000 remain
outstanding;
(i) any contract with an Affiliate;
(j) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other person;
(k) any distribution contract;
(l) any employment contract, arrangement or policy (including
without limitation any collective bargaining contract or union agreement) which
may not be immediately terminated without penalty (or any augmentation or
acceleration of benefits); or
16
(m) any stockholders agreement, voting agreement, registration
rights agreement or other agreement to which the Company or any Stockholder is a
party (each, a "Stockholder Party Agreement").
The Company has performed all of the material obligations required to
be performed by it and is entitled to all benefits under, and is not alleged to
be in default in respect of any Material Contract. Each of the Material
Contracts is valid and binding and in full force and effect, and there exists no
default or event of default or event, occurrence, condition or act, with respect
to the Company, or to the knowledge of the Company, with respect to the other
contracting party, which, with the giving of notice, the lapse of the time or
the happening of any other event or conditions, would become a default or event
of default under any Material Contract. True, correct and complete copies of all
Material Contracts have been delivered to Parent.
SECTION 4.12 LITIGATION
Except as set forth in Section 4.12 of the Company Disclosure
Schedule, there is no private or governmental action, suit, proceeding, claim,
arbitration or investigation pending before any agency, court or tribunal,
foreign or domestic, or, to the knowledge of the Company, threatened against the
Company or any of its properties or any of its officers or directors (in their
capacities as such). The Company is not aware of any facts or circumstances
which could reasonably be expected to result in the denial of insurance coverage
under policies issued to the Company in respect of such suits, claims, actions,
proceedings and investigations. There is no judgment, decree or order against
the Company or, or, to the knowledge of the Company, any of its directors or
officers (in their capacities as such), that could prevent, enjoin, or
materially alter or delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Company Material
Adverse Effect. Section 4.12 of the Company Disclosure Schedule also lists all
litigation that the Company has pending against other parties.
SECTION 4.13 ENVIRONMENTAL MATTERS
The Company is in material compliance with all applicable
Environmental Laws and all Company Permits required by Environmental Laws. All
past noncompliance, if any, of the Company with Environmental Laws or
Environmental Permits has been resolved without any pending, ongoing or future
obligation, cost or liability. The Company has not released a Hazardous Material
at, or transported a Hazardous Material to or from, any real property currently
or formerly owned, leased or occupied by the Company, in violation of any
Environmental Law.
SECTION 4.14 INTELLECTUAL PROPERTY
(a) Section 4.14(a) of the Company Disclosure Schedule
contains a true and complete list of the Company's patents, patent applications,
registered trademarks, trademark applications, trademarks, trade names,
registered service marks, service xxxx applications, service marks, Internet
domain names, Internet domain name applications, copyright registrations and
applications and other filings and formal actions made or taken pursuant to
Federal, state, local and foreign laws by the Company to protect its interests
in the Company
17
Intellectual Property, and includes details of all due dates for further
filings, maintenance, payments or other actions falling due in respect of the
Company Intellectual Property within twelve (12) months of the Effective Time.
All of the Company's patents, patent applications, registered trademarks,
trademark applications and registered copyrights remain in good standing with
all fees and filings due as of the date hereof.
(b) The Company Intellectual Property contains only those
items and rights which are: (i) owned by the Company; (ii) in the public domain;
or (iii) rightfully used by the Company pursuant to a valid and enforceable
license or other agreement (the "COMPANY LICENSED INTELLECTUAL PROPERTY"), the
parties, date, term and subject matter of each such license or other agreement
(each, a "LICENSE AGREEMENT") being set forth on Section 4.14(b) of the Company
Disclosure Schedule. The Company has all rights in the Company Intellectual
Property which includes all rights necessary to carry out the Company's current
activities and the Company's future activities to the extent such future
activities are already planned, including without limitation, to the extent
required to carry out such activities, rights to make, use, reproduce, modify,
adopt, create derivative works based on, translate, distribute (directly and
indirectly), transmit, display and perform publicly, license, rent and lease
and, other than with respect to the Company Licensed Intellectual Property,
assign and sell, the Company Intellectual Property.
(c) To the knowledge of the Company, the reproduction,
manufacturing, distribution, licensing, sublicensing, sale or any other exercise
of rights in any Company Intellectual Property, product, work, technology or
process as now used or offered or proposed for use, licensing or sale by the
Company does not infringe on any proprietary or personal right of any person
such as patent, design right, trademark, trade name, service xxxx, trade dress,
Internet domain name, copyright, database right, statistical model, technology,
invention, supplier list, trade secret, know-how, computer software program or
application of any person, anywhere in the world. The Company has not received
notice of any pending or threatened claims (i) challenging the validity,
effectiveness or, other than with respect to the Company Licensed Intellectual
Property, ownership by the Company of any Company Intellectual Property, or (ii)
to the effect that the use, distribution, licensing, sublicensing, sale or any
other exercise of rights in any product, work, technology or process as now used
or offered or proposed for use, licensing, sublicensing or sale by the Company
or its agents or use by its customers infringes or will infringe on or
misappropriate any intellectual property or other proprietary or personal right
of any person. No such claims have been threatened by any person, nor to the
Company's knowledge, are there any valid grounds for any bona fide claim of any
such kind. All of the rights within the Company Intellectual Property are
enforceable and subsisting. To the knowledge of the Company, there is no
unauthorized use, infringement or misappropriation of any Company Intellectual
Property by any third party, employee or former employee.
(d) Except as set forth on Section 4.14(d) of the Company
Disclosure Schedule, all personnel, including employees, agents, consultants and
contractors, who have contributed to or participated in the conception and
development of the Company Intellectual Property on behalf of the Company, have
executed nondisclosure agreements and either (i) have been a party to an
enforceable agreements with the Company in accordance with applicable national
and state
18
law that accords the Company full, effective, exclusive and original ownership
of all tangible and intangible property as "works-for-hire," arising from the
efforts of such personnel, or (ii) have executed appropriate instruments of
assignment in favor of the Company that have conveyed to the Company full,
effective and exclusive ownership of all tangible and intangible property
arising from the efforts of such personnel.
(e) Except as set forth on Section 4.14(e) of the Company
Disclosure Schedule, the Company is not, nor as a result of the execution or
delivery of this Agreement, or performance of the Company's obligations
hereunder, will the Company be, in material violation of any license,
sublicense, agreement or instrument to which the Company is a party or otherwise
bound, nor will execution or delivery of this Agreement, or performance of the
Company's obligations hereunder, cause the diminution, termination or forfeiture
of any the Company Intellectual Property.
(f) Section 4.14(f) of the Company Disclosure Schedule
contains a true and complete list of all the Company's software programs (the
"COMPANY SOFTWARE PROGRAMS"). The Company owns full and unencumbered right and
good, valid and marketable title to such Company Software Programs that it owns,
free and clear of all mortgages, pledges, liens, security interests, conditional
sales agreements, encumbrances or charges of any kind. The Company has full and
unrestricted rights to use the Company Software Programs that it licenses,
pursuant to license agreements listed in Schedule 4.14(b).
(g) Except as set forth on Section 4.14(g) of the Company
Disclosure Schedule the source code and system documentation relating to the
owned Company Software Programs and the EHTML Scripting Language (collectively,
the "PRIMARY SOFTWARE PROGRAMS") have been maintained in strict confidence and
(i) have been disclosed by the Company only to those of its employees who have a
"need to know" the contents thereof in connection with the performance of their
duties to the Company and who have executed nondisclosure agreements with the
Company; and (ii) have been disclosed to only those third parties who have
executed nondisclosure agreements with the Company.
(h) The Primary Software Programs (i) have been designed to
ensure year 2000 compatibility, which includes, but is not limited to, date data
century recognition, and calculations that accommodate same century and
multi-century formulas and date values; (ii) operate in accordance with their
specifications prior to, during and after the calendar year 2000 AD; and (iii)
do not end abnormally or provide invalid or incorrect results as a result of
date data, specifically including date data which represents or references
different centuries or more than one century.
(i) The Company Intellectual Property is free and clear of any
and all mortgages, pledges, liens, security interests, conditional sale
agreements, encumbrances or charges of any kind.
(j) Except as set forth in Section 4.14(j) of the Company
Disclosure Schedule, the Company does not owe nor will owe any royalties or
other payments to third parties in respect of
19
the Company Intellectual Property. All royalties or other payments that have
accrued prior to the Effective Time have been paid, or will be paid prior to the
Effective Time.
(k) To the knowledge of the Company, the Primary Software
Programs and other Company Intellectual Property contain no "viruses." For the
purposes of this Agreement, "virus" means any computer code designed to disrupt,
disable or harm in any manner the operation of any software or hardware
including, without limitation, worms, bombs, backdoors, clocks, timers, or other
disabling device code, designs or routines which causes the software to be
erased, inoperable, or otherwise incapable of being used, either automatically
or upon command by any party.
SECTION 4.15 TAXES
(a) Except as set forth on Section 4.15(a) of the Company
Disclosure Schedule, the Company, and any consolidated, combined, unitary or
aggregate group for Tax purposes of which the Company is or has been a member,
have properly completed and timely filed all Tax Returns required to be filed by
them prior to the Effective Date and have paid all Taxes shown thereon to be
due. The Company has provided adequate accruals in accordance with generally
accepted accounting principles in the Company Financial Statements for any Taxes
that have not been paid, whether or not shown as being due on any Tax Returns.
The Company has no material liability for unpaid Taxes accruing after the date
of the Company Financial Statements.
(b) There is (i) no material claim for Taxes that is a lien
against the property of the Company or is being asserted against the Company
other than liens for Taxes not yet due and payable, (ii) no audit of any Tax
Return of the Company being conducted by a Tax Authority; (iii) no extension of
the statute of limitations on the assessment of any Taxes granted by the Company
and currently in effect, and (iv) except as set forth in Section 4.15(b) of the
Company Disclosure Schedule, no agreement, contract or arrangement to which the
Company is a party that may result in the payment of any amount that would not
be deductible by reason of Section 280G or Section 404 of the Code.
(c) There has been no change in ownership of the Company that
has caused the utilization of any losses of the Company to be limited pursuant
to Section 382 of the Code, and any loss carryovers reflected on the Company
Financial Statements are properly computed and reflected.
(d) The Company has not been and will not be required to
include any material adjustment in Taxable income for any Tax period (or portion
thereof) pursuant to Section 481 or 263A of the Code or any comparable provision
under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Merger.
(e) The Company has not filed and will not file any consent to
have the provisions of paragraph 341(f)(2) of the Code (or comparable provisions
of any state Tax laws) apply to the Company.
20
(f) The Company is not a party to any Tax sharing or Tax
allocation agreement nor does the Company have any liability or potential
liability to another party under any such agreement.
(g) The Company has not filed any disclosures under Section
6662 of the Code or comparable provisions of state, local or foreign law to
prevent the imposition of penalties with respect to any Tax reporting position
taken on any Tax Return.
(h) The Company has never been a member of a consolidated,
combined or unitary group of which the Company was not the ultimate parent
corporation.
The Company has in its possession receipts for any Taxes paid to foreign Tax
authorities. The Company has never been a "personal holding company" within the
meaning of Section 542 of the Code or a "United Sates real property holding
corporation" within the meaning of Section 897 of the Code.
SECTION 4.16 INSURANCE
The Company is presently insured, and since September 13, 1999
has been insured, against such risks as companies engaged in a similar business
would, in accordance with good business practice, customarily be insured. The
policies of fire, theft, liability and other insurance maintained with respect
to the assets or businesses of the Company provide adequate coverage against
loss. There is no material claim pending under any of such policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies. The Company has heretofore furnished to Parent a complete and correct
list as of the date hereof of all insurance policies maintained by the Company,
and has made available to Parent complete and correct copies of all such
policies, together with all riders and amendments thereto. All such policies are
in full force and effect and all premiums due thereon have been paid to the date
hereof. The Company has complied in all material respects with the terms of such
policies. The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
SECTION 4.17 PROPERTIES; BANK ACCOUNTS
(a) The Company has good and marketable title, free and
clear of all material mortgages, liens, pledges, charges or other encumbrances
to all its properties and assets, whether tangible or intangible, real, personal
or mixed, reflected in the Company Financial Statements for the fiscal year
ended December 31, 1999, as being owned by the Company and as of the date
thereof, other than (i) any properties or assets that have been sold or
otherwise disposed of in the ordinary course of business since the date of such
financial statements, (ii) liens disclosed in the notes to such financial
statements and (iii) liens arising in the ordinary course of business after the
date of such financial statements. All properties used in the Company's
operations are reflected in the balance sheets included in the Company Financial
Statements to the extent GAAP require the same to be reflected. All buildings,
and all fixtures, equipment and other property and assets that are material to
its business on a consolidated basis, held under leases or sub-leases by the
Company are held under valid instruments enforceable in accordance with their
21
respective terms, subject to applicable laws of bankruptcy, insolvency or
similar laws relating to creditors' rights generally and to general principles
of equity (whether applied in a proceeding in law or equity). Substantially all
of the Company's equipment in regular use has been reasonably maintained and is
in serviceable condition, reasonable wear and tear excepted. The Company owns or
has the valid and subsisting right to use all assets and properties necessary to
operate or currently used in the Company's business in the manner presently
conducted and as expected to be conducted by the Company.
(b) Section 4.17 of the Company Disclosure Schedule sets
forth the names and addresses of all banks and other institutions at which the
Company has accounts, deposits or the like, and the names of all persons
authorized to draw on or give instructions with respect thereto or holding a
power-of-attorney on behalf of the Company. Any cash held in such accounts is
not subject to any restrictions or limitations as to withdrawal.
SECTION 4.18 AFFILIATES
Section 4.18 of the Company Disclosure Schedule sets forth the
names and addresses of each person who is, in the Company's reasonable judgment,
an affiliate (as such term is used in Rule 145 under the Securities Act or under
applicable SEC accounting releases with respect to pooling of interests
accounting treatment) of the Company. The Company is not indebted to, nor does
it owe any contractual commitment or arrangement to, with or for the benefit of,
any director, officer, employee, affiliate or agent of the Company (except for
amounts due as normal salaries and bonuses and in reimbursement of ordinary
expenses). Except as set forth on Section 4.18 of the Company Disclosure
Schedule, no current or former director, officer, employee, affiliate or agent
of the Company is presently or at the Effective Time shall be, or, in the last
three years has been, the direct or indirect owner of an interest in any
corporation, firm, association, or business organization which is a present
competitor, supplier or merchant of the Company, excluding any ownership of
equity securities representing less than (5%) of such corporation, firm,
association or business organization's total outstanding equity. Except for
normal salaries and bonuses and reimbursement of ordinary expenses, since its
inception, the Company has not made any payments, loans or advances of any kind,
or paid any dividends or distributions of any kind, to or for the benefit of any
of the Stockholders, or any of their respective affiliates, associates or family
members.
SECTION 4.19 BROKERS
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger
based upon arrangements made by or on behalf of the Company.
SECTION 4.20 CERTAIN BUSINESS PRACTICES
Neither the Company nor any directors, officers, agents or employees of the
Company (in their capacities as such) has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
22
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
SECTION 4.21 (INTENTIONALLY OMITTED)
SECTION 4.22 BUSINESS ACTIVITY RESTRICTION
There is no non-competition or other similar agreement,
commitment, judgment, injunction, order or decree to which the Company is a
party or subject to that has or could reasonably be expected to have the effect
of prohibiting or impairing the conduct of business by the Company. The Company
has not entered into any agreement under which the Company is restricted from
selling, licensing or otherwise distributing any of its technology or products
to, or 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 or line of business.
SECTION 4.23 ACCOUNTS RECEIVABLE
Section 4.23 of the Company Disclosure Schedule contains a
summary of the accounts receivable of the Company as of the date hereof,
together with an aging schedule of such accounts receivable.
SECTION 4.24 MERCHANTS AND SUPPLIERS
Except as set forth on Section 4.24 of the Company Disclosure
Schedule, no merchant which individually accounted for more than 1% of the
Company's gross revenues during the 12-month period preceding the date hereof
has canceled or otherwise terminated, or made any written threat to the Company
to cancel or otherwise terminate or decrease its relationship with the Company,
or has decreased materially its relationship with the Company or its usage of
the services or products of the Company, as the case may be.
SECTION 4.25 EMPLOYEE MATTERS
The Company is in compliance in all material respects with all currently
applicable laws and regulations respecting employment, discrimination in
employment, terms and conditions of employment, wages, hours and occupational
safety and health and employment practices, and is not engaged in any unfair
labor practice. The Company has withheld all amounts required by Law or by
agreement to be withheld from the wages, salaries, and other payments to
employees; and is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing. The Company is not
liable for any payment to any trust or other fund or to any Governmental Entity,
with respect to unemployment compensation benefits, social security or other
benefits or obligations for employees (other than routine payments to be made in
the normal course of business and consistent with past practice). There are no
pending claims against the Company under any workers compensation plan or policy
or for long term disability. There are no controversies pending or, to the
knowledge of the Company, threatened, between the Company and any of its
employees, which controversies have or could reasonably be expected to result in
an action, suit, proceeding, claim, arbitration or investigation before any
23
Governmental Entity. The Company is not a party to any collective bargaining
agreement or other labor union contract nor does the Company know of any
activities or proceedings of any labor union to organize any Company employees.
To the knowledge of the Company, no employees of the Company are in violation of
any term of any employment contract, non-disclosure agreement, noncompetition
agreement, or any restrictive covenant to a former employer relating to the
right of any such employee to be employed by the Company because of the nature
of the business conducted or presently proposed to be conducted by the Company
or to the use of trade secrets or proprietary information of others. No
employees of the Company have given notice to the Company, nor is the Company
otherwise aware, that any such employee intends to terminate his or her
employment with the Company.
SECTION 4.26 (INTENTIONALLY OMITTED)
SECTION 4.27 REPRESENTATIONS COMPLETE
None of the representations or warranties made by the Company
or the Founders herein or in any Company Disclosure Schedule hereto, or
certificate furnished by the Founders or the Company pursuant to this Agreement,
when all such documents are read together in their entirety, 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.
SECTION 4.28 KNOWLEDGE OF THE COMPANY
"Knowledge of the Company" or "the Company's knowledge" shall
mean the best knowledge of the Company or any of the Founders, after due
inquiry.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the
Company that:
SECTION 5.01 ORGANIZATION AND QUALIFICATION
Each of Parent and Merger Sub is a corporation dulyorganized,
validly existing and in good standing under the laws of the State of Delaware,
and has the requisite corporate power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted. Each of Parent and Merger Sub is duly
qualified or licensed to do business, and is in good standing (to the extent
applicable), in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that could not reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect.
24
SECTION 5.02 CAPITALIZATION
(a) The authorized capital stock of Parent consists of
50,000,000 shares of Parent Common Stock, of which 16,145,800 shares were issued
and outstanding as of December 31, 1999 and 5,000,000 shares of preferred stock,
$.001 par value per share, of which none were issued and outstanding as of
December 31, 1999. All of the outstanding shares of Parent Common Stock have
been validly issued and are fully paid and nonassessable and not subject to
preemptive rights. The authorized capital stock of Merger Sub consists of 10,000
shares of common stock, $.001 par value per share, all of which were issued and
outstanding as of the date hereof.
(b) All of the shares of Parent Common Stock to be issued in
connection with the Merger, when issued in accordance with this Agreement, will
be validly issued, fully paid and nonassessable and not subject to preemptive
rights or similar contractual rights granted by Parent.
SECTION 5.03 AUTHORITY RELATIVE TO THIS AGREEMENT
Each of Parent and Merger Sub has all necessary corporate
power and authority to execute and deliver this Agreement and the Escrow
Agreement, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Escrow Agreement by Parent and the consummation by Parent
of the transactions contemplated hereby and thereby, and the execution and
delivery of this Agreement by Merger Sub, and the consummation by Merger Sub of
the transactions contemplated hereby, have been duly and validly authorized by
all necessary corporate action, and no other corporate proceedings on the part
of Parent or Merger Sub are necessary to authorize this Agreement or the Escrow
Agreement or to consummate such transactions (other than the filing of the
Certificate of Merger as required by the Delaware Code). This Agreement has
been, and the Escrow Agreement will be, duly executed and delivered by Parent.
Assuming the due authorization, execution and delivery by each of the other
parties hereto and thereto, this Agreement constitutes, and the Escrow Agreement
will constitute, legal, valid and binding obligations of Parent, enforceable
against Parent in accordance with their respective terms, except to the extent
that enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles. This Agreement has been duly
executed and delivered by Merger Sub and, assuming the due authorization,
execution and delivery by each of the other parties hereto and thereto,
constitutes a legal, valid and binding obligation of Merger Sub, enforceable
against Merger Sub in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles.
SECTION 5.04 NO CONFLICT; REQUIRED FILINGS AND CONSENTS
(a) Except for the filing of the Certificate of Merger and any
applicable federal or state securities filings (including, without limitation,
the filing with the SEC of the Form S-3
25
Registration Statement and the Form S-8 Registration Statement, as such terms
are defined in this Agreement), and except for such conflicts, violations,
breaches or defaults which would not have a Parent Material Adverse Effect, the
execution and delivery of this Agreement by Parent and Merger Sub and the
execution and delivery of the Escrow Agreement by Parent, do not, and the
performance by Parent and Merger Sub of their obligations hereunder and/or
thereunder, as the case may be, and the consummation of the Merger will not, (i)
conflict with or violate any provision of the Certificate of Incorporation or
bylaws of Parent, (ii) conflict with or violate any Law applicable to Parent or
(iii) result in any breach of or constitute a default (or an event which with
the giving of notice or lapse of time or both could reasonably be expected to
become a default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any material property or asset of Parent pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation.
(b) Assuming the accuracy of the representations and
warranties of the Company set forth in Article IV, except for the filing of the
Certificate of Merger and any applicable federal or state securities filings
(including, without limitation, the filing with the SEC of the Form S-3
Registration Statement and the Form S-8 Registration Statement) and except for
such consents, approvals or authorizations, permits or filings which, if not
obtained or made, would not have a Parent Material Adverse Effect the execution
and delivery of this Agreement by Parent and Merger Sub do not, and the
execution of the Escrow Agreement will not, and the performance by Parent and
Merger Sub of their obligations hereunder and the consummation of the Merger
will not, require any consent, approval, authorization or permit of, or filing
by Parent with or notification by Parent to, any Governmental Entity.
SECTION 5.05 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has timely filed all forms, reports, statements and
documents required to be filed by it with the SEC and the Nasdaq National Market
since March 24, 1999 (collectively, together with any such forms, reports,
statements and documents Parent may file subsequent to the date hereof until the
Effective Time, the "PARENT REPORTS"). Each Parent Report (i) was prepared in
accordance with the requirements of the Securities Act, the Exchange Act or the
Nasdaq National Market, as the case may be, and (ii) did not at the time it was
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading
(b) Except as is provided in the Parent Reports, each of the
consolidated financial statements (including, in each case, any notes thereto)
contained in the Parent Reports complied as to form in all material respects
with applicable accounting requirements, was prepared in accordance with GAAP
applied on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto) and each presented fairly, in all material
respects, the consolidated financial position of Parent as at the respective
dates thereof and the consolidated results of operations and cash flows of
Parent for the respective periods indicated therein, except
26
as otherwise noted therein (subject, in the case of unaudited statements, to
normal and recurring year-end adjustments).
SECTION 5.06 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except as disclosed in the Parent Reports filed prior to the
date of this Agreement, since December 31, 1999, there has not been (a) any
condition, event, occurrence or development that (i) has had or would reasonably
be expected to have, individually or in the aggregate, a Parent Material Adverse
Effect or (ii) would reasonably be expected to prevent, hinder or materially
delay the ability of Parent or Merger Sub to consummate the Merger, (b) any
material change by Parent or any Parent Subsidiary in its accounting methods,
principles or practices, or (c) any event pursuant to which Parent or any Parent
Subsidiary has incurred any material liabilities (direct, contingent or
otherwise) or engaged in any material transaction or entered into any material
agreement, in each case, outside of the ordinary course of business which,
individually or in the aggregate, would be reasonably expected to have a Parent
Material Adverse Effect.
SECTION 5.07 CERTAIN TAX MATTERS
Neither Parent nor, to the knowledge of Parent, any of its
Affiliates has taken or agreed to take any action (other than actions
contemplated by this Agreement) that could reasonably be expected to prevent the
Merger from constituting a "reorganization" under Section 368(a) of the Code.
Parent is not aware of any agreement, plan or other circumstance that could
reasonably be expected to prevent the Merger from so qualifying as a
reorganization under Section 368(a) of the Code.
SECTION 5.08 BROKERS
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger
based upon arrangements made by or on behalf of Parent.
SECTION 5.09 REPRESENTATIONS COMPLETE
None of the representations or warranties made by Parent
herein or in any certificate furnished by Parent pursuant to this Agreement,
when all such documents are read together in their entirety, 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.
SECTION 5.10 INDEMNIFICATION OF DIRECTORS AND OFFICERS
For six years after the Effective Time, Parent and the
Surviving Corporation (or any successor to the Surviving Corporation) shall
indemnify, defend and hold harmless each present and former officer and director
of the Company, and each person who becomes any of
27
the foregoing prior to the Effective Time (each, a "Company Indemnified Party")
against all losses, claims, damages, liabilities, costs, fees and expenses,
including reasonable fees and disbursements of counsel and judgments, fines,
losses, claims, liabilities and amounts paid in settlement (provided that any
such settlement is effected with the written consent of Parent or the Surviving
Corporation) arising out of actions or omissions occurring at or prior to the
Effective Time to the full extent required or permitted under applicable law,
the terms of the Certificate of Incorporation or Bylaws of the Company, as in
effect at the date hereof; provided, that, in the event any claim or claims are
asserted or made within such six-year period, all rights to indemnification in
respect of any such claim or claims shall continue until disposition of any and
all such claims.
ARTICLE VI
COVENANTS
SECTION 6.01 CONDUCT OF BUSINESS BY THE COMPANY PENDING
THE CLOSING
The Company agrees that, between the date of this Agreement
and the Effective Time, unless Parent shall otherwise agree in writing, (x) the
businesses of the Company shall be conducted only in, and the Company shall not
take any action except in the ordinary course of business consistent with past
practice and (y) the Company shall use all reasonable best efforts to keep
available the services of such of the current officers, significant employees
and consultants of the Company and to preserve the current relationships of the
Company with such of the corporate partners, customers, suppliers and other
persons with which the Company has significant business relations in order to
preserve substantially intact its business organization. By way of amplification
and not limitation, the Company shall not, between the date of this Agreement
and the Effective Time, directly or indirectly, do, or agree to do, any of the
following without the prior written consent of Parent, which consent shall not
be unreasonably withheld:
(a) amend or otherwise change its Certificate of Incorporation
or bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease,
license, guarantee or encumber, or authorize the issuance, sale, pledge,
disposition, grant, transfer, lease, license or encumbrance of (i) any shares of
capital stock of the Company of any class, or securities convertible into or
exchangeable or exercisable for any shares of such capital stock (including
options), or any options, warrants or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest), of the Company or (ii) any property
or assets of the Company except sales of inventory in the ordinary course of
business consistent with past practice;
(c) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization or person or any division
thereof; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
28
become responsible for, the obligations of any person for borrowed money or make
any loans or advances material to the business, assets, liabilities, financial
condition or results of operations of the Company; (iii) terminate, cancel or
request any material change in, or agree to any material change in, any Material
Contract or License Agreement; (iv) make or authorize any capital expenditure,
other than capital expenditures in the ordinary course of business consistent
with past practice that have been budgeted for fiscal year 2000 and disclosed in
writing to Parent and that are not, in the aggregate, in excess of $10,000 for
the Company; or (v) enter into or amend any contract, agreement, commitment or
arrangement that, if fully performed, would not be permitted under this Section
6.01(c);
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock;
(e) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(f) amend the terms of, repurchase, redeem or otherwise
acquire, any of its securities or any securities or propose to do any of the
foregoing;
(g) increase the compensation payable or to become payable to
its directors, officers, consultants or employees, grant any rights to severance
or termination pay to, or enter into any employment or severance agreement which
provides benefits upon a change in control of the Company that would be
triggered by the Merger with, any director, officer, consultant or other
employee of the Company who is not currently entitled to such benefits as a
result of the Merger, establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer, consultant or employee of
the Company, except to the extent required by applicable Law or the terms of a
collective bargaining agreement, or enter into or amend any contract, agreement,
commitment or arrangement between the Company and any of the Company's
directors, officers, consultants or employees;
(h) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of liabilities in
the ordinary course of business and consistent with past practice or liabilities
reflected or reserved against on the balance sheet of the Company dated as of
December 31, 1999 previously presented to Parent and only to the extent of such
reserves;
(i) make any change with respect to the Company's accounting
policies, principles, methods or procedures, including, without limitation,
revenue recognition policies, other than as required by GAAP;
(j) make any material Tax election or settle or compromise any
material Tax liability;
29
(k) permit any insurance policy naming it as a beneficiary or
a loss payee to be cancelled or terminated, except in the ordinary and usual
course of business;
(l) maintain the books and records of the Company in a manner
not consistent with past business practices;
(m) take any action which would materially adversely affect
the goodwill of its suppliers, customers and others with whom it has business
relations;
(n) fail to pay and perform in all material respects all of
its debts, obligations and liabilities as and when due and all leases,
agreements, contracts and other commitments to which it is a party in accordance
with the terms and provisions thereof;
(o) fail to comply in all material respects with all Laws that
may be applicable to its business; or
(p) authorize or enter into any formal or informal agreement
or otherwise make any commitment to do any of the foregoing or to take any
action or omit to take any action which would make any of the representations or
warranties of the Company contained in this Agreement untrue, incomplete or
incorrect or prevent the Company from performing or cause the Company not to
perform its covenants hereunder or result in any of the conditions to the Merger
set forth herein not being satisfied.
SECTION 6.02 NOTICES OF CERTAIN EVENTS
Each of Parent and the Company shall give prompt notice to the
other of (i) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the Merger; (ii)
any notice or other communication from any Governmental Entity in connection
with the Merger; (iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or involving or
otherwise affecting Parent or the Company, or that relate to the consummation of
the Merger; (iv) the occurrence of a default or event that, with the giving of
notice or lapse of time or both, will become a default under any Material
Contract; and (v) any change that could reasonably be expected to have a Parent
Material Adverse Effect or a Company Material Adverse Effect, or to delay or
impede the ability of either Parent or the Company to perform their respective
obligations pursuant to this Agreement and to effect the consummation of the
Merger.
SECTION 6.03 ACCESS TO INFORMATION; CONFIDENTIALITY
(a) Except as required pursuant to any confidentiality
agreement or similar agreement or arrangement to which Parent or the Company or
any of the Parent Subsidiaries is a party or pursuant to applicable Law or the
regulations or requirements of any stock exchange or other regulatory
organization with whose rules a party hereto is required to comply, from the
date of this Agreement to the Effective Time, Parent and the Company shall (i)
provide to the other (and its officers, directors, employees, accountants,
consultants, legal counsel, agents and
30
other representatives (collectively, "REPRESENTATIVES")) access at reasonable
times upon prior notice to its officers, employees, agents, properties, offices
and other facilities and to the books and records thereof, and (ii) furnish
promptly such information concerning its business, properties, contracts,
assets, liabilities and personnel as the other party or its Representatives may
reasonably request. No investigation conducted pursuant to this Section 6.03
shall affect or be deemed to modify any representation or warranty made in this
Agreement.
(b) The parties hereto shall comply with, and shall cause
their respective Representatives to comply with, all of their respective
obligations under the Confidentiality Agreement with respect to the information
disclosed pursuant to this Section 6.03 or pursuant to the Confidentiality
Agreement.
SECTION 6.04 OTHER NEGOTIATIONS
Parent and the Company agree that paragraph 2 of the
"strategic relationship" letter dated March 2, 2000 shall remain in full force
and effect; provided, however, that if the Closing shall not have occurred on or
prior to March 31, 2000, such paragraph 2 shall terminate and be of no futher
effect as of such date.
SECTION 6.05 TAX-FREE TRANSACTION
From and after the date of this Agreement, each party hereto
shall use all reasonable efforts to cause the Merger to qualify, and shall not
knowingly take any actions or cause any actions to be taken which could
reasonably be expected to prevent the Merger from qualifying as a
"reorganization" under Section 368(a) of the Code.
SECTION 6.06 FURTHER ACTION; CONSENTS; FILINGS
(a) Upon the terms and subject to the conditions hereof, each
of the parties hereto shall use all reasonable efforts to (i) take, or cause to
be taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the Merger, (ii) obtain from Governmental Entities any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Parent or the Company in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger and (iii) make all necessary filings, and thereafter make any other
required or appropriate submissions, with respect to this Agreement and the
Merger required under any applicable Laws. The parties hereto shall cooperate
and consult with each other in connection with the making of all such filings.
(b) Each of the Company and Parent will give any notices to
third persons, and use reasonable efforts to obtain any consents from third
persons necessary, proper or advisable (as determined in good faith by Parent
with respect to such notices or consents to be delivered or obtained by the
Company) to consummate the transactions contemplated by this Agreement.
31
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 PUBLIC ANNOUNCEMENTS
Until the Effective Time, Parent and Merger Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
Agreement or the Merger and shall not issue any such press release or make any
such public statement with respect to the Agreement or the Merger that is not
approved by the other party, except as may be required by Law or the rules of
the Nasdaq National Market, in which case the parties will make reasonable
efforts to consult with each other prior to the making of such public statement.
SECTION 7.02 LEGEND.
Each Parent Certificate shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
(i) AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR
(ii) AN OPINION OF THE COMPANY'S COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED."
SECTION 7.03 REGISTRATION STATEMENT.
Parent agrees to file with the SEC a registration statement on
Form S-3 or, if unavailable to Parent, a registration statement on Form S-1 or
another appropriate form (the "S-3 REGISTRATION STATEMENT") on or before July
15, 2000, and to use commercially reasonable efforts, subject to receipt of
necessary information from the Stockholders, to cause the S-3 Registration
Statement to become effective as soon as practicable thereafter, as applicable,
to permit the public resale of the Parent Common Stock issued in the Merger. The
Company shall cooperate with and assist Parent in the preparation of such S-3
Registration Statement. Any such registration shall be subject to the customary
terms and conditions used in connection with resale prospectuses.
SECTION 7.04 FORM S-8.
Parent agrees to file with the SEC, no later than ten (10)
business days after the Closing, a registration statement on Form S-8 (the "FORM
S-8 REGISTRATION Statement") covering the shares of Parent Common Stock issuable
pursuant to outstanding options under the Company Stock Plan assumed by Parent.
Parent shall maintain the effectiveness of such Form S-8 Registration Statement
so as to permit the public resale of the securities covered thereby.
32
Company shall cooperate with and assist Parent in the preparation of such Form
S-8 Registration Statement.
SECTION 7.05 EMPLOYEES
(a) Parent shall, or shall cause the Company to,offer
employment to all employees of the Company at salaries not less than those set
forth on Section 7.05 to the Company Disclosure Schedule and will use
commercially reasonable efforts to provide employee benefits (including change
of control benefits, if applicable to similarly situated employees of Parent) to
employees of the Company who accept employment with Parent or the Company on
terms no less favorable than the terms of the employee benefits provided to
similarly situated employees of Parent.
(b) Parent shall, or shall cause the Company to, give all
employees of the Company full credit for purposes of eligibility, vesting and
benefit accrual (except to the extent giving such credit would result in the
duplication of benefits) under any employee benefit plans or arrangements
maintained by Parent or the Company for such employees' service with the Company
to the same extent recognized by the Company immediately prior to the Effective
Time.
(c) Parent shall, or shall cause the Company to, (i) waive all
limitations as to preexisting conditions exclusions and waiting periods with
respect to participation and coverage requirements applicable to the employees
of the Company under any welfare benefit plans in which such employees may be
eligible to participate after the Effective Time, other than limitations or
waiting periods that are already in effect with respect to such employees and
that have not been satisfied as of the Effective Time under any welfare plan
maintained for the employees immediately prior to the Effective Time, and (ii)
provide each employee with credit for any co-payments and deductibles paid or
due prior to the Effective Time in satisfying any applicable deductible or
out-of-pocket requirements under any welfare plans that such employees are
eligible to participate in after the Effective Time.
SECTION 7.06 DIRECTORS
Xxxxxx Xxxxxxxx and Xxxxxxx Xxxxxxxx shall be elected or
appointed directors of the Surviving Corporation. Xxxxxx Xxxxxxxx shall serve as
a director for so long as he is the Chief Executive Officer of the Surviving
Corporation. Xxxxxxx Xxxxxxxx shall serve as a director for not less than one
year.
33
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY
TO CONSUMMATE THE MERGER
The obligations of the parties hereto to consummate the Merger
are subject to the satisfaction or, if permitted by applicable Law, waiver of
the following conditions:
(a) no court of competent jurisdiction shall have issued or
entered any order, writ, injunction or decree, and no other Governmental Entity
shall have issued any order, which is then in effect and has the effect of
making the Merger illegal or otherwise prohibiting its consummation;
(b) all consents, approvals and authorizations legally
required to be obtained to consummate the Merger shall have been obtained from
all Governmental Entities, except where the failure to obtain any such consent,
approval or authorization could not reasonably be expected to result in a Parent
Material Adverse Effect or a Company Material Adverse Effect;
(c) Parent, the Company, each Stockholder and the Escrow Agent
shall have executed and delivered an Escrow Agreement substantially in the form
attached hereto as ANNEX A (the "ESCROW AGREEMENT").
SECTION 8.02 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the Merger, or to
permit the consummation of the Merger are subject to the satisfaction or, if
permitted by applicable Law, waiver of the following further conditions:
(a) each of the representations and warranties of Parent
contained in this Agreement shall be true, complete and correct in all material
respects (other than representations and warranties subject to "materiality" or
"material adverse effect" qualifiers, which shall be true, complete and correct
in all respects) both when made and on and as of the Effective Time as if made
at and as of the Effective Time (other than representations and warranties which
address matters only as of a certain date which shall be so true, complete and
correct as of such certain date);
(b) Parent shall have performed or complied in all material
respects with all covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time;
(c) Xxxxxx Xxxxxxxx and Xxxxxxx Xxxxxxxx shall have been duly
elected or appointed as directors of the Surviving Corporation;
34
(d) As of the Effective Time, the Company shall have received
from Parent and Merger Sub the following documents:
(i) A certificate of existence and good standing from
the state of incorporation as to the corporate status of each
of Parent and Merger Sub; and
(ii) A true and complete copy of the resolutions,
certified by the Secretary of Parent and Merger Sub, adopted
on behalf of each of Parent and the Merger Sub authorizing the
execution, delivery and performance of this Agreement and all
transactions contemplated hereby; and
(e) There shall have been no Parent Material Adverse Effect
since the date of this Agreement.
SECTION 8.03 CONDITIONS TO THE OBLIGATIONS OF PARENT AND
MERGER SUB
The obligations of Parent and Merger Sub to consummate the
Merger are subject to the satisfaction or waiver of the following further
conditions:
(a) Each of the representations and warranties of the Company
contained in this Agreement shall be true, complete and correct in all material
respects (other than representations and warranties subject to "materiality" or
"material adverse effect" qualifiers, which shall be true, complete and correct
in all respects) both when made and on and as of the Effective Time as if made
at and as of the Effective Time (other than representations and warranties which
address matters only as of a certain date which shall be so true, complete and
correct as of such certain date);
(b) The Company shall have performed or complied in all
material respects with all covenants required by this Agreement to be performed
or complied with by it on or prior to the Effective Time;
(c) Parent shall have received a legal opinion from Hill &
Xxxxxx, P.C., counsel to the Company, substantially in the form of ANNEX B
hereto;
(d) There shall have been no Company Material Adverse Effect
since the date of this Agreement;
(e) All consents of third parties required pursuant to the
terms of any Material Contract as a result of the Merger shall have been
obtained;
(f) Xxxxxx Xxxxxxxx and Xxxxxxx Xxxxxxxx shall have accepted
employment with Parent and shall have entered into noncompetition agreements
substantially in the forms attached hereto as ANNEX C;
(g) No holders of Company Stock as of the Effective Date shall
have perfected dissenting rights in accordance with the DGCL;
35
(h) Holders of the requisite number of shares of (i) Company
Common Stock and (ii) Company Preferred Stock shall have approved this Agreement
and the transactions contemplated hereby;
(i) Each Founder shall have entered into a founder lockup
agreement substantially in the form attached hereto as Annex D;
(j) Each holder of options under the Company Stock Plan being
assumed by Parent shall have entered into an optionholder lockup agreement,
substantially in the form attached hereto as Annex E. For purposes of
clarification, any warrants issued by the Company shall not be deemed to be
options issued under the Company Stock Plan;
(k) The Company shall have provided Parent with documentation
sufficient to ensure that Parent shall receive credit from Media Metrix for all
visits to all websites owned by the Company during the month of March and
thereafter, a form of which is attached hereto as Annex F;
(l) Each Stockholder shall have delivered to Parent a
stockholder representation letter substantially in the form attached hereto as
Annex G;
(m) Prior to the Effective Time, all outstanding shares of
Company Preferred Stock shall have been cancelled and converted into shares of
Company Common Stock and all warrants of the Company shall have been exercised,
cancelled and converted into shares of Company Common stock;
(n) Parent, the Company, the Escrow Agent and each Founder
shall have executed and delivered a Founders Escrow Agreement and Founders
Agreement Amendment substantially in the form attached hereto as Annex H;
(o) All of the directors of the Company as of the date hereof,
except for Xxxxxx Xxxxxxxx and Xxxxxxx Xxxxxxxx, shall have resigned as
directors; and
(p) Each of the Stockholder Party Agreements shall have been
terminated by all of the parties thereto.
(q) CLOSING DOCUMENTS. As of the date of the Closing, the
Parent shall have received from the Company the following documents:
(i) A certificate of existence and good standing from
the Secretary of State of the State of Delaware as to the
corporate status of the Company;
(ii) A true and complete copy of the Certificate of
Incorporation of the Company and all amendments thereto
certified by the state of incorporation of the Company;
36
(iii) A true and complete copy of the bylaws of the
Company certified by the Secretary of the Company;
(iv) A true and complete copy, certified by the
Secretary of the Company, of the resolutions adopted on behalf
of the Company authorizing the execution, delivery and
performance of this Agreement and all transactions
contemplated hereby;
(v) A certificate from the Secretary of the Company
that its Certificate of Incorporation has not been amended
since the date of the certificate described in subsection (ii)
above and that nothing has occurred since the date of issuance
of the good standing certificate specified in subsection (i)
above that would adversely affect its corporate good standing;
(vi) A certificate from the Company's Secretary as to
the incumbency and signatures of any of the Company's officers
who will execute documents at the Closing or who have executed
this Agreement; and
(vii) Any other documents and instruments as Parent
may reasonably require or desire in order to effectuate the
transactions contemplated by this Agreement.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 TERMINATION
This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, notwithstanding any requisite
adoption and approval of this Agreement, as follows:
(a) by mutual written consent duly authorized by the boards of
directors of each of Parent and the Company;
(b) by either Parent or the Company, if any Governmental
Order, writ, injunction or decree preventing the consummation of the Merger
shall have been entered by any court of competent jurisdiction and shall have
become final and nonappealable;
(c) by Parent, upon a breach of any material representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any material representation or warranty of the Company shall
have become untrue, incomplete or incorrect, in either case such that the
conditions set forth in Section 8.03 would not be satisfied (a "TERMINATING
COMPANY BREACH"); PROVIDED, HOWEVER, that if such Terminating Company Breach is
curable by the Company through the exercise of its reasonable efforts within ten
(10)
37
days and for so long as the Company continues to exercise such reasonable
efforts, Parent may not terminate this Agreement under this Section 9.01(c); or
(d) by the Company, upon a breach of any material
representation, warranty, covenant or agreement on the part of the Parent set
forth in this Agreement, or if any material representation or warranty of the
Parent shall have become untrue, incomplete or incorrect, in either case such
that the conditions set forth in Section 8.02 would not be satisfied (a
"TERMINATING PARENT BREACH"); PROVIDED, HOWEVER, that if such Terminating Parent
Breach is curable by the Parent through the exercise of its reasonable efforts
within ten (10) days and for so long as the Parent continues to exercise such
reasonable efforts, the Company may not terminate this Agreement under this
Section 9.01(d);
The right of any party hereto to terminate this Agreement
pursuant to this Section 9.01 will remain operative and in full force and effect
regardless of any investigation made by or on behalf of any party hereto, any
person controlling any such party or any of their respective officers,
directors, representatives or agents, whether prior to or after the execution of
this Agreement.
SECTION 9.02 EFFECT OF TERMINATION
Except as provided in Section 9.05, in the event of
termination of this Agreement pursuant to Section 9.01, this Agreement shall
forthwith become void, there shall be no liability under this Agreement on the
part of any party hereto or any of its Affiliates or any of its or their
officers or directors, and all rights and obligations of each party hereto shall
cease; PROVIDED, HOWEVER, that nothing herein shall relieve any party hereto
from liability for the breach of any provisions of this Agreement prior to its
termination; and PROVIDED, FURTHER, that the provisions of Section 6.03
(CONFIDENTIALITY), this Section 9.02, Section 9.05 (EXPENSES) and Article XI
shall remain in full force and effect and survive any termination of this
Agreement.
SECTION 9.03 AMENDMENT
This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 9.04 WAIVER
At any time prior to the Effective Time, any party hereto may
(a) extend the time for or waive compliance with the performance of any
obligation or other act of any other party hereto, (b) waive any inaccuracy in
the representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance by the other party with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
38
SECTION 9.05 EXPENSES
All Expenses incurred in connection with this Agreement and
the Merger shall be paid by the party incurring such Expenses, whether or not
the Merger is consummated, PROVIDED, HOWEVER, that (i) all Expenses incurred on
behalf of the Stockholders shall be paid by the Stockholders if the Merger is
consummated and (ii) all Expenses related to legal fees and expenses incurred on
behalf of the Company and the Stockholders shall be based on customary hourly
rates and shall not exceed $75,000 in the aggregate.
ARTICLE X
INDEMNIFICATION AND ESCROW
SECTION 10.01 INDEMNIFICATION
(a) Subject to the limitations set forth in this Article X and
the terms of the Escrow Agreement, the Founders (jointly and severally as a
group) and the non-Founder Stockholders will, on a pro rata basis, indemnify and
hold harmless Parent, Merger Sub and the Surviving Corporation and each of their
respective officers, directors, advisors, Affiliates, agents, employees, and
each person, if any, who controls or may control Parent within the meaning of
the Securities Act from and against any and all losses, damages, judgments,
settlements, claims, liabilities, costs and expenses , including, without
limitation, Legal Expenses (as defined below) (collectively, "DAMAGES") arising
out of, based upon or resulting from any misrepresentation or breach of or
default in connection with any representations, warranties, covenants and
agreements given by or made by any of the Stockholders or the Company in this
Agreement, the Company Disclosure Schedules, the Escrow Agreement, any Annex to
this Agreement or any certificate, letter, agreementor other document delivered
pursuant to this Agreement.
(b) Subject to the limitations set forth in this Article X,
Parent and the Surviving Corporation, jointly and severally, shall indemnify the
Stockholders and hold each of them harmless against, any and all Damages
incurred or suffered by them resulting from, relating to, arising out of or
constituting any breach of representation or warranty or any failure to perform
any covenant or agreement of Parent or Merger Sub contained, or referred to, in
this Agreement and the Escrow Agreement.
(c) "LEGAL EXPENSES" of an Indemnified Person (as defined
below) shall mean any and all reasonable out-of-pocket fees, costs and expenses
of any kind incurred by such Indemnified Person and its counsel in
investigating, preparing for, defending against or providing evidence, producing
documents or taking other action with respect to any threatened or asserted
claim of a third party or Governmental Entity.
Except as set forth in Section 10.03(b), nothing in this Agreement shall limit
the liability of the Stockholders with respect to (i) any claim based on an
inaccuracy of a representation (whether contained herein or in a certificate,
letter or other document delivered pursuant to this Agreement) or the breach of
a warranty which, in either case, is known by any Stockholder or the Company to
be false at the time such representation or warranty is made or (ii) claims for
39
breaches of representations or warranties contained in Section 4.03
(CAPITALIZATION) or Section 4.15 (TAXES).
SECTION 10.02 PROCEDURES
(a) All claims for indemnification by any party entitled to
make such claim hereunder (or any of their affiliated parties (each an
"INDEMNIFIED PERSON")) pursuant to this Article X shall be made in accordance
with the provisions of this Article X and, to the extent applicable, the Escrow
Agreement. Promptly after receipt by any Indemnified Person of notice of the
commencement of any action in respect of which the Indemnified Person will seek
indemnification hereunder, the Indemnified Person shall notify the Stockholders
Representative (as defined below),the Parent or the Surviving Corporation, as
the case may be, (the "INDEMNIFYING PARTY") thereof in writing, but any failure
to so notify an Indemnifying Party shall not relieve it from any liability that
it may have to the Indemnified Person except to the extent the Indemnifying
Party shall be materially prejudiced by such failure. The Indemnifying Party
shall be entitled to participate in the defense of such action and to assume
control of such defense with counsel reasonably acceptable to the Indemnified
Person; PROVIDED, HOWEVER, that:
(i) the Indemnified Person shall be entitled to
participate in the defense of such claim and to employ counsel
to assist in the handling of such claim;
(ii) the Indemnifying Party shall obtain the prior
written approval of the Indemnified Person before entering
into any settlement of such claim or ceasing to defend against
such claim, if, pursuant to or as a result of such settlement
or cessation, injunctive or other equitable relief would be
imposed against the Indemnified Person or would otherwise
restrict the future activity or conduct of the Indemnified
Person; and
(iii) the Indemnifying Party shall not consent to the
entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the
claimant or plaintiff to each Indemnified Person of a release
from all liability in respect of such claim.
(b) After written notice by the Indemnifying Party to the
Indemnified Person of its election to assume control of the defense of any such
action, the Indemnifying Party shall not, except as otherwise provided, be
liable to such Indemnified Person hereunder for any Legal Expenses subsequently
incurred by such Indemnified Person in connection with the defense thereof. If
the Indemnifying Party does not assume control of the defense of such claims by
promptly notifying the Indemnified Person of such assumption, the Indemnified
Person shall have the right to defend such claim in such manner as it may deem
appropriate at the cost and expense of the Indemnifying Party, and the
Indemnifying Party will promptly reimburse the Indemnified Person therefor in
accordance with the terms hereof. The reimbursement of fees, costs and expenses
required by this Section 10.03 shall be made by periodic payments during the
course of the investigation or defense, as and when bills are received or
expenses incurred.
(c) Xxxxxx Xxxxxxxx is hereby appointed as representative (the
"Stockholders Representative") for and on behalf of the Stockholders to take all
actions necessary or
40
appropriate in the judgment or appropriate in the judgment of the Stockholders
Representative for the accomplishment of the terms of this Agreement and the
Escrow Agreement. No bond shall be required of the Stockholders Representative
and he shall receive no compensation for his services. Notices of communications
to or from the Stockholders Representative shall constitute notice to or from
each of the Stockholders. If Xxxxxx Xxxxxxxx dies or is otherwise no longer
willing or able to serve as the Stockholders Representative, a new Stockholders
Representative shall be chosen by Stockholders holding a majority of the Merger
Shares. It is understood that the Stockholder Representative shall not have any
voting rights with respect to the Company Stock, other than with respect to such
shares owned by him. The Stockholders Representative shall not be liable for any
act done or omitted in such capacity while acting in good faith and in the
exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. Any decision,
act, consent or instruction of the Stockholders Representative shall constitute
a decision of all and shall be final, binding and conclusive upon every
Stockholder. The Escrow Agent, Parent and Merger Sub may rely upon any decision,
act, consent or instruction of the Stockholders Representative. The Escrow
Agent, Parent and Merger Sub are hereby relieved from any liability to any
person for acts done by them in accordance with such decision, act, consent or
instruction of the Stockholders Representative.
SECTION 10.03 DAMAGE LIMITATIONS
(a) Notwithstanding the foregoing, an Indemnified Person may
not make a claim for Damages until the aggregate amount of claims by Indemnified
Persons exceeds $100,000; PROVIDED, HOWEVER, that once the aggregate amount of
Damages of Indemnified Persons exceed such threshold amount, then the
Indemnified Persons shall have the right to recover the full amounts due without
regard to the threshold. In determining the amount of any Damage attributable to
a breach, any materiality standard contained in a representation, warranty or
covenant of the Company shall be disregarded.
(b) Except with respect to (i) any claim based on an
inaccuracy of a representation (whether contained herein or in a certificate,
letter or other document delivered pursuant to this Agreement) or the breach of
a warranty which, in either case, is known by any Stockholder or the Company to
be false at the time such representation or warranty is made, or (ii) claims for
breaches of representations or warranties contained in Section 4.03,
(CAPITALIZATION) or Section 4.15 (TAXES) the aggregate liability of the
Stockholders shall not exceed the aggregate amount of the Escrow Fund. In the
event of a claim based on (i) or (ii) above, the aggregate liability of the
Stockholders shall not exceed $35,000,000 aand such liability shall be pro rata
among all the Stockholders and joint and several among the Founders with respect
to the Founders' pro rata amounts.
(c) Any liability for indemnification hereunder shall be
determined without duplication of recovery by reason of the state of facts
giving rise to such liability constituting a breach of more than one
representation, warranty, covenant or agreement.
41
SECTION 10.04 ESCROW FUND; EXCLUSIVE REMEDY
(a) In accordance with Section 3.01 hereof, Parent shall
deliver to the Escrow Agent an aggregate of ten percent (10%) of the Merger
Shares (the "ESCROW FUND"). The Escrow Fund shall be held by the Escrow Agent
for a period of six months (or such longer term as is specified in the Escrow
Agreement) pursuant to the terms set forth in the Escrow Agreement. The Escrow
Fund shall be available to compensate Parent, Merger Sub, the Surviving
Corporation and the other Indemnified Persons pursuant to the indemnification
obligations of the Stockholders. The parties expressly agree that, except as
otherwise set forth in Section 10.03(b) of this Agreement, recovery under the
Escrow Fund shall be the sole and exclusive remedy hereunder and under the
Escrow Agreement.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01 DURATION OF SURVIVAL OF REPRESENTATIONS AND
WARRANTIES
The representations and warranties set forth in Articles IV
and V, other than Section 4.15 (TAXES) which shall survive until the expiration
of the applicable statute of limitations, will survive until the six month
anniversary of the Closing. This Section 11.01 shall not limit any covenant or
agreement of the parties hereto that by its terms contemplates performance after
the Effective Time.
SECTION 11.02 NOTICES
All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or facsimile, by registered or certified mail (postage prepaid, return receipt
requested) or by a nationally recognized courier service to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 11.02):
(a) if to the Company or the Stockholders:
Sombasa Media Inc.
000 Xxxxxxxx Xxxxxx - 0xx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Telecopier: (000) 000-0000
with a copy to:
Hill & Xxxxxx, P.C.
Xxx Xxxxxxxxxxxxx Xxxxx
00
Xxxxxx, Xxxxxxxxxxxxx, 00000-0000
Attention: Xxxxx Xxxx, Esq.
Telecopier: (000) 000-0000
if to Parent or Merger Sub:
Xxxxx.xxx, Inc.
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxxx, Esq.
President, Corporate Development
Telecopier: (000) 000-0000
with a copy to:
Xxxxxxx, Phleger & Xxxxxxxx LLP
0000 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxx, Esq.
Telecopier: (000) 000-0000
SECTION 11.03 SEVERABILITY
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of Law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the Merger
is not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner to the fullest extent permitted by
applicable Law in order that the Merger may be consummated as originally
contemplated to the fullest extent possible.
SECTION 11.04 ASSIGNMENT; BINDING EFFECT; BENEFIT
Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of Law or otherwise) without the prior written consent of the other
parties hereto. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Notwithstanding anything contained
in this Agreement to the contrary, other than Article X, nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective successors and permitted assigns any
rights or remedies under or by reason of this Agreement.
43
SECTION 11.05 INCORPORATION OF EXHIBITS
The Company Disclosure Schedule and all Annexes attached
hereto and referred to herein are hereby incorporated herein and made a part of
this Agreement for all purposes as if fully set forth herein.
SECTION 11.06 GOVERNING LAW
This agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York other than
conflict of laws principles thereof directing the application of any law other
than that of New York. Courts within the State of New York will have
jurisdiction over all disputes between the parties hereto arising out of or
relating to this agreement and the agreements, instruments and documents
contemplated hereby. The parties hereby consent to and agree to submit to the
jurisdiction of such courts. Each of the parties hereto waives, and agrees not
to assert in any such dispute, to the fullest extent permitted by applicable
law, any claim that (i) such party is not personally subject to the jurisdiction
of such courts, (ii) such party and such party's property is immune from any
legal process issued by such courts or (iii) any litigation commenced in such
courts is brought in an inconvenient forum.
SECTION 11.07 WAIVER OF JURY TRIAL
Each party hereto hereby irrevocably waives all right to trial
by jury in any proceeding (whether based on contract, tort or otherwise) arising
out of or relating to this agreement or any transaction or agreement
contemplated hereby or the actions of any party hereto in the negotiation,
administration, performance or enforcement hereof.
SECTION 11.08 HEADINGS; INTERPRETATION
The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement. The parties have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties, and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
SECTION 11.09 COUNTERPARTS
This Agreement may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 11.10 ENTIRE AGREEMENT
This Agreement (including the Annexes and the Company
Disclosure Schedule) and the Confidentiality Agreement constitute the entire
agreement among the parties with respect
44
to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first written above by their respective officers thereunto duly
authorized.
XXXXX.XXX, INC.
By: /s/ XXXXX X. XXXXXX
--------------------------------
Xxxxx X. Xxxxxx
Chief Executive Officer
BDS ACQUISITION CORP.
By: /s/ XXXXX X. XXXXXX
--------------------------------
Xxxxx X. Xxxxxx
President
SOMBASA MEDIA INC.
By: /s/ XXXXXX XXXXXXXX
--------------------------------
Xxxxxx Xxxxxxxx
President
46
