EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 28, 2005,
BY AND AMONG
ARTISTDIRECT, INC.,
ARTISTDIRECT MERGER SUB, INC.
AND
MEDIADEFENDER, INC.
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS; CERTAIN MATTERS OF CONSTRUCTION....................... 1
ARTICLE II THE MERGER.......................................................... 2
Section 2.1 The Merger........................................................ 2
Section 2.2 Consummation of Merger............................................ 2
Section 2.3 Effect of Merger.................................................. 2
Section 2.4 Merger Consideration.............................................. 3
Section 2.5 Adjustment to Merger Consideration................................ 3
Section 2.6 Effect on the Shares.............................................. 4
Section 2.7 Dissenting Shares................................................. 4
Section 2.8 Exchange of Certificates.......................................... 5
Section 2.9 Company Options................................................... 7
Section 2.10 Closing........................................................... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................... 8
Section 3.1 Organization, Good Standing and Qualification..................... 8
Section 3.2 Capitalization and Voting Rights.................................. 8
Section 3.3 Subsidiaries...................................................... 9
Section 3.4 Authorization..................................................... 9
Section 3.5 Litigation........................................................ 9
Section 3.6 No Adverse Legislation............................................ 10
Section 3.7 Intellectual Property Rights; Employee Restrictions............... 10
Section 3.8 Compliance with Other Instruments; Consents....................... 11
Section 3.9 Agreements; Action................................................ 11
Section 3.10 Absence of Certain Developments; Conduct of Business.............. 12
Section 3.11 Permits........................................................... 12
Section 3.12 Employee Matters; Employee Benefits............................... 13
Section 3.13 Title to Property and Assets...................................... 14
Section 3.14 Taxes............................................................. 15
Section 3.15 Financial Statements; No Undisclosed Liabilities.................. 16
Section 3.16 Accounts Receivable and Payable................................... 16
Section 3.17 Insurance......................................................... 17
Section 3.18 Investment Banking; Brokerage..................................... 17
Section 3.19 Customers......................................................... 17
Section 3.20 Third Party Suppliers and Back-Up................................. 17
Section 3.21 Compliance with Laws.............................................. 18
Section 3.22 Absence of Certain Business Practices............................. 18
Section 3.23 Real Estate....................................................... 18
Section 3.24 Product Warranty.................................................. 18
Section 3.25 Data Processing................................................... 19
Section 3.26 Disclosures....................................................... 19
-i-
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND MERGER SUB...... 19
Section 4.1 Organization, Good Standing and Qualification..................... 19
Section 4.2 Authorization..................................................... 20
Section 4.3 Capitalization and Share Ownership................................ 20
Section 4.4 Compliance with Other Instruments................................. 20
Section 4.5 Litigation........................................................ 21
Section 4.6 Merger Consideration in Escrow.................................... 21
Section 4.7 Restraint......................................................... 21
ARTICLE V COVENANTS........................................................... 21
Section 5.1 Employee Benefits................................................. 21
Section 5.2 Directors' and Officers' Indemnification and Insurance............ 22
Section 5.3 Public Statement and Press Releases............................... 23
Section 5.4 Payment of Transfer Taxes and Other Charges....................... 23
Section 5.5 Further Assurances................................................ 23
Section 5.6 Certain Tax Matters............................................... 24
Section 5.7 Employee Innovations and Proprietary Rights Assignment Agreement.. 25
Section 5.8 Acknowledgements.................................................. 25
ARTICLE VI CONDITIONS TO EACH PARTY'S OBLIGATIONS.............................. 25
Section 6.1 Company Stockholders' Approval.................................... 25
Section 6.2 Legal Prohibition................................................. 26
Section 6.3 Receipt of Government Consents.................................... 26
ARTICLE VII CONDITIONS OF THE PURCHASER'S AND MERGER SUB'S OBLIGATIONS.......... 26
Section 7.1 Receipt of Third Party Consents................................... 26
Section 7.2 Performance by Company............................................ 26
Section 7.3 Truth of Representations and Warranties........................... 26
Section 7.4 Employment Agreements............................................. 27
Section 7.5 Non-Competition Agreements........................................ 27
Section 7.6 Legal Opinion..................................................... 27
Section 7.7 Company's Closing Certificate..................................... 27
Section 7.8 Restraint......................................................... 27
Section 7.9 FIRPTA Certificate................................................ 27
Section 7.10 401(k) Plan....................................................... 28
Section 7.11 Good Standing..................................................... 28
Section 7.12 Service Providers................................................. 28
ARTICLE VIII CONDITIONS OF COMPANY'S OBLIGATIONS................................. 28
Section 8.1 Performance by the Purchaser and Merger Sub....................... 28
Section 8.2 Truth of Representations and Warranties........................... 28
Section 8.3 Employment Agreements............................................. 29
Section 8.4 Legal Opinion..................................................... 29
Section 8.5 Purchaser's Closing Certificate................................... 29
-ii-
ARTICLE IX INDEMNIFICATION..................................................... 29
Section 9.1 Survival of Representations, Warranties and Covenants............. 29
Section 9.2 Indemnification................................................... 30
Section 9.3 Limitations on Liability.......................................... 30
Section 9.4 Defense of Claims................................................. 31
Section 9.5 Purchase Price Adjustment......................................... 32
ARTICLE X MISCELLANEOUS....................................................... 33
Section 10.1 Amendments, Waivers............................................... 33
Section 10.2 Entire Agreement.................................................. 33
Section 10.3 Binding Effect; Assignment........................................ 33
Section 10.4 Headings.......................................................... 33
Section 10.5 Notices........................................................... 33
Section 10.6 Governing Law..................................................... 34
Section 10.7 Severability...................................................... 34
Section 10.8 No Third Party Rights............................................. 35
Section 10.9 Fees and Expenses................................................. 35
Section 10.10 Counterparts...................................................... 35
Section 10.11 Specific Performance.............................................. 35
Section 10.12 Waiver of Jury Trial.............................................. 35
-iii-
LIST OF SCHEDULES
Schedule 2.5 Cash Activity Statement
Schedule 3.2 Capitalization
Schedule 3.3 Subsidiaries
Schedule 3.5 Litigation
Schedule 3.7 Intellectual Property
Schedule 3.8 Compliance With Other Instruments; Consents
Schedule 3.9 Affiliate Agreement; Material Agreements
Schedule 3.10 Absence of Certain Developments
Schedule 3.11 Permits
Schedule 3.12 Employee Matters; Employee Benefits
Schedule 3.13 Title to Property and Assets
Schedule 3.14 Taxes
Schedule 3.15 Financial Statements; No Undisclosed Liabilities
Schedule 3.17 Insurance
Schedule 3.18 Brokers and Similar Fees
Schedule 3.19 Material Customers
Schedule 3.21 Compliance with Laws
Schedule 3.23 Real Estate
Schedule 4.4 Compliance with Other Instruments
Schedule 4.5 Litigation
Schedule 6.3 Receipt of Government Consents
Schedule 7.1 Receipt of Third Party Consents
-iv-
LIST OF EXHIBITS
Exhibit A Form of Certificate of Merger
Exhibit B Employment Agreement (Xxxxx Xxxx)
Exhibit C Employment Agreement (Xxxxxxx Xxxxxxx)
Exhibit D Escrow Agreement
Exhibit E Form of Non-Competition Agreement
Exhibit F Form of Employee Innovations and Proprietary
Rights Assignment Agreement
Exhibit G Form of Legal Opinion from Company Counsel
Exhibit H Form of Legal Opinion from Purchaser Counsel
-v-
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of
July 28, 2005, by and among ARTISTdirect, Inc., a Delaware corporation (the
"Purchaser"), ARTISTdirect Merger Sub, Inc., a Delaware corporation and a wholly
owned subsidiary of the Purchaser ("Merger Sub"), and MediaDefender, Inc., a
Delaware corporation (the "Company" and, together with the Purchaser and Merger
Sub, the "Parties").
RECITALS
WHEREAS, the Parties intend that, subject to the terms and
conditions hereinafter set forth, Merger Sub, a wholly owned subsidiary of the
Purchaser, will merge with and into the Company whereby the Company will be the
surviving corporation (the "Merger"), all in accordance with the terms of this
Agreement and applicable law.
WHEREAS, each of the respective Board of Directors of Parent, Merger
Sub and the Company have approved this Agreement and the Merger; and
WHEREAS, a majority of the Company Stockholders representing, in the
aggregate, 55.9% of the issued and outstanding voting stock of the Company (and
56.3% of the voting stock of the Company on a fully diluted basis) have approved
this Agreement and the Merger.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the Purchaser, Merger Sub and the Company
hereby agree as follows:
ARTICLE I
DEFINITIONS; CERTAIN MATTERS OF CONSTRUCTION
For purposes of this Agreement, in addition to the definitions
referred to or set forth in Annex A:
(a) Reference to a particular Section of this Agreement will include
all its subsections.
(b) Definitions will apply to both the singular and plural forms of
the terms defined, and references to the masculine, feminine or neuter gender
will include each other gender.
(c) Accounting terms used in this Agreement and not otherwise
defined in this Agreement are used in this Agreement as defined by GAAP in
effect as of the date of this Agreement, applied on a basis consistent with past
practice.
-1-
(d) All references in this Agreement to any Exhibit or Schedule
will, unless the context otherwise requires, be deemed to be a reference to an
Exhibit or Schedule, as the case may be, to this Agreement, all of which are
made a part of this Agreement.
(e) Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." Unless otherwise specifically provided for herein, the term "or"
shall not be deemed to be exclusive.
(f) All references to days or months shall be deemed references to
calendar days or months.
(g) The words "hereof," "herein" and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement.
ARTICLE II
THE MERGER
SECTION 2.1 THE MERGER
Upon the terms and subject to the conditions of this Agreement,
Merger Sub shall be merged with and into the Company in accordance with the
DGCL, the separate corporate existence of Merger Sub shall cease and the Company
shall continue as the surviving corporation of the Merger (the "Surviving
Corporation").
SECTION 2.2 CONSUMMATION OF MERGER
At the Closing, the Parties shall cause the Merger to be consummated
by duly filing with the Secretary of State of Delaware a properly executed
certificate of merger in accordance with the provisions of the DGCL, in
substantially the form attached hereto as Exhibit A (the "Certificate of
Merger"). In accordance with the DGCL and the terms of the Certificate of
Merger, the Merger shall be effective at the time and date which is the date and
time of the filing of the Certificate of Merger with the Secretary of State of
Delaware or such other time and date as the Purchaser and the Company may agree
in writing and as shall be specified in the Certificate of Merger (such time and
date being hereinafter referred to respectively as the "Effective Time" and the
"Effective Date").
SECTION 2.3 EFFECT OF MERGER
(a) The Merger shall have the effects set forth in this Article II
and in Section 259 of the DGCL. Without limiting the generality of the foregoing
and subject thereto, at the Effective Time all the properties, rights,
privileges, powers and franchises of the Company and the Merger Sub shall vest
in the Surviving Corporation and all debts, liabilities and duties of the
Company and the Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
-2-
(b) Certificate of Incorporation and Bylaws. The certificate of
incorporation of the Company shall be the certificate of incorporation of the
Surviving Corporation at the Effective Time and until amended in accordance with
its terms and as provided by law. The bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation from and after the Effective Time unless and until amended in
accordance with their terms and the terms of the certificate of incorporation of
the Surviving Corporation and as provided by law.
(c) Directors and Officers. The directors and officers of the Merger
Sub immediately prior to the Effective Time shall be the officers and directors
of the Surviving Corporation; provided, however, that Xxxxx Xxxx and Xxxxxxx
Xxxxxxx shall each be duly appointed as an officer (on the terms and conditions
as stated in their respective Employment Agreements, copies of which are
attached hereto as Exhibit B and Exhibit C, respectively) and director of the
Surviving Corporation effective as of the Effective Date. Such persons shall
serve as directors or hold office in accordance with the certificate of
incorporation and bylaws of the Surviving Corporation until the earlier of their
resignation or removal or until their respective successors are duly elected or
appointed and qualified.
SECTION 2.4 MERGER CONSIDERATION
Subject to adjustment as provided in Section 2.5, the aggregate
merger consideration to be paid by the Purchaser shall be Forty Two Million Five
Hundred Thousand Dollars ($42,500,000) (the "Merger Consideration"). The holders
of Company Common Stock and Company Options shall receive at Closing an amount
equal to the Merger Consideration minus Four Million Two Hundred Fifty Thousand
Dollars ($4,250,000) (such amount of $4,250,000, together with accrued interest
thereon, the "Holdback Amount"). The Holdback Amount will be delivered at
Closing to U.S. Bank, Los Angeles, California, as escrow agent (the "Escrow
Agent"), pending any payments made pursuant to Section 2.5 or Article IX and the
Escrow Agreement annexed hereto as Exhibit D (the "Escrow Agreement"). The
Holdback Amount shall be paid at the Closing by wire transfer of immediately
available funds to the account specified by the Escrow Agent (the "Escrow
Fund"). All costs and fees of the Escrow Agent shall be paid by the Purchaser.
SECTION 2.5 ADJUSTMENT TO MERGER CONSIDERATION
(a) On or prior to the Closing Date, the Company shall have prepared
and delivered to the Purchaser a statement of the amount of cash held in the
Company's Accounts as of May 31, 2005, and reflecting activity adjustment for
changes in account balances between May 31, 2005 and the Closing Date (the "Cash
Activity Statement"), which Cash Activity Statement is attached hereto as
SCHEDULE 2.5. For purposes of this Section 2.5, "Company's Accounts" means each
of the following accounts held in the Company's name at Xxxxx Fargo Bank, N.A.:
(i) checking account no. 0784891285; (ii) savings account no. 6808896689; (iii)
fund account no. 2502466678113; and (iv) safety deposit box no. 818, located in
the bank's Marina Del Rey branch.
(b) If the amount of cash shown on the Cash Activity Statement as of
the Closing Date (the "Final Cash Amount") is greater than $500,000 (the "Target
Cash Amount"),
-3-
the Merger Consideration shall be increased by one dollar for every dollar by
which the Final Cash Amount exceeds the Target Cash Amount (the "Merger
Consideration Increase") and the Company shall deposit into the Exchange Fund at
Closing an amount in cash equal to the Merger Consideration Increase. To the
extent the Final Cash Amount is less than the Target Cash Amount, the Merger
Consideration shall be reduced by one dollar for every dollar by which the
Target Cash Amount exceeds the Final Cash Amount (the "Merger Consideration
Reduction") and the Exchange Agent shall pay from the Exchange Fund at Closing
to the Purchaser in immediately available funds by wire transfer an amount equal
to the Merger Consideration Reduction.
SECTION 2.6 EFFECT ON THE SHARES
As of the Effective Time, by virtue of the Merger and without any
action on the part of the Purchaser, Merger Sub, the Company or the holder of
any shares of Company Common Stock or any shares of common stock of Merger Sub:
(a) Company Common Stock. Each outstanding share of Company Common
Stock will be automatically converted into the right to receive (i) $1.32543 per
share less the Pro-Rata Share of the Holdback Amount in cash (the "Closing Date
Merger Consideration") and (ii) one or more payments from the Escrow Fund, each
time any part of the Holdback Amount is released from the Escrow Fund to the
Company Stockholders after the Closing, in an amount equal to such Stockholder's
Fractional Interest in the Escrow Fund. After the Effective Time and until
surrendered for payment, each Company Common Stock certificate will represent
only the right to receive the Merger Consideration, without interest.
(b) Company Options. Each option for the purchase of Company Common
Stock ("Company Option") will be terminated and automatically converted into the
right to receive (i) the Option Consideration as defined below and set forth
below under Section 2.9(c) and (ii) one or more payments from the Escrow Fund,
each time any part of the Holdback Amount is released from the Escrow Fund to
the Company Stockholders after the Closing, in an amount equal to such
Stockholder's Fractional Interest in the Escrow Fund.
(c) Treasury Shares. At the Effective Time, each share of stock held
in treasury of the Company shall, by virtue of the Merger, be cancelled and
retired and cease to exist and no consideration shall be delivered or be payable
with respect thereto.
(d) Conversion of Stock of Merger Sub. Each share of common stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into one (1) share of common stock of the Surviving Corporation and
shall constitute the only issued and outstanding capital stock of the Surviving
Corporation following the Effective Time.
SECTION 2.7 DISSENTING SHARES
Notwithstanding any provision of this Agreement to the contrary,
shares of Company Common Stock that are issued and outstanding immediately prior
to the Effective Time and that are held by stockholders who have not voted in
favor of the adoption of this Agreement and approval of the Merger or consented
thereto in writing and who have properly exercised their right to appraisal of
such shares in accordance with, and shall have complied with
-4-
all other applicable requirements of, Section 262 of the DGCL (the "Dissenting
Shares") shall not be converted into the right to receive the Merger
Consideration at or after the Effective Time, but instead shall become the right
to receive such consideration as may be determined to be due to the holder of
such Dissenting Shares pursuant to the DGCL, less any required withholding
taxes; provided, however, that any Dissenting Shares held by a holder who shall
have failed to perfect or shall have effectively withdrawn or lost its right to
appraisal and payment under Section 262 of the DGCL shall thereupon be deemed to
have been converted into the right to receive the Merger Consideration, without
interest thereon and less any required withholding taxes, and shall no longer be
considered Dissenting Shares. Any holder of Dissenting Shares who becomes
entitled to payment for such holder's Company Common Stock pursuant to Section
262 of the DGCL shall receive payment therefor only from the Surviving
Corporation. The Company shall give the Purchaser prompt notice of any demands
received by the Company for appraisal of shares.
SECTION 2.8 EXCHANGE OF CERTIFICATES
(a) Exchange Agent. Prior to the Closing Date, the Purchaser shall
appoint a bank or trust company (reasonably acceptable to the Company) to act as
exchange agent (the "Exchange Agent") for the payment of the Merger
Consideration and cancellation of Company Certificates.
(b) Exchange Fund. At the Effective Time, the Purchaser will make
available to the Exchange Agent cash in an amount necessary to pay the Merger
Consideration, but excluding the Holdback Amount (the "Exchange Fund"), due upon
the surrender of the Company Certificates. If at any time after the Effective
Date, the Exchange Fund is insufficient to pay the Merger Consideration, then
Purchaser shall deposit cash to the Exchange Fund within two (2) Business Days
in an amount equal to such deficiency. The Exchange Fund shall not be used for
any purpose other than the payment of the Merger Consideration and stockholders
of the Company shall not be entitled to receive interest on any funds in the
Exchange Fund.
(c) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Purchaser and the Surviving Corporation will cause the
Exchange Agent to send to each holder of record of the Company Certificates
whose shares were converted pursuant to Section 2.6 into the right to receive
the Merger Consideration (i) a letter of transmittal (which shall specify (A)
that delivery shall be effected, and risk of loss and title to the Company
Certificates shall pass, only upon delivery of the Company Certificates to the
Exchange Agent, and (B) that Xxxxx Xxxx is irrevocably appointed to represent
the interests of the Company Stockholders after the Closing as provided in this
Agreement (the "Stockholders' Representative"), and shall be in such form and
have such other provisions as the Purchaser and the Surviving Corporation and
the Exchange Agent shall reasonably specify) and (ii) instructions for use in
effecting the surrender of the Company Certificates in exchange for the Merger
Consideration. Upon proper surrender of a Company Certificate for cancellation
to the Exchange Agent, together with such letter of transmittal, duly executed
and completed in accordance with the instructions thereto, and such other
documents as may reasonably be required by the Exchange Agent, the holder of
such Company Certificate shall be entitled to receive in exchange a check in the
amount (after giving effect to any required tax withholding) of the Merger
Consideration that the holder is entitled to receive under Section 2.6, and the
-5-
Company Certificate so surrendered shall immediately be canceled. No interest
will be paid or accrued with respect to any Merger Consideration deliverable
upon due surrender of the Company Certificates. In the event of a transfer of
ownership of the Company Common Stock that is not registered in the transfer
records of the Company, payment may be made to a transferee if, and only if, the
Company Certificate representing such Company Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.8, each Company
Certificate (other than the Company Certificates representing Dissenting Shares)
shall be deemed at any time after the Effective Time for all purposes to
represent only the right to receive upon such surrender the Merger Consideration
which the holder thereof has the right to receive in respect of such Company
Certificate pursuant to this Article II. In the case of the Company Certificates
representing Dissenting Shares, each Company Certificate representing Dissenting
Shares shall be deemed at any time after the Effective Time for all purposes to
represent only the right to receive the fair value of such Dissenting Shares
pursuant to the DGCL.
(d) No Further Ownership Rights in the Company Common Stock;
Transfer Books. The payment of the Merger Consideration upon the surrender for
exchange of shares of Company Common Stock in accordance with the terms hereof
shall be deemed to have been issued and made in full satisfaction of all rights
pertaining to such shares of the Company Common Stock, and immediately prior to
the Effective Time, there shall be no further registration of transfers on the
stock transfer books of the Company, and following the Effective Time, there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation, of the shares of the Company Common Stock that were
outstanding immediately prior to the Effective Time and the stock transfer books
shall be closed at the Effective Time. If, after the Effective Time, the Company
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Section 2.8, subject to
applicable law in the case of the Company Certificates representing Dissenting
Shares. From and after the Effective Time, holders of the Company Certificates
shall cease to have any rights as stockholders of the Company, except as
provided by law.
(e) Lost, Stolen or Destroyed Certificates. If any Company
Certificates shall have been lost, stolen or destroyed, then payment shall be
made in accordance with this Section 2.8 in exchange for such lost, stolen or
destroyed Company Certificates, upon the delivery to the Exchange Agent of a
properly completed affidavit of that fact by the Person claiming such Company
Certificate to be lost, stolen or destroyed and an indemnity in form reasonably
satisfactory to the Purchaser (and, if required by the Purchaser, the posting by
such Person of a bond, in such reasonable amount as the Purchaser may direct, as
an indemnity) against any claim that may be made against the Exchange Agent or
the Purchaser or otherwise with respect to such Company Certificate.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
made available to the Exchange Agent pursuant to this Section 2.8 that remains
undistributed to holders of the Company Certificates for six (6) months after
the Effective Time shall be delivered by the Exchange Agent to the Purchaser,
upon demand, and any holders of the Company Certificates who have not
theretofore complied with this Section 2.8 shall thereafter only look to the
Purchaser for payment of the Merger Consideration.
-6-
(g) No Liability. None of the Purchaser, the Company, Merger Sub,
the Surviving Corporation or the Exchange Agent shall be liable to any Person
for any stock or cash held by the Purchaser, the Surviving Corporation or the
Exchange Agent for payment pursuant to this Section 2.8 properly delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest the
Exchange Fund as directed by the Purchaser; provided that such investment shall
be in (i) securities issued or directly and fully guaranteed or insured by the
Unites States of America government or any agency or instrumentality thereof,
(ii) commercial paper obligations rated A-1 or P-1 or better by Xxxxx'x Investor
Services, Inc. or Standard & Poor's Corporation, respectively, or (iii)
certificates of deposit and bankers' acceptances and overnight bank deposits
with any commercial bank, depository institution or trust company incorporated
or doing business under the laws of the United States of America, any state
thereof or the District of Columbia, with combined capital and surplus of at
least $300,000,000. Any interest and other income resulting from such
investments shall be paid to the Purchaser. In the absence of direction from the
Purchaser, the Exchange Agent shall invest the Exchange Funds in accordance with
clause (iii) above.
(i) Withholding Rights. The Purchaser, the Surviving Corporation and
the Exchange Agent shall be entitled to deduct and withhold from the
consideration otherwise payable to any holder of the Company Common Stock
pursuant to this Agreement such amounts as the Parties determine may be required
to be deducted and withheld with respect to the making of such payment under the
Code or under any provision of any state, local or foreign tax law. To the
extent that amounts are so withheld by the Purchaser, the Surviving Corporation
or the Exchange Agent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of the Company
Common Stock in respect of which such deduction or withholding was made by the
Purchaser, the Surviving Corporation or the Exchange Agent.
SECTION 2.9 COMPANY OPTIONS
(a) Each outstanding Company Option shall be subject to the terms of
this Agreement.
(b) Concurrently with the execution of this Agreement, the Company
shall cause all Company Options, whether or not then fully vested or
exercisable, to become fully vested and exercisable.
(c) Immediately prior to the Effective Time, the Company shall cause
each outstanding Company Option, each of which shall have been deemed fully
vested and exercisable pursuant to Section 2.9(b), to be terminated and
converted into the right to receive from the Surviving Corporation an amount of
cash equal to the product of (i) the number of shares of Company Common Stock
subject to the Company Option and (ii) the excess, if any, of the Closing Date
Merger Consideration over the exercise price per share of such Company Option
(the "Option Consideration"), with no payment being required when the difference
is not a positive number, plus, if applicable, one or more payments from the
Escrow Fund, each time
-7-
any part of the Holdback Amount is released from the Escrow Fund to the Company
Stockholders after the Closing, in an amount equal to such Company Stockholder's
Fractional Interest in the Escrow Fund. The Board of Directors of the Company
shall take any and all action necessary to effectuate the matters described in
this Section 2.9 on or before the Effective Time. Any amounts payable pursuant
to this Section 2.9 shall be subject to any required withholding of taxes under
the Code and shall be paid without interest.
SECTION 2.10 CLOSING
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Sheppard, Mullin, Xxxxxxx &
Xxxxxxx LLP, 000 Xxxxx Xxxx Xxxxxx, Xxx Xxxxxxx, XX 00000, at 10:00 a.m., local
time, on the date of this Agreement (the "Closing Date"), unless otherwise
provided by the mutual agreement, in writing, of the Company, the Purchaser and
Merger Sub.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser and
Merger Sub as follows:
SECTION 3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and corporate authority to own, lease, license, and operate its
properties and assets and to carry on its business as now conducted, to execute
and deliver this Agreement and the other agreements delivered pursuant hereto
and to perform its obligations under this Agreement and the other agreements
delivered pursuant hereto. The Company is duly qualified to transact business
and is in good standing in each jurisdiction in which the failure to so qualify
would have a Material Adverse Effect.
SECTION 3.2 CAPITALIZATION AND VOTING RIGHTS
(a) Common Stock. The authorized capital of the Company consists of
30,000,000 shares of common stock (the "Common Stock"), of which 26,483,605
shares are issued and outstanding, and 5,000,000 shares of preferred stock, of
which no shares are issued and outstanding. The outstanding shares of Common
Stock are owned by the stockholders in the numbers specified in SCHEDULE 3.2 and
are all duly and validly authorized and issued, fully paid and nonassessable.
(b) Other Capitalization. Except for (i) the rights provided in the
Stockholders' Agreement, (ii) outstanding options exercisable for shares of
Common Stock, as set forth on SCHEDULE 3.2, which lists the date of issuance,
the holder, the number of shares of Common Stock that may be purchased upon
exercise, the vested portion and the per share exercise price of options granted
under the Company's 2001 Stock Incentive Plan (the "Option Plan"), or (iii)
otherwise as indicated on SCHEDULE 3.2, there are, and immediately after the
-8-
Closing there will be, no outstanding options, warrants, rights (including
conversion or preemptive rights or rights of first refusal), proxy or
stockholder agreement or agreements for the purchase or acquisition from the
Company of any shares of its capital stock or any stock appreciation rights or
similar rights. Except as stated in the Stockholders' Agreement or the Joinder
Agreement, the Company is not a party or subject to any agreement or
understanding and, to the Knowledge of the Company, there is no agreement or
understanding between any Persons, which affects or relates to the voting or
giving of written consents with respect to any security or by a director of the
Company.
(c) The Company has delivered to Purchaser true and complete copies
of the Certificate of Incorporation and Bylaws of the Company as in effect on
the date hereof. The minute books of the Company, which have been delivered to
Purchaser, accurately reflect in all material respects, all actions taken at all
meetings and consents in lieu of meetings of stockholders, and all actions taken
at all meetings and consents in lieu of meetings of its Board of Directors, and
no material meetings of any such stockholders or Board of Directors have been
held for which minutes have not been prepared and are not contained in such
minute books.
SECTION 3.3 SUBSIDIARIES
Except as set forth on SCHEDULE 3.3, the Company does not presently
own or control, directly or indirectly, any interest in any other corporation,
association or business entity. The Company is not a participant in any joint
venture, partnership or similar arrangement.
SECTION 3.4 AUTHORIZATION
All corporate action on the part of the Company, its officers,
directors and stockholders necessary for the authorization, execution and
delivery of this Agreement and the other agreements delivered pursuant hereto
have been taken, and the performance of all obligations of the Company hereunder
and thereunder, have been taken or will be taken prior to the Closing, and this
Agreement and the other agreements delivered pursuant hereto constitute valid
and legally binding obligations of the Company, enforceable in accordance with
their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, and (ii) as limited by
laws relating to the availability of specific performance, injunctive relief or
other equitable remedies.
SECTION 3.5 LITIGATION
(a) Except as set forth on SCHEDULE 3.5(a), there is no action,
suit, claim, proceeding or investigation pending or, to the Knowledge of the
Company, threatened against the Company that would prohibit the consummation of
the transactions set forth in this Agreement nor is there any injunction order,
judgment, ruling or order imposed upon the Company or the assets of the Company
(including its rights in any Intellectual Property). Any and all payments
related to the stockholder suit settled by the Company in the fiscal year ended
December 31, 2004 have been paid in full, and have been fully recorded on the
Company's Financial Statements.
-9-
(b) Except as set forth on SCHEDULE 3.5(b), there is no action,
suit, proceeding or investigation by the Company currently pending or that the
Company intends to initiate.
SECTION 3.6 NO ADVERSE LEGISLATION
To the Company's Knowledge, there is no pending or proposed state or
federal legislation that may reasonably be expected to result in a Material
Adverse Effect on the Company's Business or its prospects.
SECTION 3.7 INTELLECTUAL PROPERTY RIGHTS; EMPLOYEE RESTRICTIONS
(a) SCHEDULE 3.7(a) sets forth a complete and accurate list of all
patents, patent applications, trademarks, servicemarks, trademark and
servicemark applications, and copyright registrations owned by or registered in
the name of the Company or of which the Company is the licensor or licensee (as
set forth in SCHEDULE 3.7(a)).
(b) Except as set forth in SCHEDULE 3.7(b) and except with respect
to the use of publicly-available, royalty free third party software used in
connection with online file sharing networks, the Company has exclusive
ownership of, free and clear of any Security Interests or claims or rights of
any other Person, with full right to use, sell, license, sublicense, dispose of,
and bring actions for infringement of, or possesses exclusive licenses or other
rights to use, all Intellectual Property Rights currently used in the conduct of
its Business.
(c) To the Company's Knowledge, the Intellectual Property Rights
owned or licensed by the Company and currently used in the conduct of its
Business do not, as so used, infringe or conflict with the patent, copyright or
trade secrets claims of Intellectual Property Rights of any Person in any
material respect. Except as set forth in SCHEDULE 3.7(c), the Company has not
received notice from any Person asserting that any Intellectual Property Rights
owned or licensed by the Company, or which the Company otherwise has the right
to use, is invalid or unenforceable by the Company. Further, to the Company's
Knowledge, it has not taken any action with respect to its confidential or
proprietary information that would prevent the Company from enforcing its
patents and copyrights.
(d) Except as set forth on SCHEDULE 3.7(d), no lawsuit is pending
or, to the Knowledge of the Company, threatened against the Company nor has the
Company received any notice, cease and desist letters, or other claim from any
Person asserting that any of the Company's present or contemplated activities
infringe or may infringe any Intellectual Property Rights of such Person, nor is
the Company aware of any pending or threatened claim thereof. The Company is not
aware of any infringement by any other Person of any Intellectual Property
Rights of the Company.
(e) Other than shrink-wrap software and click-through license
agreements for publicly available software, the Company currently does not
license any Intellectual Property Rights from any third parties.
(f) The Company has entered into written confidentiality and
nondisclosure agreements with all of its present regular full-time employees.
The Company has provided to Purchaser true and complete copies of all such
agreements. To the extent any creator of the
-10-
Company's Intellectual Property was not a regular full-time employee of the
Company, at the time such person contributed to the creation of such
Intellectual Property, such person irrevocably assigned to the Company in
writing all proprietary rights in such person's work with respect to such
Intellectual Property. To the Company's Knowledge, no past employee is utilizing
confidential or proprietary information regarding the Company's Intellectual
Property Rights.
(g) To the Knowledge of the Company, the Company's existing and
contemplated suite of Internet piracy prevention ("IPP") solutions and services
do not violate any material rights, including, but not limited to, privacy
rights, of any owners or users of peer to peer networks or websites.
SECTION 3.8 COMPLIANCE WITH OTHER INSTRUMENTS; CONSENTS
(a) Non-Contravention. Except as set forth on SCHEDULE 3.8(a), the
Company is not, and will not by virtue of entering into, delivering, and
performing this Agreement and the other agreements delivered pursuant hereto,
and consummating the transactions contemplated hereunder and thereunder be (with
or without the passage of time or giving of notice), in violation or default (i)
of any provision of its certificate of incorporation or bylaws or any judgment,
decree, order, or writ applicable to the Company, or (ii) of any instrument,
mortgage, indenture, agreement or contract to which it is a party or by which it
is bound or (iii) to its Knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company, except in the case of
(ii) and (iii) above for any violation or default that is not and will not,
either individually or in the aggregate, have a Material Adverse Effect.
(b) Consents. Except as set forth on SCHEDULE 3.8(b), the execution,
delivery and performance of this Agreement and the other agreements delivered
pursuant hereto by the Company, will not require any authorization, consent or
approval of, or action or filing with, any Person or Governmental Authority.
SECTION 3.9 AGREEMENTS; ACTION
(a) Affiliate Agreements. Except for agreements contemplated hereby
or listed on SCHEDULE 3.9(a), there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors or
affiliates. Except as set forth on SCHEDULE 3.9(a), the Company has not, since
July 30, 2002, extended or maintained credit, arranged for the extension of
credit, or renewed an extension of credit in the form of a personal loan, or
otherwise, to or for any of its officers, directors, employees or affiliates.
(b) Material Agreements. Except as set forth on SCHEDULE 3.9(b),
there are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company is a
party or by which it is bound that (i) may involve obligations (contingent or
otherwise) of or payments to or by the Company individually, or in the
aggregate, in excess of $100,000 over the next twelve (12) months, in each case
which cannot be cancelled by the Company without penalty on no more than thirty
(30) days' notice, (ii) limit or restrict the ability of the Company to compete
or otherwise to conduct its Business in any material manner or place, or (iii)
create a partnership or joint venture (all such documents set
-11-
forth on SCHEDULE 3.9(b), collectively, "Material Contracts"). All Material
Contracts are in full force and effect and constitute legal, valid and binding
obligations of the Company, and are enforceable in accordance with their
respective terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
affecting generally the enforcement of creditors' rights and remedies and
general principles of equity, including any limitations on the availability of
the remedy of specific performance or injunctive relief regardless of whether
specific performance or injunctive relief is sought in a proceeding at law or in
equity. The Company has not received any written notice, and has no Knowledge
of, any threat of termination by the other party to any such Material Contracts.
The Company is not in material default of any provisions of any such Material
Contract and, to the Company's Knowledge, no condition or event or fact exists
which, with written notice, lapse of time or both would constitute a material
default thereunder on the part of the Company.
(c) Indebtedness. Except as set forth on SCHEDULE 3.9(c), the
Company has not (i) declared or paid any dividends or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii) incurred any indebtedness for money borrowed or any other liabilities
individually in excess of $100,000 or, in the case of indebtedness and/or
liabilities individually less than $100,000, or in excess of $250,000 in the
aggregate, which is currently outstanding, (iii) made any loans or advances to
any person (that remain outstanding as of the date hereof), other than advances
in the ordinary course of business, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than in the ordinary course of
business.
SECTION 3.10 ABSENCE OF CERTAIN DEVELOPMENTS; CONDUCT OF BUSINESS
(a) Except as set forth in SCHEDULE 3.10, since December 31, 2004,
there has been: (i) no declaration, setting aside or payment of any dividend or
other distribution with respect to, or any direct or indirect redemption or
acquisition of, any Company Common Stock; (ii) no waiver of any valuable right
of the Company or cancellation of any debt or claim held by the Company; (iii)
no material loss, destruction or damage to any property of the Company, whether
or not insured; (iv) no acquisition or disposition of any material assets (or
any contract or arrangement therefor) nor any other material transaction by the
Company other than in the ordinary course of business consistent with past
practice; (v) no material change or amendment to any material contract or
arrangement by which the Company or their respective assets or properties are
bound or subject; (vi) no change in accounting policies, other than as required
by GAAP; and (vii) no agreement or understanding, whether in writing or
otherwise, for the Company to take any of the actions specified in clauses (i)
through (vi).
(b) Except for entry into this Agreement, since December 31, 2004
and until the date hereof, the Company has conducted its Business in the
ordinary course consistent with its past practices.
SECTION 3.11 PERMITS
Except as set forth on SCHEDULE 3.11, the Company has all
franchises, permits, certificates, licenses and any similar authority necessary
for the conduct of its Business as now being conducted by it, the lack of which
would have a Material Adverse Effect. The Company is
-12-
not in default in any material respect under any of such franchises, permits,
licenses or other similar authority.
SECTION 3.12 EMPLOYEE MATTERS; EMPLOYEE BENEFITS
(a) Except as set forth on SCHEDULE 3.12(a), neither the Company nor
any ERISA Affiliate maintains or contributes to, or is in any way a party to (i)
any "employee welfare benefit plan," as defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) any "employee
pension benefit plan," as defined in Section 3(2) of ERISA, (iii) any other
written, unwritten, formal or informal plan or agreement involving direct or
indirect compensation other than workers' compensation, unemployment
compensation and other government programs, under which the Company has or is
reasonably expected to have any present or future liability (directly or
indirectly), or (iv) any employment, severance or other similar contract,
arrangement or policy (written or oral) providing for insurance coverage
(including any self-insured arrangements), non-statutory workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits entered into, maintained or
contributed to by the Company. Each plan, agreement, practice, policy or
arrangement required to be set forth on SCHEDULE 3.12(a) pursuant to the
foregoing is referred to herein as a "Benefit Plan." For purposes of this
Section 3.12, the terms "ERISA Affiliate" shall mean any person or entity which,
together with the Company, would be treated as a single employer under Code
Sections 414(b), (c), (m) or (o).
(b) To the Company's Knowledge, no executive, key employee or group
of employees has any plans to terminate employment with the Company.
(c) There is no strike or other labor dispute involving the Company
pending, or, to the Company's Knowledge, threatened, that would have a Material
Adverse Effect. The Company is not a party to any collective bargaining
agreement covering any of its employees, and, to the Knowledge of the Company,
no organizing union activities have occurred with respect to its employees.
(d) The Company is in material compliance with all applicable state
and federal "wage and hour laws", including, without limitation, overtime,
minimum wage, meal and rest periods, pay stub rules, recordkeeping, and, to the
Company's Knowledge, no set of facts, circumstances or other basis for any claim
or demand exists under California Private Attorneys' General Act of 2004
("PAGA") for any violation of California labor and employment laws covered by
PAGA.
(e) With respect to each Benefit Plan, the Company has made
available to the Purchaser a current, accurate and complete copy (or to the
extent no such copy exists, an accurate description) thereof and, to the extent
applicable: (i) any related trust agreement or other funding instrument; (ii)
the most recent IRS determination letter, if applicable; (iii) any summary plan
description and; and (iv) for the three (3) most recent years (A) the Form 5500
and attached schedules and (B) actuarial valuation reports, if applicable.
-13-
(f) Each Benefit Plan has been administered in all material respects
in accordance with the applicable requirements of ERISA, the Code and its terms.
Each Benefit Plan that is intended to be qualified under Code Section 401(a) has
obtained a favorable determination letter issued by the Internal Revenue Service
and, to the Company's Knowledge, nothing has occurred, whether by action or
failure to act, which would cause the loss of such qualification. Other than
claims for benefits submitted by participants or beneficiaries, no claim
against, or legal proceeding involving, any Benefit Plan is pending, or to the
Company's Knowledge, threatened.
(g) Each Benefit Plan maintained by the Company that is a group
health plan has been operated in material compliance with the health plan
continuation coverage requirements of Title I, Part 6 of ERISA and Code Section
4980B to the extent such requirements are applicable.
(h) No Benefit Plan that is subject to Title IV of ERISA or Code
Section 412, including any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA), has ever been maintained or contributed to by the Company
or any ERISA Affiliate.
(i) To the Company's Knowledge, no reportable event within the
meaning of Section 4043 of ERISA or "prohibited transaction" within the meaning
of Section 406 of ERISA has occurred with respect to any Benefit Plan which
would result in any liability with respect to the Benefit Plan or the Company,
and no excise tax has been imposed pursuant to Code Section 4975 in respect
thereof.
(j) All reports and documents with respect to each Benefit Plan
required by ERISA or other applicable laws to be filed or distributed have been
timely filed or distributed. Except as set forth on SCHEDULE 3.12(j), all
contributions required to be made for each Benefit Plan prior to the Closing
Date shall have been paid by the date due or properly accrued.
(k) The assets of any Benefit Plan intended to satisfy the
requirements of Section 401(a) of the Code and maintained by the Company and any
ERISA Affiliate for the benefit of the Company's and any ERISA Affiliate's
employees do not include any stock or securities issued by the Company or any
ERISA Affiliate.
(l) Except as required by Title I, Part 6 of ERISA and Section 4980B
of the Code, no Benefit Plan provides welfare benefits to any person following
termination of employment with the Company, nor does the Company or any ERISA
Affiliate have any obligation (written or oral) to provide any post-employment
or retiree welfare benefits.
SECTION 3.13 TITLE TO PROPERTY AND ASSETS
Except as set forth on SCHEDULE 3.13, the Company has good and
marketable title to all assets used or necessary for use in the Company's
Business and such assets are free and clear of all Security Interests, except
such Security Interests that (a) result from Taxes which have not yet become
delinquent, (b) do not materially impair the Company's ownership or use of such
property or assets or (c) otherwise arise in the ordinary course of business,
none of which arise due to a violation of law or which in the aggregate would
result in a Material Adverse Effect. All assets used or necessary for use in the
Company's Business are in good operating
-14-
condition and repair, normal wear and tear excluded. All leases pursuant to
which the Company leases real or personal property are valid and effective in
accordance with their respective material terms and, to the Knowledge of the
Company, there exists no default or other occurrence or condition that could
result in a default or termination of any such lease.
SECTION 3.14 TAXES
Except as set forth on SCHEDULE 3.14:
(a) The Company has timely filed, or caused to be timely filed, all
Tax Returns required to be filed prior to the Closing Date and has fully and
timely paid all Taxes which are due and payable prior to the Closing Date . The
unpaid Taxes of the Company did not, as of the date of the Company's most recent
financial statements, materially exceed the reserve for Tax liability (excluding
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the balance sheets contained in such financial
statements. The Tax Returns of the Company have never been audited by any
Governmental Authority and, to the Knowledge of the Company, there are no
additional Tax liabilities, deficiencies or proposed adjustments for any period
for which any such returns have been filed, nor is there any audit or other
court proceeding pending with respect to Taxes of the Company and no written
notice thereof has been received. All Tax Returns filed by the Company were
true, complete and correct in all material respects.
(b) The Company has withheld and paid within the time and in the
manner prescribed by applicable law all Taxes required to be withheld and paid
to the appropriate governmental authority in connection with amounts paid and
owing to any employee, independent contractor, creditor, stockholder, foreign
person, or other third party.
(c) The Company has not granted, requested, or had requested to
grant any unexpired waiver or extension of any statute of limitations in
connection with or in respect of the examination of any Tax Return filed by, or
with respect to, the Company.
(d) There are no material liens for Taxes upon the assets or
properties of the Company, except for statutory liens for Taxes not yet due and
payable as of the Effective Time.
(e) The Company has not, within the twenty-four (24) month period
preceding the date hereof, constituted either a "distributing corporation" or a
"controlled corporation" (within the meaning of Section 355(a) of the Code) in a
distribution of stock that was intended to qualify for tax-free treatment under
Section 355 of the Code.
(f) The Company does not have any liability for Taxes of any other
Person (i) under Treasury Regulation Section 1.1502-6, (ii) as a transferee or
successor, (iii) by contract, or (iv) otherwise. For the relevant period, the
Company has not been a United States real property holding corporation within
the meaning of Section 897(c)(1)(A)(ii)(h) of the Code.
(g) The Company is not obligated to make any payments, and is not a
party to any agreements that under any circumstances could obligate the Company
to make payments, that are or would not be deductible under Section 162(m) or
280G of the Code.
-15-
SECTION 3.15 FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES
(a) The Company has delivered to Purchaser true, correct and
complete copies of (i) audited financial statements with respect to the Company
for the fiscal year ended December 31, 2004 and (ii) unaudited financial
statements with respect to the Company for the quarter ended March 31, 2005 and
the subsequent partial period ended as of May 31, 2005 (collectively, "Financial
Statements"). The Financial Statements have been prepared in accordance with the
books and records of the Company and GAAP, and fairly and accurately present in
all material respects the assets, liabilities (including reserves) and the
financial condition and results of operations of the Company as of such balance
sheet date or the period then ended, as the case may be. The Company's balance
sheets for the quarter ended March 31, 2005 and the subsequent partial period
ended as of May 31, 2005 have adequate accruals for Taxes and deferred revenue,
each of which the Company accrued in accordance with GAAP from December 31, 2004
until the Closing Date.
(b) Other than as set forth on SCHEDULE 3.15(b), the Company has not
incurred any liabilities or obligations of any nature, except liabilities or
obligations: (i) as and to the extent set forth on the Company's balance sheets
as of March 31, 2005 (the "Balance Sheet Date"); or (ii) incurred after the
Balance Sheet Date in the ordinary course of business consistent with past
practice, and none of which has arisen due to a violation of law or breach of
contract.
(c) SCHEDULE 3.15(c) sets forth any "off- balance sheet
arrangements." For purposes of the preceding sentence, "off-balance sheet
arrangement" means with respect to any Person, any securitization transaction to
which that Person is party and any other transaction, agreement or other
contractual arrangement to which an entity unconsolidated with that Person is a
party, under which that person, whether or not a party to the arrangement, has,
or in the future may have: (i) any obligation under a direct or indirect
guarantee or similar arrangement; (ii) a retained or contingent interest in
assets transferred to an unconsolidated entity or similar arrangement; (iii)
derivatives to the extent that the fair value thereof is not fully reflected as
a liability or asset in the financial statements; or (iv) any obligation or
liability, including a contingent obligation or liability, to the extent that it
is not fully reflected in the financial statements (including the footnotes
thereto) (for this purpose, obligations or liabilities that are not fully
reflected in the financial statements (including the footnotes thereto) include,
without limitation: (A) obligations that are not classified as a liability
according to GAAP; (B) contingent liabilities as to which, as of the date of the
financial statements, it is not probable that a loss has been incurred or, if
probable, is not reasonably estimable; or (C) liabilities as to which the amount
recognized in the financial statements is less than the reasonably possible
maximum exposure to loss under the obligation as of the date of the financial
statements, but exclude contingent liabilities arising out of litigation,
arbitration or regulatory actions (not otherwise related to off-balance sheet
arrangements).
SECTION 3.16 ACCOUNTS RECEIVABLE AND PAYABLE
All of the accounts receivable owing to the Company constitute valid
and enforceable claims arising from bona fide transactions for goods sold or
services performed in the ordinary course of business and are fully collectible,
and there has been no notice of any claims, refusals to pay or other claimed
rights of set off against any thereof. Other than as
-16-
reflected in the reserves set forth in the Company's audited financial
statements for the year ended December 31, 2004 and the unaudited financial
statements for the period ended May 31, 2005, to the Knowledge of the Company,
no account debtor has refused or threatened to refuse to pay its obligations for
any reason, no account debtor is insolvent or bankrupt, and no account
receivable is pledged to any third party. All accounts payable of the Company
are legal, valid and binding obligations of the Company, and were incurred in
the ordinary course of business.
SECTION 3.17 INSURANCE
All policies or binders of fire, liability, product liability,
worker's compensation, vehicular, D&O insurance and other insurance held by or
on behalf of the Company are listed by policy type on SCHEDULE 3.17 and are
valid and enforceable in accordance with their terms, are in full force and
effect. All premiums on all such policies have been paid to date and the Company
has complied in all material respects with all conditions of such policies.
SECTION 3.18 INVESTMENT BANKING; BROKERAGE
Except as specified in SCHEDULE 3.18, the Company has not incurred
or become liable for any brokerage fees, finder's fees, investment banking fees,
or similar compensation in connection with the transactions contemplated by this
Agreement or based on any arrangement or agreement made by or on behalf of the
Company. The Company is not liable for any brokerage fees, finder's fees,
investment banking fees, or similar compensation in connection with any
securities transactions completed prior to the date hereof.
SECTION 3.19 CUSTOMERS
SCHEDULE 3.19 sets forth the top ten (10) customers (the "Material
Customers") of the Company as of the date hereof. No Material Customer has
cancelled or otherwise terminated or, to the Knowledge of the Company,
threatened to cancel or otherwise to terminate, its relationship with the
Company due to the transactions contemplated herein or otherwise. The Company's
relationships with its Material Customers are satisfactory. The Company has no
direct or indirect interest in any Material Customer.
SECTION 3.20 THIRD PARTY SUPPLIERS AND BACK-UP
(a) No supplier of the Company has canceled any contract or order
for provisions of, and to the Knowledge of the Company, there has been no threat
by any supplier (including, but not limited to, bandwidth and co-location
providers) not to provide products, supplies, or services to the Company at any
time since December 31, 2003. The Company's relationships with its existing
suppliers are satisfactory. To the Knowledge of the Company, none of the
suppliers is unable to supply the products or services supplied by them to the
Company in order to meet the specifications provided with respect thereto. The
Company has no direct or indirect interest in any supplier.
(b) The Company uses adequate back-up and redundant systems in light
of the Company's financial position and customer base except where the failure
to use such back-up and redundant systems is not reasonably expected to cause a
Material Adverse Effect.
-17-
SECTION 3.21 COMPLIANCE WITH LAWS
Except as set forth in SCHEDULE 3.21, the Company is in compliance
with all laws (including common laws and federal securities laws), statutes,
ordinances, codes, rules, regulations, decrees and orders of any Governmental
Authority applicable to the Company, including any of its properties or assets,
except where the failure to comply is not reasonably expected to cause a
Material Adverse Effect. The Company has not received any notice of any failure
to comply with any laws, statutes, ordinances, codes, rules, regulations,
decrees and orders of any Governmental Authority applicable to, or having
jurisdiction over, the Company, and the Company is not currently subject to any
sanction for any such noncompliance.
SECTION 3.22 ABSENCE OF CERTAIN BUSINESS PRACTICES
To the Knowledge of the Company, no current partners, owners,
stockholders, directors, executives, officers, representatives, agents or
employees of the Company, (a) has used or is using any corporate funds for any
illegal contributions, gifts, entertainment or other unlawful expenses relating
to political activity; (b) has used or is using any corporate funds for any
direct or indirect unlawful payments to any foreign or domestic government
officials or employees; (c) has violated or is violating any provision of the
Foreign Corrupt Practices Act of 1977, as amended; (d) has established or
maintained, or is maintaining, any unlawful or unrecorded fund of corporate
monies or other properties; (e) has made at any time any false or fictitious
entries on the books and records of the Company; (f) has made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment of any nature
using corporate funds or otherwise on behalf of the Company; or (g) made any
material favor or gift that is not deductible for federal income tax purposes
using corporate funds or otherwise on behalf of the Company.
SECTION 3.23 REAL ESTATE
(a) The Company does not own any real property. Other than as set
forth on SCHEDULE 3.23, the Company does not lease any real property or
interests in real property (any such leased real properties or interests in real
properties are referred to herein as the "Premises"). The Premises are
sufficient for the conduct of the Business of the Company as such Business is
now conducted. The Premises are supplied with utilities (including without
limitation water, sewage, disposal, electricity, gas and telephone) and other
services necessary for the operation of such Premises as currently operated. To
the Company's Knowledge, neither the whole nor any portion of the Premises has
been or is threatened to be condemned, requisitioned or otherwise taken by any
Governmental Authority and all buildings, structures and appurtenances
comprising the Premises are in satisfactory condition and have been reasonably
maintained, normal wear and tear excepted.
SECTION 3.24 PRODUCT WARRANTY
Each product manufactured, sold, leased, or delivered by the Company
has been in conformity with all applicable law, contracts and express and
implied warranties, except where lack of conformity is not reasonably expected
to cause a Material Adverse Effect, and the Company has no liability (and, to
the Knowledge of the Company, there is no basis for any
-18-
present or future action against the Company) for replacement or repair thereof
or other damages in connection therewith. No product designed, manufactured,
sold, leased, or delivered by the Company is subject to any guaranty, warranty
or other indemnity or similar liability beyond the applicable standard terms and
conditions of sale or lease.
SECTION 3.25 DATA PROCESSING
The Company's records, to the extent they contain important
information that is not easily and readily available elsewhere, have been
duplicated, and such duplicates are stored safely and securely pursuant to
procedures and techniques deemed adequate in the good faith judgment of the
Company's officers.
SECTION 3.26 DISCLOSURES
To the Company's Knowledge, none of the representations or
warranties made by the Company in this Article III or in any Schedule or Exhibit
hereto, or certificate furnished by the Company pursuant to this Agreement or
any written information furnished to the Purchaser by the Company in connection
with the transaction contemplated herein contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
this representation is not intended to negate any qualifications as to
materiality or knowledge, or otherwise expand, any of the other representations
provided in this Article III. Notwithstanding anything to the contrary in this
Section 3.27, the Company does not make any representation or warranty with
respect to any estimate, projection or other forward looking statement that it
or its advisors may have provided to Purchaser, and the Company is under no
obligation to update any such information that may have been provided.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND MERGER SUB
The Purchaser and Merger Sub, jointly and severally, hereby
represent and warrant to the Company as follows:
SECTION 4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION
Each of the Purchaser and Merger Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and corporate authority to
own, lease, license, and operate its properties and assets and to carry on its
Business as now conducted, to execute and deliver this Agreement and the other
agreements delivered pursuant hereto and to perform its obligations under this
Agreement and the other agreements delivered pursuant hereto. Each of the
Purchaser and Merger Sub is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
Material Adverse Effect.
-19-
SECTION 4.2 AUTHORIZATION
All corporate action on the part of each of the Purchaser and Merger
Sub, and their respective officers, directors and stockholders, necessary for
the authorization, execution and delivery of this Agreement and the other
agreements delivered pursuant hereto, and the performance of all obligations of
each of the Purchaser and Merger Sub hereunder and thereunder, have been taken
or will be taken prior to the Closing, and this Agreement and the other
agreements delivered pursuant hereto constitute valid and legally binding
obligations of each of the Purchaser and Merger Sub, enforceable in accordance
with their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, and (ii) as limited by
laws relating to the availability of specific performance, injunctive relief or
other equitable remedies.
SECTION 4.3 CAPITALIZATION AND SHARE OWNERSHIP
The authorized capital stock of Merger Sub consists of 1,000 shares
of common stock, par value $0.001 per share, 100 shares of which are duly
authorized, validly issued and outstanding, fully paid, nonassessable and owned
by the Purchaser free and clear of all liens and encumbrances. No class of
capital stock of Merger Sub is subject to preemptive (or similar) rights. Merger
Sub was formed solely for the purpose of engaging in a business combination
transaction with the Company and has engaged in no other business activities and
has conducted its operations solely as contemplated hereby. Except as described
in the first sentence of this Section 4.3, Merger Sub has not issued any capital
stock or any options, warrants or other rights to acquire capital stock (or
securities convertible into or exercisable or exchangeable for capital stock).
Except for this Agreement, there are no options, warrants or other rights to
acquire capital stock or other equity or voting interests in Merger Sub or
securities convertible into or exercisable or exchangeable for capital stock or
other equity or voting interests in Merger Sub. Except for this Agreement, no
Person has any right to acquire any interest in the business or assets of Merger
Sub (including any rights of first refusal or similar right).
SECTION 4.4 COMPLIANCE WITH OTHER INSTRUMENTS
Except as set forth on SCHEDULE 4.4, neither the Purchaser nor
Merger Sub will, and neither will by virtue of entering into, delivering, and
performing this Agreement and the other agreements delivered pursuant hereto,
and consummating the transactions contemplated hereunder and thereunder be (with
or without the passage of time or giving of notice), in violation or default (i)
of any provision of its certificate of incorporation or bylaws or any judgment,
decree, order, or writ applicable to the Company, or (ii) of any instrument,
mortgage, indenture, agreement or contract to which it is a party or by which it
is bound or (iii) to its Knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company, except in the case of
(ii) and (iii) above for any violation or default that is not and will not,
either individually or in the aggregate, have a material adverse effect on the
Purchaser's or Merger Sub's ability to consummate the transactions contemplated
by this Agreement.
-20-
SECTION 4.5 LITIGATION
Except as set forth on SCHEDULE 4.5, there is no action, suit,
claim, proceeding or investigation pending or, to the knowledge of the Purchaser
or Merger Sub, threatened against the Purchaser or Merger Sub that would
prohibit the consummation of the transactions set forth in this Agreement.
SECTION 4.6 MERGER CONSIDERATION IN ESCROW
As of the date hereof, funds representing the full amount of the
Merger Consideration have been deposited into a cash exchange account and an
escrow account under the control of the Purchaser.
SECTION 4.7 RESTRAINT
Purchaser is not aware of any facts or circumstances that would
cause any Governmental Authority or any third party to bring a suit, action or
proceeding seeking a Restraint.
ARTICLE V
COVENANTS
SECTION 5.1 EMPLOYEE BENEFITS
(a) For a period of three (3) months following the Effective Time,
the Purchaser shall provide, or shall require the Surviving Corporation to
provide, active employees of the Surviving Corporation with employee benefits
that are, in the aggregate, substantially similar to those provided by the
Purchaser to its similarly situated employees as of the Effective Time
(excluding any equity based compensation).
(b) With respect to any employee benefit plans of the Purchaser in
which the employees of the Surviving Corporation participate subsequent to the
Effective Time, the Purchaser shall, or shall cause the Surviving Corporation to
(i) waive all limitations as to pre-existing condition exclusions applicable to
such employees to the same extent such exclusions would have been waived or
would not have been excluded from coverage under the Benefit Plans in which such
employees were participating immediately prior to the Effective Time, (ii)
credit all deductibles and under any of the Company's health plans,
during the applicable year that includes the Effective Time, towards the
deductibles and co-pays under the health plans of the Surviving Corporation, and
(iii) recognize all service of the employees of the Company for purposes of
eligibility to participate, vesting and benefit accrual under any employee
benefit plan, and any vacation, sick, holiday and other paid leave policy of the
Purchaser in which such employees may become eligible to participate after the
Effective Time, in each case to the same extent taken into account under the
Benefit Plans in which such employees participated immediately prior to the
Effective Time. The Purchaser shall, or shall cause the Surviving Corporation
to, take any action necessary to permit, as soon as administratively possible,
employees of the Surviving Corporation to make deferrals of
-21-
compensation earned during all pay periods commencing on or after the Effective
Time under a "qualified cash or deferred arrangement" within the meaning of
Section 401(k) of the Code.
(c) The Purchaser shall cause a defined contribution plan that is
intended to satisfy the requirements of Section 401(a) of the Code, and of which
the Purchaser (or a person or entity that together with the Purchaser would be
treated as a single employer under Code Section 414(b) or (c)) is the plan
sponsor, to accept a rollover (whether direct or indirect) of any "eligible
rollover distribution" (within the meaning of Section 402(c) of the Code) from
the MediaDefender, Inc. Retirement Plan, all in accordance with the requirements
of Section 401(a)(31) of the Code and the regulations promulgated thereunder. To
the extent necessary or desirable to implement the rollovers described in the
previous sentence, the Purchaser shall cause such recipient defined contribution
plan to be timely amended and shall cause the established administrative
practices and procedures of such plan to be promptly revised and duly followed.
(d) Nothing in this Agreement shall confer upon any Person any right
to continued employment with the Purchaser or the Surviving Corporation, nor
shall anything herein interfere with the right of the Purchaser or the Surviving
Corporation to terminate the employment or services of any Person at any time
following the Effective Date, with or without cause, or to restrict any of the
Purchaser, the Surviving Corporation or any of their Affiliates in modifying any
of the terms and conditions of the employment or service relationship of any
Person following the Effective Date. Except as set forth in Section 5.2, nothing
in this Agreement, express or implied, shall confer upon any Employee (or any of
their respective beneficiaries or alternate payees) any rights or remedies under
or by reason of this Agreement.
SECTION 5.2 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE
(a) The Purchaser and the Surviving Corporation shall indemnify and
hold harmless all present directors, officers and employees (in all of their
capacities) of the Company (such Persons, the "Indemnified Parties") to the same
extent such Persons are indemnified as of the date hereof by the Company
pursuant to the Company's certificate of incorporation and bylaws as in
existence on the date hereof to the extent permitted by law.
(b) The Purchaser and the Surviving Corporation shall maintain for a
period of at least six (6) years after the Effective Time coverage under the
Company's directors' and officers' liability insurance policies as in effect on
the date hereof for acts or omissions occurring prior to the Effective Time
("D&O Insurance"), which shall be substantially similar to the insurance
policies provided by the Purchaser to its existing officers and directors as of
the Effective Time; provided that (A) the Purchaser may substitute therefor
policies with a reputable insurer of comparable credit quality of substantially
similar coverage and amounts containing terms no less advantageous in the
aggregate to the Indemnified Parties, (B) if the existing D&O Insurance expires
or is canceled during such period, the Purchaser and the Surviving Corporation
will use their commercially reasonable efforts to obtain substantially similar
D&O Insurance from a reputable insurer of comparable credit quality, and (C) in
no event shall the Purchaser or the Surviving Corporation be required to expend
more than $15,750 in the aggregate to maintain or procure D&O Insurance pursuant
to this Section 5.2.
-22-
(c) The provisions of this Section 5.2 shall survive consummation of
the Merger and expressly are intended to benefit each of the Indemnified
Parties. The rights of each Indemnified Party hereunder shall be in addition to,
and not in limitation of, any other rights such Indemnified Party may have under
any other indemnification arrangement.
(d) In the event the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity in
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then and in either case, proper provision
shall be made so that the successors and assigns of the Surviving Corporation
shall assume the obligations in this Section 5.2.
SECTION 5.3 PUBLIC STATEMENT AND PRESS RELEASES
Each of the Parties agrees that it shall not, without the prior
written consent of the other Parties, make any press release or other public
statement concerning this Agreement or the transactions contemplated hereby;
provided, however, that (i) the Purchaser shall prepare a press release
regarding the execution of this Agreement and the transactions contemplated
hereby (the content of which shall be subject to approval by the Stockholder's
Representative, which shall not be unreasonably withheld), which shall be issued
within two (2) Business Days of the date hereof, (ii) nothing in this Section
5.3 shall be deemed to prohibit any party hereto from making any disclosure
which is consistent in all material respects with the press releases issued
pursuant to clause (i) or (iii) nothing in this Section 5.3 shall be deemed to
prohibit any Party from making any disclosure which its counsel deems necessary
in order to fulfill such Party's disclosure obligations imposed by law, legal
process or the rules of any national securities exchange or automated quotation
system, so long as the disclosing Party informs the other Party of its
determination prior to such disclosure and considers in good faith the other
Party's comments with respect to such disclosure.
SECTION 5.4 PAYMENT OF TRANSFER TAXES AND OTHER CHARGES
The Purchaser shall be responsible for and shall pay all stock
transfer Taxes, sales Taxes, documentary stamp Taxes, recording charges and
other similar Taxes, if any, arising in connection with the transactions
contemplated by this Agreement. Each of the Parties shall prepare and file, and
shall fully cooperate with each other party with respect to the preparation and
filing of, any Tax Returns and other filings relating to any such Taxes or
charges as may be required.
SECTION 5.5 FURTHER ASSURANCES
Each Party, upon the request from time to time of any other Party
after the Closing, and at the expense of the requesting Party but without
further consideration, will do each and every act and thing as may be necessary
or reasonably requested to consummate the transactions contemplated hereby in an
orderly fashion.
-23-
SECTION 5.6 CERTAIN TAX MATTERS
(a) Tax Returns. Subject to the approval of the Stockholders'
Representative, all Tax Returns for Company that are to be filed after the
Closing Date and include a period, or part of a period that began before Closing
(each a "Final Tax Return"), will be prepared and timely filed by the Company.
All Final Tax Returns shall be prepared in a manner consistent with prior Tax
Returns and shall be delivered to the Stockholders' Representative no later than
forty-five (45) days before the due date for the filing of the Final Tax Return
(taking into account properly acquired extensions of time to file) for its
reasonable review and approval. Purchaser will, and will cause the Company to,
cooperate fully with Stockholders' Representative and its representatives, on
its review of the Final Tax Return. The Stockholders' Representative shall be
deemed to have approved to the Final Tax Return unless it delivers a written
notice of disagreement to Purchaser within fifteen (15) days of receipt of the
Final Tax Return (the "Disagreement Notice"). If the Stockholders'
Representative delivers the Disagreement Notice, the parties will negotiate in
good faith to resolve the issue. If they have not reached agreement within ten
(10) days after the receipt by Buyer of the Disagreement Notice, the open issues
shall be resolved by a qualified accounting firm mutually selected by the
parties. The accounting firm will accept the Stockholders' Representative's
position so long as the accounting firm believes such position is more likely
than not the correct position.
(b) Contest Provisions. Promptly after receipt by Purchaser or one
of its Affiliates of written notice of the assertion or commencement of any
claim, audit, examination or other proposed change or adjustment by any Tax
authority relating to Taxes of the Company with respect to a Pre-Closing Tax
Period (a "Tax Claim"), the recipient shall promptly notify the Stockholders'
Representative. Such notice shall contain factual information (to the extent
known) describing the asserted Tax Claim in reasonable detail and shall include
copies of any notice or other document received from any taxing authority in
respect of any such asserted Tax Claim. The Stockholders' Representative shall
have the right to represent and control the Company's interests in any Tax audit
or administrative or court proceeding relating to Pre-Closing Tax Periods as to
any issues that could materially affect the Company Stockholders' liability for
Taxes or indemnification obligations, and to employ counsel of the Stockholders'
Representative's choice at its expense; provided, however, that Purchaser and
its representatives shall be permitted, at their expense, to be present at any
such audit or proceeding.
(c) Amended Tax Returns. Purchaser shall not, and shall not permit
the Company to, file an amended Tax Return for a period that actually ends
before Closing without the prior written consent of the Stockholders'
Representative, which consent will not be unreasonably withheld.
(d) Tax Refunds. Any refund of Taxes of the Company for any
Pre-Closing Tax Period actually received prior to June 30, 2006 shall first be
applied to offset any claims for unpaid Taxes or under-accrual for Taxes payable
by the Company (which for purposes of this Section 5.6(d) only shall include
claims for indemnification in accordance with Article IX hereof), and any
remaining amount of any such refund shall be deposited into the Escrow Fund for
prompt distribution to the Company Stockholders.
-24-
(e) Assistance And Cooperation. After the Closing Date, each of the
Company Stockholders, the Stockholders' Representative and Purchaser shall (and
cause their respective Affiliates to):
(i) timely sign and deliver such certificates or forms
as may be necessary or appropriate to establish an exemption from
(or otherwise reduce), or file Tax Returns or other reports with
respect to sales, transfer and similar Taxes;
(ii) assist the other party in preparing any Tax Returns
which such other party is responsible for preparing and filing in
accordance with Section 5.6(c);
(iii) cooperate fully in preparing for any audits of, or
disputes with taxing authorities regarding, any Tax Returns of the
Company; and
(iv) make available to the other and to any taxing
authority as reasonably requested all information, records, and
documents relating to Taxes of the Company.
SECTION 5.7 EMPLOYEE INNOVATIONS AND PROPRIETARY RIGHTS ASSIGNMENT
AGREEMENT
The Company agrees to use its best efforts to cause each of its
employees to execute and deliver an Employee Innovations and Proprietary Rights
Assignment Agreement, in the form attached hereto as Exhibit F, as soon as
reasonably practicable after the Closing.
SECTION 5.8 ACKNOWLEDGEMENTS
The Company agrees to cause each holder of Company Options to
execute and deliver an acknowledgement releasing the Purchaser, Merger Sub and
the Company from liability with respect to matters set forth in Section 2.9(c)
herein as soon as reasonably practicable after the Closing.
ARTICLE VI
CONDITIONS TO EACH PARTY'S OBLIGATIONS
The respective obligations of each Party to this Agreement to effect
the Merger and complete the other transactions provided for herein are subject
to the fulfillment (or waiver, in writing, by the applicable Parties) at or
prior to the Effective Time of the following conditions (provided that a Party
may not rely on the failure of any condition to be satisfied if such failure was
caused by such Party's failure to use commercially reasonable efforts to
consummate the Merger and the other transactions contemplated by this
Agreement):
SECTION 6.1 COMPANY STOCKHOLDERS' APPROVAL
The consent to the Merger and this Agreement by the holders of a
majority of the outstanding shares of the Company Common Stock entitled to vote
thereon shall have been
-25-
obtained in accordance with applicable legal requirements, the certificate of
incorporation and bylaws of the Company and the provisions of this Agreement.
SECTION 6.2 LEGAL PROHIBITION
No Legal Prohibition shall have been enacted and be in effect;
provided, however, that each of the Parties shall use their commercially
reasonable efforts to prevent any such Legal Prohibition and to cause any such
Legal Prohibition to be vacated or otherwise rendered of no effect, and to take
such other actions as are consistent therewith to the extent necessary to remove
the Legal Prohibition.
SECTION 6.3 RECEIPT OF GOVERNMENT CONSENTS
All consents, approvals, authorizations, qualifications and orders
of any Governmental Authority set forth on SCHEDULE 6.3 shall have been obtained
and evidence thereof, in form reasonably satisfactory to the Parties, shall have
been delivered to the Parties and shall be in full force and effect as of the
Closing.
ARTICLE VII
CONDITIONS OF THE PURCHASER'S AND MERGER SUB'S OBLIGATIONS
The obligations of the Purchaser and Merger Sub to effect the Merger
and complete the other transactions provided for in this Agreement are subject
to the fulfillment (or express written waiver by the Purchaser or Merger Sub) at
or prior to the Effective Time of the following conditions:
SECTION 7.1 RECEIPT OF THIRD PARTY CONSENTS
All consents, approvals and authorizations listed on SCHEDULE 7.1
shall have been obtained and evidence thereof, in form reasonably satisfactory
to the Purchaser, shall have been delivered to the Purchaser and shall be in
full force and effect as of the Closing.
SECTION 7.2 PERFORMANCE BY COMPANY
The Company shall have performed in all material respects all
of its agreements and covenants contained in this Agreement required to be
performed by it at or prior to the Effective Time.
SECTION 7.3 TRUTH OF REPRESENTATIONS AND WARRANTIES
Each of the representations and warranties of the Company contained
in this Agreement (i) if specifically qualified by materiality, shall be true
and complete as so qualified and (ii) if not qualified by materiality, shall be
true and complete in all material respects, in each such case on and as of the
date hereof and as of the Closing Date, with the same effect as if then made
(except where any such representation or warranty is as of a specific earlier
date, in which event it shall remain true and complete (as qualified) as of such
earlier date).
-26-
SECTION 7.4 EMPLOYMENT AGREEMENTS
Each of Xxxxx Xxxx and Xxxxxxx Xxxxxxx shall have executed and
delivered an Employment Agreement with the Purchaser, in the forms attached
hereto as Exhibit B and Exhibit C, respectively.
SECTION 7.5 NON-COMPETITION AGREEMENTS
Each of Xxxxx Xxxx, Xxxxxxx Xxxxxxx, Xxxxxx Xxxxxxxxx, Xxx Xxxxx and
OnSystems, Inc. shall have executed and delivered a Non-Competition Agreement,
in the form attached hereto as Exhibit E.
SECTION 7.6 LEGAL OPINION
The Company shall have delivered an opinion of counsel, dated as of
the Closing Date and addressed to Purchaser, in the form attached hereto as
Exhibit G.
SECTION 7.7 COMPANY'S CLOSING CERTIFICATE
The Company shall have delivered to the Purchaser at Closing an
officer's certificate of the Company, solely in such capacity on the behalf of
the Company, certifying (i) as to the incumbency and signatures of the officers
of the Company who executed this Agreement, (ii) as to the adoption of
resolutions of the board of directors of the Company being correct, complete and
in full force and effect on the Closing Date (though not necessarily dated as of
the Closing Date), authorizing (A) the execution and delivery of this Agreement,
and (B) the performance of the obligations of the Company hereunder, (iii) as to
the Company's bylaws and all amendments thereto as being correct, complete and
in full force and effect on the Closing Date, (iv) that the conditions to the
Purchaser's obligations to consummate the transactions contemplated by this
Agreement set forth in Sections 7.2, and 7.3 have been satisfied.
SECTION 7.8 RESTRAINT
There is no pending Action by any Governmental Authority challenging
the consummation of the Merger or otherwise seeking to impose material
limitations on the ability of Purchaser to hold full rights of ownership of any
securities of the Company, seeking to impose material limitations on the ability
of Purchaser to effectively control and operate the Business and assets of the
Company, seeking to obtain damages arising out of the Merger or seeking to
compel Purchaser to divest or hold separate any significant portion of the
Business, assets or property of the Company (a "Restraint"); provided, however,
that Purchaser and the Company shall each use its commercially reasonable
efforts to prevent any such Restraint and to cause any such Restraint to be
vacated or otherwise rendered of no effect, and to take such other actions as
are consistent therewith to the extent necessary to remove the Restraint.
SECTION 7.9 FIRPTA CERTIFICATE
The Company shall have delivered to Purchaser a certificate, duly
executed and acknowledged, certifying any facts that would exempt the
transactions contemplated hereby from
-27-
withholding under section 1445 of the Code and the Treasury Regulations
promulgated thereunder.
SECTION 7.10 401(k) PLAN
At Closing, the Company will terminate its 401(k) Plan.
SECTION 7.11 GOOD STANDING
The Company shall have delivered a certificate of good standing with
respect to the Company issued by the Secretary of State of the State of Delaware
and the State of California, respectively, showing that it is in good standing
in such jurisdictions dated within two (2) Business Days of the Closing Date.
SECTION 7.12 SERVICE PROVIDERS
The Company shall have delivered definitive proof to the Purchaser
that all professional fees and expenses (including, without limitation, legal,
financial, investment banking and accounting fees) incurred by the Company in
connection with the transactions contemplated herein, have been paid in full and
shall have delivered a waiver and release of all claims from all investment
banking firms retained in connection with the transactions contemplated herein.
ARTICLE VIII
CONDITIONS OF COMPANY'S OBLIGATIONS
The obligations of the Company to effect the Merger and complete the
other transactions provided for in this Agreement are subject to the fulfillment
(or waiver by the Company) at or prior to the Effective Time of the following
conditions:
SECTION 8.1 PERFORMANCE BY THE PURCHASER AND MERGER SUB
The Purchaser and Merger Sub shall have performed in all material
respects all of their respective agreements and covenants contained in this
Agreement required to be performed by such Party at or prior to the Effective
Time.
SECTION 8.2 TRUTH OF REPRESENTATIONS AND WARRANTIES
Each of the representations and warranties of the Purchaser and
Merger Sub contained in this Agreement (i) if specifically qualified by
materiality, shall be true and complete as so qualified and (ii) if not
qualified by materiality, shall be true and complete in all material respects,
in each such case on and as of the date hereof and as of the Closing Date, with
the same effect as if then made (except where any such representation or
warranty is as of a specific earlier date, in which event it shall remain true
and correct (as qualified) as of such earlier date), except with respect to both
clauses (i) and (ii) for any failure to be so true (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth therein)
that has not had and would not reasonably be expected to have, individually or
in the aggregate, a material
-28-
adverse effect on the Purchaser's or the Merger Sub's ability to consummate the
transactions contemplated by this Agreement.
SECTION 8.3 EMPLOYMENT AGREEMENTS
The Purchaser shall have executed and delivered an Employment
Agreement with each of Xxxxx Xxxx and Xxxxxxx Xxxxxxx, in the forms attached
hereto as Exhibit B and Exhibit C, respectively.
SECTION 8.4 LEGAL OPINION
The Purchaser shall have delivered an opinion of counsel, dated as
of the Closing Date and addressed to the Company, substantially in the form set
forth as Exhibit H attached hereto, with respect to (i) the due authorization,
execution, delivery and enforceability of this Agreement as to the Purchaser and
Merger Sub, and (ii) no conflicts between the obligations of the Purchaser and
Merger Sub under this Agreement and their respective certificates of
incorporation and bylaws.
SECTION 8.5 PURCHASER'S CLOSING CERTIFICATE
The Purchaser shall deliver to the Company at Closing an officer's
certificate of the Purchaser, solely in such capacity on the behalf of the
Purchaser, certifying (i) as to the incumbency and signatures of the officers of
the Purchaser and Merger Sub who execute this Agreement, (ii) as to the adoption
of resolutions of the board of directors of the Purchaser and Merger Sub being
correct, complete and in full force and effect on the Closing Date (though not
necessarily dated as of the Closing Date), authorizing (A) the execution and
delivery of this Agreement, and (B) the performance of the obligations of the
Purchaser and Merger Sub hereunder, (iii) as to the Purchaser's and Merger Sub's
bylaws and all amendments thereto being correct, complete and in full force and
effect on the Closing Date and (iv) that the conditions to the Company's
obligations to consummate the transactions contemplated by this Agreement set
forth in Sections 8.1 and 8.2 with respect to the Purchaser and Merger Sub have
been satisfied.
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) The representations and warranties of either party contained in
or made pursuant to this Agreement shall terminate, without further action, on
June 30, 2006; provided, however, that once a claim is made for indemnification
in accordance with the terms of this Article IX and the Escrow Agreement, such
time period shall not expire to such claim (the "Expiration Date").
(b) The indemnification contained in this Article IX shall survive
the Closing and shall remain in effect until the Expiration Date for any
Indemnifiable Losses. Unless a claim for indemnification with respect to any
alleged breach of any representation or warranty is asserted by notice given as
herein provided that specifically identifies a particular breach and the
-29-
underlying facts relating thereto, which notice is given within the applicable
period of survival for such representation or warranty, such claim may not be
pursued and is irrevocably waived after such time.
SECTION 9.2 INDEMNIFICATION
(a) Following the Closing and subject to the other sections of this
Article IX, the Company shall indemnify, defend and hold harmless the Purchaser
and their respective directors, officers and agents from and against all
Indemnifiable Losses relating to, resulting from or arising out of (i) any
breach of the representations and warranties made by the Company in Article III
of this Agreement, and (ii) a breach by the Company of any covenant of the
Company contained in this Agreement.
(b) Following the Closing and subject to the other sections of this
Article IX, the Purchaser shall indemnify, defend and hold harmless the Company
Stockholders and their respective directors, officers, agents and assigns from
and against all Indemnifiable Losses relating to, resulting from or arising out
of (i) any breach of the representations or warranties made by the Purchaser in
Article IV of this Agreement, and (ii) a breach by the Purchasers of any
covenant of the Purchaser contained in this Agreement.
(c) The Stockholders' Representative, on behalf of the Company,
shall be responsible for and shall take any and all actions on behalf of the
Company with respect to the Company's indemnification rights and obligations set
forth in this Article IX.
SECTION 9.3 LIMITATIONS ON LIABILITY
(a) Notwithstanding anything to the contrary contained in this
Agreement, (i) no claim for indemnification may be asserted under Section
9.2(a)(i) and (ii) with respect to any matter actually and consciously known to
the Purchaser's Chief Executive Officer or Chief Financial Officer on the
Closing Date as a result of written information provided by the Seller, and (ii)
no claim for indemnification may be asserted under Section 9.2(b) with respect
to any matter discovered by or known to the Company on or before the Closing
Date.
(b) As between the Company, on the one hand, and the Purchaser and
Merger Sub, on the other hand, the remedies, rights and obligations set forth in
this Article IX shall be the exclusive remedies, rights and obligations with
respect to the liabilities and obligations referred to in Article IX and any
breach of the representations, warranties or covenants set forth in this
Agreement. Without limiting the foregoing, as a material inducement to entering
into this Agreement, to the fullest extent permitted by law, each of the parties
waives any claim or cause of action that it otherwise might assert, and any
breach of the representations, warranties or covenants set forth in this
Agreement, except for claims or causes of action brought under and subject to
the terms and conditions of this Article IX.
(c) Notwithstanding any other provisions of this Agreement or of any
applicable law, no Indemnitee shall be entitled to make a claim against an
Indemnifying Party under Sections 9.2(a) or 9.2(b) until the aggregate amount of
Indemnifiable Losses incurred by the Indemnitee for all occurrence(s) giving
rise to such Indemnifiable Losses exceeds $100,000.
-30-
(d) Notwithstanding any other provisions of this Agreement, the
indemnification obligations of the Company under Section 9.2 shall not exceed
the remaining Holdback Amount. The sole source of funds to satisfy any
indemnification obligations of the Company under this Agreement shall be the
Escrow Fund.
(e) The Company and the Purchaser shall reasonably cooperate with
each other with respect to resolving any claim or liability with respect to
which one party is obligated to indemnify the other party hereunder, including
by making commercially reasonable efforts to mitigate or resolve any such claim
or liability.
(f) On June 30, 2006, the Holdback Amount remaining in the Escrow
Fund (excluding any amounts held back for purposes of securing obligations which
are alleged to be due and owing at the end of such period) shall be released
from escrow and distributed to the Company Stockholders, all as set forth in the
Escrow Agreement.
SECTION 9.4 DEFENSE OF CLAIMS
(a) If any Indemnitee receives notice of the assertion of any claim
or of the commencement of any Action by any entity that is not a party to this
Agreement or an Affiliate of such a party (a "Third Party Claim") against such
Indemnitee, with respect to which an Indemnifying Party is obligated to provide
indemnification under this Agreement, the Indemnitee will give such Indemnifying
Party, and the Stockholders' Representative if applicable, reasonably prompt
written notice thereof; provided, however, that the failure of the Indemnitee to
notify the Indemnifying Party shall only relieve the Indemnifying Party from its
obligation to indemnify the Indemnitee pursuant to this Article IX to the extent
that the Indemnifying Party is materially prejudiced by such failure (whether as
a result of the forfeiture of substantive rights or defenses or otherwise). Upon
receipt of notification of a Third Party Claim, the Indemnifying Party shall be
entitled, upon written notice to the Indemnitee, to assume the investigation and
defense thereof with counsel reasonably satisfactory to the Indemnitee. Whether
or not the Indemnifying Party elects to assume the investigation and defense of
any Third Party Claim, the Indemnitee shall have the right to employ separate
counsel and to participate in the investigation and defense thereof; provided,
however, that the Indemnitee shall pay the fees and disbursements of such
separate counsel unless (i) the employment of such separate counsel has been
specifically authorized in writing by the Indemnifying Party, (ii) the
Indemnifying Party has failed to assume the defense of such Third Party Claim
within reasonable time after receipt of notice thereof with counsel reasonably
satisfactory to such Indemnitee, or (iii) the named parties to the proceeding in
which such Action has been asserted include both the Indemnifying Party and such
Indemnitee and, in the reasonable judgment of counsel to such Indemnitee, there
exists one or more defenses that may be available to the Indemnitee that are in
conflict with those available to the Indemnifying Party. Notwithstanding the
foregoing, the Indemnifying Party shall not be liable for the fees and
disbursements of more than one counsel for all Indemnitees in connection with
any one proceeding or any similar or related proceedings arising from the same
general allegations or circumstances. Without the prior written consent of the
Indemnitee, the Indemnifying Party will not enter into any settlement of any
Third Party Claim that would lead to liability or create any financial or other
obligation on the part of the Indemnitee unless such settlement includes as an
unconditional term thereof the complete and general release of the Indemnitee
from all liability in respect of such Third Party Claim. If a settlement offer
solely for
-31-
money damages is made by the applicable third party claimant, and the
Indemnifying Party notifies the Indemnitee in writing of the Indemnifying
Party's willingness to accept the settlement offer and pay the amount called for
by such offer without reservation of any rights or defenses against the
Indemnitee, the Indemnitee may continue to contest such claim, free of any
participation by the Indemnifying Party, and the amount of any ultimate
liability with respect to such Third Party Claim that the Indemnifying Party has
an obligation to pay hereunder shall be limited to the lesser of (i) the amount
of the settlement offer that the Indemnitee declined to accept plus the Losses
of the Indemnitee relating to such Third Party Claim through the date of its
rejection of the settlement offer or (ii) the aggregate Losses of the Indemnitee
with respect to such claim.
(b) Any claim by an Indemnitee on account of an Indemnifiable Loss
that does not result from a Third Party Claim (a "Direct Claim") will be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, but in any event not later than thirty (30) calendar days after the
incurrence thereof, and the Indemnifying Party will have a period of thirty (30)
calendar days within which to respond in writing to such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such claim, in
which event the Indemnitee will be free to pursue such remedies as may be
available to the Indemnitee on the terms and subject to the provisions of this
Article IX.
If after the making of any Indemnification Payment the amount of the
Indemnifiable Loss to which such payment relates is reduced by an actual
recovery under any insurance coverage, or pursuant to any claim, recovery,
settlement or payment by or against any other entity, the amount of such
reduction (less any costs, expenses, premiums or taxes incurred in connection
therewith) will promptly be repaid by the Indemnitee to the Indemnifying Party.
Any indemnification payment made pursuant to this Agreement shall be net of any
Tax benefit. Upon making any Indemnification Payment, the Indemnifying Party
will, to the extent of such Indemnification Payment, be subrogated to all rights
of the Indemnitee against any third party that is not an Affiliate of the
Indemnitee in respect of the Indemnifiable Loss to which the Indemnification
Payment relates; provided that (i) the Indemnifying Party shall then be in
compliance with its obligations under this Agreement in respect of such
Indemnifiable Loss, and (ii) until the Indemnitee recovers full payment of its
Indemnifiable Loss, all claims of the Indemnifying Party against any such third
party on account of said Indemnification Payment will be subrogated and
subordinated in right of payment to the Indemnitee's rights against such third
party. Without limiting the generality or effect of any other provision of this
Article IX, each such Indemnitee and Indemnifying Party will duly execute upon
request all instruments reasonably necessary to evidence and perfect the
above-described subrogation and subordination rights.
SECTION 9.5 PURCHASE PRICE ADJUSTMENT
The Parties shall treat any payment made under this Article IX as an
adjustment to the purchase price unless otherwise required by applicable law.
-32-
ARTICLE X
MISCELLANEOUS
SECTION 10.1 AMENDMENTS, WAIVERS
Subject to applicable law, this Agreement may only be amended
pursuant to a written agreement executed by all the Parties, and no waiver of
compliance with any provision or condition of this Agreement and no consent
provided for in this Agreement shall be effective unless evidenced by a written
instrument executed by each Party against whom such waiver or consent is to be
effective. No waiver of any term or provision of this Agreement shall be
construed as a further or continuing waiver of such term or provision or any
other term or provision.
SECTION 10.2 ENTIRE AGREEMENT
This Agreement and the Schedules to this Agreement constitute the
entire agreement of all the Parties and supersedes any and all prior and
contemporaneous agreements, memoranda, arrangements and understandings, both
written and oral, between the Parties, or either of them, with respect to the
subject matter hereof. No representation, warranty, promise, inducement or
statement of intention has been made by any Party which is not contained in this
Agreement or Schedules to this Agreement and no Party shall be bound by, or be
liable for, any alleged representation, promise, inducement or statement of
intention not contained herein or therein. All Schedules to this Agreement are
expressly made a part of, and incorporated by reference into, this Agreement.
SECTION 10.3 BINDING EFFECT; ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the Parties and their respective successors and permitted
assigns. No Party to this Agreement may assign its rights or delegate its
obligations under this Agreement, whether by operation of law or otherwise, to
any other Person without the express prior written consent of the other Parties
hereto.
SECTION 10.4 HEADINGS
The Article, Section and paragraph headings and the table of
contents contained in this Agreement are for reference purposes only and do not
form a part of this Agreement and do not in any way modify, interpret or
construe the intentions of the Parties.
SECTION 10.5 NOTICES
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given to a
Party if delivered in person or sent by overnight delivery (providing proof of
delivery) to the Parties at the following addresses (or at such other address
for a Party as shall be specified by like notice) on the date of delivery, or if
by facsimile, upon confirmation of receipt:
-33-
If to the Purchaser or Merger Sub c/o ARTISTdirect, Inc.
00000 Xxxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy (which shall not Sheppard, Mullin, Xxxxxxx & Xxxxxxx, LLP
constitute notice) to: 000 Xxxxx Xxxx Xxxxxx, 00xx xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Company: MediaDefender, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxxx Xxx Xxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy (which shall not
constitute notice) to: O'Melveny & Xxxxx LLP
000 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
SECTION 10.6 GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of California, without giving effect to
the conflicts of law provisions thereof. Each of the Parties hereto irrevocably
and unconditionally agrees to be subject to, and hereby consents and submits to,
the jurisdiction of federal and state courts in the County of Los Angeles in the
State of California for the purposes of any Action arising out of this Agreement
or any of the transactions contemplated hereby.
SECTION 10.7 SEVERABILITY
If any provision or any part of any provision of this Agreement
shall be void or unenforceable for any reason whatsoever, then such provision
shall be stricken and of no force and effect. However, unless such stricken
provision goes to the essence of the consideration bargained for by a Party, the
remaining provisions of this Agreement shall continue in full force
-34-
and effect and, to the extent required, shall be modified to preserve their
validity. Upon such determination that any term or other provision or any part
of any provision is void or unenforceable, the Parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
Parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
SECTION 10.8 NO THIRD PARTY RIGHTS
Other than Section 5.2, which is intended to benefit the Indemnified
Parties, and Article IX, which is intended to benefit the Indemnitees, nothing
in this Agreement, whether express or implied, is intended to or shall confer
any rights, benefits or remedies under or by reason of this Agreement on any
Persons other than the Parties and their respective successors and permitted
assigns, except to the extent necessary to enforce the provisions of Section 5.2
or Article IX, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third Persons to any Party, nor
shall any provisions give any third Persons any right or subrogation over or
action against any Party.
SECTION 10.9 FEES AND EXPENSES
All fees and expenses incurred by the Company in connection with
this Agreement, the Merger and the transactions contemplated herein shall be
accrued and reflected in the Company's financial statements for pre-Closing
periods. The Company shall obtain a statement from each of its professional
advisors that all fees and expenses due to them shall have been invoiced prior
to the Closing and the Company shall not pay any fees or expenses that are
invoiced after the Closing. The Purchaser shall be responsible for paying the
fees and expenses incurred by the Purchaser in connection with this Agreement,
the Merger and the transactions contemplated herein. Neither the Company nor the
Purchaser shall be responsible for any fees or expenses incurred by any of the
Company's stockholders or employees in connection with the transactions
contemplated herein.
SECTION 10.10 COUNTERPARTS
This Agreement may be executed in any number of counterparts
(including by facsimile transmission), each of which shall be deemed to be an
original, but all of which together shall constitute one binding agreement on
the Parties, notwithstanding that not all Parties are signatories to the same
counterpart.
SECTION 10.11 SPECIFIC PERFORMANCE
The Parties agree that irreparable damage would occur in the event
any of the provisions of this Agreement were not performed in accordance with
the terms hereof and that the Parties are entitled to specific performance of
the terms hereof in addition to any other remedies at law or in equity.
SECTION 10.12 WAIVER OF JURY TRIAL
Each Party waives any right to a trial by jury in any Action to
enforce or defend any right under this Agreement or any amendment, instrument,
document or agreement
-35-
delivered, or which in the future may be delivered, in connection with this
Agreement and agrees that any Action shall be tried before a court and not
before a jury.
[SIGNATURES ON FOLLOWING PAGE.]
-36-
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first above written.
ARTISTDIRECT, INC.
By: /s/ Xxxxxx X. Xxxxxxxxxx
-------------------------------
Name: Xxxxxx X. Xxxxxxxxxx
Title: Chief Financial Officer
ARTISTDIRECT MERGER SUB, INC.
By: /s/ Xxxxxx X. Xxxxxxxxxx
-------------------------------
Name: Xxxxxx X. Xxxxxxxxxx
Title: Secretary
MEDIADEFENDER, INC.
By: /s/ Xxxxxxx Xxxxxxx
-------------------------------
Name: Xxxxxxx Xxxxxxx
Title: Chief Financial Officer,
Secretary, Treasurer
Agreement and Plan of Merger
ANNEX A
DEFINITIONS
"Action" means any action, complaint, petition, investigation, suit or
other proceeding, whether administrative, civil or criminal, in law or in
equity, or before any arbitrator or Governmental Authority.
"Affiliate" means, with respect to any specified Person, any other Person
that, directly or indirectly, controls, is controlled by or is under common
control with, such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" is defined in the first paragraph of this Agreement.
"Benefit Plan" is defined in Section 3.12.
"Business" shall mean the Company's operations relating to anti-piracy
solutions in the Internet piracy prevention industry.
"Business Day" means any day other than a Saturday or Sunday or a day on
which national banking institutions in the City of Los Angeles, California are
authorized or obligated by law or executive order to be closed.
"Certificate of Merger" is defined in Section 2.2.
"Closing" is defined in Section 2.10.
"Closing Date" is defined in Section 2.10.
"Code" means the Internal Revenue Code of 1986, as amended, and as the
context requires, the Treasury regulations promulgated thereunder.
"Company" is defined in the first paragraph of this Agreement.
"Company Certificate" means each certificate representing shares of
Company Common Stock.
"Company Common Stock" means the common stock, par value $0.0001 per
share, of the Company.
"Company Option" is defined in Section 2.6(b).
"Company Stockholders" means the holders of Company Common Stock and the
holders of Company Options who are entitled to receive a proportionate share of
the Merger Consideration hereunder.
A-2
"DGCL" means the Delaware General Corporation Law.
"Dissenting Shares" is defined in Section 2.7.
"D&O Insurance" is defined in Section 5.2(b).
"Effective Date" is defined in Section 2.2.
"Effective Time" is defined in Section 2.2.
"Employee" means any present or former director, officer or employee of
the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Agent" is defined in Section 2.8(a).
"Exchange Fund" is defined in Section 2.8(b).
"Fractional Interest in the Escrow Fund" shall mean, with respect to each
holder of Company Common Stock or Company Options, the quotient of (i) the total
number of issued and outstanding shares of Company Common Stock owned by such
Person (and/or Company Common Stock issuable to a holder pursuant to Company
Options), as of the Effective Time divided by (ii) the aggregate number of
shares of Company Common Stock outstanding as of such date, including all shares
of Company Common Stock issuable pursuant to the Company Options, multiplied by
the any Holdback Amount that is released from the Escrow Fund.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States as set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board.
"Governmental Authority" means any federal, state or local government or
any agency, authority, subdivision or instrumentality of any of the foregoing,
including any court, tribunal, department, bureau, commission or board, or any
quasi-governmental or private body exercising any regulatory, taxing, inspecting
or other governmental authority.
"Indemnifiable Losses" means any losses, costs, damages, liabilities or
expenses for or against which any Party is entitled to indemnification under
this Agreement.
"Indemnified Parties" is defined in Section 5.2(a).
"Indemnifying Party" means any Person obligated under Section 9.2 to
indemnify an Indemnitee against any Indemnifiable Losses.
"Indemnitees" means a Person identified in Section 9.2 as entitled to
indemnification for any Indemnifiable Losses.
"Intellectual Property Right" means all intellectual property rights and
assets, including all patents, patent applications, patent rights, trademarks,
trademark applications, trade names,
A-3
trade dress, service marks, service xxxx applications, domain names, copyrights,
copyright applications, computer programs and other computer software
(including, without limitation, all source and object code, algorithms,
architecture, structure, display screens, layouts and development tools),
inventions, designs, samples, specifications, schematics, know-how, trade
secrets, proprietary processes and formulae, and development tools, promotional
materials, databases, customer lists, supplier, vendor and dealer lists and
marketing research, and all documentation and media constituting, describing or
relating to the foregoing, including without limitation, manuals, memoranda and
records.
"Joinder Agreement" means that certain Joinder Agreement, dated as of May
16, 2005, among Xxxxx Xxxx, Xxxxxxx Xxxxxxx, Xxxxxx Xxxxxxxxx, Xxx Xxxxx,
OnSystems, Inc. and Purchaser.
"Knowledge" means the actual knowledge of Xxxxx Xxxx, Xxxxxxx Xxxxxxx,
Xxxxxx Xxxxxxxxx or Xxx Xxxxx, after reasonable inquiry of those managerial
employees of the Company whom such Persons reasonably believe would have
knowledge of the matters presented.
"Legal Prohibition" means any statute, rule, regulation, executive order,
decree, judgment, injunction or other order (whether temporary, preliminary or
permanent) enacted, issued, promulgated, enforced or entered by any Governmental
Authority (including any federal or state court of competent jurisdiction), in
any case that is in effect and that prevents or prohibits consummation of the
Merger or any of the other material transactions contemplated in this Agreement.
"Material Adverse Effect" means a material adverse effect on the business,
properties, assets, results of operations, or condition (financial or otherwise)
of the Company, taken as a whole, other than effects relating to or arising from
(i) the announcement, execution or performance of this Agreement or any
agreements delivered pursuant hereto; (ii) general economic conditions in the
United States or other regions where the Company does business; or (iii) events
or circumstances that affect generally the industry in which the Company
participates.
"Material Contracts" is defined in Section 3.9(b).
"Merger" is defined in the Recitals to this Agreement.
"Merger Consideration" is defined in Section 2.4.
"Merger Sub" is defined in the first paragraph of this Agreement.
"Parties" is defined in the first paragraph of this Agreement.
"Person" means a natural person, corporation, partnership, limited
partnership, limited liability company, trust or unincorporated organization or
similar entity, or a Governmental Authority.
"Pre-Closing Tax Period" means a taxable period ending on or prior to the
Closing Date.
A-4
"Purchaser" is defined in the first paragraph of this Agreement.
"Restraint" is defined in Section 7.8.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, together
with the rules and regulations of the SEC promulgated thereunder.
"Security Interest" means any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, conditional sales
agreement, encumbrance or other right of third parties, whether voluntarily
incurred or arising by operation of law.
"Stockholders' Agreement" means those certain Stockholders' Agreements
dated as of 2001 and 2002, among the Company and the Company Stockholders who
have executed a counterpart signature page to either such Stockholders'
Agreement.
"Stockholders' Representative" is defined in Section 2.8.
"Surviving Corporation" is defined in Section 2.1.
"Tax" or "Taxes" means any (i) federal, state, local or foreign income,
gross receipts, franchise, estimated, alternative minimum, add-on minimum,
personal holding company, accumulated earnings, sales, use, transfer, real
property gains, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs, duties,
real property, personal property, capital stock, social security, unemployment,
disability, payroll, license, employee or other withholding, or other tax, of
any kind whatsoever, and (ii) interest, penalties, fines, or additions to tax or
additional amounts with respect to any item described in clause (i).
"Tax Return" means any return, report, information return or other
document (including any related or supporting information, any schedule or
attachment thereto, and any amendment thereof) filed or required to be filed
with any federal, foreign, state or local taxing authority in connection with
the determination, assessment, collection, administration or imposition of any
Taxes.
A-5
