EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
REALNETWORKS, INC.,
SYMPHONY ACQUISITION CORP. I,
SYMPHONY ACQUISITON CORP. II,
XXXXXX.XXX, INC.,
AND WITH RESPECT TO ARTICLE VII AND
ARTICLE IX ONLY
MELLON INVESTOR SERVICES LLC, AS ESCROW AGENT
AND
XXXXXX XXXX, AS THE
SHAREHOLDER REPRESENTATIVE
DATED AS OF APRIL 21, 2003
TABLE OF CONTENTS
PAGE
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Article I THE MERGER................................................................................... 2
1.1 Definitions............................................................... 2
1.2 The Mergers............................................................... 15
1.3 Effective Time; Closing................................................... 15
1.4 Effect of the Mergers..................................................... 16
1.5 Articles of Incorporation; Bylaws......................................... 16
1.6 Directors and Officers.................................................... 16
1.7 Effect on Capital Stock................................................... 17
1.8 Earnout................................................................... 21
1.9 Dissenting Shares......................................................... 22
1.10 Surrender of Certificates................................................. 23
1.11 No Further Ownership Rights in Company Capital Stock...................... 25
1.12 Lost, Stolen or Destroyed Certificates.................................... 25
1.13 Tax-Free Reorganization................................................... 25
1.14 Taking of Necessary Action; Further Action................................ 26
Article II REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................... 26
2.1 Organization and Qualification; Subsidiaries.............................. 26
2.2 Articles of Incorporation and Bylaws...................................... 27
2.3 Capitalization............................................................ 27
2.4 Authority Relative to this Agreement...................................... 29
2.5 No Conflict; Required Filings and Consents................................ 29
2.6 Compliance; Permits....................................................... 30
2.7 Financial Statements...................................................... 30
2.8 No Undisclosed Liabilities; Total Assets and Total Liabilities............ 31
2.9 Absence of Certain Changes or Events...................................... 31
2.10 Absence of Litigation..................................................... 34
2.11 Employee Benefit Plans and Compensation................................... 34
2.12 Restrictions on Business Activities....................................... 38
2.13 Title to Property......................................................... 38
2.14 Taxes..................................................................... 39
2.15 Environmental Matters..................................................... 40
2.16 Brokers................................................................... 41
2.17 Intellectual Property..................................................... 41
2.18 Agreements, Contracts and Commitments..................................... 46
2.19 Insurance................................................................. 49
2.20 Certain Business Relationships with the Company........................... 49
2.21 Product Warranty.......................................................... 49
2.22 Board Approval............................................................ 49
2.23 Reserved.................................................................. 49
2.24 Complete Copies of Materials.............................................. 50
2.25 Termination of Certain Agreements......................................... 50
2.26 Privacy Statements........................................................ 50
2.27 Power of Attorney......................................................... 51
2.28 Indemnification Obligations............................................... 51
2.29 Information Complete...................................................... 51
Article III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBS................................... 51
3.1 Organization and Qualification; Subsidiaries.............................. 51
3.2 Authority Relative to this Agreement...................................... 51
3.3 SEC Filings; Financial Statements......................................... 52
3.4 Brokers................................................................... 52
3.5 Consents and Approvals; No Violations..................................... 53
3.6 Litigation................................................................ 53
3.7 Information Complete...................................................... 53
Article IV CONDUCT PRIOR TO CLOSING; NONSOLICITATION................................................... 53
4.1 Conduct of Business of the Company........................................ 53
4.2 No Solicitation........................................................... 57
Article V ADDITIONAL AGREEMENTS........................................................................ 58
5.1 Stock Options and Warrants................................................ 58
5.2 Information Statement; Issuance of Freely Tradable Shares................. 59
5.3 Affiliate Agreements...................................................... 61
5.4 Registration Statement on Form S-8........................................ 61
5.5 Post Closing Covenants; General........................................... 61
5.6 Management Incentive Plan................................................. 62
5.7 Shareholder Approval...................................................... 62
5.8 Access to Information..................................................... 62
5.9 Confidentiality........................................................... 62
5.10 Public Disclosure......................................................... 62
5.11 Consents.................................................................. 63
5.12 FIRPTA Compliance......................................................... 63
5.13 Legal Conditions to the Mergers........................................... 63
5.14 Best Efforts; Additional Documents and Further Assurances................. 63
5.15 Notification of Certain Matters........................................... 64
5.16 Nasdaq National Market.................................................... 64
5.17 Voting Agreements......................................................... 64
5.18 Blue Sky Laws............................................................. 64
5.19 Stock Restrictions........................................................ 64
5.20 Employment Arrangements................................................... 64
5.21 Documentation of Cash Balance............................................. 65
5.24 Registered Intellectual Property.......................................... 66
5.25 Updated Company Schedule.................................................. 66
5.26 Rhapsody Promotions....................................................... 66
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Article VI CONDITIONS TO CLOSING....................................................................... 67
6.1 Conditions to Obligations of Each Party to Effect the Mergers............. 67
6.2 Additional Conditions to Obligations of the Company....................... 67
6.3 Additional Conditions to the Obligations of Parent and Merger Subs........ 68
Article VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW......................................... 71
7.1 Survival of Representations, Warranties and Covenants..................... 71
7.2 Escrow Arrangements....................................................... 72
7.3 Indemnification........................................................... 80
7.4 Third-Party Claims........................................................ 81
7.5 Shareholder Representative................................................ 83
7.6 Remedies Not Limited by Information and Investigation..................... 84
Article VIII TERMINATION, AMENDMENT AND WAIVER......................................................... 84
8.1 Termination............................................................... 84
8.2 Effect of Termination..................................................... 85
8.3 Amendment................................................................. 86
8.4 Extension; Waiver......................................................... 86
Article IX GENERAL PROVISIONS.......................................................................... 86
9.1 Notices................................................................... 86
9.2 Expenses.................................................................. 88
9.3 Interpretation; Definitions............................................... 88
9.4 Counterparts.............................................................. 88
9.5 Entire Agreement; Third Party Beneficiaries............................... 88
9.6 Severability.............................................................. 88
9.7 Other Remedies; Specific Performance...................................... 89
9.8 Governing Law............................................................. 89
9.9 Rules of Construction..................................................... 89
9.10 Assignment................................................................ 89
INDEX OF SCHEDULES AND EXHIBITS
SCHEDULE A Key Employees
SCHEDULE A-1 Employees Whose Knowledge Is Imputed to Company
SCHEDULE B Preliminary Consideration Allocation Schedule
EXHIBIT A Form of Affiliate Agreement
EXHIBIT B Terms of Management Incentive Plan
EXHIBIT C Form of Voting Agreement
EXHIBIT D Form of Articles of Amendment
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EXHIBIT E-1 Form of Legal Opinion of WSGR
EXHIBIT E-2 Form of Legal Opinion of Fenwick & West LLP
EXHIBIT F-1 Form of Offer Letter
EXHIBIT F-2 Form of Development and Confidentiality Agreement
EXHIBIT G Form of Stock Restriction Agreement
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION is made and
entered into as of April 21, 2003, among REALNETWORKS, Inc., a Washington
corporation ("PARENT"), Symphony Acquisition Corp. I, a California corporation
and a wholly-owned subsidiary of Parent ("MERGER SUB I"), Symphony Acquisition
Corp. II, a California corporation and a wholly-owned subsidiary of Parent
("MERGER SUB II," and together with Merger Sub I, the "MERGER SUBS"),
XXXXXX.XXX, Inc., a California corporation (the "COMPANY") and, with respect to
ARTICLE VII and ARTICLE IX only, Mellon Investor Services LLC, as Escrow Agent
(the "ESCROW AGENT"), and Xxxxxx Xxxx, as Shareholder Representative (the
"SHAREHOLDER REPRESENTATIVE"). Parent, the Company, and Merger Sub are sometimes
referred to herein individually as a "PARTY" and collectively as the "PARTIES".
RECITALS
A. Upon the terms and subject to the conditions of this Agreement
(as defined in SECTION 1.2 below) and in accordance with the California General
Corporation Law ("CALIFORNIA LAW"), Parent and the Company intend to enter into
a two-step business combination transaction.
B. The Board of Directors of the Company (i) has determined that
Merger I, assuming completion of Merger II immediately thereafter (the terms
"Merger I" and "Merger II" are defined in SECTION 1.1) is fair to, and in the
best interests of, the Company and its shareholders, (ii) has approved this
Agreement, and has approved Merger I and the other transactions contemplated by
this Agreement and (iii) has determined to recommend that the shareholders of
the Company adopt and approve this Agreement and approve Merger I.
C. Contemporaneously with the execution and delivery of this
Agreement, certain holders of Company Capital Stock (as defined in Section 1.1)
are executing and delivering to Parent a voting agreement and irrevocable proxy.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 Definitions.
(a) The following terms are defined in the text of this
Agreement:
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section 4.2.
"AFFILIATE AGREEMENT" shall have the meaning set forth in Section 5.3.
"AGREEMENT OF MERGER I" shall have the meaning set forth in Section
1.3.
"AGREEMENT OF MERGER II" shall have the meaning set forth in Section
1.3.
"AGREEMENT" shall have the meaning set forth in Section 1.3.
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"APPROVALS" shall have the meaning set forth in Section 2.1(a).
"ARTICLES OF AMENDMENT" shall have the meaning set forth in Section
5.28.
"ASSUMED WARRANT" shall have the meaning set forth in Section 5.1(b).
"BASKET AMOUNT" shall have the meaning set forth in Section 7.2(i)(i).
"BENEFIT" shall have the meaning set forth in Section 2.11(g)(i).
"BONA-FIDE SUBSCRIBER" shall have the meaning set forth in Section
1.8(f)(i).
"CALIFORNIA LAW" has the meaning set forth in Recital A.
"CLAIM CERTIFICATE" shall have the meaning set forth in Section 7.2(f).
"CLOSING DATE PAYMENT SCHEDULE" shall have the meaning set forth in
Section 6.3(e).
"CLOSING DATE" shall have the meaning set forth in Section 1.3.
"CLOSING" shall have the meaning set forth in Section 1.3.
"COBRA" shall have the meaning set forth in Section 2.11(a)(ii).
"COMPANY AFFILIATES" shall have the meaning set forth in Section 5.3.
"COMPANY BENEFIT PLAN" shall have the meaning set forth in Section
2.11(a)(i).
"COMPANY CHARTER DOCUMENTS" shall have the meaning set forth in Section
2.2.
"COMPANY CONTRACT" shall have the meaning set forth in Section 2.18.
"COMPANY INTELLECTUAL PROPERTY" shall have the meaning set forth in
Section 2.17.
"COMPANY MUSIC SERVICE" shall have the meaning set forth in Section
1.8(f)(ii).
"COMPANY PARTICIPANTS" shall have the meaning set forth in Section
5.20.
"COMPANY PERMITS" shall have the meaning set forth in Section 2.6(b).
"COMPANY PRODUCTS" shall have the meaning set forth in Section 2.17(b).
"COMPANY REGISTERED INTELLECTUAL PROPERTY" shall have the meaning set
forth in Section 2.17.
"COMPANY SCHEDULE" shall have the meaning set forth in Article II.
"COMPANY SHAREHOLDER VOTE" shall have the meaning set forth in Section
5.7.
"COMPANY SOURCE CODE" shall have the meaning set forth in Section
2.17(p).
"CONFIDENTIALITY AGREEMENT" shall have the meaning set forth in Section
5.9.
"CONFLICT" shall have the meaning set forth in Section 2.5(a).
"CO-SALE AGREEMENT" shall have the meaning set forth in Section
2.25(a).
"COVERED EVENT" and "COVERED EVENTS" shall have the meaning set forth
in Section 7.2(a).
"COVERED PARTIES" shall have the meaning set forth in Section 7.2(a).
"DISSENTING SHAREHOLDER" shall have the meaning set forth in Section
1.9(b).
"DISSENTING SHARES" shall have the meaning set forth in Section 1.9(a).
"DOL" shall have the meaning set forth in Section 2.11(a)(iii).
"EARNOUT CASH" shall have the meaning set forth in Section 1.8(a).
"EARNOUT CONTINGENCY" shall have the meaning set forth in Section
1.8(a).
"EARNOUT NOTICE" shall have the meaning set forth in Section 1.8(c).
"EARNOUT OBJECTION NOTICE" shall have the meaning set forth in Section
1.8(d).
"EARNOUT PERIOD" shall have the meaning set forth in Section 1.8(a).
"EARNOUT REPORT" shall have the meaning set forth in Section 1.8(c).
"EARNOUT RIGHT" shall have the meaning set forth in Section 1.8(e).
"EARNOUT SETTLEMENT MEMORANDUM" shall have the meaning set forth in
Section 1.8(d).
"EARNOUT TARGET" shall have the meaning set forth in Section 1.8(a).
"EMPLOYEE" shall have the meaning set forth in Section 2.11(a)(iv).
"EMPLOYEE AGREEMENT" shall have the meaning set forth in Section
2.11(a)(v).
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"ENVIRONMENTAL CLAIM" shall have the meaning set forth in Section 2.15.
"ENVIRONMENTAL LAWS" shall have the meaning set forth in Section 2.15.
"ERISA" shall have the meaning set forth in Section 2.11(a)(vi).
"ERISA AFFILIATE" shall have the meaning set forth in Section
2.11(a)(vii).
"ESCROW CASH" shall have the meaning set forth in Section 1.7(c) .
"ESCROW DISTRIBUTION NOTICE" shall have the meaning set forth in
Section 7.2(d)(vi).
"ESCROW FUND" shall have the meaning set forth in Section 7.2(c).
"ESCROW PERIOD" shall have the meaning set forth in Section 7.2(d)(i).
"ESCROW SHARES" shall have the meaning set forth in Section 1.7(c).
"ESCROW TERMINATION DATE" shall have the meaning set forth in Section
7.1(a).
"EXCESS LEGAL EXPENSES" shall have the meaning set forth in Section
7.2(a).
"EXCHANGE AGENT" shall have the meaning set forth in Section 1.10(a).
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section 2.7.
"FORM S-4" shall have the meaning set forth in Section 5.2(b)(ii).
"GAAP" shall have the meaning set forth in Section 2.7.
"HAZARDOUS MATERIALS" shall have the meaning set forth in Section 2.15.
"HEARING" shall have the meaning set forth in Section 5.2(b)(i).
"INDEMNIFIED PARTIES" shall have the meaning set forth in Section
7.3(a).
"INDIVIDUALS" shall have the meaning set forth in Section 2.26.
"INFORMATION STATEMENT" shall have the meaning set forth in Section
5.2(a).
"INITIAL EARNOUT REPORT" shall have the meaning set forth in Section
1.8(b).
"INITIAL ESCROW HOLDBACK AMOUNT" shall have the meaning set forth in
Section 7.2(d)(ii).
"INITIAL ESCROW TERMINATION DATE" shall have the meaning set forth in
Section 7.2(d)(ii).
"INSURANCE POLICIES" shall have the meaning set forth in Section 2.19.
"INTELLECTUAL PROPERTY" shall have the meaning set forth in Section
2.17.
"INTERNATIONAL EMPLOYEE PLAN" shall have the meaning set forth in
Section 2.11(a)(viii).
"INVESTORS RIGHTS AGREEMENT" shall have the meaning set forth in
Section 2.25(a).
"IRS" shall have the meaning set forth in Section 2.11(a)(ix).
"JULY NOTE" shall have the meaning set forth in Section 5.23(b).
"JUNE NOTE" shall have the meaning set forth in Section 5.23(a).
"KEY EMPLOYEES" shall have the meaning set forth in Section 6.3(m).
"LEASED PROPERTIES" shall have the meaning set forth in Section
2.13(a).
"LEASES" shall have the meaning set forth in Section 2.13(a).
"LOAN AGREEMENT" shall have the meaning set forth in Section 5.22.
"LOSS" and "LOSSES" shall have the meaning set forth in Section 7.2(a).
"MAY NOTE" shall have the meaning set forth in Section 5.22.
"MERGER SUB I COMMON STOCK" shall have the meaning set forth in Section
1.7(f).
"MERGER SUB II COMMON STOCK" shall have the meaning set forth in
Section 1.7(f).
"MERGERS" shall have the meaning set forth in Section 1.2.
"MERGER I" shall have the meaning set forth in Section 1.2.
"MERGER II" shall have the meaning set forth in Section 1.2.
"MOST RECENT BALANCE SHEET" shall have the meaning set forth in Section
2.7.
"NET BONA-FIDE SUBSCRIBERS" shall have the meaning set forth in Section
1.8(f)(iii).
"NEW SHARES" shall have the meaning set forth in Section 7.2(e)(ii).
"PARENT BENEFIT ARRANGEMENTS" shall have the meaning set forth in
Section 5.20.
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"PARENT SCHEDULE" shall have the meaning set forth in Article III.
"PARENT SEC REPORTS" shall have the meaning set forth in Section
3.3(a).
"PATENTS" shall have the meaning set forth in Section 2.17.
"PBGC" shall have the meaning set forth in Section 2.11(a)(x).
"PENSION PLAN" shall have the meaning set forth in Section 2.11(a)(xi)
"PERMIT" shall have the meaning set forth in Section 5.2(b)(i).
"POTENTIAL 280G BENEFITS" shall have the meaning set forth in Section
6.3(n).
"PRIVACY STATEMENTS" shall have the meaning set forth in Section 2.26.
"PROSPECTUS/PROXY STATEMENT" shall have the meaning set forth in
Section 5.2(b)(ii).
"PUBLIC SOFTWARE" shall have the meaning set forth in Section 2.17(q).
"REGISTERED INTELLECTUAL PROPERTY" shall have the meaning set forth in
Section 2.17.
"REGULAR BALANCE SHEET" shall have the meaning set forth in Section
2.7.
"REMAINING PORTION" shall have the meaning set forth in Section
7.2(d)(iii).
"REPLACEMENT OPTION" shall have the meaning set forth in Section
5.1(a).
"RETURNS" shall have the meaning set forth in Section 2.14(b)(i).
"XXXX XXXXXXXXX AGREEMENT" shall have the meaning set forth in Section
2.25(b).
"SEC" shall have the meaning set forth in Section 3.3(a).
"STOCK RESTRICTION AGREEMENT" shall have the meaning set forth in
Section 6.3(o).
"SURVIVING CORPORATION" shall have the meaning set forth in Section
1.2.
"SURVIVING CORPORATION I" shall have the meaning set forth in Section
1.2.
"TAX" or "TAXES" shall have the meaning set forth in Section 2.14(a).
"THIRD PARTY CLAIM" shall have the meaning set forth in Section
7.4(a)(i).
"THIRD PARTY EXPENSES" shall have the meaning set forth in Section 9.2.
"UPDATED COMPANY SCHEDULE" shall have the meaning set forth in Section
5.25.
"VOTING AGREEMENT" shall have the meaning set forth in Section 2.25(a).
(b) As used in this Agreement, the following terms have the
following meanings (terms defined in the singular to have a correlative meaning
when used in the plural and vice versa).
"ACCRUED DIVIDENDS" means, with respect to a share of Company Preferred
Stock, the dollar amount of dividends that have accrued on such share of Company
Preferred Stock pursuant to the terms of the Company's articles of incorporation
from the date of issuance of such share of Company Preferred Stock until the
date of this Agreement.
"ADJUSTED DILUTED COMMON SHARE NUMBER" means the Diluted Common Share
Number less the following, as of immediately prior to the Effective Time of
Merger I: (A) the number of shares of Company Common Stock issuable upon
exercise of the portions of Company Stock Options to purchase Company Common
Stock which are not Vested, (B) the number of outstanding shares of Company
Common Stock which are Restricted, (C) the number of shares of Company Common
Stock which are issuable upon exercise of all Company Common Warrants having a
per share exercise price of greater than or equal to $4.00, and (D) the number
of shares of Company Common Stock issuable upon exercise of the Best Buy
Warrant.
"AFFILIATE" shall have the meaning ascribed to such term in Rule 144
promulgated under the Securities Act (as defined herein).
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"ADJUSTED AGGREGATE LIQUIDATION PREFERENCE" means the sum of:
(A) the sum of the Series A Adjusted Liquidation Preferences
for all shares of Company Preferred A Stock outstanding
immediately prior to the Effective Time of Merger I and
shares of Company Preferred A Stock underlying Company
Warrants to purchase shares of Company Preferred A Stock
which Company Warrants do not terminate, and are not
exercised, prior to the Effective Time of Merger I;
(B) the sum of the Series B Adjusted Liquidation Preferences
for all shares of Company Preferred B Stock outstanding
immediately prior to the Effective Time of Merger I and
shares of Company Preferred B Stock underlying Company
Warrants to purchase shares of Company Preferred B Stock
which Company Warrants do not terminate, and are not
exercised, prior to the Effective Time of Merger I;
(C) the sum of the Series C Adjusted Liquidation Preferences
for all shares of Company Preferred C Stock outstanding
immediately prior to the Effective Time of Merger I and
shares of Company Preferred C Stock underlying Company
Warrants to purchase shares of Company Preferred C Stock
which Company Warrants do not terminate, and are not
exercised, prior to the Effective Time of Merger I (but
excluding the shares of Company Preferred C Stock
underlying the Comdisco Warrant);
(D) the sum of the Series D Adjusted Liquidation Preferences
for all shares of Company Preferred A Stock outstanding
immediately prior to the Effective Time of Merger I and
shares of Company Preferred D Stock underlying Company
Warrants to purchase shares of Company Preferred D Stock
which Company Warrants do not terminate, and are not
exercised, prior to the Effective Time of Merger I; and
(E) the sum of the Series 1 Adjusted Liquidation Preferences
for all shares of Company Preferred A Stock outstanding
immediately prior to the Effective Time of Merger I and
shares of Company Preferred 1 Stock underlying Company
Warrants to purchase shares of Company Preferred 1 Stock
which Company Warrants do not terminate, and are not
exercised, prior to the Effective Time of Merger I.
"AGGREGATE LIQUIDATION PREFERENCE" means the sum of:
(A) the sum of the Series A Liquidation Preferences for all
shares of Company Preferred A Stock outstanding
immediately prior to the Effective Time of Merger I and
shares of Company Preferred A Stock underlying Company
Warrants to purchase shares of Company Preferred A Stock
which Company Warrants do not terminate, and are not
exercised, prior to the Effective Time of Merger I;
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(B) the sum of the Series B Liquidation Preferences for all
shares of Company Preferred B Stock outstanding
immediately prior to the Effective Time of Merger I and
shares of Company Preferred B Stock underlying Company
Warrants to purchase shares of Company Preferred B Stock
which Company Warrants do not terminate, and are not
exercised, prior to the Effective Time of Merger I;
(C) the sum of the Series C Liquidation Preferences for all
shares of Company Preferred C Stock outstanding
immediately prior to the Effective Time of Merger I and
shares of Company Preferred C Stock underlying Company
Warrants to purchase shares of Company Preferred C Stock
which Company Warrants do not terminate, and are not
exercised, prior to the Effective Time of Merger I (but
excluding the shares of Company Preferred C Stock
underlying the Comdisco Warrant);
(D) the sum of the Series D Liquidation Preferences for all
shares of Company Preferred D Stock outstanding
immediately prior to the Effective Time of Merger I and
shares of Company Preferred D Stock underlying Company
Warrants to purchase shares of Company Preferred D Stock
which Company Warrants do not terminate, and are not
exercised, prior to the Effective Time of Merger I; and
(E) the sum of the Series 1 Liquidation Preferences for all
shares of Company Preferred 1 Stock outstanding
immediately prior to the Effective Time of Merger I and
shares of Company Preferred 1 Stock underlying Company
Warrants to purchase shares of Company Preferred 1 Stock
which Company Warrants do not terminate, and are not
exercised, prior to the Effective Time of Merger I.
"APPLICABLE CASH EXCHANGE RATIO" means, with respect to a share of
Company Capital Stock, the exchange ratio applicable to the conversion of such
share of Company Capital Stock into Merger Cash pursuant to SECTION 1.7(a).
"APPLICABLE LIQUIDATION PREFERENCE" means, with respect to shares of
Company Preferred Stock, the Series A Liquidation Preference, Series B
Liquidation Preference, Series C Liquidation Preference, Series D Liquidation
Preference or Series 1 Liquidation Preference, as applicable, of such shares of
Company Preferred Stock.
"APPLICABLE STOCK EXCHANGE RATIO" means, with respect to a share of
Company Capital Stock, the exchange ratio applicable to the conversion of such
share of Company Capital Stock into Parent Capital Stock pursuant to SECTION
1.7(a).
"ASSUMED RESTRICTION AGREEMENT" means a Company Stock Restriction
Agreement that is assumed by Parent in connection with the Mergers.
"BLUE SKY LAW" means any securities law of any state.
"BEST BUY AGREEMENT" means the Strategic Marketing Agreement by and
among Best Buy Stores, L.P. and XxxxXxx.xxx LLC and the Company dated December
24, 2002.
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"BEST BUY WARRANT" means the warrant for common shares issuable
pursuant to Section 5.2 of the Best Buy Agreement.
"BUSINESS DAY" means any day other than a Saturday or Sunday or a day
on which banks in Seattle, Washington are closed.
"CERTIFICATE" means a certificate which immediately prior to the
Effective Time of Merger I represented outstanding shares of Company Capital
Stock.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMDISCO WARRANT" means that certain warrant to purchase 10,776 shares
of Company Preferred C Stock issued to Comdisco, Inc. and dated as of September
30, 1999.
"COMMON CASH EXCHANGE RATIO" means the quotient obtained by dividing
(A) the product of (1) the Merger Cash Fraction and (2) the Remaining
Consideration, by (B) the Adjusted Diluted Common Share Number.
"COMMON STOCK EXCHANGE RATIO" means the quotient obtained by dividing
(A) the product of (1) the Merger Stock Fraction and (2) the Remaining
Consideration, by (B) the product of (1) the Adjusted Diluted Common Share
Number and (2) the Parent Stock Price.
"COMPANY BOARD" means the Board of Directors of the Company.
"COMPANY CAPITAL STOCK" means Company Common Stock and/or Company
Preferred Stock.
"COMPANY COMMON STOCK" means common stock of the Company, no par value.
"COMPANY COMMON WARRANT" means a Company Warrant to purchase Company
Common Stock.
"COMPANY PREFERRED A STOCK" means Series A Preferred Stock of the
Company, no par value.
"COMPANY PREFERRED B STOCK" means the Series B Preferred Stock of the
Company, no par value.
"COMPANY PREFERRED C STOCK" means the Series C Preferred Stock of the
Company, no par value.
"COMPANY PREFERRED D STOCK" means the Series D Preferred Stock of the
Company, no par value.
"COMPANY PREFERRED 1 STOCK" means the Series 1 Preferred Stock of the
Company, no par value.
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"COMPANY PREFERRED STOCK" means preferred stock of the Company, no par
value.
"COMPANY PREFERRED WARRANT" means a Company Warrant to purchase Company
Preferred Stock.
"COMPANY SHAREHOLDER" means a shareholder of record of the Company
immediately prior to the Effective Time of Merger I, as determined in accordance
with the stock transfer records of the Company.
"COMPANY STOCK OPTION" means any stock option to purchase Company
Capital Stock (other than a Company Warrant), whether or not Vested, that is
outstanding immediately prior to the Effective Time of Merger I.
"COMPANY STOCK RESTRICTION AGREEMENT" means an agreement between the
Company and a holder of Company Capital Stock which provides for a right of
repurchase, forfeiture or divestment in favor of the Company.
"COMPANY STOCK RIGHT" means any subscription, option, warrant, equity
securities, partnership interests or similar ownership interest, call, right
(including preemptive rights), commitment or agreement of any character to which
the Company is a party or by which it is bound obligating the Company to issue,
deliver or sell, or cause to be issued, delivered or sold any shares of Company
Capital Stock, partnership interests or similar ownership interests of the
Company or obligating the Company to grant or enter into any of the foregoing
arrangements or agreements.
"COMPANY WARRANT" means any warrant or other Company Stock Right (other
than a Company Stock Option) that is outstanding immediately prior to the
Effective Time of Merger I.
"CONTRACT" means any written, oral or other agreement, contract,
subcontract, lease, binding understanding, promise, instrument, note, option,
warranty, purchase order, license, sublicense, insurance policy, benefit plan,
commitment or undertaking of any nature, as of the date hereof or as may
hereafter be in effect.
"DILUTED COMMON SHARE NUMBER" means, as of immediately prior to the
Effective Time of Merger I, the sum of (A) the number of shares of Company
Common Stock outstanding, (B) the number of shares of Company Common Stock
underlying outstanding Company Stock Options, (C) the number of shares of
Company Common Stock underlying outstanding Company Common Warrants, and (D) the
number of shares of Company Common Stock underlying other Company Stock Rights
to purchase or subscribe for Company Common Stock (including, without
limitation, the Best Buy Warrant).
"EARNOUT DATE" means the date that the Earnout Contingency is
satisfied.
"EFFECTIVE TIME OF MERGER I" shall mean the time at which a properly
executed agreement of merger effecting Merger I conforming to the requirements
of the applicable provisions of California Law is filed with the Secretary of
State of the State of California.
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"EFFECTIVE TIME OF MERGER II" shall mean the time at which a properly
executed agreement of merger effecting Merger II conforming to the requirements
of the applicable provisions of California Law is filed with the Secretary of
State of the State of California.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GOVERNMENTAL BODY" means any:
(a) nation, province, state, county, city, town, village,
district, or other jurisdiction of any nature;
(b) federal, provincial, state, local, municipal,
foreign, or other government;
(c) governmental or quasi-governmental authority of any
nature (including any governmental agency, branch, department, official, or
entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
"KNOWLEDGE" -- an individual will be deemed to have "KNOWLEDGE" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or other matter; or (b) a reasonably prudent individual in such
individual's position could reasonably be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting his or her
duties. Parent will be deemed to have "KNOWLEDGE" of a particular fact or other
matter if an officer or director of Parent has "Knowledge" (as defined above) of
such fact or other matter. The Company will be deemed to have "KNOWLEDGE" of a
particular fact or other matter if any of the employees of the Company listed on
Schedule A-1 attached hereto has "Knowledge" (as defined above) of such fact or
other matter.
"LEGAL REQUIREMENT" means any law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, order, judgment, decree,
injunction, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Body.
"LIEN" means, with respect to any property, any security interest,
mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such
property or the income therefrom, including, without limitation, the interest of
a vendor or lessor under a conditional sale agreement, capitalized lease
obligation or other title retention agreement, and the filing of any financing
statement or similar instrument under the Uniform Commercial Code or comparable
law of any jurisdiction, other than Permitted Liens.
"MAJOR MUSIC LABELS" means BMG Music, Sony Music Entertainment, Inc.,
Universal Music Group, Inc., Warner Music Group and EMI Recorded Music Holdings,
Inc. or their respective Affiliates that have entered into content license
agreements with the Company.
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"MATERIAL ADVERSE EFFECT" means, when used in connection with a Person,
any change, event, violation, inaccuracy, circumstance or effect that is
materially adverse to the business, assets, liabilities, financial condition,
results of operations or prospects of such entity taken as a whole, other than
as a result of (i) changes generally adversely affecting the United States
economy (so long as such Person is not disproportionately affected thereby),
including, without limitation, war or the outbreak of hostilities, (ii)
performance by such Person of its obligations under this Agreement or, with
respect to Company only, the failure of Parent to consent to actions reasonably
requested by Company pursuant to Section 4.1 of this Agreement, or (iii) the
announcement or pendency of the transactions contemplated by this Agreement
(provided that this (iv) shall not except from the determination of whether a
Material Adverse Effect has occurred any actions of the Major Music Labels or
any Governmental Body).
"MERGER CONSIDERATION" means shares of Parent Common Stock and cash,
including cash in lieu of fractional shares in accordance with SECTION 1.7(h),
issuable and payable pursuant to the terms of SECTION 1.7, and upon exercise of
Replacement Options and Assumed Warrants issued or assumed pursuant to Section
5.1.
"MERGER CASH" means cash consideration paid or payable (i) pursuant to
SECTION 1.7(a) and (ii) pursuant to Assumed Warrants under SECTION 5.1(b),
excluding the Earnout Cash or any cash paid in lieu of fractional shares.
"MERGER CASH AMOUNT" means $17,560,000 plus the Preferred Warrant
Purchase Price.
"MERGER CASH FRACTION" means the quotient obtained by dividing (A) the
Merger Cash Amount by (B) the sum of the Merger Cash Amount and the Merger Stock
Amount.
"MERGER STOCK AMOUNT" means $17,560,000.
"MERGER STOCK FRACTION" means the quotient obtained by dividing (A) the
Merger Stock Amount by (B) the sum of the Merger Cash Amount and the Merger
Stock Amount.
"MERGER SHARES" means the shares of Parent Common Stock (i) issued
pursuant to SECTION 1.7(a) and (ii) issued or issuable pursuant to Replacement
Options under SECTION 5.1(a)(I) and Assumed Warrants under SECTION 5.1(b)(I).
"OPTION EXCHANGE RATIO" means the sum of (A) the Common Stock Exchange
Ratio and (B) the quotient obtained by dividing the Common Cash Exchange Ratio
by the RN Stock Price.
"ORDINARY COURSE OF BUSINESS" means an action taken by a Person only
if: (A) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(B) such action is not required to be authorized by the board of directors of
such Person (or by any Person or group of Persons exercising similar authority)
and is not required to be specifically authorized by the parent company (if any)
of such Person; and (C) such action is similar in nature and magnitude to
actions customarily taken, without any authorization by the board of directors
(or by any Person or group of Persons exercising similar
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authority), in the ordinary course of the normal day-to-day operations of other
Persons that are in substantially similar lines of business as such Person.
"PARENT COMMON STOCK" means common stock of Parent, $0.001 par value
per share.
"PARENT STOCK PRICE" shall mean $4.3747 (as appropriately adjusted for
any stock split, stock dividend or similar event referenced in Section 1.7(g)).
"PERMITTED LIENS" means any of the following to the extent they arise
in the Ordinary Course of Business of the Person whose property is subject to
the Lien: (a) any mechanic's liens, landlord's liens and liens to secure
importation/custom duties in connection with the importation of goods; (b) any
liens for Taxes, assessments, judgments and similar charges not yet due and
payable or which are being contested in good faith and for which any required
reserves have been established; (c) purchase money liens and liens securing
rental payments under capital lease arrangements of the Company.
"PERSON" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PREFERRED WARRANT PURCHASE PRICE" means, as of immediately prior to
the Effective Time of Merger I, the aggregate amount of cash consideration, if
any, received by the Company from holders of Company Preferred Warrants in
payment of the exercise price for all exercises of such Company Preferred
Warrants following the date of this Agreement and prior to the Effective Time of
Merger I.
"PREFERRED WARRANT NET EXERCISE AMOUNT" means, as of immediately prior
to the Effective Time of Merger I, the aggregate of the Applicable Liquidation
Preferences of all shares of Company Preferred Stock issued (on a net basis)
pursuant to the "net exercise" of Company Preferred Warrants following the date
of this Agreement and prior to the Effective Time of Merger I; provided that for
this purpose "net exercise" means an exercise of a Company Preferred Warrant (in
whole or in part) in which the exercise price payable with respect to such
exercise is satisfied, pursuant to the terms of such Company Preferred Warrant,
by the cancellation or conversion of a portion of such Company Preferred
Warrarnt.
"PRINCIPAL SHAREHOLDER" shall mean Xxxxxx Xxxx.
"REASONABLY CONTEMPLATED TO BE CONDUCTED" means, with respect to a
Party's business, the manner in which the Party's management reasonably
contemplates operating the Party's business through the period ending sixty (60)
days following the Closing, assuming for this purpose only that the Closing does
not occur.
"REMAINING CONSIDERATION" means (A) the sum of the Merger Cash Amount
and the Merger Stock Amount, minus (B) the sum of the Adjusted Aggregate
Liquidation Preference and $1,250,000.
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"RESTRICTED" means, with respect to outstanding shares of Company
Capital Stock or Merger Consideration, that such shares or Merger Consideration
are subject to a right of repurchase, forfeiture or divestment in favor of
either the party that issued such shares or paid or issued such Merger
Consideration, or both.
"RESTRICTED MERGER SHARES" means the Merger Shares which are,
immediately following the Effective Time of Merger I, subject to forfeiture,
divestment or a repurchase right in favor of Parent pursuant to a Stock
Restriction Agreement or other agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SERIES A ADJUSTED LIQUIDATION PREFERENCE" for a share of Company
Preferred A Stock means such share's Series A Liquidation Preference minus (A)
the product of (i) $1,250,000 times (ii) the quotient obtained by dividing (x)
such share's Series A Liquidation Preference by (y) the Aggregate Liquidation
Preference, and (B) the product of (i) the Preferred Warrant Net Exercise Amount
times (ii) the quotient obtained by dividing (x) such share's Series A
Liquidation Preference by (y) the sum of the Merger Cash Amount and the Merger
Stock Amount.
"SERIES A CASH EXCHANGE RATIO" for a share of Company Preferred A Stock
means the product of (A) the Merger Cash Fraction times (B) such share's Series
A Adjusted Liquidation Preference.
"SERIES A LIQUIDATION PREFERENCE" for a share of Company Preferred A
Stock means the sum of (A) $0.74 and (B) Accrued Dividends for such share of
Company Preferred A Stock.
"SERIES A SHARE EXCHANGE RATIO" for a share of Company Preferred A
Stock means the quotient obtained by dividing (A) the product of the Merger
Stock Fraction times such share's Series A Adjusted Liquidation Preference, by
(B) the Parent Stock Price.
"SERIES B ADJUSTED LIQUIDATION PREFERENCE" for a share of Company
Preferred B Stock means such share's Series B Liquidation Preference minus (A)
the product of (i) $1,250,000 times (ii) the quotient obtained by dividing (x)
such share's Series B Liquidation Preference by (y) the Aggregate Liquidation
Preference, and (B) the product of (i) the Preferred Warrant Net Exercise Amount
times (ii) the quotient obtained by dividing (x) such share's Series B
Liquidation Preference by (y) the sum of the Merger Cash Amount and the Merger
Stock Amount.
"SERIES B CASH EXCHANGE RATIO" for a share of Company Preferred B Stock
means the product of (A) the Merger Cash Fraction times (B) such share's Series
B Adjusted Liquidation Preference.
"SERIES B LIQUIDATION PREFERENCE" for a share of Company Preferred B
Stock means the sum of (A) $2.35 and (B) Accrued Dividends for such share of
Company Preferred B Stock.
"SERIES B SHARE EXCHANGE RATIO" for a share of Company Preferred B
Stock means the quotient obtained by dividing (A) the product of the Merger
Stock Fraction times such share's Series B Adjusted Liquidation Preference, by
(B) the Parent Stock Price.
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"SERIES C ADJUSTED LIQUIDATION PREFERENCE" for a share of Company
Preferred C Stock means such share's Series C Liquidation Preference minus (A)
the product of (i) $1,250,000 times (ii) the quotient obtained by dividing (x)
such share's Series C Liquidation Preference by (y) the Aggregate Liquidation
Preference, and (B) the product of (i) the Preferred Warrant Net Exercise Amount
times (ii) the quotient obtained by dividing (x) such share's Series C
Liquidation Preference by (y) the sum of the Merger Cash Amount and the Merger
Stock Amount.
"SERIES C CASH EXCHANGE RATIO" for a share of Company Preferred C Stock
means the product of (A) the Merger Cash Fraction times (B) such share's Series
C Adjusted Liquidation Preference.
"SERIES C LIQUIDATION PREFERENCE" for a share of Company Preferred C
Stock means the sum of (A) $9.28 and (B) Accrued Dividends for such share of
Company Preferred C Stock.
"SERIES C SHARE EXCHANGE RATIO" for a share of Company Preferred C
Stock means the quotient obtained by dividing (A) the product of the Merger
Stock Fraction times such share's Series C Adjusted Liquidation Preference, by
(B) the Parent Stock Price.
"SERIES D ADJUSTED LIQUIDATION PREFERENCE" for a share of Company
Preferred D Stock means such share's Series D Liquidation Preference minus (A)
the product of (i) $1,250,000 times (ii) the quotient obtained by dividing (x)
such share's Series D Liquidation Preference by (y) the Aggregate Liquidation
Preference, and (B) the product of (i) the Preferred Warrant Net Exercise Amount
times (ii) the quotient obtained by dividing (x) such share's Series D
Liquidation Preference by (y) the sum of the Merger Cash Amount and the Merger
Stock Amount.
"SERIES D CASH EXCHANGE RATIO" for a share of Company Preferred D Stock
means the product of (A) the Merger Cash Fraction times (B) such share's Series
D Adjusted Liquidation Preference.
"SERIES D LIQUIDATION PREFERENCE" for a share of Company Preferred D
Stock means the sum of (A) $14.775 and (B) Accrued Dividends for such share of
Company Preferred D Stock.
"SERIES D SHARE EXCHANGE RATIO" for a share of Company Preferred D
Stock means the quotient obtained by dividing (A) the product of the Merger
Stock Fraction times such share's Series D Adjusted Liquidation Preference, by
(B) the Parent Stock Price.
"SERIES 1 ADJUSTED LIQUIDATION PREFERENCE" for a share of Company
Preferred 1 Stock means such share's Series 1 Liquidation Preference minus (A)
the product of (i) $1,250,000 times (ii) the quotient obtained by dividing (x)
such share's Series 1 Liquidation Preference by (y) the Aggregate Liquidation
Preference, and (B) the product of (i) the Preferred Warrant Net Exercise Amount
times (ii) the quotient obtained by dividing (x) such share's Series 1
Liquidation Preference by (y) the sum of the Merger Cash Amount and the Merger
Stock Amount.
"SERIES 1 CASH EXCHANGE RATIO" for a share of Company Preferred 1 Stock
means the product of (A) the Merger Cash Fraction times (B) such share's Series
1 Adjusted Liquidation Preference.
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"SERIES 1 LIQUIDATION PREFERENCE" for a share of Company Preferred 1
Stock means the sum of (A) $14.775 and (B) Accrued Dividends for such share of
Company Preferred 1 Stock.
"SERIES 1 SHARE EXCHANGE RATIO" for a share of Company Preferred 1
Stock means the quotient obtained by dividing (A) the product of the Merger
Stock Fraction times such share's Series 1 Adjusted Liquidation Preference, by
(B) the Parent Stock Price.
"TRADING DAY" means a day on which trades occur on the Nasdaq Stock
Market and for which a last sale price is reported for the Parent Common Stock.
"UNRESTRICTED" means, with respect to Company Capital Stock, Merger
Shares and Merger Cash, such Company Capital Stock, Merger Shares and Merger
Cash which are not Restricted.
"VEST" or "VESTING" means (a) with respect to an option, such option
becoming vested and exercisable, and (b) with respect to Merger Shares that are
Restricted, such shares becoming released from the applicable risk of forfeiture
or divestment or repurchase right; and "VESTED" (a) with respect to options,
refers to the maximum number of shares which may then be issued upon exercise of
such option (and which upon such issuance will not be Restricted), and (b) with
respect to Restricted Merger Shares, refers to the number of shares which are
released from the applicable risk of forfeiture or divestment or repurchase
right.
1.2 The Mergers. At the Effective Time of Merger I and subject to and
upon the terms and conditions of this Agreement and the applicable provisions of
California Law, Merger Sub I shall be merged with and into the Company ("MERGER
I"), the separate corporate existence of Merger Sub I shall cease and the
Company shall continue as the surviving corporation (the "SURVIVING CORPORATION
I"). Immediately following the Effective Time of Merger I, upon the terms and
subject to the conditions set forth in this Agreement and in accordance with the
applicable provisions of California Law, the Company will be merged with and
into Merger Sub II ("MERGER II, and together with Merger I, the "MERGERS"), and
the separate corporate existence of the Company shall cease. Merger Sub II shall
continue as the surviving corporation in Merger II (the "SURVIVING CORPORATION")
and shall succeed to and assume all the rights and obligations of the Company in
accordance with the applicable provisions of California Law.
1.3 Effective Time; Closing. Subject to the provisions of this
Agreement, the parties hereto shall cause Merger I to be consummated by filing
an Agreement of Merger with the Secretary of State of the State of California in
accordance with the relevant provisions of California Law (the "AGREEMENT OF
MERGER I") as soon as practicable on or after the Closing Date (as herein
defined). Immediately following the Effective Time of Merger I, the parties
shall file with the Secretary of State of the State of California a properly
executed Agreement of Merger for Merger II conforming to the requirements of the
applicable provisions of California Law ("AGREEMENT OF MERGER II"). Each of
Merger I and Merger II shall become effective at the time Agreement of Merger I
and Agreement of Merger II, respectively, is filed with the Secretary of State
of the State of California. Unless the context otherwise requires, the term
"AGREEMENT" as used herein refers collectively to this Agreement and Plan of
Merger and Reorganization and the Agreements of Merger. The closing of the
Mergers (the "CLOSING") shall take place at the offices of Xxxxxx Xxxxxxx
Xxxxxxxx & Xxxxxx, Professional Corporation, 0000 Xxxxxxxx Xxxxx, Xxxxxxxx,
Xxxxxxxxxx on the date that is two (2)
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business days after all closing conditions set forth in Article 6 hereof have
been satisfied or waived (or, if later, five (5) Business Days following
delivery of the Updated Company Schedule), or at such other time, date and
location as the parties hereto agree in writing (the "CLOSING DATE").
1.4 Effect of the Mergers. The Mergers shall have the effects set forth
in this Agreement and the applicable provisions of California Law. Without
limiting the generality of the foregoing, and subject thereto, (i) at the
Effective Time of Merger I, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving Corporation
I, and all debts, liabilities and duties of the Company and Merger Sub shall
become the debts, liabilities and duties of the Surviving Corporation I, and
(ii) at the Effective Time of Merger II, all the property, rights, privileges,
powers and franchises of the Surviving Corporation I and Merger Sub II shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Surviving Corporation I and Merger Sub II shall become the debts, liabilities
and duties of the Surviving Corporation.
1.5 Articles of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent and the Company
prior to the Effective Time of Merger I:
(i) the articles of incorporation of the
Surviving Corporation I shall be amended in its entirety so that it is identical
to the articles of incorporation of Merger Sub I in effect immediately prior to
the Effective Time of Merger I, until thereafter amended as provided by law and
such articles of incorporation of the Surviving Corporation I; and
(ii) the bylaws of the Surviving Corporation I
shall be amended in their entirety so that they are identical to the bylaws of
Merger Sub I in effect immediately prior to the Effective Time of Merger I,
until thereafter amended.
(b) Unless otherwise determined by Parent and the Company
prior to the Effective Time of Merger II:
(i) the articles of incorporation of the
Surviving Corporation shall be amended in its entirety so that it is identical
to the articles of incorporation of Merger Sub II in effect immediately prior to
the Effective Time of Merger II, until thereafter amended as provided by law and
such articles of incorporation of the Surviving Corporation; provided, however,
that at the Effective Time of Merger II the articles of incorporation of the
Surviving Corporation shall be amended so that the name of the Surviving
Corporation shall be "Xxxxxx.xxx, Inc"; and
(ii) the bylaws of the Surviving Corporation
shall be amended in their entirety so that they are identical to the bylaws of
Merger Sub II in effect immediately prior to the Effective Time of Merger II,
until thereafter amended.
1.6 Directors and Officers.
(a) Unless otherwise determined by Parent and the Company
prior to the Effective Time of Merger I, the initial directors of the Surviving
Corporation I shall be the directors of Merger Sub I immediately prior to the
Effective Time of Merger I, until their respective successors are duly
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elected or appointed and qualified. The initial officers of the Surviving
Corporation I shall be the officers of Merger Sub I immediately prior to the
Effective Time of Merger I, until their respective successors are duly appointed
(b) Unless otherwise determined by Parent and the Company
prior to the Effective Time of Merger II, the initial directors of the Surviving
Corporation shall be the directors of Merger Sub II immediately prior to the
Effective Time of Merger II, until their respective successors are duly elected
or appointed and qualified. The initial officers of the Surviving Corporation
shall be the officers of Merger Sub II immediately prior to the Effective Time
of Merger II, until their respective successors are duly appointed.
1.7 Effect on Capital Stock. Subject to the terms and conditions of
this Agreement, at the Effective Time of Merger I, by virtue of Merger I and
without any action on the part of Merger Sub I, the Company or the holders of
any of the following securities, the following shall occur:
(a) Conversion of Company Capital Stock. Each share of Company
Capital Stock issued and outstanding immediately prior to the Effective Time of
Merger I, other than any Dissenting Shares (as defined in SECTION 1.9(a)) and
any shares of Company Capital Stock to be canceled pursuant to SECTION 1.7(d),
will be canceled and extinguished and automatically converted (subject to
SECTIONS 1.7(g) and (h)) into the right to receive, upon surrender of the
certificate representing such share of Company Capital Stock in the manner
provided in SECTION 1.10 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the manner
provided in SECTION 1.12), shares of Parent Common Stock, and cash, as follows;
provided, that, with respect to shares of Company Capital Stock outstanding at
the Closing Date, a portion of the shares of Parent Common Stock and cash into
which such shares shall be converted shall be deposited into escrow pursuant to
Section 7.3 below:
(i) Company Preferred A Stock. Each share of
Company Preferred A Stock shall convert into: (A) a number of shares of Parent
Common Stock equal to the Series A Share Exchange Ratio for such share, and (B)
an amount of cash equal to the Series A Cash Exchange Ratio for such share;
(ii) Company Preferred B Stock. Each share of
Company Preferred B Stock shall convert into: (A) a number of shares of Parent
Common Stock equal to the Series B Share Exchange Ratio for such share, and (B)
an amount of cash equal to the Series B Cash Exchange Ratio for such share;
(iii) Company Preferred C Stock. Each share of
Company Preferred C Stock shall convert into: (A) a number of shares of Parent
Common Stock equal to the Series C Share Exchange Ratio for such share, and (B)
an amount of cash equal to the Series C Cash Exchange Ratio for such share;
(iv) Company Preferred D Stock. Each share of
Company Preferred D Stock shall convert into: (A) a number of shares of Parent
Common Stock equal to the Series D Share Exchange Ratio for such share, and (B)
an amount of cash equal to the Series D Cash Exchange Ratio for such share;
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(v) Company Preferred 1 Stock. Each share of
Company Preferred 1 Stock shall convert into: (A) a number of shares of Parent
Common Stock equal to the Series 1 Share Exchange Ratio for such share, and (B)
an amount of cash equal to the Series 1 Cash Exchange Ratio for such share; and
(vi) Company Common Stock. Each share of Company
Common Stock shall convert into: (A) a number of shares of Parent Common Stock
equal to the Common Stock Exchange Ratio, (B) an amount of cash equal to the
Common Cash Exchange Ratio, and (C) the nontransferable contingent right to
receive cash upon satisfaction of the Earnout Contingency pursuant to Section
1.8.
(b) Restricted Merger Consideration.
(i) If any shares of Company Capital Stock
outstanding immediately prior to the Effective Time of Merger I are Restricted
or are otherwise subject to a repurchase option, risk of forfeiture or other
condition under any applicable Company Stock Restriction Agreement, then the
shares of Parent Common Stock and other Merger Consideration issued in exchange
for such Restricted shares of Company Capital Stock will also be Restricted and
subject to the same repurchase option, risk of forfeiture or other condition in
favor of Parent; provided, however, that the repurchase price for each
Restricted share of Parent Common Stock issued with respect to Restricted shares
of Company Capital Stock shall equal the repurchase price for a Restricted share
of Company Capital Stock divided by the Applicable Stock Exchange Ratio. Upon
Parent's exercise of the repurchase option, right of forfeiture or other
condition with respect to a Restricted share of Parent Common Stock, Parent
shall also have effected a repurchase of an amount of Restricted Cash equal to
the quotient of the Applicable Cash Exchange Ratio divided by the Applicable
Stock Exchange Ratio. Restricted Merger Consideration and Certificates
representing the Restricted Merger Shares shall be held by Parent in accordance
with the terms of the applicable exercise, stock purchase or stock restriction
agreement until such Restricted Merger Consideration is no longer subject to
repurchase.
(ii) Cash dividends, if any, on Restricted shares
of Parent Common Stock will be distributed to the Shareholders on whose behalf
the Restricted shares of Parent Common Stock are being held by Parent. Any
shares of Parent Common Stock or other equity securities issued or distributed
by Parent, including shares issued upon a stock dividend or split, in respect of
Restricted shares of Parent Common Stock (which remain restricted at the time of
such distribution) will be subject to the same restrictions and other terms as
the Restricted shares of Parent Common Stock with respect to which the
distribution is made.
(iii) Each Company Shareholder will have voting
rights with respect to Restricted shares of Parent Common Stock (and other
voting securities) held by Parent on its behalf.
(iv) The Company shall take all action that may
be necessary to ensure that, from and after the Effective Time of Merger I,
Parent is entitled to exercise any such repurchase option or other right set
forth in any Assumed Restriction Agreement. The certificates representing shares
of Parent Common Stock that are Restricted may be marked with appropriate
legends with respect to such repurchase option, risk of forfeiture or other
condition.
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(c) Escrow. Twenty percent (20%) of the Merger Shares and
Merger Cash issuable pursuant to SECTION 1.7(a) hereof in respect of shares of
Company Capital Stock issued and outstanding immediately prior to the Effective
Time of Merger I (excluding Dissenting Shares), will, without any act of any
Company Shareholder, be deposited with the Escrow Agent, such deposit to
constitute an Escrow Fund (as defined in SECTION 7.2) to be governed by the
terms of SECTION 7.2 (such shares of Parent Common Stock and cash deposited in
the Escrow Fund, the "ESCROW SHARES" and the "ESCROW CASH," respectively). The
portion of the Escrow Shares and Escrow Cash contributed by each Company
Shareholder shall be based on the proportion that the Merger Shares and Merger
Cash to be issued to such Company Shareholder in respect of shares of Company
Capital Stock held by such Company Shareholder immediately prior to the
Effective Time of Merger I bears to all Merger Shares and Merger Cash to be
issued in respect of all shares of Company Capital Stock issued and outstanding
immediately prior to the Effective Time of Merger I (excluding Dissenting
Shares). With respect to each Company Shareholder who will receive Merger Shares
and Merger Cash pursuant to SECTION 1.7(a) that are Restricted, (i) such Company
Shareholder's contributions to the Escrow Shares and Escrow Cash shall be
comprised of Merger Shares and Merger Cash that are Restricted and Unrestricted
in the same proportions as the total number of Merger Shares and amount of
Merger Cash such Company Shareholder is entitled to receive is comprised of
Merger Shares and Merger Cash that are Restricted and Unrestricted and (ii) the
Merger Shares and Merger Cash of such Company Shareholder included in the Escrow
Shares and Escrow Cash shall be allocated among the Restricted Merger Shares and
Restricted Merger Cash that Vests at different times in the same proportions as
all of such Company Shareholder's Restricted Merger Shares and Restricted Merger
Cash; provided, however, that the Escrow Fund shall not include any Merger
Shares that are also Restricted Merger Shares pursuant to the Stock Restriction
Agreement. Any fractional share that would otherwise result from the issuance of
a certificate representing the shares of Parent Common Stock to be deposited
into the Escrow Fund pursuant to this SECTION 1.7(c) shall be rounded up to the
nearest whole share, and any fraction of a share that would otherwise result
from the issuance of a certificate representing the remaining shares of Parent
Common Stock which each such Company Shareholder would otherwise be entitled to
receive under SECTION 1.7(a) by virtue of ownership of outstanding shares of
Company Capital Stock shall be rounded down to the nearest whole share.
Similarly, any fraction of a cent of Merger Cash that would otherwise result
from the payment of Merger Cash to be deposited into Escrow Fund pursuant to
this SECTION 1.7(c) shall be rounded up to the nearest whole cent, and any
fraction of a cent that would otherwise result from the payment of the remaining
Merger Cash which each such Company Shareholder would otherwise be entitled to
receive under SECTION 1.7(a) by virtue of ownership of outstanding shares of
Company Capital Stock shall be rounded down to the nearest whole cent. No Merger
Consideration shall be deposited in the Escrow Fund with respect to the Company
Stock Options or Company Warrants. With respect to Dissenting Shares, twenty
percent (20%) of any amount deemed payable to such dissenting Company
Shareholders pursuant to Chapter 13 of California Law shall, upon the conclusion
of such process and to the extent consistent with California Law, be withheld by
Parent and deposited with the Escrow Agent pursuant to the terms of this Section
1.7(c) (provided, however, that such amount be decreased proportionately if
Escrow Shares and Escrow Cash have previously been released from the Escrow Fund
to Company Shareholders pursuant to the terms hereof). As soon as practicable
after the Effective Time of Merger I, and subject to and in accordance with the
provisions of SECTION 7.2 hereof, Parent shall cause to be distributed to the
Escrow Agent (X) a certificate or certificates representing the aggregate number
of Merger Shares
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included in the Escrow Shares, which shall be registered in the name of the
Escrow Agent and (Y) a wire transfer in the amount of the aggregate amount of
Escrow Cash. Such shares and cash deposited in the Escrow Fund shall be
beneficially owned by the holders on whose behalf such shares and cash were
deposited in the Escrow Fund. The Merger Shares and Merger Cash deposited in the
Escrow Fund shall be available to compensate Parent as provided in ARTICLE VII.
(d) Cancellation of Parent-Owned Stock. Each share of Company
Common Stock held by the Company or owned by Merger Sub I, Merger Sub II, Parent
or any direct or indirect wholly-owned subsidiary of the Company or of Parent
immediately prior to the Effective Time of Merger I shall be canceled and
extinguished without any conversion thereof.
(e) Stock Options and Warrants. At the Effective Time of
Merger I, all outstanding Company Stock Options and Company Warrants shall be
replaced and substituted by Parent in accordance with SECTION 4.2 hereof.
(f) Capital Stock of Merger Subs. Each share of Common Stock
of Merger Sub I (the "MERGER SUB I COMMON STOCK") issued and outstanding
immediately prior to the Effective Time of Merger I shall, by virtue of Merger I
and without any further action on the part of Parent, Merger Sub I and the
Company, be converted into one validly issued, fully paid and nonassessable
share of Common Stock of the Surviving Corporation I. Each certificate
evidencing ownership of shares of Merger Sub I Common Stock shall evidence
ownership of such shares of capital stock of the Surviving Corporation I. Each
share of Common Stock of Merger Sub II (the "MERGER SUB II COMMON STOCK") issued
and outstanding immediately prior to the Effective Time of Merger II shall, by
virtue of Merger II and without any further action on the part of Parent, Merger
Sub II or Surviving Corporation I, be converted into one validly issued, fully
paid and nonassessable share of Common Stock of the Surviving Corporation. Each
certificate evidencing ownership of shares of Merger Sub II Common Stock shall
evidence ownership of such shares of capital stock of the Surviving Corporation.
(g) Adjustments to Exchange Ratio. The exchange ratios
referred to in Section 1.7 shall be adjusted to reflect appropriately the effect
of any stock split, reverse stock split, stock dividend (including any dividend
or distribution of securities convertible into Parent Common Stock or Company
Common Stock), reorganization, recapitalization, reclassification or other like
change with respect to Parent Common Stock occurring on or after the date hereof
and prior to the Effective Time of Merger I.
(h) Fractional Shares. No fraction of a share of Parent Common
Stock or fraction of a cent of Merger Cash will be issued or paid by virtue of
the Mergers, but in lieu thereof each holder of shares of Company Capital Stock
who would otherwise be entitled to a fraction of a share of Parent Common Stock
and/or a fraction of a cent of Merger Cash (after aggregating all fractional
shares of Parent Common Stock that otherwise would be received by such holder)
shall, upon surrender of such holder's Certificates(s) (as defined in SECTION
1.10(c)) receive from Parent an amount of cash (rounded to the nearest whole
cent), without interest, equal to the sum of (A) the product of (i) such
fraction, multiplied by (ii) the Parent Stock Price and (B) the fraction of a
cent of Merger Cash such holder is entitled to receive.
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(i) Preliminary Consideration Allocation Schedule. Set forth
opposite each Company Shareholder's name in SCHEDULE B is a preliminary schedule
showing the (A) with respect to each holder of Company Capital Stock as of the
date hereof, the shares of Parent Common Stock issuable and cash payable in
respect of such holder's shares of Company Capital Stock pursuant to Section
1.7(a), (B) with respect to each Company Option and Company Warrant outstanding
as of the date hereof, the number of shares of Parent Common Stock and, in the
case of Company Warrants, the amount of cash issuable, upon exercise of the
Replacement Option or Assumed Warrant, as applicable, that will, pursuant to
Section 5.1, result therefrom, and (C) the Escrow Shares and Escrow Cash to be
contributed to the Escrow Fund by each holder of Company Capital Stock; all
subject to adjustment prior to the Effective Time of Merger I for issuance,
Vesting, exercise and termination of Company Stock Options, Vesting or
repurchase of Restricted Company Common Stock, exercise or termination of
Company Warrants and other occurrences between the date of this Agreement and
the Closing Date that affect allocation of Merger Consideration, and adjustment
as a result of Dissenting Shares. The preliminary schedule shall be updated and
finalized as of the Closing Date for all such adjustments.
1.8 Earnout.
(a) Upon satisfaction of the Earnout Contingency (as defined
below), Parent shall pursuant to the terms hereof pay $1,500,000 of cash
consideration (the "EARNOUT CASH") in addition to the Merger Cash Amount, to be
allocated pro rata to the holders, as of immediately prior to the Effective Time
of Merger I, of Company Common Stock, Company Stock Options and Company Common
Warrants which are not terminated or exercised prior to the Effective Time of
Merger I (pro rata, based on the number of shares of Company Common Stock held
by each such holder and issuable to such holder upon full exercise of such
Company Stock Options and Company Common Warrants, determined in each case as of
immediately prior to the Effective Time of Merger I, and assuming for this
purpose that the Best Buy Warrant has been issued). The "EARNOUT CONTINGENCY"
will be satisfied if and only if the Company Music Services add 100,000 Net
Bona-fide Subscribers (the "EARNOUT TARGET") after the Closing Date and prior to
the one year anniversary of the Closing Date (the "EARNOUT PERIOD").
(b) Thirty-five (35) days after the Closing Date, Parent shall
deliver to the Shareholder Representative written notice of the number of
Bona-fide Subscribers at the Closing Date (the "INITIAL EARNOUT REPORT").
(c) Parent shall deliver to the Shareholder Representative
written notice of satisfaction of the Earnout Contingency within thirty-five
(35) days of satisfaction of the Earnout Contingency (an "EARNOUT NOTICE"). If
Parent has not delivered to the Shareholder Representative an Earnout Notice
prior to the expiration of the Earnout Period, then no later than thirty-five
(35) days following the expiration of the Earnout Period, Parent shall deliver
to the Shareholder Representative a report describing in reasonable detail the
Net Bona-Fide Subscribers added to the Company Music Service during the Earnout
Period (the "EARNOUT REPORT").
(d) The Shareholder Representative may object in writing to
the contents of the Initial Earnout Report or the Earnout Report only by
delivering to Parent, within thirty (30) days following delivery of the Initial
Earnout Report or the Earnout Report, as applicable, to the Shareholder
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Representative, a written objection to the contents thereof setting forth the
basis for such objection in reasonable detail (an "EARNOUT OBJECTION NOTICE").
Parent and the Shareholder Representative shall attempt in good faith to agree
upon the rights of the respective parties with respect to satisfaction of the
Earnout Contingency. If Parent and the Shareholder Representative should so
agree, a memorandum setting forth such agreement shall be prepared and signed by
Parent and the Shareholder Representative (an "EARNOUT SETTLEMENT MEMORANDUM").
If an Earnout Objection Notice is not delivered to Parent within thirty (30)
days following delivery of the Initial Earnout Report or the Earnout Report, as
applicable, to the Shareholder Representative, the contents of the Initial
Earnout Report or the Earnout Report, as applicable, shall be conclusively and
irrebuttably established, and may not be challenged by the Shareholder
Representative or any holder of Company Capital Stock, Company Stock Options or
Company Warrants to whom Earnout Cash is potentially allocable pursuant to
Section 1.8(a).
(e) The Earnout Cash shall be paid no later than forty-five
(45) days following satisfaction of the Earnout Contingency. The contingent
right to receive Earnout Cash pursuant to this Section 1.8 (an "EARNOUT RIGHT")
shall be nontransferable.
(f) Earnout Definitions.
(i) A "BONA-FIDE SUBSCRIBER" to a Company Music
Service means each subscriber to such Company Music Service who: (A) has
actually paid the applicable subscription fee, and (B) has not requested and
received a refund of such subscription fee for any reason within thirty (30)
days following the end of the payment period for which such subscription fee was
paid. A subscriber to any of Parent's existing subscription services, including,
without limitation, Parent's existing SuperPass or RadioPass subscription
services, shall not be counted as a Bona-Fide Subscriber to a Company Music
Service; provided, however, if the technology of the Company acquired by Parent
in the Mergers is used in connection with Parent's RadioPass subscription
service, a new subscriber to RadioPass added after such time shall (if such
subscriber meets the criteria in clauses (A) and (B) above) be counted as a
Bona-Fide Subscriber. For purposes of clarity, the technology of the Company
shall not be deemed to be used in connection with Parent's RadioPass
subscription service solely by virtue of the fact that such service is
programmed by the Company or the Company provides search engine results for such
service.
(ii) A "COMPANY MUSIC SERVICE" means any of the
Company's subscription music services, currently referred to as "All Access" or
"Radio Plus," or any other music subscription service based primarily on the
assets and technology of the Company offered by Parent or its Affiliates during
the Earnout Period.
(iii) "NET BONA-FIDE SUBSCRIBERS" to a Company
Music Service for a period means the number of Bona-Fide Subscribers added to
such Service during such period, less the number of subscribers to such Service
that cancel their subscriptions during such measurement period.
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1.9 Dissenting Shares.
(a) Notwithstanding any other provision of this Agreement to
the contrary, shares of Company Capital Stock that have not been voted for
approval of this Agreement and with respect to which a demand for payment and
appraisal have been properly made in accordance with Chapter 13 of California
Law ("DISSENTING SHARES"), will not be converted into the right to receive that
portion of the Merger Consideration otherwise payable with respect to such
shares of Company Capital Stock after the Effective Time of Merger I but will be
converted into the right to receive such consideration as may be determined to
be due with respect to such Dissenting Shares pursuant to California Law.
(b) If a holder of Dissenting Shares (a "DISSENTING
SHAREHOLDER") withdraws such holder's demand for such payment and appraisal or
becomes ineligible for such payment and appraisal, then, as of the Effective
Time of Merger I or the occurrence of such event of withdrawal or ineligibility,
whichever last occurs, such holder's Dissenting Shares will cease to be
Dissenting Shares and will be converted into the right to receive, and will be
exchangeable for, that portion of the Merger Consideration into which such
Dissenting Shares would have been converted pursuant to SECTION 1.7(a), subject
to the other provisions of Section 1.7.
(c) The Company will give Parent and the Merger Subs prompt
notice of any demand received by the Company from a holder of Dissenting Shares
for appraisal of shares of Company Capital Stock, and Parent shall have the
right to participate in all negotiations and proceedings with respect to such
demand. The Company agrees that, except with the prior written consent of Parent
and the Merger Subs, or as required under California Law, it will not
voluntarily make any payment with respect to, or settle or offer or agree to
settle, any such demand for appraisal. Each Dissenting Shareholder who, pursuant
to Chapter 13 of California Law becomes entitled to payment of the value of the
Dissenting Shares will receive payment therefor (but only after the value
therefor has been agreed upon or finally determined pursuant to such
provisions), and subject to escrow withholding pursuant to Section 1.7(c)
hereof.
1.10 Surrender of Certificates.
(a) Exchange Agent. Parent shall select a bank or trust
company reasonably acceptable to the Company to act as the exchange agent (the
"EXCHANGE AGENT") in the Mergers.
(b) Parent to Provide Common Stock. At Closing, Parent shall
make available to the Exchange Agent for exchange in accordance with this
ARTICLE I, the shares of Parent Common Stock issuable and cash payable pursuant
to SECTION 1.7 (subject to the escrow provisions of SECTION 1.7(b)) in exchange
for outstanding shares of Company Capital Stock, and additional cash in an
amount sufficient for payment in lieu of fractional shares pursuant to SECTION
1.7(H) and any dividends or distributions to which holders of shares of Company
Capital Stock may be entitled pursuant to SECTION 1.10(d).
(c) Exchange Procedures. At Closing, Parent shall cause the
Exchange Agent to deliver to each holder of record (as of the Effective Time of
Merger I) of a Certificate or Certificates, which immediately prior to the
Effective Time of Merger I represented outstanding shares of Company Capital
Stock whose shares were converted into the right to receive Merger Consideration
pursuant to SECTION 1.7, (together with cash in lieu of any fractional shares
pursuant to
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SECTION 1.7(h) and any dividends or other distributions pursuant to SECTION
1.10(d)): (i) a letter of transmittal in customary form (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall contain such other customary provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing Merger Shares, Merger Cash, cash in lieu
of any fractional shares pursuant to SECTION 1.7(h) and any dividends or other
distributions pursuant to SECTION 1.10(d). Upon surrender of Certificates for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor (subject in
each case to the escrow provisions of SECTION 1.7(b)) certificates representing
the number of whole Merger Shares into which their shares of Company Capital
Stock were converted at the Effective Time of Merger I, Merger Cash, payment in
lieu of fractional shares which such holders have the right to receive pursuant
to SECTION 1.7(h) and any dividends or distributions payable pursuant to SECTION
1.10(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time of Merger I, for all corporate purposes, subject to SECTION
1.10(d) as to the payment of dividends, to evidence only the ownership of the
number of Merger Shares, Merger Cash and Earnout Rights into which such shares
of Company Capital Stock shall have been so converted and the right to receive
an amount in cash in lieu of the issuance of any fractional shares in accordance
with SECTION 1.7(h) and any dividends or distributions payable pursuant to
SECTION 1.10(d).
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Parent Common Stock with a record date after the
Effective Time of Merger I will be paid to the holders of any unsurrendered
Certificates with respect to the shares of Parent Common Stock represented
thereby until the holders of record of such Certificates shall surrender such
Certificates. Subject to applicable law, following surrender of any such
Certificates, the Exchange Agent shall deliver to the record holders thereof, in
exchange therefore, without interest, certificates representing whole shares of
Parent Common Stock issued, Merger Cash paid and Earnout Rights issued, along
with payment in lieu of fractional shares pursuant to SECTION 1.7(h) hereof and
the amount of any such dividends or other distributions with a record date after
the Effective Time of Merger I payable with respect to such whole shares of
Parent Common Stock.
(e) Transfers of Ownership. If certificates representing
Merger Shares are to be issued, or Merger Cash is to be paid, in a name other
than that in which the Certificates surrendered in exchange therefor are
registered, it will be a condition of the issuance and payment thereof that the
Certificates so surrendered will be properly endorsed and otherwise in proper
form for transfer and that the persons requesting such exchange will have paid
to Parent or any agent designated by it any transfer or other Taxes required by
reason of the issuance of certificates representing Merger Shares and payment of
Merger Cash in any name other than that of the registered holder of the
Certificates surrendered, or established to the satisfaction of Parent or any
agent designated by it that such Tax has been paid or is not payable.
(f) Required Withholding. Each of the Exchange Agent, Parent,
Surviving Corporation I and the Surviving Corporation shall be entitled to
deduct and withhold from any
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consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Capital Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or under any provision of
state, local or foreign Tax law or under any other applicable legal requirement.
To the extent such amounts are so deducted or withheld, such amounts shall be
treated for all purposes under this Agreement as having been paid to the person
to whom such amounts would otherwise have been paid.
(g) No Liability. Notwithstanding anything to the contrary in
this SECTION 1.10, neither the Exchange Agent, Parent, Surviving Corporation I,
the Surviving Corporation nor any party hereto shall be liable to a holder of
shares of Parent Common Stock or Company Capital Stock for any amount properly
paid to a public official pursuant to any applicable abandoned property, escheat
or similar law.
1.11 No Further Ownership Rights in Company Capital Stock. All
Merger Shares issued, Merger Cash paid and Earnout Rights issued in accordance
with the terms hereof (together with any cash paid in respect thereof pursuant
to SECTION 1.7(h) and 1.10(d)) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock which were outstanding
immediately prior to the Effective Time of Merger I. If, after the Effective
Time of Merger I, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this ARTICLE I.
1.12 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the Merger Shares, Merger Cash and Earnout Rights into which the
shares of Company Common Stock represented by such Certificates were converted
pursuant to SECTION 1.7, cash for fractional shares, if any, as may be required
pursuant to SECTION 1.7(h) and any dividends or distributions payable pursuant
to SECTION 1.10(d); provided, however, that Parent may, in its discretion and as
a condition precedent to the issuance of such certificates representing Merger
Shares, cash and other distributions, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Parent, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
1.13 Tax-Free Reorganization. The parties intend that the Mergers,
taken together, will qualify as a reorganization within the meaning of the
provisions of Section 368(a) of the Code. The parties to this Agreement hereby
adopt this Agreement as a "plan of reorganization" within the meaning of Section
1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. Parent
intends that, following the Mergers, the Surviving Corporation will continue the
Company's historic business or use a significant portion (as described in Treas.
Reg. Section 1.368-1(d)) of Company's historic business assets in a business.
Parent has no plan or intention to directly or indirectly (through one or more
related parties as defined in Treas. Reg. ss. 1.368-1(e)(3)) reacquire any of
its stock issued in the Mergers. For the purposes of this representation, (i)
repurchases by Parent of some of its issued and outstanding common stock in open
market repurchase transactions meeting the requirements of Rev Rul. 99-58,
1999-2 C.B. 701, will be disregarded and (ii) repurchases of unvested Parent
stock from
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employees or other service providers upon failure to satisfy applicable vesting
conditions will be disregarded. However, Parent makes no representations or
warranties to the Company or to any securityholder of the Company regarding the
tax treatment of the Mergers, or any of the tax consequences to the Company or
any securityholder of the Company relating to the Mergers, this Agreement, or
any of the other transactions or agreements contemplated hereby. The Company
acknowledges that it and its securityholders are relying solely on their own tax
advisors in connection with the Mergers, this Agreement and the other
transactions and agreements contemplated hereby.
1.14 Taking of Necessary Action; Further Action. If, at any time
after the Effective Time of Merger I, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of Company and the Merger Subs, the
current officers and directors of the Company and the Merger Subs will take all
such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As of the date hereof and as of the Closing Date (except where the
representation or warranty is expressly made as of another date, in which case
such representation or warranty is made only as of such other date), the Company
hereby represents and warrants to Parent and the Merger Subs, subject to such
exceptions as are specifically disclosed in writing in (i) the disclosure
letter, dated as of the date hereof, and certified by a duly authorized officer
of the Company (the "COMPANY SCHEDULE") and (ii) solely for the purpose of
determining Losses pursuant to Article VII, the Updated Company Schedule (as
defined in Section 6.3(v)), as follows:
2.1 Organization and Qualification; Subsidiaries.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
the requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted. The
Company is in possession of all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates, approvals and orders ("APPROVALS")
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except where
the failure to have such Approvals would not, individually or in the aggregate,
have a Material Adverse Effect on the Company. The Company is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not, either individually or in the
aggregate, have a Material Adverse Effect on the Company.
(b) The Company has no subsidiaries. The Company has not
agreed nor is obligated to make nor be bound by any Contract under which it may
become obligated to make, any future investment in or capital contribution to
any other entity. The Company does not directly or indirectly
-26-
own any equity or similar interest in or any interest convertible, exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business, association or entity.
2.2 Articles of Incorporation and Bylaws. The Company has previously
furnished to Parent a complete and correct copy of its articles of incorporation
and bylaws as amended to date (together, the "COMPANY CHARTER DOCUMENTS"). Such
Company Charter Documents are in full force and effect. The Company is not in
violation of any of the provisions of the Company Charter Documents.
2.3 Capitalization.
(a) The authorized capital stock of the Company consists of
60,000,000 shares of Company Common Stock and 15,607,511 shares of Company
Preferred Stock, of which 1,229,730 are designated Company Series A Stock,
3,765,959 are designated Company Series B Stock, 9,793,824 are designated
Company Series C Stock, 703,896 are designated Company Series D Stock, and
114,102 are designated Company Series 1 Stock.
(b) As of the date of this Agreement, the outstanding capital
stock of the Company consists of 11,327,545 shares of Company Common Stock,
1,229,730 shares of Company Series A Stock, 3,765,959 shares of Company Series B
Stock, 1,412,004 shares of Company Series C Stock, no shares of Company Series D
Stock, and 114,102 shares of Company Series 1 Stock. All shares of Company
Capital Stock are held of record as of the date of this Agreement by the
respective shareholders as set forth in Section 2.3(b) of the Company Schedule.
Section 2.3(b) of the Company Schedule sets forth the following information with
respect to each such holder (as of the date of this Agreement) of Company
Capital Stock: (i) the name and address of the holder; (ii) the number of shares
of Company Capital Stock held; (iii) the share certificate numbers held by such
holder and (iv) whether any shares of Company Capital Stock held by such
shareholder are Restricted, the Vesting of any such restricted shares, including
the extent to which any such Vesting has occurred as of the date of this
Agreement and whether (and to what extent) the Vesting will be accelerated by
the transactions contemplated by this Agreement.
(c) All of the issued and outstanding shares of Company
Capital Stock have been duly authorized, are validly issued, fully paid,
non-assessable, and were not issued in violation of any preemptive rights,
rights of first refusal, or any similar rights. No shares of Company Capital
Stock are held in treasury by the Company. All preferential rights of the
Company Preferred Stock in connection with the sale of substantially all of the
assets of the Company or a merger involving the Company are set forth in the
Articles of Incorporation of the Company.
(d) The accrued dividends as of the date hereof with respect
to shares of each separate class and series of Company Capital Stock, and the
additional daily accrual of dividends following the date hereof with respect to
shares of each separate class and series of Company Preferred Stock are set
forth in Section 2.3(d) of the Company Schedule. There are no declared dividends
with respect to any shares of Company Capital Stock.
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(e) Shares of Company Capital Stock are reserved for issuance
upon the exercise of outstanding Company Stock Rights as follows: (i) 3,541,186
shares of Company Common Stock are reserved for issuance upon exercise of
outstanding Company Stock Options issued prior to the date of this Agreement
pursuant to stock option agreements, Contracts, awards or other arrangements,
(ii) 13,472,407 shares of Company Common Stock are reserved for future issuance
upon conversion of outstanding shares of the Company Preferred Stock, (iii)
808,097 shares of Company Common Stock are reserved for issuance upon exercise
of outstanding Company Common Warrants, (iv) 714,672 shares of Company Preferred
Stock are reserved for issuance upon exercise of outstanding Company Preferred
Warrants and (v) the Company is obligated to issue the Best Buy Warrant.
(f) Section 2.3(f) of the Company Schedule sets forth the
following information with respect to each Company Stock Right as of the date of
this Agreement: (A) the name and address of the optionee or Company Stock Right
grantee; (B) the number of shares of Company Capital Stock subject to such
Company Stock Right; (C) the exercise price of such Company Stock Right; (D) the
date on which such Company Stock Right was granted; (E) the applicable Vesting
schedule; and (F) the date on which such Company Stock Right expires. The
Company has made available to Parent accurate and complete copies of all
agreements evidencing such Company Stock Rights. All shares of Company Capital
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instrument pursuant to which they are issuable,
would be duly authorized, validly issued, fully paid and nonassessable. There
are no commitments or agreements of any character to which the Company is bound
obligating the Company to accelerate the Vesting of any Company Stock Right as a
result of the Mergers or any event following the Mergers and there are no
Company Stock Rights that Vest upon any condition other than the passage of
time.
(g) There are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any character to
which the Company is a party or by which it is bound obligating the Company to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition
of, any shares of capital stock, partnership interests or similar ownership
interests of the Company or obligating the Company to grant, extend, accelerate
the vesting of or enter into any such subscription, option, warrant, equity
security, call, right, commitment or agreement.
(h) Except as contemplated by this Agreement, there are no
registration rights and there is no voting trust, proxy, rights plan,
anti-takeover plan or other agreement or understanding to which the Company is a
party or by which the Company is bound with respect to any equity security of
any class of the Company.
(i) All outstanding shares of Company Capital Stock and all
outstanding Company Stock Rights, have been issued and granted in compliance
with (i) all applicable federal and state securities laws and other applicable
Legal Requirements and (ii) all requirements set forth in applicable Contracts.
(j) The Company represents and warrants that its obligation,
and Parent's obligation after consummation of the Mergers, under the Best Buy
Agreement with respect to the Best Buy
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Warrant shall be to issue a warrant exercisable for a number of shares of
Company Common Stock equal to one percent (1%) of the Company's outstanding
equity securities on a fully-diluted basis at the Closing Date at a per share
price of $2.955, with such number and price adjusted by the Common Cash Exchange
Ratio (into shares of Parent Common Stock) and the Common Stock Exchange Ratio.
2.4 Authority Relative to this Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, including obtaining the approval of the
Company Shareholders of Merger I, to consummate the transactions contemplated
hereby. The vote required of the Company Shareholders to duly approve the
principal terms of this Agreement and Merger I is that number of shares as would
constitute a majority of (i) the outstanding shares of the Company Common Stock
and the Company Preferred Stock, voting together as a single class (with each
share of Company Preferred Stock being entitled to a number of votes equal to
the number of whole shares of Company Common Stock into which such share of
Company Preferred Stock could be converted on the record date for the vote),
(ii) the outstanding shares of Company Common Stock, voting as a separate class,
(iii) the outstanding shares of Company Preferred Stock voting as a separate
class, (iv) the outstanding shares of Company Series A Preferred Stock, Company
Series B Preferred Stock, Company Series C Preferred Stock and Company Series D
Preferred Stock, voting together as a class (with each share of Company
Preferred Stock being entitled to a number of votes equal to the number of whole
shares of Company Common Stock into which such share of Preferred Stock could be
converted on the record date for the vote), and (v) the outstanding shares of
Company Series A Preferred Stock, Company Series B Preferred Stock, Company
Series C Preferred Stock, Company Series D Preferred Stock, and Company Series 1
Preferred Stock, each voting as a separate series (with each share of Company
Preferred Stock being entitled to a number of votes equal to the number of whole
shares of Company Common Stock into which such share of Preferred Stock could be
converted on the record date for the vote); provided that, if the Articles of
Amendment (as defined in Section 5.28) are filed prior to soliciting approval
from the Company Shareholders of the principal terms of this Agreement and
Merger I, then the vote required would be as set forth in subsections (i), (ii),
(iii) and (iv) above. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of the Company, other than approval of Merger I by the Company
Shareholders as described above, and no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by the Company and, assuming the due authorization, execution and
delivery by Parent and the Merger Subs, constitute legal and binding obligations
of the Company, enforceable against the Company and the Principal Shareholders
in accordance with its terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights, and (b) general principles of equity
that restrict the availability of equitable remedies.
2.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby shall not, (i) conflict
with or violate the Company Charter Documents,
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(ii) subject to obtaining the approval of this Agreement and Merger I by the
Company Shareholders and compliance with the requirements set forth in SECTION
2.5(b) below, conflict with or violate any Legal Requirement applicable to the
Company or by which any of its properties are bound or affected, or (iii) with
notice or lapse of time, or both, result in any breach of or constitute a
default under, or impair the Company's rights or alter the rights or obligations
of any third party under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a Lien
on any of the properties or assets of the Company pursuant to, any material
Contract, or any Contracts which are in the aggregate material, to which the
Company is a party or by which the Company or any of its properties are bound or
affected; provided that if any consents, waivers or approvals are required to
avoid the consequences noted in (iii) (such consequences, a "CONFLICT"), such
consents, waivers and approvals are listed on Section 2.5(a) of the Company
Schedule along with an indication of whether such consents, waivers or approvals
have been obtained.
(b) The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Body, except (i) for applicable requirements, if any, of
the Securities Act, the Exchange Act or Blue Sky Laws, and (ii) the filing and
recordation of Agreement of Merger I and Agreement of Merger II as required by
California Law.
(c) The Company has delivered to Parent all consents to
assignment and other consents or waivers required under (or necessary to avoid a
Conflict under) any of the content license agreements with the Major Music
Labels in connection with the transactions contemplated by this Agreement.
2.6 Compliance; Permits.
(a) The Company is not in conflict with, or in default or
violation of, (i) any Legal Requirement applicable to the Company or by which
any of its properties are bound or affected, or (ii) any Contract to which the
Company is a party or by which the Company or any of its properties are bound or
affected, except with respect to (ii) for any conflicts, defaults or violations
that (individually or in the aggregate) would not have a Material Adverse Effect
on the Company. No investigation or review by any Governmental Body is pending
or, to the Knowledge of the Company, threatened against the Company, nor has any
Governmental Body indicated an intention to conduct the same.
(b) The Company holds all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
necessary or material to the operation of the Company's business (collectively,
the "COMPANY PERMITS"). The Company is in compliance in all material respects
with the terms of the Company Permits.
2.7 Financial Statements.
The Company has provided to Parent in the Company Schedule its
unaudited balance sheets as of December 31, 2002 (the "REGULAR BALANCE SHEET")
and March 31, 2003 (the "MOST RECENT
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BALANCE SHEET"), and its unaudited statements of operations, statements of
shareholders' equity and statements of cash flows for the twelve (12) month
period ended December 31, 2002 and the three (3) month period ended March 31,
2003. All of the foregoing financial statements are referred to as the
"FINANCIAL STATEMENTS". Each of the Financial Statements is complete and correct
in all material respects and was prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, do not contain footnotes and other presentation
items that may be required by GAAP). Each of the Financial Statements fairly
presents the financial position of the Company at the respective dates thereof
and the results of its operations and cash flows for the periods indicated,
except that the unaudited Financial Statements do not include statements of cash
flows and were or are subject to normal adjustments which were not or are not
expected to be, individually or in the aggregate, material in amount. The
Company's cash, cash equivalents and short-term investments as of the date
hereof are not less than $2,300,000.
2.8 No Undisclosed Liabilities; Total Assets and Total Liabilities.
Except as may be disclosed in footnotes to the Financial Statements, the Company
does not have any liabilities (absolute, accrued, contingent or otherwise)
except (i) liabilities provided for in the Most Recent Balance Sheet, (ii)
liabilities in Contracts to which the Company is a party or is bound and which
provide for annual payments by or obligations of the Company not in excess of
$30,000, and (iii) liabilities incurred or accrued for (A) in the Ordinary
Course of Business since the date of the Most Recent Balance Sheet, and (B) in
connection with the transactions provided for in this Agreement.
2.9 Absence of Certain Changes or Events. Since December 31, 2002:
(a) there has not been any Material Adverse Effect on the
Company;
(b) there has not been any declaration, setting aside or
payment of any dividend on, or other distribution (whether in cash, stock or
property) in respect of, any of the Company's capital stock, or any purchase,
redemption or other acquisition by the Company of any of the Company's capital
stock or any other securities of the Company except for repurchases from
employees following their termination pursuant to the terms of their
pre-existing stock option or purchase agreements;
(c) there has not been any split, combination or
reclassification of any of the Company's capital stock;
(d) there has not been any granting by the Company of any
increase in compensation or fringe benefits, except for normal increases of cash
compensation to non-officer employees in the Ordinary Course of Business
consistent with past practice, or any payment by the Company of any bonus,
except for bonuses made to non-officer employees in the Ordinary Course of
Business consistent with past practice, or any granting by the Company of any
increase in severance or termination pay or any entry by the Company into any
currently effective employment, severance, termination or indemnification
agreement or any agreement the benefits of which are contingent or the terms of
which are materially altered upon the occurrence of a transaction involving the
Company of the nature contemplated hereby;
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(e) the Company has not entered into any licensing or other
agreement with regard to the acquisition or disposition of any Intellectual
Property (as defined in Section 2.17) other than license agreements entered into
with customers or distributors of the Company's Music Service in the Ordinary
Course of Business;
(f) there has not been any material change by the Company in
its accounting methods, principles or practices, except as required by
concurrent changes in GAAP;
(g) there has not been any revaluation by the Company of any
of its assets, including, without limitation, writing down the value of
capitalized inventory or writing off notes or accounts receivable or any sale of
assets of the Company other than in the Ordinary Course of Business;
(h) the Company has not sold, leased, transferred, or assigned
any assets or properties, tangible or intangible, outside the Ordinary Course of
Business;
(i) the Company has not entered into, assumed or become bound
under or obligated by any Contract or extended or modified the terms of any
Contract which (i) involves the payment of greater than $30,000 per annum or
which extends for more than one (1) year, (ii) involves any payment or
obligation to any Affiliate of the Company other than in the Ordinary Course of
Business, (iii) involves the sale of any material assets, or (iv) involves any
license or sublicense of any Company Intellectual Property other than license
agreements entered into with customers or distributors of the Company's Music
Service in the Ordinary Course of Business;
(j) no party (including the Company) has accelerated,
terminated, made modifications to, or canceled any Contract to which the Company
is a party or by which it is bound and the Company has not modified, canceled or
waived or settled any debts or claims held by it, outside the Ordinary Course of
Business, or waived or settled any rights or claims of a substantial value,
whether or not in the Ordinary Course of Business;
(k) to the Company's Knowledge, none of the assets of the
Company, tangible or intangible, has become subject to any Lien;
(l) the Company has not made any capital expenditures except
in the Ordinary Course of Business and not exceeding $20,000 in the aggregate of
all such capital expenditures;
(m) the Company has not made any capital investment in, or any
loan to, any other person;
(n) the Company has not created, incurred, assumed, prepaid or
guaranteed any indebtedness for borrowed money and capitalized lease
obligations, or extended or modified any existing indebtedness;
(o) there has been no change made or authorized in the
Company's Charter Documents;
(p) there has not been (i) any change in the Company's
authorized or issued capital stock, except for exercises of previously
outstanding Company Stock Options, (ii) any grant of any
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Company Stock Right, (iii) the issuance of any security convertible into such
Company Capital Stock, (iv) the grant of any registration rights, (v) any
purchase, redemption, retirement, or other acquisition by the Company of any
shares of any such capital stock or (vi) any declaration or payment of any
dividend or other distribution or payment in respect of shares of capital stock;
(q) other than with respect to ordinary wear and tear, the
Company has not experienced any damage, destruction, or loss (whether or not
covered by insurance) to its property in excess of $5,000 in the aggregate of
all such damage, destruction and losses;
(r) the Company has not suffered any repeated, recurring or
prolonged shortage, cessation or interruption of communications, customer
access, supplies or utility services;
(s) the Company has not made any loan to, or entered into any
other transaction with, or paid any bonuses to, any of its Affiliates,
directors, officers, or employees or their Affiliates;
(t) the Company has not entered into any employment contract
or collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(u) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
Contract, or commitment for the benefit of any of its directors, officers, or
employees (or taken any such action with respect to any other Company Benefit
Plan (as defined below), other than the granting of Company Stock Options to
non-Officer employees in the Ordinary Course of Business;
(v) the Company has not made any other change in employment
terms for any of its directors or officers, and the Company has not made any
other change in employment terms for any other employees outside the Ordinary
Course of Business;
(w) the Company has not suffered any adverse change or any
threat of any adverse change in its relations with, or any loss or threat of
loss of, any of its licensors, distributors, suppliers or other business
partners except for such changes or losses and threatened changes or losses
(assuming for this purpose that such threats are realized) as would not
individually or in the aggregate have or be reasonably expected to have a
Material Adverse Effect;
(x) the Company has not received notice and does not have
Knowledge of any actual or threatened labor trouble or strike, or any other
occurrence, event or condition of a similar character;
(y) the Company has not made a change in any of its banking or
safe deposit arrangements;
(z) the Company has not entered into any transaction other
than in the Ordinary Course of Business; and
(aa) the Company has not entered into any agreement or
otherwise become obligated to do any of the foregoing.
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2.10 Absence of Litigation. There are (and within the two (2) years
preceding the date hereof there have been) no claims, actions, suits or
proceedings pending or, to the Knowledge of the Company, threatened (or, to the
Knowledge of the Company, any investigation by any Governmental Body pending or
threatened) or contemplated against the Company or any properties or rights of
the Company, before any Governmental Body (including third party claims,
actions, suits or proceedings). None of the Company or any of its properties or
rights is subject to any outstanding injunction, order, decree, ruling or
charge. To the Knowledge of the Company, no third party has any reasonable cause
for filing any claim, action, suit or proceeding or investigation of the
Company, other than as would not reasonably be expected to result in damages
more than $100,000 and to not have a Material Adverse Effect on the Company.
2.11 Employee Benefit Plans and Compensation(a).
(a) Definitions. For all purposes of this Agreement, the
following terms shall have the following respective meanings:
(i) "COMPANY BENEFIT PLAN" shall mean any plan,
program, policy, practice, Contract, agreement or other arrangement providing
for compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written, unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any ERISA
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Company Subsidiary has or may have any liability or obligation; provided,
however, that this term shall not include Employee Agreements where Employee
Agreements are expressly referred to together with Company Benefit Plans.
(ii) "COBRA" shall mean the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended and as codified in Section 4980B
of the Code and Section 601 et. seq. of ERISA.
(iii) "DOL" shall mean the United States
Department of Labor.
(iv) "EMPLOYEE" shall mean any current or former
employee, consultant or director of the Company.
(v) "EMPLOYEE AGREEMENT" shall mean each
management, employment, severance, consulting or other agreement, or Contract
between the Company and any Employee.
(vi) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
(vii) "ERISA AFFILIATE" shall mean any other
person or entity under common control with the Company within the meaning of
Section 414(b), (c), (m) or (o) of the Code, and the regulations issued
thereunder.
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(viii) "INTERNATIONAL EMPLOYEE PLAN" shall mean
each Company Benefit Plan or Employment Agreement that has been adopted or
maintained by the Company or any ERISA Affiliate, whether formally or informally
or with respect to which the Company or any ERISA Affiliate will or may have any
liability with respect to Employees who perform services outside the United
States.
(ix) "IRS" shall mean the United States Internal
Revenue Service.
(x) "PBGC" shall mean the United States Pension
Benefit Guaranty Corporation.
(xi) "PENSION PLAN" shall mean each Company
Benefit Plan which is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
(b) Schedule. Section 2.11(b) of the Disclosure Schedule
contains an accurate and complete list of each Company Benefit Plan, each
Employee Agreement under each Company Benefit Plan, and each Employee Agreement
(in each case other than offer letters, stock option agreements and invention
assignment agreements pursuant to the Company's standard forms previously
provided to Parent). Neither the Company nor any ERISA Affiliate has made any
plan or commitment to establish any new Company Benefit Plan or Employee
Agreement, to modify any Company Benefit Plan or Employee Agreement (except to
the extent required by law or to conform any such Company Benefit Plan or
Employee Agreement to the requirements of any applicable law, in each case as
previously disclosed to Parent in writing, or as required by this Agreement), or
to enter into any Company Benefit Plan or Employee Agreement. Section 2.11(b) of
the Disclosure Schedule sets forth a table with the name and salary of each
employee of the Company.
(c) Documents. The Company has made available to Parent (i)
correct and complete copies of all documents embodying each Company Benefit Plan
and each Employee Agreement including, without limitation, all amendments
thereto and all related trust documents, (ii) the most recent annual reports
(Form Series 5500 and all schedules and financial statements attached thereto),
if any, required under ERISA or the Code in connection with each Company Benefit
Plan, (iii) if the Company Benefit Plan is funded, the most recent annual and
periodic accounting of Company Benefit Plan assets, (iv) the most recent summary
plan description together with the summary(ies) of material modifications
thereto, if any, required under ERISA with respect to each Company Benefit Plan,
(v) all material written agreements and Contracts relating to each Company
Benefit Plan, including, without limitation, administrative service agreements
and group insurance contracts, (vi) all written communications material to any
employee or employees relating to any Company Benefit Plan and any proposed
Company Benefit Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any liability to the
Company, (vii) all correspondence to or from any Governmental Body relating to
any Company Benefit Plan, (viii) all discrimination tests for each Company
Benefit Plan, if applicable, for the most recent plan years, and (ix) the most
recent IRS determination or opinion letter issued with respect to each Company
Benefit Plan, if applicable.
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(d) Employee Plan Compliance. The Company and each ERISA
Affiliate has performed all material obligations required to be performed by
them under, are not in material default or violation of, and the Company does
not have any Knowledge of any default or violation by any other party to, any
Company Benefit Plan, and each Company Benefit Plan has been established and
maintained in accordance with its material terms and in compliance in all
material respects with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA and the Code. Any Company
Benefit Plan intended to be qualified under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code (i) has either
applied for, prior to the expiration of the requisite period under applicable
Treasury Regulations or IRS pronouncements, or obtained a favorable
determination, notification, advisory and/or opinion letter, as applicable, as
to its qualified status from the IRS or still has a remaining period of time
under applicable Treasury Regulations or IRS pronouncements in which to apply
for such letter and to make any amendments necessary to obtain a favorable
determination, and (ii) incorporates or has been amended to incorporate all
provisions required to comply with the Tax Reform Act of 1986 and subsequent
legislation. For each Company Benefit Plan that is intended to be qualified
under Section 401(a) of the Code there has been no event, condition or
circumstance that has adversely affected or is likely to adversely affect such
qualified status. No "prohibited transaction," within the meaning of Section
4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt
under Section 408 of ERISA, has occurred with respect to any Company Benefit
Plan. There are no actions, suits or claims pending or, to the Company's
Knowledge, threatened (other than routine claims for benefits) against any
Company Benefit Plan or against the assets of any Company Benefit Plan. Each
Company Benefit Plan can be amended, terminated or otherwise discontinued after
the Effective Time of Merger I in accordance with its terms, without liability
to Parent, the Company or any Company Subsidiary (other than ordinary
administration expenses). There are no audits, inquiries or proceedings pending
or to the Company's Knowledge threatened by the IRS, DOL, or any other
Governmental Entity with respect to any Company Benefit Plan. Neither the
Company nor any ERISA Affiliate is subject to any penalty or tax with respect to
any Company Benefit Plan under Section 502(i) of ERISA or Sections 4975 through
4980 of the Code. The Company and each ERISA Affiliate has timely made all
contributions and other payments required by and due under the terms of each
Company Benefit Plan.
(e) No Pension or Welfare Plans. The Company has not, with
respect to an Employee, maintained, established, sponsored, participated in, or
contributed to, any (i) Pension Plans subject to Title IV of ERISA, (ii)
"multiemployer plan" within the meaning of Section (3)(37) of ERISA or (iii) a
"multiple employer plan" as defined in ERISA or the Code, or (iv) a "funded
welfare plan" within the meaning of Section 419 of the Code. No Company Benefit
Plan provides health benefits that are not fully insured through an insurance
contract.
(f) No Post-Employment Obligations. No Company Benefit Plan
provides, or reflects or represents any liability to provide post-termination or
retiree welfare benefits, to any person for any reason, except as may be
required by COBRA or other applicable statute, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) or any other person
that such Employee(s) or other person would be provided with post-termination or
retiree welfare or other non-pension benefits, except to the extent required by
statute.
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(g) Effect of Transaction.
(i) The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Benefit Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee (each a "BENEFIT").
(ii) No Benefit could give rise to an amount that
would be (i) non-deductible to the Company under Section 280G of the Code, or
(ii) subject to excise tax under Section 4999 of the Code. The Company is not,
nor has it ever been, a party to or bound by any tax indemnity agreement or any
other agreement that will require Parent or the Surviving Corporation to
"gross-up" or otherwise compensate any Employee because of the imposition of any
excise tax on a Benefit provided to such Employee.
(h) Employment Matters. The Company: (i) has, in all material
respects, withheld and reported all amounts required by law or by agreement to
be withheld and reported with respect to wages, salaries and other payments to
Employees, (ii) is not liable, in any material respect, for any arrears of wages
or any taxes or any penalty for failure to comply with respect to the matters
described in (i), and (iii) is not liable, in any material respect, for any
payment to any trust or other fund governed by or maintained by or on behalf of
any governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending, or to the Company's Knowledge, threatened
claims or actions against the Company under any worker's compensation policy or
long-term disability policy. The services provided by each of the Employees is
terminable at the will of the Company and any such termination would result in
no material liability to the Company under any Contract.
(i) Labor. No work stoppage or labor strike against the
Company is pending, or to the Company's Knowledge, threatened. To the Company's
Knowledge, there are no activities or proceedings of any labor union to organize
any employees. There are no actions, suits, claims, labor disputes or grievances
pending, or to the Company's Knowledge, threatened, relating to any labor,
safety or discrimination matters involving any employee, including, without
limitation, charges of unfair labor practices or discrimination complaints. The
Company has not engaged in any unfair labor practices within the meaning of the
National Labor Relations Act. The Company presently is not, nor has it been in
the past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to employees and no collective bargaining agreement is
being negotiated on behalf of the employees.
(j) International Employee Plan. The Company does not, nor has
it ever had, the obligation to maintain, establish, sponsor, participate in, be
bound by or contribute to any International Employee Plan.
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(k) Terminating Employees. No executive, Key Employee, or
significant group of employees has advised any executive officer of the Company
that he, she or they plan to terminate employment with the Company.
2.12 Restrictions on Business Activities. There is no Contract or Legal
Requirement binding upon the Company or to which the Company is a party or by
which any of its assets or properties is bound which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of the Company, any acquisition of property by the Company or the
conduct of business by the Company as currently conducted. Without limiting the
foregoing, the Company has not entered into any agreement under which the
Company is restricted in any material respect from selling, licensing or
otherwise distributing any of its products or services to any class of
customers, in any geographic area, during any period of time or in any segment
of the market that will negatively impact the Company's business as currently
conducted and Reasonably Contemplated to be Conducted (other than standard
industry restrictions included in the Company's content license agreements).
2.13 Title to Property.
(a) The Company does not own (and has never owned) any real
property. The Company has good and defensible title to all of its properties and
assets, free and clear of all Liens except for such Liens or other imperfections
of title, if any, as do not materially detract from the value of or interfere
with the present use of the property affected thereby (including without
limitation capital equipment leases entered into in the Ordinary Course of
Business). Section 2.13 of the Company Schedule sets forth a list of all real
property currently leased or subleased by or from the Company, or otherwise
occupied by the Company, the name of the lessor, master lessor, lessee and/or
sublessee, as the case may be, and the date of the lease or sublease
(collectively, "LEASES") and each amendment thereto (collectively, "LEASED
PROPERTIES") and with respect to any current Leases, the aggregate annual rental
and/or other fees payable under any such Leases; provided, that this list shall
only include each Lease requiring annual payments in excess of $5,000. All
leases pursuant to which the Company leases from others material real or
personal property are in good standing, valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
material default or event of default (or any event which with notice or lapse of
time, or both, would constitute a material default and in respect of which the
Company has not taken adequate steps to prevent such default from occurring).
All the plants, structures and equipment of the Company are in good operating
condition and repair, ordinary wear and tear excepted, are reasonably fit and
usable for the purposes for which they are being used and are adequate for the
conduct of the business of the Company as currently conducted. Neither its
operations on the Leased Properties, nor such Leased Properties, including
improvements thereon, violates any applicable building code, zoning requirement,
or classification or statute relating to the particular property or such
operations, and such non-violation is not dependent, in any instance, on
so-called non-conforming use exceptions. There are no other parties occupying,
or with a right to occupy, the Leased Properties.
(b) The Company has not sold or otherwise released for
distribution any of its customer files and other customer information relating
to the Company's current and former
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customers (the "Company Customer Information"). No person other than the Company
possesses any claims or rights with respect to use of the Company Customer
Information.
2.14 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement,
the term "TAX" or, collectively, "TAXES" shall mean (i) any and all federal,
state, local and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts, (ii) any liability for the payment of any
amounts of the type described in clause (i) of this SECTION 2.14(a) as a result
of being a member of an affiliated, consolidated, combined or unitary group for
any period, and (iii) any liability for the payment of any amounts of the type
described in clauses (i) or (ii) of this SECTION 2.14(a) as a result of any
express or implied obligation to indemnify any other person or as a result of
any obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) Tax Returns and Audits.
(i) The Company has prepared and timely filed
all required federal, state, local and foreign returns, estimates, information
statements and reports ("RETURNS") relating to any and all Taxes concerning or
attributable to the Company or its operations and such Returns are true and
correct in all material respects and have been completed in accordance with
applicable law.
(ii) The Company has timely paid all Taxes it is
required to pay and has withheld with respect to its employees (and has paid
such amounts over to the appropriate Taxing authority) related to federal and
state income taxes, Federal Insurance Contribution Act, Federal Unemployment Tax
Act and other Taxes required to be paid or withheld.
(iii) The Company has not been delinquent in the
payment of any Tax, nor is there any Tax deficiency outstanding, assessed or
proposed against the Company, nor has the Company executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) No audit or other examination of any Return
of the Company is presently in progress, nor has the Company been notified of
any request for such an audit or other examination.
(v) The Company has no liabilities for unpaid
Taxes which have not been accrued or reserved on the Most Recent Balance Sheet,
whether asserted or unasserted, contingent or otherwise, and the Company has not
incurred any liability for Taxes since the date of the Most Recent Balance Sheet
other than in the Ordinary Course of Business.
(vi) The Company has made available to Parent or
its legal counsel, copies of all Tax Returns for the Company filed for all
periods since its inception.
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(vii) There are no Liens on the assets of the
Company relating to or attributable to Taxes other than Liens for Taxes not yet
due and payable. There is no basis for the assertion of any claim relating or
attributable to Taxes which, if adversely determined, would result in any Lien
for Taxes on the assets of the Company.
(viii) None of the Company's assets is treated as
"tax-exempt use property," within the meaning of Section 168(h) of the Code.
(ix) The Company has not filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
(x) The Company is not, and has not been at any
time, a "United States Real Property Holding Corporation" within the meaning of
Section 897(c)(2) of the Code.
(xi) No adjustment relating to any Return filed
by the Company has been proposed formally or, to the Knowledge of the Company
and the Principal Shareholder, informally by any tax authority to the Company or
any representative thereof.
(xii) The Company has (a) never been a member of
an affiliated group (within the meaning of Code Section 1504(a)) filing a
consolidated federal income Tax Return (other than a group the common parent of
which was Company), (b) never been a party to any Tax sharing, indemnification
or allocation agreement, nor does the Company owe any amount under any such
agreement (c) no liability for the Taxes of any person (other than Company)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract, or otherwise and (d)
never been a party to any joint venture, partnership or other agreement that
could be treated as a partnership for Tax purposes.
(xiii) The Company has not constituted either a
"distributing corporation" or a "controlled corporation" in a distribution of
stock intended to qualify for tax-free treatment under Section 355 of the Code
(x) in the two years prior to the date of this Agreement or (y) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Mergers.
(c) Executive Compensation Tax. There is no contract,
agreement, plan or arrangement to which the Company is a party, including,
without limitation, the provisions of this Agreement, covering any employee or
former employee of the Company, which, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code.
2.15 Environmental Matters. The Company (i) has obtained all applicable
permits, licenses and other authorizations that are required under Environmental
Laws (as defined below) the absence of which would have a Material Adverse
Effect on the Company; (ii) is in compliance (and has complied) in all material
respects with all material terms and conditions of such required permits,
licenses and authorizations, and also is in compliance in all material respects
with all other material limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and
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timetables contained in such laws or contained in any regulation, code, plan,
order, decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder; (iii) has no Knowledge of and has not received notice of
any event, condition, circumstance, activity, practice, incident, action or plan
that is reasonably likely to interfere with or prevent continued compliance or
that would give rise to any common law or statutory liability, or otherwise form
the basis of any Environmental Claim (as defined below) with respect to the
Company or any person or entity whose liability for any Environmental Claim the
Company has retained or assumed either contractually or by operation of law;
(iv) has not disposed of, released, discharged or emitted any Hazardous
Materials (as defined below) into the soil or groundwater at any properties
owned or leased at any time by the Company, or at any other property, or exposed
any employee or other individual to any Hazardous Materials or condition in such
a manner as would result in any liability or result in any corrective or
remedial action obligation; and (v) has taken all actions necessary under
Environmental Laws to register any products or materials required to be
registered by the Company (or any of its agents) thereunder. No Hazardous
Materials are present in, on or under any properties owned, leased or used at
any time (including both land and improvements thereon) by the Company, and no
reasonable likelihood exists that any Hazardous Materials will come to be
present in, in or under any properties owned, leased or used at any time
(including both land and improvements thereon) by the Company, so as to give
rise to any liability or corrective or remedial obligation under any
Environmental Laws. For the purposes of this Section 2.15, "ENVIRONMENTAL CLAIM"
means any notice, claim, act, cause of action or investigation by any person
alleging potential liability (including potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries or penalties) arising out of, based on or
resulting from (i) the presence, or release into the environment, of any
Hazardous Materials or (ii) any violation, or alleged violation, of any
Environmental Laws. "ENVIRONMENTAL LAWS" means all Federal, state, local and
foreign laws and regulations relating to pollution of the environment (including
ambient air, surface water, ground water, land surface or subsurface strata) or
the protection of human health and worker safety, including, without limitation,
laws and regulations relating to emissions, discharges, releases or threatened
releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials. "HAZARDOUS MATERIALS" means chemicals,
pollutants, contaminants, wastes, toxic substances, radioactive and biological
materials, asbestos-containing materials, hazardous substances, petroleum and
petroleum products or any fraction thereof, excluding, however, Hazardous
Materials contained in products typically used for office and janitorial
purposes properly and safely maintained in accordance with Environmental Laws.
2.16 Brokers. The Company has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby
2.17 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" means all of the following and all rights in,
arising out of, or associated therewith: (i) all United States, foreign
and international patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
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continuations-in-part thereof ("PATENTS"); (ii) all inventions
(whether patentable or not), invention disclosures, improvements, trade
secrets, proprietary information, proprietary processes or formulae,
franchises, licenses, know how, technology, technical data, customer
lists, and all documentation relating to any of the foregoing; (iii)
all copyrights, copyright registrations and applications therefor and
all other rights corresponding thereto throughout the world; (iv) all
rights to all mask works, mask work registrations and applications
therefor; (v) all industrial designs and any registrations and
applications therefor throughout the world; (vi) all trade names,
logos, common law trademarks and service marks; trademark and service
xxxx registrations and applications therefor and all goodwill
associated therewith throughout the world; (vii) all databases and data
collections and all rights therein throughout the world; (viii) all
computer software including all source code, object code, algorithms,
display screens, layouts, firmware, development tools, files, records
and data, all media on which any of the foregoing is recorded, all Web
addresses, sites and domain names; (ix) any similar, corresponding or
equivalent rights to any of the foregoing; and (x) all documentation
related to any of the foregoing.
"COMPANY INTELLECTUAL PROPERTY" means all Intellectual Property that is
owned by or exclusively licensed to the Company. Without in any way
limiting the generality of the foregoing, Company Intellectual Property
includes all Intellectual Property owned or exclusively licensed by the
Company and used in connection with the Company Products.
"REGISTERED INTELLECTUAL PROPERTY" means all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations
or applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; (iv) any mask work
registrations and applications to register mask works; and (v) any
other Company Intellectual Property that is the subject of an
application, certificate, filing, registration or other document issued
by, filed with, or recorded by, any state, government or other legal
authority.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by or filed in the name of, the Company.
(a) Section 2.17(a) of the Company Schedule contains a
complete and accurate list of all Company Registered Intellectual Property and
specifies, where applicable, the jurisdictions in which each such item of
Company Registered Intellectual Property has been issued or registered and lists
any pending proceedings or actions before any court or tribunal (including the
United States Patent and Trademark Office or equivalent authority anywhere in
the world) related to any of the Company Registered Intellectual Property.
(b) Section 2.17(b) of the Company Schedule is a complete and
accurate list of all products and service offerings of the Company ("COMPANY
PRODUCTS") that have been distributed or provided since the Company's inception
or which the Company intends to distribute or provide in the future, including
any products or service offerings under development.
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(c) No Company Intellectual Property is subject to any
proceeding or outstanding decree, order, judgment, Contract, or stipulation
restricting in any manner the use, transfer, or licensing thereof by Company, or
which may affect the validity, use or enforceability of such Company
Intellectual Property. No Company Product is subject to any proceeding or
outstanding decree, order, judgment or stipulation restricting in any manner the
use, transfer or licensing thereof by Company.
(d) Each item of Company Registered Intellectual Property is
valid and subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Company Registered Intellectual Property
have been made and all necessary documents, recordations and certificates in
connection with such Company Registered Intellectual Property have been filed
with the relevant patent, copyright, trademark and other authorities in all
relevant jurisdictions, as the case may be, for the purposes of maintaining such
Company Registered Intellectual Property. For each Company Product that is or
includes a copyrightable work, the Company has registered the copyright in the
latest version of such work with the U.S. Copyright Office and its equivalent in
any foreign jurisdiction. In each case in which the Company has acquired any
Intellectual Property rights from any Person (excluding licenses), the Company
has obtained a valid and enforceable assignment sufficient to irrevocably
transfer all rights in such Intellectual Property (including the right to seek
past and future damages with respect to such Intellectual Property) to the
Company and, to the maximum extent provided for by, and in accordance with,
applicable laws and regulations, the Company has, with respect to assignments of
Registered Intellectual Property, recorded each such assignment with the
relevant Governmental Bodies.
(e) The Company has no Knowledge of any facts or circumstances
that would render any Company Intellectual Property invalid or unenforceable.
Without limiting the foregoing, the Company knows of no information, materials,
facts, or circumstances, including any information that would constitute prior
art, that would render any of the Company Registered Intellectual Property
invalid or unenforceable, or would adversely affect any pending application for
any Company Registered Intellectual Property and the Company has not
misrepresented, or failed to disclose, and has no Knowledge of any
misrepresentation or failure to disclose, any fact or circumstance in any
application for any Company Registered Intellectual Property or that would
otherwise affect the validity or enforceability of any Company Registered
Intellectual Property.
(f) The Company Intellectual Property constitutes all the
Intellectual Property necessary to the conduct of the business of the Company as
it currently is conducted or is Reasonably Contemplated to be Conducted,
including, without limitation, the design, development, manufacture, use, import
and sale of Company Products; provided that, as used in this sentence,
Intellectual Property is "necessary" to the conduct of the business of the
Company if such business could not be conducted without such Intellectual
Property or to conduct such business without such Intellectual Property would
require material burden or expense or the business would be adversely affected
in a material way. The Company owns and has good and exclusive title to each
material item of Company Intellectual Property free and clear of any Lien or
encumbrance (excluding non-exclusive licenses and related restrictions granted
in the ordinary course). Without limiting the foregoing: (i) the Company is the
exclusive owner of all trademarks and trade names used in connection with the
operation or conduct of the business of the Company, including the sale,
distribution or provision of any Company Products by the Company; and (ii) the
Company owns exclusively, and has good title
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to, or has all necessary licenses and approvals to all copyrighted works that
constitute or are included in Company Products or which the Company otherwise
purports to own.
(g) To the extent that any technology, software or
Intellectual Property has been developed or created independently by or jointly
with any third party for the Company, the Company has a written agreement with
each such third party with respect thereto and the Company thereby either (i)
has obtained ownership of, and is the exclusive owner of, or (ii) has obtained a
perpetual, non-terminable license (sufficient for the conduct of its business as
currently conducted and as proposed to be conducted) to all such third party's
Intellectual Property in such work, material or invention by operation of law or
by valid assignment, to the fullest extent it is legally possible to do so.
(h) The Company has not transferred ownership of, or granted
any exclusive license with respect to, any Intellectual Property that is or was
Company Intellectual Property to any third party or permitted the Company's
rights in such Company Intellectual Property to lapse or enter the public
domain.
(i) Section 2.17(i) of the Company Schedule lists all
Contracts, licenses and agreements to which the Company is a party: (i) with
respect to Company Intellectual Property licensed or transferred to any third
party; or (ii) pursuant to which a third party has licensed or transferred any
Intellectual Property to the Company (other than shrink-wrap licenses available
off the shelf).
(j) All Contracts relating to either (i) Company Intellectual
Property or (ii) Intellectual Property of a third party licensed to the Company,
are in full force and effect. The consummation of the transactions contemplated
by this Agreement will neither violate nor result in the breach, modification,
cancellation, termination or suspension of such Contracts (except for such
Contracts as are neither individually nor collectively material) or cause the
forfeiture, modification or termination or give right of forfeiture,
modification or termination of any Company Intellectual Property or in any way
impair the right of the Company to use, sell, license or dispose of or to bring
any action for the infringement of any Company Intellectual Property or portion
thereof. The Company is in material compliance with, and has not materially
breached any term of any such Contracts (except for such Contracts as are
neither individually nor collectively material) and, to the best of Company's
Knowledge, all other parties to such Contracts are in compliance with, and have
not materially breached any term of, such Contracts. Following the Closing Date,
and assuming the Surviving Corporation assumes all obligations thereunder to the
extent required by the terms thereof, the Surviving Corporation will be
permitted to exercise all of the Company's rights under such Contracts (except
for such Contracts as are neither individually nor collectively material) to the
same extent the Company would have been able to if the transactions contemplated
by this Agreement did not occur and without the payment of any additional
amounts or consideration other than ongoing fees, royalties or payments which
the Company would otherwise be required to pay. Neither this Agreement nor the
transactions contemplated by this Agreement, including the assignment of any
Contracts or agreements to which the Company is a party to Parent or the Merger
Subs by operation of law or otherwise, will result in (i) either Parent's or the
Merger Subs' granting to any third party any right to or with respect to any
Intellectual Property right owned by, or licensed to, either of them, (ii)
either the Parent's or the Merger Subs' being bound by, or subject to, any
non-compete or other
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material restriction on the operation or scope of their respective businesses,
or (iii) either the Parent's or the Merger Subs' being obligated to pay any
royalties or other amounts to any third party in excess of those payable by
Company, prior to the Closing.
(k) The operation of the business of the Company as such
business is currently conducted or is Reasonably Contemplated to be Conducted
(provided that this shall not mean that the representation contained in this
Section 2.17(k) survives for only such sixty (60) day period), including (i) the
Company's design, development, manufacture, distribution, reproduction,
marketing or sale of Company Products and (ii) the Company's use of any product,
device or process, has not, does not and will not infringe or misappropriate the
Intellectual Property of any third party, constitute unfair competition or trade
practices under the laws of any jurisdiction; provided, however, that this
representation is made solely to the Company's Knowledge (A) with respect to any
claim for recovery for a breach of this representation under Section 7.2 or 7.3
following the twelve (12) month anniversary of this Agreement, and (B) to the
extent that an infringement or misappropriation of any third party Intellectual
Property, or unfair competition or trade practices also are caused by or arise
from Parent's conduct of its business prior to the Closing or Parent's business
as is Reasonably Contemplated to be Conducted.
(l) The Company has not received notice from any third party
that the operation of the business of the Company or any act, product or service
of the Company, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the laws
of any jurisdiction. There are no claims or actions related to any of the
following (and the Company has not received any notice from any third party
threatening any claim or action relating to any of the following since December
1, 2001): (1) any communications features of the Company Intellectual Property,
including sending data to or receiving data from any third party; (2) the
receipt, storage, or use of any information sent by the Company Intellectual
Property; (3) any violation of any individual's privacy rights; (4) any
violation of the Electronic Communications Privacy Act or the Computer Fraud and
Abuse Act; and (5) any transmission or receipt of data without the user's
consent.
(m) There is no pending nor, to the best of the Company's
Knowledge, threatened claim or litigation contesting the validity, ownership or
right to use, sell, license or dispose of any Company Intellectual Property nor,
to the best of the Company's Knowledge, is there any basis for any such claim,
nor has the Company received any notice asserting that any Company Intellectual
Property or the proposed use, sale, license or disposition thereof conflicts or
will conflict with the rights of any other person, nor to the Company's
Knowledge is there any basis for any such assertion.
(n) To the best of the Company's Knowledge, no person is
infringing or misappropriating, or has previously infringed or misappropriated,
any Company Intellectual Property.
(o) The Company has taken reasonable steps to protect the
Company's rights in the Company's confidential information and trade secrets
that it wishes to protect or any trade secrets or confidential information of
third parties provided to the Company, and, without limiting the foregoing, the
Company has and enforces a policy requiring each employee and contractor to
execute a proprietary information/confidentiality agreement substantially in the
form provided to Parent and
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all current and former employees and contractors of the Company have executed
such an agreement (provided that such agreements do not contain any excepted
inventions that are related to any Intellectual Property used in connection with
the Company Products).
(p) Neither the Company nor any other Person acting on its
behalf has disclosed or delivered to any Person, or permitted the disclosure or
delivery to any escrow agent or other Person of, any Company Source Code (as
defined below). No event has occurred, and no circumstance or condition exists,
that (with or without notice or lapse of time, or both) will, or would
reasonably be expected to, result in the disclosure or delivery by Company or
any Person acting on its behalf to any Person of any Company Source Code.
Section 2.17(p) of the Company Disclosure Letter identifies each Contract
pursuant to which Company or any of its Subsidiaries has deposited, or is or may
be required to deposit, with an escrowholder or any other Person, any Company
Source Code, and describes whether the execution of this Agreement, in and of
itself, would reasonably be expected to result in the release from escrow of any
Company Source Code. As used in this Section 2.17(p), "COMPANY SOURCE CODE"
means, collectively, any software source code, any material portion or aspect of
the software source code, or any material proprietary information or algorithm
contained in or relating to any software source code, of any Company
Intellectual Property.
(q) No Public Software (as defined below) forms part of the
Company Intellectual Property or was or is used in connection with the
development of any Company Intellectual Property, incorporated in whole or in
part, or has been distributed, in whole or in part, in conjunction with any
Company Intellectual Property. As used in this Section 3.14(m), "PUBLIC
SOFTWARE" means any software that contains, or is derived in any manner (in
whole or part) from, any software that is distributed as free software, open
source software (e.g., Linux) or similar licensing or distribution models,
including without limitation software licensed or distributed under any of the
following licenses or distribution models, or licenses or distribution models
similar to any of the following: (i) GNU's General Public License (GPL) or
Lesser/Library GPL (LGPL); (ii) the Artistic License (e.g., PERL); (iii) the
Mozilla Public License; (iv) the Netscape Public License; (v) the Sun Community
Source License (SCSL); (vi) the Sun Industry Standards License (SISL); (vii) the
BSD License; or (viii) the Apache License.
2.18 Agreements, Contracts and Commitments. The Company is not a party
to or bound by:
(a) any employment or consulting Contract with any officer or
director or higher level employee or member of the Company's Board of Directors,
other than offer letters granted and employee invention assignment agreements
entered into upon the commencement of employment of an officer or higher-level
employee (provided that such agreements do not contain any excepted inventions
that are related to any Intellectual Property used in connection with the
Company Products) and stock option and stock option exercise agreements entered
into with such officers and employees, in each case, pursuant to the standard
forms and as previously provided to Parent (with no material differences from
the terms of such standard forms);
(b) any Contract or plan, including, without limitation, any
stock option plan, or stock appreciation right plan or stock purchase plan, any
of the benefits of which will be increased or triggered, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
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transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement;
(c) any Contract of indemnification or any guaranty other than
any Contract of indemnification entered into in connection with the sale,
license, distribution and development of Intellectual Property and advertising
in the Ordinary Course of Business;
(d) any Contract containing any covenant limiting in any
respect the right of the Company to engage in any line of business or to compete
with any person or granting any exclusive distribution rights;
(e) any Contract currently in force relating to the
disposition or acquisition by the Company after the date of this Agreement of
assets not in the Ordinary Course of Business
(f) any Contract pursuant to which the Company has any
ownership interest in, or has any obligation or commitment to obtain any
ownership interest in, any corporation, partnership, joint venture or other
business enterprise;
(g) any dealer, distributor, joint marketing or development
Contract currently in force under which the Company has a continuing obligation
to jointly market any product, technology or service and which may not be
canceled without penalty upon notice of one hundred eighty (180) days or less,
or any Contract pursuant to which the Company has a continuing obligation to
jointly develop any intellectual property that will not be owned, in whole or in
part, by the Company and which may not be canceled without penalty upon notice
of one hundred eighty (180) days or less;
(h) any Contract currently in force to provide source code to
any third party for any product or technology;
(i) any Contract currently in force to license any third party
to manufacture or reproduce any Company product, service or technology or any
Contract currently in force to sell or distribute any Company products, service
or technology;
(j) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other Contracts or instruments relating to
the borrowing of money or extension of credit or granting any Lien on any assets
or properties of the Company, other than capital equipment leases with aggregate
annual payments of less than $10,000;
(k) any settlement agreement entered into prior to the date of
this Agreement pursuant to which the Company has continuing obligations or
rights;
(l) any other Contract that requires aggregate payments by the
Company thereunder of $30,000 or more individually;
(m) any Contract (or group of related Contracts) for the lease
of personal property to or from any person that involves aggregate annual
payments of more than $20,000;
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(n) any Contract under which the consequences of a default or
termination could reasonably be anticipated to have a Material Adverse Effect on
the Company;
(o) any Contract (or group of related Contracts) for the
purchase or sale of commodities, supplies, products, or other personal property,
or for the furnishing or receipt of services, the performance of which will
extend over a period of more than six (6) months or involve consideration in
excess of $20,000;
(p) any Contract for the purchase of supplies, components,
products or services from single source suppliers, custom manufacturers or
subcontractors that involves aggregate annual payments of more than $20,000;
(q) any Contract concerning a partnership or joint venture;
(r) any Contract with any Company Shareholder or any of such
Company Shareholder's Affiliates (other than the Company) or with any Affiliate
of the Company;
(s) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current directors, officers or employees, or for the benefit
of former directors, officers or employees under which the Company has further
obligations;
(t) any collective bargaining agreement;
(u) any executory agreement under which the Company has
advanced or loaned any amount to any of its directors, officers, and employees;
(v) any advertising services, e-commerce
or other Contract involving the promotion of products and services of third
parties by the Company;
(w) any executory Contract pursuant to which the Company is
obligated to provide maintenance, support or training for its services or
products;
(x) any revenue or profit participation Contract which
involves aggregate annual payments of more than $20,000; and
(y) any Contract pursuant to which the Company or any
Affiliate of the Company has granted any rights to any third party with respect
to any of the Intellectual Property used in the Company's business, other than
license agreements entered into with customers or distributors of the Company's
Music Service entered into in the Ordinary Course of Business.
Neither the Company, nor to the Company's Knowledge any other party to
a Company Contract (as defined below), is in breach, violation or default under,
and the Company has not received written notice that it has breached, violated
or defaulted under, any of the material terms or conditions of any of the
Contracts to which the Company is a party or by which it is bound that are
required to be disclosed in the Company Schedule (any such agreement, Contract
or commitment, a "COMPANY CONTRACT") in such a manner as would permit any other
party to seek material damages
-48-
or other material remedies (for any or all of such breaches, violations or
defaults, in the aggregate) or would otherwise have a Material Adverse Effect on
the Company, individually or in the aggregate.
2.19 Insurance. The Company maintains insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company (collectively, the "INSURANCE
POLICIES") which are of the type and in amounts listed on Section 2.20 of the
Company Schedule. With respect to each such insurance policy: (A) the policy is
legal, valid, binding, enforceable, and in full force and effect (and there has
been no notice of cancellation or nonrenewal of the policy received); (B)
neither the Company nor any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification, or
acceleration, under the policy; (C) no party to the policy has repudiated any
provision thereof; and (D) there has been no failure to give any notice or
present any material claim under the policy in due and timely fashion. There is
no claim by the Company pending under any of the Insurance Policies nor any
claims as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds.
2.20 Certain Business Relationships with the Company. Neither the
Company's Shareholders nor any director or officer of the Company, nor any
member of their immediate families, nor any Affiliate of any of the foregoing,
owns, directly or indirectly, or has an ownership interest in any business
(corporate or otherwise) which is a party to, or in any property which is the
subject of, any business arrangement or relationship of any kind with the
Company.
2.21 Product Warranty. The technologies or products licensed, sold,
leased, and delivered and all services provided by the Company have conformed in
all material respects with all material applicable contractual commitments with
consumers and distribution partners and all express and implied warranties, and
the Company has no material liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due)
for replacement or modification thereof or other damages in connection
therewith. Parent has been given a copy of the standard terms and conditions of
sale, subscription, license or lease for each of the Company Products and copies
of the Company's standard forms of merchant agreements and professional services
agreements. No Company Product is subject to any guaranty, warranty or other
indemnity beyond the applicable standard terms and conditions of sale, license
or lease or beyond that implied or imposed by applicable law.
2.22 Board Approval. The Board of Directors of the Company has, as of
the date of this Agreement, unanimously (i) approved this Agreement, Merger I
and the other transactions contemplated hereby, (ii) determined that Merger I
(assuming completion of Merger II immediately thereafter) is fair to, and in the
best interests of, the Company and the Company Shareholders and (iii) determined
to recommend that the Company Shareholders adopt and approve this Agreement and
approve Merger I.
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2.23 Reserved.
2.24 Complete Copies of Materials. Except as specifically noted in
Section 2.24 of the Company Schedule, the Company has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by Parent or its counsel, including, without limitation, each
document referred to in the Company Schedule.
2.25 Termination of Certain Agreements. Immediately prior to or at the
Effective Time of Merger I:
(a) Each of (i) the Right of First Refusal and Co-Sale
Agreement dated March 16, 2000, as amended September 6, 2002, among certain
shareholders of the Company (the "CO-SALE AGREEMENT"), (ii) Fourth Amended and
Restated Voting Agreement dated March 29, 2002 (the "VOTING AGREEMENT"), and
(iii) Third Amended and Restated Investors' Rights Agreement dated March 16,
2000, as amended September 6, 2002 (the "INVESTOR RIGHTS AGREEMENT") will
terminate and no provision of any such agreement shall in any way apply to (and
no rights thereunder of any party thereto shall in any way be affected by)
either the execution of this Agreement or the consummation of Merger I; and
(b) each employment agreement between the Company and
employees of the Company shall terminate and no provision of any such agreement
shall in any way apply to (and no rights thereunder of any party thereto shall
in any way be affected by) either the execution of this Agreement or the
consummation of Merger I, including, without limitation, the Executive Severance
Benefits Agreement between the Company and Xxxx Xxxx dated as of June 14, 2001
(the "XXXX XXXXXXXXX AGREEMENT").
2.26 Privacy Statements. For the purposes of this Section 2.26,
"PRIVACY STATEMENTS" means, collectively, any and all of the Company's privacy
statements and policies published on Company web sites or products or otherwise
made available by Company regarding the collection, retention, use, and
distribution of the personal information of individuals, including, without
limitation, from visitors or users of any Company web sites or products
("INDIVIDUALS").
(a) The Company: (i) complies with the Privacy Statements as
applicable to any given set of personal information collected by the Company
from Individuals; (ii) complies in all material respects with all applicable
United States and foreign laws and regulations regarding the collection,
retention, use, transfer, or disclosure of personal information; and (iii) takes
reasonable measures to protect and maintain the confidential nature of the
personal information provided to the Company by Individuals, in accordance with
the terms of the applicable Privacy Statements.
(b) The Company's collection, retention, use, and distribution
of all personal information collected by the Company from Individuals is
governed by the Privacy Statement pursuant to which the data was collected. All
versions of the Privacy Statements are substantially in the form attached hereto
in Section 2.26 of the Company Disclosure Schedule.
(c) To the Company's Knowledge, no claims or controversies
have arisen regarding the Privacy Statements or the implementation thereof.
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2.27 Power of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
2.28 Indemnification Obligations. The Company has no Knowledge of any
action, proceeding or other event pending or threatened against any officer or
director of the Company which would give rise to any indemnification obligation
of Company to its officers and directors under the Company Charter Documents or
any agreement between the Company and any of its officers or directors.
2.29 Information Complete. Except for information supplied by Parent in
writing specifically for such purpose, the information furnished on or in any
documents mailed, delivered or otherwise furnished to the Company Shareholders
in connection with the solicitation of their consent to this Agreement and
Merger I, will not contain, at or prior to the Effective Time of Merger I, any
untrue statement of a material fact and will not omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which made, not misleading. The information supplied by the
Company to Parent for inclusion in the Permit (as defined in Section 5.2(b))
will not contain, at or prior to the Effective Time of Merger I, any untrue
statement of a material fact and will not omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBS
Parent and Merger Subs jointly and severally represent and warrant to
the Company, subject to such exceptions as are specifically disclosed in writing
in the disclosure letter, dated as of the date hereof, and referencing a
specific representation supplied by Parent to the Company and certified by a
duly authorized officer of Parent (the "PARENT SCHEDULE"), as follows:
3.1 Organization and Qualification; Subsidiaries. Each of Parent and
Merger Subs is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Parent or Merger Subs. Parent is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not, either individually or in the
aggregate, have a Material Adverse Effect on Parent.
3.2 Authority Relative to this Agreement. Each of Parent and the Merger
Subs has all necessary corporate power and authority to execute and deliver this
Agreement, and to perform its respective obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Parent and Merger Subs and the consummation by Parent and Merger
Subs of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Merger
Subs, and no other corporate proceedings on the part of Parent or Merger Subs
are necessary to authorize this
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Agreement, or to consummate the transactions so contemplated, subject only to
the filing of the Agreement of Merger I and Agreement of Merger II pursuant to
California law. This Agreement has been duly and validly executed and delivered
by Parent and Merger Subs and, assuming the due authorization, execution and
delivery by the Company, constitute legal and binding obligations of Parent and
Merger Subs, enforceable against Parent and Merger Subs in accordance with their
respective terms except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the rights of creditors generally and by general equitable principles.
The Merger Shares will, when issued in accordance with the provisions of this
Agreement and Agreement of Merger I, be validly issued, fully paid and
nonassessable, and the Merger Shares issued pursuant to Section 1.7(a) when
issued in accordance with the provisions of this Agreement and Agreement of
Merger I and pursuant to a Permit or a Form S-4 pursuant to Section 5.2(b), will
be freely tradeable on the Nasdaq National Market without restriction under
federal and state securities laws, other than compliance with Rule 145 under the
Securities Act by Affiliates of the Company.
3.3 SEC Filings; Financial Statements.
(a) Parent has made available to the Company a correct and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Parent with the Securities and Exchange Commission (the
"SEC") on or after December 31, 2001 (the "PARENT SEC REPORTS") or such Parent
SEC Reports are available on the SEC's Xxxxx filing system at xxx.xxx.xxx, which
are all the forms, reports and documents required to be filed by Parent with the
SEC since December 31, 2001. The Parent SEC Reports (A) complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and (B) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of Parent's subsidiaries is required to file any reports or
other documents with the SEC.
(b) Each set of consolidated financial statements (including,
in each case, any related notes thereto) contained in the Parent SEC Reports was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, the omission of footnotes as permitted by Form
10-Q of the Exchange Act) and each fairly presents the consolidated financial
position of Parent and its subsidiaries at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal adjustments which were not or are not expected to be material in amount.
3.4 Brokers. Parent has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
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3.5 Consents and Approvals; No Violations.
(a) Neither the execution and delivery of this Agreement by
Parent or Merger Subs, the performance by Parent or Merger Subs of its
respective obligations hereunder, nor the consummation of the transactions
contemplated hereby will (i) conflict with or result in any breach of any
provision of the certificate of incorporation (or articles of incorporation, as
the case may be) or bylaws of Parent or Merger Subs, (ii) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default under, in any material respect, any material agreement which
would, if Parent were filing a Form 10-K with the SEC on the date hereof, be
required to be filed by Parent with the SEC (or incorporated by reference)
pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act, or (iii)
assuming that the filings, registrations, notifications, authorizations,
consents and approvals referred to in subsection (b) below have been obtained or
made, as the case may be, violate any material Legal Requirement to which Parent
or Merger Subs are subject.
(b) No filing or registration with, notification to, or
authorization, consent or approval of any Governmental Body is required in
connection with the execution and delivery of this Agreement by Parent or by
Merger Subs or the performance by either entity of its obligations hereunder,
except (i) the filing of the Agreement of Merger I and Agreement of Merger II in
accordance with California Law; (ii) obtaining a Permit (as defined in Section
5.2(b)) pursuant to Section 25121 of the California Corporate Securities Law of
1968 or any filing required pursuant to the Exchange Act.
3.6 Litigation. There is no pending or threatened action, suit,
proceeding, claim, arbitration, investigation, judgment, decree or order against
Parent or Merger Subs or, to the Knowledge of Parent or Merger Subs, any of
their directors or officers (in their capacities as such), which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay any of the
transactions contemplated by this Agreement.
3.7 Information Complete. The information furnished on or in any
documents mailed, delivered or otherwise furnished by Parent to the California
Department of Corporations in connection with obtaining the Permit (other than
information provided by the Company or any Company Shareholder, including
without limitation any information statement prepared by the Company) or
furnished by Parent to the Company in writing for the express purpose of
inclusion in any documents to be mailed, delivered or otherwise furnished to the
Company Shareholders in connection with the solicitation of their consent to
this Agreement and the Mergers will not contain, at or prior to the Effective
Time of Merger I, any untrue statement of a material fact and will not omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO CLOSING; NONSOLICITATION
4.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time of Merger I, the Company
agrees (except to the extent that Parent shall otherwise
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consent in writing following written request or as contemplated by this
Agreement) to carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay its debts and
Taxes when due, to pay or perform other obligations when due, and, to the extent
consistent with such business, to use all reasonable efforts consistent with
past practice and policies to preserve intact its present business organization,
keep available the services of its present officers and employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees
and others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time of Merger
I. The Company shall promptly notify Parent of any materially negative event
involving or adversely affecting the Company or its business.
In addition, except as permitted by the terms of this
Agreement or as specifically set forth in Section 4.1 of the Company Schedule,
without the prior written consent of Parent following written request, during
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement pursuant to its terms or the Effective Time of
Merger I, the Company shall not do any of the following:
(a) Waive any stock repurchase rights (unless "out of the
money"), accelerate, amend, or change the period of exercisability of any
outstanding Company Stock Options, or otherwise materially modify or amend the
terms thereof, or Company Common Stock subject to vesting, or reprice or replace
Company Stock Options or authorize cash payments in exchange for any such
options;
(b) Enter into any commitment or transaction outside of the
Ordinary Course of Business in excess of $20,000 or in the Ordinary Course of
Business in excess of $50,000 (other than pursuant to Contracts existing as of
the date of this Agreement which have previously been disclosed or made
available to Parent);
(c) Make any capital expenditure or capital commitment of
$20,000 in any individual case or $50,000 in the aggregate (other than
commitments to pay expenses incurred in connection with the transactions
contemplated by this Agreement);
(d) Fail to use commercially reasonable efforts to prevent the
destruction of, damage to or loss of any material asset, business or customer of
the Company (whether or not covered by insurance);
(e) Change accounting methods, principles or practices
(including any change in depreciation or amortization policies or rates), except
as required by GAAP;
(f) Except in the Ordinary Course of Business, modify, amend
or terminate any material Contract or agreement to which the Company is a party
or waive, release or assign any material rights or claims thereunder;
(g) Transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the Company Intellectual Property Rights
(other than pursuant to licenses granted to customers and business partners of
the Company in the Ordinary Course of Business, provided that
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no such license (other than license agreements entered into with independent
record labels in the Ordinary Course of Business) contains any "most favored
party" provisions or involves the transfer of product(s) to any person or entity
in violation of applicable U.S. export laws and regulations) or enter into
grants to future patent rights;
(h) Enter into or amend any Contracts pursuant to which any
other party is granted marketing, distribution or similar rights of any type or
scope with respect to any products of the Company, other than Contracts entered
into in the Ordinary Course of Business;
(i) Amend or otherwise modify (or agree to do so), except in
the Ordinary Course of Business, or violate in any material respect any of the
material Company Contracts, including any material change in the pricing or
royalties charged to the Company by persons who have licensed Intellectual
Property to the Company or amend or otherwise modify (or agree to do so) any
agreement with any Major Music Label in any material respect;
(j) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
Company Capital Stock, or split, combine or reclassify any Company Capital Stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any Company Capital Stock;
(k) Purchase, redeem or otherwise acquire, directly or
indirectly, any Company Capital Stock, except repurchases of unvested shares at
cost in connection with the termination of the employment relationship with any
employee or consultant pursuant to stock option or purchase agreements in effect
on the date hereof;
(l) Issue, grant, deliver, sell, pledge or authorize, or
otherwise encumber or propose to do any of the foregoing with respect to any
Company Capital Stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible securities
(except for the issuance of any Company Capital Stock upon exercise or
conversion of presently outstanding or existing Company Stock Options, Company
Warrants, or Company Preferred Stock, and except for Company Stock Options
granted in the Ordinary Course of Business to newly-hired employees provided
that (i) the size and terms of such options are consistent with the Company's
past compensation practices, (ii) such stock options do not contain any vesting
acceleration or early exercise provisions (other than standard acceleration
provisions pursuant to the Company Plan), and (iii) the number of shares of
Company Common Stock issuable upon exercise of such Company Stock Options do not
exceed, in the aggregate, 100,000 shares);
(m) Cause or permit any amendments to the Company Charter
Documents;
(n) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association, joint venture
or other business organization or division thereof, or otherwise acquire or
agree to acquire outside of the Ordinary Course of Business any assets in any
amount;
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(o) Sell, lease, license, encumber or otherwise dispose of any
of its properties (other than subscription service and related licenses and
capital equipment leases in the Ordinary Course of Business);
(p) Incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company, enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect of
any of the foregoing other than in connection with the financing of ordinary
course trade payables and capital equipment leases consistent with past
practice;
(q) Loan to any person or entity any funds other than advances
to employees for travel and business expenses in the Ordinary Course of
Business, consistent with past practices and advances to Major Music Labels and
other similar partners pursuant to Contracts made available to Parent prior to
the date of this Agreement;
(r) Grant any, or increase the terms of, any existing
agreement to provide severance or termination pay (i) to any director or officer
or (ii) to any other employee except payments made pursuant to written
agreements outstanding on the date hereof and as disclosed in the Company
Schedule, or adopt any new severance, termination, indemnification or other
agreement the benefits of which are contingent upon the occurrence of a
transaction involving the Company of the nature contemplated hereunder;
(s) Adopt or amend any employee benefit plan, or enter into
any employment contract, extend employment offers, pay or agree to pay any
special bonus or special remuneration (cash equity or otherwise) to any
director, officer, employee or consultant, or increase the salaries, wage rates
or fringe benefits (including rights to severance or indemnification of its
directors, officers, employees or consultants or the modification of any
existing compensation or equity arrangements with such individuals or the change
of vesting terms of any Company Stock Options), except in the Ordinary Course of
Business of the Company (including without limitation in connection with new
employee hires; provided that new employee hires shall be only to replace
employees whose employment terminates following the date of this Agreement) or
in accordance with existing Contracts and as previously disclosed in writing or
made available to Parent prior to the date of this Agreement;
(t) Effect or agree to effect, including by way of hiring or
involuntary termination, any change in the Company's directors or Key Employees;
(u) Materially revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business, or except as required
by GAAP or applicable law;
(v) Pay, discharge or satisfy, in an amount in excess of
$20,000 (in any one case) or $50,000 (in the aggregate), any claim, liability or
obligation other than the payment, discharge or satisfaction in the Ordinary
Course of Business of liabilities reflected or reserved against in the Financial
Statements (or the notes thereto) or that arose in the Ordinary Course of
Business
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subsequent to December 31, 2002, pursuant to Contracts made available to Parent
prior to the date hereof (as provided in the terms of such Contracts as so made
available), or expenses consistent with the provisions of this Agreement
incurred in connection with any transaction provided for herein;
(w) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(x) Enter into any strategic alliance, joint development or
joint marketing agreement other than such agreements entered into in the
Ordinary Course of Business;
(y) Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it, in good faith, determines that
failure to commence suit would result in the material impairment of a valuable
aspect of its business, provided that it consults with Parent prior to the
filing of such a suit or (iii) to enforce its rights hereunder or under any
agreements related hereto;
(z) Materially reduce the amount of any insurance coverage
provided by or fail to renew any existing insurance policies;
(aa) Take any action (except as required by this Agreement)
that would reasonably be expected to result in any of the conditions in Article
VI hereof not being satisfied or that would materially impair the ability of the
Company to consummate the Mergers in accordance with the terms hereof;
(bb) Write off as uncollectable, or establish any
extraordinary reserve with respect to, any accounts receivable or other
indebtedness in excess of $10,000 with respect to a single matter, or in excess
of $25,000 in the aggregate;
(cc) Intentionally or negligently cause any event or condition
of any character that has or reasonably would be expected to have a Material
Adverse Effect on the Company; or
(dd) Take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(a) through (cc) above.
4.2 No Solicitation. From and after the date of this Agreement until
the earlier to occur of the Effective Time of Merger I or termination of this
Agreement pursuant to its terms, the Company will not, and the Company will
instruct its directors, officers, employees, representatives, investment
bankers, agents and affiliates not to, directly or indirectly, (a) solicit or
encourage submission of any "Acquisition Proposal" (as defined herein) by any
person, entity or group (other than Parent and its affiliates, agents, and
representatives) or (b) participate in any discussions or negotiations with, or
disclose any non-public information concerning the Company to, or afford access
to the properties, books, or records of the Company, or otherwise assist or
facilitate, or enter into any agreement or understanding with, any person,
entity or group (other than Parent and its affiliates, agents, and
representatives) in connection with any Acquisition Proposal with respect to the
Company. For purposes of this Agreement, an "ACQUISITION PROPOSAL" means any
proposal or offer relating to (i) any merger or consolidation, any sale,
transfer (including without limitation the granting of any
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Lien other than non-exclusive licenses granted to the Company's customers and
partners in the Ordinary Course of Business) or exclusive license of substantial
assets of the Company, or similar transactions involving the Company, or (ii)
any sales or issuances by the Company of any Company Capital Stock, Company
debt, or options, warrants or other rights with respect thereto (including,
without limitation, in a financing transaction or by way of a tender offer or an
exchange offer), other than issuances of Company Capital Stock upon exercise of
options and warrants outstanding as of the date of this Agreement and disclosed
in this Agreement or the Company Schedule. The Company will immediately cease
any and all existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any Acquisition Proposal. The Company will
within one business day of receipt (x) notify Parent if, on or after the date of
this Agreement, it receives any proposal or inquiry or request for information
in connection with an Acquisition Proposal or potential Acquisition Proposal and
(y) notify Parent of the significant terms and conditions of any such
Acquisition Proposal including the identity of the party making an Acquisition
Proposal. In addition, from and after the date of this Agreement, until the
earlier to occur of the Effective Time of Merger I or termination of this
Agreement pursuant to its terms, the Company will not, and will instruct its
directors, officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Acquisition Proposal
made by any person, entity or group (other than Parent).
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Stock Options and Warrants
(a) Stock Options. At the Effective Time of Merger I, each
Company Stock Option whether or not vested, shall be replaced by Parent. Each
Company Stock Option so replaced by Parent under this Agreement will be
substituted with an option granted under the Amended and Restated 1996 Stock
Option Plan of Parent (a "REPLACEMENT OPTION"). Each Replacement Option will
continue to have, and be subject to, equivalent principal terms and conditions
as provided in the respective Stock Plan and option agreement governing the
Company Stock Option it replaced, as in effect immediately prior to the
Effective Time of Merger I (including without limitation vesting schedules and
vesting commencement dates), except for the following:
(i) Shares Issuable Upon Exercise. Each
Replacement Option will be exercisable for (A) that number of whole shares of
Parent Common Stock equal to the product (rounded down to the nearest whole
share) of (1) the number of shares of Company Common Stock that were issuable
without regard to Vesting upon exercise of such Company Stock Option immediately
prior to the Effective Time of Merger I, and (2) the Option Exchange Ratio.
(ii) Option Per Share Exercise Price. For the
period beginning immediately following the Effective Time of Merger I, the per
share exercise price for the shares of Parent Common Stock issuable upon
exercise of each Replacement Option will be equal to the quotient (rounded up to
the nearest whole cent) determined by dividing (X) the exercise price per share
of Company Common Stock at which such Replacement Option was exercisable
immediately prior to the Effective Time of Merger I by (Y) the Option Exchange
Ratio.
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(iii) Each Replacement Option shall be subject to
and governed by the administrative terms and provisions of Parent's Amended and
Restated 1996 Stock Option Plan and the standard form of agreement thereunder;
provided, that each Replacement Option shall have the acceleration provisions as
set forth in the applicable Company stock option plan and its related standard
form of option agreement.
(b) Company Warrants. At the Effective Time of Merger I, each
Company Warrant, whether or not Vested, shall by virtue of Merger I be assumed
by Parent. Each Company Warrant so assumed by Parent under this Agreement (an
"ASSUMED WARRANT") will continue to have, and be subject to, the same terms and
conditions as provided in the respective warrant agreement governing such
Company Warrant immediately prior to the Effective Time of Merger I (including
without limitation Vesting schedules and Vesting commencement dates), including
that the number of shares of Parent Common Stock and Merger Cash purchasable
upon exercise of each such Assumed Warrant, and exercise price per share of
Parent Common Stock shall be as determined pursuant to the terms of such Company
Warrant.
5.2 Information Statement; Issuance of Freely Tradable Shares.
(a) Preparation of Information Statement. As soon as
practicable after the execution of this Agreement and within ten (10) business
days after such date, the Company shall prepare, with the cooperation of Parent,
an information statement and form of written consent for the Company
Shareholders to approve this Agreement and Merger I (such information statement,
together with any amendments thereof or supplements thereto, in each case in the
form or forms mailed or delivered to the Shareholders, the "INFORMATION
STATEMENT"). The Information Statement shall also constitute a disclosure
document for the offer and issuance of the shares of Parent Common Stock to be
received by the Company Shareholders in Merger I. Parent and the Company shall
each use its commercially reasonable efforts to cause the Information Statement
to comply in all material respects with applicable federal and state securities
laws requirements. Each of Parent and the Company agrees to provide promptly to
the other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the Information Statement, or in
any amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the
Information Statement. The Company will promptly advise Parent and Parent will
promptly advise the Company in writing if at any time prior to the Effective
Time of Merger I either the Company or Parent shall obtain Knowledge of any
facts that might make it necessary or appropriate to amend or supplement the
Information Statement in order to make the statements contained or incorporated
by reference therein not misleading or for compliance with applicable law. The
Information Statement shall contain the unanimous recommendation of the Company
Board that the Shareholders approve this Agreement and Merger I and the
conclusion of the Company Board that the terms and conditions of Merger I
(assuming completion of Merger II immediately thereafter)is fair and reasonable
to the Company Shareholders. Anything to the contrary contained herein
notwithstanding, the Company shall not include in the Information Statement any
information with respect to Parent or its affiliates or associates, the form and
content of which information shall not have been approved in writing by Parent
prior to such inclusion.
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(b) Freely Tradable Shares. Parent and the Company agree to
take all commercially reasonable actions such that the Merger Shares issued
pursuant to Section 1.7(a), when issued, will be freely tradeable without
restriction under United States federal or state securities laws, subject only
to the restrictions of Rule 145 promulgated under the Securities Act applicable
to Affiliates of the Company. In particular, the parties intend that Parent
shall issue the Merger Shares issued pursuant to Section 1.7(a) pursuant either
to the exemption under Section 3(a)(10) under the Securities Act, or by
registering the issuance on a Form S-4 registration statement under the
Securities Act.
(i) Section 3(a)(10)/Permit. As promptly as
practicable after the execution of this Agreement and within ten (10) business
days after such date, Parent and the Company shall prepare the necessary
documentation to seek a permit (a "PERMIT") from the Commissioner of the
Department of Corporations of the State of California pursuant to Section 25121
of the California Corporate Securities Law of 1968, and to request a hearing
before such Department (a "HEARING") so that the issuance of Parent Common Stock
in Merger I pursuant to Section 1.7(a) and the assumption of the Assumed
Warrants shall be exempt from registration under the Securities Act pursuant to
Section 3(a)(10) of the Securities Act. Parent shall use its reasonable
commercial efforts to obtain a Permit; provided, that if such reasonably
diligent efforts do not result in obtaining such permit after seventy-five (75)
days from the date of filing an application for a Permit, then Parent shall have
satisfied its covenant to use commercially reasonable efforts to obtain such
Permit; provided, further, that Parent shall in no event be required to make any
material change to any of the material terms set forth in this Agreement or any
agreement contemplated herein as a condition to receiving the Permit; provided,
further, that the request to terminate one or more of the Voting Agreements by
the Department of Corporations of the State of California shall not be in and of
itself a material change to a material term; provided, further, that Parent may
not, prior to thirty (30) days after the date of filing the application for the
Permit, abandon the efforts to obtain the Permit on the grounds that Parent has
reasonably determined that a Permit will not be issued by the Department of
Corporations of the State of California unless Parent also determines to
register the issuance pursuant to Section 1.7(a) of the Merger Shares and the
assumption of the Assumed Warrants on Form S-4 pursuant to Section 5.2(b)(ii)
below. With regard to the 3(a)(10) hearing, if necessary, the Company will
obtain from Shareholders holding a majority of the Company's capital stock their
consent to the jurisdiction of the California Department of Corporations. The
Company agrees to provide to Parent any cooperation and assistance reasonably
requested with respect to the Permit and Hearing process, including, without
limitation, participating in the Hearing, sending any required notices to
Company Shareholders and holders of Company Stock Options and providing any
information regarding the Company necessary for completion of the Permit.
(ii) Form S-4. If Parent reasonably determines at
any time that a Permit will not, prior to the end of the aforementioned
seventy-five (75) day period, be issued by the Department of Corporations of the
State of California with respect to Merger I without modification of any
material term set forth in the Agreement or any agreement contemplated herein or
if the Department of Corporations of the State of California requests that one
or more of the Voting Agreements be terminated, Parent may, in its sole
discretion, instead determine to register the issuance pursuant to Section
1.7(a) of the Merger Shares and the assumption of the Assumed Warrants pursuant
to the transactions contemplated hereunder on Form S-4 under the Securities Act
(the "FORM S-4"). In such event, Parent and Company shall, as promptly as
practicable, prepare, and
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Parent shall file with the SEC, the Form S-4 together with the prospectus/proxy
statement included therein (the "PROSPECTUS/PROXY STATEMENT") and any other
documents required by the Securities Act or the Exchange Act in connection with
Merger I. Each of Parent and the Company shall use commercially reasonable
efforts to have the Form S-4 declared effective under the Securities Act as
promptly as practicable after such filing. The Company shall furnish to Parent
all information concerning the Company and the Company Shareholders as may be
reasonably requested in connection with any action contemplated by this Section
5.2(b)(ii). Parent shall furnish to the Company all information concerning
Parent as may be reasonably requested in connection with any action contemplated
by this Section 5.2(b)(ii).
5.3 Affiliate Agreements. Each Affiliate of the Company, as set
forth on Section 5.3 of the Company Disclosure Schedule, and each officer and
director of the Company (collectively, the "COMPANY AFFILIATES") will enter into
an affiliate agreement with Parent substantially in the form attached hereto as
EXHIBIT A (the "AFFILIATE AGREEMENT"). Pursuant to such Affiliate Agreements,
each of the Company Affiliates will agree to dispose of any shares of Parent
Common Stock such Company Affiliate receives in connection with Merger I in
compliance with applicable securities laws, including Rule 145, as promulgated
under the Securities Act.
5.4 Registration Statement on Form S-8. Parent shall use its
commercially reasonable best efforts to cause to be on file with the SEC within
15 days of the Effective Time of Merger I a Registration Statement on Form S-8
which shall cover the shares of Parent Common Stock issuable to the holders of
Replacement Options. Parent shall use its commercially reasonable best efforts
to maintain the effectiveness of such Form S-8 following such time as it becomes
effective.
5.5 Post Closing Covenants; General.
(a) Further Assurances. In case at any time after the
Effective Time of Merger I any further action is necessary to carry out the
purposes of this Agreement, Parent and the Company will take such further action
(including the execution and delivery of such further instruments and documents)
as the other reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under ARTICLE VII below).
(b) Litigation Support. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction (A) on or
prior to the Effective Time of Merger I involving the Company or (B) arising out
of Parent's operation of the business of the Surviving Corporation following the
Effective Time of Merger I in the manner in which it is presently conducted and
planned to be conducted, each of Parent and the Company will cooperate with the
Party and its counsel in the contest or defense, make available their personnel,
and provide such testimony and access to their books and records as shall be
reasonably necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under ARTICLE VII
below).
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(c) Indemnification Obligations. Upon the Effective Time of
Merger I, the Surviving Corporation or, to the extent the Surviving Corporation
is unable to do so, Parent, shall assume all of the obligations of the Company
under the Company's existing indemnification agreements with each of the
directors and officers of the Company and indemnification provisions under the
Company Charter Documents as in effect immediately prior to the Effective Time
of Merger I, as such agreements and provisions relate to the indemnification of
such persons for expenses and liabilities arising from facts or events which
occurred on or before the Effective Time of Merger I or relating to the Mergers
or transactions contemplated by this Agreement.
5.6 Management Incentive Plan. Parent shall, prior to the Closing,
establish a management incentive plan providing for the payment of additional
Parent Common Stock on the terms set forth in EXHIBIT B attached hereto, with
such plan to take effect immediately following the Effective Time of Merger I.
5.7 Shareholder Approval. As promptly as practicable after the
issuance of a Permit or effectiveness of the Form S-4, the Company shall use its
best efforts, in accordance with California Law and the Company Charter
Documents, to obtain the approval of the Company Shareholders of the principal
terms of this Agreement and Merger I (the "COMPANY SHAREHOLDER VOTE"). The
Company shall use its best efforts to ensure that the shareholder approval is
solicited in compliance with California Law, the Company Charter Documents and
all other applicable legal requirements. The Company agrees to use its best
efforts and to take all action necessary or advisable to secure the necessary
votes required by California Law to effect Merger I. Parent, promptly upon
request by the Company, shall make a representative available to shareholders to
answer any questions Company shareholders may have regarding the Parent's
business, management and financial affairs.
5.8 Access to Information. The Company shall afford Parent and its
accountants, legal counsel and other representatives reasonable access during
normal business hours during the period prior to the Effective Time of Merger I
to (a) all of the properties, books, Contracts, commitments and records of the
Company and (b) all other information concerning the business, properties, and
personnel of the Company as Parent may reasonably request; provided that such
access shall not unreasonably interfere with the Company's business operations.
The Company agrees to provide Parent and its accountants, legal counsel and
other representatives copies of internal financial statements promptly upon
request. No information or knowledge obtained in any investigation pursuant to
this SECTION 5.8 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Mergers.
5.9 Confidentiality. The parties acknowledge that the Company and
Parent have previously executed a confidentiality agreement dated November 15,
2002, as amended pursuant to a certain Amendment #1 to Mutual Nondisclosure
Agreement dated March 16, 2003 between Parent and the Company (the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms.
5.10 Public Disclosure. Unless otherwise required by law
(including, without limitation, securities laws or, as to Parent, by the rules
and regulations of the Nasdaq National Market), or unless made pursuant to the
terms of this Agreement, prior to the Effective Time of Merger I, no press
release or public announcement (whether or not in response to an inquiry) of the
subject matter
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of this Agreement shall be made by any party hereto (other than disclosures to
Company shareholders pursuant to SECTION 5.2) unless approved by Parent and the
Company prior to release, provided that such approval shall not be unreasonably
withheld or delayed. If any such press release or public announcement is so
required, the party making such disclosure shall consult with the other party
prior to making such disclosure, and the parties shall use all reasonable
efforts, acting in good faith, to agree upon a text for such disclosure that is
satisfactory to both parties.
5.11 Consents. The Company shall promptly apply for or otherwise
seek and use its commercially reasonable efforts to obtain all consents and
approvals required to be obtained by it for the consummation of the Mergers,
including all consents, waivers or approvals under any of the Contracts in order
to preserve the benefits thereunder for the Surviving Corporation and otherwise
in connection with the Mergers. All of such consents and approvals are set forth
in Section 2.5 of the Company Schedule.
5.12 FIRPTA Compliance. On the Closing Date, the Company shall
deliver to Parent a properly executed statement in a form reasonably acceptable
to Parent for purposes of satisfying Parent's obligations under Treasury
Regulation Section 1.1445-2(c)(3).
5.13 Legal Conditions to the Mergers. Each of Parent, Merger Subs
and the Company will take all reasonable actions necessary to comply promptly
with all legal requirements which may be imposed on such party with respect to
the Mergers and will promptly cooperate with and furnish information to any
other party hereto in connection with any such requirements imposed upon such
other party in connection with the Mergers. Each party will take all reasonable
actions to obtain (and will cooperate with the other parties in obtaining) any
consent, authorization, order or approval of or any registration, declaration or
filing with, or an exemption by, any Governmental Body required to be obtained
or made by such party or its subsidiaries in connection with the Mergers or the
taking of any action contemplated thereby or by this Agreement; provided,
however, that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or of the Company or its affiliates or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.14 Best Efforts; Additional Documents and Further Assurances.
Each of the parties agrees to use its best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Mergers and the other transactions contemplated by this Agreement, including
using best efforts to accomplish the following: (a) the taking of all acts
necessary to cause the conditions precedent set forth in Article VI to be
satisfied (other than obtaining consents, approvals or waivers which are
governed by Section 5.11), (b) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Body vacated or reversed and (c) the execution or
delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement.
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5.15 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (a) the
occurrence or non-occurrence of any event which is likely to cause any
representation or warranty of the Company and Parent or Merger Subs,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time of Merger I except as
contemplated by this Agreement (including the Company Schedules) and (b) any
failure of the Company or Parent, as the case may be, to comply with or satisfy
in any material respect any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this SECTION 5.15 shall not limit or otherwise affect any remedies
available to the party receiving such notice or affect the representations,
warranties, covenants or agreements of the parties or conditions to the
obligation of the parties under this Agreement.
5.16 Nasdaq National Market. On or prior to the Closing Date, if
applicable, the Parent shall apply for the listing on the Nasdaq National Market
of shares of the Parent Common Stock issuable in connection with Merger I and
with respect to the substituted Company Stock Options and Assumed Warrants, upon
official notice of issuance and shall take all other acts as necessary or
appropriate to cause such shares to become and remain so listed.
5.17 Voting Agreements. Concurrently with the execution of this
Agreement, the Company will cause the persons and entities listed on Schedule
5.17 hereto to execute a Voting Agreement in the form attached hereto as EXHIBIT
C, agreeing, among other things, to vote in favor of Merger I and against any
competing proposals.
5.18 Blue Sky Laws. Parent shall use its reasonable best efforts to
comply with the securities and blue sky laws of all jurisdictions that are
applicable to the issuance of the Parent Common Stock pursuant hereto. The
Company shall use its reasonable best efforts to assist Parent as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
that are applicable in connection with the issuance of Parent Common Stock
pursuant hereto.
5.19 Stock Restrictions. If Parent obtains a Permit, the
certificates (other than those certificates issued to persons who were not, as
of the Effective Time of Merger I, an Affiliate of the Company, as such term is
defined in Rule 144 under the Securities Act) representing the shares of Parent
Common Stock issued in Merger I shall bear the restrictive legends (and stop
transfer orders shall be placed against the transfer thereof with Parent's
transfer agent) as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 APPLIES AND MAY ONLY BE TRANSFERRED IN CONFORMITY WITH RULE
145(d) OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, OR IN ACCORDANCE WITH A WRITTEN
OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER IN FORM AND SUBSTANCE,
THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED.
5.20 Employment Arrangements. Following the Effective Time of
Merger I, and except as already set forth under Section 5.1(a) above, each
participant in the Company Benefit Plans who will
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provide services to the Parent or Surviving Corporation following the Effective
Time of Merger I ("COMPANY PARTICIPANTS") shall be entitled to benefits
available (whether under plans or other arrangements) or that subsequently
become available to similarly situated employees of Parent (the "PARENT BENEFIT
ARRANGEMENTS") on terms no less favorable than, and on a basis that is
substantially comparable to, those offered to similarly situated employees of
Parent; provided that salaries, bonuses and option grants shall instead be as
set forth in the offers made to officers and employees of the Company prior to
the date of this Agreement, and employees of the Company will not be able to
participate in Parent's employee stock participation plan until the next regular
participation period under such plan following the Closing. Each Company
Participant shall to the extent permitted by law and applicable tax
qualification requirements, and subject to any generally applicable break in
service or similar rule, receive credit for purposes of eligibility to
participate and vesting (except with respect to options granted by Parent that
are not Replacement Options) under the Parent Benefit Arrangements, including
vacation accruals, for years of service with the Company. To the extent
consistent with law and applicable tax qualification requirements, the Parent
shall use commercially reasonable efforts to cause any and all pre-existing
condition limitations, eligibility waiting periods and evidence of insurability
requirements under any group health plans to be waived with respect to such
Company Participants and their eligible dependents and shall provide them with
credit for any co-payments and deductibles prior to the Effective Time of Merger
I for purposes of satisfying any applicable deductible, out-of-pocket, or
similar requirements under any Parent Benefit Arrangement in which they are
eligible to participate for the first time immediately after the Effective Time
of Merger I. Notwithstanding any of the foregoing to the contrary, none of the
provisions contained herein shall operate to duplicate any benefit provided to
any employee of the Company or the funding of any such benefit.
5.21 Documentation of Cash Balance. Within five (5) days of the
signing of this Agreement, the Company shall deliver to the Parent reasonable
documentation of the Company's cash, cash equivalents and short-term investments
as of the date of this Agreement.
5.22 Mandatory Funding. Parent shall purchase from the Company on
or before May 1, 2003 (as extended by any cure period under Section 8.1(d) that
is ongoing on May 1, 2003) a convertible secured promissory note with a
principal amount of $600,000 (the "MAY NOTE") pursuant to the Amended and
Restated Loan Agreement between the Company and Parent, dated as of April 2,
2003 (the "LOAN AGREEMENT"); provided that Parent shall not be obligated to
purchase the May Note if, on or before May 1, 2003 (as extended by any cure
period under Section 8.1(d) that is ongoing on May 1, 2003) either this
Agreement is terminated pursuant to its terms or the Closing occurs. The Company
agrees to sell and issue to Parent the May Note pursuant to the Loan Agreement
upon Parent's tendering to the Company the principal amount of the May Note in
cash or by check.
5.23 Optional Funding.
(a) Parent shall have the option, in its sole discretion, to
purchase from the Company on or before June 2, 2003, a convertible secured
promissory note with a principal amount of $1,300,000 (the "JUNE NOTE") pursuant
to the Loan Agreement. The Company hereby agrees to sell and issue to Parent the
June Note pursuant to the Loan Agreement upon Parent tendering to the Company
$1,300,000 by cash or check.
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(b) Parent shall have the option, in its sole discretion, to
purchase from the Company on or before July 1, 2003 a convertible secured
promissory note with a principal amount of $1,080,000 (the "JULY NOTE") pursuant
to the Loan Agreement. The Company hereby agrees to sell and issue to Parent the
July Note pursuant to the Loan Agreement upon Parent tendering to the Company
$1,080,000 by cash or check.
5.24 Registered Intellectual Property. The Company shall deliver to
the Parent a list of any action that must be taken by the Company within thirty
(30) days of the Closing Date for the purposes of maintaining, perfecting or
preserving or renewing any Company Registered Intellectual Property, including,
without limitation, the payment of any registration, maintenance or renewal fees
or the filing of any documents, applications or certificates.
5.25 Updated Company Schedule. The Company shall use all reasonable
efforts to deliver at least five (5) Business Days prior to Closing a disclosure
letter certified by a duly authorized officer of the Company, updating the
Company Schedule solely for events and occurrences first arising after the date
of this Agreement or which arise from items disclosed in the Company Schedule
based solely on new events and occurrences after the date of this Agreement (the
"UPDATED COMPANY SCHEDULE"); provided that the Company and Parent agree that the
sole effect of the Updated Company Schedule with respect to the Company's
representations and warranties in Article II shall be to qualify such
representations and warranties solely for purposes of Article VII and solely
with respect to items disclosed on the Updated Company Schedule which represent
events and occurrences which first arose after the date of this Agreement or
which arise from items disclosed in the Company Schedule based solely on new
events and occurrences after the date of this Agreement; provided further that
the disclosure on the Updated Company Schedule shall have the effect described
in this Section 5.25 only for events and circumstances that are described in
reasonable detail and the actual and potential costs, damages and expenses to
Parent resulting therefrom are, to the extent reasonably knowable and
quantifiable, reasonably quantified. In any event, the Parties hereto agree that
Parent shall have at least five (5) Business Days to review and respond to the
Updated Company Schedule prior to Closing.
5.26 Rhapsody Promotions. No later than such time that Company
begins to program Parent's RadioPass services or provide search engine results
for such services, Parent agrees to prominently promote and link to the Company
Music Services on a majority of Parent's RadioPass services web pages,
including, without limitation, any search results pages.
5.27 Company Preferred Warrant Exercise Price. All cash paid to the
Company inpayment of the exercise price of Company Preferred Warrants after the
date hereof and prior to the Effective Time of Merger I shall be immediately
deposited by the Company into, and maintained in, a separate bank account, so
that such funds are not commingled with the Company's other funds, and the
Company agrees not to expend any of such funds without Parent's prior written
consent.
5.28 Articles of Amendment. The Company shall use its best efforts
to obtain Company Shareholder approval of the articles of amendment in
substantially the form attached hereto as EXHIBIT D (the "ARTICLES OF
AMENDMENT") and shall file the Articles of Amendment with the California
Department of Corporations as promptly as reasonably practicable following the
receipt of requisite approval of the Company Shareholders of such Articles of
Amendment.
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ARTICLE VI
CONDITIONS TO CLOSING
6.1 Conditions to Obligations of Each Party to Effect the Mergers. The
respective obligations of each party to this Agreement to effect the Mergers
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Mergers shall be in effect.
(b) No Order. No Governmental Body shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Mergers illegal or
otherwise prohibiting consummation of the Mergers.
6.2 Additional Conditions to Obligations of the Company. The
obligations of the Company to consummate the Mergers and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The
representations and warranties of Parent and Merger Subs in this Agreement shall
be true and correct in all material respects (provided that, if such
representations and warranties are modified by any materiality qualifier other
than "Material Adverse Effect," then such qualifiers shall be disregarded for
purposes of this Section 6.2(a), and, for such representations and warranties
that are modified by "Material Adverse Effect" such qualifier shall be regarded
but the standard for this Section 6.2(a) shall be "true and correct in all
respects" instead of "true and correct in all material respects") on and as of
the Closing Date as though such representations and warranties were made on and
as of such time, except that any such representation or warranty made as of a
specified date (other than the date hereof) shall only need to have been true
and correct on and as of such date, and the Company shall have received a
certificate to such effect signed by a duly authorized officer of Parent and
Merger Subs.
(b) Agreements and Covenants. Parent and Merger Subs shall
have performed or complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed or
complied with by them on or prior to the Closing Date, and the Company shall
have received a certificate to such effect signed by a duly authorized officer
of Parent and Merger Subs.
(c) Secretary's Certificate. Each of Parent and Merger Subs
shall have delivered to the Company a copy of (i) the text of the resolutions
adopted by the Board of Directors of Parent and Merger Subs authorizing the
execution, delivery and performance of this Agreement, the Agreement of Merger I
and the Agreement of Merger II and the consummation of all of the transactions
contemplated by this Agreement and Agreement of Merger I and Agreement of Merger
II and (ii) the certificate of incorporation or articles of incorporation, as
the case may be, and bylaws of Parent and
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Merger Subs, along with certificates executed on behalf of each of Parent and
Merger Subs by such entity's corporate secretary certifying to the Company that
such copies are true, correct and complete copies of such resolutions,
certificate of incorporation (or articles) of incorporation, as the case may be,
and bylaws, respectively, and that such resolutions, certificate of
incorporation and bylaws were duly adopted and have not been amended or
rescinded.
(d) Litigation. There shall be no action, suit, claim or
proceeding of any nature pending or threatened against Parent or the Company,
their respective properties or either of their respective officers or directors
arising out of, or in any way connected with, the Mergers or the other
transactions contemplated by this Agreement.
(e) Shareholder Approval. The principal terms of this
Agreement, the Mergers and the transactions contemplated hereby shall have been
approved and adopted by the Company Shareholders by the requisite vote under
applicable law and the Company's Articles of Incorporation.
(f) Section 25121 Permit; Form S-4. Parent shall have obtained
the Permit from the Department of Corporations of the State of California upon
which Parent can rely to issue the Parent Common Stock pursuant to Section
1.7(a) exempt from registration pursuant to Section 3(a)(10) of the Securities
Act, or the issuance of the Merger Shares pursuant to Section 1.7(a) shall be
registered on an effective Form S-4.
(g) Legal Opinion. The Company shall have received a legal
opinion from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx P.C., legal counsel to Parent, in
the form attached hereto as EXHIBIT E-1.
6.3 Additional Conditions to the Obligations of Parent and Merger Subs.
The obligations of Parent and Merger Subs to consummate the Mergers and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects (provided that, if such representations and warranties
are modified by any materiality qualifier other than "Material Adverse Effect,"
then such qualifiers shall be disregarded for purposes of this Section 6.3(a),
and, for such representations and warranties that are modified by "Material
Adverse Effect" such qualifier shall be regarded but the standard for this
Section 6.3(a) shall be "true and correct in all respects" instead of "true and
correct in all material respects") (i) as of the date hereof and (ii) as of the
Closing Date, as though made on and as of the Closing Date (provided that in the
cases of clauses (i) and (ii) any such representation and warranty made as of a
specific date shall be true and correct in all material respects as of such
specific date); provided that any action taken by the Company following the date
of this Agreement in compliance with Section 4.1 of this Agreement shall not
cause the representations and warranties of the Company set forth in this
Agreement to not be true and correct in all material respects.
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(b) Agreements and Covenants. The Company shall have performed
or complied in all material respects with all agreements and covenants set forth
in Articles I, IV, V, and IX of this Agreement to be performed or complied with
by it on or prior to the Closing Date.
(c) Officer's Certificate. The chief executive officer of the
Company shall deliver to Parent and Merger Subs at the Closing a certificate
certifying (i) that the conditions specified in Sections 6.3(a) and (b) have
been fulfilled, and (ii) the number of Bona-Fide Subscribers at the Closing
Date.
(d) Shareholder Approval. The principal terms of this
Agreement, Merger Iand the transactions contemplated hereby shall have been
approved and adopted by the Company Shareholders by the requisite vote under
applicable law and the Company's Articles of Incorporation.
(e) Closing Date Payment Schedule. Parent and the Company
shall each have reviewed and approved and the Company shall have executed and
delivered a schedule (the "CLOSING DATE PAYMENT SCHEDULE") reflecting, as of the
Effective Time of Merger I (i) for each holder of Company Capital Stock, the
number of shares of Company Capital Stock held of record, the aggregate number
of shares of Parent Common Stock, Merger Cash and Earnout Rights payable to such
holder in Merger I, the number of such shares and amount of Merger Cash payable
promptly after the Effective Time of Merger I (in accordance with Section
1.7(a)) and payable into the Escrow Fund (as defined and further described in
Section 1.7(c)), the amount of additional cash payable to such holder for any
fractional shares, the stock certificate numbers held by each such person and
such person's federal tax identification number to the extent such number is
known and (ii) for each holder of Company Stock Options, the number of shares of
Company Common Stock issuable upon exercise thereof immediately prior to the
Effective Time of Merger I, the number of shares of Parent Common Stock and cash
issuable upon exercise thereof following their replacement by Parent (in
accordance with Section 5.1(a)) and the per share exercise price thereof upon
such assumption, assuming that such options were fully vested and (iii) for each
holder of Company Warrants, the number of shares of Company Capital Stock
issuable upon exercise thereof immediately prior to the Effective Time of Merger
I, the number of shares of Parent Common Stock and cash issuable upon exercise
thereof following their assumption by Parent (in accordance with Section
5.1(b)), and the exercise price thereof per share of Parent Common Stock upon
such assumption.
(f) Third Party Consents. Parent shall have been furnished
with evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Section 2.5 of the Company Schedule.
(g) Legal Opinion. Parent shall have received a legal opinion
from Fenwick & West LLP, legal counsel to the Company, in the form attached
hereto as EXHIBIT E-2.
(h) No Material Adverse Change. There shall not have occurred
any material adverse change in the business, assets (including intangible
assets), financial condition or results of operations of the Company, other than
as a result of (i) changes generally adversely affecting the United States
economy (so long as the Company is not disproportionately affected thereby),
including, without limitation, war or the outbreak of hostilities, (ii)
performance by Company of its
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obligations under, or the taking by Company of any actions contemplated by, this
Agreement or the failure of Parent to consent to actions reasonably requested by
Company pursuant to Section 4.1 of this Agreement, and (iii) the announcement or
pendency of the transactions contemplated by this Agreement (provided that this
(iii) shall not except from the determination of whether a material adverse
change has occurred any actions of the Major Music Labels or any Governmental
Body).
(i) Dissenters' Rights. Holders of not more than ten percent
(10%) of the outstanding shares of Company Capital Stock shall continue to have
the right to exercise dissenters' rights under California Law with respect to
the transactions contemplated by this Agreement.
(j) Affiliate Agreement. The Company Affiliates shall have
entered into the Affiliate Agreement as required by SECTION 5.3.
(k) Voting Agreements. The Voting Agreements as required by
SECTION 5.17 hereof shall have been duly executed and delivered to Parent.
(l) Secretary's Certificate. The Company shall have delivered
to Parent a copy of (i) the text of the resolutions adopted by the Company's
Board authorizing the execution, delivery and performance of this Agreement and
the Agreement of Merger I and the consummation of all of the transactions
contemplated by this Agreement and the Agreement of Merger I, (ii) the text of
the resolutions adopted by the Company Shareholders approving the principal
terms of this Agreement, Merger I and the transactions contemplated hereby, and
(iii) the Company Charter Documents, along with a certificate executed on behalf
of the Company by its corporate secretary certifying to Parent that such copies
are true, correct and complete copies of such resolutions, Articles of
Incorporation and Bylaws, respectively, and the such resolutions and Company
Charter Documents were duly adopted and have not been amended or rescinded.
(m) Key Employee Arrangements. Each of the Key Employees
listed on SCHEDULE A hereto (the "KEY EMPLOYEES"), (i) shall have entered into
"at-will" employment arrangements with Parent and/or the Surviving Corporation
pursuant to their execution of Parent's standard form of Offer Letter in
substantially the form attached hereto as EXHIBIT F-1, shall have agreed to be
employees of Parent or the Surviving Corporation after the Closing and shall be
employees of Company immediately prior to the Effective Time of Merger I, and
(ii) shall have executed the form of Development and Confidentiality Agreement
previously agreed to by Company and Parent and attached hereto as EXHIBIT F-2.
(n) 280G Shareholder Approval. The Company shall deliver to
Parent evidence reasonably satisfactory to Parent either (i) that, with respect
to any payments of cash or sales and purchases of stock or vesting of Company
Stock Rights or other benefits contemplated by this Agreement that may be deemed
to constitute "parachute payments" pursuant to Section 280G of the Code
("POTENTIAL 280G BENEFITS"), the Company's Shareholders have approved by the
requisite vote such that all such Potential 280G Benefits resulting from the
transactions contemplated hereby shall not be deemed to be "parachute payments"
pursuant to Section 280G of the Code or shall be exempt from such treatment
under such Section 280G, or (ii) that such requisite shareholder approval has
not been obtained with respect to a Potential 280G Benefit and, as a consequence
and pursuant to the
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terms of the agreement providing for such Potential 280G Benefit, such Potential
280G Benefit shall not be made or provided.
(o) Stock Restriction Agreement. The Principal Shareholder
shall have executed and delivered to Parent a Stock Restriction Agreement, in
substantially the form attached hereto as EXHIBIT G (the "STOCK RESTRICTION
AGREEMENT"), and such Stock Restriction Agreement shall be in full force and
effect.
(p) Termination of Employment Agreements. Each agreement
between the Company and its employees, other than stock option agreements and
invention assignment agreements, shall have been terminated or shall terminate
at the Effective Time of Merger I pursuant to a written agreement of termination
reasonably satisfactory to Parent, which agreement of termination shall provide
that the transactions contemplated by this Agreement or any subsequent event
shall not trigger any rights or benefits or the acceleration of any rights or
benefits under the terminated agreement.
(q) Termination of Agreements. The Company shall deliver to
Parent evidence reasonably satisfactory to Parent that the Co-Sale Agreement,
the Voting Agreement, the Investor Rights Agreement, and the Xxxx Xxxxxxxxx
Agreement have been terminated prior to the Effective Time of Merger I.
(r) 401(k) Plan. The Company shall deliver to Parent
resolutions of the Company's Board of Directors and other evidence reasonably
satisfactory to Parent that the Company's 401(k) plan has been terminated prior
to the Effective Time of Merger I.
(s) Section 25121 Permit; Form S-4. Parent shall have obtained
the Permit from the Department of Corporations of the State of California upon
which Parent can rely to issue the Parent Common Stock pursuant to Section
1.7(a) exempt from registration pursuant to Section 3(a)(10) of the Securities
Act, or the issuance of the Merger Shares pursuant to Section 1.7(a) shall be
registered on an effective Form S-4.
(t) FIRPTA Statement. The Company shall deliver to Parent a
properly executed statement in a form reasonably acceptable to Parent for
purposes of satisfying Parent's obligations under Treasury Regulation Section
1.1445-2(c)(3).
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations, Warranties and Covenants.
(a) The representations and warranties of the Company
contained in this Agreement, or in any certificate, schedule or other instrument
delivered pursuant to this Agreement, shall terminate at 11:59 p.m. Washington
State time on the eighteen (18) month anniversary of the Closing Date (the
"ESCROW TERMINATION DATE"); provided, however, that the representations and
warranties shall not terminate with respect to any claims specified in any Claim
Certificate (as defined in SECTION 7.3(a)) delivered to the Shareholder
Representative prior to the Escrow
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Termination Date until such claims are finally resolved. Notwithstanding the
foregoing, (i) the representations and warranties in SECTIONS 2.1, 2.3, AND 2.16
shall terminate at 11:59 p.m. Washington State time on the day of expiration of
the applicable statute of limitations and (ii) in the case of any liability for
indemnification for fraud under SECTION 7.2(a), the representations and/or
warranties that are the subject of such fraud shall not terminate until 11:59
p.m. Washington State time on the day of expiration of the applicable statute of
limitations.
7.2 Escrow Arrangements.
(a) Escrow Fund. The Escrow Fund shall be available to
compensate the Parent and its officers, directors and affiliates, including the
Company after the Closing (the "COVERED PARTIES"), or any of them, for any
claims by such Covered Parties for any and all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses of investigation and defense relating to such claim, loss,
liability, damage, deficiency, cost or expense (hereinafter individually a
"LOSS" and collectively "LOSSES") incurred or suffered by the Covered Parties,
or any of them, directly or indirectly, as a result of (i) any breach or
inaccuracy of a representation or warranty of the Company contained in this
Agreement (as modified by the Company Schedule with respect to representations
and warranties made as of the date of this Agreement, and as modified by the
Updated Company Schedule with respect to representations and warranties made as
of the Closing; provided that to the extent such item listed on the Company
Schedule or the Updated Company Schedule is expressly noted as being disclosed
for informational purposes only, it shall not modify the applicable
representation or warranty) (or in any certificate, schedule or other instrument
delivered by the Company pursuant to this Agreement), (ii) any failure by the
Company to perform or comply with any covenant applicable to them contained in
this Agreement, and (iii) the incurrence on or after January 27, 2003 by the
Company of third party legal expenses in connection with this Agreement and the
Mergers, in excess of $250,000 ("EXCESS LEGAL EXPENSES") (hereinafter
individually a "COVERED EVENT" and collectively, the "COVERED EVENTS"). By their
approval of the Mergers and/or their tender pursuant to Section 1.11 of the
Certificates representing shares of Company Capital Stock, the Company
Shareholders will be deemed to have consented to, approved and agreed to be
bound by the indemnification provisions of this SECTION 7.2.
(b) Notwithstanding anything else contained in this Agreement
to the contrary, and except for claims for fraud and intentional misconduct and
claims for indemnification pursuant to SECTION 7.3, recovery of Losses pursuant
to this SECTION 7.2 shall be the sole and exclusive remedy of the Covered
Parties following the Closing, exclusive of all other rights of indemnification,
recovery, defense or other remedy (whether legal or equitable, or whether based
in contract or tort) under any theory of liability that any Covered Person would
otherwise have, under this Agreement (or in any certificate, schedule or other
instrument delivered pursuant to this Agreement) or in connection with the
transactions contemplated by this Agreement; provided that this Section 7.2(b)
shall not limit Parent's remedies under the Stock Restriction Agreement and the
Affiliate Agreements. With respect to claims for indemnification for fraud or
intentional misconduct and as provided in SECTION 7.3(a) below, Covered Parties
shall, until no assets remain in the Escrow Fund (assuming for this purpose that
there have been distributed out of the Escrow Fund any amounts which in the
reasonable judgment of Parent are necessary to satisfy any then pending and
unsatisfied claims for recovery from the Escrow Fund), seek recovery of Losses
first from the Escrow Fund.
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(c) Deposit of Escrow Fund. Promptly after the Closing, the
Escrow Shares and Escrow Cash, without any act of the Company Shareholders, will
be deposited in an interest-bearing account with Mellon Investor Services, LLC,
as Escrow Agent hereunder, or another institution acceptable to Parent and the
Shareholder Representative (as defined in SECTION 7.3 hereof), such deposit of
the Escrow Shares and Escrow Cash to constitute an escrow fund (the "ESCROW
FUND") to be governed by the terms set forth herein. Any interest earned on the
Escrow Cash shall be treated for all tax purposes as income of the Company
Shareholders in proportion to their original Escrow Cash contributions to the
Escrow Fund. All such interest shall be added to the Escrow Fund and become a
part thereof; provided, however, that within thirty (30) days following the end
of each calendar year, forty percent (40%) of such interest shall be distributed
to the Company Shareholders in proportion to their original Escrow Cash
contribution to the Escrow Fund. The Escrow Agent shall have no duty to confirm
or verify the accuracy or correctness of the amount of any Escrow Shares and
Escrow Cash deposited with it hereunder. The Escrow Agent may execute this
Agreement following the date hereof and prior to the Closing, and such later
execution, if so executed after the date hereof, shall not affect the binding
nature of this Agreement as of the date hereof between the other signatories
hereto.
(d) Escrow Period; Distribution upon Termination of Escrow
Periods.
(i) Subject to the other provisions of this
Section 7.3(b), the Escrow Fund shall be in existence immediately following the
Effective Time of Merger I and shall terminate at 11:59 p.m. Washington State
time, on the Escrow Termination Date (the "ESCROW Period").
(ii) At 11:59 p.m. Washington State time, on the
nine (9) month anniversary of the Closing Date (the "INITIAL ESCROW TERMINATION
DATE"), the Escrow Fund shall terminate with respect to fifty percent (50%) of
the Escrow Shares initially deposited into the Escrow Fund and fifty percent
(50%) of the Escrow Cash initially deposited into the Escrow Fund, less: (A) any
amounts which have been distributed out of the Escrow Fund prior to the Initial
Escrow Termination Date pursuant to SECTION 7.2(f) in satisfaction of
indemnification claims pursuant to this SECTION 7.2, and (B) any amounts (the
"INITIAL ESCROW HOLDBACK AMOUNT") which, in the reasonable judgment of Parent,
subject to the reasonable objection of the Shareholder Representative, is
necessary to satisfy any then pending and unsatisfied claims specified in any
Claim Certificate(s) delivered to the Escrow Agent prior to the fifth (5th)
Business Day following the Initial Escrow Termination Date with respect to facts
and circumstances existing prior to the Initial Escrow Termination Date.
Promptly (and in any event within ten (10) Business Days) after all such claims
have been resolved, the Escrow Agent shall deliver to the Company Shareholders
the remaining portion of the Initial Escrow Holdback Amount, if any, not
required to satisfy the claims described in SECTION 7.2(d)(II)(B).
(iii) At 11:59 p.m. Washington State time, on the
Escrow Termination Date the Escrow Fund shall terminate with respect to any
amounts of Escrow Shares and Escrow Cash remaining in the Escrow Fund at that
time; provided, however, that the Escrow Period and the Escrow Fund shall not
terminate with respect to any amount which, in the reasonable judgment of
Parent, subject to the reasonable objection of the Shareholder Representative,
is necessary to satisfy any then pending and unsatisfied claims specified in any
Claim Certificate delivered to the Escrow Agent prior to the fifth (5th)
Business Day following the Escrow Termination Date with respect to
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facts and circumstances existing prior to the Escrow Termination Date. Promptly
(and in any event within ten (10) Business Days) after all such claims have been
resolved, the Escrow Agent shall deliver to the Company Shareholders the
remaining portion of the Escrow Fund, if any, not required to satisfy such
claims (the "REMAINING PORTION").
(iv) Deliveries of Escrow Shares and Escrow Cash
pursuant to SECTIONS 7.2(d)(II) and 7.2(d)(III) above shall be made pro rata
from the Escrow Fund contributions made by each Company Shareholder based on the
original contributions of Escrow Shares and Escrow Cash of each Company
Shareholder. With respect to any Company Shareholder that contributed Escrow
Shares and Escrow Cash that is Restricted, the delivery of Escrow Shares and
Escrow Cash out of the Escrow Fund shall be allocated between Restricted and
Unrestricted Escrow Shares and Escrow Cash in the same proportions as such
Company Shareholder's entire contribution to the Escrow Fund is then allocated
between Restricted and Unrestricted Escrow Shares and Escrow Cash. With respect
to the Escrow Shares and Escrow Cash that are Restricted, the delivery out of
the Escrow Fund shall be allocated among the different portions that Vest at
different times in the same proportion as such Company Shareholder's entire
contribution to the Escrow Fund is then allocated among such different portions
that Vest at different times.
(v) Pursuant to SECTION 1.7(c), the Escrow
Shares and Escrow Cash contributed to the Escrow Fund by the Principal
Shareholders consists of Escrow Shares and Escrow Cash that are Restricted and
Unrestricted. If Escrow Shares and Escrow Cash which are Restricted are released
upon termination of the Escrow Period in accordance with SECTION 7.2(d)(II) OR
SECTION 7.2(d)(III) of this Agreement, such Escrow Shares and Escrow Cash shall
be released to Parent to be held by Parent pursuant to the terms of the
agreement which provides for the risk of forfeiture or divestment or repurchase
right.
(vi) Within ten (10) Business Days following the
Initial Escrow Termination Date and the Escrow Termination Date, Parent will
notify the Shareholder Representative and the Escrow Agent in writing of the
portion of the Escrow Fund that may be distributed pursuant to this Section 7.3
(each, an "ESCROW DISTRIBUTION NOTICE"), and the allocation of such
distribution, subject to objection by the Shareholder Representative pursuant to
SECTION 7.3(d). If the Escrow Agent does not timely receive any such Escrow
Distribution Notice from Parent, the Escrow Agent shall promptly (and in any
event within ten (10) Business Days) after the expiration of such ten (10)
Business Day period deliver to the Company Shareholders the remaining portion of
the Escrow Fund, subject to the limitations of SECTIONS 7(d)(II) and 7(d)(III)
above. The Shareholder Representative shall have twenty (20) days following
receipt of such notice from Parent during which to object to the contents
thereof by sending written notice of such objection to Parent and to the Escrow
Agent. If the Escrow Agent does not timely receive any such written objection
from the Shareholder Representative, or if such notice period is waived in
writing by the Shareholder Representative, the Escrow Agent shall distribute
Escrow Shares and Escrow Cash from the Escrow Fund in accordance with the Escrow
Distribution Notice and will incur no liability, and shall be fully protected,
in relying on such Escrow Distribution Notice and shall have no obligation to
take any action until it has received such notice.
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(e) Protection of Escrow Fund; Distribution of Interest from
Escrow Fund.
(i) The Escrow Agent shall hold and safeguard
the Escrow Fund during the Escrow Period, shall not treat the Escrow Fund as the
property of Parent and shall hold and dispose of the Escrow Fund only in
accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other
equity securities issued or distributed by Parent (including shares issued upon
a stock split or stock dividend) ("NEW SHARES") in respect of Parent Common
Stock in the Escrow Fund which have not been released from the Escrow Fund
shall be added to the Escrow Fund and become a part thereof. New Shares issued
in respect of shares of Parent Common Stock which have not been deposited with
or have been released from the Escrow Fund shall not be added to the Escrow
Fund but shall be distributed to the recordholders thereof.
(iii) Subject to SECTION 7.2(e)(II), each Company
Shareholder shall be deemed the record holder of, and shall have voting,
dividend, distribution and all other rights with respect to the shares of Parent
Common Stock contributed to the Escrow Fund by such Company Shareholder (and on
any voting securities and other equity securities added to the Escrow Fund in
respect of such shares of Parent Common Stock). Notwithstanding the foregoing,
the Escrow Agent shall have no duty or obligation to monitor or take any action
with respect to the foregoing paragraph.
(f) Claims for Losses. Parent and Surviving Corporation shall
make any claims for compensation pursuant to SECTION 7.2(a) hereof by delivering
a Claim Certificate (as defined below) to the Shareholder Representative and a
copy of such Claim Certificate shall be delivered to the Escrow Agent. For
purposes hereof, "CLAIM CERTIFICATE" shall mean in the case of a claim for
indemnification made by Parent, a certificate signed by any officer of Parent;
and such certificate shall (A) state that the party claiming indemnification has
paid, incurred or properly accrued or reasonably anticipates that it will have
to pay, incur or accrue Losses; and (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid, incurred or properly accrued, or the basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty or
covenant to which such item is related.
(g) Resolution of Conflicts. If the Shareholder Representative
objects to any claim or claims made in any Claim Certificate to recover Losses,
the Shareholder Representative must deliver to the Escrow Agent a writing to
that effect within 30 days after delivery of the Claim Certificate to the
Shareholder Representative. If the Shareholder Representative has delivered such
an objection, the Shareholder Representative and the Covered Parties shall
attempt in good faith to agree upon the rights of the respective parties with
respect to each of such claims. If the Shareholder Representative and the
Covered Parties should so agree, a memorandum setting forth such agreement shall
be prepared and signed by the Shareholder Representative and the Covered Parties
and furnished to the Escrow Agent. Such memorandum shall state the number of
Escrow Shares and amount of Escrow Cash to be released from the Escrow Fund in
connection with such Losses. The Escrow Agent shall be entitled to rely on any
such memorandum and distribute the Escrow Shares and Escrow Cash from the Escrow
Fund in accordance with the terms thereof.
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(h) Claims for Indemnification Against the Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time
on or before the fifth (5th) Business Day following the last day of the Escrow
Termination Date of a Claim Certificate and, subject to the provisions of
SECTION 7.2(j) hereof, the Escrow Agent shall deliver to Parent out of the
Escrow Fund, as promptly as practicable, such amount of Escrow Shares and Escrow
Cash as are set forth in the Claim Certificate.
(ii) For the purposes of determining the number
of Escrow Shares (as defined below) to be delivered to Parent out of the Escrow
Fund pursuant to SECTION 7.2(h)(i) hereof, the shares of Parent Common Stock
shall be valued at the Parent Stock Price (as adjusted for any stock splits,
stock combinations, recapitalizations and the like). Parent and the Shareholder
Representative shall certify such determined value in a Claim Certificate signed
by both Parent and the Shareholder Representative, and shall deliver such
certificate to the Escrow Agent.
(iii) Deliveries of Escrow Shares and Escrow Cash
pursuant to SECTION 7.2(h)(i) above shall made on a pro rata basis from the
Escrow Fund contributions made by each Company Shareholder based on the original
contributions of Escrow Shares and Escrow Cash of each Company Shareholder to
the Escrow Fund (and shall be allocated between Escrow Shares and Escrow Cash
pro rata based on the allocation of each Company Shareholder's contribution to
the Escrow Fund between Escrow Shares and Escrow Cash). With respect to any
Company Shareholder that contributed Escrow Shares and Escrow Cash that are
Restricted, the delivery of Escrow Shares and Escrow Cash out of the Escrow Fund
shall be allocated between Restricted and Unrestricted Escrow Shares and Escrow
Cash in the same proportions as such Company Shareholder's entire contribution
to the Escrow Fund is then allocated between Restricted and Unrestricted Escrow
Shares and Escrow Cash. With respect to the Escrow Shares and Escrow Cash that
are Restricted, the delivery out of the Escrow Fund shall be allocated among the
different portions that Vest at different times in the same proportion as such
Company Shareholder's entire contribution to the Escrow Fund is then allocated
among such different portions that Vest at different times. Notwithstanding the
foregoing or any other provision herein to the contrary, the Escrow Agent's sole
duty with respect to the delivery of the Escrow Shares and Escrow Cash under
this Agreement is to deliver the Escrow Shares and Escrow Cash to Parent or the
Shareholder Representative, as the case may be, in accordance with the written
instructions provided for herein. No Escrow Shares and no Escrow Cash will be
released to any party hereto unless and until the Escrow Agent has received
written instructions with respect to such distribution and which sets forth the
precise number of Escrow Shares and the amount of Escrow Cash to be delivered to
the appropriate recipient thereof. The Escrow Agent shall have no duty to
monitor or enforce compliance with this section, including, but not limited to,
determining whether or not the Escrow Shares to be released are Restricted.
Notwithstanding any other provision of this Agreement to the contrary, the
Escrow Agent shall have no duty under any section of this Agreement to make any
determination as to (i) whether Escrow Shares are Restricted, (ii) any Vesting
schedules, (iii) the value of any Escrow Shares or (iv) any Company
Shareholder's pro rata percentage ownership.
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(i) Limitations on Claims from Escrow Fund.
(i) The Covered Parties shall not be entitled to
recovery of Losses under this SECTION 7.2 unless and until the Covered Parties
have suffered Losses in excess of $100,000 in the aggregate (the "BASKET
AMOUNT") which are, but for the effect of this Section 7.2(i) and Section
7.3(d), recoverable pursuant to this Section 7.2 or Section 7.3, in which case
the Covered Parties shall be entitled to recover all Losses so identified
including, without limitation, the Basket Amount; provided however, that claims
for recovery of Losses in respect of Excess Legal Expenses shall not be subject
to the Basket Amount limitation (but such claims shall not count toward
satisfaction of the Basket Amount for purposes of other claims for recovery of
Losses).
(ii) The amount of any Loss for which a Covered
Party seeks recovery from the Escrow Fund shall be reduced by the amount of any
insurance proceeds actually received prior to the delivery of the Escrow Shares
and Escrow Cash pursuant to Section 7.2(h)(iii) above (less the amount of
increase of any insurance premiums assessed to Parent prior to the resolution of
the applicable claim for Losses hereunder).
(j) Objections to Claims. At the time of delivery of any Claim
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Shareholder Representative, and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery to Parent of
any portion of the Escrow Shares pursuant to SECTION 7.2(f) hereof with respect
to such Claim Certificate unless and until the Escrow Agent shall have received
written authorization from the Shareholder Representative to make such delivery.
After the expiration of such thirty (30) day period, the Escrow Agent shall make
delivery of the Escrow Shares and Escrow Cash from the Escrow Fund in accordance
with SECTION 7.2(f) hereof; provided, however, that no such payment or delivery
may be made until resolution of any objection to the delivery of any Escrow
Shares or Escrow Cash made pursuant to this SECTION 7.2(j) if the Shareholder
Representative shall, in a written statement, make a reasonable and good faith
objection to the claim made in the Claim Certificate, and such written objection
shall have been delivered to the Escrow Agent prior to the expiration of such
thirty (30) day period. If the Escrow Agent does not timely receive any such
written objection from the Shareholder Representative, the Escrow Agent shall
distribute Escrow Shares and Escrow Cash from the Escrow Fund in accordance with
the Claim Certificate and will incur no liability, and shall be fully protected,
in relying on such Claim Certificate.
(k) Escrow Agent's Duties
(i) The Escrow Agent shall be obligated only for
the performance of such duties as are specifically set forth herein (and no
implied duties), and as set forth in any additional written escrow instructions
which the Escrow Agent may receive after the date of this Agreement which are
signed by an officer of Parent and the Shareholder Representative (and which are
acceptable to the Escrow Agent), and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed to be genuine
and to have been signed or presented by the proper party or parties.
(ii) The Escrow Agent is hereby expressly
authorized to disregard any and all warnings given by any of the parties hereto
or by any other person, excepting only orders or process of courts of law, and
is hereby expressly authorized to comply with and obey orders,
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judgments or decrees of any court. In case the Escrow Agent obeys or complies
with any such order, judgment or decree of any court, the Escrow Agent shall be
fully protected and shall not be liable to any of the parties hereto or to any
other person by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any
respect on account of the identity, authority or rights of the parties executing
or delivering or purporting to execute or deliver this Agreement or any
documents or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) In performing any duties under this
Agreement, the Escrow Agent shall not be liable to any person or entity for
damages, losses, liabilities, penalties, claims, settlements, judgments, costs
or expenses, except for gross negligence or willful misconduct on the part of
the Escrow Agent (each as finally determined by a court of competent
jurisdiction). Any liability of the Escrow Agent under this Agreement will be
limited to $75,000. The Escrow Agent shall not incur any liability for any
action taken, suffered or omitted in reliance upon any instrument, including any
written statement of affidavit provided for in this Agreement that the Escrow
Agent shall believe to be genuine, nor will the Escrow Agent be liable or
responsible for forgeries, fraud, impersonations, or determining the scope of
any representative authority. In addition, the Escrow Agent may consult with
legal counsel in connection with performing the Escrow Agent's duties under this
Agreement and shall be fully protected and shall incur no liability with respect
to any action taken, suffered, or omitted to be taken by it in accordance with
the advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the
parties to this Agreement, or with any other party, concerning the subject
matter of this Agreement, its terms or conditions, the Escrow Agent will not be
required to determine the controversy or to take any action regarding it. The
Escrow Agent may hold all documents and the Escrow Shares and Escrow Cash and
may wait for settlement of any such controversy by final appropriate legal
proceedings or other means as, in the Escrow Agent's discretion, may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damages. Furthermore, the Escrow
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and the Escrow
Shares and Escrow Cash held in escrow, except all costs, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action, which the Parties jointly and severally agree to pay. Upon initiating
such action, the Escrow Agent shall be fully released and discharged of and from
all obligations and liability imposed by the terms of this Agreement.
(vii) The Parties (other than the Escrow Agent)
and their respective successors and assigns agree jointly and severally to
indemnify and hold Escrow Agent harmless
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against any and all losses, claims, damages, liabilities, penalties, claims,
settlements, judgments, costs or expenses, including reasonable costs of
investigation, counsel fees, including allocated costs of in-house counsel and
disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in
connection with the performance of its duties under this Agreement, including
but not limited to any litigation arising from this Agreement or involving its
subject matter, other than those arising out of the gross negligence or willful
misconduct of the Escrow Agent (each as finally determined by a court of
competent jurisdiction). The indemnity provided herein and the provisions of
Section 7.2(l) below (with respect to fees payable to the Escrow Agent for
services actually performed) shall survive the termination of this Agreement,
the termination and expiration of the Escrow Fund and the resignation, removal
or replacement of the Escrow Agent. The costs and expenses of enforcing this
right of indemnification shall be paid by the Parent.
(viii) The Escrow Agent may resign at any time upon
giving at least thirty (30) days written notice to the Parent and the
Shareholder Representative; provided, however, that no such resignation shall
become effective until the appointment of a successor escrow agent which shall
be accomplished as follows: Parent and the Shareholder Representative shall use
their best efforts to mutually agree on a successor escrow agent within thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent authorized to do business in the State of
Washington or to petition a court of competent jurisdiction to appoint a
successor escrow agent. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers, and duties of the
predecessor escrow agent as if originally named as escrow agent. Upon
appointment of a successor escrow agent, the Escrow Agent shall be discharged
from any further duties and liability under this Agreement.
(ix) In the event the Escrow Agent believes any
ambiguity or uncertainty exists hereunder or in any notice, instruction,
direction, request or other communication, paper or document received by the
Escrow Agent hereunder, the Escrow Agent may, in its sole discretion, refrain
from taking any action and shall be fully protected and shall not be liable in
any way to Parent, the Shareholder Representative or any Company Shareholder or
other Person for refraining from taking such action, unless the Escrow Agent
receives written instructions signed by Parent and the Shareholder
Representative which eliminates such ambiguity or uncertainty to the
satisfaction of Escrow Agent.
(l) Fees. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent in accordance with the standard fee
schedule of the Escrow Agent. It is understood that the fees and usual charges
agreed upon for services of the Escrow Agent shall be considered compensation
for ordinary services as contemplated by this Agreement. In the event that the
conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent
renders any service not provided for in this Agreement, or if the parties
request a substantial modification of its terms (which modification is consented
to by the Escrow Agent), or if any controversy arises, or if the Escrow Agent is
made a party to, or intervenes in, any litigation pertaining to the Escrow Fund
or its subject matter, the Escrow Agent shall be reasonably compensated for such
extraordinary services and reimbursed for all costs, attorney's fees and
expenses occasioned by such default, delay, controversy or litigation.
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(m) Consequential Damages. Anything to the contrary
notwithstanding, in no event shall the Escrow Agent be liable for special,
punitive, indirect, consequential or incidental loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Escrow Agent
has been advised of the likelihood of such loss or damage and regardless of the
form of action.
(n) Successor Escrow Agents. Any Person into which the Escrow
Agent in its individual capacity may be merged or converted or with which it may
be consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any Person to which substantially all the business of the Escrow Agent
in its individual capacity may be transferred, shall be the Escrow Agent under
this Escrow Agreement without further act.
7.3 Indemnification.
(a) Indemnification by the Company Shareholders. The Company
Shareholders, severally and not jointly (and in proportion to the number of
shares of Parent Common Stock and amount of Merger Cash each Company Shareholder
has contributed to the Escrow Fund), agree to indemnify and hold Parent and its
officers, directors and affiliates, including the Company after the Closing (the
"INDEMNIFIED PARTIES"), harmless against all Losses incurred or suffered by the
Indemnified Parties, or any of them (including the Company after the Closing),
directly or indirectly, as a result of any fraud or intentional misconduct, or
with respect to any claims arising after the Escrow Termination Date from the
representations and warranties in SECTIONS 2.1, 2.3, and 2.16 (as modified by
the Company Schedule with respect to representations and warranties made as of
the date of this Agreement, and as modified by the Updated Company Schedule with
respect to representations and warranties made as of the Closing; provided that
to the extent such item listed on the Company Schedule or the Updated Company
Schedule is expressly noted as being disclosed for informational purposes only,
it shall not modify the applicable representation or warranty).
(b) Claims for Indemnification. Parent and Surviving
Corporation shall make any claims for indemnification pursuant to SECTION 7.3
hereof by delivering a Claim Certificate to the Shareholder Representative.
(c) Resolution of Conflicts. In case the party from whom
indemnification under SECTION 7.3 is sought shall object in writing to any claim
or claims made in any Claim Certificate to recover Losses, the Indemnifying
Parties and the Indemnified Parties shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If the
Indemnifying Parties and the Indemnified Parties should so agree, a memorandum
setting forth such agreement shall be prepared and signed by the Indemnifying
Parties and the Indemnified Parties.
(d) The Indemnified Parties shall not be entitled to recovery
of Losses under this SECTION 7.3 unless and until the Covered Parties have
suffered Losses in excess of the Basket Amount which are, but for the effect of
this SECTION 7.3(D) and SECTION 7.2(i)(i), recoverable pursuant to this SECTION
7.3 or SECTION 7.2, in which case the Indemnified Parties shall be entitled to
recover all Losses so identified including, without limitation, the Basket
Amount.
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(e) Insurance. The amount of any Loss for which an Indemnified
Party seeks indemnification shall be reduced by the amount of any insurance
proceeds actually received prior to the delivery of payment for such claim
pursuant to this Section 7.3 (less the amount of increase of any insurance
premiums assessed to Parent prior to the resolution of the applicable claim for
Losses hereunder).
(f) Limitation on Indemnification. No Company Shareholder
shall, in connection with the transactions contemplated by this Agreement
(including without limitation by virtue of this Section 7.3 and Section 7.2), be
liable for more than the amount of Merger Consideration allocated to such
Company Shareholder pursuant to Sections 1.7 and 1.8 (with Merger Shares being
valued at the Parent Stock Price); except that this Section 7.3(f) shall not
limit the liability of any Company Shareholder for fraud or intentional
misconduct with respect to which such Company Shareholder is personally
culpable.
7.4 Third-Party Claims.
(a) Third-Party Claims.
(i) In the event Parent or its affiliates become
aware of a third-party claim (hereinafter referred to as a "THIRD PARTY CLAIM"),
which may give rise to a claim by Covered Parties or Indemnified Parties, as
applicable, for Losses, then Parent shall give notice to the Shareholder
Representative of any such Third Party Claim or of facts upon which any such
Third Party Claim will be based setting forth such material information with
respect to the Third Party Claim as is reasonably available to Parent; provided,
however, that no delay or failure on the part of Parent in notifying the
Shareholder Representative shall relieve the Shareholder Representative and the
Company Shareholders from any obligation hereunder unless the Shareholder
Representative and the Company Shareholders are thereby materially prejudiced
(and then solely to the extent of such prejudice).
(ii) In case any Third Party Claim is asserted
against Parent or its affiliates, and Parent notifies the Shareholder
Representative pursuant to Section 7.2(g)(i) hereinabove, the Shareholder
Representative will be entitled, if the Shareholder Representative so elect by
written notice delivered to Parent within 30 days after receiving Parent's
notice, to assume the defense thereof, at the expense of the Shareholder
Representative and the Company Shareholders independent of the Escrow Fund, if
applicable, with counsel reasonably satisfactory to Parent, so long as:
a) if applicable, Parent has
reasonably determined that Losses which may be incurred as a result of the Third
Party Claim do not exceed either individually, or when aggregated with all other
Third Party Claims, the total dollar value of the Escrow Fund determined in
accordance with Section 7.2(h)(ii) hereof;
b) the Third Party Claim involves
only money damages and does not seek an injunction or other equitable relief;
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c) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the reasonable good
faith judgment of Parent, likely to establish a precedential custom or practice
materially adverse to the continuing business interests of Parent; and
d) Parent or its affiliates has not
reasonably determined that there is a material conflict of interest between or
among Parent or its Affiliates on the one hand and the Shareholder
Representative and the Company Shareholders on the other hand with respect to
such Third Party Claim.
If the Shareholder Representative and the Company Shareholders so
assume any such defense, the Shareholder Representative and the Company
Shareholders shall keep Parent reasonably apprised of the continuing progress of
such defense. The Shareholder Representative and the Company Shareholders shall
not compromise or settle such Third Party Claim or consent to entry of any
judgment in respect thereof without the prior written consent of Parent and/or
its Affiliates, as applicable, which consent shall not be unreasonably withheld
or delayed, unless such settlement agreement or judgment (a) includes an
unconditional release of Parent from all liability arising out of such action or
claim, (b) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of Parent, (c) does not include
any injunctive or other non-monetary relief, and (d) does not result in
conclusions of fact or law that would be binding against Parent in other claims.
(iii) In the event that the Shareholder
Representative assumes the defense of the Third Party Claim in accordance with
Section 7.2(g)(ii) above, Parent or its affiliates may retain separate counsel
and participate in the defense of the Third Party Claim, but the fees and
expenses of such counsel shall be at the expense of Parent. Parent will
cooperate in the defense of the Third Party Claim and will provide reasonable
access to documents, assets, properties, books and records and personnel
(including officers and directors, as reasonably necessary) reasonably requested
by Shareholder Representative and material to the claim.
(iv) In the event that the Shareholder
Representative fails or elects not to assume the defense of Parent or its
Affiliates against such Third Party Claim, which the Shareholder Representative
had the right to assume under Section 7.2(g)(ii) above, or the Shareholder
Representative is not entitled to assume the defense of Parent or its affiliates
against such Third Party Claim pursuant to Section 7.2(g)(ii) above, Parent or
its affiliates shall have the right to undertake the defense and Parent shall
not compromise or settle such Third Party Claim or consent to entry of any
judgment in respect thereof without the prior written consent of the Shareholder
Representative, which consent shall not be unreasonably withheld or delayed. In
each case, Parent or its Affiliates shall keep the Shareholder Representative
reasonably apprised of the continuing progress of such defense. The Shareholder
Representative will cooperate with Parent or its Affiliates, and will use his
commercially reasonable efforts to cause the Company's shareholders, to
cooperate in the defense of that claim, will provide full access to documents,
assets, properties, books and records reasonably requested by Parent and
material to the claim and will make available all individuals reasonably
requested by Parent for investigation, depositions and trial.
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7.5 Shareholder Representative.
(a) Each of the Company Shareholders hereby appoints Xxxxxx
Xxxx, his or her agents and attorneys-in-fact, as the Shareholder Representative
for and on behalf of the Company Shareholders, to give and receive notices and
communications, to authorize delivery or payment to Parent of Escrow Shares or
Escrow Cash from the Escrow Fund in satisfaction of claims by Parent, to object
to such payments, to agree to, negotiate, enter into settlements and compromises
of, and comply with orders of courts with respect to such claims, and to take
all other actions that are either (i) necessary or appropriate in the judgment
of the Shareholder Representative for the accomplishment of the foregoing or
(ii) specifically mandated by the terms of this Agreement. Such agency may be
changed by the Company Shareholders from time to time upon not less than thirty
(30) days prior written notice to Parent and the Escrow Agent; provided,
however, that the Shareholder Representative may not be removed unless holders
of a two-thirds interest of the Escrow Fund amounts agree to such removal and to
the identity of the substituted agent. Upon any change in the Shareholder
Representative, such successor Shareholder Representative shall promptly provide
the Escrow Agent with a signature specimen. Any vacancy in the position of
Shareholder Representative may be filled by the holders of a majority in
interest of the Escrow Fund amounts No bond shall be required of the Shareholder
Representative, and the Shareholder Representative shall not receive
compensation for his services. Notices or communications to or from the
Shareholder Representative shall constitute notice to or from the Company
Shareholders.
(b) The Shareholder Representative shall not be liable for any
act done or omitted hereunder as a Shareholder Representative, except for gross
negligence or willful misconduct on the part of such Shareholder Representative.
The Shareholders on whose behalf the Escrow Shares and Escrow Cash were
contributed to the Escrow Fund shall indemnify the Shareholder Representative
and hold the Shareholder Representative harmless against any loss, liability,
damage, penalty, claim, settlement, judgment, cost or expense incurred without
gross negligence or willful misconduct on the part of the Shareholder
Representative and arising out of or in connection with the acceptance or
administration of the Shareholder Representative's duties hereunder, including
the reasonable fees and expenses of any legal counsel retained by the
Shareholder Representative. After all claims for Losses by Parent set forth in
Claim Certificates delivered to the Escrow Agent and the Shareholder
Representative have been satisfied, or reserved against, the Shareholder
Representative, with the consent of the majority in interest in the Escrow Fund,
may recover from the Escrow Fund at the end of the Escrow Period payments not
yet paid for any expenses incurred in connection with the Shareholder
Representative's representation hereby.
(c) A decision, act, consent or instruction of the Shareholder
Representative pursuant to this Agreement shall constitute a decision of the
Company Shareholders and shall be final, binding and conclusive upon the Company
Shareholders; and the Escrow Agent and Parent may rely upon any such decision,
act, consent or instruction of the Shareholder Representative as being the
decision, act, consent or instruction of the Company Shareholders. In addition,
the Shareholder Representative may agree to the amendment, extension or waiver
of this Agreement pursuant to SECTIONS 8.3 and 8.4 hereof (provided that the
express written agreement of each is required). The Escrow Agent and Parent are
hereby relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Shareholder
Representative.
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(d) Subject to Parent's prior claims for indemnification
against the Escrow Fund, the Shareholder Representative shall be entitled to
receive payment for its reasonable and documented expenses therefrom, prior to
any payments to the Company Shareholders. The Escrow Agent shall have no duty to
verify the legitimacy of any claim made by the Shareholder Representative from
the Escrow Fund in accordance with this Section 7.5 or as to whether such claim
has been duly authorized in accordance herewith, and the Escrow Agent shall
incur no liability to any Person in complying with any disbursement made to the
Shareholder Representative upon his written request.
7.6 Remedies Not Limited by Information and Investigation. The
representations, warranties, covenants and obligations of the Company, and the
rights and remedies that may be exercised by the Covered Parties and Indemnified
Parties pursuant to Sections 7.2 and 7.3 hereof, shall not be limited or
otherwise affected by or as a result of any information furnished to, or any
investigation made by or knowledge of, any of the Covered Parties and
Indemnified Parties (unless such information is provided in the Company Schedule
with respect to representations and warranties made as of the date of this
Agreement, and unless such information is provided in the Updated Company
Schedule with respect to representations and warranties made as of the Closing;
provided that to the extent such information listed on the Company Schedule or
the Updated Company Schedule is expressly noted as being disclosed for
informational purposes only, it shall not modify the applicable representation
or warranty).
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in SECTION 8.2 below, this
Agreement may be terminated and the Mergers abandoned at any time prior to the
Closing Date:
(a) by mutual written consent executed and delivered by each
party hereto and duly authorized by the Board of Directors of the Company and
Parent;
(b) by either Parent or the Company if: (i) the Closing Date
has not occurred by August 1, 2003 as a result of a condition to the terminating
party's obligation to consummate the Mergers not having been satisfied prior to
such date or otherwise (provided that the right to terminate this Agreement
under this Section 8.1(b) shall not be available to any party whose willful
failure to fulfill any obligation hereunder has been the cause of, or resulted
in, the failure of the Effective Time of Merger I to occur on or before such
date and such action or failure constitutes a breach of this Agreement); (ii)
there shall be a final nonappealable order of a federal or state court in effect
preventing consummation of the Mergers; or (iii) there shall be any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Mergers by any Governmental Body that would make consummation of the Mergers
illegal;
(c) by Parent if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Mergers, by any Governmental Body, which would: (i) prohibit
Parent's or the Company's ownership or operation of any material portion of the
business of the Company or (ii) compel Parent or the Company to dispose of or
hold separate, as a result of the Mergers, any material portion of the business
or assets of the Company or Parent;
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(d) by Parent if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company and as a result of such breach one or more of the
conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would not
then be satisfied; provided, however, that if such breach is curable by the
Company within 15 days through the exercise of its reasonable best efforts, then
for so long as the Company continues to exercise such reasonable best efforts
Parent may not terminate this Agreement under this Section 8.1(d) unless such
breach is not cured within 15 days following written notice from Parent to the
Company of such breach (but no cure period shall be required for a breach which
by its nature cannot be cured);
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent or Merger Subs and as a result of such breach one or more of
the conditions set forth in SECTION 6.2(a) or 6.2(b), as the case may be, would
not then be satisfied; provided, however, that if such breach is curable by
Parent or Merger Subs within 15 days through the exercise of its reasonable best
efforts, then for so long as Parent or Merger Subs continues to exercise such
reasonable best efforts the Company may not terminate this Agreement under this
SECTION 8.1(e) unless such breach is not cured within 15 days following written
notice from the Company to Parent of such breach (but no cure period shall be
required for a breach which by its nature cannot be cured)
(f) by the Company, following June 2, 2003, if the Company is
not in material breach of its obligations under this Agreement and if prior to
such termination (i) the Closing has not occurred and (ii) Parent has not
purchased the June Note pursuant to Section 5.23(a) of this Agreement; and
(g) by the Company, following July 1, 2003, if the Company is
not in material breach of its obligations under this Agreement and if prior to
such termination (i) the Closing has not occurred and (ii) Parent has not
purchased the July Note pursuant to Section 5.23(b) of this Agreement.
A termination pursuant to this Section 8.1 shall be effected by
delivery of written notice of such termination by the terminating Party to the
other Party. Where action is taken to terminate this Agreement pursuant to
SECTION 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors of the party taking such action.
8.2 Effect of Termination. Any termination of this Agreement under
SECTION 8.1 above will be effective immediately upon the delivery of written
notice of the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in SECTION 8.1, this Agreement shall
be of no further force or effect, except (a) as set forth in this SECTION 8.2
and ARTICLE IX (general provisions, including expenses), each of which shall
survive the termination of this Agreement, and (b) nothing herein shall relieve
any party from liability for any breach of this Agreement. No termination of
this Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations shall survive termination of
this Agreement.
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8.3 Amendment. Except as is otherwise required by applicable law, prior
to the Closing, this Agreement may be amended by the parties hereto at any time
by execution of an instrument in writing signed by Parent and the Company;
provided, however, that after the approval of this Agreement by the Company
Shareholders, no amendment may be made which reduces the Merger Consideration or
which effects any changes which would materially adversely affect the Company
Shareholders without the further approval of the shareholders of the Company. No
amendment hereto which affects the Escrow Agent shall be binding upon the Escrow
Agent without the Escrow Agent's express written consent. Except as is otherwise
required by applicable law, after the Closing, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing executed
by the Shareholder Representative in the case of the Company.
8.4 Extension; Waiver. At any time prior to the Effective Time of
Merger I, Parent and Merger Subs, on the one hand, and the Company, on the
other, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations of the other party hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, next day delivery, or sent via telecopy (receipt confirmed)
(provided a confirmation copy is also delivered by U.S. mail, postage prepaid)
to the parties at the following addresses or telecopy numbers (or at such other
address or telecopy numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Subs, to:
RealNetworks, Inc.
0000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Attention: General Counsel
Telecopy No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxxx
Xxxxxxxxx Xxxxxxxx
Telecopy No.: (000) 000-0000
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(b) if to the Company, to:
Xxxxxx.xxx, Inc.
0000 00xx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: President
Telecopy No.: (000) 000-0000
with a copy to:
Fenwick & West LLP
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxx
Telecopy No.: (000) 000-0000
(c) if to the Escrow Agent, to:
Mellon Investor Services LLC
000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Client Service Management
Telecopy No.: (000) 000-0000
(d) if to the Shareholder Representative, to:
Xxxxxx Xxxx
c/o Xxxxxx.xxx, Inc.
0000 00xx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Telecopy No.: (000) 000-0000
Email: xxx@xxxxxx.xxx
with a copy to:
Fenwick & West LLP
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxx
Telecopy No.: (000) 000-0000
Notwithstanding the foregoing, any notice or communication provided to
Shareholder Representative may be sent via electronic submission to the email
address listed above and shall be deemed given when sent and, to the extent any
notice or communication is not sent to Shareholder Representative via electronic
submission, such notice or communication shall be accompanied by an
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electronic submission to the email address listed above to notify Shareholder
Representative of such notice or communication.
9.2 Expenses. In the event the Mergers are not consummated, all fees
and expenses incurred in connection with the Mergers including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties ("THIRD PARTY EXPENSES") incurred by a Party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective Party incurring such fees and expenses.
9.3 Interpretation; Definitions. When a reference is made in this
Agreement to Exhibits, such reference shall be to an Exhibit to this Agreement
unless otherwise indicated. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement. Unless
otherwise indicated the words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "the business
of" an entity, such reference shall be deemed to include the business of all
direct and indirect subsidiaries of such entity. Reference to the subsidiaries
of an entity shall be deemed to include all direct and indirect subsidiaries of
such entity.
9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Schedule, the
Updated Company Schedule, the Parent Schedule and any letter agreements between
the Parties dated as of the date of this Agreement (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, it being understood that
the Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder
(except for the rights under Article VII of Persons who are Covered Parties or
Indemnified Parties).
9.6 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
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9.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof;
provided, however, that all provisions regarding the rights, duties and
obligations of the Escrow Agent shall be governed by and construed in accordance
with the laws of the State of New York applicable to Contracts made and to be
performed entirely within such state.
9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.10 Assignment. No party may assign either this Agreement or any of
its rights, interests, or obligations hereunder without the prior written
approval of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
*****
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
REALNETWORKS, INC. XXXXXX.XXX, INC.
By: /s/ Xxxxxx Xxxxxx By: /s/ Xxxx Xxxx
------------------------------- ----------------------------
Name: Xxxxxx Xxxxxx Name: Xxxx Xxxx
Title: Chief Executive Officer Title: President and Secretary
SYMPHONY ACQUISITION CORP. I ESCROW AGENT:
By: /s/ Xxxxxx Xxxxxx MELLON INVESTOR SERVICES LLC
-------------------------------
Name: Xxxxxx Xxxxxx By: /s/ Xxxxxx X. Xxxxxx
----------------------------
Title: President and Chief Executive Officer Name: Xxxxxx X. Xxxxxx
Title: Assistant Vice President
SYMPHONY ACQUISITION CORP. II SHAREHOLDER REPRESENTATIVE:
By: /s/ Xxxxxx Xxxxxx /s/ Xxxxxx Xxxx
------------------------------- --------------------------------
Xxxxxx Xxxx
Name: Xxxxxx Xxxxxx
Title: President and Chief Executive Officer
