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EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 31, 2001 (this
"Agreement"), among Digital Creative Development Corporation, a Utah corporation
("DCDC"), International Microcomputer Software, Inc., a California corporation
("IMSI") and DCDC Merge, Inc., a California corporation and a direct wholly
owned subsidiary of IMSI ("Merger Sub").
W I T N E S S E T H
WHEREAS, the Boards of Directors of DCDC, IMSI and Merger Sub have each
determined that it is advisable and in the best interests of their respective
stockholders for DCDC and IMSI to enter into a business combination upon the
terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
DCDC, IMSI and Merger Sub have each approved the merger (the "Merger") of DCDC
with and into Merger Sub in accordance with the applicable provisions of the
Utah Revised Business Corporation Act (the "Utah Revised B.C.A.") and the
applicable provisions of the California Corporations Code (the "California
Code"), and upon the terms and subject to the conditions set forth herein; and
WHEREAS, pursuant to the Merger, each outstanding share of DCDC's
common stock, $.01 par value (the "DCDC Common Stock"), shall be converted into
the right to receive Common Stock, no par value, of IMSI (the "IMSI Common
Stock"), upon the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, IMSI, DCDC and Merger Sub hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger.
(a) Effective Time. At the Effective Time (as defined in Section 1.2),
and subject to and upon the terms and conditions of this Agreement, the Utah
Revised B.C.A. and the California Code, DCDC shall merge with and into Merger
Sub, the separate corporate existence of DCDC shall cease, and Merger Sub shall
continue as the surviving corporation. Merger Sub is hereinafter sometimes
referred to as the "Surviving Corporation."
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(b) Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Article VII and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the consummation of the Merger will take place as promptly
as practicable (and in any event within two business days) after satisfaction or
waiver of the conditions set forth in Article VI, at the offices of Xxxxxx &
Xxxxx LLP, 00 Xxxxxxx Xxxxxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxxxx, Xxx Xxxx 00000,
unless another date, time or place is agreed to in writing by the parties hereto
(the "Closing").
Section 1.2 Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger as contemplated by the Utah Revised B.C.A. (the "Utah Certificate of
Merger") and by the California Code (the "California Certificate of Merger"),
together with any required related certificates, with the Secretary of State of
the State of Utah and the Secretary of State of the State of California, as the
case may be, in such form as required by, and executed in accordance with the
relevant provisions of the Utah Revised B.C.A. and the California Code, as the
case may be (the time of such filing being the "Effective Time").
Section 1.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Utah Certificate of
Merger, the California Certificate of Merger and the applicable provisions of
the Utah Revised B.C.A. and the California Code. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of DCDC shall vest in the Surviving
Corporation, and all debts, liabilities and duties of DCDC shall become the
debts, liabilities and duties of the Surviving Corporation.
Section 1.4 Certificate of Incorporation and By-Laws.
(a) Certificate of Incorporation. The Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended in accordance with the California Code and such
Certificate of Incorporation. Such Certificate of Incorporation shall provide
for the issuance of a new series of preferred stock having the same rights,
preferences and privileges as the DCDC Series C 10% Cumulative Redeemable
Preferred Stock (the "New Series C Preferred Stock") and the DCDC Series D
Preferred Stock (the "New Series D Preferred Stock"), if not earlier converted.
(b) By-Laws. The By-Laws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until thereafter amended in accordance with the California Code, the
Certificate of Incorporation of the Surviving Corporation and such By-Laws.
Section 1.5 Effect on Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of DCDC, IMSI, the Merger Sub
or the holders of any of the following securities:
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(a) Conversion of Securities. Each share of DCDC Common Stock
issued and outstanding immediately prior to the Effective Time (excluding any
shares of DCDC Common Stock to be cancelled pursuant to Section 1.5(b)) shall be
converted into the right to receive such number of validly issued, fully paid
and nonassessable shares (the "IMSI Shares") of IMSI Common Stock such that the
stockholders of DCDC immediately preceding the Effective Time shall own in the
aggregate, fifty-one percent (51%) of IMSI's outstanding Common Stock
immediately following the Effective Time. For the purposes hereof, the 400,000
shares of DCDC Common Stock issuable upon conversion of the DCDC Series D
Preferred Stock shall be deemed to be issued and outstanding.
(b) Cancellation. Each share of DCDC Common Stock held in the
treasury of DCDC immediately prior to the Effective Time shall cease to be
outstanding, be cancelled and retired without payment of any consideration
therefor and cease to exist.
Section 1.6 Exchange of Certificates.
(a) Exchange Agent. At or prior to the Effective Time, IMSI
shall supply, or shall cause to be supplied, to or for the account of
[_____________], or such other bank or trust company designated by IMSI and
reasonably satisfactory to DCDC (the "Exchange Agent"), in trust for the benefit
of the holders of DCDC Common Stock, for exchange in accordance with this
Section 1.6, through the Exchange Agent, certificates evidencing IMSI Shares
issuable pursuant to Section 1.5(a) in exchange for outstanding shares of DCDC
Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, IMSI will instruct the Exchange Agent to mail to each
holder of record of certificates evidencing DCDC Common Stock ("DCDC
Certificates"): (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the DCDC Certificates shall
pass, only upon proper delivery of the DCDC Certificates to the Exchange Agent
and shall be in such form and have such other provisions as IMSI may reasonably
specify); and (ii) instructions to effect the surrender of the DCDC Certificates
in exchange for certificates evidencing IMSI Shares ("IMSI Certificates"). Upon
surrender of a DCDC Certificate for cancellation to the Exchange Agent together
with such letter of transmittal, duly executed and such other customary
documents as may be required pursuant to such instructions, the holder of such
DCDC Certificate shall be entitled to receive in exchange therefor: (A) IMSI
Certificates which such holder has the right to receive in accordance with
Section 1.5(a), in respect of the shares of DCDC Common Stock formerly evidenced
by such DCDC Certificate; and (B) any dividends or other distributions to which
such holder is entitled pursuant to Section 1.6(c) and the DCDC Certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of shares of DCDC Common Stock which is not registered in the transfer
records of DCDC as of the Effective Time, the IMSI Shares, dividends and
distributions with respect thereto, may be issued and paid in accordance with
this Article I to a transferee if the DCDC Certificate evidencing such shares of
DCDC Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer pursuant to this Section
1.6(b) and by evidence that any
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applicable stock transfer taxes have been paid. Until so surrendered, each
outstanding DCDC Certificate that, prior to the Effective Time, represented
shares of DCDC Common Stock will be deemed from and after the Effective Time,
for all corporate purposes, other than the payment of dividends, to evidence
only the ownership of the number of IMSI Shares into which such shares of DCDC
Common Stock shall have been so converted and no rights in any shares of DCDC's
Common Stock.
(c) Distributions with Respect to Unexchanged IMSI Shares. No
dividends or other distributions declared or made with respect to IMSI Shares
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered DCDC Certificate with respect to IMSI Shares such holder is
entitled to receive until such holder shall surrender such DCDC Certificate.
There shall be paid, at the time of such surrender, to the record holder of the
IMSI Shares issued in exchange therefor, without interest, the amount of
dividends or other distributions with respect to such IMSI Shares.
(d) Transfers of Ownership. If any IMSI Certificate is to be
issued in a name other than that in which the DCDC Certificate surrendered in
exchange therefor is registered, it will be a condition to the issuance thereof
that the DCDC Certificate so surrendered will be properly endorsed and otherwise
in proper form for transfer and that the person requesting such exchange will
have paid to IMSI or any agent designated by it any transfer or other taxes
required by reason of the issuance of a certificate for IMSI Shares in any name
other than that of the registered holder of the DCDC Certificate so surrendered,
or have established to the satisfaction of IMSI or any agent designated by it
that such tax has been paid or is not payable.
(e) No liability. At any time following one year after the
Effective Time, IMSI shall be entitled to require the Exchange Agent to deliver
to IMSI any certificates evidencing IMSI Shares, and any dividends and
distributions with respect thereto, which had been made available to the
Exchange Agent by or on behalf of IMSI and which have not been disbursed to
holders of DCDC Certificates, and thereafter such holders shall be entitled to
look to IMSI only as general creditors thereof with respect to such
certificates, dividends and distributions payable upon due surrender of their
DCDC Certificates. Notwithstanding the foregoing, neither IMSI nor DCDC shall be
liable to any holder of shares of DCDC Common Stock for any IMSI Shares, or
dividends or distributions with respect thereto delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(f) Withholding Rights. IMSI or the Exchange Agent shall be
entitled to deduct and withhold from any dividends or distributions with respect
to IMSI Shares otherwise payable pursuant to Section 1.6(c) to any holder of
shares of DCDC Common Stock such amounts as IMSI or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by IMSI or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the shares of DCDC Common Stock in respect of which such
deduction and withholding was made by IMSI or the Exchange Agent.
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Section 1.7 Stock Transfer Books. At the Effective Time, the stock
transfer books of DCDC shall be closed, and there shall be no further
registration of transfers of shares of DCDC Common Stock thereafter on the
records of DCDC.
Section 1.8 No Further Rights in DCDC Common Stock. The IMSI Shares
delivered upon the surrender of shares of DCDC Common Stock in accordance with
the terms hereof shall be deemed to have been paid in full satisfaction of all
rights pertaining to such shares of DCDC Common Stock. Holders of the shares of
DCDC Common Stock shall have no further ownership rights in DCDC Common Stock
after the Effective Time. At the Effective Time, holders of the shares of the
DCDC Series C 10% Cumulative Redeemable Preferred Stock and the Series D
Preferred Stock, if not earlier converted, shall have their shares exchanged for
the New Series C Preferred Stock and the New Series D Preferred Stock,
respectively. If, after the Effective Time, DCDC Certificates are presented to
the Surviving Corporation for any reason, they shall be cancelled and exchanged
as provided in this Article I.
Section 1.9 Lost, Stolen or Destroyed Certificates. In the event any
DCDC Certificates shall have been lost, stolen, or destroyed, the Exchange Agent
shall issue and pay in exchange for such lost, stolen or destroyed DCDC
Certificates, upon the making of an affidavit of that fact by the holder thereof
and delivery of bond in such sum as IMSI or the Exchange Agent may reasonably
direct as indemnity against any claim that may be made against IMSI or the
Exchange Agent with respect to the DCDC Certificates alleged to have been lost,
stolen or destroyed, such IMSI Shares, any dividends and distributions with
respect thereto.
Section 1.10 Taking of Necessary Action; Further Action. Each of DCDC,
IMSI and Merger Sub will take all such reasonable and lawful action as may be
necessary or appropriate in order to effectuate the Merger in accordance with
this Agreement as promptly as possible. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full right,
title and possession to all assets, property, rights, privileges, powers and
franchises of DCDC, the officers and directors of DCDC immediately prior to the
Effective Time are fully authorized in the name of DCDC to take, and will take,
all such lawful and necessary action.
Section 1.11 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of DCDC Common Stock which immediately prior
to the Effective Time are held by stockholders who have properly exercised
dissenters' rights under Sections 16-10a - 1302 of the Utah Revised B.C.A. (the
"Dissenting Shares") shall not be converted into IMSI Shares as provided in
Section 1.5(a) hereof, but the holders of Dissenting Shares shall be entitled to
receive such consideration as shall be determined pursuant to Section 16-10a -
1321 of the Utah Revised B.C.A.; provided, however, that, if any such holder
shall withdraw or lose such holder's right to dissent and payment under the Utah
Revised B.C.A., such holder's outstanding shares of DCDC Common Stock shall
thereupon be deemed to have been converted as of the Effective Time into the
right to receive the IMSI Shares, without any form of interest thereon, as
provided in Section 1.5(a), and such shares shall no longer be Dissenting
Shares. DCDC shall give IMSI prompt notice of any demands for payment under
Section 16-
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10a - 1322 of the Utah Revised B.C.A. received by DCDC. Except as required by
applicable law, prior to the Effective Time, DCDC shall not, except with the
prior written consent of IMSI, make any payment with respect to or settle or
offer to settle, any such demands.
ARTICLE II
FURTHER AGREEMENTS
Section 2.1 Resignation and Appointment of Directors.
(a) Simultaneous with the execution of this Agreement, all the
Directors of IMSI and its subsidiaries shall appoint the DCDC nominees set forth
on Exhibit A to the Board of Directors of IMSI and its subsidiaries and all the
Directors of IMSI, except for Xxxxxx Xxxxx, shall execute and deliver a letter
of resignation in the form attached as Exhibit B. Xxxxxx Xxxxx, a current
Director of IMSI, shall remain on IMSI's Board and be nominated as a Director at
the first Annual Meeting of Stockholders of the Successor Corporation subsequent
to the Merger. Xx. Xxxxx shall hold office until such Annual Meeting and until
his successor is duly elected and qualified.
(b)
(c) Simultaneous with the execution of this Agreement, all the
directors of DCDC and its subsidiaries shall appoint Xxxxxx Xxxxx, a current
Director of IMSI, to the Board of Directors of DCDC to hold office until the
next Annual Meeting of Stockholders of DCDC or the Successor Corporation, as the
case may be, and until his successor is duly elected and qualified.
Section 2.2 Irrevocable Proxy. Each of the shareholders of IMSI listed
on Schedule 2.2, constituting in the aggregate no less than fifty-one percent
(51%) of the outstanding shares of IMSI Common Stock, will execute and deliver,
concurrently with the execution of this Agreement, an Irrevocable Proxy in the
form attached as Exhibit E (the "Irrevocable Proxy"). Each Irrevocable Proxy
provides that the signing holder will vote all of the shares of IMSI Common
Stock beneficially owned by such holder in favor of the Merger.
Section 2.3 Union Bank of California Loan. DCDC agrees to refrain from
exercising its rights under the Union Bank of California loan described in
Section 6.1(c) of this Agreement pending the Closing of the Merger.
Section 2.4 Joint Proxy Statement/Prospectus; Registration Statement.
As promptly as practicable after the execution of this Agreement, DCDC and IMSI
shall prepare and file with the SEC preliminary proxy materials which shall
constitute the Joint Proxy Statement/Prospectus and the Registration Statement
with respect to IMSI Common Stock to be
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issued in connection with the Merger. As promptly as practicable after comments
are received from the SEC thereon and after the furnishing by DCDC and IMSI of
all information required to be contained therein, DCDC and IMSI shall file with
the SEC a Joint Proxy Statement and Registration Statement on Form S-4 (or on
such other form as shall be appropriate) relating to the adoption of this
Agreement and approval of the transactions contemplated hereby by the
stockholders of DCDC and IMSI pursuant to this Agreement, and shall use all
reasonable efforts to cause the Registration Statement to become effective and
to mail the Joint Proxy Statement/Prospectus to DCDC's and IMSI's respective
stockholders, as soon thereafter as practicable.
Section 2.5 Stockholders Meetings. DCDC and IMSI shall call and hold
their respective Stockholders Meeting as promptly as practicable and in
accordance with applicable laws for the purpose of voting upon the approval of
the Merger and the adoption of the Merger Agreement and DCDC and IMSI shall use
their best efforts to hold their respective Stockholders Meeting as soon as
practicable after the date on which the Registration Statement becomes
effective. DCDC and IMSI shall: (i) recommend approval of the transactions
contemplated by this Agreement by their respective stockholders and include in
the Joint Proxy Statement/Prospectus such recommendation; and (ii) use all
reasonable efforts to solicit from their respective stockholders proxies in
favor of adoption of this Agreement and approval of the transactions
contemplated hereby and shall take all other action necessary or advisable to
secure the vote or consent of stockholders to obtain such approvals.
Section 2.6 Xxxxxx Xxxxxxxx'x Distribution. DCDC currently intends to
transfer all of its assets and liabilities related to its restaurant operations
to its wholly owned subsidiary, Xxxxxx Xxxxxxxx'x, Inc., a Delaware corporation,
or an equivalent entity ("ATI"), and subsequently distribute all of its shares
of ATI to its shareholders (the "ATI Distribution"). DCDC hereby agrees that if
the ATI Distribution is effected prior to the Merger proper provision shall be
made to reserve forty-nine percent (49%) of the ATI shares for the shareholders
of IMSI immediately preceding the Effective Time to be distributed to such IMSI
shareholders following consummation of the Merger and only if the Merger is
consummated. Nothing herein shall obligate DCDC to effect the ATI Distribution
at any time or in any manner whatsoever.
Section 2.7 IMSI Derivative Securities. All outstanding options,
warrants, rights, convertible securities or other agreements or commitments of
any character to purchase IMSI Common Stock (each, an "IMSI Derivative
Security"), whether vested or unvested, not set forth on Schedule 2.7 shall
either be exercised or cancelled on terms acceptable to DCDC prior to the
Merger. All options and warrants listed on Schedule 2.7 shall continue to be in
effect and shall not be effected by the merger.
Section 2.8 DCDC Derivative Securities. All the outstanding options,
warrants, rights, convertible securities or other agreements or commitments of
any character to purchase DCDC Common Stock (each, a "DCDC Derivative
Security"), whether vested or unvested, set forth on Schedule 2.8, shall be
deemed assumed by IMSI and deemed to constitute a right to acquire, on terms and
conditions no less favorable than prior to the Effective Time, the
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number (rounded to the nearest whole number) of IMSI Shares as the holder of
such DCDC Derivative Security would have been entitled to receive pursuant to
the Merger had such holder exercised such DCDC Derivative Security in full
immediately prior to the Effective Time, at a price per share equal to (x) the
aggregate exercise price for DCDC Common Stock otherwise deemed purchasable
pursuant to such DCDC Derivative Security divided by (y) the number of IMSI
Shares deemed purchasable pursuant to such DCDC Derivative Security. For
example, if we assume the following: (i) the number of DCDC stock options to be
exercised is 50,000; (ii) the exercise price for each DCDC stock option is $1.00
(the aggregate exercise price is therefore $50,000); and (iii) the number of
IMSI Shares issuable for each share of DCDC Common Stock in the Merger is .333,
then the number of shares issuable upon exercise of the 50,000 DCDC stock
options post-merger is 16,665 (50,000 multiplied by .333) and the exercise price
per option is $3.00 ($50,000 divided by 16,665). DCDC and IMSI agree not to
reprice more than fifty percent (50%) of all the options that survive the
Merger, and that in the event of any such repricing, the repriced option
exercise price will in no event be less than the closing price of IMSI's Common
Stock on such repricing date. Any repricing of options shall be limited to
employee incentive purposes.
Section 2.9 Employees, Severance and Benefits.
(a) DCDC agrees that following the Effective Time, and subject
to the consummation of the transactions set forth herein, it shall pay to those
employees of IMSI that are terminated by the Surviving Corporation within one
year of the Effective Time, if any, fifty percent (50%) of such employee's
compensation, including commissions and bonuses, if any, earned in the year
immediately prior to the Effective Time. Such payment shall be made over 12
months without interest.
(b) DCDC agrees that following the Effective Time, and subject
to the consummation of the transactions set forth herein, it shall cause IMSI to
provide to those employees of IMSI who remain employees of IMSI: (i)
compensation programs (including bonus and incentive award programs, if any);
and (ii) employee benefit and welfare programs and plans (including insurance
and pension plans, if any), fringe benefits and vacation programs that are no
less favorable than currently available or those which are from time to time
generally provided by DCDC to its employees.
Section 2.10 Access to Information; Confidentiality. Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject (from which such party shall use reasonable efforts
to be released), DCDC and IMSI shall each (and shall cause each of their
respective subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of the other, reasonable access, during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, DCDC and IMSI each shall (and
shall cause each of their respective subsidiaries to) furnish promptly to the
other all information concerning its business, properties and personnel as such
other party may reasonably request, and each shall make available to the other
the appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either IMSI or
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DCDC may reasonably request. Each party shall keep such information confidential
in accordance with the terms of the confidentiality agreement between IMSI and
DCDC, dated August ___, 2001 (the "Confidentiality Agreement").
Section 2.11 Consents; Approvals. DCDC and IMSI shall each use all
reasonable efforts to obtain all consents (including those referred to in
Section 6.1), waivers, approvals, authorizations or orders (including, without
limitation, all United States and foreign governmental and without limitation,
all filings with United States and foreign governmental or regulatory agencies)
required in connection with the authorization, execution and delivery of this
Agreement by each of them and DCDC and IMSI shall furnish promptly all
information required to be included in the Joint Proxy Statement/Prospectus and
the Registration Statement, or for any application or other filing to be made
pursuant to the rules and regulations of any United States or foreign
governmental body in connection with the transactions contemplated by this
Agreement.
Section 2.12 Notification of Certain Matters. IMSI shall give prompt
notice to DCDC, and DCDC shall give prompt notice to IMSI, of (i) the occurrence
or nonoccurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty contained in this Agreement to
become materially untrue or inaccurate, or (ii) any failure of IMSI or DCDC, as
the case may be, materially to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 2.13 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice, and provided, further, that failure to give such notice shall not be
treated as a breach of covenant for the purposes of Section 6.2(b) or 6.3(b)
unless the failure to give such notice results in material prejudice to the
other party.
Section 2.13 Further Action/Tax Treatment. Upon the terms and subject
to the conditions hereof, each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and otherwise
to satisfy or cause to be satisfied all conditions precedent to its obligations
under this Agreement.
Section 2.14 Public Announcements. IMSI and DCDC shall consult with
each other before issuing any press release and shall not issue any press
release or make any public statement with respect to the Merger or this
Agreement without the prior consent of the other party, which shall not be
unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may upon the advise of outside counsel be required by law.
Section 2.15 Conveyance Taxes. IMSI and DCDC shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp
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taxes, any transfer, recording, registration and other fees, and any similar
taxes (collectively, the "Transfer Taxes") which become payable in connection
with the transactions contemplated hereby that are required or permitted to be
filed at or before the Effective Time. DCDC or the Surviving Corporation shall
pay all Transfer Taxes imposed in connection with the transactions contemplated
hereby.
Section 2.16 Accountants' Letters. Upon reasonable notice from the
other, IMSI and DCDC shall use their respective best efforts to cause Xxxxx
Xxxxxxx LLP or Xxxxxxxxx Xxxxx Xxxxxxx and Company, P.C., respectively, to
deliver to IMSI or DCDC, as the case may be, a letter, dated within two business
days of the effective date of the Registration Statement covering such matters
as are requested by IMSI or DCDC, as the case may be, and as are customarily
addressed in accountants' "comfort" letters. In connection with DCDC's efforts
to obtain such letter, if requested by Xxxxxxxxx Xxxxx Xxxxxxx and Company,
P.C., IMSI shall provide a representation letter to Xxxxxxxxx Xxxxx Xxxxxxx and
Company, P.C., complying with the statement on Auditing Standards No. 72 ("SAS
72"), if then required. In connection with IMSI's efforts to obtain such letter,
if requested by Xxxxx Xxxxxxx LLP, DCDC shall provide a representation letter to
Xxxxx Xxxxxxx LLP complying with SAS 72, if then required.
Section 2.17 DCDC Subsidiaries. DCDC agrees to maintain the separate
corporate existence of Digital Creative Development Corporation, a Delaware
company, and Xxxxxx Treachers, Inc., a Delaware corporation, for one year
following the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF IMSI
IMSI hereby represents and warrants to DCDC as follows:
Section 3.1 Organization and Qualification; Subsidiaries. IMSI and each
of its subsidiaries 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 and 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 be so
organized, existing or in good standing or to have such power, authority or
Approvals does not have a Material Adverse Effect (as defined below). Each of
IMSI and each of its subsidiaries is duly qualified or licensed as a foreign
corporation, to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary, except where the
failure to be so duly qualified or licensed and in good standing does not have a
Material Adverse Effect. Except as set forth in Schedule 3.1, substantially all
of the business and operations of IMSI and its subsidiaries are conducted
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through, and substantially all of the properties and assets of IMSI or any of
its subsidiaries are owned by, IMSI and its subsidiaries.
When used in connection with IMSI or any of its subsidiaries, or DCDC
or any of its subsidiaries, as the case may be, the term "Material Adverse
Effect" means any change, effect or circumstance that, individually or when
taken together with all other such changes, effect or circumstance, that have
occurred prior to the date of termination of the occurrence of such change,
effect or circumstance, (i) is materially adverse to the business, assets
(including intangible assets), financial condition, results of operations or
prospects of IMSI and its subsidiaries or DCDC and its subsidiaries, as the case
may be, in each case taken as a whole, or (ii) delays or prevents the
consummation of the transactions contemplated hereby.
Section 3.2 Certificate of Incorporation and By-Laws. IMSI has
heretofore furnished to DCDC complete and correct copies of IMSI's Certificate
of Incorporation and By-Laws and those of each of its subsidiaries, as most
recently restated and subsequently amended to date.
Section 3.3 Capitalization. The authorized capital stock of IMSI
consists of 300,000,000 shares of common stock, no par value, and [___] shares
of preferred stock. As of August 31, 2001, 9,693,892 shares of IMSI Common Stock
were issued and outstanding, all of which are validly issued, fully paid and
nonassessable, no shares IMSI Common Stock were held in treasury and no shares
of preferred stock are issued or held in treasury. Except as set forth in
Schedule 3.3(a), there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of IMSI or any of its subsidiaries or obligating IMSI or any of
its subsidiaries to issue or sell any shares of capital stock of, or other
equity interests in, IMSI or any of its subsidiaries. No holder of shares of
IMSI Common Stock having piggyback or demand registration rights will have the
right to include such shares for registration in the Registration Statement (as
defined in Section 4.14 hereof). Except as disclosed in Schedule 3.3(b), there
are no obligations, contingent or otherwise, of IMSI or any of its subsidiaries
to repurchase, redeem or otherwise acquire any shares of IMSI Common Stock or
the capital stock of any subsidiary or to provide funds to or make any
investment (in the form of a loan, capital contribution, guaranty or otherwise)
in any such subsidiary or any other entity. Except as set forth in Schedule
3.3(c), all of the outstanding shares of capital stock of each of IMSI's
subsidiaries is duly authorized, validly issued, fully paid and nonassessable,
and not issued in violation of any preemptive rights, and all such shares are
owned by IMSI or a subsidiary of IMSI free and clear of all security interests,
liens, claims, pledges, agreements, limitations in voting rights, charges or
other encumbrances of any nature whatsoever (collectively, "Liens").
Section 3.4 Recommendation of the Board of Directors. The Board of
Directors of IMSI has determined that the Merger is fair to and in the best
interests of IMSI's stockholders and has resolved to recommend acceptance
thereof by IMSI's stockholders. This Agreement and the Merger have been approved
by the Board of Directors of IMSI and the Board of Directors has resolved to
recommend approval thereof by IMSI's stockholders. Prior to approving this
Agreement, the Board of Directors of IMSI considered all alternative
transactions available to it.
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Section 3.5 Authority Relative to this Agreement. IMSI has the
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by IMSI and
the consummation by IMSI of the transactions contemplated hereby have been duly
and validly authorized by the requisite corporate action, and no other corporate
proceedings on the part of IMSI is required (other than the adoption of this
Agreement by the holders of at least a majority of the outstanding shares of
IMSI Common Stock entitled to vote in accordance with the California Code and
IMSI's Certificate of Incorporation and By-Laws). This Agreement has been duly
and validly executed and delivered by IMSI and, assuming the due authorization,
execution and delivery by DCDC, constitutes a legal, valid and binding
obligation of IMSI enforceable against IMSI in accordance with its terms, except
as such enforceability may be limited or affected by (i) bankruptcy, insolvency,
reorganization, moratorium, liquidation, arrangement, fraudulent transfer,
fraudulent conveyance and other similar laws (including, without limitation,
court decisions) now or hereafter in effect and affecting the rights and
remedies of creditors generally or providing for the relief of debtors, (ii) the
refusal of a particular court to grant equitable remedies, including, without
limitation, specific performance and injunctive relief, and (iii) general
principles of equity (regardless of whether such remedies are sought in a
proceeding in equity or at law).
Section 3.6 No Conflict; Required Filings and Consents.
(a) Schedule 3.6(a) lists each material agreement, contract or
other instrument (including all amendments thereto) to which IMSI or any of its
subsidiaries is a party or by which any of them is bound and which would be
required pursuant to the Securities Exchange act of 1934, as amended, and the
rules and regulations thereunder (the "Exchange Act") to be filed as an exhibit
to an Annual Report on Form 10-K, a Quarterly Report on Form 10-Q or a Current
Report on Form 8-K. IMSI has made available to DCDC on or prior to the date
hereof true, correct and complete copies in all material respects of each such
agreement, contract, instrument and amendment.
(b) Except as disclosed in Schedule 3.6(b), (i) neither IMSI
nor any of its subsidiaries has breached, is in default under, or has received
written notice of any breach of or default under, any of the agreements,
contracts or other instruments referred to in Section 3.6(a), (ii) to the
knowledge of IMSI, no other party to any of the agreements, contracts or other
instruments referred to in Section 3.6(a) has breached or is in default of any
of its obligations thereunder, and (iii) each of the agreements, contracts and
other instruments referred to in Section 3.6(a) is in full force and effect,
except in each case for breaches, defaults or failures to be in full force and
effect that do not have a Material Adverse Effect.
(c) Except as set forth in Schedule 3.6(c), the execution and
delivery of this Agreement by IMSI does not, and the performance of this
Agreement by IMSI and the consummation by IMSI of the transactions contemplated
hereby will not, (i) conflict with or violate the Certificate of Incorporation
or By-Laws of IMSI, (ii) conflict with or violate any federal, foreign, state or
provincial law, rule, regulation, order judgment or decree
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(collectively "Laws") applicable to IMSI or any of its subsidiaries or by which
its or any of their respective properties are bound or affected, or (iii) result
in any breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or impair IMSI's or any of its
subsidiaries' 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 IMSI or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which IMSI or any of its subsidiaries is a party or
by which IMSI or any of its subsidiaries or its or any of their respective
properties are bound or affected, except in the case of clauses (ii) and (iii)
for any such conflicts, violations, breaches, defaults or other occurrences that
do not have a Material Adverse Effect.
(d) The execution and delivery of this Agreement by IMSI does
not, and the performance of this Agreement by IMSI will not, require any
consent, approval, authorization or permit of, of filing with or notification
to, any domestic or foreign governmental or regulatory authority except (i) for
applicable requirements, if any, of the Securities Act, the Exchange Act, state
securities laws ("Blue Sky Laws"), the legal requirements of any foreign
jurisdiction requiring notification in connection with the Merger and the
transactions contemplated hereby and the filing and recordation of appropriate
merger or other documents as required by the California Code and the Utah
Revised B.C.A., and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, either (A)
would not prevent or materially delay consummation of the Merger or otherwise
prevent or materially delay IMSI from performing its obligations under this
Agreement, or (B) do not have a Material Adverse Effect.
Section 3.7 Compliance; Permits.
(a) Except as disclosed in Schedule 3.7(a), neither IMSI nor
any of its subsidiaries is in conflict with, or in default or violation of, (i)
any Law applicable to IMSI or any of its subsidiaries or by which its or any of
their respective properties is bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permits, franchise or
other instrument or obligation to which IMSI or any of its subsidiaries is a
party or by which IMSI or any of its subsidiaries or its or any of their
respective properties is bound or affected, except, in each case, for any such
conflicts, defaults or violations which do not have a Material Adverse Effect.
(b) Except as disclosed in Schedule 3.7(b), IMSI and its
subsidiaries hold all permits, licenses, easements, variances, exemptions,
consents, certificates, orders and approvals from governmental authorities which
are material to the operation of the business of IMSI and its subsidiaries taken
as a whole as it is now being conducted (collectively, the "IMSI Permits"). IMSI
and its subsidiaries are in compliance with the terms of IMSI Permits, except
where the failure to so comply does not have a Material Adverse Effect.
Section 3.8 SEC Filings; Financial Statements.
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(a) IMSI has filed all forms, reports and documents required to
be filed with the Securities and Exchange Commission (the "SEC") and has made
available to DCDC copies of: (i) its Annual Report on Form 10-K for the fiscal
year ended June 30, 2000, (ii) all other reports or registration statements
filed by IMSI with the SEC since June 30, 1997, (iii) all proxy statements
relating to IMSI's meetings of stockholders (whether annual or special) since
June 30, 1997, and (iv) all amendments and supplements to all such reports and
registration statements filed by IMSI with the SEC pursuant to the requirements
of the Securities Act or the Exchange Act ((i) - (iv) collectively, the "IMSI
SEC Reports"). Except as disclosed in Schedule 3.8, the IMSI SEC Reports (i)
were prepared as to form in all materials respects in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
(ii) did not at the time they were filed (or if amended or superseded by the
subsequent filing, 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 the light of
the circumstances under which they were made, not misleading. None of IMSI's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including in
each case, any related notes thereto) contained in the IMSI SEC Reports was
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto), and each fairly presents in all material respects the
consolidated financial position of IMSI and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and cash
flows and stockholders equity for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments.
Section 3.9 Absence of Certain Changes or Events. Except as set forth
in Schedule 3.9, since June 30, 2000, IMSI has conducted its business in the
ordinary course and there has not occurred: (i) any Material Adverse Effect;
(ii) any amendments or changes in the Certificate of Incorporation or By-Laws of
IMSI or similar organizational documents of its subsidiaries; (iii) any damage
to, destruction or loss of any material asset of IMSI or any of its subsidiaries
(whether or not covered by insurance); (iv) any material change by IMSI in its
accounting methods, principles or practices; (v) any material revaluation by
IMSI of any of its or any of its subsidiaries' 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; (vi) any sale, pledge,
disposition of or encumbrance upon any asset of IMSI or any of its subsidiaries
(except (A) sales of assets in the ordinary course of business, (B) dispositions
of obsolete or worthless assets, and (C) sales of immaterial assets not in
excess of $100,000 in the aggregate; (vii) any dividend or distribution with
respect to or any redemption or repurchase of any capital stock of IMSI; (viii)
cancellation or notice of cancellation or surrender of any policy of insurance
(which has not been cured by payment of the premium, purchase of an equivalent
policy, or otherwise) relating to or affecting IMSI's assets; (ix) any payment,
discharge or satisfaction of any claim, lien, obligation, encumbrance or
liability (whether absolute, unliquidated, other than claims, liens,
encumbrances or liabilities (A) that are reflected or reserved against in the
Financial Statements or (B) that were incurred and paid, discharged or satisfied
since such date in the ordinary course of business consistent with past
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practices; (x) any default on any material claim, liability or obligation; (xi)
any prepayment, advance or other deposit made by customers of IMSI with respect
to products or services contracted for but not provided as of the date hereof or
any other unearned income other than prepayments, advances or deposits
consistent with past practices; or (xii) there has been no increase by more than
$10,000 in the compensation of any of IMSI's officers or employees who earn more
than $100,000 annually or loans made by IMSI to any of its stockholders,
directors, officers or employees.
Section 3.10 No Undisclosed Liabilities. Except as disclosed in
Schedule 3.10, neither IMSI nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise), except liabilities: (i) in the
aggregate adequately provided for in the IMSI's balance sheet (including any
related notes thereto) as of March 31, 2001 included in the IMSI's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2001 (the "IMSI
Balance Sheet"), (ii) incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected on the
IMSI Balance Sheet, (iii) incurred since March 31, 2001, in the ordinary course
of business, (iv) incurred in connection with this Agreement, or (v) which do
not have a Material Adverse Effect.
Section 3.11 Absence of Litigation. Set forth in Schedule 3.11 are
descriptions of all claims, actions, suits, proceedings or investigations
pending or, to the knowledge of IMSI or any of its subsidiaries, before or by
any court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, and, in the case of any such claims for damages, seek
damages in excess of $50,000, other than claims, actions, suits, proceedings or
investigations covered by one or more insurance policies as to which the issuer
or issuers have indicated their intentions in writing to defend and pay in the
aggregate damages up to the amount claimed ("IMSI Litigation"). Except as set
forth in Schedule 3.11, no such IMSI Litigation would have a Material Adverse
Effect if the opposing party were to prevail with respect to any of its claims.
Section 3.12 Employment Agreements; Change in Control Payments. Except
as set forth in Schedule 3.12, neither IMSI nor any of its subsidiaries is a
party to any written or oral employment or consulting contract or other contract
for services involving a payment of more than $50,000 annually and that is not
terminable without a cost to IMSI of more than $50,000 or at will. Except as set
forth in Schedule 3.12, neither IMSI nor any of its subsidiaries has any plans,
programs or agreements to which they are parties or to which they are subject,
pursuant to which payments in excess of $50,000 (or acceleration of material
benefits) may be required upon, or may become payable directly or indirectly as
a result of, the transactions contemplated by this Agreement or a change of
control of IMSI.
Section 3.13 Employee Benefit Plans. Except as set forth in Schedule
3.13, IMSI has no employee pension plans (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), any
material employee welfare plans (as defined in Section 3(1) of ERISA), or any
material bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance or similar fringe or employee benefit plans,
programs or arrangements (collectively, the "IMSI Employee Plans").
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IMSI has delivered to DCDC: (i) a copy of each IMSI Employee Plan and each
amendment thereto, (ii) annual reports and actuarial reports filed with respect
to each IMSI Employee Plan since December 31, 1998, (iii) summary plan
descriptions and other communications to employees relating to each IMSI
Employee Benefit Plan; (iv) all trust agreements and other similar documents or
agreements relevant to the organization of any such IMSI Employee Plan and all
separate financial statements of such IMSI Employee Plan and all separate
financial statements of such IMSI Employee Plan; and (v) all letters from the
IRS approving or confirming the tax-exempt status of any such IMSI Employee
Plan. Except in each case as set forth in Schedule 3.13 or where the liability
does not have a Material Adverse Effect, (i) there has been no "prohibited"
transaction," as such term is defined in Section 406 of ERISA and Section 4875
of the Code, with respect to any IMSI Employee Plans which would result in
liability of IMSI or any of its subsidiaries; (ii) all IMSI Employee Plans are
in substantial compliance with the requirements prescribed by applicable Laws
(including ERISA and the Code), currently in effect with respect thereto
(including all applicable requirements for notification to participants or the
Department of Labor, Pension Benefit Guaranty Corporation (the "PBGC"), Internal
Revenue Service (the "IRS") or Secretary of the Treasury), and IMSI and each of
its subsidiaries have performed all material obligations required to be
performed by them under, are not in default under or violation of, and have no
knowledge of any material default or violation by any other party to, any of the
IMSI Employee Plans; (iii) each IMSI Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code is the subject of a favorable determination; (iv) all
contributions required to be made to any IMSI Employee Plan pursuant to Section
412 of the Code or the terms of IMSI Employee Plan or any collective bargaining
agreement, have been made on or before their due dates; (v) with respect to each
IMSI Employee Plan, no "reportable event" within the meaning of Section 4043 of
ERISA excluding any such event for which the 30-day notice requirement has been
waived under the regulations to Section 4043 of ERISA) nor any event described
in Section 4062, 4063 or 4041 of ERISA has occurred; (vi) no withdrawal
(including a partial withdrawal) has occurred with respect to any multiemployer
plan within the meaning set forth in Section 3(37) of ERISA resulting in
withdrawal liability for IMSI or any of its subsidiaries; (vii) neither IMSI nor
any of its subsidiaries has incurred any material liability under Title IV of
ERISA (other than liability for premium payments to the PBGC, and contributions
not in default to the respective plans, arising in the ordinary course); (viii)
the PBGC has not instituted any termination proceedings with respect to any IMSI
Employee Plan, and no material risk of such proceedings being instituted exists;
(ix) each IMSI Employee Plan subject to Title IV of ERISA is adequately funded
to meet accrued benefit obligations; and (x) no immediate vesting or
acceleration of any rights or the payment of any benefits will occur under any
IMSI Employee Plan as a result of the consummation of the transactions
contemplated by this Agreement.
Section 3.14 Labor Matters. Except as set forth in Schedule 3.14: (i)
there are no claims or proceedings pending or, to the knowledge of IMSI,
threatened, between IMSI or any of its subsidiaries and any of their respective
employees, including, without limitation, charges of unfair labor practices
pending before the National Labor Relations Board; (ii) neither IMSI nor any of
its subsidiaries is a party to any collective bargaining agreement or other
labor union contract applicable to persons employed by IMSI or any of its
subsidiaries, and IMSI
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does not know of any activities or proceedings of any labor union to organize
any such employees; (iii) IMSI has no knowledge of any strikes, slowdowns, work
stoppages, lockouts, or threats thereof, by or with respect to any employees of
IMSI or any of its subsidiaries; and (iv) IMSI is in compliance with all
applicable labor laws, rules, regulations and orders, except where the failure
to so comply does not have a Material Adverse Effect.
Section 3.15 Registration Statement; Joint Proxy Statement/Prospectus.
The information supplied by IMSI for inclusion or incorporation by reference in
the Registration Statement (as defined in Section 4.14) shall not, at the time
the Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statement included therein not misleading. The information
supplied by IMSI for inclusion or incorporation by reference in the joint proxy
statement/prospectus to be sent to the stockholders of IMSI in connection with
the meeting of the stockholders of IMSI to consider the Merger (the "IMSI
Stockholders' Meeting") (such joint proxy statement/prospectus as amended or
supplemented is referred to herein as the "Joint Proxy Statement/Prospectus"),
will not, on the date the Joint Proxy Statement/Prospectus (or any amendment
thereof or supplement thereto) is first mailed to stockholders, at the time of
the IMSI Stockholders' Meeting, or at the Effective Time, contain any statement,
which at such time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact, or shall omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein not false or misleading, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for IMSI Stockholders' Meeting which
has become false or misleading. If at any time prior to the Effective Time any
event relating to IMSI or any of its respective affiliates, officers or
directors should be discovered by IMSI which is required to be set forth in an
amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, IMSI shall promptly inform DCDC. Notwithstanding the
foregoing, IMSI makes no representation or warranty with respect to any
information supplied by DCDC which is contained or incorporated by reference in
any of the foregoing documents.
Section 3.16 Title to Property. Except as set forth in Schedule 3.16,
IMSI and each of its subsidiaries have good and defensible title to all of their
properties and assets, free and clear of all Liens, except Liens for taxes not
yet due and payable and such Liens or other imperfections of title, which do not
have a Material Adverse Effect; and all leases pursuant to which IMSI or any of
its subsidiaries lease from other real or personal property are in good
standing, valid, effective and enforceable in accordance with their respective
terms, and there is not under any of such leases any existing default or event
of default (or event which with notice or lapse of time, or both, would
constitute a default) by IMSI or, to the knowledge of IMSI, by other party or
parties to such leases, except where the lack of such good standing, validity,
effectiveness or enforceability or the existence of such default or event of
default does not have a Material Adverse Effect.
Section 3.17 Taxes.
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(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean
taxes, fees, levies, duties, tariffs, imposes, and governmental impositions or
charges of any kind in the nature of (or similar to) taxes, payable to any
federal, state, local or foreign taxing authority, including (without
limitation) (i) income, franchise, profits, gross receipts, ad valorem, net
worth, value added, sales, use, service, real or personal property, special
assessments, capital stock, license, payroll, withholding, employment, social
security, workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premiums, windfall profits, transfer and
gains taxes, and (ii) interest, penalties, additional taxes and additions to tax
imposed with respect thereto; and "Tax Returns" shall mean returns, reports and
information statements with respect to Taxes required to be filed with the IRS
or any other federal, foreign, state or provincial taxing authority, domestic or
foreign, including, without limitation, consolidated, combined, unitary and
estimated tax returns.
(b) Other than as disclosed in Schedule 3.17, (i) IMSI and each of
its subsidiaries have filed all Tax Returns required to be filed by it or
requests for extensions to file such Tax Returns have been timely filed, granted
and have not expired, except to the extent that such failures to file or to have
extensions granted that remain in effect do not have a Material Adverse Effect;
(ii) all Tax Returns filed by IMSI and each of its subsidiaries are complete and
accurate except to the extent that such failure to be complete and accurate
would not have a Material Adverse Effect; (iii) IMSI and each of its
subsidiaries have paid (or IMSI has paid on the subsidiaries' behalf) all Taxes
shown as due on such returns (and all Taxes required to be paid whether or not
shown as due on such returns, except to the extent that the failure to pay
unreported Taxes does not have a Material Adverse Effect), and the most recent
financial statements contained in the IMSI SEC Reports reflect an adequate
reserve, in accordance with GAAP, for all Taxes payable by IMSI and its
subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements; (iv) no deficiencies for any Taxes have been
proposed, asserted or assessed against IMSI or any of its subsidiaries that are
not adequately reserved for, except for deficiencies that do not have a Material
Adverse Effect, and no requests for waivers of the time to assess any such Taxes
have been granted or are pending; (v) IMSI has made adequate provisions in
IMSI's books and records for Taxes with respect to its current taxable year;
(vi) the statute of limitations for the assessment of federal and state income
taxes has expired for taxable years prior to the fiscal year ended June 30, 1997
for all material state and consolidated federal income tax return of IMSI or any
subsidiary of the consolidated group that includes IMSI, and there is no claim
or assessment pending against IMSI or any of its subsidiaries for any alleged
deficiency in Taxes (except for assessments assessed prior to the date payment
is required; (vii) to the knowledge of IMSI, there is no audit or investigation
currently being conducted that could cause IMSI or any of its subsidiaries to be
liable for any taxes and there are no agreements in effect to extend the period
of limitations for the assessment or collection of any tax for which IMSI or any
of its subsidiaries may be liable; and (viii) IMSI is not a party to any
agreement that would require it or DCDC to make any excess parachute payment
pursuant to Section 280G of the Code.
Section 3.18 Environmental Matters. Except as set forth in Schedule
3.18 or as do not have a Material Adverse Effect, IMSI and its subsidiaries: (i)
have obtained all approvals
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which are required to be obtained under applicable federal, state, foreign or
local laws or any regulation, code, plan, order, decree, judgment, notice or
demand letter issued, entered, promulgated or approved thereunder relating to
pollution or protection of the environment, including laws relating to materials
or wastes into ambient air, surface water, ground water, or land or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants or hazardous or
toxic materials or wastes ("Environmental Laws") by IMSI or any of its
subsidiaries (or their respective agents); (ii) are in compliance with terms and
conditions of such required Approvals; and (iii) have not received notice of any
past or present violation of Environmental Laws or any event, condition,
circumstance, activity, practice, incident, action or plan which is reasonably
likely to interfere with or prevent continued compliance with Environmental Laws
or which would give rise to any common law or statutory liability, or otherwise
from the basis of any claim, action, suit or proceeding, against IMSI or any of
its subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste.
Section 3.19 Intellectual Property.
(a) Set forth on Schedule 3.19(a) are descriptions of all
patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, technology, know-how and tangible or intangible
proprietary information or material that are material to the business of IMSI
and its subsidiaries as currently conducted by IMSI or any of its subsidiaries
(the "IMSI Intellectual Property Rights"). IMSI, directly or indirectly, owns,
or is licensed or otherwise possesses legally enforceable rights to use, all
IMSI Intellectual Property Rights.
(b) Either IMSI or one of its subsidiaries is the owner of, or
the licensee of, with all right, title and interest in and to (free and clear of
any Liens), IMSI Intellectual Property Rights; in the case of IMSI Intellectual
Property Rights owned by IMSI or any of its subsidiaries, has the right to the
use thereof or the material covered thereby in connection with the services or
products in respect of which the use thereof or the material covered thereby in
connection with the services or products in respect of which IMSI Intellectual
Property Rights are being used; and in the case of IMSI Intellectual Property
Rights licensed by IMSI, the licenses thereof are valid, binding and enforceable
in accordance with their terms, and no default or event of default (or any event
that, with the giving of notice or passage or time, or both, would result in a
default or event of default) by IMSI or any of its subsidiaries or, to the
knowledge of IMSI, by any other party or parties exists under such licenses.
Except as set forth in Schedule 3.19(b) or as do not have a Material Adverse
Effect, no claims with respect to IMSI Intellectual Property Rights have been
asserted or, to the knowledge of IMSI, are threatened by any person (i) to the
effect that the manufacture, sale, license, or use of any product of IMSI or any
of its subsidiaries as now manufactured, used, sold or licensed or proposed for
manufacture, use, sale or license by IMSI or any of its subsidiaries infringes
on any copyright, patent, trademark, service xxxx or trade secret, (ii) against
the use by IMSI or any of its subsidiaries of any trademarks, service marks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications
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used in the business of IMSI and its subsidiaries as currently conducted, or
(iii) challenging the ownership by IMSI or any of its subsidiaries or the
validity of any of IMSI Intellectual Property Rights. All registered trademarks,
service marks and copyrights held by IMSI or any of its subsidiaries are valid
and subsisting, except to the extent that any such failure to be valid and
subsisting do not have a Material Adverse Effect. Except as set forth in
Schedule 3.19(b), to the knowledge of IMSI, there is no currently unauthorized
use, infringement or misappropriation of any of IMSI Intellectual Property
Rights by any third party, including any employee or former employee of IMSI or
any of its subsidiaries. No IMSI Intellectual Property Right or product of IMSI
or any of its subsidiaries is subject to any outstanding decree, order judgment,
or stipulation restricting in any manner the licensing thereof by IMSI or any of
its subsidiaries, except to the extent that any such restrictions do not have a
Material Adverse Effect.
Section 3.20 Certain Distribution Agreements. Except as set forth in
Schedule 3.20, neither IMSI nor any of its subsidiaries is a party to any
material agreement (other than distribution agreements) under which IMSI or any
of its subsidiaries is restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market. For purposes of
this Section 3.20, a material agreement shall mean any agreement required to be
filed with the SEC pursuant to Item 601 of Regulation S-K promulgated under the
Exchange Act.
Section 3.21 Interested Party Transactions. Except as set forth in
Schedule 3.21, no event has occurred, since the date of IMSI's proxy statement
dated December 30, 1998, that would be required to be reported as a Certain
Relationship or Related Transaction, pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
Section 3.22 Insurance. IMSI maintains fire and casualty, general
liability, business interruption, product liability and sprinkler and water
damage insurance policies with reputable insurance carriers, which are in
character and amount substantially similar to that carried by entities engaged
in a similar business and subject to the same or similar perils or hazards,
except as would not reasonably be expected to have a Material Adverse Effect.
Section 3.23 Brokers. Except as set forth in Schedule 3.23, no broker,
finder or investment banker or other party is entitled to any brokerage,
finder's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
IMSI or any of its subsidiaries or affiliates. The fees and expenses of the
entities listed on Schedule 3.23 will be paid by IMSI.
Section 3.24 Customers and Suppliers. Schedule 3.24 sets forth IMSI's
ten largest customers and suppliers by amounts paid to or by IMSI, as the case
may be, in IMSI's fiscal year ended June 30, 2001.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF DCDC
DCDC hereby represents and warrants to IMSI as follows:
Section 4.1 Organization and Qualification; Subsidiaries. DCDC is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization and has the requisite corporate power and
authority and is in possession of all 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 be so
organized, existing or in good standing or to have such power, authority or
Approvals does not have a Material Adverse Effect. DCDC is duly qualified or
licensed as a foreign entity to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing does not have a Material Adverse Effect. DCDC owns all the issued
and outstanding shares of common stock of Digital Creative Development
Corporation, a Delaware corporation ("DCDC - Del"), and DCDC-Del owns all the
issued and outstanding shares of common stock of Keynomics, Inc., a California
corporation, and all the issued and outstanding shares of common stock of Tune
In Movies, a California corporation. Except as set forth in Schedule 4.1,
substantially all of the business and operations of DCDC and its subsidiaries
are conducted through, and substantially all of the properties and assets of
DCDC and its subsidiaries are owned by, DCDC and its subsidiaries.
Section 4.2 Certificate of Incorporation and By-Laws. DCDC has
heretofore furnished to IMSI complete and correct copies of DCDC's Certificate
of Incorporation and By-Laws, as most recently restated and subsequently amend
to date.
Section 4.3 Capitalization. The authorized capital stock of DCDC
consists of: (i) 75,000,000 shares of common stock and (ii) 2,000,000 shares of
preferred stock, of which 506,100 shares are issued and outstanding. As of
August 31, 2001, 31,485,924 shares of DCDC Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable, and
no shares were held in treasury. Except as set forth in Schedule 4.3(a), there
are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
DCDC or any of its subsidiaries or obligating DCDC or any of its subsidiaries to
issue or sell any shares of capital stock of, or other equity interests in, DCDC
or any of its subsidiaries. Except as disclosed in Schedule 4.3(b), there are no
obligations, contingent or otherwise, of DCDC or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of DCDC Common Stock or the
capital stock of any subsidiary or to provide funds to or make any investment
(in the form of a loan, capital contribution, guaranty or otherwise) in any such
subsidiary or any other entity. Except as set forth in Schedule 4.3(c), all of
the outstanding shares of capital stock of
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each of DCDC's subsidiaries are duly authorized, validly issued, fully paid and
nonassessable, and all such shares are owned by DCDC or a subsidiary of DCDC
free and clear of all liens.
Section 4.4 Recommendation of the Board of Directors. The Board of
Directors of DCDC has determined that the Merger is fair to and in the best
interests of DCDC's stockholders and has resolved to recommend acceptance
thereof by DCDC's stockholders. This Agreement and the Merger have been approved
by the Board of Directors of DCDC and the Board of Directors has resolved to
recommend approval thereof by DCDC's stockholders. Prior to approving this
Agreement, the Board of Directors of DCDC considered all alternative
transactions available to it.
Section 4.5 Authority Relative to this Agreement. DCDC has the
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by DCDC and
the consummation by DCDC of the transactions contemplated hereby have been duly
and validly authorized by the requisite corporate action on the part of DCDC and
no other corporate proceedings on the part of DCDC is necessary to authorize
this Agreement or to consummate the transactions contemplated thereby. This
Agreement has been duly and validly executed and delivered by DCDC and assuming
the due authorization, execution and delivery by DCDC, constitutes a legal,
valid and binding obligation of DCDC enforceable against it in accordance with
its terms, except as such enforceability may be limited or affected by (i)
bankruptcy, insolvency, reorganization, moratorium, liquidation, arrangement,
fraudulent transfer, fraudulent conveyance and other similar laws (including,
without limitation, court decisions) now or hereafter in effect and affecting
the rights and remedies of creditors generally or providing for the relief of
debtors, (ii) the refusal of a particular court to grant equitable remedies,
including, without limitation, specific performance and injunctive relief, and
(iii) general principles of equity (regardless of whether such remedies are
sought in a proceeding in equity or at law).
Section 4.6 No Conflict; Required Filings and Consents.
(a) Schedule 4.6(a) lists each material agreement, contract or
other instrument (including all amendments thereto) to which DCDC or any of its
subsidiaries is a party or by which any of them is bound and which would be
required pursuant to the Exchange Act and the rules and regulations thereunder
to be filed as an exhibit to an Annual Report on Form 10-KSB, a Quarterly Report
on Form 10-QSB or a Current Report on Form 8-K. DCDC has made available to IMSI,
on or prior to the date hereof true, correct and complete copies in all material
respects of each such agreement, contract, instrument and amendment.
(b) Except as disclosed in Schedule 4.6(b), (i) neither DCDC
nor any of its subsidiaries has breached, is in default under, or has received
written notice of any breach of or default under, any of the agreements,
contracts or other instruments referred to in Section 4.6(a), (ii) to the
knowledge of DCDC, no other party to any of the agreements, contracts or other
instruments
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referred to in Section 4.6(a) has breached or is in default of any
of its obligations thereunder, and (iii) each of the agreements, contracts and
other instruments referred to in Section 4.6(a) is in full force and effect,
except in each case for breaches, defaults or failures to be in full force and
effect that do not have a Material Adverse Effect.
(c) Except as set forth in Schedule 4.6(c), the execution and
delivery of this Agreement by DCDC does not, and the performance of this
Agreement by DCDC and the consummation by DCDC of the transactions contemplated
hereby will not: (i) conflict with or violate the Certificate of Incorporation
or By-Laws of DCDC, (ii) conflict with or violate any Laws applicable to DCDC or
any of its subsidiaries or by which its or any of their respective properties
are bound or affected, or (iii) result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or impair DCDC's or any of its subsidiaries' 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 DCDC or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which DCDC or any of its subsidiaries is a party or by which DCDC or any of
its subsidiaries or its or any of their respective properties are bound or
affected, except in the case of clauses (ii) and (iii) for any such conflicts,
violations, breaches, defaults or other occurrences that do not have a Material
Adverse Effect.
(d) The execution and delivery of this Agreement by DCDC does
not, and the performance of this Agreement by DCDC will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Securities Act, the Exchange Act,
the Blue Sky Laws, the legal requirements of any foreign jurisdiction requiring
notification in connection with the Merger and the transactions contemplated
hereby and the filing and recordation of appropriate merger or other documents
as required by the Utah Revised B.C.A. and the California Code, and (ii) where
the failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, either (A) would not prevent or materially
delay consummation of the Merger or otherwise prevent or materially delay DCDC
from performing its obligations under this Agreement, or (B) do not have a
Material Adverse Effect.
Section 4.7 Compliance; Permits.
(a) Except as disclosed in Schedule 4.7(a), neither DCDC nor any of
its subsidiaries is in conflict with, or in default or violation of, (i) any Law
applicable to DCDC or any of its subsidiaries or by which its or any of their
respective properties is bound or affected or (ii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which DCDC or any of its subsidiaries is a party or
by which DCDC or any of its subsidiaries or its or any of their respective
properties is bound or affected, except, in each case, for any such conflicts,
defaults or violations which do not have a Material Adverse Effect.
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(b) Except as disclosed in Schedule 4.7(b), DCDC and its
subsidiaries hold all permits, licenses, easements, variances, exemptions,
consents, certificates, orders and approvals from governmental authorities which
are material to the operation of the business of DCDC and its subsidiaries taken
as a whole as it is now being conducted (collectively, the "DCDC Permits"). DCDC
and its subsidiaries are in compliance with the terms of the DCDC Permits,
except where the failure to so comply does not have a Material Adverse Effect.
Section 4.8 SEC Filings; Financial Statements.
(a) DCDC has filed all forms, reports and documents required to
be filed with the SEC and has made available to IMSI copies of: (i) its Annual
Report on Form 10-KSB for the fiscal year ended June 30, 2000, (ii) its
Quarterly Report on Form 10-QSB for the period ended Xxxxx 00, 0000, (xxx) all
proxy statements relating to DCDC's meetings of stockholders (whether annual or
special) since January 1, 1998, and (iv) all other reports or registration
statements filed by DCDC with the SEC since January 1, 1998, and (v) all
amendments and supplements to all such reports and registration statements filed
by DCDC with the SEC pursuant to the requirements of the Securities Act or the
Exchange Act ((i) - (iv) collectively, the "DCDC SEC Reports"). Except as
disclosed in Schedule 4.8, the DCDC SEC Reports (i) were prepared as to form in
all material respects in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be and (ii) did not at the time they were
filed (or if amended or superseded by a subsequent filing, 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 the light of the circumstances under which they were
made, not misleading. None of DCDC's subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including in
each case, any related notes thereto) contained in the DCDC SEC Reports was
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto), and each fairly presents in all material respects the
consolidated financial position of DCDC and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and cash
flows and stockholders equity for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments.
Section 4.9 Absence of Certain Changes or Events. Except as set forth
in Schedule 4.9, since June 30, 2000, DCDC has conducted its business in the
ordinary course and there has not occurred: (i) any Material Adverse Effect;
(ii) any amendments or changes in the Certificate of Incorporation or By-Laws of
DCDC or similar organizational documents of its subsidiaries; (iii) any damage
to, destruction or loss of any material asset of DCDC or any of its subsidiaries
(whether or not covered by insurance); (iv) any material change by DCDC in its
accounting methods, principles or practices; (v) any material revaluation by
DCDC of any of its or any of its subsidiaries' 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; (vi) any sale, pledge,
disposition of or encumbrance upon any asset of DCDC or any
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of its subsidiaries (except (A) sales of assets in the ordinary course of
business, (B) dispositions of obsolete or worthless assets, and (C) sales of
immaterial assets not in excess of $150,000 in the aggregate; (vii) any dividend
or distribution with respect to any capital stock of DCDC; (viii) cancellation
or notice of cancellation or surrender of any policy of insurance (which has not
been cured by payment of the premium, purchase of an equivalent policy, or
otherwise) relating to or affecting DCDC's assets; (ix) any payment, discharge
or satisfaction of any claim, lien, obligation, encumbrance or liability
(whether absolute, unliquidated, other than claims, liens, encumbrances or
liabilities (A) that are reflected or reserved against in the Financial
Statements or (B) that were incurred and paid, discharged or satisfied since
such date in the ordinary course of business consistent with past practices; (x)
any default on any material claim, liability or obligation; (xi) any prepayment,
advance or other deposit made by customers of DCDC with respect to products or
services contracted for but not provided as of the date hereof or any other
unearned income other than prepayments, advances or deposits consistent with
past practices; or (xii) there has been no increase by more than $10,000 in the
compensation of any of DCDC's officers or employees who earn more than $100,000
annually or loans made by DCDC to any of its stockholder, directors, officers or
employees.
Section 4.10 No Undisclosed Liabilities. Except as disclosed in
Schedule 4.10, neither DCDC nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise), except liabilities (i) in the
aggregate adequately provided for in DCDC's balance sheet (including any related
notes thereto) as of March 31, 2001 including in DCDC's Quarterly Report on Form
10-QSB for the fiscal quarter ended March 31, 2001 (the "DCDC Balance Sheet"),
(ii) incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected on the DCDC Balance
Sheet, (iii) incurred since March 31, 2001, in the ordinary course of business,
(iv) incurred in connection with this Agreement, or (v) which do not have a
Material Adverse Effect.
Section 4.11 Absence of Litigation. Set forth in Schedule 4.11 are
descriptions of all claims, actions, suits, proceedings or investigations
pending or, to the knowledge of DCDC or any of its subsidiaries, or any
properties or rights of DCDC or any of its subsidiaries, before or by any court,
arbitrator or administrative, governmental or regulatory authority or body,
domestic or foreign, and, in the case of any such claims for damages, seek
damages in excess of $50,000, other than claims, actions, suits, proceedings or
investigations covered by one or more insurance policies as to which the issuer
or issuers have indicated their intentions in writing to defend and pay in the
aggregate damages up to the amount claimed ("DCDC Litigation"). Except as set
forth in Schedule 4.11, no such DCDC Litigation would have a Material Adverse
Effect if the opposing party were to prevail with respect to any of its claims.
Section 4.12 Employment Agreements; Change in Control Payments. Except
as set forth in Schedule 4.12, neither DCDC nor any of its subsidiaries is a
party to any written or oral employment or consulting contract or other contract
for services involving a payment of more than $50,000 annually and that is not
terminable without a cost to DCDC of more than $50,000 or at will. Except as set
forth in Schedule 4.12, neither DCDC nor any of its subsidiaries has any plans,
programs or agreements to which they are parties or to which they are subject,
pursuant to which payments in excess of $50,000 (or acceleration of material
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benefits) may be required upon, or may become payable directly or indirectly as
a result of, the transactions contemplated by this Agreement or a change of
control of DCDC.
Section 4.13 Employee Benefit Plans. Except as set forth in Schedule
4.13, DCDC has no employee pension plans (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), any
material employee welfare plans (as defined in Section 3(1) of ERISA), or any
material bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance or similar fringe or employee benefit plans,
programs or arrangements (collectively, the "DCDC Employee Plans"). DCDC has
delivered to IMSI: (i) a copy of each DCDC Employee Plan and each amendment
thereto, (ii) annual reports and actuarial reports filed with respect to each
DCDC Employee Plan since December 31, 1998, (iii) summary plan descriptions and
other communications to employees relating to each DCDC Employee Benefit Plan;
(iv) all trust agreements and other similar documents or agreements relevant to
the organization of any such DCDC Employee Plan and all separate financial
statements of such DCDC Employee Plan and all separate financial statements of
such DCDC Employee Plan; and (v) all letters from the IRS approving or
confirming the tax-exempt status of any such DCDC Employee Plan. Except in each
case as set forth in Schedule 4.13 or where the liability does not have a
Material Adverse Effect, (i) there has been no "prohibited" transaction," as
such term is defined in Section 406 of ERISA and Section 4875 of the Code, with
respect to any DCDC Employee Plans which would result in liability of DCDC or
any of its subsidiaries; (ii) all DCDC Employee Plans are in substantial
compliance with the requirements prescribed by applicable Laws (including ERISA
and the Code), currently in effect with respect thereto (including all
applicable requirements for notification to participants or the Department of
Labor, Pension Benefit Guaranty Corporation (the "PBGC"), Internal Revenue
Service (the "IRS") or Secretary of the Treasury), and DCDC and each of its
subsidiaries have performed all material obligations required to be performed by
them under, are not in default under or violation of, and have no knowledge of
any material default or violation by any other party to, any of the DCDC
Employee Plans; (iii) each DCDC Employee Plan intended to qualify under Section
401(a) of the Code and each trust intended to qualify under Section 501(a) of
the Code is the subject of a favorable determination; (iv) all contributions
required to be made to any DCDC Employee Plan pursuant to Section 412 of the
Code or the terms of DCDC Employee Plan or any collective bargaining agreement,
have been made on or before their due dates; (v) with respect to each DCDC
Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA
excluding any such event for which the 30-day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 of ERISA has occurred; (vi) no withdrawal (including
a partial withdrawal) has occurred with respect to any multiemployer plan within
the meaning set forth in Section 3(37) of ERISA resulting in withdrawal
liability for DCDC or any of its subsidiaries; (vii) neither DCDC nor any of its
subsidiaries has incurred any material liability under Title IV of ERISA (other
than liability for premium payments to the PBGC, and contributions not in
default to the respective plans, arising in the ordinary course); (viii) the
PBGC has not instituted any termination proceedings with respect to any DCDC
Employee Plan, and no material risk of such proceedings being instituted exists;
(ix) each DCDC Employee Plan subject to Title IV of ERISA is adequately funded
to meet accrued benefit obligations; and (x) no immediate vesting
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or acceleration of any rights or the payment of any benefits will occur under
any DCDC Employee Plan as a result of the consummation of the transactions
contemplated by this Agreement.
Section 4.14 Labor Matters. Except as set forth in Schedule 4.14: (i)
there are no claims or proceedings pending or, to the knowledge of DCDC,
threatened, between DCDC or any of its subsidiaries and any of their respective
employees, which claims or proceedings would have a Material Adverse Effect;
(ii) neither DCDC nor any of its subsidiaries is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by DCDC or any of its subsidiaries, and DCDC does not know of any
activities or proceedings of any labor union to organize any such employees;
(iii) DCDC has no knowledge of any strikes, slowdowns, work stoppages, lockouts,
or threats thereof, by or with respect to any employees of DCDC or any of its
subsidiaries; and (iv) DCDC is in compliance with all applicable labor laws,
rules, regulations and orders, except where the failure to so comply does not
have a Material Adverse Effect.
Section 4.15 Registration Statement; Joint Proxy Statement/Prospectus.
Subject to the accuracy of IMSI's representations in Section 3.15, the
registration statement (the "Registration Statement") pursuant to which IMSI
Common Stock to be issued in the Merger will be registered with the SEC shall
not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements included therein not
misleading. The information supplied by DCDC for inclusion or incorporation by
reference in the Joint Proxy Statement/Prospectus will not, on the date the
Joint Proxy Statement/Prospectus (or any amendment thereof or supplement
thereto) is first mailed to stockholders, at the time of DCDC's and IMSI's
respective Stockholders Meetings, or at the Effective Time, contain any
statement, which at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, or
shall omit to state any material fact required to be stated therein or necessary
in order to make the statements made therein not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for DCDC's and IMSI's
respective Stockholders' Meetings which has become false or misleading. If at
any time prior to the Effective Time any event relating to DCDC or any of its
respective affiliates, officers or directors should be discovered by DCDC which
is required to be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, DCDC shall promptly inform
IMSI. Notwithstanding the foregoing, DCDC makes no representation or warranty
with respect to any information supplied by IMSI which is contained or
incorporated by reference in any of the foregoing documents.
Section 4.16 Title to Property. Except as set forth in Schedule 4.16,
DCDC and each of its subsidiaries have good and defensible title to all of their
properties and assets, free and clear of all liens, charges and encumbrances,
except liens for taxes not yet due and payable and such liens or other
imperfections of title, which do not have a Material Adverse Effect; and all
leases pursuant to which DCDC or any of its subsidiaries lease from other real
or personal
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property are in good standing, valid, effective and enforceable in accordance
with their respective terms, and there is not under any of such leases any
existing default or event of default (or event which with notice or lapse of
time, or both, would constitute a default) by DCDC or, to the knowledge of DCDC,
by other party or parties to such leases, except where the lack of such good
standing, validity, effectiveness or enforceability or the existence of such
default or event of default does not have a Material Adverse Effect.
Section 4.17 Taxes. Other than as disclosed in Schedule 4.17, (i) DCDC
and each of its subsidiaries have filed all Tax Returns required to be filed by
it or requests for extensions to file such Tax Returns have been timely filed,
granted and have not expired, except to the extent that such failures to file or
to have extensions granted that remain in effect do not have a Material Adverse
Effect; (ii) all Tax Returns filed by DCDC and each of its subsidiaries are
complete and accurate except to the extent that such failure to be complete and
accurate would not have a Material Adverse Effect; (iii) DCDC and each of its
subsidiaries have paid (or DCDC has paid on the subsidiaries' behalf) all Taxes
shown as due on such returns (and all Taxes required to be paid whether or not
shown as due on such returns, except to the extent that the failure to pay
unreported Taxes does not have a Material Adverse Effect), and the most recent
financial statements contained in the DCDC SEC Reports reflect an adequate
reserve, in accordance with GAAP, for all Taxes payable by DCDC and its
subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements; (iv) no deficiencies for any Taxes have been
proposed, asserted or assessed against DCDC or any of its subsidiaries that are
not adequately reserved for, except for deficiencies that do not have a Material
Adverse Effect, and no requests for waivers of the time to assess any such Taxes
have been granted or are pending; (v) DCDC has made adequate provisions in its
books and records for Taxes with respect to its current taxable year; (vi) the
statute of limitations for the assessment of federal and state income taxes has
expired for taxable years prior to January 1, 1996 for all material state and
consolidated federal income tax returns of DCDC or any subsidiary of the
consolidated group that includes DCDC, and there is no claim or assessment
pending against DCDC or any of its subsidiaries for any alleged deficiency in
Taxes (except for assessments assessed prior to the date payment is required);
(vii) to the knowledge of DCDC, there is no audit or investigation currently
being conducted that could cause DCDC or any of its subsidiaries to be liable
for any Taxes and there are no agreements in effect to extend the period of
limitations for the assessment or collection of any tax for which DCDC or any of
its subsidiaries may be liable; and (viii) DCDC is not a party to any agreement
that would require it to make any excess parachute payment pursuant to Section
280G of the Code.
Section 4.18 Environmental Matters. Except as set forth in Schedule
4.18 or as do not have a Material Adverse Effect, DCDC and its subsidiaries: (i)
have obtained all Approvals which are required to be obtained under applicable
Environmental Laws by DCDC or any of its subsidiaries (or their respective
agents); (ii) are in compliance with terms and conditions of such required
Approvals; and (iii) have not received notice of any past or present violation
of Environmental Laws or any event, condition, circumstance, activity, practice,
incident, action or plan which is reasonably likely to interfere with or prevent
continued compliance with Environmental Laws or which would give rise to any
common law or statutory liability, or otherwise form the basis of any claim,
action, suit or proceeding, against
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DCDC or any of its subsidiaries based on or resulting from the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge or release into the environment, of any
pollutant, contaminant or hazardous or toxic material or waste.
Section 4.19 Intellectual Property, Domestic.
(a) Set forth on Schedule 4.19(a) are descriptions of all
patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, technology, know-how and tangible or intangible
proprietary information or material that are material to the business of DCDC
and its subsidiaries as currently conducted by DCDC or any of its subsidiaries
(the "DCDC Intellectual Property Rights"). DCDC or its subsidiaries, directly or
indirectly, owns, or is licensed or otherwise possesses legally enforceable
rights to use, all the DCDC Intellectual Property Rights.
(b) Except as set forth on Schedule 4.19(b), either DCDC or one
of its subsidiaries is the owner of, or the licensee of, with all right, title
and interest in and to (free and clear of any Liens), the DCDC Intellectual
Property Rights; in the case of the DCDC Intellectual Property Rights owned by
DCDC or any of its subsidiaries, has the right to the use thereof or the
material covered thereby in connection with the services or products in respect
of which the use thereof or the material covered thereby in connection with the
services or products in respect of which the DCDC Intellectual Property Rights
are being used; and in the case of the DCDC Intellectual Property Rights
licensed by DCDC or any subsidiary, the licenses thereof are valid, binding and
enforceable in accordance with their terms, and no default or event of default
(or any event that, with the giving of notice or passage or time, or both, would
result in a default or event of default) by DCDC or any of its subsidiaries or,
to the knowledge of DCDC, by any other party or parties exists under such
licenses. Except as set forth in Schedule 4.19(b) or as do not have a Material
Adverse Effect, no claims with respect to the DCDC Intellectual Property Rights
have been asserted or, to the knowledge of DCDC, are threatened by any person
(i) to the effect that the manufacture, sale, license, or use of any product of
DCDC or any of its subsidiaries as now manufactured, used, sold or licensed or
proposed for manufacture, use, sale or license by DCDC or any of its
subsidiaries infringes on any copyright, patent, trademark, service xxxx or
trade secret, (ii) against the use by DCDC or any of its subsidiaries of any
trademarks, service marks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in the
business of DCDC and its subsidiaries as currently conducted, or (iii)
challenging the ownership by DCDC or any of its subsidiaries or the validity of
any of the DCDC Intellectual Property Rights. All registered trademarks, service
marks and copyrights held by DCDC or any of its subsidiaries are valid and
subsisting, except to the extent that any such failure to be valid and
subsisting do not have a Material Adverse Effect. Except as set forth in
Schedule 4.19(b), to the knowledge of DCDC, there is no currently unauthorized
use, infringement or misappropriation of any of the DCDC Intellectual Property
Rights by any third party, including any employee or former employee of DCDC or
any of its subsidiaries. No DCDC Intellectual Property Right or product of DCDC
or any of its subsidiaries is subject to any outstanding decree, order,
judgment, or stipulation restricting in any manner the licensing
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thereof by DCDC or any of its subsidiaries, except to the extent that any such
restrictions do not have a Material Adverse Effect.
Section 4.20 Certain Distribution Agreements. Except as set forth in
Schedule 4.20, neither DCDC nor any of its subsidiaries is a party to any
material agreement (other than distribution agreements) under which DCDC or any
of its subsidiaries is restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market. For purposes of
this Section 4.20, a material agreement shall mean any agreement required to be
filed with the SEC pursuant to Item 601 of Regulation S-K promulgated under the
Exchange Act.
Section 4.21 Interested Party Transactions. Except as set forth in
Schedule 4.21, no event has occurred, since the date of DCDC's latest proxy
statement, that would be required to be reported as a Certain Relationship or
Related Transaction, pursuant to Item 404 of Regulation S-B promulgated by the
SEC.
Section 4.22 Insurance. DCDC maintains fire and casualty, general
liability, business interruption, product liability and sprinkler and water
damage insurance policies with reputable insurance carriers, which are in
character and amount substantially similar to that carried by entities engaged
in a similar business and subject to the same or similar perils or hazards,
except as would not reasonably be expected to have a Material Adverse Effect.
Section 4.23 Brokers. Except as set forth in Schedule 4.23, no broker,
finder or investment banker or other party is entitled to any brokerage,
finder's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
DCDC or any of its subsidiaries or affiliates. The fees and expenses of the
entities listed on Schedule 4.23 will be paid by DCDC.
Section 4.24 Customers and Suppliers. Schedule 4.24 sets forth DCDC's
ten largest customers and suppliers by amounts paid to or by DCDC, as the case
may be, in DCDC's fiscal year ended June 30, 2001.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1 Conduct of Business by IMSI Pending the Merger. IMSI
covenants and agrees that, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, unless DCDC shall otherwise agree in writing and except as set
forth in Schedule 5.1 or as contemplated by this Agreement, IMSI shall conduct
its business, and shall cause the businesses of its subsidiaries to be
conducted, only in the ordinary course of business; and IMSI shall use all
reasonable efforts to preserve substantially the business organization of IMSI
and its subsidiaries, to keep available the services of the present officers,
employees and consultants of IMSI and its subsidiaries and to preserve the
present relationships of IMSI and its subsidiaries with customers, suppliers and
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other persons with which IMSI or any of its subsidiaries has significant
business relations. By way of amplification and not limitation, neither IMSI nor
any of its subsidiaries shall, during the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the
Effective Time, directly or indirectly do, or propose to do, any of the
following without the prior written consent of DCDC:
(a) amend or otherwise change the Certificate of Incorporation
or By-Laws of IMSI or similar organizational documents of any of its
subsidiaries;
(b) issue, sell, pledge, dispose or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any, class, or any options, warrants, convertible securities or other
weights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest) in IMSI
or any of its subsidiaries.
(c) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock, except that a wholly owned subsidiary of
IMSI may declare and pay a dividend to its parent, (ii) split, combine or
reclassify any of its capital stock, or (iii) amend the terms or change the
period of exercisability of, purchase, repurchase, redeem or otherwise require,
or permit any subsidiary to purchase, repurchase, redeem or otherwise acquire,
any of its securities or any securities of any of its subsidiaries, including,
without limitation, shares of IMSI Common Stock or any option, warrant or right,
directly or indirectly, to acquire shares of IMSI Common Stock, or provide that
upon the exercise or conversion of any such option, warrant or right the holder
thereof shall receive cash;
(d) sell, pledge, dispose of or encumber any assets of IMSI or
any of its subsidiaries (except for (i) sales of assets in the ordinary course
of business; and (ii) dispositions of obsolete or worthless assets);
(e) (i) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof; (ii) except in the ordinary course of business, incur or
assume any debt not currently outstanding; (iii) except in the ordinary course
of business, assume, guarantee or endorse or otherwise as an accommodation
become responsible for the obligations of any person (other than IMSI or any of
its wholly owned subsidiaries); (iv) except in the ordinary course of business,
make any loans or advances to any person (other than IMSI or its wholly owned
subsidiaries); (v) enter into or amend any material contract or agreement; (vi)
authorize any capital expenditures or purchases of fixed assets in excess of
$50,000 in the aggregate for IMSI and its subsidiaries taken as a whole; or
(vii) enter into or amend any contract, agreement, commitment or arrangement to
effect any of the matters prohibited by this Section 5.1(e); or
(f) (i) increase the compensation payable or to become payable
to its officers or employees, except for increases in salary or wages of
employees of IMSI or any of its subsidiaries who are not officers of IMSI in the
ordinary course of business; (ii) grant any severance or termination pay to, or
enter into any employment or severance agreement with
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any director, officer or other employee of IMSI or any of its subsidiaries; or
(iii) establish, adopt, enter into or amend any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
current or former directors, officers or employees, except, in each case, as may
be required by law.
Section 5.2 No Solicitation.
(a) IMSI shall not, directly or indirectly, through any
officer, director, employee representative or agent of IMSI or any of its
subsidiaries, (i) solicit, initiate or encourage any inquiries or proposals
regarding any mergers, sale of substantial assets, sale of any of the
outstanding shares of capital stock (including without limitation by way of a
tender offer) or similar transactions involving IMSI other than the Merger (any
of the foregoing inquiries or proposals being referred to herein as an
"Acquisition Proposal"), (ii) engage in negotiations or discussions concerning,
or provide any nonpublic information to any person relating to, any Acquisition
Proposal, or (iii) agree to, approve or recommend any Acquisition Proposal.
(b) IMSI shall promptly notify DCDC after receipt of any
Acquisition Proposal, or any material modification of or amendment to any
Acquisition Proposal. Such notice to DCDC shall indicate the name of the person
making such Acquisition Proposal and the terms and conditions of such
Acquisition Proposal.
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Effectiveness of the Registration Statement.
The Registration Statement shall have been declared effective by the SEC under
the Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings for
that purpose and no similar proceeding in respect to the Joint Proxy
Statement/Prospectus shall have been initiated or threatened by the SEC.
(b) Stockholder Approval. The Merger shall have been approved
and this Agreement shall have been adopted by the requisite vote of the
stockholders of DCDC, the stockholders of IMSI and the stockholders of Merger
Sub.
(c) Union Bank of California Loan. DCDC shall have purchased
the loan owned by IMSI to Union Bank of California and originated on [May 4,
1998].
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(d) Consents; Approvals. All consents, waivers, approvals, or
authorizations of third parties to the consummation of the Merger and the other
transactions contemplated hereby shall have been obtained, other than those
which, if not obtained, do not have a Material Adverse Effect.
(e) No Injunctions or Restraints; Illegality. No statute, rule,
regulation, executive order, decree, ruling, temporary restraining order,
preliminary or permanent injunction or other order shall have been enacted,
entered, promulgated, enforced or issued by any court or governmental authority
of competent jurisdiction or shall otherwise be in effect which prohibits,
restrains, enjoins or restricts the consummation of the Merger.
(f) Blue Sky Laws. All material permits and other
authorizations necessary under the Blue Sky Laws to issue IMSI Common Stock
pursuant to the Merger shall have been obtained.
Section 6.2 Additional Conditions to Obligations of DCDC. The
obligation of DCDC to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and
warranties of IMSI contained in this Agreement shall be true and correct in all
material respects at and as of the Effective Time as if made at and as of such
time, except for: (i) changes contemplated by this Agreement, and (ii) those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such date), with the same
force and effect as if made at and as of the Effective Time, and DCDC shall have
received a certificate to such effect signed by the Chief Executive Officer and
the President of IMSI.
(b) Agreements and Covenants. IMSI shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the
Effective Time, and DCDC shall have received a certificate to such effect signed
by the Chief Executive Officer and the President of IMSI.
Section 6.3 Additional Conditions to Obligation of IMSI. The obligation
of IMSI to effect the Merger is also subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of DCDC contained in this Agreement shall be true and correct in all
materials respects on and as of the Effective Time, except for (i) changes
contemplated by this Agreement, and (ii) those representations and warranties
which address matters only as of a particular date (which shall have been true
and correct as of such date), with the same force and effect as if made on and
as of the Effective Time, and IMSI shall have received a certificate to such
effect signed by the Chief Executive Officer and President of DCDC.
(b) Agreements and Covenants. DCDC shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the
Effective Time, and IMSI shall have
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received a certificate to such effect signed by the Chief Executive Officer and
the President of DCDC.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and abandoned
at any time prior to the Effective Time, notwithstanding approval thereof by the
stockholders of DCDC, the stockholders of IMSI or the stockholders of Merger
Sub, solely as follows:
(a) by mutual written consent duly authorized by the Boards of
Directors of DCDC and IMSI;
(b) by DCDC or IMSI if a court of competent jurisdiction, or a
governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other action
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger;
(c) by DCDC if: (i) the Board of Directors of IMSI shall fail
to recommend the Merger or shall withdraw, modify or change its recommendation
of the Merger in any manner adverse to DCDC or shall have resolved to do any of
the foregoing; (ii) after the receipt by IMSI of an offer or proposal involving
an Alternative Transaction, as defined below, DCDC requests in writing that the
Board of Directors of IMSI reconfirm its recommendation of this Agreement to the
stockholders of IMSI and the Board of Directors of IMSI fails to do so within 10
days after its receipt of DCDC's request; (iii) the Board of Directors of IMSI
shall have recommended to the stockholders of IMSI an Alternative Transaction,
as defined below; (iv) a tender offer or exchange offer constituting an
Alternative Transaction, as defined below, is commenced and the Board of
Directors of IMSI recommends that the stockholders of IMSI tender their shares
in such tender or exchange offer; or (v) for any reason IMSI fails to use its
best efforts to call and hold the IMSI Stockholders Meeting;
(d) by DCDC, if there has been (i) a material misrepresentation
or breach of warranty in the representations and warranties made herein by IMSI,
or (ii) a material default in the performance of an agreement made by IMSI
contained in Article V or Article VI;
(e) by IMSI if: (i) the Board of Directors of DCDC shall fail
to recommend the Merger or shall withdraw, modify or change its recommendation
of the Merger in any manner adverse to IMSI or shall have resolved to do any of
the foregoing; (ii) after the receipt by DCDC of an offer or proposal involving
an Alternative Transaction, as defined below, IMSI requests in writing that the
Board of Directors of DCDC reconfirm its recommendation of this Agreement to the
stockholders of DCDC and the Board of Directors of DCDC fails to do so within 10
days after its receipt of IMSI's request; (iii) the Board of Directors of DCDC
shall have recommended to the stockholders of DCDC an Alternative Transaction,
as defined
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below; or (iv) for any reason DCDC fails to use its best efforts to call and
hold the DCDC Stockholders Meeting; or
(f) by IMSI, if there has been (i) a material misrepresentation
or breach of warranty in the representations and warranties made herein by DCDC,
or (ii) a material default in the performance of an agreement made by DCDC
contained in Article VI.
As used herein, "Alternative Transaction" means any of (i) a
transaction or series of transactions pursuant to which any person (or group of
persons) other than the parties hereto or any of their subsidiaries or any
affiliate of any thereof (a "Third Party") acquires or would acquire more than
fifty percent (50%) of the outstanding IMSI Shares, whether from the parties
hereto or pursuant to a tender offer or exchange offer or otherwise, (ii) any
acquisition or proposed acquisition of the parties hereto or any of their
subsidiaries by a merger or other business combination (including any so-called
"merger of equals" and whether or not the parties hereto or any of their
subsidiaries is the entity surviving any such merger or business combination) or
(iii) any other transaction pursuant to which any Third Party acquires or would
acquire control of assets (including for this purpose the outstanding equity
securities of subsidiaries of the parties hereto and any entity surviving any
merger or business combination including any of them) of the parties hereto or
any of their subsidiaries having a fair market value equal to more than fifty
percent (50%) of the fair market value of all the assets of the parties and
their subsidiaries, taken as a whole, immediately prior to such transaction.
Section 7.2 Effect of Termination.
(a) In the event of the termination of this Agreement pursuant
to Section 7.1, this Agreement shall forthwith become void and there shall be no
liability on the part of any party hereto or any of its affiliates, directors,
officers or stockholders except as set forth in Section 7.3 hereof. Nothing
herein shall relieve any party from liability for any breach of this Agreement
occurring prior to termination.
(b) The Confidentiality Agreement shall survive termination as
set forth therein.
Section 7.3 Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, whether
or not the Merger is consummated.
(b) IMSI shall pay DCDC a fee of $500,000, if DCDC terminates
this Agreement pursuant to Section 7.1(c) or (d).
(c) DCDC shall pay IMSI a fee of $500,000, if IMSI terminates
this Agreement pursuant to Section 7.1(e) or (f).
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(d) The fee payable pursuant to Section 7.3(b) or (c)
shall be payable immediately upon demand of DCDC or IMSI, as the case may be,
and if not paid immediately upon demand, shall accrue interest at the rate of
twelve percent (12%) per annum until paid.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Effectiveness of Representations, Warranties and
Agreements, Etc.
(a) Except as otherwise provided in this Section 8.1, the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or after the execution of
this Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.1, as the case may be, except that the representations set
forth in Sections 3.10 and 3.17 shall survive the Effective Time indefinitely
and those set forth in Section 7.3 shall survive such termination (whether at
the Effective Time or pursuant to Section 7.1) indefinitely. Nothing in this
Section 8.1(a) shall relieve any party for any breach of any representation,
warranty or agreement in this Agreement occurring prior to termination.
(b) Any disclosure made with reference to one or more Sections
of the IMSI Disclosure Schedule or the DCDC Disclosure Schedule shall be deemed
disclosed only with respect to such Section unless such disclosure is made in
such a way as to make its relevance to the information called for by another
Section of such schedule readily apparent in which case such disclosure shall be
deemed to have been included in such other Section, notwithstanding the omission
of a cross reference thereto.
Section 8.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
of receipt, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to DCDC:
Digital Creative Development Corporation
00 Xxxxxx Xxxxx Xxxxx, Xxxxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxx
Telephone No. (000) 000-0000
Telecopier No. (000) 000-0000
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with a copy to:
Xxxxxx & Eilen, LLP
00 Xxxxxxx Xxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx, Esq.
Telephone No. (000) 000-0000
Telecopier No. (000) 000-0000
(b) If to IMSI:
International Microcomputer Software, Inc.
00 Xxxxxxx Xxx
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxxx X. Xxxxxxx
Telephone No. (000) 000-0000
Telecopier No. (000) 000-0000
with a copy to:
Xxxxx X. Xxxxxxxxx, P.C.
00 Xxxx Xxx Xxxxxxx Xxxxx Xxxxxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
Telephone No. (000) 000-0000
Telecopier No. (000) 000-0000
(c) If to Merger Sub:
Digital Creative Development Corporation
00 Xxxxxx Xxxxx Xxxxx, Xxxxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxx
Telephone No. (000) 000-0000
Telecopier No. (000) 000-0000
with a copy to:
Xxxxxx & Eilen, LLP
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50 Xxxxxxx Xxxxxxxxx Boulevard, Suite 505
Uniondale, New York 11553
Attention: Xxxx Xxxxxx, Esq.
Telephone No. (000) 000-0000
Telecopier No. (000) 000-0000
Section 8.3 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" means a person that, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person;
(b) "beneficial owner" with respect to any shares of the IMSI
Common Stock means a person who shall be deemed to be the beneficial owner of
such shares (i) which such person or any of its affiliates or associates (as
such term is defined in Rule 12b-2 of the Exchange Act) beneficially owns,
directly or indirectly, (ii) which such person or any of its affiliates or
associates has, directly or indirectly, (A) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise, or (B)
the right to vote pursuant to any agreement, arrangement or understanding, or
(iii) which are beneficially owned, directly or indirectly, by any other persons
with whom such person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any shares;
(c) "business day" means any day other than the day on which
banks in the State of New York are required or authorized to be closed;
(d) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "GAAP" shall mean United States generally accepted
accounting principles;
(f) "knowledge" of IMSI or DCDC, as the case may be, shall mean
the actual knowledge of the executive officers of IMSI or the executive officers
of DCDC, respectively, as such knowledge has been or reasonably should have been
obtained in the normal conduct of business;
(g) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) (3) of the Exchange Act); and
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(h) "subsidiary" or "subsidiaries" of IMSI or DCDC or any other
person means a corporation, partnership, joint venture or other legal entity of
which IMSI, the Surviving Corporation, DCDC or such other person, as the case
may be (either alone or through or together with any other subsidiary), owns,
directly or indirectly, more than fifty percent (50%) of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
Section 8.4 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger by the stockholders of IMSI and/or DCDC, no amendment may be made
which by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
Section 8.5 Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto: (a) extend the time for the
performance of any of the obligations or other acts; (b) waive any inaccuracies
in the representations in the representations and warranties contained herein or
in any document delivered pursuant hereto; or (c) waive compliance with any of
the agreements or conditions contained herein. Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the party
or parties to be bound thereby.
Section 8.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
Section 8.8 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Agreement), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
Section 8.9 Assignment. This Agreement shall not be assigned by
operation of law or otherwise, except that DCDC may assign all or any of its
rights hereunder to any direct wholly owned subsidiary of DCDC provided that no
such assignment shall relieve the assigning party of its obligations hereunder.
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Section 8.10 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation, other
than Section 5.7 (which is intended to be for the benefit of the Indemnified
Parties and may be enforced by such Indemnified Parties) and Section 5.8 (which
is intended to be for the benefit of the Surviving Corporation and may be
enforced by such employees).
Section 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
Section 8.12 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York (other than any
conflicts of law rules which might result in the application of the laws of any
other jurisdiction).
Section 8.13 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
Section 8.14 Consent to Jurisdiction. Each of the parties hereto:
(a) Consents to submit itself to the personal jurisdiction of
(i) the United States District Court, Southern District, in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement;
(b) Agrees that it will not attempt to deny or defeat such
personal jurisdiction or venue by motion or other request for leave from any
such court;
(c) Agrees that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in any Court
other than such court;
(d) Agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to a part at
its address set forth in Section 8.2 or at such other address of which a party
shall have been notified pursuant thereto; and
(e) Agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law.
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IN WITNESS WHEREOF, DCDC, IMSI and Merger Sub have caused this
Agreement and Plan of Merger to be executed as of the date first written above
by their respective officers hereunder duly authorized.
DIGITAL CREATIVE
DEVELOPMENT CORPORATION
By: ______________________
Name: Xxxxxx Xxxx
Title: Chairman and
Chief Executive Officer
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
By: _____________________________
Name: Xxxxxxxx X. Xxxxxxx
Title: President and Chief
Executive Officer
DCDC MERGE, INC.
By: _____________________________
Name: Xxxxxxxx X. Xxxxxxx
Title: President and Chief
Executive Officer
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