Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
PIVOTAL CORPORATION
(a British Columbia corporation)
PIVOTAL CORPORATION
(a Washington corporation)
PIVOTAL MERGER SUBSIDIARY, INC.
AND
MARKETFIRST SOFTWARE, INC.
AND
CERTAIN PRINCIPAL STOCKHOLDERS OF
MARKETFIRST SOFTWARE, INC.
OCTOBER __, 2002
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and entered
into as of October 2, 2002, by and among Pivotal Corporation, a British Columbia
corporation (the "Parent"), Pivotal Corporation, a Washington corporation
("Pivotal USA") wholly-owned by the Parent, Pivotal Merger Subsidiary, Inc., a
Delaware corporation ("Merger Subsidiary") wholly-owned by Pivotal Merger
Subsidiary (Intermediate Tier), Inc., a Delaware corporation wholly-owned by
Pivotal USA, MarketFirst Software, Inc., a Delaware corporation (the "Company"),
and those other Persons, being certain holders of capital stock of the Company,
who have executed this Agreement (the "Company Indemnifying Parties"). The
Parent, Pivotal USA, Merger Subsidiary, the Company and the Company Indemnifying
Parties are referred to collectively herein as the "Parties."
RECITALS
WHEREAS, the respective Boards of Directors of the Parent, Pivotal USA,
Merger Subsidiary and the Company have determined that it is advisable and in
the best interests of the respective corporations and their stockholders that
Merger Subsidiary be merged with and into the Company in accordance with the
General Corporation Law of the State of Delaware (the "Delaware Act") and the
terms of this Agreement pursuant to which the Company will be the surviving
corporation and will become a wholly-owned indirect subsidiary of the Parent
(the "Merger"); and
WHEREAS, the Company Indemnifying Parties own more than two-thirds of the
issued and outstanding Series F Preferred Stock of the Company, and their
agreement to indemnify the Parent for certain potential liabilities following
the Merger is a material inducement to the agreements of the Parent and Merger
Subsidiary to the Merger; and
WHEREAS, the Parent, Merger Subsidiary, the Company and the Company
Indemnifying Parties desire to make certain representations, warranties,
covenants, and agreements in connection with, and establish various conditions
precedent to, the Merger.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, Taxes,
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liens, losses, expenses, and fees, including court costs and reasonable
attorneys' fees and expenses.
"Affiliate" means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.
"Applicable Law" means, in the case of the Company, the Company
Indemnifying Parties and the Stockholders, any U.S., and in the case of the
Parent, any Canadian and U.S., law, principle of common law, regulation, rule,
code, statute, treaty, ordinance, similar provisions having the force or effect
of law thereunder, and judicial and administrative orders, injunctions,
judgments, decrees, rulings and determinations, of any federal, provincial,
state, local or municipal government or sub-division of any such country.
"Applicable Securities Laws" means all U.S. federal and state securities
laws, including the Securities Act and the Securities Exchange Act.
"Closing" has the meaning set forth in Section 3(g) below.
"Closing Date" has the meaning set forth in Section 3(g) below.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of ERISA
and Code ss.4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Stock" means any share of the Company's capital stock and "Company
Stock" shall mean all of the issued and outstanding shares of the Company's
capital stock.
"Confidential Information" means any information concerning the business
and affairs of the Company that is not already generally available to the
public.
"Constituent Corporations" means the Company and Merger Subsidiary.
"Disclosure Schedule" has the meaning set forth in Section 4 below.
"Dollars and $" means United States dollars.
"Employee Benefit Plan" means any plan, fund or program (whether written or
not) which is maintained or contributed to by the Company or an ERISA Affiliate
for the benefit of current or former U.S. employees, including, but not limited
to, any (a) nonqualified deferred compensation or retirement plan or
arrangement, stock option, stock purchase, phantom stock, stock appreciation
right, supplemental retirement, severance, sabbatical, or employee relocation
plan (b) qualified defined contribution retirement plan or arrangement which is
an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan
or arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), (d) Employee Welfare
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Benefit Plan, (e) material fringe benefit or other retirement, bonus, or
incentive plan or program or (f) any current or former employment or executive
compensation or severance arrangements relating to any present or former
employee, consultant or director as to which there are unsatisfied obligations
of the Company or its Affiliates.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA ss.3(1).
"Environmental, Health, and Safety Requirements" shall mean all Applicable
Laws concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation
(collectively "Hazardous Materials").
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single employer
with the Company for purposes of Code ss.414.
"Financial Statements" has the meaning set forth in Section 4(g) below.
"GAAP" means U.S. generally accepted accounting principles as in effect
from time to time.
"Indemnified Party" has the meaning set forth in Section 9(d) below.
"Indemnifying Party" has the meaning set forth in Section 9(d) below.
"Indemnity Share" means as to each of the Company Indemnifying Parties a
proportion equal to the ratio of their Proportionate Share to the aggregate of
all of the Stockholders' Proportionate Shares.
"Intellectual Property" means (a) all inventions and discoveries (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all re-issuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks and service marks, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and Confidential
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Information (including ideas, research and development, know-how, formulas,
compositions, processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all software (including data
and related documentation), (g) all other proprietary information and rights,
and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
"Investors' Rights Agreement" means the Seventh Restated and Amended
Investors' Rights Agreement dated as of May 25, 2001 by and among the Company
and certain stockholders of the Company, a copy of which is attached hereto as
Exhibit 7.
"Key Employees" means Xxxxxx Xxxxxx, Xxxx Xxxxxxxxxxxxx, Xxxxxx Xxxxxxx and
Xxxxxxx Xxxxxxx.
"Knowledge" means actual knowledge after reasonably diligent investigation
or knowledge a prudent person could be expected to discover or otherwise become
aware of in the course of conducting a reasonably comprehensive investigation of
such matter. When used in relation of the Company Indemnifying Parties,
"Knowledge" means actual knowledge after reasonably diligent investigation of
the Company's officers and directors, the Key Employees and the relevant Company
Indemnifying Party's representative officer (as listed in Schedule B) or
knowledge that such officers and directors and the Key Employees could be
expected to have discovered or otherwise become aware of in the course of
conducting a reasonably comprehensive investigation of such matter.
"Legend" has the meaning set forth in Section 5(a)(vi)(I).
"Management Bonuses" has the meaning set forth in Section 4(dd)(iv) below.
"MarketFirst Release 4" means the Intellectual Property described on
Exhibit 1 attached hereto, including, but not limited to, all integrated
products, such as MarketFirst Campaign Portal and MarketFirst Analytics.
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
4(g) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 4(g)
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4(g)
below.
"Option Plan" means the Company's 1996 Equity Incentive Plan.
"Ordinary Course of Business" means the ordinary course of normal
day-to-day business consistent with past custom and practice (including with
respect to quantity and frequency).
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"Parent Common Shares" means the common shares of the Parent.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, an estate, a
joint venture, an unincorporated organization or association, or a governmental
entity (or any department, agency, or political subdivision thereof).
"Proportionate Share" means as to each of the Stockholders a proportion
equal to their percentage ownership interests in the Company based on their
respective holdings of the Company's Series F Preferred Stock, including all
shares of Series F Preferred Stock underlying outstanding warrants as set forth
in Section 4(b) of the Disclosure Schedule (assuming all such warrants have been
exercised using the cashless procedure provided under such warrants).
"Merger Consideration" has the meaning set forth in Section 3(d) below.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Securities Exchange Act" means the U.S. Securities Exchange Act of 1934,
as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than in the case of the Company (a)
mechanic's, materialmen's, and similar liens, (b) liens for Taxes not yet due
and payable, (c) purchase money liens and liens securing rental payments under
lease arrangements, and (d) other liens arising in the Ordinary Course of
Business and not incurred in connection with the borrowing of money.
"Stockholders" means the Company Indemnifying Parties and all of the other
stockholders of the Company's Series F Preferred Stock on the Closing Date.
"Tax" has the meaning set forth in Section 4(k) below.
"Third-Party Claim" has the meaning set forth in Section 9(d) below.
"United States" or "U.S." means the United States of America, its
territories and possessions, any state of the United States, and the District of
Columbia.
"Warrant" means the warrants to purchase Company Stock referred to in
Section 3(b)(ii) below.
2. The Merger.
(a) The Merger. At the Effective Time (as defined in Section 2(c) below)
subject to the terms and conditions of this Agreement and the Certificate of
Merger (as defined in Section 2(c) below), Merger Subsidiary shall be merged
with and into the Company pursuant to this Agreement and the Delaware Act, the
separate existence of Merger Subsidiary shall cease, and the Company shall
continue as the surviving corporation under the corporate name it possesses
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immediately prior to the Effective Time. The Company, in its capacity as the
corporation surviving the Merger, is hereinafter sometimes referred to as the
"Surviving Corporation."
(b) Effect of Merger. The effect of the Merger shall be as set forth in
Section 259 of the Delaware Act, and as such the Surviving Corporation shall
succeed to and possess all the properties, rights, privileges, immunities,
powers, franchises and purposes, and shall be subject to all the duties,
liabilities, debts, obligations, restrictions and disabilities, of the
Constituent Corporations, all without further act or deed.
(c) Effective Time. The consummation of the Merger shall be effected as
promptly as practicable, but in no event more than three business days after the
satisfaction or waiver of the conditions set forth in Part 8 of this Agreement,
and the Parties will cause a copy of the Certificate of Merger, attached hereto
as Exhibit 2 (the "Certificate of Merger") to be executed, delivered and filed
with the Secretary of State of the State of Delaware in accordance with the
Delaware Act. The Merger shall become effective immediately upon the filing of
such Certificate with the Secretary of State of the State of Delaware. The date
and time on which the Merger shall become effective is referred to herein as the
"Effective Time."
(d) Directors and Officers. From and after the Effective Time, the
directors of the Surviving Corporation shall be the persons who were the
directors of Merger Subsidiary immediately prior to the Effective Time and the
officers of the Surviving Corporation shall be the persons who were the officers
of Merger Subsidiary immediately prior to the Effective Time. Said directors and
officers of the Surviving Corporation shall hold office for the term specified
in, and subject to the provisions contained in, the Certificate of Incorporation
and Bylaws of the Surviving Corporation and applicable law. If, at or after the
Effective Time, a vacancy shall exist on the Board of Directors or in any of the
offices of the Surviving Corporation, such vacancy shall be filed in the manner
provided in the Certificate of Incorporation and Bylaws of the Surviving
Corporation.
(e) Certificate of Incorporation; Bylaws. From and after the Effective Time
and until further amended in accordance with applicable law, the Certificate of
Incorporation of Merger Subsidiary as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation. From and after the Effective Time and until further amended in
accordance with law, the Bylaws of Merger Subsidiary as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation.
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(f) Taking of Necessary Action; Further Action. The Parent, Merger
Subsidiary and the Company, respectively, shall each use its best efforts to
take all such action as may be necessary or appropriate to effectuate the Merger
under the Delaware Act at the time specified in Section 2(c). If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all properties, rights, privileges,
immunities, powers and franchises of either of the Constituent Corporations, the
officers of the Surviving Corporation are fully authorized in the name of each
Constituent Corporation or otherwise to take, and shall take, all such lawful
and necessary action.
3. The Closing.
(a) Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of the Parties or the holder of any of
the following securities:
(i) Company Common Stock. Each share of the Company's Common Stock,
$0.001 par value (the "Company Common Stock"), issued and outstanding
immediately prior to the Effective Time will be canceled and extinguished;
pursuant to the rights and preferences of the various classes and series of
capital stock contained in the Company's Certificate of Incorporation, the
Company Common Stock shall not be converted or entitled to any right to
receive any of the Merger Consideration.
(ii) Company Series A-E Preferred Stock. Each share of the Company's
Series A Preferred Stock, $0.001 par value; Series B Preferred Stock,
$0.001 par value; Series C Preferred Stock, $0.001 par value; Series D
Preferred Stock, $0.001 par value; and Series E Preferred Stock, $0.001 par
value (together, the "Company Series A-E Preferred Stock"), issued and
outstanding immediately prior to the Effective Time will be canceled and
extinguished; pursuant to the rights and preferences of the various classes
and series of capital stock contained in the Company's Certificate of
Incorporation, the Company Series A-E Preferred Stock shall not be
converted or entitled to any right to receive any of the Merger
Consideration.
(iii) Company Series F Preferred Stock. Each share of the Company's
Series F Preferred Stock, $0.001 par value (the "Company Series F Preferred
Stock"), issued and outstanding immediately prior to the Effective Time
will be canceled and extinguished and be converted automatically into the
right to receive the number of Parent Common Shares to which such share of
Company Series F Preferred Stock is entitled under Section 3(d) below.
(iv) Merger Subsidiary Common Stock. Each share of common stock, $0.01
par value, of Merger Subsidiary ("Merger Subsidiary Common Stock") issued
and outstanding immediately prior to the Effective Time shall be converted
into one fully paid and nonassessable share of common stock, $0.001 par
value, of the Surviving Corporation ("Surviving Corporation Common Stock").
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(b) Stock Options and Warrants.
(i) Stock Options. In accordance with the Option Plan, any option
(individually, a "Stock Option" and, collectively, the "Stock Options")
issued pursuant to the Option Plan and outstanding, shall terminate and
cease to be exercisable or convertible immediately prior to the Effective
Time, provided that any such Stock Options may be exercised or converted in
advance of the Effective Time with the exercise or conversion conditioned
upon the Closing of the Merger. None of Merger Subsidiary, the Surviving
Corporation or the Parent shall assume the Stock Options.
(ii) Warrants.
(A) Outstanding Warrants to purchase Company Stock held by
Persons who are parties to the Investors' Rights Agreement shall, in
accordance with Section 7.1(b) of the Investors' Rights Agreement,
cease to be exercisable or convertible immediately prior to the
Closing.
(B) The holders of the outstanding Warrants to purchase Common
Stock of the Company, if it is not a party to the Investors' Rights
Agreement shall, in accordance with the terms of such Warrant, be
given notice of the Merger, and depending on the terms of such Warrant
either (1) such warrant shall terminate on the Closing or (2) upon the
consummation of the Merger and thereafter, such holder shall be
entitled to receive, upon exercise of such Warrant, the consideration
that a holder of Common Stock is entitled to receive under this
Agreement (that is, nothing).
(C) The holder of the outstanding Warrant to purchase Series D
Preferred Stock of the Company, in accordance with the terms of such
Warrant shall be given notice of the Merger, and such Warrant shall,
in accordance with its terms, terminate upon the Closing.
(D) The holders of outstanding Warrants to purchase Series E
Preferred Stock of the Company, if they are not a party to the
Investors' Rights Agreement shall, upon the consummation of the Merger
and thereafter, be entitled to receive, upon exercise of such
Warrants, the consideration that a holder of Series E Preferred Stock
is entitled to receive under this Agreement (that is, nothing).
(c) Appraisal Rights. Notwithstanding anything in this Agreement to the
contrary, if Section 262 of the Delaware Act shall be applicable to the Merger
and if the Merger has been approved pursuant to Section 228 of the Delaware Act,
the Company shall notify in writing, in the manner prescribed in Section
262(d)(2) of the Delaware Act, prior to the Effective Time those Company
stockholders who have not consented to the Merger that such stockholders are
entitled to appraisal rights pursuant to Section 262 of the Delaware Act. Each
Company stockholder that demands appraisal rights pursuant to the requirements
set forth in Section 262(d)(2) of the Delaware Act shall receive payment
therefor from the Surviving Corporation in
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accordance with the Delaware Act; provided, however, that if any such holder of
appraisal rights shall have effectively withdrawn such holder's demand for
appraisal rights or lost such holder's appraisal rights under Section 262 of the
Delaware Act, such stockholder or stockholders (as the case may be) shall
forfeit the right to appraisal of such Company Stock and each such share of
Company Stock shall thereupon be deemed to have been canceled, extinguished and
converted, as of the Effective Time, into and represent the right to receive
payment from the Surviving Corporation of the Merger Consideration, as provided
in Section 2(a) above. The Company shall give the Parent (i) prompt notice of
any written demand for appraisal rights, any withdrawal of a demand for
appraisal rights and any other instrument served pursuant to Section 262 of the
Delaware Act received by the Company, and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal rights under
such Section 262 of the Delaware Act. The Company shall not, except with the
prior written consent of the Parent, voluntarily make any payment with respect
to any demand for appraisal rights or offer to settle or settle any such demand.
The Company shall also comply with all applicable California law affording
stockholders of the Company appraisal rights.
(d) Merger Consideration. The consideration for the merger (the "Merger
Consideration") shall be 725,000 Parent Common Shares, and the maximum number of
Parent Common Shares to be issued in the Merger for the acquisition by the
Parent of all outstanding equity securities of the Company shall not exceed
725,000 Parent Common Shares. The Merger Consideration delivered upon the
surrender of any shares of Company Series F Preferred Stock in accordance with
Section 3(f) below shall be deemed to have been delivered in full satisfaction
of all rights pertaining to such shares of Company Series F Preferred Stock.
(e) Fractional Shares. The Parent shall not be required to issue fractional
shares of Parent Common Shares, and any resulting fractional shares shall be
rounded down to the next lowest whole Parent Common Share.
(f) Stock Certificates. Notwithstanding anything herein to the contrary, no
shares of Parent Common Shares shall be issued to any Stockholder at the Closing
who does not, at the Closing, present certificates for cancellation representing
all of such Stockholder's shares of Company Series F Preferred Stock, or, in the
alternative, an affidavit and indemnity, in form and substance reasonably
satisfactory to the Parent, stating that such certificates are lost or destroyed
and that such Stockholder will indemnify and hold the Company and the Parent and
its officers, directors and agents, harmless from any costs, expenses and
damages that may be incurred if such certificates are later produced. If a
Stockholder does not deliver at the Closing all of the certificates representing
such Stockholder's shares of Company Series F Preferred Stock, or in the
alternative an affidavit and indemnity as described above, the portion of the
Merger Consideration that such Stockholder is entitled to receive pursuant to
Section 3(d) above shall be retained until such time as such Stockholder makes
delivery of the certificates or affidavit, at which time the Parent Common
Shares to be issued to the Stockholder pursuant to the terms of Section 3(d)
above shall be issued.
(g) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Xxxxxx &Whitney LLP
in Costa Mesa, California,
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commencing at 2:00 p.m. local time on the business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other date as the Parties may mutually determine (the "Closing Date"). The
Closing Date shall be no later than December 31, 2002.
(h) Management Bonuses. At the Closing those individuals listed on Annex
4(p)(vii) to the Disclosure Schedule shall receive the amount of cash (payable
by a check drawn on the Parent's U.S. dollar bank account) set forth against
their name on such Annex in full payment and satisfaction of the Management
Bonuses. The aggregate amount of the Management Bonuses shall be US$54,722.21.
(i) Deliveries at the Closing. At the Closing, (i) the Company Indemnifying
Parties will deliver to the Parent the various certificates, instruments, and
documents referred to in Section 8(a) below, (ii) the Parent will deliver to the
Company Indemnifying Parties the various certificates, instruments, and
documents referred to in Section 8(b) below, (iii) the Company Indemnifying
Parties will deliver to the Parent stock certificates representing all of his,
hers or its Company Series F Preferred Shares, endorsed in blank or accompanied
by duly executed assignment documents, (iv) the Parent shall issue to Pivotal
USA in consideration for Pivotal USA's issuance to the Parent of 10,000 shares
of the common stock of Pivotal USA the number of Parent Common Shares to which
the Stockholders are entitled under Section 3(d) above and Section 3(i)(v) below
and (v) Pivotal USA shall, and the Parent shall ensure that Pivotal USA does,
deliver to the Company Indemnifying Parties the Parent Common Shares specified
herein and to the individuals listed on Annex 4(p)(vii) of the Disclosure
Schedule the payment of the Management Bonuses (subject to the terms hereof).
4. Representations and Warranties Concerning the Company.
The Company, jointly and severally with each of the Company Indemnifying
Parties, and the Company Indemnifying Parties severally among themselves,
represent and warrant to the Parent and Merger Subsidiary that the statements
contained in this Section 4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 4), except as set forth in the disclosure
schedule attached hereto as Schedule A (the "Disclosure Schedule"). The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section 4.
(a) Organization, Qualification, Corporate Power and Due Authorization. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the lack of such
qualification would not have a material adverse effect on the business,
financial condition, operations, results of operations, or future prospects of
the Company. The Company has the corporate power and all licenses, permits and
authorizations necessary to carry on the businesses in which it is engaged and
to own and use the properties owned and used by it. The Company has
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the corporate power to execute and deliver this Agreement and perform the
obligations hereunder. The execution and delivery by the Company of this
Agreement, and the performance by the Company of its obligation hereunder, have
been duly and validly authorized and approved by all necessary corporate action
on the part of the Company. Section 4(a) of the Disclosure Schedule lists the
directors and officers of the Company. The Company Indemnifying Parties have
delivered to the Parent correct and complete copies of the Certificate of
Incorporation and Bylaws of the Company (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of directors,
and any committees of the board of directors), the stock certificate books, and
the stock record books of the Company are accurate and complete. The Company is
not in default under or in violation of any provision of its corporate charter
or Bylaws.
(b) Capitalization. The Company's authorized capital stock consists of, and
immediately prior to the consummation of the Closing shall consist of,
115,000,000 shares of Company Common Stock, $0.001 par value, and 116,340,000
shares of preferred stock of the Company, $0.001 par value ("Company Preferred
Stock"), of which 2,040,000 shares are designated as Company Series A Stock,
2,200,000 shares are designated Company Series B Preferred Stock, 20,000,000
shares are designated Company Series C Preferred Stock, 16,000,000 are
designated Company Series D Preferred Stock, 14,100,000 shares are designated
Company Series E Preferred Stock and 62,000,000 are designated Company Series F
Preferred Stock. The Company's issued and outstanding capital stock is, and
immediately prior to consummation of the Closing shall be, as set forth on
Section 4(b) of the Disclosure Schedule. All of the issued and outstanding
Company Stock has been duly authorized, is validly issued, fully paid, and
nonassessable, and was issued in compliance with all Applicable Securities Laws,
and is held of record by the Company's stockholders as set forth in Section 4(b)
of the Disclosure Schedule. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of the Company Stock is
as set forth in the Company's Certificate of Incorporation and such preferences,
rights, qualifications, limitations and restrictions are valid, binding and
enforceable and in accordance with Applicable Law. None of the outstanding
Company Stock has been issued in violation of any pre-emptive rights, rights of
first refusal or similar rights. Apart from the Stock Options outstanding under
the Option Plan, all of which are included on Section 4(b) of the Disclosure
Schedule, and the Warrants, all of which are included on Section 4(b) of the
Disclosure Schedule, there are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require the Company to issue, sell, or
otherwise cause to become outstanding any of its capital stock. The Option Plan
requires an automatic accelerated vesting of all options granted thereunder as a
result of the Merger. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of
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the corporate charter or Bylaws of the Company or (ii) conflict with, result in
a breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets), except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice, or Security Interest would not have a material adverse effect on the
business, financial condition, operations, results of operations, or future
prospects of the Company or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. The Company does not need to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government, governmental agency or court in order for the
Parties to consummate the transactions contemplated by this Agreement, except
where the failure to give notice, to file, or to obtain any authorization,
consent, or approval would not have a material adverse effect on the business,
financial condition, operations, results of operations, or future prospects of
the Company or on the ability of the Parties to consummate the transactions
contemplated by this Agreement.
(d) Brokers' Fees. The Company has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(e) Title to Assets. The Company has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it or shown on
the Most Recent Balance Sheet or acquired after the date thereof, free and clear
of all Security Interests, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance Sheet.
(f) Subsidiaries. The Company does not directly or indirectly control or
have any direct or indirect equity participation in any other corporation,
partnership, trust, or other business association apart from Fusion DM, a
Delaware corporation, and MarketFirst Europe Ltd., a United Kingdom corporation,
both of which are wholly-owned subsidiaries of the Company and have no material
assets and do not conduct or engage in any business activities or operations (as
used in Section 4(g) below, the "Subsidiaries" and "subsidiaries" as used
elsewhere in this Agreement shall include both of the Subsidiaries). All
representations, warranties and covenants concerning the Company shall be
interpreted and construed to include the Subsidiaries, and all undertakings and
covenants made by the Company shall be interpreted and construed to include the
Company acting to ensure the Subsidiaries act as if they were Parties to this
Agreement and subject to such undertakings and covenants.
(g) Financial Statements. Attached hereto as Exhibit 3 are the following
financial statements (collectively referred to as the "Financial Statements"):
(i) audited consolidated balance sheets and statements of income, changes in
stockholders' equity, and cash flow as of and for the fiscal years ended
December 31, 1999, December 31, 2000 and December 31, 2001 (the "Most Recent
Fiscal Year End"), respectively, for the Company and the Subsidiaries; and (ii)
unaudited consolidated balance sheets and statements of income (the "Most Recent
Financial
12
Statements") as of and for the eight months ended August 31, 2002 (the "Most
Recent Fiscal Month End") for the Company and the Subsidiaries. The Financial
Statements (including the notes thereto) have been prepared in accordance with
GAAP (and the Most Recent Financial Statements have been prepared in accordance
with GAAP) applied on a consistent basis throughout the periods covered thereby
and present fairly in all material respects the financial condition of the
Company and the Subsidiaries as of such dates and the results of operations of
the Company and the Subsidiaries for such periods, are correct and complete in
all material respects except for any amounts not disclosed therein but which are
disclosed in Section 4(g) of the Disclosure Schedule, and are consistent with
the books and records of the Company and the Subsidiaries (which books and
records are correct and complete in all material respects); provided, however,
that the Most Recent Financial Statements are subject to normal year end
adjustments (which will not be material individually or in the aggregate) and
lack footnotes and other presentation items.
(h) Events Subsequent to Most Recent Fiscal Year End. Except as set forth
in Section 4(h) of the Disclosure Schedule, since the Most Recent Fiscal Year
End, there has not been any material adverse change in the business, financial
condition, operations, results of operations, or future prospects of the Company
taken as a whole. Without limiting the generality of the foregoing, since that
date:
(i) except for assets sold in the aggregate amount of less than
US$20,000, the Company has not sold, leased, transferred, or assigned any
of its assets, tangible or intangible, outside the Ordinary Course of
Business;
(ii) the Company has not entered into any agreement, contract, lease,
or license outside the Ordinary Course of Business;
(iii) no party (including the Company) has accelerated, terminated,
made material modifications to, or canceled any material agreement,
contract, lease, or license to which the Company is a party or by which it
is bound;
(iv) the Company has not granted or imposed any, and there are no,
Security Interests on any of its assets, tangible or intangible;
(v) the Company has not made any capital expenditures outside the
Ordinary Course of Business;
(vi) the Company has not made any capital investment in, or any loan
to, any other Person, other than the extension of trade credit in the
Ordinary Course of Business;
(vii) the Company has not created, incurred, assumed, or guaranteed
more than $25,000 in aggregate indebtedness for borrowed money and
capitalized lease obligations;
(viii) the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property outside the
Ordinary Course of Business;
13
(ix) there has been no change made or authorized in the Certificate of
Incorporation or Bylaws of the Company;
(x) the Company has not issued, sold, or otherwise disposed of any of
its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
(xi) the Company has not declared, set aside, or paid any dividend or
made any distribution with respect to its capital stock (whether in cash or
in kind) or redeemed, purchased, or otherwise acquired any of its capital
stock;
(xii) the Company has not experienced any material damage,
destruction, or loss (whether or not covered by insurance) to its property
or assets;
(xiii) the Company has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees;
(xiv) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(xv) the Company has not granted any increase in the base compensation
of any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xvi) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any Employee Benefit
Plan);
(xvii) the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xviii) the Company has not delayed or postponed the payment of
accounts payable and other liabilities outside the Ordinary Course of
Business;
(xix) the Company has not paid or agreed to pay any amount to any
Company Indemnifying Party or any Affiliate, or to any person on behalf of
any of them, other than in the Ordinary Course of Business;
(xx) the Company has not committed to any of the foregoing; and
(xxi) with the exception of transactions contemplated by or referenced
in this Agreement, there has not been any other occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company.
14
(i) Undisclosed Liabilities. Except as set forth in Section 4(i) of the
Disclosure Schedule, the Company does not have any material liability (whether
known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, including any liability for Taxes or breach of
any Environmental, Health and Safety Requirements), except for (i) liabilities
set forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto), (ii) liabilities reserved against in the Most Recent Balance Sheet,
and (iii) liabilities which have arisen after the Most Recent Fiscal Month End
in the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract,
material breach of warranty, tort, infringements, or violation of Applicable
Law).
(j) Legal Compliance. The Company is in compliance with all Applicable Law
and no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice is pending, or in the past two (2) years was filed or
commenced, against the Company alleging any failure so to comply, except where
the failure to comply would not have a material adverse effect on the business,
financial condition, operations, results of operations, or future prospects of
the Company.
(k) Tax Matters.
(i) "Taxes" means all federal, state, local, foreign net income,
alternative or add-on minimum tax, estimated, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, capital profits,
lease, service, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit taxes, customs, duties and other taxes, governmental fees and other
like assessments and charges of any kind whatsoever, together with all
interest, penalties, additions to tax and additional amounts with respect
thereto, and the term "Tax" means any one of the foregoing Taxes.
"Tax Returns" means all returns, declarations, reports, claims for
refund, information statements and other documents relating to Taxes,
including all schedules and attachments thereto, and including all
amendments thereof, and the term "Tax Return" means any one of the
foregoing Tax Returns.
"Tax Authority" means any governmental authority responsible for the
imposition of any Tax.
(ii) The Company and its subsidiaries have timely filed all Tax
Returns required to be filed and have paid all Taxes owed (whether or not
shown as due on such returns), including, without limitation, all Taxes
which the Company and its subsidiaries are obligated to withhold for
amounts paid or owing to employees, creditors and third parties. All Tax
Returns filed by the Company and its subsidiaries were complete and correct
in all material respects, and such Tax Returns correctly reflected in all
material respects the facts regarding the income, business, assets,
operations, activities, status and other
15
matters of the Company and its subsidiaries and any other information
required to be shown thereon. None of the Tax Returns filed by the Company
or its subsidiaries or Taxes payable by the Company or its subsidiaries has
been the subject of an audit, action, suit, proceeding, claim, examination,
deficiency or assessment by any governmental authority, and no such audit,
action, suit, proceeding, claim, examination, deficiency or assessment is
currently pending or, to the knowledge of the Company or its subsidiaries,
threatened. Neither the Company nor any of its subsidiaries is currently
the beneficiary of any extension of time within which to file any Tax
Return, and neither the Company nor any of its subsidiaries has waived any
statute of limitation with respect to any Tax or agreed to any extension of
time with respect to a Tax assessment or deficiency. All material elections
with respect to Taxes affecting the Company or its subsidiaries, as of the
date hereof, are set forth in the Financial Statements or in Section 4(k)
of the Disclosure Schedule. None of the Tax Returns filed by the Company or
its subsidiaries contains a disclosure statement under former Section 6661
of the Code or Section 6662 of the Code (or any similar provision of state,
local or foreign Tax law). The Company and its subsidiaries and any and all
employees responsible for Tax matters of the Company and its subsidiaries
do not expect any authority to assess any additional Taxes for any period
for which Tax Returns have been filed by the Company and any of its
subsidiaries.
(iii) Neither the Company nor any of its subsidiaries is a party to
any agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in the payment of (i) any "excess
parachute payments" within the meaning of Section 280G of the Code (without
regard to the exceptions set forth in Sections 280G(b)(4) and 280G(b)(5) of
the Code) or (ii) any amount for which a deduction would be disallowed or
deferred under Section 162 or Section 404 of the Code. Neither the Company
nor its subsidiaries has agreed to make any adjustment under Section 481(a)
of the Code (or any corresponding provision of state, local or foreign Tax
law) by reason of a change in accounting method or otherwise, and will not
be required to make such an adjustment as a result of the transactions
contemplated by this Agreement. The Company and its subsidiaries are not,
and have not been, a United States real property holding corporation (as
defined in Section 897(c)(2) of the Code) during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code. Since its inception, the
Company has not been a "United States real property holding corporation",
as defined in Section 897(c)(2) and in Treasury Regulation Section
1.897-2(b), and the Company has filed with the Internal Revenue Service all
statements, if any, with its United States income tax returns which are
required under Treasury Regulation Section 1.897-2(h).
(iv) No claim has ever been made by a Tax Authority in a jurisdiction
where either the Company or any of its subsidiaries do not file Tax Returns
that they are or may be subject to Tax in that jurisdiction. No portion of
the Merger Consideration is subject to the Tax withholding provisions of
Section 3406 of the Code, or of Subchapter A of Chapter 3 of the Code or of
any other provision of law. Neither the Company nor any of its subsidiaries
is a party to any joint venture, partnership, or other arrangement or
contract which could be treated as a partnership for federal income tax
purposes. The Company and its subsidiaries do not have, and have not had, a
permanent establishment
16
in any foreign country, as defined in any applicable Tax treaty or
convention between the United States and such foreign country. None of the
shares of outstanding capital stock of the Company or its subsidiaries is
subject to a "substantial risk of forfeiture" within the meaning of Section
83 of the Code. Neither the Company nor its subsidiaries has filed a
consent pursuant to Section 341(f) of the Code, relating to collapsible
corporations.
(v) Neither the Company nor any of its subsidiaries is a party to any
Tax sharing agreement or similar arrangement. Neither the Company nor any
of its subsidiaries has been a member of a group filing a consolidated
federal income Tax Return (other than a group the common parent of which
was the Company), and neither the Company nor any of its subsidiaries has
any liability for the Taxes of any person (other than the Company) under
Treasury Regulation Section 1.1502-6 (or any corresponding provision of
state, local or foreign Tax law), as a transferee or successor, by
contract, or otherwise. Neither the Company nor any of its subsidiaries has
net operating losses or other tax attributes presently subject to
limitation under Sections 382, 383 or 384 of the Code, or the federal
consolidated return regulations (other than limitations imposed as a result
of the transactions contemplated pursuant to this Agreement).
(vi) There are no liens for Taxes upon any of the assets of the
Company or its subsidiaries, other than for state and local Taxes not yet
due and payable. The unpaid Taxes of the Company and its subsidiaries do
not exceed the reserve for actual Taxes (as opposed to any reserve for
deferred Taxes established to reflect timing differences between book and
Tax income) as shown on the Most Recent Financial Statements, and will not
exceed such reserve as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Company and its
subsidiaries in filing their Tax Returns. Neither the Company nor any of
its subsidiaries will incur any liability for Taxes from the Most Recent
Fiscal Month End through the Closing Date other than in the ordinary course
of business and consistent with past practice.
(vii) Section 4(k) of the Disclosure Schedule contains a list of all
jurisdictions (whether foreign or domestic) to which any Tax is properly
payable by the Company or its subsidiaries.
(viii) Neither the Company nor any of its subsidiaries has been either
a "distributing corporation" or a "controlled corporation" (within the
meaning of Section 355(a)(1)(A) of the Code) in any distribution of stock
qualifying for tax-free treatment under the Code. In the past five years,
neither the Company nor any of its subsidiaries have been a party to a
transaction reported as a reorganization within the meaning of Section 368
of the Code.
(l) Real Property. The Company does not own any real property. Section 4(l)
of the Disclosure Schedule lists all real property leased or subleased to the
Company. True, correct and complete copies of the leases and subleases, and all
amendments thereto, listed in Section 4(l) of the Disclosure Schedule (as
amended to date), have been previously provided to the Parent. With respect to
each lease and sublease listed in Section 4(l) of the Disclosure Schedule:
17
(i) the lease or sublease is legal, valid, binding, enforceable, and
in full force and effect;
(ii) the lease or sublease will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby and any and all
necessary consents to the transactions contemplated in this Agreement have
been, or by the Closing shall have been, obtained;
(iii) no party to the lease or sublease is in breach or default, and
no event has occurred which, with notice or lapse of time, would constitute
a breach or default or permit termination, modification, or acceleration
thereunder;
(iv) no party to the lease or sublease has repudiated any provision
thereof;
(v) with respect to each sublease, the representations and warranties
set forth in subsections (i) through (iv) above are true and correct with
respect to the underlying lease;
(vi) there are no material disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(vii) the Company has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold or
subleasehold; and
(viii) all facilities leased or subleased thereunder have received all
approvals of governmental authorities (including material licenses and
permits) required in connection with the operation thereof, and have been
operated and maintained in accordance with applicable laws, rules, and
regulations in all material respects.
(m) Intellectual Property.
(i) The Company owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary
for the operation of the businesses of the Company as presently conducted.
The description of the Intellectual Property set forth in Section 4(m) of
the Disclosure Schedule is true, accurate and complete in all material
respects. Each item of Intellectual Property owned or used by the Company
immediately prior to the Closing hereunder will be owned or available for
use by the Company on identical terms and conditions immediately subsequent
to the Closing hereunder. Except as set forth in Section 4(m) of the
Disclosure Schedule, the Company has taken all usual and appropriate
actions to maintain and protect each material item of Intellectual Property
that it owns and uses. The Company owns MarketFirst Release 4 and the only
Persons (including current or prior customers of the Company), other than
the Company, with any rights concerning such Intellectual Property are
identified on Section 4(m) of the Disclosure Schedule. The description of
MarketFirst Release 4 set
18
forth in Exhibit 1, including the functional specifications thereof, is
true, accurate and complete in all material respects.
(ii) To the Knowledge of the Company Indemnifying Parties, the Company
has not interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of third parties, and
none of the Company Indemnifying Parties and the directors and officers
(and employees of the Company with responsibility for Intellectual Property
matters) of the Company (A) has any Knowledge that the Company has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties, or that
the Intellectual Property owned by the Company will so interfere, infringe,
misappropriate or conflict, or (B) has ever received any charge, complaint,
claim, demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Company must
license or refrain from using any Intellectual Property rights of any
third-party). To the Knowledge of the Company Indemnifying Parties and
employees of the Company with responsibility for Intellectual Property
matters of the Company, no third-party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of the Company.
(iii) No patent or other registration has been issued to the Company
with respect to any of its Intellectual Property. Section 4(m) of the
Disclosure Schedule identifies each pending application for registration
which the Company has made with respect to any of its Intellectual
Property. Other than in the Ordinary Course of Business, there are no
licenses, agreements, or other permission pursuant to which the Company has
granted to any third-party any rights with respect to any of its
Intellectual Property. The Company Indemnifying Parties have made available
to the Parent correct and complete copies of all such licenses, agreements
permissions and applications and has made available to the Parent correct
and complete copies of all other written documentation evidencing ownership
and prosecution (if applicable) of each such item. With the exception of
the techniques, modules, industry expertise and know-how used in the
Ordinary Course of Business, there are no material unregistered copyrights
used by the Company in connection with any of its businesses. With respect
to each item of Intellectual Property required to be identified in Section
4(m) of the Disclosure Schedule:
(A) the Company possess all right, title, and interest in and to
the item, free and clear of any Security Interest, license, or other
restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of the
Company Indemnifying Parties and employees of the Company with
responsibility for Intellectual Property matters of the Company, is
threatened which challenges the legality, validity, enforceability,
use, or ownership of the item; and
19
(D) except as set forth in Section 4(m)(iii) of the Disclosure
Schedule or except as provided in license and hosting agreements
entered into with customers in the Ordinary Course of Business, the
Company has never agreed to indemnify any Person for or against any
interference, infringement, misappropriation, or other conflict with
respect to the item.
(iv) Section 4(m)(iv) of the Disclosure Schedule identifies each item
of Intellectual Property that any third-party owns and that the Company
uses pursuant to license, sublicense, agreement, or permission and that is
material to the operation of the Company's business. The Company has made
available to the Parent correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date). With respect
to each item of Intellectual Property required to be identified in Section
4(m)(iv) of the Disclosure Schedule:
(A) to the Knowledge of the Company Indemnifying Parties and
employees of the Company with responsibility for Intellectual Property
matters of the Company, the license, sublicense, agreement, or
permission covering the item is legal, valid, binding, enforceable,
and in full force and effect;
(B) except as set forth in Section 4(c) of the Disclosure
Schedule, the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) the Company is not in breach or default of any license,
sublicense, agreement or permission, and no event has occurred which
with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(D) the Company has not repudiated and has no Knowledge of any
repudiation of any license, sublicense, agreement, or permission;
(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) to the Knowledge of Company, the Company Indemnifying Parties
and employees of the Company with responsibility for Intellectual
Property matters of the Company, the underlying item of Intellectual
Property is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge;
(G) except for complaints not served on the Company, no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand is pending or, to the Knowledge of the Company, the Company
Indemnifying Parties
20
and employees of the Company with responsibility for Intellectual
Property matters of the Company, is threatened which challenges the
legality, validity, or enforceability of the underlying item of
Intellectual Property; and
(H) the Company has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(v) To the Knowledge of Company, the Company Indemnifying Parties and
employees of the Company with responsibility for Intellectual Property
matters of the Company, the Company's use of Intellectual Property set
forth in Section 4(m) of the Disclosure Schedule will not interfere with,
infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of their use in
the Ordinary Course of Business.
(vi) Except as set forth in Section 4(m) of the Disclosure Schedule,
all employees of the Company who have contributed to or anticipated in the
conception and/or development of all or any part of the Company's
Intellectual Property (which is not licensed from a third-party) either (i)
have been party to a "work-for-hire" arrangement or agreement with the
Company, which in accordance with Applicable Law accords the Company full,
effective, exclusive, and original ownership of all tangible and intangible
property thereby arising, or (ii) have executed appropriate instruments of
assignment in favor of the Company as assignee that have conveyed full,
effective and exclusive ownership of all tangible and intangible property
thereby arising.
(n) Tangible Assets. The buildings, equipment, leasehold improvements and
other tangible assets that the Company own and lease have been maintained in
accordance with normal industry practice, and are in all material respects in
good operating condition and repair (subject to normal wear and tear) and are
recorded on the Most Recent Balance Sheet at historic costs net of depreciation,
if any.
(o) No Illegal or Improper Transactions. Neither the Company, the Company
Indemnifying Parties nor any of their directors, officers or employees has,
directly or indirectly, used funds or other assets of the Company, or made any
promise or undertaking in such regard, for (a) illegal contributions, gifts,
entertainment or other expenses relating to political activity; (b) illegal
payments to or for the benefit of governmental officials or employees, whether
domestic or foreign; (c) illegal payments to or for the benefit of any person,
firm, corporation or other entity, or any director, officer, employee, agent or
representative thereof; or (d) the establishment or maintenance of a secret or
unrecorded fund; and there have been no false or fictitious entries made in the
books or records of the Company.
(p) Contracts. Section 4(p) of the Disclosure Schedule lists the following
contracts and other agreements to which the Company is a party:
21
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $60,000 per annum;
(ii) except for customer contracts in the Ordinary Course of Business,
any agreement (or group of related agreements) for the purchase or sale of
raw materials, commodities, supplies, products, or other personal property,
or for the furnishing or receipt of services, the performance of which will
extend over a period of more than one year, result in a material loss to
the Company, or involve consideration in excess of $25,000;
(iii) any agreement concerning a partnership or joint venture other
than joint marketing and referral agreements;
(iv) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $25,000 or under
which it has imposed a Security Interest on any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or noncompetition (other
than agreements in the Ordinary Course of Business);
(vi) any agreement with any of the Company Indemnifying Parties and
any of their respective Affiliates;
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, "golden parachute" or other
plan or arrangement for the benefit of its current or former directors,
officers, and employees;
(viii) any collective bargaining agreement;
(ix) other than employment offer letter agreements entered into in the
Ordinary Course of Business, any agreement for the employment of any
individual on a full-time, part-time, consulting, or other basis providing
annual compensation in excess of $25,000 or providing severance benefits or
a bonus or other benefits based on a change of control or the Merger;
(x) any agreement under which it has outstanding (or an obligation to
make future) advances or loans of any amount to any of its directors,
officers, and employees outside the Ordinary Course of Business;
(xi) any other agreements, other than agreements with customers, under
which the consequences of a default or termination could have a material
adverse effect on the business, financial condition, operations, results of
operations, or future prospects of the Company;
22
(xii) any agreement with independent sales representatives or sales
agents;
(xiii) any licensing or other material agreement, understanding or
letter of intent with customers or prospects (other than in the Ordinary
Course of Business);
(xiv) any agreement giving the Company any rights to Intellectual
Property, including OEM agreements; and
(xv) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $25,000.
A true, correct and complete copy of each written agreement listed in
Section 4(p) of the Disclosure Schedule (as amended to date) and a written
summary setting forth the material terms and conditions of each oral agreement
referred to in Section 4(p) of the Disclosure Schedule, and in each all
amendments thereto, has been made available to the Parent. With respect to each
such agreement: (A) the agreement is legal, valid, binding, enforceable, and in
full force and effect in all material respects; (B) except as set forth in
Section 4(c) of the Disclosure Schedule, the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transaction contemplated hereby; (C) the
Company is not, and to the Knowledge of the Company Indemnifying Parties no
other party is, in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (D) the
Company has not, and to the Knowledge of the Company Indemnifying Parties no
other party has, repudiated any provision of the agreement.
(q) Notes, Accounts Receivable and Prepayments. All notes in favor and
accounts receivable of the Company are reflected properly on their books and
records, are valid and bona fide arm's length receivables subject to no setoffs
or counterclaims, and are collectible (net of the reserve shown on the Most
Recent Balance Sheet). The reserve for bad debts set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) has been
established in accordance with the past custom and practice of the Company.
Except as set forth in Section 4(q) of the Disclosure Schedule, the Company has
not billed and will not xxxx, and the Company has not received any payments (in
the form of retainers or otherwise) from, any of its customers or potential
customers for services to be rendered or for expenses to be incurred subsequent
to the Closing Date. To the extent that accounts receivable include pre-billed
amounts, the corresponding liabilities have been accrued to the extent actual
invoices representing such liabilities have not been recorded on the Company's
books.
(r) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
(s) Insurance. Section 4(s) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) with
23
respect to which the Company is a party, a named insured, or otherwise the
beneficiary of coverage:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage is on
a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
material loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect in all respects; (B) the
policy will continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the transactions
contemplated hereby; (C) the Company is not, and to the Knowledge of the Company
Indemnifying Parties no other party to the policy is, in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification, or
acceleration, under the policy; and (D) the Company has not, and to the
Knowledge of the Company Indemnifying Parties, no other party to the policy has
repudiated any provision thereof. There are no material self-insurance
arrangements affecting the Company.
(t) Litigation. Section 4(t) of the Disclosure Schedule sets forth each
instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or, to the
Knowledge of the Company Indemnifying Parties, is threatened to be made a party
to any action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any country or jurisdiction
or before any arbitrator.
(u) Product and Service Warranties. Except as set forth in the applicable
terms and conditions of the Company's standard form customer agreements (copies
of which have been provided to the Parent), the Company does not provide any
product warranties for products sold by it. The services rendered, provided or
delivered, by the Company have conformed in all material respects with all
applicable contractual commitments and all express and implied warranties, and
the Company does not have any material liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due) for replacement or repair thereof or other damages in connection therewith.
No product or service rendered, sold, licensed,
24
provided or delivered, by the Company is subject to any guaranty, warranty,
service life, support or repair contract, upgrade undertaking or other indemnity
beyond the Company's applicable standard terms and conditions concerning such
types of product or service. The Company has previously provided the Parent with
access to copies of its customer agreements, which contain the standard terms
and conditions of sale, license or service for the Company (containing
applicable guaranty, warranty, and indemnity provisions).
(v) Product Liability. The Company does not have any material liability
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due) arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product
manufactured, sold or licensed by the Company.
(w) Employees. To the Knowledge of the Company Indemnifying Parties, no
executive, key employee, or significant group of employees had made any
statement concerning any firm or likely plans to terminate employment with the
Company. The Company is not a party to or bound by any collective bargaining
agreement, nor has any of them experienced any strike or grievance, claim of
unfair labor practices, or other collective bargaining dispute within the past
three years. The Company has not committed any unfair labor practice. The
Company and its subsidiaries are in compliance with all currently applicable
laws and regulations respecting employment, discrimination in employment, terms
and conditions of employment, wages, hours and occupational safety and health
and employment practices. There are no pending claims against the Company or its
subsidiaries under any workers compensation plan or policy or for long term
disability. The Company Indemnifying Parties and the Company have no Knowledge
of any pending or threatened controversies between the Company or its
subsidiaries and any of their respective current or former employees, which
controversies have or would reasonably be expected to result in an action, suit,
proceeding, claim, arbitration or investigation before an agency, court or
tribunal, foreign or domestic. The Company Indemnifying Parties have no
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of the Company. Section
4(w) of the Disclosure Schedule contains a true, complete and correct list
setting forth (i) the names, job descriptions/titles, current compensation rate
and any promised increased thereof (including but not limited to salary,
commission and bonus compensation), date of hire, vacation accrual rate and
accrued vacation time, accrued sick leave, other unpaid leave of all employees
of the Company (including temporary and part-time employees), and (ii) the names
and compensation arrangements for all independent contractors who render
services on a regular basis to the Company whose current annual compensation is
or is expected to be in excess of $20,000. The Company has not made any
prepayments of salaries, bonuses or any other amounts due to any of its
employees. The Company has had for at least the last three years a written
policy prohibiting unlawful employment discrimination and harassment. This
policy includes a reasonable complaint procedure and is distributed to all
employees.
(x) Employee Benefits.
(i) Section 4(x) of the Disclosure Schedule lists each Employee
Benefit Plan.
25
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the Code,
and other Applicable Law. Each Employee Benefit Plan that is intended
to qualify under Code ss.401(a) has received a favorable determination
letter from the Internal Revenue Service ruling that the plan does so
qualify, and nothing has occurred since the issuance of each such
letter that could reasonably be expected to cause the loss of the
tax-qualified status of any such plan. All Employee Benefit Plans have
been administered in all material respects in accordance with their
terms.
(B) Except as provided in Section 4(x) of the Disclosure
Schedule, all required reports and descriptions (including Form 5500
Annual Reports, summary annual reports, and summary plan descriptions)
have been timely filed and distributed appropriately with respect to
each such Employee Benefit Plan.
(C) With respect to each Employee Benefit Plan that is an
Employee Welfare Benefit Plan to which COBRA applies, the requirements
of COBRA have been met in all material respects. With respect to each
Employee Benefit Plan, the Company and its Affiliates have complied
with the applicable requirements of the Family and Medical Leave Act
of 1993 and the regulations thereunder and the Health Insurance
Portability and Accountability Act of 1996 the regulations thereunder.
Section 4(x) of the Disclosure Schedule describes all obligations of
the Company and its Affiliates as of the date of this Agreement under
any of the provisions of COBRA and the Family and Medical Leave Act of
1993.
(D) No such Employee Benefit Plan (which for purposes of this
sentence includes any such plan maintained, sponsored, adopted,
contributed to or obligated to by the Company or an ERISA Affiliate
within the last six years) is subject to Title IV of ERISA or Section
412 of the Code, or is a Multiemployer Plan.
(E) All contributions (including all employer contributions and
employee salary reduction contributions) which are due with respect to
the Company employees have been paid to each such Employee Benefit
Plan which is an Employee Pension Benefit Plan and all contributions
for any period ending on or before the Closing Date which are not yet
due have been paid to each such Employee Pension Benefit Plan or
accrued in accordance with the past custom and practice of the
Company.
(F) All premiums or other payments for all periods ending on or
before the Closing Date have been paid with respect to each such
Employee Benefit Plan that is an Employee Welfare Benefit Plan.
(G) The Company has made available to the Parent correct and
26
complete copies of the plan documents, summary plan descriptions,
employee booklets and any material employee communications relating
thereto, the most recent determination letter received from the
Internal Revenue Service, the most recent Form 5500 Annual Report, and
all related trust agreements, insurance policies or contracts, and
other funding agreements relating to each such Employee Benefit Plan.
(H) There have been no "Prohibited Transactions" (as that term is
defined in ERISA ss.406 and Code ss.4975) with respect to any such
Employee Benefit Plan. The Company does not have any liability as a
result of a material breach of fiduciary duty or any other material
failure to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan. No action,
suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee
Benefit Plan (other than routine claims for benefits) is pending or,
to the Knowledge of any of the Company Indemnifying Parties
threatened.
(I) Each Employee Benefit Plan can be amended, terminated or
otherwise discontinued after the closing Date in accordance with its
terms without material liability to the Parent (other than for
benefits accrued through the date of termination and ordinarily
administrative expenses typically incurred in a termination event).
(J) Section 4(x) of the Disclosure Schedule identifies each
employee of the Company or its Affiliates who is not fully available
to perform work because of disability or leave and sets forth the
basis of such disability and the anticipated date of return to full
service.
(ii) No facts or circumstances exist, no actions have been taken or
omitted to be taken, nothing has occurred, and nothing will occur as a
result of the execution of this Agreement or the consummation of the
transactions contemplated herein, such that the Company could be, or is,
subject (directly or indirectly, such as through an indemnification,
guarantee or similar agreement or obligation) to any material liability for
any claims, judgments, damages, penalties, taxes (including excise taxes),
assessments or similar items (including, without limitation, any claim by a
plan, or by the Pension Benefit Guaranty Corporation, under Section 412 of
the Code or under Title IV of ERISA, or by any other governmental
authority) with respect to (i) any Employee Benefit Plan currently or
formerly maintained by the Company or (ii) any Employee Benefit Plan to
which the Company has contributed or has been obligated to contribute
(other than liability for benefit payments incurred in the normal
operations of any such plan for periods preceding and through the Closing
Date).
(iii) The Company does not maintain and has never maintained or
contributed, or ever been required to contribute to any Employee Welfare
Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for retired or terminated
27
employees, their spouses, or their dependents (other than in accordance
with COBRA), and has no obligation to provide retiree medical benefits to
any current employees.
(iv) The Company does not maintain any plan, fund, contract, program
or arrangement (whether written or not) for the benefit of present or
former employees working outside of the United States or with respect to
which the Company otherwise has current or potential liability for such
current or former employees, including plans that also benefit United
States employees and include any arrangement intended to provide: (i)
medical, surgical, health care, hospitalization, dental, vision, workers
compensation, life insurance, death, disability, legal services, severance,
sickness, or accident benefits; (ii) pension, profit sharing, retirement,
supplemental retirement or deferred compensation benefits; (iii) bonus,
incentive compensation, stock option, stock appreciation rights, phantom
stock or stock purchase benefits, change in control benefits; or (iv)
salary continuation, unemployment, supplemental unemployment, termination
pay, vacation or holiday benefits.
(v) Except as disclosed in Section 4(x) of the Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will (i) result in any payment
(including severance, change in control, management bonus, unemployment
compensation, golden parachute or otherwise) becoming due to any director
or any employee of the Company under any Employee Benefit Plan or
otherwise, (ii) increase any benefits otherwise payable under any Employee
Benefit Plan or (iii) result in any acceleration of the time of payment or
vesting of any such benefit. No payment (or acceleration of benefits)
required to be made to any employee as a result of the transactions
contemplated by this Agreement, under any Employee Benefit Plan or
otherwise, will, if made, constitute a payment that would not be deductible
under Section 280G of the Code.
(vi) No person who currently performs or previously performed services
for the Company and who has not been treated as a common law employee by
the Company is eligible for or otherwise entitled to any benefit under any
Employee Benefit Plan.
(y) Guaranties. The Company is not a guarantor and is not otherwise
responsible for any liability or obligation (including indebtedness) of any
other Person.
(z) Environment, Health, and Safety Matters.
(i) The Company has complied and is in compliance, in each case in all
material respects, with all Environmental, Health, and Safety Requirements.
(ii) Without limiting the generality of the foregoing, the Company has
obtained, has complied, and is in compliance with, in each case in all
material respects, all material permits, licenses and other authorizations
that are required pursuant to Environmental, Health, and Safety
Requirements for the occupation of its facilities and the operation of its
business.
28
(iii) The Company has not received any written or oral notice, report
or other information regarding any actual or alleged material violation of
Environmental, Health, and Safety Requirements, or any material liabilities
or potential material liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any material investigatory, remedial
or corrective obligations, relating to any of them or its facilities
arising under Environmental, Health, and Safety Requirements.
(iv) The Company has not, and has no Knowledge of any other Person who
has caused any release, threatened release, or disposal of any Hazardous
Material on, in, at, under, or from any real property or leased property
used by the business, and the Company has no Knowledge that any such
property is adversely affected by any release, threatened release, or
disposal of a Hazardous Material. The Company has not transported or
arranged for the transportation for storage, treatment or disposal of any
Hazardous Materials to any location, nor is the Company liable for any
response or corrective action, natural resource damage or other harm
pursuant to Environmental, Health and Safety Requirements and the Company
has no Knowledge that any conditions or circumstances at any lease property
associated with the business which poses a risk to the environment or to
the health or safety of Persons.
(aa) Customers. Section 4(aa) of the Disclosure Schedule is a complete list
by dollar volume of xxxxxxxx (within the trailing twelve month period ended June
30, 2002) of the Company's top ten customers. None of such customers has
canceled or otherwise terminated, or to the Knowledge of the Company
Indemnifying Parties threatened to cancel or otherwise terminate, its
relationship with the Company, or materially reduced, or to the Knowledge of the
Company Indemnifying Parties threatened to materially reduce, its business with
the Company. To the Knowledge of the Company Indemnifying Parties, no customer
intends to cancel or otherwise modify its relationship with the Company on
account of the transactions contemplated hereby or otherwise, and none of the
Company Indemnifying Parties and the directors and officers of the Company has
any reason to so believe. The Company is not subject to any undertaking or
obligation to support or upgrade MarketFirst Release 4 or any earlier product of
the Company beyond December 31, 2003, and in particular it is not subject to any
undertaking or obligation to support or upgrade any product prior to MarketFirst
Release 3.0 under any contract or agreement with any of their customers.
(bb) Interest in Customers, etc. Except as set forth on Section 4(bb) of
the Disclosure Schedule, none of the Company, or the Company Indemnifying
Parties or any of their respective Affiliates, has any direct interest in any
competitor, supplier or customer of the Company or in any other person with whom
the Company has any business relationship.
(cc) Certain Business Relationships With the Company. Other than with
respect to investments in and loans to the Company and except as set forth on
Section 4(cc) of the Disclosure Schedule, none of the Company Indemnifying
Parties or their respective Affiliates is currently or after December 31, 2000
was involved in any material business arrangement or relationship with the
Company, outside the Ordinary Course of Business and as are reflected on
29
the Financial Statements, and none of the Company Indemnifying Parties and its
Affiliates owns any material asset, tangible or intangible, which is used in the
business of the Company.
(dd) Additional Merger Authorization Representations.
(i) A true and complete copy of the Investors' Rights Agreement in
effect on the date hereof is attached hereto as Exhibit 7. The Investors'
Rights Agreement has been executed and delivered by all Persons expressed
to be parties thereto, and is a legal, valid and binding agreement
enforceable in accordance with its terms. The Merger constitutes a
"Qualified Corporate Acquisition Transaction" as defined in Section 7.2 of
the Investors' Rights Agreement.
(ii) A true and complete copy of the Certification of Incorporation of
the Company, as amended (the "Certificate of Incorporation"), as in effect
on the date hereof is attached hereto as Exhibit 6. The Company has not
received from any person any notice of grounds or purported grounds for
forfeiture, suspension of, or revocation of the Company's existence or its
authority to transact business or any knowledge of any asserted claim for
involuntary dissolution. The Company has also not filed for bankruptcy
protection and is not in bankruptcy. Except with respect to the Merger, no
board of directors or shareholder action has been taken or is contemplated
that would result in an amendment to the Certificate of Incorporation or
the Company's bylaws or a merger, consolidation or dissolution of the
Company.
(iii) The conversion of securities as set forth in Section 3(a) of
this Agreement is in accordance with the rights and preferences of the
various classes and series of the Company Shares.
(iv) Those individuals listed on Annex 4(p)(vii) of the Disclosure
Schedule (and no other Persons) are entitled, further to contracts with the
Company, to a bonus upon the Merger in the amounts set forth on such Annex
(the "Management Bonuses").
(v) On and after the Closing, no Person presently having an option or
warrant to purchase Company Stock or Surviving Corporation Common Stock
will, by virtue of such option or warrant, continue to have an option or
warrant to purchase Company Stock, Surviving Corporation Common Stock or
Parent Common Shares, or otherwise relating to the Company or the Surviving
Corporation.
(ee) FusionDM. To the Knowledge of the Company Indemnifying Parties, it is
estimated that the Company could earn up to approximately US$1,200,000 during
the period from September 1, 2002 through December 31, 2002 under the terms of
an earn out under that certain Agreement for the Purchase and Sale of Assets
dated September 24, 2001 by and among Publicis USA Holdings, Inc., FusionDM and
the other parties thereto. In addition, the Company could earn up to 50% of the
Lease Loss as defined in such agreement.
30
(ff) Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
5. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Company Indemnifying Parties.
Each of the Company Indemnifying Parties represents and warrants to the Parent
that the statements contained in this Section 5(a) are correct and complete as
of the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Section 5(a)) with respect to
himself, herself or itself.
(i) Organization of the Company Indemnifying Parties. If the Company
Indemnifying Party is an entity, the Company Indemnifying Party is duly
organized, in good standing and validly existing under the laws of the
jurisdiction of its incorporation or organization.
(ii) Authorization of Transaction. If the Company Indemnifying Party
is an entity, the Company Indemnifying Party has the power to execute and
deliver this Agreement and is duly authorized to perform its obligations
hereunder.
(iii) Legal and Enforceable. This Agreement constitutes the valid and
legally binding obligation of the Company Indemnifying Party, enforceable
in accordance with its terms and conditions. The Company Indemnifying
Parties need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government, governmental agency
or court in order to consummate the transactions contemplated by this
Agreement.
(iv) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated herein,
will (A) if the Company Indemnifying Party is an entity, violate the
Company Indemnifying Party's charter, bylaws or other organizational
documents, (B) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency or court to which the Company
Indemnifying Party is subject or (C) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any material agreement, contract, lease, license, instrument,
or other arrangement to which the Company Indemnifying Party is a party or
by which it is bound or to which any of assets are subject.
(iv) Brokers' Fees. The Company Indemnifying Party has no liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which
the Parent could become liable or obligated.
31
(v) Company Stock and Options. The Company Indemnifying Party holds of
record and owns beneficially the number of shares of Company Stock set
forth next to his, her or its name in Section 4(b) of the Disclosure
Schedule, free and clear of any restrictions on transfer (other than any
restrictions under Applicable Securities Laws), Taxes, Security Interests,
spousal or community property rights, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands. The number of shares
of Company Stock set forth next to his, her or its name in Section 4(b) of
the Disclosure Schedule includes all of the Company Indemnifying Party's
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require the
Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock. The Company Indemnifying Party is not a party to any option,
warrant, purchase right, or other contract or commitment that could require
the Company Indemnifying Party to sell, transfer, or otherwise dispose of
any capital stock of the Company (other than this Agreement). Except for
the Investors' Rights Agreement, the Company Indemnifying Party is not a
party to any voting trust, proxy, or other agreement or understanding with
respect to the voting of any capital stock of the Company.
(vi) Investment Suitability.
(A) the Company Indemnifying Party alone, or with the assistance
of financial advisors, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and
risks of an investment in the Parent Common Shares and it is able to
bear the economic risk of, and withstand a complete loss of, its
entire investment;
(B) the Company Indemnifying Party is acquiring the Parent Common
Shares for its own account and not with a view to any resale,
distribution or other disposition of the Parent Common Shares in
violation of the U.S. state and federal securities laws;
(C) the Company Indemnifying Party understands that the Parent
Common Shares has not been and will not be registered under the
Securities Act or the securities laws of any state of the United
States and that the issuance contemplated hereby is being made in
reliance upon an exemption from such registration requirements;
(D) the Company Indemnifying Party understands and acknowledges
that the Parent is not obligated to file and has no present intention
of filing with the U.S. Securities and Exchange Commission or with any
state securities administrator any registration statement in respect
of resales of the Parent Common Shares in the United States;
(E) the Company Indemnifying Party has had access to such
information
32
regarding the Parent as it has considered necessary in connection with
its investment decision to acquire the Parent Common Shares;
(F) the Company Indemnifying Party is an Accredited Investor and
agrees to execute a certificate in the form attached hereto as Exhibit
4;
(G) the Company Indemnifying Party has not purchased the Parent
Common Shares as a result of any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Securities Act), including, but not limited to, advertisements,
articles, notices or other communications published in any newspaper,
magazine or similar media or broadcast over radio, or television, or
any seminar or meeting whose attendees have been invited by general
solicitation or general advertising;
(H) the Company Indemnifying Party agrees for the benefit of the
Parent that the Parent Common Shares may be offered, sold or otherwise
transferred only (i) to the Parent; (ii) pursuant to a registration
statement filed under the Securities Act; (iii) outside the United
States in accordance with Rule 903 or Rule 904 of Regulation S under
the Securities Act; (iv) in accordance with Rule 144 or Rule 144A
under the Securities Act, if available; or (v) in a transaction that
is otherwise exempt from registration under the Securities Act and
applicable state securities laws, provided that prior to such sale the
Parent shall have received an opinion of counsel of recognized
standing, in form and substance reasonably satisfactory to it, as to
the availability of an exemption.
(I) the Company Indemnifying Party understands and acknowledges
that upon the original issuance of the Parent Common Shares, and until
such time as the same is no longer required under applicable
requirements of the Securities Act or applicable state securities
laws, certificates representing the Parent Common Shares, and all
certificates issued in exchange therefor or in substitution thereof,
shall bear the following legend (the "Legend"):
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR
THE BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE
THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER
THE U.S. SECURITIES ACT, (C) IN COMPLIANCE WITH THE EXEMPTION FROM
REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 OR
RULE 144A THEREUNDER, IF AVAILABLE, OR (D) IN A TRANSACTION THAT DOES
NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAWS, AND THE SELLER
33
FURNISHES TO THE CORPORATION AN OPINION OF COUNSEL OF RECOGNIZED
STANDING IN FORM AND SUBSTANCE REASONABLE SATISFACTORY TO THE
CORPORATION TO SUCH EFFECT. DELIVERY OF THIS CERTIFICATE MAY NOT
CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON STOCK
EXCHANGES IN CANADA. IF, AT ANY TIME THE CORPORATION IS A "FOREIGN
ISSUER" AS DEFINED IN REGULATION S UNDER THE U.S. SECURITIES ACT,
THESE SECURITIES ARE BEING SOLD IN COMPLIANCE WITH RULE 904 OF
REGULATION S UNDER THE U.S. SECURITIES ACT, A NEW CERTIFICATE BEARING
NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE "GOOD DELIVERY," MAY BE
OBTAINED FROM THE CORPORATION'S TRANSFER AGENT UPON DELIVERY OF THIS
CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO
THE CORPORATION'S TRANSFER AGENT AND THE CORPORATION, TO THE EFFECT
THAT THE SALE OF THE SECURITIES REPRESENTED HEREBY IS BEING MADE IN
COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES
ACT"
(J) The Company Indemnifying Party consents to the Parent making
a notation on its records or giving instructions to any transfer agent
of the Parent Common Shares in order to implement the restrictions on
transfer set forth and described herein.
(vii) Canadian Resident. The Company Indemnifying Party is not a
resident of Canada.
(b) Representations and Warranties of the Parent and Merger Subsidiary. The
Parent and Merger Subsidiary jointly and severally represent and warrant to the
Company Indemnifying Parties that the statements contained in this Section 5(b)
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 5(b)).
(i) Organization of the Parent and Merger Subsidiary. The Parent is a
company duly organized, validly existing, and in good standing under the
laws of the Province of British Columbia. Merger Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The authorized capital of Merger Subsidiary
consists of 1,000 shares of Merger Subsidiary Common Stock, of which 1,000
shares of Merger Subsidiary Common Stock are issued and outstanding. The
issued and outstanding shares of Merger Subsidiary Common Stock of Merger
Subsidiary are duly authorized, validly issued, fully paid and
nonassessable, and are owned by Pivotal Merger Subsidiary (Intermediate
Tier), Inc. free and clear of all liens, charges, pledges, security
interests or other encumbrances. There are no outstanding subscriptions,
options, warrants, rights or other agreements or commitments obligating
Merger Subsidiary to issue or sell any shares of its capital stock or
34
any securities or obligations convertible into or exchangeable for any
shares of its capital stock.
(ii) Authorization of Transaction. The Parent and Merger Subsidiary
have the corporate power to execute and deliver this Agreement and are duly
authorized by all requisite corporate action to perform their obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of the Parent and Merger Subsidiary, enforceable in accordance
with its terms and conditions. Neither the Parent nor Merger Subsidiary
need give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government, governmental agency or court in
order to consummate the transactions contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any provision of the Parent's or Merger Subsidiary's
organizational documents or any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Parent or
Merger Subsidiary is subject or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Parent or Merger Subsidiary is a party or by which
it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. The Parent and Merger Subsidiary have no liability
or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for
which the Company Indemnifying Parties could become liable or obligated.
(v) Investment. The Parent is not acquiring the Company Stock with a
view to or for sale in connection with any distribution thereof within the
meaning of Applicable Securities Laws.
(vi) SEC Filings. The Parent has delivered or made available to the
Company Indemnifying Parties the Parent's annual report filed with the U.S.
Securities Exchange Commission on Form 10-K for the fiscal year ended June
30, 2002 (the "Form 10-K"). The Form 10-K, as of its respective filing
date, does not contain any untrue statement of a material fact or omitted
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made,
misleading. The audited financial statements included in the Form 10-K were
prepared in accordance with U.S. generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and present fairly in all material respects the financial
position of the Parent and its consolidated subsidiaries as at the dates
thereof and the results of their operations and cash flows for the period
then ended. Except as disclosed in materials filed by the Parent with the
U.S. Securities and Exchange Commission, or set forth in press releases
that have been made publicly available by the Parent (including but not
limited to those from time to time posted at or
35
available through Nasdaq's website at xxxx://xxx.xxxxxx.xxx), there has
been no material adverse change in the financial condition of the Parent
since June 30, 2002.
(vii) Parent Common Shares. All of the Parent Common Shares issued to
the Company Indemnifying Parties at the Closing shall have been duly
authorized, validly issued, fully paid, and nonassessable, and none of such
shares shall be issued in violation of any preemptive rights.
(viii) SEC Filings. The Parent has filed all reports required to be
filed under Section 13 and 15(d) of the Exchange Act during the preceding
12 months.
(ix) Canadian Securities Legislation. The Parent is a reporting issuer
or equivalent in each of the provinces of Canada, has been a reporting
issuer in each such jurisdiction for at least four months preceding the
date hereof and, to the best of its knowledge, is not in default of any
requirement of any Canadian provincial securities or corporate laws,
regulations, rules, instruments, orders, notices and policies (collectively
"Canadian Securities Legislation"). The Parent is a "qualifying issuer" as
such term is defined in Multilateral Instrument 45-102.
(x) Resale of Parent Common Shares in Canada. Based on current
Canadian Securities Legislation, the Parent Common Shares issued pursuant
to the Merger will not be subject to any resale restriction in British
Columbia or Ontario and no other document will be required to be filed,
preceding taken, registration effected or approval, permit, consent,
authorization or authority obtained by the Parent or the Company
Indemnifying Parties to whom such Parent Common Shares are issued under the
Merger to permit the trading of such Parent Common Shares by such persons,
provided that at any time of a trade by such person: (i) the Parent is and
has been a reporting issuer, or its equivalent, in a jurisdiction listed in
Appendix B of Multilateral Instrument 45-102 for the four months
immediately preceding the trade and is not in default of any requirement of
applicable Canadian Securities Legislation; (ii) the trade by such vendor
is not a "control distribution" within the meaning of Multilateral
Instrument 45-102; (iii) no unusual effort is made to prepare the market or
to create a demand for the Parent Common Shares and no extraordinary
commission or consideration is paid in respect of the trade; (iv) if the
vendor is an insider or officer of the Parent, the vendor has no reasonable
grounds to believe that the Parent is in default of applicable Canadian
Securities Legislations; and (v) the Parent Common Shares are listed for
trading on the Toronto Stock Exchange.
(xi) Litigation. There are no actions, suits, proceedings or
investigations, either at law or in equity, or before any commission or
other administrative authority in the United States or any state thereof or
any local jurisdiction or foreign jurisdiction, of any kind now pending or,
to the best of the Parent or Merger Subsidiary's knowledge, threatened
involving the Parent or Merger Subsidiary or any of their properties or
assets that (a) questions the validity of this Agreement or the
transactions
36
contemplated hereby or (b) seeks to delay, prohibit or restrict in any
manner any action taken or to be taken by the Parent and Merger Subsidiary
under this Agreement or with respect to the transactions contemplated
hereby, or (c) except as disclosed in materials filed by the Parent with
the U.S. Securities and Exchange Commission, or set forth in press releases
that have been made publicly available by the Parent (including as posted
on Nasdaq's website), could have, either individually or in the aggregate,
a material adverse effect on the financial condition, business, property or
results of operations of the Parent and Merger Subsidiary and their
respective subsidiaries, taken as a whole.
(xii) No Undisclosed Liabilities. Except as and to the extent
specifically reflected, reserved against or disclosed in the audited
consolidated balance sheet of the Parent and its subsidiaries as at June
30, 2002 (the "Parent's Balance Sheet") or as disclosed in materials filed
by the Parent with the U.S. Securities and Exchange Commission, or set
forth in press releases that have been made publicly available by the
Parent (including as posted on Nasdaq's website), none of the Parent,
Merger Subsidiary or their respective subsidiaries have any liabilities,
commitments or obligations of any material nature (whether absolute,
accrued, contingent, or otherwise and whether due or to become due) which
were not fully reflected or reserved against in all material respects,
except for liabilities and obligations incurred in the ordinary course of
business and consistent with past practice since June 30, 2002; and the
reserves reflected in the Parent's Balance Sheet are adequate, appropriate
and reasonable.
(xiii) Compliance with Applicable Laws. The Parent and Merger
Subsidiary have conducted their respective businesses so as to comply with
all Applicable Laws the failure to comply with which would have, either
individually or in the aggregate, a material adverse effect on the
financial condition, business, property or results of operations of the
Parent and Merger Subsidiary and their respective subsidiaries, taken as a
whole.
(xiv) Disclosure. No representation or warranty by the Parent or
Merger Subsidiary in this Agreement, nor any statement, certificate,
schedule or exhibit hereto furnished or to be furnished by or on behalf of
the Parent and Merger Subsidiary pursuant to this Agreement, nor any
document or certificate delivered to the Company Indemnifying Parties
pursuant to this Agreement or in connection with transactions contemplated
hereby, contains or shall contain any untrue statement of material fact or
omits or shall omit a material fact necessary to make the statements
contained therein misleading.
6. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its reasonable efforts to take
all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 8 below).
37
(b) Notices and Consents. The Company Indemnifying Parties will cause the
Company to give any notices to third parties, and will cause the Company to use
its reasonable efforts to obtain any third-party consents, that the Parent
reasonably may request in connection with the matters referred to in Section
4(c) above, including without limitation real property leases. Each of the
Parties will (and the Company Indemnifying Parties will cause the Company to)
give any notices to, make any filings with, and use its reasonable efforts to
obtain any authorizations, consents, and approvals of governments, governmental
agencies and courts in connection with the matters referred to in Section 4(c),
Section 5(a)(iii) and Section 5(b)(ii) above. The Company Indemnifying Parties
will cause the Company to give any notice of the Merger necessary or appropriate
under any Stock Option or Warrant. Prior to Closing, notice of appraisal rights
shall be provided to the Company's stockholders in accordance with Section 262
of the Delaware Act and applicable California law. Prior to Closing, notice of
the Stockholder Consent shall be provided to all of the Company's non-consenting
stockholders in accordance with Section 228(e) of the Delaware Act and
applicable California law. Without limiting the generality of the foregoing,
each of the Parties will file (and the Company Indemnifying Parties will cause
the Company to file) any notifications and reports and related material that it
may be required (or be advisable) to file to comply with any relevant merger,
trade or competition laws or regulations under Applicable Law, will use its
reasonable efforts to obtain (and the Company Indemnifying Parties will cause
the Company to use its reasonable efforts to obtain) a waiver from the
applicable waiting period or approval or consent, as the case may be, and will
make (and the Company Indemnifying Parties will cause the Company to make) any
further filings pursuant thereto that may be necessary, proper, or advisable in
connection therewith.
(c) Operation of Business. The Company Indemnifying Parties will not cause
or permit the Company to engage in any practice, take any action, or enter into
any transaction outside the Ordinary Course of Business unless requested by
Parent or as a result of the transactions contemplated hereby. Without limiting
the generality of the foregoing, the Company Indemnifying Parties will not cause
or permit the Company to (i) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem, purchase, or otherwise
acquire any of its capital stock, or (ii) engage in any practice, take any
action, or enter into any transaction of the sort described in Section 4(h)
above other than those activities approved by the Parent. Moreover, the Company
Indemnifying Parties will cause the Company to work closely with the Parent in
anticipation of being fully integrated with the Parent after the Closing,
including projecting to the customers and prospective customers a unified image
of the Company and the Parent (to the extent legal, practical and reasonable).
(d) Preservation of Business. The Company Indemnifying Parties will cause
the Company to use its best efforts to keep its business and properties
substantially intact, including its present operations, physical facilities,
working conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
(e) Full Access. The Company Indemnifying Parties will permit, and the
Company Indemnifying Parties will cause the Company to permit, representatives
of the Parent to have full access at all reasonable times, and in a manner so as
not to interfere with the normal business operations of the Company, to all
premises, properties, personnel, books, records (including Tax
38
records), contracts, and documents of or pertaining to the Company. The Parent
will treat and hold as such any Confidential Information it receives from the
Company Indemnifying Parties and the Company in the course of the reviews
contemplated by this Section 6(e), will not use any of the Confidential
Information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, will return to the Company Indemnifying
Parties or the Company all tangible embodiments (and all copies) of the
Confidential Information which are in its possession.
(f) Notice of Developments. The Company and the Company Indemnifying
Parties will give prompt written notice to the Parent of any material adverse
development causing a breach of any of the representations and warranties in
Section 4 above. Each Party will give prompt written notice to the others of any
material adverse development causing a breach of any of its own representations
and warranties in Section 5 above. No disclosure by any Party pursuant to this
Section 6(f), however, shall be deemed to amend or supplement the Disclosure
Schedule or to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant.
(g) Exclusivity. The Company Indemnifying Parties will not (i) solicit,
initiate, or encourage the submission of any proposal or offer from any Person
relating to the acquisition of any capital stock or other voting securities, or
any substantial portion of the assets, of the Company (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate in
any discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing. The Company
Indemnifying Parties will not vote its Company Stock in favor of any such
acquisition structured as a merger, consolidation, or share exchange. The
Company Indemnifying Parties will notify the Parent immediately if any Person
makes any proposal offer, inquiry, or contact with respect to any of the
foregoing.
(h) Trading Prohibition. The Company Indemnifying Parties hereby
acknowledges that the transactions contemplated hereby and information disclosed
and to be disclosed to the Company Indemnifying Parties and their
representatives may, from time to time, constitute or include material
non-public information concerning the Parent. The Company Indemnifying Parties
acknowledge that they are aware, and that it has advised and will continue to
advise all employees and representatives of the Company or the Company
Indemnifying Parties to whom the existence of this transaction or any such
information has been or may be disclosed that (i) the United States federal
securities laws prohibit a person who has material, non-public information from
purchasing or selling securities of any company to which such information
relates and (ii) material non-public information shall not be communicated to
any other person except as expressly permitted by this Agreement.
(i) Employee Covenants. If requested by and at the cost and expense of the
Parent, the Company shall, prior to the Closing Date, execute a resolution and
plan amendment terminating the Company's benefit plan that is intended to be
qualified under sections 401(a) and 401(k) of the Code (the "Company's 401(k)
Plan"), to be effective prior to the Closing Date (the "Termination Date"). Such
resolution and plan amendment shall also amend the plan to comply with recent
legislation (GUST and EGTRRA amendments) as required by law, provide that all
39
contributions to the Company's 401(k) Plan shall be completely and permanently
discontinued as of such Termination Date, with respect to all compensation
earned after such Termination Date, and provide that the accounts of all
participants shall be fully vested. The Company Indemnifying Party and the
Company will cause the then vested benefit of each Company employee who is a
participant under any Employee Pension Benefit Plan of the Company to be
distributed to each such employee in a lump sum as soon as practicable after the
Closing Date as permitted under the Code and in accordance with the terms of
each such plan. If requested by the Parent, the Company Indemnifying Parties and
the Company will take such steps as may be necessary to end, as of the Closing
Date, the participation by the Company's employees in any other Employee Benefit
Plan. Effective as of the first day after the Closing Date, unless otherwise
specifically provided below, the Parent shall, or shall cause the Company to,
provide retirement and welfare benefits to the those employees of the Company
who continue in employment that are comparable in the aggregate to the benefits
available to the Parent's United States employees at such time. To the extent
that the Parent decides to provide such benefits under employee benefit plans or
programs currently offered, sponsored or maintained by the Pivotal USA ("Pivotal
Employee Benefit Plans"), the Parent shall, or shall cause the Company to,
credit all Company employees who continue their employment after the Closing
Date with service performed as employees of the Company prior to the Closing
Date for purposes of eligibility, participation and vesting in any such Pivotal
Employee Benefit Plans. Such participation in Pivotal Employee Benefit Plans
(for those who meet the eligibility requirements) will begin as soon as
administratively feasible, consistent with the normal plan entry dates and
procedures under such plans. To the extent that the Parent decides to provide
any welfare benefits under Pivotal Employee Benefit Plans, the Parent shall, or
shall cause the Company to, credit each employee with co-payments and
deductibles paid by employee under the Company's Employee Benefit Plans prior to
the Closing Date toward satisfaction of applicable deductible and co-payment
amounts under the corresponding Pivotal Employee Benefit Plan. The Company and
the Parent shall cooperate in providing any required notice to their respective
insurers, third-party administrators and/or claims processors, as appropriate,
for each of their respective Employee Welfare Benefit Plans of the date through
which claims shall arise and be covered under the Company's Employee Welfare
Benefit Plans, and of the date after which claims arising shall be covered under
the Pivotal Employee Benefit Plans. This Section 6(i) shall not create any
third-party beneficiary rights nor shall it inure to the benefit of nor shall it
be enforceable by any employee nor any person representing the interests of
employees. This Section 6(i) is an agreement solely between and for the benefit
of Sellers, the Company and the Parent and shall be enforceable only by them.
(j) Stockholder Consent. Prior to the Closing, the Company shall solicit
the written consent of its stockholders (the "Stockholder Consent") for the
purpose of approving the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby, all in accordance
with the applicable laws of the State of Delaware and the Investors' Rights
Agreement. The Company Indemnifying Parties (who, collectively, hold no less
than the number of shares of each class or series of Company Stock required to
approve the Merger) hereby covenant to the Parent that they shall enter into the
Stockholder Consent directly, not by way of the proxy contained in the
Investors' Rights Agreement, and thereby vote pursuant to the Stockholder
Consent all of their Company Stock in favor of the Merger and the execution,
40
delivery and performance of this Agreement and execute all other applicable
Exhibits to this Agreement in order to consummate the transactions contemplated
hereby. The Company Indemnifying Parties shall severally indemnify and hold
harmless the Parent and Merger Subsidiary from and against any and all losses,
liabilities, damages, expenses (including reasonable attorney's fees) and other
claims, including claims for rescission, brought, suffered or alleged incurred
by any other holder of Company Stock relating to the approval of the Merger and
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby; provided, however, such indemnification
obligation of each Company Indemnifying Party shall be limited as provided in
Section 9(b)(iii).
(k) Exchange Approval. The Parent shall promptly apply for the approval of
the Toronto Stock Exchange to the listing on such Exchange of the Parent Common
Shares to be issued pursuant to the Merger, if required.
7. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
(a) General. In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Sections 8 or 9 below). The Company
Indemnifying Parties acknowledge and agree that from and after the Closing, the
Parent will be entitled to possession of all documents, books, records
(including Tax records), agreements, and financial data of any sort relating
solely to the Company.
(b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Company (including without limitation matters represented in
Section 4(m)(ii) above), each of the other Parties will cooperate in the contest
or defense, make available their personnel, and provide such testimony and
access to their books and records as shall be reasonably necessary in connection
with the contest or defense, all at the sole cost and expense of the contesting
or defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under Sections 8 or 9 below).
(c) Transition. For a period of twelve (12) months following the Closing
Date, subject to Section 7(c) of the Disclosure Schedule, the Company
Indemnifying Parties will not take any action that is designed or intended to
have the effect of discouraging any lessor, licensor, customer, licenses,
supplier, or other business associate of the Company from maintaining the same
business relationships with the Company after the Closing as it maintained with
the Company prior to the Closing.
41
(d) Confidentiality. The Company Indemnifying Parties will treat and hold
as such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and deliver
promptly to the Parent or destroy, at the request and option of the Parent, all
tangible embodiments (and all copies) of the Confidential Information which are
in his or its possession. In the event that a Company Indemnifying Party is
requested or required (by oral question or request for information or documents
in any legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information that Company
Indemnifying Party will notify the Parent promptly of the request or requirement
so that the Parent may seek an appropriate protective order or waive compliance
with the provisions of this Section 7(d). If, in the absence of a protective
order or the receipt of a waiver hereunder, a Company Indemnifying Party is, on
the advice of counsel, legally compelled to disclose any Confidential
Information to any tribunal, that the Company Indemnifying Party may disclose
the Confidential Information to the tribunal; provided, however, that the
disclosing Party shall use his or its reasonable efforts to obtain, at the
reasonable request and expense of the Parent, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Parent shall request.
(e) Non-solicitation. For a period of one year from and after the Closing
Date, subject to Section 7(e) of the Disclosure Schedule, the Company
Indemnifying Parties will not (A) induce, or attempt to induce any employee of
the Company or the Parent to leave the employ of such companies, (B) in any way
interfere with the relationship between the Company or the Parent and any
employee of such companies, or (C) employ or otherwise engage as an employee,
independent contractor, or otherwise, any Key Employee, or (D) induce or attempt
to induce any customer, supplier, licensee, or business relation of the Company
or the Parent to cease doing business with such companies, or in any way
interfere with the relationship between any customer, supplier, licensee, or
business relation of the Company.
(f) Legend Removal. Each holder desiring to transfer Parent Common Stock in
Canada may, if the Parent continues to be a "foreign issuer" as defined in
Regulation S under the Securities Act and the Parent Common Shares are being
sold in compliance with the requirements of Rule 904 of Regulation S under the
Securities Act and in compliance with Canadian local laws and regulations, have
the Legend removed by providing a declaration to the Parent's Transfer Agent for
the Parent Common Shares in such form as the Parent may prescribe from time to
time. Each holder desiring to transfer Parent Common Stock in the United States
sold pursuant to Rule 144 of the Securities Act, may have the Legend removed by
delivery to Parent's Transfer Agent of an opinion of counsel of recognized
standing in form and substance satisfactory to the Parent, to the effect that
the Legend is no longer required under Applicable Securities Laws. No person has
any right to cause the Parent to effect the registration of any shares of Parent
Common Stock or any other securities (including debt securities) of the Parent.
(g) Tax Treatment. The Parent and its Affiliates make no representation or
warranty concerning the Tax treatment of the Merger or the transactions
contemplated in this Agreement, and do not covenant or undertake to act or not
act in any manner at any time to facilitate any such Tax treatment. Without
limiting the generality of the foregoing, the Company Indemnifying
42
Parties and the Stockholders shall rely on their own tax advisors in determining
whether or not the Merger and the transactions contemplated in this Agreement is
a taxable or tax free reorganization.
(h) Reporting Obligations of the Parent. The Parent agrees to:
(i) use commercially reasonable efforts to file with the U.S.
Securities and Exchange Commission (the "Commission") in a timely manner
all reports and other documents required of Parent under the Securities Act
and the Securities Exchange Act; and
(ii) furnish to any Company Indemnifying Party upon request:
(A) a written statement by the Parent as to its compliance with
the requirements of Rule 144(c) under the Securities Act;
(B) a copy of the most recent annual or quarterly report of the
Parent; and'
(C) such other publicly available reports and documents which the
Parent has previously filed as such Company Indemnifying Party may
request to avail itself of any similar rule or regulation of the
Commission allowing it to sell its Parent Common Shares without
registration.
(i) Resale in Canada. The Parent shall file within ten (10) days of Closing
Form 45-102F2, Certificate Under Subsection 2.7(2) of Multilateral Instrument
45-102 Resale Of Securities, under the Securities Act (British Columbia).
8. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Parent. The obligation of the Parent to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4 and
Section 5(a) above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Company Indemnifying Parties shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(iii) the Company shall have procured all of the material third-party
consents specified in Section 6(b) above;
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any country
or jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge
43
would (A) prevent consummation of any of the transactions contemplated by
this Agreement, (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, (C) affect adversely the
right of the Parent to own the Company Stock and to control the Company, or
(D) affect materially and adversely the right of the Company to own its
assets and to operate its businesses (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(v) the Company Indemnifying Parties shall have delivered to the
Parent a certificate to the effect that each of the conditions specified
above in Section 8(a)(i)-(iv) is satisfied in all respects;
(vi) all applicable waiting periods (and any extensions thereof) under
any applicable merger, trade or competition acts shall have expired or
otherwise been terminated and the Parties shall have received all
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 4(c), Section 5(a)(iii) and Section
5(b)(ii) above;
(vii) the Key Employees shall have entered into, and delivered to the
Parent, employee offer letters in form and substance as set forth in
Exhibit 5 attached hereto and the same shall be in full force and effect;
(viii) the Parent shall have received from counsel to the Company (or
the Company Indemnifying Parties) an opinion (or opinions) in form and
substance reasonably satisfactory to it, addressed to the Parent, and dated
as of the Closing Date, and such opinion shall specifically opine that the
transactions contemplated hereby have been duly authorized by all
stockholder action required under the Delaware Act, applicable California
law, the Certificate of Incorporation, the bylaws and the Investors' Rights
Agreement, that all notices required to be given to shareholders under such
laws have been given, that all Stock Options and Warrants have been
exercised, cancelled, accelerated, terminated or otherwise have expired and
are of no force or effect (except with respect to certain Warrants, which
shall no longer be exercisable for any shares or otherwise and that Section
3(b)(ii) above is operative and enforceable in accordance with its terms),
and that the Investors' Rights Agreement and the proxy therein is
enforceable in accordance with its terms and that the Merger constitutes a
"Qualified Corporate Acquisition" as defined therein;
(ix) the Parent shall have received the resignations, effective as of
the Closing, of each director and officer of the Company;
(x) the Parent shall have received the Company's minute books and
stock registries;
(xi) all Stockholders shall have entered into and delivered to the
Parent a certificate in the form attached hereto as Exhibit 4 confirming
that (A) they are an Accredited Investor and (B) all existing obligations
between the Company and such
44
Persons for borrowed money, advances, and other non-salary, non-wage,
non-commission and non-bonus arrangements (other than reimbursements for
reasonable expenses incurred in connection with the Company's Board of
Directors meetings) have been settled and discharged;
(xii) all Stockholders shall have entered into a written consent of
the Company's stockholders in form and substance reasonably acceptable to
the Parent authorizing the Merger and the transactions contemplated herein,
with at least 80% of the Stockholders entering into the consent directly
and not by way of the proxy contained in the Investors' Rights Agreement,
and the majority of the Company's stockholders of each other class or
series of Company Stock required to approve the Merger shall have entered
into such written consent resolution, with at least 50% of the Company's
stockholder of each class or series except the Company's Series B Preferred
Stock entering into the consent directly and not by way of the proxy
contained in the Investors' Rights Agreement;
(xiii) all actions to be taken by the Company Indemnifying Parties in
connection with consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably satisfactory
in form and substance, and as relevant delivered, to the Parent;
(xiv) nothing shall have occurred after the date of this Agreement
which, in the Parent's reasonable opinion, would have a material adverse
effect on the business, financial condition, operations, results of
operations, or future prospects of the Company;
(xv) Parent shall have received from the Company a properly executed
statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Treasury Regulation Sections
1.897-2(h)(1)(i) and 1.1445-2(c)(3) and the Company provide evidence (in
such form as may be reasonably requested by counsel to Parent) that the
Company has delivered to the Internal Revenue Service the notification
required under Treasury Regulation Section 1.897-2(h)(2);
(xvi) except for the UCC-1 Financing Statement in favor of BCL Capital
relating to leased office equipment, all UCC-1 financing statements naming
the Company as debtor shall have been terminated or UCC-3 termination
statements, duly executed by the secured parties, shall have been delivered
to the Parent with respect to any Security Interests in the Company's
assets;
(xvii) all Stock Options and Warrants shall have been exercised,
cancelled, accelerated, terminated or otherwise have expired and are of no
force or effect (except with respect to certain Warrants, which shall no
longer be exercisable for any shares or otherwise);
45
(xviii) Stockholders holding one hundred percent (100%) of the
outstanding Company Series F Preferred Shares as at the Closing shall have
tendered delivery of their Company Series F Preferred Shares;
(xix) all individuals receiving Management Bonuses shall have entered
into and delivered to the Parent a certificate confirming that all existing
obligations between the Company and such individual for borrowed money,
advances and other arrangements (other than salary, wages, commissions,
bonuses, expense reimbursements (for reasonable expenses incurred in the
Ordinary Course of Business) and reimbursements for reasonable expenses
incurred in connection with the Company's Board of Directors meetings) have
been settled and discharged; and
(xx) the Company shall have entered into the Certificate of Merger.
The Parent may waive any condition specified in this Section 8(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Company Indemnifying Parties. The
obligation of the Company Indemnifying Parties to consummate the transactions to
be performed by them in connection with the Closing is subject to satisfaction
of the following conditions:
(i) the representations and warranties set forth in Section 5(b) above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) the Parent shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any country
or jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation
of any of the transactions contemplated by this Agreement or (B) cause any
of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect);
(iv) the Parent shall have delivered to the Company Indemnifying
Parties a certificate to the effect that each of the conditions specified
above in Section 8(b)(i)-(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any extensions thereof) under
any applicable merger, trade or competition acts shall have expired or
otherwise been terminated and the Parties, the Company shall have received
all other material authorizations, consents, and approvals of governments
and governmental agencies referred to in Section 4(c), Section 5(a)(iii)
and Section 5(b)(ii) above;
46
(vi) the Key Employees shall have entered into, and delivered to the
Parent, employee offer letters in form and substance as set forth in
Exhibit 5 attached hereto and the same shall be in full force and effect;
(vii) all actions to be taken by the Parent and Merger Subsidiary in
connection with consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably satisfactory
in form and substance to the Company Indemnifying Parties;
(viii) the Company Indemnifying Parties shall have received from
in-house counsel to the Parent an opinion in the form and substance
reasonably satisfactory to them concerning entering into this Agreement and
the issuance of the Parent Common Shares and opining that the Parent Common
Shares to be issued to the Company Indemnifying Parties may be transferred
by the Company Indemnifying Parties in the Provinces of British Columbia
and Ontario free of resale restrictions;
(ix) the Parent shall have delivered to the Company Indemnifying
Parties Form 45-102F2, Certificate Under Subsection 2.7(2) of Multilateral
Instrument 45-102 Resale Of Securities, under the Securities Act (British
Columbia); and
(x) the Parent Common Shares issuable pursuant to the Merger will have
been approved for listing on the Toronto Stock Exchange subject to
customary conditions and documentation.
DLJ Capital Corporation (the "Representative Company Indemnifying Party") may
waive on behalf of any of the Company Indemnifying Parties any condition
specified in this Section 8(b) if it executes a writing so stating at or prior
to the Closing, and the Company Indemnifying Parties otherwise irrevocably
appoint the Representative Company Indemnifying Party as their representative
for purposes of all communications, consents, certifications and other matters
related to the Merger, the Closing and otherwise contemplated in this Agreement.
9. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. Each of the representations
and warranties of the Company Indemnifying Parties contained in Section 4 above
shall survive the Closing hereunder (unless the Parent had actual knowledge of
such misrepresentation or breach of warranty at the time of Closing) and
continue in full force and effect for a period of one year thereafter; except
that representations and warranties regarding Tax matters shall survive the
Closing without limitation (other than the relevant statute of limitations
period). All of the other representations and warranties of the Parties
contained in Section 5 above shall survive the Closing and continue in full
force and effect indefinitely thereafter (subject to any applicable statutes of
limitations).
(b) Indemnification Provisions for Benefit of the Parent.
47
(i) In the event the Company Indemnifying Parties, or any of
them, breach any of their representations, warranties, and covenants
contained herein (other than the representations and warranties in
Section 5(a) above) or in any certificate, document or agreement
delivered or entered into at the Closing or in connection with any
registration or exemption contemplated hereunder, and, if there is an
applicable survival period pursuant to Section 9(a) above, provided
that the Parent makes a written claim for indemnification against any
Party pursuant to Section 11(h) below within such survival period,
then each of the Company Indemnifying Parties, proportionate to each
Company Indemnifying Party's Indemnity Share, agree to indemnify
severally and not jointly the Parent, the Company, their Affiliates,
and the officers, directors, employees and agents of each of them up
to the amount of each Company Indemnifying Party's Indemnity Share of
such Adverse Consequences, from and against the entirety of any
Adverse Consequences they may suffer through and after the date of the
claim for indemnification (including Adverse Consequences the Parent
may suffer after the end of any applicable survival period to the
extent such Adverse Consequences can be reasonably estimated during
the survival period) resulting from, arising out of, relating to, in
the nature of, or caused by the breach (or the alleged breach);
provided, however, that the Company Indemnifying Parties shall not
have any obligation to indemnify the Parent from and against any
Adverse Consequences resulting from, arising out of, relating to, in
the nature of, or caused by the breach of any representation, warranty
or covenant of the Company Indemnifying Parties contained in this
Agreement above until the Parent has suffered Adverse Consequences by
reason of all such breaches (or alleged breaches) in excess of
US$50,000 (at which point the Company Indemnifying Parties will be
obligated to indemnify the Parent for all Adverse Consequences, that
is from the first dollar not merely the amount in excess of $50,000).
(ii) In the event a Company Indemnifying Party breaches any of
its representations and warranties in Section 5(a) above, and, if
there is an applicable survival period pursuant to Section 9(a) above,
provided that the Parent makes a written claim for indemnification
against such Company Indemnifying Party pursuant to Section 11(h)
below within such survival period, then such Company Indemnifying
Party agrees to indemnify the Parent from and against the entirety of
any Adverse Consequences the Parent may suffer through and after the
date of the claim for indemnification (including Adverse Consequences
the Parent may suffer after the end of any applicable survival period
to the extent such Adverse Consequences can be reasonably estimated
during the survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(iii) In no event shall the aggregate indemnification obligations
of the Company Indemnifying Parties under this Agreement exceed the
value of the Merger Consideration as at the close of the business day
preceding the Closing Date, and in no event shall the aggregate
indemnification obligations of any Company Indemnifying Party under
this Agreement exceed its Indemnity Share of the Merger Consideration
as at the close of the business day preceding the Closing Date.
48
(c) Indemnification Provisions for Benefit of the Company Indemnifying
Parties. In the event either the Parent or Merger Subsidiary breaches any of its
representations, warranties, and covenants contained herein or in any
certificate, document or agreement delivered or entered into at the Closing,
and, if there is an applicable survival period pursuant to Section 9(a) above,
provided that the Company Indemnifying Parties makes a written claim for
indemnification against the Parent pursuant to Section 11(h) below within such
survival period, then the Parent and Merger Subsidiary jointly and severally
agree to indemnify the Company Indemnifying Parties from and against the
entirety of any Adverse Consequences the Company Indemnifying Parties may suffer
through and after the date of the claim for indemnification (including Adverse
Consequences the Company Indemnifying Parties may suffer after the end of any
applicable survival period to the extent such Adverse Consequences can be
reasonably estimated during the survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged breach).
In no event shall the aggregate indemnification obligations of the Parent and
Merger Subsidiary under this Section 9(c) exceed the aggregate value of Company
Indemnifying Parties' Indemnity Shares of the Merger Consideration as at the
close of the business day preceding the Closing Date.
(d) Matters Involving Third Parties.
(i) If any third-party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third-Party Claim") which may give
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 9, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third-Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 30 days
after the Indemnified Party has given notice of the Third-Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third-Party Claim, (B) the Third-Party Claim involves only
money damages and does not seek an injunction or other equitable relief,
and (C) the Indemnifying Party conducts the defense of the Third-Party
Claim actively and diligently.
(iii) The Indemnified Party may retain separate co-counsel at its sole
cost and expense and participate in the defense of the Third-Party Claim.
If the Indemnifying Party is conducting the defense of a Third-Party Claim,
the Indemnified Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third-Party Claim without the
prior written consent of the Indemnifying Party (not to be withheld
unreasonably), and the Indemnifying Party will not consent to the entry of
any
49
judgment or enter into any settlement with respect to the Third-Party Claim
without the prior written consent of the Indemnified Party (not to be
withheld unreasonably).
(iv) In the event any of the conditions in Section 9(d)(ii) above is
or becomes unsatisfied, however, in the reasonable, good faith judgment of
the Indemnified Party (A) the Indemnified Party may, following written
notice to the Indemnifying Party and a reasonable opportunity to cure if
such condition is capable of cure, defend against, and consent to the entry
of any judgment or enter into any settlement with respect to, the
Third-Party Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (B) the Indemnifying Parties
will reimburse the Indemnified Party promptly and periodically for the
costs of defending against the Third-Party Claim (including reasonable
attorneys' fees and expenses), and (C) the Indemnifying Parties will remain
responsible for any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by
the Third-Party Claim to the fullest extent provided in this Section 9.
(e) Treatment of Payments. All indemnification payments under Section 9
shall be deemed adjustments to the Merger Consideration.
(f) Exclusive Remedy. Without prejudice to Sections 11(o), the Parties
hereto acknowledge and agree that the foregoing indemnification provisions in
this Section 9 shall be the exclusive remedy of the Parent and the Company
Indemnifying Parties with respect to the Company and the transactions
contemplated by this Agreement.
10. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Parent and the Company Indemnifying Parties may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) the Parent may terminate this Agreement by giving written notice
to the Company Indemnifying Parties at any time prior to the Closing (A) in
the event the Company Indemnifying Parties have breached any material
representation, warranty, or covenant contained in this Agreement in any
material respect, the Parent has notified the Company Indemnifying Parties
of the breach, and the breach has continued without cure for a period of 30
days after the notice of the breach, or (B) if the Closing shall not have
occurred on or before December 31, 2002, by reason of the failure of any
condition precedent under Section 8(a) hereof (unless the failure results
primarily from the Parent itself breaching any representation, warranty, or
covenant contained in this Agreement); and
50
(iii) the Company Indemnifying Parties may terminate this Agreement by
giving written notice to the Parent at any time prior to the Closing (A) in
the event the Parent has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the Company
Indemnifying Parties have notified the Parent of the breach, and the breach
has continued without cure for a period of 30 days after the notice of the
breach, or (B) if the Closing shall not have occurred on or before December
31, 2002, by reason of the failure of any condition precedent under Section
8(b) hereof (unless the failure results primarily from the Company
Indemnifying Parties themselves breaching any representation, warranty, or
covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 10(a) above, all rights and obligations of all the Parties hereunder
shall terminate without any liability of any Party to any other Party; provided,
however, that the confidentiality provisions contained in Section 6(e) above
shall survive termination.
11. Miscellaneous.
(a) Nature of Certain Obligations. For the avoidance of doubt, except as
otherwise expressly provided, the representations, warranties, and covenants in
this Agreement are several obligations. This means that each Company
Indemnifying Party will be responsible to the extent provided in Section 9 above
only to the extent of each Company Indemnifying Party's Indemnity Share of such
Adverse Consequences the Parent may suffer as a result of any breach thereof.
(b) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of the Company
and the Parent, such approval not to be unreasonably withheld.
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns. Without limiting the generality of the
foregoing, this Agreement confers no rights on any stockholders of the Company
other than the Company Indemnifying Parties.
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Parent and the Company Indemnifying Parties; provided, however,
that the Parent may (i) assign any or all of its rights and interests hereunder
to one or more of its Affiliates, including its right to have the Company Stock
sold and delivered directly to such Affiliate, and (ii) designate one or more of
its Affiliates to perform its
51
obligations hereunder (in any or all of which cases the Parent nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
counterparts (including separate signature pages by fax), each of which shall be
deemed an original but all of which together will constitute one and the same
instrument.
(g) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Company:
-----------------
Xxxxx Xxxxxxx
MarketFirst Software Inc.
0000 Xxxxxxxx Xxxxx
Xxxxxxxx Xxxx, XX 00000 U.S.A.
Copy to:
-------
Xxxx X. Xxxxxx
Xxxxxx & X'Xxxx LLP
0000 XxxXxxxxx Xxxx., Xxxxx 0000
Xxxxxx, XX 00000
X.X.X.
If to the Parent:
----------------
Prior to October 18, 2002: Effective October 18, 2002:
Xxxxx Xxxxxxxx Xxxxx Xxxxxxxx
General Counsel General Counsel
Pivotal Corporation Pivotal Corporation
300 - 000 Xxxx Xxxxxxxxx 700 - 858 Xxxxxx Street
North Vancouver, B.C. Xxxxxxxxx, X.X.
Xxxxxx X0X 0X0 Xxxxxx X0X 1C1
Copy to:
-------
Xxxxxxx X. Xxxxxxxx
52
Xxxxxx & Xxxxxxx LLP
000 - 000 Xxxxxxx Xxxxxx
Xxxxxxxxx, X.X. X0X 0X0
Xxxxxx
If to the Company Indemnifying Parties:
--------------------------------------
DLJ Capital Corporation
c/o Sprout Group
0000 Xxxx Xxxx Xxxx, Xxxxxxxx 0
Xxxxx 000
Xxxxx Xxxx, XX 00000
Copy to:
-------
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Washington without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Washington or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Washington.
(j) Dispute Resolution. Any dispute, controversy or claim arising out of or
relating to this Agreement, or the breach, termination or invalidity of it shall
be settled by arbitration in accordance with the international arbitration rules
of the American Arbitration Association in effect on the date of this Agreement.
The place of arbitration shall be Seattle, Washington. The number of arbitrators
shall be one. The arbitrator shall be fully fluent in English. The arbitrator
will issue findings of fact and conclusions of law to support his or her
opinion. Judgment upon the award rendered by the arbitrator may be entered by
any court having jurisdiction thereof and enforced as any other judgment. The
arbitrator shall have the power, but not the obligation, to hire an accounting
firm or other professional within the financial services industry as an expert
in order to assist the arbitrator in issuing findings of fact. The arbitration
proceedings and all discovery shall be confidential and neither party shall
release any decision rendered by the arbitrator to any third-party. Discovery
shall be limited to that which is directly relevant to the claim or controversy
and to key documents and witnesses that are substantive and reasonably necessary
to establish a party's claim or defense. Whenever reasonably possible and unless
53
prejudicial or unfair, affidavits will be substituted for direct testimony.
Notwithstanding any of the foregoing, the Parties recognize that certain
business relationships could give rise to the need for one or more of the
Parties to seek emergency, provisional or summary injunctive relief. Immediately
following the issuance of any such relief, the Parties agree to the stay of any
judicial proceedings pending arbitration of all underlying claims between the
parties.
(k) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Parent, the
Company and the Company Indemnifying Parties. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(l) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(m) Expenses. Each of the Parties will bear his or its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. The Company Indemnifying
Parties agree that the Company has not borne or will bear any of the Company
Indemnifying Parties' costs and expenses (including any of their legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby.
(n) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. The language used in this Agreement will be deemed
to be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction will be applied. Any reference to any law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The word "including" shall mean including
without limitation. Singular words, terms and usage shall be construed to
include the plural, and vice versa, as the context permits. References and
citations to statutes and acts are to United States statutes and acts, unless
otherwise expressly stated. The word "foreign" means non-United States The
Parties intend that each representation, warranty, and covenant contained herein
shall have independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the fact
that there exists another representation, warranty, or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
54
(o) Specific Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof, in addition to any other remedy
to which they may be entitled, at law or in equity.
(p) Time of Essence. With regard to all dates and time periods set forth in
the Agreement, time is of the essence.
(q) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
55
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
PIVOTAL CORPORATION
a British Columbia corporation
By: ___________________________________
Title: ___________________________________
PIVOTAL CORPORATION
a Washington Corporation
By: ___________________________________
Title: ___________________________________
PIVOTAL MERGER SUBSIDIARY INC.
By: ___________________________________
Title: ___________________________________
MARKETFIRST SOFTWARE, INC.
By: ___________________________________
Title: ___________________________________
56
COMPANY INDEMNIFYING PARTIES SIGNATURE PAGES
IN WITNESS WHEREOF, the below Parties, being the Company Indemnifying Parties to
this Agreement and Plan of Merger dated as of October 2, 2002 among Pivotal
Corporation, MarketFirst Software, Inc. and the other Parties named therein,
hereby execute this Agreement, or this counterpart signature page thereto with
the intent of being bound hereby.
DLJ ESC II, L.P. SPROUT CAPITAL VIII, L.P.
By: DLJ LBO Plans Management Corporation By: DLJ Capital Corporation
Its: General Partner Its: Managing General Partner
By:___________________________________ By:______________________________
Xxxx Xxxxx, Attorney-In-Fact Xxxx Xxxxx, Managing Director
SPROUT CAPITAL VII, L.P. SPROUT VENTURE CAPITAL, L.P.
By: DLJ Capital Corporation By: DLJ Capital Corporation
Its: Managing General Partner Its: General Partner
By:___________________________________ By:______________________________
Xxxx Xxxxx, Managing Director Xxxx Xxxxx, Managing Director
DLJ Capital Corporation SPROUT CEO FUND, L.P.
By: DLJ Capital Corporation
Its: General Partner
By:___________________________________ By:______________________________
Xxxx Xxxxx, Managing Director Xxxx Xxxxx, Managing Director
ENTERPRISE PARTNERS IV, L.P. ENTERPRISE PARTNERS IV
ASSOCIATES, L.P.
By: ___________________________________ By: ____________________________
Title:___________________________________ Title:___________________________
57
COMPANY INDEMNIFYING PARTIES SIGNATURE PAGES
IN WITNESS WHEREOF, the below Parties, being the Company Indemnifying Parties to
this Agreement and Plan of Merger dated as of October 2, 2002 among Pivotal
Corporation, MarketFirst Software, Inc. and the other Parties named therein,
hereby execute this Agreement, or this counterpart signature page thereto with
the intent of being bound hereby.
ENTERPRISE PARTNERS ANNEX FUND IV, L.P. ENTERPRISE PARTNERS ANNEX
FUND IV-ASSOCIATES, L.P.
By: ___________________________________ By: ____________________________
Title:___________________________________ Title:___________________________
e-millennium 1 GmbH & Co. KG GREENBRIDGE FUND I, L.P.
By: Greenbridge Fund I General
By: e-millennium 1 Management GmbH & Partner Corp.
Co. KG, as Managing Limited Partner
By: ___________________________
By: ___________________________
Managing Limited Partner Title:___________________________
SAP AG
By: __________________________
Title:__________________________
58
Schedule A Disclosure Schedule (including Annexes)
Schedule B Company Indemnifying Parties' responsible officers (for
definition of Knowledge)
Exhibit 1 Description of MarketFirst Release 4 Software
Exhibit 2 Form of Certificate of Merger
Exhibit 3 Financial Statements for MarketFirst Software Inc.
and its Subsidiaries
Exhibit 4 Form of Certificate of Accredited Investor
Exhibit 5 Form of Employment Offer Letter
Exhibit 6 Copy of Company's Certificate of Incorporation
Exhibit 7 Copy of Investors' Rights Agreement
59
