Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among
INFOSEARCH MEDIA, INC.,
APOLLO ACQUISITION CORP.
ANSWERBAG, INC.
and
Xxxx Xxxxx, Xxxxx Xxxxx and Xxxxxxx Xxxxx
Dated as of February 22, 2006
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TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER...........................................................2
SECTION 1.01 The Merger..................................................2
SECTION 1.02 Effective Time; Closing.....................................2
SECTION 1.03 Effect of the Merger........................................3
SECTION 1.04 Articles of Incorporation and Bylaws of the Surviving
Corporation............................................................3
SECTION 1.05 Directors and Officers......................................3
ARTICLE II MERGER CONSIDERATION; EXCHANGE OF CERTIFICATES......................3
SECTION 2.01 Merger Consideration........................................3
SECTION 2.02 Exchange of Certificates....................................5
SECTION 2.03 Stock Transfer Books........................................6
SECTION 2.04 Securities Laws Issues......................................6
SECTION 2.05 Dissenting Shares...........................................7
SECTION 2.06 Payment of Parent Cash......................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................8
SECTION 3.01 Organization and Qualification..............................8
SECTION 3.02 Articles of Incorporation and Bylaws........................8
SECTION 3.03 No Subsidiaries.............................................9
SECTION 3.04 Capitalization..............................................9
SECTION 3.05 Authority Relative to This Agreement.......................10
SECTION 3.06 No Conflict; Required Filings and Consents.................10
SECTION 3.07 Permits; Compliance........................................11
SECTION 3.08 Material Liabilities.......................................12
SECTION 3.09 Absence of Certain Changes or Events.......................12
SECTION 3.10 Absence of Litigation......................................12
SECTION 3.11 Employee Benefit Plans; Labor Matters......................12
SECTION 3.12 Contracts..................................................14
SECTION 3.13 Environmental Matters......................................15
SECTION 3.14 Intellectual Property......................................16
SECTION 3.15 Taxes......................................................19
SECTION 3.16 Vote Required..............................................21
SECTION 3.17 Assets; Absence of Liens and Encumbrances..................22
SECTION 3.18 Owned Real Property........................................22
SECTION 3.19 Certain Interests..........................................22
SECTION 3.20 Insurance Policies.........................................22
SECTION 3.21 Restrictions on Business Activities........................22
SECTION 3.22 Brokers....................................................23
SECTION 3.23 State Takeover Statutes....................................23
SECTION 3.24 Customers and Suppliers....................................23
SECTION 3.25 Accounts Receivable; Bank Accounts.........................23
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SECTION 3.26 Powers of Attorney.........................................23
SECTION 3.27 Offers.....................................................23
SECTION 3.28 Warranties.................................................24
SECTION 3.29 Books and Records..........................................24
SECTION 3.30 Tax Matters................................................24
SECTION 3.31 No Misstatements...........................................24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............24
SECTION 4.01 Organization and Qualification.............................25
SECTION 4.02 Authority Relative to This Agreement.......................25
SECTION 4.03 No Conflict; Required Filings and Consents.................26
SECTION 4.04 Interim Operations of Merger Sub...........................26
SECTION 4.05 Valid Issuance of Parent Shares............................26
SECTION 4.06 Brokers....................................................27
ARTICLE V CONDUCT OF BUSINESSES PENDING THE MERGER............................27
SECTION 5.01 Conduct of Business by the Company Pending the Merger......27
SECTION 5.02 Litigation.................................................30
SECTION 5.03 Notification of Certain Matters............................30
ARTICLE VI ADDITIONAL AGREEMENTS..............................................30
SECTION 6.01 Company Shareholder Approval; Exemption from
Registration...........................................................30
SECTION 6.02 Access to Information; Confidentiality.....................31
SECTION 6.03 No Solicitation of Transactions............................32
SECTION 6.04 Employee Benefits Matters..................................33
SECTION 6.05 Further Action; Consents; Filings..........................33
SECTION 6.06 Plan of Reorganization.....................................34
SECTION 6.07 No Public Announcement.....................................35
SECTION 6.08 Expenses...................................................35
SECTION 6.09 Affiliate Agreements.......................................35
SECTION 6.10 Shareholder Certificates...................................35
SECTION 6.11 Non-Competition; Non-Solicitation..........................35
SECTION 6.12 ...........................................................35
ARTICLE VII CONDITIONS TO THE MERGER..........................................36
SECTION 7.01 Conditions to the Obligations of Each Party................36
SECTION 7.02 Conditions to the Obligations of Parent and Merger Sub.....37
SECTION 7.03 Conditions to the Obligations of the Company...............39
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER................................39
SECTION 8.01 Termination................................................39
SECTION 8.02 Effect of Termination......................................40
SECTION 8.03 Amendment..................................................40
SECTION 8.04 Waiver.....................................................40
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ARTICLE IX INDEMNIFICATION....................................................41
SECTION 9.01 Survival of Representations and Warranties.................41
SECTION 9.02 Indemnification by the Shareholders........................41
SECTION 9.03 Indemnification Procedures.................................43
SECTION 9.04 Release of Escrow Shares...................................44
ARTICLE X GENERAL PROVISIONS..................................................46
SECTION 10.01 Notices...................................................46
SECTION 10.02 Certain Definitions.......................................47
SECTION 10.03 Severability..............................................47
SECTION 10.04 Assignment; Binding Effect; Benefit.......................48
SECTION 10.05 Incorporation of Exhibits.................................48
SECTION 10.06 Specific Performance......................................48
SECTION 10.07 Governing Law; Forum......................................48
SECTION 10.08 Time of the Essence.......................................48
SECTION 10.09 Waiver of Jury Trial......................................48
SECTION 10.10 Construction and Interpretation...........................48
SECTION 10.11 Further Assurances........................................49
SECTION 10.12 Headings..................................................49
SECTION 10.13 Counterparts..............................................49
SECTION 10.14 Entire Agreement..........................................49
Exhibit A Form of Company Counsel Legal Opinion
Exhibit B Form of Shareholder Certificate
Schedule A Purchase Price Contingencies
Schedule B Shareholder Ownership Percentages
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of February 22,
2006 (this "Agreement"), among INFOSEARCH MEDIA, INC., a Delaware corporation
("Parent"), APOLLO ACQUISITION CORP., a California corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), ANSWERBAG, INC., a California
corporation (the "Company") and Xxxx Xxxxx, Xxxxx Xxxxx and Xxxxxxx Xxxxx, the
shareholders of the Company (the "Shareholders").
W I T N E S S E T H
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the California General Corporation Law (the "CGC"),
Parent and the Company will enter into a business combination transaction
pursuant to which Merger Sub will merge with and into the Company (the
"Merger");
WHEREAS, the Board of Directors of the Company has (i) determined that the
Merger is fair to, and in the best interests of, the Company and its
shareholders, (ii) unanimously approved and adopted this Agreement, the Merger,
and the other transactions contemplated by this Agreement, and (iii) determined
to unanimously recommend that the shareholders of the Company approve and adopt
this Agreement and the Merger;
WHEREAS, the Boards of Directors of each of Parent and Merger Sub have (i)
determined that the Merger is consistent with and in furtherance of the
long-term business strategy of Parent and fair to, and in the best interests of,
Parent, Merger Sub and their respective shareholders and (ii) approved and
adopted this Agreement, the Merger, and the other transactions contemplated by
this Agreement;
WHEREAS, for Federal income tax purposes, the Merger is intended to
qualify as a reorganization under the provisions of Section 368(a) of the United
States Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the Shareholders own all of the outstanding shares of common
stock, no par value, of the Company (the "Company Stock") as is set forth
opposite such Shareholder's name in Section 1.01 of the Company Disclosure
Schedule;
WHEREAS, pursuant to the Merger, each outstanding share of Company Stock
shall be converted into the right to receive shares of Parent's authorized
common stock, par value $0.001 per share ("Parent Common Stock") and cash
("Parent Cash"), as determined in this Agreement;
WHEREAS, as a condition to Parent's consummation of the Merger, each
Shareholder is executing and delivering to Parent a Shareholder Certificate in
the form attached hereto as Exhibit B (a "Shareholder Certificate");
WHEREAS, a portion of the Parent Common Stock otherwise issuable by Parent
in connection with the Merger shall be placed in escrow by Parent and a portion
of the Parent Cash shall be withheld, the release of which amounts shall be
contingent upon certain events and conditions, all as set forth in this
Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement,
and as a condition and inducement to Parent's willingness to enter into this
Agreement, each individual listed on Schedule 6.04(b) is entering into an
Employment Agreement (as defined in Section 6.04(b));
WHEREAS, certain capitalized terms used in this Agreement are defined in
Section 10.02 of this Agreement. As used herein, the term "Company" shall
include sole proprietorship operated by Xxxx Xxxxx as "Answerbag" prior to the
incorporation of Answerbag, Inc. on January 1, 2006.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub, and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Upon the terms of this Agreement and subject to
the conditions set forth in this Agreement, and in accordance with the CGC, at
the Effective Time (as defined in Section 1.02), Merger Sub shall be merged with
and into the Company (the "Reverse Merger"). As a result of the Reverse Merger,
the separate corporate existence of Merger Sub shall cease, and the Company
shall continue as the surviving corporation of the Reverse Merger (the
"Surviving Corporation"). As soon as reasonably practicable following the
consummation of the Reverse Merger, but in any event within sixty (60) days
thereafter, the Company shall be merged (the "Second-Step Merger") with and into
Parent or a wholly-owned, first-tier subsidiary of Parent; provided, however,
that such Second-Step Merger shall not be required if Parent and the Shareholder
determine in good faith in writing after consultation with their respective
counsel that the consummation of the Reverse Merger, by itself, is sufficient to
cause the Merger to satisfy the requirement of Code Section 368(a)(2)(E)(ii).
Following the Second-Step Merger, if it occurs, the separate corporate existence
of the Company shall cease and Parent or its wholly-owned subsidiary, as the
case may be, shall continue as the Surviving Corporation. The Reverse Merger is
referred to herein as the "Merger." For purposes of Section 3.31 and Section
6.06, if the Second-Step Merger is consummated, then "Merger" shall refer to the
Reverse Merger and the Second-Step Merger, collectively or seriatim, as
appropriate.
SECTION 1.02 Effective Time; Closing. As promptly as practicable following
the satisfaction or, if permissible by the express terms of this Agreement,
waiver of the conditions set forth in Article VII (or such other date as may be
agreed by each of the parties hereto), the parties hereto shall cause the Merger
to be consummated by (i) filing an agreement of merger (the "Agreement of
Merger") with the Secretary of State of the State of California in such form as
is required by, and executed in accordance with, the relevant provisions of the
CGC and (ii) making all other filings and recordings required under the CGC. The
term "Effective Time" means the date and time of the filing of the Agreement of
Merger (or such later time as may be agreed by each of the parties hereto and
specified in the Agreement of Merger). Immediately prior to the filing of the
Agreement of Merger, a closing (the "Closing") will be held at the offices of
Parent (or such other place as the parties may agree). The date on which the
Closing shall occur is referred to herein as the "Closing Date." The parties
agree to use commercially reasonable efforts to ensure the Closing is within ten
(10) days of execution of this Agreement.
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SECTION 1.03 Effect of the Merger. At and after the Effective Time, the
Merger shall have the effects as set forth in the applicable provisions of the
CGC. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers and franchises
of each of the Company and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities, obligations, restrictions, disabilities and duties
of each of the Company and Merger Sub shall become the debts, liabilities,
obligations, restrictions, disabilities and duties of the Surviving Corporation.
SECTION 1.04 Articles of Incorporation and Bylaws of the Surviving
Corporation.
(a) At the Effective Time, the Articles of Incorporation of the
Company as the Surviving Corporation shall be amended and restated to read the
same as the Articles of Incorporation of Merger Sub as in effect immediately
prior to the Effective Time, except that Section 1 of the amended and restated
Articles of Incorporation of the Surviving Corporation, instead of reading the
same as Section 1 of the Articles of Incorporation of Merger Sub, shall read as
follows: "The name of this corporation is Answerbag, Inc."
(b) At the Effective Time, the Bylaws of the Company as the
Surviving Corporation shall be amended to read the same as the Bylaws of Merger
Sub as in effect immediately prior to the Effective Time, except that all
references to Merger Sub in the Bylaws of the Surviving Corporation shall be
changed to refer to Answerbag, Inc.
SECTION 1.05 Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
ARTICLE II
MERGER CONSIDERATION; EXCHANGE OF CERTIFICATES
SECTION 2.01 Merger Consideration.
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Merger Sub, the Company or the holders of any of
the following securities:
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(i) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Company Common
Stock to be canceled pursuant to Section 2.01(a)(ii) and any Dissenting Shares
(as defined in Section 2.05)) shall be converted into the right to receive the
Parent Common Stock and Parent Cash (as defined below and in accordance with
Section 2.06 below) equal to the Exchange Ratio (as defined in Section
2.01(b)(iv));
(ii) each share of Company Stock held in the treasury of the
Company and each share of Company Stock owned by Parent or any direct or
indirect wholly owned subsidiary of Parent or of the Company immediately prior
to the Effective Time shall be cancelled and extinguished without any conversion
thereof and no payment or distribution shall be made with respect thereto; and
(iii) each share of common stock, par value $0.001 per share,
of Merger Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $0.001 per share, of the
Surviving Corporation. The stock certificate evidencing shares of common stock
of Merger Sub shall then evidence ownership of the outstanding share of common
stock of the Surviving Corporation.
(b) As used in this Agreement, the following terms have the
following meanings:
(i) "Aggregate Merger Consideration" means (A) the number of
shares of Parent Common Stock (the "Parent Shares") equal to (x) $462,500
divided by (y) the Average Closing Price (as defined below) and (B) $462,500
(the "Parent Cash").
(ii) "Average Closing Price" means the average closing price
per share of Parent Common Stock on the Over the Counter Bulletin Board for the
5 trading day period up to and including the day immediately preceding (but not
including) the Closing Date.
(iii) "Escrow Shares" means the number of Parent Shares
(rounded up to the next whole number) determined by multiplying the Parent
Shares by 0.65.
(iv) "Exchange Ratio" means 92,500.
(v) "Holdback Cash" means $300,625.
(vi) If, during the period between the date hereof and the
Effective Time, any change in the capital stock of Parent shall occur by reason
of reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period or any similar event, the Aggregate Merger Consideration and the
Escrow Shares shall be correspondingly adjusted to the extent appropriate to
reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination, exchange or readjustment of shares.
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SECTION 2.02 Exchange of Certificates.
(a) Exchange Procedures. From and after the Effective Time, Parent
shall act as exchange agent in effecting the exchange of the applicable Parent
Shares for certificates which immediately prior to the Effective Time
represented outstanding shares of Company Stock ("Company Share Certificates")
and which were converted into the right to receive the applicable Parent Shares
pursuant to Section 2.01. As promptly as practicable after the Effective Time,
Parent shall deliver to each Shareholder a letter of transmittal (the "Letter of
Transmittal") in a form approved by Parent and the Company and instructions for
use in surrendering such Company Share Certificates and receiving the Parent
Shares pursuant to Section 2.01. Promptly after the Effective Time, but in no
event later than ten (10) business days following the Effective Time, Parent
shall cause to be deposited in trust (i) the Parent Shares less the Escrow
Shares and (ii) the Parent Cash less the Holdback Cash.
Upon the surrender of each Company Share Certificate for cancellation to
Parent, together with a properly completed Letter of Transmittal and such other
documents as may reasonably be required by Parent:
(i) Parent shall cause to be issued to each Shareholder in
exchange therefor a separate stock certificate representing the Parent Shares to
which such holder is entitled pursuant to Section 2.01 (less the Escrow Shares
pursuant to Section 2.02(b)); and
(ii) the Company Share Certificates so surrendered shall
forthwith be cancelled.
Until surrendered as contemplated by this Article II, each Company Share
Certificate shall, subject to dissenters rights under Chapter 13 of the CGC and
Section 2.05, be deemed at any time after the Effective Time to represent only
the right to receive upon surrender the applicable Parent Shares with respect to
the shares of Company Stock formerly represented thereby to which such holder is
entitled pursuant to Section 2.01.
(b) Escrow Fund. Prior to or simultaneously with the Closing, Parent
shall deposit one or more certificates into an escrow account, which account is
to be managed by Parent (the "Escrow Account"). Any Escrow Shares in the Escrow
Account are referred to herein as the "Escrow Fund". In connection with such
deposit of the Escrow Shares and as of the Effective Time, each Shareholder will
be deemed to have received and deposited with the Parent the Escrow Shares (plus
any additional shares as may be issued upon any stock split, stock dividend or
recapitalization effected by Parent after the Effective Time with respect to
shares constituting the Escrow Fund), without any act of the Shareholders.
Distributions of any Escrow Shares from the Escrow Account shall be governed by
the terms and conditions of this Agreement. The adoption of this Agreement and
the approval of the Merger by the Company Shareholders shall constitute approval
of all the arrangements relating thereto, including, without limitation, the
placement of the Escrow Shares in escrow. No Parent Shares contributed to the
Escrow Fund shall be unvested or subject to any right of repurchase, risk of
forfeiture or other condition in favor of the Surviving Corporation.
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(c) No Further Rights in Company Stock. The Parent Shares issued
upon the conversion of shares of Company Stock in accordance with the terms
hereof shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Stock.
(d) No Liability. Neither Parent nor the Surviving Corporation shall
be liable to any holder of shares of Company Stock for any such shares of Parent
Common Stock (or dividends or distributions with respect thereto) or cash
properly and legally delivered to a public official pursuant to any abandoned
property, escheat or similar Law (as defined in Section 3.06(a)).
(e) Withholding Rights. Each of the Surviving Corporation and Parent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to each Shareholder such amounts as it is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign Tax (as defined in Section
3.15(c)) Law. To the extent that amounts are so withheld by the Surviving
Corporation or Parent, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to each
Shareholder in respect of which such deduction and withholding were made by the
Surviving Corporation or Parent, as the case may be.
(f) Lost Certificates. If any Company Share Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Company Share Certificate to be lost, stolen or
destroyed and, if required by the Surviving Corporation, the posting by such
person of a bond, in such reasonable amount as the Surviving Corporation may
direct, as indemnity against any claim that may be made against it with respect
to such Company Share Certificate, Parent shall issue in exchange for such lost,
stolen or destroyed Company Share Certificate, the applicable Parent Shares (and
dividends or other distributions pursuant to Section 2.02(c)) to which such
person is entitled pursuant to the provisions of this Article II.
SECTION 2.03 Stock Transfer Books. Commencing on the date hereof, the
stock transfer books of the Company shall be closed and there shall be no
further registration of transfers of shares of Company Stock thereafter on the
records of the Company other than as required to comply with the terms of this
Agreement. From and after the Effective Time, each holder of a Company Share
Certificate shall cease to have any rights as a shareholder of the Company,
except as otherwise provided in this Agreement or by Law.
SECTION 2.04 Securities Laws Issues. Parent shall issue the shares of
Parent Common Stock as provided in this Agreement pursuant to a "private
placement" exemption or exemptions from registration under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act") and/or Regulation D
promulgated under the Securities Act and an exemption from qualification under
the laws of the State of California and other applicable state securities laws.
Parent and the Company shall comply with all applicable provisions of, and rules
under, the Securities Act and applicable state securities laws in connection
with the offering and issuance of the shares of Parent Common Stock pursuant to
this Agreement. Such shares of Parent Common Stock will be "restricted
securities" under the Federal and state securities laws and cannot be offered or
resold except pursuant to registration under the Securities Act or an available
exemption from registration.
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SECTION 2.05 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
shares of Company Stock that are outstanding immediately prior to the Effective
Time and which are held by shareholders who have exercised and perfected
appraisal rights for such shares of Company Stock in accordance with Chapter 13
of the CGC (the "Dissenting Shares") shall not be converted into or represent
the right to receive the applicable Parent Shares. Such shareholders shall be
entitled to receive payment of the appraised value of such shares of Company
Stock held by them in accordance with the CGC, unless and until such
shareholders fail to perfect or effectively withdraw or otherwise lose their
appraisal rights under the CGC (or, if applicable, Chapter 13 of the California
Corporations Code). All Dissenting Shares held by shareholders who shall have
failed to perfect or who effectively shall have withdrawn or lost their right to
appraisal of such shares of Company Stock under the CGC shall thereupon be
deemed to have been converted into and to have become exchangeable for, as of
the Effective Time, the right to receive the applicable Parent Shares, without
any interest thereon, upon the surrender, in the manner provided in Section 2.02
(including the provision for the Escrow Shares pursuant to Section 2.02(b)), of
the corresponding Company Share Certificate.
(b) The Company shall give Parent (i) prompt notice of any demands
for appraisal received by the Company, withdrawals of such demands, and any
other related instruments served pursuant to the CGC (or, if applicable, Chapter
13 of the California Corporations Code) and received by the Company and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the CGC (or, if applicable, Chapter 13 of the California
Corporations Code). The Company shall not, except with the prior written consent
of Parent, make any payment with respect to any demands for appraisal or offer
to settle or settle any such demands.
SECTION 2.06 Payment of Parent Cash. The Parent Cash shall be paid to the
Shareholders in the percentages set forth on Schedule B and in accordance with
the following schedule and subject to reduction (x) for any indemnification
claims made pursuant to Article IX of this Agreement or (y) in the event of any
of the events described on Schedule A attached hereto (the "Purchase Price
Contingencies").
(a) $161,875 of the Parent Cash shall be paid at the Closing;
(b) $75,156.25 of the Parent Cash shall be paid within 10 business
days of each of the following dates:
(i) 90 days after the Closing;
(ii) 180 days after the Closing;
(iii) 270 days after the Closing; and
(iv) 360 days after the Closing.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and each Shareholder hereby represent and warrant to Parent
and Merger Sub that the statements contained in this Article III are true and
correct as of the date of this Agreement and as of the Effective Time (except
for any such representation and warranty that expressly is made as of a specific
date, which such representation and warranty shall be true and correct as of
such date), subject to such qualifications as set forth in the disclosure
schedule delivered by the Company to Parent and Merger Sub concurrently with the
execution of this Agreement (the "Company Disclosure Schedule"). The Company
Disclosure Schedule shall be arranged according to specific sections in this
Article III and shall provide exceptions to, or otherwise qualify in reasonable
detail, only the corresponding section in this Article III.
SECTION 3.01 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite corporate power and authority to own,
lease and otherwise hold and operate its properties and other assets and to
carry on its business as it is now being conducted and as currently proposed to
be conducted, except where the failure to be so organized, existing or in good
standing or to have such corporate power and authority has not had, and could
not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect (as defined below). The Company is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed and
in good standing has not had, and could not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. Section
3.01 of the Company Disclosure Schedule sets forth each jurisdiction where the
Company is qualified or licensed as a foreign corporation and each other
jurisdiction in which the Company owns, uses, licenses or leases real property
or has employees or engages independent contractors. The term "Company Material
Adverse Effect" means any event, change, violation, inaccuracy, circumstance or
effect (regardless of whether or not such events, changes, violations,
inaccuracies, circumstances or effects are inconsistent with the representations
or warranties made by the Company in this Agreement) that is, or could
reasonably be expected to be, individually or in the aggregate, materially
adverse to the business, operations, condition (financial or otherwise), assets
(tangible or intangible), liabilities, employees, properties, prospects,
capitalization or results of operations of the Company.
SECTION 3.02 Articles of Incorporation and Bylaws. The Company has
heretofore made available to Parent a complete and correct copy of (a) the
Articles of Incorporation and the Bylaws of the Company including all amendments
thereto, (b) the minute books containing all consents, actions and meeting of
the shareholders of the Company and the Company's Board of Directors and any
committees thereof, and (c) the stock transfer books of the Company setting
forth all issuances or transfers of any capital stock of the Company. Such
Articles of Incorporation and Bylaws are in full force and effect. The Company
is not in violation of any of the provisions of its Articles of Incorporation or
Bylaws. The corporate minute books, stock certificate books, stock registers and
other corporate records of the Company are complete and accurate, and the
signatures appearing on all documents contained therein are the true or
facsimile signatures of the persons purported to have signed the same.
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SECTION 3.03 No Subsidiaries. The Company does not own, of record or
beneficially, or control any direct or indirect equity or other interest, or any
right (contingent or otherwise) to acquire the same, in any corporation,
partnership, limited liability company, joint venture, association or other
entity. The Company is not a member of (nor is any part of the Company's
business conducted through) any partnership, nor is the Company a participant in
any joint venture or similar arrangement. There are no contractual obligations
of the Company to provide funds to, or make any investment in (whether in the
form of a loan, capital contribution or otherwise), any other person.
SECTION 3.04 Capitalization.
(a) The authorized capital stock of the Company consists of 100,000
shares of Company Common Stock. As of the date hereof, (i) 10,000 shares of
Company Common Stock are issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable, (ii) no shares of
Company Common Stock are held in the treasury of the Company and (iii) no shares
of Company Common Stock are reserved for future issuance pursuant to outstanding
Company Options. As of the date hereof, all of the outstanding shares of Company
Common Stock are owned as by the Shareholders. Section 3.04(a) of the Company
Disclosure Schedule also provides an accurate and complete description of the
terms of each repurchase option or right of first refusal which is held by the
Company and to which any of such shares is subject.
(b) There are no options, warrants or other rights, agreements,
arrangements or commitments of any character, whether or not contingent,
relating to the issued or unissued capital stock of the Company or obligating
the Company to issue or sell any share of capital stock of, or other equity
interest in, the Company.
(c) The Company does not have outstanding any bonds, debentures,
notes or other obligations the holders of which have the right to vote (or which
are convertible into or exercisable for securities having the right to vote)
with the shareholders of the Company on any matter.
(d) All of the securities offered, sold or issued by the Company (i)
have been offered, sold or issued in compliance with the requirements of the
Federal securities laws and any applicable state securities or "blue sky" laws,
and (ii) are not subject to any preemptive right, right of first refusal, right
of first offer or right of recission.
(e) The Company has never repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities of the Company, other
than unvested securities in the ordinary course upon termination of employment
or consultancy. There are no outstanding contractual obligations of the Company
to repurchase, redeem or otherwise acquire any share of capital stock of, or
other equity interest in, the Company. There are no shareholder agreements,
voting trusts or other agreements or understandings to which the Company is a
party, or of which the Company is aware, that (i) relate to the voting,
registration or disposition of any securities of the Company, (ii) grant to any
person or group of persons the right to elect, or designate or nominate for
election, a director to the Board of Directors of the Company, or (iii) grant to
any person or group of persons information rights.
9
(f) An updated Section 3.04 of the Company Disclosure Schedule
reflecting changes permitted by this Agreement in the capitalization of the
Company between the date hereof and the Effective Time shall be delivered by the
Company to Parent on the Closing Date.
SECTION 3.05 Authority Relative to This Agreement.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and, subject to obtaining the necessary
approvals of the Company Shareholders, to perform its obligations hereunder and
to consummate the Merger and the other transactions contemplated by this
Agreement. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the Merger and the other transactions
contemplated by this Agreement have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the Merger
and the other transactions contemplated by this Agreement (other than the
approval and adoption of this Agreement and the Merger by the Company
Shareholders as described in Section 3.16 hereof and the filing and recordation
of appropriate merger documents as required by the CGC). This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Parent and Merger Sub, constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to the effect of any applicable
bankruptcy, reorganization, insolvency, moratorium or similar Laws affecting
creditors' rights generally and subject, as to enforceability, to the effect of
general principles of equity.
(b) Without limiting the generality of the foregoing, the Board of
Directors of the Company, at a meeting duly called and held, has unanimously (i)
determined that the Merger and the other transactions contemplated hereby are
fair to, and in the best interests of, the Company and its shareholders, (ii)
approved and adopted the Merger, this Agreement and the other transactions
contemplated hereby in accordance with the provisions of the CGC and the
Company's charter documents, and (iii) directed that this Agreement and the
Merger be submitted to the Company Shareholders for their approval and adoption
and (iv) resolved to recommend that the Company Shareholders vote in favor of
the approval and adoption of this Agreement.
SECTION 3.06 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not, (i) conflict
with or violate the Articles of Incorporation or Bylaws of the Company, (ii)
assuming that all consents, approvals, authorizations and other actions
described in Section 3.06(b) have been obtained and all filings and obligations
described in Section 3.06(b) have been made or complied with, conflict with or
violate any foreign or domestic (Federal, state or local) law, statute,
ordinance, franchise, permit, concession, license, writ, rule, regulation,
order, injunction, judgment or decree ("Law") applicable to the Company or by
which any property or asset of the Company is bound or affected, or (iii)
conflict with, result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under,
require consent, approval or notice under, give to others any right of
termination, amendment, acceleration or cancellation of, require any payment
under, or result in the creation of a lien or other encumbrance on any property
or asset of the Company pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which any property or asset of
the Company is bound or affected.
10
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not, require any
consent, approval, order, permit or authorization from, or registration,
notification or filing with, any domestic or foreign governmental, regulatory or
administrative authority, agency or commission, any court, tribunal or arbitral
body, or any quasi-governmental or private body exercising any regulatory,
taxing, importing or other governmental authority (a "Governmental Entity"),
except for the filing and recordation of appropriate merger documents as
required by the CGC.
(c) The Company is not a "$10 million person" as defined under the
rules and regulations of the HSR Act and the Company is not "engaged in
manufacturing" for purposes of the HSR Act. There is no person, or group of
persons under Common Control, who Control(s) the Company. For the purposes of
this Section, the term "Control" means either (a) holding beneficial ownership,
whether direct or indirect through fiduciaries, agents, controlled entities or
other means, of 50% or more of the outstanding voting securities of an issuer;
(b) in the case of an entity that has no outstanding voting securities, having
the right to 50% or more of the profits of the entity, or having the right in
the event of dissolution to 50% or more of the assets of the entity; or (c)
having the contractual power presently to designate 50% or more of the directors
of a corporation, or in the case of unincorporated entities, of individuals
exercising similar functions. For the purposes of this Section, "Common Control"
means sharing an Ultimate Parent. For the purposes of this Section, "Ultimate
Parent" means a person who is not Controlled by any other entity.
SECTION 3.07 Permits; Compliance.
(a) Each of the Company is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any Governmental Entity necessary for the
Company to own, lease and otherwise hold and operate its properties and other
assets and to carry on its business as it is now being conducted and as
currently proposed to be conducted (the "Company Permits"). All Company Permits
are in full force and effect and will remain so after the Closing and no
suspension or cancellation of any Company Permit is pending or, to the knowledge
of the Company, threatened. Neither the Company n has received any notice or
other communication from any Governmental Entity regarding (i) any actual or
possible violation of or failure to comply with any term or requirement of any
Company Permit, or (ii) any actual or possible revocation, withdrawal,
suspension, cancellation, termination or modification of any Company Permit.
11
(b) The Company is not in conflict with, or in default or violation
of, in each case, in any material respect, (i) any Law applicable to the Company
or by which any property or asset of the Company is bound or affected, (ii) any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company is a party or
by which the Company or any property or asset of the Company is bound or
affected, or (iii) any Company Permit.
SECTION 3.08 Material Liabilities. Except as set forth in Section 3.08 of
the Company Disclosure Schedule, to its knowledge the Company has no liability
or obligation, absolute or contingent (individually or in the aggregate), except
(i) obligations and liabilities incurred after the date of incorporation in the
ordinary course of business that are not material, individually or in the
aggregate, and (ii) obligations under contracts made in the ordinary course of
business that would not be required to be reflected in financial statements
prepared in accordance with generally accepted accounting principles.
SECTION 3.09 Absence of Certain Changes or Events. Since January 1, 2006,
except as contemplated by or as disclosed in this Agreement, the Company have
conducted their respective businesses only in the ordinary course and in a
manner consistent with past practice and, since such date, (a) there has not
been any Company Material Adverse Effect and (b) the Company have not taken or
legally committed to take any of the actions specified in Section 5.01(a)
through (cc).
SECTION 3.10 Absence of Litigation. There is no litigation, suit, claim,
action, proceeding or investigation pending or, to the knowledge of the Company,
threatened against the Company, or any property or asset owned or used by the
Company or any person whose liability the Company has or may have assumed,
either contractually or by operation of Law, before any arbitrator or
Governmental Entity (a "Legal Proceeding") that could reasonably be expected, if
resolved adversely to the Company, to (i) materially impair the operations of
the Company as currently conducted, including, without limitation, any claim of
infringement of any intellectual property right, (ii) result in losses to the
Company in excess of $25,000, (iii) materially impair the ability of the Company
to perform its obligations under this Agreement or (iv) prevent, delay or make
illegal the consummation of the transactions contemplated by this Agreement. To
the Company's knowledge, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that could reasonably be expected to give rise
to or serve as a basis of the commencement of any Legal Proceeding. None of the
Company, the officers or directors thereof in their capacity as such, or any
material property or asset of the Company is subject to any continuing order of,
consent decree, settlement agreement or other similar written agreement with,
or, to the knowledge of the Company, continuing investigation by, any
Governmental Entity, or any order, writ, judgment, injunction, decree,
determination or award of any court, arbitrator or Governmental Entity. The
Company does not have any plans to initiate any Legal Proceeding against any
third party.
SECTION 3.11 Employee Benefit Plans; Labor Matters.
(a) The Company does not have any Employee Benefit Plan as defined
in the Employee Retirement Income Security Act of 1974 (each, a "Plan," and
collectively, the "Plans").
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(b) Except as set forth in Section 3.11(b) of the Company Disclosure
Schedule, (i) the Company is not a party to any collective bargaining agreement
or other labor union contract applicable to persons employed by the Company or
in the Company's business, and currently there are no organizational campaigns,
petitions or other unionization activities seeking recognition of a collective
bargaining unit that could affect the Company; (ii) the Company has not engaged
in any unfair labor practice, and there are no unfair labor practice complaints
pending against the Company before the National Labor Relations Board or any
other Governmental Entity or any current union representation questions
involving employees of the Company that could have, or could reasonably be
expected to have, a Company Material Adverse Effect; (iii) the Company is
currently in compliance with all applicable Laws relating to the employment of
labor, including those related to wages, hours, worker classification (including
the proper classification of independent contractors and consultants),
collective bargaining, workers' compensation and the payment and withholding of
Taxes and other sums as required by the appropriate Governmental Entity and has
withheld and paid to the appropriate Governmental Entity or is holding for
payment not yet due to such Governmental Entity all amounts required to be
withheld from employees of the Company and is not liable for any arrears of
wages, Taxes, penalties or other sums for failure to comply with any of the
foregoing; (iv) the Company has paid in full to all employees or adequately
accrued for in accordance with U.S. GAAP consistently applied all wages,
salaries, commissions, bonuses, benefits and other compensation due to or on
behalf of such employees; (v) there is no claim with respect to payment of
wages, salary, overtime pay, workers compensation benefits or disability
benefits that has been asserted or threatened against the Company or that is now
pending before any Governmental Entity with respect to any person currently or
formerly employed by the Company; (v) the Company is not a party to, or
otherwise bound by, any consent decree with, or citation by, any Governmental
Entity relating to employees or employment practices; (ix) the Company is in
compliance with all Laws and regulations relating to occupational safety and
health Laws and regulations, and there is no charge or proceeding with respect
to a violation of any occupational safety or health standards that has been
asserted or is now pending or threatened with respect to the Company; (vi) the
Company is in compliance with all Laws and regulations relating to
discrimination in employment, and there is no charge of discrimination in
employment or employment practices for any reason, including, without
limitation, age, gender, race, religion or other legally protected category,
which has been asserted or, to the knowledge of the Company, threatened against
the Company or that is now pending before the United States Equal Employment
Opportunity Commission or any other Governmental Entity; and (vii) each employee
of the Company who is located in the United States and is not a United States
citizen has all approvals, authorizations and papers necessary to work in the
United States in accordance with applicable Law.
(c) Section 3.11(c) of the Company Disclosure Schedule contains a
true and complete list of (i) all individuals who serve as employees of or
consultants to the Company as of the date hereof, (ii) in the case of such
employees, the position and base compensation to each payable to each such
individual, and (iii) in the case of each such consultant, the consulting rate
payable to such individual.
(d) To the Company's knowledge, no employee of or consultant to the
Company has been injured in the workplace or in the course of his or her
employment or consultancy, except for injuries which are covered by insurance or
for which a claim has been made under worker's compensation or similar Laws.
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SECTION 3.12 Contracts.
(a) Section 3.12(a) of the Company Disclosure Schedule lists (under
the appropriate subsection) each of the following written or oral contracts and
agreements of the Company (such contracts and agreements being the "Material
Contracts"):
(i) each contract and agreement for the purchase or lease of
personal property with any supplier or for the furnishing of services to the
Company with payments greater than $10,000 per year;
(ii) all broker, exclusive dealing or exclusivity,
distributor, dealer, manufacturer's representative, franchise, agency, sales
promotion, market research, marketing, consulting and advertising contracts and
agreements to which the Company is a party or any other contract that
compensates any person based on any sales by the Company;
(iii) all leases and subleases of real property;
(iv) all contracts and agreements relating to indebtedness
other than trade indebtedness of the Company, including any contracts and
agreements in which the Company is a guarantor of indebtedness;
(v) all contracts and agreements with any Governmental Entity
to which the Company is a party;
(vi) all contracts and agreements that limit or purport to
limit the ability of the Company to compete in any line of business or with any
person or in any geographic area or during any period of time;
(vii) all contracts containing confidentiality requirements
(including all nondisclosure agreements);
(viii) all contracts and agreements between or among the
Company and any shareholder of the Company or any affiliate of such person;
(ix) all contracts and agreements relating to the voting and
any rights or obligations of a shareholder of the Company;
(x) all contracts to manufacture for, supply to or distribute
to any third party any products or components;
(xi) all contracts regarding the acquisition, issuance or
transfer of any securities and each contract affecting or dealing with any
securities of the Company, including, without limitation, any restricted stock
agreements or escrow agreements;
14
(xii) all contracts providing for indemnification of any
officer, director, employee or agent of the Company;
(xiii) all contracts related to or regarding the performance
of consulting, advisory or other services or work of any type by any third
party;
(xiv) all other contracts that have a term of more than 60
days and that may not be terminated by the Company, without penalty, within 30
days after the delivery of a termination notice by the Company;
(xv) any agreement of the Company that is terminable upon or
prohibits assignment or a change of ownership or control of the Company;
(xvi) all other contracts and agreements, whether or not made
in the ordinary course of business, that contemplate an exchange of
consideration with an aggregate value greater than $10,000; and
(xvii) any agreement of guarantee, assumption or endorsement
of, or any similar commitment with respect to, the obligations, liabilities
(whether accrued, absolute, contingent or otherwise) or indebtedness of any
person other than software licenses or professional services contracts entered
into in the ordinary course of business.
(b) Each Material Contract (i) is valid and binding on the Company,
and, to the knowledge of the Company, on the other parties thereto, and is in
full force and effect, and (ii) upon consummation of the transactions
contemplated by this Agreement, shall continue in full force and effect without
penalty or other adverse consequence. The Company is not in breach or violation
of, or default under, any Material Contract and, to the knowledge of the
Company, no other party to any Material Contract is in breach or violation
thereof or default thereunder.
(c) The Company has delivered or made available to Parent accurate
and complete copies of all Material Contracts identified in Section 3.12(a) of
the Company Disclosure Schedule, including all amendments thereto. Section
3.12(a) of the Company Disclosure Schedule provides an accurate description of
the terms of each Material Contract that is not in written form.
(d) Except as set forth in Section 3.12(d) of the Company Disclosure
Schedule, to the Company's knowledge, no event has occurred, and no circumstance
or condition exists, that (with or without notice or lapse of time) will, or
could reasonably be expected to, (i) result in a breach or violation of, or
default under, any Material Contract, (ii) give any entity the right to declare
a default, seek damages or exercise any other remedy under any Material
Contract, (iii) give any entity the right to accelerate the maturity or
performance of any Material Contract or (iv) give any entity the right to
cancel, terminate or modify any Material Contract.
SECTION 3.13 Environmental Matters.
(a) The Company (i) is in compliance in all material respects with
all applicable Environmental Laws (as defined below), (ii) holds all material
Environmental Permits (as defined below) necessary to conduct the Company's
business and (iii) is in compliance in all material respects with its
Environmental Permits.
15
(b) The Company has not released and, to the knowledge of the
Company, no other person has released Hazardous Materials (as defined below) on
any real property owned or leased by the Company or, during their ownership or
occupancy of such property, on any property formerly owned or leased by the
Company.
(c) The Company has not received any written request for
information, or been notified that it is a potentially responsible party, under
CERCLA (as defined below) or any similar Law of any state, locality or any other
jurisdiction. The Company has not entered into or agreed to any consent decree
or order or is subject to any judgment, decree or judicial order relating to
compliance with Environmental Laws, Environmental Permits or the investigation,
sampling, monitoring, treatment, remediation, removal or cleanup of Hazardous
Materials and, to the knowledge of the Company, no investigation, litigation or
other proceeding is pending or threatened in writing with respect thereto.
(d) None of the real property currently or formerly owned or leased
by the Company is listed or, to the knowledge of the Company, proposed to be
listed on the "National Priorities List" under CERCLA, as updated through the
date of this Agreement, or any similar list of sites in the United States or any
other jurisdiction requiring investigation or cleanup.
For purposes of this Agreement:
"CERCLA" means the U.S. Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended as of the date hereof.
"Environmental Laws" means any Federal, state or local statute, law,
ordinance, regulation, rule, code or order of the United States, or any other
jurisdiction and any enforceable judicial or administrative interpretation
thereof, including any judicial or administrative order, consent decree or
judgment, relating to pollution or protection of the environment or natural
resources, including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Materials, as in effect as of the date of this Agreement.
"Environmental Permits" means any permit, approval, identification number,
license and other authorization required under any applicable Environmental Law.
"Hazardous Materials" means (i) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (ii) any chemical, material or
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
SECTION 3.14 Intellectual Property.
(a) The Company owns or is licensed for, and in any event possess
sufficient and legally enforceable rights with respect to, all Company
Intellectual Property (as defined below) relevant to their respective
16
businesses, as previously, presently or proposed to be conducted, or necessary
to conduct any such business without, to its knowledge with respect to patents
and Marks (as defined below) only, any conflict with or infringement or
misappropriation of any rights or property of any person ("Infringement"). Such
ownership, licenses and rights are exclusive except with respect to standard,
generally commercially available, "off-the-shelf" third party products that are
not part of any previous, current or proposed product, service or Intellectual
Property offering of the Company. "Intellectual Property" means (i) inventions
(whether or not patentable); trade names, trade and service marks, logos,
domains, URLs, websites, addresses and other designations ("Marks"); works of
authorship; mask works; data; technology, know-how, trade secrets, ideas and
information; designs; formulas; algorithms; processes; methods; schematics;
computer software (in source code and/or object code form); and all other
intellectual property of any sort ("Inventions") and (ii) patent rights; Xxxx
rights; copyrights; mask work rights; sui generis database rights; trade secret
rights; moral rights; and all other intellectual and industrial property rights
of any sort throughout the world, and all applications, registrations, issuances
and the like with respect thereto ("IP Rights"). "Company Intellectual Property"
means all Intellectual Property that was or is used, exercised, or exploited
("Used") or proposed to be Used in any business of the Company, or that may be
necessary to conduct any such business as previously or presently conducted or
proposed to be conducted; this term will also include all other Intellectual
Property owned by or licensed to the Company now or in the past. All
copyrightable matter within Company Intellectual Property that is relevant to
the Company has been created by persons who were employees of the Company at the
time of creation and no third party has or will have "moral rights" or rights to
terminate any assignment or license with respect thereto.
(b) To the extent included in Company Intellectual Property, Section
3.14(b) of the Company Disclosure Schedule lists (by name, number, jurisdiction
and owner) all patents and patent applications; all registered and unregistered
Marks; and all registered and material unregistered copyrights and mask works;
and all other issuances, registrations, applications and the like with respect
to those or any other IP Rights. All the foregoing (i) are valid, enforceable
and subsisting, and (ii) along with all related filings, registrations and
correspondence, have been provided to Parent. No cancellation, termination,
expiration or abandonment of any of the foregoing (except natural expiration or
termination at the end of the full possible term, including extensions and
renewals) is anticipated by the Company. The Company is not aware of any
questions or challenges (or any potential basis therefor) with respect to the
patentability or validity of any claims of any of the foregoing patents or
patent applications or the validity (or any other aspect or status) of any such
IP Rights.
(c) Section 3.14(c) of the Company Disclosure Schedule lists: (i)
all licenses, sublicenses and other agreements to which the Company is a party
(or by which it or any Company Intellectual Property is bound or subject) and
pursuant to which any person has been or may be assigned, authorized to Use,
granted any lien or encumbrance regarding, or given access to any Company
Intellectual Property other than (A) distribution of standard object code
product pursuant to a standard form end-user, object code, internal-use software
license and support/maintenance agreements entered into in the ordinary course
of business or (B) access provided under a standard form nondisclosure/nonuse
agreement; (ii) all licenses, sublicenses and other agreements pursuant to which
the Company has been or may be assigned or authorized to Use, or has incurred or
may incur any obligation in connection with, (A) any third party Intellectual
17
Property that may be influential in the development of, require payment with
respect to, be incorporated or embodied in, or form all or any part of any
previous, current or proposed product, service or Intellectual Property offering
of the Company or (B) any Company Intellectual Property and (iii) each agreement
pursuant to which the Company has deposited or is required to deposit with an
escrowholder or any other person, all or part of the source code (or any
algorithm or documentation contained in or relating to any source code) of any
Company Intellectual Property ("Source Materials"). The Company has not entered
into any agreement to indemnify, hold harmless or defend any other person with
respect to any assertion of Infringement or warranting the lack thereof, other
than indemnification provisions contained in standard forms of purchase orders
used in transactions arising in the ordinary course of business. Any standard
form referred to above in this section has been clearly identified as such and
provided to Parent.
(d) No event or circumstance has occurred, exists or is contemplated
(including, without limitation, the authorization, execution or delivery of this
Agreement or the consummation of any of the transactions contemplated hereby)
that (with or without notice or the lapse of time) could reasonably be expected
to result in (i) the breach or violation of any license, sublicense or other
agreement required to be listed in Section 3.14 of the Company Disclosure
Schedule (or specifically exempted in Section 3.14 from being listed), which
breach or violation could reasonably be expected to have a Company Material
Adverse Effect, (ii) the loss or expiration of any material right or option by
the Company (or the gain thereof by any third party) under any such license,
sublicense or other agreement or (iii) the release, disclosure or delivery to
any third party of any part of the Source Materials. Further, the Company make
all the same representations and warranties with respect to each license,
sublicense and agreement listed on Section 3.14 of the Company Disclosure
Schedule as are made with respect to Material Contracts elsewhere in this
Agreement.
(e) There is, to the knowledge of the Company, no unauthorized Use,
disclosure, or Infringement of any Company Intellectual Property (excluding any
such activity with respect to third party Intellectual Property outside the
scope of any exclusivity granted to the Company) by any third party, including,
without limitation, any employee or former employee of the Company. The Company
has not brought or threatened any action, suit or proceeding against any third
party for any Infringement of any Company Intellectual Property or any breach of
any license, sublicense or agreement involving Company Intellectual Property.
(f) The Company has taken all necessary and appropriate steps to
protect and preserve the confidentiality of all Company Intellectual Property
not otherwise disclosed in published patents or patent applications or
registered copyrights ("Company Confidential Information"). All use by and
disclosure to employees or others of Company Confidential Information has been
pursuant to the terms of valid and binding written confidentiality and
nonuse/restricted-use agreements or agreements that contain similar obligations.
The Company has not disclosed or delivered to any third party, or permitted the
disclosure or delivery to any escrow agent or other third party, any part of the
Source Materials.
(g) Each current and former employee and contractor of the Company
has executed and delivered (and to the Company's knowledge, is in compliance
with) an agreement in substantially the form of the Company's standard
Proprietary Information and Inventions Agreement (in the case of an employee) or
18
Consulting Agreement (in the case of a contractor) (which agreements provide
valid written assignments to the Company of all title and rights to any Company
Intellectual Property conceived or developed thereunder but not already owned by
the Company by operation of Law).
(h) The Company has not received any communication alleging or
suggesting that or questioning whether the Company has been or may be (whether
in its past, current or proposed business or otherwise) engaged in, liable for
or contributing to any Infringement, nor does the Company have any reason to
expect that any such communication will be forthcoming.
(i) The Company is not aware that any of its employees or
contractors is obligated under any agreement, commitment, judgment, decree,
order or otherwise (an "Employee Obligation") that could reasonably be expected
to interfere with the use of his or her best efforts to promote the interests of
the Company or that could reasonably be expected to conflict with any of their
businesses as conducted or proposed to be conducted. Neither the execution nor
delivery of this Agreement nor the conduct of the Company's business as
conducted or proposed to be conducted, will conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under, any
Employee Obligation. To the Company's knowledge, it is not Using, and it will
not be necessary to Use, (i) any Inventions of any of their past or present
employees or contractors (or people currently intended to be hired) made prior
to or outside the scope of their employment by the Company or (ii) any
confidential information or trade secret of any former employer of any such
person.
(j) All Software is free of all viruses, worms, trojan horses and
other infections or harmful routines and does not contain any bugs, errors, or
problems of a material nature that could reasonably be expected to disrupt its
operation or have an material adverse impact on the operation of other software
programs or operating systems. "Software" means software, programs, databases
and related documentation, in any form (including Internet sites, Internet
content and links) that is (i) material to the operation of the business of the
Company , including, but not limited to, that operated by the Company on its web
sites or used by the Company in connection with processing customer orders,
storing customer information, or storing or archiving data, or (ii)
manufactured, distributed, sold, licensed or marketed by the Company.
(k) The Company has obtained all approvals and agreements necessary
or appropriate (including, without limitation, assurances from customers
regarding further export) for exporting any Company Intellectual Property
outside the United States and importing any Company Intellectual Property into
any country in which they are or have been disclosed, sold or licensed for Use,
and all such export and import approvals in the United States and throughout the
world are valid, current, outstanding and in full force and effect.
SECTION 3.15 Taxes.
(a) All Tax (as defined below) returns, statements, reports,
declarations and other forms and documents (including without limitation
estimated Tax returns and reports and material information returns and reports)
required to be filed with any Tax Authority (as defined below) with respect to
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any Taxable (as defined below) period ending on or before the Closing, by or on
behalf of the Company (collectively, "Tax Returns" and individually, a "Tax
Return"), have been or will be completed and filed when due (including any
extensions of such due date) and all amounts shown due on such Tax Returns on or
before the Effective Time have been or will be paid on or before such date. The
Company has not incurred any material Tax liability since January 1, 2006 other
than in the ordinary course of business.
(b) The Company has withheld and paid to the applicable financial
institution or Tax Authority all amounts required to be withheld. No notice of
deficiency or similar document of any Tax Authority has been received by the
Company, and there are no liabilities for Taxes (including liabilities for
interest, additions to Tax and penalties thereon and related expenses) with
respect to the issues that have been raised (and are currently pending) by any
Tax Authority that could, if determined adversely to the Company, materially and
adversely affect the liability of the Company for Taxes. There are no liens for
Taxes (other than for current Taxes not yet due and payable) upon the assets of
the Company. The Company has never been a member of an affiliated group of
corporations, within the meaning of Section 1504 of the Code. The Company is in
full compliance with all the terms and conditions of any Tax exemption or other
Tax-sharing agreement or order of a foreign government, and the consummation of
the Merger will not have any adverse effect on the continued validity and
effectiveness of any such Tax exemption or other Tax-sharing agreement or order.
Neither the Company nor any person on behalf of the Company has entered into or
will enter into any agreement or consent pursuant to the collapsible corporation
provisions of Section 341(f) of the Code (or any corresponding provision of
state, local or foreign income tax Law) or agreed to have Section 341(f)(2) of
the Code (or any corresponding provision of state, local or foreign income tax
Law) apply to any disposition of any asset owned by the Company. None of the
assets of the Company is property that the Company is required to treat as being
owned by any other person pursuant to the so-called "safe harbor lease"
provisions of former Section 168(f)(8) of the Code. None of the assets of the
Company directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code. None of the assets of the Company is
"tax-exempt use property" within the meaning of Section 168(h) of the Code. The
Company has not made and will not make a deemed dividend election under Treas.
Reg. ss.1.1502-32(f)(2) or a consent dividend election under Section 565 of the
Code. The Company has never been a party (either as a distributing corporation,
a distributed corporation or otherwise) to any transaction intended to qualify
under Section 355 of the Code or any corresponding provision of state Law. The
Company has not participated in (and will not participate in) an international
boycott within the meaning of Section 999 of the Code. No Company Shareholder is
other than a United States person within the meaning of the Code. The Company
does not have and has not had a permanent establishment in any foreign country,
as defined in any applicable Tax treaty or convention between the United States
of America and such foreign country and the Company has not engaged in a trade
or business within any foreign country. The Company has never elected to be
treated as an S-corporation under Section 1362 of the Code or any corresponding
provision of Federal or state Law. After the date of this Agreement, no material
election with respect to Taxes will be made without the prior written consent of
Parent, which consent will not be unreasonably withheld or delayed. The Company
is not 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 is not currently and never has been subject to the reporting
requirements of Section 6038A of the Code. There is no agreement, contract or
20
arrangement to which the Company is a party that could, individually or
collectively, result in the payment of any amount that would not be deductible
by reason of Sections 280G (as determined without regard to Section 280G(b)(4)),
162 (other than 162(a)) or 404 of the Code. The Company is not a party to or
bound by any Tax indemnity, Tax sharing or Tax allocation agreement (whether
written or unwritten or arising under operation of Federal Law as a result of
being a member of a group filing consolidated Tax Returns, under operation of
certain state Laws as a result of being a member of a unitary group, or under
comparable Laws of other states or foreign jurisdictions) that includes a party
other than the Company nor does the Company owe any amount under any such
agreement. The Company has previously provided or made available to Parent true
and correct copies of all income, franchise, and sales Tax Returns, and, as
reasonably requested by Parent, prior to or following the date hereof, presently
existing information statements and reports. The Company is not, and has 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. Other than by reason of the Merger, the Company
has not been and will not be required to include any material adjustment in
Taxable income for any Tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax Laws
as a result of transactions, events or accounting methods employed prior to the
Merger.
(c) For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means any and all taxes including, without limitation, (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, value added, net worth, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity responsible for the imposition of any such
tax (domestic or foreign) (a "Tax Authority"), (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any taxable
period or as the result of being a transferee or successor thereof and (iii) any
liability for the payment of any amounts of the type described in (i) or (ii) as
a result of any express or implied obligation to indemnify any other person. As
used in this Section 3.15, the term "Company" means the Company and any entity
included in, or required under U.S. GAAP to be included in, any of financial
statements of the Company.
(d) The Company has not engaged in a transaction that is the same or
substantially similar to one of the types of transactions that the Internal
Revenue Service has determined to be a tax avoidance transaction and identified
by notice, regulation, or other form of published guidance as a listed
transaction, as set forth in Treas. Reg. Section 1.6011-4(b)(2).
SECTION 3.16 Vote Required. The only vote of the holders of any classes or
series of capital stock of the Company necessary to approve and adopt this
Agreement, the Merger and the other transactions contemplated by this Agreement
is the affirmative vote of the Shareholders in favor of the approval and
adoption of this Agreement and the Merger. The shares of Company Common Stock
owned by the Shareholders are sufficient to secure the affirmative vote of the
holders of all of the outstanding shares of the Company Common Stock in favor of
the approval and adoption of this Agreement and the Merger.
21
SECTION 3.17 Assets; Absence of Liens and Encumbrances. Except as set
forth in Section 3.17 of the Company Disclosure Schedule, the Company owns,
leases or has the legal right to use all of the material assets, properties and
rights of every kind, nature, character and description, including, without
limitation, real property and personal property (other than Intellectual
Property, which is covered by Section 3.14 hereof), used or intended to be used
in the conduct of the business of the Company or otherwise owned or leased by
the Company and, with respect to contract rights, is a party to and enjoys the
right to the benefits of all material contracts, agreements and other
arrangements used or intended to be used by the Company in or relating to the
conduct of the business of the Company (all such properties, assets and contract
rights being the "Assets"). The Company has good and marketable title to, or, in
the case of leased or subleased Assets, valid and subsisting leasehold interests
in, all the Assets, free and clear of all mortgages, liens, pledges, charges,
claims, defects of title, restrictions, infringements, security interests or
encumbrances of any kind or character ("Liens"). The equipment of the Company
used in the operations of their business is, taken as a whole, in good operating
condition and repair, ordinary wear and tear excepted.
SECTION 3.18 Owned Real Property. The Company does not own any real
property.
SECTION 3.19 Certain Interests. Except for the payment of employee
compensation in the ordinary course of business, consistent with past practice,
the Company has no liability or any other obligation of any nature whatsoever to
anyone (other than the Shareholders) or any affiliate thereof or to any officer
or director of the Company or, to the knowledge of the Company, to any immediate
relative or spouse (or immediate relative of such spouse) of any such officer or
director.
SECTION 3.20 Insurance Policies. Section 3.20 of the Company Disclosure
Schedule sets forth (i) a true and complete list of all insurance policies to
which the Company is a party or is a beneficiary or named insured and (ii) any
material claims made thereunder or made under any other insurance policy within
the past three years. True and complete copies of all such policies have been
provided to Parent. All premiums due on such policies have been paid and the
Company is otherwise in compliance with the terms of such policies. The Company
has not failed to give any notice or present any claim under any such policy in
a timely fashion. Such insurance to the date hereof has been maintained in full
force and effect and not been canceled or changed, except to extend the maturity
dates thereof. The Company has not received any notice or other communication
regarding any actual or possible (i) cancellation or threatened termination of
any insurance policy, (ii) refusal of any coverage or rejection of any claim
under any insurance policy or (iii) material adjustment in the amount of the
premiums payable with respect to any insurance policy.
SECTION 3.21 Restrictions on Business Activities. There is no agreement,
commitment, judgment, injunction, order or decree binding upon the Company or to
which the Company is a party which has or could reasonably be expected to have
the effect of prohibiting or materially impairing any business practice material
to the Company, any acquisition of property by the Company or the conduct of
business by the Company as currently conducted or as proposed to be conducted.
22
SECTION 3.22 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
origination, negotiation or execution of this Agreement, the Merger or the other
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
SECTION 3.23 State Takeover Statutes. The Board of Directors of the
Company has taken all action necessary to ensure that any restrictions on
business combinations contained in the CGC will not apply to the Merger and the
other transactions contemplated by this Agreement. No other "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover statute
or regulation or any anti-takeover provision in the Company's Articles of
Incorporation or Bylaws is, or at the Effective Time will be, applicable to the
Company, the shares of Company Stock, the Merger or the other transactions
contemplated by this Agreement.
SECTION 3.24 Customers and Suppliers. Section 3.24 of the Company
Disclosure Schedule contains a complete list of all customers who individually
accounted for more than 10% of the Company's gross revenues during the fiscal
years ended December 31, 2004 and 2005. No customer listed on Section 3.24 of
the Company Disclosure Schedule has, within the past 12 months, cancelled or
otherwise terminated, or made any threat to cancel or terminate, its
relationship with the Company, or decreased materially its usage of the
Company's services or products. No material supplier of the Company has
cancelled or otherwise terminated any contract with the Company prior to the
expiration of the contract term, or made any threat to the Company to cancel,
reduce the supply or otherwise terminate its relationship with the Company. The
Company has not (i) breached (so as to provide a benefit to the Company that was
not intended by the parties) any agreement with or (ii) engaged in any
fraudulent conduct with respect to, any customer or supplier of the Company.
SECTION 3.25 Accounts Receivable; Bank Accounts. All accounts receivable
of the Company are valid receivables subject to no setoffs or counterclaims and
are current and collectible (within 90 days after the date on which they first
became due and payable). All accounts receivable reflected in the financial or
accounting records of the Company that have arisen since January 1, 2006 are
valid receivables subject to no setoffs or counterclaims and are current and
collectible (within 90 days after the date on which they first became due and
payable), net of a reserve for bad debts in an amount proportionate to the
reserve shown on any balance sheet. Section 3.26 of the Company Disclosure
Schedule describes each account maintained by or for the benefit of the Company
at any bank or other financial institution.
SECTION 3.26 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company.
SECTION 3.27 Offers. The Company has suspended or terminated, and has the
legal right to terminate or suspend, all negotiations and discussions of any
acquisition, merger, consolidation or sale of all substantially all of the
assets of Company with parties other than Parent.
23
SECTION 3.28 Warranties. No product or service manufactured, sold, leased,
licensed or delivered by the Company is subject to any guaranty, warranty, right
of return, right of credit or other indemnity other than (i) the applicable
standard terms and conditions of sale or lease of the Company, which are set
forth in Section 3.29 of the Company Disclosure Schedule and (ii) manufacturers'
warranties for which the Company has no liability. Section 3.29 of the Company
Disclosure Schedule sets forth the aggregate expenses incurred by the Company in
fulfilling their obligations under their guaranty, warranty, right of return and
indemnity provisions and the Company does not know of any reason why such
expenses should significantly increase as a percentage of sales in the future.
SECTION 3.29 Books and Records. The minute books and other similar records
of the Company contain complete and accurate records of all actions taken at any
meetings of the Company's shareholders, Board of Directors or any committee
thereof and of all written consents executed in lieu of the holder of any such
meeting. The books and records of the Company accurately reflect in all material
respects the assets, liabilities, business, financial condition and results of
operations of the Company and have been maintained in accordance with good
business and bookkeeping practices.
SECTION 3.30 Tax Matters. Neither the Company nor any of its affiliates
has taken or agreed to take any action that would prevent the Merger from
constituting a reorganization qualifying under Section 368(a) of the Code. The
Company is not aware of any agreement, plan or other circumstance that would
prevent the Merger from qualifying as a reorganization under Section 368(a) of
the Code.
SECTION 3.31 No Misstatements. No representation or warranty made by the
Company in this Agreement, the Company Disclosure Schedule or any certificate
delivered or deliverable pursuant to the terms hereof contains or will contain
any untrue statement of a material fact, or omits, or will omit, when taken as a
whole, to state a material fact, necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading. The
Company has disclosed to Parent all material information relating to the
business of the Company or the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company that the
statements contained in this Article IV are true and correct as of the date of
this Agreement and as of the Effective Time (except for any such representation
and warranty that expressly is made as of a specific date, which such
representation and warranty shall be true and correct as of such date), subject
to such qualifications as set forth in (i) the disclosure schedule delivered by
Parent to the Company concurrently with the execution of this Agreement (the
"Parent Disclosure Schedule") and (ii) the Parent SEC Reports (as defined in
Section 4.05). The Parent Disclosure Schedule shall be arranged according to
specific sections in this Article IV and shall provide exceptions to, or
otherwise qualify in reasonable detail, only the corresponding section in this
Article IV.
24
SECTION 4.01 Organization and Qualification.
(a) Parent is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and otherwise hold and operate its
properties and other assets and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such corporate power and authority have not had, and could
not reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect (as defined below). Parent is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed and in good
standing has not had, and could not reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect. The term "Parent Material
Adverse Effect" means, since the release of Parent's last quarterly disclosure
statement, any event, change or effect that is materially adverse to the
business, operations, condition (financial or otherwise), assets (tangible or
intangible), liabilities, or results of operations of Parent taken as a whole,
except for any such events, changes or effects resulting from or arising in
connection with (i) any changes in general economic or business conditions that
do not disproportionately impact Parent taken as a whole, (ii) any changes or
events affecting the industry in which Parent operate that do not
disproportionately impact Parent taken as a whole, (iii) any decline in the
trading price of Parent Common Stock, (iv) any adverse change in the United
States securities market or (v) any failure by Parent to meet the revenue or
earnings predictions of equity analysts as reflected in the First Call consensus
estimates, or any other revenue or earnings estimate, or any other revenue or
earnings prediction or expectation, for any period ending (or for which earnings
are released) on or after the date of this Agreement and prior to the Closing
Date.
(b) Merger Sub is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of California.
SECTION 4.02 Authority Relative to This Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement, and to perform its obligations hereunder and to
consummate the Merger and the other transactions contemplated by this Agreement.
The execution and delivery of this Agreement by each of Parent and Merger Sub
and the consummation by each of Parent and Merger Sub of the Merger and the
other transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of Parent or Merger Sub are necessary to authorize this Agreement or
to consummate the Merger and the other transactions contemplated by this
Agreement (other than with respect to the Merger, the filing and recordation of
appropriate merger documents as required by the CGC). This Agreement has been
duly and validly executed and delivered by each of Parent and Merger Sub and,
assuming the due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of each of Parent and Merger
Sub, enforceable against each of Parent and Merger Sub in accordance with its
terms, subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar Laws affecting creditors' rights generally and
subject, as to enforceability, to the effect of general principles of equity.
25
SECTION 4.03 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by each of Parent
and Merger Sub do not, and the performance of this Agreement by each of Parent
and Merger Sub will not, (i) conflict with or violate their respective
organizational documents, (ii) assuming that all consents, approvals,
authorizations and other actions described in Section 4.03(b) have been obtained
and all filings and obligations described in Section 4.03(b) have been made or
complied with, conflict with or violate in any material respect any Law
applicable to Parent or Merger Sub or by which any property or asset of Parent
or Merger Sub is bound or affected, or (iii) conflict with, result in any breach
of or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset of Parent or Merger Sub pursuant
to, any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Parent or
Merger Sub is a party, except, with respect to clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults, or other occurrences that could
not reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
(b) The execution and delivery of this Agreement by each of Parent
and Merger Sub do not, and the performance of this Agreement by each of Parent
and Merger Sub will not, require any consent, approval, order, authorization,
registration or permit of, or filing with or notification to, any Governmental
Entity, except (i) for the filing and recordation of appropriate merger
documents as required by the CGC, (ii) for applicable requirements, if any, of
the Exchange Act of 1934, as amended (the "Exchange Act"), Federal and state
securities laws (including, without limitation, Section 25121 of the California
General Corporation Law) and Over the Counter Bulletin Board, and (iv) for such
other consents, approvals, orders authorizations, registrations or permits,
filings or notifications that if not obtained or made could not reasonably be
expected, individually or in the aggregate, to prevent or materially delay the
consummation of the transactions contemplated by this Agreement.
SECTION 4.04 Interim Operations of Merger Sub. Merger Sub was formed by
Parent solely for the purpose of engaging in the transactions contemplated by
this Agreement, has engaged in no other business activities and has conducted
its operations only as contemplated by this Agreement. Merger Sub has no
liabilities and, except for a subscription agreement pursuant to which all of
its authorized capital stock was issued to Parent, is not a party to any
agreement other than this Agreement and agreements with respect to the
appointment of registered agents and similar matters.
SECTION 4.05 Valid Issuance of Parent Shares. The shares of Parent Common
Stock to be issued pursuant to this Agreement will, when issued, be duly
authorized, validly issued, fully paid and non-assessable. Assuming that a
Shareholder complies with Parent's policies regarding xxxxxxx xxxxxxx and any
rules promulgated under the Securities Act of 1933, as amended, or the Exchange
Act, the shares of Parent Common Stock will be eligible for resale subject to
and in accordance with Rule 144 promulgated under the Exchange Act one year
following the Closing (including certain volume restrictions under such Rule
144).
26
SECTION 4.06 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Merger or the other transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Merger Sub.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01 Conduct of Business by the Company Pending the Merger. During
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, the Company agrees
(except to the extent that Parent shall otherwise consent in writing), to carry
on its business in the usual, regular and ordinary course and in substantially
the same manner as previously conducted, to pay its debts and Taxes when due
(subject to good faith disputes over such debts or Taxes), to pay or perform
other obligations when due and, to the extent consistent with such business, to
use all reasonable efforts consistent with past practices and policies to
preserve intact its present business organization, keep available the services
of its present officers and key employees and consultants and preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, to the end that its goodwill and
ongoing businesses would be unimpaired at the Effective Time. The Company shall
promptly notify Parent of any event or occurrence not in the ordinary course of
business of the Company.
By way of amplification and not limitation, except as specifically
contemplated by this Agreement or as specifically set forth in Section 5.01 of
the Company Disclosure Schedule, the Company shall not, between the date of this
Agreement and the Effective Time, directly or indirectly, do, or propose to do,
any of the following without the prior written consent of Parent:
(a) amend or otherwise change its Articles of Incorporation or
Bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber, authorize or
propose the issuance, sale, pledge, disposition, grant or encumbrance of any
shares of its capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such capital
stock or any other ownership interest (including, without limitation, any
phantom interest), of the Company, except pursuant to the terms of options,
warrants or preferred stock outstanding on the date of this Agreement;
(c) sell, lease, license, pledge, grant, encumber or otherwise
dispose of any of its properties or assets which are material, individually or
in the aggregate, to its business;
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock;
(e) split, combine, subdivide, redeem or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
purchase or otherwise acquire, directly or indirectly, any shares of its capital
stock except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service by such party;
27
(f) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest or any assets in
any corporation, partnership, other business organization or any division
thereof;
(g) institute or settle any Legal Proceeding;
(h) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any person, or make any loans or
advances;
(i) authorize any capital expenditure in excess of $10,000,
individually or in the aggregate;
(j) enter into any lease or contract for the purchase or sale of any
property, real or personal;
(k) waive or release any material right or claim;
(l) increase, or agree to increase, the compensation payable, or to
become payable, to its officers or employees, or grant any severance or
termination pay to, or enter into any employment or severance agreement with,
any of its directors, officers or other employees, or establish, adopt, enter
into or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other Plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer or
employee; provided, however, that the foregoing provisions of this subsection
shall not apply to any amendments to employee benefit plans described in Section
3(3) of ERISA that may be required by Law;
(m) accelerate, amend or change the period of exercisability or the
vesting schedule of restricted stock or Company Options granted under any option
plan, employee stock plan or other agreement or authorize cash payments in
exchange for any Company Options granted under any of such plans, except as
specifically required by the terms of such plans or any such agreement or any
related agreement in effect as of the date of this Agreement and disclosed in
the Company Disclosure Schedule;
(n) extend any offers of employment to potential employees,
consultants or independent contractors or terminate any existing employment
relationships;
(o) amend or terminate any Material Contract;
(p) enter into, amend or terminate any contract, agreement,
commitment or arrangement that, if fully performed, would not be permitted under
this Section 5.01;
28
(q) other than in the ordinary course of business consistent with
past practice, enter into any licensing, distribution, OEM agreements,
sponsorship, advertising, merchant program or other similar contracts,
agreements or obligations;
(r) enter into any contract or agreement material to the business,
results of operations or financial condition of the Company;
(s) pay, discharge or satisfy any material claim, liability or
obligation (absolute, accrued, asserted, unasserted, contingent or otherwise);
(t) take any action, with respect to accounting policies, principles
or procedures;
(u) make or change any Tax or accounting election, change any annual
accounting period, adopt or change any accounting method, file any amended Tax
Return, enter into any closing agreement, settle any Tax claim or assessment
relating to the Company, surrender any right to claim refund of Taxes, consent
to any extension or waiver of the limitation period applicable to any Tax claim
or assessment relating to the Company, or take any other action or omit to take
any action that would have the effect of increasing the Tax liability of the
Company or Parent;
(v) (i) sell, assign, lease, terminate, abandon, transfer, permit to
be encumbered or otherwise dispose of or grant any security interest in and to
any item of the Company Intellectual Property, in whole or in part, (ii) grant
any license with respect to any Company Intellectual Property, other than a
license of Software granted to customers of the Company to whom the Company
licenses such Software in the ordinary course of business, (iii) develop, create
or invent any Intellectual Property jointly with any third party, or (iv)
disclose, or allow to be disclosed, any confidential Company Intellectual
Property, unless such Company Intellectual Property is subject to a
confidentiality or non-disclosure covenant protecting against disclosure
thereof;
(w) make (or become obligated to make) any bonus payments to any of
its officers or employees;
(x) revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable;
(y) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained up to the date
of this Agreement, subject only to ordinary wear and tear;
(z) take any action or fail to take any action that would cause
there to be a Company Material Adverse Effect;
(aa) permit any insurance policy naming it as a beneficiary or a
loss payable payee to be cancelled or terminated without notice to Parent;
29
(bb) write off as uncollectible, or establish any extraordinary
reserve with respect to, any account receivable or other indebtedness in excess
of $5,000 with respect to a single matter, or in excess of $10,000 in the
aggregate; or
(cc) take, or agree in writing or otherwise to take, any of the
actions described in subsections (a) through (bb) above, or any action which is
reasonably likely to make any of the Company's representations or warranties
contained in this Agreement untrue or incorrect on the date made (to the extent
so limited) or as of the Effective Time.
SECTION 5.02 Litigation. The Company shall notify Parent in writing
promptly after learning of any claim, action, suit, arbitration, mediation,
proceeding or investigation by or before any court, arbitrator or arbitration
panel, board or other Governmental Entity initiated by it or against it, or
known by the Company to be threatened against the Company or any of its
officers, directors, employees or shareholders in their capacity as such.
SECTION 5.03 Notification of Certain Matters. Parent shall give prompt
notice to the Company, and the Company shall give prompt notice to Parent, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause (x) any representation or
warranty contained in this Agreement to be untrue or inaccurate or (y) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied; and (ii) any failure or inability of Parent or the Company,
as the case may be, to comply with or satisfy, any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.03 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice. The parties hereto acknowledge that reliance shall not be an element of
any claim or cause of action by any party hereto for misrepresentation or breach
of a representation, warranty or covenant under this Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 Company Shareholder Approval; Exemption from Registration.
(a) As promptly as practicable, and in any event within 30 days
after the date hereof, and in accordance with applicable Law, the Company's
Articles of Incorporation and Bylaws, the Company shall convene a meeting of its
shareholders or solicit written consents from its shareholders to obtain their
approval and adoption of this Agreement and the other transactions contemplated
hereby. The Company shall ensure that the shareholders' meeting is called,
noticed, convened and held, and that all proxies or written consents are
solicited and obtained from the Company Shareholders, in compliance with
applicable Law, the Company's Articles of Incorporation and Bylaws, and all
other applicable legal requirements. The Company agrees to use its best efforts
to take all action necessary or advisable to secure the necessary votes required
by applicable Law and the Company's Articles of Incorporation and Bylaws to
effect the Merger. The Board of Directors of the Company shall unanimously
recommend that the Company Shareholders vote in favor of and adopt and approve
this Agreement and the other transactions contemplated hereby. Neither the Board
of Directors of the Company nor any committee thereof shall withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify in a manner adverse
to Parent, the recommendation of the Board of Directors of the Company that the
Company Shareholders vote in favor of and adopt and approve this Agreement and
the other transactions contemplated hereby.
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(b) Each of the parties hereto acknowledge that the shares of Parent
Common Stock issued to the Company Shareholders pursuant to this Agreement are
intended to be issued pursuant to the "private placement" exemption from
registration under Section 4(2) of the Securities Act and/or Regulation D
promulgated under the Securities Act and agree to fully cooperate with Parent in
its efforts to ensure that the shares of Parent Common Stock may be issued
pursuant to such private placement exemption; provided, however, that neither
Parent nor Merger Sub makes any representation or warranty that such issuance in
fact qualifies for such private placement exemption.
(c) Notwithstanding the foregoing and anything to the contrary in
Article VII hereof, in the event that Parent, based on advice of its counsel,
has determined that the shares of Parent Common Stock to be issued pursuant to
this Agreement cannot be issued under the "private placement" exemption from
registration under Section 4(2) of the Securities Act and/or Regulation D
promulgated under the Securities Act, then at Parent's sole and exclusive
election the parties hereto shall take all action necessary to prepare and file
(A) all necessary applications and documents required to be filed with the
California Department of Corporations to qualify the issuance of the shares of
Parent Common Stock pursuant to this Agreement under the "fairness hearing"
exemption from registration under Section 3(a)(10) of the Securities Act (the
"Fairness Hearing Exemption") or (B) a registration statement on Form S-4 with
the SEC which registers the issuance of the shares of Parent Common Stock
pursuant to this Agreement (the "Form S-4 Alternative"). Parent and the Company
shall use, and shall cause their officers, employees, agents, advisors or other
representatives to use, their respective reasonable best efforts to effectuate
the foregoing (and fully cooperate with the other parties), including, without
limitation, preparing and filing all applications, documents and forms necessary
to qualify the issuance of the shares of Parent Common Stock under the Fairness
Hearing Exemption or to register the shares of Parent Common Stock on an
effective registration statement on Form S-4. In the event that shares of Parent
Common Stock are issued pursuant to the Fairness Hearing Exemption or the Form
S-4 Alternative, no Shares of Parent Common Stock (or certificates therefor)
shall be issued in exchange for any Company Stock Certificates to any person
who, prior to the Effective Time, may be an "affiliate" (as that term is used in
Rule 145 under the Securities Act) of the Company until such person has
delivered to Parent and the Company a duly executed Affiliate Agreement in the
form provided by Parent.
SECTION 6.02 Access to Information; Confidentiality.
(a) From the date of this Agreement to the Effective Time, the
Company shall: (i) provide to Parent (and its officers, directors, employees,
accountants, consultants, legal counsel, advisors, agents and other
representatives (collectively, "Representatives")) access at reasonable times
upon prior notice to the directors, officers, employees, agents, properties,
offices and other facilities of the Company and to the books and records thereof
and (ii) furnish promptly such information concerning the business, properties,
contracts, assets, liabilities, personnel and other aspects of the Company as
Parent or its Representatives may reasonably request.
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(b) The parties shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under the
Non-Disclosure Agreement, dated December 20, 2005 (the "Non-Disclosure
Agreement"), between the Company and Parent, except that such obligations are
hereby limited to (3) three years from its December 15, 2005, effective date.
Notwithstanding anything herein to the contrary, each party (and its
Representatives) may consult any tax advisor regarding the tax treatment and tax
structure of the transactions contemplated hereby and may disclose to any
person, without limitation of any kind, the tax treatment and tax structure of
the transactions contemplated hereby and all materials (including opinions or
other tax analyses) that are provided relating to such treatment or structure.
SECTION 6.03 No Solicitation of Transactions.
(a) The Company will not, directly or indirectly, and will instruct
its Representatives not to, directly or indirectly, solicit, initiate or
encourage (including by way of furnishing nonpublic information), or take any
other action to facilitate, any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to its shareholders) that
constitutes, or may reasonably be expected to lead to, any Competing Transaction
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing Transaction, or
authorize or permit any of the officers, directors or employees of the Company,
or any investment banker, financial advisor, attorney, accountant or other
representative retained by the Company, to take any such action. The Company
will notify Parent immediately after receipt by the Company (or any of its
officers, directors, employees, agents, advisors or other representatives) of
any proposal for, or inquiry respecting, any Competing Transaction, or any
request for nonpublic information in connection with such proposal or inquiry or
for access to the properties, books or records of the Company by any person that
informs or has informed the Company that it is considering making or has made
such a proposal or inquiry. Such notice to Parent shall indicate in reasonable
detail the identity of the person making such proposal or inquiry and the terms
and conditions of such proposal or inquiry. The Company immediately shall cease
and cause to be terminated all existing discussions or negotiations with any
parties conducted heretofore with respect to a Competing Transaction. The
Company agrees not to release any third party from, or waive any provision of,
any confidentiality or standstill agreement to which it is a party.
(b) A "Competing Transaction" means any of the following involving
the Company (other than the Merger and the other transactions contemplated by
this Agreement): (i) a merger, consolidation, share exchange, business
combination or other similar transaction; (ii) any sale, lease, exchange,
transfer or other disposition of a material portion of the assets or debt or
equity securities of such party; (iii) a tender offer or exchange offer for 15%
or more of the outstanding voting securities of such party; or (iv) any
solicitation in opposition to approval by the shareholders of the Company of
this Agreement and the Merger.
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SECTION 6.04 Employee Benefits Matters.
(a) Simultaneously with the execution of this Agreement, Parent has
entered into an employment agreement (the "Employment Agreement") with Xxxx
Xxxxx.
(b) Prior to the Effective Time, the Company shall take all
necessary actions to obtain the requisite shareholder approval under Section
280G(b)(5) of the Code of any payments or benefits that could be considered
"excess parachute payments" within the meaning of Section 280G of the Code and
shall require all "disqualified individuals" within the meaning of Section 280G
of the Code to subject their existing benefits and payments to the shareholder
approval requirements of Section 280G(b)(5) of the Code, as contemplated in the
Proposed Treasury Regulations promulgated thereunder. The Company further agrees
that whether or not its shareholders approve any such excess parachute payments,
neither Parent nor the Surviving Corporation shall have any responsibility or
liability with respect to any excise taxes owed by the recipients of any such
payments.
(c) By giving the Company written notice not less than three
business days prior to the Closing Date, Parent may request that the Company
take all necessary corporate action to terminate its 401(k) plan (the "401(k)
Plan") effective as of the date immediately prior to the Closing Date, but
contingent on the Closing. If Parent provides such notice to the Company, Parent
shall receive from the Company evidence that the Company's Board of Directors
has adopted resolutions to terminate the 401(k) Plan (the form and substance of
which resolutions shall be subject to review and approval of Parent), effective
as of the date immediately preceding the Closing Date.
(d) The Company and, as applicable, its ERISA Affiliates each agree
to terminate any and all group severance, separation or salary continuation
plans, programs or arrangements immediately prior to Closing. Parent shall
receive from the Company evidence that the plans, programs or arrangements of
the Company and, as applicable, each ERISA Affiliate have been terminated
pursuant to resolutions adopted by each such entity's Board of Directors (the
form and substance of which resolutions shall be subject to review and approval
of the Parent), effective as of the day immediately preceding the Closing Date
but contingent on the Closing.
(e) With respect to all stock purchase, stock option and stock award
agreements (including any restricted stock, stock purchase, stock option or
stock award agreement under the Stock Plan) between the Company and any current
or former employee, director, consultant or founder effective as of the
Effective Time, any and all rights of repurchase under each such agreement shall
be assigned to Parent (or to such other entity as Parent shall designate) by
virtue of the Merger and without any further action on the part of the Company,
such assignment to be effective as of the Effective Time.
SECTION 6.05 Further Action; Consents; Filings.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use its reasonable best efforts to (i) take, or cause to be
taken, all appropriate action and do, or cause to be done, all things necessary,
proper or advisable under applicable Law or otherwise to consummate and make
33
effective the Merger and the other transactions contemplated by this Agreement,
(ii) obtain from any Governmental Entity or any other person all consents,
licenses, permits, waivers, approvals, authorizations or orders required to be
obtained or made by Parent or the Company or any of their subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Merger and the other transactions contemplated by this
Agreement and (iii) make all necessary filings, and thereafter make any other
required submission, with respect to this Agreement, the Merger and the other
transactions contemplated by this Agreement required under applicable Law. The
parties hereto shall cooperate with each other in connection with the making of
all such filings, including by providing copies of all such documents to the
nonfiling party and its advisors prior to filing and, if requested, by accepting
all reasonable additions, deletions or changes suggested in connection
therewith.
(b) From the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, each party shall promptly
notify the other party in writing of any pending or, to the knowledge of such
party, threatened action, proceeding or investigation by any Governmental Entity
or any other person (i) challenging or seeking material damages in connection
with this Agreement or the transactions contemplated hereunder or (ii) seeking
to restrain or prohibit the consummation of the Merger or the transactions
contemplated hereunder or otherwise limit the right of Parent to own or operate
all or any portion of the business, assets or properties of the Company.
SECTION 6.06 Plan of Reorganization.
(a) This Agreement is intended to constitute a "plan of
reorganization" within the meaning of Section 1.368-2(g) of the income tax
regulations promulgated under the Code. From and after the date of this
Agreement and until the Effective Time, each party hereto shall use its
reasonable best efforts to cause the Merger to qualify, and will not knowingly
take any action, cause any action to be taken, fail to take any action or cause
any action to fail to be taken which action or failure to act could prevent the
Merger from qualifying as a reorganization under the provisions of Section
368(a) of the Code. Following the Effective Time, neither the Surviving
Corporation, Parent nor any of their affiliates shall knowingly take any action,
cause any action to be taken, fail to take any action or cause any action to
fail to be taken, which action or failure to act could cause the Merger to fail
to qualify as a reorganization under Section 368(a) of the Code.
(b) As of the date hereof, the Company does not know of any reason
(i) why it would not be able to deliver to Tyre Kamins Xxxx Xxxxxx & Xxxxx, a
law corporation ("Tyre Kamins" counsel to the Company), at the date of the legal
opinion referred to below, a representation letter substantially in compliance
with Internal Revenue Service published advance ruling guidelines, with
customary exceptions and modifications thereto, to enable such firms to deliver
the legal opinion contemplated by Section 7.02(d), and the Company hereby agrees
to deliver such representation letter effective as of the date of such opinion,
or (ii) why Tyre Kamins would not be able to deliver the opinions required by
Section 7.02(d). As of the date hereof, Parent and Merger Sub do not know of any
reason why they would not be able to deliver or Tyre Kamins, at the date of the
legal opinion referred to below, a representation letter substantially in
compliance with the Internal Revenue Service published advance ruling
guidelines, with customary exceptions and modifications thereto, to enable such
firm to deliver the legal opinion contemplated by Section 7.02(d), and Parent
hereby agrees to deliver such representation letters effective as of the date of
such opinions, or (ii) why Tyre Kamins would not be able to deliver the opinion
required by Sections 7.02(d).
34
SECTION 6.07 No Public Announcement. The initial press release relating to
this Agreement shall be a joint press release the text of which has been agreed
to by each of Parent and the Company. Thereafter, unless otherwise required by
applicable Law, neither the Company nor any Shareholder shall issue any press
release or otherwise make any public statements with respect to this Agreement,
the Merger or any of the other transactions contemplated by this Agreement
without the prior written consent of Parent.
SECTION 6.08 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement, the Merger and other
transactions contemplated by this Agreement (including, without limitation, the
fees and expenses of financial advisors, accountants and legal counsel) (i) if
incurred by Parent and Merger Sub, shall be paid by Parent and (ii) if incurred
by the Company or its shareholders (the "Shareholder Expenses"), shall be paid
by the Company, not to exceed $10,000.
SECTION 6.09 Affiliate Agreements. In the event that Parent elects to
issue the shares of Parent Common Stock pursuant to the Fairness Hearing
Exemption or the Form S-4 Alternative, the Company shall cause each person that
could reasonably be deemed to be an "affiliate" of the Company for purposes of
the Securities Act to execute and deliver to Parent, as promptly as practicable
after the execution of this Agreement, an Affiliate Agreement in the form
provided by Parent.
SECTION 6.10 Shareholder Certificates. Each Shareholder shall execute and
deliver to Parent prior to Closing a Shareholder Certificate.
SECTION 6.11 Non-Competition; Non-Solicitation
(a) Non-Compete. During the period beginning upon the Xxxx Xxxxx'
termination of employment with Parent to begin upon the Closing and continuing
for three (3) years thereafter, Xxxx Xxxxx agrees that he will not, as an
employee, agent, consultant, advisor, independent contractor, general partner,
officer, director, shareholder, investor, lender or guarantor of any
corporation, partnership or other entity, or in any other capacity directly or
indirectly in the United States of America:
(i) participate or engage in the design, development,
manufacture, production, marketing, sale or servicing of any product, or
otherwise engage in the provision of any services to, any person or entity that
engages in a business that is directly competitive to the Parent; or
(ii) permit his name to be used in connection with a business
that is directly competitive to the Parent.
(b) Non-Solicitation. In addition to, and not in limitation of, any
obligations of Xxxx Xxxxx under any employment offer letter or agreement or
employee invention assignment or confidentiality agreement, if any, between Xxxx
Xxxxx and Parent or between Xxxx Xxxxx and the Company, Xxxx Xxxxx further
agrees that while employed by Parent and for a period of one (1) year following
Xxxx Xxxxx' termination of employment with Parent:
35
(i) Xxxx Xxxxx will not directly or indirectly solicit or
attempt to solicit away employees or consultants of Parent or Company for Xxxx
Xxxxx' own benefit or for the benefit of any other person or entity; provided,
however, that nothing herein shall prohibit generalized searches through media
advertising, employment search firms or otherwise that are not specifically
focused on persons employed by Parent or Company; and
(ii) Xxxx Xxxxx will not directly or indirectly interfere with
or take away or attempt to take away suppliers or customers of Parent or
Company.
(c) Xxxx Xxxxx hereby acknowledges and agrees that:
(i) the covenants and agreements in this Section 6.11 are
necessary for the protection of the legitimate business interests of Parent in
acquiring Company;
(ii) the inclusion of this Section 6.11 in this Agreement is a
mandatory condition precedent to the closing of the Merger, without which Parent
would not close the transactions contemplated by the Merger Agreement;
(iii) the scope of this Section 6.11 in time, geography and
types and limitations of activities restricted is reasonable;
(iv) Xxxx Xxxxx has no intention of competing with Parent
within the area and the time limits set forth in this Section 6.11; and
(v) breach of this Section 6.11 will be such that Parent will
not have an adequate remedy at law because of the unique nature of the
operations and the assets being conveyed to Parent.
ARTICLE VII.
CONDITIONS TO THE MERGER
SECTION 7.01 Conditions to the Obligations of Each Party. The respective
obligations of the Company, Parent and Merger Sub to consummate the Merger are
subject to the satisfaction or waiver (where permissible) of the following
conditions:
(a) Shareholder Approval. This Agreement shall have been approved
and adopted by the requisite affirmative vote of the shareholders of the Company
in accordance with the CGC and the Company's Articles of Incorporation and
Bylaws;
(b) No Order. No Governmental Entity or court of competent
jurisdiction located or having jurisdiction in the United States shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
decree, judgment, injunction or other order, whether temporary, preliminary or
permanent (each an "Order") which is then in effect and has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger.
36
SECTION 7.02 Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Representations and Warranties. Each of the representations and
warranties made by the Company in this Agreement that are qualified as to
materiality or Company Material Adverse Effect, or any similar standard or
qualification, shall be true and correct in all respects, and each of the
representations and warranties made by the Company in this Agreement that are
not qualified as to materiality or Company Material Adverse Effect, or any
similar standard or qualification, shall be true and correct in all material
respects, in each case as of the Effective Time with the same force and effect
as if made on and as of the Effective Time, except that those representations
and warranties that address matters only as of a particular date shall remain
true and correct as of such date, and Parent shall have received a certificate
of the Chief Executive Officer of the Company to that effect;
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time and Parent shall have received a certificate of the Chief
Executive Officer of the Company to that effect;
(c) Approvals. Parent shall have received, each in form and
substance reasonably satisfactory to Parent, all authorizations, consents,
orders and approvals (i) required by any Governmental Entity or official, if
any, (ii) set forth in Section 7.02(c) of the Company Disclosure Schedule or
(iii) the failure of which to obtain would have, or could reasonably be expected
to have, a Company Material Adverse Effect;
(d) Vote in Favor of the Merger. Shareholders holding at least 100%
of the Company Stock outstanding immediately prior to the Effective Time must
have voted such stock in favor of or consented in writing to the approval and
adoption of this Agreement, the Merger and the other transactions contemplated
by this Agreement;
(e) No Company Material Adverse Effect. No event or events shall
have occurred, or could be reasonably likely to occur, which, individually or in
the aggregate, have, or could reasonably be expected to have, a Company Material
Adverse Effect;
(f) Affiliate Agreements. In the event that Parent elects to issue
the shares of Parent Common Stock pursuant to the Fairness Hearing Exemption or
the Form S-4 Alternative, each of the affiliates of the Company shall have
executed and delivered to Parent an Affiliate Agreement and such agreement shall
remain in full force and effect and shall not have been anticipatorially
breached or repudiated by any of such affiliates;
(g) No Restraints. There shall not be pending or threatened any
suit, action, investigation or proceeding to which a Governmental Entity is a
party (i) seeking to restrain or prohibit the consummation of the Merger or any
of the other transactions contemplated by this Agreement or seeking to obtain
from Parent or the Company any damages that are material or (ii) seeking to
prohibit or limit the ownership or operation by Parent or the Company of any
material portion of their respective businesses or assets;
37
(h) Issuance of Shares of Parent Common Stock. If Parent elects to
utilize the Fairness Hearing Exemption or the Form S-4 Alternative, either (i)
the California Department of Corporations shall have issued an approval under
Section 25121 of the California Corporate Securities Law of 1968, as amended,
for the issuance of the shares of Parent Common Stock to be issued pursuant to
this Agreement, and all applicable requirements of Section 3(a)(10) of the
Securities Act shall have been satisfied, or (ii) the registration statement on
Form S-4 shall have become effective under the Securities Act and shall not be
the subject of any stop order or proceeding seeking a stop order;
(i) Termination of Employee Plans. The Company shall have terminated
the Plans identified by Parent prior to Closing, and the Company shall have
provided Parent with evidence, reasonably satisfactory to Parent, as to the
termination of such Plans;
(j) Opinion of the Company's Counsel. Parent shall have received the
opinion of Tyre Kamins, counsel to the Company, or another counsel reasonably
satisfactory to Parent, substantially in the form attached hereto as Exhibit B;
(k) Secretary's Certificate. Parent shall have received (i) a
certificate executed by the Secretary of the Company attaching and certifying as
to matters customary for a transaction of this sort, including, without
limitation, the true and correct copies of the Company's current Articles of
Incorporation and Bylaws and copies of the resolutions of the Company's Board of
Directors and the Company Shareholders approving and adopting this Agreement and
the transactions relating hereto, and (ii) such other documents relating to the
transactions contemplated by this Agreement as Parent may reasonably request;
(l) FIRPTA Compliance. The Company shall, prior to the Closing Date,
provide Parent with a properly executed Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA") Notification Letter, in form and substance satisfactory
to Parent, which states that shares of capital stock of the Company do not
constitute "United States real property interests" under Section 897(c) of the
Code, for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3). In addition, simultaneously with delivery of such
Notification Letter, the Company shall have provided to Parent, as agent for the
Company, a form of notice to the Internal Revenue Service in accordance with the
requirements of Treasury Regulation Section 1.897-2(h)(2) along with written
authorization for Parent to deliver such notice form to the Internal Revenue
Service on behalf of the Company upon the consummation of the Merger;
(m) Parachute Payments. Prior to the Effective Time, the Company
shall have obtained the requisite shareholder approval under Section 280G(b)(5)
of the Code of any payments or benefits that could be considered "excess
parachute payments" within the meaning of Section 280G of the Code, and any
"disqualified individuals" as defined in Section 280G of the Code shall have
agreed to forfeit any payments that would otherwise be non-deductible if such
shareholder approval is not obtained;
38
(n) Board and Officer Resignations. The Company shall have received
written letters of resignation from each of the current members of the Board of
Directors and officers of the Company, in each case effective at the Effective
Time;
(o) Termination of 401(k) Plan. If requested by Parent pursuant to
Section 6.04(e), the Company shall have terminated the 401(k) Plan effective at
least one day prior to the Closing Date and all contributions payable to the
401(k) Plan shall have been made. The Company shall have provided to Parent (i)
executed resolutions of the Board of Directors of the Company authorizing the
termination and (ii) an executed amendment to the 401(k) Plan sufficient to
ensure compliance with all applicable requirements of the Code and regulations
thereunder so that the tax-qualified status of the 401(k) Plan will be
maintained at the time of termination.
SECTION 7.03 Conditions to the Obligations of the Company. The obligations
of the Company to consummate the Merger are subject to the satisfaction or
waiver (where permissible) of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Parent and Merger Sub contained in this Agreement that are
qualified as to materiality or Parent Material Adverse Effect, or any similar
standard or qualification, shall be true and correct, and each of the
representations and warranties of Parent and Merger Sub contained in this
Agreement that are not qualified as to materiality or Parent Material Adverse
Effect, or any similar standard or qualification, shall be true and correct in
all material respects, in each case as of the Effective Time with the same force
and effect as if made on and as of the Effective Time, except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date, and the Company shall have
received a certificate of a duly authorized officer of Parent to that effect;
(b) Agreements and Covenants. Each of Parent and Merger Sub shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it on
or prior to the Effective Time, and the Company shall have received a
certificate of a duly authorized officer of Parent to that effect;
(c) No Parent Material Adverse Effect. No event or events shall have
occurred, or could be reasonably likely to occur, which, individually or in the
aggregate, have, or could reasonably be expected to have, a Parent Material
Adverse Effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 Termination. This Agreement may be terminated and the Merger
and the other transactions contemplated by this Agreement may be abandoned at
any time prior to the Effective Time, notwithstanding any requisite approval and
adoption of this Agreement and the transactions contemplated by this Agreement,
as follows:
(a) by mutual written consent duly authorized by the Boards of
Directors of each of Parent and the Company;
39
(b) by either Parent or the Company upon the issuance of any Order
which is final and nonappealable which would (i) prevent the consummation of the
Merger, (ii) prohibit Parent's or the Company's ownership or operation of any
portion of the business of the Company or (iii) compel Parent or the Company to
dispose of or hold separate, as a result of the Merger, any portion of the
business or assets of the Company or Parent;
(c) by Parent upon a breach of any material representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions set forth in Sections 7.02(a)
and 7.02(b) would not be satisfied ("Terminating Company Breach"); provided,
however, that, if such Terminating Company Breach is curable by the Company
through the exercise of its best efforts and for so long as the Company
continues to exercise such best efforts, Parent may not terminate this Agreement
under this Section 8.01(c) unless such breach is not cured within 30 days after
notice thereof is provided by Parent to the Company (but no cure period is
required for a breach which, by its nature, cannot be cured); or
(d) by the Company upon a breach of any material representation,
warranty, covenant or agreement on the part of Parent and Merger Sub set forth
in this Agreement, or if any representation or warranty of Parent and Merger Sub
shall have become untrue, in either case such that the conditions set forth in
Sections 7.03(a) and 7.03(b) would not be satisfied ("Terminating Parent
Breach"); provided, however, that, if such Terminating Parent Breach is curable
by Parent and Merger Sub through the exercise of their respective best efforts
and for so long as Parent and Merger Sub continue to exercise such best efforts,
the Company may not terminate this Agreement under this Section 8.01(d) unless
such breach is not cured within 30 days after notice thereof is provided by the
Company to Parent (but no cure period is required for a breach which, by its
nature, cannot be cured).
SECTION 8.02 Effect of Termination. In the event of termination of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void,
there shall be no liability under this Agreement on the part of Parent, Merger
Sub or the Company or any of their respective officers or directors, and all
rights and obligations of each party hereto shall cease; provided, however, that
(i) Section 6.02(b), Section 6.08, Section 8.02 and Article X shall remain in
full force and effect and survive any termination of this Agreement and (ii)
nothing herein shall relieve any party from liability for the willful breach of
any of its representations or warranties or the breach of any of its covenants
or agreements set forth in this Agreement.
SECTION 8.03 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 8.04 Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto,
and (c) waive compliance with any agreement or condition contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
40
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 Survival of Representations and Warranties. The
representations and warranties of the Company and the Shareholders the contained
in this Agreement, the Shareholder Certificates and any other document or
certificate relating hereto (collectively, the "Acquisition Documents") shall
survive the Effective Time for a period of 18 months; provided, however, that
the representations and warranties set forth in Section 3.14 shall survive the
Effective Time for a period of 18 months; provided further that the
representations and warranties set forth in Sections 3.01, 3.02, 3.03, 3.04,
3.05, 3.06, 3.13, 3.15, 3.16, 3.20 (the "Company Basic Representations") shall
survive until the end of the applicable statute of limitations. The
representations and warranties of Parent contained in the Acquisition Documents
shall not survive beyond the Effective Time. Neither the period of survival nor
the liability of the Shareholders with respect to the Company's and the
Shareholders' representations and warranties shall be affected by any
investigation made at any time (whether before or after the Effective Time) by
or on behalf of Parent or by any actual, implied or constructive knowledge or
notice of any facts or circumstances that Parent may have as a result of any
such investigation or otherwise. The parties hereto agree that reliance shall
not be an element of any claim for misrepresentation or indemnification under
this Agreement. The waiver by Parent of any condition based on the accuracy of
any such representation or warranty, or based on the performance of, or
compliance with, any covenant or obligation, shall not affect the right to
indemnification or other remedy based on such representations, warranties,
covenants or obligations. If written notice of a claim has been given prior to
the expiration of the applicable representations and warranties by Parent to the
Shareholders, then the relevant representations and warranties shall survive as
to such claim until such claim has been finally resolved.
SECTION 9.02 Indemnification by the Shareholders. (a) After the Effective
Time, Parent and its affiliates (including, after the Effective Time, the
Surviving Corporation), officers, directors, employees, agents, successors and
assigns (collectively, the "Parent Indemnified Parties") shall be indemnified
and held harmless by the Shareholders for any and all liabilities, losses,
damages of any kind, diminution in value, claims, costs, expenses, fines, fees,
deficiencies, interest, awards, judgments, amounts paid in settlement and
penalties (including, without limitation, attorneys', consultants' and experts'
fees and expenses and other costs of defending, investigating or settling
claims) suffered, incurred, accrued (in accordance with U.S. GAAP) or paid by
them (including, without limitation, in connection with any action brought or
otherwise initiated by any of them) (collectively, "Losses"), without adjustment
for any insurance recovery or tax deduction relating thereto, arising out of or
resulting from:
(i) any inaccuracy or breach of any representation or warranty
(without giving effect to any qualification as to materiality (or similar
qualifications) contained therein) made by the Company or the Shareholders in
the Acquisition Documents;
(ii) the breach of any covenant or agreement made by the
Company or the Shareholders in the Acquisition Documents;
41
(iii) Losses from breach of contract or other claims made by
any party alleging to have had a contractual or other right to acquire the
Company's capital stock or assets;
(iv) in the event that any Shareholder properly exercises
dissenters' rights under applicable Law, the amount, if any, by which the fair
market value (determined in accordance with applicable Law) of the Dissenting
Shares exceeds the amount such Company Shareholder was otherwise entitled to
receive pursuant to Section 2.01 of this Agreement;
(v) any cost, loss or other expense (including the value of
any Tax deduction lost) as a result of the application of Section 280G of the
Code to any of the transactions contemplated by this Agreement plus any
necessary gross up amount; or
(vi) any Shareholder Expenses payable by the Surviving
Corporation following the Closing.
(b) As used herein, "Losses" are not limited to matters asserted by
third parties, but include Losses incurred or sustained by the Parent
Indemnified Parties in the absence of claims by third parties.
(i) Notwithstanding anything to the contrary contained in this
Agreement, except with respect to (A) claims for equitable remedies and (B)
claims based on fraud or willful misrepresentation or misconduct, the maximum
aggregate amount of indemnifiable Losses arising out of or resulting from the
causes enumerated in Section 9.02(a) that may be recovered from each Company
Shareholder shall not exceed the Aggregate Merger Consideration multiplied by
such Shareholder's Percentage Ownership set forth on Schedule B.
(c) By virtue of their adoption of this Agreement and their approval
of the transactions contemplated hereby, the Company Shareholders acknowledge
and agree that, if the Surviving Corporation suffers, incurs or otherwise
becomes subject to any Losses as a result of or in connection with any
inaccuracy in or breach of any representation, warranty, covenant or obligation,
then (without limiting any of the rights of the Surviving Corporation as an
Indemnitee) Parent shall also be deemed, by virtue of its ownership of the stock
of the Surviving Corporation, to have incurred Losses as a result of and in
connection with such inaccuracy or breach.
(d) No Shareholder shall have any right of contribution, right of
indemnity or other right or remedy against the Surviving Corporation in
connection with any indemnification obligation or any other liability to which
such shareholder may become subject under or in connection this Agreement.
(e) Notwithstanding anything herein to the contrary, the Company's
representations and warranties contained in Article III of this Agreement shall,
for purposes of the Company's indemnification obligations, be deemed to be made
as of the date of this Agreement and as of the Effective Time (except for any
such representation or warranty that expressly speaks of an earlier date)
without regard to the exceptions set forth in the certificates delivered in
connection with Section 7.02(a).
42
SECTION 9.03 Indemnification Procedures.
(a) For purposes of this Section 9.03, a party against which
indemnification may be sought is referred to as the "Indemnifying Party" and the
party which may be entitled to indemnification is referred to as the
"Indemnified Party".
(b) The obligations and liabilities of Indemnifying Parties under
this Article IX with respect to Losses arising from actual or threatened claims
or demands by any third party which are subject to the indemnification provided
for in this Article IX ("Third Party Claims") shall be governed by and
contingent upon the following additional terms and conditions: if an Indemnified
Party shall receive notice of any Third Party Claim, the Indemnified Party shall
give the Indemnifying Party notice of such Third Party Claim within 90 days of
the receipt by the Indemnified Party of such notice; provided, however, that the
failure to provide such notice shall not release an Indemnifying Party from any
of its obligations under this Article IX except to the extent that such
Indemnifying Party is materially prejudiced by such failure. The notice of claim
shall describe in reasonable detail the facts known to the Indemnified Party
giving rise to such indemnification claim, and the amount or good faith estimate
of the amount arising therefrom.
(c) If the Indemnifying Party acknowledges in writing its obligation
to indemnify the Indemnified Party hereunder against any Losses that may result
from such Third Party Claim, then the Indemnifying Party shall be entitled to
assume and control the defense of such Third Party Claim through counsel of its
choice (such counsel to be reasonably acceptable to the Indemnified Party) if it
gives notice of its intention to do so to the Indemnified Party within 10 days
of the receipt of such notice from the Indemnified Party; provided, however,
that the Indemnifying Party shall not have the right to assume the defense of
the Third Party Claim if (i) any such claim seeks, in addition to or in lieu of
monetary losses, any injunctive or other equitable relief, (ii) the Indemnifying
Party fails to provide reasonable assurance to the Indemnified Party of the
adequacy of the Escrow Fund to provide indemnification in accordance with the
provisions of this Agreement with respect to such proceeding, (iii) there is
reasonably likely to exist a conflict of interest that would make it
inappropriate (in the judgment of the Indemnified Party in its reasonable
discretion) for the same counsel to represent both the Indemnified Party and the
Indemnifying Party, or (iv) settlement of, or an adverse judgment with respect
to, the Third Party Claim may establish (in the good faith judgment of the
Indemnified Party) a precedential custom or practice adverse to the business
interests of the Indemnified Party or would increase the Tax liability of the
Indemnified Party; provided further, that if by reason of the Third Party Claim
a Lien, attachment, garnishment, execution or other encumbrance is placed upon
any of the property or assets of such Indemnified Party, the Indemnifying Party,
if it desires to exercise its right to assume such defense of the Third Party
Claim, must agree to use a portion of the Escrow Fund to furnish a satisfactory
indemnity bond to obtain the prompt release of such Lien, attachment,
garnishment, execution or other encumbrance. If the Indemnifying Party assumes
the defense of a Third Party Claim, it will conduct the defense actively,
diligently and at its own expense, and it will hold all Indemnified Parties
harmless from and against all Losses caused by or arising out of any settlement
thereof. The Indemnified Party shall cooperate with the Indemnifying Party in
such defense and make available to the Indemnifying Party, at the Indemnifying
Party's expense, all witnesses, pertinent records, materials and information in
the Indemnified Party's possession or under the Indemnified Party's control
relating thereto as is reasonably requested by the Indemnifying Party. Except
43
with the written consent of the Indemnified Party (not to be unreasonably
withheld), the Indemnifying Party will not, in the defense of a Third Party
Claim, consent to the entry of any judgment or enter into any settlement (i)
which does not include as an unconditional term thereof the giving to the
Indemnified Party by the third party of a release from all liability with
respect to such suit, claim, action, or proceeding; (ii) unless there is no
finding or admission of (A) any violation of Law by the Indemnified Party (or
any affiliate thereof), (B) any liability on the part of the Indemnified Party
(or any affiliate thereof) or (C) any violation of the rights of any person and
no effect on any other claims of a similar nature that may be made by the same
third party against the Indemnified Party (or any affiliate thereof); or (iii)
which exceeds the then current value of the (A) Escrow Shares remaining in the
Escrow Fund plus (B) the Holdback Cash.
(d) In the event that the Indemnifying Party fails or elects not to
assume the defense of an Indemnified Party against such Third Party Claim which
the Indemnifying Party had the right to assume pursuant to Section 9.03(c), the
Indemnified Party shall have the right, at the expense of the Indemnifying
Party, to defend or prosecute such claim in any manner as it may reasonably deem
appropriate and may settle such claim after giving written notice thereof to the
Indemnifying Party, on such terms as such Indemnified Party may deem
appropriate, and the Indemnified Party may seek prompt reimbursement from the
Escrow Fund for any Losses incurred in connection with such settlement. If no
settlement of such Third Party Claim is made, the Indemnified Party may seek
prompt reimbursement from the Escrow Fund for any Losses arising out of any
judgment rendered with respect to such claim. Any Losses for which an
Indemnified Party is entitled to indemnification hereunder shall be promptly
paid as suffered, incurred or accrued (in accordance with U.S. GAAP). If the
Indemnifying Party does not elect to assume the defense of a Third Party Claim
which it has the right to assume hereunder, the Indemnified Party shall have no
obligation to do so.
(e) In the event that the Indemnifying Party is not entitled to
assume the defense of the Indemnified Party against such Third Party Claim
pursuant to Section 9.03(c), the Indemnified Party shall have the right, at the
expense of the Indemnifying Party, to defend or prosecute such claim and consent
to the entry of any judgment or enter into any settlement with respect to the
Third Party Claim in any manner it may reasonably deem appropriate after giving
written notice thereof to the Indemnifying Party, and the Indemnified Party may
seek prompt reimbursement from the Escrow Fund for any Losses incurred in
connection with such judgment or settlement. In such case, the Indemnified Party
shall conduct the defense of the Third Party Claim actively and diligently, and
the Indemnifying Party shall cooperate with the Indemnified Party in such
defense and make available to the Indemnified Party, at the Indemnifying Party's
expense, all such witnesses, records, materials and information in the
Indemnifying Party's possession or under the Indemnifying Party's control
relating thereto as is reasonably requested by the Indemnified Party. If no
settlement of such Third Party Claim is made, the Indemnified Party shall be
reimbursed from the Escrow Fund and Holdback Cash on a pro-rata basis for any
Losses arising out of any judgment rendered with respect to such claim. Any
Losses for which an Indemnified Party is entitled to indemnification hereunder
shall be promptly paid from the Escrow Fund and Holdback Cash on a pro-rata
basis as suffered, incurred or accrued (in accordance with U.S. GAAP).
SECTION 9.04 Release of Escrow Shares.
44
(a) First Escrow Shares. Within ten business days following 90 days
after of the Effective Time, Parent will deliver to the Shareholders 16.25% of
the Parent Shares minus any portion of the Escrow Fund that is necessary to
satisfy one-half of all unsatisfied or disputed Claims specified in any notice
of Third Party Claim delivered to the Shareholders before the 90-day anniversary
of the Effective Time (the "First Escrow Shares"). If any Third Party Claims are
pending but not resolved on the 90-day anniversary of the Effective Time, then
Parent will retain possession and custody of the amount of the First Escrow
Shares that have a value equal to one-half of the Losses then being claimed by
Parent in all such pending Third Party Claims, and, as soon as all such Third
Party Claims have been resolved, Parent will deliver to the Shareholders any
remaining portion of the First Escrow Shares not required to satisfy one-half of
such Third Party Claims.
(b) Second Escrow Shares. Within ten business days following 180
days after of the Effective Time, Parent will deliver to the Shareholders 16.25%
of the Parent Shares minus any portion of the Escrow Fund that is necessary to
satisfy one-half of all unsatisfied or disputed Claims specified in any notice
of Third Party Claim delivered to the Shareholders before the 180-day
anniversary of the Effective Time (the "Second Escrow Shares"). If any Third
Party Claims are pending but not resolved on the 180-day anniversary of the
Effective Time, then Parent will retain possession and custody of the amount of
the Second Escrow Shares that have a value equal to one-half of the Losses then
being claimed by Parent in all such pending Third Party Claims, and, as soon as
all such Third Party Claims have been resolved, Parent will deliver to the
Shareholders any remaining portion of the Second Escrow Shares not required to
satisfy one-half of such Third Party Claims.
(c) Third Escrow Shares. Within ten business days following 270 days
after of the Effective Time, Parent will deliver to the Shareholders 16.25% of
the Parent Shares minus any portion of the Escrow Fund that is necessary to
satisfy one-half of all unsatisfied or disputed Claims specified in any notice
of Third Party Claim delivered to the Shareholders before the 270-day
anniversary of the Effective Time (the "Third Escrow Shares"). If any Third
Party Claims are pending but not resolved on the 270-day anniversary of the
Effective Time, then Parent will retain possession and custody of the amount of
the Third Escrow Shares that have a value equal to one-half of the Losses then
being claimed by Parent in all such pending Third Party Claims, and, as soon as
all such Third Party Claims have been resolved, Parent will deliver to the
Shareholders any remaining portion of the Third Escrow Shares not required to
satisfy one-half of such Third Party Claims.
(d) Fourth Escrow Shares. Within ten business days following 360
days after of the Effective Time, Parent will deliver to the Shareholders 16.25%
of the Parent Shares minus any portion of the Escrow Fund that is necessary to
satisfy one-half of all unsatisfied or disputed Claims specified in any notice
of Third Party Claim delivered to the Shareholders before the 360-day
anniversary of the Effective Time (the "Fourth Escrow Shares"). If any Third
Party Claims are pending but not resolved on the 360-day anniversary of the
Effective Time, then Parent will retain possession and custody of the amount of
the Fourth Escrow Shares that have a value equal to one-half of the Losses then
being claimed by Parent in all such pending Third Party Claims, and, as soon as
all such Third Party Claims have been resolved, Parent will deliver to the
Shareholders any remaining portion of the Fourth Escrow Shares not required to
satisfy one-half of such Third Party Claims.
45
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, facsimile, telegram or telex or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 10.01):
(a) if to Parent or Merger Sub:
InfoSearch Media, Inc.
0000 Xxx Xxx Xxxxxx
Xxxxxx Xxx Xxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: Chief Financial Officer
with a copy to:
Xxxxxxxxx Xxxxxxx Xxxxxx Xxxxxxxxxx Xxxxxxxx &
Xxxxxxxxx, LLP
000 Xxxxxxxxxxxx Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxxxxxx X. Xxxxxx
(b) if to the Company:
Answerbag, Inc.
[Address]
Facsimile No.: [Number]
Attention: Xxxx Xxxxx
with a copy to:
Tyre Kamins Xxxx Xxxxxx & Xxxxx, a law corporation
0000 Xxxxxxx Xxxx Xxxx
Xxx Xxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxxx Xxxx
(c) if to the Shareholders:
Xxxx Xxxxx
[Address]
Facsimile No.: [Number]
46
SECTION 10.02 Certain Definitions. (a) As used in this Agreement, the
following terms shall have the following meanings:
(i) "affiliate" of a specified person means a person who
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such specified person.
(ii) "beneficial owner" with respect to any shares means a
person who shall be deemed to be the beneficial owner of such shares (i) which
such person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of consideration
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or associates or person with whom such person or
any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares.
(iii) "business day" means any day on which banks are not
required or authorized to close in Los Angeles, California.
(iv) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise.
(v) "person" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without limitation, a
"person" as defined in Section 13(d)(3) of the Exchange Act), trust, association
or entity or government, political subdivision, agency or instrumentality of a
government.
(vi) "subsidiary" or "subsidiaries" of any person means any
corporation, partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary) owns,
directly or indirectly, more than 50% of the stock or other equity interests,
the holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other legal
entity.
SECTION 10.03 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement
be consummated as originally contemplated to the fullest extent possible.
47
SECTION 10.04 Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of Law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors, heirs and assigns.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
SECTION 10.05 Incorporation of Exhibits. The Company Disclosure Schedule,
the Parent Disclosure Schedule, the Schedules and all Exhibits attached hereto
and referred to herein are hereby incorporated herein and made a part hereof for
all purposes as if fully set forth herein.
SECTION 10.06 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof in addition to any other
remedy at law or in equity.
SECTION 10.07 Governing Law; Forum. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of California applicable
to contracts executed in and to be performed in that state and without regard to
any applicable conflicts of law. In any action between the parties hereto
arising out of or relating to this Agreement or any of the transactions
contemplated by this Agreement: (i) each of the parties irrevocably and
unconditionally consents and submits to the exclusive jurisdiction and venue of
either the state courts located in Los Angeles County, California or the United
States District Court for the Central District of California and (ii) each of
the parties irrevocably consents to service of process by first class certified
mail, return receipt requested, postage prepaid.
SECTION 10.08 Time of the Essence. For purposes of this Agreement and the
transactions contemplated by this Agreement, time is of the essence.
SECTION 10.09 Waiver of Jury Trial. Each of the parties hereto hereby
irrevocably waives any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby.
48
SECTION 10.10 Construction and Interpretation.
(a) For purposes of this Agreement, whenever the context requires,
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against any party, whether under any rule of
construction or otherwise. No party to this Agreement shall be considered the
draftsman. The parties acknowledge and agree that this Agreement has been
reviewed, negotiated, and accepted by all parties and their attorneys and shall
be construed and interpreted according to the ordinary meaning of the words used
so as fairly to accomplish the purposes and intentions of all parties hereto.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Articles," "Sections," "Schedules" and "Exhibits" are intended to refer to
an Article or Section of, or Schedule or Exhibit to, this Agreement.
(e) Except as otherwise indicated, all references (i) to any
agreement (including this Agreement), contract or Law are to such agreement,
contract or Law as amended, modified, supplemented or replaced from time to
time, and (ii) to any Governmental Entity include any successor to that
Governmental Entity.
SECTION 10.11 Further Assurances. Each party hereto shall execute and
cause to be delivered to each other party hereto such instruments and other
documents, and shall take such other actions, as such other party may reasonably
request (prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
SECTION 10.12 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 10.13 Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in two or more counterparts, each of which
when executed and delivered shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 10.14 Entire Agreement. This Agreement (including the Exhibits,
the Schedules, the Company Disclosure Schedule and the Parent Disclosure
Schedule) and the Non-Disclosure Agreement constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
49
IN WITNESS WHEREOF, each of Parent, Merger Sub, the Company and the
Shareholders has executed or has caused this Agreement to be executed by its
duly authorized officer as of the date first written above.
INFOSEARCH MEDIA, INC.
By: /s/ Xxxxxx Xxxxxxx
------------------------------------
Name:
Title: CEO and President
APOLLO ACQUISITION CORP.
By: /s/ Xxxxx Xxxxxxxx, XX
------------------------------------
Name:
Title: President
ANSWERBAG, INC.
By: /s/ Xxxx Xxxxx
------------------------------------
Name:
Title:
SHAREHOLDERS
/s/
------------------------------------
Xxxx Xxxxx
/s/
------------------------------------
Xxxxx Xxxxx
/s/
------------------------------------
Xxxxxxx Xxxxx
EXHIBIT A
Form of Company Counsel Legal Opinion
E-1
EXHIBIT B
Form of Shareholder Certificate
E-2
SCHEDULE A
Purchase Price Contingencies
1) Xxxx Xxxxx continued employment with Parent. Termination for Cause (as
defined below) by Parent or termination without Good Reason (as defined
below) by Xxxx Xxxxx will adjust the Aggregate Merger Consideration such
that no additional payments of the Holdback Cash will be made the
Shareholders and no additional Parent Shares shall be released from Escrow
following such termination.
2) Traffic Volume. The Aggregate Merger Consideration will be adjusted for
any material drops in Traffic (calculated by average daily page views over
a quarter) according to the following:
a. If in any given fiscal quarter, the first quarter beginning on the
start date of Xxxx Xxxxx'x employment with Parent (the "Start Date")
Traffic drops by more than 10% as compared to the prior quarter,
payment will be adjusted proportionately. For example, a 20% drop in
Traffic will yield a 20% reduction in the next payment of Holdback
Cash and release of Escrow Shares.
b. Notwithstanding any reductions in Section 2(a), if 360 days after
the Closing, the average daily page views over the prior month has
returned to 300% of the monthly level one month prior to the Start
Date, Parent will pay the full Aggregate Merger Consideration.
c. If Traffic did not increase by at least 10% every month, on average,
during the period from September 1, 2005 through December 31, 2005,
then the Company shall bear the burden of proof that such average
increase is possible for the 2006 calendar year. Growth in Traffic
will be measured from January 1, 2006 through June 30, 2006. If the
average increase is 10% or higher, then there will be no purchase
price adjustment. If it is less than 10%, then the price will be
adjusted as follows. [Language to come from Xxxx Xxxxx.]
To the extent that there is a material disagreement regarding the
management of the Company's website, and Parent's management imposes changes
that materially and negatively impact the traffic received by the Company
website, then Section 2 of this Schedule A section shall not apply. In order to
establish material disagreement, provided Xxxx Xxxxx is informed of the change
prior to the change, Xxxx Xxxxx must provide notice in writing to Parent's
management within two business days of any material decision imposed by
InfoSearch management which might, in Xxxx Xxxxx' opinion, negatively affect the
Company's traffic. Parent's management will have two business days to confirm or
retract its decision. If the decision is retracted, Section 2 shall remain in
force and, if the material change was implemented, the Traffic volume for the
affected time disregarded with respect to computing Traffic volume for the
purposes of this Section 2 of Schedule A.
This Section 2 of Schedule A also shall not apply if (a) there is a material and
prolonged Traffic drop as a result of an Act of God, such as the unavailability
of service due to the destruction of the infrastructure in case of earthquake or
flooding; (b) in material part, an electronic or technical problem prevents or
negatively affects Traffic such as a DNS error, improper DNS routing, or a
performance decline due to Parent's (or Parent's agent's) failure to adequately
maintain databases, servers, and the like.
E-3
In the event that Xxxx Xxxxx dies or is disabled such that he cannot
provide written notice as described in this Section 2, Xxxxx Xxxxx shall be
entitled to make such objections on his behalf.
3) Definitions:
For purposes of this Schedule A, "Cause" shall mean the following actions by
Xxxx Xxxxx: (a) the unauthorized use or disclosure of the Parent's confidential
information or trade secrets, which use or disclosure causes material harm to
the Parent, (b) any material breach of any agreement between Xxxx Xxxxx and the
Parent in effect as of the Closing, (c) the material failure to comply with the
Parent's written policies or rules if compliance is reasonable and after one
written warning (if such warning is practicable), (d) any conviction of, or your
plea of "guilty" or "no contest" to, a felony under the laws of the United
States or any State, (e) any gross negligence or willful misconduct, (f) any
continuing failure to perform assigned duties after receiving written
notification of the failure from the Parent's Board of Directors or (g) any
failure to cooperate in good faith with a governmental or internal investigation
of the Parent or its directors, officers or employees, if the Parent has
requested such cooperation.
For purposes of this Schedule A, "Good Reason" shall include the elimination or
material reduction in Xxxx Down's initial position or responsibilities with
Parent within twelve months of a "Change of Control Event" (as defined below).
For the purposes of this Agreement, a "Change of Control Event" shall be the
occurrence of a single shareholder (or beneficial owner) acquiring 51% of the
then outstanding ordinary shares (or securities convertible into 51% of the then
outstanding ordinary shares) of the Company.
E-4
Schedule B
Company Shareholders
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Name Percentage Ownership
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Xxxx Xxxxx 77%
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Xxxxx Xxxxx 15%
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Xxxxxxx Xxxxx 8%
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E-5
