EXHIBIT 2.3
AGREEMENT AND PLAN OF REORGANIZATION
among GOODNOISE CORPORATION,
GNA CORPORATION,
INTERNET UNDERGROUND MUSIC ARCHIVE, INC. and
the CERTAIN SHAREHOLDERS
of INTERNET UNDERGROUND MUSIC ARCHIVE, INC.
May 16, 1999
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered
into this 16th day of May 1999, by and among GoodNoise Corporation, a Florida
corporation ("GoodNoise"), GNA Corporation, a Delaware corporation and wholly-
owned subsidiary of GoodNoise ("Sub"), INTERNET UNDERGROUND MUSIC ARCHIVE, Inc.,
a California corporation ("IUMA") and the shareholders of IUMA signing this
Agreement (the "Principal Shareholders").
RECITALS
A. The parties intend that, subject to the terms and conditions
hereinafter set forth, Sub shall be merged with and into IUMA, with IUMA the
surviving corporation (the "Merger"), pursuant to an Agreement of Merger
substantially in the form attached hereto as Exhibit A (the "Agreement of
---------
Merger") and the applicable provisions of the laws of the State of California
and Delaware. Upon the Merger, the shareholders of IUMA shall be entitled to
receive shares of GoodNoise common stock, par value $0.01 per share, at the
exchange ratio set forth herein.
B. For federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended.
AGREEMENT
NOW, THEREFORE, in reliance on the foregoing recitals and in and for the
consideration and mutual covenants set forth herein, the parties agree as
follows:
1. DEFINITIONS.
1.1 "Affiliate" shall have the meaning set forth in the rules and
regulations promulgated by the Commission pursuant to the Securities Act.
1.2 "California Law" shall mean the California General Corporation Law, as
amended.
1.3 "Closing" and "Closing Date" shall have the meanings set forth in
Section 2.4.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5 "Commission" shall mean the Securities and Exchange Commission.
1.6 "Confidential Information" shall mean that information of a party
("Disclosing Party") which is disclosed to another party ("Receiving Party")
pursuant to this Agreement, in written form and marked "Confidential." If
Confidential Information is initially disclosed orally, the Disclosing Party
shall send a written summary of such information to the Receiving Party within
fifteen (15) days of disclosure and xxxx such summary "Confidential."
Confidential
Information shall include, but not be limited to, trade secrets, know-how,
inventions, techniques, processes, algorithms, software programs, schematics,
designs, contracts, customer lists, financial information, sales and marketing
plans and business information.
1.7 "Contaminant" shall mean, without limitation, any pollutants,
residues, infectious materials, flammable, dangerous, toxic or hazardous
substances, hazardous materials or waste of any description whatsoever, except
for non-hazardous waste of the kind generated in the normal course of
operations, including any of the foregoing as defined in or regulated under any
Environmental Law, including but not limited to polychlorinated biphenyls,
asbestos or asbestos containing materials, petroleum and petroleum containing
materials.
1.8 "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
1.9 "Dissenting Shares" shall mean any IUMA Shares held by persons
who have not voted such shares for approval of the Merger and with respect to
which such persons have become entitled to exercise dissenter's rights in
accordance with the California General Corporation Law.
1.10 "Effective Time" shall mean the time the Merger becomes effective
as defined in Section 2.5.
1.11 "Entity" shall mean corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
1.12 "Environmental Activity" shall mean, without limitation, any
activity, event or circumstance in respect of a Contaminant, including, without
limitation, its storage, use, holding, collection, purchase, accumulation,
assessment, generation, manufacture, construction, processing, treatment,
recycling, stabilization, disposition, handling or transportation or its
affirmative or accidental release into the natural environment including
movement through or in the air, soil, subsoil, surface water or groundwater or
any other activity, event or circumstance which is subject to any of the
Environmental Laws including but not limited to noise, vibration, odor or
similar nuisance.
1.13 "Exchange Ratio" shall mean that for each outstanding IUMA Share,
such share will be converted into the right to receive that number of shares of
GoodNoise Common Stock as is determined in accordance with Section 2.2 hereof.
1.14 "Environmental Laws" shall mean laws relating to the environment
or any Environmental Activity.
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1.15 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
1.16 "GoodNoise Shares" shall mean the aggregate number of shares of
GoodNoise common stock, par value $0.01 per share, issued in accordance with
Section 2.2.
1.17 "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body, or Entity and any court or
other tribunal).
1.18 "Indemnification Period" shall mean the period commencing on the
Closing Date and ending at the close of business on the eighteen (18) month
anniversary of the Closing Date.
1.19 "IUMA Shareholders" shall mean the holders of the IUMA Shares and
those who have a right to acquire any IUMA Shares.
1.20 "IUMA Shares" shall mean the shares of IUMA Shares issued and
outstanding at the Effective Time.
1.21 "Legal Proceeding" shall mean any action, suit, litigation,
arbitration proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, inquiry, audit, examination or
investigation commenced, brought, conducted or heard by or before, or otherwise
involving any court or other Governmental Body or any arbitrator or arbitration
panel.
1.22 "Material" when capitalized and used in reference to the
business, products or financial situation of IUMA shall be construed, except as
specifically provided, to qualify the matter referred to herein to matters with
a value in excess of $5,000. For example, a "Material adverse effect" would be
an adverse effect resulting in costs or expenses in excess of $5,000. When the
word "material" is not capitalized it shall mean material with respect to the
matter referenced. For example, a reference to a material breach of a
particular agreement would mean a breach that is material with respect to the
particular contract (and not necessarily with respect to the overall business of
IUMA or GoodNoise).
1.23 "Merger" shall mean the merger of Sub with and into IUMA, on the
terms and conditions described herein.
1.24 "Music Rights" shall mean any music recording masters, musical
arrangements, copyrights, lyrics, song titles, artwork, graphics, song rights or
other forms of music-related intellectual property rights or licenses thereto
whether on an exclusive or nonexclusive basis.
1.25 "Person" shall mean any individual, Entity or Governmental Body.
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1.26 "Proprietary Asset" shall mean: (a) any patent, patent application,
trademark (whether registered or unregistered), trademark application, trade
name, fictitious business name, service xxxx (whether registered or
unregistered), service xxxx application, copyright (whether registered or
unregistered), copyright application, maskwork, maskwork application, trade
secret, know-how, customer list, franchise, system, computer software, computer
program, invention, design, blueprint, engineering drawing, proprietary product,
technology, proprietary right or other intellectual property right or intangible
asset; and (b) any right to use or exploit any of the foregoing including rights
granted by third parties under license agreements.
1.27 "Representatives" shall mean officers, directors, employees, agents,
attorneys, accountants and advisors.
1.28 "Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations thereunder, all as
the same shall be in effect at the time.
1.29 "Tax" or "Taxes" shall mean all U.S. federal, territorial, state,
municipal, local or other taxes, including without limitation income capital,
sales and use taxes, value added and goods and services taxes, excise taxes,
transfer and stamp taxes, custom duties and franchise taxes, real and personal
property taxes and payroll taxes (including tax withholdings, employer health
taxes, workers' compensation assessments and ERISA plans and unemployment
insurance premiums, contributions and remittances and the U.S. equivalents
thereof), and penalties, interest and surcharges in respect of any of the
foregoing and all words derived from or including the word "Tax," such as
"Taxing" and "Taxation" shall bear a corresponding meaning.
1.30 "Transaction Documents" shall mean all documents or agreements
required to be delivered by any party hereunder including the Agreement of
Merger.
2. PLAN OF REORGANIZATION.
2.1 The Merger. Subject to the terms and conditions of this Agreement, Sub
shall be merged with and into IUMA in accordance with the applicable provisions
of the laws of the States of California and Delaware and with the terms and
conditions of this Agreement so that:
(a) At the Effective Time, Sub shall be merged with and into IUMA. As
a result of the Merger, the separate corporate existence of Sub shall cease and
IUMA shall continue as the surviving corporation (sometimes referred to herein
as the "Surviving Corporation") and shall succeed to and assume all of the
rights and obligations of Sub in accordance with the laws of the States of
California and Delaware.
(b) The Articles of Incorporation and the Bylaws of IUMA in effect
immediately prior to the Effective Time shall be the articles of incorporation
and bylaws, respectively, of the Surviving Corporation after the Effective Time
unless and until further amended as provided by law.
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(c) The directors and officers of Sub immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation
after the Effective Time. Such directors and officers shall hold their position
until the election and qualification of their respective successors or until
their tenure is otherwise terminated in accordance with the Bylaws of Surviving
Corporation.
2.2 Cancellation of Shares and Delivery of Consideration.
(a) At the Effective Time, each IUMA Share shall, by virtue of the
Merger, and without further action on the part of any holder thereof, be
converted and exchanged for the right to receive (the "Exchange Ratio") that
number of GoodNoise Shares as is equal to 448,000 divided by the number of IUMA
Shares outstanding at the Effective Time (on a fully diluted basis giving effect
to any options, warrants or other rights to acquire IUMA Shares issued and
outstanding at the Effective Date).
(b) At the Effective Time, each share of capital stock of Sub
outstanding immediately prior to the Merger shall, by virtue of the Merger, and
without further action on the part of any holder thereof, continue to be issued
and shall be converted into one share of IUMA common stock outstanding after the
Merger.
(c) The Exchange Ratio shall be adjusted to reflect the effect of any
stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into GoodNoise Common Stock or IUMA
Shares), reorganization, recapitalization or other like change with respect to
GoodNoise Common Stock or capital stock occurring after the date hereof and
prior to the Effective Time.
(d) No fraction of a share of GoodNoise Common Stock shall be issued,
but in lieu thereof each holder of IUMA Shares who would otherwise be entitled
to a fraction of a share of GoodNoise Common Stock (after aggregating all
fractional shares of GoodNoise Common Stock to be received by such holder) shall
receive from GoodNoise an amount of cash (rounded to the nearest whole cent)
equal to the product of (i) such fraction, multiplied by (ii) the average last
sale price of a share of GoodNoise Common Stock for the five most recent days
that GoodNoise Common Stock has traded ending on the trading day immediately
prior to the Effective Time.
2.3 Any Dissenting Shares shall not be converted into GoodNoise
Common Stock but shall instead be entitled to the rights of Dissenting Shares
pursuant to the California Law. IUMA agrees that, except with the prior written
consent of GoodNoise, or as required under the California Law, it will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for the exercise of dissenters rights. Each holder of Dissenting
Shares (a "Dissenting Shareholder") who, pursuant to the provisions of the
California Law, becomes entitled to payment for IUMA Shares shall receive
payment therefor (but only after the value therefor shall have been agreed upon
or finally determined pursuant to such provisions). If, after the Effective
Time, any Dissenting Shares shall lose their status as Dissenting Shares,
GoodNoise shall issue and deliver, upon surrender by such shareholder of a
certificate or certificates representing IUMA Shares, the number of shares of
GoodNoise Common Stock to
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which such shareholder would otherwise be entitled under this Section 2.2 less
the number of shares of GoodNoise Common Stock allocable to such shareholder
that have been deposited in the Indemnity Escrow (as hereinafter defined).
2.4 Exchange Procedures.
(a) Subject to paragraph (e) hereof, following the Closing Date,
GoodNoise shall mail to each holder of record of certificate(s) or other
documents which represent IUMA Shares (the "Certificates"), to be exchanged
pursuant to Section 2.2 hereof (i) a letter of transmittal (which shall specify
that, with respect to the Certificates, delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to GoodNoise and shall be in such form and have such other
provisions as GoodNoise shall reasonably require) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for GoodNoise Shares.
Upon surrender of a Certificate for cancellation to GoodNoise, together with
such letter of transmittal, duly executed, the holder of such Certificates shall
be entitled to receive in exchange therefor his pro rata allocation of the
GoodNoise Shares as to which such holder is entitled pursuant to Section 2.2
hereof. Certificates so surrendered pursuant to this Section shall forthwith be
canceled (if not otherwise canceled or terminated in accordance with their
terms). In the event of a transfer of ownership of IUMA Shares which is not
registered on the transfer records of IUMA, the appropriate number of GoodNoise
Shares may be delivered to a transferee if the Certificate representing such
transferred security is presented to GoodNoise and accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section, each Certificate shall be deemed at any time after
the Effective Time to represent solely the right to receive upon such surrender
that number of GoodNoise Shares (without interest and subject to applicable
withholding, escheat and other laws) to which such holder is entitled.
(b) Notwithstanding anything to the contrary in this Section,
none of GoodNoise, the Surviving Corporation or any party hereto shall be liable
to a holder of IUMA Shares for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(c) The GoodNoise Shares paid in accordance with the terms
hereof shall be deemed to be in full satisfaction of all rights pertaining to
such IUMA Shares, and there shall be no further registration of transfers on the
records of the Surviving Corporation of IUMA Shares. If, after the Effective
Time, Certificates are presented to the surviving Corporation for any reason,
they shall be canceled and exchanged as provided in Section 2.2.
(d) In the event any Certificates evidencing IUMA Shares shall
have been lost, stolen or destroyed, GoodNoise shall issue in exchange for such
lost, stolen or destroyed Certificates, upon the making of an affidavit of that
fact by the holder thereof, such holders pro rata allocation of GoodNoise
Shares, as may be required pursuant to Section 2.2; provided, however, that
GoodNoise may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such
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sum as it may reasonably direct as indemnity against any claim that may be made
against GoodNoise with respect to the Certificates alleged to have been lost,
stolen or destroyed.
(e) As a condition to receiving the GoodNoise Shares, each IUMA
Shareholder must agree that: (i) in connection with any underwritten public
offering by GoodNoise, during the period of duration specified by GoodNoise and
an underwriter of common stock of GoodNoise following the effective date of the
registration statement of GoodNoise filed under the Securities Act with respect
to such offering (but in no event greater than 180 days), it shall not, to the
extent requested by GoodNoise and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase, pledge or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of GoodNoise held
by it at any time during such period except common stock included in such
registration and (ii) it shall sign any lock-up or other similar agreement
requested to be signed by any such underwriter.
2.5 The Closing. Subject to termination of this Agreement as provided in
Section 12 below, the closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Xxxx Xxxx Xxxx & Freidenrich
LLP at 10:00 a.m. local time on the date three (3) days following the
satisfaction of all conditions to closing set forth herein, or such other place,
time and date as GoodNoise and IUMA may mutually select (the "Closing Date").
2.6 Effective Time. Simultaneously with the Closing, the Agreement of
Merger shall be filed in the offices of the Secretaries of State of the States
of California and Delaware. The Merger shall become effective immediately upon
the filing of the Agreement of Merger with such offices (the "Effective Time").
3. REPRESENTATIONS AND WARRANTIES OF IUMA. Except as otherwise set forth in
the "IUMA Disclosure Schedule," referencing the appropriate section and
paragraph numbers, to be provided to GoodNoise concurrent with the execution of
this Agreement, IUMA and the Principal Shareholders represent and warrant to
GoodNoise as set forth below. No fact or circumstance disclosed to GoodNoise by
IUMA shall constitute an exception to these representations and warranties
unless such fact or circumstance is set forth in the IUMA Disclosure Schedule.
3.1 Organization. IUMA is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and has
corporate power and authority to carry on its business as it is now being
conducted and as it is proposed to be conducted. IUMA is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or properties makes such qualification or licensing
necessary. The IUMA Disclosure Schedule contains a true and complete listing of
the locations of all sales offices, manufacturing facilities, and any other
offices or facilities of IUMA and a true and complete list of all jurisdictions
in which IUMA maintains any employees. The IUMA Disclosure Schedule contains a
true and complete list of all jurisdictions in which IUMA is duly qualified to
transact business as a foreign corporation. True and complete copies of IUMA's
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charter documents as in effect on the date hereof and as to be in effect
immediately prior to the Closing, have been provided to GoodNoise or its
Representatives.
3.2 Capitalization.
(a) The authorized capital stock of IUMA consists of 20 million
shares of preferred stock, none of which is designated or outstanding and 30
million shares of common stock, 4,432,480 shares of which are issued and
outstanding and held of record by IUMA Shareholders as set forth and identified
in Section 3.2(a) of the IUMA Disclosure Schedule.
(b) Except as set forth in Section 3.2(b) of the IUMA Disclosure
Schedule, there are no outstanding options, warrants, rights, commitments,
conversion rights, rights of exchange, plans or other agreements of any
character providing for the purchase, issuance or sale of any shares of the
capital stock of IUMA other than as contemplated by this Agreement. There are
no voting trust, buy-sell or other similar agreements in place among the IUMA
Shareholders and IUMA.
(c) All of the outstanding securities of IUMA have been duly
authorized and are validly issued, fully paid and nonassessable. All securities
of IUMA were issued in compliance with applicable securities laws. None of
IUMA's outstanding securities were issued in consideration in whole or in part
for any contribution, transfer or assignment of proprietary rights.
3.3 Power, Authority and Validity. IUMA has the corporate power and
authority to enter into this Agreement and the other Transaction Documents to
which it is a party and to carry out its obligations hereunder and thereunder.
The execution and delivery of this Agreement and the Transaction Documents to
which it is a party and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by the board of directors of IUMA, and no
other corporate proceedings are necessary to authorize this Agreement or the
other Transaction Documents. IUMA is not subject to or obligated under any
charter, bylaw or contract provision or any license, franchise or permit, or
subject to any order or decree, which would be breached or violated by or in
conflict with its executing and carrying out this Agreement and the transactions
contemplated hereunder and under the Transaction Documents. This Agreement is,
and each of the other Transaction Documents to which IUMA will be a party, when
executed and delivered by IUMA shall be, the valid and binding obligation of
IUMA enforceable in accordance with their respective terms, subject to (i) laws
of general application relating to bankruptcy, insolvency, and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
3.4 Financial Statements.
(a) Schedule 3.4(a) of the IUMA Disclosure Schedule sets forth the
balance sheet and consolidated statements of income and changes in financial
condition for the fiscal years ended July 31, 1997 and 1998 and for the period
ended April 30, 1999 (collectively, the "IUMA Financial Statements").
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(b) The IUMA Financial Statements are complete and in accordance with
the books and records of IUMA and present fairly in all material respects the
financial position of IUMA as of their historical dates. Except and to the
extent reflected or reserved against in the IUMA balance sheet as of April 30,
1999 (the "IUMA Balance Sheet"), IUMA does not have, as of the date of such
balance sheet, any liabilities or obligations (absolute or contingent) of a
nature required or customarily reflected in a balance sheet (or the notes
thereto). The aggregate reserves, if any, reflected on the IUMA Financial
Statements are adequate in light of the contingencies with respect to which they
are made.
(c) IUMA does not have any debt, liability, or obligation of any
nature, whether accrued, absolute or contingent that is not reflected or
reserved against in the IUMA Financial Statements. All debts, liabilities, and
obligations incurred after the date of the IUMA Financial Statements, whether
absolute or contingent, were incurred in the ordinary course of business and are
usual and normal in amount both individually and in the aggregate.
3.5 Tax Matters.
(a) IUMA has fully and timely, properly and accurately filed all Tax
returns and reports required to be filed by it (the "IUMA Returns"), including
all federal, foreign, state and local returns and reports for all years and
periods for which any such returns or reports were due. The IUMA Returns and
all other Tax returns and reports filed by IUMA were prepared in the manner
required by applicable law. Except for any goods and services income Tax due
upon the filing of the IUMA Returns, all income, sales, use, occupation,
property or other Taxes or assessments due from IUMA have been paid, and there
are no pending assessments, asserted deficiencies or claims for additional Taxes
that have not been paid. The reserves for Taxes, if any, reflected on the IUMA
Financial Statements are adequate and there are no Tax liens on any property or
assets of IUMA. There have been no audits or examinations of any Tax returns or
reports by any applicable governmental agency. No facts exist or have existed
which would constitute grounds for the assessment of any penalty or of any
further Tax liability beyond that shown on the respective Tax reports or
returns. There are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any federal, state or local income Tax return
or report for any period.
(b) All Taxes which IUMA has been required to collect or withhold
have been duly withheld or collected and, to the extent required, have been paid
to the proper taxing authority.
(c) IUMA is not a party to any tax-sharing agreement or similar
arrangement with any other party.
(d) At no time has IUMA been included in the federal consolidated
income Tax return of any affiliated group of corporations.
(e) No payment which IUMA is obliged to pay to any director, officer,
employee or independent contractor pursuant to the terms of an employment
agreement,
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severance agreement or otherwise will constitute an excess parachute payment as
defined in Section 280G of the Code.
(f) IUMA will not be required to include any adjustment in taxable
income for any Tax period (or portion thereof) ending after the Closing Date
pursuant to Section 481(c) of the Code or any provision of the Tax laws of any
jurisdiction requiring Tax adjustments as a result of a change in method of
accounting implemented by IUMA prior to the Closing Date for any Tax period (or
portion thereof) ending on or before the Closing Date or pursuant to the
provisions of any agreement entered into by IUMA prior to the Closing Date with
any taxing authority with regard to the Tax liability of IUMA for any Tax period
(or portion thereof) ending on or before the Closing Date.
(g) IUMA is not currently under any contractual obligation to pay to
any Governmental Body any Tax obligations of, or with respect to any transaction
relating to, any other person or to indemnify any other person with respect to
any Tax.
3.6 Absence of Certain Changes or Events. Except as set forth in Section
3.6 of the IUMA Disclosure Schedule, from April 30, 1999, IUMA has not:
(a) suffered any Material adverse change in its financial condition
or in the operations of its business, nor any Material adverse change in its
balance sheet, including but not limited to cash distributions or decreases in
the net assets of IUMA;
(b) suffered any physical damage, destruction or loss, whether or not
covered by insurance, in an aggregate amount in excess of Ten Thousand Dollars
($10,000);
(c) granted or agreed to make any increase in the compensation
payable or to become payable by IUMA to its officers or employees, except those
occurring in the ordinary course of business;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of IUMA or
declared any direct or indirect redemption, retirement, purchase or other
acquisition by IUMA of such shares;
(e) issued any shares of capital stock of IUMA or any warrants,
rights, options or entered into any commitment relating to the shares of IUMA;
(f) made any change in the accounting methods or practices it
followed, whether for general financial or Tax purposes, or any change in
depreciation or amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise disposed of any real
property or any machinery, equipment or other operating property other than in
the ordinary course of business;
(h) sold, assigned, transferred, licensed or otherwise disposed of
any patent, trademark, trade name, brand name, copyright (or pending application
for any patent, trademark
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or copyright), invention, work of authorship, process, know-how, formula or
trade secret or interest thereunder or other intangible asset except for
equipment sales in the ordinary course of their business;
(i) suffered any dispute involving any employee that could have a
Material adverse effect on IUMA;
(j) engaged in any activity or entered into any commitment or
transaction (including without limitation any borrowing or capital expenditure),
in either case, other than in the ordinary course of business;
(k) incurred any liabilities, absolute or contingent except for (i)
liabilities identified as such in the "liabilities" column of the IUMA Financial
Statements; (ii) accounts payable or accrued salaries that have been incurred by
IUMA since April 30, 1999, in the ordinary course of business and consistent
with IUMA's past practices; and (iii) liabilities in Section 3.6(k) of the IUMA
Disclosure Schedule;
(l) permitted or allowed any of its property or assets to be
subjected to any mortgage, deed of trust, pledge, lien, security interest or
other encumbrance of any kind, other than any purchase money security interests
incurred in the ordinary course of business;
(m) made any capital expenditure or commitment for additions to
property, plant or equipment, in the aggregate, in excess of Five Thousand
Dollars ($5,000);
(n) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or arrangement
with any of its Affiliates, officers, directors or shareholders or any Affiliate
or associate of any of the foregoing;
(o) made any amendment to or terminated any agreement which, if not
so amended or terminated, would be required to be disclosed in the IUMA
Disclosure Schedule;
(p) agreed to take any action described in this Section or outside of
its ordinary course of business or which would constitute a breach of any of the
representations contained in this Agreement.
3.7 Title and Related Matters. IUMA has good and marketable title to all
the properties, interests in properties and assets, real and personal, reflected
in the IUMA Financial Statements or acquired after the date of the IUMA
Financial Statements (except properties, interests in properties and assets sold
or otherwise disposed of since the date of the IUMA Financial Statements in the
ordinary course of business), free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except the lien of current
Taxes not yet due and payable and except for liens which in the aggregate do not
secure more than Ten Thousand Dollars ($10,000) in liabilities. Except as noted
in Section 3.7 of the IUMA Disclosure Schedule, the equipment of IUMA used in
the operation of its business is in good operating condition and repair, normal
wear and tear excepted. All real or personal property leases to which IUMA is a
party are valid, binding, enforceable and effective in accordance with
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their respective terms, subject to (i) laws of general application relating to
bankruptcy, insolvency, and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
There is not under any of such leases any existing default by IUMA or, any other
event of default or event which, with notice or lapse of time or both, would
constitute a default by any other party to such leases. Section 3.7 of the IUMA
Disclosure Schedule contains a description of all real and personal property
leased or owned by IUMA, describing its interest in said property and with
respect to real property a description of each parcel and a summary description
of the buildings, structures and improvements thereon. True and correct copies
of IUMA's leases have been provided to GoodNoise or its Representatives.
3.8 Music Rights.
(a) Section 3.8(a)(i) of the IUMA Disclosure Schedule sets forth a
true and complete list of all Music Rights owned by IUMA. Section 3.8(a)(ii) of
the IUMA Disclosure Schedule sets forth a true and complete list of all Music
Rights licensed by or to IUMA. IUMA has written contracts (each of which are
listed in the IUMA Disclosure Schedule) for all Music Rights owned, licensed,
used, marketed, and sold by it, and those licensed to it, IUMA has not received
any notice from any party to such a contract challenging the enforceability of
such a contract, and all such contracts are enforceable in accordance with their
terms. The Merger will not constitute or be deemed to constitute an assignment
of any such Music Rights or otherwise require the consent of any third party.
All Music Rights owned or licensed by IUMA were recorded and otherwise prepared
in all respects in accordance with the rules and regulations of any unions,
guilds and similar associations having jurisdiction. Each person or entity who
has rendered any service or provided any materials in connection with, or has
contributed in any way, to the making of the Music Rights has the right to grant
such rights, render such services or furnish such materials. Except as disclosed
in the IUMA Disclosure Schedule, all fees and other payments to be made by IUMA
applicable to or resulting from the creation, recording, manufacture,
duplication, and distribution of the Music Rights, including, but not limited
to, payments to performers, producers, engineers and others, have been fully and
completely paid by IUMA.
(b) Except as set forth in Section 3.8 of the IUMA Disclosure
Schedule, there are no amounts owed or that will become owing to any holder of
rights for royalties arising as a result of the Music Rights, nor has the IUMA
paid an advance in respect of such royalties, except to the extent that such
advance has been depleted or to the extent that the balance of any such advance
is set forth in Section 3.8 of the IUMA Disclosure Schedule.
(c) Except as described in Section 3.8(c) of the IUMA Disclosure
Schedule, IUMA does not know of or have any reason to believe that any customers
of IUMA, or any holder of Music Rights, (i) has any complaint or objection with
respect to the service or any business practices of IUMA or the transactions
contemplated hereby which could reasonably be expected to have a Material
Adverse Effect, or (ii) will cease to do business, or significantly reduce the
business conducted, with IUMA as a result of the Merger.
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3.9 Proprietary Rights and Warranty Claims.
(a) Section 3.9(a)(i) of the Disclosure Schedule sets forth, with
respect to each Proprietary Asset owned or used by IUMA (each a "IUMA
Proprietary Asset" and collectively, the "IUMA Proprietary Assets") registered
with any Governmental Body or for which an application has been filed with any
Governmental Body, (i) a brief description of such IUMA Proprietary Asset, and
(ii) the names of the jurisdictions covered by the applicable registration or
application. Section 3.9(a)(ii) of the IUMA Disclosure Schedule identifies and
provides a brief description of all other IUMA Proprietary Assets. Section
3.9(a)(iii) of the IUMA Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to IUMA by any Person (except for
any Proprietary Asset that is licensed to IUMA under any third party software
license generally available to the public at a cost of less than One Thousand
Dollars ($1,000)), and identifies the license agreement under which such
Proprietary Asset is being licensed to IUMA. Except as set forth in Section
3.9(a)(iv) of the IUMA Disclosure Schedule, IUMA has good, valid and marketable
title to all IUMA Proprietary Assets identified in Sections 3.9(a)(i) and
3.9(a)(ii) of the IUMA Disclosure Schedule, free and clear of all liens and
other encumbrances and of all third party licensed technology, and has a valid
right to use all Proprietary Assets identified in Section 3.9(a)(iii) of the
IUMA Disclosure Schedule. Except as set forth in Section 3.9(a)(v) of the IUMA
Disclosure Schedule, IUMA is not obligated to make any payment to any Person for
the use of any Proprietary Asset. Except as set forth in Section 3.9(a)(vi) of
the IUMA Disclosure Schedule, IUMA has not developed jointly with any other
Person any Proprietary Asset with respect to which such other Person has any
rights.
(b) Except as set forth in Section 3.9(b) of the IUMA Disclosure
Schedule, IUMA has taken reasonable and customary measures and precautions
necessary to protect and maintain the confidentiality and secrecy of all IUMA
Proprietary Assets (except IUMA Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the value
of all IUMA Proprietary Assets. Except as set forth in the IUMA Disclosure
Schedule, IUMA has not disclosed or delivered to any Person, or permitted the
disclosure or delivery to any Person of any of the IUMA Proprietary Assets used
in or necessary for the conduct of business by IUMA as currently conducted by
IUMA.
(c) IUMA is not infringing, misappropriating or making any unlawful
use of, and IUMA has not at any time infringed, misappropriated or made any
unlawful use of, or received any notice or other communication (in writing or
otherwise) of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Proprietary Asset owned or used by any
other person ("Third Party Proprietary Asset"). No other person is infringing,
misappropriating or making any unlawful use of, and no Third Party Proprietary
Asset owned or used by any other person infringes or conflicts with, any IUMA
Proprietary Asset.
(d) Except as set forth in Section 3.9(d) of the IUMA Disclosure
Schedule: (i) each IUMA Proprietary Asset conforms in all material respects with
any specification, documentation, performance standard, representation or
statement made or provided with respect thereto by or on behalf of IUMA; and
(ii) there has not been any claim made against IUMA by
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any customer or other person alleging that any IUMA Proprietary Asset (including
each version thereof that has ever been licensed or otherwise made available by
IUMA to any person) does not conform in any material respect with any
specification, documentation, performance standard, representation or statement
made or provided by or on behalf of IUMA, and there is no basis for any such
claim.
(e) IUMA's Proprietary Assets constitute all the proprietary assets
necessary to enable IUMA to conduct its business in the manner in which such
business has been and is being conducted. Except as set forth in Section 3.9(e)
of the IUMA Disclosure Schedule, (i) IUMA has not licensed any of the IUMA
Proprietary Assets to any person and (ii) IUMA has not entered into any covenant
not to compete or contract limiting its ability to exploit fully any of the IUMA
Proprietary Assets or to transact business in any market or geographical area or
with any person.
3.10 Employee Benefit Plans. IUMA does not maintain, or is obligated to
contribute to, any defined benefit pension plan or any employee benefit plan
that is subject to either Title IV of the Employee Retirement Income Security
Act of 1974 ("ERISA") or the minimum funding standards of ERISA or the Code.
Each bonus, incentive, deferred compensation, pension, profit-sharing,
retirement, vacation, severance pay, stock purchase, stock option, group
insurance and other employee benefit or fringe benefit plans, whether formal or
informal (whether written or not), maintained by IUMA conforms to all applicable
requirements, if any, of ERISA. Section 3.10 of the IUMA Disclosure Schedule
lists and describes all such plans.
3.11 Bank Accounts and Receivables. Section 3.11 of the IUMA Disclosure
Schedule sets forth the names and locations of all banks, trusts, companies,
savings and loan associations, and other financial institutions at which IUMA
maintains accounts of any nature and the names of all persons authorized to draw
thereon or make withdrawals therefrom. Section 3.11 of the IUMA Disclosure
Schedule sets forth an accurate and complete breakdown and aging of all accounts
receivable, notes receivable, and other receivables of IUMA as of the date of
the Balance Sheet. Except as set forth on the IUMA Disclosure Schedule all
existing accounts receivable of IUMA (including those accounts receivable
reflected on the IUMA Financial Statements that have not yet been collected and
those accounts receivable that have arisen since December 31, 1998 and have not
yet been collected) (i) represent valid obligations of customers of IUMA arising
from bona fide transactions entered into in the ordinary course of business,
(ii) are current and will be collected in full when due, without any
counterclaim or setoff.
3.12 Contracts.
(a) Section 3.12(a) the IUMA Disclosure Schedule identifies each
document or instrument to which IUMA is a party and that relates to the
acquisition, transfer, use, development, sharing or licensing of any technology
or IUMA Proprietary Asset.
(b) Except as set forth in Section 3.12(b) the IUMA Disclosure
Schedule,
14
(i) IUMA has no agreements, contracts or commitments that
call for fixed and/or contingent payments or expenditures by or to IUMA of more
than Five Thousand Dollars ($5,000) over the life of any such agreement,
contract or commitment.
(ii) IUMA has no purchase agreement, contract or commitment
that calls for fixed and/or contingent payments by IUMA that are in excess of
the normal, ordinary and usual requirements of IUMA's business.
(iii) There is no outstanding sales contract, commitment or
proposal (including, without limitation, development projects) of IUMA that IUMA
currently expects (or reasonably should expect) to result in any loss to IUMA
upon completion or performance thereof.
(iv) IUMA has no outstanding agreements, contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable by it on
notice of not longer than thirty (30) days and without liability, penalty or
premium.
(v) IUMA has no outstanding agreements, contracts or
commitments with sales representatives, OEM's, distributors or dealers.
(vi) IUMA is not restricted by agreement from competing with
any person or from carrying on its business anywhere in the world.
(vii) IUMA has not guaranteed any obligations of other persons,
including each other, or made any agreements to acquire or guarantee any
obligations of other persons, including each other.
(viii) IUMA does not have any outstanding loan or advance to any
person; nor is it party to any line of credit, standby financing, revolving
credit or other similar financing arrangement of any sort which would permit the
borrowing by IUMA of any sum not reflected in the IUMA Financial Statements.
(ix) All contracts, agreements and instruments listed in the
IUMA Disclosure Schedule pursuant to Section 3.12(a) and (b) (the "IUMA Material
Contracts") are valid, binding, in full force and effect, and enforceable by
IUMA in accordance with their respective terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies. To the knowledge of IUMA and the Principal Shareholders, no
party to any IUMA Material Contract intends to cancel, withdraw, modify or amend
such contract.
(c) IUMA has delivered to GoodNoise accurate and complete copies of
all written IUMA Material Contracts, including all amendments thereto and any
correspondence regarding any dispute with respect thereto. IUMA has not entered
into any Material oral contracts.
15
(d) Except as set forth in Section 3.12(d) of the IUMA Disclosure
Schedule:
(i) IUMA has not violated or breached, or committed any
default under, any IUMA Material Contract, and to the knowledge of IUMA and the
Principal Shareholders, no other person has violated or breached, or committed
any default under, any IUMA Material Contract;
(ii) 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, (A) result in a violation or breach of any of the provisions of
any IUMA Material Contract, (B) give any person the right to declare default or
exercise any remedy under any IUMA Material Contract, (C) give any person the
right to accelerate the maturity or performance of any IUMA Material Contract;
or (D) give any person the right to cancel, terminate or modify any IUMA
Material Contract;
(iii) There are no unresolved claims between IUMA and any of its
principal licensors, vendors, suppliers, distributors, representatives or
customers and none of such persons has advised IUMA of its intention to cease
doing business with IUMA, or with GoodNoise following the Closing Date, whether
as a result of the transactions contemplated hereunder.
3.13 Compliance With Law. IUMA is in compliance in all material respects
with all applicable laws and regulations. All licenses, franchises, permits and
other governmental authorizations held by IUMA and which are required for its
business are valid and sufficient in all respects for the businesses presently
carried on by IUMA and as set forth in the IUMA Disclosure Schedule.
3.14 Labor Difficulties; No Discrimination.
(a) IUMA is not engaged in any unfair labor practice or in violation
of any applicable laws respecting employment and employment practices, health
and safety, human rights, terms and conditions of employment, and wages and
hours.
(b) There is no unfair labor practice complaint against IUMA actually
pending or threatened before a labor relations board.
(c) There is and has not been any claim made against IUMA based on
actual or alleged wrongful termination or on actual or alleged race, age, sex,
disability or other harassment or discrimination, or similar tortious conduct,
nor is there any basis for any such claim.
(d) IUMA is not aware of any IUMA employee who intends to terminate
his or her employment with IUMA as a result of the Merger or otherwise.
3.15 Insider Transactions. No Affiliate of IUMA has any interest in (i) any
equipment or other property, real or personal, tangible or intangible,
including, without
16
limitation, any IUMA Music Right or Proprietary Asset, used in connection with
or pertaining to the businesses of IUMA, or (ii) any creditor, supplier,
customer, manufacturer, agent, representative, or distributor of products of
IUMA; provided, however, that no such Affiliate or other person shall be deemed
to have such an interest solely by virtue of the ownership of less than one
percent (1%) of the outstanding stock or debt securities of any publicly-held
company whose stock or debt securities are traded on a recognized U.S. stock
exchange or quoted on the National Association of Securities Dealers Automated
Quotation System.
3.16 Employees, Independent Contractors and Consultants. Section 3.16 of
the IUMA Disclosure Schedule lists and describes all currently effective written
and oral consulting, independent contractor and/or employment agreements and
other agreements concluded with individual employees, independent contractors or
consultants to which IUMA is a party. True and correct copies of all such
written agreements have been provided to GoodNoise or its Representatives. All
salaries and wages paid by IUMA are in compliance in all respects with
applicable federal, state and local laws. Section 3.16 of the IUMA Disclosure
Schedule lists the names of all persons currently employed by IUMA as well as
the salaries and other compensation arrangements (bonus, deferred compensation,
etc.) and the accrued vacation time for each such person.
3.17 Insurance. Section 3.17 of the IUMA Disclosure Schedule contains a
list of the policies of fire, liability and other forms of insurance held by
IUMA. IUMA has done nothing, either by way of action or inaction, that might
invalidate such insurance policies in whole or in part.
3.18 Litigation. Except as set forth in Section 3.18 of the IUMA
Disclosure Schedule, there is no suit, action or proceeding which has been
served upon or threatened against IUMA (nor is there any reasonable basis
therefor), in each case other than immaterial matters, or which questions or
challenges the validity of this Agreement or the Transaction Documents. Except
as set forth in Section 3.18 of the IUMA Disclosure Schedule, there is no
judgment, decree, injunction, or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against IUMA.
3.19 Subsidiaries. Except as set forth in Section 3.19 of the IUMA
Disclosure Schedule, IUMA has no subsidiaries. Except as set forth in Section
3.19 of the IUMA Disclosure Schedule, IUMA does not own or control (directly or
indirectly) any capital stock, bonds or other securities of, and does not have
any proprietary interest in, any other corporation, general or limited
partnership, joint venture, firm, association or business organization, entity
or enterprise, and IUMA does not control (directly or indirectly) the management
or policies of any other corporation, partnership, firm, association or business
organization, entity or enterprise.
3.20 Compliance with Environmental Requirements. IUMA has obtained all
permits, licenses and other authorizations which are required under federal,
state and local laws applicable to IUMA and relating to pollution or protection
of the environment, including laws or provisions relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants, or
hazardous or toxic materials, substances, or wastes into air, surface water,
17
groundwater, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants or hazardous or toxic materials, substances, or wastes.
IUMA is in compliance with all terms and conditions of the required permits,
licenses and authorizations. IUMA is not aware of, nor has IUMA received written
notice of, any conditions, circumstances, activities, practices, incidents, or
actions which may form the basis of any claim, action, suit, proceeding,
hearing, or investigation of, by, against or relating to IUMA, based on or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic substance, material or waste.
Except as disclosed in Section 3.20 of the IUMA Disclosure Schedule,
(a) No Environmental Activity has occurred in the business of IUMA or
on or in relation to any premises currently or formerly used by IUMA which may
cause IUMA to incur expenses or costs for the elimination, neutralization or
amelioration of the results of the Environmental Activity or become liable for
compensation to any third party.
(b) IUMA has held its assets, occupied its respective premises,
operated its respective businesses and conducted all other activities in
compliance with all Environmental Laws. IUMA has not received any notice of non-
compliance with Environmental Laws from any person or governmental authority and
IUMA does not know of any facts which could give rise to any such notice.
(c) There are no underground storage tanks or surface impoundments
at, on, or under premises formerly or currently used by IUMA.
(d) IUMA has maintained all environmental and operating documents and
records substantially in the manner and for the time periods required by any
Environmental Laws. Section 3.20 of the IUMA Disclosure Schedule lists each
environmental permit and each Environmental Audit conducted with respect to IUMA
or its premises while occupied by either of them. An "Environmental Audit" shall
mean any evaluation, inspection, assessment, study or test performed at the
request of or on behalf of a governmental authority, including but not limited
to, a public liaison committee, as well as a self-evaluation, whether or not
required by Environmental Law.
3.21 Corporate Documents. IUMA has furnished to GoodNoise for its
examination all documents requested by GoodNoise, including, but not limited to:
(i) copies of its charter documents; (ii) its minute book containing all records
required to be set forth of all proceedings, consents, actions, and meetings of
the shareholders, the board of directors and any committees thereof; (iii) all
permits, orders, and consents issued by any regulatory agency with respect to
IUMA, or any securities of IUMA, and all applications for such permits, orders,
and consents; and (iv) the stock transfer books of IUMA setting forth all
transfers of any capital stock. The corporate minute books, stock certificate
books, stock registers and other corporate records of IUMA are complete and the
signatures appearing on all documents contained therein are the true signatures
of the persons purporting to have signed the same. All actions reflected in such
books
18
and records were duly and validly taken in compliance with the laws of the
applicable jurisdiction.
3.22 Accuracy of Information in Information or Proxy Statement. The
information furnished by IUMA to the IUMA Shareholders in connection with the
solicitation of shareholder consent or proxies for the approval and adoption of
this Agreement and the approval and adoption of the Merger shall not, on the
date the Information or Proxy Statement is first mailed to the IUMA
shareholders, on any date subsequent thereto and prior to the Effective Time or
at the Effective Time, contain any untrue statement of a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not false or misleading,
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of consent or proxies
which has become false or misleading.
3.23 No Brokers. Neither IUMA nor any shareholder, officer or director of
IUMA is obligated for the payment of fees or expenses of any broker or finder in
connection with the origin, negotiation or execution of this Agreement or in
connection with any transaction contemplated hereby.
3.24 Accuracy of Documents and Information. The copies of all instruments,
agreements, other documents and written information set forth as, or referenced
in, the schedules or exhibits to this Agreement or specifically required to be
furnished pursuant to this Agreement to GoodNoise by IUMA are complete and
correct. No representations or warranties made by IUMA in this Agreement, nor
any document, written information, statement, financial statement, certificate,
schedule or exhibit furnished directly to GoodNoise pursuant to this Agreement
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein not misleading.
There is no fact which materially and adversely affects IUMA known to IUMA which
has not been expressly and fully set forth in this Agreement or the schedules
and exhibits hereto.
4. REPRESENTATIONS AND WARRANTIES OF GOODNOISE AND SUB. Except as otherwise
set forth in the "GoodNoise Disclosure Schedule," referencing the appropriate
section and paragraph numbers, to be provided to GoodNoise concurrent with the
execution of this Agreement, GoodNoise represents and warrants to IUMA as set
forth below. No fact or circumstance disclosed to IUMA by GoodNoise shall
constitute an exception to these representations and warranties unless such fact
or circumstance is set forth in the GoodNoise Disclosure Schedule.
4.1 Organization. GoodNoise and Sub are corporations duly organized,
validly existing and in good standing under the laws of their jurisdictions and
have corporate power and authority to carry on their businesses as they are now
being conducted and as they are proposed to be conducted.
4.2 Power, Authority and Validity. GoodNoise and Sub have the corporate
power and authority to enter into this Agreement and other Transaction Documents
to which they are a party and to carry out their obligations hereunder and
thereunder. The execution and delivery of
19
this Agreement and the Transaction Documents to which they are a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by the board of directors of GoodNoise and Sub, and no other
corporate proceedings are necessary to authorize this Agreement or the other
Transaction Documents. GoodNoise and Sub are not subject to or obligated under
any charter, bylaw or contract provision or any license, franchise or permit or
subject to any order or decree, which would be breached or violated in a
material manner by or in material conflict with its executing and carrying out
this Agreement and the transactions contemplated hereunder and under the
Transaction Documents. This Agreement is, and the other Transaction Documents to
which GoodNoise and Sub are a party, when executed and delivered by GoodNoise
and Sub shall be, the valid and binding obligations of GoodNoise and Sub,
enforceable in accordance with their terms, subject to (i) laws of general
application relating to bankruptcy, insolvency, and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
4.3 CAPITALIZATION.
(a) The authorized capital stock of GoodNoise as of the date of
this Agreement consists of: (i) Two Hundred Million (200,000,000) shares of
common stock, of which not more than 16 million shares are issued and
outstanding and (ii) Five Hundred Thousand (500,000) shares of preferred stock,
of which 120,000 have been designated as Series B Preferred Stock, and not more
than 120,000 of which are issued or outstanding. GoodNoise has reserved not more
than 6,000,000 shares of common stock for issuance to employees, directors and
consultants, upon exercise of stock options.
(b) All of the outstanding securities of GoodNoise have been
duly authorized and are validly issued, fully paid and nonassessable. All
securities of GoodNoise were issued in compliance with applicable securities
laws. Except for options granted pursuant to the GoodNoise stock option plans,
as otherwise set forth in the GoodNoise Disclosure Schedule or in the GoodNoise
Commission Documents (as defined in Section 4.4 below), GoodNoise does not have
any other shares of its capital stock issued or outstanding and does not have
any other outstanding subscriptions, options, warrants, rights or other
agreements or commitments obligating GoodNoise to issue shares of its capital
stock or other securities.
4.4 Commission Documents; Financial Statements. GoodNoise has made
available to IUMA a true and complete copy of its Registration Statement or Form
10-SB/A and Quarterly Report on Form 10Q-SB for the quarter ended December 31,
1998 as filed with the Commission by GoodNoise; and, prior to the Effective
Time, GoodNoise will have made available to IUMA any additional documents filed
with the Commission by GoodNoise prior to the Effective Time (collectively, the
"GoodNoise Commission Documents"). As of their respective filing dates, the
GoodNoise Commission Documents complied in all material respects with the
requirements of the Exchange Act and the Securities Act, and none of the
GoodNoise Commission Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a subsequently
filed GoodNoise Commission Document prior to the date hereof. The financial
statements of
20
GoodNoise, including the notes thereto, included in the GoodNoise Commission
Documents (the "GoodNoise Financial Statements") were complete and correct in
all material respects as of their respective dates, complied as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the Commission with respect thereto as of their
respective dates, and have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Qs, as permitted by Form 10-Q of the Commission). The
GoodNoise Financial statements fairly present the consolidated financial
condition and operating results of GoodNoise and its subsidiaries at the dates
and during the periods indicated therein (subject, in the case of unaudited
statements, to normal, recurring year-end adjustments). There has been no change
in GoodNoise accounting policies except as described in the notes to the
GoodNoise Financial Statements.
4.5 Accuracy of Documents and Information. No representations or
warranties made by GoodNoise or Sub in this Agreement, nor any document, written
information, statement, financial statement, certificate, schedule or exhibit
furnished directly to IUMA pursuant to this Agreement, taken as a whole,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein not misleading.
4.6 No Brokers. GoodNoise is not obligated to pay fees or expenses
to any broker or finder in connection with the origin, negotiation or execution
of this Agreement or in connection with any transaction contemplated hereby.
5. REPRESENTATIONS AND WARRANTIES OF PRINCIPAL SHAREHOLDERS.
Each Principal Shareholder as to itself, himself or herself represents
and warrants to GoodNoise as follows:
5.1 No person or entity not a signatory of this Agreement has a
beneficial interest in or a right to acquire or vote the IUMA Shares held of
record by such Principal Shareholder or any portion thereof (except, with
respect to shareholders which are partnerships, partners of such shareholders).
The IUMA Shares held of record by such Principal Shareholder are and will be, at
all times until the Closing, free and clear of any liens, claims, options,
charges or other encumbrances. Such Principal Shareholder's principal place of
residence or place of business is set forth on the signature page hereto.
5.2 Such Principal Shareholder will not transfer (except as may be
specifically required by court order or by operation of law), sell, exchange,
pledge or otherwise dispose of or encumber the IUMA Shares held of record by
such Principal Shareholder or any New Securities (as defined below), or make any
offer or agreement relating thereto, at any time prior to the Closing.
5.3 Such Principal Shareholder agrees that any shares in the capital
stock of IUMA that Principal Shareholder purchases or with respect to which such
Principal Shareholder
21
otherwise acquires beneficial ownership after the date of this Agreement and
prior to the Closing (the "New Securities") shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted IUMA
Shares held of record by such Principal Shareholder as of the date hereof.
5.4 Such Principal Shareholder represents to GoodNoise, that the
GoodNoise Shares which he will receive will be acquired for investment for an
indefinite period for his own account, not as a nominee or agent, and not with a
view to the sale or distribution of any part thereof, and that he has no present
intention of selling, granting participation in, or otherwise distributing the
same.
5.5 Such Principal Shareholder understands that the GoodNoise Shares
will not be registered under the Securities Act of 1933 (the "Securities Act")
on the ground that the sale provided for in this Agreement is exempt pursuant to
section 4(2) of the Securities Act, and that GoodNoise's reliance on such
exemption is predicated on his representations set forth herein.
5.6 Such Principal Shareholder agrees that in no event will he make a
disposition of any of the GoodNoise Shares unless and until (a) he shall have
notified GoodNoise of the proposed disposition and shall have furnished
GoodNoise with a statement of the circumstances surrounding the proposed
disposition and (b) he shall have furnished GoodNoise with an opinion of counsel
satisfactory to GoodNoise to the effect that (i) such disposition will not
require registration of such Stock under the Securities Act or (ii) that
appropriate action necessary for compliance with the Securities Act has been
taken or (c) GoodNoise shall have waived, expressly and in writing, its rights
under clauses (a) and (b) of this Section.
5.7 In connection with the investment representations made herein,
such Principal Shareholder represents that he is able to fend for himself in the
transactions contemplated by this Agreement, has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of his investment, has the ability to bear the economic risks of his
investment.
5.8 Such Principal Shareholder understands that the acquisition of
the GoodNoise Shares involves a highly speculative and risky investment.
6. COVENANTS OF IUMA AND THE PRINCIPAL SHAREHOLDERS
6.1 Advice of Changes. IUMA will promptly advise GoodNoise in
writing (i) of any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of IUMA contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (ii) of any material adverse
change in IUMA's business, taken as a whole.
6.2 Conduct of Business. Until the Closing and except as provided in
Section 6.2 of the IUMA Disclosure Schedule, IUMA will continue to conduct its
business and maintain its business relationships in the ordinary and usual
course and will not, without the prior written consent of GoodNoise:
22
(a) borrow any money which borrowings exceed in the aggregate Five
Thousand Dollars ($5,000);
(b) incur any liability other than in the ordinary and usual course of
business or in connection with the performance or consummation of this
Agreement;
(c) encumber or permit to be encumbered any of its assets except in
the ordinary course of its business;
(d) dispose of any of its assets, except inventory in the regular and
ordinary course of business;
(e) enter into any lease or contract for the purchase or sale of any
property, real or personal except for inventory purchased in the ordinary course
of business or other leases or contracts for less than $5,000;
(f) 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;
(g) pay or authorize any bonus, increased salary, or special
remuneration to any officer or employee, including any amounts for accrued but
unpaid salary or bonuses;
(h) enter into any agreement for the acquisition or license of any
Music Rights with advances or minimum future commitments in excess of $10,000;
(i) adopt or change any accounting methods;
(j) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital, or redeem or otherwise acquire any of its
capital stock;
(k) amend or terminate any contract, agreement or license to which it
is a party except non-Material agreements in the ordinary course of business or
other agreements with an annual value of less than $5,000;
(l) enter into any contract;
(m) loan any amount to any person or entity, or guaranty or act as a
surety for any obligation;
(n) waive or release any right or claim;
(o) issue or sell any shares of its capital stock of any class or any
other of its securities, or issue or create any warrants, obligations,
subscriptions, options, convertible securities, or other commitments to issue
shares of capital stock or amend the terms of any agreement regarding the
foregoing;
23
(p) split or combine the outstanding shares of its capital stock of
any class or enter into any recapitalization affecting the number of outstanding
shares of its capital stock of any class or affecting any other of its
securities;
(q) merge, consolidate or reorganize with any entity;
(r) license all or a significant portion of its assets, including, but
not limited to, any license of a significant portion of the company's catalog of
Music Rights;
(s) amend its Articles of Incorporation or Bylaws;
(t) make or change any election, change any annual accounting period,
file any tax return or amended tax return, enter into any closing agreement,
settle any tax claim or assessment relating to IUMA, 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 IUMA, or take any
other action or omit to take any action, if any such election, adoption, change,
amendment, agreement, settlement, surrender, consent or other action or omission
would have the effect of increasing the tax liability of IUMA or GoodNoise; or
agree to do any of the things described in the preceding clauses of this
Section.
6.3 Risk of Loss. Until the Closing and subject to the confidentiality
and nonuse provisions hereof, all risk of loss, damage or destruction to IUMA's
assets shall be borne by IUMA, and the Merger terms described in Section 2
shall, in case of any such loss, damage or destruction, be revised as the
parties may agree, or this Agreement shall be terminated in accordance with
Section 12.
6.4 Access to Information. Until the Closing and subject to the
confidentiality and nonuse provisions hereof, IUMA shall allow GoodNoise and its
Representatives free access upon reasonable notice and during normal working
hours to its files, books, records, and offices, including, without limitation,
any and all information relating to taxes, commitments, contracts, leases,
licenses, and personal property and financial condition. Until the Closing, IUMA
shall cause its accountants to cooperate with GoodNoise and its Representatives
in making available all financial information requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.
6.5 Regulatory Approvals. Prior to the Closing, IUMA shall execute and
file, or join in the execution and filing, of any application or other document
which may be necessary in order to obtain the authorization, approval or consent
of any Governmental Body, federal, state or local, which may be reasonably
required, or which GoodNoise may reasonably request, in connection with the
consummation of the transactions contemplated by this Agreement. IUMA shall use
its best efforts to obtain all such authorizations, approvals and consents.
6.6 Satisfaction of Conditions Precedent. IUMA will use its best efforts
to satisfy or cause to be satisfied all the conditions precedent which are set
forth in Section 11, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third
24
parties and to make all filings with, and give all notices to, third parties
which may be necessary or reasonably required on its part in order to effect the
transactions contemplated hereby.
6.7 Equity Compensation Arrangements. Prior to the Closing, any
obligation of IUMA to issue stock, warrants or options which have been offered
or promised to the employees of IUMA shall have been fulfilled or been
terminated to the satisfaction of GoodNoise.
6.8 Shareholder Consent. Prior to the Closing, whether by special
meeting or written consent of its shareholders, IUMA will submit this Agreement,
the Agreement of Merger and related matters to its shareholders for
consideration and approval, and the Board of Directors of IUMA will recommend
such approval to the IUMA Shareholders. Each of the Principal Shareholders
agrees to vote all shares of IUMA capital stock in respect of which each such
shareholder is entitled to vote at any meeting, in favor of the Merger, and the
approval of the transactions contemplated by this Agreement.
7. COVENANTS OF GOODNOISE AND SUB.
7.1 Advice Of Changes. GoodNoise and Sub will promptly advise IUMA
in writing of any event occurring subsequent to the date of this Agreement which
would render any representation or warranty of GoodNoise or Sub contained in
this Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect.
7.2 Regulatory Approvals. Prior to the Closing, GoodNoise and Sub
shall execute and file, or join in the execution and filing, of any application
or other document which may be necessary in order to obtain the authorization,
approval or consent of any Governmental Body, federal, state or local, which may
be reasonably required, or which IUMA may reasonably request, in connection with
the consummation of the transactions contemplated by this Agreement. Such
persons and entities shall use their best efforts to obtain all such
authorizations, approvals and consents.
7.3 Satisfaction of Conditions Precedent. GoodNoise will use its
best efforts to satisfy or cause to be satisfied all the conditions precedent
which are set forth in Section 10, and GoodNoise will use its best efforts to
cause the transactions contemplated by this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties which may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
8. MUTUAL COVENANTS.
8.1 Confidentiality. Each party acknowledges that in the course of
the performance of this Agreement, it may obtain the Confidential Information of
the other party. The Receiving Party shall, at all times, both during the term
of this Agreement and thereafter, keep in confidence and trust all of the
Disclosing Party's Confidential Information received by it. The Receiving Party
shall not use the Confidential Information of the Disclosing Party other than as
expressly permitted under the terms of this Agreement or by a separate written
agreement. The
25
Receiving Party shall take all reasonable steps to prevent unauthorized
disclosure or use of the Disclosing Party's Confidential Information and to
prevent it from falling into the public domain or into the possession of
unauthorized persons. The Receiving Party shall not disclose Confidential
Information of the Disclosing Party to any person or entity other than its
officers, employees, consultants who need access to such Confidential
Information in order to effect the intent of this Agreement and who have entered
into confidentiality agreements with such person's employer which protects the
Confidential Information of the Disclosing Party. The Receiving Party shall
promptly give notice to the Disclosing Party of any unauthorized use or
disclosure of Disclosing Party's Confidential Information. The Receiving Party
agrees to assist the Disclosing Party to remedy such unauthorized use or
disclosure of its Confidential Information, which remedies shall include
injunctive relief without the necessity of posting a bond or proving damages.
These obligations shall not apply to the extent that Confidential Information
includes information which:
(a) is already known to the Receiving Party at the time of disclosure,
which knowledge the Receiving Party shall have the burden of proving;
(b) is, or, through no act or failure to act of the Receiving Party,
becomes publicly known;
(c) is received by the Receiving Party from a third party without
restriction on disclosure;
(d) is independently developed by the Receiving Party without
reference to the Confidential Information of the Disclosing Party, which
independent development the Receiving Party will have the burden of proving;
(e) is approved for release by written authorization of the Disclosing
Party; or
(f) is required to be disclosed by a government agency to further the
objectives of this Agreement or by a proper order of a court of competent
jurisdiction; provided, however that the Receiving Party will use its best
efforts to minimize such disclosure and will consult with and assist the
Disclosing Party in obtaining a protective order prior to such disclosure.
8.2 Exclusivity. Until the earlier of the Closing Date or the termination
of this Agreement, IUMA agrees that it will not (and that it will use best
efforts to assure that its employees, agents and affiliates do not on its
behalf) discuss or enter into any agreement concerning the sale or acquisition
of IUMA, its stock (including by means of any public offering thereof, but
excluding issuance of stock and options to employees in the ordinary course of
business consistent with past practices) or a substantial part of its assets
with any party other than GoodNoise, and that any such discussions presently in
progress will be terminated or suspended during that period. IUMA represents and
warrants that it has the legal right to terminate or suspend any such pending
negotiations and agrees to indemnify GoodNoise, its representatives and agents
from and against any claims by any party to such negotiations based upon or
arising out of the discussion or any consummation of the Merger.
26
8.3 Tax-Free Organization. Each party shall each use its best
efforts to cause the Merger to be treated as a reorganization within the meaning
of Section 368(a) of the Code.
9. THE CLOSING.
9.1 Merger. On the date of the Closing, but not prior to the
Closing, the Agreement of Merger shall be filed with the office of the Secretary
of State of the States of California and Delaware and the merger of Sub with and
into IUMA shall be consummated.
9.2 Additional Documents.
(a) At any time and from time to time at or after the Closing,
the parties shall at the request of the other party execute and deliver or cause
to be executed and delivered all such assignments, consents and other documents
and take or cause to be taken all such other actions as either party may
reasonably deem necessary or desirable, in order to more fully and effectively
carry out the intents and purposes of this Agreement.
(b) IUMA shall execute and deliver to GoodNoise a statement
meeting the requirements of Treasury Regulation Section 1.897-2(h)(2) stating
that interests in IUMA are not United States real property interests.
10. CONDITIONS TO IUMA'S OBLIGATIONS.
IUMA's obligations hereunder are subject to the fulfillment or
satisfaction on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by IUMA, but only in a writing signed by
IUMA):
10.1 Accuracy of Representations and Warranties. The representations
and warranties of GoodNoise and Sub set forth in Section 4 shall be true on and
as of the Closing with the same force and effect as if they had been made at the
Closing and the conditions to IUMA's obligations set forth under Sections 10.1,
10.2, 10.3 and 10.4 shall have been satisfied. IUMA shall receive a certificate
to such effect from an executive officer of GoodNoise.
10.2 Covenants. GoodNoise and Sub shall have performed and complied
with all of their covenants contained in Sections 7 and 8 to be performed on or
before the Closing, and GoodNoise shall deliver to IUMA a certificate executed
by an executive officer of GoodNoise at Closing stating that such condition has
been satisfied.
10.3 No Litigation. No litigation or proceeding shall be threatened
or pending against GoodNoise or Sub with the purpose or with the probable effect
of enjoining or preventing the consummation of any of the transactions
contemplated by this Agreement, and IUMA shall receive a certificate to such
effect signed by an executive officer of GoodNoise.
10.4 Authorizations. IUMA shall have received from GoodNoise and Sub
written evidence that the execution, delivery and performance of GoodNoise and
Sub's obligations under this Agreement and the Agreement of Merger have been
duly and validly approved and
27
authorized by the Board of Directors of GoodNoise and Sub, respectively, and the
shareholder of Sub.
10.5 Government Consents. There shall have been obtained at or prior
to the date of Closing such permits or authorizations, and there shall have been
taken such other action, as may be required by any regulatory authority having
jurisdiction over the parties and the subject matter and the actions herein
proposed to be taken, including, but not limited to, compliance with applicable
state and federal securities laws.
11. CONDITIONS TO GOODNOISE AND SUB'S OBLIGATIONS.
GoodNoise's and Sub's obligations hereunder are subject to the
fulfillment or satisfaction on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by GoodNoise, but only in a
writing signed by GoodNoise):
11.1 Accuracy of Representations and Warranties. The representations
and warranties of IUMA contained in Section 3 and the Principal Shareholders in
Section 5 shall be true on and as of the Closing with the same force and effect
as if they had been made at the Closing and the conditions to GoodNoise's and
Sub's obligations set forth under Sections 11.1, 11.2, 11.3 and 11.4 shall have
been satisfied. GoodNoise shall receive a certificate to such effect from an
executive officer of IUMA.
11.2 Covenants. IUMA and the Principal Shareholders shall have
performed and complied with all of their covenants set forth in this Agreement
on or before the Closing.
11.3 No Litigation. On and as of the Closing, no litigation or
proceeding shall be threatened or pending against IUMA for the purpose or with
the probable effect of enjoining or preventing the consummation of any of the
transactions contemplated by this Agreement, or which would have a material
adverse effect on the business, liabilities, income, property, operations or
prospects of IUMA subsequent to the Closing.
11.4 Authorizations. GoodNoise shall have received from IUMA written
evidence that (i) the execution, delivery and performance of this Agreement and
the Agreement of Merger have been duly and validly approved and authorized by
its Board of Directors and (ii) IUMA Shareholders holding not less than 98% of
the outstanding IUMA voting securities have approved this Agreement, the Merger
and the transactions contemplated hereby and thereby and the actions taken by
the Board of Directors of IUMA to facilitate the foregoing.
11.5 No Adverse Development. There shall be no order, decree, or
ruling by any court or Governmental Body or threat thereof or any other fact or
circumstance, which might prohibit or render illegal or have a Material adverse
effect on the business, prospects, liabilities, income, property, assets or
operations of IUMA subsequent to the Closing. IUMA shall not have sustained a
loss, whether or not insured, by reason of physical damage caused by fire, flood
or earthquake, accident or other calamity which materially affects the IUMA
Balance Sheet or its ability to carry on its business as proposed to be
conducted, and which, in the judgment of GoodNoise, renders it inadvisable to
proceed with the Closing. There shall have been no other
28
event which, in the reasonable judgment of GoodNoise, has a material and adverse
effect on IUMA's assets, business, liabilities, income, property, assets,
prospects or operations subsequent to the Closing.
11.6 Required Consents. GoodNoise shall have received all written
consents, assignments, waivers, authorizations or other certificates reasonably
deemed necessary by GoodNoise's legal counsel to provide for the continuation in
full force and effect of any and all contracts and leases of IUMA.
11.7 Opinion of Iuma's Counsel. GoodNoise shall have received from
counsel to IUMA an opinion in form and substance customary for acquisition
transactions and reasonably satisfactory to GoodNoise or GoodNoise shall
otherwise be sufficiently satisfied with its review of the IUMA Disclosure
Schedule and IUMA books and records such that GoodNoise is prepared to waive
such requirement.
11.8 Government Consents. There shall have been obtained at or prior
to the Closing Date such permits or authorizations and there shall have been
taken such other action, as may be required by any regulatory authority having
jurisdiction over the parties and the subject matter and the actions herein
proposed to be taken, including, but not limited to, compliance with applicable
state and federal securities laws.
11.9 Employment Offers and Other Agreements. Each of the Principal
Shareholders shall have entered into non-compete agreements with GoodNoise in
substantially the same form as attached hereto as Exhibit B; all employees and
---------
consultants of IUMA as of the Closing shall have accepted employment (or
consultant positions, as appropriate) with GoodNoise or IUMA on terms
satisfactory to GoodNoise; such employees and consultants shall have entered
into employment letters on terms and conditions satisfactory to GoodNoise and
confidentiality and inventions agreements in GoodNoise's standard form.
11.10 Promissory Notes. GoodNoise shall be satisfied with the amounts
payable by IUMA under promissory notes and other existing obligations, including
but not limited to, obligations to existing and former employees and such
arrangements have been documented to GoodNoise's reasonable satisfaction.
12. TERMINATION OF AGREEMENT.
12.1 Mutual Agreement. This Agreement may be terminated at any time
prior to the Closing by the mutual written consent of each of the parties
hereto.
12.2 Failure To Fulfill Conditions. Either GoodNoise or IUMA may
terminate this Agreement if the Merger has not been consummated within sixty
(60) days after the date of this Agreement (provided that the right to terminate
this Agreement under this Section shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date). Any
termination of this Agreement under this Section shall be effected by the
delivery of notice of the terminating party to the other parties hereto.
29
12.3 No Liability. Any termination of this Agreement pursuant to this
Section shall be without further obligation or liability upon any party in favor
of any other party hereto.
12.4 Effect Of Termination. The termination of the Agreement pursuant
to this Section shall terminate all sections hereof other than Section 8.1.
13. INDEMNIFICATION.
13.1 Survival of Representations.
(a) The representations and warranties made by IUMA and the
Principal Shareholders under Sections 3 and 5 hereof and the representations and
warranties set forth in any certificate delivered by IUMA in connection with
this Agreement shall survive the Closing and shall remain in full force and
effect and shall survive until the end of the Indemnification Period and shall
survive thereafter only with respect to any claims made prior to the end of the
Indemnification Period.
(b) The representations, warranties, covenants and obligations
of IUMA, and the rights and remedies that may be exercised by the Indemnitees
(as defined herein), shall not be limited or otherwise affected by or as a
result of any information furnished to, or any investigation made by or
knowledge of, any of the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item
of information set forth in the IUMA Disclosure Schedule shall be deemed to be a
representation and warranty made by IUMA in this Agreement.
13.2 Indemnification by IUMA Shareholders.
(a) From and after the Closing Date, the IUMA Shareholders shall
be jointly and severally liable for and shall hold harmless and indemnify
GoodNoise and the Surviving Corporation (each an "Indemnitee") from and against,
and shall compensate and reimburse each of the Indemnitees for, any Damages
which are directly or indirectly suffered or incurred by any of the Indemnitees
or to which any of the Indemnitees may otherwise become subject (regardless of
whether or not such Damages relate to any third-party claim) and which arise
from or as a result of, or are directly or indirectly connected with: (i) any
inaccuracy in or breach of any representation or warranty set forth in Section 3
or 5 hereunder or in any certificate delivered by IUMA in connection with this
Agreement; (ii) any breach of any covenant or obligation of IUMA or the IUMA
Shareholders hereunder or pursuant to any agreement delivered in connection
herewith; or (iii) any Legal Proceeding relating to any inaccuracy, breach or
expense of the type referred to in clause "(i)" or "(ii)" above (including any
Legal Proceeding commenced by any Indemnitee for the purpose of enforcing any of
its rights under this Section if such Indemnitee is the prevailing party in any
such Legal Proceeding).
(b) If the Surviving Corporation suffers, incurs or otherwise
becomes subject to any Damages 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
30
Surviving Corporation as an Indemnitee) GoodNoise shall also be deemed, by
virtue of its ownership of the stock of the Surviving Corporation, to have
incurred Damages as a result of and in connection with such inaccuracy or
breach.
(c) Notwithstanding anything to the contrary set forth herein, (i)
except for any claims regarding fraud or intentional misrepresentation or any
claims identified in item (a) of Exhibit C hereof, the liability of the IUMA
---------
Shareholders pursuant to this Section shall be limited to claims against the
Indemnity Escrow and (ii) the IUMA Shareholders shall be subject to liability
pursuant to the terms hereof for any of the claims identified in Exhibit C
---------
hereof notwithstanding anything set forth in the IUMA Disclosure Schedule.
13.3 No Contribution. The IUMA Shareholders shall not have and shall
not exercise or assert (or attempt to exercise or assert), any right of
contribution, right of indemnity or other right or remedy against the Surviving
Corporation which they have in their capacity as shareholders in connection with
any indemnification obligation or any other liability to which it may become
subject under or in connection with this Agreement or any certificate delivered
by IUMA in connection with this Agreement.
13.4 Defense of Third Party Claims. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against GoodNoise or against any other Person) with
respect to which the IUMA Shareholders may become obligated to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section, the
procedure set forth below shall be followed.
(a) Notice. GoodNoise shall give prompt written notice of the
commencement of any such Legal Proceeding against GoodNoise or the Surviving
Corporation for which indemnity may be sought; provided, however, that any
failure on the part of GoodNoise to so notify the Shareholder Representative
shall not limit any of the obligations of the IUMA Shareholders under this
Section unless the ability to defend such claim is materially prejudiced by such
failure or delay. The Indemnification Period shall be tolled solely with
respect to a particular claim for the period beginning on the date the IUMA
Shareholders receive written notice of that claim until the final resolution of
such claim so long as such claim is made within the Indemnification Period.
(b) Defense of Claim. The Indemnitee shall have the right to be
represented by counsel of its choice and to defend or otherwise control the
handling of any claim, or Legal Proceeding for which indemnity is sought. If
the Indemnitee so proceeds with the defense of any such claim or Legal
Proceeding:
(i) all reasonable expenses relating to the defense of such
claim or Legal Proceeding (whether or not incurred by the Indemnitee) shall be
borne and paid exclusively by the IUMA Shareholders;
(ii) the IUMA Shareholders shall make available to the Indemnitee
any non-privileged documents and materials in the possession or control of the
IUMA Shareholders that may be necessary to the defense of such claim or Legal
Proceeding except for documents or
31
materials which are sealed by a court order or are subject to a nondisclosure
agreement prohibiting disclosure by the IUMA Shareholders;
(iii) the Indemnitee shall keep the IUMA Shareholders informed
of all material developments and events relating to such claim or Legal
Proceeding; and
(iv) the IUMA Shareholders shall have the right to participate
in the defense of such claim or legal proceeding at their sole cost and expense;
and
(v) the Indemnitee shall have the right to settle, adjust or
compromise such claim or Legal Proceeding with the written consent of the IUMA
Shareholders; provided, however, that the IUMA Shareholders shall not
unreasonably withhold such consent.
13.5 Indemnity Escrow. As soon as practicable after the Effective
Time, GoodNoise shall deposit into an escrow account (the "Indemnity Escrow")
with Xxxx Xxxx Xxxx & Freidenrich LLP, or such other Person as the parties may
agree, as escrow agent (the "Indemnity Escrow Agent"), twenty percent (20%) of
the GoodNoise Shares (the "Indemnity Escrow Holdback"). The Indemnity Escrow
Holdback shall be withheld on a pro rata basis from the IUMA Shareholders who
otherwise are entitled to such amounts at the Effective Time and shall be
governed by the terms set forth herein and in an escrow agreement (the
"Indemnity Escrow Agreement") in substantially the form attached hereto as
Exhibit F. The Indemnity Escrow shall be available to compensate the
Indemnitees for any loss, to the extent of the amount of Damages that such
Indemnitee has incurred and which are subject to indemnification hereunder.
13.6 Shareholder Representative.
(a) By virtue of their approval of this Agreement, the IUMA
Shareholders will be deemed to have irrevocably constituted and appointed,
effective as of the Effective Time, Xxxxxx Xxxxxx (the "Shareholder
Representative"), as their true and lawful agent and attorney-in-fact to enter
into any agreement in connection with the transactions contemplated by this
Agreement or the Indemnity Escrow Agreement, to exercise all or any of the
powers, authority and discretion conferred on him under any such agreement, to
waive any terms and conditions of any such agreement, to give and receive
notices and communications, to authorize delivery to GoodNoise of the Indemnity
Escrow Holdback or other property from the Indemnity Escrow in satisfaction of
claims by GoodNoise, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of the Shareholder
Representative for the accomplishment of the foregoing. Such agency may be
changed by the holders of a majority in interest of the Indemnity Escrow from
time to time upon not less than ten (10) days' prior written notice to
GoodNoise. The Shareholder Representative shall receive no compensation for his
services. Notices or communications to or from the Shareholder Representative
shall constitute notice to or from each of the IUMA Shareholders. This power of
attorney is coupled with an interest and is irrevocable.
(b) The Shareholder Representative shall not be liable for any act
done or omitted hereunder as Shareholder Representative while acting in good
faith and not in a manner
32
constituting gross negligence, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The IUMA
Shareholders shall severally indemnify the Shareholder Representative and hold
him harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of such Shareholder Representative and
arising out of or in connection with the acceptance or administration of his
duties hereunder.
14. MISCELLANEOUS.
14.1 Governing Laws. It is the intention of the parties hereto that
the internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties hereto.
14.2 Binding upon Successors and Assigns. Subject to, and unless
otherwise provided in, this Agreement, each and all of the covenants, terms,
provisions, and agreements contained herein shall be binding upon, and inure to
the benefit of, the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
14.3 Severability. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances shall be interpreted so as best to reasonably effect the intent
of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
which will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
14.4 Entire Agreement. This Agreement, the exhibits and schedules hereto,
the documents referenced herein, and the exhibits and schedules thereto,
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and thereof and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions, express
or implied, written or oral, between the parties with respect hereto and
thereto. The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.
14.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
14.6 Expenses. Except as provided to the contrary herein, each party
shall pay all of its own costs and expenses incurred with respect to the
negotiation, execution and delivery of this Agreement and the exhibits hereto.
In the event the Merger is consummated, except for up to $20,000 in attorneys
fees which may be paid by IUMA, all legal and accounting fees incurred by IUMA
and the IUMA Shareholders in connection with the Merger shall be deemed to be
expenses of the IUMA Shareholders, shall be borne by the IUMA Shareholders and
shall not
33
become obligations of IUMA, GoodNoise or the Surviving Corporation.
The IUMA Shareholders shall make arrangements satisfactory to GoodNoise at or
prior to the Closing for the satisfaction of such amounts.
14.7 Other Remedies. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party shall be deemed cumulative
with and not exclusive of any other remedy conferred hereby or by law on such
party, and the exercise of any one remedy shall not preclude the exercise of any
other.
14.8 Amendment and Waivers. Any term or provision of this Agreement
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or any succeeding breach or default.
14.9 Survival of Agreements. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby notwithstanding any investigation of the parties hereto.
14.10 No Waiver. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
14.11 Attorneys' Fees. Should suit be brought to enforce or
interpret any part of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit and not as damages, reasonable
attorneys' fees to be fixed by the court (including without limitation, costs,
expenses and fees on any appeal). The prevailing party shall be the party
entitled to recover its costs of suit, regardless of whether such suit proceeds
to final judgment. A party not entitled to recover its costs shall not be
entitled to recover attorneys' fees. No sum for attorneys' fees shall be
counted in calculating the amount of a judgment for purposes of determining if a
party is entitled to recover costs or attorneys' fees.
14.12 Notices. Any notice provided for or permitted under this
Agreement will be treated as having been received (a) when delivered personally,
(b) when sent by confirmed telex or telecopy, (c) one (1) day following when
sent by commercial overnight courier with written verification of receipt, or
(d) three (3) days following when mailed postage prepaid by certified or
registered mail, return receipt requested, to the party to be notified, at the
address set forth below, or at such other place of which the other party has
been notified in accordance with the provisions of this Section:
IUMA: IUMA
000 Xxxxxxx, Xxxxx 0x
Xxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
34
With copy to: Xxxx Xxxxxxxx
Wise & Xxxxxxx LLP
0000 Xxxxxx Xxx, Xxx. 000
Xxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
GoodNoise or Sub: GoodNoise Corporation
0000 Xxxxxxxx, 0xx Xxxxx
Xxxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxxx, Xx.
Facsimile: (000) 000-0000
With copy to: Xxxx Xxxx Xxxx & Freidenrich LLP
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxx, Esq.
14.13 Time. Time is of the essence of this Agreement.
14.14 Construction of Agreement. This Agreement has been negotiated by the
respective parties hereto and their attorneys and the language hereof shall not
be construed for or against any party. The titles and headings herein are for
reference purposes only and shall not in any manner limit the construction of
this Agreement which shall be considered as a whole.
14.15 No Joint Venture. Nothing contained in this Agreement shall be deemed
or construed as creating a joint venture or partnership between any of the
parties hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party shall have the
power to control the activities and operations of any other and their status is,
and at all times, will continue to be, that of independent contractors with
respect to each other. No party shall have any power or authority to bind or
commit any other. No party shall hold itself out as having any authority or
relationship in contravention of this Section.
14.16 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
14.17 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested by
any other party to better evidence and reflect the transactions described herein
and contemplated hereby and to carry into effect the intents and purposes of
this Agreement.
14.18 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor shall be interpreted, to provide or create any third
party beneficiary rights or
35
any other rights of any kind in any client, customer, affiliate, shareholder,
partner of any party hereto or any other person or entity unless specifically
provided otherwise herein, and, except as so provided, all provisions hereof
shall be personal solely between the parties to this Agreement.
14.19 Liability of the Principal Shareholders. Notwithstanding anything to
the contrary set forth herein, the liability of the Principal Shareholders for
breaches of the representations and warranties of IUMA as set forth herein shall
not exceed such Principal Shareholders' proportional share of the maximum amount
of the liability of the IUMA shareholders as set forth in Section 13.2(c)
hereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
36
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
GOODNOISE CORPORATION INTERNET UNDERGROUND MUSIC
ARCHIVE, INC.
By: /s/ Xxxxxx X. Xxxxxx
-------------------------------------- By: /s/ Xxxxxxx Xxxxxx
---------------------------
GNA CORPORATION SHAREHOLDERS:
By: /s/ Xxxxxx X. Xxxxxx /s/ Xxxxxxx Xxxxxx
-------------------------------------- -------------------------------
Xxxxxx Xxxxxx
/s/ Xxxx Xxxxxxxx
-------------------------------
Xxxx Xxxxxxxx
[SIGNATURE PAGE FOR AGREEMENT AND PLAN OF REORGANIZATION]
37
EXHIBIT A
---------
AGREEMENT OF MERGER
This Agreement of Merger (the "Merger Agreement") is entered into this
______ day of June, 1999, by and among GoodNoise Corporation, a Florida
corporation ("GoodNoise"), GNA Corporation, a Delaware corporation and wholly-
owned subsidiary of GoodNoise ("Sub") and Internet Underground Music Archive,
Inc., a California corporation ("IUMA"). Unless otherwise defined herein, all
capitalized terms have the same meaning as in the Agreement and Plan of
Reorganization dated as of May 16, 1999 (the "Plan of Reorganization").
RECITALS
--------
A. The Board of Directors of GoodNoise, Sub and IUMA have each determined
that it is advisable and in the best interests of their respective shareholders
for Sub to merge with and into IUMA, with IUMA continuing as the surviving
corporation (the "Merger").
B. The Board of Directors of GoodNoise, Sub and IUMA have approved the
Merger whereby the holders of capital stock of IUMA shall be entitled to receive
GoodNoise Common Stock and the holders of options to purchase IUMA Common Stock
shall receive options to purchase GoodNoise Common Stock.
C. GoodNoise, Sub and IUMA intend for the Merger to qualify as a tax-free
reorganization undertaken pursuant to a plan of reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
D. GoodNoise, Sub, IUMA and certain shareholders of IUMA have entered
into the Plan of Reorganization, setting forth certain representations,
warranties and agreements in connection with the Merger and the transactions
contemplated hereby.
AGREEMENT
NOW, THEREFORE, in reliance on the foregoing recitals and in and for the
consideration and mutual covenants set forth herein, the parties agree as
follows:
1. THE MERGER.
----------
Subject to the terms and conditions of the Plan of Reorganization, Sub
shall be merged with and into IUMA in accordance with the applicable provisions
of the California General Corporation Law (the "CGCL"), the Delaware General
Corporation Law (the "DGCL") and with the terms and conditions of this Merger
Agreement so that:
1.1 At the Effective Time (as defined in Section 4 below), Sub shall be
merged with and into IUMA. As a result of the Merger, the separate corporate
existence of Sub shall cease and IUMA shall continue as the surviving
corporation (sometimes referred to herein as the
1
"Surviving Corporation") and shall succeed to and assume all of the rights and
obligations of Sub in accordance with the GCGL and the DGCL.
1.2 The Articles of Incorporation of the Surviving Corporation shall be
amended and restated to read in their entirety as set forth on Exhibit A hereto,
---------
and such Articles of Incorporation as amended and restated shall be the Articles
of Incorporation of the Surviving Corporation until thereafter amended in
accordance with the CGCL, and such Articles of Incorporation. The Bylaws of
IUMA in effect immediately prior to the Effective Time shall be the bylaws of
Surviving Corporation after the Effective Time unless and until further amended
as provided by law or by such Bylaws.
1.3 The directors and officers of Sub immediately prior to the Effective
Time shall be the directors and officers of the Surviving Corporation after the
Effective Time. Such directors and officers shall hold their positions until
the election and qualification of their respective successors or until their
tenure is otherwise terminated in accordance with the Bylaws of Surviving
Corporation.
2. EFFECT ON CAPITAL STOCK.
-----------------------
2.1 At the Effective Time, each IUMA Share (other than shares owned
directly or indirectly by IUMA) shall, by virtue of the Merger, and without
further action on the part of any holder thereof, be converted and exchanged for
the right to receive that number of GoodNoise Shares as is equal to 448,000
divided by the number of IUMA Shares outstanding at the Effective Time (on a
fully diluted basis giving effect to any options, warrants or other rights to
acquire IUMA Shares issued and outstanding at the Effective Date).
2.2 At the Effective Time, each share of capital stock of Sub outstanding
immediately prior to the Merger shall, by virtue of the Merger, and without
further action on the part of any holder thereof, continue to be issued and
shall be converted into one share of IUMA common stock outstanding after the
Merger.
2.3 Any Dissenting Shares shall not be converted into GoodNoise Common
Stock but shall instead be converted into the right to Dissenting Shares
pursuant to the CGCL. IUMA agrees that, except with the prior written consent
of GoodNoise, or as required under the CGCL, it will not voluntarily make any
payment with respect to, or settle or offer to settle, any such purchase demand.
Each holder of Dissenting Shares (a "Dissenting Shareholder") who, pursuant to
the provisions of the CGCL, becomes entitled to payment for IUMA Shares shall
receive payment therefor (but only after the value therefor shall have been
agreed upon or finally determined pursuant to such provisions). If, after the
Effective Time, any Dissenting Shares shall lose their status as Dissenting
Shares, GoodNoise shall issue and deliver, upon surrender by such shareholder of
certificate or certificates representing IUMA Shares, the number of shares of
GoodNoise Common Stock to which such shareholder would otherwise be entitled
under this Section 2 less the number of shares of GoodNoise Common Stock
allocable to such shareholder that have been deposited in the Indemnity Escrow.
2
3. FRACTIONAL SHARES.
-----------------
No fraction of a share of GoodNoise Common Stock shall be issued, but
in lieu thereof each holder of IUMA Shares who would otherwise be entitled to a
fraction of a share of GoodNoise Common Stock (after aggregating all fractional
shares of GoodNoise Common Stock to be received by such holder) shall receive
from GoodNoise an amount of cash (rounded to the nearest whole cent) equal to
the product of (i) such fraction, multiplied by (ii) the average last sale price
of a share of GoodNoise Common Stock for the five most recent days that
GoodNoise Common Stock has traded ending on the trading day immediately prior to
the Effective Time.
4. THE CLOSING; EFFECTIVE TIME.
---------------------------
4.1 Subject to termination of the Plan of Reorganization as provided in
Section 12 thereof, the closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Xxxx Xxxx Xxxx &
Freidenrich LLP at 10:00 a.m. local time on the date three (3) days following
the satisfaction of all conditions to closing set forth in the Plan of
Reorganization, or such other place, time and date as GoodNoise and IUMA may
mutually select (the "Closing Date").
4.2 Simultaneously with the Closing, the Merger Agreement shall be filed
in the offices of the Secretaries of State of the States of California and
Delaware. The Merger shall become effective immediately upon the filing of the
Merger Agreement with such offices (the "Effective Time").
5. MISCELLANEOUS.
-------------
5.1 It is the intention of the parties hereto that the internal laws of
the State of California (without regard to of its choice of law principles)
shall govern the validity of this Merger Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties hereto.
5.2 Subject to, and unless otherwise provided in, this Merger Agreement,
each and all of the covenants, terms, provisions, and agreements contained
herein shall be binding upon, and inure to the benefit of, the permitted
successors, executors, heirs, representatives, administrators and assigns of the
parties hereto.
5.3 This Merger Agreement may be executed in any number of counterparts,
each of which shall be an original as against any party whose signature appears
thereon and all of which together shall constitute one and the same instrument.
This Merger Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as signatories.
3
IN WITNESS WHEREOF, the parties hereto have executed this Merger Agreement
as of the date first written above.
"GOODNOISE" "IUMA"
GoodNoise Corporation Internet Underground Music Archive, Inc.
By: ________________________ By: ______________________________________
President President
By: ________________________ By: ______________________________________
Secretary Secretary
"SUB"
GNA Corporation
By: ________________________
President
By: ________________________
Secretary
4
EXHIBIT A
---------
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
INTERNET UNDERGROUND MUSIC ARCHIVE, INC.
ARTICLE I
NAME
----
The name of the corporation is IUMA, Inc.
ARTICLE II
PURPOSES
--------
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
STOCK
-----
The corporation is authorized to issue one class of shares designated
"Common Stock." The number of shares of Common Stock authorized to be issued is
one thousand (1,000).
5
ARTICLE IV
DIRECTORS' LIABILITY AND INDEMNIFICATION OF AGENTS
--------------------------------------------------
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to the corporation and its shareholders.
Any amendment, repeal or modification of any provision of this Article IV
shall not adversely affect any right or protection of a director or officer of
the corporation existing at the time of such amendment, repeal or modification.
-6-
EXHIBIT B
---------
NON-COMPETE AGREEMENT
This Agreement is dated as of May ___, 1999 by and between GoodNoise
Corporation ("Parent"), a Florida corporation with principal place of business
at 0000 Xxxxxxxx, 0xx Xxxxx Xxxxxxx Xxxx, XX 00000 and ___________ , an
individual residing at ___________________, California _______ (the
"Shareholder").
Recitals
--------
A. Shareholder holds a substantial number of shares of the outstanding
capital stock of Internet Underground Music Archive, Inc., a California
corporation ("IUMA").
B. Parent, IUMA and GNA Corporation, a Delaware corporation and a wholly-
owned subsidiary of Parent ("Sub"), have entered into an Agreement and Plan of
Reorganization dated as of May __, 1999 (the "Merger Agreement") pursuant to
which inter alia, the shareholders of IUMA will receive shares of capital stock
----------
of Parent in exchange for their shares of capital stock of IUMA.
C. As an inducement to Parent to enter into the Merger Agreement, and to
consummate the transactions contemplated by the Merger Agreement and in order to
preserve the value of the business and goodwill of IUMA, Shareholder has agreed
to enter into this Agreement.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
promises, terms, provisions and conditions set forth in this Agreement, the
parties hereby agree:
1. Definitions. Terms Defined In The Merger Agreement And Not Otherwise
-----------
Defined Herein Are Used Herein As So Defined.
2. COVENANT NOT TO COMPETE.
-----------------------
2.1 Non-Compete. Shareholder covenants and agrees that for eighteen
-----------
months following the Effective Date or expiring on such earlier date if
Shareholder's employment is terminated by Parent without cause, Shareholder
shall not, directly or indirectly, as principal, partner, agent, servant,
employee, shareholder, or otherwise, anywhere in the world, engage or attempt to
engage in any business activity competitive with the business conducted or being
planned to be conducted as of the Effective Time by IUMA. The foregoing shall
not prohibit Shareholder or his spouse or children from owning beneficially (i)
any security, so long as the beneficial ownership by them, when combined with
the beneficial ownership of such security of any group (as the term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of which
any of them is a member constitutes (x) less than, in the case of publicly
traded securities, One Percent (1%) of the class of such security, or (ii) any
shares in an "investment company" (as defined in the Investment Company Act of
1940, as amended).
7
2.2 Non-Solicit. Shareholder agrees that for a period of two (2) years
-----------
following the Effective Date, Shareholder shall not: (i) solicit, encourage, or
take any other action which is intended to induce any employee of the Parent or
IUMA to terminate his or her employment with the Parent or IUMA, as the case may
be; or (ii) knowingly and intentionally interfere in any manner with the
contractual or employment relationship between the Parent or IUMA and any
employee, supplier or customer of the Parent or IUMA.
2.3 Reasonableness of Restrictions. Shareholder recognizes that the
------------------------------
consideration to be paid and all other obligations of Parent to be performed
pursuant to the Merger Agreement are intended to secure Shareholder's agreement
to the conditions of this Agreement, and Shareholder recognizes that the scope
of the restrictions and the foregoing territorial and time limitations are
reasonable and properly required for the adequate protection of the business of
Parent and its subsidiary and affiliates, including, following the Effective
Time, IUMA, and that in the event the foregoing restrictions are deemed to be
unreasonable for any reason by any tribunal having jurisdiction, Shareholder
agrees to request, and to submit to, a narrowing of the scope of the foregoing
restrictions or the reduction of either said territorial or time limitation to
such an area or period as shall be deemed reasonable by such tribunal.
2.4 Severability of Claims. The existence of any claim or cause of action
----------------------
by Shareholder against Parent, if any, whether predicated upon this Agreement or
otherwise, shall not constitute a defense to the enforcement by Parent of the
foregoing restrictive covenants but shall be resolved by separate proceeding.
3. Injunctive And Other Relief. Shareholder Agrees That A Remedy At Law For
---------------------------
Any Breach Of The Provisions Of Section 2 Hereof May Be Inadequate And That
Parent Shall Be Entitled To Injunctive Relief, In Addition To Any Other Remedy
It Might Have In The Event Of Breach Or Threatened Breach Of The Provisions Of
Section 2 Of This Agreement.
4. Assignment. Neither Parent Nor Shareholder May Make Any Assignment Of This
----------
Agreement Or Any Interest Herein, By Operation Of Law Or Otherwise, Without The
Prior Written Consent Of The Other; Provided, However, That Parent May Assign
Its Rights And Obligations Under This Agreement Without The Consent Of
Shareholder In The Event That Parent Transfers All Or Substantially All Of Its
Properties Or Assets To Any Other Person. This Agreement Shall Inure To The
Benefit Of And Be Binding Upon Parent And Shareholder, Their Respective
Successors, Executors, Administrators, Heirs And Permitted Assigns.
5. Severability. If Any Term Or Provision Of This Agreement Shall Become Or
------------
Be Declared Illegal, Invalid Or Unenforceable, Such Term Or Provision Shall Be
Divisible From This Agreement And Shall Be Deemed To Be Deleted From This
Agreement, Provided That If Such Deletion Substantially Affects Or Alters The
Commercial Basis Of This Agreement The Parties Shall Negotiate In Good Faith To
Amend And Modify The Terms And Provisions Of This Agreement To Give Effect To
The Original Intent Of The Parties.
6. Waiver. No Waiver Of Any Provision Hereof Shall Be Effective Unless Made
------
In Writing And Signed By The Waiving Party. The Failure Of Either Party To
Require The Performance Of Any Term Or Obligation Of This Agreement, Or The
Waiver By Either Party Of Any Breach Of
-8-
This Agreement, Shall Not Prevent Any Subsequent Enforcement Of Such Term Or
Obligation Or Be Deemed A Waiver Of Any Subsequent Breach.
7. Notices. Any And All Notices, Requests, Demands And Other Communications
-------
Provided For By This Agreement Shall Be In Writing And Shall Be Effective When
Delivered In Person To Shareholder At Shareholder's Last Known Address On The
Books Of Parent Or, In The Case Of Parent, At Its Principal Place Of Business,
Attention To President, Or To Such Other Address As Either Party May Specify By
Notice To The Other.
8. Miscellaneous. This Agreement Constitutes The Entire Agreement Between The
-------------
Parties And Supersedes All Prior Communications, Agreements And Understandings,
Written Or Oral, With Respect To The Subject Matter Hereof. This Agreement May
Be Amended Or Modified Only By A Written Instrument Signed By Shareholder And By
An Expressly Authorized Representative Of Parent. The Headings And Captions In
This Agreement Are For Convenience Only And In No Way Define Or Describe The
Scope Or Content Of Any Provision Of This Agreement. This Agreement May Be
Executed In Two Or More Counterparts, Each Of Which Shall Be An Original And All
Of Which Together Shall Constitute One And The Same Instrument. This Agreement
Shall Be Construed And Enforced Under And Be Governed In All Respects By The
Laws Of The State Of California, Without Regard To The Conflict Of Laws
Principles Thereof.
9. Termination. If, Prior To The Effective Time, The Merger Agreement Shall
-----------
Be Terminated Or If, After The Effective Time, The Shareholder Shall Be
Terminated Without Cause (As Defined In The Employment Agreement Attached As
Exhibit B To The Merger Agreement), This Agreement Shall Automatically Terminate
And Be Without Further Force Or Effect.
IN WITNESS, WHEREOF, this Agreement has been executed by Parent, by its
duly authorized representative, and by Shareholder, as of the date first above
written.
GOODNOISE CORPORATION
_________________________________ By:__________________________
Shareholder Signature
_________________________________ Title:_______________________
Print Name
-9-
EXHIBIT C
---------
Indemnification Matters
Notwithstanding anything to the contrary set forth herein, the IUMA Shareholders
shall remain liable for any claims relating to:
(a) any shares of outstanding capital stock or rights to acquire capital
stock in excess of the number specified by IUMA in writing as outstanding as of
immediately prior to the Effective Time;
(b) any claim by Xxxxx Xxxxxx;
(c) any claim that the aggregate liabilities of IUMA under any form of
indebtedness or for employee, consultant or other compensation for services
rendered prior to the Effective Date exceeds $1.2 million.
EXHIBIT D
---------
INDEMNITY ESCROW AGREEMENT
This Indemnity Escrow Agreement (this "Agreement") is entered into as of
June 11, 1999, by and among GoodNoise Corporation, a Florida corporation
("GoodNoise"), __________________ (the "Indemnity Escrow Agent") and __________
(the "Shareholder Representative").
RECITALS
A. GoodNoise, GNA Corporation, a Delaware corporation and wholly-owned
subsidiary of GoodNoise ("Sub"), and Internet Underground Music Archive, Inc., a
California corporation ("IUMA") have entered into an Agreement and Plan of
Reorganization dated as of May 16, 1999 (the "Reorganization Agreement")
pursuant to which Sub will merge with and into IUMA (the "Merger"), with IUMA
surviving the Merger. Capitalized terms used in this Agreement and not
otherwise defined in this Agreement shall have the meanings ascribed to them in
the Reorganization Agreement.
B. Section 13.5 of the Reorganization Agreement provides that as soon as
practicable after the Effective Time, GoodNoise shall deposit into an escrow
account (the "Indemnity Escrow") with the Indemnity Escrow Agent, twenty percent
(20%) of the GoodNoise Shares (the "Indemnity Escrow Holdback"). The number of
shares of GoodNoise Common Stock to be contributed to the Indemnity Escrow shall
be determined according to the exchange procedures set forth in Section 2 of the
Reorganization Agreement at the Closing. The Indemnity Escrow Holdback shall be
withheld on a pro rata basis from the IUMA Shareholders who otherwise would have
been entitled to receive such consideration under the Reorganization Agreement
at the Effective Time and shall be governed by the terms set forth herein and in
the Reorganization Agreement. The Indemnity Escrow shall be available, subject
to the limitations set forth below, to compensate GoodNoise for any loss, to the
extent of the amount of Damages that GoodNoise has incurred by reason of the
breach by IUMA or the Principal Shareholders of any representation, warranty,
covenant or agreement of IUMA contained in the Reorganization Agreement, or by
reason of any misrepresentation by IUMA or the Principal Shareholders made in or
pursuant to Section 3 and 5 of the Reorganization Agreement or in any
certificate delivered by IUMA or the Principal Shareholders pursuant to the
Reorganization Agreement.
C. The parties to this Agreement desire to establish the terms and
conditions pursuant to which the Indemnity Escrow Holdback will be deposited
into, held in, and disbursed from, the Indemnity Escrow.
AGREEMENT
NOW, THEREFORE, the parties to this Agreement agree as follows:
1. Escrow And Indemnification.
(a) Identification of Indemnity Escrow Agent. GoodNoise and IUMA
----------------------------------------
collectively choose the Indemnity Escrow Agent, and the Indemnity Escrow Agent
accepts said appointment to act in accordance with the terms specified herein.
(b) Indemnity Escrow. The Indemnity Escrow Agent agrees to accept
----------------
delivery of the Indemnity Escrow Holdback and to hold such Indemnity Escrow
Holdback delivered to it in escrow subject to the terms and conditions of this
Agreement and Section 13 of the Reorganization Agreement (collectively, the
"Escrow Provisions") until the Indemnity Escrow Agent is required to release
such Indemnity Escrow Holdback pursuant to the terms of this Agreement. The
Indemnity Escrow Agent shall have no responsibility for the calculation or
sufficiency of the Indemnity Escrow Holdback.
(c) Indemnification. The IUMA Shareholders by their appointment of
---------------
the Shareholder Representative have agreed in Section 13 of the Reorganization
Agreement to indemnify and hold harmless each of the Indemnitees (as defined
therein) from and against, and shall compensate and reimburse each of the
Indemnitees for, any Damages which are directly or indirectly suffered or
incurred by any of the Indemnitees subject to the limitations and other terms
set forth in the Reorganization Agreement. Promptly after the receipt by
GoodNoise of notice or discovery of any claim, damage or legal action or
proceeding giving rise to indemnification rights under the Reorganization
Agreement, GoodNoise will give the Shareholder Representative and the Indemnity
Escrow Agent written notice of such claim, damage, legal action or proceeding (a
"Claim") in accordance with Section 3 hereof. GoodNoise shall notify the
Shareholder Representative of the progress of any such Claim and shall permit
the Shareholder Representative to participate in such defense in accordance with
Section 13.4 of the Reorganization Agreement, and GoodNoise shall not compromise
or settle any such Claim without the written consent of the Shareholder
Representative, which consent will not be unreasonably withheld.
(d) Stock Valuation. For the purposes of valuing the GoodNoise Shares
---------------
for the purposes of satisfying any Claim, such shares shall be valued at the
closing price of GoodNoise Common Stock on the Effective Date.
2. Deposit Of Indemnity Escrow Holdback; Release From Escrow.
---------------------------------------------------------
(a) Delivery of Indemnity Escrow Holdback. Promptly following the
-------------------------------------
Closing Date GoodNoise will deliver the Indemnity Escrow Holdback to the
Indemnity Escrow Agent.
(b) Final Distribution to IUMA Shareholders. Within ten (10) business
---------------------------------------
days after the date the Indemnification Period ends (the "Release Date"), the
Indemnity Escrow Agent shall release from escrow to the IUMA Shareholders their
respective portions of the Indemnity
-12-
Escrow Holdback less (A) any liability delivered to GoodNoise in accordance with
Section 4 hereof in satisfaction of Claims by GoodNoise and (B) any liability
subject to delivery to GoodNoise in accordance with Section 4 hereof with
respect to any pending but unresolved Claims of GoodNoise. Any Indemnity Escrow
Holdback held as a result of clause (B) shall be released to the IUMA
Shareholders or GoodNoise (as appropriate) promptly upon resolution of each
specific Claim in accordance with Section 4 hereof. GoodNoise or the Shareholder
Representative shall give the Indemnity Escrow Agent at least seven business
days advance notice of the occurrence of the Release Date.
(c) Release of Indemnity Escrow Holdback. The Indemnity Escrow
------------------------------------
Holdback will be held by the Indemnity Escrow Agent until required to be
released pursuant to Sections 2(b) and 2(c). The Indemnity Escrow Agent will
deliver to each IUMA Shareholder the requisite portion of the Indemnity Escrow
Holdback to be released as identified by GoodNoise and the Shareholder
Representative to the Indemnity Escrow Agent in writing in accordance with such
IUMA Shareholder's instructions delivered to the Indemnity Escrow Agent at least
five (5) business days prior to such Release Date. GoodNoise and the
Shareholder Representative shall deliver a notice to the Indemnity Escrow Agent
identifying the portion of the Indemnity Escrow Holdback to be released and the
manner in which it is to be released within such five business day period.
3. Notice Of Claim.
---------------
(a) Each notice of a Claim by GoodNoise (the "Notice of Claim") shall
be delivered in writing to the Shareholder Representative and the Indemnity
Escrow Agent, and shall contain the following information to the extent it is
reasonably available to GoodNoise:
(i) GoodNoise's good faith estimate of the reasonably
foreseeable maximum amount of the alleged Damages; and
(ii) A brief description in reasonable detail of the facts,
circumstances or events giving rise to the alleged Damages based on GoodNoise's
good faith belief thereof.
(b) Upon resolution of a claim for which a Notice of Claim has been
previously submitted, GoodNoise shall submit an Invoice of Claim (the "Invoice
of Claim") setting forth the amount of the Damages actually incurred.
(c) The Indemnity Escrow Agent will not release more than the amount
of the Indemnity Escrow Holdback identified as being needed to satisfy a claim
pursuant to a Notice of Claim until such Notice of Claim has been resolved in
accordance with Section 4 below and an Invoice of Claim has been received with
respect to such Notice of Claim.
-13-
4. Resolution Of Notice Of Claim And Transfer Of Indemnity Escrow Holdback.
-----------------------------------------------------------------------
Any notice of claim and invoice of claim received by the shareholder
representative and the indemnity escrow agent pursuant to section 3 above will
be resolved as follows:
(a) Uncontested Claims. In the event that the Shareholder
------------------
Representative does not contest a Notice of Claim (or contests only a portion of
the claim), in writing to the Indemnity Escrow Agent and GoodNoise within 30
days after such notice is deemed delivered pursuant to Section 11 below, the
Indemnity Escrow Agent shall promptly segregate an amount of shares necessary to
satisfy the amount specified in the Notice of Claim (that is not contested), and
said amount shall remain so held until such time as the Indemnity Escrow Agent
receives notice that no liability will result on the claim, in which case the
segregated amount will be added back to the nonsegregated balance, or an Invoice
of Claim. Upon receiving an Invoice of Claim, the Shareholder Representative
may contest the Invoice of Claim (or contest only a portion of the claim), by
delivering a writing to the Indemnity Escrow Agent and GoodNoise within 30 days
of the date such notice is deemed delivered pursuant to Section 11 below. In
the event the Shareholder Representative does not contest the Invoice of Claim
(or contests only a portion of the claim) the Indemnity Escrow Agent will
promptly deliver to GoodNoise, that portion of Indemnity Escrow Holdback equal
to the amount specified in the Invoice of Claim (that is not contested) and
notify the Shareholder Representative and GoodNoise, as applicable, of such
transfer.
(b) Contested Claims. In the event that the Shareholder
----------------
Representative gives written notice contesting all, or a portion of, a Notice of
Claim or Invoice of Claim (collectively referred to in this Section 4(b) as a
"Notice of Claim") to GoodNoise and the Indemnity Escrow Agent (a "Contested
Claim") within the 30-day period provided above, the matter will be settled by
binding arbitration. Any portion of the Notice of Claim which is not contested
shall be disbursed in accordance with Section 4(a). The final decision of the
arbitrator shall be furnished to the Indemnity Escrow Agent, the Shareholder
Representative and GoodNoise in writing and will constitute a conclusive
determination of the issue in question, binding upon the IUMA Shareholders, the
Shareholder Representative and GoodNoise and shall not be contested or appealed
by any of them. After notice that the Notice of Claim is contested by the
Shareholder Representative, the Indemnity Escrow Agent will continue to hold in
the Indemnity Escrow a portion of the Indemnity Escrow Holdback equal to the
contested amount to cover such Claim (notwithstanding the expiration of the
Release Date) until the earlier of receipt by it of (i) execution of a
settlement agreement by GoodNoise and the Shareholder Representative setting
forth a resolution of the Notice of Claim, or (ii) a copy of the final award of
the arbitrator.
(c) Arbitration. Any Contested Claim shall be settled by (i)
-----------
agreement of the Shareholder Representative and GoodNoise or (ii) arbitration in
Santa Clara, California and, except as herein specifically stated, in accordance
with the commercial arbitration rules of the American Arbitration Association
("AAA Rules") then in effect. However, in all events, these arbitration
provisions shall govern over any conflicting rules which may now or hereafter be
contained in the AAA Rules. Any judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction over the subject
matter thereof. The arbitrator shall have
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the authority to grant any equitable and legal remedies that would be available
in any judicial proceeding instituted to resolve a Contested Claim.
(i) Compensation of Arbitrator. Any such arbitration shall be
--------------------------
conducted before a single arbitrator who shall be compensated for his or her
services at a rate to be determined by the parties or by the American
Arbitration Association, but based upon reasonable hourly or daily consulting
rates for the arbitrator in the event the parties are not able to agree upon his
or her rate of compensation.
(ii) Selection of Arbitrator. The AAA Rules for the selection of
-----------------------
the arbitrator shall be followed by GoodNoise and the Shareholder
Representative.
(iii) Payment of Costs. GoodNoise and the IUMA Shareholders as a
----------------
group shall each pay fifty percent (50%) of the initial compensation to be paid
to the arbitrator in any such arbitration and fifty percent (50%) of the costs
of transcripts and other normal and regular expenses of the arbitration
proceedings; provided, however, that the prevailing party in any arbitration
shall be entitled to an award of attorneys' fees and costs, and all costs of
arbitration, other than those provided for above, will be paid by the losing
party.
(iv) Discovery. The parties shall be entitled to conduct
---------
discovery proceedings in accordance with the provisions of the Federal Rules of
Civil Procedure, only to the extent the arbitrator considers necessary to a full
and fair exploration of the issues in dispute.
(v) Burden of Proof. For any claim submitted to arbitration, the
---------------
burden of proof shall be as it would be if the claim were litigated in a
judicial proceedings.
(vi) Judgment. Upon the conclusion of any arbitration proceedings
--------
hereunder, the arbitrator shall render findings of fact and conclusions of law
and a written opinion setting forth the basis and reasons for any decision
reached by him and shall deliver such documents to each party to this Agreement
along with a signed copy of the award.
(vii) Terms of Arbitration. The arbitrator chosen in accordance
--------------------
with these provisions shall not have the power to alter, amend or otherwise
affect the terms of these arbitration provisions or the provisions of this
Agreement or the Reorganization Agreement.
(viii) Exclusive Remedy. Except as specifically provided in this
----------------
Agreement or the Reorganization Agreement, arbitration shall be the sole and
exclusive remedy of the parties for any Contested Claim arising out of such
agreement.
(d) Determination of Amount of Claims. Any amount owed to GoodNoise
---------------------------------
hereunder determined pursuant to Section 4(a) or (b) above, will be payable to
GoodNoise from the Indemnity Escrow Holdback in accordance with Section 13 of
the Reorganization Agreement and will be paid promptly.
(e) No Exhaustion of Remedies. GoodNoise shall institute Claims against
-------------------------
the Indemnity Escrow Holdback and in satisfaction thereof shall recover
Indemnity Escrow
-15-
Holdback in accordance with the terms of this Agreement. The assertion of
any single Claim for indemnification hereunder will not bar GoodNoise from
asserting other claims hereunder. Notwithstanding the foregoing, if GoodNoise
elects to make a Claim against the Indemnity Escrow for an action against a
third party, then the Shareholder Representative, on behalf of the IUMA
Shareholders, shall be subrogated to the rights of GoodNoise with respect to
such a Claim, and GoodNoise shall assign all of its rights in connection with
such Claim necessary for the Shareholder Representative to assert such claim
against such third party.
(f) Payment of Costs. The Indemnity Escrow Agent is authorized and
----------------
directed to disburse pro rata any payments due the IUMA Shareholders under this
Agreement out of the Indemnity Escrow in accordance with their interest and as
identified by GoodNoise and the Shareholder Representative, after (i) payment of
any attorney's and accountants' and other fees and expenses incurred on behalf
of the IUMA Shareholders as contemplated by this Agreement and (ii) withholding
such amounts to pay costs and expenses relating to potential disputes arising
with respect to indemnification or other obligations of other IUMA Shareholders
under the Escrow Provisions.
5. Limitation Of The Indemnity Escrow Agent's Liability.
----------------------------------------------------
(a) The parties acknowledge and agree that the Escrow Agent shall not
be responsible for any of the agreements referred to herein or in the
Reorganization Agreement but shall only be obligated for the performance of such
duties as are specifically set forth herein. The Indemnity Escrow Agent will
incur no liability with respect to any action taken or suffered by it in
reliance upon any notice, direction, instruction, consent, statement or other
document believed by it to be genuine and to have been signed by the proper
person (and shall have no responsibility to determine the authenticity or
accuracy thereof), nor for any other action or inaction, except its own willful
misconduct, bad faith or gross negligence. In no event shall the Indemnity
Escrow Agent be liable for indirect consequential damages. The Indemnity Escrow
Agent will not be responsible for the validity or sufficiency of the Escrow
Provisions, including the amount of Indemnity Escrow Holdback. In all questions
arising under the Escrow Provisions, the Indemnity Escrow Agent may rely on the
advice of counsel, and for anything done, omitted or suffered in good faith by
the Indemnity Escrow Agent based on such advice, the Indemnity Escrow Agent will
not be liable to anyone. The Indemnity Escrow Agent will not be required to
take any action under the Escrow Provisions involving any expense unless the
payment of such expense is made or provided for in a manner satisfactory to it.
(b) In the event conflicting demands are made or notices are served
upon the Indemnity Escrow Agent with respect to the Indemnity Escrow or should a
third party make a claim on such Escrow, the Indemnity Escrow Agent will have
the absolute right, at the Indemnity Escrow Agent's election, to do any of the
following: (i) resign so a successor can be appointed pursuant to Section 7,
(ii) file a suit in interpleader and obtain an order from a court of competent
jurisdiction requiring the parties to interplead and litigate in such court
their several claims and rights among themselves; or (iii) retain all or any of
the Indemnity Escrow in its possession, without liability to anyone, until such
dispute shall have been settled as contemplated in Section 4. In the event such
interpleader suit is brought, the Indemnity Escrow Agent will
-16-
thereby be fully released and discharged from all further obligations imposed
upon it under the Escrow Provisions, and GoodNoise will pay the Indemnity Escrow
Agent (subject to reimbursement from the IUMA Shareholders pursuant to Section
4) all reasonable costs, expenses and reasonable attorney's fees expended or
incurred by the Indemnity Escrow Agent pursuant to the exercise of the Indemnity
Escrow Agent's rights under this Section 5 (such costs, fees and expenses will
be treated as extraordinary fees and expenses for the purposes of Section 6).
The resignation of the Indemnity Escrow Agent under this section shall not
affect the right of the Indemnity Escrow Agent to be paid any amount due to
Indemnity Escrow Agent hereunder.
6. Expenses.
--------
(a) Indemnity Escrow Agent. All fees and expenses including
----------------------
attorney's fees of the Indemnity Escrow Agent incurred in the ordinary course of
performing its responsibilities hereunder will be paid by GoodNoise upon receipt
of a written invoice by the Indemnity Escrow Agent. Any extraordinary fees and
expenses including attorney's fees, including without limitation any fees or
expenses incurred by the Indemnity Escrow Agent in connection with a dispute
over the distribution of Indemnity Escrow Holdback or the validity of a Claim or
Claims by GoodNoise will be paid fifty percent (50%) by GoodNoise and fifty
percent (50%) by the IUMA Shareholders (it being understood that such obligation
shall be joint and several) subject to Section 4(f). The IUMA Shareholder's
liability for the extraordinary fees and expenses of the Indemnity Escrow Agent
may be paid by GoodNoise after giving at least five (5) days written notice to
the IUMA Shareholder Representative and may be recovered as a Claim hereunder
out of the Indemnity Escrow. If GoodNoise has paid the IUMA Shareholder's
portion of such fees and expenses as permitted under this Section 6(a) then the
Indemnity Escrow Agent will, upon demand by GoodNoise, release to GoodNoise a
portion of the Indemnity Escrow Holdback equal to such portion of fees and
expenses.
GoodNoise and the IUMA Shareholders, jointly and severally, agree to assume
any and all obligations imposed now or hereafter by any applicable tax law with
respect to the distribution of Indemnity Escrow Holdback under this Agreement,
and to indemnify and hold the Indemnity Escrow Agent harmless from and against
any taxes, additions of late payment, interest, penalties and other expenses,
that may be assessed against the Indemnity Escrow Agent on any such payment or
other activities under this Agreement. GoodNoise and the IUMA Shareholders
undertake to instruct the Indemnity Escrow Agent in writing with respect to the
Indemnity Escrow Agent's responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting in connection with its acting as Indemnity Escrow Agent under this
Agreement. GoodNoise and the IUMA Shareholders, jointly and severally, agree to
indemnify and hold the Indemnity Escrow Agent harmless from any liability on
account of taxes, assessments or other governmental charges, including without
limitation the withholding or deduction or the failure to withhold or deduct
same, and any liability for failure to obtain proper certifications or to
properly report to governmental authorities, to which the Indemnity Escrow Agent
may be or become subject in connection with or which arises out of this
Agreement, including costs and expenses (including reasonable legal fees),
interest and penalties. Notwithstanding the foregoing, the liability of a
shareholder of
-17-
IUMA under this paragraph shall be limited to and shall not exceed his pro rata
portion of the Indemnity Escrow Holdback then held by the Indemnity Escrow
Agent.
GoodNoise and the Shareholder Representative agree to indemnify, protect,
and save and hold the Indemnity Escrow Agent, its successor and assigns,
harmless from all liabilities, obligations, losses, damages, penalties, taxes,
claims, actions, suits, costs and expenses (including attorneys' fees) of
whatsoever kind or nature imposed on, incurred by or asserted against the
Indemnity Escrow Agent which in any way relate to or arise out of the execution
and delivery of this Agreement or any action taken hereunder and will pay them
on demand; provided, however, that GoodNoise and the Shareholder Representative
shall have no such obligation to indemnify and save and hold the Indemnity
Escrow Agent harmless from any liability incurred by, imposed upon or asserted
against the Indemnity Escrow Agent for its own willful misconduct or gross
negligence.
(b) Shareholder Representative. The Shareholder Representative will
--------------------------
not be entitled to receive any compensation from GoodNoise or the IUMA
Shareholders in connection with this Agreement. Any fees and expenses incurred
by the Shareholder Representative in connection with actions taken pursuant to
the terms of the Escrow Provisions will be paid by the IUMA Shareholders to the
Shareholder Representative.
7. Successor Indemnity Escrow Agent. In the event the indemnity escrow agent
--------------------------------
becomes unavailable or unwilling to continue in its capacity as such, the
indemnity escrow agent may resign and be discharged from its duties or
obligations hereunder by giving not less than thirty (30) days' prior written
notice of such a date when such resignation will take effect. goodnoise will
designate a successor indemnity escrow agent prior to the expiration of such 30-
day period by giving written notice to the indemnity escrow agent and the
shareholder representative. goodnoise may appoint a successor indemnity escrow
agent with the consent of the shareholder representative, which consent will not
be unreasonably withheld. the indemnity escrow agent will promptly transfer the
indemnity escrow holdback to such designated successor. in the event no
successor indemnity escrow agent is appointed as described in this section 7,
the indemnity escrow agent may apply to a court of competent jurisdiction for
the appointment of a successor indemnity escrow agent.
8. limitation of responsibility; notices. the indemnity escrow agent's duties
-------------------------------------
are limited to those set forth in the escrow provisions, and no implied duties
or obligations shall be implied; and the indemnity escrow agent may rely upon
the written notices delivered to the indemnity escrow agent hereunder and under
the escrow provisions.
9. incorporation by reference of section 13. the parties agree that the terms
----------------------------------------
of section 13 of the reorganization agreement shall be deemed to be incorporated
by reference in this agreement as if such section had been set forth in its
entirety herein except that only the provisions of this agreement shall control
the responsibilities and obligations of the indemnity escrow agent.
10. shareholder representative. by virtue of their approval of the
--------------------------
reorganization agreement, the iuma shareholders will be deemed to have
irrevocably constituted and appointed, effective as of the effective time, the
shareholder representative, together with his permitted successors, as
-18-
their true and lawful agent and attorney-in-fact to enter into any agreement in
connection with the transactions contemplated by this agreement or the
reorganization agreement, including, without limitation, the exercise of all or
any of the powers, authority and discretion conferred on them under any such
agreement, to waive any terms and conditions of any such agreement, to give and
receive notices and communications, to authorize delivery to goodnoise of the
indemnity escrow holdback or other property from the indemnity escrow in
satisfaction of claims by goodnoise, to object to such deliveries, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of the
shareholder representative for the accomplishment of the foregoing. such agency
may be changed by the iuma shareholders of a majority in interest of the
indemnity escrow from time to time upon not less than ten (10) days' prior
written notice to goodnoise and the indemnity escrow agent. no bond shall be
required of the shareholder representative, and the shareholder representative
shall receive no compensation for his services. notices or communications to or
from the shareholder representative shall constitute notice to or from each of
the iuma shareholders. this power of attorney is coupled with an interest and is
irrevocable. the iuma shareholders will be bound by all actions taken by the
shareholder representative in connection with this agreement and goodnoise shall
be entitled to rely on any action or decision of the shareholder representative.
in performing their functions hereunder, the shareholder representative will not
be liable to the iuma shareholders in the absence of gross negligence or willful
misconduct.
11. Notices. any notice provided for or permitted under the escrow provisions
-------
will be treated as having been received (a) when delivered personally, (b) when
sent by confirmed telex or telecopy, (c) one (1) day following when sent by
commercial overnight courier with written verification of receipt, or (d) three
(3) days following when mailed postage prepaid by certified or registered mail,
return receipt requested, to the party to be notified, at the address set forth
below, or at such other place of which the other party has been notified in
accordance with the provisions of this section 11.
Indemnity Escrow Agent: ___________________________________
___________________________________
___________________________________
___________________________________
Attention:_________________________
Facsimile:_________________________
Shareholder Representative:
With copy to: Xxxx Xxxxxxxx
Wise & Xxxxxxx LLP
0000 Xxxxxx Xxx, Xxx. 000
Xxxx Xxxx, XX 00000
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Facsimile: (000) 000-0000
GoodNoise: GoodNoise Corporation
0000 Xxxxxxxx, 0xx Xxxxx
Xxxxxxx Xxxx, XX 00000000
Attention: Xxxx Xxxxxxx
Facsimile: (000)- 000-0000
With copy to: Xxxx Xxxx Xxxx & Freidenrich LLP
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000-0000
Attention: Xxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
12. Voting rights. The right to vote the goodnoise shares shall rest with the
-------------
iuma shareholders.
13. General.
-------
(a) Governing Laws. It is the intention of the parties hereto that
--------------
the internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties to this Agreement.
(b) Binding upon Successors and Assigns. Subject to, and unless
-----------------------------------
otherwise provided in, this Agreement, each and all of the covenants, terms,
provisions, and agreements contained in this Agreement shall be binding upon,
and inure to the benefit of, the permitted successors, executors, heirs,
representatives, administrators and assigns of the parties to this Agreement.
(c) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original as against any party whose
signature appears on such counterpart and all of which together shall constitute
one and the same instrument. This Agreement shall become binding when one or
more counterparts of this Agreement, individually or taken together, shall bear
the signatures of all of the parties reflected in this Agreement as signatories.
(d) Entire Agreement. Except as set forth in the Reorganization
----------------
Agreement, this Agreement, the documents referenced in this Agreement and the
exhibits to such documents, constitute the entire understanding and agreement of
the parties to this Agreement with respect to the subject matter of this
Agreement and of such documents and exhibits and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions, express
or implied, written or oral, between the parties with respect to this Agreement,
provided that with respect to the Indemnity Escrow Agent, this Agreement
(without reference to any other agreements) sets forth the entire understanding
of the parties. The express terms of this
-20-
Agreement control and supersede any course of performance or usage of the trade
inconsistent with any of the terms of this Agreement.
(e) Waivers. No waiver by any party to this Agreement of any
-------
condition or of any breach of any provision of this Agreement will be effective
unless in writing. No waiver by any party of any such condition or breach, in
any one instance, will be deemed to be a further or continuing waiver of any
such condition or breach or a waiver of any other condition or breach of any
other provision contained in this Agreement.
(f) Amendment. This Agreement may be amended with the written
---------
consent of GoodNoise, the Indemnity Escrow Agent and the Shareholder
Representative, provided that if the Indemnity Escrow Agent does not agree to an
amendment agreed upon by GoodNoise and the Shareholder Representative (except an
amendment which may adversely affect the rights or interests of the Indemnity
Escrow Agent), GoodNoise will appoint a successor Indemnity Escrow Agent in
accordance with Section 7.
(g) Acts of God. Neither GoodNoise nor the IUMA Shareholders nor the
-----------
Indemnity Escrow Agent shall be responsible for delays or failures in
performance resulting from acts beyond their control. Such acts shall include
but not be limited to acts of God, strikes, lockouts, riots, acts of war,
epidemics, governmental regulations superimposed after the fact, fire
communication line failures, power failures, earthquakes or other disasters.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written and will be effective as to all the IUMA
Shareholders when executed by GoodNoise, the Indemnity Escrow Agent and the
Shareholder Representative.
GoodNoise:
GoodNoise Corporation, a Florida corporation
By:__________________________________________
Its:_________________________________________
INDEMNITY ESCROW AGENT:
By:__________________________________________
Its:_________________________________________
SHAREHOLDER REPRESENTATIVE:
_____________________________________________
[SIGNATURE PAGE FOR INDEMNITY ESCROW AGREEMENT]
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