1
EXHIBIT 2.1
EXECUTION COPY
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
DIGITAL IMPACT, INC.
CANDLESTICK ACQUISITION CORP.,
MINESHARE, INC.,
THE FOUNDING SHAREHOLDER,
XXXXX XXXXXXX, AS SHAREHOLDER REPRESENTATIVE,
AND COMPUTERSHARE INVESTOR SERVICES, AS EXCHANGE AGENT
DATED AS OF JULY 19, 2000
2
TABLE OF CONTENTS
PAGE
----
ARTICLE I THE MERGER.............................................................................2
1.1 The Merger........................................................................2
1.2 Effective Time....................................................................2
1.3 Effect of the Merger..............................................................2
1.4 Articles of Incorporation; Bylaws.................................................2
1.5 Directors and Officers............................................................3
1.6 Effect on Capital Stock...........................................................3
1.7 Dissenting Shares for Holders of Company Capital Stock............................5
1.8 Surrender of Certificates.........................................................5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE FOUNDING SHAREHOLDER............8
2.1 Organization of the Company.......................................................8
2.2 Company Capital Structure.........................................................8
2.3 Subsidiaries......................................................................9
2.4 Authority; No Conflicts...........................................................9
2.5 Company Financial Statements.....................................................10
2.6 No Undisclosed Liabilities.......................................................11
2.7 No Changes.......................................................................11
2.8 Tax and Other Returns and Reports................................................11
2.9 Restrictions on Business Activities..............................................13
2.10 Title to Properties; Absence of Liens and Encumbrances...........................13
2.11 Intellectual Property............................................................14
2.12 Agreements, Contracts and Commitments............................................16
2.13 Interested Party Transactions....................................................17
2.14 Compliance with Laws.............................................................18
2.15 Litigation.......................................................................18
2.16 Insurance........................................................................18
2.17 Minute Books.....................................................................18
2.18 Environmental Matters............................................................19
2.19 Brokers' and Finders' Fees; Third Party Expenses.................................19
2.20 Employee Matters and Benefit Plans...............................................20
2.21 Bank Accounts, Powers, etc. .....................................................24
2.22 Third Party Expenses.............................................................24
2.23 Representations Complete.........................................................24
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SHAREHOLDER REPRESENTATIVE.........24
3.1 Shareholder Representations and Covenants........................................24
3.2 Restrictions on Transfer.........................................................26
3
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..............................27
4.1 Organization, Standing and Power.................................................27
4.2 Authority........................................................................28
4.3 SEC Reports......................................................................28
4.4 Valid Issuance...................................................................28
4.5 No Conflicts.....................................................................28
4.6 No Changes.......................................................................29
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME...................................................29
5.1 Conduct of Business of the Company...............................................29
5.2 No Solicitation..................................................................33
ARTICLE VI ADDITIONAL AGREEMENTS................................................................33
6.1 Restrictions on Transfer.........................................................33
6.2 Access to Information............................................................34
6.3 Confidentiality..................................................................34
6.4 Expenses.........................................................................34
6.5 Public Disclosure................................................................34
6.6 Consents.........................................................................34
6.7 FIRPTA Compliance................................................................35
6.8 Reasonable Efforts...............................................................35
6.9 Notification of Certain Matters..................................................35
6.10 Additional Documents and Further Assurances......................................35
6.11 Reorganization...................................................................36
6.12 Quotation of Parent Common Stock on Nasdaq.......................................36
6.13 Employee Benefits................................................................36
6.14 Company Options..................................................................37
6.15 Option Acceleration..............................................................37
ARTICLE VII CONDITIONS TO CLOSING...............................................................37
7.1 Conditions to Obligations of Each Party to Effect the Merger.....................37
7.2 Conditions to Obligations of the Company.........................................38
7.3 Conditions to the Obligations of Parent and Merger Sub...........................38
ARTICLE VIII INDEMNIFICATION....................................................................40
8.1 Indemnification by Company Shareholders..........................................40
8.2 Indemnification by Parent........................................................40
8.3 Procedure........................................................................41
8.4 Limitation on Indemnification; Escrow............................................42
-ii-
4
PAGE
----
ARTICLE IX TERMINATION OF OBLIGATIONS...........................................................44
9.1 Termination of Agreement.........................................................44
9.2 Effect of Termination............................................................44
ARTICLE X DEFINITIONS...........................................................................45
10.1 Definitions......................................................................45
ARTICLE XI GENERAL PROVISIONS...................................................................56
11.1 Notices..........................................................................56
11.2 Interpretation...................................................................58
11.3 Counterparts.....................................................................58
11.4 Entire Agreement; Assignment.....................................................58
11.5 Severability.....................................................................58
11.6 Other Remedies...................................................................58
11.7 Governing Law....................................................................59
11.8 Rules of Construction............................................................59
11.9 Specific Performance.............................................................59
11.10 Shareholder Representative.......................................................59
11.11 Amendments; Waivers..............................................................60
11.12 Survival.........................................................................60
11.13 No Third Party Beneficiaries.....................................................60
11.14 Contingent Investment............................................................60
-iii-
5
EXHIBITS
Exhibit A Form of Non-Competition Agreement
Exhibit B Form of Shareholders' Agreement
Exhibit C Form of Agreement of Merger
Exhibit D Form of Escrow Agreement
Exhibit E Form of Registration Rights Agreement
Exhibit F Form of Opinion of Counsel to Parent
Exhibit G Form of Opinion of Counsel to the Company
-iv-
6
EXECUTION COPY
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of July 19, 2000 among Digital Impact, Inc., a Delaware
corporation ("Parent"), Candlestick Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Parent ("Merger Sub"), MineShare, Inc., a
California corporation (the "Company"), Xxxxx Xxxxxxx (the "Founding
Shareholder"), Xxxxx Xxxxxxx, as representative of all the shareholders of the
Company ("Shareholder Representative"), and ComputerShare Investor Services, as
Exchange Agent. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in Article X hereof.
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each such company and their
respective shareholders that Parent acquire the Company through a merger of
Merger Sub with and into the Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the issued and outstanding shares
of Capital Stock of the Company shall be converted into the right to receive
shares of Parent Common Stock.
C. It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Code.
D. Parent and Merger Sub are unwilling to enter into this Agreement
(and effect the transactions contemplated hereby) unless, contemporaneously with
the execution of delivery hereof, (i) certain key employees of the Company enter
into Non-competition Agreements substantially in the form attached hereto as
Exhibit A with Parent and (ii) certain holders of Company Capital Stock enter
into the Shareholders' Agreement, substantially in the form attached hereto as
Exhibit B.
E. The Company, the Founding Shareholder or the Shareholder
Representative, Parent and Merger Sub desire to make certain representations,
warranties, covenants and other agreements in connection with the Merger and
also to prescribe various conditions to the consummation thereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and other agreements set forth herein,
and for other good and valuable consideration, the parties hereto, intending to
be legally bound, hereby agree as follows:
7
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time and subject to and upon the
terms and conditions of this Agreement and the applicable provisions of the
California Code and Delaware Law, Merger Sub shall be merged with and into the
Company, the separate corporate existence of Merger Sub shall cease and the
Company shall continue as the surviving corporation and a wholly owned
subsidiary of Parent. The surviving corporation after the Merger is sometimes
referred to hereinafter as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 9.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but no later than two (2) business days
following satisfaction or waiver of the conditions set forth in Article VII, at
the offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, 000
Xxxx Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx, unless another place or time is agreed to
in writing by Parent and the Company. The date upon which the Closing actually
occurs is herein referred to as the "Closing Date." On the Closing Date, the
parties hereto shall cause the Merger to be consummated by filing the Agreement
of Merger with the Secretary of State of the State of California and the
Certificate of Merger with the Secretary of State of the State of Delaware, in
accordance with the relevant provisions of applicable law (the time of
acceptance of the last of such filings being referred to herein as the
"Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the California Code
and Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, Liabilities and duties of the Company and Merger Sub
shall become the debts, Liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws. Unless otherwise determined by
Parent prior to the Effective Time, at the Effective Time, the articles of
incorporation of the Company as in effect immediately prior to the Effective
Time shall be the articles of incorporation of the Surviving Corporation until
thereafter amended in accordance with the California Code and as provided in
such articles of incorporation. Unless otherwise determined by Parent prior to
the Effective Time, the bylaws of the Company as in effect immediately prior to
the Effective Time shall be the bylaws of the Surviving Corporation at the
Effective Time, until thereafter amended in accordance with the California Code
and as provided in the articles of incorporation of the Surviving Corporation
and such bylaws.
1.5 Directors and Officers. Unless otherwise determined by Parent
prior to the Effective Time, the directors of Merger Sub immediately prior to
the Effective Time shall become the directors of the Surviving Corporation, each
to hold the office of a director of the Surviving Corporation in accordance with
the provisions of the California Code and the articles of incorporation and
bylaws of the Surviving Corporation until their successors are duly elected and
-2-
8
qualified. The officers of Merger Sub immediately prior to the Effective Time
shall become the officers of the Surviving Corporation, each to hold office in
accordance with the provisions of the bylaws of the Surviving Corporation.
1.6 Effect on Capital Stock. At the Effective Time, subject to
Section 1.7 hereof, by virtue of the Merger, and without any action on the part
of Merger Sub, the Company, or the holders of any of the following securities:
(a) Conversion of Company Common Stock. Each outstanding share
of Company Common Stock, other than any shares to be cancelled pursuant to
Section 1.6(h) hereof, shall be cancelled and extinguished, and automatically
converted into the right to receive upon surrender of the Certificate
represented by such share of Company Common Stock in accordance with Section
1.8, a number of shares of Parent Common Stock equal to the Common Stock
Exchange Ratio.
(b) Conversion of Company Series A Preferred Stock. Each
outstanding share of Company Series A Preferred Stock, other than any shares to
be cancelled pursuant to Section 1.6(h) hereof, shall be cancelled and
extinguished, and automatically converted into the right to receive upon
surrender of the Certificate represented by such share of Company Series A
Preferred Stock in accordance with Section 1.8, a number of shares of Parent
Common Stock equal to the Series A Exchange Ratio.
(c) Conversion of Company Series B Preferred Stock. Each
outstanding share of Company Series B Preferred Stock, other than any shares to
be cancelled pursuant to Section 1.6(h) hereof, shall be cancelled and
extinguished, and automatically converted into the right to receive upon
surrender of the Certificate represented by such share of Company Series B
Preferred Stock in accordance with Section 1.8, a number of shares of Parent
Common Stock equal to the Series B Exchange Ratio.
(d) Conversion of Company Series C Preferred Stock. Each
outstanding share of Company Series C Preferred Stock, other than any shares to
be cancelled pursuant to Section 1.6(h) hereof, shall be cancelled and
extinguished, and automatically converted into the right to receive upon
surrender of the Certificate represented by such share of Company Series C
Preferred Stock in accordance with Section 1.8, a number of shares of Parent
Common Stock equal to the Series C Exchange Ratio. The aggregate number of
shares of Parent Common Stock referred to in Section 1.6(a) through (d) above is
referred to herein collectively as the "Merger Consideration."
(e) Assumption of Company Options. At the Effective Time, the
Company's obligations with respect to each outstanding Company Option shall be
assumed by Parent. The Company Options assumed by Parent shall continue to have,
and be subject to, the same terms and conditions set forth in the Company Stock
Plan and stock option agreements pursuant to which such Company Options were
issued as in effect immediately prior to the Effective Time, except that (a) the
number of shares for which such Company Option shall be exercisable shall equal
the product of the Common Stock Exchange Ratio and the number of shares of
Company Common Stock subject to the Company Option immediately prior to the
Effective Time (rounded down to the
-3-
9
nearest whole number), and (b) the per share exercise price for the shares of
Parent Common Stock issuable upon the exercise of such assumed Company Option
shall be equal to the quotient determined by dividing the exercise price per
share of Company Common Stock at which such Company Option was exercisable
immediately prior to the Effective Time by the Common Stock Exchange Ratio
(rounded up to the nearest whole cent). The date of grant shall be the date on
which the Company Option was originally granted.
(f) Company Warrants. At the Effective Time, the Company's
obligations with respect to the Company Warrants may be assumed by Parent,
unless the terms of any Company Warrant provide that such Company Warrant must
be assumed by Parent, in which case such Company Warrant shall be assumed by
Parent. Any Company Warrant assumed by Parent shall continue to have, and be
subject to, the same terms and conditions set forth in such Company Warrant as
in effect immediately prior to the Effective Time, except that (a) the number of
shares for which such Company Warrant shall be exercisable shall equal the
product of the applicable Exchange Ratio and the number of shares subject to
such Company Warrant immediately prior to the Effective Time (rounded down to
the nearest whole number), and (b) the per share exercise price for the shares
of Parent Common Stock issuable upon the exercise of such assumed Company
Warrant shall be equal to the quotient determined by dividing the exercise price
per share of Company Capital Stock at which such Company Warrant was exercisable
immediately prior to the Effective Time by the applicable Exchange Ratio
(rounded up to the nearest whole cent).
(g) Fractional Shares. No fraction of a share of Parent Common
Stock shall be issued in the Merger but in lieu thereof each shareholder of the
Company who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common Stock to
be received by such holder, it being the intention of the parties that no holder
will receive cash in an amount equal to or greater than the value of one full
share of Parent Common Stock) shall receive from Parent an amount of cash
(rounded to the nearest cent), without interest, equal to the product of (i)
such fraction, multiplied by (ii) the Average Stock Price.
(h) Cancellation of Parent-Owned and Company-Owned Stock. At
the Effective Time, by virtue of the Merger and without any action on the part
of any of the parties hereto, each share of capital stock of the Company owned
by Parent, Merger Sub, the Company or any direct or indirect wholly owned
subsidiary thereof immediately prior to the Effective Time, shall be cancelled
and extinguished without any conversion thereof.
(i) Capital Stock of Merger Sub. At the Effective Time, by
virtue of the Merger and without any action on the part of any of the parties
hereto, each share of capital stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation. Each stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
-4-
10
(j) Limitation on Consideration. In no event shall the value
of the number of shares of Parent Common Stock exchanged for shares of Company
Capital Stock, Company Options, Company Warrants and Company Convertible
Securities exceed $30,589,400.
1.7 Dissenting Shares for Holders of Company Capital
Stock. (a) Notwithstanding any provision of this Agreement to the contrary, any
Dissenting Shares shall not be converted into or represent a right to receive
Parent Common Stock pursuant to Section 1.6, but the holder thereof shall only
be entitled to such rights as are granted by the California Code.
(b) Notwithstanding the provisions of subsection (a), if any
holder of shares of capital stock of the Company who demands appraisal of such
shares under the California Code shall effectively withdraw or lose (through
failure to perfect or otherwise) the right to appraisal, then, as of the later
of the Effective Time and the occurrence of such event, such holder's shares
shall automatically be converted into and represent only the right to receive
Parent Common Stock as provided in Section 1.6 (and subject to the provisions of
the Escrow Agreement), without interest thereon, upon surrender of the
Certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any
written demands for appraisal of any shares of capital stock of the Company,
withdrawals of such demands, and any other instruments served pursuant to the
California Code and received by the Company and (ii) the opportunity to
participate in all negotiations and proceedings with respect to demands for
appraisal under the California Code. The Company shall not, except with the
prior written consent of Parent, voluntarily make any payment with respect to
any demands for appraisal of capital stock of the Company or offer to settle or
settle any such demands. Parent shall have full recourse (subject to the
limitations described in Section 8.4 below) to the Escrow Fund (as defined in
the Escrow Agreement) for the amount, if any, paid by the Company or Parent in
respect of Dissenting Shares to any Company Shareholder in excess of the amount
such shareholder would have received from Parent had such shareholder not made a
demand for appraisal.
1.8 Surrender of Certificates (a) Exchange Agent. Computershare
Investor Services shall be the Exchange Agent in the Merger.
(b) Parent to Provide Parent Common Stock. Prior to the
Closing, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I the shares of Parent Common Stock issuable to
Company Shareholders pursuant to Section 1.6 in exchange for outstanding shares
of Company Capital Stock, less the Escrow Amount which Parent shall deposit into
the Escrow Fund (as defined in the Escrow Agreement) on behalf of the Company
Shareholders. The portion of the Escrow Amount contributed on behalf of each
Company Shareholder shall be in proportion to the aggregate number of shares of
Parent Common Stock each such Company Shareholder would otherwise be entitled to
receive in the Merger by virtue of ownership of outstanding shares of Company
Capital Stock immediately prior to the Effective Time.
(c) Exchange Procedures. As soon as practicable following the
Closing, Parent shall cause to be mailed to each Company Shareholder (i) a
letter of transmittal (which shall be in such form and contain such provisions
as Parent may reasonably specify and shall specify that
-5-
11
delivery shall be effected, and risk of loss and title to the Certificates which
immediately prior to the Effective Time represent outstanding shares of Company
Capital Stock whose shares are converted into the right to receive such Company
Shareholder's pro rata portion of the Merger Consideration pursuant to Section
1.6, shall pass, only upon delivery of the Certificates to the Exchange Agent at
the Closing) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing such Company
Shareholder's pro rata portion of the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
the Company Shareholder shall be entitled to receive, and the Exchange Agent
shall promptly deliver in exchange therefor, a certificate representing the
number of whole shares of Parent Common Stock to which such holder is entitled
pursuant to Section 1.6 (less the number of shares of Parent Common Stock to be
deposited in the Escrow Fund on such holder's behalf pursuant to Section
1.8(b)), and the Certificate so surrendered shall forthwith be canceled;
provided, however, that no certificates representing shares of Parent Common
Stock to be issued in the Merger shall be delivered to any Company Shareholder
prior to the acceptance and approval of the Agreement of Merger by the Secretary
of State of the States of California and Delaware. As soon as practicable after
the Effective Time, and subject to and in accordance with the provisions of the
Escrow Agreement, Parent shall cause to be distributed to the Escrow Agent (as
defined in the Escrow Agreement) a certificate or certificates representing that
number of shares of Parent Common Stock equal to the Escrow Amount which shall
be registered in the name of the Escrow Agent. Such shares shall be beneficially
owned by the holders on whose behalf such shares were deposited in the Escrow
Fund and shall be available to compensate Parent as provided in the Escrow
Agreement. Until so surrendered, each outstanding Certificate that, prior to the
Effective Time, represented shares of Company Capital Stock will be deemed from
and after the Effective Time, for all corporate purposes, other than the payment
of dividends (subject to the provisions of Section 1.8(d) below), to evidence
the ownership of the number of full shares of Parent Common Stock into which
such shares of Company Capital Stock shall have been so converted.
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the Effective Time with
respect to Parent Common Stock with a record date after the Effective Time will
be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock represented thereby until the holder of record of
such Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock,
plus the amount of dividends or other distributions (without interest) with a
record date after the Effective Time theretofore paid with respect to such whole
shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required
-6-
12
by reason of the issuance of a certificate for shares of Parent Common Stock in
any name other than that of the registered holder of the Certificate
surrendered.
(f) Lost, Stolen or Destroyed Certificates. In the event any
Certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the delivery by the holder thereof of an
affidavit of that fact by the holder thereof containing customary
indemnification provisions and other deliveries or fees required by the Exchange
Agent to be paid by the holder of any such Certificate, such shares of Parent
Common Stock as required pursuant to Section 1.6.
(g) No Liability. Notwithstanding anything to the contrary in
this Section 1.8, neither Parent nor any party hereto shall be liable to a
holder of shares of Parent Common Stock or Company Capital Stock for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(h) No Further Ownership Rights in Company Capital Stock. The
shares of Parent Common Stock issued in accordance with the terms hereof shall
be deemed to be full satisfaction of all rights pertaining to shares of Company
Capital Stock outstanding prior to the Effective Time, and there shall be no
further registration of transfers on the records of Parent of shares of Company
Capital Stock that were outstanding prior to the Effective Time. If, after the
Effective Time, Certificates are presented to Parent for any reason, they shall
be canceled and exchanged as provided in this Article I.
(i) Taking of Necessary Action; Further Action. If, at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company, Parent and Merger Sub, the officers and
directors of the Company, Parent and Merger Sub are fully authorized in the name
of their respective corporations or otherwise to take, and will take, all such
lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE FOUNDING SHAREHOLDER
The Company and the Founding Shareholder severally represent and warrant
to Parent and Merger Sub as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business and in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would be material. The Company has
delivered a true and correct copy of its articles of incorporation and bylaws,
each as amended to date, to Parent.
-7-
13
Section 2.1 of the Company Disclosure Letter correctly lists each jurisdiction
in which the Company is, and is required to be, qualified or licensed to do
business as a foreign person, as well as a true and correct list of the current
directors and officers of the Company and their respective titles.
2.2 Company Capital Structure. (a) Immediately prior to the Effective
Time, the authorized capital stock of the Company consists of 36,500,000 shares
of authorized Common Stock, of which 5,236,686 shares are issued and outstanding
as of the date hereof, and 17,919,724 shares of authorized Preferred Stock,
2,819,724 of which are designated Series A Preferred Stock, of which 2,619,724
are issued and outstanding as of the date hereof, 6,350,000 of which are
designated Series B Preferred Stock, of which 6,344,280 shares are issued and
outstanding as of the date hereof, and 8,750,000 of which are designated Series
C Preferred Stock, of which 8,210,294 shares are issued and outstanding as of
the date hereof. The Company Capital Stock is held of record by the persons,
with the addresses of record and in the amounts set forth in Section 2.2(a) of
the Company Disclosure Letter. All outstanding shares of Preferred Stock of the
Company are convertible into shares of Common Stock of the Company on the basis
of one share of Common Stock of the Company for each one share of Preferred
Stock of the Company. All outstanding shares of Company Capital Stock are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, the articles of incorporation or bylaws of
the Company or any agreement to which the Company is a party or by which it is
bound. Any shares of Company Capital Stock which were issued and reacquired by
the Company were so reacquired (and if reissued, so reissued) in compliance with
all applicable laws, and the Company does not have any outstanding obligation or
liability with respect thereto.
(b) Immediately prior to the Effective Time, the Company has
reserved 3,372,630 shares of Common Stock for issuance to employees and
consultants pursuant to the Option Plan, of which 1,982,917 shares are subject
to outstanding, unexercised options as of the date hereof and 1,017,387 shares
remain available for future grant. Section 2.2(b) of the Company Disclosure
Letter sets forth for each outstanding Company Option and Company Convertible
Security, the name of the holder of such option or security, the domicile
address of such holder, the number of shares of Common Stock subject to such
option or security, the exercise price of such option or security and the
vesting schedule for such option or security, including the extent vested to
date and whether the exercisability of such option or security will be
accelerated and become exercisable by reason of the transactions contemplated by
this Agreement. Except as set forth in Section 2.2(b) of the Company Disclosure
Letter, there are no options, warrants, calls, rights, commitments or agreements
of any character, written or oral, to which the Company is a party or by which
it is bound obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. The holders
of Company Options and Company Convertible Securities have been or will be
given, or shall have properly waived, any required notice prior to the Merger,
and all such rights will be terminated at or prior to the Effective Time. As a
result of the Merger, Parent will be the record and sole beneficial owner of all
capital stock of the Company and rights to acquire or receive such capital
stock.
-8-
14
2.3 Subsidiaries. Except as set forth in Section 2.3 of the Company
Disclosure Letter, the Company does not have and has never had any subsidiaries
or affiliated companies and does not otherwise own and has never otherwise owned
any shares of capital stock or any interest in, or control, directly or
indirectly, any other corporation, partnership, association, joint venture or
other business entity.
2.4 Authority; No Conflicts.
(a) Subject only to the requisite approval of the Merger and
this Agreement by the Company Shareholders (which will be received prior to the
Effective Time), the Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The vote required of the Company Shareholders to duly approve the Merger
and this Agreement is a majority of the outstanding shares of Company Common
Stock and a majority of the outstanding shares of each of the Company Series A
Preferred, Company Series B Preferred, and Company Series C Preferred (each
voting as a separate class). The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company, subject
only to the approval of the Merger by the Company Shareholders (which will be
received prior to the Effective Time). The Company's board of directors has
unanimously approved the Merger and this Agreement. This Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms.
(b) Except as set forth in Section 2.4(b) of the Company
Disclosure Letter, the execution and delivery of this Agreement by the Company
does not, and, as of the Effective Time, the consummation of the transactions
contemplated hereby will not, directly or indirectly (with or without notice or
lapse of time, or both):
(i) conflict with, contravene or result in any
violation of any provision of the articles of incorporation or
bylaws of the Company or any resolution adopted by the board of
directors of the Company or the Company Shareholders,
(ii) conflict with, contravene, or result in any
violation of or default under, or give rise to a right of
termination, cancellation or acceleration of any obligation, or
result in loss, suspension, withdrawal, modification or
revocation of any benefit under, any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its
properties or assets,
(iii) cause the Company to become subject to, or become
liable for the payment of, any tax other than withholding taxes
incurred and required to be paid in connection with the
transactions contemplated by this Agreement,
(iv) cause any of the assets owned by the Company to be
reassessed or revalued by any taxing authority or other
Governmental Entity, or
-9-
15
(v) impose or create any encumbrance upon or with
respect to any of the assets owned or used by the Company.
(c) No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity or any
third party (so as not to trigger any of the events described in Section
2.4(b)(i) through (v) above) is required by or with respect to the Company in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the
Agreement of Merger with the California Secretary of State, (ii) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws
and (iii) such other consents, waivers, authorizations, filings, approvals and
registrations as set forth in Section 2.4(c) of the Company Disclosure Letter.
2.5 Company Financial Statements.
(a) Audited Financial Statements. The Company has delivered to
Parent true, correct and complete copies of the audited balance sheets for the
Company at December 31, 1997, 1998 and 1999 and the related statements of
operations, changes in shareholders' equity and changes in financial position or
cash flows for the period then ended (the "Audited Company Financials"). The
Audited Company Financials have been examined by the Company's auditors whose
reports thereon are included, and are correct in all respects and have been
prepared in accordance with GAAP applied on a basis consistent throughout the
periods indicated and consistent with each other. The Audited Company Financials
present fairly the financial condition and operating results of the Company as
of the dates and during the periods indicated therein. Since December 31, 1999,
there has been no change in any of the significant accounting policies,
practices or procedures of the Company.
(b) Unaudited Interim Financial Statements. The Company has
delivered to Parent true, correct and complete copies of the unaudited balance
sheets for the Company at June 30, 1999 and July 14, 2000 (the "Unaudited
Company Financials" and, collectively with the Audited Company Financials, the
"Company Financials"). The Unaudited Company Financials have been prepared in
conformity with GAAP (except for the absence of notes and normal recurring
year-end adjustments). The Unaudited Company Financials present fairly the
financial condition and operating results of the Company as of the dates and
during the periods indicated therein.
2.6 No Undisclosed Liabilities. Except as set forth in Section 2.6 of
the Company Disclosure Letter, the Company does not have any liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, whether accrued, absolute, contingent, matured, unmatured or other
(whether or not required to be reflected in financial statements in accordance
with GAAP), except liabilities that (i) are reflected in the Company Financials,
or (ii) were incurred after December 31, 1999 in the ordinary course of business
and do not exceed $10,000 individually or $25,000 in the aggregate.
2.7 No Changes. Since December 31, 1999, there has not been, occurred
or arisen:
-10-
16
(a) whether or not in the ordinary course of business, any
change in or event affecting the Company that has had or may reasonably be
expected to have a material adverse effect on the Business or capitalization of
the Company, or
(b) any Contract, condition, action or omission which would be
prohibited by, or require consent under, Section 5.1 hereof had it existed,
occurred or arisen after the date of this Agreement.
2.8 Tax and Other Returns and Reports.
(a) Tax Returns and Audits.
(i) The Company has prepared and filed all required
Returns concerning or attributable to the Company or its operations and such
Returns are true and correct and have been completed in accordance with
applicable law.
(ii) The Company: (A) has paid or accrued all Taxes it
is required to pay or accrue, (B) has withheld with respect to its employees and
all other third parties all federal and state income taxes, FICA, FUTA and other
Taxes required to be withheld, and (C) will not have incurred any liability for
Taxes for the period commencing after the date of the Balance Sheet Date and
ending immediately prior to the Closing Date, other than in the ordinary course
of business.
(iii) The Company has not been delinquent in the payment
of any Tax nor is there any Tax deficiency outstanding, proposed or assessed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the
Company is currently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company does not have any liabilities for
unpaid federal, state, local and foreign Taxes which have not been accrued or
reserved against in accordance with GAAP on the Balance Sheet Date, whether
asserted or unasserted, contingent or otherwise, and the Company has no
knowledge of any basis for the assertion of any such liability attributable to
the Company, its assets or operations.
(vi) The Company has made available to Parent copies of
all federal and state income and all state sales and use Tax Returns for all
periods since the date of the Company's incorporation.
(vii) There are (and as of immediately following the
Effective Time there will be) no Liens on the assets of the Company relating to
or attributable to Taxes.
-11-
17
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(x) There is no contract, agreement, plan or
arrangement, including, but not limited to, the provisions of this Agreement,
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Section 280G or 162 of the Code.
(xi) The Company has not filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by the Company.
(xii) The Company (i) has never been a member of an
affiliated group filing a consolidated federal income Return (other than a
consolidated group the common parent of which is the Company), (ii) is not a
party to any Tax sharing or Tax allocation agreement, arrangement or
understanding, (iii) is not liable for the Taxes of any other person under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract or otherwise, and
(iv) is not a party to any joint venture, partnership or other arrangement that
could be treated as a partnership for income Tax purposes.
(xiii) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xiv) The Company's tax basis in its assets for purposes
of determining its future amortization, depreciation and other federal income
tax deductions is accurately reflected on the Company's tax books and records.
(xv) No adjustment relating to any Return filed by the
Company (and no claim by a tax authority in a jurisdiction in which the Company
does not file returns that the Company may be subject to taxation by such
jurisdiction) has been proposed formally or, to the knowledge of the Company or
the Founding Shareholder, informally by any tax authority to the Company or any
representative thereof.
(xvi) Neither the Company nor any of its subsidiaries has
constituted either a "distributing corporation" or a "controlled corporation" in
a distribution of stock qualifying for tax-free treatment under Section 355 of
the Code (i) in the two years prior to the date of this Agreement or (ii) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
-12-
18
2.9 Restrictions on Business Activities. There is no Contract
(noncompete or otherwise), commitment or Order to which the Company is a party
or otherwise binding upon the Company which has or reasonably would be expected
to have the effect of prohibiting or impairing any Business practice, any
acquisition of property (tangible or intangible) by the Company or the conduct
of the Business. Without limiting the foregoing, the Company has not entered
into any Contract under which the Company is restricted from selling, licensing
or otherwise distributing any of its products to any company or any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) The Company owns no real property, nor has it ever owned
any real property. Section 2.10(a) of the Company Disclosure Letter sets forth a
list of all real property currently, or at any time in the past, leased by the
Company, the name of the lessor, the date of the lease and each amendment
thereto and, with respect to any current lease, the aggregate annual rental
and/or other fees payable under any such lease. All such current leases are in
full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
(b) The Company has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, used or held for use
in its business, free and clear of any Liens, except as reflected in the Company
Financials or in Section 2.10(b) of the Company Disclosure Letter and except for
liens for taxes not yet due and payable and such imperfections of title and
Encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
2.11 Intellectual Property.
(a) No material Company Intellectual Property or product or
service of the Company is subject to any proceeding or outstanding decree,
order, judgment, agreement or stipulation restricting in any manner the use,
transfer, or licensing thereof by the Company, or which may affect the validity,
use or enforceability of such Company Intellectual Property.
(b) Section 2.11(b) of the Company Disclosure Letter is a
complete and accurate list of all Company Registered Intellectual Property and
specifies, where applicable, the jurisdictions in which each such item of
Company Registered Intellectual Property has been issued or registered or in
which an application for such issuance and registration has been filed,
including the respective registration or application numbers. Each material item
of Company Registered Intellectual Property is valid and subsisting, all
necessary registration, maintenance and renewal fees currently due in connection
with such Registered Intellectual Property have been made and all necessary
documents, recordations and certificates in connection with such Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United
-13-
19
States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Registered Intellectual Property.
(c) Except as set forth in Section 2.11(c) of the Company
Disclosure Letter, the Company owns and has good and exclusive title to, or has
license (sufficient for the conduct of its business as currently conducted and
as currently proposed to be conducted) to, each material item of Company
Intellectual Property or other Intellectual Property used by the Company free
and clear of any lien or Encumbrance (excluding licenses and related
restrictions); and the Company is the exclusive owner of all trademarks and
trade names used in connection with the operation or conduct of the business of
the Company, including the sale of any products or the provision of any services
by the Company.
(d) Except as set forth in Section 2.11(d) of the Company
Disclosure Letter, the Company owns exclusively, and has good title to, all
copyrighted works that are the Company products or which the Company otherwise
expressly purports to own.
(e) To the extent that any material Intellectual Property has
been developed or created by a third party for the Company, the Company has a
written agreement with such third party with respect thereto and the Company
thereby either (i) has obtained ownership of, and is the exclusive owner of or
(ii) has obtained a license (sufficient for the conduct of its business as
currently conducted and as currently proposed to be conducted) to all such third
party's Intellectual Property in such work, material or invention by operation
of law or by valid assignment, to the fullest extent it is legally possible to
do so.
(f) The Company has not transferred ownership of, or granted
any exclusive license with respect to, any Intellectual Property that is or was
material to the Company Intellectual Property, to any third party.
(g) Section 2.11(g) of the Company Disclosure Letter lists all
material contracts, licenses and agreements to which the Company is a party (i)
with respect to the Company Intellectual Property licensed or transferred to any
third party (other than end-user licenses in the ordinary course); or (ii)
pursuant to which a third party has licensed or transferred any material
Intellectual Property to the Company.
(h) All material contracts, licenses and agreements relating
to Company Intellectual Property are in full force and effect. The consummation
of the transactions contemplated by this Agreement will neither violate nor
result in the breach, modification, cancellation, termination or suspension of
such contracts, licenses and agreements. The Company is in material compliance
with, and has not materially breached any term any of such contracts, licenses
and agreements and, to the knowledge of the Company, all other parties to such
contracts, licenses and agreements are in compliance with, and have not
materially breached any term of, such contracts, licenses and agreements.
Following the Closing Date, the Surviving Corporation will be permitted to
exercise all of the Company's rights under such contracts, licenses and
agreements to the same extent the Company would have been able to had the
transactions contemplated by this Agreement
-14-
20
not occurred and without the payment of any additional amounts or consideration
other than ongoing fees, royalties or payments which the Company would otherwise
be required to pay.
(i) The operation of the business of the Company as such
business currently is conducted, including the Company's design, development,
manufacture, marketing and sale of the products or services of the Company
(including with respect to products and services currently under development)
has not, does not and to the best of the Company's knowledge, will not infringe
or misappropriate the Intellectual Property of any third party or constitute
unfair competition or trade practices under the laws of any jurisdiction.
(j) The Company has not received notice from any third party
that the operation of the business of the Company or any act, product or service
of the Company, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the laws
of any jurisdiction.
(k) To the knowledge of the Company, no person has or is
infringing or misappropriating any Company Intellectual Property.
(l) The Company has taken reasonable steps to protect the
Company's rights in the Company's confidential information and trade secrets
that it wishes to protect or any trade secrets or confidential information of
third parties provided to the Company, and, without limiting the foregoing, the
Company has and enforces a policy requiring each employee and contractor to
execute a proprietary information/confidentiality and invention assignment
agreement and all current and former employees and contractors of the Company
have executed such an agreement, except where the failure to do so is not
reasonably expected to be material to the Company.
2.12 Agreements, Contracts and Commitments. The Company does not have,
is not a party to nor is it bound by:
(i) any collective bargaining Contract,
(ii) any Contract that contains any severance pay or
post-employment Liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements,
(iv) any employment or consulting Contracts with an
employee or individual consultant or salesperson or any consulting or sales
under which any firm or other organization provides services to the Company,
(v) any Contract or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
-15-
21
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value
individually in excess of $10,000,
(viii) any Contract of indemnification or guaranty,
(ix) any Contract containing any covenant limiting the
freedom of the Company to engage in any line of business or to compete with any
person,
(x) any Contract relating to capital expenditures and
involving future payments in excess of $10,000,
(xi) any Contract relating to the disposition or
acquisition of assets or any interest in any business enterprise outside the
ordinary course of the Company's business,
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other Contracts or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (viii) hereof,
(xiii) any purchase order or Contracts involving $10,000
or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development
Contracts,
(xvi) any Contracts pursuant to which the Company has
granted or may grant in the future, to any party, a source-code license or
option or other right to use or acquire source-code,
(xvii) any Contracts pursuant to which the Company has
developed and/or delivered or has received funds from any Governmental Entity to
develop and/or deliver any Intellectual Property, or
(xviii) any other Contract or commitment that involves
$10,000 or more or is not cancelable without penalty within thirty (30) days.
(b) Except for such alleged breaches, violations and defaults,
and events that would constitute a breach, violation or default with the lapse
of time, giving of notice, or both, as are all noted in Section 2.12(b) of the
Company Disclosure Letter, the Company has not breached, violated or defaulted
under, or received notice that it has breached, violated or defaulted under, any
of the terms or conditions of any Contract set forth in Section 2.12(a) or
Section 2.11(g) of the Company Disclosure Letter. Each Contract is in full force
and effect and, except as otherwise disclosed in
-16-
22
Section 2.12(b), is not subject to any default thereunder of which the Company
has knowledge by any party obligated to the Company pursuant thereto.
(c) Set forth on Section 2.12(c) is a list of the Contracts
with and the appropriate percentage of business attributable to, the five
largest customers of the Company, during the year 2000, and the five most
significant suppliers to the Company, during the period from May 31, 1999 to May
31, 2000, in addition to any sole-source suppliers of significant goods or
services (other than electricity, gas, telephone or water) to the Company with
respect to which alternative sources of supply are not readily available on
comparable terms and conditions.
2.13 Interested Party Transactions. No officer, director or
shareholder of the Company (nor any ancestor, sibling, descendant or spouse of
any of such persons, or any trust, partnership or corporation in which any of
such persons has or has had an interest), has or has had, directly or
indirectly, (i) an economic interest in any entity which furnished or sold, or
furnishes or sells, services or products that the Company furnishes or sells, or
proposes to furnish or sell, (ii) an economic interest in any entity that
purchases from or sells or furnishes to, the Company, any goods or services or
(iii) a beneficial interest in any Contract set forth in Section 2.12(a),
Section 2.12(c) or Section 2.11(g) of the Company Disclosure Letter; provided,
that ownership of no more than one percent (1%) of the outstanding voting stock
of a publicly traded corporation shall not be deemed an "economic interest in
any entity" for purposes of this Section 2.13.
2.14 Compliance with Laws. The Company has complied in all material
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any foreign, federal, state or local statute, law
or regulation.
2.15 Litigation. There is no action, suit or proceeding of any nature
pending, or to the Company's knowledge, threatened against the Company, its
properties or any of its officers or directors, in their respective capacities
as such. There is no investigation pending or, to the Company's knowledge,
threatened against the Company, its properties or any of its officers or
directors by or before any Governmental Entity. Section 2.15 of the Company
Disclosure Letter sets forth, with respect to any pending or threatened action,
suit, proceeding or investigation, the forum, the parties thereto, the subject
matter thereof and the amount of damages claimed or other remedy requested. No
Governmental Entity has at any time challenged or questioned the legal right of
the Company to manufacture, offer or sell any of its products in the present
manner or style thereof.
2.16 Insurance. Set forth on Section 2.16 of the Company Disclosure
Letter is a list of all insurance policies that are material to the Company, and
such policies are, and at all times during the past two years have been, in full
force and effect. With respect to the insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company, there is no claim by the Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
is otherwise in material compliance with the terms of such policies and bonds
(or other policies and bonds providing substantially similar insurance
coverage). The Company has no
-17-
23
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
2.17 Minute Books. The minute books of the Company provided to counsel
for Parent are the only minute books of the Company and contain an accurate
summary of all meetings of directors (or committees thereof) and shareholders or
actions by written consent since the time of incorporation of the Company.
2.18 Environmental Matters.
(a) Hazardous Material. The Company has not operated any
underground storage tanks, and has no knowledge of the existence, at any time,
of any underground storage tank (or related piping or pumps), at any property
that the Company has at any time owned, operated, occupied or leased. The
Company has not released any amount of any substance that has been designated by
any Governmental Entity or by applicable federal, state or local law to be
Hazardous Material. No Hazardous Materials are present as a result of the
actions or omissions of the Company, or, to the Company's knowledge, as a result
of any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Company has not
engaged in any Hazardous Materials Activities.
(c) Permits. The Company currently holds all material
Environmental Permits necessary for the conduct of the Company's Hazardous
Material Activities and other businesses of the Company as such activities and
businesses are currently being conducted.
(d) Environmental Liabilities. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the Company's knowledge, threatened concerning any Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of the Company.
The Company is not aware of any fact or circumstance which could reasonably be
expected to involve the Company in any environmental litigation or impose upon
the Company any environmental Liability.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Except as set
forth in Section 2.19 of the Company Disclosure Letter, the Company has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby. Section 2.19 of the
Company Disclosure Letter sets forth the principal terms and conditions of any
Contracts with respect to such fees. Section 2.19 of the Company Disclosure
Letter also sets forth the Company's current reasonable estimate of all Third
Party Expenses expected to be incurred by the Company in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby.
-18-
24
2.20 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.20(a)(i) below (which definition shall apply
only to this Section 2.20), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity
under common control with the Company within the meaning of Section 414(b), (c),
(m) or (o) of the Code and the regulations issued thereunder;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iii) "Company Employee Plan" shall mean any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including, without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Affiliate has or may have any liability or obligation;
(iv) "DOL" shall mean the Department of Labor;
(v) "Employee" shall mean any current or former or
retired employee, consultant or director of the Company or any Affiliate;
(vi) "Employment Contract" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or other agreement, contract or understanding between the
Company or any Affiliate and any Employee;
(vii) "FMLA" shall mean the Family Medical Leave Act of
1993, as amended;
(viii) "International Employee Plan" shall mean each
Company Employee Plan that has been adopted or maintained by the Company or any
Affiliate, whether informally or formally, or with respect to which the Company
or any Affiliate will or may have any liability, for the benefit of Employees
who perform services outside the United States;
(ix) "Multiemployer Plan" shall mean any "Pension Plan"
(as defined below) which is a "multiemployer plan," as defined in Section 3(37)
of ERISA; and
(x) "Pension Plan" shall mean each Company Employee
Plan which is an "employee pension benefit plan," within the meaning of Section
3(2) of ERISA.
-19-
25
(b) Schedule. Section 2.20(b) of the Company Disclosure Letter
contains an accurate and complete list of each Company Employee Plan,
International Employee Plan, and each Employment Contract. The Company does not
have any plan or commitment to establish any new Company Employee Plan,
International Employee Plan, or Employment Contract, to modify any Company
Employee Plan or Employment Contract (except to the extent required by law or to
conform any such Company Employee Plan or Employment Contract to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by this Agreement), or to adopt or enter into
any Company Employee Plan, International Employee Plan, or Employment Contract.
(c) Documents. The Company has made available to Parent
correct and complete copies of: (i) all documents embodying each Company
Employee Plan, International Employee Plan, and each Employment Contract
including (without limitation) all amendments thereto and all related trust
documents, administrative service agreements, group annuity contracts, group
insurance contracts, and policies pertaining to fiduciary liability insurance
covering the fiduciaries for each Plan; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the three (3)
most recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan; (iv) if the Company Employee Plan is
funded, the most recent annual and periodic accounting of Company Employee Plan
assets; (v) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each Company Employee Plan; (vi) all IRS determination, opinion,
notification and advisory letters, and all applications and correspondence to or
from the IRS or the DOL with respect to any such application or letter; (vii)
all communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to the Company; (viii) all correspondence
to or from any governmental agency relating to any Company Employee Plan; (ix)
all COBRA forms and related notices (or such forms and notices as required under
comparable law); (x) the three (3) most recent plan years discrimination tests
for each Company Employee Plan; and (xi) all registration statements, annual
reports (Form 11-K and all attachments thereto) and prospectuses prepared in
connection with each Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Section
2.20(d) of the Company Disclosure Letter, (i) the Company has performed in all
material respects all obligations required to be performed by it under, is not
in default or violation of, and has no knowledge of any default or violation by
any other party to each Company Employee Plan, and each Company Employee Plan
has been established and maintained in all material respects in accordance with
its terms and in compliance with all applicable laws, statutes, orders, rules
and regulations, including, but not limited to, ERISA or the Code; (ii) each
Company Employee Plan intended to qualify under Section 401(a) of the Code and
each trust intended to qualify under Section 501(a) of the Code has either
received a favorable determination, opinion, notification or advisory letter
from the IRS with respect to each such Company Employee Plan as to its qualified
status under the Code, including all
-20-
26
amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a letter and make
any amendments necessary to obtain a favorable determination as to the qualified
status of each such Company Employee Plan; (iii) no "prohibited transaction,"
within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA,
and not otherwise exempt under Section 4975 of the Code or Section 408 of ERISA
(or any administrative class exemption issued thereunder), has occurred with
respect to any Company Employee Plan; (iv) there are no actions, suits or claims
pending, or, to the knowledge of the Company, threatened or reasonably
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan; (v) each
Company Employee Plan (other than any stock option plan) can be amended,
terminated or otherwise discontinued after the Effective Time, without material
liability to Parent, the Company or any of its Affiliates (other than ordinary
administration expenses); (vi) there are no audits, inquiries or proceedings
pending or, to the knowledge of the Company or any Affiliates, threatened by the
IRS or DOL with respect to any Company Employee Plan; and (vii) neither the
Company nor any Affiliate is subject to any penalty or tax with respect to any
Company Employee Plan under Section 502(i) of ERISA or Sections 4975 through
4980 of the Code.
(e) Pension Plan. Neither the Company nor any Affiliate has
ever maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Collectively Bargained, Multiemployer and Multiple
Employer Plans. At no time has the Company or any Affiliate contributed to or
been obligated to contribute to any Multiemployer Plan. Neither the Company, nor
any Affiliate has at any time ever maintained, established, sponsored,
participated in, or contributed to any multiple employer plan, or to any plan
described in Section 413 of the Code.
(g) No Post-Employment Obligations. Except as set forth in
Section 2.20(g) of the Company Disclosure Letter, no Company Employee Plan
provides, or reflects or represents any liability to provide retiree health to
any person for any reason, except as may be required by COBRA or other
applicable statute, and the Company has never represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) or any other person that such
Employee(s) or other person would be provided with retiree health, except to the
extent required by statute.
(h) Health Care Compliance. Neither the Company nor any
Affiliate has, prior to the Effective Time and in any material respect, violated
any of the health care continuation requirements of COBRA, the requirements of
FMLA, the requirements of the Health Insurance Portability and Accountability
Act of 1996, the requirements of the Women's Health and Cancer Rights Act of
1998, the requirements of the Newborns' and Mothers' Health Protection Act of
1996, or any amendment to each such act, or any similar provisions of state law
applicable to its Employees.
-21-
27
(i) Effect of Transaction.
(i) Except as set forth in Section 2.20(i) of the
Company Disclosure Letter, the execution of this Agreement and the consummation
of the transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event under any
Company Employee Plan, Employment Contract, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(ii) Except as set forth in Section 2.20(i) of the
Company Disclosure Letter, no payment or benefit which will or may be made by
the Company or its Affiliates with respect to any Employee will be characterized
as a "parachute payment" within the meaning of Section 280G(b)(2) of the Code.
(j) Employment Matters. The Company: (i) is in compliance in
all material respects with all applicable foreign, federal, state and local
laws, rules and regulations respecting employment, employment practices, terms
and conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages, salaries and other
payments to Employees; (iii) is not liable for any arrears of wages or any taxes
or any penalty for failure to comply with any of the foregoing; and (iv) is not
liable for any payment to any trust or other fund governed by or maintained by
or on behalf of any governmental authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending, or to the
Company's knowledge, threatened or reasonably anticipated claims or actions
against the Company under any worker's compensation policy or long-term
disability policy.
(k) Labor. No work stoppage or labor strike against the
Company is pending, or to the Company's knowledge, threatened or reasonably
anticipated. The Company does not know of any activities or proceedings of any
labor union to organize any Employees. Except as set forth in Section 2.20(k) of
the Company Disclosure Letter, there are no actions, suits, claims, labor
disputes or grievances pending, or, to the knowledge of the Company, threatened
or reasonably anticipated relating to any labor, safety or discrimination
matters involving any Employee, including, without limitation, charges of unfair
labor practices or discrimination complaints, which, if adversely determined,
would, individually or in the aggregate, result in any material liability to the
Company. Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act.
Except as set forth in Section 2.20(k) of the Company Disclosure Letter, the
Company is not presently, nor has it been in the past, a party to, or bound by,
any collective bargaining agreement or union contract with respect to Employees
and no collective bargaining agreement is being negotiated by the Company.
-22-
28
(l) International Employee Plan. The Company does not now, nor
has it ever had the obligation to, maintain, establish, sponsor, participate in,
or contribute to any International Employee Plan.
2.21 Bank Accounts, Powers, etc. Set forth in Section 2.21 of the
Company Disclosure Letter is a list of each bank, trust company, savings
institution, brokerage firm, mutual fund or other financial institution with
which the Company has an account or safe deposit box and the names and
identification of all persons authorized to draw thereon or to have access
thereto.
2.22 Third Party Expenses. The Third Party Expenses incurred by the
Company, the Founding Shareholder, Company Shareholders and the Shareholder
Representative have been paid in full as of the Closing Date.
2.23 Representations Complete. None of the representations or
warranties made by the Company, nor any statement made in any schedule or
certificate furnished by the Company pursuant to this Agreement, or furnished in
or in connection with documents mailed or delivered to the shareholders of the
Company in connection with soliciting their consent to this Agreement and the
Merger (other than Parent's SEC filings and any other information provided by
Parent to Company for purposes of soliciting the consent of Company
Shareholders), contains or will contain at the Effective Time, any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SHAREHOLDER
REPRESENTATIVE
3.1 Shareholder Representations and Covenants. By and on behalf of
each Company Shareholder, the Shareholder Representative hereby severally
represents, warrants, acknowledges, covenants and agrees as follows:
(a) The shares of Parent Common Stock are being acquired
pursuant to the terms and subject to the conditions of this Agreement for each
Company Shareholder's own account for investment purposes only and not with a
view to the distribution thereof in violation of the Securities Act or any state
securities or "blue sky" law;
(b) The shares of Parent Common Stock, at the time of
issuance, are not being registered under the Securities Act or any state
securities or "blue sky" law and such shares will not be sold or otherwise
disposed of except in compliance with the Securities Act or in reliance upon an
exemption therefrom;
(c) Each Company Shareholder or its representative has such
knowledge and experience in financial and business matters that such shareholder
is capable of evaluating the merits and risks of the prospective investment in
the shares of Parent Common Stock and able to bear the
-23-
29
economic consequences thereof and each Company Shareholder, except for those
Company Shareholders set forth in Section 3.1(c) of the Company Disclosure
Letter, qualifies as an "accredited investor" as such term is defined in Rule
501(a) under the Securities Act;
(d) In making the decision to invest in the shares of Parent
Common Stock, each Company Shareholder has relied upon its own independent
investigations and, to the extent believed by a Company Shareholder to be
appropriate, such Company Shareholder's representatives, including professional,
tax and other advisors, and has not relied upon any representation or warranty
from Parent, the Company or any of their directors, officers, employees, agents,
affiliates or representatives with respect to the value of the shares of Parent
Common Stock;
(e) Neither Parent nor the Company has made any
representation, warranty, acknowledgement or covenant, in writing or otherwise,
to any of the Company Shareholders regarding the tax consequences, if any, of
the sale and purchase of the capital stock of the Company or of the resale of
the shares of Parent Common Stock by the Company Shareholders;
(f) Each Company Shareholder and each Company Shareholder's
representatives have been given a full opportunity to examine all documents
relating to the transactions contemplated hereby, including this Agreement and
the Related Agreements, and to ask questions of, and to receive answers from,
the Company, Parent and their respective representatives concerning, the terms
of the sale and purchase of the capital stock of the Company, the Company
Shareholders' investment in the shares of Parent Common Stock and the business
of Parent and such other information as desired in order to evaluate an
investment in the shares of Parent Common Stock, and all such questions have
been answered to the full satisfaction of each Company Shareholder;
(g) Each Company Shareholder has been furnished with all
publicly available information about Parent's assets, operations, and business
activities which such shareholder has requested and which such shareholder
considers necessary or relevant to enable such shareholder to make a decision
about the acquisition of shares of Parent Common Stock;
(h) Each Company Shareholder has evaluated the merits and
risks of an investment in the shares of Parent Common Stock and has determined
that the shares of Parent Common Stock are a suitable investment for such
shareholder in light of such shareholder's overall financial condition and
prospects;
(i) Each Company Shareholder has been advised, and is aware,
that the market prices of shares of stock of publicly traded companies fluctuate
and that there can be no assurance as to the future performance of any given
securities, including the shares of Parent Common Stock;
(j) Each Company Shareholder owns beneficially and of record,
and has good and marketable title to, the capital stock of the Company set forth
opposite such shareholder's name in Section 2.2(a) of the Company Disclosure
Letter, free and clear of any Lien and, upon delivery of and payment for the
capital stock of the Company as herein provided, Parent will acquire good and
marketable title thereto, free and clear of any Lien;
-24-
30
(k) Each Company Shareholder does not own of record or
beneficially any other shares of, or, except as set forth on Section 2.2(a) of
the Company Disclosure Letter, any Company Options with respect to, capital
stock of the Company other than as set forth on Section 2.2(b) of the Company
Disclosure Letter; and
(l) Each Company Shareholder has all requisite legal right,
power and authority to enter into this Agreement and the Related Agreements to
which such shareholder is a party and to agree to the transactions contemplated
hereby and thereby and to perform all of such shareholder's obligations
hereunder and thereunder.
(m) The parties hereto acknowledge and agree that the
foregoing representations and warranties do not limit or otherwise modify the
representations and warranties of the Parent and Merger Sub in Article IV of
this Agreement or the right of the Company Shareholders to rely thereon.
3.2 Restrictions on Transfer.
(a) Each Company Shareholder agrees that it will not Transfer
any of the shares of Parent Common Stock (or any interest therein) except upon
the terms and conditions specified herein, and each Company Shareholder will
cause any subsequent holder of such shareholder's shares of Parent Common Stock
to agree to take and hold the shares of Parent Common Stock subject to the terms
and conditions of this Agreement, if such shares of Parent Common Stock are
required to include a legend pursuant to Section 3.2(b) hereof.
(b) Without limiting the provisions of Section 3.2(c), each
certificate representing the shares of Parent Common Stock issued to the Company
Shareholders or to any subsequent shareholder shall include a legend in
substantially the following form; provided, however, that such legend shall not
be required (and shall be removed) if a Transfer is being made in connection
with a sale of shares of Parent Common Stock registered under the Securities
Act, or in connection with a sale in compliance with Rule 144 under the
Securities Act (as such Rule may be amended from time to time) (each, a "Public
Sale") or if the opinion of counsel referred to in Section 3.2(d) hereof is to
the further effect that neither such legend nor the restrictions on transfer in
this Article III are required in order to ensure compliance with the Securities
Act.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED
OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (II) IN COMPLIANCE WITH
RULE 144 OR (III) PURSUANT TO AN OPINION OF COUNSEL FOR DIGITAL
IMPACT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
-25-
31
(c) Prior to any proposed Transfer of any shares of Parent
Common Stock by any Company Shareholder, such shareholder shall give written
notice to Parent of its intention to effect such Transfer, which notice shall
set forth the date of such proposed Transfer. Such Company Shareholder also
shall furnish to Parent (i) a written agreement by the proposed transferee that
it is taking and holding the same subject to the terms and conditions specified
in this Agreement, except with respect to any such shares which are being sold
in a Public Sale and (ii) except with respect to any shares of Parent Common
Stock which have been registered under the Securities Act, a written opinion of
such shareholder's counsel, in form reasonably satisfactory to Parent, to the
effect that the proposed Transfer may be effected without registration under the
Securities Act.
The restrictions set forth in this Article III shall terminate and cease
to be effective with respect to shares of Parent Common Stock (i) upon the sale
of any such shares of Parent Common Stock, if the shares of Parent Common Stock
in respect of which such sale occurs have been registered under the Securities
Act pursuant to the Registration Rights Agreement or otherwise, (ii) upon
receipt by Parent of an opinion of counsel (which counsel is reasonably
acceptable to Parent), in form and substance reasonably satisfactory to Parent,
to the effect that compliance with such restrictions is not necessary in order
to comply with the Securities Act with respect to the Transfer of such shares of
Parent Common stock, or (iii) upon the expiration of the two-year period
referred to in Rule 144(k) under the Securities Act (as such Rule may be amended
from time to time), if, pursuant to Rule 144(k), such Company Shareholder was
not an "affiliate" of Parent at the time of the sale of the securities and had
not been an "affiliate" of Parent during the preceding three months. Upon the
occurrence of any of the foregoing events as to any Company Shareholder, Parent
shall instruct its transfer agent to promptly remove the legend as to
restrictions on sale or transfer set forth in Section 3.2(b) from the
certificates representing shares of Parent Common Stock received by such Company
Shareholder pursuant to this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to the
Company and the Founding Shareholder as follows:
4.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would be
material to Parent and Merger Sub as a whole.
4.2 Authority. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution
-26-
32
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been, or will be by the Effective Time, duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or limiting creditors' rights generally, and by rules of law
governing specific performance, injunctive relief or other equitable remedies.
4.3 SEC Reports. All documents filed by Parent with the SEC pursuant
to the Securities Act and the Exchange Act, were filed on a timely basis,
complied in form in all material respects with such acts, and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
4.4 Valid Issuance. Parent has taken all necessary action to permit
it to issue the number of shares of Parent Common Stock required to be issued
pursuant to Article I hereof. All shares of Parent Common Stock issued pursuant
to Article I will, when issued in accordance with the terms hereof, be validly
issued, fully paid and nonassessable, and no person will have any preemptive
right of subscription or purchase in respect thereof.
4.5 No Conflicts.
(a) The execution and delivery of this Agreement by Parent
does not, and, as of the Effective Time, the consummation of the transactions
contemplated hereby will not, directly or indirectly (with or without notice or
lapse of time, or both):
(i) conflict with, contravene or result in any
violation of any provision of the certificate of incorporation or bylaws of
Parent or any resolution adopted by the board of directors of Parent,
(ii) conflict with, contravene, or result in any
violation of or default under, or give rise to a right of termination,
cancellation or acceleration of any obligation, or result in loss, suspension,
withdrawal, modification or revocation of any benefit under, any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or its properties or assets,
(iii) cause Parent to become subject to, or become liable
for the payment of, any tax other than withholding taxes incurred and required
to be paid in connection with the transactions contemplated by this Agreement,
(iv) cause any of the assets owned by Parent to be
reassessed or revalued by any taxing authority or other Governmental Entity, or
-27-
33
(v) impose or create any encumbrance upon or with
respect to any of the assets owned or used by Parent.
(b) No consent, waiver, approval, order of authorization of,
or registration, declaration or filing with, any Governmental Entity or any
third party (so as not to trigger any of the events described in Section
4.5(a)(i) through (v) above) is required by or with respect to Parent in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the
Agreement of Merger with the California Secretary of State, (ii) the filing of
the Certificate of Merger with the Delaware Secretary of State and (iii) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws.
4.6 No Changes. Since March 31, 2000, except as disclosed in
documents filed with the SEC by Parent pursuant to the Securities Act or the
Exchange Act, whether or not in the ordinary course of business, there has not
been, occurred or arisen any change in or event affecting Parent that has had or
may reasonably be expected to have a material adverse effect on the business or
capitalization of Parent.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business of the Company. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement and the Effective Time, the Company agrees (except to the extent
that Parent shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in the same manner as heretofore conducted,
to pay its debts and Taxes when due, to pay or perform other obligations when
due, and, to the extent consistent with such business, to use all efforts
consistent with past practice and policies to preserve intact its present
business organization, keep available the services of its present officers and
key employees and preserve their relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it,
all with the goal of preserving unimpaired its goodwill and ongoing businesses
at the Effective Time. The Company shall promptly notify Parent of any event or
occurrence or emergency not in the ordinary course of its business, any material
event involving or adversely affecting the Company or its business, and any
contact, discussion or negotiation relating to any issuance of debt or equity to
a person or entity other than Parent. Except as expressly contemplated by this
Agreement, the Company shall not, without the prior written consent of Parent:
(a) Enter into any commitment, activity or transaction not in
the ordinary course of business, the value of which is greater than $10,000
individually or $25,000 in the aggregate;
(b) Except as set forth on Section 5.1(b) of the Company
Disclosure Letter, transfer to any person or entity any rights to any Company
Intellectual Property or enter into any agreement with respect to Company
Intellectual Property with any person or entity;
-28-
34
(c) Terminate any employees other than for cause or encourage
any employees to resign from the Company;
(d) Amend or otherwise modify (or agree to do so), or violate
the terms of, any of the agreements set forth or described in the Company
Disclosure Letter;
(e) Commence or settle any litigation;
(f) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
Company Capital Stock, or split, combine or reclassify any Company Capital Stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of Company Capital Stock, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of Company
Capital Stock (or options, warrants or other rights exercisable therefor) except
for (i) repurchases of Company Capital Stock upon the termination of service of
any service providers of the Company in accordance with the standard terms set
forth in the agreements governing such repurchases, all of which agreements have
been provided or made available to Parent, (ii) conversion of Company Preferred
Stock and (iii) exercises or conversion of Company Convertible Securities;
(g) Except for the issuance of shares of Company Capital Stock
upon exercise or conversion of presently outstanding Company Options or Company
Convertible Securities, issue, sell, grant, contract to issue, grant or sell, or
authorize the issuance, delivery, sale or purchase of any shares of Company
Capital Stock or securities convertible into, or exercisable or exchangeable
for, shares of Company Capital Stock, or any securities, warrants, options or
rights to purchase any of the foregoing;
(h) Cause or permit any amendments to its articles of
incorporation or bylaws;
(i) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
business of the Company;
(j) Sell, lease, license or otherwise dispose of any of the
assets or properties of the Company which are not Company Intellectual Property,
including, but not limited to, the performance of obligations under contractual
arrangements listed in the Company Disclosure Letter existing as of the date
hereof, or create any security interest in such assets or properties;
(k) Grant any loan to any person or entity, incur any
indebtedness or guarantee any indebtedness, issue or sell any debt securities,
guarantee any debt securities of others, purchase any debt securities of others
or amend the terms of any outstanding agreements related to borrowed money;
-29-
35
(l) Grant any severance or termination pay (i) to any director
or officer or (ii) to any employee or consultant, or increase in the salary or
other compensation payable or to become payable by the Company to any of its
officers, directors, employees or advisors, or declare, pay or make any
commitment or obligation of any kind for the payment by the Company of a bonus
or other additional salary or compensation to any such person, or except as
described in Section 5.1(l) of the Company Disclosure Letter, adopt or amend any
employee benefit plan or enter into any employment contract;
(m) Revalue any of its assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts receivable;
(n) Except as set forth in Section 5.1(n) of the Company
Disclosure Letter, take any action to accelerate the vesting schedule of any of
the outstanding Company Options or Company Capital Stock;
(o) Pay, discharge or satisfy, in an amount in excess of
$15,000 (in any one case) or $30,000 (in the aggregate) any claim or Liability;
(p) Make or change any election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(q) Enter into any strategic alliance, joint development or
joint marketing arrangement or agreement;
(r) Fail to pay or otherwise satisfy its monetary obligations
as they become due, except such as are being contested in good faith;
(s) Waive or commit to waive any rights with a value in excess
of $5,000 (in any one case) or $10,000 (in the aggregate);
(t) Cancel, materially amend or renew any insurance policy
other than in the ordinary course of business;
(u) Alter, or enter into any commitment to alter, its interest
in any corporation, association, joint venture, partnership or business entity
in which the Company directly or indirectly holds any interest on the date
hereof; or
(v) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through (u) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
-30-
36
5.2 No Solicitation. Until the earlier of the Effective Time and the
date of termination of this Agreement pursuant to the provisions of Section 9.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, shareholders, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, initiate, entertain, or encourage
any proposals or offers from, or conduct discussions with or engage in
negotiations with, any person relating to any possible acquisition of the
Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its
capital stock or assets or any equity interest in the Company or any of its
subsidiaries, (b) provide information with respect to it to any person, other
than Parent, relating to, or otherwise cooperate with, facilitate or encourage
any effort or attempt by any such person with regard to, any possible
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise), any material portion of its capital stock or
assets or any equity interest in the Company or any of its subsidiaries, (c)
enter into an agreement with any person, other than Parent, providing for the
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise), any material portion of its capital stock or
assets or any equity interest in the Company or any of its subsidiaries, or (d)
make or authorize any statement, recommendation or solicitation in support of
any possible acquisition of the Company or any of its subsidiaries (whether by
way of merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its capital stock or assets or any equity interest in the
Company or any of its subsidiaries by any person, other than by Parent. The
Company shall immediately cease and cause to be terminated any such contacts or
negotiations with third parties relating to any such transaction or proposed
transaction. In addition to the foregoing, if the Company receives prior to the
Effective Time or the termination of this Agreement any offer or proposal
relating to any of the above, the Company shall immediately notify Parent
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
Parent may reasonably request. Except as contemplated by this Agreement,
disclosure by the Company of the terms hereof (other than the prohibition of
this Section 5.2) shall be deemed to be a violation of this Section 5.2.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Restrictions on Transfer. All certificates representing Parent
Common Stock deliverable to any shareholder of the Company pursuant to this
Agreement and in connection with the Merger and any certificates subsequently
issued with respect thereto or in substitution therefor (including any shares
issued or issuable in respect of any such shares upon any stock split stock
dividend, recapitalization, or similar event) also shall bear any legend
required by any federal, state, local or foreign law governing such securities,
in addition to the legend set forth in Section 3.2 hereof.
-31-
37
6.2 Access to Information. Upon reasonable notice by Parent or Merger
Sub, the Company shall afford Parent and Merger Sub and their accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time (subject to restrictions
contained in confidentiality agreements to which the Company may be subject) to
(a) all of its properties, books, contracts, commitments and records, and (b)
all other information concerning the business, properties and personnel (subject
to restrictions imposed by applicable law) of it as the others may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section 6.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
6.3 Confidentiality. Each of the parties hereto hereby agrees to keep
the terms of this Agreement (except to the extent contemplated hereby) and such
information or knowledge obtained in any investigation pursuant to Section 6.2,
or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential; provided,
however, that the foregoing shall not apply to information or knowledge which
(a) a party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the other party, (b) is generally known to the public and
did not become so known through any violation of law, (c) became known to the
public through no fault of such party, (d) is later lawfully acquired by such
party without confidentiality restrictions from other sources, (e) is required
to be disclosed by order of court or government agency with subpoena powers
(provided that such party shall have provided the other party with prior notice
of such order and an opportunity to object or take other available action) or
(f) which is disclosed in the course of any litigation between any of the
parties hereto.
6.4 Expenses. Whether or not the Merger is consummated, all Third
Party Expenses incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby, shall be the obligation of the respective party incurring
such fees and expenses. In the event of any action for the breach of this
Agreement, the prevailing party shall be entitled to reasonable attorney's fees,
costs and expenses incurred in such action.
6.5 Public Disclosure. Unless otherwise required by law (including,
without limitation, federal and state securities laws) or, as to Parent, by the
rules and regulations of the National Association of Securities Dealers, Inc.,
prior to the Effective Time, no disclosure (whether or not in response to an
inquiry) of the subject matter of this Agreement shall be made by any party
hereto unless approved by Parent and the Company prior to release, provided that
such approval shall not be unreasonably withheld.
6.6 Consents. The Company shall use all reasonable efforts to obtain
the consents, waivers and approvals under any of the Contracts as may be
required in connection with the Merger (all of such consents, waivers and
approvals are set forth in the Company Disclosure Letter) so as to preserve all
rights of and benefits to the Company thereunder.
-32-
38
6.7 FIRPTA Compliance. On or prior to the Closing Date, the Company
shall deliver to Parent a properly executed statement in a form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
6.8 Reasonable Efforts. Subject to the terms and conditions provided
in this Agreement, each of the parties hereto shall use its reasonable efforts
to ensure that its representations and warranties remain true and correct in all
material respects, and to take promptly, or cause to be taken, all actions, and
to do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings, and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided that Parent shall not be required to agree to any
divestiture by Parent or the Company or any of Parent's subsidiaries or
affiliates of shares of capital stock or of any business, assets or property of
Parent or its subsidiaries or affiliates or the Company or its affiliates, or
the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock.
6.9 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or nonoccurrence of any event, the occurrence or nonoccurrence of
which is likely to cause any representation or warranty of the Company and
Parent, respectively, contained in this Agreement to be untrue or inaccurate at
or prior to the Effective Time and (ii) any failure of the Company or Parent, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; such that the conditions set
forth in Section 7.2 or Section 7.3 would not be satisfied; provided, however,
that the delivery of any notice pursuant to this Section 6.9 shall not limit or
otherwise affect any remedies available to the party receiving such notice.
6.10 Additional Documents and Further Assurances. Each party hereto,
at the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
6.11 Reorganization.
(a) Each of Parent and the Company agrees that it will not
take prior to, in connection with or following the Merger as set forth herein,
any action that would disqualify such transaction as a reorganization under
Section 368(a) of the Code, and each agrees to treat the Merger consistent
therewith, including, but not limited to, complying with Treasury Regulations
Section 1.368.3.
(b) Neither Parent nor the Company is aware of any fact or
circumstances that could reasonably be expected to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
-33-
39
6.12 Quotation of Parent Common Stock on Nasdaq. Parent shall use all
commercially reasonable efforts to cause the shares of Parent Common Stock
issued pursuant to Article I hereof to be approved for quotation on the Nasdaq
Stock Market's National Market.
6.13 Employee Benefits. Following the Effective Time, Parent, in its
sole discretion, shall either: (a) continue (or cause the Company to continue)
to maintain the Company Employee Plans that constitute health, dental and vision
plans, programs or arrangements (the "Plans") on substantially the same terms in
the aggregate as in effect immediately prior to the Effective Time, or (b)
arrange for each participant in the Plans ("Company Participants") to
participate in the plans of the Parent ("Parent Plans") on terms no less
favorable than those offered to similarly situated employees of Parent, or (c) a
combination of clauses (a) and (b). Each Company Participant who continues to be
employed by the Company or any of its subsidiaries immediately following the
Effective Time shall, to the extent permitted by law and applicable tax
qualification requirements, and subject to any generally applicable break in
service or similar rule, receive credit for purposes of eligibility to
participate and vesting under the Parent Plans for years of service with the
Company or its subsidiaries prior to the Effective Time; provided, however, that
Company shall provide Parent with records verifying the service of each such
employee prior to Closing. Subject to the approval of any insurance carrier and
to the extent consistent with law and applicable tax qualification requirements,
Parent shall cause any and all pre-existing condition limitations, eligibility
waiting periods and evidence of insurability requirements under any group health
plans to be waived with respect to such Company Participants and their eligible
dependents under any Parent Plans in which they are eligible to participate
immediately after the Effective Time. Notwithstanding any of the foregoing to
the contrary, none of the provisions contained herein shall operate to duplicate
any benefit provided to any employee of the Company or the funding of any such
benefit. Nothing in this Section 6.13 shall be construed to entitle any employee
to continue his or her employment for any period of time, nor to interfere with
the rights of the Parent and/or the Company to discharge or discipline any
employee, to change the terms of any employee's employment, or to amend or
terminate employee benefit plans or programs at any time.
6.14 Company Options. Parent shall take all corporate action necessary
to (i) reserve for issuance a sufficient number of shares of Parent Common Stock
for issuance upon the exercise of Company Options assumed by Parent pursuant to
Section 1.6(e) hereof, and (ii) as soon as commercially practicable after the
Closing, file a registration statement on Form S-8 for such shares of Parent
Common Stock.
6.15 Option Acceleration. On or prior to the Closing, the Company
shall use its reasonable efforts to enter into with all employees of the Company
who are employed immediately prior to the Closing and who are holders of Company
Options (each, an "Employee Option Holder") an amendment to each Employee Option
Holder's Company Option agreement providing that, in the event an Employee
Option Holder is terminated by Parent or the Company solely without Cause or in
the event that an Employee Option Holder terminates employment for Good Reason,
within twelve (12) months after the Effective Time, a number of unvested shares
subject to his or her option shall immediately vest in an amount equal to the
unvested shares subject to the option that would have vested had the Employee
Option Holder remained employed by Parent or the Company for an
-34-
40
additional twelve (12) months after his or her termination date (with such
unvested shares being treated as vesting monthly at a rate of 1/48th of the
shares subject to the option, beginning on the Employee Option Holder's date of
termination, in the event such unvested shares are subject to cliff vesting
restrictions).
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
obligations of Parent, Merger Sub and the Company to effect the Closing shall be
subject to the satisfaction of the following conditions, unless such conditions
are waived in writing by all parties:
(a) No Orders; Legal Proceedings. No Law or Order shall have
been enacted, entered, issued, promulgated or enforced by any Governmental
Entity, nor shall any Action have been instituted and remain pending or have
been threatened and remain so at what would otherwise be the Closing Date, which
prohibits or restricts the transactions contemplated by this Agreement.
(b) Other Approvals. To the extent required by applicable Law,
all Permits and Approvals required to be obtained from any Governmental Entity
(including the acceptance and approval of the Agreement of Merger by the
Secretary of State of the State of California and the Certificate of Merger with
the Secretary of State of the State of Delaware) shall have been received or
obtained on or prior to the Closing Date without the imposition of any burdens
or conditions materially adverse for the party or parties entitled to the
benefit thereof.
(c) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that prior to
invoking this condition, each party shall use all commercially reasonable
efforts to have any such decree, ruling, injunction or order vacated.
7.2 Conditions to Obligations of the Company. The obligations of the
Company to effect the Closing shall be subject to the following conditions,
except to the extent waived in writing by the Company:
-35-
41
(a) Representations and Warranties and Covenants of Parent.
The representations and warranties of Parent herein contained shall be true at
the Closing Date with the same effect as though made at such time; Parent shall
have performed all obligations and complied with all covenants and conditions
required by this Agreement to be performed or complied with by it at or prior to
the Closing Date, and Parent shall have delivered to Company Certificates of
Parent in form and substance satisfactory to Company, dated the Closing Date and
signed by its Chief Executive Officer and Chief Financial Officer to such
effect.
(b) Opinion of Counsel. The Company shall receive at the
Closing from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, an
opinion dated the Closing Date, substantially in the form attached hereto as
Exhibit F.
(c) Registration Rights Agreement. Parent shall have executed
the Registration Rights Agreement substantially in the form attached hereto as
Exhibit E.
(d) Shareholder Approval. This Agreement and Merger shall have
been approved and adopted by the shareholders of the Company by the requisite
vote under applicable law and the Company's Articles of Incorporation.
7.3 Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Closing shall be subject to
the following conditions, except to the extent waived in writing by Parent:
(a) Representations and Warranties and Covenants of the
Company, the Shareholder Representative and the Founding Shareholder. The
representations and warranties of the Company and the Founding Shareholder
herein contained shall be true at the Closing Date with the same effect as
though made at such time; the Company shall have performed all obligations and
complied with all covenants and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing Date, and the
Company shall have delivered to Parent certificates of the Company in form and
substance satisfactory to Parent, dated the Closing Date and signed by its Chief
Executive Officer and Chief Financial Officer to such effect.
(b) No Material Adverse Change. There shall not have been any
material adverse change in or affecting the Business subsequent to December 31,
1999.
(c) Third Party Consents. Parent shall have been furnished
with evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Section 7.3(c) of the Company Disclosure
Letter.
(d) Non-competition Agreements. Each of the persons listed in
Section 7.3(d) of the Company Disclosure Letter shall have executed and
delivered to Parent a Non-competition Agreement in substantially the form
attached hereto as Exhibit A.
(e) Shareholders' Agreement. Each of the persons listed in
Section 7.3(e) of the Company Disclosure Letter (holders of 7.5% or more of
Company Capital Stock), shall have
-36-
42
executed and delivered to Parent the Shareholders' Agreement in substantially
the form attached hereto as Exhibit B.
(f) No Dissenters. Holders of more than 4.9% of the
outstanding shares of Company Capital Stock shall not have exercised, nor shall
they have any continued right to exercise, appraisal, dissenters' or similar
rights under applicable law with respect to their shares by virtue of the
Merger.
(g) Waiver of Liquidation Preference. Parent shall have been
furnished with a written waiver of the liquidation preference set forth in
Section 3(c) of the Company's Amended and Restated Articles of Incorporation
from each holder of shares of Company Preferred Stock.
(h) Debt or Equity Financing. Any issuance of equity or
incurrence of debt by the Company after the date hereof and prior to the Closing
shall have been approved in writing by Parent in its sole discretion prior to
any such issuance of equity or incurrence of debt.
(i) Opinion of Counsel. Parent shall receive at the Closing
from Xxxxxxxxx Xxxxx Xxxxxxx & Xxxxx, counsel to the Company, an opinion dated
the Closing Date, in form and substance substantially as set forth in Exhibit G.
(j) Resignation of Directors and Officers. The directors and
officers of the Company shall have submitted their resignations in writing to
the Company. Such resignations of directors and officers (in such capacity)
shall be effective as of the Closing.
(k) Key Persons. The persons listed in Section 7.3(k) of the
Company Disclosure Letter shall be employed by the Company in the same capacity
as currently employed.
(l) Nasdaq Compliance. Parent's shareholders shall have voted
in favor of the issuance of Parent Common Stock to be issued in the Merger if
required by regulations of The Nasdaq Stock Market's National Market.
(m) Termination of Investor Rights. Company shall have
terminated any and all Contracts granting registration rights, co-sale rights or
preemptive rights to any Company Shareholder.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Company Shareholders. Subject to Section 8.4
below, the Company Shareholders shall jointly and severally indemnify, save and
hold harmless Parent, Merger Sub and the Surviving Corporation and their
respective directors, officers, employees, affiliates, agents and assigns (each
an "Indemnified Buyer Party"), from and against any and all Losses (whether or
not arising out of third-party claims) incurred by an Indemnified Buyer Party in
connection with, arising out of, resulting from or incident to (i) any breach of
any representation or
-37-
43
warranty made by the Company, the Founding Shareholder or the Shareholder
Representative in this Agreement or in any certificate, instrument or agreement
delivered by any of such parties pursuant hereto or thereto (ii) any breach of
any covenant or agreement made by the Company, the Founding Shareholder or the
Shareholder Representative in this Article V or VI of Agreement or in any
certificate, instrument or agreement delivered by any of such parties pursuant
hereto or thereto; (iii) any third party claims or demands arising in connection
with any product or service sold, or otherwise arising in connection with the
conduct of the Business, prior to the Closing that are asserted after the
Closing except in cases where such demands or claims are accrued for in the
Company Financials or are otherwise disclosed in the Company Disclosure Letter
(iv) any Losses arising from or related to any Dissenting Shares solely in the
event and to the extent that Parent is required to pay any Company Shareholder
an amount in excess of the amounts described in Section 1.6 with respect to such
Dissenting Shares, or (v) any Losses for or in respect of Third Party Expenses.
The term "Losses" as used in this Section 8.1 is not limited to matters
asserted by third parties against any indemnified party, but includes Losses
incurred or sustained by an Indemnified Buyer Party in the absence of third
party claims. Payments by any Indemnified Buyer Party of amounts for which such
Indemnified Buyer Party is indemnified hereunder shall not be a condition
precedent to recovery.
The Founding Shareholder and the Shareholder Representative agree to
notify Parent of any Liabilities, claims or misrepresentations, breaches or
other matters covered by this Article VIII upon discovery or receipt of notice
thereof (other than from Parent), whether before or after the Closing.
8.2 Indemnification by Parent. Parent shall indemnify, save and hold
harmless the Company Shareholders and their respective directors, officers,
employees, affiliates, agents and assigns (each an "Indemnified Seller Party",
and together with an Indemnified Buyer Party, an "Indemnified Party") from and
against any and all Losses incurred by an Indemnified Seller Party in connection
with, arising out of, resulting from or incident to (i) any breach of any
representation or warranty made by Parent in this Agreement; or (ii) any breach
of any covenant or agreement made by Parent in this Agreement.
8.3 Procedure.
(a) Cooperation. The Indemnified Party shall cooperate in all
reasonable respects with the indemnifying party and its representatives
(including, without limitation, its attorneys) in the investigation, trial and
defense of such lawsuit or action and any appeal arising therefrom; provided,
however, that the Indemnified Party may at its own cost, participate in
negotiations, arbitrations and the investigation, trial and defense of such
lawsuit or action and any appeal arising therefrom. The parties shall cooperate
with each other in any notifications to insurers.
(b) Defense of Claim. If a claim for Losses (a "Claim") is to
be made by a party entitled to indemnification hereunder against the
indemnifying party, the party claiming such indemnification shall give written
notice (a "Claim Notice") to the indemnifying party as soon as practicable after
the party entitled to indemnification becomes aware of any fact, condition or
event
-38-
44
which may give rise to Losses for which indemnification may be sought under this
Article VIII. If any lawsuit or enforcement action is filed against any party
entitled to the benefit of indemnity hereunder, written notice thereof shall be
given to the indemnifying party as promptly as practicable (and in any event
within fifteen (15) calendar days after the service of the citation or summons).
The failure of any Indemnified Party to give timely notice hereunder for any
purpose shall not affect rights to indemnification hereunder, except to the
extent that the indemnifying party has been damaged by such failure. After such
notice, except as provided in the following sentence, if the indemnifying party
shall acknowledge in writing to the Indemnified Party that the indemnifying
party shall be obligated under the terms of its indemnity hereunder in
connection with such lawsuit or action, then the indemnifying party shall be
entitled, if it so elects at its own cost, risk and expense, (i) to take control
of the defense and investigation of such lawsuit or action, (ii) to employ and
engage attorneys of its own choice but in any event, reasonably acceptable to
the Indemnified Party, to handle and defend the same unless the named parties to
such action or proceeding (including any impleaded parties) include both the
indemnifying party and the Indemnified Party and the Indemnified Party has been
advised in writing by counsel that there may be one or more legal defenses
available to such Indemnified Party that are different from or additional to
those available to the indemnifying party, in which event the Indemnified Party
shall be entitled, at the indemnifying party's cost, risk and expense, to
separate counsel of its own choosing (provided, however, in no event shall the
indemnifying party be obligated to engage more than one (1) additional counsel)
and (iii) to compromise or settle such lawsuit or action, which compromise or
settlement shall be made only with the written consent of the Indemnified Party,
such consent not to be unreasonably withheld. The Company Shareholders may
assume the defense of a lawsuit or action as described in the preceding sentence
only if the Company Shareholders agree to be responsible for all Claims for
Losses related to such lawsuit or action and if there are sufficient moneys
available held pursuant to the Escrow Agreement to cover all such Claims for
Losses.
If the indemnifying party fails to assume the defense of such lawsuit or
action within fifteen (15) calendar days after receipt of the Claim Notice, the
Indemnified Party against which such lawsuit or action has been asserted will
(upon delivering notice to such effect to the indemnifying party) have the right
to undertake, at the indemnifying party's cost and expense, the defense,
compromise or settlement of such lawsuit or action on behalf of and for the
account and risk of the indemnifying party; provided, however, that such lawsuit
or action shall not be compromised or settled without the written consent of the
indemnifying party, which consent shall not be unreasonably withheld or delayed.
In the event the Indemnified Party assumes the defense of the lawsuit or action,
the Indemnified Party will keep the indemnifying party reasonably informed of
the progress of any such defense, compromise or settlement. The indemnifying
party shall be liable for any settlement of any action affected pursuant to and
in accordance with this Article VIII and for any final judgment (subject to any
right of appeal) and the indemnifying party agrees to indemnify and hold
harmless an Indemnified Party from and against any Losses by reason of such
settlement or judgment.
8.4 Limitation on Indemnification; Escrow.
-39-
45
(a) The indemnification obligations with respect to any breach
of any representation, warranty, covenant or agreement pursuant to Section 8.1
or 8.2, respectively, shall be limited to Claims for Losses made prior to last
date of survival thereof referred to in Section 11.12 and any Claim for Losses
shall survive until its final resolution.
(b) Parent, Merger Sub and the Surviving Corporation may not
recover Losses from the Company Shareholders pursuant to Section 8.1(i) and
(iii) until the aggregate amount of Losses relating to such Claims for which
such parties, in the aggregate are seeking indemnification under Section 8.1(i)
and (iii) exceeds $100,000 (the "Threshold") provided, however, that in the
event the aggregate amount of Losses for which such parties are seeking
indemnification pursuant to Section 8.1(i) and (iii) exceeds the Threshold, such
parties may recover the full amount of such damages; and provided, further, that
Claims for Losses (A) pursuant to Sections 8.1(i) and (iii) resulting from a
breach of the representations and warranties set forth in Section 2.2 and (B)
pursuant to Section 8.1(ii) shall not be subject to the Threshold, but shall be
recoverable from the first dollar. Notwithstanding the foregoing, the maximum
amount of Losses for which Company Shareholders shall be liable pursuant to
Section 8.1 shall, subject to Section 8.4(c) hereof, be limited to the Escrow
Amount on the Closing Date. The full Escrow Amount shall be deposited in escrow
in accordance with Section 8.4(c) hereof and, except for Claims for Losses
resulting from a breach of the representations and warranties set forth in
Section 2.8 hereof, the indemnification obligations of the Company Shareholders
after the Closing Date under Section 8.1 hereof, subject to Section 8.4(c)
hereof, shall be satisfied solely from such escrowed funds; provided, however,
that nothing contained herein shall constitute a waiver by Parent or Merger Sub
as a limitation of any of their rights or remedies against any party based on
fraud or intentional misrepresentation. The indemnification provisions of this
Article VIII shall be the exclusive remedy available to any party hereto for
money damages in the event of any breach by any other party hereto of any
representation, warranty, covenant or agreement set forth in this Agreement.
(c) The Company Shareholders and Shareholder Representative
agree that at the Effective Time Parent shall deduct from the aggregate Merger
Consideration to be paid in the Merger the Escrow Amount. Parent shall deposit
such shares of Parent Common Stock with the escrow agent to be held and
disbursed in accordance with the terms of the Escrow Agreement. Parent, the
Company and the Company Shareholders agree to promptly give any necessary
instructions to the escrow agent to cause such shares of Parent Common Stock to
be placed in the custodial account. Parent, Merger Sub and Surviving Corporation
shall have the right to make a Claim hereunder prior to the time at which the
Threshold that is applicable to such Claim has been surpassed for the purposes
of asserting such claim within the relevant survival period of the applicable
indemnification obligation and any such Claim made within such period shall, to
the extent such Threshold ultimately is met prior to the one (1) year
anniversary of the Closing Date, survive until its final resolution.
(d) The Company Shareholders may not recover Losses from the
Parent pursuant to Section 8.2(i) until the aggregate amount of Losses for which
such parties, in the aggregate, are seeking indemnification pursuant to Section
8.2(i) exceeds the Threshold; provided, however, that in the event the aggregate
amount of Losses for which such parties are seeking pursuant to
-40-
46
Section 8.2(i) exceeds the Threshold, such parties may recover the full amount
of such Losses. Notwithstanding the foregoing, the maximum amount of Losses for
which Parent shall be liable pursuant to Section 8.2(i) shall be an amount equal
to Escrow Amount. The Company Shareholders shall have the right to make a Claim
hereunder prior to the time at which the Threshold that is applicable to such
Claim has been surpassed for the purpose of asserting such Claim within the
relevant survival period of the applicable indemnification obligation and any
such Claim within such period shall, to the extent such Threshold ultimately is
met, survive until its final resolution.
(e) Neither (i) the termination of the representations or
warranties contained herein, nor (ii) the expiration of the indemnification
obligations described above, will affect the rights of a Person in respect of
any Claim made by such Person received by the indemnifying party prior to the
expiration of the applicable survival period provided herein.
(f) The Company Shareholders' liability for Losses arising out
of or caused by any action based on fraud or intentional misrepresentation by a
Company Shareholder shall be several, and not joint, and a Company Shareholder
who commits fraud or makes an intentional misrepresentation, shall be liable for
the entire amount of such Losses without regard to any limitation set forth
herein.
(g) All Losses to be paid hereunder to an Indemnified Party
shall be paid net of any amounts actually received by such Indemnified Party
under guaranties or indemnities from third parties or insurance policies;
provided, however, that nothing herein shall obligate an Indemnified Party to
make available to it an offset against Losses.
(h) Except in cases based on fraud and intentional
misrepresentation, no Company Shareholder shall be obligated to indemnify any
Indemnified Party hereunder for more than their pro rata portion of any Claims
or Losses (including, with limitation, any Claims or Losses resulting from a
breach of the representations and warranties set forth in Section 2.8 hereof),
which shall be equal to their pro rata portion of the Merger Consideration
received pursuant to Section 1.6.
ARTICLE IX
TERMINATION OF OBLIGATIONS
9.1 Termination of Agreement. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated by this
Agreement may be terminated at any time before the Closing as follows and in no
other manner:
(a) By mutual consent in writing of Parent, Company and Merger
Sub.
(b) By Parent by written notice to the Company if any event
occurs or condition exists which would render impossible the satisfaction of one
or more conditions to the obligations of Parent to consummate the transactions
contemplated by this Agreement as set forth in Section 6.1 or 6.3.
-41-
47
(c) By the Company by written notice to Parent if any event
occurs or condition exists which would render impossible the satisfaction of one
or more conditions to the obligation of the Company to consummate the
transactions contemplated by this Agreement as set forth in Section 6.1 or 6.2.
(d) By Parent or the Company if there has been a material
misrepresentation or other material breach by the other party (or, in the case
of Parent, by the Founding Shareholder, the Shareholder Representative or the
Company) in its representations, warranties and covenants set forth herein.
(e) By Parent, if the Company solicits, encourages, initiates
or negotiates any other sale or combination of the Company or of the Business or
any substantial part thereof.
(f) By Parent or the Company if the Closing has not occurred
prior to the end of business on September 15, 2000 unless extended in writing by
Parent and the Company.
(g) By Parent or the Company, if the Average Stock Price is
less than $5.00 or if the per share closing price of Parent Common Stock as
reported on the Nasdaq Stock Market's National Market on any trading day during
the five (5) consecutive trading days prior to the Closing Date is less than
$5.00.
9.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 9.1 hereof, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall forthwith
become null and void and there shall be no liability or obligation on the part
of Parent, Merger Sub, the Company or the Founding Shareholder, or their
respective officers, directors or shareholders; provided, that each party shall
remain liable for any breaches of this Agreement prior to its termination; and
provided, further that, the provisions of Sections 6.3, 6.4, 6.5, 11.9, 11.12,
11.13, 11.14, Article VIII and Article IX of this Agreement shall remain in full
force and effect and survive any termination of this Agreement.
ARTICLE X
DEFINITIONS
10.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided:
(a) the terms defined in this Article X have the meanings
assigned to them in this Article X and include the plural as well as the
singular,
(b) all accounting terms not otherwise defined herein have the
meanings assigned under generally accepted accounting principles,
-42-
48
(c) all references in this Agreement to designed "Articles,"
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of the body of this Agreement,
(d) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms, and
(e) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
As used in this Agreement and the Exhibits delivered pursuant to
this Agreement, the Parent Disclosure Letter and Company Disclosure Letter, the
following definitions shall apply:
"Action" means any action, complaint, petition, investigation,
suit or other proceeding, whether civil or criminal, in law or in equity, or
before any arbitrator or Governmental Entity.
"Aggregate Share Number" means that number of shares of Parent
Common Stock equal to a quotient, (A) the numerator of which shall be the
Numerator and (B) the denominator of which shall be $8.973; provided, however,
that if the Average Stock Price is greater than $13.00 then the Aggregate Share
Number shall mean the number of shares of Parent Common Stock equal to the
quotient, (A) the numerator of which shall be the Numerator, and (B) the
denominator of which shall be $8.973 multiplied by the Average Stock Price
divided by 13; provided, further, that if the Average Stock Price is less than
$5.00, then the Aggregate Share Number shall mean the number of shares of Parent
Common Stock equal to the quotient, (A) the numerator of which shall be the
Numerator, and (B) the denominator of which shall be $8.973 multiplied by the
Average Stock Price divided by 5.
"Aggregate Common Share Number" means that number obtained by
multiplying the (A) the Aggregate Share Number, by (B) the percentage of the
Company's fully diluted shares that are convertible into Company Common Stock,
excluding shares of Preferred Stock.
"Aggregate Liquidation Preference" means the aggregate
liquidation preference, in dollars, for all Company Series A Preferred Stock,
Company Series B Preferred Stock and Company Series C Preferred Stock pursuant
to Sections 3.a and 3.b of the Company's Amended and Restated Articles of
Incorporation filed with the State of California on April 14, 1999.
"Aggregate Preferred Share Number" means that number obtained by
multiplying (A) the Aggregate Share Number, by (B) the percentage of the
Company's fully diluted shares that are convertible into the Company's Preferred
Stock.
"Aggregate Series A Share Number" means that number of shares of
Parent Common Stock equal to a quotient, (A) the numerator of which shall be the
sum of (1) the Series A Return on
-43-
49
Capital Amount and (2) the Series A Balance, and (B) the denominator shall be
the Average Stock Price.
"Aggregate Series B Share Number" means that number of shares of
Parent Common Stock equal to a quotient, (A) the numerator of which shall be the
sum of (1) the Series B Return on Capital Amount and (2) the Series B Balance,
and (B) the denominator shall be the Average Stock Price.
"Aggregate Series C Share Number" means that number of shares of
Parent Common Stock equal to a quotient, (A) the numerator of which shall be the
sum of (1) the Series C Return on Capital Amount and (2) the Series C Balance,
and (B) the denominator shall be the Average Stock Price.
"Agreement" means this Agreement, as may be amended or
supplemented together with all Exhibits attached hereto.
"Agreement of Merger" means an agreement of merger to be filed
with the Office of the Secretary of State of the State of California,
substantially in the form of Exhibit C.
"Approval" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental Entity or any other Person.
"Audited Company Financials" has the meaning set forth in
Section 2.5 hereof.
"Average Stock Price" means the average of the per share closing
price of Parent Common Stock as reported on the Nasdaq Stock Market's National
Market for each trading day during the period of twenty (20) consecutive trading
days ending three (3) consecutive trading days before the Closing.
"Business" means the business of the Company, and shall be deemed
to include any of the following incidents of such business: income, cash flow,
operations, condition (financial or other), assets (including intangible
assets), properties, anticipated revenues, prospects, liabilities, goodwill and
personnel.
"California Code" means the California Corporations Code.
"CERCLA" means the United States Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq., as
amended.
"Cause" shall mean (i) an act of dishonesty by Employee Option
Holder intended to result in gain or personal enrichment of Employee Option
Holder which causes material harm to the reputation of Parent or its affiliates,
(ii) Employee Option Holder personally engaging in illegal conduct with causes
harm to the reputation of Parent or its affiliates, (iii) Employee Option
Holder's
-44-
50
continued failure to substantially perform the duties and obligations of his
employment which are not remedied within thirty (30) days after notice thereof
from Parent's board of directors, (iv) Employee Option Holder being convicted or
found liable for a felony, misdemeanor or gross misdemeanor relating to an act
of dishonesty or fraud against, or a misappropriation of property belonging to,
Parent or its affiliates, (v) Employee Option Holder's engagement in substance
abuse which substantially impairs his ability to perform the duties and
obligations of Employee Option Holder's employment or causes harm to the
reputation of Parent, (vi) Employee Option Holder personally engaging in any act
of moral turpitude that causes material harm to the reputation of Parent, (vii)
Employee Option Holder knowingly and intentionally breaching in any material
respect the terms of this Agreement (or any confidentiality agreement or
invention or proprietary information agreement with the Company or Parent) or
(viii) Employee Option Holder's commencement of employment with another employer
while he is an employee of Parent without the prior consent of Parent's board of
directors.
"Certificate" means a certificate representing outstanding shares
of capital stock of the Company immediately before the Effective Time.
"Claim" has the meaning set forth in Section 8.3.
"Claim Notice" has the meaning set forth in Section 8.3.
"Closing" has the meaning set forth in Section 1.2.
"Closing Date" has the meaning set forth in Section 1.2.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock Exchange Ratio" means that number equal to a
quotient, (A) the numerator of which shall be the Aggregate Common Share Number
and (B) the denominator of which shall be the total number shares of Company
Common Stock assuming full exercise of all warrants and Company Options.
"Company" has the meaning set forth in the preamble hereto.
"Company Capital Stock" means shares of Company Common Stock and
Company Preferred Stock.
"Company Common Stock" means shares of common stock, no par
value, of the Company.
"Company Convertible Security" means any capital stock of the
Company or other equity interest of the Company or any security convertible into
or exchangeable for capital stock of the Company or any warrant or option or
other similar right to acquire any of the foregoing securities.
-45-
51
"Company Disclosure Letter" means the disclosure letter supplied
by the Company to Parent.
"Company Financials" has the meaning set forth in Section 2.5
hereof.
"Company Intellectual Property" means any Intellectual Property
that is owned by, or exclusively licensed to, the Company.
"Company Option" means an option to purchase Company Common Stock
granted pursuant to the Company Stock Plan.
"Company Participants" has the meaning set forth in Section 6.13.
"Company Preferred Stock" means shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock of the Company.
"Company Registered Intellectual Property" means all of the
Registered Intellectual Property owned by, or filed in the name of, the Company.
"Company Series A Preferred Stock" means shares of Series A
Preferred Stock, no par value, of the Company.
"Company Series B Preferred Stock" means shares of Series B
Preferred Stock, no par value, of the Company.
"Company Series C Preferred Stock" means shares of Series C
Preferred Stock, no par value, of the Company.
"Company Shareholders" means holders of any shares of capital
stock of the Company immediately prior to the Effective Time.
"Company Stock Plan" means the Company's 1997 Stock Plan.
"Company Warrants" means (i) the warrant to purchase an aggregate
of 28,800 shares of Company Series A Preferred at an exercise price of $0.98135
per share held by Venture Lending & Leasing II, Inc. and (ii) the warrant to
purchase 19,200 shares of Company Series A Preferred at an exercise price of
$0.98135 per share held by Venture Lending & Leasing, Inc., and (iii) the
warrant to purchase 20,188 shares of the Company's Series C Preferred at an
exercise price of $1.486 held by Silicon Valley Bank.
"Contract" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"Copyright Law" means the Copyright Laws of the U.S., Title 17
U.S.C. section 101 et. seq.
-46-
52
"Delaware Law" means the Delaware General Corporation Law.
"Dissenting Shares" means shares of capital stock of the Company
held by a holder who has demanded and perfected appraisal rights for such shares
in accordance with the California Code and who, as of the Effective Time, has
not effectively withdrawn or lost such appraisal rights.
"Effective Time" has the meaning set forth in Section 1.2 hereof.
"Employee Option Holder" has the meaning set forth in Section
6.15.
"Encumbrance" means any claim, charge, easement, encumbrance,
lease, covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"Environmental Permits" means environmental approvals, permits,
licenses, clearances and consents.
"Equity Securities" means any capital stock or other equity
interest or any securities convertible into or exchangeable for capital stock or
any other rights, warrants or options to acquire any of the foregoing
securities.
"ERISA" has the meaning set forth in Section 2.20 hereof.
"Escrow Agent" means Greater Bay Trust Company or other
institution acceptable to Parent and the Shareholder Representative.
"Escrow Agreement" means the escrow agreement substantially in
the form of Exhibit D.
"Escrow Amount" means that number of shares equal to twenty
percent (20%) of the Aggregate Share Number.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" means the transfer agent of Parent.
"Exchange Ratio" means the number of shares of Parent Common
Stock equal to the quotient obtained by dividing (i) the Aggregate Share Number
by (ii) the Total Outstanding Shares (with the result rounded to four decimal
places).
"Founding Shareholder" means Xxxxx Xxxxxxx.
"GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time.
-47-
53
"Good Reason" shall mean occurrence of any of the following
events without the consent of the Employee Option Holder: (i) any reduction in
the Employee Option Holder's compensation as in effect as of July 1, 2000; or
(ii) if the Employee Option Holder shall be required to perform his duties on
behalf of the Company at a location more than 50 miles from the location where
the Employee Option Holder is currently performing his duties on behalf of the
Company.
"Governmental Entity" means any government or any agency,
district, bureau, board, commission, court, department, official, political
subdivision, tribunal or other instrumentality of any government, whether
federal, state or local, domestic or foreign, governmental or
quasi-governmental.
"Hazardous Materials" means (but shall not be limited to)
substances that have been designated by any Governmental Entity or by applicable
Law to be radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, oil and petroleum
products, urea-formaldehyde and all substances listed as "hazardous substances,"
"hazardous materials," "hazardous wastes" or "toxic substances," any other
formulation intended to define, list or classify substances by reason of
deleterious properties such as ignitibility, corrosivity, reactivity,
radioactivity, carcinogenicity, reproductive toxicity or "EP toxicity," and
petroleum and drilling fluids, produced waters and other wastes associated with
the exploration, development or production of crude oil, natural gas or
geothermal energy; or words of similar import, under any law, including, but not
limited to, CERCLA; the Federal Water Pollution Control Act, as amended; the
Resource Conservation and Recovery Act of 1976, as amended; the Clean Air Act,
as amended; and the regulations promulgated pursuant to said laws.
"Hazardous Materials Activities" means any activity involving (i)
the transportation, storage, use, manufacture, disposal, release or exposure of
Hazardous Materials to any of the Company's employees or to others in violation
of any Law in effect on or before the Effective Time, or (ii) the disposal,
transportation, sale or manufacture of any product containing a Hazardous
Material in violation of any rule, regulation, treaty or statute promulgated by
any Governmental Entity in effect prior to or as of the date of this Agreement
to prohibit, regulate or control Hazardous Materials.
"Indemnified Buyer Party" has the meaning set forth in Section
8.1.
"Indemnified Party" has the meaning set forth in Section 8.2.
"Indemnified Seller Buyer" has the meaning set forth in Section
8.2.
"Intellectual Property" shall mean any or all of the following
and all rights in, arising out of, or associated therewith: (i) all United
States, international and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights registrations
and applications therefor, and all other rights corresponding thereto throughout
the
-48-
54
world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, URLs, common law
trademarks and service marks, trademark and service xxxx registrations and
applications therefor throughout the world; (vi) all databases and data
collections and all rights therein throughout the world; (vii) all moral and
economic rights of authors and inventors, however denominated, throughout the
world and (viii) any similar or equivalent rights to any of the foregoing
anywhere in the world.
"IRS" means the Internal Revenue Service or any successor
entity.
"Law" means any constitutional provision, statute or other law,
rule, regulation or interpretation of any Governmental Entity and any Order.
"Liabilities" means obligations of any nature (absolute, accrued,
asserted or unasserted, contingent or otherwise (including, without limitation,
pension liabilities) and whether due or to become due).
"Liens" means liens, pledges, charges, claims, security interests
or other encumbrances of any sort.
"Loss" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including, but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid in
settlement that may be imposed on or otherwise incurred or suffered by the
specified person.
"Merger" has the meaning set forth in the recitals hereto.
"Merger Consideration" has the meaning set forth in Section 1.6.
"Merger Sub" has the meaning set forth in the preamble hereto.
"Non-Competition Agreement" means the agreement in the form of
Exhibit A hereto to be entered into between the Company and each of Xxxxx
Xxxxxxx, Xxxx Xxxx and Xxxxx Xxxxxxxxx.
"Numerator" means $21,113,745.
"Order" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"Parent" has the meaning set forth in the preamble hereto.
"Parent Common Stock" means common stock of Parent, par value
$0.001 per share.
"Parent Disclosure Letter" means the disclosure letter delivered
to the Company from Parent.
-49-
55
"Parent Plans" has the meaning set forth in Section 6.13.
"Permit" means any license, permit, franchise, certificate of
authority, or order, or any waiver of the foregoing, required to be issued by
any Governmental Entity.
"Person" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"Plans" has the meaning set forth in Section 6.13.
"Preferred Stock Balance" means the difference between (A) the
product of (1) the Aggregate Preferred Share Number and (2) the Average Stock
Price and (B) the Aggregate Liquidation Preference.
"Public Sale" has the meaning set forth in Section 3.2(b).
"Registered Intellectual Property" means all United States,
international and foreign (i) patents and patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; and (iv) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued, filed with, or recorded by any state, government or other public legal
authority.
"Registration Rights Agreement" means the agreement in the form
of Exhibit E hereto between Parent and each of the Company Shareholders set
forth on Exhibit A thereto.
"Related Agreements" means the Non-Competition Agreements,
Shareholders' Agreements, Registration Rights Agreement and Escrow Agreement.
"Return" means a declaration, statement, estimate, report, return
or other document or information required to be filed or supplied with respect
to Taxes including, where permitted or required, combined or consolidated
returns.
"SEC" means the Securities and Exchange Commission or any
successor entity.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Balance" shall be calculated as follows:
- if the Preferred Stock Balance is greater than zero
(0), then the "Series A Balance" shall be equal to the
product obtained by multiplying (A) the Preferred
Stock Balance by (B) the percentage of the Company's
Preferred Stock (assuming full exercise of all
warrants or options that are exercisable for Preferred
Stock) that are Company Series A Preferred
-50-
56
Stock (assuming full exercise of all warrants or
options that are exercisable for Company Series A
Preferred Stock); and
- if the Preferred Stock Balance is equal to or less
than zero (0), then the "Series A Balance" shall be
equal to zero (0).
"Series A Exchange Ratio" means that number equal to a quotient,
(A) the numerator of which shall be the Aggregate Series A Share Number, and (B)
the denominator of which shall be the total number of shares of Company Series A
Preferred Stock assuming full exercise of all warrants and stock options that
are exercisable for Company Series A Preferred Stock.
"Series A Return on Capital Amount" shall be calculated as
follows:
- if the product of (1) the Aggregate Preferred Share
Number and (2) the Average Stock Price is equal to or
greater than the Aggregate Liquidation Preference,
then the "Series A Return on Capital Amount" shall be
equal to the aggregate liquidation preference, in
dollars, for the Company Series A Preferred Stock
pursuant to Section 3.b of the Company's Amended and
Restated Articles of Incorporation filed with the
State of California on April 14, 1999; and
- if the product of (1) the Aggregate Preferred Share
Number and (2) the Average Stock Price is less than
the Aggregate Liquidation Preference, then the "Series
A Return on Capital Amount" shall be equal to the
product obtained by multiplying the following three
numbers: (A) the Aggregate Preferred Share Number, (B)
the Average Stock Price, and (C) the percentage of the
Aggregate Liquidation Preference that relates to
Company Series A Preferred Stock.
"Series B Balance" shall be calculated as follows:
- if the Preferred Stock Balance is greater than zero
(0), then the "Series B Balance" shall be equal to the
product obtained by multiplying (A) the Preferred
Stock Balance by (B) the percentage of the Company's
Preferred Stock (assuming full exercise of all
warrants or options that are exercisable for Preferred
Stock) that are Company Series B Preferred Stock
(assuming full exercise of all warrants or options
that are exercisable for Company Series B Preferred
Stock); and
- if the Preferred Stock Balance is equal to or less
than zero (0), then the "Series B Balance" shall be
equal to zero (0).
"Series B Exchange Ratio" means that number equal to a quotient,
(A) the numerator of which shall be the Aggregate Series B Share Number, and (B)
the denominator of which shall be
-51-
57
the total number of shares of Company Series B Preferred Stock assuming full
exercise of all warrants and stock options that are exercisable for Company
Series B Preferred Stock.
"Series B Return on Capital Amount" shall be calculated as
follows:
- if the product of (1) the Aggregate Preferred Share
Number and (2) the Average Stock Price is equal to or
greater than the Aggregate Liquidation Preference,
then the "Series B Return on Capital Amount" shall be
equal to the aggregate liquidation preference, in
dollars, for the Company Series B Preferred Stock
pursuant to Section 3.b of the Company's Amended and
Restated Articles of Incorporation filed with the
State of California on April 14, 1999; and
- if the product of (1) the Aggregate Preferred Share
Number and (2) the Average Stock Price is less than
the Aggregate Liquidation Preference, then the "Series
B Return on Capital Amount" shall be equal to the
product obtained by multiplying the following three
numbers: (A) the Aggregate Preferred Share Number, (B)
the Average Stock Price and (C) the percentage of the
Aggregate Liquidation Preference that relates to
Company Series B Preferred Stock.
"Series C Balance" shall be calculated as follows:
- if the Preferred Stock Balance is greater than zero
(0), then the "Series C Balance" shall be equal to the
product obtained by multiplying (A) the Preferred
Stock Balance by (B) the percentage of the Company's
Preferred Stock (assuming full exercise of all
warrants or options that are exercisable for Preferred
Stock) that are Company Series C Preferred Stock
(assuming full exercise of all warrants or options
that are exercisable for Company Series C Preferred
Stock); and
- if the Preferred Stock Balance is equal to or less
than zero (0), then the "Series B Balance" shall be
equal to zero (0).
"Series C Exchange Ratio" means that number equal to a quotient,
(A) the numerator of which shall be the Aggregate Series C Share Number, and (B)
the denominator of which shall be the total number of shares of Company Series C
Preferred Stock of the Company assuming full exercise of all warrants and stock
options that are exercisable for Company Series C Preferred Stock.
"Series C Return on Capital Amount" shall be calculated as
follows:
- if the product of (1) the Aggregate Preferred Share
Number and (2) the Average Stock Price is equal to or
greater than the Aggregate Liquidation Preference,
then the "Series C Return on Capital Amount" shall be
equal to the aggregate liquidation preference, in
dollars, for the Company Series
-52-
58
C Preferred Stock pursuant to Section 3.a of the
Company's Amended and Restated Articles of
Incorporation filed with the State of California on
April 14, 1999; and
- if the product of (1) the Aggregate Preferred Share
Number and (2) the Average Stock Price is less than
the Aggregate Liquidation Preference, then the "Series
C Return on Capital Amount" shall be equal to the
product obtained by multiplying the following three
numbers: (A) the Aggregate Preferred Share Number,(B)
the Average Stock Price, and (C) the percentage of the
Aggregate Liquidation Preference that relates to
Company Series C Preferred Stock.
"Shareholder Representative" means Xxxxx Xxxxxxx.
"Shareholders' Agreement" means the agreement in the form of
Exhibit B hereto to be entered into between Parent and each officer and director
of the Company and each of the Company Shareholders set forth on Exhibit A
thereto.
"Surviving Corporation" has the meaning set forth in Section 1.1.
"Tax" means (i) any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts; (ii) any liability for the payment of any amounts of the type
described in clause (i) as a result of being a member of any affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
"Third Party Expenses" means all fees and expenses incurred in
connection with the Merger including, without limitation, all legal, accounting,
financial advisory, consulting and all other fees and expenses of third parties.
"Threshold" has the meaning set forth in Section 8.4(b).
"Total Outstanding Shares" means the aggregate number of shares
of Company Common Stock outstanding immediately before the Effective Time,
including Company Common Stock issuable upon the exercise of Company Options
plus the aggregate number of shares of Company Common Stock issuable, with or
without the passage of time or satisfaction of other conditions, upon exercise
of or conversion of all Company Convertible Securities and Company Preferred
Stock outstanding immediately before the Effective Time.
"Transfer" means to sell, assign, transfer or otherwise dispose
of.
-53-
59
"Unaudited Company Financials" has the meaning set forth in
Section 2.5 hereof.
ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(i) if to Parent or Merger Sub, to:
Digital Impact, Inc.
000 Xxxxx Xxxx, Xxxxx 000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxxxxx, Chief Financial Officer
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx,
Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Selim Day, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(ii) if to the Company, to:
MineShare, Inc.
0000 Xxxxx Xxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxxxxxxxxx, Chief Financial Officer
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxxxx Xxxxx Xxxxxxx & Xxxxx
000 Xxxxxxx Xxxxxx Xxxxx
-00-
60
Suite 1600
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(iii) if to the Founding Shareholder, to:
Xxxxx Xxxxxxx
0000 Xxxxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000
(iv) if to the Shareholder Representative, to:
Xxxxx Xxxxxxx
0000 Xxxxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000
(v) if to the Exchange Agent, to:
Computershare Investor Services LLC
0 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxx
Telephone No.: (312) 588-4991 ext. 4753
Facsimile No.: (000) 000-0000
11.2 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
11.4 Entire Agreement; Assignment. This Agreement and Exhibits hereto,
the Company Disclosure Letter, Parent Disclosure Letter and the documents and
instruments and other agreements among the parties hereto referenced herein: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof (except the Non-disclosure Agreement between the Company and
Parent dated April 14, 2000) and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof; (b) are not
-55-
61
intended to confer upon any other person any rights or remedies hereunder; and
(c) shall not be assigned by operation of law or otherwise except as otherwise
specifically provided, except that Parent and Merger Sub may assign their
respective rights and delegate their respective obligations hereunder to their
respective affiliates.
11.5 Severability. In the event that any provision of this Agreement
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
11.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
11.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto agrees that process may be served upon them
in any manner authorized by the laws of the State of California for such persons
and waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
11.8 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
11.9 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
11.10 Shareholder Representative. Each Company Shareholder hereby
appoints Xxxxx Xxxxxxx as Shareholder Representative, and as the true and lawful
agent and attorney-in-fact of each Company Shareholder in his or her name, place
and xxxxx, with full power and authority to act, including full power of
substitution, in the name of, for and on behalf of each Company Shareholder
relating to any matters arising in connection with, or related to the following
actions and omissions:
-56-
62
(a) compromise and settlement of any indemnification claims;
and any and all acts and omissions involving the Company Shareholders in any way
related to or in furtherance of this Agreement, and the transactions
contemplated hereby or thereby;
(b) provision of instructions and notices for distributions
and any other actions under the Escrow Agreement; and
(c) the representations and warranties contained in Article
III hereof.
The Shareholder Representative may make, exchange, acknowledge and deliver any
and all agreements, certificates, receipts or other documents, and in general do
all things and take all actions, which the Shareholder Representative, in his or
her sole discretion may consider necessary or proper in connection with, or to
carry out the purposes of the actions or omissions set forth in 11.10(a), (b)
and (c) above.
11.11 Amendments; Waivers. This Agreement and any schedule or exhibit
attached hereto may be amended only by agreement in writing of all parties. No
waiver of any provision nor consent to any exception to the terms of this
Agreement or any agreement contemplated hereby shall be effective unless in
writing and signed by the party to be bound and then only to the specific
purpose, extent and instance so provided.
11.12 Survival. The representations and warranties and agreements
contained in or made pursuant to this Agreement shall survive for 12 months
after the Closing except that (i) the representations and warranties contained
in Section 2.8 shall continue through the expiration of the applicable statute
of limitations as the same may be extended, (ii) the agreements made in Article
VIII, Section 11.13 and Section 11.14, and this Section 11.12 shall be
continuing, (iii) the agreements made in Article VII shall terminate at the
Effective Time and (iv) if a Claim or notice is given under Article VIII with
respect to any representation, warranty or agreement prior to the applicable
expiration date, such representation, warranty or agreement shall continue
indefinitely until such Claim is finally resolved.
11.13 No Third Party Beneficiaries. This Agreement is not intended to
be for the benefit of, and shall not be enforceable by, any person or entity who
or which is not a party hereto; provided, however, that the Company Shareholders
shall be deemed parties hereto by virtue of the execution of this Agreement on
their behalf by the Shareholder Representative.
11.14 Contingent Investment. In the event that the Closing has not
occurred by July 31, 2000, then Parent agrees to provide the Company with a loan
of $1,000,000 secured by all assets of the Company at an annual interest rate of
10 percent (the "Loan") due and payable on the earlier of (i) one (1) year from
the date of the Loan and (ii) the closing of an equity financing by the Company
in which the aggregate net proceeds to the Company are at least $1,000,000. The
Loan shall be subject to additional terms reasonably agreed upon between Parent
and the Company.
-57-
63
IN WITNESS WHEREOF, Parent, Merger Sub, the Company, The Founding
Shareholder and the Shareholder Representative, and with respect to Article I
only, the Exchange Agent, have caused this Agreement to be signed by their duly
authorized respective officers, all as of the date first written above.
DIGITAL IMPACT, INC. MINESHARE, INC.
By: /s/ XXXXXXX X. PARK By: /s/ XXXXXX X. XXXXXXXXXXXX
------------------------------ ---------------------------------
Xxxxxxx X. Park Name: Xxxxxx X. Xxxxxxxxxxxx
Chief Executive Officer Title: Chief Financial Officer
SHAREHOLDER REPRESENTATIVE CANDLESTICK ACQUISITION CORP.
/s/ XXXXX XXXXXXX By: /s/ XXXXXXX X. PARK
---------------------------------- ---------------------------------
Xxxxx Xxxxxxx Xxxxxxx X. Park
President
COMPUTERSHARE INVESTOR FOUNDING SHAREHOLDER
SERVICES, AS EXCHANGE AGENT
By: /s/ XXXXXXX X. XXXX /s/ XXXXX XXXXXXX
------------------------------ ----------------------------------------
Name: Xxxxxxx X. Xxxx Xxxxx Xxxxxxx
Title: Relationship Manager
