EXECUTION COPY
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
DIGITAL IMPACT, INC.
JUMPER ACQUISITION CORPORATION
▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
and
▇▇▇▇ ▇▇▇▇
as Principal Stockholders
and
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
as Stockholder Representative
July 10, 2004
TABLE OF CONTENTS
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Article I DEFINITIONS AND INTERPRETATIONS.............................................................................2
1.1 Certain Definitions.................................................................................2
1.2 Certain Interpretations.............................................................................8
Article II THE MERGER.................................................................................................9
2.1 The Merger..........................................................................................9
2.2 Closing and Effective Time..........................................................................9
2.3 Legal Effect of the First Merger...................................................................10
2.4 Certificate of Incorporation and Bylaws............................................................10
2.5 Directors and Officers.............................................................................10
2.6 Capital Stock of Constituent Corporations..........................................................10
2.7 Computation of Earnout Shares......................................................................13
2.8 Dissenting Shares..................................................................................14
2.9 Exchange Procedures................................................................................15
2.10 No Further Ownership Rights in Company Capital Stock...............................................16
2.11 Lost, Stolen or Destroyed Certificates.............................................................17
2.12 Tax Consequences...................................................................................17
2.13 Further Assurances.................................................................................17
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL STOCKHOLDERS............................18
3.1 Organization.......................................................................................18
3.2 Authority..........................................................................................18
3.3 Conflicts..........................................................................................19
3.4 Consents...........................................................................................19
3.5 Company Capital Structure..........................................................................20
3.6 Subsidiaries.......................................................................................21
3.7 Company Financial Statements.......................................................................21
3.8 No Undisclosed Liabilities.........................................................................21
3.9 No Changes.........................................................................................21
3.10 Taxes..............................................................................................22
3.11 Employee Benefit Plans and Compensation............................................................24
3.12 Intellectual Property..............................................................................27
3.13 Restrictions on Business Activities................................................................30
3.14 Properties.........................................................................................30
3.15 Material Contracts.................................................................................32
3.16 Insurance..........................................................................................33
3.17 Litigation.........................................................................................33
3.18 Governmental Authorization.........................................................................34
3.19 Compliance with Laws...............................................................................34
3.20 Environmental Compliance...........................................................................34
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3.21 Interested Party Transactions......................................................................35
3.22 Minute Books.......................................................................................35
3.23 Brokers' and Finders' Fees.........................................................................35
3.24 Accounts Receivable................................................................................35
3.25 Warranties; Indemnities............................................................................35
3.26 Financial Projections/Operating Plan...............................................................36
3.27 Banks and Brokerage Accounts.......................................................................36
3.28 Customers and Suppliers............................................................................36
3.29 Representations Complete...........................................................................36
Article IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDERS..................................36
4.1 Organization.......................................................................................37
4.2 Authority..........................................................................................37
4.3 No Conflict........................................................................................37
4.4 Ownership of Company Capital Stock.................................................................37
4.5 Access to Information..............................................................................37
4.6 Entirely for Own Account...........................................................................38
4.7 Accredited Investor; Economic Risk.................................................................38
4.8 Restricted Securities..............................................................................38
4.9 Disposition under the Securities Act...............................................................38
4.10 Absence of Claims by the Principal Stockholders....................................................39
Article V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB....................................................39
5.1 Organization, Standing and Power...................................................................39
5.2 Authority..........................................................................................39
5.3 No Conflicts.......................................................................................39
5.4 Consents...........................................................................................40
5.5 Parent Common Stock................................................................................40
5.6 Parent SEC Documents...............................................................................40
5.7 Broker's and Finders' Fees.........................................................................40
Article VI CONDUCT OF THE COMPANY PRIOR TO THE EFFECTIVE TIME.......................................................41
6.1 Conduct of Business of the Company.................................................................41
6.2 No Solicitation....................................................................................43
Article VII ADDITIONAL AGREEMENTS....................................................................................44
7.1 Stockholder Securities Law Compliance and Approval.................................................44
7.2 Commercially Reasonable Efforts; Governmental Approvals; Contract Consents.........................44
7.3 Notification of Certain Matters....................................................................45
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7.4 Access to Information..............................................................................45
7.5 Confidentiality....................................................................................46
7.6 Public Disclosure..................................................................................46
7.7 Rule 145 Affiliates................................................................................46
7.8 Employee Plans.....................................................................................46
7.9 Statement of Liabilities...........................................................................46
7.10 Spreadsheet........................................................................................46
7.11 S-8 Registration...................................................................................47
7.12 Grant of Options to Continuing Employees...........................................................47
7.13 Expenses...........................................................................................47
7.14 Nasdaq Listing.....................................................................................47
7.15 Tax Opinion........................................................................................47
7.16 Registration Rights................................................................................48
Article VIII CONDITIONS TO THE MERGER................................................................................51
8.1 Conditions to Obligations of Each Party............................................................51
8.2 Conditions to the Obligations of Parent and Merger Sub.............................................51
8.3 Conditions to Obligations of the Company and the Principal Stockholders............................54
Article IX SURVIVAL AND INDEMNIFICATION..............................................................................55
9.1 Survival of Representations, Warranties and Covenants..............................................55
9.2 Indemnification....................................................................................55
9.3 Limitations on Indemnification.....................................................................57
9.4 Notice of Claim....................................................................................57
9.5 Resolution of Notice of Claim......................................................................58
9.6 Release of Escrow Fund.............................................................................59
9.7 Third-Party Claims.................................................................................59
9.8 Stockholder Representative.........................................................................59
Article X TERMINATION, AMENDMENT AND WAIVER..........................................................................60
10.1 Termination........................................................................................60
10.2 Effect of Termination..............................................................................61
10.3 Amendment..........................................................................................62
10.4 Extension and Waiver...............................................................................62
Article XI GENERAL PROVISIONS........................................................................................62
11.1 Notices............................................................................................62
11.2 Counterparts.......................................................................................63
11.3 Entire Agreement...................................................................................64
11.4 Third Party Beneficiaries..........................................................................64
11.5 Assignment.........................................................................................64
11.6 Severability.......................................................................................64
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11.7 Other Remedies.....................................................................................64
11.8 Governing Law......................................................................................64
11.9 WAIVER OF JURY TRIAL...............................................................................64
11.10 Specific Performance...............................................................................65
11.11 Tax Advisors.......................................................................................65
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INDEX OF EXHIBITS AND SCHEDULES
Exhibit Description
------- -----------
Exhibit A Form of Affiliate Agreement
Exhibit B Form of Offer Letter
Exhibit C Form of Protective Covenant Agreement
Exhibit D Form of Escrow Agreement
Exhibit E Form of Letter of Transmittal
Exhibit F-1 through F-2 Required Consulting Agreements
Exhibit G ▇▇▇▇▇▇▇ Relocation Agreement
Exhibit H Plan Amendment
Exhibit I Lease Assumption Agreement, Release and
Consent
Exhibit J Form of Opinion of Counsel to Company
Schedule Description
-------- -----------
Schedule I Specified Company Liabilities
Schedule II Specified Stockholder Liabilities
Schedule 6.1(b) Conduct Between Signing and Closing
Schedule 7.7 List of Rule 145 Affiliates
Schedule 8.2(e) Third Party Consents
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement")
is made and entered into as of July 10, 2004 by and among Digital Impact, Inc.,
a Delaware corporation ("Parent"), Jumper Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"),
▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc., a Delaware corporation (the "Company"), ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and
▇▇▇▇ ▇▇▇▇, principal stockholders of the Company (each, a "Principal
Stockholder," and collectively the "Principal Stockholders"), and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
(the "Stockholder Representative").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of each of Parent, Merger Sub, and the
Company believe it is in the best interests of their respective companies and
their respective stockholders that Parent acquire the Company through the
statutory merger of Merger Sub with and into the Company (the "First Merger"),
and, as part of the same overall transaction, the surviving entity of the First
Merger may merge with and into Newco (defined below) upon the terms and
conditions set forth herein, and, in furtherance thereof, have approved this
Agreement, the First Merger and the other transactions contemplated hereby.
WHEREAS, concurrently with the execution and delivery of this
Agreement, and as a material inducement to Parent and Merger Sub to enter into
this Agreement, holders of a majority of the outstanding shares of Company
Common Stock are delivering to Parent executed stockholder consents pursuant to
which such holders are consenting to the approval of the First Merger and the
adoption of this Agreement, such consent to be effective as of immediately
following the execution of this Agreement.
WHEREAS, pursuant to the First Merger, Merger Sub will merge with and
into the Company whereupon the separate corporate existence of Merger Sub will
cease and the Company will continue as a wholly-owned subsidiary of Parent, and
all of the outstanding capital stock of the Company will be converted into the
right to receive the consideration set forth herein.
WHEREAS, concurrently with the execution and delivery of this
Agreement, and as a material inducement to Parent and Merger Sub to enter into
this Agreement, (i) the Principal Stockholders, are entering into separate
Affiliate Agreements in the form attached hereto as Exhibit A (each, an
"Affiliate Agreement" and collectively, the "Affiliate Agreements"), (ii) the
Key Employees and the Principal Stockholders are entering into separate
employment offer letters in the form attached hereto as Exhibit B (each, an
"Offer Letter" and collectively, the "Offer Letters") and (iii) the Principal
Stockholders are entering into separate Protective Covenant Agreements in the
form attached hereto as Exhibit C (each, a "Protective Covenant Agreement" and
collectively, the "Protective Covenant Agreements").
Sch. 8.2(e)-1
WHEREAS, the Company and the Principal Stockholders, on the one hand,
and Parent and Merger Sub, on the other hand, desire to make certain
representations, warranties, covenants and other agreements in connection with
the First Merger.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements and other covenants set forth herein, the mutual benefits to be
gained by the performance thereof, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
accepted, the parties hereto hereby agree as follows:
ARTICLE I
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DEFINITIONS AND INTERPRETATIONS
-------------------------------
1.1 Certain Definitions. For all purposes of and under this Agreement, the
capitalized terms set forth below shall have the respective meanings ascribed
thereto below:
"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.
"Ancillary Agreements" shall mean the Affiliate Agreements, the Offer
Letters, the Protective Covenant Agreements, the Escrow Agreement and the Lease
Assumption Agreement, Release and Consent.
"Cash Amount" shall mean an amount equal to (x) One Million Five
Hundred Twenty Four Thousand Nine Hundred Forty Two U.S. dollars ($1,524,942),
less (y) the amount of any Estimated Specified Company Liabilities in excess of
the Specified Company Liabilities.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended and as codified in Section 4980B of the Code and Section 601
et. seq. of ERISA.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Cash Amount" shall mean $1,190,000 less the sum of (x) the
Estimated Third Party Expenses in excess of $22,500 and (y) the Specified
Stockholder Liabilities.
"Common Cash Exchange Ratio" shall mean the quotient obtained by
dividing (x) the Common Cash Amount by (y) the Total Outstanding Shares.
"Common Merger Exchange Ratio" shall mean an amount equal to (x) the
Common Merger Shares divided by (y) the Total Outstanding Shares.
"Common Merger Shares" shall mean 840,000 shares of Parent Common
Stock.
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"Company Capital Stock" shall mean the Company Common Stock and any
other shares of capital stock of the Company, taken together.
"Company Common Stock" shall mean shares of common stock, $0.0001 par
value per share, of the Company.
"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, 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.
"Company Intellectual Property" shall mean any Intellectual Property
and Intellectual Property Rights that are owned by or exclusively licensed to
the Company.
"Company Material Adverse Effect" shall mean any change, event or
effect that has had, or is reasonably likely to have, a material adverse effect
on the business, assets (whether tangible or intangible), liabilities, financial
condition, results of operations, prospects or capitalization of the Company and
its subsidiaries, taken as a whole.
"Company Options" shall mean options (including commitments to grant
options or other rights) to purchase or otherwise acquire Company Capital Stock
(whether or not vested) granted or otherwise issued under the Company Stock
Option Plan.
"Company Stock Option Plan" shall mean the Company's 2000 Long-Term
Incentive Plan.
"Company Subsidiary" shall mean a corporation or other business entity
in which the Company owns, directly or indirectly, at least a fifty percent
(50%) interest or that is otherwise, directly or indirectly, controlled by the
Company.
"Continuing Employee" shall mean each employee of the Company who
remains an employee of Parent or any of its subsidiaries, including the
First-Step Corporation, after the Closing Date.
"Contract" shall mean any written or oral legally binding contract,
agreement, instrument, commitment or undertaking (including leases, licenses,
mortgages, notes, guarantees, sublicenses, subcontracts and purchase orders).
"DOL" shall mean the United States Department of Labor or any successor
thereto.
"Earnout Exchange Ratio" shall mean the quotient obtained by dividing
(x) the applicable Earnout Shares, by (y) the Fully Diluted Shares.
-3-
"Earnout Revenue" shall mean the revenues of Parent and its
subsidiaries derived from its Search and Acquisition Services Business for the
fiscal year ending March 31, 2005, prepared on a "net" basis in accordance with
GAAP as traditionally applied by Parent's auditors (Parent's auditor's decision
of whether an item of revenue should be recognized on a "net" or "gross" basis
to be determinative for this purpose), less any sales or bad debt reserves with
respect to such revenue; provided, however, that such revenues shall exclude (i)
all such revenues with respect to which there exists accounts receivable aged at
over 90 days as of March 31, 2005, unless otherwise collected prior to the
issuance of the written report prepared pursuant to Section 2.7, (ii) all
revenues of the Company attributable to any period prior to the Closing Date
(including any such revenues that may be restated and recognized by Parent in
periods after the Closing Date) and (iii) any new sources of Search or
Acquisition Services Business revenues attributable to any acquisitions,
mergers, joint ventures, business combinations or other transactions outside of
the ordinary course of business entered into by Parent or any of its
subsidiaries following the Closing Date.
"Earnout Shares" shall mean, in the event the Final Earnout Revenue is
(x) less than $4,400,000, the Earnout Shares shall equal zero, (y) equal to or
greater than $4,400,000, but less than or equal to $5,000,000, the Earnout
Shares shall equal 100,000 shares of Parent Common Stock, and (z) greater than
$5,000,000, the Earnout Shares shall equal 200,000 shares of Parent Common
Stock.
"Employee" shall mean any current or former or retired employee,
consultant or director of the Company or any Affiliate.
"Employee Agreement" shall mean each management, employment, severance,
consulting, relocation, repatriation, expatriation, visas, work permit or other
agreement, or contract between the Company or any Affiliate and any Employee.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Agent" shall mean Greater Bay Trust Company, or another
institution reasonably acceptable to Parent and the Stockholder Representative.
"Escrow Fund" shall mean the Escrowed Shares plus the Escrowed Cash.
"Escrowed Cash" shall mean an amount of cash equal to (a) the product
obtained by multiplying (x) the Cash Amount by (y) 0.20, less (b) the sum of (i)
the product obtained by multiplying (x) the Estimated Third Party expenses in
excess of $22,500 by (y) 0.80, and (ii) the product obtained by multiplying (x)
the Specified Stockholder Liabilities by (y) 0.80.
"Escrowed Shares" shall mean a number of shares of Parent Common Stock
equal to the product obtained by multiplying (x) the Merger Shares, by (y) 0.20.
"Estimated Specified Company Liabilities" shall mean the amount of
Specified Company Liabilities estimated in good faith by the Company to be
outstanding as of the Effective Time, as set forth on the Statement of
Liabilities.
-4-
"Estimated Third Party Expenses" shall mean the amount of Third Party
Expenses estimated in good faith by the Company to be outstanding as of the
Effective Time, as set forth on the Statement of Liabilities.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
"Final Earnout Revenue" shall have the meaning ascribed to such term in
Section 2.7.
"FMLA" shall mean the Family Medical Leave Act of 1993, as amended.
"Fully Diluted Shares" shall mean the aggregate number of shares of
Company Capital Stock (including Company Options, and any securities or other
rights, whether vested or unvested, convertible into, exercisable for,
exchangeable for, to acquire or purchase, shares of Company Capital Stock on an
as-converted, exercised or exchanged to Company Capital Stock basis) issued and
outstanding immediately prior to the Effective Time.
"GAAP" shall mean United States generally accepted accounting
principles consistently applied.
"Governmental Authority" shall mean any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission.
"HIPAA" shall mean the Health Insurance Portability and Accountability
Act of 1996, as amended.
"Intellectual Property" shall mean any or all of the following (i)
works of authorship including, without limitation, computer programs, source
code, and executable code, whether embodied in software, firmware or otherwise,
architecture, documentation, designs, files, records, data and mask works, (ii)
inventions (whether or not patentable), discoveries, improvements, and
technology, (iii) proprietary and confidential information, trade secrets and
know how, (iv) databases, data compilations and collections and technical data,
(v) logos, trade names, trade dress, trademarks and service marks, (vi) domain
names, web addresses and sites, (vii) tools, methods and processes, and (viii)
any and all instantiations of the foregoing in any form and embodied in any
media.
"Intellectual Property Rights" shall mean worldwide common law and
statutory rights associated with (i) patents and patent applications, (ii)
copyrights, copyright registrations and copyright applications, "moral" rights
and mask work rights, (iii) the protection of trade and industrial secrets and
confidential information, (iv) other proprietary rights relating to intangible
intellectual property, (v) domain name registrations, (vi) trademarks, trade
names and service marks, and registrations and registration applications
therefor (vii) analogous rights to those set forth above, and (viii) divisions,
continuations, renewals, reissuances and extensions of the foregoing (as
applicable).
-5-
"International Employee Plan" shall mean any Company Employee Plan or
Employee Agreement that has been adopted or maintained by the Company or any
Affiliates, whether formally or informally or with respect to which the Company
or any Affiliate will or may have any liability with respect to Employees who
perform services outside the United States.
"IRS" shall mean the United States Internal Revenue Service or any
successor thereto.
"Key Consultant" shall mean the following consultant to the Company:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
"Key Employees" shall mean the following employees of the Company:
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇.
"Knowledge" with respect to the Company shall mean the knowledge of the
Company's directors, officers, the Key Employees, the Key Consultant, the
Principal Stockholders and ▇▇▇▇▇▇ ▇▇▇▇▇; provided, however, that such person
shall have made reasonable inquiry of those employees and consultants of the
Company who would reasonably be expected to have knowledge of the matter in
question; provided, further, however, that if any such person shall not make
such reasonable inquiry, then such person shall be deemed to have knowledge of
those facts or matters that such person would reasonably be expected to have had
such person made such inquiry.
"Liability" or "Liabilities" shall mean any debt, liability or
obligation, whether accrued or fixed, absolute or contingent, matured or
unmatured, determined or determinable, known or unknown, including those arising
under any law, action or governmental order and those arising under any
Contract.
"Lien" shall mean any lien, pledge, charge, claim, mortgage, security
interest or other encumbrance of any kind whatsoever.
"Losses" shall mean all damages, costs, Liabilities, losses (including
lost profits and diminution in value), fines, penalties, Taxes, deficiencies and
expenses, including reasonable attorneys' fees, other professionals' and experts
fees, costs of investigation, defense and court costs. In determining the amount
of any Losses in respect of the failure of any representation or warranty to be
true and correct as of any particular date (but not in determining whether any
such representation and warranty is, in fact, true and correct), any "Company
Material Adverse Effect," materiality or other similar qualifier set forth in
such representation or warranty shall be disregarded.
"Merger Shares" shall mean 1,251,651 shares of Parent Common Stock.
"Option Cash Amount" shall mean an amount equal to (x) the Cash Amount,
minus (y) the Common Cash Amount.
"Option Merger Shares" shall mean an amount equal to (x) the Merger
Shares, minus (y) the Common Merger Shares.
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"Option Shares" shall mean the number of shares of Company Common Stock
that were issuable upon exercise of all Company Options outstanding as of
immediately prior to the Effective Time.
"Parent Common Stock" shall mean shares of the common stock, par value
$0.001 per share, of Parent.
"Parent Material Adverse Effect" shall mean a material adverse effect
on the business, assets (including intangible assets), liabilities, financial
condition or results of operations of Parent and its subsidiaries, taken as a
whole.
"Parent Option" shall mean any option to purchase shares of Parent
Common Stock issued pursuant to the terms of Section 2.6(d) hereof in connection
with the assumption of a Company Option.
"Pension Plan" shall mean each Company Employee Plan that is an
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
"Registered Intellectual Property" shall mean Intellectual Property and
Intellectual Property Rights that have been registered, filed, certified or
otherwise perfected or recorded with any state, government or other public legal
authority.
"Search and Acquisition Services Business" shall mean the business of
Parent and its subsidiaries of providing: (x) services in connection with search
engine marketing and optimization (the "Search Services"), and (y) services in
connection with list rental or co-registration (ProspectNet), or purchasing or
obtaining email appends, banner ads and other media (the "Acquisition
Services"); provided, however, that the Search and Acquisition Services Business
shall specifically exclude: creative services, web development and other
ancillary services related to, or provided in conjunction with, the Search
Services or Acquisition Services, regardless of whether or not provided to a
customer in connection with a Search Service or an Acquisition Service.
"SEC" shall mean the United States Securities and Exchange Commission,
or any successor thereto.
"Second Merger Consents" shall mean all consents, notices, waivers and
approvals of any Governmental Authority required to effect the Second Merger and
all consents, notices, waivers and approvals of any person as required under any
Contract in connection with the Second Merger or for any such Contract to remain
in full force and effect without limitation, modification or alteration after
the effective time of the Second Merger.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor thereto.
"Specified Company Liabilities" shall mean the Liabilities with respect
to the line items and in the amounts set forth on Schedule I hereto.
-7-
"Specified Stockholder Liabilities" shall mean the Liabilities with
respect to the line items and in the amounts set forth on Schedule II hereto.
"Spreadsheet" shall have the meaning ascribed to such term in Section
7.10.
"Statement of Liabilities" shall have the meaning ascribed to such term
in Section 7.9.
"Stockholder" shall mean any holder of any Company Capital Stock
immediately prior to the Effective Time.
"Tax" or, collectively, "Taxes" shall mean (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 as well as public imposts, fees and social security
charges (including but not limited to health, unemployment and pension
insurance), 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 the foregoing clause (i) as a result of being a member of
an affiliated, consolidated, combined or unitary group for any period, and (iii)
any liability for the payment of any amounts of the type described in the
clauses (i) or (ii) as a result of any express or implied obligation to
indemnify any other person or as a result of any obligation under any agreement
or arrangement with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
"Third Party Expenses" shall have the meaning ascribed to such term in
Section 7.13.
"Total Outstanding Shares" shall mean the aggregate number of shares of
Company Capital Stock issued and outstanding immediately prior to the Effective
Time.
"Trading Price" shall mean $1.70.
1.2 Certain Interpretations.
(a) When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. When a
reference is made in this Agreement to Sections, such reference shall be to a
Section of this Agreement unless otherwise indicated. When a reference is made
in this Agreement to Articles, such reference shall be to an Article of this
Agreement unless otherwise indicated.
(b) The words "include", "includes" and "including" when used herein shall
be deemed in each case to be followed by the words "without limitation".
(c) The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
-8-
(d) References to the Company shall be deemed to refer to the Company and
the Company Subsidiaries unless the context otherwise requires.
(e) Reference to the Subsidiaries of an entity shall be deemed to include
all direct and indirect Subsidiaries of such entity.
(f) The parties hereto agree that they have been represented by legal
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 shall be construed
against the party drafting such agreement or document.
ARTICLE II
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THE MERGER
----------
2.1 The Merger. At the Effective Time and subject to and upon the terms and
conditions of this Agreement and the applicable provisions of the General
Corporation Law of the State of Delaware ("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 as
a wholly-owned subsidiary of Parent. The Company as the surviving corporation
after the First Merger is hereinafter sometimes referred to as the "First-Step
Corporation." If, as of the Effective Time, the Tax Opinion has been delivered
in accordance with Section 7.15, and all Second Merger Consents have been
obtained, then as soon as practicable after the Effective Time, and as part of a
single overall transaction with the First Merger and pursuant to an integrated
plan, the First-Step Corporation shall be merged with and into a wholly owned
subsidiary of Parent (which shall be either a corporation or a limited liability
company) (such wholly owned subsidiary of Parent, "Newco" and such merger, the
"Second Merger"), with Newco continuing as the surviving entity (the First
Merger and the Second Merger are referred to herein together as the "Integrated
Merger"). In the event that the Second Merger occurs, Newco as the surviving
entity after the Second Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
2.2 Closing and Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 10.1 hereof, as promptly as practicable following the
satisfaction or waiver of the conditions set forth in Article VIII hereof (other
than those conditions which, by their terms, are to be satisfied or waived at
Closing), the parties hereto shall consummate the First Merger and the other
transactions contemplated hereby at a closing (the "Closing") to occur at the
offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation, ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, unless another time
or place is mutually agreed upon in writing by Parent, Merger Sub and the
Company. The date upon which the Closing shall actually occur shall be referred
to herein as the "Closing Date." On the Closing Date, the parties hereto shall
cause the First Merger to be consummated by filing a certificate of merger (the
"Certificate of Merger") in customary form and substance with the Secretary of
State of the State of Delaware in accordance with the applicable provisions of
Delaware Law (the time of acceptance of such filing by the Secretary of State of
the State of Delaware shall be referred to herein as the "Effective Time").
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2.3 Legal Effect of the First Merger. At the Effective Time, the effect of
the First Merger shall be as provided under the applicable provisions of
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 First-Step
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the First-Step Corporation.
2.4 Certificate of Incorporation and Bylaws.
(a) Certificate of Incorporation. Unless otherwise determined by Parent
prior to the Effective Time, as of the Effective Time, the Certificate of
Incorporation of the Company shall be amended and restated in its entirety to
read the same as the Certificate of Incorporation of Merger Sub as in effect
immediately prior to the Effective Time (except that Article I thereof shall be
amended and restated in its entirety to read as follows: "The name of the
corporation is ▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc."), and such amended and restated Certificate
of Incorporation shall be the certificate of incorporation of the First-Step
Corporation until thereafter amended in accordance with Delaware Law and such
Certificate of Incorporation.
(b) Bylaws. Unless otherwise determined by Parent prior to the Effective
Time, as of the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the First-Step
Corporation until thereafter amended in accordance with Delaware Law, the
Certificate of Incorporation of the First-Step Corporation and such Bylaws.
2.5 Directors and Officers.
(a) Directors. Unless otherwise determined by Parent prior to the Effective
Time, the directors of Merger Sub immediately prior to the Effective Time shall
be the directors of the First-Step Corporation as of the Effective Time, each to
hold the office of a director of the First-Step Corporation in accordance with
the provisions of Delaware Law and the Certificate of Incorporation and Bylaws
of the First-Step Corporation until their successors are duly elected and
qualified.
(b) Officers. Unless otherwise determined by Parent prior to the Effective
Time, the officers of Merger Sub immediately prior to the Effective Time shall
be the officers of the First-Step Corporation as of the Effective Time, each to
hold office in accordance with the provisions of the Bylaws of the First-Step
Corporation.
2.6 Capital Stock of Constituent Corporations.
(a) Merger Sub Capital Stock. Each share of Common 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 First-Step 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 First-Step
Corporation.
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(b) Company Capital Stock.
(i) Effective Time. Subject to the terms of this Agreement (including
Sections 2.6(b), (e), (f), (g), (h) and (i), Section 2.8, Article IX, the
Protective Covenant Agreements and the Escrow Agreement), at the Effective Time,
each share of Company Common Stock that is issued and outstanding immediately
prior to the Effective Time (other than Dissenting Shares) shall, by virtue of
the First Merger and without the need for any further action on the part of the
holder thereof (except as expressly provided herein), be converted into and
represent the right to receive (without interest) (x) a fraction of a share of
Parent Common Stock equal to the Common Merger Exchange Ratio and (y) a cash
payment equal to the Common Cash Exchange Ratio, as set forth in further detail
in the Spreadsheet.
(ii) Earnout. Subject to the terms of this Agreement (including Sections
2.6(b), (f), (h) and (i), Section 2.8 and Article IX) and the Earnout Shares
being greater than zero, effective as of the Earnout Determination Date, each
share of Company Common Stock that was issued and outstanding immediately prior
to the Effective Time (other than Dissenting Shares), shall represent the right
to receive (without interest) a fraction of a share of Parent Common Stock equal
to the Earnout Exchange Ratio.
(c) Company-Owned Company Capital Stock. Notwithstanding the terms of
Section 2.6(b) hereof, each share of Company Capital Stock held by the Company
or any of the Company Subsidiaries immediately prior to the Effective Time shall
be cancelled and extinguished without any conversion thereof or consideration
paid therefor.
(d) Company Options.
(i) Cash Payment. Each holder of a Company Option outstanding as of
immediately prior to the Effective Time shall, without the need for any further
action on the part of the holder thereof (except as expressly provided herein),
be entitled to receive (without interest and subject to Section 2.6(f)), in
accordance with the terms of this Agreement and the Company Stock Option Plan,
that portion of the Option Cash Amount payable to the holder of such Company
Option as set forth in the Spreadsheet.
(ii) Assumption of Options. As soon as practicable following the Closing
but effective as of the Effective Time, each Company Option outstanding as of
immediately prior to the Effective Time shall be assumed by Parent as a Parent
Option. Each Company Option so assumed by Parent pursuant to this Section 2.6(d)
shall continue to have, and be subject to, the same terms and conditions
(including vesting terms) set forth in the Company's Stock Option Plan, and the
option agreements relating thereto, as in effect immediately prior to the
Effective Time, except that (A) such assumed Company Option will be exercisable
for that number of whole Option Merger Shares as set forth in the Spreadsheet,
and (B) the per share exercise price for the Option Merger Shares issuable upon
exercise of such assumed Company Option shall be equal to the exercise price for
such shares set forth in the Spreadsheet, and (C) each Key Employee and the Key
Consultant shall have waived all rights regarding acceleration of vesting upon a
change of control, termination without cause, or constructive termination or
similar provision contained in any Contract relating to Company Options, to the
extent such rights are afforded therein.
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(iii) Option Consideration. The aggregate per share economic value of (x)
the Option Cash Amount payable pursuant to Section 2.6(d)(i) and (y) the Option
Merger Shares issuable upon exercise of Company Options assumed by Parent (as
described in clauses (A) and (B) of sub-section (ii) above), shall, in the case
of each share of Company Common Stock issuable upon exercise of a Company Option
as of immediately prior to the Effective Time, be equal to the per share
aggregate consideration payable with respect to one share of Company Common
Stock outstanding as of immediately prior to the Effective Time pursuant to
Section 2.6(d)(i).
(iv) Earnout Shares; Unexercised Parent Options. With respect to each
Parent Option that remains outstanding but has not been exercised as of the
Earnout Determination Date, the holder of such Parent Option shall, subject to
the Earnout Shares being greater than zero, become entitled to receive (without
interest), upon exercise, that number of Earnout Shares equal to the product of
the Option Shares then corresponding to the unexercised portion of the Parent
Option, multiplied by the Earnout Exchange Ratio.
(v) Earnout Shares; Exercised Parent Options. With respect to any portion
of a Parent Option exercised after the Effective Time through the Earnout
Determination Date, the holder of such Parent Option shall, subject to the
Earnout Shares being greater than zero, become entitled to receive (without
interest), simultaneously with payment to Stockholders of the Earnout Shares
pursuant to Section 2.6(b)(ii), that number of Earnout Shares equal to the
product of the Option Shares then corresponding to the exercised portion of the
Parent Option, multiplied by the Earnout Exchange Ratio.
(e) Protective Covenant Agreement. The Common Merger Shares to be issued to
the Principal Stockholders that are identified as "restricted shares" in the
Spreadsheet (the "Restricted Shares") shall be subject to the terms and
conditions of a Protective Covenant Agreement.
(f) Withholding Taxes. Parent or Parent's agent shall be entitled to deduct
and withhold from the amounts payable or otherwise deliverable pursuant to this
Agreement, amounts required to be so deducted and withheld under the Code, or
any provision of state, local or foreign tax law, with respect to the making of
such payment. To the extent that any such amounts are so deducted and withheld,
such withheld amounts shall be treated for all purposes of and under this
Agreement as having been paid to the holder of shares of Company Common Stock in
respect of whom such deduction and withholding was made.
(g) Escrowed Cash and Escrowed Shares. Prior to the Closing, Parent, the
Stockholder Representative and the Escrow Agent shall enter into an Escrow
Agreement in the form attached hereto as Exhibit D (the "Escrow Agreement").
Notwithstanding anything to the contrary set forth in this Agreement, at the
Effective Time, Parent shall withhold the Escrowed Cash from the Common Cash
Amount otherwise payable, and the Escrowed Shares from the Common Merger Shares
otherwise issuable, pursuant to Section 2.6(b)(i) hereof to the holders of
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Company Common Stock, in each case on a pro rata basis (on the basis of the
aggregate number of shares of Company Common Stock held by such holder relative
to the Total Outstanding Shares) ("Pro Rata Share"). As soon as practicable
following the Closing Date, Parent shall cause the Escrowed Cash and the
Escrowed Shares to be deposited with the Escrow Agent. The Escrow Agent shall
hold the Escrowed Cash and the Escrowed Shares as security for the
indemnification obligations of the holders of Company Common Stock under Article
IX hereof.
(h) Certificate Legends. The certificates evidencing shares of Parent
Common Stock to be issued pursuant to this Section 2.6 shall bear the following
legend (in addition to any other legend required by law, including Rule 145
promulgated under 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,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO, (II) IN COMPLIANCE WITH RULE 144,
OR (III) PURSUANT TO AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
(i) Fractional Shares. Notwithstanding anything to the contrary set forth
herein, no fraction of a share of Parent Common Stock will be issued, but in
lieu thereof, each Stockholder 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 Stockholder) shall be entitled to
receive from Parent an amount of cash (rounded to the nearest whole cent) equal
to the product of (i) such fraction, multiplied by (ii) the Trading Price (or,
in the case of the Earnout Shares, the average of the closing sale price of one
share of Parent Common Stock as reported on the Nasdaq National Market for the
twenty (20) consecutive trading days ending two (2) trading days immediately
preceding the Earnout Determination Date).
(j) Adjustments. The definitions above shall be adjusted to reflect fully
the effect of any stock split, reverse stock split, stock dividend (including
any dividend or distribution of securities convertible into Parent Common
Stock), or other distribution in respect of Parent Common Stock, reorganization,
recapitalization or other like change with respect to Parent Common Stock
occurring after the date hereof and prior to the Effective Time (or, with
respect to the Earnout Shares, the Earnout Determination Date).
2.7 Computation of Earnout Shares. As promptly as practicable after March
31, 2005, but not later than May 15, 2005, Parent shall deliver to the
Stockholder Representative a written report setting forth Parent's computation
of the Earnout Revenue, together with reasonable data supporting such
calculation. In the event the Stockholder Representative shall dispute the
Earnout Revenue as calculated by Parent, the Stockholder Representative shall
notify Parent in writing (the "Earnout Dispute Notice"), setting forth in
reasonable detail the basis of the dispute, within 15 days of receiving such
calculation. If the Stockholder Representative does not provide Parent with an
Earnout Dispute Notice within such 15-day period, the Stockholders shall be
deemed to have accepted such calculation as correct, final and binding. In the
-13-
event that the Stockholder Representative provides Parent with an Earnout
Dispute Notice within such 15 day period, then the Stockholder Representative
and Parent shall confer in good faith for a period of up to 30 days following
the delivery of the Earnout Dispute Notice, in an attempt to resolve such
dispute. If a final resolution of such dispute is reached, the agreed upon
Earnout Revenue shall be deemed final and binding. If, after such 30-day period,
the Stockholder Representative and Parent cannot resolve such dispute, then
Parent and the Stockholder Representative shall mutually agree upon a nationally
recognized accounting firm to resolve such dispute, or if they cannot agree on
such a firm within five (5) days, they shall each designate a nationally
recognized accounting firm, and the two firms shall agree upon a third
nationally recognized accounting firm, which third firm shall have the sole
authority to resolve such dispute. The firm so agreed upon (the "Firm") shall as
promptly as practicable (and in any event within 30 days) make a final
determination of the Earnout Revenue, which shall be final and binding on the
parties. Each of Parent and the Stockholder Representative shall provide the
Firm with all information and documentation that the Firm reasonably requests in
connection with its review of the disputed Earnout Revenue. The Stockholder
Representative shall be responsible for payment of all fees and expenses and
other Liabilities incurred by the Firm in connection with its review of the
disputed Earnout Revenue, which amount may, at Parent's sole discretion, be
deducted from, and paid by Parent to the Firm, the Escrow Fund (pursuant to the
terms of this Agreement and the Escrow Agreement) or the Earnout Shares, if any,
issuable hereunder (using the average of the closing sale price of one share of
Parent Common Stock as reported on the Nasdaq National Market for the twenty
(20) consecutive trading days ending two (2) trading days immediately preceding
the Earnout Dispute Notice); provided, however, that if the Firm in its final
determination of the Earnout Revenue disagrees with Parent's calculation of the
Earnout Revenue by more than 10% of Parent's original calculation, then Parent
shall pay all fees and expenses of the Firm incurred in connection with
resolution of the dispute. In the event of any unresolved dispute with respect
to calculation of the Earnout Revenue, Parent will be under no obligation to
make any payment of the Earnout Shares until such dispute is resolved as
provided herein. The "Final Earnout Revenue" shall mean the final and binding
Earnout Revenue determined in accordance with this Section 2.7. The date of such
determination of the Final Earnout Revenue shall be the "Earnout Determination
Date."
2.8 Dissenting Shares.
(a) Notwithstanding any other provisions of this Agreement to the contrary,
any shares of Company Capital Stock ("Dissenting Shares") held by a holder who
has not effectively withdrawn or lost such holder's appraisal rights under
Section 262 of Delaware Law or under Chapter 13 of the California Corporations
Code ("California Law"), as applicable, shall not be converted into or represent
a right to receive the consideration for Company Capital Stock set forth in
Section 2.6 hereof, but the holder thereof shall only be entitled to such rights
as are provided by Delaware Law or California Law, as applicable.
(b) Notwithstanding the provisions of Section 2.8(a) hereof, if any holder
of Dissenting Shares shall effectively withdraw or lose (through failure to
perfect or otherwise) such holder's appraisal rights under Delaware Law or
California Law, as applicable, 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 the consideration for
Company Capital Stock, as applicable, set forth in Section 2.6 hereof, without
interest thereon, upon surrender of the Certificate representing such shares.
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(c) The Company shall give Parent (i) prompt notice of any written demand
for appraisal received by the Company pursuant to the applicable provisions of
Delaware Law or California Law, as applicable, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to such demands.
The Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any such demands or offer to settle
or settle any such demands. Notwithstanding the foregoing, to the extent that
Parent or the Company (i) makes any payment or payments in respect of any
Dissenting Shares in excess of the consideration that otherwise would have been
payable in respect of such shares in accordance with this Agreement or (ii)
incurs any other costs or expenses in respect of any Dissenting Shares
(excluding payments for such shares) (together "Dissenting Share Payments"),
Parent shall be entitled to indemnification in respect of such Dissenting Share
Payments pursuant to Article IX hereto.
2.9 Exchange Procedures.
(a) Exchange of Certificates. At the Closing, each Stockholder shall
deliver (x) a Letter of Transmittal in the form attached hereto as Exhibit E
(the "Letter of Transmittal") and (y) the certificate(s) evidencing the shares
of Company Common Stock held by such Stockholder (each a "Certificate" and
collectively, the "Certificates"). Subject to surrender of a Certificate for
cancellation to Parent, together with the Letter of Transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holder of
such Certificate shall be entitled to receive in exchange therefor (subject to
Sections 2.6(e), (f), (g), (h) and 2.6(i)), (x) a certificate representing the
number of whole shares of Parent Common Stock to which such holder is entitled
pursuant to Section 2.6(b)(i) hereof, less the number of shares of Parent Common
Stock to be deposited in the Escrow Account on such holder's behalf pursuant to
Section 2.6(g) hereof) and (y) a cash payment equal to the Common Cash Amount to
which such holder is entitled pursuant to Section 2.6(b)(i) hereof, less the
amount of cash to be deposited in the Escrow Account on such holder's behalf
pursuant to Section 2.6(g), and the Certificate so surrendered shall forthwith
be canceled. Thereafter, promptly following the Earnout Determination Date, the
holder of record of such Certificate shall be entitled to receive the Earnout
Shares, if any, pursuant to Section 2.6(b)(ii).
(b) Common Cash Amount and Common Merger Shares. Subject to surrender of
the Certificates and delivery of duly completed and validly executed Letters of
Transmittal, at the Closing, (i) Parent shall deliver instructions to its
transfer agent to issue the shares of Parent Common Stock issuable pursuant to
Section 2.6(b)(i) and (y) shall deliver the Common Cash Amount payable pursuant
to Section 2.6(b)(i) hereof, in exchange for outstanding shares of Company
Common Stock, and (ii) Parent shall (x) instruct its transfer agent to deposit
into an account maintained by the Escrow Agent (the "Escrow Account") a number
of shares of Parent Common Stock equal to the Escrowed Shares and (y) deposit
into the Escrow Account cash equal to the Escrowed Cash.
(c) Earnout Shares. Promptly after the Earnout Determination Date, subject
to surrender of the Certificates and delivery of the duly completed and validly
executed Letters of Transmittal, Parent shall instruct its transfer agent to
deliver the shares of Parent Common Stock issuable pursuant to Section
2.6(b)(ii) and (d)(v).
(d) Option Cash Amount. Promptly following the Closing, Parent shall
deliver the Option Cash Amount payable pursuant to Section 2.6(d)(i) hereof.
(e) Certificates Not Surrendered.
(i) Until so surrendered, each Certificate outstanding after the Effective
Time will be deemed for all corporate purposes to evidence only the right to
receive the Common Cash Amount, Common Merger Shares and Earnout Shares, if any,
pursuant to Section 2.6 hereof.
(ii) No dividends or other distributions declared or made after the
Effective Time with respect to shares of Parent Common Stock with a record date
after the Effective Time will be paid to the holder of any Certificate that has
not been surrendered with respect to the shares of Parent Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate in accordance with this Section 2.9. 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 issued in exchange therefor, without interest, at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Parent Common Stock.
(f) 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 on the books and records of the
Company and as set forth in the Spreadsheet, it will be a condition of the
issuance or delivery 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 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, or established to the satisfaction of
Parent or any agent designated by it that such Tax has been paid or is not
payable.
(g) No Liability. Notwithstanding anything to the contrary in this Section
2.9, none of Parent, the First-Step Corporation or any other party hereto shall
be liable to a holder of shares of Company Capital Stock for any amount properly
paid to a public official pursuant to any applicable abandoned property, escheat
or similar law.
2.10 No Further Ownership Rights in Company Capital Stock. The shares of
Parent Common Stock and Common Cash Amount paid in respect of the surrender for
exchange of shares of Company Common Stock in accordance with the terms hereof
shall be deemed to be full satisfaction of all rights pertaining to such shares
of Company Common Stock, and there shall be no further registration of transfers
on the records of the First-Step Corporation of shares of Company Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the First-Step Corporation for any
reason, they shall be canceled and exchanged as provided in this Article II.
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2.11 Lost, Stolen or Destroyed Certificates. In the event any Certificates
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, Parent's transfer agent shall issue in exchange for such lost, stolen
or destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof, such amount, if any, as may be required pursuant to Section 2.6
hereof; provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the holder of such lost, stolen or
destroyed Certificates to either (i) deliver a bond in such amount as it may
reasonably direct, or (ii) provide an indemnification agreement in a form and
substance acceptable to Parent, against any claim that may be made against
Parent or its transfer agent with respect to the Certificates alleged to have
been so lost, stolen or destroyed.
2.12 Tax Consequences. If the Second Merger is completed, (i) the
Integrated Merger is intended to qualify as a reorganization within the meaning
of the provisions of Section 368(a) of the Code, (ii) the parties hereto shall
treat the First Merger and the Second Merger as integrated steps in a single
transaction as contemplated by this Agreement, and (iii) the parties hereto
hereby adopt this Agreement as a "plan of reorganization" within the meaning of
Section 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
Neither the Company nor Parent has taken or will take any action either before
or after the Closing, which could reasonably be expected to cause the Integrated
Merger to fail to qualify as a reorganization, provided that (a) this sentence
(and the rest of this Section 2.12) shall not apply if the Second Merger does
not occur, (b) Parent and the Company shall not be considered to have breached
this sentence if the Mergers fail to qualify as a reorganization solely because
the terms and structure thereof as set forth in this Agreement (and related
documents) do not meet the requirements for treatment as a reorganization under
Code Section 368(a), and (c) Parent and the Company shall be considered to have
complied with this sentence if they act consistent, in all material respects,
with the statements made by them in their respective officer's certificates
referenced in Section 7.15. Subject to the preceding sentence, Parent makes no
representations or warranties to the Company or to any securityholder of the
Company regarding the tax treatment of the First Merger or the Second Merger, or
any of the tax consequences to the Company or any securityholder of the Company
relating to the First Merger or the Second Merger, this Agreement, or any of the
other transactions or agreements contemplated hereby. The Company and each
Principal Stockholder acknowledges that it and its securityholders are relying
solely on their own tax advisors in connection with the First Merger and the
Second Merger, this Agreement and the other transactions and agreements
contemplated hereby.
2.13 Further Assurances. If at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the First-Step Corporation or the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of the Company, Parent, Merger Sub, and the
officers and directors of the Company, Parent and Merger Sub shall be fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE COMPANY AND THE PRINCIPAL STOCKHOLDERS
---------------------------------------------
Each of the Company and each Principal Stockholder hereby jointly and
severally represents and warrants to Parent and Merger Sub, subject to such
exceptions as are specifically disclosed in the disclosure schedule (referencing
the appropriate section and paragraph numbers) supplied as of the date hereof by
the Company to Parent (the "Disclosure Schedule"), as follows as of the date
hereof and as of the Effective Time:
3.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Company has the corporate power to own its properties and to carry on its
business as currently conducted. The Company is duly qualified or licensed to do
business and in good standing as a foreign corporation in each jurisdiction in
which such qualification or license is required. The Company has delivered a
true and correct copy of its Certificate of Incorporation and Bylaws, each as
amended to date and in full force and effect on the date hereof, to Parent.
Section 3.1 of the Disclosure Schedule contains a complete and accurate list of
the directors and officers of the Company as of the date hereof. The operations
now being conducted by the Company are not now and have never been conducted by
the Company under any other name. Section 3.1 of the Disclosure Schedule also
contains a complete and accurate list of every state or foreign jurisdiction in
which the Company has employees or facilities.
3.2 Authority. The Company has all requisite power and authority to enter
into this Agreement and any Ancillary Agreements to which it is a party and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and any Ancillary Agreements to which the Company is
a party and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of the
Company and no further action is required on the part of the Company to
authorize the Agreement and any Ancillary Agreements to which it is a party and
the transactions contemplated hereby and thereby. The adoption of this Agreement
and approval of the First Merger by the holders of a majority of the outstanding
shares of Company Common Stock (the "Requisite Stockholder Approval") is the
only approval of the Company's stockholders that is necessary to consummate the
First Merger and the other transactions contemplated hereby under Delaware Law,
the Certificate of Incorporation and Bylaws of the Company and any Contract to
which the Company is a party or otherwise bound. The Board of Directors of the
Company has unanimously approved this Agreement, the First Merger and the other
transactions contemplated hereby. This Agreement and each of the Ancillary
Agreements to which the Company is a party has been duly executed and delivered
by the Company and assuming the due authorization, execution and delivery by the
other parties hereto and thereto, constitute the valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms.
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3.3 Conflicts. The execution and delivery by the Company of this Agreement
and any Ancillary Agreement to which the Company is a party, and the
consummation of the transactions contemplated hereby and thereby, will not (x)
conflict with or result in any violation of or default under (with or without
notice or lapse of time, or both) or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the
Certificate of Incorporation and Bylaws of the Company, (ii) any Contract to
which the Company is a party or any of its properties or assets is subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its properties or assets or (y) result in
the imposition or creation of any Lien upon or with respect to any of the assets
owned or used by the Company.
3.4 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with any Governmental Authority or any third
party, including a party to any Contract with the Company (so as not to trigger
any Conflict), is required by or with respect to the Company in connection with
the execution and delivery of this Agreement and any Ancillary Agreement to
which the Company is a party or the consummation of the transactions
contemplated hereby and thereby, except for (i) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable securities laws, (ii) the Requisite Stockholder
Approval, and (iii) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware. Section 3.4 of the Disclosure Schedule sets
forth a complete and accurate list of all consents, waivers and approvals of
parties to any Contract as are required thereunder in connection with the First
Merger and the Second Merger, or for any such Contracts to remain in full force
and effect without limitation, modification or alteration after the Effective
Time so as to preserve all rights of, and benefits to, the First-Step
Corporation and the Surviving Corporation, under such Contracts from and after
the Effective Time.
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3.5 Company Capital Structure.
(a) The authorized capital stock of the Company consists of 10,000,000
shares of Common Stock. As of the date hereof, the capitalization of the Company
is as set forth in Section 3.5(a) of the Disclosure Schedule. The total number
of shares of Company Capital Stock outstanding as of immediately prior to the
Effective Time (assuming the conversion, exercise or exchange of all securities
convertible into, or exercisable or exchangeable for, shares of Company Capital
Stock and the exercise of all Company Options) will be as set forth in Section
3.5(a) of the Disclosure Schedule. The Company Capital Stock is held by the
persons with the domicile addresses and in the amounts set forth in Section
3.5(a) of the Disclosure Schedule. All outstanding shares of Company Capital
Stock are duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of the Company, or any agreement to which the Company is
a party or by which it is bound. All outstanding shares of Company Capital Stock
and Company Options and any other rights to acquire Company Capital Stock have
been issued or repurchased (in the case of shares that were outstanding and
repurchased by the Company or any stockholder of the Company) in compliance with
all applicable federal, state, foreign, or local statutes, laws, rules, or
regulations, including federal and state securities laws. The Company has not,
and will not have, suffered or incurred any Liability relating to or arising out
of the issuance or repurchase of any Company Capital Stock, Company Options, or
any rights to acquire Company Capital Stock, or out of any agreements or
arrangements relating thereto. There are no declared or accrued but unpaid
dividends with respect to any shares of Company Capital Stock. The Company has
no other capital stock authorized, issued or outstanding. No vesting provisions,
repurchase options, risks of forfeiture or other conditions under any applicable
stock restriction agreement or other agreement with the Company that are
applicable to any shares of Company Capital Stock, Company Options, or to any
other rights to purchase Company Capital Stock, will accelerate as a result of
the First Merger or as a result of any other events (whether or not associated
with the First Merger). No shares of Company Capital are unvested or subject to
a repurchase option, risk of forfeiture or other condition under any applicable
stock restriction agreement or other agreement with the Company.
(b) Except for the Company Stock Option Plan, the Company has never adopted
or maintained any stock option plan or other plan or agreement providing for
equity compensation of any person. Section 3.5(b) of the Disclosure Schedule
sets forth for each outstanding Company Option, the name of the holder of such
option, the number of shares of Company Capital Stock issuable upon the exercise
of such option and the exercise price of such option. Except for the Company
Options, 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. There are
no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company.
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Except as contemplated hereby, there are no voting trusts, proxies, or other
agreements or understandings with respect to the voting stock of the Company.
As a result of the First Merger, Parent will be the sole record and beneficial
holder of all issued and outstanding Company Capital Stock and all rights to
acquire or receive any shares of Company Capital Stock, whether or not such
shares of Company Capital Stock are outstanding.
3.6 Subsidiaries. The Company does not have, and has never had, any Company
Subsidiaries or any "affiliated" companies (within the meaning of Rule 145
promulgated under the Securities Act) 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.
3.7 Company Financial Statements. Section 3.7 of the Disclosure Schedule
sets forth the Company's unaudited balance sheet as of May 31, 2004, and the
related unaudited statement of income, cash flow and stockholders' equity for
the five-month period then ended and the unaudited balance sheets as of December
31, 2003 and 2002 and the related unaudited statements of income, cash flow and
stockholders' equity for the twelve-month periods then ended (the "Company
Financial Statements"). The Company Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
indicated and consistent with each other (except that the Company Financial
Statements do not contain footnotes and other presentation items that may be
required by GAAP). The Company Financial Statements present fairly in all
material respects the Company's financial condition and operating results as of
the dates and during the periods indicated therein. The Company's unaudited
balance sheet as of May 31, 2004, is referred to hereinafter as the "Current
Balance Sheet" and the date thereof is referred to herein as the "Current
Balance Sheet Date." The Company maintains and shall continue to maintain an
adequate system of internal controls established and administered in accordance
with GAAP.
3.8 No Undisclosed Liabilities. The Company has no Liability (whether or
not required to be reflected in financial statements in accordance with GAAP)
except Liabilities (i) reflected in the Current Balance Sheet, or (ii) incurred
in the ordinary course of business consistent with past practices since the
Current Balance Sheet Date which do not exceed $20,000 in the aggregate.
3.9 No Changes. Since the Current Balance Sheet Date through the date
hereof, except with respect to the transactions contemplated hereby, (a) the
business of the Company has been conducted in the ordinary course and consistent
with past practices, (b) there has not been any employment dispute, including
any claims or matters raised by any individuals or any workers' representative
organization or union regarding labor trouble or claim of wrongful discharge or
other unlawful employment or labor practice or action with respect to the
Company, (c) there has not been any destruction of, damage to, or loss of any
material assets or business of the Company, or any Significant Customer or
Significant Supplier (whether or not covered by insurance) and (d) the Company
has not taken any of the actions described in paragraphs (i) through (xx) of
Section 6.1 hereof.
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3.10 Taxes.
(a) As of the Closing Date, the Company will have (i) prepared and timely
filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to any and all Taxes
concerning or attributable to the Company or its operations and such Returns are
or will be true and correct and have been or will be completed in accordance
with applicable law and (ii) timely paid all Taxes it is required to pay.
(b) As of the Closing Date, the Company will have timely paid or withheld
with respect to its Employees all federal, state and foreign income taxes and
social security charges and similar fees, Federal Insurance Contribution Act,
Federal Unemployment Tax Act and other Taxes required to be withheld, and will
have timely paid all such Taxes over to the appropriate authorities.
(c) The Company has not been delinquent in the payment of any Tax, nor is
there any Tax deficiency outstanding, assessed or proposed 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.
(d) No audit or other examination of any Return of the Company is presently
in progress, nor has the Company been notified of any request for such an audit
or other examination.
(e) The Company has no liabilities for unpaid Taxes which have not been
accrued or reserved on the Current Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company has not incurred any
liability for Taxes since the date of the Current Balance Sheet other than in
the ordinary course of business.
(f) The Company has provided to Parent or its legal counsel copies of all
Tax Returns for the Company filed for all periods since its inception.
(g) There are (and immediately following the Effective Time there will be)
no Liens on the assets of the Company relating to or attributable to Taxes other
than Liens for Taxes not yet due and payable.
(h) The Company has no Knowledge of any basis for the assertion of any
claim relating or attributable to Taxes that, if adversely determined, would
result in any Lien on the assets of the Company.
(i) None of the Company's assets is treated as "tax-exempt use property,"
within the meaning of Section 168(h) of the Code.
(j) The Company has not filed any consent agreement under Section 341(f) of
the Code or agreed to have Section 341(f)(4) 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.
-22-
(k) The Company has (a) never been a member of an affiliated group (within
the meaning of Code ss.1504(a)) filing a consolidated federal income Tax Return
(other than a group the common parent of which was Company), (b) never been a
party to any Tax sharing, indemnification or allocation agreement, (c) no
liability for the Taxes of any person (other than Company or any of its
subsidiaries) under Treasury Regulation ss. 1.1502-6 (or any similar provision
of state, local or foreign law), as a transferee or successor, by contract or
agreement, or otherwise and (d) never been a party to any joint venture,
partnership or other arrangement that could be treated as a partnership for Tax
purposes.
(l) The Company has not been, at any time, a "United States Real Property
Holding Corporation" within the meaning of Section 897(c)(2) of the Code.
(m) No adjustment relating to any Return filed by the Company has been
proposed formally or, to the Knowledge of the Company, informally by any tax
authority to the Company or any representative thereof.
(n) The Company has not constituted either a "distributing corporation" or
a "controlled corporation" in a distribution of stock intended to qualify for
tax-free treatment under Section 355 of the Code.
(o) No claim has ever been made by a taxing authority in a jurisdiction
where the Company does not file Returns that it is or may be subject to taxation
by that jurisdiction.
(p) The Company does not have and has not had a permanent establishment in
any foreign country, as defined in any applicable Tax treaty or convention
between the United States and such foreign country.
(q) None of the outstanding indebtedness of the Company constitutes
indebtedness with respect to which any interest deductions may be disallowed
under Sections 163(i), 163(l) or 279 of the Code or under any other provision of
applicable law.
(r) The Company has not engaged in a transaction that is the same as or
substantially similar to one of the types of transactions that the Internal
Revenue Service has determined to be a tax avoidance transaction and identified
by notice, regulation, or other form of published guidance as a listed
transaction, as set forth in Treasury Regulation ss.1.6011-4(b)(2).
(s) The Company will not be required to include any income or gain or
exclude any deduction or loss from taxable income as a result of any (a) change
in method of accounting under Section 481(c) of the Code, (b) closing agreement
under Section 7121 of the Code, (c) deferred intercompany gain or excess loss
account under Treasury Regulations under Section 1502 of the Code (or in the
case of each of (a), (b), and (c), under any similar provision of applicable
law), (d) installment sale or open transaction disposition or (e) prepaid
amount.
(t) No Stockholder holds shares of Company Capital Stock that are
non-transferable and subject to a substantial risk of forfeiture within the
meaning of Section 83 of the Code with respect to which a valid election under
Section 83(b) of the Code has not been made, and no payment to any Stockholder
of any portion of the consideration payable pursuant to this Agreement will
result in compensation or other income to such Stockholder with respect to which
Parent, the Company or any subsidiary of Parent or the Company would be required
to deduct or withhold any Taxes.
-23-
3.11 Employee Benefit Plans and Compensation.
(a) Section 3.11(a) of the Disclosure Schedule contains a complete and
accurate list of each Company Employee Plan, each Employee Agreement under each
Company Employee Plan, and each Employee Agreement. The Company has not made any
plan or commitment to establish any new Company Employee Plan or Employee
Agreement, to modify any Company Employee Plan or Employee Agreement (except to
the extent required by law or to conform any such Company Employee Plan or
Employee Agreement 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 enter into any Company Employee Plan or Employee Agreement. Section 3.11(a)
of the Disclosure Schedule sets forth a table setting forth the name and
compensation of each current employee of the Company.
(b) The Company has provided to Parent (i) correct and complete copies of
all documents embodying each Company Employee Plan and each Employee Agreement,
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 Company Employee Plan, (ii) 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, (iii) if the Company Employee Plan
is funded, the most recent annual and periodic accounting of Company Employee
Plan assets, (iv) 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, (v) all material written agreements
and contracts relating to each Company Employee Plan, including, without
limitation, administrative service agreements and group insurance contracts,
(vi) all standard COBRA forms and related notices, (ix) the most recent annual
actual valuations, if any, prepared for each Company Employee Plan, (x) all
discrimination tests for each Company Employee Plan for the three (3) most
recent plan years, and (xi) all IRS determination, opinion and advisory letters
with respect to each Company Employee Plan, if any.
(c) The Company and its Affiliates have performed in all material respects
all obligations required to be performed by them under each Company Employee
Plan, and each Company Employee Plan has been established and maintained 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.
Any Company Employee Plan intended to be qualified under Section 401(a) of the
Code and each trust intended to qualify under Section 501(a) of the Code
obtained a favorable determination, notification, advisory and/or opinion
letter, as applicable, as to its qualified status from the IRS. For each Company
Employee Plan that is intended to be qualified under Section 401(a) of the Code
-24-
there has been no event, condition or circumstance that has adversely
affected or is likely to adversely affect such qualified status. 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 408 of ERISA, has occurred
with respect to any Company Employee Plan. 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. Each Company
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Parent,
Company or any of its Affiliates (other than ordinary administration expenses).
There are no audits, inquiries or proceedings pending or, to the Knowledge of
the Company or any Affiliates, threatened by the IRS or DOL, or any other
Governmental Entity with respect to any Company Employee Plan. 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. The Company and each Affiliate have timely made all
contributions and other payments required by and due under the terms of each
Company Employee Plan.
(d) Neither the Company nor any ERISA Affiliate has ever maintained,
established, sponsored, participated in, or contributed to, any (i) Pension Plan
which is subject to Title IV of ERISA or Section 412 of the Code, (ii)
Multiemployer Plan, or (iii) plan described in Section 413 of the Code. No
Company Employee Plan provides health benefits that are not fully insured
through an insurance contract.
(e) No Company Employee Plan or Employee Arrangement provides, or reflects
or represents any liability to provide, retiree life insurance, retiree health
or other retiree employee welfare benefits 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 life
insurance, retiree health or other retiree employee welfare benefits, except to
the extent required by statute.
(f) The Company and each Affiliate has, prior to the Effective Time,
complied in all material respects with the health care continuation requirements
of COBRA, FMLA, HIPAA, the Women's Health and Cancer Rights Act of 1998, the
Newborns' and Mothers' Health Protection Act of 1996, and any similar provisions
of state law applicable to its Employees. The Company has no unsatisfied
obligations to any Employees or qualified beneficiaries pursuant to COBRA, HIPAA
or any state law governing health care coverage or extension.
(g) 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, Employee Agreement, 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.
-25-
(h) No payment or benefit which has been, 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.
(i) 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; and (ii) 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, reasonably
anticipated, or to the Knowledge of the Company, threatened claims or actions
against the Company under any worker's compensation policy or long-term
disability policy. Neither the Company nor any Affiliate has direct or indirect
liability with respect to any misclassification of any person as an independent
contractor rather than as an employee, or with respect to any employee leased
from another employer. The services provided by each of the Company's and its
Affiliates' Employees is terminable at the will of the Company and its
Affiliates and any such termination would result in no liability to the Company
or any Affiliate, except for benefits required by COBRA or other applicable
statute.
(j) No work stoppage or labor strike against the Company or any Affiliate
is pending, reasonably anticipated or, to the Knowledge of the Company,
threatened. The Company does not know of any activities or proceedings of any
labor union to organize any Employees. 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. Neither the
Company nor any of its subsidiaries has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act. 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 with respect to Employees.
(k) Neither the Company nor any Affiliate currently or has it ever had the
obligation to maintain, establish, sponsor, participate in, be bound by or
contribute to any International Employee Plan.
-26-
3.12 Intellectual Property.
(a) Section 3.12(a) of the Disclosure Schedule contains a complete and
accurate list of (i) all Registered Intellectual Property owned by, or filed in
the name of, the Company (the "Company Registered Intellectual Property"), and
(ii) any proceedings or actions before any court, tribunal (including the United
States Patent and Trademark Office (the "PTO") or equivalent authority anywhere
in the world) related to any of the Company Registered Intellectual Property.
(b) Each item of Company Intellectual Property, including all Company
Registered Intellectual Property listed in Section 3.12(a) of the Disclosure
Schedule, is owned or exclusively licensed to the Company free and clear of any
Liens. The Company is the sole owner or exclusive licensee of all Company
Intellectual Property.
(c) To the extent that any Intellectual Property has been developed or
created independently or jointly by any person other than the Company for which
the Company has, directly or indirectly, provided consideration for such
development or creation, the Company has a written agreement with such person
with respect thereto, and the Company thereby has obtained ownership of, and is
the exclusive owner of, all such Intellectual Property therein and associated
Intellectual Property Rights by operation of law or by valid assignment, and has
required the waiver of all non-assignable rights, including but not limited to,
all author or moral rights.
(d) The Company has not transferred ownership of, or granted any exclusive
license of or exclusive right to use, or authorized the retention of any
exclusive rights to use or joint ownership of, any Intellectual Property or
Intellectual Property Rights that is or was Company Intellectual Property, to
any other person.
(e) Other than "shrink-wrap" and similar widely available binary code and
commercial end-user licenses with license fees under $1,000, but not including
public or open source technology, the Company Intellectual Property constitutes
all the Intellectual Property and Intellectual Property Rights used in or
necessary for the conduct of the business of the Company as it currently is
conducted or planned to be conducted, including, without limitation, the design,
development, manufacture, use, import and sale of products, technology and
services (including products, technology or services currently under
development).
(f) Other than (i) "shrink-wrap" and similar widely available binary code
and commercial end-user licenses with license fees under $1,000, but not
including public or open source technology, and (ii) other non-exclusive
licenses and related agreements with respect thereto of the Company's products
to end-users pursuant to written agreements that have been entered into in the
ordinary course of business that do not materially differ in substance from the
Company's standard form(s) of end-user license including attachments (which is
or are included in Section 3.12(f) of the Disclosure Schedule), Section 3.12(f)
of the Disclosure Schedule contains a complete and accurate list of all
Contracts to which the Company is a party with respect to any Intellectual
Property and Intellectual Property Rights. No third party who has licensed
Intellectual Property or Intellectual Property Rights to the Company has
ownership rights or license rights to improvements made by the Company to such
Intellectual Property that are made within the scope of the license.
-27-
(g) Other than (i) "shrink-wrap" and similar widely available binary code
and commercial end-user licenses with license fees under $1,000, but not
including public or open source technology, and (ii) other non-exclusive
licenses and related agreements with respect thereto of the Company's products
to end-users pursuant to written agreements that have been entered into in the
ordinary course of business that do not materially differ in substance from the
Company's standard form(s) of end-user license including attachments (which is
or are included in Section 3.12(f) of the Disclosure Schedule), Section 3.12(g)
of the Disclosure Schedule contains a complete and accurate list of all
Contracts between the Company and any other person wherein or whereby the
Company has agreed to, or assumed, any obligation or duty to warrant, indemnify,
reimburse, hold harmless, guaranty or otherwise assume or incur any obligation
or liability or provide a right of rescission with respect to the infringement
or misappropriation by the Company or such other person of the Intellectual
Property Rights of any person other than the Company.
(h) The operation of the business of the Company as it currently is
conducted or is currently contemplated to be conducted, including but not
limited to the design, development, use, import, manufacture and sale of the
products, technology or services (including products, technology or services
currently under development) of the Company, does not and will not infringe or
misappropriate the Intellectual Property Rights of any person, violate the
rights of any person (including rights to privacy or publicity), or constitute
unfair competition or trade practices under the laws of any jurisdiction. The
Company has not received any notice from any person claiming that such operation
or any act, product, technology or service (including products, technology or
services currently under development) of the Company infringes or
misappropriates the Intellectual Property Rights of any person or constitutes
unfair competition or trade practices under the laws of any jurisdiction, nor
does Company have any Knowledge of any basis therefor.
(i) Each item of Company Registered Intellectual Property is valid and
subsisting, and all necessary registration, maintenance and renewal fees in
connection with such Company Registered Intellectual Property have been paid and
all necessary documents and certificates in connection with such Company
Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such Company
Registered Intellectual Property. There are no actions that must be taken by the
Company within sixty (60) days of the Closing Date, including the payment of any
registration, maintenance or renewal fees or the filing of any documents,
applications or certificates for the purposes of maintaining, perfecting or
preserving or renewing any Company Registered Intellectual Property. For each
product, technology or service of the Company that constitutes or includes
Intellectual Property, the Company has taken appropriate measures to make all
such Intellectual Property Registered Intellectual Property except where the
Company has taken all necessary and reasonable steps to protect all such
Intellectual Property as a trade secret. In each case in which the Company has
acquired any Intellectual Property Rights from any person, the Company has
obtained a valid and enforceable assignment sufficient to irrevocably transfer
all rights in such Intellectual Property and
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the associated Intellectual Property Rights (including the right to seek past
and future damages with respect thereto) to the Company and, to the maximum
extent provided for by, and in accordance with, applicable laws and regulations,
the Company has recorded each such assignment with the relevant governmental
authorities, including the PTO, the U.S. Copyright Office, or their respective
equivalents in any relevant foreign jurisdiction, as the case may be.
(j) There are no Contracts between the Company and any other person with
respect to Company Intellectual Property or other Intellectual Property used in
or necessary to the conduct of the business as it is currently conducted or
planned to be conducted under which there is any dispute regarding the scope of
such Contract, or performance under such Contract including with respect to any
payments to be made or received by the Company thereunder.
(k) Neither this Agreement nor the transactions contemplated by this
Agreement, including the assignment to Parent by operation of law or otherwise
of any Contracts to which the Company is a party, will result in (i) Parent,
Merger Sub, the Company, the First-Step Corporation or the Surviving Corporation
granting to any third party any right to or with respect to any Intellectual
Property owned by, or licensed to, any of them, (ii) Parent, Merger Sub, the
Company, the First-Step Corporation or the Surviving Corporation being bound by,
or subject to, any non-compete or other material restriction on the operation or
scope of their respective businesses, or (iii) Parent, Merger Sub, the Company,
the First-Step Corporation or the Surviving Corporation being obligated to pay
any royalties or other material amounts to any third party in excess of those
payable by any of them, respectively, in the absence of this Agreement or the
transactions contemplated hereby.
(l) To the Knowledge of the Company, no person or entity is infringing or
misappropriating any Company Intellectual Property.
(m) The Company has taken all reasonable steps that are required or
necessary to protect the Company's rights in confidential information and trade
secrets of the Company or provided by any other person to the Company. Without
limiting the foregoing, the Company has, and enforces, a policy requiring each
employee, consultant, and contractor to execute proprietary information,
confidentiality and assignment agreements substantially in the Company's
standard forms, and all current and former employees, consultants and
contractors of the Company have executed such an agreement in substantially the
Company's standard form, a copy of which had been delivered to Parent.
(n) No Company Intellectual Property is subject to any proceeding or
outstanding decree, order, judgment or settlement agreement or stipulation that
restricts in any manner the use, transfer or licensing thereof by the Company or
may affect the validity, use or enforceability of such Company Intellectual
Property.
(o) To the Knowledge of the Company, no (i) product, technology, service or
publication of the Company, (ii) material published or distributed by the
Company, or (iii) conduct or statement of the Company constitutes obscene
material, a defamatory statement or material, false advertising or otherwise
violates any law or regulation.
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(p) No government funding, facilities or resources of a university,
college, other educational institution or research center or funding from third
parties was used in the development of the Company Intellectual Property, and no
Governmental Authority, university, college, other educational institution or
research center has any claim or right in or to the Company Intellectual
Property. No current or former employee, consultant or independent contractor of
the Company who was involved in, or who contributed to, the creation or
development of any Company Intellectual Property, has performed services for the
government, a university, college or other educational institution, or a
research center, during a period of time during which such employee, consultant
or independent contractor was also performing services for the Company.
(q) Section 3.12(q) of the Disclosure Schedule contains a complete and
accurate list of all Intellectual Property of the Company, of a third party or
in the public domain that constitutes open source, public source or freeware
Intellectual Property, or any modification or derivative thereof, including any
version of any software licensed pursuant to any GNU general public license or
limited general public license, that was used in, incorporated into, integrated
or bundled with any Intellectual Property that is, or was, used by the Company
in its business, or incorporated in or used in the development or compilation of
any products or technology of the Company.
(r) The Company has secured all export licenses necessary or appropriate
for the distribution of the Company's products, services and technology outside
of the United States, and all such licenses are in full force and effect.
(s) The Company's products do not contain any virus, Trojan horse, worm or
other software routines or hardware components designed to permit unauthorized
access, to disable, erase or otherwise harm software, hardware or data.
(t) Section 3.12(t) of the Disclosure Schedule sets forth a list of all
known bugs and errors in the Company's products reported to the Company or
discovered by the Company, as of the date hereof. There are no material bugs or
errors in the Company's products.
3.13 Restrictions on Business Activities. Section 3.13 of the Disclosure
Schedule sets forth a complete and accurate list of each Contract
(non-competition or otherwise) judgment, injunction, order or decree to which
the Company is a party or otherwise binding upon the Company which has or may
reasonably be expected to have the effect of prohibiting or impairing any
business practice of the Company (including any restrictions on selling,
licensing, manufacturing or otherwise distributing any of its technology or
products or from providing services to customers or potential customers or any
class of customers, in any geographic area, during any period of time, or in any
segment of the market, any acquisition of property (tangible or intangible) by
the Company, the conduct of business by the Company, or otherwise limiting the
freedom of the Company to engage in any line of business or to compete with any
person.)
3.14 Properties.
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(a) The Company does not own any real property, nor has the Company ever
owned any real property. Section 3.14(a) of the Disclosure Schedule sets forth a
complete and accurate list of all real property currently leased by the Company
or otherwise used or occupied by the Company for the operation of the Company's
business (the "Leased Real Property"), the name of the lessor, the name and date
of each lease agreement related thereto and each amendment thereto. The Company
has provided Parent true, correct and complete copies of all leases, lease
guaranties, subleases, agreements for the leasing, use or occupancy of, or
otherwise granting a right in or relating to the Leased Real Property, including
all amendments, terminations and modifications thereof, and there are no other
lease agreements for real property affecting the real property or to which
Company is bound. All such lease Contracts are valid and enforceable and not in
default by the Company, or to the Knowledge of the Company, the other party
thereto, no rentals are past due, and no circumstance exists, which, with
notice, the passage of time or both, could constitute a default by the Company,
or to the Knowledge of the Company, the other party thereto under any such lease
agreement. The Company has received no notice of a default, alleged failure to
perform, or any offset or counterclaim with respect to any such lease agreement,
which has not been fully remedied and withdrawn. The consummation of the First
Merger, the Second Merger, and the other transactions contemplated hereby will
not affect the enforceability against any person of any such lease agreement or
the rights of the Company, the First-Step Corporation or the Surviving
Corporation to the continued use and possession of the real property for the
conduct of business as presently conducted. The Leased Real Property is in good
operating condition and repair, free from structural, physical and mechanical
defects, is maintained in a manner consistent with standards generally followed
with respect to similar properties, and is structurally sufficient and otherwise
suitable for the conduct of the business as presently conducted.
(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 Liens for Taxes not yet due and
payable and such imperfections of title and encumbrances, if any, which do not
detract from the value or interfere with the present use of the property subject
thereto or affected thereby. The foregoing assets and the Company Intellectual
Property constitute all of the assets used in, and necessary for, the business
of the Company as currently conducted or currently contemplated to be conducted.
(c) Section 3.14(c) of the Disclosure Schedule contains a complete and
accurate list of all material items of equipment owned or leased by the Company,
and such equipment is adequate for the conduct of the business of the Company as
currently conducted and as currently contemplated to be conducted and in good
operating condition, regularly and properly maintained, subject to normal wear
and tear.
(d) The Company has sole and exclusive ownership, free and clear of any
Liens, of all customer lists, customer contact information, customer
correspondence and customer licensing and purchasing histories relating to its
current and former customers not reserved by such customer. No person other than
the Company possesses any claims or rights with respect to use of such customer
information.
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3.15 Material Contracts.
(a) Section 3.15 of the Disclosure Schedule sets forth a complete and
accurate list of the following Contracts in effect as of the date hereof
(together with the Contracts set forth in Sections 3.12(f) and (g) (Intellectual
Property), Section 3.13 (Restrictions on Business Activities) or Section 3.14(a)
(Leases), of the Disclosure Schedule, a "Material Contract" and, collectively,
the "Material Contracts"):
(i) any employment or consulting Contract with an employee or individual
consultant or salesperson, or consulting or sales Contract with a firm or other
organization;
(ii) 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 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;
(iii) any Contract relating to the lease of personal property involving
future payments in excess of $5,000 individually or $10,000 in the aggregate;
(iv) any Contract relating to capital expenditures and involving future
payments in excess of $5,000 individually or $10,000 in the aggregate;
(v) 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;
(vi) any mortgages, indentures, guarantees, loans or credit agreements,
security agreements or other Contracts relating to the borrowing of money or
extension of credit (other than trade payables in the ordinary course of
business consistent with past practices);
(vii) any Contract for the purchase by the Company of goods or services
involving in excess of $5,000 individually or $10,000 in the aggregate;
(viii) any Contract for the purchase by customers of goods or services
involving in excess of $5,000 individually or $10,000 in the aggregate;
(ix) any dealer, distribution, joint marketing, strategic alliance or
development Contract;
(x) any standstill or similar Contract;
(xi) any non-employee sales representative, original equipment
manufacturer, manufacturing, value added, remarketer, reseller, or independent
software vendor, or other Contract for use or distribution of the Company's
products, technology or services;
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(xii) any Contract (a) of a nature required to be disclosed on Section 3.21
of the Disclosure Schedule, or (b) granting a power of attorney, agency or
similar authority to another person or entity; or
(xiii) any other Contract that (a) involves future payments in excess of
$5,000 individually or $10,000 in the aggregate or more and is not cancelable
without penalty within thirty (30) days, (b) has an unexpired term as of the
Current Balance Sheet Date in excess of twelve months and is not otherwise
listed on Section 3.15 of the Disclosure Schedule, or (c) is otherwise material
to the business of the Company and not otherwise listed on Section 3.15 of the
Disclosure Schedule.
(b) The Company is in compliance with and has not breached, violated or
defaulted under, or received notice that it has breached, violated or defaulted
under, any of the material terms or conditions of any Material Contract, nor
does the Company have any Knowledge of any event that would constitute such a
breach, violation or default with the lapse of time, giving of notice or both.
Each Material Contract is in full force and effect, enforceable in accordance
with its terms, and the Company is not in default thereunder, nor to the
Knowledge of the Company, is any party obligated to the Company pursuant to any
such Material Contract in default thereunder. Following the Effective Time, the
First-Step Corporation and the Surviving Corporation, will be permitted to
exercise all of its rights under the Material Contracts 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 pursuant to the
terms of such Material Contracts had the transactions contemplated by this
Agreement not occurred.
3.16 Insurance. Section 3.16 of the Disclosure Schedule contains a complete
and accurate list of all insurance policies and bonds covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Company or any of its Affiliates (the "Insurance Policies"). There is no
claim by the Company or any of its Affiliates pending under any of such policies
or bonds as to which coverage has been questioned, denied or disputed or that
the Company or any of its Affiliates has a reason to believe will be denied or
disputed by the underwriters of such policies or bonds. In addition, there is no
pending claim of which its total value (inclusive of defense expenses) will
exceed the policy limits. All premiums due and payable under all such policies
and bonds have been paid, (or if installment payments are due, will be paid if
incurred prior to the Closing Date) and the Company and its Affiliates are
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 Knowledge or reasonable belief of threatened termination of,
or premium increase with respect to, any of such policies.
3.17 Litigation. There is no action, suit, claim or proceeding of any
nature pending, or to the Knowledge of the Company, threatened, against the
Company, its properties (tangible or intangible) or any of its officers or
directors (in their capacity as such), nor to the Knowledge of the Company is
there any reasonable basis therefor. There is no investigation or other
proceeding pending or, to the Knowledge of the Company, threatened, against the
Company, any of its properties (tangible or intangible) or any of its officers
or directors (in their capacity as such) by or before any Governmental
Authority, nor to the Knowledge of the Company is there any reasonable basis
therefor. No Governmental Authority has at any time challenged or questioned the
legal right of the Company to conduct its operations as presently or previously
conducted or as presently contemplated to be conducted.
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3.18 Governmental Authorization. Each consent, license, permit, grant or
other authorization (i) pursuant to which the Company currently operates or
holds any interest in any of its properties, or (ii) which is required for the
operation of the Company's business as currently conducted or currently
contemplated to be conducted or the holding of any such interest (collectively,
"Company Authorizations") has been issued or granted to the Company. The Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties or assets.
3.19 Compliance with Laws. The Company has complied in all material
respects with, is not in violation of, and has not received any notices of
violation with respect to, any foreign, federal, state or local statute, law or
regulation applicable to the Company, its business or its assets (whether
tangible or intangible).
3.20 Environmental Compliance.
(a) The Company has not (i) operated any underground storage tanks at any
property that the Company has at any time owned, operated, occupied or leased,
or (ii) released any amount of any substance that has been designated by any
Governmental Authority or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, and
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws (a "Hazardous Material"), but excluding office
and janitorial supplies properly and safely maintained. To the Company's
Knowledge, no Hazardous Materials are present 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) The Company has not transported, stored, used, manufactured, disposed
of, released or exposed its employees or others to Hazardous Materials in
violation of any law or in a manner that would result in liability to the
Company, nor has the Company knowingly disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to herein as "Hazardous Materials
Activities") in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Authority to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
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(c) No action, proceeding, revocation proceeding, amendment procedure,
writ, injunction or claim is pending, or to the Knowledge of the Company,
threatened, concerning any Environmental Permit, Hazardous Material or any
Hazardous Materials Activity of the Company. The Company has no Knowledge of any
fact or circumstance that could involve the Company in any environmental
litigation or impose upon the Company any environmental liability.
3.21 Interested Party Transactions. To the Knowledge of the Company, no
officer, director or stockholder 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 interest in any entity which furnished or
sold, or furnishes or sells, services, products or technology that the Company
furnishes or sells, or proposes to furnish or sell, or (ii) any 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 to which the Company is
a party; provided, however, that ownership of no more than one percent (1%) of
the outstanding capital stock of a corporation shall not be deemed to be an
"interest in any entity" for purposes of this Section 3.21. There are no
Contracts with regard to contribution or indemnification between or among any of
the Stockholders.
3.22 Minute Books. The minutes of the Company made available to counsel for
Parent are the only minutes of the Company and contain accurate summaries of all
meetings or actions by written consent of the Board of Directors (or committees
thereof) of the Company and contain all stockholder actions by written consent
since the time of incorporation of the Company.
3.23 Brokers' and Finders' Fees. 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 the Agreement or
any transaction contemplated hereby.
3.24 Accounts Receivable.
(a) The Company has made available to Parent a list of all accounts
receivable of the Company as of the Current Balance Sheet Date, together with an
aging schedule indicating a range of days elapsed since invoice.
(b) All of the Company's accounts receivable arose in the ordinary course
of business, are carried at values determined in accordance with GAAP
consistently applied, and are collectible except to the extent of reserves
therefor set forth in the Current Balance Sheet or, for receivables arising
subsequent to the Current Balance Sheet Date, as reflected on the books and
records of the Company (which are prepared in accordance with GAAP). No person
has any Lien on any of the Company's accounts receivable and no request or
agreement for deduction or discount has been made with respect to any of the
Company's accounts receivable.
3.25 Warranties; Indemnities. Except for the warranties and indemnities
contained in those Contracts set forth in Section 3.13 of the Disclosure
Schedule and warranties implied by law, the Company has not given any warranties
or indemnities relating to products or technology sold or services rendered by
the Company.
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3.26 Financial Projections/Operating Plan. The Company has made available
to Parent certain financial projections with respect to the Company's business
which projections were prepared for internal use only. Such projections were
prepared in good faith and are based on assumptions believed by the Company to
be reasonable as of the date of this Agreement; provided, however, that the
failure to achieve any aspect of such projections prepared in good faith shall
not be deemed by itself to constitute a breach of any representation or warranty
of the Company.
3.27 Banks and Brokerage Accounts. Section 3.27 of the Disclosure Schedule
sets forth (a) a complete and accurate list of the names and locations of all
banks, trust companies, securities brokers and other financial institutions at
which the Company has an account or a safe deposit box or maintains a banking,
custodial, trading or other similar relationship, and (b) a complete and
accurate list and description of each such account, box and relationship,
indicating in each case the account number and the names of the respective
officers, employees, agents or other similar representatives of the Company
having signatory power with respect thereto.
3.28 Customers and Suppliers. Section 3.28 of the Disclosure Schedule sets
forth a complete and accurate list of the fifteen (15) largest (or if less than
fifteen (15), the actual) customers of the Company on the basis of revenues
collected or accrued by the Company during the last twelve (12) calendar months
since the date of this Agreement (the "Significant Customers"), and includes the
amount of revenues attributable to each such Significant Customer. Section 3.28
of the Disclosure Schedule sets forth a complete and accurate list of the
fifteen (15) largest (or if less than fifteen (15), the actual) suppliers of the
Company on the basis of cost of goods or services purchased by the Company
during the last twelve (12) calendar months since the date of this Agreement
(the "Significant Suppliers"), and includes the expenses attributable to each
such Significant Supplier. No Significant Customer or Significant Supplier has
ceased or materially reduced its purchases from or sales or provision of
services to the Company since December 31, 2003, or, to the Knowledge of the
Company, has threatened to cease or materially reduce such purchases or sales or
provision of services since such date. To the Knowledge of the Company, no such
Significant Customer or Significant Supplier is threatened with bankruptcy or
insolvency.
3.29 Representations Complete. None of the representations or warranties
made by the Company herein or in any Ancillary Agreement or schedule or exhibit
hereto, including the Disclosure Schedule, or in any certificate furnished by
the Company pursuant to this Agreement, 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 IV
----------
ADDITIONAL REPRESENTATIONS AND WARRANTIES
-----------------------------------------
OF THE PRINCIPAL STOCKHOLDERS
-----------------------------
Each of the Principal Stockholders hereby severally, but not jointly,
represents and warrants to Parent and Merger Sub as follows:
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4.1 Organization. If such Principal Stockholder is a legal entity, such
Principal Stockholder is duly organized, validly existing and in good standing
under the laws of the jurisdiction of incorporation or organization. If such
Principal Stockholder is a legal entity, such Principal Stockholder has the
power to own its properties and to carry on its business as currently conducted.
4.2 Authority. If such Principal Stockholder is a legal entity, such
Principal Stockholder has all requisite power and authority to enter into this
Agreement and any Ancillary Agreements to which it is a party and to consummate
the transactions contemplated hereby and thereby. If such Principal Stockholder
is an individual, such Principal Stockholder has the legal capacity to enter
into this Agreement and any Ancillary Agreements to which it is a party and to
consummate the transactions contemplated hereby and thereby. If such Principal
Stockholder is a legal entity, the execution and delivery of this Agreement and
any Ancillary Agreements to which such Principal Stockholder is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of such Principal
Stockholder and no further action is required on the part of such Principal
Stockholder to authorize the Agreement and any Ancillary Agreements to which it
is a party and the transactions contemplated hereby and thereby. This Agreement
and each of the Ancillary Agreements to which such Principal Stockholder is a
party has been duly executed and delivered by such Principal Stockholder and
assuming the due authorization, execution and delivery by the other parties
hereto and thereto, constitute the valid and binding obligations of such
Principal Stockholder, enforceable against such Principal Stockholder in
accordance with their respective terms.
4.3 No Conflict. The execution and delivery by such Principal Stockholder
of this Agreement and any Ancillary Agreement to which it is a party and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with (i) any provision of the charter documents of such Principal
Stockholder if such Principal Stockholder is an entity, (ii) any material
Contract to which such Principal Stockholder or any of its properties or assets
is subject, or (iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to such Principal Stockholder or its properties or
assets.
4.4 Ownership of Company Capital Stock. Such Principal Stockholder is the
sole record and beneficial owner of the Company Capital Stock designated as
being owned by such Principal Stockholder opposite such Principal Stockholder's
name in Section 3.5(a) of the Disclosure Schedule. Such Company Capital Stock is
not subject to any Liens or to any rights of first refusal of any kind, and such
Principal Stockholder has not granted any rights to purchase such Company
Capital Stock to any other person or entity. Each Principal Stockholder has the
sole right to transfer such Company Capital Stock to Parent. Such Company
Capital Stock constitutes all of the Company Capital Stock owned, beneficially
or of record, by such Principal Stockholder, and such Principal Stockholder has
no options, warrants or other rights to acquire Company Capital Stock.
4.5 Access to Information. Principal Stockholder has received copies of (i)
Parent's Annual Report on Form 10-K for the year ended ▇▇▇▇▇ ▇▇, ▇▇▇▇ (▇▇▇
"▇▇▇▇▇▇ ▇▇-▇"), (▇▇) each Quarterly Report on Form 10-Q filed by Parent
subsequent to the Parent 10-K, (iii) the Proxy Statement filed in connection
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with Parent's Annual Stockholders' Meeting held in 2003 and (iv) any reports on
Form 8-K filed by Parent subsequent to the Parent 10-K. Principal Stockholder
has heretofore discussed the plans, operations and financial condition with
Parent's officers and has heretofore received all such information as Principal
Stockholder has deemed necessary and appropriate to enable it to evaluate the
financial risk inherent in making an investment in the shares of Parent Common
Stock, and Principal Stockholder has received satisfactory and complete
information concerning the business and financial condition of Parent in
response to all inquiries in respect thereof.
4.6 Entirely for Own Account. The Parent Common Stock to be received by
such Principal Stockholder is being acquired for investment for such
Stockholder's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and such Principal Stockholder has
no present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, such Principal Stockholder
further represents that such Stockholder does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Parent Common Stock.
4.7 Accredited Investor; Economic Risk. Principal Stockholder is an
"accredited investor" as such term is defined in Rule 501(a) promulgated under
the Securities Act. Principal Stockholder acknowledges that it is able to fend
for itself, and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of an investment
in the shares of Parent Common Stock issuable pursuant to the terms of this
Agreement. Principal Stockholder realizes that an investment in the shares of
Parent Common Stock will be a speculative investment and involves a high degree
of risk, and Principal Stockholder is able, without impairing his financial
condition.
4.8 Restricted Securities. Principal Stockholder understands and
acknowledges that:
(a) The issuance of the shares of Parent Common Stock pursuant to Section
2.6(b) of this Agreement will not be registered under the Securities Act, and
such shares of Parent Common Stock must be held indefinitely unless subsequently
registered under the Securities Act or an exemption from such registration is
available (such as Rule 144 under the Securities Act) and Parent is under no
obligation to register such shares of Parent Common Stock, except as set forth
in Section 7.16 of this Agreement.
(b) The share certificate representing the shares of Parent Common Stock
issued pursuant to Section 2.6 will be stamped with the legends specified in
Section 2.6(h) hereof.
4.9 Disposition under the Securities Act. Principal Stockholder understands
that the shares of Parent Common Stock issuable pursuant to Section 2.6 are
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act and that the exemption from registration under Rule 144 will not
be available in any event for at least one year from the date of issuance.
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4.10 Absence of Claims by the Principal Stockholders. Such Principal
Stockholder does not have any claim against the Company whether present or
future, contingent or unconditional, fixed or variable under any Contract or on
any other basis whatsoever, whether in equity or at law.
ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
OF PARENT AND MERGER SUB
------------------------
Each of Parent and Merger Sub hereby represents and warrants to the
Company and the Principal Stockholders, subject to such exceptions as are
specifically disclosed in the disclosure schedule (referencing the appropriate
section and paragraph numbers) supplied as of the date hereof by Parent to
Company (the "Parent Disclosure Schedule"), as follows as of the date hereof and
as of the Effective Time:
5.1 Organization, Standing and Power. Each of Parent and 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 or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
Parent Material Adverse Effect.
5.2 Authority. Each of Parent and Merger Sub has all requisite corporate
power and authority to enter into this Agreement and any Ancillary Agreements to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Ancillary
Agreements to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub and no further action is
required on the part of Parent or Merger Sub to authorize the Agreements or the
Ancillary Agreements to which it is a party and the transactions contemplated
hereby and thereby. This Agreement and any Ancillary Agreements to which Parent
and Merger Sub are parties have been duly executed and delivered by Parent and
Merger Sub and constitute the valid and binding obligations of Parent and Merger
Sub, enforceable against each of Parent and Merger Sub in accordance with their
respective terms.
5.3 No Conflicts. The execution and delivery of this Agreement and any
Ancillary Agreement to which Parent or Merger Sub is a party do not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any conflict with (i) any provision of the Certificate of
Incorporation or Bylaws of Parent or Merger Sub, (ii) any Contract to which
Parent or any of its respective properties or assets are subject and which has
been filed as an exhibit to the Parent 10-K and such other filings under the
Securities Act or the Exchange Act which are made subsequent to the Parent 10-K
and prior to the date hereof, or (iii) any judgment, order or decree applicable
to Parent or Merger Sub, or (iv) any statute, law, ordinance, rule or regulation
applicable to Parent or Merger Sub or their respective properties or assets,
except in the case of this clause (v) where such Conflict would not have a
Parent Material Adverse Effect.
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5.4 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority, or any
third party is required by or with respect to Parent or Merger Sub in connection
with the execution and delivery of this Agreement and any Ancillary Agreements
to which Parent or Merger Sub is a party or the consummation of the transactions
contemplated hereby and thereby, except for (i) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable securities laws, (ii) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings that,
if not obtained or made, would not have a Parent Material Adverse Effect, and
(iii) the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware.
5.5 Parent Common Stock. Parent has a sufficient number of authorized and
unissued shares of Parent Common Stock reserved for issuance to complete the
transactions contemplated by this Agreement. The shares of Parent Common Stock
that will constitute the Merger Shares have been duly authorized, and upon
consummation of the transactions contemplated by this Agreement, will be validly
issued, fully paid and nonassessable and will be free of any liens or
encumbrances or rights of first refusal. The shares of Parent Common Stock that
will constitute the Earnout Shares have been duly authorized, and upon
satisfaction of the conditions precedent relating to the issuance of such
Earnout Shares contemplated by this Agreement, will be validly issued, fully
paid and nonassessable and will be free of any liens or encumbrances or rights
of first refusal.
5.6 Parent SEC Documents. A true and complete copy of each annual,
quarterly and other report, registration statement, and definitive proxy
statement filed by Parent with the SEC since March 31, 2004 (the "Parent SEC
Documents") is available on the Web site maintained by the SEC at
▇▇▇▇://▇▇▇.▇▇▇.▇▇▇. As of their respective filing dates, except as noted therein
or to the extent corrected by a subsequently filed Parent SEC Document, the
Parent SEC Documents complied in all material respects with the requirements of
the Securities Act and the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Parent SEC
Documents, and except as noted therein or to the extent corrected by a
subsequently filed Parent SEC Document, none of the Parent SEC Documents
contained on their filing dates any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
5.7 Broker's and Finders' Fees. Neither Parent nor Merger Sub has 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.
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ARTICLE VI
----------
CONDUCT OF THE COMPANY
----------------------
PRIOR TO THE EFFECTIVE TIME
---------------------------
6.1 Conduct of Business of the Company.
(a) Except to the extent that Parent shall otherwise consent in writing,
the Company shall conduct its business and operations (including working capital
and cash management practices and the collection of accounts receivable) in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, pay the debts and Taxes of the Company when due, pay or
perform its other obligations when due, and, to the extent consistent with such
business, preserve intact the Company's present business organizations, keep
available the services of the Company's present officers, key employees and
consultants and preserve the Company's relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it,
all with the goal of preserving unimpaired the Company's goodwill and ongoing
businesses at the Effective Time.
(b) From the date hereof until the earlier of (x) termination of this
Agreement pursuant to Article X and (y) the Effective Time, except to the extent
that Parent shall otherwise consent in writing, the Company shall not:
(i) cause or permit any amendments to its Certificate of Incorporation,
Bylaws or other organizational documents of the Company;
(ii) 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);
(iii) issue, grant, deliver or sell or authorize or propose the issuance,
grant, delivery or sale of, or purchase or propose the purchase of, any shares
of capital stock of the Company or any securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue or purchase any such shares
or other convertible securities except for issuances of Company Capital Stock
pursuant to the exercise of outstanding Company Options;
(iv) grant any severance or termination pay (whether in cash, equity or
otherwise) to any officer or employee except pursuant to Contracts outstanding,
or policies existing, on the date hereof and set forth on Schedule 6.1(b)(iv),
or adopt any new severance plan, or amend or modify or alter in any respect any
such severance plan, agreement or arrangement existing on the date hereof, or
grant any equity-based compensation;
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(v) adopt or amend any Company Employee Plan, enter into any employment
contract, pay or agree to pay any special bonus or special remuneration to any
director or Employee, or increase the salaries, wage rates, or other
compensation of its Employees except payments made pursuant to standard written
agreements outstanding on the date hereof and disclosed on Schedule 6.1(b)(v) or
except to the extent required by law;
(vi) except as set forth on Schedule 6.1(b)(vi), hire or terminate any
Employees, or encourage any Employees to resign from the Company;
(vii) waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(viii) incur any indebtedness (other than trade payables in the ordinary
course of business consistent with past practices) or guarantee any indebtedness
or issue or sell any debt securities or guarantee any debt securities of others;
(ix) pay, discharge or satisfy, in an amount in excess of $5,000 in any one
case, or $10,000 in the aggregate, Liability, other than the payment, discharge
or satisfaction of Liabilities reflected or reserved against in the Current
Balance Sheet;
(x) make any expenditures (including any capital expenditures) or enter
into any commitment or transaction exceeding $5,000 individually or $10,000 in
the aggregate;
(xi) sell, lease, license or otherwise dispose of any of its properties or
assets (whether tangible or intangible), including without limitation the sale
of any accounts receivable of the Company, except the sale of Company's products
in the ordinary course of business consistent with past practices;
(xii) revalue any of its assets (whether tangible or intangible), including
without limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business and consistent
with GAAP;
(xiii) make or change any election in respect of Taxes, adopt or change any
accounting method or practices (other than as required by GAAP), 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;
(xiv) waive or release any right or claim of the Company;
(xv) commence, threat or settle any litigation;
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(xvi) (A) sell, license or transfer to any person or entity any rights to
any Company Intellectual Property or enter into any agreement with respect to
any Company Intellectual Property with any person or entity, (B) buy or license
any Intellectual Property or enter into any agreement with respect to the
Intellectual Property of any person or entity, (C) enter into any agreement with
respect to the development of any Intellectual Property with a third party, (D)
or change pricing or royalties charged by the Company to its customers or
licensees, or the pricing or royalties set or charged by persons who have
licensed Intellectual Property to the Company;
(xvii) 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 Company's
business;
(xviii) enter into, renew, fail to renew, renegotiate, amend or otherwise
modify, or materially breach the terms of any Material Contract;
(xix) terminate, amend or fail to renew any Insurance Policy;
(xx) terminate or fail to review or preserve any Company Authorization; or
(xxi) take, or agree in writing or otherwise to take, any of the actions
described in Section 6.1(b)(i) through Section 6.1(b)(xx) hereof, or any other
action that would (A) prevent the Company or any of the Principal Stockholders
from performing, or cause the Company or any of the Principal Stockholders not
to perform, their respective covenants hereunder or (B) cause or result in any
of its respective representations and warranties contained herein being untrue
or incorrect.
6.2 No Solicitation. Neither the Company nor the Principal Stockholders
shall (nor shall the Company or the Principal Stockholders permit, as
applicable, any of their respective officers, directors, employees,
stockholders, 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, encourage, initiate or participate in any inquiry,
negotiations or discussions with respect to any offer or proposal to purchase or
otherwise acquire all or any part of the Company's business, properties or
technologies, or all or any amount of the Company Capital Stock (whether or not
outstanding), whether by merger, purchase of assets, tender offer, license or
otherwise, (b) disclose any information not customarily disclosed to any person
concerning the Company's business, properties or technologies, or afford to any
person or entity access to its properties, technologies, books or record not
customarily afforded such access, (c) assist or cooperate with any person to
make any proposal to purchase or otherwise acquire all or any part of the
Company's business, properties or technologies or all or any amount of the
Company Capital Stock, or (d) enter into any Contract with any person providing
for any of the foregoing. In the event that the Company, any Principal
Stockholder, or any of the Company's affiliates shall receive any offer,
proposal, or request, directly or indirectly, of the type referenced in clauses
(a), (c), or (d) above, or any request for disclosure or access as referenced in
clause (b) above, the Company or such Principal Stockholder, as applicable,
shall immediately (x) suspend any discussions with such offeror or party with
regard to such offers, proposals, or requests and (y) notify Parent thereof,
including information as to the identity
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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. The parties hereto agree that
irreparable damage would occur in the event that the provisions of this Section
6.2 were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed by the parties hereto that Parent shall be
entitled to an immediate injunction or injunctions, without the necessity of
proving the inadequacy of money damages as a remedy and without the necessity of
posting any bond or other security, to prevent breaches of the provisions of
this Section 6.2 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 Parent may be entitled at law or in
equity.
ARTICLE VII
-----------
ADDITIONAL AGREEMENTS
---------------------
7.1 Stockholder Securities Law Compliance and Approval.
(a) Parent shall issue the shares of Parent Common Stock to be issued to
the holders of Company Common Stock pursuant to Section 2.6 hereof, pursuant to
an exemption or exemptions from registration under Section 4(2) of the
Securities Act or Regulation D promulgated under the Securities Act and the
exemption from qualification under the laws of the State of California and other
applicable state securities laws. It is acknowledged and understood that Parent
is relying on written representations made by each Principal Stockholder
pursuant to this Agreement.
(b) As soon as practicable following the execution of this Agreement,
Company will take all action necessary in accordance with Delaware Law and its
Certificate of Incorporation and Bylaws to (i) convene a special meeting of the
Stockholders to be held as promptly as practicable for the purpose of obtaining,
or (ii) obtain, by written consent, the Requisite Stockholder Approval.
7.2 Commercially Reasonable Efforts; Governmental Approvals; Contract
Consents.
(a) Subject to the terms and conditions set forth in this Agreement, each
of the parties hereto shall use commercially reasonable efforts to take
promptly, or cause to be taken promptly, all actions, and to do promptly, or
cause to be done promptly, all things necessary, proper or advisable under
applicable laws and regulations to satisfy the conditions set forth in Article
VIII hereof 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.
(b) Each of the Company and Parent shall promptly execute and file, or join
in the execution and filing of, any application, notification or other document
that may be necessary in order to obtain the authorization, approval or consent
of any Governmental Authority, whether federal, state, local or foreign, which
may be reasonably required, or which Parent may reasonably request, in
connection with the consummation of the First Merger and the other transactions
contemplated hereby. Each of the Company
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and Parent shall use commercially reasonable efforts to obtain all such
authorizations, approvals and consents. Each of the Company and Parent shall
promptly inform the other of any material communication between the Company or
Parent (as applicable) and any Governmental Authority regarding the First Merger
or any other transactions contemplated hereby. If the Company or Parent or any
affiliate thereof shall receive any formal or informal request for supplemental
information or documentary material from any Governmental Authority with respect
to the First Merger or any other transactions contemplated hereby, then the
Company or Parent (as applicable) shall make, or cause to be made, as soon as
reasonably practicable, a response in compliance with such request. Each of the
Company and Parent shall direct, in its sole discretion, the making of such
response, but shall consider in good faith the views of the other.
(c) The Company shall use commercially reasonable efforts to obtain all
necessary consents, waivers and approvals of any parties to any Contract as are
required thereunder in connection with the First Merger and the Second Merger or
for any such Contracts to remain in full force and effect so as to preserve all
rights of, and benefits to, the First-Step Corporation and the Surviving
Corporation under such Contract from and after the Effective Time.
7.3 Notification of Certain Matters. The Company or any Principal
Stockholder, as the case may be, shall give prompt notice to Parent of: (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which has caused or is likely to cause any representation or warranty of the
Company or any Principal Stockholder, respectively and as the case may be, set
forth in this Agreement to be untrue or inaccurate at or at any time prior to
the Effective Time, and (ii) any failure of the Company or any Principal
Stockholder, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. No
information or knowledge obtained pursuant to this Section 7.3 shall affect or
be deemed to modify any representation or warranty contained herein, the right
to indemnification under Article IX or the conditions to the obligations of the
parties to consummate the First Merger in accordance with the terms and
provisions hereof.
7.4 Access to Information. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during the
period from the date hereof and prior to the Effective Time to (i) all of the
Company's properties, books, contracts, commitments and records, (ii) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of the Company as Parent may reasonably
request, and (iii) all employees, officers, directors, customers, suppliers and
creditors of the Company as Parent considers necessary or appropriate for the
purpose of familiarizing itself with the business of the Company. The Company
shall afford Parent and its accountants, counsel and other representatives
copies of internal financial statements (including Tax Returns and supporting
documentation) and any other documentation reasonably requested by Parent,
promptly upon request. No information or knowledge obtained in any investigation
pursuant to this Section 7.4 shall affect or be deemed to modify any
representation or warranty contained herein, the right to indemnification under
Article IX or the conditions to the obligations of the parties to consummate the
First Merger in accordance with the terms and provisions hereof.
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7.5 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 7.4 hereof, or in
connection with the negotiation and execution of this Agreement or the
effectuation of the First Merger and the other transactions contemplated hereby,
shall be governed by the terms of the Confidential Terms attached as Schedule B
to that certain letter agreement between the Company and Parent dated as of May
26, 2004 (the "Confidential Disclosure Agreement").
7.6 Public Disclosure. No party shall issue or make any statement or other
communication or disclosure to any third party (other than their respective
agents or employees of the Company) regarding this Agreement, the First Merger,
Second Merger or the other transactions contemplated hereby, including, if
applicable, the termination of this Agreement and the reasons therefor, without
the consent of the other party hereto, subject to Parent's obligation to comply
with applicable laws and the rules and regulations of the Nasdaq Stock Market.
7.7 Rule 145 Affiliates. Schedule 7.7 hereto sets forth a complete and
accurate list of all persons who, in the Company's reasonable judgment, are or
may be "affiliates" of the Company within the meaning of Rule 145 promulgated
under the Securities Act (each, a "Rule 145 Affiliate"). The Company shall
provide Parent such information and documents as Parent shall reasonably request
for purposes of reviewing such list. The Company shall use commercially
reasonable efforts to cause each Rule 145 Affiliate to enter into an Affiliate
Agreement with Parent prior to the Closing unless any such Rule 145 Affiliate
shall have previously entered into an Affiliate Agreement with Parent.
7.8 Employee Plans. The Company and its Affiliates, as applicable, shall
each terminate, effective as of the day immediately preceding the Closing Date
any and all group severance, separation or salary continuation plans, programs,
or arrangements. Parent shall receive from the Company evidence that the
Company's and each of its Affiliate's, as applicable, plan(s) and/or program(s)
have been terminated pursuant to resolutions of each such entity's Board of
Directors (the form and substance of such resolutions shall be subject to review
and approval of Parent), effective as of the day immediately preceding the
Closing Date. The Company also shall take such other actions in furtherance of
terminating such plans, policies and arrangements as Parent may reasonably
require.
7.9 Statement of Liabilities. At least three (3) business days prior to the
Closing Date, the Company shall deliver to Parent a statement certified by the
Chief Financial Officer of the Company (the "Statement of Liabilities") setting
forth the Estimated Third Party Expenses and Estimated Specified Company
Liabilities.
7.10 Spreadsheet. On the Closing Date, the Company shall deliver to Parent
a spreadsheet (the "Spreadsheet") in form and substance acceptable to the
Parent, which Spreadsheet shall be certified as complete and correct by the
Chief Executive Officer of the Company as of the Closing and which shall
separately list, as of the Closing, (i) all holders of Company Common Stock and
their respective addresses, the number of shares of Company Common Stock held by
each such holder, the number of Common Merger Shares to be issued to each such
holder pursuant to Section 2.6(b), the number of Common Merger Shares, if any,
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deemed Restricted Shares with respect to each such holder, the number of Common
Merger Shares, if any, deemed Registrable Shares with respect to each such
holder, the portion of the Common Cash Amount to be paid to each such holder
pursuant to Section 2.6, the number of Common Merger Shares to be deposited into
the Escrow Account on behalf of each such holder and the portion of the Common
Cash Amount to be deposited into the Escrow Account on behalf of each such
holder pursuant to Section 2.6, and, assuming the Earnout Shares are greater
than zero, the number of Earnout Shares potentially issuable to each such holder
pursuant to Section 2.6, and (ii) all holders of Company Options and their
respective addresses, the number of shares of Company Common Stock such Company
Options are exercisable for as of immediately prior to the Effective Time with
respect to each such holder and the respective exercise price for such Company
Options, the number of Option Merger Shares issuable upon exercise of the
respective Parent Options pursuant to Section 2.6 and the respective exercise
price for such Parent Options, the portion of the Common Cash Amount to be paid
to each such holder pursuant to Section 2.6, and, assuming the Earnout Shares
are greater than zero, the number of Earnout Shares potentially issuable upon
exercise of Parent Options held by each such holder pursuant to Section 2.6.
7.11 S-8 Registration. Promptly following the Closing Date, but in any
event within thirty (30) days after the Closing Date, Parent shall file, if
available for use by Parent, with the SEC a registration statement on Form S-8
registering that number of shares of Parent Common Stock equal to the number of
shares of Parent Common Stock issuable upon the exercise of all Company Options
assumed by Parent with Parent Options pursuant to Section 2.6(d) hereof.
7.12 Grant of Options to Continuing Employees. Promptly following the
Closing Date, Parent shall authorize and grant to the Continuing Employees an
aggregate of 450,000 options (adjusted for any stock splits, stock combinations,
recapitalizations or the like) to purchase shares of Parent Common Stock under
Parent's 1998 Stock Plan. The allocation of such options shall be determined by
Parent, in consultation with the Principal Stockholders.
7.13 Expenses. Whether or not the First Merger is consummated, all fees and
expenses incurred in connection with (but not as a result of) the First Merger
including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby ("Third Party
Expenses"), shall be the obligation of the respective party incurring such fees
and expenses; provided, however, that the Stockholders shall be responsible for
any Third Party Expenses incurred by the Company or any Principal Stockholder in
excess of $22,500.
7.14 Nasdaq Listing. If required, Parent shall use commercially reasonable
efforts to authorize for listing on the Nasdaq Stock Market the shares of Parent
Common Stock issuable in connection with the First Merger and as contemplated by
this Agreement, effective upon official notice of issuance.
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7.15 Tax Opinion. If the Company receives a tax opinion from tax counsel
reasonably acceptable to Parent, dated as of the Effective Time, to the effect
that if the First Merger is combined with the Second Merger (assuming completion
of the Second Merger as soon as practicable after the Effective Time) the
Integrated Merger will, more likely than not, qualify for federal income tax
purposes to be treated as a "reorganization" within the meaning of Section
368(a)(1)(A) of the Code (the "Tax Opinion"), then, provided that the Second
Merger Consents have been obtained, Parent shall, as soon as practicable after
the Effective Time, cause the First-Step Corporation to effect and complete the
Second Merger. In support of the Tax Opinion, Parent and the Company shall each
provide customary tax representation certificates to the above referenced tax
counsel in the forms reasonably acceptable to their respective counsel. If the
Tax Opinion is delivered pursuant to this Section 7.15, each of the Company,
Newco and Parent shall report the Integrated Merger as a reorganization within
the meaning of Section 368(a) of the Code, unless otherwise required pursuant to
a "determination" within the meaning of Section 1313(a) of the Code.
7.16 Registration Rights.
(a) Certain Definitions. For purposes of this Section 7.16:
(i) Registration. The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of effectiveness of such registration statement.
(ii) Registrable Securities. The term "Registrable Securities" shall mean
(x) the shares of Parent Common Stock to be issued pursuant to Section 2.6(b)
hereof that are identified as "Registrable Shares" in the Spreadsheet and (y)
any shares of Parent Common Stock that may be issued as a dividend or other
distribution (including shares of Parent Common Stock issued in a subdivision
and split of Parent's outstanding Common Stock) with respect to, or in exchange
for, or in replacement of, shares of Parent Common Stock described in clause (x)
of this Section 7.16(a)(ii) or in this clause (y); excluding in all cases,
however, from the definition of "Registrable Securities" any such shares that
are: (a) registered under the Securities Act other than pursuant to a
registration statement filed pursuant to this Agreement; (b) sold pursuant to a
registration statement filed pursuant to this Agreement; or (c) sold pursuant to
Rule 144 promulgated under the Securities Act or otherwise sold to the public.
Except as provided in clause (y) of the first sentence of this Section
7.16(a)(ii), the term "Registrable Securities" does not include any shares of
Parent Common Stock that were not issued in connection with the First Merger.
(iii) Holder. The term "Holder" means a Stockholder who is the original
holder of any Registrable Securities.
(iv) Form S-3. The term "Form S-3" means a registration statement filed
under Form S-3 under the Securities Act, as such is in effect at the Effective
Time, or any successor form of registration statement under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of a
substantial amount of information by reference to other documents filed by
Parent with the SEC.
(v) Rule 415. The term "Rule 415" means Rule 415 promulgated under the
Securities Act, as such Rule may be amended from time to time, or any similar or
successor rule or regulation hereafter adopted by the SEC.
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(b) Form S-3 Shelf Registration.
(i) Filing and Registration Period. Subject to the terms and conditions of
this Agreement, promptly following the Closing Date, but in any event within
thirty (30) days after the Closing Date, Parent shall file with the SEC a
registration statement on Form S-3 for an offering to be made on a continuous
basis pursuant to Rule 415 covering all of the then outstanding Registrable
Securities (the "Shelf Registration"). Prior to filing such Shelf Registration
with the SEC, Parent shall consult with the Stockholder Representative with
respect to the portions of the Shelf Registration that describe the manners in
which resales of Parent Common Stock may be made in reliance on the Shelf
Registration. Parent shall use commercially reasonable efforts to cause such
Shelf Registration to be declared effective as soon as practicable after its
filing and to keep the Shelf Registration continuously effective under the
Securities Act for a period of time (such period of time being hereinafter
called the "Registration Period" commencing on the date the Shelf Registration
is declared effective under the Securities Act by the SEC (the "Date of
Effectiveness") and ending at the end of the day on the one (1) year anniversary
of the Closing Date. Parent shall have no duty or obligation to keep the Shelf
Registration effective after the expiration of the Registration Period.
(ii) Timing and Manner of Sales. Any sale of Registrable Securities
pursuant to a Shelf Registration under this Section 7.16(b) may be made only
during the Registration Period. In addition, any sale of Registrable Securities
pursuant to a Shelf Registration under this Section 7.16(b) may only be made in
accordance with the method or methods of distribution of such Registrable
Securities that are described in the registration statement for the Shelf
Registration and permitted by such form of registration statement.
(iii) No Underwritings. No sale of Registrable Securities under any Shelf
Registration effected pursuant to this Section 7.16 may be effected pursuant to
any underwritten offering without Parent's prior written consent, which may be
withheld in its sole and absolute discretion.
(iv) Material Events. In the event a material corporate development or a
material corporate transaction is under consideration and Parent determines that
disclosure of such development or transaction would require an amendment or
supplement to the registration statement (or the related prospectus) in order to
cause the prospectus to be current, then Parent shall have the right, in its
sole discretion, to suspend the effectiveness of the Shelf Registration and to
prohibit each Holder from effecting any sale of Registrable Securities pursuant
to such Shelf Registration (and the related prospectus) until (x) the Shelf
Registration has been amended, or (y) if Parent determines that an amendment
would be detrimental to Parent (or would deprive Parent of the opportunity to
pursue a significant favorable transaction), then for one or more periods, which
shall not exceed thirty (30) days in any single instance or ninety (90) days in
the aggregate.
(v) Trading Window Compliance. The Holders acknowledge that the Parent
"Statement of Policy Against ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and Guidelines with Respect to
Certain Transactions in Company Securities," as such may be amended from time to
time, a current copy of which has been provided to Company prior to the Closing
(the "Parent Trading Policy") requires that those directors, officers and
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employees of Parent and its subsidiaries and those other persons whom Parent
determines to be "Insiders" or otherwise subject to the "trading window" and
pre-clearance requirements of the Parent Trading Policy (and members of their
immediate families and households) are permitted to effect trades in Parent
securities: (i) only during those specified time periods ("trading windows") in
which such persons are permitted to make sales, purchases or other trades in
Parent's securities under the "trading window" provisions of the Parent Trading
Policy; and (ii) only after pre-clearance of such sales, purchases or other
trades with a member of Parent's ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Compliance Committee. If a
Holder is or becomes subject to the "trading window" and/or "pre-clearance"
provisions of the Parent Trading Policy described above, then, notwithstanding
anything herein to the contrary, such Holder may sell, transfer and dispose of
Registrable Securities only during those trading windows during which such
Insiders are permitted to effect trades in Parent stock under the Parent Trading
Policy and only after pre-clearing such trades with a member of Parent's ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ Compliance Committee as provided in the Parent Trading Policy.
(c) Limitations. Notwithstanding the provisions of Section 7.16(b) above,
Parent shall not be obligated to effect any registration, qualification or
compliance of Registrable Securities or maintain the effectiveness of the Shelf
Registration pursuant to Section 7.16(b) of this Agreement, and the Holders
shall not be entitled to sell Registrable Securities pursuant to any
registration statement filed under Section 7.16(b) of this Agreement, as
applicable:
(i) if Form S-3 is not then available for such offering by the Holders;
(ii) if Parent shall determine that it would be detrimental to Parent and
its stockholders for such registration statement to be in effect or such sales
to be made at such time, due, for example, to the existence of a material
development or potential material development involving Parent which Parent
would be obligated to disclose in the prospectus contained in the Shelf
Registration, in which event Parent will have the right to defer the filing of
any such Shelf Registration for a period or periods of not more than thirty (30)
days in one instance and ninety (90) days in the aggregate;
(iii) if Parent is acquired and Parent Common Stock ceases to be publicly
traded;
(iv) if the SEC refuses to declare such registration effective due to the
participation of any particular Holder in such registration (unless such Holder
withdraws all such Holder's Registrable Securities from such registration
statement); or if the manner in which any Registrable Securities are disposed of
pursuant to the Shelf Registration is not included within the plan of
distribution set forth in the prospectus for the Shelf Registration;
(v) in any particular jurisdiction in which Parent would be required to
qualify to do business or to file a general consent to service of process in
effecting such registration, qualification or compliance, unless Parent is
already subject to service of process in such jurisdiction; or
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(vi) with respect to any Registrable Securities that may be sold under Rule
144.
(d) Furnish Information. It shall be a condition precedent to the
obligations of Parent to take any action pursuant to this Section 7.16 that the
selling Holders will furnish to Parent such information regarding themselves,
the Registrable Securities held by them, and the intended method of disposition
and plan of distribution of such Registrable Securities as shall be required to
timely effect the registration of their Registrable Securities.
(e) Assignment. The rights of a Holder under Section 7.16 may not be
assigned by Holder to any third party.
ARTICLE VIII
------------
CONDITIONS TO THE MERGER
------------------------
8.1 Conditions to Obligations of Each Party. The respective obligations of
the Company and Parent to effect the First Merger shall be subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:
(a) No Orders. No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the First Merger illegal
or otherwise prohibiting the consummation of the First Merger or any other
transaction contemplated hereby.
(b) No Injunctions. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other similar legal restraint shall be in effect that has the
effect of prohibiting the consummation of the First Merger or any other
transaction contemplated hereby.
(c) Governmental Approvals. Parent and the Company shall have obtained all
consents and approvals from any Governmental Authority that are necessary to
consummate the First Merger and the other transactions contemplated hereby.
(d) Requisite Stockholder Approval. The Company shall have obtained the
Requisite Stockholder Approval.
8.2 Conditions to the Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to consummate the First Merger and the other
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent and Merger Sub:
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(a) Representations and Warranties. The representations and warranties of
the Company and the Principal Stockholders set forth in this Agreement that are
not qualified by "Company Material Adverse Effect," materiality or other similar
qualification shall have been true and correct in all material respects on the
date they were made and shall be true and correct in all material respects on
the Closing Date as if made on and as of the Closing Date (except for any such
representations and warranties that are made as of a particular date, which
shall be true and correct in all material respects only as of such date). The
representations and warranties of the Company and the Principal Stockholders set
forth in this Agreement that are qualified by "Company Material Adverse Effect,"
materiality or other similar qualification shall have been true and correct in
all respects on the date they were made and shall be true and correct in all
respects on the Closing Date as if made on and as of the Closing Date (except
for any such representations and warranties that are made as of a particular
date, which shall be true and correct in all respects only as of such date).
(b) Covenants. The Company and the Principal Stockholders shall have
performed and complied in all material respects with all covenants and
obligations under this Agreement required to be performed and complied with by
such parties as of the Closing.
(c) No Company Material Adverse Effect. Since the date of this Agreement,
there shall not have occurred any event or condition of any kind or character
that has had, or is reasonably likely to have, a Company Material Adverse
Effect.
(d) Litigation. There shall be no action, suit, claim, order, injunction or
proceeding of any nature pending or threatened against Parent or the Company,
their respective properties or any of their respective officers or directors (in
their capacities as such) arising out of, or in any way connected with, the
First Merger or the other transactions contemplated hereby.
(e) Third Party Consents. Parent shall have received a consent with respect
to each Contract set forth on Schedule 8.2(e) hereto, which consents shall be in
a form reasonably acceptable to Parent and shall preserve all rights of, and
benefits to, the First-Step Corporation and, if applicable, the Surviving
Corporation, under such Contracts and shall allow such Contracts to remain in
full force and effect following the First Merger and, if applicable, the Second
Merger, without limitation, modification or alteration.
(f) Termination of Agreements. The Company shall have terminated each of
those Contracts set forth on Schedule 8.2(f) hereto and each such Contract shall
be of no further force or effect.
(g) Resignation of Officers and Directors. Parent shall have received a
written resignation from each of the officers and directors of the Company and
each Company Subsidiary, effective as of the Effective Time.
(h) Ancillary Agreements. Each Ancillary Agreement shall be in full force
and effect and none of the parties thereto shall have taken any action to
rescind, revoke or otherwise repudiate such party's Ancillary Agreement(s).
(i) Employees.
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(i) All of the Key Employees shall have accepted employment offers from
Parent, with effect as of the Effective Time, and executed and delivered a form
of Employment Proprietary Information and Inventions Agreement provided by
Parent ("EPIIA"), and none of the Key Employees shall have taken any action to
rescind, revoke or otherwise repudiate his or her Offer Letter or EPIIA.
(ii) The Principal Stockholders shall have accepted employment offers from
Parent, with effect as of the Effective Time, and executed and delivered an
EPIIA, and none of the Principal Stockholders shall have taken any action to
rescind, revoke or otherwise repudiate his or her Offer Letter, Protective
Covenant Agreement or EPIIA.
(iii) The Key Employees and the Principal Stockholders shall continue to be
employed by the Company at the Closing and shall not have given any notice or
other indication that they are not willing or do not intend to be employed by
Parent or a subsidiary of Parent (as Parent shall designate), following the
First Merger or the Second Merger, as the case may be.
(iv) Each Continuing Employee shall have executed and delivered an EPIIA
and Offer Letter, and none of the Continuing Employees shall have taken any
action to rescind, revoke or otherwise repudiate his or her EPIIA or Offer
Letter.
(j) Consulting Agreements. Parent shall have received executed copies of
each Required Consulting Agreement in the forms attached hereto as Exhibits F-1
and F-2 (the "Required Consulting Agreements"), and each such Required
Consulting Agreement shall be in full force and effect as of the Effective Time.
(k) Relocation Agreements. Parent shall have received an executed copy of
the ▇▇▇▇▇▇▇ Relocation Agreement in the form attached hereto as Exhibit G (the
"▇▇▇▇▇▇▇ Relocation Agreement"), and such ▇▇▇▇▇▇▇ Relocation Agreement shall be
in full force and effect as of the Effective Time.
(l) Amendment to Option Plan. The Company Stock Option Plan shall have been
amended to provide as set forth in Exhibit H hereto (the "Plan Amendment"),
which Plan Amendment shall have been consented to by each holder of a Company
Option outstanding as of the date of such amendment, and such Plan Amendment
shall be in effect as of the Effective Time.
(m) Release. Parent shall have received a fully executed copy of the Lease
Assumption Agreement, Release and Consent in the form attached hereto as Exhibit
I (the "Release Agreement") with respect to that certain property leased by the
Company located in San Francisco California, and such Release Agreement shall be
in full force and effect as of the Effective Time.
(n) Certificate of the Company. Parent shall have received a certificate of
the Company, executed by the Chief Executive Officer of the Company, certifying
as to the matters set forth in Section 8.2(a), Section 8.2(b) and Section 8.2(c)
hereof, which certificate will include a reaffirmation of the representations
and warranties of the Company set forth in this Agreement and the Ancillary
Agreements as of the Effective Time.
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(o) Certificate of the Principal Stockholders. Parent shall have received a
certificate of each of the Principal Stockholders certifying as to the matters
set forth in Section 8.2(a), Section 8.2(b) and Section 8.2(c) hereof, which
certificate will include a reaffirmation of the representations and warranties
of the Principal Stockholders set forth in this Agreement and the Ancillary
Agreements as of the Effective Time.
(p) Good Standing Certificates. Parent shall have received a long-form good
standing certificate with respect to the Company issued by the Secretary of
State of the State of Delaware, a good standing certificate with respect to
Company issued by the Secretary of State of the State of California, a tax good
standing certificate with respect to the Company issued by the California
Franchise Tax Board and a good standing certificate with respect to the Company
issued by the Secretary of State of the State of Texas, each dated within a
reasonable period prior to the Closing.
(q) Exemption Available. Parent shall be reasonably satisfied that the
issuance of Parent Common Stock in the First Merger and as contemplated by this
Agreement is otherwise exempt from registration under the Securities Act
pursuant to Regulation D promulgated under the Securities Act.
(r) Legal Proceedings. No Governmental Authority shall have commenced, or
notified either Parent or the Company or any of their respective representatives
that such Governmental Authority intends to commence, proceedings to restrain,
prohibit, condition, rescind or take any substantially similar action with
respect to any of the transactions contemplated by this Agreement or any of the
Ancillary Agreements, unless such Governmental Authority shall have withdrawn
such notice and abandoned all such proceedings.
(s) Legal Opinion. Parent shall have received a legal opinion from Shannon,
Gracey, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, legal counsel to the Company, as to the matters set
forth in Exhibit K.
(t) Tax Opinion. Company shall have received the Tax Opinion and delivered
a copy to Parent.
(u) FIRPTA Certificate. Parent shall have received a certificate, in a form
reasonably acceptable to Parent, for purposes of satisfying Parent's obligations
under Treasury Regulation Section 1.1445-2(c)(3), validly executed by the Chief
Executive Officer of the Company.
8.3 Conditions to Obligations of the Company and the Principal
Stockholders. The obligations of the Company and each of the Principal
Stockholders to consummate the First Merger and the other transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company and the Principal Stockholders:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub set forth in this Agreement that are not qualified by
"Parent Material Adverse Effect," materiality or other similar qualification
shall have been true and correct in all material respects on the date they were
made and
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shall be true and correct in all material respects on the Closing Date as if
made on and as of the Closing Date (except for any such representations and
warranties that are made as of a particular date, which shall be true and
correct in all material respects only as of such date). The representations and
warranties of Parent and Merger Sub set forth in this Agreement that are
qualified by "Parent Material Adverse Effect," materiality or other similar
qualification shall have been true and correct in all respects on the date they
were made and shall be true and correct in all respects on the Closing Date as
if made on and as of the Closing Date (except for any such representations and
warranties that are made as of a particular date, which shall be true and
correct in all respects only as of such date).
(b) Covenants. Each of Parent and Merger Sub shall have performed and
complied in all material respects with all covenants and obligations of this
Agreement required to be performed and complied with by it as of the Closing
Date
(c) Certificate of Parent. The Company shall have received a certificate of
Parent, executed by a duly authorized officer of Parent, certifying as to the
matters set forth in Section 8.3(a) and Section 8.3(b) hereof.
ARTICLE IX
----------
SURVIVAL AND INDEMNIFICATION
----------------------------
9.1 Survival of Representations, Warranties and Covenants. The
representations and warranties of the Company and the Principal Stockholders set
forth in this Agreement, any certificate or other instrument delivered pursuant
hereto, or any Ancillary Agreement, shall survive for a period of twelve (12)
months following the Closing Date; provided, however, that (i) the
representations and warranties set forth in Section 3.2 (Authority), Section 3.5
(Company Capital Structure), Section 4.2 (Authority) and Section 4.4 (Ownership
of Shares) shall survive indefinitely, (ii) the representations and warranties
set forth in Section 3.11 (Employee Benefits) and Section 3.12 (Intellectual
Property) shall survive until the third (3rd) anniversary of the Closing Date,
and (iii) the representations and warranties set forth in Section 3.10 (Tax
Matters) shall survive until sixty (60) days after the expiration of the
applicable statute of limitations, including any extensions thereof. (the
expiration of each respective period, a "Termination Date"). If a Notice of
Claim has been delivered in compliance with this Article IX prior to the
applicable Termination Date, then such representations, warranties, covenants
and obligations, as the case may be, shall survive as to such claim until the
claim has been finally resolved. The representations and warranties of Parent
and Merger Sub set forth in this Agreement, or in any certificate or other
instrument delivered pursuant to this Agreement or any Ancillary Agreement,
shall terminate at the Closing. The agreements and covenants contained in this
Agreement shall survive the Closing in accordance with their respective terms.
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9.2 Indemnification. The Stockholders (each, an "Indemnifying Party" and
collectively, the "Indemnifying Parties") shall jointly and severally indemnify
and hold Parent and its affiliates, including the First-Step Corporation, the
Surviving Corporation, and their respective officers, directors, employees,
agents, successors and assigns (each, an "Indemnified Party" and collectively,
the "Indemnified Parties"), harmless against all Losses incurred or sustained by
the Indemnified Parties, or any of them, directly or indirectly, as a result of,
arising out of or relating to (i) any breach of a representation or warranty of
the Company or the Principal Stockholders set forth in this Agreement or in any
certificate or instrument delivered in connection herewith (including, without
limitation, the Spreadsheet) or in any Ancillary Agreement, (ii) any failure by
the Company or the Principal Stockholders to perform or comply with any covenant
applicable to any of them contained in this Agreement or in any Ancillary
Agreement, (iii) any Dissenting Share Payments, (iv) any Specified Company
Liability, to the extent such Liability is in excess of the corresponding
Estimated Specified Company Liability amount set forth on the Statement of
Liabilities, and (v) any Third Party Expenses, to the extent such Liability is
in excess of $22,500 and such amount has not reduced the Common Cash Amount, and
(vii) any fraud, willful breach or intentional misrepresentation. The
Indemnifying Parties shall not have any right of contribution from the
First-Step Corporation, the Surviving Corporation or Parent with respect to any
Loss claimed by an Indemnified Party.
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9.3 Limitations on Indemnification.
(a) If the First Merger is consummated, the Indemnified Parties may not
recover pursuant to the indemnity set forth in Section 9.2(i) hereof unless and
until one or more Notices of Claim identifying Losses in excess of $20,000 in
the aggregate (the "Threshold Amount") has or have been delivered to the
Stockholder Representative in accordance with Section 9.4 hereof, in which case
Parent shall be entitled to recover pursuant to the indemnity set forth in
Section 9.2(i) hereof in respect of all such Losses so identified ; provided,
however, that the limitations set forth in this Section 9.3(b) shall not apply
to any claim for indemnification arising out of a breach of the representations
and warranties set forth in Section 3.2 (Authority), Section 3.5 (Company
Capital Structure), Section 3.8 (Undisclosed Liabilities), Section 4.2
(Authority), and Section 4.4 (Ownership of Shares).
(b) It is understood that nothing in this Agreement shall eliminate the
ability of any party hereto to apply for equitable remedies to enforce the other
parties' obligations under this Agreement.
9.4 Notice of Claim.
(a) As used herein, the term "Claim" means a claim for indemnification of
an Indemnified Party under this Article IX. Subject to the terms of this
Agreement, Parent shall give written notice of a Claim (a "Notice of Claim") to
the Stockholder Representative (with a copy to the Escrow Agent if the Claim
involves recovery against the Escrow Fund) promptly after Parent becomes aware
of the existence of any potential claim by an Indemnified Party for
indemnification from the Indemnifying Parties under this Article IX.
(b) Each Notice of Claim by Parent given pursuant to Section 9.4(a) shall
contain the following information: (i) that Parent has directly or indirectly
incurred, paid or properly accrued (in accordance with GAAP) or, in good faith,
believes it shall have to directly or indirectly incur, pay or accrue (in
accordance with GAAP), Losses in an aggregate stated amount arising from such
Claim (which amount may be the amount of damages claimed by a third party in an
action brought against Parent based on alleged facts, which if true, would give
rise to liability for Losses to Parent under this Article IX); and (ii) a brief
description, in reasonable detail (to the extent reasonably available to
Parent), of the facts, circumstances or events giving rise to the alleged Losses
based on Parent's good faith belief thereof, including the identity and address
of any third-party claimant (to the extent reasonably available to Parent) and
copies of any formal demand or complaint, the amount of Losses, the date each
such item was incurred, paid or properly accrued, or the basis for such
anticipated liability, and the specific nature of the breach to which such item
is related.
(c) Parent may submit a Notice of Claim at any time during the period
commencing with the Effective Time and ending on the applicable Termination
Date, but shall not be permitted to bring a Notice of Claim at any time after
the applicable Termination Date (and any delivery or attempted delivery of a
Notice of Claim after such time shall be void and of no force or effect).
Notwithstanding anything contained herein to the contrary, any Claims for Losses
specified in
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any Notice of Claim delivered to the Stockholder Representative prior to
expiration of the applicable Termination Date shall remain outstanding until
such Claims for Losses have been resolved or satisfied, notwithstanding the
passage of the applicable Termination Date. Until the applicable Termination
Date, no delay on the part of Parent in giving the Stockholder Representative a
Notice of Claim shall relieve any Indemnifying Parties from any of their
respective obligations under this Article IX unless (and then only to the extent
that) the Stockholder Representative or the Indemnifying Parties are materially
prejudiced thereby.
9.5 Resolution of Notice of Claim. Each Notice of Claim given by Parent
shall be resolved as follows:
(a) If, within fifteen (15) business days after a Notice of Claim is
received by the Stockholder Representative, the Stockholder Representative does
not contest such Notice of Claim in writing to Parent, the Stockholder
Representative shall be conclusively deemed to have consented, on behalf of all
Indemnifying Parties, (i) to the recovery by Parent of the full amount of Losses
specified in the Notice of Claim in accordance with this Article IX by
forfeiture of that portion of the Escrow Fund having an aggregate value equal to
such Losses (the value of the Escrowed Shares to be calculated on the basis of
the Trading Price, and the composition of any recovery from the Escrow Fund, as
between Escrowed Shares and Escrowed Cash to be at Parent's option), and (ii)
without further notice, to have stipulated to the entry of a final judgment for
damages against the Indemnifying Parties for such amount in any court having
jurisdiction over the matter where venue is proper.
(b) If the Stockholder Representative gives Parent written notice
contesting all or any portion of Claim included within a Notice of Claim (a
"Contested Claim") (with a copy to the Escrow Agent if the Claim involves
recovery against the Escrow Fund) within the fifteen (15) business day period
specified in Section 9.5(a) hereof, then such Contested Claim shall be resolved
by either (i) a written settlement agreement executed by the respective
Indemnified Parties and the Stockholder Representative (a copy of which shall be
furnished to the Escrow Agent, if applicable) or (ii) in the absence of such a
written settlement agreement within thirty (30) business days following receipt
by Parent of the written notice from the Stockholder Representative, by
litigation between the Indemnified Parties and the Stockholder Representative in
accordance with the terms and provisions of Section 9.5(d) hereof.
(c) In addition to any other remedies available to the Indemnified Parties,
Parent shall be entitled to set-off any indemnifiable Loss that is in excess of
the Escrow Fund or that arises after the Release Date against the obligation to
issue Earnout Shares.
(d) Either an Indemnified Party or the Stockholder Representative may bring
suit in the courts of the State of California and the Federal courts of the
United States of America located within the County of San Mateo or San Francisco
in the State of California to resolve any Contested Claim. Judgment upon any
award rendered by the trial court may be entered in any court having
jurisdiction.
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9.6 Release of Escrow Fund. Subject to the following requirements, the
Escrow Fund then held by the Escrow Agent shall be released by the Escrow Agent
to the former holders of Company Common Stock at 5:00 p.m., local time at
Parent's headquarters, on the twelve (12) month anniversary of the Closing Date
(the "Release Date"); provided, however, that the escrow period shall not
terminate with respect to any amount which, in the reasonable judgment of
Parent, is necessary to satisfy any unsatisfied claims specified in any Notice
of Claim theretofore delivered to the Escrow Agent and the Stockholder
Representative prior to the Release Date with respect to facts and circumstances
existing prior to the Release Date ("Unresolved Claims"). On the Release Date,
the Escrow Agent shall deliver the entire remaining portion of the Escrow Fund
other than amounts set forth in any such pending Notices of Claim to satisfy any
Unresolved Claims, as described above, in the following manner: (i) first, to
the Stockholder Representative for any Stockholder Representative Expenses, and,
if there is any amount remaining in the Escrow Fund after accounting for amounts
reserved for Unresolved Claims, and (ii) then to the former holders of Company
Common Stock in proportion to their respective Pro Rata Share of the remaining
Escrow Fund. Thereafter, as soon as any such Unresolved Claims have been
resolved, the Escrow Agent shall deliver the remaining portion of the Escrow
Fund, if any, no longer required to satisfy such previously Unresolved Claims in
the manner set forth in the preceding sentence.
9.7 Third-Party Claims. In the event Parent becomes aware of a third party
claim (a "Third Party Claim") which Parent reasonably believes may result in a
demand for indemnification pursuant to this Article IX, Parent shall notify the
Stockholder Representative of such claim, and the Stockholder Representative
shall be entitled on behalf of the Indemnifying Parties, at its expense, to
participate in, but not to determine or conduct, the defense of such Third Party
Claim. Parent shall have the right in its sole discretion to conduct the defense
of, and to settle, any such Third Party Claim; provided, however, that except
with the prior written consent of such settlement by the Stockholder
Representative (which consent shall not be unreasonably withheld or delayed), no
settlement of any such Third Party Claim with third party claimants shall be
determinative of the amount of Losses relating to such matter. In the event that
the Stockholder Representative has consented to any such settlement, the
Indemnifying Parties shall have no power or authority to object under any
provision of this Article IX to the amount of any Third Party Claim by Parent
against the Escrow Fund with respect to such settlement.
9.8 Stockholder Representative.
(a) Each Stockholder hereby appoints the Stockholder Representative as its
agent and attorney-in-fact, to give and receive notices and communications, to
authorize payment to any Indemnified Party from the Escrow Fund in satisfaction
of claims by any Indemnified Party, to object to such payments, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims, to assert, negotiate, enter into settlements and compromises of, and
demand arbitration and comply with orders of courts and awards of arbitrators
with respect to, any other claim by any Indemnified Party against any
Stockholder or by any such Stockholder against any Indemnified Party or any
dispute between any Indemnified Party and any such Stockholder, in each case
relating to this Agreement, the Escrow Agreement or the transactions
contemplated hereby and thereby, and to take all other actions that are either
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(i) necessary or appropriate in the judgment of the Stockholder Representative
for the accomplishment of the foregoing or (ii) specifically mandated by the
terms of this Agreement or the Escrow Agreement. The Stockholder Representative
may be changed by the Principal Stockholders from time to time upon not less
than thirty (30) days prior written notice to Parent; provided, however, that
the Stockholder Representative may not be removed unless holders of a two-thirds
interest of the Escrow Fund agree to such removal and to the identity of the
substituted agent. A vacancy in the position of Stockholder Representative may
be filled by the holders of a majority in interest of the Escrow Fund. No bond
shall be required of the Stockholder Representative, and the Stockholder
Representative shall not receive any compensation for its services. Notices or
communications to or from the Stockholder Representative shall constitute notice
to or from the Stockholders.
(b) The Stockholder Representative shall not be liable for any act done or
omitted hereunder as Stockholder Representative while acting in good faith and
in the exercise of reasonable judgment. The Stockholders on whose behalf the
Escrow Fund was contributed to the Escrow Account shall indemnify the
Stockholder Representative and hold the Stockholder Representative harmless
against any loss, liability or expense incurred without gross negligence or bad
faith on the part of the Stockholder Representative and arising out of or in
connection with the acceptance or administration of the Stockholder
Representative's duties hereunder, including the reasonable fees and expenses of
any legal counsel retained by the Stockholder Representative ("Stockholder
Representative Expenses"). Promptly after the Release Date, and subject to
Section 9.6, any shares of Parent Common Stock, Cash Amount or other property
that remain available in the Escrow Fund shall constitute security for the
indemnification obligations set forth in the immediately preceding sentence and
shall be released to the Stockholder Representative upon delivery by the
Stockholder Representative to Parent and the Escrow Agent prior to the Release
Date of a certificate signed by an officer of the Stockholder Representative:
(1) stating that the Stockholder Representative is entitled to such indemnity
payment, (2) specifying in reasonable detail the basis of such claim, and (3)
any additional documentation evidencing the validity of the Stockholder
Representative Expenses reasonably requested by the Escrow Agent, Parent or any
holder of Company Common Stock. A decision, act, consent or instruction of the
Stockholder Representative, including but not limited to an amendment, extension
or waiver of this Agreement pursuant to Section 10.3 and Section 10.4 hereof,
shall constitute a decision of the Stockholders and shall be final, binding and
conclusive upon the Stockholders; and the Escrow Agent and Parent may rely upon
any such decision, act, consent or instruction of the Stockholder Representative
as being the decision, act, consent or instruction of the Stockholders. The
Escrow Agent and Parent are hereby relieved from any liability to any person for
any acts done by them in accordance with such decision, act, consent or
instruction of the Stockholder Representative.
ARTICLE X
---------
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
10.1 Termination. Except as provided in Section 10.2 hereof, this Agreement
may be terminated and the First Merger abandoned at any time prior to the
Closing:
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(a) by unanimous agreement of Parent and the Company;
(b) by Parent or the Company, if the Closing Date shall not have occurred
by August 31, 2004; provided, however, that the right to terminate this
Agreement under this Section 10.1(b) shall not be available to any party whose
action or failure to act has been a principal cause of or resulted in the
failure of the First Merger to occur on or before such date and such action or
failure to act constitutes a breach of this Agreement;
(c) by Parent or the Company, if the Requisite Stockholder Approval has not
been obtained at a meeting of the Company's stockholders duly called and held in
accordance with the Company's Certificate of Incorporation, or any postponement
or adjournment thereof; provided, however, that the right to terminate this
Agreement under this Section 10.1(c) shall not be available to any party whose
action or failure to act has been a principal cause of or resulted in the
failure to obtain the Requisite Stockholder Approval at a meeting of the
Company's stockholders and such action or failure to act constitutes a breach of
this Agreement;
(d) by Parent or the Company, if (i) if a court of competent jurisdiction
or other Governmental Authority shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the First Merger or
any other material transaction contemplated by this Agreement, or (ii) any
statute, rule, regulation or order is enacted, promulgated or issued by any
Governmental Authority that would make consummation of the First Merger illegal;
(e) by Parent, if (i) it is not in material breach of its obligations under
this Agreement and (ii) there has been a breach of any representation, warranty,
covenant or agreement of the Company or the Principal Stockholders contained in
this Agreement such that the conditions set forth in Section 8.2(a) or (b)
hereof would not be satisfied at the time of such breach and such breach has not
been cured within ten (10) business days after written notice thereof to the
Company or the applicable Principal Stockholder; provided, however, that no cure
period shall be required for a breach which by its nature cannot be cured;
(f) by Parent, if the Board of Directors of the Company shall withhold,
withdraw, change or otherwise modify in a manner adverse to Parent its unanimous
recommendation that the Stockholders adopt this Agreement and approve the First
Merger, or if the Company shall fail to include such unanimous recommendation in
the Information Statement; or
(g) by the Company, if (i) none of the Company or the Principal
Stockholders is in material breach of their respective obligations under this
Agreement and (ii) there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement such that the conditions set
forth in Section 8.3(a) or (b) hereof would not be satisfied and such breach has
not been cured within ten (10) business days after written notice thereof to
Parent; provided, however, that no cure period shall be required for a breach
which by its nature cannot be cured.
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10.2 Effect of Termination. In the event of termination of this Agreement
pursuant to Section 10.1 hereof, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of Parent, Merger Sub, the
Company or the Principal Stockholders, or their respective officers, directors
or stockholders, if applicable; provided, however, that each party hereto shall
remain liable for any breaches of this Agreement prior to its termination; and
provided further, however, that, the provisions of Section 7.5
(Confidentiality), Section 7.6 (Public Disclosure) and Section 7.13 (Expenses)
hereof, Article XI hereof and this Section 10.2 shall remain in full force and
effect and survive any termination of this Agreement pursuant to the terms of
this Article X.
10.3 Amendment. The parties hereto may amend this Agreement at any time
solely by executing an instrument in writing signed on behalf of the party
against whom enforcement is sought.
10.4 Extension and Waiver. At any time prior to the Closing, Parent, the
Company and the Principal Stockholders may, to the extent legally permitted, (i)
extend the time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
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
messenger or courier 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); provided, however,
that notices sent by mail will not be deemed given until received:
(a) if to Parent, Merger Sub or Surviving Corporation to:
Digital Impact, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Selim Day, Esq.
▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company, to:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Shannon, Gracey, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) If to the Stockholder Representative, to:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(d) If to a Principal Stockholder, to the address set forth opposite his,
her or its name in the Spreadsheet delivered to Parent at the Closing Date or to
any new address delivered by such Principal Stockholder to Parent.
11.2 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.
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11.3 Entire Agreement. This Agreement, the Exhibits hereto, the Disclosure
Schedule, the Confidential Disclosure Agreement, and the documents and
instruments and other agreements among the parties hereto referenced herein
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings both written
and oral, among the parties with respect to the subject matter hereof,
11.4 Third Party Beneficiaries. No provisions of this Agreement are
intended, nor shall be interpreted, to provide or create any third party
beneficiary rights or any other rights of any kind in any client, customer,
employee, affiliate, stockholder, partner or any party hereto or any other
person unless specifically provided otherwise herein and, except as so provided,
all provisions hereof shall be personal solely between the parties to this
Agreement except that Article II is intended to benefit holders of Company
Common Stock.
11.5 Assignment. This Agreement shall not be assigned by operation of law
or otherwise, except that Parent may assign its rights and delegate its
obligations hereunder to its affiliates as long as Parent or any of its
successors remains ultimately liable for all of Parent's obligations hereunder.
11.6 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.
11.7 Other Remedies. 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.
11.8 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 irrevocably consents to the exclusive jurisdiction
and venue of any court within Santa ▇▇▇▇▇ County, State of California, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, 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, venue and such process.
11.9 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY AND ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
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11.10 Specific Performance. The parties hereto agree that irreparable
damage would occur if any provision of this Agreement were not performed in
accordance with the terms hereof and that the parties shall be entitled to seek
an injunction or injunctions to prevent breaches of this Agreement, in addition
to any other remedy to which they are entitled at law or in equity.
11.11 Tax Advisors. Each Principal Stockholder has reviewed with his own
tax advisors the federal, state, local and foreign tax consequences of the
transactions contemplated by this Agreement, including the First Merger and the
Second Merger. Each Principal Stockholder is relying solely on such advisors and
not on any statements or representations of Parent or any of its agents in
connection with his decision to enter into this Agreement or any Ancillary
Agreement to which such Principal Stockholder is a party.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Principal
Stockholders and the Stockholder Representative have caused this Agreement to be
executed as of the date first above written.
DIGITAL IMPACT, INC.
By:/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: Senior Vice President of Finance and
Chief Financial Officer
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Principal
Stockholders and the Stockholder Representative have caused this Agreement to be
executed as of the date first above written.
JUMPER ACQUISITION
CORPORATION
By:/s/ ▇▇▇▇▇▇▇ ▇. Park
-------------------
Name: ▇▇▇▇▇▇▇ ▇. Park
Title: President and Chief Executive Officer
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Principal
Stockholders and the Stockholder Representative have caused this Agreement to be
executed as of the date first above written.
▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC.
By:/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: President
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Principal
Stockholders and the Stockholder Representative have caused this Agreement to be
executed as of the date first above written.
PRINCIPAL STOCKHOLDERS
By:/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
By:/s/ ▇▇▇▇ ▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Principal
Stockholders and the Stockholder Representative have caused this Agreement to be
executed as of the date first above written.
STOCKHOLDER REPRESENTATIVE
By:/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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