Exhibit 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
By and Among
MARKETFIRST SOFTWARE, INC.,
FUSIONDM, INC.,
TIMES DIRECT MARKETING, INC.,
and
XXXXXXXXXXX X. XXXXXXXX and XXXXXXX XXXXXX
Dated as of April 14, 2000
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement") is made and entered into as of April 14, 2000, by and among
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MARKETFIRST SOFTWARE, INC., a Delaware corporation ("Parent"), FUSIONDM, INC., a
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Delaware corporation and wholly-owned subsidiary of Parent ("Merger Sub"), TIMES
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DIRECT MARKETING, INC., a California corporation (the "Company"), and
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XXXXXXXXXXX X. XXXXXXXX and XXXXXXX XXXXXX (individually, a "Shareholder" and
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collectively, the "Shareholders"). Merger Sub and the Company are sometimes
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collectively referred to herein as the "Constituent Corporations."
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WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company
have each determined that it is in the best interest of their respective
companies and in the best interest of their respective stockholders to
consummate the business combination transaction provided for herein in which the
Company will, subject to the terms and conditions set forth herein, merge with
and into Merger Sub (the "Merger"); and
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WHEREAS, pursuant to the Merger, among other things, all of the
outstanding shares of Common Stock, without par value, of the Company ("Company
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Common Stock") shall be converted into the Merger Consideration (as defined
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herein) in this Agreement.
WHEREAS, for federal income tax purposes, it is intended that the
Merger will qualify as a tax-free reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and
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WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this
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Agreement, in accordance with the applicable provisions of the General
Corporation Law of the State of Delaware (the "DGCL") and the General
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Corporation Law of the State of California ("CGCL"), at the Effective Time (as
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defined in Section 1.3 hereof), the Company shall merge with and into Merger
Sub. Merger Sub shall be the surviving company (hereinafter sometimes called the
"Surviving Corporation") in the Merger and shall continue its corporate
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existence under the laws of the State of Delaware. Upon consummation of the
Merger, the separate corporate existence of the Company shall terminate, and the
Surviving Corporation shall be a wholly-owned subsidiary of Parent.
1.2 Closing. The closing of the transactions contemplated hereby (the
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"Closing") shall take place as soon as practicable after the satisfaction or
waiver of each of the
conditions set forth in Article VII hereof or at such other time as the parties
hereto agree (the "Closing Date"), provided, however, that the parties shall use
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reasonable commercial efforts to effect the Closing on or prior to April 30,
2000. The Closing shall take place at the offices of Xxxxxx & XxXxxxx, LLP,
00000 XxxXxxxxx Xxxx., Xxxxx 0000, Xxxxxx, Xxxxxxxxxx or at such other location
as the parties hereto agree.
1.3 Effective Time. The Merger shall become effective upon the filing
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of a Certificate of Merger with the Secretary of State of the State of Delaware
and the California Secretary of State in such form as is required by, and
executed in accordance with the relevant provisions of, the DGCL and the CGCL on
the Closing Date (the "Certificate of Merger"). The term "Effective Time" shall
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be the date and time of the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and the California Secretary of
State, or such later time as is specified in the Certificate of Merger.
1.4 Effects of the Merger. At and after the Effective Time, the
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Merger shall have the effects set forth in this Agreement, the Certificate of
Merger and the applicable provisions of the DGCL and the CGCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time, all
the property, rights, privileges, powers and franchises of the Company and
Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.5 Certificate of Incorporation; Bylaws. At the Effective Time, the
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Certificate of Incorporation of Merger Sub, as in effect at the Effective Time,
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended in accordance with applicable law. At the Effective Time, the
Bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter amended in
accordance with applicable law.
1.6 Directors and Officers. The persons set forth on Section 1.6 of
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the Parent Disclosure Schedule shall be the directors and officers of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified.
1.7 Merger Consideration; Conversion and Cancellation of Company
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Common Stock. By virtue of the Merger without any action on the part of Parent,
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Merger Sub, the Company or the Shareholders:
(a) Conversion of Company Common Stock. Subject to the terms and
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conditions of this Agreement, at the Effective Time, the shares of Company
Common Stock issued and outstanding immediately prior to the Effective Time and
all rights in respect thereof shall be converted into the right to receive in
the aggregate the following (the "Merger Consideration"): (i) $2,500,000 in
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cash; (ii) 1,568,628 shares of Parent Common Stock; and (iii) as provided in
Article II, the right to receive a share of the First Earnout, if any, the
Second Earnout, if any, and the Third Earnout, if any.
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(b) Cancellation of Company Common Stock. At the Effective Time,
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all shares of Company Common Stock converted into the right to receive the
Merger Consideration pursuant to this Article I shall no longer be outstanding
and shall automatically be canceled and shall cease to exist, and each
certificate (each a "Certificate") previously representing any such shares of
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Company Common Stock shall thereafter only represent the right to receive the
Merger Consideration. Certificates previously representing shares of Company
Common Stock shall be exchanged for shares of Parent Common Stock upon surrender
of such Certificates in accordance with Section 1.8 hereof, without any
interest.
(c) Fractional Shares. No fraction of a share of Parent Common
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Stock will be issued, but in lieu thereof each holder of shares of Company
Common Stock who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common Stock to
be received by such holder) shall receive from Parent an amount of cash (rounded
to the nearest whole cent) equal to the product of (i) such fraction, multiplied
by (ii) $12.75.
1.8 Exchange of Shares.
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(a) Delivery of Initial Merger Consideration. Immediately
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following the Merger, upon surrender by the Shareholders of the certificates
representing the Company Common Stock, Parent shall (i) pay each Shareholder, by
wire transfer to such Shareholder's bank account of immediately available funds,
his proportionate share of cash pursuant to Section 1.7(a)(i) above based upon
the number of such Shareholder's shares of Company Common Stock (i.e.,
$2,125,000 to Xxxxxxxxxxx X. Xxxxxxxx and $375,000 to Xxxxxxx Xxxxxx), and (ii)
cause to be issued to each Shareholder shares of Parent Common Stock represented
by certificates evidencing his proportionate share of Parent Common Stock
pursuant to Section 1.7(a)(ii) above based upon the number of such Shareholder's
shares of Company Common Stock (i.e., 666,667 shares of Parent Common Stock
issued to Xxxxxxxxxxx X. Xxxxxxxx and 117,647 shares of Parent Common Stock
issued to Xxxxxxx Xxxxxx) (the consideration provided in clauses (i) and (ii) is
sometimes hereinafter collectively referred to as the "Initial Merger
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Consideration"), and (iii) cause to be issued to each Shareholder shares of
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Parent Common Stock ("Earnout Shares") represented by 3 certificates (the
"Earnout Certificates") issued to such Shareholder, evidencing, in the
aggregate, the maximum number of shares of Parent Common Stock which such
Shareholder would be entitled to receive from the Escrow (as defined below)
under the First Earnout, the Second Earnout, and the Third Earnont, pursuant to
Section 2.1(a)(ii), 2.1(b)(ii), and 2.1(c) based on the number of such
Shareholder's shares of Company Common Stock (i.e., an aggregate of 666,667
Earnout Shares issued to Xxxxxxxxxxx X. Xxxxxxxx, with each of his three Earnout
Certificates representing one-third (each) of his Earnout Shares, and an
aggregate of 117,647 Earnout Shares issued to Xxxxxxx Xxxxxx, with each of his
three Earnout Certificates representing one-third (each) of his Earnout Shares).
All of the shares of Parent Common Stock issued to the Shareholders, pursuant to
clauses (ii) and (iii) of this Section 1.8(a), immediately following the Merger,
shall be issued and outstanding on the balance sheet of the Parent and shall be
legally outstanding Parent Common Stock under applicable state law. Upon
issuance, immediately following the Merger, of the Earnout Shares described in
clause (iii) of this Section 1.8(a), each Shareholder shall deposit each of his
Earnout Certificates, representing the Earnout Shares issued to him, with the
Escrow Agent to be held in escrow (the "Escrow") in accordance
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with the terms and conditions of the Escrow Agreement attached hereto as Exhibit
A (the "Escrow Agreement").
(b) Transfer Restrictions; Legends. The shares of Parent Common
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Stock issued in the Merger shall not be transferable in the absence of an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), or an exemption therefrom. In the absence of an
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effective registration statement under the Securities Act, neither such shares
of Parent Common Stock nor any interest therein shall be sold, transferred,
assigned or otherwise disposed of, unless Parent shall have previously received
an opinion of counsel knowledgeable in Federal securities law, in form and
substance reasonably satisfactory to Parent, to the effect that registration
under the Securities Act is not required in connection with such disposition.
Parent shall be entitled to give stop transfer instructions to its transfer
agent with respect to such shares of Parent Common Stock in order to enforce the
foregoing restrictions.
The certificate or certificates representing the shares of Parent
Common Stock issued in the Merger shall bear the following legend restricting
the transfer thereof, in addition to any other legend required by applicable
law:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS IN EFFECT UNDER
SUCH ACT, (2) SUCH TRANSFER IS PURSUANT TO RULE 144 UNDER SUCH
ACT OR (3) THE HOLDER HEREOF FURNISHES TO THE ISSUER AN OPINION
OF COUNSEL, WHICH COUNSEL AND WHICH OPINION SHALL BE REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION UNDER SUCH ACT IS
NOT REQUIRED."
(c) Common Stock Value. For all purposes of this Agreement and
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the Escrow Agreement, the term "Parent Common Stock Value" shall mean and refer
to $12.75 per share of Parent Common Stock.
(d) Capital Changes. For all purposes of this Agreement, the
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specified number of shares of Parent Common Stock issuable hereunder and the
Parent Common Stock Value (as defined in Section 1.8(c)) shall be
proportionately adjusted for any increase or decrease in the number of
outstanding shares of Parent Common Stock resulting from any split-up,
combination or exchange of shares, consolidation, spin-off or recapitalization
of shares or any like capital adjustment or the payment of any stock dividend.
1.9 Tax Consequences. It is intended by the parties hereto that the
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Merger shall constitute a reorganization within the meaning of Section 368(a) of
the Code.
1.10 Exemption from Registration. Assuming the accuracy of the
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representations contained in the Shareholder Representation Agreements delivered
to Parent by the Shareholders pursuant to Section 7.2 hereof, the shares of
Parent Common Stock to be issued
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in connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act.
ARTICLE II
ADDITIONAL PAYMENTS
2.1 Earnouts. In addition to the cash amounts and shares of Parent
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Common Stock to be paid to the Shareholders immediately following the Merger
pursuant to Article I, each Shareholder shall be entitled to receive as
additional consideration for such Shareholder's shares of Company Common Stock a
share of the following contingent payments equal to such Shareholder's
percentage ownership interest in the outstanding Company Common Stock (a
"Prorata Share"):
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(a) First Earnout. Upon completion of the twelve months ended
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December 31, 2000 ("FY 2000"), and contingent on the Company's Net Income (as
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defined below) for FY2000 being at least breakeven, the Shareholders in the
aggregate shall be entitled to receive the following cash payment and to receive
the following shares of Parent Common Stock from Escrow (the "First Earnout"):
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(i) Cash equal to the product of (A) $1,250,000 multiplied
by (B) the Gross Revenue (as defined below) in FY2000, divided by the projected
Gross Revenue for FY2000 as provided in Schedule 2.1 (the "Projected 2000
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Revenue"); and
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(ii) the number of shares of Parent Common Stock equal to
the product of (A) the Gross Revenue in FY2000 divided by the Projected 2000
Revenue, times (B) 261,438 shares of Parent Common Stock; provided, however, in
no event shall the quotient determined in clause (A) be greater than 1.
All of the Gross Revenue in FY2000 is used in determining the earnout payments
for each of Sections 2.1(a)(i) and 2.1(a)(ii).
(b) Second Earnout. Upon completion of the twelve months ended
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December 31, 2001 ("FY 2001"), and contingent on the Company's Net Income for
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FY2001 being at least breakeven, the Shareholders shall be entitled to receive
the following cash payment and to receive the following shares of Parent Common
Stock from Escrow (the "Second Earnout"):
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(i) Cash equal to the product of (A) $1,250,000 multiplied
by (B) the Gross Revenue in FY2001, divided by the projected Gross Revenue for
FY2001 as provided in Schedule 2.1 (the "Projected 2001 Revenue"); and
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(ii) the number of shares of Parent Common Stock equal to
the product of (A) the Gross Revenue for FY2001 divided by the Projected 2001
Revenue, times (B) 261,438 shares of Parent Common Stock; provided, however, in
no event shall the quotient determined in Clause (A) exceed 1.
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All of the Gross Revenue in FY2001 is used in determining the earnout payments
for each of Sections 2.1(b)(i) and 2.1(b)(ii).
(c) Third Earnout. Upon completion of the twelve months ended
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December 31, 2002 ("FY 2002"), and contingent on the Company's Net Income for
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FY2002 being at least breakeven, the Shareholders shall be entitled to receive
from Escrow the number of shares of Parent Common Stock equal to the product of
(A) the Gross Revenue for FY2002 divided by the Projected Gross Revenue for
FY2002 as provided in Schedule 2.1, times (B) 261,438 shares of the Parent
Common Stock; provided, however, in no event shall the quotient determined in
clause (A) exceed 1 (the "Third Earnout").
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No cash payments under this Section 2.1 shall be made and no shares
shall be released from Escrow for any fiscal year if the Company's Net Income
for that year is less than zero.
2.2 Payment of Cash Earnouts. Subject to Section 2.5, Parent shall
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pay each Shareholder the amount due such Shareholder under Sections 2.1(a)(i)
and 2.1(b)(i), if any, as follows:
(a) First Earnout. Parent shall pay each Shareholder such
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Shareholder's Prorata Share of the cash portion of the First Earnout within five
(5) business days after the First Earnout has been determined in accordance with
Sections 2.1 and 2.3; provided, however, Parent shall advance to the
Shareholders $625,000 of the cash portion of the First Earnout (the "First
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Earnout Cash Advance") in equal monthly payments beginning on the completion of
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the first full calendar month following the Closing and ending on December 31,
2000. This First Earnout Cash Advance shall be deducted from the total cash
portion of the First Earnout payable after completion of FY2000. If the First
Earnout Cash Advance exceeds the amount of the cash portion of the First
Earnout, the amount of such excess shall be repaid by the Shareholders to Parent
within five (5) business days after the First Earnout has been determined in
accordance with Sections 2.1 and 2.3.
(b) Second Earnout. Parent shall pay each Shareholder such
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Shareholder's Prorata Share of the cash portion of the Second Earnout within
five (5) business days after the Second Earnout has been determined in
accordance with Sections 2.1 and 2.3; provided, however, Parent shall advance to
the Shareholders $625,000 of the cash portion of the Second Earnout (the "Second
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Earnout Cash Advance") in twelve (12) equal monthly payments beginning on
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January 31, 2001 and ending on December 31, 2001. This Second Earnout Cash
Advance shall be deducted from the total cash portion of the Second Earnout
payable after completion of FY2001. If the Second Earnout Cash Advance exceeds
the amount of the cash portion of the Second Earnout, the amount of such excess
shall be repaid by the Shareholders to Parent within five (5) business days
after the Second Earnout has been determined in accordance with Sections 2.1 and
2.3.
2.3 Procedures for Determination of Earnout Payments. The
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determination of all cash amounts, if any, to be paid and all shares, if any, to
be released from Escrow pursuant to the Earnouts shall be made as soon as
practicable, but in no event more than 60 days after the
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end of each period upon which such Earnout payments are based. All such
determinations shall be made in good faith by Parent. Upon completing the
determination of amounts due, if any, for any period pursuant to the Earnouts,
Parent shall notify the Shareholders in writing of such determination. The
Shareholders shall have thirty (30) days from their receipt of such written
notification in which to review the contents thereof and to notify Parent in
writing as to whether they agree with the determinations made. If the
Shareholders agree with such determinations, or if they shall fail to notify
Parent in writing of their disagreement with such determinations within 30 days
of their receipt of written notification thereof, all determinations of Parent's
auditors made pursuant to this Section 2.3 shall be deemed binding and
conclusive. If the Shareholders disagree with Parent's determinations and so
notify Parent in writing within such 30-day period, then Parent and the
Shareholders shall promptly cause their respective auditors to mutually select a
third firm of independent certified public accountants to review Parent's
determinations and, within thirty (30) days of its selection, report to Parent
and the Shareholders its determinations with respect thereto, which
determinations shall, in the absence of manifest error, be binding and
conclusive. Parent shall bear fifty percent (50%) of the costs and expenses
associated with the retention of such firm of accountants, with the Shareholders
each to bear their Prorata Share of the remaining fifty percent (50%) of such
costs and expenses.
2.4 Accounting and Financial Adjustments With Respect to Earnouts.
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For purposes of determining the Earnouts, the following shall apply:
(a) The "Company," for purposes of this Article II only, shall
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include the Company prior to the Effective Time and the Surviving Corporation
thereafter.
(b) "Net Income" shall mean the net income of the Company,
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determined in accordance with generally accepted accounting principles ("GAAP"),
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subject to the additional accounting and financial adjustments provided in this
Section 2.4.
(c) "Gross Revenues" shall mean the gross receipts or sales of
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the Company, determined in accordance with GAAP, subject to the additional
accounting and financial adjustments provided in this Section 2.4.
(d) Gross Revenues shall not include any direct pass throughs of
costs and expenses. For example, assume the Company conducts a direct mail
campaign for a client; the Company pays all of the costs for the mailing
material (e.g., letters and postage) required in such campaign and then invoices
the client for the amount of its services plus the amount of the costs for the
mailing materials, together with a 10% xxxx-up on such mailing material costs.
The costs for the mailing materials would not be included in Gross Revenues, but
the 10% xxxx-up would be included in Gross Revenues.
(e) The amount of payments or provisions for taxes based upon or
measured by income for any period upon which the Net Income of the Company are
based shall be calculated utilizing a tax rate equal to the actual tax rate that
would be applicable to the Surviving Corporation under applicable law assuming
the Surviving Corporation were required to file a separate tax return under such
law; provided, however, any taxes imposed on the Surviving Corporation for
periods after the Closing Date relating to an adjustment under
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Section 481 of the Code shall not be included for purposes of determining Net
Income. No Shareholder-level taxes (such as on pass-through income of the
Company) shall be taken into account as an expense in determining Net Income.
(f) No amounts paid or payable in respect of Earnout payouts
shall reduce the Net Income of the Company for any year.
(g) For purposes of determining the Net Income of the Company
for any year, there shall not be any deduction in such year for the amortization
of any amounts payable as Merger Consideration (e.g., amortization of goodwill
under purchase accounting).
(h) No indemnity payment made pursuant to the Agreement will be
treated as an expense or revenue.
(i) There will be no charge against income for the payment or
accrual of any component of the Merger Consideration, any borrowings to finance
the Merger Consideration, or any transactional expenses related to the
transactions contemplated by the Agreement, including without limitation any
party's fees for legal counsel, accountants, consultants, or filing fees.
(j) Other than normal fees for normal year-end audit procedures,
the fees and expenses of accountants in connection with making any determination
of the Earnout payments will not be treated as an expense and any costs and
expenses incurred by the Parent or Merger Sub in pursuing any indemnity claim
under the Agreement shall not be treated as an expense.
(k) Any and all costs or expenses with respect to any investment
that the management of the Surviving Corporation and Parent reasonably agree in
writing to characterize as outside of the Surviving Corporation's operating plan
will not be treated as an expense.
(l) Any expense associated with stock options or restricted
stock will not be treated as an expense, nor shall any amounts paid or accrued
on account of any phantom equity/deferred compensation plan be treated as an
expense.
(m) Any depreciation or amortization charges resulting from a
write-up of any of the Company's assets above its value as shown on the
Company's books immediately prior to the Closing Date will not be treated as an
expense.
(n) Intercompany management/service fees charged by Parent or
its subsidiaries taken into account in determining Net Income will not exceed
reasonable market rates.
2.5 Right to Withhold and Offset. Notwithstanding anything to the
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contrary in this Agreement, if Parent is obligated to pay the Shareholders any
cash amounts, or shares of Parent Common Stock are to be released from Escrow,
in respect of the First Earnout, the Second Earnout or the Third Earnout (any
such amounts, the "Earnout Amounts"), Parent shall
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be entitled to (i) offset and retain from such Earnout Amounts the full amount
of any and all Agreed Claims not previously paid by the Shareholders, in which
event Parent shall remit the Earnout Amounts remaining, if any, after such
offset and retention to the Shareholders in accordance with Section 2.2 (if cash
is used to offset) and/or the Escrow Agreement (if shares of Parent Common Stock
are used to offset), and (ii) withhold from such Earnout Amounts the full amount
of any pending indemnification claims of Parent which are the subject of a
Certificate; provided, however, the withholding of any shares of Parent Common
Stock from the Earnout Amounts shall be subject to the terms of the Escrow
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SHAREHOLDERS
The Company and each of the Shareholders, jointly and severally,
represent and warrant to Parent and Merger Sub that, except as disclosed in the
disclosure schedule attached hereto (the "Company Disclosure Schedule"):
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3.1 Corporate Organization.
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(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. The
Company has the corporate power and authority to own or lease its properties and
assets and to carry on its business as it is now being conducted, and is
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such qualification necessary. The copies of
the Articles of Incorporation and Bylaws of the Company which have previously
been delivered to Parent are true and correct copies of such documents as in
effect as of the date of this Agreement.
(b) Except as set forth in Section 3.1(b) of the Company
Disclosure Schedule, the Company owns no equity interests in any corporation,
partnership or other entity.
3.2 Capitalization. The authorized capital stock of the Company
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consists of 100,000 shares of Company Common Stock, without par value. There are
(i) 25,858 shares of Company Common Stock outstanding, all of which are held by
the Shareholders, and (ii) no shares of Preferred Stock outstanding. Except as
set forth in Section 3.2 of the Company Disclosure Schedule, all of the issued
and outstanding shares of Company Common Stock were duly authorized and validly
issued and are fully paid and nonassessable and are free of any liens or
encumbrances created by or resulting from the actions of the Company, and are
not subject to preemptive rights or rights of first refusal created by statute,
the Articles of Incorporation or Bylaws of the Company or any agreement to which
the Company or any Shareholder is a party or by which it is bound. All
outstanding shares of Company Common Stock were issued in compliance with all
applicable federal and state securities laws. Except as described in this
Section 3.2 or reflected in Section 3.2 of the Company Disclosure Schedule, the
Company does not have and is not bound by any outstanding subscriptions,
options, warrants, convertible securities, calls, commitments, agreements or
obligations of any character calling for the purchase, redemption or issuance of
any shares of Company Common Stock or any other equity
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security of the Company or any securities representing the right to purchase or
otherwise receive any shares of Company Common Stock or any other equity
security of the Company.
3.3 Authority; No Violation.
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(a) The Company has full corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly approved by the Board of Directors and shareholders of the
Company. No other corporate proceedings on the part of the Company are necessary
to approve this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by the
Company and each of the Shareholders and (assuming due authorization, execution
and delivery by Parent and Merger Sub) constitutes the valid and binding
obligation of the Company and each of the Shareholders, enforceable against the
Company and each of the Shareholders, in accordance with its terms, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) Except as set forth in Section 3.3(b) of the Company
Disclosure Schedule, neither the execution and delivery of this Agreement by the
Company and each of the Shareholders, nor the consummation by the Company and
each of the Shareholders of the transactions contemplated hereby, nor compliance
by the Company and each of the Shareholders with any of the terms or provisions
hereof, will (i) violate any provision of the Articles of Incorporation or
Bylaws of the Company or (ii) assuming that the consents and approvals referred
to in Section 3.4 hereof are duly obtained, (x) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to the Company or any of the Shareholders or any of their respective
properties or assets, or (y) violate, materially conflict with, result in a
material breach of any provision of or the loss of any material benefit under,
constitute a material default (or an event which, with notice or lapse of time,
or both, would constitute a material default) under, result in the termination
of or a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any lien, pledge, security interest,
charge or other encumbrance upon any of the properties or assets of the Company
or any of the Shareholders under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, sublicense, lease,
agreement or other instrument or obligation to which the Company or any of the
Shareholders is a party, or by which the Company or any of the Shareholders or
any of their respective properties or assets may be bound or affected.
3.4 Consents and Approvals. Except for (a) the filing of a
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Certificate of Merger with the Secretary of State of the States of Delaware and
California pursuant to Section 252 of the DGCL and Section 1108 of the CGCL, and
(b) such filings, authorizations or approvals as may be set forth in Section 3.4
of the Company Disclosure Schedule, no consents or approvals orders or
authorizations of or filings or registrations with any court, administrative
agency or commission or other governmental or quasi-governmental authority or
instrumentality, whether in the United States of America or otherwise (each a
"Governmental Entity") or with
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any third party are necessary with respect to the Company or any of the
Shareholders in connection with (1) the execution and delivery of this Agreement
and (2) the consummation of the Merger and the other transactions contemplated
hereby.
3.5 Financial Statements. Set forth in Section 3.5 of the Company
--------------------
Disclosure Schedule are true and correct copies of (a) audited balance sheets of
the Company at December 31, 1998 and 1999, together with related audited
statements of operations, shareholders' equity and cash flows for the fiscal
years then ended, and (b) the Company's unaudited balance sheet as of February
29, 2000 (the "Reference Balance Sheet") (collectively, the "Financial
----------------------- ---------
Statements"). Such Financial Statements have been prepared in accordance with
----------
generally accepted accounting principles ("GAAP") (except that the unaudited
----
Financial Statements do not contain all footnotes required by GAAP and are
subject to normal year-end audit adjustments that in the aggregate will not be
material) applied on a consistent basis throughout the periods indicated and
with each other. The Financial Statements fairly present the financial condition
and operating results of the Company in all material respects in accordance with
GAAP as of the dates, and for the periods indicated therein, subject to normal
year-end audit adjustments. The books and records of the Company have been, and
are being, maintained in all material respects in accordance with GAAP and any
other applicable legal and accounting requirements.
3.6 Absence of Undisclosed Liabilities. The Company has no material
----------------------------------
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent, including without limitation any obligations or liabilities as
guarantor or indemnitor of any other person, firm, partnership or corporation
("Person")) other than (i) those set forth or adequately provided for in the
------
Reference Balance Sheet, (ii) those incurred in the ordinary course of business
and not required to be set forth in the Reference Balance Sheet under GAAP,
(iii) those incurred in the ordinary course of business since the Reference
Balance Sheet Date and consistent with past practice, (iv) those set forth in
Section 3.6 of the Company Disclosure Schedule, and (v) those incurred in
connection with the execution of this Agreement.
3.7 Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
Section 3.7 of the Company Disclosure Schedule, since the Reference Balance
Sheet Date, the Company has conducted its business in the ordinary course
consistent with past practice, and except as contemplated by this Agreement,
there has not occurred (i) any purchase or other acquisition of, sale, lease,
disposition, or other transfer of, or mortgage, pledge or subjection to any
material encumbrance or lien on, any material asset, tangible or intangible, of
the Company, other than in the ordinary course of business; (ii) any change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by the Company or any revaluation by the Company
of any of its assets; (iii) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of the Company Common
Stock, or any split-up or other recapitalization in respect of the Company
Common Stock, or any direct or indirect redemption, purchase or other
acquisition by the Company of any shares of Company Common Stock; (iv) any
material contract entered into by the Company, other than in the ordinary course
of business and as provided to Parent, or any amendment or termination of, or
default under, any material contract to which the Company is a party or by which
it is bound; (v) any amendment or change to the Articles of Incorporation or
Bylaws of the Company; (vi) any material increase in
11
or modification of the compensation or benefits payable or to become payable by
the Company to any of their respective officers, directors or employees; (vii)
any issuance, transfer, sale or pledge by the Company or any Shareholder of any
shares of Company Common Stock or other securities or of any commitment, option,
right or privilege under which the Company is or may become obligated to issue
any shares of Company Common Stock or other securities; (viii) any indebtedness
for borrowed money incurred by the Company, except such as may have been
incurred or entered into in the ordinary course of business not exceeding
$50,000; (ix) any loan made or agreed to be made by the Company, nor has the
Company become liable or agreed to become liable as a guarantor with respect to
any loan; (x) any waiver or compromise by the Company of any right or rights or
any payment, direct or indirect, of any material debt, liability or other
obligation, other than in the ordinary course of business; (xi) any sale,
assignment, or transfer of any patents, trademarks, copyrights, trade secrets or
other intangible assets, other than in the ordinary course of business; (xii)
any actual or, to the knowledge of the Company or either of the Shareholders,
threatened termination or loss of (a) any material contract, lease, license or
other agreement to which the Company was or is a party; (b) any certificate,
license or other authorization required for the continued operation by the
Company of any portion of any of its business; or (c) any customer or other
revenue source, which termination or loss could reasonably be expected to result
in loss of revenues to the Company in excess of $75,000 per year, and the
Company has no knowledge of any event (other than the transactions contemplated
hereby, with respect to which the Company has not received any written notice
from any customer or other revenue source of an intention to terminate any
arrangement as a result of the transactions contemplated hereby) which could
reasonably be expected to result in any such termination or loss; (xiii) any
resignation of employment of any key officer or employee of the Company, or to
the knowledge of the Company, any impending resignation of employment of any
such officer or employee; (xiv) any negotiation by any executive officer of the
Company or any agreement by the Company to do any of the things described in the
preceding clauses (i) through (xiii) (other than negotiations with Parent and
its representatives regarding the transactions contemplated by this Agreement);
or (xv) any other event or circumstance that will have or, to the knowledge of
the Company could reasonably be expected to have a Material Adverse Effect on
the Company. For purposes of this Agreement, an action, event or occurrence has
a "Material Adverse Effect" if it has a material adverse effect on the assets,
-----------------------
liabilities, business, financial condition or results of operations of the
Company or Parent, as the case may be.
3.8 Legal Proceedings. Except as set forth in Section 3.8 of the
-----------------
Company Disclosure Schedule, there are no legal actions, suits, arbitrations or
other legal, administrative or governmental proceedings or investigations
pending or, to the knowledge of the Company or either of the Shareholders,
threatened against the Company or any of its properties, assets or business in
which an unfavorable outcome, ruling or finding would have a Material Adverse
Effect and to the knowledge of the Company and the Shareholders there exist no
facts which could reasonably be expected to result in any such action, suit or
other proceeding or which would challenge the validity or propriety of the
transactions contemplated by this Agreement. The Company is not in default with
respect to any judgment, order or decree of any court or any governmental agency
or instrumentality which would have a Material Adverse Effect on the Company.
The foregoing includes, without limiting the generality thereof, pending or
threatened
12
actions involving the Company's use in connection with the Company's business of
any information or techniques allegedly proprietary to a former employee.
3.9 Restrictions on Business Activities. Except as set forth in
-----------------------------------
Section 3.9 of the Company Disclosure Schedule, there is no agreement, judgment,
injunction, order or decree binding upon the Company which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current business practice of the Company, any acquisition of property by the
Company, the ability of the Company to compete with any other person or the
conduct of business by the Company as currently conducted by the Company.
3.10 Governmental Authorization. The Company has obtained each
--------------------------
federal, state, county, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to which the
Company currently operates or holds any interest in any of its properties or
(ii) that is required for the operation of the Company's business or the holding
of any such interest ((i) and (ii) herein collectively called the "Company
-------
Authorizations"), and all of such Company Authorizations are in full force and
--------------
effect, except where the failure to obtain or have any such Company
Authorizations could not reasonably be expected to have a Material Adverse
Effect on the Company.
3.11 Title and Condition of Personal Property. The Company has good
----------------------------------------
and marketable title to all personal property owned by it and reflected in the
Reference Balance Sheet or acquired after the Reference Balance Sheet Date
(other than property sold or otherwise disposed of since the Reference Balance
Sheet Date in the ordinary course of business), free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character or claims
thereto, except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties, (iii) liens securing debt which is reflected on the Reference
Balance Sheet, and (iv) as set forth in Section 3.11 of the Company Disclosure
Schedule. The property and equipment of the Company that is used in the
operations of its business are in all material respects in good operating
condition and repair. All properties used in the operations of the Company are
reflected in the Reference Balance Sheet to the extent GAAP require the same to
be reflected.
3.12 Real and Leased Property.
------------------------
(a) The Company does not own any fee simple interest in real
property. The Company does not lease or sublease any real property other than as
set forth on Section 3.12 of the Company Disclosure Schedule. Section 3.12 of
the Company Disclosure Schedule sets forth the street address of each parcel of
real property leased or subleased by the Company (the "Leased Property"). The
---------------
Company has previously delivered to Parent a true and complete copy of all of
the lease and sublease agreements, as amended to date (the "Leases") relating to
the Leased Property. Except as provided in Section 3.12 of the Company
Disclosure Schedule, the Company enjoys a peaceful and undisturbed possession of
the Leased Property held by it, subject to the terms of the Leases. All
improvements located on the Leased Property are in a state of good maintenance
and repair and in a condition adequate and suitable for the
13
effective conduct therein of the business conducted and proposed to be conducted
by the Company. To the knowledge of the Company or either of the Shareholders,
except as provided in Section 3.12 of the Company Disclosure Schedule, no person
other than the Company has any right to use or occupy any part of the Leased
Property, whether pursuant to sublease, license or otherwise. The Leases are
valid, binding and in full force and effect, all rent and other sums and charges
payable thereunder are current, no notice of default or termination under any of
the Leases is outstanding, no termination event or condition or uncured default
on the part of the Company or, to the knowledge of the Company or either of the
Shareholders, on the part of the landlord or sublandlord, as the case may be,
thereunder, exists under the Leases, and to the knowledge of the Company or
either of the Shareholders, no event has occurred and no condition exists which,
with the giving of notice or the lapse of time or both, would constitute such a
default or termination event or condition. In the event that any of the Leases
is a sublease, the Company, as sublessee or sublessor, as the case may be, has
obtained the required consent of the prime landlord to such sublease, and such
prime lease is in full force and effect, there are no outstanding uncured
notices of default or termination, and no right of the Company in any such
sublease conflicts with such prime lease. Except as provided in Section 3.12 of
the Company Disclosure Schedule, all of the Leased Property is used in the
conduct of the Company's business.
(b) The heating, ventilation, air conditioning, plumbing,
electrical systems and telephone systems at the Leased Property are in a
condition adequate and suitable for the effective conduct therein of the
business conducted and proposed to be conducted by the Company and will be so
adequate and suitable on the Closing Date. The Company has not experienced any
material interruption in the services provided to any of the Leased Property
within the last six (6) months. To the knowledge of the Company or either of the
Shareholders, except as provided in Section 3.12 of the Company Disclosure
Schedule, no landlord under the Leases has any plans to make any material
alterations to any of the Leased Property, the construction of which would
interfere with the use of any portion of the Leased Property. To the knowledge
of the Company or either of the Shareholders, except as provided in Section 3.12
of the Company Disclosure Schedule, no landlord under the Leases has any plans
to make any material alterations to any of the buildings in which Leased
Property is located, the costs of which alterations would be borne in any part
by a tenant under the applicable Lease.
(c) Section 3.12 of the Company Disclosure Schedule sets forth
all material permits, licenses, franchises, approvals and authorizations
(collectively, the "Real Property Permits") issued to the Company by all
---------------------
Governmental Entities having jurisdiction over each Leased Property and by all
insurance companies and fire rating and other similar boards and organizations
(collectively, the "Insurance Organizations"). All such Real Property Permits
-----------------------
required or appropriate have been lawfully issued to the Company to enable each
Leased Property to be lawfully occupied and used for all of the purposes for
which they are currently occupied and useful and are, as of the date hereof, in
full force and effect. The Company has not received or been informed by a third
party of the receipt by it of any notice from any Governmental Entity having
jurisdiction over any Leased Property or from any Insurance Organization
threatening a suspension, revocation, modification or cancellation of any Real
Property Permit or of any insurance policies and, to the knowledge of the
Company or either of the Shareholders, there is no basis for the issuance of any
such notice or the taking of any such
14
action. No action is required in order for all Real Property Permits and
liability and casualty insurance policies required under any of the Leases to
remain Real Property Permits and insurance policies of the Surviving
Corporation.
(d) To the knowledge of the Company or either of the
Shareholders, except as provided in Section 3.12 of the Company Disclosure
Schedule, there are no liabilities (other than rent and other sums and charges
regularly payable) associated with any of the Leases including, without
limitation, any liability under any Environmental Law or regulation, which is or
which may become payable by the Surviving Corporation.
3.13 Intellectual Property.
---------------------
(a) Section 3.13(a) of the Company Disclosure Schedule sets
forth an accurate and complete description of (i) all trademarks, service marks,
trade names, brands and copyrights of the Company which are registered or issued
or for which registration or issuance is pending with any Governmental Entity
specifying as to each such item, as applicable, the jurisdiction(s) by or in
which such trademark or copyright has been issued or registered or in which an
application for such issuance or registration has been filed or proposed,
including the registration or application number; (ii) substantially all
franchises, licenses, sublicenses, contracts, options and agreements pursuant to
which any person other than the Company is authorized to use any trademarks,
trade names, service marks, brands, copyrights, and any applications therefor,
maskworks, net lists, URLs, domain names, schematics, technology, know-how,
trade secrets, inventory, ideas, algorithms, processes, computer software
programs or applications (in both source code and object code form), and
tangible or intangible proprietary information or material ("Intellectual
------------
Property") owned by the Company; and (iii) substantially all franchises,
--------
licenses, sublicenses, contracts, options and agreements, other than shrink-wrap
software licenses, pursuant to which the Company is authorized to use any such
Intellectual Property not owned by the Company ("Third Party Intellectual
------------------------
Property Rights") including, with respect to (ii) or (iii), the identity and
---------------
location (city, state and country) of all parties thereto. The Company does not
own or use any patents.
(b) Except as set forth in Section 3.13(b) of the Company
Disclosure Schedule, to the knowledge of the Company or either of the
Shareholders, the Company owns or has the right to use all of the Intellectual
Property necessary for the conduct of its business as currently conducted by it,
including, without limitation, all network operating system and database
softwares or other Intellectual Property used by the Company. The Company has
taken commercially reasonable measures to maintain and protect the Intellectual
Property that it owns or has the right to use.
(c) Except for third party licenses listed in Section 3.13(c) of
the Company Disclosure Schedule, to the knowledge of the Company or either of
the Shareholders, the Company is the sole and exclusive owner of its
Intellectual Property including, but not limited to, those listed or described
on the Company Disclosure Schedule, or has the right to the use thereof for the
material covered thereby in connection with the services or products in respect
to which they have been or are now being used.
15
(d) Except as set forth in Section 3.13(d) of the Company
Disclosure Schedule, the Company (i) is not the subject of any pending
litigation or, to the knowledge of the Company or either of the Shareholders,
any claim regarding infringement of or misappropriation or misuse of any
Intellectual Property of the Company or other tangible right of any other
person, (ii) has no knowledge of any such infringement, whether or not claimed
by any other person, (iii) has no knowledge of any infringement by any other
person of the Intellectual Property of the Company, and (iv) has no knowledge of
any facts or circumstances which would reasonably lead the Company to conclude
that the continued operation and conduct of any aspect of its business would
result in any such litigation or claim. To the knowledge of the Company or
either of the Shareholders, except as set forth in Section 3.13(d) of the
Company Disclosure Schedule, there is no other person that is operating under or
otherwise using any name confusingly similar with any trade names, trademarks,
service names, service marks, URLs, domain names or logos included in the
Intellectual Property owned by the Company. To the knowledge of the Company or
either of the Shareholders, no Intellectual Property licensed by the Company
from a third party is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting the use thereof by the Company. Except as
set forth in Section 3.13(d) of the Company Disclosure Schedule, no Intellectual
Property of the Company is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting the use thereof by the Company. Except as
set forth in Section 3.13(d) of the Company Disclosure Schedule, the Company has
not entered into any agreement to indemnify any other person against any charge
of infringement of any Third Party Intellectual Property.
(e) To the knowledge of the Company or either of the
Shareholders, except as set forth in Section 3.13(e) of the Company Disclosure
Schedule, there has been no unauthorized use, disclosure, infringement or
misappropriation of any Intellectual Property rights of the Company, any trade
secret material to the Company, or any Intellectual Property right of any third
party to the extent licensed by or through the Company, by any third party,
including any employee or former employee of the Company.
3.14 Taxes.
-----
(a) Except as set forth in Section 3.14(a) of the Company
Disclosure Schedule, the Company has duly and timely filed (including applicable
extensions granted without penalty) all material Tax Returns (as hereinafter
defined) required to be filed at or prior to the Effective Time, and such Tax
Returns are true and correct in all material respects, and the Company has paid
in full or made adequate provision in the Financial Statements for all material
Taxes (as hereinafter defined) shown to be due on such Tax Returns except where
failure to do so would not have a Material Adverse Effect. In addition, the
Company has made adequate provision in the Financial Statements for all Taxes
for the fiscal year ended December 31, 1999 except where the failure to do so
would not have a Material Adverse Effect. Except as set forth in Section 3.14(a)
of the Company Disclosure Schedule, as of the date hereof (i) the Company has
not requested any extension of time within which to file any Tax Returns in
respect of any fiscal year which have not since been filed and no request for
waivers of the time to assess any Taxes are pending or outstanding, (ii) no
claim for Taxes has become a lien against the property of the Company or is
being asserted against the Company other than liens for Taxes not yet due and
payable, (iii) no audit of any Tax Return of the Company is being conducted by a
Tax
16
authority, (iv) no extension of the statute of limitations on the assessment of
any Taxes has been granted to the Company and is currently in effect, and (v)
there is no agreement, contract or arrangement to which the Company is a party
that may result in the payment of any amount that would not be deductible by
reason of Sections 280G, 162 or 404 of the Code. Except as set forth in Section
3.14(a) of the Company Disclosure Schedule, the Company has not been or will be
required to include any adjustment in taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Merger.
(b) For the purposes of this Agreement, "Taxes" shall mean all
-----
taxes, charges, fees, levies, penalties or other assessments imposed by any
United States federal, state, local or foreign taxing authority, including, but
not limited to income, excise, property, sales, transfer, franchise, payroll,
withholding, social security or other taxes, including any interest, penalties
or additions attributable thereto. For purposes of this Agreement, "Tax Return"
----------
shall mean any return, report, information return or other document (including
any related or supporting information) filed or required to be filed with a
Governmental Entity with respect to Taxes.
3.15 Environmental Matters.
---------------------
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any
-----------------------------
federal, state, local or foreign laws, ordinances, codes, regulations, rules,
policies and orders that are intended to assure the protection of the
environment, or that classify, regulate, call for the remediation of, require
reporting with respect to, or list or define air, water, groundwater, solid
waste, hazardous or toxic substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees, workers
or other persons, including the public.
(ii) "Property" shall mean all real property leased or
--------
owned by the Company either currently or in the past.
(iii) "Facilities" shall mean all buildings and improvements
----------
on the Property of the Company.
(b) (i) the Company has not received notice (oral or written) of
any noncompliance of the Facilities or its past or present operations with
Environmental and Safety Laws; (ii) no notices, administrative actions or suits
are pending or, to the knowledge of the Company or either of the Shareholders,
threatened relating to a violation of any Environmental and Safety Laws; (iii)
the Company's uses of and activities within the Facilities have at all times
complied with all Environmental and Safety Laws; and (iv) the Company has all
the permits and licenses required to be issued and are in full compliance with
the terms and conditions of those permits.
3.16 Major Customers and Suppliers; Supplies. Parent has been provided
---------------------------------------
with a list of customers of the Company and all suppliers of significant goods
or services to the
17
Company for the year ended December 31, 1999 and the two (2) months ended
February 29, 2000. Section 3.16 of the Company Disclosure Schedule identifies
those suppliers of significant goods or services with respect to which
alternative sources of supply are not readily available on reasonably comparable
terms and conditions. Except as indicated in Section 3.16 of the Company
Disclosure Schedule, (i) all supplies and services necessary for the conduct of
the business of the Company as presently conducted, may be obtained from
alternate sources on terms and conditions comparable to those presently
available to the Company, and (ii) no facts, circumstances or conditions exist
which create a reasonable basis for believing that the Company will be unable to
continue to procure the supplies and services necessary to conduct its business
on substantially the same terms and conditions as such supplies and services are
currently procured. To the knowledge of the Company or either of the
Shareholders, there has not been, and there will not be, any material adverse
change in the relations of the Company with any of its suppliers, contractors,
creditors, and lessors, as a result of the announcement or consummation of the
transactions contemplated by this Agreement.
3.17 List of Accounts. Set forth in Section 3.17 of the Company
----------------
Disclosure Schedule is: (a) the name and address of each bank or other
institution in which the Company maintains an account (cash, securities or
other) or safe deposit box; (b) the name, phone number and telefax number of the
contact person at such bank or institution and (c) the account number of the
relevant account, a description of the type of account and a list of the
authorized signatories on such account.
3.18 Employment Agreements. Section 3.18 of the Company Disclosure
---------------------
Schedule contains the names, start dates, contracts dates, job descriptions,
annual salary rates and other compensation of all officers, directors and
employees of the Company or consultants being paid more than $75,000 a year by
the Company (including compensation paid or payable by the Company under the
Company Employee Plans). Section 3.18 of the Company Disclosure Schedule
contains a list of all employee policies, employee manuals or other written
statements of rules or policies as to hiring practices and procedures, working
conditions, vacation and sick leave, a complete copy of each of which has been
made available to Parent. Except as set forth in Section 3.18 of the Company
Disclosure Schedule, there are no employment, consulting, severance or
indemnification arrangements, agreements or understandings between the Company
and any officer, director, consultant or employee including, without limitation,
any contracts to employ executive officers, any severance, change in control or
similar arrangements with any officers, employees or agents of the Company that
will result in any obligation (absolute or contingent) of the Company to make
any payment to any officer, employee or agent of the Company following either
the consummation of the transactions contemplated hereby, termination of
employment, or both ("Company Employment Agreements").
-----------------------------
3.19 Employee Benefit Plans.
----------------------
(a) Section 3.19(a) of the Company Disclosure Schedule lists,
with respect to the Company (i) all material employee benefit plans (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) maintained, sponsored or contributed to or required to be
-----
contributed to by the Company, (ii) each loan to a non-officer employee in
excess of $10,000, loans to officers and directors and any stock option,
18
stock purchase, phantom stock, stock appreciation right, supplemental
retirement, severance, sabbatical, medical, dental, vision care, disability,
employee relocation, cafeteria benefit (Code section 125) or dependent care
(Code Section 129), life insurance or accident insurance plans, programs or
arrangements, (iii) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (iv) other fringe or
employee benefit plans, programs or arrangements that apply to senior management
of the Company and that do not generally apply to all employees, and (v) any
current or former employment or executive compensation or severance agreements,
written or otherwise, as to which unsatisfied obligations of the Company of
greater than $10,000 remain for the benefit of, or relating to, any present or
former employee, consultant or director of the Company (together, the "Company
-------
Employee Plans"). There is no trade or business (whether or not incorporated)
--------------
which is treated as a single employer with the Company within the meaning of
Section 414(b), (c), (m) or (o) of the Code.
(b) The Company has furnished to Parent a copy of the Company
Employee Plans and related plan documents, to the extent reduced to writing
(including trust documents, insurance policies or contracts, employee booklets,
summary plan descriptions and other authorizing documents, and, to the extent
still in its possession, any material employee communications relating thereto)
and has, with respect to each Company Employee Plan which is subject to ERISA
reporting requirements, provided copies of the Form 5500 reports filed for the
last three plan years. The Company has, with respect to any Company Employee
Plan intended to be qualified under Section 401(a) of the Code, either obtained
from the Internal Revenue Service a favorable determination letter as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, or applied to the
Internal Revenue Service for such a determination letter prior to the expiration
of the requisite period under applicable Treasury Regulations or Internal
Revenue Service pronouncements in which to apply for such determination letter
and to make any amendments necessary to obtain a favorable determination. The
Company has also furnished Parent with the most recent Internal Revenue Service
determination letter issued with respect to each such Company Employee Plan, and
nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Company Employee Plan subject to Code Section 401(a).
(c) Except as disclosed in Section 3.19(c) of the Company
Disclosure Schedule, (i) none of the Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Company Employee Plan,
for which no exemption exists; (iii) each Company Employee Plan has been
administered substantially in accordance with its terms and in substantial
compliance with the requirements prescribed by any applicable statutes, rules
and regulations (including applicable provisions of ERISA and the Code); (iv)
the Company has performed substantially all obligations required to be performed
by them under, are not in any material respect in default under or violation of,
and have no knowledge of any material default or violation by any other party
to, any of the Company Employee Plans; (v) to the knowledge of the Company or
either of the Shareholders, the Company is not subject to any liability or
penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Company Employee
19
Plans, other than obligations for the payment of benefits in the normal
operation of the Plan; (vi) all material contributions required to be made by
the Company to any Company Employee Plan have been made on a timely basis and
any accruals required by GAAP for contributions to each Company Employee Plan
for the current plan years are reflected on the financial statements of the
Company; (vii) with respect to each Company Employee Plan, no "reportable event"
within the meaning of Section 4043 of ERISA (excluding any such event for which
the thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred with respect to any Company Employee Plan subject to Title IV
of ERISA; (viii) the Company has not incurred any liability under Title IV of
ERISA or Section 412 of the Code and (ix) no Company Employee Plan which is
subject to Title IV or ERISA has an "unfunded benefit liability" within the
meaning of Section 4001(a)(18) of ERISA. With respect to each Company Employee
Plan subject to ERISA as either an employee pension plan within the meaning of
Section 3(2) of ERISA or an employee welfare benefit plan within the meaning of
Section 3(1) of ERISA, the Company has prepared in good faith and timely filed
all requisite governmental reports (which were true and correct as of the date
filed) and has properly and timely filed and distributed or posted all notices
and reports to employees required to be filed, distributed or posted with
respect to each such Company Employee Plan. No suit, administrative proceeding,
action or other litigation has been brought, or to the knowledge of the Company
or either of the Shareholders is threatened, against or with respect to any such
Company Employee Plan, including any audit or inquiry by the IRS or United
States Department of Labor. The Company has no liability (including current or
potential withdrawal liability) with respect to any "multiemployer plan" as such
term is defined in Section 3(37) of ERISA. Each Company Employee Plan can be
amended, terminated or otherwise discontinued after Closing in accordance with
its terms without material liability (other than expenses typically incurred in
a termination event). The consummation of the transactions contemplated by this
Agreement will not entitle any current or former employee or other service
provider of the Company to severance benefits or any other payment, except as
provided by this Agreement or the schedules attached hereto.
(d) With respect to each Company Employee Plan, the Company has
complied with (i) the applicable health care continuation and notice provisions
of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
proposed regulations thereunder, (ii) the applicable requirements of the Family
Leave Act of 1993 and the regulations thereunder and (iii) the applicable
requirements of the Health Insurance Portability and Accountability Act of 1996.
(e) Except as set forth in Section 3.19(e) of the Company
Disclosure Schedule, consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of the Company to severance benefits or any other payment, or (ii)
increase the amount of compensation due any such employee or service provider.
(f) Except as disclosed in Section 3.19(f) of the Company
Disclosure Schedule, there has been no amendment to, written interpretation or
announcement (whether or not written) by the Company relating to, or change in
participation or coverage under, any Company Employee Plan which would increase
the expense of maintaining such Plan above the
20
level of expense incurred with respect to that Plan for the most recent fiscal
year included in the Company's financial statements, other than increases
resulting from premium increases or the employment of additional employees, in
each case in the ordinary course of business.
3.20 Labor Matters. Except as set forth in Section 3.20 of the
-------------
Company Disclosure Schedule, (a) the Company is not, and has not been, a party
to or otherwise bound by or threatened by with any collective bargaining
agreement or other labor union contract and to the knowledge of the Company or
either of the Shareholders currently there are no organizational campaigns,
petitions or other unionization activities seeking recognition of a collective
bargaining unit which could affect the Company; (b) there are no controversies,
strikes, slowdowns, work stoppages or labor disturbances pending or to the
knowledge of the Company or either of the Shareholders threatened between the
Company and any of its employees, and the Company has not experienced any such
controversy, strike, slowdown, work stoppage or labor disturbances within the
past three years; (c) there are no unfair labor practice complaints pending
against the Company before the National Labor Relations Board or any other
Governmental Entity or any current union representation questions involving
employees of the Company; (d) there are no pending claims against the Company
under any workers' compensation plan or policy or for long-term disability; (e)
to the knowledge of the Company or either of the Shareholders, the Company has
no obligations under COBRA with respect to any former employees or qualifying
beneficiaries thereunder; (f) the Company is currently in compliance with all
applicable Laws relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of taxes and
other sums as required by the appropriate Governmental Entity and has withheld
and paid to the appropriate Governmental Entity or is holding for payment not
yet due to such Governmental Entity all amounts required to be withheld from
employees of the Company and is not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing; (g) the
Company has paid in full to all its employees or adequately accrued for in
accordance with GAAP all wages, salaries, commissions, bonuses, benefits and
other compensation due to or on behalf of such employees, including all
compensation owing and due for over-time work; (h) the Company has provided its
employees with all relocation benefits, stock options, bonuses and incentives,
and all other compensation that such employee has earned up through the date of
this Agreement or that such employee was otherwise promised in their employment
agreements with the Company; (i) there is no claim with respect to payment of
wages, salary or overtime pay that has been asserted or is now pending or to the
knowledge of the Company or either of the Shareholders threatened before any
Governmental Entity with respect to any Persons currently or formerly employed
by the Company; (j) the Company is not a party to, or otherwise bound by, any
consent decree with, or citation by, any Governmental Entity relating to
employees or employment practices; (k) there is no charge or proceeding with
respect to a violation of any occupational safety or health standards that has
been asserted or is now pending or to the knowledge of the Company or either of
the Shareholders threatened with respect to the Company; (l) there is no charge
of discrimination in employment or employment practices, for any reason,
including, without limitation, age, gender, race, religion or other legally
protected category, which has been asserted or is now pending or threatened
before the United States Equal Employment Opportunity Commission, or any other
Governmental Entity in any jurisdiction in which the Company has employed or
currently employs any Person; (m) the Company is in compliance in all material
respects with the requirements of the Americans With Disabilities Act
21
and any similar law of any Government Entity; and (n) the Company is in
compliance with the requirements of the Workers Adjustment and Retraining
Notification Act ("WARN") and each has no liabilities pursuant to WARN.
----
Except as set forth in Section 3.20 of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
severance benefits or any other payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any current or former director, employee or other service
provider of the Company or any other ERISA Affiliate, (ii) increase any benefits
otherwise payable by the Company or (iii) result in the acceleration of the time
of payment or vesting of any such benefits, or any options or warrants to
purchase Company Capital Stock, or any increase in the amount of compensation of
benefits due any such person.
3.21 Contracts and Commitments. Section 3.21 of the Company
-------------------------
Disclosure Schedule contains a complete and accurate list of all contracts and
agreements (including, without limitation, oral and informal arrangements) of
the following categories to which the Company is a party or by which it is bound
as of the date of this Agreement.
(a) labor contracts;
(b) material manufacturing, distribution, franchise, license,
sales, agency or advertising contracts;
(c) contracts which require the payment in excess of $50,000
per year for (i) the purchase of inventory, materials, supplies or equipment
which are not cancelable (without material penalty, cost or other liability)
within one (1) year, (ii) management, consulting, service or other similar
contracts, (iii) advertising or marketing agreements or arrangements, and (iv)
other contracts made in the ordinary course of business involving annual
expenditures or liabilities in excess of $50,000 which are not cancelable
(without material penalty, cost or other liability) within ninety (90) days,
other than purchase orders made in the ordinary course of business consistent
with past practice;
(d) promissory notes, loans, agreements, indentures, evidences
of indebtedness or other instruments proving for the lending of money, whether
as borrower, lender or guarantor;
(e) contracts (other than Leases) containing covenants limiting
the freedom of the Company to engage in any line of business or compete with any
Person or operate at any location;
(f) joint venture or partnership agreements or joint
development or similar agreements;
(g) agreement, contract or other arrangement with (i) the
Company or any affiliate of the Company or (ii) any current or former officer,
director or employee of the
22
Company or any affiliate of the Company (other than non-compete or intellectual
property agreements);
(h) material lease or similar agreement with any person under
which (i) the Company is lessee of, or holds or uses, any machinery, equipment,
vehicle or other tangible property owned by any person or (ii) the Company is a
lessor or sublessor of, or makes available for use by any person, any tangible
personal property owned or leased by the Company, in any such case which has an
aggregate future liability or receivable, as the case may be, and is not
terminable by the Company by notice of not more than sixty (60) days;
(i) contracts or other instruments (including so-called
take-or-pay or keepwell agreements) under which (i) any person has directly or
indirectly guaranteed indebtedness, liabilities or obligations of the Company or
(ii) the Company has directly or indirectly guaranteed indebtedness, liabilities
or obligations of any person (in each case other than endorsements for the
purpose of collection in the ordinary course of business);
(j) contracts or other instruments under which the Company has,
directly or indirectly, made any advance, loan, extension of credit or capital
contribution to, or other investment in, any person involving aggregate payments
in excess of $50,000;
(k) mortgage, pledge, security agreement, deed of trust or
other instrument granting a lien or other encumbrance upon any property of the
Company;
(l) agreement or instrument involving aggregate payments in
excess of $50,000 providing for indemnification of any person with respect to
liabilities relating to any current or former business of the Company, or any
predecessor person;
(m) contract for the acquisition, sale or lease of any assets
or capital stock or other ownership interests outside the ordinary course of the
business or involving aggregate payments in excess of $50,000 or to effect any
merger of the Company; and
(n) any exclusive retainer agreement or arrangement with
attorneys, accountants, actuaries, appraisers, investment bankers or other
professional advisors.
(o) any agreements or arrangements with respect to
telecommunications, web hosting or similar or related matters involving payments
in excess of $50,000.
True copies of the written contracts identified in Section 3.21 of the
Company Disclosure Schedule have been made available to Parent.
3.22 Absence of Breaches or Defaults. The Company is not, and, to the
-------------------------------
knowledge of the Company or either of the Shareholders, no other party is, in
default under, or in breach or violation of, any contract to which the Company
is a party, including, without limitation, those identified on Section 3.21 of
the Company Disclosure Schedule and, to the knowledge of the Company or either
of the Shareholders, no event has occurred which, with the giving of notice or
passage of time or both would constitute a default under any contract
23
identified on Section 3.21 of the Company Disclosure Schedule, except in each
case set forth above for defaults, breaches, violations or events which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company. Other than contracts which have terminated or expired in accordance
with their terms, each of the contracts identified on Section 3.21 of the
Company Disclosure Schedule is valid, binding and enforceable in accordance with
its terms (subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered on a proceeding in equity or at law)) and is in full force and
effect, and assuming all consents required by the terms thereof or applicable
law have been obtained, such contracts will continue to be valid, binding and
enforceable in accordance with their respective terms and in full force and
effect immediately following the consummation of the transactions contemplated
hereby, in each case except where the failure to be valid, binding, enforceable
and in full force and effort would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. No event has occurred which either
entitles, or would, on notice or lapse of time or both, entitle the holder of
any indebtedness for borrowed money affecting the Company (except for the
execution or consummation of this Agreement) to accelerate, or which does
accelerate, the maturity of any indebtedness affecting the Company, except as
set forth in Section 3.22 of the Company Disclosure Schedule.
3.23 Interested Party Transactions. Except as set forth in Section
-----------------------------
3.23 of the Company Disclosure Schedule, the Company is not indebted to any
director, officer, employee or agent of the Company (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such person is indebted to the Company. Except as set forth in Section 3.23 of
the Company Disclosure Schedule, no affiliate of the Company or any Shareholder
has, or has had, any interest in any material property (whether real, personal,
or mixed and whether tangible or intangible), used in or pertaining to the
Company.
3.24 Compliance with Applicable Law. The Company holds, and has at
------------------------------
all times held, all licenses, franchises, permits and authorizations which (a)
are necessary for it to engage in the business currently conducted by it and (b)
if not possessed by the Company would have a Material Adverse Effect. The
Company has complied with and is not in default in any respect under any,
applicable law, statute, order, rule, regulation, policy and/or guideline of any
Governmental Entity relating to the Company except where the failure to do so
would not have a Material Adverse Effect and the Company has not received notice
of any violations of any of the above.
3.25 Insurance. Section 3.25 of the Company Disclosure Schedule sets
---------
forth a true and complete list of all insurance policies providing insurance
coverage of any nature to the Company. Such policies are sufficient for
compliance by the Company with all requirements of law and all material
agreements to which the Company is a party or by which any of its assets are
bound. All of such policies are in full force and effect and are valid and
enforceable, and the Company has complied with all material terms and conditions
of such policies, including premium payments. None of the insurance carriers has
indicated to the Company an intention to cancel any such policy. Except as set
forth in Section 3.25 of the Company Disclosure, the Company has no claim
pending against any of the insurance carriers under any of such policies
24
and neither the Company nor either Shareholder has knowledge of any actual or
alleged occurrence of any kind which may give rise to any such claim.
3.26 Brokers. Neither the Company nor any of its officers or
-------
directors has employed any broker or finder or incurred any liability for any
broker's fees, commissions or finder's fees in connection with any of the
transactions contemplated by this Agreement.
3.27 Minute Books. The minute books of the Company have been made
------------
available to Parent and include the items set forth on Company Disclosure
Schedule Section 3.27.
3.28 Accounts and Notes Receivable. Subject to any reserves set forth
-----------------------------
on the Reference Balance Sheet, the accounts receivable and the notes receivable
shown on the Reference Balance Sheet represent and will represent bona fide
claims arising in the ordinary course of business against debtors for sales and
other charges, and are not subject to discount except for normal cash and
immaterial trade discounts. To the knowledge of the Company or either of the
Shareholders, and subject to any reserves set forth on the Reference Balance
Sheet, such accounts receivable and notes receivable are collectible by the
Company in the ordinary course of business. The amount carried for doubtful
accounts and allowances disclosed in the Reference Balance Sheet is sufficient
to provide for any losses which may be sustained on realization of the accounts
receivable and notes receivable.
3.29 Board Approval. The Board of Directors of the Company has (i)
--------------
approved this Agreement and the Merger and all transactions contemplated hereby,
(ii) determined that the Merger is in the best interests of the shareholders of
the Company and is on terms that are fair to such shareholders and (iii)
recommended that the shareholders of the Company approve this Agreement and
consummation of the Merger.
3.30 Shareholder Approval. The Shareholders have unanimously approved
--------------------
this Agreement and the Merger and all transactions contemplated hereby.
3.31 Employee Nondisclosure and Assignment of Inventions Agreements.
--------------------------------------------------------------
Except as set forth in Section 3.31 of the Company Disclosure Schedule, each
employee of the Company who has access to confidential information has executed
and delivered to the Company the standard employee confidentiality and
assignment of inventions agreement in the form previously delivered to Parent.
3.32 Year 2000 Compliance. Except as set forth in Section 3.32 of the
--------------------
Company Disclosure Schedule, the Company has performed all acts necessary to
ensure it is Year 2000 Compliant. As used herein, "Year 2000 Compliant" shall
-------------------
mean, in regard to any entity, that all software (except for software licensed
from third parties), hardware, firmware equipment, goods or systems utilized by
or material to the business, operation or financial condition of such entity,
including, without limitation, all telephone or other communications systems and
all software licensed to clients, will properly perform date sensitive functions
during and after the year 2000; provided, however, that the term "Year 2000
-------- ------- ---------
Compliant" does not relate to the impact on the Company of the failure of any
---------
third party to be Year 2000 Compliant. The
25
Company shall provide to Parent such certifications or other evidence of its
compliance with the terms hereof as Parent may from time to time require.
3.33 Certain Payments. Since January 1, 1995, to the knowledge of the
----------------
Company or either of the Shareholders, neither the Company nor any officer,
agent or employee of the Company or, to the knowledge of the Company or either
of the Shareholders, any other person affiliated with or acting on behalf of the
Company has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment in violation of
any applicable law, rule or regulation to any person, private or public,
regardless of form, whether in money, property, or services. or (b) established
or maintained any fund or material asset that has not been recorded in the books
and records of the Company.
3.34 Representations Complete. None of the representations or
------------------------
warranties made by the Company or Shareholders herein or in any Schedule hereto,
including the Company Disclosure Schedule, or certificate furnished by the
Company pursuant to this Agreement, contains any untrue statement of a material
fact, or omits 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
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and
warrant to the Company and the Shareholders that, except as set forth in the
disclosure schedule attached hereto (the "Parent Disclosure Schedule"):
--------------------------
4.1 Corporate Organization. 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. Parent and Merger Sub have the corporate power and
authority to own or lease their respective properties and assets and to carry on
their respective businesses as they are now being conducted, and are duly
qualified to do business in each jurisdiction in which the nature of the
business conducted by them or the character or location of the properties and
assets owned or leased by them makes such qualification necessary, except where
the failure to be so qualified (i) would not individually or in the aggregate
have a Material Adverse Effect or (ii) would not adversely affect the ability of
Parent or Merger Sub to consummate the transactions contemplated hereby. The
copies of the Certificate of Incorporation and Bylaws of Parent and Merger Sub
which have previously been delivered to the Company are true and correct copies
of such documents as in effect as of the date of this Agreement.
4.2 Authority; No Violation.
------------------------
(a) Each of Parent and Merger Sub has the requisite corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The Board of Directors of Parent has (i) unanimously approved this Agreement and
the Merger and all transactions contemplated
26
hereby and (ii) determined that the Merger is in the best interests of the
stockholders of Parent and is on terms that are fair to such stockholders. The
Board of Directors and the stockholder of Merger Sub have approved this
Agreement and the Merger and all transactions contemplated hereby. No other
corporate proceedings on the part of Parent or Merger Sub are necessary to
approve this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Parent and
Merger Sub and (assuming due authorization, execution and delivery by the
Company and Shareholders) constitutes the valid and binding obligation of Parent
and Merger Sub, enforceable against each of them, in accordance with its terms,
except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally.
(b) Except as set forth in Section 4.2(b) of the Parent
Disclosure Schedule, neither the execution and delivery of this Agreement by
Parent and Merger Sub, nor the consummation by Parent and Merger Sub of the
transactions contemplated hereby, nor compliance by Parent and Merger Sub with
any of the terms or provisions hereof, will (i) violate any provision of the
Certificate of Incorporation or Bylaws of Parent or Merger Sub, or (ii) assuming
that the consents and approvals referred to in Section 4.5 hereof are duly
obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Parent or Merger Sub or any of
their respective properties or assets, or (y) violate, conflict with, result in
a breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the properties or assets of Parent or Merger Sub under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, sublicense, lease, agreement or other
instrument or obligation to which Parent or Merger Sub is a party, or by which
either of them or any of their respective properties or assets may be bound or
affected.
4.3 Capitalization of Parent and Merger Sub.
----------------------------------------
(a) Parent's authorized capital stock consists solely of (i)
85,000,000 shares of Parent Common Stock, of which (A) 4,889,840 shares are
issued and outstanding, (B) no shares were issued and held in treasury (which
does not include the shares reserved for issuance set forth in clause (C) and
(D) below), (C) as of March 31, 2000, 2,445,840 shares are reserved for issuance
upon the exercise of outstanding options, and (D) as of March 31, 2000,
1,346,386 shares (not counting shares referred to in the preceding clause (C))
are reserved for issuance upon exercise of options which have not been granted,
but have been reserved under Parent's stock option plan; and (ii) 44,640,000
shares of Parent Preferred Stock of which 2,140,000 shares are designated as
Series A Preferred of which 2,040,000 shares are issued and outstanding,
3,000,000 shares are designated as Series B Preferred, of which 2,200,000 shares
are issued and outstanding, 21,500,000 shares are designated as Series C
Preferred, of which 19,882,358 shares are issued and outstanding and 18,000,000
shares are designated as Series D Preferred, of which 15,407,936 are issued and
outstanding. Each outstanding share of Parent Common Stock is, and all shares of
Parent Common Stock to be issued in connection with the
27
Merger will be, duly authorized and validly issued, fully paid and
nonassessable, and each outstanding share of Parent Common Stock has not been,
and all shares of Parent Common Stock to be issued in connection with the Merger
will not be, issued in violation of any preemptive or similar rights. All
outstanding shares of Parent capital stock were issued in compliance with
applicable federal and state securities laws. Except as set forth herein or in
Section 4.3 of the Parent Disclosure Schedule, and except for shares to be
issued in connection with the Merger, there are no outstanding subscriptions,
options, warrants, calls, commitments, agreements, or obligations of any
character calling for the purchase, redemption or issuance by Parent of any
equity securities of Parent, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of Parent Common Stock, and
Parent has no obligation of any kind to issue any additional securities or to
pay for or repurchase any securities of Parent. Except as provided in Section
4.3 of the Parent Disclosure Schedule, Parent has no intention of authorizing
additional shares of Parent Common Stock for employee stock option and stock
purchase plans prior to the earlier of Parent's initial public offering or
December 31, 2000.
(b) Merger Sub's authorized capital stock consists solely of
10,000 shares of Common Stock, par value $.001 per share ("Merger Sub Common
-----------------
Stock"), of which 1,000 shares are issued and outstanding and none are reserved
-----
for issuance. All of the outstanding shares of Merger Sub Common Stock are owned
by Parent free and clear of any liens, claims or encumbrances. There are no
outstanding subscriptions, options, warrants, calls, commitments, agreements, or
obligations of any character calling for the purchase, redemption or issuance by
Merger Sub of any equity securities of Merger Sub, nor are there outstanding any
securities which are convertible into or exchangeable for any shares of Merger
Sub Common Stock and Merger Sub has no obligation of any kind to issue any
additional securities or to pay for or repurchase any securities of Merger Sub.
4.4 Subsidiaries. Except for Merger Sub, Parent does not have an
------------
equity interest in any corporation, partnership or other entity.
4.5 Consents and Approvals. Neither the execution and delivery of
----------------------
this Agreement by Parent or Merger Sub nor the consummation of the transactions
contemplated hereby will require any action or consent or approval of, or review
by, or registration or filing by Parent or any of its affiliates with, any third
party or any Governmental Entity, other than (i) filings or other actions
required under federal and state securities laws, (ii) consents or approvals of
any Governmental Entity set forth in Section 4.5 to the Parent Disclosure
Schedule, or (iii) the filing of a Certificate of Merger with the Secretary of
State of the States of Delaware and California, except for those which would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent or Merger Sub or a Material Adverse Effect on their
ability to consummate the transactions contemplated hereby.
4.6 Parent Financial Statements. Set forth in Section 4.6 of Parent
---------------------------
Disclosure Schedule are true and correct copies of (a) an audited balance sheet
of Parent at December 31, 1999, together with related audited statements of
operations, stockholders' equity and cash flows for the fiscal year then ended,
and (b) the Company's unaudited balance sheet as of February 29, 2000 (the
"Parent Balance Sheet") (collectively, the "Parent Financial Statements"). Such
-------------------- ---------------------------
Parent Financial Statements have been prepared in accordance with GAAP (except
that the unaudited
28
Parent Financial Statements do not contain all footnotes required by GAAP and
are subject to normal year-end audit adjustments that in the aggregate will not
be material) applied on a consistent basis throughout the periods indicated and
with each other applied on a basis consistent throughout the periods indicated
and with each other. The Parent Financial Statements fairly present the
consolidated financial condition and operating results of Parent as of the
dates, and for the periods indicated therein, subject to normal year-end audit
adjustments. The books and records of Parent have been, and are being,
maintained in accordance with GAAP and any other applicable legal and accounting
requirements.
4.7 Absence of Undisclosed Liabilities. Except (i) as and to the
----------------------------------
extent disclosed or reserved against in the Parent Balance Sheet, (ii) as
incurred in the ordinary course of business and consistent with past practice
and not prohibited by this Agreement, (iii) as incurred in connection with the
execution of this Agreement and (iv) as disclosed in Section 4.7 of the Parent
Disclosure Schedule, Parent does not have any liabilities or obligations of any
nature, whether known or unknown, absolute, accrued, contingent or otherwise and
whether due or to become due, that, individually or in the aggregate, have or
would have a Material Adverse Effect on Parent.
4.8 Absence of Certain Changes. Since February 29, 2000, (a) except
--------------------------
as disclosed in Section 4.8 of Parent Disclosure Schedule, there has not been
any change that would have a Material Adverse Effect on the assets, business,
properties, operations or financial condition of Parent or any condition, event
or occurrence that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect on Parent, (b) Parent has not
participated in any transaction, or otherwise acted outside the ordinary course
of business, including, without limitation, declaring or paying any dividend or
declaring or making any distribution to its stockholders except out of the
earnings of Parent, issuing any capital stock of Parent or any securities
convertible into Parent capital stock, or acquiring any other business, whether
by merger, acquisition of stock or assets, or otherwise, and (c) Parent has not
increased the compensation of any of its officers or the rate of pay of any of
its employees, except as part of regular compensation or benefits increases in
the ordinary course of business.
4.9 Brokers. Except as set forth in Section 4.9 of the Parent
-------
Disclosure Schedule, neither Parent, Merger Sub, nor any of their respective
officers or directors has employed any broker or finder or incurred any
liability for any broker's fees, commissions or finder's fees in connection with
any of the transactions contemplated by this Agreement.
4.10 Vote Required. No approval of the stockholders of Parent is
-------------
necessary to approve this Agreement and the transactions contemplated hereby.
4.11 Representations Complete. None of the representations or
------------------------
warranties made by Parent or Merger Sub herein or in any Schedule hereto,
including the Parent Disclosure Schedule, or certificate furnished by the Parent
pursuant to this Agreement, contains any untrue statement of a material fact, or
omits 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.
29
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company. During the period from the date of this
------------------------
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
Parent, the Company shall carry on its business in the ordinary course
consistent with past practice. Without limiting the generality of the foregoing,
and except as set forth in Section 5.1 of the Company Disclosure Schedule or as
otherwise contemplated by this Agreement or consented to in writing by Parent,
the Company shall not:
(a) declare or pay any dividends on, or make other distributions
in respect of, any of the Company Common Stock;
(b) (i) repurchase, redeem or otherwise acquire any shares of
its capital stock, or any securities convertible into or exercisable for any
shares of such capital stock, (ii) split, combine or reclassify any shares of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (iii) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing;
(c) amend its Articles of Incorporation, Bylaws or other similar
governing documents;
(d) make any capital expenditures other than those which are
made in the ordinary course of business or are necessary to maintain existing
assets in good repair;
(e) enter into any new line of business;
(f) acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire any assets, which would be material, individually or in the
aggregate, to the Company;
(g) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, or in any of the conditions to the
Merger set forth in this Agreement not being satisfied;
(h) change its methods of accounting in effect at December 31,
1999, except as required by changes in GAAP or as concurred with by the
Company's independent auditors;
(i) (i) except as required by applicable law or as required to
maintain qualification pursuant to the Code, adopt, amend, or terminate any
employee benefit plan
30
(including, without limitation, any Company Employee Plan) or any agreement,
arrangement, plan or policy between the Company and one or more of its current
or former directors, officers or employees, (ii) except for normal increases in
the ordinary course of business consistent with past practice or except as
required by applicable law, increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not required by
any Company Employee Plan or agreement as in effect as of the date hereof
(including, without limitation, the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units or performance
units or shares);
(j) other than activities in the ordinary course of business
consistent with past practice, sell, lease, encumber, assign or otherwise
dispose of, or agree to sell, lease, encumber, assign or otherwise dispose of,
any of its material assets, properties or other rights or agreements;
(k) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money or assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity;
(l) create, renew, amend or terminate or give notice of a
proposed renewal, amendment or termination of, any material contract, agreement
or lease for goods, services or office space to which the Company is a party or
by which the Company or any of its properties are bound, other than the renewal
in the ordinary course of business of any lease the term of which expires prior
to the Closing Date; or
(m) agree to do any of the foregoing.
5.2 Covenants of Parent. During the period from the date of this
-------------------
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
the Company, and except as set forth in Section 5.2 of the Parent Disclosure
Schedule, Parent shall carry on its business in the ordinary course consistent
with past practice. Without limiting the generality of the foregoing, and except
as set forth in Section 5.2 of the Parent Disclosure Schedule or as otherwise
contemplated by this Agreement or consented to in writing by the Company, Parent
shall not:
(a) declare or pay any dividend or other distribution, payable
in cash, stock, property or otherwise, in respect of any of its capital stock;
(b) purchase or otherwise acquire, directly or indirectly, any
of its capital stock;
(c) split, combine or reclassify any shares of its capital
stock, unless appropriate adjustment to the Merger Consideration is made
pursuant to Section 1.8 hereof;
(d) sell, transfer or otherwise dispose of any material assets;
31
(e) acquire any other business whether by merger, purchase of
stock or assets, or otherwise;
(f) except upon the exercise of outstanding options or warrants,
issue any shares of the capital stock of Parent or any security convertible into
the capital stock of Parent;
(g) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, or in any of the conditions to the
Merger set forth in this Agreement not being satisfied; or
(h) agree to do any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access to Information.
---------------------
(a) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, the Company shall afford to the
officers, employees, accountants, counsel and other representatives of Parent,
access, during normal business hours during the period prior to the Effective
Time, to all its properties, books, contracts, commitments, records, officers,
employees, accountants, counsel and other representatives and, during such
period, the Company shall make available to Parent all information concerning
its business, properties and personnel as Parent may reasonably request. The
Company shall not be required to provide access to or to disclose information
where such access or disclosure would violate or prejudice the rights of its
customers, jeopardize any attorney-client privilege or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply. All information furnished to
Parent pursuant to this Section 6.1(a) shall be subject to, and Parent shall
hold all such information in confidence in accordance with, the provisions of
the confidentiality agreement, dated December 29, 1999, (the "Confidentiality
---------------
Agreement"), between Parent and the Company.
---------
(b) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, Parent shall afford to the officers,
employees, accountants, counsel and other representatives of the Company,
access, during normal business hours during the period prior to the Effective
Time, to all its properties, books, contracts, commitments, records, officers,
employees, accountants, counsel and other representatives and, during such
period, the Parent shall make available to the Company all information
concerning its business, properties and personnel as the Company may reasonably
request. Parent shall not be required to provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights of Parent's customers, jeopardize any attorney-client privilege or
contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or
binding agreement entered into prior
32
to the date of this Agreement. The parties hereto will make appropriate
substitute disclosure arrangements under circumstances in which the restrictions
of the preceding sentence apply. All information furnished to the Company
pursuant to this Section 6.1(b) shall be subject to, and the Company shall hold
all such information in confidence in accordance with, the provisions of
the confidentiality agreement, dated December 29, 1999 (the "Confidentiality
---------------
Agreement"), between Parent and the Company.
---------
(c) No investigation by Parent or the Company or their
respective representatives shall affect the representations, warranties,
covenants or agreements of the other set forth herein; provided, however, that
-------- -------
neither Parent nor the Company is aware as of the date hereof of any breach of
representations or warranties of the other party with respect to which breach it
has failed to notify such other party.
6.2 Public Disclosure. Unless otherwise permitted by this Agreement,
-----------------
(i) Parent and the Company shall consult with each other before issuing any
press release or otherwise making any public statement or making any other
public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby, and (ii) neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which approval
shall not be unreasonably withheld), except as may be required by law.
6.3 Consents; Cooperation. Each of Parent, Merger Sub and the Company
---------------------
shall promptly apply for or otherwise seek, and use its best efforts to obtain,
all consents and approvals required to be obtained by it for the consummation of
the Merger, and shall use commercially reasonable efforts to obtain all
necessary consents, waivers and approvals under any of its material contracts in
connection with the Merger for the assignment thereof or otherwise. The failure
of the Company and the Shareholders to obtain consents or approvals to the
transactions contemplated hereby with respect to the agreements listed on
Section 6.3 of the Company Disclosure Schedule (the "Listed Agreements") shall
-----------------
not constitute a breach of any of the Company's or the Shareholders'
representations, warranties, covenants and agreements (including, but not
limited to, for purposes of the indemnification provisions of Article IX) set
forth in this Agreement, and such consents or approvals shall not be a condition
to the obligations of Parent and Merger Sub under Section 7.2(e). Each of the
Company and the Shareholders hereby represent and warrant to Parent and Merger
Sub that the failure of the Company to obtain any consents with respect to the
Listed Agreements, individually or taken as a whole, would not have a Material
Adverse Effect on the Company. The failure to obtain consents or approvals to
the transactions contemplated hereby with respect to the agreements set forth in
Section 3.3(b) of the Company Disclosure Statement, other than the Listed
Agreements, is only a closing condition, which will be satisfied or waived at
the closing; however, under no circumstances shall the failure to obtain such
consents with respect to such agreements, other than the Listed Agreements,
constitute a breach of any of the Company's representations, covenants and
agreements (including, but not limited to, for purposes of the indemnification
provisions of Article IX) set forth in this Agreement.
6.4 Legal Requirements. Each of Parent, Merger Sub and the Company
------------------
will take all reasonable actions necessary to comply promptly with all legal
requirements which have
33
been or which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with and
furnish information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
6.5 Blue Sky Laws. Parent shall take such steps as may be necessary
-------------
to comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Stock in connection with the
Merger. The Company shall use its best efforts to assist Parent as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Parent Common Stock in
connection with the Merger.
6.6 Control of Operations. Nothing contained in this Agreement shall
---------------------
give Parent, directly or indirectly, the right to control or direct the
operations of the Company prior to the Effective Time. Prior to the Effective
Time, each of Parent and the Company shall exercise, consistent with the terms
and conditions of this Agreement, complete control and supervision over its
respective operations.
6.7 Best Efforts and Further Assurances. Each of the parties to this
-----------------------------------
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to Closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.
6.8 Distribution of 1999 Profits. The parties agree that on March 28,
----------------------------
2000 the Company distributed to the Shareholders (prorata to their
shareholdings) cash of the Company in a total amount equal to $327,001,
representing the portion of the undistributed retained earnings of the Company
to which Shareholders were entitled for 1999. The parties agree that,
notwithstanding any other provision of this Agreement to the contrary, the
distribution provided for in this Section 6.8 (including any adjustment thereto
as provided in Section 6.8 of the Company Disclosure Schedule), the bonus paid
to Xxxxxxx Xxxxxx on March 15, 2000 in the amount of $82,493.61, Xxxxxxxxxxx X.
Xxxxxxxx'x March 28, 2000 loan of $280,700 (or such lower amount as provided in
Section 6.8 of the Company Disclosure Schedule) to the Company, and the
Company's or FusionDM, Inc.'s future repayment of such loan in accordance with
its terms (i.e., before April 28, 2000) shall not give rise to any adjustment of
the Merger Consideration or constitute a breach of any of the Company's or
Shareholders' representations, warranties, covenants and agreements (including,
but not limited to, for purposes of the indemnification provisions of Article
IX) set forth in this Agreement.
34
6.9 Other Agreements. The parties agree that immediately before the
----------------
Closing the Employment Agreements between Xxxxxxx Xxxxxx and Xxxxxxxxxxx X.
Xxxxxxxx and the Company, the Stock Issuance and Repurchase Agreement By and
Between Times Direct Marketing, Inc. and Xxxxxxx Xxxxxx, and the Agreement By
and Between Xxxxxxxxxxx Xxxxxxxx and Xxxxxxx Xxxxxx (collectively, the
"Shareholder Agreements") shall all be terminated, such that at the time of the
Closing none of the provisions or restrictions of such Shareholder Agreements
shall be applicable, (e.g., Xxxxxxx Xxxxxx'x shares of capital stock in Times
Direct Marketing, Inc. will be fully vested). Notwithstanding anything to the
contrary in this Agreement, the existence of such Shareholder Agreements, as of
the time of execution of this Agreement or at any time before Closing shall not
constitute a breach of any of the Company's or the Shareholders'
representations, warranties, covenants and agreements (including, but not
limited to, for purposes of the indemnification provisions of Article IX) set
forth in this Agreement.
6.10 Release From Guarantees. Parent shall use its commercially
-----------------------
reasonable efforts to have Xxxxxxxxxxx X. Xxxxxxxx ("Xxxxxxxx") released from
the personal guarantees of the Company's obligations identified in Section 6.10
of the Company Disclosure Schedule on the Closing Date and will continue such
efforts after the Closing if not released prior thereto. Parent and Merger Sub
hereby, jointly and severally, agree to indemnify, defend and hold Xxxxxxxx
harmless for any amounts that Xxxxxxxx is required to pay in connection with the
enforcement of any obligations under such personal guarantees after the Closing,
including without limitation any reasonable attorneys' fees and expenses
incurred in connection therewith.
6.11 Pre-Effective Time Year 2000 Corporate-Level Taxes. The parties
--------------------------------------------------
expressly agree that the Surviving Corporation is assuming any corporate-level
taxes of the Company for the period from January 1, 2000 through and including
the Effective Time and that the existence and/or payment of such taxes by the
Surviving Corporation shall not give rise to any adjustment of the Merger
Consideration or constitute a breach of any of the Company's or Shareholders'
representations, warranties, covenants and agreements (including, but not
limited to, for purposes of the indemnification provisions of Article IX) set
forth in this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been
35
issued, each party agrees to use its reasonable diligent efforts to have such
injunction or other order lifted.
(b) Governmental Approval. The Company, Parent and Merger Sub shall
---------------------
have timely obtained from each Governmental Entity all approvals, waivers and
consents, if any, necessary for consummation of or in connection with the Merger
and the several transactions contemplated hereby (each a "Requisite Regulatory
--------------------
Approval"), including such approvals, waivers and consents as may be required
--------
under the Securities Act and under state blue sky laws (other than those
filings, approvals, waivers and consents relating to the Merger or affecting
Parent's ownership of Company or any of its properties that, if not obtained,
would not have a Material Adverse Effect to either party).
(c) Employment Agreements. Parent shall have entered into employment
---------------------
agreements with Xxxxxxxxxxx X. Xxxxxxxx and Xxxxxxx Xxxxxx in substantially the
form of Exhibit B and Exhibit C, respectively, hereto.
--------- ---------
7.2 Conditions to Obligations of Parent and Merger Sub. The obligation of
--------------------------------------------------
Parent and Merger Sub to effect the Merger is also subject to the satisfaction
or waiver by Parent and Merger Sub at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date. Parent shall have received a certificate signed on behalf of
the Company by the Chief Executive Officer and the Chief Financial Officer of
the Company to the foregoing effect.
(b) Performance of Obligations of the Company. The Company shall have
-----------------------------------------
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by the Chief Executive
Officer and the Chief Financial Officer of the Company to such effect.
(c) Injunctions or Restraints on Conduct of Business. No temporary
------------------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision limiting or restricting Parent's conduct or operation of the business
of the Company following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other Governmental Entity,
domestic or foreign, seeking the foregoing be pending.
(d) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations or
results of operations of the Company.
(e) Third Party Consents. Parent shall have been furnished with
--------------------
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval
36
shall be required in connection with the Merger under the contracts of the
Company set forth on Section 3.4 of the Company Disclosure Schedule.
(f) Legal Opinion. Parent shall have received a legal opinion from
-------------
Xxxxxxx & Xxxxxx, P.C. in substantially the form attached hereto as Exhibit D.
---------
(g) Shareholder Representation Agreements. Parent shall have received
-------------------------------------
from each of the Shareholders an executed Shareholder Representation Agreement
in substantially the form attached hereto as Exhibit E.
---------
(h) Approval of Shareholders. Each of the Shareholders shall have
------------------------
voted their shares of Company Common Stock in favor of, or executed a written
consent approving, the Merger and such approval shall remain in full force and
effect.
7.3 Conditions to the Obligations of Company and Shareholders. The
---------------------------------------------------------
obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver by the Company at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Parent and Merger Sub set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date. The Company shall have received a certificate
signed (i) on behalf of Parent by the Chief Executive Officer and the Vice
President of Finance of Parent and (ii) on behalf of Merger Sub by the President
of Merger Sub, in each case to the foregoing effect.
(b) Performance of Obligations of Parent and Merger Sub. Parent and
---------------------------------------------------
Merger Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the Closing
Date, and the Company shall have received a certificate signed (i) on behalf of
Parent by the Chief Executive Officer and the Vice President of Finance of
Parent and (ii) on behalf of Merger Sub by the President of Merger Sub, in each
case to such effect.
(c) Injunctions or Restraints on Conduct of Business. No temporary
------------------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision limiting or restricting Parent's business following the Merger shall
be in effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(d) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations or
results of operations of Parent.
(e) Legal Opinion. Company shall have received a legal opinion from
-------------
Xxxxxx & XxXxxxx, LLP in substantially the form attached hereto as Exhibit F.
---------
37
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time:
(a) by mutual consent of the Company, Parent and Merger Sub in a
written instrument, if the Board of Directors of each so determines by a vote of
a majority of the members of its entire Board;
(b) by either Parent or the Company upon written notice to the
other party if any Governmental Entity of competent jurisdiction shall have
issued a final nonappealable order enjoining or otherwise prohibiting the
Merger;
(c) by either Parent or the Company if the Merger shall not have
been consummated on or before September 30, 2000 unless the failure of the
Closing to occur by such date shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe the covenants and agreements
of such party set forth herein;
(d) by either Parent or the Company if there shall have been a
material breach of any of the representations or warranties set forth in this
Agreement on the part of the other party, which breach is not cured within
thirty (30) days following written notice to the party committing such breach,
or which breach, by its nature, cannot be cured prior to the Closing; or
(e) by either Parent or the Company if there shall have been a
material breach of any of the covenants or agreements set forth in this
Agreement on the part of the other party, which breach shall not have been cured
within thirty (30) days following receipt by the breaching party of written
notice of such breach from the other party hereto, or which breach, by its
nature, cannot be cured prior to the Closing.
8.2 Effect of Termination. In the event of termination of this
---------------------
Agreement by either Parent or the Company as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect except that (i) the
last sentence of Section 6.1(a), the last sentence of Section 6.1(b), and each
of Sections 6.2, 8.2, 10.1, 10.2, 10.3, 10.4 and 10.7 shall survive any
termination of this Agreement and (ii) notwithstanding anything to the contrary
contained in this Agreement, no party shall be relieved or released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement.
8.3 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, each
-----------------
of the parties hereto may, to the extent legally allowed, (a) extend the time
for the performance of any of the obligations or other acts of the other party
hereto, (b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions of the other
38
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 a written instrument
signed on behalf of such party, but such extension or waiver or failure to
insist on strict compliance with an obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
ARTICLE IX
INDEMNITY
9.1 Survival of Representations. All representations and warranties
---------------------------
of the parties contained in this Agreement or expressly incorporated herein by
reference shall survive the Closing hereunder and any investigation made by or
on behalf of any party hereto until the fourth anniversary of the Closing Date,
except for (i) the representations and warranties set forth in Section 3.14
which shall survive until all tax liabilities of the Company are decided by
final determination of the Internal Revenue Service, judicial decision or upon
expiration of the statute of limitations, taking in account any waiver or
extension of such applicable statute of limitations, and (ii) the
representations and warranties set forth in Sections 3.1, 3.3, 3.4, 3.15, 3.19,
4.1, 4.2, 4.4 and 4.5, which shall survive indefinitely. A claim for
indemnification under this Article IX for breach of a representation or warranty
may be brought at any time provided that the representation or warranty on which
such claim is based continues to survive at the time a Certificate relating to
such claim has been delivered in accordance with Section 9.4 hereof and if such
Certificate is delivered within such period all rights to indemnification with
respect to such claim shall continue in force and effect.
9.2 Indemnification.
---------------
(a) By the Company and the Shareholders. Subject to Section 9.3
-----------------------------------
below, the Company and each of the Shareholders, jointly and severally, agree to
indemnify and hold Parent and Merger Sub, their affiliates, officers, directors
and employees harmless from and against any and all damages, costs, expenses,
liabilities, causes of action, or claims (including attorneys' fees and costs)
(collectively, "Losses") incurred by any of them as a result of (i) the failure
------
of any representation or warranty made by the Company or any of the Shareholders
in this Agreement to be true and correct as of the Closing Date or (ii) the
breach by the Company or any of the Shareholders of any of their respective
covenants or agreements set forth in this Agreement; provided, however, that
upon the Closing, the Company shall cease to have any indemnification
obligations pursuant to this Section 9.2(a) and the Shareholders shall have no
right of contribution from the Company with respect to their indemnification
obligations.
(b) By Parent and Merger Sub. Subject to Section 9.3 below,
------------------------
Parent and Merger Sub hereby, jointly and severally, agree to indemnify and hold
each of the Shareholders and the Affiliates and employees of each such
Shareholder harmless from and against any and all Losses incurred by any of them
as a result of (i) the failure of any representation or warranty made by Parent
and/or Merger Sub in this Agreement to be true and correct as of the Closing
Date or (ii) the breach by Parent and/or the Merger Sub of any of its covenants
or agreements set forth in this Agreement.
39
(c) Limitations as to Amount - Shareholders. Shareholders shall
---------------------------------------
have no liability (for indemnification or otherwise) with respect to the matters
described in Section 9.2(a) until the total of all Losses with respect thereto
exceeds $200,000 but then for the entire amount of such Losses, including those
not in excess of $200,000. Shareholders shall have no liability (for
indemnification or otherwise) in an amount greater than $25,000,000 (the
"Maximum Amount"); provided, however, the Maximum Amount shall be reduced by the
--------------
amounts of cash and shares of Parent Common Stock (valued at the Parent Common
Stock Value) under Section 2.1 that the Shareholders do not receive (except to
the extent the Shareholders did not receive such amounts because of Parent's
offset under Section 2.5 or the Escrow Agreement). In determining the amount of
Losses indemnified by the Shareholders for purposes of this Section 9.2(c), all
amounts offset under Section 2.5 and the Escrow Agreement shall be included.
(d) Limitations as to Amount - Parent. Parent shall have no
---------------------------------
liability (for indemnification or otherwise) with respect to the matters
described in Section 9.2(b) until the total of all Losses with respect thereto
exceeds $200,000 but then for the entire amount of such Losses, including those
not in excess of $200,000. Parent shall have no liability (for indemnification
or otherwise) in an amount greater than the Maximum Amount.
9.3 Determination of Losses. All Losses hereunder shall be
-----------------------
determined net of any (i) Third Party Awards (as defined in this paragraph) and
(ii) Tax Benefits (as defined in this paragraph). As used herein, "Third Party
-----------
Awards" shall mean any actual recoveries from third parties by the party seeking
------
indemnification hereunder (the "Indemnified Party") (including, without
-----------------
limitation, from insurance and third party indemnifications) in connection with
the claim for which such party is also potentially liable. As used herein, "Tax
---
Benefits" shall mean the present value of any permanent tax related loss,
--------
deduction or credits which Parent's regular auditors determine, in their sole
judgment, is proper or allowable under applicable law (computed after taking
into account any indemnification payment made, including taxes thereon) in
connection with a claim for which the Indemnified Party is potentially liable.
9.4 Indemnification Procedures.
---------------------------
(a) Certificate. As soon as practicable after the incurrence of
-----------
a Loss or Losses by an Indemnified Party, including, without limitation, any
claim by a third party described in Section 9.4(c) hereof, which might give rise
to indemnification hereunder, the Indemnified Party shall deliver to the
Indemnifying Party a certificate (the "Certificate"), which Certificate shall:
-----------
(i) state that the Indemnified Party has paid or properly
accrued Losses, or anticipates that it will incur liability for Losses; and
(ii) specify in reasonable detail each individual item of
Loss included in the amount so stated, the date such item was paid or properly
accrued, the basis for any anticipated liability and the nature of the
misrepresentation, breach of warranty or breach of covenant or claim to which
each such item is related and the computation of the amount to which such
Indemnified Party claims to be entitled hereunder.
40
(b) Denial of Obligation to Indemnify. In case the Indemnifying
---------------------------------
Party shall object to the indemnification of an Indemnified Party in respect of
any claim or claims specified in any Certificate, the Indemnifying Party shall,
within 30 days after receipt by the Indemnifying Party of such Certificate,
deliver to the Indemnified Party a written notice to such effect. The
Indemnifying Party and the Indemnified Party shall, within the 30-day period
beginning on the date of receipt by the Indemnified Party of such written
objection, attempt in good faith to agree upon the rights of the respective
parties with respect to each of such claims to which the Indemnifying Party
shall have so objected. If the Indemnified Party and the Indemnifying Party
succeed in reaching agreement on their respective rights with respect to any
such claims, the Indemnified Party and the Indemnifying Party shall promptly
prepare and sign a memorandum setting forth such agreement. Should the
Indemnified Party and the Indemnifying Party be unable to agree as to any
particular item or items or amount or amounts, then the Indemnified Party and
the Indemnifying Party shall immediately submit such dispute to arbitration as
provided in Section 10.4.
(c) Third Party Claims. As soon as practicable after receipt by
------------------
an Indemnified Party of notice of any claim or the commencement of any action by
any third party, the Indemnified Party shall, if a claim in respect thereof is
to be made by it under this Article IX, notify the Indemnifying Party in writing
of the claim or the commencement of that action. If any such claim or action
shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Party thereof, the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, to assume the defense
thereof with counsel reasonably satisfactory to the Indemnified Party. After
notice from the Indemnifying Party to the Indemnified Party of its election to
assume the defense of such claim or action, the Indemnifying Party shall not be
liable to the Indemnified Party under this Article IX for any legal or other
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
-------- -------
any Indemnified Party shall have the right to employ separate counsel in any
such claim or action and to participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the employment thereof has been specifically authorized by the
Indemnifying Party in writing, (ii) such Indemnified Party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
Indemnifying Party and in the reasonable judgment of such counsel it is
advisable for such Indemnified Party to employ separate counsel or (iii) the
Indemnifying Party has failed to assume the defense of such claim or action and
employ counsel reasonably satisfactory to the Indemnified Party, in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such claim
or action on behalf of such Indemnified Party, it being understood, however,
that the Indemnifying Party shall not, in connection with any one such claim or
action or separate but substantially similar or related claims or actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for all such Indemnified Parties, which firm shall be
designated in writing by such Indemnified Parties. Each Indemnified Party, as a
condition of the indemnity agreements contained herein, shall use its best
efforts to cooperate with the Indemnifying Party in the defense of any such
claim or action. The Indemnifying Party shall not be liable for any
41
settlement of any such claim or action effected without its written consent
(which consent shall not be unreasonably withheld), but if settled with its
written consent or if there be a final judgment in favor of the plaintiff in any
such claim or action, the Indemnifying Party agrees to indemnify and hold
harmless any Indemnified Party from and against any loss or liability by reason
of such settlement or judgment.
(d) Agreed Claims. Claims for Losses specified in any
-------------
Certificate to which an Indemnifying Party shall not object in writing within
thirty (30) days of receipt of such Certificate, claims for Losses covered by a
memorandum of agreement of the nature described in Section 9.4(b) hereof, claims
for Losses the validity and amount of which have been the subject of arbitration
or settlement as contemplated by Section 9.4(b) hereof and claims for Losses the
validity and amount of which have been the subject of final judicial
determination or settlement as contemplated by Section 9.4(c) hereof are
hereinafter referred to, collectively as "Agreed Claims". Within ten (10) days
-------------
of the determination of the amount of any Agreed Claims for which Parent is
entitled to indemnification hereunder, the Shareholders shall pay Parent an
amount equal to the Agreed Claim by wire transfer in immediately available funds
to the bank account or accounts designated in writing by Parent not less than
two days prior to such payment, and within ten (10) days of the determination of
the amount of any Agreed Claims for which the Shareholders are entitled to
indemnification hereunder, Parent and Merger Sub shall pay each Shareholder such
Shareholder's pro rata share of an amount equal to the Agreed Claim by wire
transfer in immediately available funds to the bank account or accounts
designated in writing by such Shareholder not less than two days prior to such
payment.
(e) Subrogation of Indemnifying Party. If the Indemnified Party
---------------------------------
receives payment or other indemnification from an Indemnifying Party hereunder,
the Indemnifying Party shall be subrogated to the extent of such payment or
indemnification to all rights in respect of the subject matter of such claim to
which the Indemnified Party may be entitled, to institute appropriate action for
the recovery thereof, and the Indemnified Party agrees reasonably to assist and
cooperate with the Indemnifying Party at no expense to the Indemnified Party in
enforcing such rights.
9.5 Tax Treatment of Indemnity Payments. The parties agree to treat
-----------------------------------
any indemnity payment made pursuant to this Article IX as an adjustment to the
aggregate purchase price (including the Initial Merger Consideration and any
amounts paid to the Shareholders in respect of the First Earnout, the Second
Earnout and Third Earnout) for federal, state, local and foreign income tax
purposes.
ARTICLE X
GENERAL PROVISIONS
10.1 Expenses. Except as provided in Section 10.10, all costs and
--------
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
42
10.2 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or Merger Sub, to:
MarketFirst Software, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxx Xxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx
with a copy to:
Xxxxxx & XxXxxxx, LLP
00000 XxxXxxxxx Xxxx., Xxxxx 0000
Xxxxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxx X. Xxxxxx, Esq.
and
(b) if to the Company or the Shareholders, to:
Times Direct Marketing, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxxxxxxxxx X. Xxxxxxxx
with a copy to
Xxxxxxx & Xxxxxx, P.C.
00 Xxxxxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxx X. Xxxxxx, Esq.
10.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
(WITHOUT REFERENCE TO CONFLICT OF LAW PRINCIPLES OTHER THAN THOSE DIRECTING
CALIFORNIA LAW) EXCEPT TO THE EXTENT MANDATORILY GOVERNED BY THE LAWS OF THE
STATE OF DELAWARE OR CALIFORNIA.
43
10.4 Arbitration. Should any dispute or controversy arising from or
-----------
related to this Agreement arise between the parties that the parties are
incapable of resolving themselves through good faith negotiation, then such
dispute or controversy shall be submitted for binding arbitration by
J.A.M.S./ENDISPUTE ("JAMS") in San Francisco, California, or at such other
location as is agreed upon by the parties. Such arbitration shall be conducted
using the rules and practices of JAMS. Judgment upon any award by the
arbitrator(s) may be entered in any court having jurisdiction thereof. It is
agreed that the prevailing party in any such arbitration or other action arising
from or relating to this Agreement shall be entitled to reimbursement of its or
his reasonable costs and expenses, including attorneys' fees. Each party
consents to the exercise over it or him of personal jurisdiction by the
arbitrator(s) selected by JAMS to resolve any dispute hereunder.
10.5 Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the Merger is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner to the fullest extent
permitted by applicable law in order that the Merger may be consummated as
originally contemplated to the fullest extent possible.
10.6 Assignment; Binding Effect; Benefit. Except for assignments to
-----------------------------------
the estate of a Shareholder on his death, neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties hereto; provided, however, that Parent may
assign its rights, interests and obligations hereunder to any successor or
parent entity of Parent whose shares are registered under Section 12 of the
Exchange Act (or will be so registered at the Effective Time). Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Notwithstanding anything contained in this Agreement to the contrary,
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective successors and
permitted assigns any rights or remedies under or by reason of this Agreement.
10.7 Headings. The descriptive headings contained in this
--------
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
10.8 Entire Agreement. This Agreement (including the Exhibits,
----------------
Schedules, the Parent Disclosure Schedule and the Company Disclosure Schedule)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
44
10.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
10.10 Legal Costs of Shareholders. The Shareholders agree that
---------------------------
they will be responsible for all legal costs and expenses incurred by each of
the Company and the Shareholders in connection with this Agreement, the
agreements related hereto and the transactions contemplated hereby and thereby.
[Remainder of this page intentionally left blank]
45
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first written above.
PARENT
MARKETFIRST SOFTWARE, INC., a
Delaware corporation
By:__________________________________
Name:
Title:
MERGER SUB
FUSIONDM, INC., a Delaware corporation
By:__________________________________
Name:
Title:
COMPANY
TIMES DIRECT MARKETING, INC., a
California corporation
By:__________________________________
Name:
Title:
[SIGNATURE PAGE TO MERGER AGREEMENT]
46
SHAREHOLDERS
______________________________________
Xxxxxxxxxxx X. Xxxxxxxx
______________________________________
Xxxxxxx Xxxxxx
[SIGNATURE PAGE TO MERGER AGREEMENT]
47
EXHIBITS AND SCHEDULES
----------------------
Exhibit A Escrow Agreement
Exhibit B Form of Employment Agreement with Xxxxxxxxxxx X. Xxxxxxxx
Exhibit C Form of Employment Agreement with Xxxxxxx Xxxxxx
Exhibit D Form of Opinion of Company's counsel
Exhibit E Form of Shareholder Representation Agreement
Exhibit F Form of Opinion of Xxxxxx & XxXxxxx, LLP, counsel to Parent
48
SCHEDULE 2.1
PROJECTED GROSS REVENUES
Fiscal Year Amount of Gross Revenues
----------- ------------------------
Fiscal Year ended December 31, 2000......... $ 8,885,000
Fiscal Year ended December 31, 2001......... $11,550,000
Fiscal Year ended December 31, 2002......... $15,000,000
49
