EXHIBIT 10.11
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
VSOURCE, INC.,
▇▇▇ ACQUISITION CORP.,
ONLINE TRANSACTION TECHNOLOGIES, INC.,
AND
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ AND ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
DATED AS OF DECEMBER 14, 2000
ARTICLE 1 THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Closing of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Effective Time.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Effects of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Articles of Incorporation and Bylaws.. . . . . . . . . . . . . . . . . . 2
1.6 Directors and Officers.. . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 CONVERSION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Conversion.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Escrow of Shares.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Exchange of Certificates and Warrants. . . . . . . . . . . . . . . . . . 3
2.4 No Fractional Shares.. . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Return of Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Closing of the Company's Transfer Books. . . . . . . . . . . . . . . . . 4
2.7 Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 3 MERGER CONSIDERATION ADJUSTMENTS. . . . . . . . . . . . . . . . . . . 4
3.1 Closing Date Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Post-Closing Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Payment of Adjusted Merger Consideration.. . . . . . . . . . . . . . . . 5
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE FOUNDERS. . . . 5
4.1 Organization and Standing. . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.3 No Violation of Law and Agreements.. . . . . . . . . . . . . . . . . . . 6
4.4 Capitalization; Corporate Records. . . . . . . . . . . . . . . . . . . . 6
4.5 No Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.6 Financial Statements and Records.. . . . . . . . . . . . . . . . . . . . 7
4.7 No Undisclosed Liabilities.. . . . . . . . . . . . . . . . . . . . . . . 7
4.8 Absence of Certain Changes.. . . . . . . . . . . . . . . . . . . . . . . 7
4.9 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.10 Compliance with Laws.. . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.11 Contracts and Other Agreements.. . . . . . . . . . . . . . . . . . . . . 10
4.12 Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.14 Intangible Property and Computer Software. . . . . . . . . . . . . . . . 12
4.15 Properties.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.16 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.17 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.18 Labor and Employment Matters.. . . . . . . . . . . . . . . . . . . . . . 14
4.19 Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . . . . . . 14
4.20 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.21 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.22 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.23 Relations with Suppliers and Customers.. . . . . . . . . . . . . . . . . 15
4.24 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.25 Transactions with Affiliates.. . . . . . . . . . . . . . . . . . . . . . 15
4.26 Securities Act.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.27 Brokerage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.28 Representations Complete.. . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB . . . . . . . 17
5.1 Organization and Standing. . . . . . . . . . . . . . . . . . . . . . . . 17
-i-
5.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 No Violation of Law and Agreements.. . . . . . . . . . . . . . . . . . . 17
5.4 Parent Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.5 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.6 Brokerage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.7 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.8 No Material Adverse Change.. . . . . . . . . . . . . . . . . . . . . . . 18
5.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 6 PRE-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Efforts to Close.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Continued Effectiveness of Representations and Warranties. . . . . . . . 19
6.4 Examinations and Investigations. . . . . . . . . . . . . . . . . . . . . 19
6.5 No Solicitation of Transactions. . . . . . . . . . . . . . . . . . . . . 19
6.6 Shareholder Approval.. . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.7 Public Announcements.. . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. . . . . . . . . . . . . 20
7.1 Representations and Warranties.. . . . . . . . . . . . . . . . . . . . . 20
7.2 Corporate Action and Compliance with Covenants.. . . . . . . . . . . . . 20
7.3 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 Absence of Adverse Governmental Action.. . . . . . . . . . . . . . . . . 20
7.5 Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.6 Opinion of Counsel.. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.7 No Material Adverse Change.. . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. . . . . . . . 21
8.1 Representations and Warranties.. . . . . . . . . . . . . . . . . . . . . 21
8.2 Compliance with Covenants. . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Corporate Action.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.5 Opinion of Counsel.. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.6 Absence of Adverse Governmental Action.. . . . . . . . . . . . . . . . . 21
8.7 Filings; Consents; Waiting Periods.. . . . . . . . . . . . . . . . . . . 21
8.8 Shareholder Approval.. . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.9 Warrant Holder Approval. . . . . . . . . . . . . . . . . . . . . . . . . 22
8.10 Employment Confidentiality Agreements. . . . . . . . . . . . . . . . . . 22
8.11 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.12 Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.13 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.14 Estoppels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.15 No Material Adverse Change.. . . . . . . . . . . . . . . . . . . . . . . 22
8.16 Non-Compete. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 9 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.1 Survival of Representations. . . . . . . . . . . . . . . . . . . . . . . 22
9.2 Company Shareholders' Obligation to Indemnify. . . . . . . . . . . . . . 23
9.3 Notice of Asserted Liability.. . . . . . . . . . . . . . . . . . . . . . 23
9.4 Opportunity to Defend. . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.5 Losses to Surviving Corporation. . . . . . . . . . . . . . . . . . . . . 23
9.6 No Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.7 Actions by Company Shareholders. . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 10 TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 24
10.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-ii-
10.2 Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 11 TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 12 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.2 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12.3 Waivers and Amendments.. . . . . . . . . . . . . . . . . . . . . . . . . 26
12.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.5 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.6 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.7 Binding Effect; Assignment.. . . . . . . . . . . . . . . . . . . . . . . 27
12.8 No Third Party Beneficiaries.. . . . . . . . . . . . . . . . . . . . . . 27
12.9 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.10 Schedules and Exhibits.. . . . . . . . . . . . . . . . . . . . . . . . . 27
12.11 Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.12 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.13 Mutual Drafting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.14 Further Assurances.. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.15 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-iii-
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is entered into as of
December 14, 2000, by and among VSOURCE, INC., a Delaware corporation
("PARENT"), ▇▇▇ ACQUISITION CORP., a California corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), ONLINE TRANSACTION TECHNOLOGIES, INC., a
California corporation (the "COMPANY"), and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
(the "FOUNDERS").
RECITALS
--------
A. The Boards of Directors of each of Parent, Merger Sub and the
Company have determined that the merger of Merger Sub with and into the Company
on the terms and subject to the conditions hereinafter provided is in the best
interests of such companies and their respective shareholders and, accordingly
have approved such merger.
B. The Founders, who are the founders and are substantial shareholders
of the Company, believe that such merger is in the best interests of the Company
and its shareholders.
C. The parties intend for such merger to qualify as a tax-free
reorganization within the meaning of section 368(a) of the Internal Revenue Code
of 1986, as amended, and the regulations thereunder.
AGREEMENT
---------
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereby agree as follows
(capitalized terms shall have the meanings ascribed to such terms in Schedule A
----------
unless otherwise indicated):
ARTICLE 1
---------
THE MERGER
----------
1.1 The Merger. At the Effective Time and upon the terms and subject
------------
to the conditions of this Agreement and in accordance with the CGCL, Merger Sub
shall be merged with and into the Company (the "MERGER"). Following the Merger,
the Company shall continue as the surviving corporation (the "SURVIVING
CORPORATION") and the separate corporate existence of Merger Sub shall cease.
1.2 Closing of the Merger. The closing of the Merger (the "CLOSING")
------------------------
will take place at the offices of Sheppard, Mullin, ▇▇▇▇▇▇▇ & Hampton LLP, ▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m. on the third
business day following the date on which the conditions to closing set forth
herein have been satisfied or waived or at such other place, time or date as the
parties may mutually agree to in writing (such date being referred to herein as
the "CLOSING DATE").
1.3 Effective Time. Subject to the terms and conditions set forth in
----------------
this Agreement, on the Closing Date, Parent, Merger Sub and the Company shall
duly execute and cause to be duly filed with the Secretary of State of the State
of California in accordance with the CGCL a merger agreement and officers'
certificates in form and substance required by the CGCL (the "FILED MERGER
AGREEMENT"). The Merger shall be deemed effective at the time that the Filed
Merger Agreement is accepted by the California Secretary of State (the
"EFFECTIVE TIME"). Parent shall seek expedited review of the Filed Merger
Agreement by the California Secretary of State, provided that such state permits
expedited review and that the cost of doing so does not exceed $500.
1.4 Effects of the Merger. The Merger shall have the effects set forth
----------------------
in the CGCL. Without limiting the generality of the foregoing and subject
thereto, at the Effective Time all the properties, 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-
1.5 Articles of Incorporation and Bylaws. The Articles of
-----------------------------------------
Incorporation and the Bylaws of the Company in effect at the Effective Time
shall be the Articles of Incorporation and Bylaws of the Surviving Corporation.
1.6 Directors and Officers. The directors of Merger Sub immediately
-------------------------
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and bylaws of the Surviving Corporation until such director's
successor is duly elected or appointed and qualified. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and bylaws of the Surviving Corporation until such officer's
successor is duly appointed and qualified.
ARTICLE 2
---------
CONVERSION OF SECURITIES
------------------------
2.1 Conversion. At the Effective Time, by virtue of the Merger and
-----------
without any action on the part of any person:
(a) Each share of common stock of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(b) Subject to the provisions of Sections 2.4 and 2.7, each share
of Company Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive a number of validly
issued, fully paid and nonassessable shares of Parent Common Stock equal to the
Exchange Ratio.
(c) Subject to the provisions of Sections 2.4 and 2.7, each share
of Company Preferred Stock issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive a number of validly
issued, fully paid and nonassessable shares of Parent Common Stock equal to the
product of (x) the number of shares of Company Common Stock into which such
share of Company Preferred Stock is convertible immediately prior to the
Effective Time, multiplied by (y) the Exchange Ratio.
(d) Each Company Employee Option, whether or not then vested, will
be deemed an option to purchase shares of Parent Common Stock as described in
this paragraph. Each Company Employee Option will continue to have, and be
subject to, the same terms and conditions set forth in the stock option or other
agreement pursuant to which it was granted, except that (i) each Company
Employee Option will be exercisable (subject to any applicable vesting
provisions) for that number of whole shares of Parent Common Stock equal to the
product of the number of shares of Company Common Stock that were issuable upon
exercise of such Company Employee Option immediately prior to the Effective Time
(without regard to the vesting provisions) multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock, (ii)
the per share exercise price for the shares of Parent Common Stock issuable upon
exercise of such Company Employee Option will be equal to the quotient
determined by dividing the exercise price per share of Company Common Stock at
which such Company Employee Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded to the nearest whole cent; and
(iii) the period during which the optionee was employed with the Company shall
be credited to the optionee for purposes of the vesting schedule under the
optionee's Company Employee Option.
(e) Each Company Warrant shall be converted into the right to
receive a warrant, in the form of Exhibit J-1 or, in the case of a Company
-----------
Warrant held by any KGI Party, in the form of Exhibit J-2, exercisable (subject
-----------
to any applicable vesting provisions) for that number of shares of Parent Common
Stock set forth opposite such Company Warrant on Schedule 2.1(e) under the
---------------
caption "Underlying Parent Common Stock," and having the per share exercise
price set forth opposite such Company Warrant on Schedule 2.1(e) under the
---------------
caption "New Exercise Price" (a "REPLACEMENT WARRANT").
-2-
2.2 Escrow of Shares. Notwithstanding anything herein to the contrary,
-----------------
at Closing Parent will deposit into an escrow with Sheppard, Mullin, ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇ LLP (the "ESCROW AGREEMENT") twenty-five percent (25%) of the shares of
Parent Common Stock to be issued to each Company Shareholder pursuant to Section
2.1, for the purpose of providing a fund for the satisfaction of the obligations
of the Company Shareholders under Sections 3.2, 3.3, 9.2 and 12.15. The Escrow
Agent shall hold and release such shares in accordance with an escrow agreement
in the form of Exhibit A (the "ESCROW AGREEMENT"), which shall be entered into
---------
by Parent, the Company, the Founders and the Escrow Agent at Closing. Any
amounts paid in satisfaction of such obligations shall be deemed an adjustment
to the merger consideration payable hereunder to the Company Shareholders.
2.3 Exchange of Certificates and Warrants.
-----------------------------------------
(a) Promptly following the Effective Time, Parent shall deliver to
its transfer agent (the "EXCHANGE AGENT") for the benefit of the Company
Shareholders the Total Number of Shares of Parent Common Stock To Be Issued
(less the shares deposited under the Escrow Agreement), and cash to be paid in
lieu of fractional shares of Parent Common Stock.
(b) Within ten (10) business days after the Effective Time, the
Exchange Agent shall mail to each Company Shareholder a letter of transmittal,
which shall (i) set forth instructions for use in effecting the surrender of
certificates representing Company Capital Stock, (ii) specify that delivery
shall be effected and risk of loss and title to the certificates representing
shares shall pass only upon delivery of the certificates to the Exchange Agent
and (iii) otherwise shall be in such form and have such other provisions as
Parent may reasonably specify. Upon surrender of a certificate for cancellation
to the Exchange Agent together with such letter of transmittal duly executed,
the Company Shareholder shall be entitled to receive in exchange therefor (i) a
certificate representing seventy-five percent (75%) of the number of whole
shares of Parent Common Stock to which the Shareholder is entitled by virtue of
the Company Capital Stock held by him or her immediately prior to the Effective
Time, and (ii) a check representing the cash to which such Company Shareholder
is entitled to receive on account of a fractional share of Parent Common Stock
that would have been issuable to such Company Shareholder but for the provisions
of Section 2.4). The certificate(s) so surrendered shall forthwith be canceled.
Until surrendered as contemplated by this Section 2.3, each certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the merger consideration provided for herein.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to a Company Shareholder who has not surrendered
his or her certificate. Subject to the effect of applicable laws, following
surrender of any such certificate there shall be paid to the Company Shareholder
(i) at the time of such surrender the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to the
whole shares of Parent Common Stock into which the Company Capital Stock
represented by the certificate were converted, and (ii) at the appropriate
payment date the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Parent Common Stock.
(d) In the event that any certificate for Company Capital Stock
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange therefor a new certificate upon the making of an affidavit of that fact
by the Company Shareholder and the delivery of a suitable bond or indemnity in a
form reasonably acceptable to Parent.
(e) The Company Warrants will be exchanged for the Replacement
Warrants as provided in the applicable Warrant Holder Agreement.
-3-
2.4 No Fractional Shares. No fractions of a share of Parent Common
----------------------
Stock shall be issued in the Merger but in lieu thereof each Company Shareholder
otherwise entitled to a fraction of a share of Parent Common Stock (after
aggregating all fractional shares of Parent Company Stock issuable to such
person) shall upon surrender of his or her certificate or certificates be
entitled to receive an amount of cash (without interest) determined by
multiplying the fractional share interest to which such Company Shareholder
would otherwise be entitled by $6.1213 per share.
2.5 Return of Funds. Promptly following the first anniversary of the
-----------------
Closing Date, the Exchange Agent shall deliver to Parent all cash, certificates
(including any Parent Common Stock) and other documents in its possession
relating to the transactions described in this Agreement, and the Exchange
Agent's duties shall terminate. Thereafter, each Company Shareholder may
surrender his or her certificate representing Company Capital Stock to Parent
and (subject to applicable abandoned property, escheat and similar laws) receive
in exchange therefor the merger consideration to which he or she is entitled,
without any interest thereon. Notwithstanding the foregoing, none of the
Exchange Agent, Parent, Merger Sub, the Company or the Surviving Corporation
shall be liable to a Company Shareholder for any merger consideration delivered
to a public official pursuant to applicable abandoned property, escheat and
similar laws.
2.6 Closing of the Company's Transfer Books. At the Effective Time,
------------------------------------------
the stock transfer records of the Company shall be closed and no transfer of
shares of Company Capital Stock shall thereafter be made.
2.7 Dissenting Shares.
------------------
(a) Notwithstanding anything to the contrary contained herein, any
shares of Company Capital Stock that, as of the Effective Time, are or may
become "dissenting shares" within the meaning of the CGCL shall not be converted
into or represent the right to receive Parent Common Stock in accordance with
Section 2.1 (or cash in lieu of fractional shares in accordance with Section
2.4), and the holder or holders of such shares shall be entitled only to such
rights as may be granted to such holder or holders under Chapter 13 of the CGCL;
provided, however, that if the status of any such shares as "dissenting shares"
-------- -------
shall not be perfected, or if any such shares shall lose their status as
"dissenting shares," then, as of the later of the Effective Time or the time of
the failure to perfect such status or the loss of such status, such shares shall
automatically be converted into and shall represent only the right to receive
(upon the surrender of the certificate or certificates representing such shares)
Parent Common Stock in accordance with Section 2.1 (and cash in lieu of
fractional shares in accordance with Section 2.4).
(b) The Company shall give Parent (i) prompt notice of any written
demand received by the Company prior to the Effective Time to require the
Company to purchase shares of Company Capital Stock pursuant to the CGCL and of
any other demand, notice or instrument delivered to the Company prior to the
Effective Time pursuant to the CGCL, and (ii) the opportunity to participate in
all negotiations and proceedings with respect to any such demand, notice or
instrument. The Company shall not make any payment or settlement offer prior to
the Effective Time with respect to any such demand unless Parent shall have
consented in writing to such payment or settlement offer.
ARTICLE 3
---------
MERGER CONSIDERATION ADJUSTMENTS
--------------------------------
3.1 Closing Date Adjustment. At the Closing, the Merger Consideration
------------------------
Dollar Value shall be adjusted upward or downward on a dollar-for-dollar basis
to the extent that the Net Book Value immediately prior to the Closing Date is
higher or lower than the Net Book Value reflected on the balance sheet of the
Company as at September 30, 2000. As used herein, "NET BOOK VALUE" means the
book value of the assets of the Company minus the book value of the liabilities
of the Company, determined in accordance with GAAP as modified by the accounting
methodology set forth on Schedule 3.1 ("MODIFIED GAAP"). The Net Book Value
------------
initially shall be determined by the Founders and shall be set forth in a
certificate delivered by the Founders to Parent at the Closing (the "CLOSING
STATEMENT").
-4-
3.2 Post-Closing Adjustment. As soon as practicable after the Closing,
-----------------------
but in no event later than 90 days after the Closing Date, the Founders shall
furnish to Parent an unaudited statement (the "POST-CLOSING STATEMENT")
reflecting the Net Book Value immediately prior to the Closing Date, prepared in
accordance with Modified GAAP. Within 30 days after the delivery of the
Post-Closing Statement to Parent, Parent shall either accept the determination
of Net Book Value set forth therein, in which case such determination shall be
final and binding on the parties, or object to the determination, specifying in
reasonable detail in writing the nature of their objections (including any
supporting schedules, analyses, working papers and other documentation),
provided, however, that Parent may object to the determination of the Founders
-------- -------
only on the basis of mathematical errors or on the grounds that the
determination was not made in accordance with Modified GAAP. If Parent fails to
accept or reject the determination within such 30 day period, the determination
shall be deemed to have been accepted at 5:00 p.m., Pacific Standard Time, on
the 30th day. In the event that Parent shall object to the Founders'
determination of Net Book Value, the parties shall endeavor in good faith to
reconcile their differences for a period of 15 days following the receipt of
such written objection. In the event that Parent and the Founders are unable to
resolve their differences within said 15 day period, the parties shall submit
the matter to Gilderman, ▇▇▇▇▇▇▇ & Co. (Encino, California), which firm shall be
directed by Parent and the Founders to resolve the dispute within 30 days. Such
firm shall (i) limit its review to those issues specifically disputed by Parent
in its notice of objections, (ii) further limit its review to whether the
Post-Closing Statement contained mathematical errors or whether the Net Book
Value was calculated in accordance with Modified GAAP, and (iii) not assign a
value to any item greater than the greatest value for such item claimed by
Parent or the Founders or less that the smallest value for such item claimed by
Parent or the Founders. Such firm's determination shall be final and binding
upon the parties. The costs and expenses of such firm shall be borne equally by
Parent and the Company Shareholders; provided that (i) Parent shall bear all
such costs and expenses if the Net Book Value as determined by such firm exceeds
the Net Book Value set forth in the Closing Statement by ten percent (10%) or
more, and (ii) the Company Shareholders shall bear all such costs and expenses
if the Net Book Value as determined by such firm is less than the Net Book Value
set forth in the Closing Statement by ten percent (10%) or more. For purposes
of this Section 3.2, any writing or act of the Founders shall be deemed
effective only if jointly signed or taken by the Founders.
3.3 Payment of Adjusted Merger Consideration. If the final
--------------------------------------------
determination of the Net Book Value in accordance with Section 3.2 results in an
increase in the Merger Consideration Dollar Value from that determined under
Section 3.1, Parent shall pay such difference to the Company Shareholders (pro
rata) in shares of Parent Company Stock (which shares shall be valued at $6.1213
per share) within five (5) days after such determination. If the final
determination of the Net Book Value in accordance with Section 3.2 results in a
decrease in the Merger Consideration Dollar Value from that determined under
Section 3.1, there shall be released immediately back to the Company from the
Escrow to the Company shares of Parent Company Stock (which shares shall be
valued at $6.1213 per share), equal to such difference.
ARTICLE 4
---------
REPRESENTATIONS AND WARRANTIES OF
---------------------------------
THE COMPANY AND THE FOUNDERS
----------------------------
Except as set forth in the written disclosure schedules delivered on or
prior to the date hereof by the Company to Parent that is arranged in Sections
corresponding to the Sections contained in this Article 4, the Company and the
Founders hereby jointly and severally represent and warrant to Parent as
follows:
4.1 Organization and Standing. The Company (i) is duly organized,
---------------------------
validly existing and in good standing under the laws of the State of California;
(ii) has all necessary corporate power and authority to carry on its business as
it is now being conducted and to own or use the properties and assets that it
purports to own or use; and (iii) is duly qualified as a foreign entity in good
standing under the laws of the jurisdictions where the character of its
properties owned or leased or the nature of its activities make such
qualification necessary (except where failure to be so qualified would not have
a Material Adverse Effect).
4.2 Authority. The Founders and the Company have the requisite power
---------
and authority to execute and deliver this Agreement and each Transaction
Document and to perform their respective obligations hereunder and thereunder.
This Agreement has been, and each Transaction Document will be prior to the
Closing, duly authorized, executed and delivered by the Founders and the
Company, and (assuming the due authorization, execution and delivery by Parent
and Merger Sub) this Agreement constitutes, and each Transaction Document when
so executed and delivered will constitute, the legal, valid and binding
obligations of the Founders and the Company, enforceable in accordance with its
terms.
-5-
4.3 No Violation of Law and Agreements. The execution and delivery by
-----------------------------------
the Founders and the Company of this Agreement and each Transaction Document,
and the performance by them of their respective obligations hereunder or
thereunder, does not and will not, except as set forth in Schedule 4.3:
------------
(a) violate any provision of the Articles of Incorporation or
Bylaws of the Company;
(b) (i) violate any provision of Applicable Law relating to the
Founders or the Company; (ii) violate any provision of any order, arbitration
award, judgment or decree to which the Founders or the Company is subject,
except for violations that individually or in the aggregate do not have a
Material Adverse Effect; or (iii) require a registration, filing, application,
notice, consent, approval, order, qualification or waiver with, to or from any
Governmental Authority (other than securities filings required to be made by
Parent with respect to the transactions contemplated hereby);
(c) (i) require a consent, approval or waiver from, or notice to,
any party to a Company Contract, or (ii) result in a breach of, or cause a
default under or result in the acceleration of any provision of a Company
Contract; or
(d) result in the acceleration of, or change in, any rights of any
person, including, without limitation, rights under Company Employee Options or
Company Warrants.
4.4 Capitalization; Corporate Records.
-----------------------------------
(a) Schedule 4.4(a) sets forth (i) the number of authorized shares
---------------
of each class and series of Company Capital Stock, (ii) the number of such
shares issued and outstanding, (iii) the record holders of such shares
(specifying the number of shares held), and (iv) the state in which each such
record holder maintains his or her principal residence (in the case of an
individual) or maintains its executive offices (in the case of an entity). For
each share of Company Preferred Stock, Schedule 4.4(a) sets forth the number of
---------------
shares of Common Stock that may be purchased upon conversion of such share of
Company Preferred Stock. All issued and outstanding shares of Company Capital
Stock are validly issued, fully paid and nonassessable, and are held of record
by the persons identified on Schedule 4.4(a) of record. All of such shares are
---------------
free and clear of all liens, encumbrances, charges, adverse claims and
restrictions (other than restrictions of general applicability imposed by
federal or state securities laws) (it being understood that this representation
is being made to the knowledge of the Company and the Founders, except that to
the extent this representation relates to the shares held by a Founder, this
representation is being made by such Founder without any "knowledge"
qualification).
(b) Schedule 4.4(b) sets forth (i) each Company Employee Option
----------------
and Company Warrant issued and outstanding, (ii) the record holder of each such
Company Employee Option and Company Warrant, (iii) the number of shares of
Company Common Stock that may be purchased upon exercise of such Company
Employee Option or Company Warrant, (iv) the vesting schedule for each such
Company Employee Option or Company Warrant, (v) the exercise price per share for
each such Company Employee Option or Company Warrant, and (vi) the date on which
such Company Employee Option or Company Warrant was issued.
(c) Except as set forth in Schedules 4.4(a) and (b), there are no
-------------------------
outstanding (i) securities convertible into or exchangeable for any Company
Capital Stock; (ii) options, warrants or other rights to purchase or subscribe
to Company Capital Stock or securities convertible into or exchangeable for
capital stock of the Company; or (iii) contracts, commitments, agreements,
understandings, arrangements, calls or claims of any kind relating to the
issuance of any Company Capital Stock, any such convertible or exchangeable
securities or any such options, warrants or rights; in each instance other than
those, if any, created by Parent.
(d) The Company has delivered or made available to Parent true and
complete copies of the Articles of Incorporation (certified by the Secretary of
State) and Bylaws (certified by the corporate secretary) of the Company as in
effect on the date hereof. The minute books of the Company accurately reflect
all actions taken at all meetings and consents in lieu of meetings of its
shareholders and all actions taken at all meetings and consents in lieu of
meetings of its board of directors and all committees.
-6-
4.5 No Subsidiaries. The Company does not, directly or indirectly, own
---------------
any stock or other equity interest in any other person. Without limiting the
foregoing, the Company has no subsidiaries.
4.6 Financial Statements and Records.
-----------------------------------
(a) The Company has delivered to Parent: (i) the Company's
unaudited balance sheet dated December 31, 1999 (without notes), and the related
unaudited statement of income for the fiscal year then ended (collectively, the
"COMPANY YEAR-END FINANCIAL STATEMENT"); and (ii) the Company's unaudited
interim balance sheet (the "INTERIM BALANCE SHEET") dated September 30, 2000
(the "INTERIM BALANCE SHEET DATE") and the related unaudited statement of income
for the nine-month period ended on the Interim Balance Sheet Date (collectively,
the "INTERIM FINANCIAL STATEMENTS;" and together with the Company Year-End
Financial Statement, the "COMPANY FINANCIAL STATEMENTS"). The Company Financial
Statements (i) have been prepared on a cash basis consistently applied
throughout the periods covered thereby, except that the Interim Financial
Statements may be subject to normal year-end adjustments; and (ii) accurately
reflect the financial position of the Company as of the respective dates thereof
and the results of operations and changes in stockholders' equity for the
periods then ended.
(b) The Books and Records of the Company are correct, complete and
current in all material respects and have been maintained materially in
accordance with sound business practices. Such Books and Records accurately,
completely and fairly reflect in all material respects and the income, expenses,
assets and liabilities of the Company, and provide reasonable assurance that:
(i) transactions are recorded as necessary to permit preparation of reliable
financial statements and to maintain accountability for earnings and assets;
(ii) the recorded accountability of all assets is compared with existing assets
at reasonable intervals; and (iii) all related party transactions, charges and
expenses between any Company Shareholder, officer or director (or any Affiliate
thereof) and the Company are accurately reflected at arm's-length value in all
financial statements.
4.7 No Undisclosed Liabilities. The Company has no Liabilities, other
---------------------------
than those that have been incurred in the ordinary course of business since the
Interim Balance Sheet Date and are consistent with past practice.
4.8 Absence of Certain Changes. Except as set forth on Schedule 4.8,
---------------------------- ------------
since the Interim Balance Sheet Date, the Company has not:
(a) entered into any transaction, contract or commitment or
incurred any obligation or liability (fixed or contingent) which is not a
business transaction, contract, commitment or obligation entered into or
incurred in the ordinary course of business or which had or could reasonably be
expected to have a Materially Adverse Effect;
(b) waived or released any rights of material value except in the
ordinary course of business;
(c) accelerated receivables, delayed payables or liquidated
inventory, except in accordance with prior practices;
-7-
(d) transferred or granted any material rights under any
concessions, leases, licenses, agreements, patents, inventions, trade names,
trademarks, service marks, brand marks, brand names or copyrights, or
registrations or licenses thereof or applications therefor, or with respect to
any know-how or other proprietary or trade rights, except in the ordinary course
of business;
(e) made or granted any wage or salary increase except in the
ordinary course of business, consistent with past practices, entered into or
begun negotiations with respect to any employment contract with any officer or
employee or made any loan (excluding advances for normal reimbursable business
expenses) to, or entered into any transaction of any other nature with, any
officer or director of the Company or any Affiliate thereof, and the Company has
no knowledge of any plans of any key employee or employees to terminate their
employment, the absence of whom could reasonably be expected to have in the
foreseeable future a Material Adverse Effect;
(f) suffered any material adverse change in its financial
condition or results of operations or in its assets, properties, business, or
operations considered as a whole;
(g) issued, sold or otherwise disposed of any shares of stock or
other securities of the Company, granted any stock options or other rights to
purchase securities of the Company, declared any dividend or made any other
payment in respect of the capital stock of the Company, or issued, sold or
otherwise disposed of any evidence of indebtedness of the Company;
(h) made any changes in accounting methods or practices;
(i) incurred any indebtedness for borrowed money or committed to
borrow money, or guaranteed any indebtedness in connection with the operation of
the Company other than in the ordinary course of business;
(j) paid, discharged or satisfied any liabilities other than in
the ordinary course of business and consistent with past practice;
(k) amended any organizational document of the Company;
(l) suffered any damage to or loss of any asset or property of the
Company (whether or not covered by insurance), except where no Material Adverse
Effect resulted;
(m) suffered any change in employee relations which has or is
reasonably likely to have a Material Adverse Effect on the relationships between
the employees and management;
(n) sold, leased, mortgaged or pledged any capital asset having a
value in excess of $20,000;
(o) committed to any capital expenditures in excess of $20,000;
(p) terminated any employees who perform functions material to the
Company;
(q) experienced any other event or condition which in any one case
or in the aggregate has or might be reasonably expected to have a Material
Adverse Effect; or
(r) entered into any negotiation or agreement to do any of the
things described in this Section 4.8.
Since the Interim Balance Sheet Date, the Company has operated its business
in the ordinary course consistent with its past practice so as to preserve such
business intact, and has used its best efforts to keep available to it the
services of its employees and to preserve its business and the goodwill of its
suppliers, customers, distributors and others having business relations with it.
-8-
4.9 Tax Matters. The Company has properly completed and filed on a
------------
timely basis and in correct form all material Returns required to be filed on or
prior to the date hereof. As of the time of filing, the foregoing Returns were
true and complete in all material respects. An extension of time within which
to file any Return which has not been filed has not been requested or granted.
There is no investigation or other proceeding pending, or to the knowledge of
the Founders, threatened or expected to be commenced by any Tax authority for
any jurisdiction in which the Company does not file Returns that may lead to an
assertion that the Company is or may be subject to a Tax liability in such
jurisdiction.
(a) With respect to all amounts in respect of Taxes imposed upon
the Company, or for which the Company is or could be liable, whether to Tax
authorities (as, for example, under law) or to other persons (as, for example,
under tax allocation agreements), with respect to all Taxable periods (or
portions thereof) ending on or before the Closing Date, all applicable tax laws
and agreements have been materially complied with, and all such amounts required
to be paid by the Company to Tax authorities or others on or before the date
hereof have been paid, or adequately reserved for on the Interim Balance Sheet.
(b) There are no pending, or to the knowledge of the Founders,
threatened, audits, judicial proceedings, assessments or deficiencies with
respect to Taxes of the Company. The Company has not given or been requested in
writing to give waivers or extensions of any statute of limitations relating to
the payment of Taxes by the Company.
(c) The Company is not a party to or bound by any Tax indemnity,
Tax sharing or Tax allocation agreement or arrangement. The Company has never
been a member of an affiliated group of corporations, within the meaning of
section 1504 of the Code.
(d) All material elections with respect to Taxes affecting the
Company as of the date hereof are set forth on its Returns , copies of which
have been made available to Parent.
(e) None of the assets of the Company is property which the
Company is required to treat as being owned by any other person pursuant to the
so-called "safe harbor lease" provisions of former section 168(f)(8) of the
Code. None of the assets of the Company directly or indirectly secures any debt
the interest on which is tax exempt under section 103(a) of the Code. None of
the assets of the Company is "tax-exempt use property" within the meaning of
section 168(h) of the Code.
(f) The Company is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of section 280G of the Code or any similar provision of California law.
(g) The Company is not, and has not been, a United States real
property holding corporation (as defined in section 897(c)(2) of the Code)
during the applicable period specified in section 897(c)(1)(A)(ii) of the Code.
(h) To the knowledge of the Founders, no Company Shareholder is a
person other than a United States person within the meaning of the Code.
(i) The transactions contemplated herein are not subject to the
tax withholding provisions of Code section 3406, or of subchapter A of Chapter 3
of the Code or any comparable provision of state law.
(j) The Company does not have and has not had a permanent
establishment in any foreign country, as defined in any applicable Tax treaty or
convention between the United States of America and such foreign country.
(k) The Company is not a party to any joint venture, partnership,
or other arrangement or contract which could be treated as a partnership for
federal income tax purposes.
-9-
(l) The unpaid Taxes of the Company do not exceed the reserve for
Tax liability (excluding any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth or included on the
Interim Balance Sheet, except for Taxes incurred from the Interim Balance Sheet
Date through the Closing Date in accordance with the past custom and practice of
the Company.
(m) Each asset with respect to which the Company claims
depreciation, amortization or similar expense for income Tax purposes is owned
for income Tax purposes by the Company.
(n) No material item of income or gain reported by the Company for
financial accounting purposes in any pre-Closing period is required to be
included in taxable income for a post-Closing period.
(o) The Company has not made nor is bound by any election under
section 197(f)(9) of the Code. The Company has not filed a consent under Code
section 341(f) concerning collapsible corporations. There are no outstanding
rulings of, or requests for rulings with, any Tax authority addressed to the
Company that are, or if issued would be, binding on the Company.
4.10 Compliance with Laws. The Company has not violated, and the
----------------------
Company is in compliance with, all Applicable Laws, except for such
non-compliance as would not have a Material Adverse Effect.
4.11 Contracts and Other Agreements. Schedule 4.11 sets forth all
--------------------------------- --------------
written and oral contracts and other agreements hereinafter referred to in this
Section 4.11, to which the Company is a party or by or to which it or its assets
or properties are bound or subject or which impact its business (collectively,
the "COMPANY CONTRACTS"), as follows:
(a) contracts and other written agreements with any current or
former officer, director, employee, consultant, agent or other representative
having more than six months to run from the date hereof or providing for an
obligation to pay and/or accrue compensation of $25,000 or more per annum, or
providing for the payment of fees or other consideration in excess of $25,000;
(b) contracts and other agreements with any labor union or
association representing any employee;
(c) contracts and other agreements for the purchase or sale of
inventory, equipment or services that contain an escalation, renegotiation or
redetermination clause or which cannot be canceled without liability, premium or
penalty if written notice is given thirty days prior to the effective date of
the notice;
(d) contracts and other agreements for the sale of any of its
assets or properties other than in the ordinary course of business and for a
sale price exceeding $25,000 in any one case (or in the aggregate, in the case
of any series of related contracts or other agreements) or for the grant to any
person of any preferential rights to purchase any of its or their assets or
properties;
(e) contracts and other agreements (including without limitation,
leases of real property) calling for aggregate payments in any one year of more
than $25,000 in any one case (or in the aggregate, in the case of any series of
related contracts and other agreements);
(f) joint venture agreements and teaming agreements;
(g) contracts or other agreements under which it agrees to
indemnify any party other than in the ordinary course of business;
-10-
(h) contracts and other agreements containing covenants of the
Company not to compete in any line of business or with any person in any
geographical area or covenants of any other person not to compete with the
Company in any line of business or in any geographical area;
(i) contracts and other agreements relating to the making of any
loan by the Company except for advances to employees for normal reimbursable
business expenses;
(j) contracts or other agreements relating to the borrowing of
money by the Company (including mortgages, deeds of trust, indentures or other
similar documents), or the direct or indirect guaranty by the Company of any
obligation for, or an agreement by the Company to service, the repayment of
borrowed money, or any other contingent obligation in respect of indebtedness of
any other person or governmental or regulatory body, including, without
limitation, (i) any agreement or arrangement relating to the maintenance of
compensating balances, (ii) any agreement or arrangement with respect to lines
of credit, (iii) any agreement to advance or supply funds to any other person
other than in the ordinary course of business, (iv) any agreement to pay for
property, products or services of any other person even if such property,
products or services are not conveyed, delivered or rendered, (iv) any
keep-well, make-whole or maintenance of working capital or earnings or similar
agreement, or (vi) any guaranty with respect to any lease or other similar
periodic payments to be made by any such person;
(k) contracts or other agreements for or relating to computers,
computer equipment, computer software or computer services in excess of $25,000;
(l) any other contracts requiring payments in excess of $25,000 in
any year or otherwise reasonably material to the Company; and
(m) any agreement between or among Company Shareholders involving
or relating to the Company or Company debt or equity securities or interests.
The Company has delivered or made available to Parent true and complete
copies of all of the written Company Contracts and delivered to Parent a written
summary of the material terms of all oral Company Contracts.
There does not exist under any Company Contract any event of default or
event or condition that, after notice or lapse of time or both, would constitute
a violation, breach or event of default thereunder by the Company or, to the
knowledge of the Company, by the other parties thereto. Each Company Contract
is a legal, valid, binding and enforceable obligation of the Company and, to the
knowledge of the Company, the other parties thereto. There are no
renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate
any material amounts paid or payable to the Company under any Company Contract
or any other material terms of a Company Contract. Schedule 4.11 sets forth the
-------------
Company's standard product or service warranty with respect to the Company
Contracts and any material obligation that exists with respect thereto outside
the ordinary course of business.
4.12 Real Estate. The Company does not own any real property. The
------------
facilities which the Company leases are sufficient for the conduct of the
business of the Company (the "FACILITIES"). The Company has the right under
valid and existing leases or other agreements to occupy and use the Facilities.
Neither the whole nor any portion of the Facilities has been condemned,
requisitioned or otherwise taken by any Governmental Authority, and the Company
has not received any notice that any such condemnation, requisition or taking is
threatened, which condemnation, requisition or taking would preclude or
materially impair the current use thereof. All buildings, structures and
appurtenances comprising part of the Facilities which are currently being used
in the conduct of the business are in satisfactory condition and have been
reasonably maintained, normal wear and tear excepted. All Facilities are
supplied with utilities (including without limitation water, sewage, disposal,
electricity, gas and telephone) and other services necessary for the operation
of such Facilities as currently operated.
-11-
4.13 Environmental Matters. The Company is in compliance in all
----------------------
material respects with all applicable Environmental Laws, which compliance
includes the possession by the Company of all permits and other Governmental
Authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof. The Company has not received any notice or
other communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that the Company is not in
compliance with any Environmental Law, and, to the best of the knowledge of the
Company and the Founders, there are no circumstances that may prevent or
interfere with the Company's compliance with any Environmental Law in the
future. To the best of the knowledge of the Company and the Founders, no
current or prior owner of any property leased or controlled by the Company has
received any notice or other communication (in writing or otherwise), whether
from a Government Body, citizens group, employee or otherwise, that alleges that
such current or prior owner or the Company is not in compliance with any
Environmental Law. All Governmental Authorizations currently held by the
Company pursuant to Environmental Laws are identified in Schedule 4.13: (i)
-------------
"Environmental Law" means any federal, state, local or foreign Legal Requirement
relating to pollution or protection of human health or the environment
(including ambient air, surface water, ground water, land surface or subsurface
strata), including any law or regulation relating to emissions, discharges,
releases or threatened releases of Materials of Environmental Concern, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environmental Concern;
and (ii) "Materials of Environmental Concern" include chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other substance that is now or hereafter regulated by any Environmental Law or
that is otherwise a danger to health, reproduction or the environment.)
4.14 Intangible Property and Computer Software.
---------------------------------------------
(a) Schedule 4.14: (i) sets forth, with respect to each Company
--------------
Proprietary Asset registered with any Governmental Body or for which an
application has been filed with any Governmental Body, a brief description of
such Proprietary Asset, and the names of the jurisdictions covered by the
applicable registration or application, (ii) identifies and provides a brief
description of all other Company Proprietary Assets owned by the Company, and
(iii) identifies and provides a brief description of each Proprietary Asset
licensed to the Company by any person (except for any Proprietary Asset that is
licensed to the Company under any third party software license generally
available to the public at a cost of less than $5,000), and identifies the
license agreement under which such Proprietary Asset is being licensed to the
Company. Except as set forth in Schedule 4.14, the Company has good, valid and
-------------
marketable title to all of the Company Proprietary Assets identified in Schedule
--------
4.14, free and clear of all liens and other encumbrances, and has a valid right
----
to use all Proprietary Assets identified in Schedule 4.14. Except as set forth
-------------
in Schedule 4.14, the Company is not obligated to make any payment to any person
-------------
for the use of any Company Proprietary Asset. Except as set forth in Schedule
--------
4.14, the Company has not developed jointly with any other person any Company
---
Proprietary Asset with respect to which such other person has any rights.
(b) The Company has taken all measures and precautions reasonably
necessary to protect and maintain the confidentiality and secrecy of all Company
Proprietary Assets (except Company Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the value
of all Company Proprietary Assets. Except as set forth in Schedule 4.14, the
-------------
Company has not (other than pursuant to license agreements identified in
Schedule 4.14) disclosed or delivered to any Person, or permitted the disclosure
-------------
or delivery to any Person of, (i) the source code, or any portion or aspect of
the source code, of any Company Proprietary Asset, or (ii) the object code, or
any portion or aspect of the object code, of any Company Proprietary Asset,
except with respect to services provided to customers in the ordinary course of
business.
(c) None of the Company Proprietary Assets infringes or conflicts
with any Proprietary Asset owned or used by any other person. The Company is
not infringing, misappropriating or making any unlawful use of, and the Company
has not at any time infringed, misappropriated or made any unlawful use of, or
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other person. To
the best of the knowledge of the Company and the Founders, no person is
infringing, misappropriating or making any unlawful use of, and no Proprietary
Asset owned or used by any other person infringes or conflicts with, any Company
Proprietary Asset.
-12-
(d) Except as set forth in Schedule 4.14: (i) each Company
--------------
Proprietary Asset conforms in all material respects with any specification,
documentation, performance standard, representation or statement made or
provided with respect thereto by or on behalf of the Company; and (ii) there has
not been any claim by any customer or other person alleging that any Company
Proprietary Asset (including each version thereof that has ever been licensed or
otherwise made available by the Company to any Person) does not conform in all
material respects with any specification, documentation, performance standard,
representation or statement made or provided by or on behalf of the Company,
and, to the best of the knowledge of the Company and the Founders, there is no
basis for any such claim. The Company has established adequate reserves on the
Unaudited Interim Balance Sheet to cover all costs associated with any
obligations that the Company may have with respect to the correction or repair
of programming errors or other defects in the Company Proprietary Assets.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. Except as set forth in
Schedule 4.14, (i) the Company has not licensed any of the Company Proprietary
--------------
Assets to any person on an exclusive basis, and (ii) the Company has not entered
into any covenant not to compete or contract limiting its ability to exploit
fully any of its Proprietary Assets or to transact business in any market or
geographical area or with any person.
(f) Except as set forth in Schedule 4.14, (i) all current and
-------------
former employees of the Company have executed and delivered to the Company an
agreement (containing no exceptions to or exclusions from the scope of its
coverage) that is substantially identical to the form of the Confidential
Information and Invention Assignment Agreement previously delivered to Parent,
and (ii) all current and former consultants and independent contractors to the
Company have executed and delivered to the Company an agreement (containing no
exceptions to or exclusions from the scope of its coverage) that is
substantially identical to the form of Consultant Confidential Information and
Invention Assignment Agreement previously delivered to Parent.
(g) All of the computer hardware and software systems of the
Company and all of the computer hardware and software systems sold, delivered
and installed by the Company have the ability to provide the following
functions, except to the extent that the inability to provide such functions
would not have a Material Adverse Effect: (i) consistently handle date
information for all dates before, on, and after January 1, 2000, including
accepting date input, providing date output, and performing calculations on
dates; (ii) function accurately and without interruption before, during, and
after January 1, 2000, without any change in operations associated with the
advent of the new century; (iii) respond to two digit date input in a way that
resolves any ambiguity as to century in a disclosed, defined, and predetermined
manner; and (iv) store and provide output of date information in ways that are
unambiguous as to century.
4.15 Properties. The Company has good and marketable title to all its
----------
properties and assets whether real, personal, tangible or intangible, free and
clear of all mortgages, liens, pledges, easements, covenants, conditions,
restrictions, claims and encumbrances, other than any of the foregoing which
individually or collectively would not have a Material Adverse Effect and except
for property and assets that are leased. All items of machinery, equipment, and
other tangible assets of the Company are in good operational condition, have
been regularly and properly serviced and maintained in a manner that would not
void or limit the coverage of any warranty thereon, other than items currently
under, or scheduled for, repair or construction, and to the knowledge of the
Company are adequate and fit to be used for the purposes for which they are
currently used in the manner they are currently used.
4.16 Inventory. The inventory of the Company consists of items of
---------
merchantable quality and quantity usable and salable in the ordinary course of
the Company's business. No item included in the inventory has been the subject
of recall by a government agency. The value at which inventories are carried in
the company financial records reflects the customary inventory valuation policy
of the Company (which fairly reflects the value of obsolete, spoiled or excess
inventory) for stating inventory.
-13-
4.17 Permits. Schedule 4.17 sets forth all Permits held by the
------- --------------
Company. No other Permits are necessary for the transaction of the business of
the Company as currently conducted. All such Permits are currently in force.
No notice of any violation has been received in respect of any such Permit and
to the knowledge of the Company there is no proceeding which is pending or
threatened that would suspend or revoke or limit any such Permit.
4.18 Labor and Employment Matters.
-------------------------------
(a) Schedule 4.18 sets forth a list of the names of all employees
--------------
of the Company and indicates the current salary or wage rates of each such
person. The Company has not terminated any employees within the past 90 days.
No director, officer, employee or agent of the Company has filed any grievance
with or against the Company (or any director, officer, employee or agent
thereof), nor has the Company (or any director, officer, employee or agent
thereof) taken any action which may reasonably likely result in the filing of
any such grievance by any such person.
(b) The Company has withheld and paid to the appropriate
Governmental Authorities, or is withholding for payment not yet due to such
authorities, all amounts required to be withheld from its employees; is not
liable for any arrears of wages, Taxes, penalties or other sums for failure to
comply with any of the foregoing; and has complied in all material respects
with all Applicable Laws, rules and regulations relating to the employment of
labor.
(c) The Company is not a party to any collective bargaining
agreement or other labor contract applicable to the employees of the Company;
there has been no breach or other failure to comply with any material provision
of such agreement or contract; and the Company is not subject to any unfair
labor practice complaint pending before the National Labor Relations Board or
any other Governmental Authority pending or threatened labor strike, slowdown,
work stoppage, lockout, or other organized labor disturbance, or threat thereof,
pending grievance proceeding, pending representation question respecting,
pending arbitration proceeding arising out of or under any collective bargaining
agreement or attempt by any union to represent employees of the Company as a
collective bargaining agent.
(d) No employee or director of the Company is a party to, or is
otherwise bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee or
director and any other person that in any way adversely affects or will affect
(i) the performance of his duties as an employee or director of the Company, or
(ii) the ability of the Company to conduct its business. To the knowledge of
the Company, no director, officer, or other key employee of the Company intends
to terminate his employment with the Company.
4.19 Employee Benefit Plans.
------------------------
(a) Schedule 4.19 sets forth a true and complete list of all
--------------
Benefit Plans and identifies as such each Benefit Plan that is an "employee
welfare plan", as defined in ERISA section 3(1) (a "WELFARE PLAN") or an
"employee pension benefit plan", as defined in ERISA section 3(2) (a "PENSION
PLAN").
(b) The Company has delivered to Parent true and complete copies
of: all plan texts, agreements and material employee communications relating to
each Benefit Plan; all summary plan descriptions (whether or not required to be
furnished pursuant to ERISA), the most recent annual report (including all
schedules thereto) and the most recent annual and periodic accounting and
financial statements of related plan assets with respect to each Pension Plan
and Welfare Plan; the most recent determination letter received from the
Internal Revenue Service with respect to each Pension Plan; and (iv) the most
recent actuarial report with respect to each Pension Plan subject to Title IV of
ERISA.
(c) No event has occurred (and there exists no condition or set of
circumstances) in connection with any Benefit Plan that could subject the
Company, Parent, or any Benefit Plan, directly or indirectly, to any liability
under ERISA, the Code or any other law, regulation or governmental order
applicable to any Benefit Plan.
-14-
4.20 Litigation. There is no litigation, action, suit, proceeding or
----------
investigation presently pending or to the knowledge of the Company threatened
against the Company or affecting the assets, property or business of the Company
or restricting or prohibiting the consummation of the transactions contemplated
by this Agreement before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign.
4.21 Insurance. All policies or binders of fire, liability, product
---------
liability, worker's compensation, vehicular and other insurance held by or on
behalf of the Company are in full force and effect, and insure against risks and
liabilities of the kinds and in amounts customarily insured against by persons
of established reputation engaged in the same or a similar business similarly
situated as the Company. All premiums on all such policies have been paid to
date and the Company has complied with all material conditions of such policies
and have received no notice of any failure to comply with the terms of such
policies.
4.22 Bank Accounts. Schedule 4.22 sets forth the names and locations
-------------- --------------
of all banks, trust companies, savings and loan associations and other financial
institutions at which the Company maintains accounts of any nature, the account
numbers of all such accounts and the names of all persons authorized to draw
thereon or make withdrawals therefrom.
4.23 Relations with Suppliers and Customers. No supplier of the
------------------------------------------
Company has canceled any contract or order for provisions of products, supplies,
or services (including utilities) to the Company within the 12 months prior to
the date of this Agreement. The Company has no direct or indirect interest in
any supplier of the Company. To the Company's knowledge, none of the suppliers
is unable to supply the products or services supplied by them to the Company in
order to meet the specifications provided with respect thereto. No customer of
the Company has canceled any contract or order for provisions of, and there has
been no written threat by any customer to cancel any order for, products,
supplies or services from the Company within 12 months prior to the date of this
Agreement. The Company has no direct or indirect ownership interest in any
customer of the Company. The Company is not aware that any customer intends to
cease or materially diminish its purchase of goods or services from the Company
at any time in the foreseeable future.
4.24 Accounts Receivable. All amounts owing to the Company constitute,
-------------------
valid and enforceable claims arising from bona fide transactions in the ordinary
course of business and will be collected within sixty (60) days after the day on
which first due, and there has been no notice of any claims, refusals to pay or
other claimed rights of set off against any thereof. No account debtor (i) is
delinquent in its payment by more than sixty (60) days, (ii) has refused or
threatened to refuse to pay its obligations for any reason, (iii) is, to the
knowledge of the Company, insolvent or bankrupt, and (iv) is pledged to any
third party.
4.25 Transactions with Affiliates. No Representative of the Company or
----------------------------
of any Affiliate thereof:
(i) has a material interest in any property, real or personal, tangible
or intangible of the Company;
(ii) is indebted or otherwise obligated to the Company;
(iii) has any contractual relationship with the Company, except as
disclosed in the Schedules hereto;
(iv) is an officer, director, employee, director, consultant or
significant shareholder of a person that is a competitor of the
Company (it being understood that this representation, as it
relates to any Representative or Affiliate other than the Founders
is made only to the knowledge of the Company);
(v) is or was at any time during the Company's past three fiscal years
a Representative of a person that has made during the Company's
last three fiscal years or proposes to make during the Company's
current fiscal year payments to the Company for property or
services in excess of five percent of the Company's gross revenues
during the applicable fiscal year;
-15-
(vi) is or was at any time during the Company's past three fiscal years
a Representative of a person to whom the Company has made during
the Company's last three fiscal years or proposes to make during
the Company's current fiscal year payments for property or services
in excess of five percent of the Company's gross revenues during
the applicable fiscal year; or
(vii) is or was at any time during the Company's past three fiscal years
a Representative of a person to whom the Company was indebted at
any time during the Company's last three fiscal years or during the
current fiscal year in an amount exceeding five percent of the fair
market value of the Company's total assets at such time.
4.26 Securities Act.
---------------
(a) Each Company Shareholder and each Company Warrant Holder is
either (i) an accredited investor as defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended, or (ii)
"sophisticated" within the meaning of Rule 506 thereunder. Each such person has
such knowledge and experience in financial and business matters that such person
is capable of evaluating the merits and risks of acquiring Parent Common Stock
in connection with the Merger (or in connection with the exercise of the Company
Warrant), and Parent has made available to each such person the opportunity to
ask questions of the officers and management of Parent and to acquire additional
information about the business, assets and financial condition of Parent. Each
such person (i) will acquire the shares of Parent Common Stock in connection
with the Merger or upon exercise of the Company Warrant for investment only, and
not with a view toward or for sale in connection with any distribution thereof,
or with any present intention of distributing or selling any of shares of Parent
Common Stock, and (ii) understands that the transactions contemplated hereby
have not been, and will not be, the subject of a registration statement filed
under the Securities Act, or qualified under applicable states securities law,
by reason of a specific exemption from the registration provisions of the
Securities Act and the qualification provisions of the applicable state
securities laws, and that accordingly none of the shares of Parent Common Stock
which such person may acquire may be resold unless such resale is registered
under the Securities Act and qualified under applicable state securities laws,
or an exemption from such registration and qualification is available.
(b) The representations and warranties contained in Section
4.26(a) are being made with respect to each Company Shareholder and each Company
Warrant Holder who has signed a Joinder Agreement or Warrant Holder Agreement,
as applicable, solely based upon the representations made therein.
4.27 Brokerage. Except as set forth on Schedule 4.27, no broker,
--------- --------------
finder or investment banker has acted directly or indirectly for the Company or
any Affiliate thereof in connection with this Agreement or the transactions
contemplated hereby, and no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in respect thereof based in
any way on agreements, arrangements or understandings made by or on behalf of
the Company or any Affiliate thereof.
4.28 Representations Complete. None of the representations or
-------------------------
warranties made by the Founders or the Company in this Agreement, nor any
statement made in any Schedule, Exhibit, certificate, report, instrument, list
or other document furnished or to be furnished by or on behalf of the Founders
or the Company pursuant hereto or thereto or in connection with the transactions
contemplated hereby, contained, contains or will contain on the date delivered
any untrue statement of a material fact.
-16-
ARTICLE 5
---------
REPRESENTATIONS AND WARRANTIES OF
---------------------------------
PARENT AND MERGER SUB
---------------------
Parent and Merger Sub jointly and severally represent and warrant to the
Company and the Founders as follows:
5.1 Organization and Standing. Each of Parent and Merger Sub (i) is
---------------------------
duly incorporated, validly existing and in good standing under the laws of the
States of Delaware and California, respectively; (ii) has all necessary
corporate power and authority to carry on its business as it is now being
conducted and to own or use the properties and assets that it purports to own or
use; and (ii) is duly qualified as a foreign entity in good standing in each
jurisdiction where the character of its properties owned or leased or the nature
of its activities make such qualification necessary, except where the failure to
be so qualified or licensed would not have a material adverse effect on Parent.
5.2 Authority. Each of Parent and Merger Sub has all requisite
---------
corporate power and authority to execute and deliver this Agreement and each
Transaction Document and to perform its obligations hereunder and thereunder.
This Agreement has been, and each Transaction Document will be prior to the
Closing, duly authorized, executed and delivered by each of Parent and Merger
Sub, and (assuming the due authorization, execution and delivery by Founders and
the Company) this Agreement constitutes, and each Transaction Document when so
executed and delivered will constitute, the legal, valid and binding obligations
of each of Parent and Merger Sub enforceable against each in accordance with its
terms.
5.3 No Violation of Law and Agreements. The execution and delivery by
-----------------------------------
each of Parent and Merger Sub of this Agreement and each Transaction Document,
and the performance by each of its obligations hereunder or thereunder, does not
and will not, except as set forth on Schedule 5.3:
-------------
(a) violate any provision of the Articles of Incorporation or
Bylaws of Parent or Merger Sub;
(b) (i) violate any provision of Applicable Law relating to Parent
or Merger Sub; (ii) violate any provision of any order, arbitration award,
judgment or decree to which Parent or Merger Sub is subject; or (iii) require a
registration, filing, application, notice, consent, approval, order,
qualification or waiver with, to or from any Governmental Authority (other than
securities filings required to be made by Parent with respect to the
transactions contemplated hereby); or
(c) (i) require a consent, approval or waiver from, or notice to,
any party to any material contract to which Parent or Merger Sub is a party; or
(ii) result in a breach of or cause a default under any provision of a contract
to which Parent or Merger Sub is a party.
5.4 Parent Common Stock. The shares of Parent Common Stock issuable
---------------------
hereunder will be upon issuance thereof, duly authorized, validly issued, fully
paid and non-assessable.
5.5 Reports. Parent has filed all reports, schedules, forms,
-------
statements and other documents required to be filed by it with the Securities
and Exchange Commission (the "SEC") since December 15, 1999 (collectively,
including all exhibits thereto, the "REPORTS"). None of the Reports, as of
their respective dates (and, if amended or superseded by a filing prior to the
date of this Agreement or the Closing Date, then on the date of such filing),
contained or will contain any untrue statement of a material fact or omitted or
will omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. All of the Reports, as of their respective dates (and as
of the date of any amendment), complied as to form in all material respects with
the applicable requirements of the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
-17-
5.6 Brokerage. Except as set forth on Schedule 5.6, no broker, finder
--------- ------------
or investment banker has acted directly or indirectly for Parent or any
Affiliate thereof in connection with this Agreement or the transactions
contemplated hereby, and no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in respect thereof based in
any way on agreements, arrangements or understandings made by or on behalf of
Parent or any Affiliate thereof.
5.7 Litigation. Except as set forth on Schedule 5.7, there is no
---------- -------------
material litigation, action, suit, proceeding or investigation presently pending
or to the knowledge of Parent threatened against Parent or affecting the assets,
property or business of Parent or restricting or prohibiting the consummation of
the transactions contemplated by this Agreement before a court or any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign.
5.8 No Material Adverse Change. Except as set forth on Schedule 5.8,
---------------------------- ------------
since the date of the last Form 10-Q filed by Parent with the SEC, there has not
been any material adverse change in the financial condition, business assets, or
results of operations of Parent (other than changes resulting from economic,
financial, market or other conditions or circumstances generally affecting the
businesses or markets in which Parent operates).
5.9 Taxes.
(a) Neither Parent nor any Person related to Parent, as defined in
Treasury Regulation Sec. 1.368-1(e)(3), has a present plan or intention to
redeem or otherwise acquire any shares of Parent Common Stock that are issued in
the Merger to the Company Stockholders;
(b) Following the Merger, the Surviving Corporation will continue
the historic business of the Company, or use a significant portion of the
Company's historic business assets in a business, in each case within the
meaning of and to the extent required by Treasury Regulation Sec. 1.368-1(d);
(c) Parent has no present plan or intention: (i) to liquidate the
Surviving Corporation, (ii) to merge the Surviving Corporation with and into
another corporation (including Parent or an affiliate of Parent) or (iii) to
sell or otherwise dispose of the stock of (or sell, dispose of or distribute any
assets, other than in the ordinary course of business, of) the Surviving
Corporation, except as provided for in Treasury Regulation Sec. 1.368-2(k)(2);
(d) Parent will be in Control (as defined below) of Merger Sub
(which has not conducted any business activities of any kind and has no assets
and no liabilities) immediately prior to the Merger, and Parent has no plan or
intention to cause the Surviving Corporation to issue additional shares of
capital stock after the Merger, or take any other action, that would result in
Parent losing Control of the Surviving Corporation. As used herein "Control"
shall have the meaning set forth in Section 368(c) of the Code;
(e) Parent does not own, nor has it owned during the past five
years, any shares of the stock of the Company;
(f) Parent is not an investment company as defined in Section
368(a)(2)(F)(iii) and 368(a)(2)(F)(iv) of the Code;
(g) There is no intercorporate indebtedness existing between
Parent, any subsidiary thereof, or Merger Sub, on the one hand, and the Company,
on the other hand;
-18-
(h) The Merger is being undertaken by Parent and Merger Sub for
valid business purposes, and the terms of the Merger are the product of
arm's-length negotiations; and
(i) Parent and Merger Sub have adopted "plans of reorganization"
in the time and manner required under Code Section 368.
ARTICLE 6
---------
PRE-CLOSING COVENANTS
---------------------
6.1 Conduct of Business. From the date hereof through the Closing
---------------------
Date, the Company shall carry on its business substantially in the manner in
which it is presently conducted and, to the extent consistent therewith, the
Company shall preserve intact its current business organizations, keep available
the service of its current officers and employees and preserve its relationships
with customers, suppliers and others having business dealings with it to the end
that goodwill and ongoing businesses shall be unimpaired at the Effective Time.
Without limiting the foregoing, from the date hereof through the Closing Date,
the Company shall not, without the prior written consent of Parent or expect as
expressly contemplated herein, undertake or agree to undertake any of the
actions specified in Section 4.8.
6.2 Efforts to Close. From the date hereof through the Closing Date,
------------------
each party shall use its or his reasonable efforts to take, or cause to be
taken, all actions, and shall do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the transactions contemplated hereby and shall cooperate with the other parties
in connection with the foregoing.
6.3 Continued Effectiveness of Representations and Warranties. From
------------------------------------------------------------
the date hereof through the Closing Date, (i) each party shall use its or his
reasonable efforts to conduct its or his affairs in such a manner so that,
except as otherwise contemplated or permitted by this Agreement, such person's
representations and warranties contained herein shall continue to be true and
correct on and as of the Closing Date as if made on and as of the Closing Date,
and (ii) each party shall promptly notify the other parties of any breach of, or
inaccuracy in, any representation, warranty, covenant or agreement of the first
party; provided, however, that such disclosure shall not be deemed to cure any
------- -------
breach of, or inaccuracy in, any representation, warranty, covenant or
agreement.
6.4 Examinations and Investigations. Prior to the Closing Date, Parent
-------------------------------
shall be entitled, through its Representatives, to make such investigation of
the assets, liabilities, properties, business and operations of the Company, and
such examination of the books, records and financial condition of the Company,
as Parent reasonably determines is necessary; provided, however, that such
-------- -------
investigation shall not alter or diminish the Company's and the Founders'
representations and warranties contained herein. Prior to the Closing Date and
subject to the Company and the applicable Representatives executing and
delivering to Parent a confidentiality agreement in form and substance
reasonably acceptable to Parent, the Company shall be entitled, through its
Representatives, to make such investigation of the assets, liabilities,
properties, business and operations of Parent, and such examination of the
books, records and financial condition of Parent, as Company reasonably
determines is necessary; provided, however, that such investigation shall not
-------- -------
alter or diminish Parent's representations and warranties contained herein.
6.5 No Solicitation of Transactions. From the date hereof through the
--------------------------------
Closing Date, the Company and the Founders will not, directly or indirectly,
solicit, encourage, initiate or commence discussions or negotiations with,
provide any nonpublic information to, or enter into any agreement with, any
person (other than disclaimer to Parent's Representatives) concerning the
Company in connection with any merger, consolidation, sale of substantial assets
or of a significant amount of assets, sale of securities, acquisition of
beneficial ownership of or to vote securities of the Company, liquidation,
dissolution or similar transaction or business combination (each being
hereinafter referred to as an "ACQUISITION TRANSACTION") involving the Company.
The Company and the Founders shall promptly inform Parent of any inquiry
(including the terms thereof and the identity of the Third Party making such
inquiry) which it may receive in respect of an Acquisition Transaction and, if
in writing, furnish to Parent a copy of any such inquiry. The Company and the
Founders hereby represent that they are not now engaged in discussions or
negotiations with any party other than Parent with respect to any of the
foregoing. This Section 6.5 shall not apply to the Company's sale of inventory
in the ordinary course of business.
-19-
6.6 Shareholder Approval. The Company shall, in accordance with its
---------------------
Articles of Incorporation and bylaws and the applicable requirements of the
CGCL, solicit the approval of its shareholders of the Merger and this Agreement.
In connection with such solicitation, at the request and on behalf of Parent,
the Company shall deliver to the Company Shareholders and the Company Warrant
Holders such documentation furnished by Parent as Parent shall determine is
advisable to be so delivered in order for Parent to comply with its disclosure
obligations under applicable securities laws. Each Founder shall cause all
shares of Company Capital Stock that are owned, beneficially or of record, by
him to be voted in favor of the Merger and this Agreement.
6.7 Public Announcements. During the pre-Closing period, neither the
---------------------
Company nor any of the Founders shall (and the Company shall not permit any of
its Representatives to) issue any press release or make any public statement
regarding this Agreement, the Merger or any of the other transactions
contemplated by this Agreement, without Parent's prior written consent.
ARTICLE 7
---------
CONDITIONS TO THE OBLIGATIONS
-----------------------------
OF THE COMPANY
--------------
The obligation of the Company to enter into and complete the Closing is
subject to the fulfillment on or prior to the Closing Date of the following
conditions, any one or more of which may be waived by the Company, to the extent
permitted by law.
7.1 Representations and Warranties. The representations and warranties
------------------------------
of Parent and Merger Sub contained herein shall be true and correct on and as of
the Closing Date as though made at and as of that date (except for
representations and warranties, if any, made as of a specified date, which shall
be true and correct as of the specified date), and Parent shall have delivered
to the Founders a certificate to such effect.
7.2 Corporate Action and Compliance with Covenants. Each of Parent and
----------------------------------------------
Merger Sub shall have delivered to the Founders (i) certified copies of its
Articles of Incorporation and bylaws and resolutions of its Board of Directors,
in form reasonably satisfactory to the Founders, approving the execution and
delivery of this Agreement and each Transaction Document and the performance of
its obligations hereunder and thereunder; (ii) a certificate of good standing
issued by the appropriate Governmental Authority of the state of its
incorporation showing that it is in good standing in such jurisdiction, dated
within three (3) business days prior to the Closing; and (iii) an incumbency
certificate, certified by its Secretary or Assistant Secretary.
7.3 Litigation. On the Closing Date, there shall be no Action pending
----------
or threatened in writing pertaining to the transactions contemplated hereby.
7.4 Absence of Adverse Governmental Action. No action shall have been
---------------------------------------
taken, proposed or threatened and no statute, rule, regulation or order shall
have been proposed, enacted or entered by any Governmental Authority or by any
court with jurisdiction over the transactions contemplated hereby that threatens
to prohibit or unduly delay consummation of such transactions on the terms and
provisions herein set forth.
-20-
7.5 Registration Rights. Parent shall have executed and delivered to
--------------------
the Founders for the benefit of the Company Shareholders a registration rights
agreement in the form of Exhibit B.
----------
7.6 Opinion of Counsel. The Founders shall have received an opinion of
------------------
Parent's counsel, dated the Closing Date, in the form of Exhibit C.
----------
7.7 No Material Adverse Change. Since the date of the last Form 10-Q
----------------------------
filed by Parent with the SEC, there shall not have been any material adverse
change in the financial condition, business assets, or results of operations of
Parent (other than changes resulting from economic, financial, market or other
conditions or circumstances generally affecting the businesses or markets in
which Parent operates).
ARTICLE 8
---------
CONDITIONS TO THE OBLIGATIONS
-----------------------------
OF PARENT AND MERGER SUB
------------------------
The obligation of Parent and Merger Sub to enter into and complete the
Closing is subject to the fulfillment on or prior to the Closing Date of the
following conditions, any one or more of which may be waived by such person, to
the extent permitted by law.
8.1 Representations and Warranties. The representations and warranties
------------------------------
of the Founders and the Company contained herein shall be true and correct in
all respects on and as of the Closing Date as though made at and as of that date
(except for representations and warranties, if any, made as of a specified date,
which shall be true and correct as of the specified date), and the Founders and
the Company each shall have delivered to Parent a certificate to such effect.
8.2 Compliance with Covenants. The Founders and the Company shall in
---------------------------
all respects each have performed and complied with all terms, agreements,
covenants and conditions of this Agreement to be performed or complied with by
him or it on or prior to the Closing Date, and the Founders and the Company each
shall have delivered to Parent a certificate to that effect.
8.3 Corporate Action. Parent shall have received (i) certified copies
-----------------
of the Company's Articles of Incorporation and bylaws and resolutions of its
Board of Directors and shareholders, in form reasonably satisfactory to Parent,
approving the execution and delivery of this Agreement and each Transaction
Document and the obligations of the Company hereunder and thereunder; (ii) a
certificate of good standing issued by the Secretary of State of California
showing that the Company is in good standing in such jurisdiction, dated within
three (3) business days of the Closing Date; and (iii) an incumbency certificate
of the Company, certified by its Secretary or Assistant Secretary.
8.4 Litigation. On the Closing Date, there shall be no Action pending
----------
or threatened in writing pertaining to the transactions contemplated hereby or
to its consummation.
8.5 Opinion of Counsel. Parent shall have received an opinion of
--------------------
counsel to the Company and the Founders, dated the Closing Date, in the form of
Exhibit D to the Company and the Founders.
----------
8.6 Absence of Adverse Governmental Action. No action shall have been
---------------------------------------
taken, proposed or threatened and no statute, rule, regulation or order shall
have been proposed, enacted or entered by any Governmental Authority or by any
court with jurisdiction over the transactions contemplated hereby that threatens
to prohibit or unduly delay consummation of such transactions on the terms and
provisions herein set forth.
8.7 Filings; Consents; Waiting Periods. All necessary registrations,
------------------------------------
filings, applications, notices, consents, approvals, orders, qualifications and
waivers, including those listed in Schedules 4.3 and 5.3, shall have been filed,
---------------------
made or obtained.
-21-
8.8 Shareholder Approval. Company Shareholders holding at least 98% of
--------------------
the outstanding shares of Company Capital Stock shall have approved the Merger
and this Agreement and shall have executed and delivered to Parent a Joinder
Agreement in the form of Exhibit F (the "JOINDER AGREEMENT").
----------
8.9 Warrant Holder Approval. Each Company Warrant Holder shall have
-------------------------
executed and delivered to Parent an agreement in the form of Exhibit E (a
---------
"WARRANT HOLDER AGREEMENT").
8.10 Employment Confidentiality Agreements. Each employee of the
---------------------------------------
Company designated by Parent shall have entered into Parent's standard employee
confidentiality agreement.
8.11 Releases. Each employee, director and consultant of the Company
--------
shall have executed and delivered to the Company a release in the form of
Exhibit G.
----
8.12 Due Diligence. Parent shall have completed its due diligence
--------------
investigation of the Company and shall be reasonably satisfied with the results
thereof.
8.13 Employment Agreements. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ shall
----------------------
have entered into employment agreements with Parent in the form of Exhibit H and
---------
Exhibit I, respectively.
----------
8.14 Estoppels. The Founders and Company shall have delivered to
---------
Parent from the lessors or sublessors of all real property leased by the Company
estoppel certificates addressed to Parent and the Company stating (i) that the
applicable lease is and will continue to be in full force and effect following
the Merger and has not been modified or amended except as indicated in such
certificate and neither the landlord nor the Company is in default thereunder,
(ii) the expiration date of the term thereunder, (iii) the rent and other
charges payable thereunder and (iv) the date through which rent and other
charges have been paid thereunder.
8.15 No Material Adverse Change. Since the Interim Balance Sheet Date,
--------------------------
there shall not have been any material adverse changes in the financial
condition, business, assets, or results of operations of the Company (other than
changes resulting from economic, financial, market or other conditions or
circumstances generally affecting the businesses or markets in which the Company
operates).
8.16 Non-Compete. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ shall have
-----------
entered into a non-competition agreement with Parent in the form of Exhibit K.
---------
ARTICLE 9
---------
INDEMNIFICATION
---------------
9.1 Survival of Representations. All representations and warranties
-----------------------------
contained in this Agreement shall survive the Closing until the close of the
last day of the sixth full calendar month following the Closing Date, except
that the representations and warranties set forth in Sections 4.2 and 4.4 shall
survive through the second anniversary of the Closing Date, the representations
and warranties set forth in Section 4.14(c) shall survive through the first
anniversary of the Closing Date and the representations and warranties set forth
in Section 4.9 shall survive through the expiration of the applicable statute of
limitations. All covenants and agreements contained in this Agreement which by
their terms are to be performed following the Closing shall survive the Closing
until performed.
-22-
9.2 Company Shareholders' Obligation to Indemnify. From and after the
----------------------------------------------
Closing, the Company Shareholders shall, jointly and severally, indemnify,
defend and hold harmless Parent (and its directors, officers, employees,
Affiliates and assigns, collectively, Parent for purposes of this Section 9.2)
from and against all Losses resulting from or arising out of any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of any
Founder or the Company contained herein, subject to the following limitations:
(a) The Company Shareholders shall not be liable to Parent with
respect to any inaccuracies in representations or warranties of the Founders or
the Company except to the extent that claims relating to such breaches exceed
the aggregate amount of two hundred thousand dollars ($200,000); provided,
--------
however, that no such limitation shall apply to inaccuracies that constitute
-------
fraud or intentional misrepresentation.
(b) Parent's sole and exclusive remedy against the Company
Shareholders (other than the Founders) for Losses arising out of breaches of, or
inaccuracies in, representations, warranties, covenants and agreements of the
Founders and the Company contained herein shall be to proceed directly against
the shares of Parent Common Stock held under the Escrow Agreement; it being
agreed that Parent shall have the right to proceed directly against the
Founders, but the maximum liability of either Founder shall not exceed the value
of the shares of Parent Common Stock which such Founder receives pursuant to
Section 2.1 (regardless of whether the Founder continues to hold such shares).
For purposes of the preceding sentence, each share of Parent Common Stock shall
be valued by reference to the Closing Price on the date on which the indemnitee
delivers the notice of indemnification; provided, however, that if the Founder
establishes to Parent that prior to the date on which the indemnification is
required to be paid the Founder has sold shares of the Parent Common Stock
received pursuant to Section 2.1 for an average per share price less than the
reference value described in the first part of this sentence, the reference
value with respect to the sold shares shall be the proceeds of such sale(s).
9.3 Notice of Asserted Liability. Promptly after Parent becomes aware
-----------------------------
of any fact, condition or event that may give rise to Losses for which
indemnification may be sought under this Article 9, Parent shall give notice
thereof (the "CLAIMS NOTICE") to the Company Shareholders at the addresses for
the Company Shareholders on the books and records of the Company. The Claims
Notice shall include a description in reasonable detail of any claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "ASSERTED LIABILITY") against Parent, and shall indicate the
amount (estimated, if necessary) of the Losses that have been or may be suffered
by Parent. Failure of Parent to promptly give notice hereunder shall not affect
rights to indemnification hereunder, except to the extent that the Company
Shareholders demonstrate actual damage caused by such failure. Upon the Company
Shareholders' request, Parent shall provide the Company Shareholders with full
and unrestricted access to all books and records relating to the Asserted
Liability, and to all employees or other persons who are knowledgeable about
such Asserted Liability, in order to allow the Company Shareholders to audit the
status of such Asserted Liability and the payments that have been, or will be,
made with respect thereto.
9.4 Opportunity to Defend. The Company Shareholders may elect to
-----------------------
compromise or defend, at their own expense and by their own counsel, any
Asserted Liability; provided, however, that the Company Shareholders may not
-------- -------
compromise or settle any Asserted Liability without the consent of Parent, such
consent not to be unreasonably withheld, unless such compromise or settlement
requires no more than a monetary payment for which Parent is fully indemnified
or involves other matters not binding upon Parent. If the Company Shareholders
elect to compromise or defend such Asserted Liability, they shall within 15 days
(or sooner, if the nature of the Asserted Liability so requires) notify Parent
of their intent to do so and Parent shall cooperate in the compromise of, or
defense against, such Asserted Liability. If the Company Shareholders elect not
to compromise or defend any Asserted Liability, fail to notify Parent of their
election as herein provided or contest their obligation to indemnify, Parent
pay, compromise or defend such Asserted Liability without prejudice to any right
it may have hereunder. If any party hereto chooses to defend or participate in
the defense of any Asserted Liability, it shall have the right to receive from
the other parties hereto any books, records or other documents within such
party's control that are necessary or appropriate for such defense.
-23-
9.5 Losses to Surviving Corporation. The parties acknowledge and agree
-------------------------------
that if the Surviving Corporation suffers, incurs or otherwise becomes subject
to any Losses as a result of or in connection with any inaccuracy in or breach
of any representation, warranty, covenant or obligation, then (without limiting
any of the rights of the Surviving Corporation as an indemnitee) Parent shall
also be deemed, by virtue of its ownership of the stock of the Surviving
Corporation, to have incurred Losses as a result of and in connection with such
inaccuracy or breach.
9.6 No Contribution. No Company Shareholder may exercise or assert (or
---------------
attempt to exercise or assert) any right of contribution, right of indemnity or
other right or remedy against the Surviving Corporation in connection with any
indemnification obligation or any other liability to which he may become subject
under or in connection with this Agreement.
9.7 Actions by Company Shareholders. All actions of the Company
-----------------------------------
Shareholders under this Article 9 shall be exercised by a majority in interest
of the Company Shareholders (determined as of the date immediately preceding the
Closing Date).
ARTICLE 10
----------
TERMINATION OF AGREEMENT
------------------------
10.1 Termination. This Agreement may be terminated prior to the
-----------
Closing as follows:
(a) at the election of the Company, if any one or more of the
conditions to its obligation to close has not been fulfilled by the forty-fifth
day after the date hereof;
(b) at the election of Parent, if any one or more of the
conditions to its obligation to close has not been fulfilled by the forty-fifth
day after the date hereof;
(c) at the election of the Company, if Parent or Merger Sub has
breached any representation, warranty, covenant or agreement contained herein;
provided, however, that the Company shall have no termination right hereunder if
------- -------
the other conditions to the obligation of the Company to consummate the
transactions contemplated herein shall have been satisfied, unless such
representation, warranty, covenant or agreement shall not have been cured by
Parent or Merger Sub by the earlier of (1) January 15, 2001, or (2) 5 days after
Parent shall have received written notice from the Company that it intends to
exercise its right to terminate under this paragraph (c);
(d) at the election of Parent, if the Founders or the Company has
breached any representation, warranty, covenant or agreement contained herein;
provided, however, that Parent shall have no termination right hereunder if the
------- -------
other conditions to the obligation of Parent to consummate the transactions
contemplated herein shall have been satisfied, unless such representation,
warranty, covenant or agreement shall not have been cured by the earlier of (1)
January 15, 2001, or (2) 5 days after the Company shall have received written
notice from Parent that it intends to exercise its right to terminate under this
paragraph (d);
(e) at the election of the Company on the one hand, or Parent, on
the other hand, if any action shall have been instituted and be continuing by
any Governmental Authority with proper authority to restrain, modify or prohibit
the carrying out of the transactions contemplated hereby; provided, however,
-------- -------
that neither the Company nor Parent shall have any termination right hereunder
if the other conditions to the obligation of the Company or Parent, as the case
may be, to consummate the transactions contemplated herein shall have been
satisfied, unless such action, suit or proceeding shall not have been stayed or
terminated by the later of (1) January 15, 2001, or (2) 60 days after the
commencement of such action, suit or proceeding becomes known to Parent or the
Company, as the case may be; or
(f) at any time on or prior to the Closing Date, by mutual written
consent of the Company and Parent.
If Parent or the Company, as the case may be, elects to terminate this
Agreement pursuant to Section 10.1(a), (b), (c), (d), or (e) the terminating
party shall deliver a notice to the other party hereto declaring its election to
so terminate this Agreement in accordance with the provisions of Section
10.1(a), (b), (c), (d), or (e), as the case may be, and setting forth therein
the basis for such termination.
-24-
10.2 Survival. If this Agreement is terminated, this Agreement shall
--------
become void and of no further force and effect, except for the provisions of
this Sections 10.2. None of the parties shall have any liability in respect to
a termination of this Agreement pursuant to this Article 10, except (i) to the
extent that failure to satisfy the conditions of Closing as applicable, results
from the intentional or willful breach of the representations, warranties,
covenants or agreements of such party under this Agreement, and (ii) except that
if Parent terminates this Agreement by reason of the Company's or the Founders'
breach of Section 6.1, the Company shall promptly reimburse Parent for all
expenses incurred by Parent in connection with its due diligence investigation
of the Company, the negotiation and preparation of this Agreement and the
Transactions Documents and the performance the portion of the compensation paid
to its employees which is allocable to work performed by such employees in
connection with the foregoing and the fees and costs of its counsel and
accountants).
ARTICLE 11
----------
TAX MATTERS
-----------
The Founders shall cooperate with the Surviving Corporation in connection
with the determination or any audit or examination of the liability of the
Company for Taxes with respect to receipts, income, sales, transactions, assets,
operations or other business activities of the Company before the Closing Date,
or any Tax Return filed before the Closing Date, and shall disclose to Parent
any documents and information within his possession or control pertaining
thereto. Any such audit or examination and any administrative or judicial
proceeding relating thereto shall be controlled exclusively by Parent; provided,
the Founders at their sole expense may control such audit, examination or
administrative or judicial proceeding if (i) they agree in writing with the
Company and Parent that any and all Taxes that might be or become payable in
connection with or as a result thereof shall be paid in full by them, (ii) they
provide reasonably sufficient collateral to Parent to indemnify Parent against
any liability that might result to it, and (iii) resolution of the issues in
such audit, examination or administrative or judicial proceeding cannot affect
any Tax liability or Tax item of the Company for any taxable period or portion
thereof beginning on or after the Closing Date.
ARTICLE 12
----------
MISCELLANEOUS
-------------
12.1 Notices. All notices, requests, demands and other communications
-------
required or permitted to be given hereunder or under any Transaction Document
shall be in writing and shall be deemed to have been duly given upon receipt, if
delivered personally, (ii) upon confirmation of receipt, if given by electronic
facsimile and (iii) on the third business day following mailing, if mailed
first-class, postage prepaid, registered or certified mail addressed as follows:
(a) If to Parent or Merger Sub to:
VSource, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
with a copy to:
Sheppard, Mullin, ▇▇▇▇▇▇▇ & Hampton LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
-25-
(b) If to the Founders to:
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
c/o Online Transaction Technologies, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esquire
▇▇▇▇▇, Divencenzo and ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, Esquire
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇, #▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(c) If to the Company to:
Online Transaction Technologies, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇, Scholer, Fierman, ▇▇▇▇ & Handler, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esquire
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may by notice given in accordance with this Section 12.1 to the
other parties designate another address or person for receipt of notices
hereunder.
12.2 Entire Agreement. This Agreement (including the Schedules and
-----------------
Exhibits hereto) and the Transaction Documents contain the entire agreement of
the parties with respect to the subject matter hereof, and supersede all prior
agreements, representation and warranties, written or oral, with respect
thereto.
12.3 Waivers and Amendments. This Agreement and each Transaction
------------------------
Document may be amended, superseded, canceled, renewed or extended, and the
terms hereof or thereof may be waived, only by a written instrument signed by
each of the parties hereto or thereto or, in the case of a waiver, by the party
waiving compliance. The failure of a party to insist, in any one or more
instances, upon performance of the terms or conditions of this Agreement or any
Transaction Document shall not be construed as a waiver or relinquishment of any
right granted hereunder or of the future performance of any such term, covenant
or condition. No waiver on the part of any party of any right, power or
privilege, nor any single or partial exercise of any such right, power or
privilege, shall preclude any further exercise thereof or the exercise of any
other such right, power or privilege.
-26-
12.4 Governing Law. This Agreement and each Transaction Document shall
-------------
be governed by and construed in accordance with the substantive and procedural
laws of the State of California applicable to agreements made and to be
performed entirely within such State. The parties hereby agree that any action,
suit, arbitration or other proceeding arising out of or related to this
Agreement or any Transaction Document or the relationship created hereby or
thereby shall be conducted only in Los Angeles County, California. Each party
hereby irrevocably consents and submits to the personal jurisdiction of and
venue in United States District Court for the Central District of California and
in the Superior Court for Los Angeles County in any legal action, equitable suit
or other proceeding arising out of or related to this Agreement or any
Transaction Document or the relationship between the parties created hereby or
thereby.
12.5 Arbitration. Notwithstanding anything herein to the contrary, if
-----------
there shall be a dispute among any of the parties arising out of or relating to
this Agreement or any Transaction Document (including without limitation the
issue of arbitrability or the indemnities provided herein or therein, or the
breach thereof), the parties agree that such dispute shall be resolved by final
and binding arbitration in Los Angeles, California, administered by Judicial
Arbitration & Mediation Services, Inc. ("JAMS"), in accordance with JAMS' rules
of practice then in effect or such other procedures as the parties may agree to.
Each party hereby irrevocably consents and submits to personal jurisdiction in
the State of California for any arbitration contemplated by this Section 12.5.
Any award issued as a result of such arbitration shall be final and binding
between the parties thereto, and shall be enforceable by any court having
jurisdiction over the party against whom enforcement is sought. The fees and
expenses of such arbitration (including reasonable attorneys' fees) or any
action to enforce an arbitration award shall be paid by the party that does not
prevail in such arbitration.
12.6 Attorneys' Fees. If any legal action or dispute arises under this
---------------
Agreement, arises by reason of any asserted breach of it, or arises between the
parties and is related in any way to the subject matter of the Agreement, the
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, arbitration costs, investigative costs, reasonable
accounting fees and charges for experts.
12.7 Binding Effect; Assignment.This Agreement and each Transaction
----------------------------
Document shall be binding upon and inure to the benefit of the parties and their
respective permitted successors and permitted assigns. Neither this Agreement
or any Transaction Document, nor any of the rights hereunder or thereunder, may
be assigned by any party, nor may any party delegate any obligations hereunder
or thereunder, without the written consent of the other party hereto or thereto.
Any non-permitted assignment or attempted assignment shall be void.
12.8 No Third Party Beneficiaries. Nothing herein is intended or shall
----------------------------
be construed to give any person any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein, except
as otherwise provided herein.
12.9 Counterparts. This Agreement and each Transaction Document may be
------------
executed by the parties in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies hereof or thereof each signed by less than all, but together
signed by all of the parties.
12.10 Schedules and Exhibits. The Schedules and Exhibits attached to
------------------------
this Agreement or to any Transaction Document are a part hereof or thereof, as
applicable, as if fully set forth herein or therein.
12.11 Headings. The headings herein or in any Transaction Document are
--------
for reference only and shall not affect the interpretation of this Agreement or
such Transaction Document. Whenever the context requires in this Agreement or
any Transaction Document, the masculine pronoun shall include the feminine and
the neuter, and the singular shall include the plural.
-27-
12.12 Severability. Whenever possible, each provision of this
------------
Agreement and any Transaction Document shall be interpreted in such manner as to
be effective and valid under Applicable Law, but if any provision of this
Agreement or any Transaction Document is held to be prohibited by or invalid
under Applicable Law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement or such Transaction
Document.
12.13 Mutual Drafting. The parties hereto are sophisticated and have
----------------
been represented by lawyers throughout the transactions contemplated hereto who
have carefully negotiated the provisions hereof. As a consequence, the parties
do not intend that the presumptions of California Civil Code Section 1654 and
similar laws or rules relating to the interpretation of contracts against the
drafter of any particular clause should be applied to this Agreement or any
Transaction Document and therefore waive their effects.
12.14 Further Assurances. Each party hereto shall execute such
-------------------
documents and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions of this Agreement or any
Transaction Document and the transactions contemplated hereby or thereby.
12.15 Expenses. Except as provided in Section 10.2, each party shall
--------
bear all expenses which such party incurs in connection with the preparation,
execution and performance of this Agreement and the transactions contemplated
hereby, including, without limitation, all fees and expenses of its agents,
representatives, counsel and accountants. Without limiting the foregoing, the
Company shall pay prior to Closing all amounts owing to the brokers identified
on Schedule 4.26 (it being agreed that such amounts shall be paid in shares of
--------------
Company Common Stock) and Parent shall pay all amounts owing to the firm
identified on Schedule 5.6. Except as described in the preceding sentence, the
------------
Surviving Corporation shall bear all expenses of the Company in connection with
the Merger up to and including fifty thousand dollars ($50,000.00), and the
Company Shareholders shall bear all expenses of the Company in connection with
the Merger which exceed fifty thousand dollars ($50,000).
[balance of page intentionally left blank]
-28-
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
and Plan of Merger as of the first date above written.
VSOURCE, INC.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Chairman, President and
Chief Executive Officer
▇▇▇ ACQUISITION CORP.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Chairman, President
and Chief Executive Officer
ONLINE TRANSACTION TECHNOLOGIES, INC.
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-29-
SCHEDULE A
DEFINITIONS
-----------
"ACTION" means any action, suit, proceeding or investigation (provided that
such investigation is by a Governmental Authority).
"AFFILIATE" of a person means a second person who (i) controls, is
controlled by or is under common control with the first person, or (ii) is a
member of the immediate family of the first person, or (iii) a trust for the
benefit of the first person or any Affiliate thereof.
"APPLICABLE LAW" means, with respect to any person, any domestic or
foreign, federal, state or local statute, law, ordinance, rule, administrative
interpretation, regulation, order, writ, injunction, directive, judgment, decree
or other requirement of any Governmental Authority applicable to such person.
"BENEFIT PLAN" means any plan, agreement, arrangement or commitment
(whether provided by insurance, self-insurance or otherwise) that is an
employment, consulting or deferred compensation agreement; or an executive
compensation, incentive, bonus, employee pension, profit-sharing, savings,
retirement, stock option, stock purchase, or severance pay plan; or a life,
health, post-retirement benefit, worker's compensation, unemployment benefit,
disability or accident plan; or a holiday, vacation, leave of absence, Christmas
or other bonus practice; or expense reimbursement, automobile or other
transportation allowance; or other employee benefit plan, agreement, arrangement
or commitment, including, without limitation, any "employee benefit plan," as
defined in section 3(3) of ERISA, maintained by the Company or with respect to
which the Company has or in the future may have, any contribution or other
liability or obligation with respect to any current or former employees of the
Company, or their beneficiaries.
"BOOKS AND RECORDS" means all books and records, including manuals, price
lists, mailing lists, lists of customers, inventory control procedures and data,
sales and promotional materials, purchasing materials, personnel records,
quality control records and procedures, accounting records, tax records and
litigation files (regardless of the media in which stored).
"CGCL" means the California General Corporation Law.
"CLOSING PRICE" means the closing price of Parent Common Stock (i) on
NASDAQ, as reported in The Wall Street Journal, or (ii) for periods during which
Parent Common Stock is not listed on NASDAQ, quoted on the NASD OTC Electronic
Bulletin Board, as reported in the NASD "pink sheets" or other reporting
service.
"CODE" means the Internal Revenue Code of 1986, as amended. All citations
to the Code, or to the Treasury Regulations promulgated thereunder, shall
include any amendments or any substitute or successor provisions thereto.
"COMPANY CAPITAL STOCK" means shares of Company Common Stock or Company
Preferred Stock.
"COMPANY COMMON STOCK" means the common stock of the Company.
"COMPANY CONTRACT" has the meaning set forth in Section 4.11.
"COMPANY EMPLOYEE OPTION" means an option to purchase shares of Company
Common Stock issued to an employee of the Company or to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇
▇▇▇▇▇▇▇▇.
"COMPANY PREFERRED STOCK" means the Series A-1 and Series A-2 preferred
stock of the Company.
A-1
"COMPANY PROPRIETARY ASSET" means any Proprietary Asset owned by or
licensed to the Company or otherwise used by the Company.
"COMPANY SHAREHOLDER" means any person who is the record holder of Company
Capital Stock immediately prior to the Effective Time.
"COMPANY WARRANT" means a warrant or option (other than a Company Employee
Option) to purchase shares of Company Common Stock.
"COMPANY WARRANT HOLDER" means any person who is the record holder of a
Company Warrant immediately prior to the Effective Time.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE RATIO" means .25163, representing the quotient (rounded to the
5th decimal place) of (x) the Total Number of Shares of Parent Common Stock To
Be Issued, divided by (y) the sum of (A) the shares of Company Common Stock
outstanding immediately prior to the Effective Time, and (B) the shares of
Company Common Stock which could be acquired (irrespective of vesting) upon
conversion of all Company Preferred Stock outstanding immediately prior to the
Effective Time. The Exchange Ratio shall be adjusted to reflect fully the
effect of any stock split, reverse stock split, stock dividend, reorganization,
recapitalization or any other like change with respect to Parent Common Stock
occurring after the date hereof and prior to the Effective Time.
"GAAP" means generally accepted accounting principles.
"GOVERNMENTAL AUTHORITY" means any foreign, domestic, federal, territorial,
state or local governmental authority, quasi-governmental authority or
instrumentality, or any regulatory, administrative or other agency, or any
political or other subdivision, department or branch of any of the foregoing.
"JOINDER AGREEMENT" has the meaning set forth in Section 8.8.
"KGI PARTY" means any of ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, JMI Limited, L.P., ▇▇▇▇
▇▇▇▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, Inc.
"LIABILITY" or "LIABILITIES" means, with respect to any person, any
liability or obligation of such person of any kind, character or description,
whether known or unknown, absolute or contingent, unsecured, joint or several,
due or to become due, vested or unvested, executory, determined, determinable or
otherwise and whether or not the same is required to be accrued on the financial
statements of such person.
"LOSSES" means all losses, costs, claims, liabilities, damages, lawsuits,
demands and expenses (including attorney's fees), and all amounts paid in the
investigation, defense or settlement of any of the foregoing.
"MATERIAL ADVERSE EFFECT" means, with respect to the Company, any material
adverse effect in the financial condition, business, results of operations,
assets, liabilities, or operations of the Company. Any adverse effect that is
proximately caused by the industry in which the Company competes shall not be
taken into account in determining whether there has been a Material Adverse
Effect.
"MERGER CONSIDERATION DOLLAR VALUE" means six million nine hundred
twenty-two thousand eight hundred and eight-five dollars ($6,922,885); provided,
--------
however that such figure shall be subject to adjustment as provided in Article
-------
3.
"PARENT COMMON STOCK" means the common stock, $.01 par value per share, of
Parent.
A-2
"PERMITS" means all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, or any other person,
necessary or desirable for the past, present or anticipated conduct of, or
relating to the operation of the business of the Company.
"PERSON" means an individual, corporation, partnership, association, trust,
estate or other entity or organization, including a Governmental Authority.
"PROPRIETARY ASSET" means any: (a) patent, patent application, trademark
(whether registered or unregistered), trademark application, trade name, brand
name, corporate name, domain name, fictitious business name, service ▇▇▇▇
(whether registered or unregistered), service ▇▇▇▇ application, copyright
(whether registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (b) right to use or exploit any of the
foregoing.
"REPLACEMENT WARRANT" has the meaning set forth in Section 2.1.
"REPRESENTATIVE" means any officer, director, principal, major shareholder,
in-house attorney, agent, employee or representative.
"RETURN" means all returns, declarations, reports, statements and other
documents required to be filed in respect of Taxes, and any claims for refunds
of Taxes, including and any amendments or supplements to any of the foregoing.
The term "Return" means any one of the foregoing Returns.
"TAX" or "TAXES" means any income, corporation, gross receipts, profits,
gains, capital stock, capital duty, franchise, withholding social security,
unemployment, disability, property, wealth, welfare, stamp, excise, occupation,
sales, use, value added, alternative minimum, estimated or other similar tax
(including any fee, assessment or other charge in the nature of or in lieu of
any tax) imposed by any governmental entity (whether national, local, municipal
or otherwise) or political subdivision thereof, and any interest, penalties,
additions to tax or additional amounts in respect of the foregoing, and
including any transferee or secondary liability in respect of any tax (whether
imposed by law, contractual agreement or otherwise) and any liability in respect
of any tax as a result of being a member.
"TOTAL NUMBER OF SHARES OF PARENT COMMON STOCK TO BE ISSUED" means one
million one hundred thirty thousand nine hundred and fifty (1,130,950) shares of
Parent Common Stock.
"TRANSACTION DOCUMENT" means, when used in reference to a particular
person, any agreement, document or instrument to be executed by such person in
connection with the transactions contemplated hereby.
"WARRANT HOLDER AGREEMENT" has the meaning set forth in Section 8.9.
A-3