AGREEMENT AND PLAN OF MERGER by and among International Microcomputer Software, Inc., ACCM Acquisition Corp., AccessMedia Networks, Inc. and the stockholders of AccessMedia Networks, Inc. (solely with respect to Article X) Dated as of August 8, 2005
Exhibit
2.1
AGREEMENT
AND PLAN OF MERGER
by
and
among
International
Microcomputer Software, Inc.,
ACCM
Acquisition Corp.,
AccessMedia
Networks, Inc.
and
the
stockholders of AccessMedia Networks, Inc.
(solely
with respect to Article X)
Dated
as
of August 8, 2005
TABLE
OF CONTENTS
Page
| ARTICLE I |
THE
MERGER
|
2
|
|
|
1.1
|
The
Merger
|
2
|
|
|
1.2
|
Closing;
Effective Time
|
2
|
|
|
1.3
|
Effects
of the Merger
|
2
|
|
|
1.4
|
Further
Assurances
|
3
|
|
| ARTICLE II |
CONVERSION
OF SECURITIES
|
3
|
|
|
2.1
|
Effect
on Company Capital Stock
|
3
|
|
|
2.2
|
Exchange
of Certificates
|
5
|
|
|
2.3
|
Distributions
with Respect to Unexchanged Shares of Company Common
Stock
|
6
|
|
|
2.4
|
No
Further Ownership Rights in Company Common Stock
|
6
|
|
|
2.5
|
Lost
Certificates
|
7
|
|
|
2.6
|
Dissenters'
Rights
|
7
|
|
|
2.7
|
Withholding
|
7
|
|
|
2.8
|
Earnout
Payment
|
8
|
|
| ARTICLE III |
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
|
11
|
|
|
3.1
|
Organization
and Good Standing
|
11
|
|
|
3.2
|
Capitalization
|
12
|
|
|
3.3
|
Subsidiaries
of the Company
|
13
|
|
|
3.4
|
Authority
and Enforceability
|
14
|
|
|
3.5
|
No
Conflict; Authorizations
|
15
|
|
|
3.6
|
Financial
Statements
|
15
|
|
|
3.7
|
No
Undisclosed Liabilities
|
16
|
|
|
3.8
|
Accounts
Receivable
|
16
|
|
|
3.9
|
Taxes
|
17
|
|
|
3.10
|
Compliance
with Law
|
20
|
|
|
3.11
|
Authorizations
|
20
|
|
|
3.12
|
Title
to Personal Properties
|
21
|
|
|
3.13
|
Condition
of Tangible Assets
|
21
|
|
|
3.14
|
Real
Property
|
21
|
|
|
3.15
|
Intellectual
Property
|
22
|
|
|
3.16
|
Absence
of Certain Changes or Events
|
27
|
|
|
3.17
|
Contracts
|
29
|
|
|
3.18
|
Litigation
|
31
|
|
|
3.19
|
Employee
Benefits
|
32
|
|
|
3.20
|
Labor
and Employment Matters
|
34
|
|
i
TABLE
OF CONTENTS
(continued)
Page
|
3.21
|
Environmental
|
35
|
|
|
3.22
|
Related
Party Transactions
|
38
|
|
|
3.23
|
Insurance
|
38
|
|
|
3.24
|
Books
and Records
|
39
|
|
|
3.25
|
Conditions
Affecting the Company and its Subsidiaries
|
39
|
|
|
3.26
|
Brokers
or Finders
|
39
|
|
|
3.27
|
No
Illegal Payments
|
40
|
|
|
3.28
|
Suppliers
and Customers
|
40
|
|
|
3.29
|
Bank
Accounts
|
40
|
|
|
3.30
|
Powers
of Attorney
|
40
|
|
|
3.31
|
Information
Supplied
|
40
|
|
|
3.32
|
Completeness
of Disclosure
|
40
|
|
| ARTICLE IV |
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
|
41
|
|
|
4.1
|
Organization
and Good Standing
|
41
|
|
|
4.2
|
Capital
Structure
|
41
|
|
|
4.3
|
Authority
and Enforceability
|
41
|
|
|
4.4
|
No
Conflicts; Authorizations
|
42
|
|
|
4.5
|
SEC
Filings; Financial Statements
|
42
|
|
|
4.6
|
Interim
Operations of Sub
|
43
|
|
|
4.7
|
Liabilities
|
43
|
|
|
4.8
|
Taxes
|
43
|
|
|
4.9
|
Compliance
with Law
|
45
|
|
|
4.10
|
Absence
of Certain Changes or Events
|
45
|
|
|
4.11
|
Litigation
|
46
|
|
|
4.12
|
Brokers
or Finders
|
46
|
|
|
4.13
|
No
Illegal Payments
|
46
|
|
|
4.14
|
Information
Supplied
|
46
|
|
|
4.15
|
Employee
Benefits.
|
47
|
|
|
4.16
|
Environmental.
|
49
|
|
|
4.17
|
Related
Party Transactions
|
50
|
|
|
4.18
|
Investment
Representations
|
50
|
|
|
4.19
|
Completeness
of Disclosure
|
51
|
|
| ARTICLE V |
COVENANTS
OF THE COMPANY
|
51
|
|
|
5.1
|
Conduct
of Business
|
51
|
|
|
5.2
|
Negative
Covenants
|
52
|
|
ii
TABLE
OF CONTENTS
(continued)
Page
|
5.3
|
Access
to Information
|
54
|
|
|
5.4
|
Resignations
|
54
|
|
|
5.5
|
Consents
|
54
|
|
|
5.6
|
Notification
of Certain Matters
|
54
|
|
|
5.7
|
Exclusivity
|
55
|
|
|
5.8
|
Stockholders’
Representative Agreement
|
55
|
|
|
5.9
|
Allocation
Certificate
|
55
|
|
|
5.10
|
FIRPTA
Certificate
|
56
|
|
|
5.11
|
Termination
of 401(k) Plan
|
56
|
|
|
5.12
|
Company’s
Auditors
|
56
|
|
|
5.13
|
Section
280G of the Code
|
56
|
|
| ARTICLE VI |
COVENANTS
OF PARENT
|
56
|
|
|
6.1
|
Benefit
Plans
|
56
|
|
|
6.2
|
Lockup
Agreements
|
57
|
|
|
6.3
|
Stockholders’
Meetings
|
57
|
|
|
6.4
|
Surviving
Corporation Working Capital
|
58
|
|
|
6.5
|
Parent
Board of Directors
|
58
|
|
| ARTICLE VII |
COVENANTS
OF THE COMPANY AND PARENT
|
59
|
|
|
7.1
|
Regulatory
Approvals
|
59
|
|
|
7.2
|
Information
Statement; Fairness Hearing and Permit
|
59
|
|
|
7.3
|
Public
Announcements
|
61
|
|
|
7.4
|
Tax-Free
Reorganization
|
62
|
|
|
7.5
|
Expenses
|
62
|
|
|
7.6
|
Further
Assurances
|
62
|
|
| ARTICLE VIII |
CONDITIONS
TO MERGER
|
62
|
|
|
8.1
|
Conditions
to Each Party’s Obligation to Effect the Merger
|
62
|
|
|
8.2
|
Conditions
to Obligations of Parent and Merger Sub to Effect the
Merger
|
63
|
|
|
8.3
|
Conditions
to Obligation of the Company to Effect the Merger
|
64
|
|
| ARTICLE IX |
TERMINATION
|
65
|
|
|
9.1
|
Termination
|
65
|
|
|
9.2
|
Effect
of Termination
|
66
|
|
|
9.3
|
Remedies
|
66
|
|
| ARTICLE X |
INDEMNIFICATION
|
67
|
|
|
10.1
|
Survival
|
67
|
|
|
10.2
|
Indemnification
by Company Stockholders
|
68
|
|
iii
TABLE
OF CONTENTS
(continued)
Page
|
10.3
|
Escrow
Fund
|
69
|
|
|
10.4
|
Third
Party Claims
|
70
|
|
|
10.5
|
Non-Third
Party Claims
|
73
|
|
|
10.6
|
Claims
Upon Escrow Fund
|
73
|
|
|
10.7
|
Contingent
Claims
|
74
|
|
|
10.8
|
Effect
of Investigation; Waiver
|
74
|
|
| ARTICLE XI |
MISCELLANEOUS
|
74
|
|
|
11.1
|
Notices
|
74
|
|
|
11.2
|
Amendments
and Waivers
|
75
|
|
|
11.3
|
Successors
and Assigns
|
76
|
|
|
11.4
|
Governing
Law
|
76
|
|
|
11.5
|
Consent
to Jurisdiction
|
76
|
|
|
11.6
|
Counterparts
|
77
|
|
|
11.7
|
Third
Party Beneficiaries
|
77
|
|
|
11.8
|
Entire
Agreement
|
77
|
|
|
11.9
|
Captions
|
77
|
|
|
11.10
|
Severability
|
77
|
|
|
11.11
|
Specific
Performance
|
77
|
|
| ARTICLE XII |
DEFINITIONS
|
78
|
|
|
12.1
|
Definitions
|
78
|
|
|
12.2
|
Other
Defined Terms
|
79
|
|
|
12.3
|
Interpretation
|
83
|
|
iv
EXHIBITS
|
Form
of Company Voting Agreement
|
Exhibit
A
|
|
|
Form
of Parent Voting Agreement
|
Exhibit
B
|
|
|
Form
of Joint Operating Agreement
|
Exhibit
C
|
|
|
Form
of Escrow Agreement
|
Exhibit
D
|
|
|
Form
of Lockup Agreement
|
Exhibit
E
|
ANNEXES
| Annex A: |
Principal
Company Stockholders
|
| Annex B: |
Principal
Parent Stockholders
|
AGREEMENT
AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER ("Agreement"),
dated
as of August 8, 2005, is by and among International Microcomputer Software,
Inc., a California corporation ("Parent"),
ACCM
Acquisition Corp., a Delaware corporation and a wholly owned Subsidiary of
Parent ("Merger
Sub"),
and
AccessMedia Networks, Inc., a Delaware corporation (the "Company"),
and,
solely with respect to Article X hereof, each stockholder of the Company,
including ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, in his capacity as representative of the Company
Stockholders pursuant to the Stockholders' Representative Agreement (the
"Stockholders'
Representative").
Capitalized terms used in this Agreement are defined in Section 12.1, or in
the
applicable Section of this Agreement to which reference is made in Section
12.1.
RECITALS:
WHEREAS,
the respective Boards of Directors of Parent, Merger Sub and the Company deem
it
advisable and in the best interests of their respective stockholders to
consummate the business combination provided for herein;
WHEREAS,
the Board of Directors of the Company has determined to recommend to the
stockholders of the Company the adoption of this Agreement;
WHEREAS,
Parent, as the sole stockholder of Merger Sub, has adopted this Agreement;
WHEREAS,
for federal income tax purposes, it is intended that the acquisition of the
Company by Parent pursuant hereto shall qualify as a reorganization under the
provisions of Section 368(a) of the Internal Revenue Code of 1986 (the
"Code");
WHEREAS,
concurrently with the execution of this Agreement and as an inducement to Parent
to enter into this Agreement, each stockholder of the Company listed on
Annex
A
(each, a
"Principal
Company Stockholder")
shall
enter into a Voting Agreement in substantially the form attached hereto as
Exhibit
A
(collectively, the "Company
Voting Agreements");
WHEREAS,
concurrently with the execution of this Agreement and as an inducement to the
Company to enter into this Agreement, each stockholder of Parent listed on
Annex
B
shall
enter into a Voting Agreement in substantially the form attached hereto as
Exhibit
B
(collectively, the “Parent
Voting Agreements”);
WHEREAS,
concurrently with the execution of this Agreement, Parent and the Company have
entered into a Joint Operating Agreement in the form attached as Exhibit
C
hereto
(the “Joint
Operating Agreement”)
pursuant to which Parent and the Company have agreed to cooperate in the
management of the Company’s business in exchange for Parent’s agreement to loan
up to $3 million to the Company, subject to the terms and conditions set forth
in the Joint Operating Agreement.
AGREEMENT
NOW,
THEREFORE, in consideration of the foregoing premises and the respective
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, Parent, Merger Sub and the Company agree
as follows:
ARTICLE
I
THE
MERGER
1.1 The
Merger.
Subject
to the terms and conditions of this Agreement and the Certificate of Merger
in
such form as is required by the relevant provisions of the Delaware General
Corporation Law (the "Delaware
Code"),
at
the Effective Time, Merger Sub shall be merged with and into the Company and
the
separate corporate existence of Merger Sub shall thereupon cease (the
"Merger").
As a
result of the Merger, the outstanding shares of capital stock of Merger Sub
and
the Company shall be converted or canceled in the manner provided in Article
II
of this Agreement, the separate corporate existence of Merger Sub shall cease
and the Company shall be the surviving corporation following the Merger. Merger
Sub and the Company are sometimes referred to herein as the "Constituent
Corporations"
and the
Company as the surviving corporation following the Merger is sometimes referred
to herein as the "Surviving
Corporation".
1.2 Closing;
Effective Time.
The
closing of the Merger (the "Closing")
shall
take place at the offices of ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, 2 Palo Alto
Square, ▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 10:00
a.m. on a date to be specified by the parties which shall be no later than
two
Business Days after satisfaction (or waiver as provided herein) of the
conditions set forth in Article VIII (other than those conditions that
by
their nature will be satisfied at the Closing), unless another time, date and/or
place is agreed to in writing by the parties. The date upon which the Closing
occurs is herein referred to as the "Closing
Date."
Simultaneously with, or as soon as practicable following, the Closing, the
Company as the surviving corporation shall file the Certificate of Merger with
the Secretary of State of the State of Delaware as provided in the Delaware
Code. The Merger shall become effective at such time as the Certificate of
Merger is so filed or at such later time as is set forth in the Certificate
of
Merger, if different, which time is hereinafter referred to as the "Effective
Time."
1.3 Effects
of the Merger.
(a) At
and
after the Effective Time, the Merger shall have the effects specified in the
Delaware Code.
(b) At
the
Effective Time, the Certificate of Incorporation of the Company shall be amended
and restated in their entirety to be identical to the Certificate of
Incorporation of Merger Sub as in effect immediately prior to the Effective
Time, except that Article I of the Certificate of Incorporation shall read:
"The
name of this corporation is AccessMedia Networks, Inc." As so amended and
restated, the Certificate of Incorporation of the Company shall be the
Certificate of Incorporation of the Surviving Corporation, until amended
thereafter in accordance with applicable Law.
2
(c) At
the
Effective Time, the Bylaws of Merger Sub as in effect immediately prior to
the
Effective Time shall be the Bylaws of the Surviving Corporation (except that
all
references to Merger Sub in the Bylaws of the Surviving Corporation shall be
changed to reflect the name change of Merger Sub), until amended thereafter
in
accordance with applicable Law.
(d) At
the
Effective Time, each of the directors and officers of Surviving Corporation
shall be identical to the directors and officers of Parent immediately after
the
Effective Time, each to hold office until their respective death, permanent
disability, resignation or removal or until his or her respective successor
is
duly elected and qualified, all in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation and applicable Law.
1.4 Further
Assurances.
If, at
any time after the Effective Time, the Surviving Corporation shall consider
or
be advised that any deeds, bills of sale, assignments or assurances or any
other
acts or things are necessary, desirable or proper (a) to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation its right, title
and interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of either of the Constituent Corporations, or (b) otherwise
to carry out the purposes of this Agreement, the Surviving Corporation and
its
proper officers and directors or their designees shall be authorized to execute
and deliver, in the name and on behalf of either Constituent Corporation, all
such deeds, bills of sale, assignments and assurances and to do, in the name
and
on behalf of either Constituent Corporation, all such other acts and things
as
may be necessary, desirable or proper to vest, perfect or confirm the Surviving
Corporation's right, title and interest in, to and under any of the rights,
privileges, powers, franchises, properties or assets of such Constituent
Corporation and otherwise to carry out the purposes of this Agreement.
ARTICLE
II
CONVERSION
OF SECURITIES
2.1 Effect
on Company Capital Stock.
(a) The
Company agrees that, prior to the Effective Time, all outstanding Company Common
Stock Equivalents shall be automatically cancelled and shall cease to exist
and
no consideration shall be delivered or deliverable therefor. "Company
Common Stock Equivalents"
means
all Company Stock Options, Company Stock Options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights or any other Contracts
that, directly or indirectly, could require the Company to issue, sell or
otherwise cause to become outstanding equity securities of the Company or any
of
its Subsidiaries. "Company
Stock Options"
means
options to purchase equity securities of the Company's Common Stock, no par
value per share (“Company
Common Stock").
“Company
Stock Options”
means
options to purchase equity securities of the Company or any Subsidiary of the
Company.
3
(b) At
the
Effective Time, by virtue of the Merger and without any further action on the
part of Parent, Merger Sub, the Company or any stockholder of the Company (each
such stockholder, a "Company
Stockholder"):
(i) each
share of Common Stock issued and outstanding immediately prior to the Effective
Time, other than (A) Dissenting Shares as provided in Section 2.6 and (B)
Treasury Shares as provided in Section 2.1(c)(ii), shall be converted into
the
right to receive and become exchangeable for, subject to Section 2.2(d), Section
2.8 and Section 10.3, (i) the Closing Consideration, and (ii) the Earnout
Consideration. "Closing
Consideration"
means
the number of shares of the Common Stock of Parent, no par value per share
("Parent
Common Stock"),
calculated as the quotient obtained by dividing (A) 25,000,000 by (B) the number
of shares of Company Common Stock (including Dissenting Shares but excluding
Treasury Shares) issued and outstanding immediately prior to the Effective
Time
(the "Exchange
Ratio"). "Earnout
Consideration"
means
up to 46,000,000 shares of Parent Common Stock issuable pursuant to Section
2.8
below, and calculated as the quotient obtained by dividing (A) the number of
shares of Parent Common Stock issuable pursuant to Section 2.8 on account of
the
Revenue of the Surviving Corporation deemed to be attributable to the Company
by
(B) the aggregate number of shares of Common Stock (including Dissenting Shares
but excluding Treasury Shares) issued and outstanding immediately prior to
the
Effective Time. The Earnout Consideration, together with the Closing
Consideration, shall mean the “Merger
Consideration”.
“Total
Parent Shares”
means
the aggregate number of shares issued to the Company Stockholders as Merger
Consideration pursuant to this Agreement;
(ii) each
share of Company Common Stock held in the Company's treasury ("Treasury
Shares")
immediately prior to the Effective Time and each share owned by any Subsidiary
of the Company shall not represent the right to receive any Merger
Consideration, and each such share shall be canceled and retired and shall
cease
to exist, and no cash, securities or other property shall be payable in respect
thereof; and
(iii) each
share of common stock of Merger Sub, par value $.01 per share, issued and
outstanding immediately prior to the Effective Time shall be converted into
and
become one fully paid and nonassessable share of common stock, par value $.0001
per share, of the Surviving Corporation.
(c) In
the
event of any stock split, combination, reclassification, stock dividend or
similar capitalization change with respect to Parent Common Stock prior to
the
Effective Time, or if a record date with respect to any of the foregoing is
fixed, appropriate and proportionate adjustments shall be made to the Merger
Consideration and the Exchange Ratio, and thereafter all references to the
Merger Consideration and the Exchange Ratio shall be deemed to refer to such
Exchange Ratio and Merger Consideration as so adjusted.
4
2.2 Exchange
of Certificates.
(a) No
later
than five business days prior to the Closing, the Company shall furnish to
Parent mailing labels or a computer file containing the names and addresses
of
the record holders of certificates representing Company Shares.
(b) Parent
shall mail to each holder of record of Company Shares a letter of transmittal
(the "Transmittal
Letter").
Upon
receipt of the documents described in paragraph (c) below, Parent shall issue
certificates representing the shares of Parent Common Stock issuable pursuant
to
Section 2.1 as of the Effective Time in respect of the Company Shares (other
than Dissenting Shares).
(c) Upon
surrender to Parent of a certificate or certificates representing all of such
Company Stockholder's outstanding shares of Company Common Stock (collectively,
"Certificates"),
together with (i) a duly executed Transmittal Letter, and (ii) an executed
signature page to the Stockholders' Representative Agreement in a form
reasonably satisfactory to the parties (the "Stockholders'
Representative Agreement"),
each
Company Stockholder shall be entitled to receive, in exchange therefor, a
certificate representing that number of whole shares of Parent Common Stock
which such Company Stockholder has the right to receive in respect of the
Certificate surrendered pursuant to the provisions of this Article II, less
the
number of Escrow Shares allocable to such Company Stockholder that are deposited
into the Escrow Fund pursuant to Section 10.3 hereof. Each Certificate so
surrendered shall forthwith be canceled.
(d) As
soon
as practicable after the Effective Time, Parent shall cause to be delivered
(i)
to U.S. Bank, National Association, as escrow agent (the "Escrow
Agent"),
certificates representing the Escrow Shares subject to and in accordance with
the provisions of Section 10.3 hereof; and (ii) to each Company Stockholder
a
certificate representing those shares of Parent Common Stock issuable to such
Company Stockholder which are not Escrow Shares. The Escrow Shares shall be
held
in escrow by the Escrow Agent and shall be available to compensate Parent for
certain damages as provided in Article X. The Escrow Shares shall be held in
escrow pursuant to the terms of the Escrow Agreement in the form attached as
Exhibit
D
hereto
(the "Escrow
Agreement").
To
the extent not used for such purposes, the Escrow Shares shall be released
as
provided in the Escrow Agreement.
(e) If
any
certificate representing shares of Parent Common Stock is to be issued in a
name
other than that in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the Certificate(s)
so
surrendered shall be properly endorsed for transfer (or accompanied by an
appropriate instrument of transfer) and shall otherwise be in proper form for
transfer, and that the Person requesting such exchange shall pay any transfer
or
other taxes required by reason of the issuance of certificates for such shares
of Parent Common Stock in a name other than that of the registered holder of
the
Certificate surrendered, or shall establish to the satisfaction of Parent that
any such taxes have been paid or are not applicable.
5
(f) Notwithstanding
any other provision of this Article II, no fractional shares of Parent Common
Stock will be issued and any holder of shares of Company Common Stock entitled
hereunder to receive a fractional share of Parent Common Stock (after
aggregating all fractional shares of Parent Common Stock that would otherwise
be
received by such holder) but for this Section 2.2(f) will be entitled to receive
a cash payment in lieu of such fractional share of Parent Common Stock in an
amount equal to such fraction multiplied by the average of the closing prices
of
Parent Common Stock on the OTC Bulletin Board as reported in The
Wall Street Journal over
the
ten (10) trading days ending three (3) trading days prior to the
Closing.
(g) None
of
Parent, Merger Sub or the Company shall be liable to any Person in respect
of
any cash or other property delivered to a public official pursuant to any
applicable abandoned property, escheat or similar Law. If any Certificates
shall
not have been surrendered prior to seven years after the Effective Time (or
immediately prior to such earlier date on which any payment pursuant to this
Article II would otherwise escheat to or become the property of any Governmental
Entity), the shares of Parent Common Stock issuable, or cash payment determined
in accordance with Section 2.2(f), in respect of such Certificate shall, to
the
extent permitted by applicable Law, become the property of Parent free and
clear
of all claims or interests of any Person previously entitled
thereto.
2.3 Distributions
with Respect to Unexchanged Shares of Company Common Stock.
Notwithstanding any other provisions of this Agreement, no dividends or other
distributions on shares of Parent Common Stock shall be paid with respect to
any
share of Company Common Stock or other securities represented by a Certificate
until such Certificate is surrendered for exchange as provided herein. Subject
to the effect of applicable Laws, following surrender of any such Certificate
there shall be paid to the holder of certificates representing shares of Parent
Common Stock issued in exchange therefor, without interest, (a) at the time
of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to such shares
of
Parent Common Stock and not paid, less the amount of any withholding taxes
which
may be required thereon, and (b) at the appropriate payment date, the amount
of
dividends or other distributions with a record date after the Effective Time
but
prior to surrender thereof and a payment date subsequent to surrender thereof
payable with respect to such shares of Parent Common Stock, less the amount
of
any withholding taxes which may be required thereon. No holder of unsurrendered
Certificates shall be entitled, until the surrender of such Certificate, to
vote
the shares of Parent Common Stock which such holder shall have the right to
receive pursuant to this Article II.
2.4 No
Further Ownership Rights in Company Common Stock.
The
payment of the Merger Consideration in respect of each share of Company Common
Stock owned by the Company Stockholders shall be deemed to have been paid in
full satisfaction of all rights pertaining to each such share of Company Common
Stock, and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented for transfer to the Surviving
Corporation, they shall be canceled and exchanged for certificates representing
shares of Parent Common Stock in accordance with the procedures set forth in
this Article II.
6
2.5 Lost
Certificates.
In the
event any Certificate shall have been lost, stolen or destroyed, Parent may,
in
its discretion and as a condition precedent to the disbursement of the Merger
Consideration in respect of shares of Company Common Stock represented by such
Certificate, require the owner of such lost, stolen or destroyed Certificate
to
make an affidavit of that fact containing such indemnification provisions as
Parent may reasonably deem appropriate, including the posting of a standard
bond
required by Parent's transfer agent as indemnity against any claim that may
be
made against it or the Surviving Corporation with respect to such Certificate.
2.6 Dissenters'
Rights.
(a) Notwithstanding
anything in this Agreement to the contrary, any shares of Company Common Stock
held by any Company Stockholder who shall have demanded and not lost or
withdrawn, or who shall be eligible to demand, appraisal rights with respect
to
such shares of Company Common Stock in the manner provided in the Delaware
Code
("Dissenting
Shares")
shall
not represent the right to receive the Merger Consideration. If any Company
Stockholder shall fail to perfect or shall effectively withdraw or lose his
right to appraisal and payment under the Delaware Code, as the case may be,
each
share of Company Common Stock held by such Company Stockholder shall thereupon,
in accordance with and subject to the provisions set forth in this Article
II,
represent the right to receive the Merger Consideration.
(b) The
Company shall give Parent prompt notice of any demands for appraisal received
by
the Company, withdrawals of such demands, and any other communications received
by the Company in connection with any demands for appraisal. The Company shall
not, except with the written consent of Parent, voluntarily make any payment
with respect to any such demands. Parent shall have the right to control all
negotiations and proceedings with respect to demands for appraisal, including
the right to settle any such demands. To the extent that Parent or the Company
makes any payment in respect of any Dissenting Shares, Parent shall be entitled
to recover under Article X hereof (i) the aggregate amount by which such payment
exceeds the Merger Consideration and (ii) any other costs and expenses,
including attorney fees and expenses, incurred in connection with investigating,
defending and settling such demands for appraisal (the amounts in clauses (i)
and (ii) collectively, "Dissenting
Share Payments").
2.7 Withholding.
Parent
shall be entitled to deduct and withhold from the consideration payable pursuant
to this Agreement to any holder of shares of Company Common Stock or Dissenting
Shares such amounts as it is required to deduct and withhold with respect to
the
making of such payment under the Code or any provision of applicable Tax Law.
To
the extent that amounts are so withheld by Parent, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the holder
of shares of Company Common Stock or Dissenting Shares in respect of which
such
deduction and withholding was made by Parent.
7
2.8 Earnout
Payment.
(a) The
Earnout Consideration shall be paid by Parent in an earnout payment to the
Company Stockholders in the form of Parent Earnout Shares in amounts set forth
below (in each case, an “Earnout
Payment”),
in
the event that any of the following shall occur:
(i) during
any of the time periods beginning as of May 1, 2005 and ending on the date
listed in the Performance Target Schedule in the column entitled “Target Date”
(subject to clause (ii) below), the Surviving Corporation’s Revenue (as defined
below) is equal to or greater than the applicable amount indicated in the column
entitled “Revenue Performance Level”:
Performance
Target Schedule
|
Revenue
Performance
Level
|
Target
Date
|
Earnout
Payment
(in
Shares of Parent
Common
Stock)
|
Potential
Aggregate
Shares
of Parent
Common
Stock
|
|
>$20
million in Revenue
|
June
30, 2006
|
9
million
|
34
million
|
|
>$40
million in Revenue
|
March
31, 2007
|
9
million
|
43
million
|
|
>$55
million in Revenue
|
September
30, 2007
|
9
million
|
52
million
|
|
>$80
million in Revenue
|
June
30, 2008
|
9
million
|
61
million
|
|
>$100
million in Revenue
|
December
31, 2008
|
10
million
|
71
million
|
The
applicable Earnout Payment in the column entitled “Earnout Payment” shall be
made to the Stockholders’ Representative, on behalf of the Company Stockholders,
on or prior to the 30th day following the Target Date or following the date
upon
which a certain Revenue Performance Level is attained (“Attainment
Date”)
if the
Attainment Date precedes the Target Date. Notwithstanding the foregoing, an
Earnout Payment may be earned if the Surviving Corporation achieves the
applicable Revenue Performance Level within six (6) months following the Target
Date. As used herein, “Revenue”
shall
mean the consolidated revenue of the Company beginning on May 1, 2005 and shall
not include any revenue from Parent’s business or operations or any Baseline
Amount (as provided in paragraph (b) below).
8
(ii) If
an
Earnout Payment is earned on or before the specified Target Date, plus six
(6)
months, the total Earnout Payment will include (a) the Earnout Payment with
respect to such Target Date, and (b) any Earnout Payments relating to prior
measurement periods (in each case, an “Earnout
Measurement Period”)
that
had not been earned prior to such date.
For
example, if the Surviving Corporation does not achieve Revenue of $20 million
as
of June 30, 2006 but does achieve Revenue of $20 million prior to December
31,
2006 (six months following the first Target Date), the Company Stockholders
will
be entitled to receive the Earnout Payment for the first Earnout Measurement
Period within 30 days of December 31, 2006. If the Surviving Corporation does
not achieve Revenue of $20 million by December 31, 2006, but does achieve
Revenue of $40 million as of September 30, 2007 (six months following the second
Target Date), the Company Stockholders will be entitled to receive the Earnout
Payment for each of the first two Earnout Measurement Periods within 30 days
of
September 30, 2007.
(b) Parent,
with the Surviving Corporation, shall jointly endeavor to identify companies
and
technologies as potential acquisition targets in order to expedite the growth
of
the Surviving Corporation; provided, however,
that
notwithstanding anything to the contrary contained herein, Parent shall not
be
obligated to take any action which it believes is not in the best interests
of
Parent and all of its Subsidiaries taken as a whole; and provided,
further,
with
respect to each such acquisition, only Excess Revenue (as defined below) shall
be included for purposes of determining Revenue for purposes of this Section
2.8. As used herein, “Excess
Revenue”
means
the total revenue achieved by such acquisition target during any applicable
measuring period, less the Baseline Revenue (as defined below). As used herein,
“Baseline
Revenue”
means
the aggregate revenue of an acquisition target generated, in the good faith
determination of Parent, during the twelve months immediately prior to and
ending on the date of such acquisition (the “Baseline
Measurement Period”).
In
the event an Earnout Measurement Period is shorter than twelve months, then
the
Excess Revenue shall be calculated based upon the revenue of the acquisition
target for such shorter period, less the portion of Baseline Revenue earned
by
the acquisition target during the comparable portion of the Baseline Measurement
Period.
(c) Audit
Procedures.
(i) Unless
the applicable Earnout Payment shall have previously been made, within
thirty-five (35) days after each of the dates listed in the column entitled
“Target Date” in the Performance Target Schedule, Parent shall prepare and
deliver to the Stockholders’ Representative a statement of Revenue for each such
measurement period, as indicated in the Performance Target Schedule (the
“Statement
of Revenue”).
9
(ii) The
Stockholders’ Representative shall have a period commencing upon delivery of the
Statement of Revenue by Parent and expiring forty-five (45) days after such
delivery date to review the Statement of Revenue. During such period, Parent
shall permit the Stockholders’ Representative and its agents or representatives,
during normal business hours, to have full and complete access to, and to
examine, all work papers and schedules that are or were necessary to prepare
and/or review the Statement of Revenue. In the event the Stockholders’
Representative disputes any determination contained in the Statement of Revenue,
the Stockholders’ Representative shall, within forty-five (45) days after
delivery of the Statement of Revenue, deliver a notice to Parent (the
“Earnout
Dispute Notice”),
setting forth in reasonable detail the component or components which are in
dispute and the basis of such dispute. If the Stockholders’ Representative fails
to deliver an Earnout Dispute Notice to Parent within forty-five (45) days
after
Parent’s delivery of the Statement of Revenue, then the Stockholders’
Representative shall be bound by the calculations contained in the Statement
of
Revenue, and the Statement of Revenue shall be deemed to be the Final Statement
of Revenue (as defined below) for the applicable Earnout Measurement Period,
and
any required payments shall be made pursuant to subsection (j) or (k) above
based on such Final Statement of Revenue for each respective Earnout Measurement
Period. If the Stockholders’ Representative delivers the Earnout Dispute Notice
within such forty-five (45) day period, then the Stockholders’ Representative
and Parent will negotiate in good faith (with the assistance of their respective
independent accountants and counsel, if desired) to resolve any such dispute
within fifteen (15) days after receipt by Parent of the Earnout Dispute Notice.
If Parent and the Stockholders’ Representative fail to resolve any such dispute
within fifteen (15) days after receipt by Parent of the Earnout Dispute Notice,
they shall submit the dispute to an independent accounting firm (other than
▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇) (the “Reviewing
Accountant”)
to
review the Statement of Revenue; provided, however, that Parent shall pay any
undisputed Earnout Consideration it believes is owed to the Company’s
stockholders. Parent and the Stockholders’ Representative shall make available
to the Reviewing Accountant all work papers and all other information and
material in their possession relating to the matters in the Earnout Dispute
Notice. The Reviewing Accountant shall be instructed to use its reasonable
best
efforts to deliver its determination as promptly as practicable after such
submission of the dispute to the Reviewing Accountant. The Parties hereby
expressly agree that the determination of the Reviewing Accountant shall be
final and binding on the parties (absent fraud or manifest bad faith by the
Reviewing Accountant). The Statement of Revenue, as determined by Parent (if
not
disputed), or as modified (if at all) by agreement of Parent and the
Stockholders’ Representative or by decision of the Reviewing Accountant, shall
be referred to herein as the “Final
Statement of Revenue”
for
each respective Earnout Measurement Period. Each party shall bear its own
expenses and the fees and expenses of its own representatives and experts,
including its independent accountants, in connection with the preparation,
review, dispute (if any) and final determinations contained in the Final
Statement of Revenue. The costs, expenses and fees of the Reviewing Accountant
shall be borne by the Stockholders’ Representative, on the one hand, and Parent,
on the other hand, based on the percentage which the portion of the contested
amount not awarded to such party bears to the amount actually contested by
such
party.
10
(iii) Within
fifteen (15) days after the Final Statement of Revenue for each respective
Earnout Measurement Period has become final and binding on the parties pursuant
to this subsection (l), the Earnout Consideration, if any, payable in accordance
with subsection (j) or (k) above will be immediately due and payable by Parent
to the Stockholders’ Representative, on behalf of the Company
Stockholders.
(d) Earnout
Consideration. The right of each Company Stockholder to receive any Earnout
Consideration (i) will not be represented by any form of certificate or
instrument; (ii) will not give such Company Stockholder any dividend rights,
voting rights, liquidation rights, preemptive rights or other rights common
to
holders of the securities of Parent; (iii) will not be redeemable; and (iv)
will
not be sold, assigned, pledged, gifted, conveyed, transferred or otherwise
disposed of, except pursuant to the applicable laws of descent and distribution.
Any transfer of any right to receive any Earnout Consideration in violation
of
this Agreement shall be null and void. The Earnout Consideration is solely
a
contractual right established by this Agreement, and such contractual right
is
not a security for purposes of any federal or state securities
laws.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to Parent and Merger Sub as of the date hereof
and as of the Closing Date that the statements contained in this Article III
are
true and correct, except as set forth in the disclosure schedule dated and
delivered as of the date hereof by the Company to Parent (the "Company
Disclosure Schedule"),
which
is being concurrently delivered to Parent in connection herewith and is
designated therein as being the Company Disclosure Schedule. The Company
Disclosure Schedule shall be arranged in paragraphs corresponding to each
representation and warranty set forth in this Article III. Each exception to
a
representation and warranty set forth in the Company Disclosure Schedule shall
be deemed to qualify the specific representation and warranty which is
referenced in the applicable paragraph of the Company Disclosure Schedule,
and
no other representation or warranty.
3.1 Organization
and Good Standing.
(a) The
Company is a corporation duly organized, validly existing and in good standing
under the Laws of the jurisdiction of its incorporation, has all requisite
power
to own, lease and operate its properties and to carry on its business as now
being conducted and as proposed to be conducted, and is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which it owns or leases property or conducts any business so as to require
such qualification. The Company Disclosure Schedule lists each jurisdiction
in
which the Company is qualified to do business.
11
(b) The
Company has complied with and is not in default under its Charter Documents.
The
Charter Documents of the Company in the forms attached to the Company Disclosure
Schedule are the Charter Documents of the Company as in effect on the date
of
this Agreement and as of the Closing Date. "Charter
Documents"
means,
with respect to any entity, the certificate of incorporation, the articles
of
incorporation, by-laws, articles of organization, limited liability company
agreement, partnership agreement, formation agreement, joint venture agreement
or other similar organizational documents of such entity (in each case, as
amended).
3.2 Capitalization.
(a) The
authorized capital stock of the Company consists of 30,000,000 shares of capital
stock and all of such shares are designated common stock. Of such amount,
25,000,000 shares of Common Stock are issued and outstanding as of the date
hereof. All issued and outstanding shares of Company Common Stock (collectively,
the "Company
Shares")
have
been duly authorized and validly issued, are fully paid and nonassessable,
and
were issued in compliance with all applicable federal and state securities
Laws.
(b) The
Company Disclosure Schedule contains a true and complete list of the record
holders of the Company Shares and sets forth the full name, current address
and
number and class of Company Shares owned by each record holder.
(c) The
Company has not reserved any shares of Company Common Stock for future issuance
pursuant to any Stock Option Plan of the Company.
(d) Except
as
set forth in paragraph (a) above, the Company does not have outstanding
securities of any kind. Except as set forth in the preceding sentence, the
Company is not a party to any Contract obligating the Company, directly or
indirectly, to issue additional securities and there is no circumstance or
condition that may give rise to a claim by any Person that such Person is
entitled to acquire any securities of the Company.
(e) All
outstanding Company Stock Options have been duly authorized and validly issued
and were issued in compliance with all applicable federal and state securities
Laws. All shares of Company Common Stock subject to issuance upon exercise,
conversion and/or exchange of Company Stock Options, upon issuance in accordance
with the terms and conditions specified in the instruments pursuant to which
they are issuable, will be duly authorized, validly issued, fully paid and
nonassessable.
(f) Neither
the Company Shares nor the Company Stock Options were issued or have been
transferred in violation of, or are subject to, any preemptive rights, rights
of
first offer or subscription agreements. The Company is not a party to any
stockholder agreements, voting agreements, voting trusts or any such other
similar arrangements with respect to the transfer, voting or other rights
associated with its securities, and there are no such agreements to which the
Company is not a party.
12
(g) The
cancellation of the Company Stock Options prior to the Effective Time will
be in
compliance with the terms of the agreement pursuant to which such Company Stock
Options were issued and in compliance with all federal and state securities
Laws. No consent of the holders of Company Stock Options is required for such
cancellation.
(h) The
Company has not repurchased or otherwise reacquired any of its securities.
There
are no obligations, contingent or otherwise, of the Company to repurchase,
redeem or otherwise acquire any of its securities. There are no declared or
accrued unpaid dividends with respect to any of the Company's securities.
(i) The
Company does not have outstanding or authorized any stock appreciation, phantom
stock, profit participation, or similar rights.
(j) The
Company does not have outstanding any bonds, debentures, notes or other
obligations or debt securities the holders of which have the right to vote
(or
convertible into, or exercisable or exchangeable for, securities having the
right to vote) on any matter.
3.3 Subsidiaries
of the Company.
(a) The
Company Disclosure Schedule contains a true and complete list of the
Subsidiaries of the Company and sets forth with respect to each such Subsidiary
the jurisdiction of formation, the authorized and outstanding capital stock
of
such Subsidiary and the owner(s) of record of such outstanding capital stock.
The outstanding shares of capital stock of each Subsidiary of the Company have
been duly authorized and validly issued, are fully paid and nonassessable and
are owned by the Company or another Subsidiary of the Company free and clear
of
all liens, claims, charges, security interests, mortgages, pledges, easements,
conditional sale or other title retention agreements, defects in title,
covenants or other restrictions of any kind, including, any restrictions on
the
use, voting, transfer or other attributes of ownership (collectively,
"Liens").
(b) Each
Subsidiary of the Company is validly existing and in good standing under the
Laws of the jurisdiction of its formation, has all requisite power to own,
lease
and operate its properties and to carry on its business as now being conducted
and as proposed to be conducted, and is duly qualified to do business and is
in
good standing in each jurisdiction in which it owns or leases property or
conducts any business so as to require such qualification. The Company
Disclosure Schedule lists each jurisdiction in which the Subsidiaries are
qualified to do business.
(c) Other
than the shares of capital stock set forth in the Company Disclosure Schedule,
no Subsidiary of the Company has outstanding securities of any kind. No
Subsidiary of the Company is party to any Contract obligating such Subsidiary,
directly or indirectly, to issue any additional securities and there is no
circumstance or condition that may give rise to a claim by any Person that
such
Person is entitled to acquire the securities of any such Subsidiary. No
Subsidiary of the Company has outstanding or authorized any stock appreciation,
phantom stock, profit participation, or similar rights.
13
(d) No
Subsidiary of the Company has outstanding any bonds, debentures, notes or other
obligations or debt securities the holders of which have the right to vote
(or
convertible into, or exercisable or exchangeable for, securities having the
right to vote) on any matter.
(e) Other
than the Subsidiaries set forth in the Company Disclosure Schedule, neither
the
Company nor any Subsidiary of the Company, directly or indirectly, owns any
securities or other interest in any corporation, partnership, joint venture
or
other business association or entity, or to provide funds to or make any
investment.
(f) There
are
no obligations, contingent or otherwise, of the Company or any Subsidiary of
the
Company to provide funds to or make an investment (in the form of a loan,
capital contribution or otherwise) in any entity.
3.4 Authority
and Enforceability.
(a) The
Company has all necessary corporate power and authority to enter into this
Agreement, and, subject in the case of the consummation of the Merger to the
Company Stockholder Approval, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery
of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject in the case of the
consummation of the Merger to the Company Stockholder Approval. This Agreement
has been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by Parent and Merger Sub, constitutes
the
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
(i)
bankruptcy, insolvency, reorganization, moratorium or other similar Laws
affecting or relating to creditors' rights generally, and (ii) the availability
of injunctive relief and other equitable remedies.
(b) The
only
stockholder votes required to adopt this Agreement and approve the transactions
contemplated hereby are the affirmative vote of the holders of a majority of
the
then outstanding Company Shares voting as a single class on an as-converted
to
Common Stock basis on the record date of a duly convened meeting of the Company
Stockholders, or by written consent in lieu of such meeting (the "Company
Stockholder Approval").
The
Principal Company Stockholders represent as of the date hereof and will
represent as of the record date of such meeting or consent at least a majority
of the then outstanding Company Shares on an as-converted to Common Stock basis
and have agreed in writing to vote for adoption of this Agreement pursuant
to
the Voting Agreements.
14
(c) The
Board
of Directors of the Company has, by the unanimous vote of all directors in
office, (i) duly approved this Agreement, the Merger and the transactions
contemplated hereby, (ii) determined that the Merger is advisable and in the
best interests of the Company Stockholders and (iii) recommended that the
Company Stockholders adopt this Agreement and directed that this Agreement
be
submitted to the Company Stockholders for adoption.
3.5 No
Conflict; Authorizations.
(a) The
execution and delivery of this Agreement by the Company do not, and the
performance by the Company of its obligations hereunder and the consummation
by
the Company of the transactions contemplated hereby (in each case, with or
without the giving of notice or lapse of time, or both) will not, directly
or
indirectly, (i) violate the provisions of the Company's or any of its
Subsidiaries' Charter Documents, (ii) violate or conflict with, or constitute
a
default, an event of default or an event creating rights of acceleration,
termination, cancellation, imposition of additional obligations or loss of
rights, or require a consent to assignment, under any Contract (A) to which
the
Company or any of its Subsidiaries is a party, (B) of which the Company or
any
of its Subsidiaries is a beneficiary or (C) by which the Company or any of
its
Subsidiaries or any of their respective assets is bound, (iii) assuming
compliance by the Company with the matters referred to in Section 3.5(b),violate
or conflict with any Law, Authorization or Order applicable to the Company
or
any of its Subsidiaries, or give any Governmental Entity or other Person the
right to challenge any of the transactions contemplated hereby or to exercise
any remedy, obtain any relief under or revoke or otherwise modify any rights
held under, any such Law, Authorization or Order, or (iv) result in the creation
of any Liens upon any of the assets owned or used by the Company or any of
its
Subsidiaries. Section 3.5(a) of the Company Disclosure Schedule sets forth
all
consents, waivers, assignments and other approvals and actions that are required
in connection with the transactions contemplated by this Agreement under any
Contract to which the Company or any of its Subsidiaries is a party
(collectively, "Consents")
in
order to preserve all rights of, and benefits to, the Surviving Corporation
and
its Subsidiaries thereunder.
(b) No
Authorization or Order of, registration, declaration or filing with, or notice
to any Governmental Entity or other Person, is required to be made, obtained,
performed or given to or with respect to the Company or any of its Subsidiaries
in connection with the execution and delivery of this Agreement and the
consummation of the Merger, other than the filing of the Certificate of Merger
with the Secretary of State of Delaware.
3.6 Financial
Statements.
(a) True
and
complete copies of the Company's unaudited consolidated financial statements
consisting of the consolidated balance sheet of the Company and its Subsidiaries
as at December 31, 2004 and the related statements of income and retained
earnings, stockholders' equity and cash flow, for the years ended December
31,
2003 and December 31, 2004 (the "Financial
Statements"),
and
unaudited consolidated financial statements consisting of the balance sheet
of
the Company and its Subsidiaries as at June 30, 2005 and the related statements
of income and retained earnings, stockholders' equity and cash flow for the
six
month period then ended (the "Interim
Financial Statements"
and
together with the Financial Statements, the "Financial
Statements"),
are
included in the Company Disclosure Schedule.
15
(b) To
the
best of the Company’s Knowledge, the Financial Statements are true, complete and
correct and have been prepared in accordance with United States generally
accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved, subject, in
the
case of the Interim Financial Statements, to normal year-end adjustments (the
effect of which will not be materially adverse) and the absence of notes (that,
if presented, would not differ materially from those presented in the Financial
Statements). The Financial Statements are based on the books and records of
the
Company and its Subsidiaries, and fairly present the financial condition of
the
Company and its Subsidiaries as of the respective dates they were prepared
and
the results of the operations of the Company and its Subsidiaries for the
periods indicated. The consolidated balance sheet of the Company and its
Subsidiaries as of December 31, 2004 is referred to herein as the "Balance
Sheet"
and the
date thereof as the "Balance
Sheet Date"
and the
consolidated balance sheet of the Company and its Subsidiaries as of June 30,
2005 is referred to herein as the "Interim
Balance Sheet"
and the
date thereof as the "Interim
Balance Sheet Date."
Each
of the Company and its Subsidiaries maintains a standard system of accounting
established and administered in accordance with GAAP.
3.7 No
Undisclosed Liabilities.
The
Company and its Subsidiaries have no liabilities, obligations or commitments
of
any nature whatsoever, asserted or unasserted, known or unknown, absolute or
contingent, accrued or unaccrued, matured or unmatured or otherwise
("Liabilities"),
except (a) those which are adequately reflected or reserved against in the
Balance Sheet as of the Balance Sheet Date, and (b) those which have been
incurred in the ordinary course of business and consistent with past practice
since the Balance Sheet Date and which are not, individually or in the
aggregate, material in amount.
3.8 Accounts
Receivable.
The
accounts receivable of the Company and its Subsidiaries as set forth on the
Interim Balance Sheet or arising since the date thereof are, to the extent
not
paid in full by the account debtor prior to the date hereof, (a) valid and
genuine, have arisen solely out of bona fide sales and deliveries of goods,
performance of services and other business transactions in the ordinary course
of business consistent with past practice, (b) not subject to valid defenses,
set-offs or counterclaims, and (c) collectible within 90 days after billing
at
the full recorded amount thereof less, in the case of accounts receivable
appearing on the Interim Balance Sheet, the recorded allowance for collection
losses on the Interim Balance Sheet or, in the case of Accounts Receivable
arising since the Interim Balance Sheet Date, the recorded allowance for
collection losses shown on the accounting records of the Company and its
Subsidiaries. The allowance for collection losses on the Interim Balance Sheet
and, with respect to Accounts Receivable arising since the Interim Balance
Sheet
Date, the allowance for collection losses shown on the accounting records of
the
Company and its Subsidiaries, have been determined in accordance with GAAP
consistent with past practice. The accounts receivable existing as of the
Closing Date are believed by the Company to be collectible within 90 days after
billing at the full recorded amount thereof net of the reserves shown on the
accounting records of the Company and its Subsidiaries as of the Closing Date
(which reserve shall be adequate and shall not represent a greater percentage
of
the accounts receivable as of the Closing Date than the reserve reflected in
the
Interim Balance Sheet represented of the accounts receivable reflected
therein).
16
3.9 Taxes.
(a) As
used
in this Agreement, the following words and terms have the following
definitions:
(i) "Tax"
or
"Taxes"
means
any and all federal, state, local, or foreign net or gross income, gross
receipts, net proceeds, sales, use, ad valorem, value added, franchise,
bank shares, withholding, payroll, employment, excise, property, deed, stamp,
alternative or add-on minimum, environmental, profits, windfall profits,
transaction, license, lease, service, service use, occupation, severance,
energy, unemployment, social security, workers' compensation, capital, premium,
and other taxes, assessments, customs, duties, fees, levies, or other
governmental charges of any nature whatever, whether disputed or not, together
with any interest, penalties, additions to tax, or additional amounts with
respect thereto.
(ii) "Tax
Returns"
means
any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto,
and
including any amendment thereof.
(iii) "Taxing
Authority"
means
any Governmental Entity having jurisdiction with respect to any
Tax.
(b) To
the
best of the Company’s Knowledge, each of the Company and its Subsidiaries has
duly and timely filed all Tax Returns required to have been filed by or with
respect to the Company or such Subsidiary and will duly and timely file all
Tax
Returns due between the date hereof and the Closing Date. To the best of the
Company’s Knowledge, each such Tax Return correctly and completely reflects all
liability for Taxes and all other information required to be reported thereon.
To the best of the Company’s Knowledge, all Taxes owed by the Company and each
Subsidiary of the Company (whether or not shown on any Tax Return) have been
timely paid (or, if due between the date hereof and the Closing Date, will
be
duly and timely paid). To the best of the Company’s Knowledge, each of the
Company and its Subsidiaries has adequately provided for, in its books of
account and related records, all liability for all unpaid Taxes, being current
Taxes not yet due and payable.
(c) Each
of
the Company and its Subsidiaries has withheld and timely paid all Taxes required
to have been withheld and paid by it and has complied with all information
reporting and backup withholding requirements, including maintenance of required
records with respect thereto.
17
(d) Neither
the Company nor any of its Subsidiaries is the beneficiary of any extension
of
time within which to file any Tax Return, nor has the Company or any of its
Subsidiaries made (or had made on its behalf) any requests for such extensions.
Neither the Company nor any of its Subsidiaries has waived (or is subject to
a
waiver of) any statute of limitations in respect of Taxes or has agreed to
(or
is subject to) any extension of time with respect to a Tax assessment or
deficiency.
(e) The
Company Disclosure Schedule indicates those Tax Returns that have been audited
and those Tax Returns that currently are the subject of audit. Except as set
forth in the Company Disclosure Schedule, to the best of the Company’s
Knowledge, there is no Action now pending or threatened against or with respect
to the Company or any of its Subsidiaries in respect of any Tax or any
assessment or deficiency. To the best of the Company’s Knowledge, there are no
liens for Taxes (other than current Taxes not yet due and payable) upon the
assets of the Company. The Company has delivered to Parent correct and complete
copies of all federal income Tax Returns, examination reports, and statements
of
deficiencies assessed against or agreed to by the Company or any of its
Subsidiaries since the date of incorporation of such entity.
(f) The
Company Disclosure Schedule lists, as of the date of this Agreement, all
jurisdictions in which the Company or any of its Subsidiaries currently files
Tax Returns. No claim has been made by an authority in a jurisdiction where
the
Company or any of its Subsidiaries does not file Tax Returns that any of them
is
or may be subject to taxation by that jurisdiction or that any of them must
file
Tax Returns.
(g) Neither
the Company nor any of its Subsidiaries has filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provisions of state, local or foreign income Tax Law). Neither
the
Company nor any of its Subsidiaries has made any payments, is obligated to
make
any payments, or is a party to any agreement that under certain circumstances
could obligate it to make payments that would result in a nondeductible expense
under Section 280G of the Code or an excise tax to the recipient of such
payments pursuant to Section 4999 of the Code.
(h) Neither
the Company nor any of its Subsidiaries has agreed to or is required to make
by
reason of a change in accounting method or otherwise, or could be required
to
make by reason of a proposed or threatened change in accounting method or
otherwise, any adjustment under Section 481(a) of the Code. Neither the Company
nor any of its Subsidiaries has been the "distributing corporation" (within
the
meaning of Section 355(c)(2) of the Code) with respect to a transaction
described in Section 355 of the Code within the 5-year period ending as of
the
date of this Agreement. Neither the Company nor any of its Subsidiaries has
received (or is subject to) any ruling from any Taxing Authority or has entered
into (or is subject to) any agreement with a Taxing Authority. Each of the
Company and its Subsidiaries have disclosed on its federal income Tax Returns
all positions taken therein that could give rise to a substantial understatement
of federal income Tax within the meaning of Section 6662 of the
Code.
18
(i) No
Subsidiary of the Company that is incorporated in a non-U.S. jurisdiction has,
or at any time has had, an investment in "United States property" within the
meaning of Section 956(c) of the Code. No Subsidiary of the Company is, or
at
any time has been, a passive foreign investment company within the meaning
of
Section 1297 of the Code and neither the Company nor any of its Subsidiaries
is
a shareholder, directly or indirectly, in a passive foreign investment company.
No Subsidiary of the Company that is incorporated in a non-U.S. jurisdiction
is,
or at any time has been, engaged in the conduct of a trade or business within
the United States, or treated as or considered to be so engaged.
(j) Neither
the Company nor any of its Subsidiaries (i) has ever been a party to any Tax
allocation or sharing agreement or Tax indemnification agreement, (ii) has
ever
been a member of an affiliated, consolidated, condensed or unitary group, or
(iii) has any liability for or obligation to pay Taxes of any other Person
under
Treas. Reg. 1.1502-6 (or any similar provision of Tax Law), or as transferee
or
successor, by contract or otherwise. Neither the Company nor any of its
Subsidiaries is a party to any joint venture, partnership, or other arrangement
that is treated as a partnership for federal income tax purposes.
(k) Neither
the Company nor any of its Subsidiaries will be required to include any item
of
income in, or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Effective Time as a result of
any:
(i) intercompany transactions or excess loss accounts described in Treasury
regulations under Section 1502 of the Code (or any similar provision of state,
local, or foreign Tax Law), (ii) installment sale or open transaction
disposition made on or prior to the Effective Time or (iii) prepaid amount
received on or prior to the Effective Time.
(l) The
Company has not entered into any transaction that constitutes a "reportable
transaction" within the meaning of Treasury Regulation Section
1.6011-4(b).
(m) The
Company Disclosure Schedule lists each person who Company reasonably believes
is, with respect to Company or any Affiliate of the Company, a "disqualified
individual" (within the meaning of Section 280G of the Code and the Regulations
thereunder).
(n) Neither
the Company nor, to the Knowledge of Company, any of its Affiliates has taken
or
agreed to take any action (other than actions contemplated by this Agreement)
that would reasonably be expected to prevent the Merger from constituting a
"reorganization" under Section 368 of the Code. The Company is not aware of
any
agreement or plan to which the Company or any of its Affiliates is a party
or
other circumstances relating to the Company or any of its Affiliates that could
reasonably be expected to prevent the Merger from so qualifying as a
"reorganization" under Section 368 of the Code.
19
(o) The
unpaid Taxes of Company (i) did not, as of the Balance Sheet Date and the
Interim Balance Sheet Date, exceed the reserve for Tax liability (rather than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the Balance Sheet or the Interim
Balance Sheet, respectively, (rather than in any notes thereto) and (ii) will
not exceed that reserve as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of Company in filing its
Tax Returns. Since the Balance Sheet Date the Company has not incurred any
liability for Taxes arising from extraordinary gains or losses, as that term
is
used in GAAP, outside the ordinary course of business consistent with past
custom and practice.
3.10 Compliance
with Law.
(a) Each
of
the Company and its Subsidiaries has complied with each, and is not in violation
of, any applicable Law to which the Company or any of its Subsidiaries or its
business, operations, assets or properties is or has been subject.
(b) To
the
Knowledge of the Company, no event has occurred and no circumstances exist
that
(with or without the passage of time or the giving of notice) may result in
a
violation of, conflict with or failure on the part of the Company or any of
its
Subsidiaries to comply with, any Law. Neither the Company nor any of its
Subsidiaries has received notice regarding any such violation of, conflict
with,
or failure to comply with, any Law.
3.11 Authorizations.
(a) Each
of
the Company and its Subsidiaries owns, holds or lawfully uses in the operation
of its business all Authorizations which are necessary for it to conduct its
business as currently conducted or as proposed to be conducted or for the
ownership and use of the assets owned or used by the Company or such Subsidiary
in the conduct of its business free and clear of all Liens. Such Authorizations
are valid and in full force and effect and none of such Authorizations will
be
terminated or impaired or become terminable as a result of the transactions
contemplated by this Agreement. All Authorizations are listed in the Company
Disclosure Schedule.
(b) To
the
best of the Company’s Knowledge, no event has occurred and no circumstances
exist that (with or without the passage of time or the giving of notice) may
result in a violation of, conflict with, failure on the part of the Company
or
any of its Subsidiaries to comply with the terms of, or the revocation,
withdrawal, termination, cancellation, suspension or modification of any
Authorization. Neither the Company nor any of its Subsidiaries has received
notice regarding any violation of, conflict with, failure to comply with the
terms of, or any revocation, withdrawal, termination, cancellation, suspension
or modification of, any Authorization. To the best of the Company’s Knowledge,
neither the Company nor any of its Subsidiaries is in default. Neither the
Company nor any of its Subsidiaries has received notice of any claim of default
with respect to any Authorization.
(c) No
Person
other than the Company or one of its Subsidiaries owns or has any proprietary,
financial or other interest (direct or indirect) in any Authorization which
the
Company or any of its Subsidiaries owns, possesses or uses in the operation
of
its business as now or proposed to be conducted.
20
3.12 Title
to Personal Properties.
(a) The
Company Disclosure Schedule sets forth a complete and accurate list of all
the
personal properties and assets owned, leased or used by the Company or any
of
its Subsidiaries or otherwise used in the businesses of the Company and its
Subsidiaries as of the date of this Agreement, with a current fair market value
in excess of $25,000, specifying whether and by whom each such asset is owned
or
leased and, in the case of leased assets, indicating the parties to, execution
dates of and annual payments under, the lease. The Companies or its Subsidiaries
has good and marketable title to the properties owned by it, free and clear
of
all Liens other than Permitted Liens. "Permitted
Liens"
means
(i) Liens for current personal property taxes; (ii) liens that
are
immaterial in character and amount and which do not interfere with the use
of
such property.
(b) With
respect to personal properties and assets that are leased, the Company or one
of
its Subsidiaries has a valid leasehold interest in such properties and assets
and all such leases are in full force and effect and constitute valid and
binding obligations of the other party(ies) thereto. Neither the Company nor
any
of its Subsidiaries is in violation of any of the terms of any such lease.
3.13 Condition
of Tangible Assets.
All
buildings, plants, leasehold improvements, structures, facilities, equipment
and
other items of tangible property and assets which are owned, leased or used
by
the Company or any of its Subsidiaries are structurally sound, are in good
operating condition and repair (subject to normal wear and tear given the use
and age of such assets), are usable in the regular and ordinary course of
business and conform to all Laws and Authorizations relating to their
construction, use and operation.
3.14 Real
Property.
(a) Neither
the Company nor any of its Subsidiaries maintains any ownership interest in
any
real property. The Disclosure Schedule contains a list of all real property
and
interests in real property leased by the Company or any of its Subsidiaries
(the
"Real
Property").
The
Real Property listed on the Company Disclosure Schedule includes all interests
in real property used in or necessary for the conduct of the businesses and
operations of the Company and its Subsidiaries as currently conducted and as
proposed to be conducted.
(b) No
Governmental Entity having the power of eminent domain over the Real Property
has commenced or, to the Company's Knowledge, intends to exercise the power
of
eminent domain or a similar power with respect to all or any part of the Real
Property. There are no pending or, to the Company's Knowledge, threatened
condemnation, fire, health, safety, building, zoning or other land use
regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
effect the current use, occupancy or value thereof. Neither the Company nor
any
of its Subsidiaries has received notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.
21
(c) The
continued use, occupancy and operation of the Real Property as currently used,
occupied and operated do not constitute a nonconforming use and are not the
subject of a special use permit under any Law.
(d) Each
of
the Company and its Subsidiaries has good and valid rights of ingress and egress
to and from all Real Property from and to the public street systems for all
usual street, road and utility purposes.
3.15 Intellectual
Property.
(a) As
used
in this Agreement, "Intellectual
Property"
means:
(i) inventions (whether or not patentable), trade secrets, technical data,
databases, customer lists, designs, tools, methods, processes, technology,
ideas, know-how, source code, product road maps and other proprietary
information and materials ("Proprietary
Information");
(ii)
trademarks and service marks (whether or not registered), trade names, logos,
trade dress and other proprietary indicia and all goodwill associated therewith;
(iii) documentation, advertising copy, marketing materials, web-sites,
specifications, mask works, drawings, graphics, databases, recordings and other
works of authorship, whether or not protected by Copyright; (iv) computer
programs, including any and all software implementations of algorithms, models
and methodologies, whether in source code or object code, design documents,
flow-charts, user manuals and training materials relating thereto and any
translations thereof (collectively, "Software");
and
(v) all forms of legal rights and protections that may be obtained for, or
may
pertain to, the Intellectual Property set forth in clauses (i) through (iv)
in
any country of the world ("Intellectual
Property Rights"),
including all letters patent, patent applications, provisional patents, design
patents, PCT filings, invention disclosures and other rights to inventions
or
designs ("Patents"),
all
registered and unregistered copyrights in both published and unpublished works
("Copyrights"),
all
trademarks, service marks and other proprietary indicia (whether or not
registered) ("Marks"),
trade
secret rights, mask works, moral rights or other literary property or authors
rights, and all applications, registrations, issuances, divisions,
continuations, renewals, reissuances and extensions of the
foregoing.
(b) The
Company Disclosure Schedule lists (by name, owner and, where applicable,
registration number and jurisdiction of registration, application, certification
or filing) all Intellectual Property that is owned by the Company and/or one
or
more of its Subsidiaries (whether exclusively, jointly with another Person
or
otherwise) ("Company
Owned Intellectual Property");
provided that
the
Company Disclosure Schedule is not required to list items of Company Owned
Intellectual Property which are both (i) immaterial to the Company and its
Subsidiaries and (ii) not registered or the subject of an application for
registration. Except as described in the Company Disclosure Schedule, the
Company or one of its Subsidiaries owns the entire right, title and interest
to
all Company Owned Intellectual Property free and clear of all
Liens.
22
(c) The
Company Disclosure Schedule lists all licenses, sublicenses and other Contracts
("In-Bound
Licenses")
pursuant to which a third party authorizes the Company or any of its
Subsidiaries to use, practice any rights under, or grant sublicenses with
respect to, any Intellectual Property owned by such third party, including
the
incorporation of any such Intellectual Property into the Company's or any of
its
Subsidiaries' products and, with respect to each In-Bound License, whether
the
In-Bound License is exclusive or non-exclusive.
(d) The
Company Disclosure Schedule lists all licenses, sublicenses and other Contracts
("Out-Bound
Licenses")
pursuant to which the Company or any of its Subsidiaries authorizes a third
party to use, practice any rights under, or grant sublicenses with respect
to,
any Company Owned Intellectual Property or pursuant to which the Company or
any
of its Subsidiaries grants rights to use or practice any rights under any
Intellectual Property owned by a third party and, with respect to each Out-Bound
License, whether the Out-Bound License is exclusive or
non-exclusive.
(e) Except
as
set forth in the Company Disclosure Schedule, the Company and/or one or more
of
its Subsidiaries (i) exclusively owns the entire right, interest and title
to
all Intellectual Property that is used in or necessary for the businesses of
the
Company and its Subsidiaries as they are currently conducted or proposed to
be
conducted free and clear of Liens (including the design, manufacture, license
and sale of all products currently under development or in production), or
(ii)
otherwise rightfully use or otherwise enjoy such Intellectual Property pursuant
to the terms of a valid and enforceable In-Bound License that is listed in
the
Company Disclosure Schedule. The Company Owned Intellectual Property, together
with the Company's and its Subsidiaries' rights under the In-Bound Licenses
listed in the Company Disclosure Schedule (collectively, the "Company
Intellectual Property"),
constitutes all the Intellectual Property used in or necessary for the operation
of the Company's and its Subsidiaries' businesses as they are currently
conducted, and much of the Intellectual Property used in or necessary for the
operation of the Company’s and its Subsidiaries’ businesses as they are proposed
to be conducted.
(f) All
registration, maintenance and renewal fees related to Patents, Marks, Copyrights
and any other certifications, filings or registrations that are owned by the
Company or any of its Subsidiaries ("Company
Registered Items")
that
are currently due have been paid and all documents and certificates related
to
such Company Registered Items have been filed with the relevant Governmental
Entity or other authorities in the United States or foreign jurisdictions,
as
the case may be, for the purposes of maintaining such Company Registered Items.
All Company Registered Items are in good standing, held in compliance with
all
applicable legal requirements and enforceable by the Company and/or one or
more
of its Subsidiaries. All Patents that have been issued to the Company or any
of
its Subsidiaries are valid.
23
(g) The
Company is not aware of any challenges (or any basis therefor) with respect
to
the validity or enforceability of any Company Intellectual Property. The Company
Disclosure Schedule lists the status of any Actions before the United States
Patent and Trademark Office or any other Governmental Entity anywhere in the
world related to any of the Company Intellectual Property, including the due
date for any outstanding response by the Company or any of its Subsidiaries
in
such Actions. Neither the Company nor any of its Subsidiaries has taken any
action or failed to take any action that could reasonably be expected to result
in the abandonment, cancellation, forfeiture, relinquishment, invalidation,
waiver or unenforceability of any Company Intellectual Property. The Company
Disclosure Schedule lists all previously held Company Registered Items that
the
Company or any of its Subsidiaries has abandoned, cancelled, forfeited or
relinquished during the 12 months prior to the date of this
Agreement.
(h) To
the
best Knowledge of the Company, none of the products or services currently or
formerly developed manufactured, sold, distributed, provided, shipped or
licensed, by the Company or any of its Subsidiaries, or which are currently
under development, has infringed or infringes upon, or otherwise unlawfully
used
or uses, the Intellectual Property Rights of any third party. To the best
Knowledge of the Company, neither the Company nor any of its Subsidiaries,
by
conducting its business as currently conducted or as proposed to be conducted,
has infringed or infringes upon, or otherwise unlawfully used or uses, any
Intellectual Property Rights of a third party. Neither the Company nor any
of
its Subsidiaries has received any communication alleging that the Company or
any
of its Subsidiaries or any of their respective products, services, activities
or
operations infringe upon or otherwise unlawfully use any Intellectual Property
Rights of a third party nor, to the Company's Knowledge, is there any basis
therefor. No Action has been instituted, or, to the Company's Knowledge,
threatened, relating to any Intellectual Property formerly or currently used
by
the Company or any of its Subsidiaries and none of the Company Intellectual
Property is subject to any outstanding Order. To the Company's Knowledge, no
Person has infringed or is infringing any Intellectual Property Rights of the
Company or any of its Subsidiaries or has otherwise misappropriated or is
otherwise misappropriating any Company Intellectual Property.
(i) With
respect to the Company's or any of its Subsidiaries' Proprietary Information,
the documentation relating thereto is current, accurate and sufficient in detail
and content to identify and explain it and to allow its full and proper use
without reliance on the special knowledge or memory of others. The Company
and
its Subsidiaries have taken commercially reasonable steps to protect and
preserve the confidentiality of all Proprietary Information owned by the Company
or any of its Subsidiaries that is not covered by an issued Patent. Without
limiting the generality of the foregoing, the Proprietary Information of the
Company and its Subsidiaries (other than Proprietary Information that is covered
by an issued Patent) is not part of the public knowledge and has not been used
or divulged for the benefit of any Person other than the Company and its
Subsidiaries. Any receipt or use by, or disclosure to, a third party of
Proprietary Information owned by the Company or any of its Subsidiaries has
been
pursuant to the terms of binding written confidentiality agreement between
the
Company or such Subsidiary and such third party ("Nondisclosure
Agreements").
True
and complete copies of the Nondisclosure Agreements, and any amendments thereto,
have been provided to Parent. To the Company’s Knowledge, the Company and its
Subsidiaries are, and all other parties thereto are, in compliance with the
provisions of the Nondisclosure Agreements. The Company and its Subsidiaries
are
in compliance with the terms of all Contracts pursuant to which a third party
has disclosed to, or authorized the Company or any of its Subsidiaries to use,
Proprietary Information owned by such third party.
24
(j) All
current and former employees, consultants and contractors of the Company and
its
Subsidiaries have executed and delivered, and are in compliance with,
enforceable agreements regarding the protection of Proprietary Information
and
providing valid written assignments of all Intellectual Property conceived
or
developed by such employees, consultants or contractors in connection with
their
services for the Company and its Subsidiaries ("Work
Product Agreements").
True
and complete copies of the Work Product Agreements have been provided to Parent.
No current or former employee, consultant or contractor or any other Person
has
any right, claim or interest to any of the Company Intellectual Property, other
than any right, claim or interest expressly reserved in non-exclusive license
agreements with the Company (which rights, claims or interests are listed in
Section 3.15(i) of the Company Disclosure Schedule).
(k) To
the
best Knowledge of the Company, no employee, consultant or contractor of the
Company or any of its Subsidiaries has been, is or will be, by performing
services for the Company or such Subsidiary, in violation of any term of any
employment, invention disclosure or assignment, confidentiality, noncompetition
agreement or other restrictive covenant or any Order as a result of such
employee's, consultant's or independent contractor's employment by the Company
or any Subsidiary or any services rendered by such employee, consultant or
independent contractor.
(l) All
Intellectual Property that has been distributed, sold or licensed to a third
party by the Company or any of its Subsidiaries that is covered by a warranty
conformed to or conforms to, and performed or performs in accordance with,
the
representations and warranties provided with respect to such Intellectual
Property by or on behalf of the Company or such Subsidiary for the time period
during which such representations and warranties apply. True and complete copies
have been provided to Parent of all Contracts pursuant to which the Company
or
any of its Subsidiaries has agreed to indemnify a third party in connection
with
any Intellectual Property that has been distributed, sold or licensed by the
Company or any of its Subsidiaries.
(m) The
execution and delivery of this Agreement by the Company does not, and the
consummation of the Merger (in each case, with or without the giving of notice
or lapse of time, or both), will not, directly or indirectly, result in the
loss
or impairment of, or give rise to any right of any third party to terminate
or
reprice or otherwise renegotiate any of the Company's or any of its
Subsidiaries' rights to own any of its Intellectual Property or their respective
rights under any Out-Bound License or In-Bound License, nor require the consent
of any Governmental Entity or other third party in respect of any such
Intellectual Property.
25
(n) Software.
(i) The
Software owned, or purported to be owned by the Company or any of its
Subsidiaries (collectively, the "Company
Owned Software,"
was
either (A) developed by employees of the Company or one or more of its
Subsidiaries within the scope of their employment by the Company or such
Subsidiary, (B) developed by independent contractors who have assigned
all
of their right, title and interest therein to the Company or one of its
Subsidiaries pursuant to written agreements, except as expressly reserved in
the
license agreements listed in Section 3.15(n) of the Company Disclosure Schedule,
or (C) otherwise acquired by the Company or one of its Subsidiaries
from a
third party pursuant to a written agreement in which such third party assigns
all of its right, title and interest therein. None of the Company Owned Software
contains any programming code, documentation or other materials or development
environments that embody Intellectual Property Rights of any person other than
the Company and its Subsidiaries, other than such materials obtained by the
Company and its Subsidiaries from other Persons who make such materials
generally available to all interested purchasers or end-users on standard
commercial terms.
(ii) Each
of
the Company's and its Subsidiaries' existing and currently supported and
marketed Software products performs, in all material respects, the functions
described in any agreed specifications or end-user documentation or other
information provided to customers of the Company or such Subsidiary on which
such customers relied when licensing or otherwise acquiring such products,
subject only to routine bugs and errors that can be corrected promptly by the
Company or such Subsidiary in the course of providing customer support without
further liability to the Company or such Subsidiary, and all of the code of
such
products has been developed in a manner that meets common industry practice,
including the use of regression test and release procedures. To Seller's
Knowledge, each of the Company's and its Subsidiaries' existing and currently
supported and marketed Software products is free of all viruses, worms, trojan
horses and material known contaminants and does not contain any bugs, errors,
or
problems that would substantially disrupt its operation or have a substantial
adverse impact on the operation of the Software.
(iii) Neither
the Company nor any of its Subsidiaries has exported or transmitted Software
or
other material in connection with the Company's or such Subsidiaries' business
to any country to which such export or transmission is restricted by any
applicable Law, without first having obtained all necessary and appropriate
Authorizations.
(iv) Neither
the Company nor any of its Subsidiaries has exported or transmitted Software
or
other material in connection with the Company's or such Subsidiaries' business
to any country to which such export or transmission is restricted by any
applicable Law, without first having obtained all necessary and appropriate
Authorizations.
26
(v) The
Company Owned Software is free of any disabling codes or instructions (a
"Disabling
Code"),
and
any virus or other intentionally created, undocumented contaminant (a
"Contaminant"),
that
may, or may be used to, access, modify, delete, damage or disable any Systems
or
that may result in damage thereto. The Company and its Subsidiaries have taken
reasonable steps and implemented reasonable procedures to ensure that its and
their internal computer systems used in connection with the Company's and its
Subsidiaries' business are free from Disabling Codes and Contaminants. The
Software licensed by the Company is free of any Disabling Codes or Contaminants
that may, or may be used to, access, modify, delete, damage or disable any
of
the hardware, software, databases or embedded control systems of the Company
or
its Subsidiaries ("Systems")
or
that might result in damage thereto. The Company and its Subsidiaries have
taken
all reasonable steps to safeguard their respective Systems and restrict
unauthorized access thereto.
(vi) No
Public
Software: (A) forms part of any Company Intellectual Property; (B) was, or
is,
used in connection with the development of any Company Owned Intellectual
Property or any products or services developed or provided by the Company or
any
of its Subsidiaries; or (C) was, or is, incorporated or distributed, in whole
or
in part, in conjunction with Company Intellectual Property. "Public
Software"
means
any software that contains, or is derived in any manner (in whole or in part)
from, any software that is distributed as free software, open source software
or
similar licensing or distribution models, including software licensed or
distributed under any of the following licenses or distribution models, or
licenses or distribution models similar to any of the following: (i) GNU's
General Public License or Lesser/Library GPL; (ii) Mozilla Public License;
(iii)
Netscape Public License; (iv) Sun Community Source/ Industry Standard License;
(v) BSD License; and (vi) Apache License.
3.16 Absence
of Certain Changes or Events.
Since
the Balance Sheet Date to the date of this Agreement (with respect to the
representation and warranty made as of the date of this Agreement) and to the
Closing Date (with respect to the representation and warranty made as of the
Closing Date):
(a) there
has
not been any material adverse change in the business, financial condition,
operations, prospects or results of operations of the Company and its
Subsidiaries taken as a whole;
(b) neither
the Company nor any of its Subsidiaries has amended or otherwise modified its
Charter Documents;
(c) neither
the Company nor any of its Subsidiaries has declared, set aside or paid any
dividend or other distribution (whether in cash, stock or property) with respect
to any of its securities;
(d) neither
the Company nor any of its Subsidiaries has split, combined or reclassified
any
of its securities, or issued, or authorized for issuance, any securities other
than the grant of Company Stock Options and the issuance of shares of Company
Common Stock upon exercise of Company Stock Options, in each case, in the
ordinary course of business consistent with past practice;
27
(e) neither
the Company nor any of its Subsidiaries has altered any term of any outstanding
securities;
(f) neither
the Company nor any of its Subsidiaries has (i) increased or modified the
compensation or benefits payable or to become payable to any of their respective
current or former directors, employees, contractors or consultants, (ii)
increased or modified any bonus, severance, termination, pension, insurance
or
other employee benefit plan, payment or arrangement made to, for or with any
of
its current or former directors, employees, contractors or consultants or (iii)
entered into any employment, severance or termination agreement;
(g) neither
the Company nor any of its Subsidiaries has sold, leased, transferred or
assigned any property or assets of the Company or any of its Subsidiaries,
except for the sale of inventory and the grant of Out-Bound Licenses on a
non-exclusive basis, in each case in the ordinary course of business consistent
with past practice;
(h) neither
the Company nor any of its Subsidiaries has incurred, assumed or guaranteed
any
Indebtedness, or modified the terms of any Indebtedness outstanding as of the
Balance Sheet Date;
(i) neither
the Company nor any of its Subsidiaries has incurred any material Liability
or
created or assumed any Lien on any asset, except for Permitted Liens, Liens
arising under lease financing arrangements existing as of the Balance Sheet
Date
and Liens for taxes not yet due and payable with respect to which the Company
maintains adequate reserves;
(j) neither
the Company nor any of its Subsidiaries has made any loan, advance or capital
contribution to, or investment in, any Person other than travel loans or
advances in the ordinary course of business consistent with past practice;
(k) neither
the Company nor any of its Subsidiaries has entered into any Material
Contract;
(l) (i)
no
Material Contract has been modified, (ii) no rights under any Material Contract
have been waived or accelerated and (iii) no Contract that would be required
to
be listed as a Material Contract pursuant to Section 3.18 hereof if such
Contract were in effect on the date hereof has been terminated or
cancelled;
(m) neither
the Company nor any of its Subsidiaries has sold, transferred, pledged or
assigned, and there has been no material reduction in the value of, any Company
Intellectual Property;
(n) there
has
not been any labor dispute, other than individual grievances, or any activity
or
proceeding by a labor union or representative thereof to organize any employees
of the Company or any of its Subsidiaries;
28
(o) there
has
not been any violation of or conflict with any Law to which the business,
operations, assets or properties of the Company or any of its Subsidiaries
are
subject;
(p) neither
the Company nor any of its Subsidiaries has agreed or entered into any
arrangement to take any action which, if taken prior to the date hereof, would
have made any representation or warranty set forth in this Article III untrue
or
incorrect as of the date when made;
(q) there
has
not been any material damage, destruction or loss with respect to the property
and assets of the Company or any of its Subsidiaries, whether or not covered
by
insurance;
(r) neither
the Company nor any of its Subsidiaries has made any change in accounting
practices;
(s) neither
the Company nor any of its Subsidiaries has made any Tax election, changed
its
method of Tax accounting or settled any claim for Taxes; or
(t) neither
the Company nor any of its Subsidiaries has agreed, whether in writing or
otherwise, to do any of the foregoing.
3.17 Contracts.
(a) The
Company Disclosure Schedule contains a complete and accurate list of each
Contract or series of related Contracts to which the Company or any of its
Subsidiaries is a party or is subject, or by which any of their respective
assets are bound:
(i) for
the
purchase of materials, supplies, goods, services, equipment or other assets
and
that involves or would reasonably be expected to involve (A) annual payments
by
the Company or any of its Subsidiaries of $15,000 or more, or (B) aggregate
payments by the Company or any of its Subsidiaries of $25,000 or
more;
(ii) (A)
for
the sale by the Company or any of its Subsidiaries of materials, supplies,
goods, services, equipment or other assets, and that involves (1) a specified
annual minimum dollar sales amount by the Company or any of its Subsidiaries
of
$15,000 or more, or (2) aggregate payments to the Company or any of its
Subsidiaries of $25,000 or more, or (B) pursuant to which the Company or any
of
its Subsidiaries received payments of more than $15,000 in the year ended
December 31, 2004 or expects to receive payments of more than $15,000 in the
year ending December 31, 2005;
(iii) that
requires the Company or any of its Subsidiaries to purchase its total
requirements of any product or service from a third party or that contains
"take
or
pay" provisions;
(iv) pursuant
to which (A) the Company or any of its Subsidiaries purchases components for
inclusion into its products other than components purchased solely on a purchase
order basis or (B) pursuant to which a third party manufactures or assembles
products on behalf of the Company or any of its Subsidiaries;
29
(v) that
continues over a period of more than six months from the date hereof and
involves payments to or by the Company or any of its Subsidiaries exceeding
$25,000, other than arrangements disclosed pursuant to the preceding
subparagraphs (i) and (ii);
(vi) that
is
an employment, consulting, termination or severance Contract, other than any
such Contract that is terminable at-will by the Company or any of its
Subsidiaries without liability to the Company or such Subsidiary;
(vii) that
is a
partnership, joint venture or similar Contract;
(viii) that
is a
distribution, dealer, representative or sales agency Contract;
(ix) that
is a
(A) lease or (B) Contract for the lease of personal property, in either case
which provides for payments to or by the Company or any of its Subsidiaries
in
any one case of $15,000 or more annually or $25,000 or more over the term of
the
lease;
(x) which
provides for the indemnification by the Company or any of its Subsidiaries
of
any Person, the undertaking by the Company or any of its Subsidiaries to be
responsible for consequential damages, or the assumption by the Company or
any
of its Subsidiaries of any Tax, environmental or other Liability;
(xi) with
any
Governmental Entity;
(xii) that
is a
note, debenture, bond, equipment trust, letter of credit, loan or other Contract
for Indebtedness or lending of money (other than to employees for travel
expenses in the ordinary course of business) or Contract for a line of credit
or
guarantee, pledge or undertaking of the Indebtedness of any other
Person;
(xiii) for
a
charitable or political contribution in any one case in excess of $15,000 or
any
such Contracts in the aggregate greater than $25,000;
(xiv) for
any
capital expenditure or leasehold improvement in any one case in excess of
$15,000 or any such Contracts in the aggregate greater than
$25,000;
(xv) that
restricts or purports to restrict the right of the Company or any of its
Subsidiaries to engage in any line of business, acquire any property, develop
or
distribute any product or provide any service (including geographic
restrictions) or to compete with any Person or granting any exclusive
distribution rights, in any market, field or territory;
(xvi) that
is
an In-Bound License or Out-Bound License;
30
(xvii) that
relates to the acquisition or disposition of any material business (whether
by
merger, sale of stock, sale of assets or otherwise); and
(xviii) that
is a
collective bargaining Contract or other Contract with any labor organization,
union or association; and
(xix) that
is
otherwise material to the Company and its Subsidiaries as a whole and not
previously disclosed pursuant to this Section 3.18.
(b) Each
Contract required to be listed in Section 3.18 of the Company Disclosure
Schedule (collectively, the “Material
Contracts”)
is in
full force and effect and valid and enforceable in accordance with its
terms.
(c) Neither
the Company nor any of its Subsidiaries is, and to the Company’s Knowledge, no
other party thereto is, in default in the performance, observance or fulfillment
of any obligation, covenant, condition or other term contained in any Material
Contract, and neither the Company nor any of its Subsidiaries has given or
received notice to or from any Person relating to any such alleged or potential
default that has not been cured. No event has occurred which with or without
the
giving of notice or lapse of time, or both, may conflict with or result in
a
violation or breach of,
or
give any Person the right to exercise any remedy under or accelerate the
maturity or performance of, or cancel, terminate or modify, any Material
Contract.
(d) The
Company has provided accurate and complete copies of each Material Contract
to
Parent.
(e) All
Contracts other than Material Contracts to which the Company or any of its
Subsidiaries is a party or is subject, or by which any of their respective
assets are bound (collectively, the “Minor
Contracts”),
are
in all material respects valid and enforceable in accordance with their terms.
Neither the Company nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any obligation, covenant or condition
contained therein, and no event has occurred which with or without the giving
of
notice or lapse of time, or both, would constitute a default thereunder by
the
Company or any of its Subsidiaries, except in either case where any such default
or defaults could not reasonably be expected have, individually or in the
aggregate, a material adverse effect on the Company and its Subsidiaries taken
as a whole.
3.18 Litigation.
(a) There
is
no action, suit or proceeding, claim, arbitration, litigation or investigation
(each, an “Action”)
pending or, to the Company’s Knowledge, threatened (i) against or affecting the
Company or any of its Subsidiaries or (ii) that challenges or seeks to prevent,
enjoin or otherwise delay the Merger. No event has occurred or circumstances
exist that may give rise or serve as a basis for any such Action. There is
no
Action against any current or, to the Company’s Knowledge, former director or
employee of the Company or any of its Subsidiaries with respect to which the
Company or any of its Subsidiaries has or is reasonably likely to have an
indemnification obligation.
31
(b) There
is
no unsatisfied judgment, penalty or award against or affecting the Company
or
any of its Subsidiaries or any of their respective properties or assets. There
is no Order to which the Company or any of its Subsidiaries or any of their
respective properties or assets are subject.
3.19 Employee
Benefits.
(a) The
Company Disclosure Schedule sets forth a complete and accurate list of all
Company Benefit Plans. A current, accurate and complete copy of each Company
Benefit Plan has been provided to Parent. “Company
Benefit Plan”
means
any “employee
benefit plan” as defined in Section 3 (3) of the Employee Retirement Income
Security Act of 1974 (“ERISA”),
including any (a) nonqualified deferred compensation or retirement plan or
arrangement which is an Employee Pension Benefit Plan (as defined in ERISA
Section 3(2)), (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan (as defined in ERISA Section 3(37)), (d)
Employee Welfare Benefit Plan (as defined in ERISA Section 3(1)) or material
fringe benefit plan or program, or (e) stock purchase, stock option, severance
pay, employment, change-in-control, vacation pay, company awards, salary
continuation, sick leave, excess benefit, bonus or other incentive compensation,
life insurance, or other employee benefit plan, contract, program, policy or
other arrangement, whether or not subject to ERISA, in each case which is
sponsored, maintained or contributed to by the Company, any of its Subsidiaries
or any ERISA Affiliate, or with respect to which the Company, any of its
Subsidiaries or any ERISA Affiliate otherwise has any present or future
Liability. “ERISA
Affiliate”
means
any entity which is a member of a “controlled group of corporations” with, under
“common control” with or a member of an “affiliated services group” with, the
Company or any of its Subsidiaries, as defined in Section 414(b), (c), (m)
or
(o) of the Code.
(b) Each
Company Benefit Plan has been and is currently administered in compliance with
its constituent documents and with all reporting, disclosure and other
requirements of ERISA and the Code applicable to such Company Benefit Plan.
Each
Company Benefit Plan that is an Employee Pension Benefit Plan (as defined in
Section 3(2) of ERISA) and which is intended to be qualified under Section
401(a) of the Code (a “Pension
Plan”),
has
been determined by the Internal Revenue Service to be so qualified and no
condition exists that would adversely affect any such determination. No Company
Benefit Plan is a “defined benefit plan” as defined in Section 3(35) of
ERISA.
(c) None
of
the Company, any Subsidiary of the Company, any ERISA Affiliate or any trustee
or agent of any Company Benefit Plan has been or is currently engaged in any
prohibited transactions as defined by Section 406 of ERISA or Section 4975
of
the Code for which an exemption is not applicable which could subject Company,
any Subsidiary of the Company, any ERISA Affiliate or any trustee or agent
of
any Company Benefit Plan to the tax or penalty imposed by Section 4975 of the
Code or Section 502 of ERISA.
32
(d) There
is
no event or condition existing which could be deemed a “reportable event”
(within the meaning of Section 4043 of ERISA) with respect to which the 30-day
notice requirement has not been waived. To the Company’s Knowledge, no condition
exists which could subject the Company or any of its Subsidiaries to a penalty
under Section 4071 of ERISA.
(e) None
of
the Company, any Subsidiary of the Company or any ERISA Affiliate is, or has
been, party to any “multi-employer plan,” as that term is defined in Section
3(37) of ERISA.
(f) True
and
correct copies of the most recent annual report on Form 5500 and any attached
schedules for each Company Benefit Plan (if any such report was required by
applicable Law) and a true and correct copy of the most recent determination
letter issued by the Internal Revenue Service for each Pension Plan have been
provided to Parent.
(g) With
respect to each Company Benefit Plan, there are no actions, suits or claims
(other than routine claims for benefits in the ordinary course) pending or,
to
the Company’s Knowledge, threatened against any Company Benefit Plan, the
Company, any Subsidiary of the Company, any ERISA Affiliate or any trustee
or
agent of any Company Benefit Plan.
(h) With
respect to each Company Benefit Plan to which the Company, any Subsidiary of
the
Company or any ERISA Affiliate is a party which constitutes a group health
plan
subject to Section 4980B of the Code, each such Company Benefit Plan complies,
and in each case has complied, with all applicable requirements of Section
4980B
of the Code.
(i) Full
payment has been made of all amounts which the Company, any Subsidiary of the
Company or any ERISA Affiliate was required to have paid as a contribution
to
any Company Benefit Plan as of the last day of the most recent fiscal year
of
each of the Benefit Plans ended prior to the date of this Agreement, and none
of
the Company Benefit Plans has incurred any “accumulated funding deficiency” (as
defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, as of the last day of the most recent fiscal year of each such Company
Benefit Plan ended prior to the date of this Agreement.
(j) Each
Company Benefit Plan is, and its administration is and has been during the
six-year period preceding the date of this Agreement, in compliance with, and
none of Company, any Subsidiary of the Company or any ERISA Affiliate has
received any claim or notice that any such Company Benefit Plan is not in
compliance with, all applicable Laws and Orders and prohibited transaction
exemptions, including to the extent applicable, the requirements of
ERISA.
(k) None
of
the Company, any Subsidiary of the Company and any ERISA Affiliate is in default
in performing any of its contractual obligations under any of the Company
Benefit Plans or any related trust agreement or insurance contract.
33
(l) There
are
no material outstanding Liabilities of any Company Benefit Plan other than
Liabilities for benefits to be paid to participants in any Company Benefit
Plan
and their beneficiaries in accordance with the terms of such Company Benefit
Plan.
(m) Subject
to ERISA and the Code, each Company Benefit Plan may be amended, modified,
terminated or otherwise discontinued by the Company, a Subsidiary of the Company
or an ERISA Affiliate at any time without liability.
(n) No
Company Benefit Plan other than a Pension Plan, retiree medical plan or
severance plan provides benefits to any individual after termination of
employment.
(o) The
consummation of the Merger will not (either alone or in conjunction with any
other event) (i) entitle any current or former director, employee, contractor
or
consultant of the Company or any of its Subsidiaries to severance pay,
unemployment compensation or any other payment, (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due to any such
director, employee, contractor or consultant, or result in the payment of any
other benefits to any Person or the forgiveness of any Indebtedness of any
Person, (iii) result in any prohibited transaction described in Section 406
of
ERISA or Section 4975 of the Code for which an exemption is not available,
or
(iv) result in the payment or series of payments by any Company or any of its
Affiliates to any person of an “excess parachute payment” within the meaning of
Section 280G of the Code.
(p) With
respect to each Company Benefit Plan that is funded wholly or partially through
an insurance policy, all premiums required to have been paid to date under
the
insurance policy have been paid, all premiums required to be paid under the
insurance policy through the Closing will have been paid on or before the
Closing and, as of the Closing, there will be no liability of the Company,
any
Subsidiary of the Company or any ERISA Affiliate under any insurance policy
or
ancillary agreement with respect to such insurance policy in the nature of
a
retroactive rate adjustment, loss sharing arrangement or other actual or
contingent liability arising wholly or partially out of events occurring prior
to the Closing.
3.20 Labor
and Employment Matters.
(a) The
Company Disclosure Schedule sets forth (i) (A) a list of all directors,
employees, contractors and consultants of the Company and its Subsidiaries
(including title and position) as of the date hereof, and (B) the base
compensation and benefits of each such director, employee, contractor and
consultant, and (ii) a list of all former directors, employees, contractors
and
consultants of the Company and each of its Subsidiaries who are receiving
benefits or scheduled to receive benefits in the future, and the pension
benefit, medical insurance coverage and other benefits of each such director,
employee, contractor and consultant. All directors, employees, contractors
and
consultants of the Company and its Subsidiaries may be terminated by the Company
or the relevant Subsidiary at any time with or without cause and without any
severance or other Liability to the Company or such Subsidiary. The individuals
listed in Section 3.20(a) of the Company Disclosure Schedule have been properly
characterized as independent contractors using the applicable rules and
regulations of the Internal Revenue Service.
34
(b) Neither
the Company nor any of its Subsidiaries is a party or subject to any labor
union
or collective bargaining Contract. There have not been since the date of
incorporation of the Company and there are not pending or threatened any labor
disputes, work stoppages, requests for representation, pickets, work slow-downs
due to labor disagreements or any actions or arbitrations which involve the
labor or employment relations of the Company or any of its Subsidiaries. There
is no unfair labor practice, charge or complaint pending, unresolved or, to
the
Company’s Knowledge, threatened before the National Labor Relations Board. No
event has occurred or circumstance exist that may provide the basis of any
work
stoppage or other labor dispute.
(c) Each
of
the Company and its Subsidiaries has complied with each, and is not in violation
of any, Law relating to anti-discrimination and equal employment opportunities
and there are, and have been, no violations of any other Law respecting the
hiring, hours, wages, occupational safety and health, employment, promotion,
termination or benefits of any employee or other Person. Each of the Company
and
its Subsidiaries has filed all reports, information and notices required under
any Law respecting the hiring, hours, wages, occupational safety and health,
employment, promotion, termination or benefits of any employee or other Person,
and will timely file prior to Closing all such reports, information and notices
required by any Law to be given prior to Closing.
(d) Each
of
the Company and its Subsidiaries has paid or properly accrued in the ordinary
course of business all wages and compensation due to employees, including all
vacations or vacation pay, holidays or holiday pay, sick days or sick pay,
and
bonuses.
(e) Each
of
the Company and its Subsidiaries has complied and is in compliance with the
requirements of the Immigration Reform and Control Act of 1986. The Company
Disclosure Schedule sets forth a true and complete list of all employees working
in the United States who are not U.S. citizens and a description of the legal
status under which each such employee is permitted to work in the United States.
All employees of the Company and its Subsidiaries who are performing services
for the Company or any of its Subsidiaries in the United States are legally
able
to work in the United States and will be able to continue to work in the United
States following the Merger.
3.21 Environmental.
(a) As
used
in this Agreement, the following words and terms have the following
definitions:
(i) “Environment”
means
all air, surface water, groundwater, land, including land surface or subsurface,
including all fish, wildlife, biota and all other natural
resources.
35
(ii) “Environmental
Action”
means
any claim, proceeding or other Action brought or threatened under any
Environmental Law or otherwise asserting that the Company or any of its
Subsidiaries has incurred any Environmental Liability.
(iii) “Environmental
Clean-up Site”
means
any location which is listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System, or on
any
similar state or foreign list of sites requiring investigation or cleanup,
or
which is the subject of any pending or threatened Action related to or arising
from any alleged violation of any Environmental Law, or at which there has
been
a threatened or actual Release of a Hazardous Substance.
(iv) “Environmental
Laws”
means
any and all applicable Laws and Authorizations issued, promulgated or entered
into by any Governmental Entity relating to the Environment, worker health
and
safety, preservation or reclamation of natural resources, or to the management,
handling, use, generation, treatment, storage, transportation, disposal,
manufacture, distribution, formulation, packaging, labeling, Release or
threatened Release of or exposure to Hazardous Substances, whether now existing
or subsequently amended or enacted, including but not limited to: the
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
Section 9601 et seq. (“CERCLA”);
the
Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Clean
Air Act, 42 U.S.C. Section 7401 et seq.; the Toxic Substances Control Act,
15
U.S.C. Section 2601 et seq.; the Occupational Safety and Health Act, 29 U.S.C.
Section 651 et seq.; the Emergency Planning and Community Right-to-Know Act
of
1986, 42 U.S.C. Section 11001 et seq.; the Safe Drinking Water Act, 42 U.S.C.
Section 300(f) et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act
7
U.S.C. Section 136 et seq.; the Resource Conservation and Recovery Act of 1976
(“RCRA”),
42
U.S.C. Section 6901 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section
2601 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.;
and
any similar or implementing state or local Law, and any non-U.S. Laws and
regulations of similar import, and all amendments or regulations promulgated
thereunder; and any common law doctrine, including but not limited to,
negligence, nuisance, trespass, personal injury, or property damage related
to
or arising out of the presence, Release, or exposure to Hazardous
Substances.
(v) “Environmental
Liabilities”
means
Liabilities based upon or arising out of (A) the ownership or operation of
the
business of the Company or any of its Subsidiaries or (B) the ownership,
operation or condition of the Real Property or any other real property currently
or formerly owned, operated or leased by the Company or any of its Subsidiaries,
in each case to the extent based upon or arising out of (i) Environmental Law,
(ii) a failure to obtain, maintain or comply with any Environmental Permit,
(iii) a Release of any Hazardous Substance or (iv) the use, generation, storage,
transportation, treatment, sale or other off-site disposal of Hazardous
Substances.
36
(vi) “Environmental
Permit”
means
any Authorization under Environmental Law, and includes any and all Orders
issued or entered into by a Governmental Entity under Environmental
Law.
(vii) “Hazardous
Substances”
means
all explosive or regulated radioactive materials or substances, hazardous or
toxic materials, wastes or chemicals, petroleum and petroleum products
(including crude oil or any fraction thereof), asbestos or asbestos containing
materials, and all other materials, chemicals or substances which are regulated
by, form the basis of liability or are defined as hazardous, extremely
hazardous, toxic or words of similar import, under any Environmental Law,
including materials listed in 49 C.F.R. Section 172.101 and materials defined
as
hazardous pursuant to Section 101(14) of CERCLA.
(viii) “Release”
means
any spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping, or disposing of Hazardous Substances
into the Environment.
(b) There
are
no past, pending or, to the Company’s Knowledge, threatened Environmental
Actions against or affecting the Company or any of its Subsidiaries, and the
Company is not aware of any facts or circumstances which could be expected
to
form the basis for any Environmental Action against the Company or any of its
Subsidiaries.
(c) Neither
the Company nor any of its Subsidiaries has entered into or agreed to any Order,
and neither the Company nor any of its Subsidiaries is subject to any Order,
relating to compliance with any Environmental Law or to investigation or cleanup
of a Hazardous Substance under any Environmental Law.
(d) There
has
been no treatment, storage, disposal or Release of any Hazardous Substance
at,
from, into, on or under any Real Property or any other property currently or
formerly operated or leased by the Company or any of its
Subsidiaries.
(e) Neither
the Company nor any of its Subsidiaries has received a CERCLA 104(e) information
request nor has the Company or any of its Subsidiaries been named a potentially
responsible party for any National Priorities List site under CERCLA or any
site
under analogous state Law. Neither the Company nor any of its Subsidiaries
has
received an analogous notice or request from any non-U.S. Governmental
Entity.
(f) Neither
the Company nor any of its Subsidiaries has transported or arranged for the
treatment, storage, handling, disposal, or transportation of any Hazardous
Material to any off-site location which is an Environmental Clean-up
Site.
(g) None
of
the Real Property is an Environmental Clean-up Site.
37
(h) The
Company has provided to Parent true and complete copies of, or access to, all
written environmental assessment materials and reports that have been prepared
by or on behalf of the Company or any of its Subsidiaries.
3.22 Related
Party Transactions.
There
are no Contracts of any kind, written or oral, entered into by the Company
or
any of its Subsidiaries with, or for the benefit of, any
officer, director or stockholder of the Company or, to the Knowledge of the
Company, any Affiliate of any of them, except in each case, for
(a)
employment agreements, fringe benefits and other compensation paid to directors,
officers and employees consistent with previously established policies
(including normal merit increases in such compensation in the ordinary course
of
business) and copies of which have been provided to Parent and are listed on
the
Company Disclosure Schedule, (b) reimbursements of ordinary and necessary
expenses incurred in connection with their employment or service, and (c)
amounts paid pursuant to Company Benefit Plans of which copies have been
provided to Parent. To the Knowledge of the Company, none of such Persons has
any material direct or indirect ownership interest in any firm or corporation
with which the Company or any of its Subsidiaries has a business relationship,
or with any firm or corporation that competes with the Company or any of its
Subsidiaries (other than ownership of securities in a publicly traded company
representing less than one percent of the outstanding stock of such company).
No
officer or director of the Company or any of its Subsidiaries or member of
his
or her immediate family or greater than 5% stockholder of the Company or, to
the
Knowledge of the Company, any Affiliate of any of them or any employee of the
Company or any of its Subsidiaries is directly or indirectly interested in
any
Material Contract.
3.23 Insurance.
(a) The
Company Disclosure Schedule sets forth (i) an accurate and complete list of
each
insurance policy, binder of insurance and fidelity bond which covers the Company
or any of its Subsidiaries or their respective businesses, properties, assets,
directors or employees (the “Policies”)
and
(ii) a list of all pending claims and the claims history for the Company and
each Subsidiary during the current year and the preceding three years (including
with respect to insurance obtained but not currently maintained). There are
no
pending claims under any of such Policies as to which coverage has been
questioned, denied or disputed by the insurer or in respect of which the insurer
has reserved its rights.
(b) The
Company Disclosure Schedule describes any self-insurance arrangement by or
affecting the Company or any of its Subsidiaries, including any reserves
thereunder, and describes the loss experience for all claims that were
self-insured in the current year and the preceding three years.
(c) All
Policies are issued by an insurer that is financially sound and reputable,
are
in full force and effect and are enforceable in accordance with their terms
and
will continue in full force and effect with respect to the Company and its
Subsidiaries following the Merger. Such Policies provide adequate insurance
coverage for the Company and its Subsidiaries and their respective businesses,
properties, assets and employees, and are sufficient for compliance with all
Laws and Contracts to which the Company or any of its Subsidiaries is a party
or
by which it is bound.
38
(d) All
premiums due under the Policies have been paid in full or, with respect to
premiums not yet due, accrued. Neither the Company nor any of its Subsidiaries
has received a notice of cancellation of any Policy or of any material changes
that are required in the conduct of the business of the Company or any of its
Subsidiaries as a condition to the continuation of coverage under, or renewal
of, any such Policy. There is no existing default or event which, with the
giving of notice or lapse of time or both, would constitute a default under
any
Policy or entitle any insurer to terminate or cancel any Policy. The Company
has
no Knowledge of any threatened termination of, or material premium increase
with
respect to, any Policy and none of such Policies provides for retroactive
premium adjustments.
3.24 Books
and Records.
The
books, records and accounts of the Company and its Subsidiaries accurately
and
fairly reflect, in reasonable detail, the transactions and the assets and
Liabilities of the Company and its Subsidiaries. Neither the Company nor any
of
its Subsidiaries has engaged in any transaction, maintained any bank account
or
used any of the funds of the Company or any of its Subsidiaries other than
transactions, bank accounts and funds which have been and are reflected in
the
normally maintained books and records of the business. The minute books
(containing the records of the meetings, or written consents in lieu of such
meetings, of the stockholders, the board of directors and any committees of
the
board of directors), the stock certificate books, and the stock record books
of
the Company and its Subsidiaries are correct and complete, and have been
maintained in accordance with sound business practices. There are no resolutions
or other actions of the stockholders, the board of directors or any committee
of
the board of directors other than as disclosed in the records of the meetings
and written consents contained in the minute books. At the Closing, all of
those
books and records will be in the possession of the Company. At the Closing,
the
Company will deliver, or cause to be delivered, to Parent or its designee all
of
the minute books of the Company and its Subsidiaries.
3.25 Conditions
Affecting the Company and its Subsidiaries.
The
Company has no reason to believe that any loss of any employee, agent, customer
or supplier or other advantageous arrangement to the Company and its
Subsidiaries will result because of the consummation of the Merger.
3.26 Brokers
or Finders.
Other
than Baytree Capital Associates, LLC (“Baytree
Capital”),
there
is no investment banker, broker, finder, financial advisor or other intermediary
which has been retained by or is authorized to act on behalf of the Company
or
the Company Stockholders who is entitled to any fee or commission in connection
with the transactions contemplated by this Agreement. No claim exists or will
exist against the Company, any of its Subsidiaries or the Surviving Corporation
or, based on any action by the Company or any of its Subsidiaries, against
Parent for payment of any “topping,”“break-up” or “bust-up” fee or any similar
compensation or payment arrangement as a result of the transactions contemplated
hereby.
39
3.27 No
Illegal Payments.
None of
the Company, any of its Subsidiaries or, to the Knowledge of the Company, any
Affiliate, officer, agent or employee thereof, directly or indirectly, has,
since inception, on behalf of or with respect to the Company or any of its
Subsidiaries, (a) made any unlawful domestic or foreign political contributions,
(b) made any payment or provided services which were not legal to make or
provide or which the Company, any of its Subsidiaries or any Affiliate thereof
or any such officer, employee or other Person should reasonably have known
were
not legal for the payee or the recipient of such services to receive, (c)
received any payment or any services which were not legal for the payer or
the
provider of such services to make or provide, (d) had any material transactions
or payments which are not recorded in its accounting books and records or (e)
had any off-book bank or cash accounts or “slush funds.”
3.28 Suppliers
and Customers.
The
Company Disclosure Schedule sets forth (a) the names of the 10 suppliers with
the greatest dollar volume of sales to the Company and its Subsidiaries in
the
years ended December 31, 2003 and December 31, 2004 and the six-month period
ended June 30, 2005; (b) each supplier who constitutes a sole source of supply,
or is otherwise material, to the Company and its Subsidiaries; and (c) the
names
of the 10 customers with the greatest dollar volume of purchases from the
Company and its Subsidiaries in the years ended December 31, 2003 and December
31, 2004 and the six-month period ended June 30, 2005. The relationship of
the
Company and its Subsidiaries with each such supplier and customer are good
commercial working relationships. No such supplier or customer has canceled
or
otherwise terminated, or threatened to cancel or otherwise terminate, its
relationship with the Company and its Subsidiaries. Neither the Company nor
any
of its Subsidiaries has received notice that any such supplier or customer
may
cancel or otherwise materially and adversely modify its relationship with the
Company or such Subsidiary or limit its services, supplies or materials to
the
Company or such Subsidiary, as a result of the Merger or otherwise.
3.29 Bank
Accounts.
The
Company Disclosure Schedule sets forth the name of each bank, safe deposit
company or other financial institution in which the Company or any of its
Subsidiaries has an account, lock box or safe deposit box and the names of
all
persons authorized to draw thereon or have access thereto.
3.30 Powers
of Attorney.
Except
as set forth in the Company Disclosure Schedule, there are no outstanding powers
of attorney executed by or on behalf of the Company or any of its Subsidiaries
in favor of any Person.
3.31 Information
Supplied.
The
information supplied by the Company for use in the Information Statement will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make any statement therein, in light of the circumstances
under which they were made, not misleading.
3.32 Completeness
of Disclosure.
No
representation or warranty by the Company in this Agreement, and no statement
made by the Company in the Company Disclosure Schedule, the Exhibits attached
hereto or any certificate furnished or to be furnished to Parent pursuant hereto
contains or will at the Closing contain any untrue statement of a material
fact
or omits or will omit to state any material fact necessary to make any statement
herein or therein, in light of the circumstances under which they were made,
not
misleading.
40
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Parent
and Merger Sub represent and warrant to the Company that the statements
contained in this Article IV are true and correct.
4.1 Organization
and Good Standing.
Each of
Parent and Merger Sub is a corporation duly organized, validly existing and
in
good standing under the Laws of the jurisdiction of its incorporation, has
all
requisite power to own, lease and operate its properties and to carry on its
business as now being conducted, and is duly qualified to do business and is
in
good standing as a foreign corporation in each jurisdiction in which it owns
or
leases property or conducts any business so as to require such qualification,
except for those jurisdictions where the failure to be so qualified and in
good
standing would not reasonably be expected to be, individually or in the
aggregate, material to Parent and its Subsidiaries taken as a whole.
4.2 Capital
Structure.
The
authorized capital stock of Parent consists of 300,000,000 shares of Parent
Common Stock, and 20,000,000 shares of Preferred Stock, no par value
(“Parent
Preferred Stock”).
As of
June 30, 2005, (i) 29,061,928 shares of Parent Common Stock were issued and
outstanding, all of which have been duly authorized and validly issued, and
are
fully paid and nonassessable, (ii) 2,813,850 shares of Parent Common Stock
were
reserved for future issuance pursuant to stock options granted and outstanding
under Parent’s stock option plans, and (iii) 1,186,150 shares of Parent Common
Stock were reserved for future issuance pursuant to stock options remaining
available for grant under Parent’s stock option plans. As of the date of this
Agreement, none of the shares of Parent Preferred Stock is issued and
outstanding. The shares of Parent Common Stock issuable pursuant to the Merger
have been duly authorized and reserved for issuance and, when issued in
accordance with the terms of this Agreement, will be validly issued, fully
paid
and nonassessable. The authorized capital stock of Merger Sub consists of 1,000
shares of common stock, par value $.0001 per share, all of which are issued
and
outstanding, and all of which shares are validly issued, fully paid,
nonassessable and owned by Parent.
4.3 Authority
and Enforceability.
(a) Each
of
Parent and Merger Sub has the requisite power and authority to enter into this
Agreement and to consummate the Merger. The execution and delivery of this
Agreement by Parent and Merger Sub and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and Merger Sub, subject in the case of consummation of
the
Merger to the Parent Stockholder Approval. The only stockholder votes required
to adopt this Agreement and approve the transactions contemplated hereby are
the
affirmative vote of the holders of a majority of the then outstanding Parent
Common Stock voting as a single class on an as-converted to Common Stock basis
on the record date of a duly convened meeting of Parent’s Stockholders, or by
written consent in lieu of such meeting (the “Parent
Stockholder Approval”).
41
(b) This
Agreement has been duly executed and delivered by Parent and Merger Sub and,
assuming due authorization, execution and delivery by the Company, constitutes
the valid and binding obligation of Parent and Merger Sub, enforceable against
each of them in accordance with its terms, except as such enforceability may
be
limited by (a) bankruptcy, insolvency, reorganization, moratorium or other
similar Laws affecting or relating to creditors’ rights generally, and (b) the
availability of injunctive relief and other equitable remedies.
4.4 No
Conflicts; Authorizations.
(a) The
execution and delivery of this Agreement by Parent and Merger Sub do not, and
the performance by Parent and Merger Sub of their obligations hereunder and
the
consummation by Parent and Merger Sub of the transactions contemplated hereby
will not, (i) violate the provisions of any of the Charter Documents of Parent
or Merger Sub, (ii) violate any Contract to which Parent or Merger Sub is a
party, (iii) assuming compliance by Parent with the matters referred to Section
4.4(b), violate any Law applicable to Parent or Merger Sub on the date hereof,
or (iv) result in the creation of any Liens upon any of the assets owned or
used
by Parent or Merger Sub, other than such violations referred to in clauses
(i),
(ii) and (iii) and such Liens referred to in clause (iv) which would not
reasonably be expected, individually or in the aggregate, materially to impair
or delay the ability of Parent or Merger Sub to perform its obligations under
this Agreement and consummate the Merger or to be material to Parent and its
Subsidiaries taken as a whole.
(b) No
Authorization or Order of, registration, declaration or filing with, or notice
to any Governmental Entity is required by or with respect to Parent in
connection with the execution and delivery of this Agreement and the
consummation of the Merger, except for (i) the filing of the Certificate
of
Merger with the Secretary of State of Delaware, (ii) such filings as
may be
required under the Securities and Exchange Act of 1934, as amended (the
“Exchange
Act”)
and the
rules of the OTC Bulletin Board, and (iii) such Authorizations, Orders,
registrations, declarations, filings and notices the failure to obtain or make
which would not reasonably be expected to materially impair the ability of
Parent or Merger Sub to perform its obligations under this Agreement and
consummate the Merger or to be material to Parent and its Subsidiaries taken
as
a whole.
4.5 SEC
Filings; Financial Statements.
(a) Parent
has made available to the Company all forms, reports and documents required
to
be filed by it with the Securities and Exchange Commission (the “SEC”)
since
its fiscal year 2003 (collectively, the “Parent
SEC Reports”).
The
Parent SEC Reports (i) at the time they were filed complied in all material
respects with the applicable requirements of the Securities Act of 1933, as
amended (the “Securities
Act”)
or the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material
fact
or omit to state a material fact required to be stated therein or necessary
in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
42
(b) The
consolidated financial statements (including, in each case, any related notes)
contained in the Parent SEC Reports complied in all material respects with
the
applicable rules and regulations of the SEC with respect thereto, were prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by the SEC) and fairly
presented the consolidated financial position of Parent and its Subsidiaries
as
at the respective dates and the consolidated results of its operations and
cash
flows for the periods indicated (subject, in the case of the unaudited financial
statements, to normal year-end recurring adjustments).
4.6 Interim
Operations of Sub.
Merger
Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement, has engaged in no other business activities
and
has conducted its operations only as contemplated by this
Agreement.
4.7 Liabilities.
Neither
Parent nor its Subsidiaries have any Liabilities, except (a) those which are
adequately reflected or reserved against in the Parent SEC Reports, (b) those
which have been incurred in the ordinary course of business and consistent
with
past practice since the last filed Parent SEC Report and (c) those which would
not reasonably be expected to result in a material adverse effect on the
business, financial condition, operations or results of operations of Parent
and
its Subsidiaries taken as a whole.
4.8 Taxes.
(a) To
the
best of Parent’s knowledge, each of Parent and its Subsidiaries has duly and
timely filed all Tax Returns required to have been filed by or with respect
to
Parent or such Subsidiary and will duly and timely file all Tax Returns due
between the date hereof and the Closing Date. to the best of Parent’s knowledge,
each such Tax Return correctly and completely reflects all liability for Taxes
and all other information required to be reported thereon. To the best of
Parent’s knowledge, all Taxes owed by Parent and each Subsidiary of Parent
(whether or not shown on any Tax Return) have been timely paid (or, if due
between the date hereof and the Closing Date, will be duly and timely paid).
To
the best of Parent’s knowledge, each of Parent and its Subsidiaries has
adequately provided for, in its books of account and related records, all
liability for all unpaid Taxes, being current Taxes not yet due and payable.
(b) Each
of
Parent and its Subsidiaries has withheld and timely paid all Taxes required
to
have been withheld and paid by it and has complied with all information
reporting and backup withholding requirements, including maintenance of required
records with respect thereto.
43
(c) None
of
the Tax Returns have been audited or are currently are the subject of audit.
To
the best of Parent’s knowledge, there is no Action now pending or threatened
against or with respect to Parent or any of its Subsidiaries in respect of
any
Tax or any assessment or deficiency. To the best of Parent’s knowledge, there
are no liens for Taxes (other than current Taxes not yet due and payable) upon
the assets of Parent. Parent has delivered to the Company correct and complete
copies of all federal income Tax Returns, examination reports, and statements
of
deficiencies assessed against or agreed to by Parent or any of its Subsidiaries
since December 31, 2003.
(d) Neither
Parent nor any of its Subsidiaries is the beneficiary of any extension of time
within which to file any Tax Return, nor has Parent or any of its Subsidiaries
made (or had made on its behalf) any requests for such extensions. Neither
Parent nor any of its Subsidiaries has waived (or is subject to a waiver of)
any
statute of limitations in respect of Taxes or has agreed to (or is subject
to)
any extension of time with respect to a Tax assessment or
deficiency.
(e) Neither
Parent nor any of its Subsidiaries has filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provisions of state, local or foreign income Tax Law. Neither
Parent nor any of its Subsidiaries has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain circumstances
could obligate it to make payments that would result in a nondeductible expense
under Section 280G of the Code or an excise tax to the recipient of such
payments pursuant to Section 4999 of the Code.
(f) Neither
Parent nor any of its Subsidiaries has agreed to or is required to make by
reason of a change in accounting method or otherwise, or could be required
to
make by reason of a proposed or threatened change in accounting method or
otherwise, any adjustment under Section 481(a) of the Code. Neither Parent
nor
any of its Subsidiaries has received (or is subject to) any ruling from any
Taxing Authority or has entered into (or is subject to) any agreement with
a
Taxing Authority. Each of Parent and its Subsidiaries have disclosed on its
federal income Tax Returns all positions taken therein that could give rise
to a
substantial understatement of federal income Tax within the meaning of Section
6662 of the Code.
(g) No
Subsidiary of Parent that is incorporated in a non-U.S. jurisdiction has, or
at
any time has had, an investment in “United States property” within the meaning
of Section 956(c) of the Code. No Subsidiary of Parent is, or at any time has
been, a passive foreign investment company within the meaning of Section 1297
of
the Code and neither Parent nor any of its Subsidiaries is a shareholder,
directly or indirectly, in a passive foreign investment company. No Subsidiary
of Parent that is incorporated in a non-U.S. jurisdiction is, or at any time
has
been, engaged in the conduct of a trade or business within the United States,
or
treated as or considered to be so engaged.
(h) Neither
Parent nor any of its Subsidiaries (i) has ever been a party to any Tax
allocation or sharing agreement or Tax indemnification agreement, (ii) has
ever
been a member of an affiliated, consolidated, condensed or unitary group, or
(iii) has any liability for or obligation to pay Taxes of any other Person
under
Treas. Reg. 1.1502-6 (or any similar provision of Tax Law), or as transferee
or
successor, by contract or otherwise. Neither Parent nor any of its Subsidiaries
is a party to any joint venture, partnership, or other arrangement that is
treated as a partnership for federal income tax purposes.
44
(i) Parent
has not entered into any transaction that constitutes a “reportable transaction”
within the meaning of Treasury Regulation Section 1.6011-4(b).
(j) Neither
Parent nor, to the Knowledge of Parent, any of its Affiliates has taken or
agreed to take any action (other than actions contemplated by this Agreement)
that would reasonably be expected to prevent the Merger from constituting a
“reorganization” under Section 368 of the Code. Parent is not aware of any
agreement or plan to which Parent or any of its Affiliates is a party or other
circumstances relating to Parent or any of its Affiliates that could reasonably
be expected to prevent the Merger from so qualifying as a “reorganization” under
Section 368 of the Code.
(k) Since
the
last filed Parent SEC Report, Parent has not incurred any liability for Taxes
arising from extraordinary gains or losses, as that term is used in GAAP,
outside the ordinary course of business consistent with past custom and
practice.
4.9 Compliance
with Law.
Each of
Parent and its Subsidiaries has complied with each, and is not in violation
of,
any applicable Law to which Parent or any of its Subsidiaries or its business,
operations, assets or properties is or has been subject. To the Knowledge of
Parent, no event has occurred and no circumstances exist that (with or without
the passage of time or the giving of notice) may result in a violation of,
conflict with or failure on the part of Parent or any of its Subsidiaries to
comply with, any Law. Neither Parent nor any of its Subsidiaries has received
notice regarding any such violation of, conflict with, or failure to comply
with, any Law.
4.10 Absence
of Certain Changes or Events.
Since
the date of the last filed Parent SEC Report, to the date of this Agreement
(with respect to the representation and warranty made as of the date of this
Agreement) and to the Closing Date (with respect to the representation and
warranty made as of the Closing Date):
(a) there
has
not been any material adverse change in the business, financial condition,
operations or results of operations of Parent and its Subsidiaries taken as
a
whole;
(b) neither
Parent nor any of its Subsidiaries has amended or otherwise modified its Charter
Documents;
(c) neither
Parent nor any of its Subsidiaries has declared, set aside or paid any dividend
or other distribution (whether in cash, stock or property) with respect to
any
of its securities;
(d) neither
Parent nor any of its Subsidiaries has split, combined or reclassified any
of
its securities, or issued, or authorized for issuance, any securities other
than
the grant of Parent stock options and the issuance of shares of Parent common
stock upon exercise of Parent stock options, in each case, in the ordinary
course of business consistent with past practice;
45
(e) neither
Parent nor any of its Subsidiaries has altered any term of any outstanding
securities; or
(f) neither
Parent nor any of its Subsidiaries has agreed, whether in writing or otherwise,
to do any of the foregoing.
4.11 Litigation.
(a) There
is
no Action pending or, to Parent’s Knowledge, threatened (i) against or affecting
Parent or any of its Subsidiaries which could reasonably be expected to have
a
material adverse effect on Parent or (ii) that challenges or seeks to prevent,
enjoin or otherwise delay the Merger.
(b) There
is
no unsatisfied judgment, penalty or award against or affecting Parent or any
of
its Subsidiaries or any of their respective properties or assets. There is
no
Order to which Parent, or any of its Subsidiaries, or any of their respective
properties or assets are subject.
4.12 Brokers
or Finders.
Other
than Baytree Capital, there is no investment banker, broker, finder, financial
advisor or other intermediary which has been retained by or is authorized to
act
on behalf of Parent or the Parent Stockholders who is entitled to any fee or
commission in connection with the transactions contemplated by this Agreement.
No claim exists or will exist against Parent, any of its Subsidiaries or the
Surviving Corporation or, based on any action by Parent or any of its
Subsidiaries, against Parent for payment of any “topping,”“break-up” or
“bust-up” fee or any similar compensation or payment arrangement as a result of
the transactions contemplated hereby.
4.13 No
Illegal Payments.
Neither
Parent, nor any of its Subsidiaries or, to the Knowledge of Parent, any
Affiliate, officer, agent or employee thereof, directly or indirectly, has,
since inception, on behalf of or with respect to Parent or any of its
Subsidiaries, (a) made any unlawful domestic or foreign political contributions,
(b) made any payment or provided services which were not legal to make or
provide or which Parent, any of its Subsidiaries or any Affiliate thereof or
any
such officer, employee or other Person should reasonably have known were not
legal for the payee or the recipient of such services to receive, (c) received
any payment or any services which were not legal for the payer or the provider
of such services to make or provide, (d) had any material transactions or
payments which are not recorded in its accounting books and records or (e)
had
any off-book bank or cash accounts or “slush funds.”
4.14 Information
Supplied.
The
information supplied by Parent for use in the Information Statement will not
contain any untrue statement of a material fact or omit to state a material
fact
necessary to make any statement therein, in light of the circumstances under
which they were made, not misleading.
46
4.15 Employee
Benefits.
(a) “Parent
Benefit Plan”
means
any “employee
benefit plan” as defined in Section 3 (3) of ERISA, including any (a)
nonqualified deferred compensation or retirement plan or arrangement which
is an
Employee Pension Benefit Plan (as defined in ERISA Section 3(2)), (b) qualified
defined contribution retirement plan or arrangement which is an Employee Pension
Benefit Plan, (c) qualified defined benefit retirement plan or arrangement
which
is an Employee Pension Benefit Plan (including any Multiemployer Plan (as
defined in ERISA Section 3(37)), (d) Employee Welfare Benefit Plan (as defined
in ERISA Section 3(1)) or material fringe benefit plan or program, or (e) stock
purchase, stock option, severance pay, employment, change-in-control, vacation
pay, company awards, salary continuation, sick leave, excess benefit, bonus
or
other incentive compensation, life insurance, or other employee benefit plan,
contract, program, policy or other arrangement, whether or not subject to ERISA,
in each case which is sponsored, maintained or contributed to by Parent, any
of
its Subsidiaries or any ERISA Affiliate, or with respect to which Parent, any
of
its Subsidiaries or any ERISA Affiliate otherwise has any present or future
Liability.
(b) Each
Parent Benefit Plan has been and is currently administered in compliance with
its constituent documents and with all reporting, disclosure and other
requirements of ERISA and the Code applicable to such Parent Benefit Plan.
Each
Benefit Plan that is an Employee Pension Benefit Plan (as defined in Section
3(2) of ERISA) and which is intended to be qualified under Section 401(a) of
the
Code (a “Parent Pension
Plan”),
has
been determined by the Internal Revenue Service to be so qualified and no
condition exists that would adversely affect any such determination. No Parent
Benefit Plan is a “defined benefit plan” as defined in Section 3(35) of
ERISA.
(c) None
of
Parent, any Subsidiary of Parent, any ERISA Affiliate or any trustee or agent
of
any Parent Benefit Plan has been or is currently engaged in any prohibited
transactions as defined by Section 406 of ERISA or Section 4975 of the Code
for
which an exemption is not applicable which could subject Parent, any Subsidiary
of Parent, any ERISA Affiliate or any trustee or agent of any Parent Benefit
Plan to the tax or penalty imposed by Section 4975 of the Code or Section 502
of
ERISA.
(d) There
is
no event or condition existing which could be deemed a “reportable event”
(within the meaning of Section 4043 of ERISA) with respect to which the 30-day
notice requirement has not been waived. To Parent’s knowledge, no condition
exists which could subject Parent or any of its Subsidiaries to a penalty under
Section 4071 of ERISA.
(e) None
of
Parent, any Subsidiary of Parent or any ERISA Affiliate is, or has been, party
to any “multi-employer plan,” as that term is defined in Section 3(37) of
ERISA.
(f) With
respect to each Parent Benefit Plan, there are no actions, suits or claims
(other than routine claims for benefits in the ordinary course) pending or,
to
Parent’s knowledge, threatened against any Parent Benefit Plan, Parent, any
Subsidiary of Parent, any ERISA Affiliate or any trustee or agent of any Parent
Benefit Plan.
47
(g) With
respect to each Parent Benefit Plan to which Parent, any Subsidiary of Parent
or
any ERISA Affiliate is a party which constitutes a group health plan subject
to
Section 4980B of the Code, each such Parent Benefit Plan complies, and in each
case has complied, with all applicable requirements of Section 4980B of the
Code.
(h) Full
payment has been made of all amounts which Parent, any Subsidiary of Parent
or
any ERISA Affiliate was required to have paid as a contribution to any Parent
Benefit Plan as of the last day of the most recent fiscal year of each of the
Benefit Plans ended prior to the date of this Agreement, and none of the Parent
Benefit Plans has incurred any “accumulated funding deficiency” (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, as
of
the last day of the most recent fiscal year of each such Parent Benefit Plan
ended prior to the date of this Agreement.
(i) Each
Parent Benefit Plan is, and its administration is and has been during the
six-year period preceding the date of this Agreement, in compliance with, and
none of Parent, any Subsidiary of Parent or any ERISA Affiliate has received
any
claim or notice that any such Parent Benefit Plan is not in compliance with,
all
applicable Laws and Orders and prohibited transaction exemptions, including
to
the extent applicable, the requirements of ERISA.
(j) None
of
Parent, any Subsidiary of Parent and any ERISA Affiliate is in default in
performing any of its contractual obligations under any of the Parent Benefit
Plans or any related trust agreement or insurance contract.
(k) There
are
no material outstanding Liabilities of any Parent Benefit Plan other than
Liabilities for benefits to be paid to participants in any Parent Benefit Plan
and their beneficiaries in accordance with the terms of such Parent Benefit
Plan.
(l) Subject
to ERISA and the Code, each Parent Benefit Plan may be amended, modified,
terminated or otherwise discontinued by Parent, a Subsidiary of Parent or an
ERISA Affiliate at any time without liability.
(m) No
Parent
Benefit Plan other than a Parent Pension Plan, retiree medical plan or severance
plan provides benefits to any individual after termination of
employment.
(n) The
consummation of the Merger will not (either alone or in conjunction with any
other event) (i) entitle any current or former director, employee, contractor
or
consultant of Parent or any of its Subsidiaries to severance pay, unemployment
compensation or any other payment, (ii) accelerate the time of payment or
vesting, or increase the amount of compensation due to any such director,
employee, contractor or consultant, or result in the payment of any other
benefits to any Person or the forgiveness of any Indebtedness of any Person,
(iii) result in any prohibited transaction described in Section 406 of ERISA
or
Section 4975 of the Code for which an exemption is not available, or (iv) result
in the payment or series of payments by any Parent or any of its Affiliates
to
any person of an “excess parachute payment” within the meaning of Section 280G
of the Code.
48
(o) With
respect to each Parent Benefit Plan that is funded wholly or partially through
an insurance policy, all premiums required to have been paid to date under
the
insurance policy have been paid, all premiums required to be paid under the
insurance policy through the Closing will have been paid on or before the
Closing and, as of the Closing, there will be no liability of Parent, any
Subsidiary of Parent or any ERISA Affiliate under any insurance policy or
ancillary agreement with respect to such insurance policy in the nature of
a
retroactive rate adjustment, loss sharing arrangement or other actual or
contingent liability arising wholly or partially out of events occurring prior
to the Closing.
4.16 Environmental.
(a) There
are
no past, pending or, to Parent’s knowledge, threatened Environmental Actions
against or affecting Parent or any of its Subsidiaries, and Parent is not aware
of any facts or circumstances which could be expected to form the basis for
any
Environmental Action against Parent or any of its Subsidiaries.
(b) Neither
Parent nor any of its Subsidiaries has entered into or agreed to any Order,
and
neither Parent nor any of its Subsidiaries is subject to any Order, relating
to
compliance with any Environmental Law or to investigation or cleanup of a
Hazardous Substance under any Environmental Law.
(c) There
has
been no treatment, storage, disposal or Release of any Hazardous Substance
at,
from, into, on or under any Real Property or any other property currently or
formerly operated or leased by Parent or any of its Subsidiaries.
(d) Neither
Parent nor any of its Subsidiaries has received a CERCLA 104(e) information
request nor has Parent or any of its Subsidiaries been named a potentially
responsible party for any National Priorities List site under CERCLA or any
site
under analogous state Law. Neither Parent nor any of its Subsidiaries has
received an analogous notice or request from any non-U.S. Governmental
Entity.
(e) Neither
Parent nor any of its Subsidiaries has transported or arranged for the
treatment, storage, handling, disposal, or transportation of any Hazardous
Material to any off-site location which is an Environmental Clean-up
Site.
(f) None
of
the Real Property is an Environmental Clean-up Site.
(g) Parent
has provided to Parent true and complete copies of, or access to, all written
environmental assessment materials and reports that have been prepared by or
on
behalf of Parent or any of its Subsidiaries.
49
4.17 Related
Party Transactions.
There
are no Contracts of any kind, written or oral, entered into by Parent or any
of
its Subsidiaries with, or for the benefit of, any
officer, director or stockholder of Parent or, to the knowledge of Parent,
any
Affiliate of any of them, except in each case, for
(a)
employment agreements, fringe benefits and other compensation paid to directors,
officers and employees consistent with previously established policies
(including normal merit increases in such compensation in the ordinary course
of
business) and copies of which have been provided to the Company, (b)
reimbursements of ordinary and necessary expenses incurred in connection with
their employment or service, and (c) amounts paid pursuant to Parent Benefit
Plans of which copies have been provided to the Company. To the knowledge of
Parent, none of such Persons has any material direct or indirect ownership
interest in any firm or corporation with which Parent or any of its Subsidiaries
has a business relationship, or with any firm or corporation that competes
with
Parent or any of its Subsidiaries (other than ownership of securities in a
publicly traded company representing less than one percent of the outstanding
stock of such company). No officer or director of Parent or any of its
Subsidiaries or member of his or her immediate family or greater than 5%
stockholder of Parent or, to the knowledge of Parent, any Affiliate of any
of
them or any employee of Parent or any of its Subsidiaries is directly or
indirectly interested in any Material Contract.
4.18
Investment Representations.
In
connection with this Agreement, Parent represents to the Company the
following.
(a) Investment
Intent.
Parent
is purchasing the securities solely for Parent’s own account for investment.
Parent has no present intention to resell or distribute the securities or any
portion thereof. The entire legal and beneficial interest of the securities
is
being purchased, and will be held, for Parent’s account only, and neither in
whole or in part for any other person.
(b) Information
Concerning Company.
Parent
has significant prior experience and knowledge of the affairs of the Company.
Parent is aware of the Company’s business and financial condition and has
acquired sufficient information about the Company to make an informed and
acknowledgeable decision to purchase the securities.
(c) Economic
Risk.
Parent
realizes that the purchase of the securities will be a highly speculative
investment and involves a high degree of risk. Parent is able, without impairing
his financial condition, to hold the securities for an indefinite period of
time
and to suffer a complete loss of Parent’s investment.
(d) Restriction
of Transfer.
Parent
understands that the securities must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Parent understands that the certificate evidencing
the securities will be imprinted with a legend that prohibits the transfer
of
the securities unless they are registered.
50
4.19 Completeness
of Disclosure.
No
representation or warranty by Parent in this Agreement, and no statement made
by
Parent in the Exhibits attached hereto or any certificate furnished or to be
furnished to Parent pursuant hereto contains or will at the Closing contain
any
untrue statement of a material fact or omits or will omit to state any material
fact necessary to make any statement herein or therein, in light of the
circumstances under which they were made, not misleading
ARTICLE
V
COVENANTS
OF THE COMPANY
5.1 Conduct
of Business.
During
the period from the date of this Agreement and continuing until the earlier
of
the termination of this Agreement or the Closing Date, except with the prior
written consent of Parent, the Company shall, and it shall cause each of its
Subsidiaries to:
(a) maintain
its corporate existence, pay its debts and taxes when due, pay or perform other
obligations when due, and carry on its business in the usual, regular and
ordinary course in a manner consistent with past practice and in accordance
with
the provisions of this Agreement and in compliance with all Laws, Authorizations
and Contracts;
(b) use
its
reasonable efforts consistent with past practices and policies to preserve
intact its present business organization, keep available the services of its
present employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
it,
to the end that its goodwill and ongoing business be substantially unimpaired
on
the Closing Date;
provided that
the
Company is not authorized to, and shall not, make any commitments to any of
the
foregoing Persons on behalf of Parent;
(c) maintain
its facilities and assets in the same state of repair, order and conditions
as
they are on the date hereof, reasonable wear and tear excepted;
(d) maintain
its books and records in accordance with past practice, and to use its
reasonable best efforts to maintain in full force and effect all Authorizations
and Policies;
(e) promptly
notify Parent of any event or occurrence not in the ordinary course of business;
(f) will
provide Parent with a list of actions that must be taken by the Company or
any
of its Subsidiaries within 60 calendar days immediately following the Closing
Date for the purposes of obtaining, maintaining, perfecting, preserving or
renewing any Company Registered Items; and
(g) use
its
reasonable efforts to conduct its business in such a manner that on the Closing
Date the representations and warranties of the Company contained in this
Agreement shall be true and correct, as though such representations and
warranties were made on and as of such date, and the Company shall use its
reasonable best efforts to cause all of the conditions to the obligations of
Parent and Merger Sub under this Agreement to be satisfied as soon as
practicable following the date hereof.
51
5.2 Negative
Covenants.
Except
as expressly provided in this Agreement, the Company shall not, and it shall
not
permit any of its Subsidiaries to, without the prior written consent of
Parent:
(a) adopt
or
propose any amendment to the Charter Documents of the Company or any of its
Subsidiaries;
(b) declare,
set aside or pay any dividend or other distribution (whether in cash, stock
or
other property) with respect to any securities;
(c) (i)
issue
or authorize for issuance any securities, except, but subject to Section 5.9,
upon the exercise of Company Stock Options (in accordance with their respective
terms), or (ii) make any change in any issued and outstanding securities, or
redeem, purchase or otherwise acquire any securities other than the repurchase
at cost from employees of shares of Company Common Stock in connection with
the
termination of their employment pursuant to the Company’s standard form of
option/restricted stock agreement;
(d) (i)
modify
the compensation or benefits payable or to become payable by the Company or
any
of its Subsidiaries to any of its current or former directors, employees,
contractors or consultants, or modify
any bonus, severance, termination, pension, insurance or other employee benefit
plan, payment or arrangement made to, for or with any current or former
directors, employees, contractors or consultants of the Company or any of its
Subsidiaries,
or (ii)
enter into any employment (other than offer letters and letter agreements
entered into in the ordinary course of business consistent with past practice
with employees who are terminable “at-will”), severance or termination
agreement;
(e) establish,
adopt, enter into, amend or terminate any Company Benefit Plan or any collective
bargaining, thrift, compensation or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any current or former directors, employees,
contractors or consultants of the Company or any of its
Subsidiaries;
(f) sell,
lease, transfer or assign any property or assets of the Company or any of its
Subsidiaries outside of the ordinary course of business consistent with past
practice;
(g) (i)
assume, incur or guarantee any Indebtedness, other than endorsements for
collection in the ordinary course of business, (ii) modify the terms of any
existing Indebtedness or (iii) repay any existing Indebtedness in advance of
its
maturity date;
(h) mortgage,
pledge or permit to become subject to Liens (other than Permitted Liens) any
properties or assets of the Company or any of its Subsidiaries;
52
(i) other
than travel loans or advances in the ordinary course of business consistent
with
past practice, make any loans, advances or capital contributions to, or
investments in, any other Person;
(j) not
cancel any debts or waive any claims or rights of substantial
value;
(k) (i)
amend, modify or terminate, or waive, release or assign any rights under, any
Material Contract, (ii) enter into any Contract which, if entered into prior
to
the date hereof, would have been required to be set forth in Section 3.18 of
the
Company Disclosure Schedule, or (iii) otherwise take any action or engage in
any
transaction that is material to the Company and its Subsidiaries taken as a
whole;
(l) (i)
make
any capital expenditure, or commit to make any capital expenditure which in
any
one case exceeds $25,000 or capital expenditures which in the aggregate exceed
$25,000, or (ii) except as permitted by clause (i), acquire any assets,
properties or rights other than Inventory in the ordinary course of business
consistent with past practice;
(m) not
settle or compromise any litigation other than settlements or compromises of
litigation where the settlement is limited solely to the release of claims
and
the monetary payment by the Company or any of its Subsidiaries does not exceed
$50,000 in the aggregate or $50,000 in any individual case;
(n) amend
any
Company Stock Option or Other Purchase Right or authorize cash payments in
exchange for any of the foregoing;
(o) make
any
filings or registrations, with any Governmental Entity, except routine filings
and registrations made in the ordinary course of business;
(p) be
party
to (i) any merger, acquisition, consolidation, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any of its
Subsidiaries or (ii) any purchase of all or any substantial portion of the
assets or securities of the Company or any of its Subsidiaries;
(q) take
any
actions outside the ordinary course of business;
(r) make
any
changes in its accounting methods, principles or practices;
(s) make
any
Tax election, change its method of Tax accounting or settle any claim relating
to Taxes;
(t) take
any
action or omit to do any act within its reasonable control which action or
omission will cause it to breach any obligation contained in this Agreement
or
cause any representation or warranty of the Company not to be true and correct
as of the Closing Date; or
53
(u) agree,
whether in writing or otherwise, to do any of the foregoing.
5.3 Access
to Information.
Subject
to the terms of the Confidentiality Agreement by and between Parent and the
Company dated April 7, 2005 (the “Confidentiality
Agreement”),
the
Company shall, and shall cause its Subsidiaries to, afford to Parent’s officers,
directors, employees, accountants, counsel, consultants, advisors and agents
(“Representatives”)
free
and full access to and the right to inspect, during normal business hours,
all
of the Real Property, properties, assets, records, Contracts and other documents
related to the Company and its Subsidiaries, and shall permit them to consult
with the officers, employees, accountants, counsel and agents of the Company
and
its Subsidiaries for the purpose of making such investigation of the Company
and
its Subsidiaries as Parent shall desire to make. The Company shall furnish
to
Parent all such documents and copies of documents and records and information
with respect to the Company and its Subsidiaries and copies of any working
papers relating thereto as Parent may request. Without limiting the foregoing,
the Company shall permit, and will cause its Subsidiaries to permit, Parent
and
Parent’s Representatives to conduct such investigations as Parent may reasonably
request to assess the environmental condition of the Real Property.
5.4 Resignations.
On the
Closing Date, the Company shall cause to be delivered to Parent duly signed
resignations, effective immediately at the Effective Time, of all members of
the
boards of directors of the Company and its Subsidiaries of their positions
as
directors and of all officers of the Company and its Subsidiaries of their
positions as officers.
5.5 Consents.
The
Company shall, and shall cause each of its Subsidiaries to, use its reasonable
best efforts to obtain all Consents; provided that
no
Indebtedness shall be repaid, except as otherwise required pursuant to the
terms
of any applicable loan Contract, and no Contract shall be amended nor any right
thereunder be waived, and no money or other consideration shall be expended,
to
obtain any such Consent.
5.6 Notification
of Certain Matters.
The
Company shall give prompt notice to Parent of any fact, event or circumstance
known to it that (a) individually or taken together with all other facts, events
and circumstances known to it, has had or could reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the Company
and
its Subsidiaries taken as a whole, (b) would cause or constitute a breach of
any
of its representations, warranties, covenants or agreements contained herein,
(c) the failure of any condition precedent to Parent’s and Merger Sub’s
obligations, (d) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection with
the Merger, (e) any notice or other communication from any Governmental Entity
in connection with the Merger or (f) any Actions commenced relating to the
Company or any of its Subsidiaries that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to
Section
3.19;
provided,
however,
that
(i) the delivery of any notice pursuant to this Section 5.6 shall not limit
or
otherwise affect any remedies available to Parent or prevent or cure any
misrepresentations, breach of warranty or breach of covenant and (ii) disclosure
by the Company shall not be deemed to amend or supplement the Company Disclosure
Schedule or constitute an exception to any representation or
warranty.
54
5.7 Exclusivity.
Except
with respect to this Agreement and the transactions contemplated hereby, the
Company agrees that until such time as this Agreement is terminated, it will
not, and it will cause its Subsidiaries and its and their respective directors,
officers, employees, Affiliates and other agents and representatives (including
any investment banking, legal or accounting firm retained by it or any of them
and any individual member or employee of the foregoing) (each, an “Agent”)
not
to: (a) initiate, encourage, solicit or seek, directly or indirectly, any
inquiries or the making or implementation of any proposal or offer (including
any proposal or offer to its stockholders or any of them) with respect to a
merger, acquisition, consolidation, recapitalization, liquidation, dissolution,
equity investment or similar transaction involving, or any purchase of all
or
any substantial portion of the assets or any securities of, the Company or
any
of its Subsidiaries (any such proposal or offer being hereinafter referred
to as
a “Proposal”);
(b)
engage in any negotiations concerning, or provide any confidential information
or data to, or have any substantive discussions with, any person relating to
a
Proposal; (c) otherwise facilitate or cooperate in any effort or attempt to
make, implement or accept a Proposal; or (d) enter into Contract with any Person
relating to a Proposal. If the Company, any of its Subsidiaries or any Agent
has
provided any Person (other than Parent or the Company’s or its Subsidiaries’
Agents) with any confidential information or data relating to a Proposal, they
shall request the immediate return thereof. The Company shall notify Parent
immediately if any inquiries, proposals or offers related to a Proposal are
received by, any confidential information or data is requested from, or any
negotiations or discussions related to a Proposal are sought to be initiated
or
continued with, it, any of its Subsidiaries or any of their respective
directors, officers, employees and Affiliates or, to its Knowledge, any other
Agent. Such notice shall disclose the identity of the party making, and the
terms and conditions of, any such Proposal, inquiry or request, and shall
include a true and complete copy of such Proposal, inquiry or request, if in
writing.
5.8 Stockholders’
Representative Agreement.
The
Company shall use its reasonable best efforts to cause each Company Stockholder
to execute and deliver to the Stockholders’ Representative the Stockholders’
Representative Agreement.
5.9 Allocation
Certificate.
The
Company shall prepare and deliver to Parent at the Closing a certificate signed
by the Chief Financial Officer and Secretary of the Company in a form reasonably
acceptable to Parent as to the capitalization of the Company immediately prior
to the Effective Time and the allocation of the Total Parent Shares among the
holders of shares of Company Common Stock and Company Stock Options
(collectively, the “Company
Equity Holders”)
pursuant to the Merger (the “Allocation
Certificate”).
The
Allocation Certificate shall set forth (a) a true and complete list of the
Company Equity Holders immediately prior to the Effective Time and the number
of
shares of Company Common Stock and/or Company Stock Options owned by each such
Company Equity Holder, and (b) the allocation of the Total Parent Shares among
the Company Equity Holders pursuant to the Merger.
55
5.10 FIRPTA
Certificate.
The
Company shall prepare and deliver to Parent at the Closing a properly executed
statement in a form reasonably satisfactory to Parent, for purposes of
satisfying Parent’s obligations under Treasury Regulation Section 1.1445-2(c)(3)
(the “FIRPTA
Certificate”).
5.11 Termination
of 401(k) Plan.
The
Company agrees to terminate its 401(k) plan immediately prior to the Closing,
unless Parent, in its sole and absolute discretion, agrees to sponsor and
maintain such plan by providing the Company with notice of such election at
least five days before the Effective Time.
5.12 Company’s
Auditors.
The
Company will use its reasonable best efforts to cause its management and its
independent auditors to facilitate the preparation of such financial statements
of the Company and its Subsidiaries (including pro forma financial information
if required) as may be requested by Parent to enable Parent to comply on a
timely basis with applicable securities Laws.
5.13 Section
280G of the Code.
The
Company will use its reasonable best efforts to obtain stockholder approval
of
the payment of any amounts or provision of any benefits by the Company or any
of
its Affiliates to any Person in connection with the Merger that, in the absence
of such approval, would be characterized as an “excess parachute payment” within
the meaning of Section 280G of the Code. If such stockholder approval is not
obtained, neither the Company nor any Subsidiary will pay or provide such
payments or benefits pursuant to waivers of such payments and benefits executed
by the affected Persons in form and substance reasonably satisfactory to
Parent.
ARTICLE
VI
COVENANTS
OF PARENT
6.1 Benefit
Plans.
Parent
shall take all reasonable actions necessary to allow eligible employees of
the
Company that will be employees of the Surviving Corporation (“Transitioned
Employees”),
to
participate in benefit programs which are substantially comparable to those
maintained for the benefit of, or offered to, similarly situated employees
of
Parent, as soon as practicable after the Effective Time, to the extent permitted
by the terms of such Parent benefit plan or any insurance contract or agreement
applicable thereto; provided,
however,
that in
the case of plans for which the Company maintains a plan offering the same
type
of benefit, such participation need not be offered by Parent until the
corresponding plan of the Company ceases to be available or is terminated after
the Effective Time. Parent will recognize employment services of each
Transitioned Employee with the Company for purposes of eligibility and vesting
(but not benefit accrual) under any benefit plan of Parent. Each Transitioned
Employee’s years of service with the Company and any of its Subsidiaries shall
be otherwise recognized for all general employment purposes, including
seniority, vacation, personal time and similar general employment purposes;
provided,
that
any vacation time offered by Parent in the calendar year of the Effective Time
to any Transitioned Employee shall be offset by any vacation time used by or
paid to a Transitioned Employee by the Company or any of its Subsidiaries in
the
calendar year of the Effective Time. In addition, Parent will (a) waive all
limitations as to preexisting conditions, exclusions, waiting periods and
service requirements with respect to participation and coverage requirements
applicable to Transitioned Employees under any group health plan sponsored
by
Parent, except to the extent such preexisting conditions, exclusion, waiting
period or service requirement had not been satisfied by any such Transitioned
Employee as of the Effective Time under a group health plan sponsored by the
Company or any of its Subsidiaries; and (b) provide each Transitioned Employee
with credit for any deductible, copayment and out-of-pocket limits applicable
to
such employees under any such group medical plan sponsored by the Company or
any
of its Subsidiaries and paid by the Transitioned Employee prior to the Effective
Time during the calendar year of the Effective Time.
56
6.2 Lockup
Agreements.
Parent
shall use its best efforts to cause each of (i) Digital Creative Development
Corp.; (ii) Baytree Capital; (iii) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇; and (iv) ▇▇▇▇▇▇ ▇▇▇▇, III
to
execute a Lockup Agreement substantially in the form attached as Exhibit
E
hereto
(“Lockup
Agreements”).
In the
event that Parent is successful in obtaining such agreements, the major
shareholders of the Company shall also execute such agreements. The Lockup
Agreements shall have a term of twelve months but shall permit each party to
sell no more than two percent (2%) of such party’s Parent Shares in any
two-month period, unless a greater amount is permitted by Baytree Capital,
in
any such two month period on a pro rata basis, based on its determination of
the
lack of an adverse effect of any such increase on the trading of Parent Common
Stock in the public market. Parent agrees that, with respect to any acquisitions
that occur while Company Stockholders are bound by the terms of the Lockup
Agreements, the principal shareholders of any company acquired by Parent will
be
required to execute lockup agreements containing terms that are no more
favorable to such shareholders than the terms contained in the Lockup
Agreements.
6.3 Stockholders’
Meetings.
(a)
As
promptly as practicable after the date hereof, Parent shall take all action
necessary under the California Corporations Code and its Charter Documents
(a)
to convene a meeting of the Parent Stockholders to vote upon the approval and
adoption of this Agreement and the Merger (or take action in lieu thereof by
written consent) and (b) to solicit the Parent Stockholder Approval. The Board
of Directors of Parent will, by unanimous vote of the directors in office,
recommend that the Parent Stockholder Approval be given and will use its
reasonable best efforts to solicit from the Parent Stockholders the Parent
Stockholder Approval.
(b)
As
promptly as practicable after the date hereof, the Company shall take all action
necessary under the Delaware Code and its Charter Documents (a) to convene
a
meeting of the Company Stockholders to vote upon the approval and adoption
of
this Agreement and the Merger (or take action in lieu thereof by written
consent) and (b) to solicit the Company Stockholder Approval. The Board of
Directors of the Company will, by unanimous vote of the directors in office,
recommend that the Company Stockholder Approval be given and will use its
reasonable best efforts to solicit from the Company Stockholders the Company
Stockholder Approval.
57
6.4 Surviving
Corporation Working Capital.
(a) Upon
the
achievement by the Company of the Company Milestone (as defined below) on or
before December 31, 2005, Parent shall make available to the Surviving
Corporation up to $7 million in working capital (the “Funding”),
payable to the Company in accordance with the Monthly Budget (as defined
below).
(b) As
used
herein, the following terms have the following definitions:
(i) “Company
Milestone”
means
the first calendar month prior to December 31, 2005 in which the Company
achieves all of the following: (i) 100,000 Clickthroughs (as defined below),
(ii) a Conversion Rate (as defined below) of at least 0.3%, (iii) each purchase
of the Company’s products results in revenue to the Company of at least $20.00,
and (iv) the Company shall have operated the Company’s business in such a manner
that does not exceed the Monthly Budget without Parent’s written
approval.
(ii) “Clickthroughs”
means
the number of times a unique viewer clicks through to the payment page of the
Company’s web site.
(iii) “Conversion
Rate”
means
the rate at which Clickthroughs result in purchases of the Company’s
products.
(iv) “Monthly
Budget”
means
the monthly budget to be mutually agreed upon by Parent and the Stockholders’
Representative within five (5) days after the date hereof; provided,
however,
that in
the event Parent and the Stockholders’ Representative are unable to agree on the
Monthly Budget within such time period, an independent director of the board
of
directors of Parent, selected by a majority of the board of directors, shall
determine the Monthly Budget.
6.5 Parent
Board of Directors.
(a) Effective
as of the Closing, Parent will cause its Bylaws to be amended to authorize
an
additional two directors, one of which shall be designated by the Stockholders’
Representative and appointed to Parent’s Board of Directors. Thereafter until
the earlier of: (i) December 31, 2008, and (ii) the applicability of Section
6.6(b) below, Parent will continue to nominate for election one director
designated by the Stockholders’ Representative.
(b) Upon
the
Surviving Company achieving cumulative Revenue of $20,000,000, until the earlier
of (i) December 31, 2008 and (ii) the date on which the Company Stockholders
beneficially own (as determined
pursuant to Rule 13d-3 under the Exchange Act)
a
majority of the outstanding Parent Common Stock, Parent will nominate for
election to its Board of Directors individuals designated by the Stockholders’
Representative in such number as would represent a majority of Parent’s Board of
Directors and concurrent with executing this Agreement Parent shall have
obtained a voting agreement from the shareholders listed on Annex B hereto.
58
(c) Parent’s
obligation to appoint designees to the Parent Board shall be subject to Section
14(f) of the Exchange Act and Rule 14f-1 thereunder. The Stockholders’
Representative will supply to Parent in writing any information with respect
to
the Company Stockholders and their nominees, officers, directors and affiliates
required under the Exchange Act pursuant to Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder.
ARTICLE
VII
COVENANTS
OF THE COMPANY AND PARENT
7.1 Regulatory
Approvals.
Each
of
Parent, Merger Sub and the Company shall promptly apply for, and take all
reasonably necessary actions to obtain or make, as applicable, all
Authorizations, Orders, declarations and filings with, and notices to, any
Governmental Entity or other Person required to be obtained or made by it for
the consummation of the Merger and
the
transactions contemplated hereby.
Each
party shall cooperate with and promptly furnish information to the other party
necessary in connection with any requirements imposed upon such other party
in
connection with the consummation of the Merger.
7.2 Information
Statement; Fairness Hearing and Permit.
(a) As
soon
as practicable after the execution of this Agreement, and in any event within
ten days after the date hereof, (i) Parent shall prepare, with the cooperation
of the Company, the application for permit (the “Permit
Application”)
in
connection with the Hearing (as defined below) and the notice sent to the
Company Stockholders and holders of Company Stock Options pursuant to, and
meeting the requirements of Article 2 of Subchapter 1 of the California
Administrative Code, Title 10, Chapter 3, Subchapter 2, as amended (the
“Hearing
Notice”),
concerning the hearing (the “Hearing”)
held
by the California Commissioner to consider the terms and conditions of this
Agreement and the Merger and the fairness of such terms and conditions pursuant
to Section 25142 of the California Corporate Securities Law of 1968, as amended,
and the rules promulgated thereunder (“California
Securities Law”),
and
(ii) the Company shall prepare, with the cooperation of Parent, an information
statement relating to this Agreement and the transactions contemplated hereby
(the “Information
Statement”).
The
Company shall prepare the Information Statement based on a form prepared by
Parent, if such form is delivered to the Company within five days after the
date
hereof. Each of the Company and Parent shall use its reasonable best efforts
to
cause the Permit Application, the Hearing Notice and the Information Statement
to comply with all requirements of applicable federal and state securities
laws.
Each of the Company and Parent shall provide promptly to the other such
information concerning its business and financial statements and affairs as,
in
the reasonable judgment of the providing party or its counsel, may be required
or appropriate for inclusion in the Permit Application, the Hearing Notice
or
the Information Statement, or in any amendments or supplements thereto, and
to
cause its counsel and auditors to cooperate with the other’s counsel and
auditors in the preparation of the Permit Application, the Hearing Notice and
the Information Statement. The Information Statement shall constitute a
disclosure document for the offer and issuance of the shares of Parent Common
Stock to be received by the Company Stockholders and holders of Company Stock
Options in the Merger and a proxy statement for solicitation of stockholder
approval of the Merger. Whenever any event occurs that is required to be set
forth in an amendment or supplement to the Information Statement, the Company
and Parent shall cooperate in delivering any such amendment or supplement to
all
the Company Stockholders and holders of Company Stock Options and/or filing
any
such amendment or supplement with the California Commissioner of Corporations
(the “California
Commissioner”)
or its
staff and/or any other government officials. The Information Statement shall
include the unqualified recommendation of the Board of Directors of the Company
in favor of adoption of this Agreement and approval of the Merger and the
Agreement of Merger and the conclusion of the Board of Directors of the Company
that the terms and conditions of the Merger and this Agreement are fair, just,
reasonable, equitable, advisable and in the best interests of the Company and
its stockholders. Anything to the contrary contained herein notwithstanding,
the
Company shall not include in the Information Statement any information with
respect to Parent or its affiliates or associates, the form and content of
which
information shall not have been approved by Parent prior to such inclusion;
provided,
however,
that
Parent shall not withhold approval of any information required to be included
by
federal or state law or the California Commissioner.
59
(b) Each
of
Parent and the Company shall use its reasonable best efforts (i) to cause to
be
filed with the California Commissioner, as soon as practicable following the
execution of this Agreement, and in any event within ten days after the date
hereof, the Permit Application and the Hearing Notice and (ii) to obtain, as
soon as practicable following the execution of this Agreement, the permit
approving the fairness of this Agreement and the Merger pursuant to Section
25121 of California Securities Law such that the issuance of the Parent Common
Stock in connection with the Merger shall be exempt pursuant to Section 3(a)(10)
of the Securities Act from the registration requirements of Section 5 of the
Securities Act (the “Permit”).
(c) As
soon
as permitted by the California Commissioner, the Company shall deliver by
personal delivery or reputable overnight courier the Hearing Notice to all
Company Stockholders and holders of Company Stock Options entitled to receive
such notice under California Securities Law. The Company and Parent shall notify
each other promptly of the receipt of any comments from the California
Commissioner or its staff and of any request by the California Commissioner
or
its staff or any other government officials for amendments or supplements to
any
of the documents filed therewith or any other filing or for additional
information and shall provide each other with copies of all correspondence
between such party or any of its representatives, on the one hand, and the
California Commissioner, or its staff or any other government officials, on
the
other hand, with respect to the filing. If the California Commissioner issues
the Permit, then as soon as practicable thereafter the Company shall deliver
by
personal delivery or reputable overnight courier the Information Statement
to
all Company Stockholders and holders of Company Stock Options. Except for the
delivery of the Information Statement in accordance with the terms hereof,
the
Company shall not, and shall cause each Subsidiary not to, directly or
indirectly, solicit the vote of any holder of the Company Capital Stock in
connection with the Merger in violation of any applicable federal or state
securities laws.
60
(d) The
information relating to the Company and Parent included in the Hearing Notice,
the Permit Application and the Information Statement shall not, at the time
the
Hearing Notice is delivered to Company Stockholders and holders of Company
Stock
Options, at the time the Information Statement is delivered to Company
Stockholders and holders of Company Stock Options, and at all times subsequent
thereto (through and including the Effective Time), contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company shall
promptly advise Parent, and Parent shall promptly advise the Company, in writing
if at any time prior to the Effective Time either the Company or Parent shall
obtain knowledge of any facts that might make it necessary or appropriate to
amend or supplement the Hearing Notice, the Permit Application, and/or the
Information Statement, in order to make the statements contained or incorporated
by reference therein not misleading or to comply with applicable law. the
Company and Parent shall cooperate in delivering any such amendment or
supplement to all the Company Stockholders and holders of Company Stock Options
and/or filing any such amendment or supplement with the California Commissioner
or its staff and/or any other government officials.
(e) If
Parent
and the Company determine in writing that the Permit cannot be obtained, or
cannot reasonably be expected to be obtained, in time to permit the Closing
to
occur on or before October 31, 2005, or if the California Commissioner notifies
Parent or the Company of the California Commissioner’s determination not to
grant the Hearing, not to permit the mailing of the Notice of Hearing and/or
not
to issue the Permit, then each of Parent and the Company shall use its
reasonable best efforts to cause the issuance of the shares of Parent Common
Stock to be issued in the Merger pursuant to an exemption under Regulation
D
promulgated under the Securities Act.
(f) Parent
shall take such steps as may be necessary to comply with the securities and
blue
sky laws of all jurisdictions which are applicable to the issuance of the Parent
Common Stock in connection with the Merger. The Company shall use its reasonable
best efforts to assist Parent as may be necessary to comply with the securities
and blue sky laws of all jurisdictions which are applicable in connection with
the issuance of Parent Common Stock in connection with the Merger.
7.3 Public
Announcements.
Neither
Parent, Merger Sub nor the Company shall make, or cause to be made, any press
release or other public statement or any statement to any analyst or member
of
the press concerning the transactions contemplated by this Agreement without
the
approval of the other party hereto; provided,
however,
that
Parent may, without such approval, but with prior notice to the Company, make
such press releases or other public statements as it reasonably believes are
required under the rules of the OTC Bulletin Board or applicable securities
Laws.
61
7.4 Tax-Free
Reorganization.
Parent
and the Company shall (and following the Effective Time, Parent shall cause
the
Surviving Corporation to) take no action that would cause the Merger to fail
to
qualify as a “reorganization” within the meaning of Section 368(a) of the Code.
This Agreement is intended to constitute a “plan of reorganization” within the
meaning of Section 1.368-2(g) of the income tax regulations promulgated under
the Code.
7.5 Expenses.
Each of
Parent and the Company shall bear its own costs and expenses in connection
with
this Agreement and the transactions contemplated hereby, including all legal,
accounting, financial advisory, consulting and all other fees and expenses
of
third parties, incurred up to the date of this Agreement whether or not the
Merger is consummated; provided,
however,
that,
in the event the Merger is consummated, Parent agrees to assume the expenses
of
the Company incurred from the date of this Agreement until the Closing Date.
7.6 Further
Assurances.
Upon
the terms and subject to the conditions hereof each of the parties hereto shall
execute such documents and other instruments and take such further actions
as
may be reasonably required to carry out the provisions hereof and consummate
the
Merger and the transactions contemplated hereby.
ARTICLE
VIII
CONDITIONS
TO MERGER
8.1 Conditions
to Each Party’s Obligation to Effect the Merger.
The
obligations of Parent, Merger Sub and the Company to consummate the Merger
are
subject to the satisfaction on or prior to the Closing Date of the following
conditions:
(a) The
Company Stockholder Approval shall have been obtained.
(b) The
Parent Stockholder Approval shall have been obtained.
(c) No
temporary restraining order, preliminary or permanent injunction or other Order
preventing the consummation of the Acquisition shall be in effect. No Law shall
have been enacted or shall be deemed applicable to the Merger which makes the
consummation of the Merger illegal.
(d) Either
(i) the Permit shall have been issued by the California Commissioner and no
stop
order suspending the effectiveness of the Permit or any part thereof shall
have
been issued and no proceeding for that purpose, no similar proceeding in respect
of the Permit shall have been initiated or threatened by the Department of
Corporations of the State of California, and all requests for additional
information on the part of the Department of Corporations of the State of
California shall have been complied with to the reasonable satisfaction of
the
parties hereto or (ii) each of Parent and the Company shall have determined
that
the shares of Parent Common Stock to be issued in the Merger may be issued
pursuant to another exemption from the registration requirements of Section
5 of
the Securities Act.
62
8.2 Conditions
to Obligations of Parent and Merger Sub to Effect the Merger.
The
obligations of Parent and Merger Sub to effect the Merger are subject to the
satisfaction (or waiver by Parent in its sole discretion) of the following
further conditions:
(a) The
representations and warranties of the Company set forth in this
Agreement shall
have been true and correct in all material respects at and as of the date hereof
and shall be true and correct in all material respects at and as of the Closing
Date as if made at and as of the Closing Date, except to the extent that such
representations and warranties refer specifically to an earlier date, in which
case such representations and warranties shall have been true and correct in
all
material respects as of such earlier date, and Parent shall have received a
certificate dated the Closing Date signed on behalf of the Company by the
President of the Company to such effect.
(b) The
Company shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing Date.
Parent shall have received a certificate signed on behalf of the Company by
the
President of the Company to such effect.
(c) The
Company shall have taken all corporate action necessary to approve the
transactions contemplated by this Agreement. The Company shall have furnished
Parent and Merger Sub with a certificate of the Secretary of the Company, dated
the Closing Date, certifying that: (i) attached thereto is a true and complete
copy of resolutions adopted unanimously by the Board of Directors of the Company
approving this Agreement and the Merger (such resolutions to be in form and
substance reasonably satisfactory to Parent); (ii) attached thereto is a true
and complete copy of resolutions adopted by the holders of at least a majority
of the then outstanding Company Shares voting as a single class on an
as-converted to Common Stock basis (such resolutions to be in form and substance
reasonably satisfactory to Parent); and (iii) that such resolutions have not
been amended and are in full force and effect as of the Closing Date.
(d) There
shall not have occurred any event, occurrence or change that has had, or could
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the Company and its Subsidiaries taken as a
whole.
(e) No
Action
shall be pending or threatened before any court or other Governmental Entity
or
before any other Person wherein an unfavorable Order would (i) prevent
consummation of the Merger, (ii) affect adversely the right of Parent to control
the Company and the Subsidiaries of the Company or (iii) restrain or prohibit
Parent’s ownership or operation (or that of its Subsidiaries or Affiliates) of
all or any material portion of the business or assets of the Surviving
Corporation and its Subsidiaries, taken as a whole, or compel Parent or any
of
its Subsidiaries or Affiliates to dispose of or hold separate all or any
material portion of the business or assets of the Surviving Corporation and
its
Subsidiaries, taken as a whole, or of Parent and its Subsidiaries, taken as
a
whole. No such Order shall be in effect.
63
(f) No
Law
shall have been enacted or shall be deemed applicable to the Merger which has
any of the effects set forth in clauses (i) through (iii) in Section
8.2(e).
(g) The
holders of no more than two percent of the Company Shares on an as-converted
to
Common Stock basis shall have demanded and not lost or withdrawn, or shall
be
eligible to demand, appraisal rights.
(h) The
Chief
Financial Officer and the Secretary of the Company shall have executed and
delivered to Parent the Allocation Certificate.
(i) Alchemy
Communications, Inc. shall have entered into an agreement with the Company
in
form and substance satisfactory to Parent and the Company and containing a
term
of five (5) years.
(j) The
Escrow Agent and the Stockholders’ Representative shall have duly executed and
delivered the Escrow Agreement to Parent.
(k) The
Stockholders’ Representative and the holders of not less than 95% of the shares
of Company Common Stock outstanding immediately prior to the Effective Time
shall have duly executed and delivered to Parent the Stockholders’
Representative Agreement.
(l) Parent
and Merger Sub shall have received a written opinion from counsel to the
Company, addressed to Parent and Merger Sub, dated as of the Closing Date,
in a
form reasonably acceptable to Parent and its counsel.
(m) The
Company shall have delivered to Parent a duly executed and certified FIRPTA
Certificate.
(n) The
Company shall have delivered to Parent resignations from the directors and
officers of the Company and each Subsidiary of the Company in office immediately
prior to the Effective Time.
(o) The
Company shall have delivered to Parent certificates of good standing for the
Company from the Secretary of State of the State of Delaware and California,
each dated a reasonable date prior to the Closing Date, and certificates of
good
standing for the Subsidiaries of the Company from the applicable Governmental
Entities in each such Subsidiary’s jurisdiction of organization.
8.3 Conditions
to Obligation of the Company to Effect the Merger.
The
obligation of the Company to effect the Merger is subject to the satisfaction
(or waiver by the Company in its sole discretion) of the following further
conditions:
(a) The
representations and warranties of Parent and Merger Sub set forth in this
Agreement shall
have been true and correct at in all material respects and as of the date hereof
and shall be true and correct in all material respects at and as of the Closing
Date as if made at and as of the Closing Date, except to the extent that such
representations and warranties refer specifically to an earlier date, in which
case such representations and warranties shall have been true and correct in
all
material respects as of such earlier date, and the Company shall have received
a
certificate dated the Closing Date signed on behalf of Parent by the President
of Parent to such effect.
64
(b) Parent
and Merger Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the Closing
Date. The Company shall have received a certificate signed on behalf of Parent
by the President or Chief Financial Officer of Parent to such
effect.
(c) The
Escrow Agreement shall have been duly executed and delivered by Parent and
the
Escrow Agent.
(d) The
Company shall have received an opinion of legal counsel for Parent in a form
reasonably acceptable to the Company and its counsel.
(e) ▇▇▇▇▇▇
▇▇▇▇, III shall have executed and delivered an employment agreement with Parent
on or prior to the Closing Date.
(f) Parent
shall have amended its Bylaws to increase the number of directors and shall
have
appointed the directors nominated by Stockholders’ Representative to Parent’s
Board of Directors.
ARTICLE
IX
TERMINATION
9.1 Termination.
(a) This
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time (with any termination by Parent also being an effective
termination by Merger Sub):
(i) by
mutual
written consent of Parent and the Company;
(ii) by
Parent
or the Company if:
(A) the
Merger is not consummated on or before November 30, 2005; provided,
however,
that
the right to terminate this Agreement under this clause (ii)(A) shall not be
available to any party whose breach of a representation, warranty, covenant
or
agreement under this Agreement has been the cause of or resulted in the failure
of the Closing to occur on or before such date;
(B) a
Governmental Entity shall have issued an Order or taken any other action, in
any
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which Order or other action is final and non-appealable;
or
65
(C) the
Parent Stockholder Approval shall not have been obtained at the Parent
Stockholders’ Meeting or any adjournment or postponement thereof;
(iii) by
Parent
if:
(A) any
condition to the obligations of Parent hereunder becomes incapable of
fulfillment other than as a result of a breach by Parent of any covenant or
agreement contained in this Agreement, and such condition is not waived by
Parent;
(B) there
has
been a breach by the Company of any representation, warranty, covenant or
agreement contained in this Agreement or if any representation or warranty
of
the Company shall have become untrue, in either case such that the conditions
set forth in Section 8.2(a) or Section 8.2(b) would not be satisfied and, in
either case, such breach is not curable, or, if curable, is not cured within
30
days after written notice of such breach is given to the Company by Parent;
or
(iv) by
the
Company if:
(A) any
condition to the obligations of the Company hereunder becomes incapable of
fulfillment other than as a result of a breach by the Company of any covenant
or
agreement contained in this Agreement, and such condition is not waived by
the
Company; or
(B) there
has
been a breach by Parent of any representation, warranty, covenant or agreement
contained in this Agreement or if any representation or warranty of Parent
shall
have become untrue, in either case such that the conditions set forth in Section
8.3(a) or Section 8.3(b) would not be satisfied and, in either case, such breach
is not curable, or, if curable, is not cured within 30 days after written notice
of such breach is given to Parent by the Company.
(b) The
party
desiring to terminate this Agreement pursuant to Section 9.1(a) (ii), (iii)
or
(iv) shall give written notice of such termination to the other parties
hereto.
9.2 Effect
of Termination.
In the
event of termination of this Agreement as provided in Section 9.1, this
Agreement shall immediately become void and there shall be no liability or
obligation on the part of the Company or Parent or their respective officers,
directors, stockholders or Affiliates, except as set forth in Section 9.3;
provided,
however,
that
the provisions of Section 7.3 (Public Announcements) and Section 9.3 (Remedies)
and Article XI of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
66
9.3 Remedies.
Solely
in the event that Parent chooses to terminate this Agreement pursuant to Section
9.1(a)(iii) by virtue of the failure of its stockholders to approve the Merger,
Parent shall pay to the Company a Break-Up Fee of $300,000 in cash, which shall
be the sole and exclusive remedy for any proper Parent termination. In addition,
any party terminating this Agreement pursuant to Section 9.1 shall have the
right to recover damages sustained by such party as a result of any breach
by
the other party of any representation, warranty, covenant or agreement contained
in this Agreement or fraud or willful misrepresentation; provided,
however,
that
the party seeking relief is not in breach of any representation, warranty,
covenant or agreement contained in this Agreement under circumstances which
would have permitted the other party to terminate the Agreement under
Section 9.1.
ARTICLE
X
INDEMNIFICATION
10.1 Survival.
(a) Except
as
set forth in Section 10.1(b), all representations and warranties, covenants
and
agreements of the Company and Parent contained in this Agreement, or in any
certificate or other document delivered pursuant hereto, shall survive the
Closing for a period of 18 months.
(b) The
representations and warranties of the Company contained in Sections 3.1
(Organization and Good Standing), 3.2 (Capitalization), 3.4 (Authority and
Enforceability), 3.29 (Brokers or Finders) shall survive indefinitely. The
representations and warranties of the Company contained in Sections 3.10 (Taxes)
and 3.20 (Employee Benefits) shall survive the Closing until 60 days after
the
expira-tion of the applicable statute of limitations period (after giving effect
to any waivers and extensions thereof). The representations and warranties
of
the Company contained in Section 3.22 (Environmental) shall survive the Closing
for a period of 3
years
following the Closing.
(c) The
representations and warranties of Parent contained in Sections 4.1 (Organization
and Good Standing), 4.2 (Capital Structure), 4.4 (Authority and Enforceability),
and 4.12 (Brokers or Finders) shall survive indefinitely. The representations
and warranties of Parent contained in Sections 4.8 (Taxes) shall survive the
Closing until 60 days after the expira-tion of the applicable statute of
limitations period (after giving effect to any waivers and extensions thereof).
(d) The
period for which a representation or warranty, covenant or agreement survives
the Closing is referred to herein as the “Applicable
Survival Period.”
In the
event a Notice of Claim for indemnification under Section 10.2 is given within
the Applicable Survival Period, the representation or warranty, covenant or
agreement that is the subject of such indemnification claim (whether or not
formal legal action shall have been commenced based upon such claim) shall
survive with respect to such claim until such claim is finally resolved. The
Indemnitor shall indemnify the Indemnitee for all Losses (subject to the
limitations set forth herein, if applicable) that the Indemnitee may incur
in
respect of such claim, regardless of when incurred.
67
10.2 Indemnification
by Company Stockholders.
(a) Subject
to the limitations set forth in this Article X, each Company Stockholder
(collectively, the “Parent
Indemnitors”)
shall
indemnify and defend Parent and its Affiliates and their respective
stockholders, members, managers, officers, directors and employees
(collectively, the “Parent
Indemnitees”)
against, and shall hold them harmless from, any and all losses, damages, claims
(including third party claims), charges, interest, penalties, taxes, diminution
in value, costs and expenses (including legal, consultant, accounting and other
professional fees, costs of sampling, testing, investigation, removal, treatment
and remediation of contamination and fees and costs incurred in enforcing rights
under this Section 10.2) (collectively, “Losses”)
resulting from, arising out of, or incurred by any Parent Indemnitee in
connection with, or otherwise with respect to:
(i) the
failure of any representation and warranty or other statement by the Company
contained in this Agreement or any certificate or other document furnished
or to
be furnished to Parent in connection with the transactions contemplated hereby
to be true and correct in all respects as of the date of this Agreement and
as
of the Closing Date;
(ii) any
breach of any covenant or agreement of the Company contained in this Agreement
or any certificate or other document furnished or to be furnished to Parent
in
connection with the transactions contemplated hereby; and
(iii) Dissenting
Share Payments.
Any
and
all Losses hereunder shall bear interest from the date incurred until paid
at
the rate of 6% per annum.
(b) Subject
to the limitations set forth in this Article X, Parent shall indemnify and
defend the Company Stockholders and each of them and their Affiliates and their
respective stockholders, members, managers, officers, directors and employees
(collectively, the “Company
Stockholder Indemnitees”)
against, and shall hold them harmless from, any and all Losses resulting from,
arising out of, or incurred by any Parent Indemnitee in connection with, or
otherwise with respect to:
(i) the
failure of any representation and warranty or other statement by Parent
contained in this Agreement or any certificate or other document furnished
or to
be furnished to the Company or such stockholders in connection with the
transactions contemplated hereby to be true and correct in all respects as
of
the date of this Agreement and as of the Closing Date;
(ii) any
breach of any covenant or agreement of Parent contained in this Agreement or
any
certificate or other document furnished or to be furnished to Parent in
connection with the transactions contemplated hereby.
Any
and
all Losses hereunder shall bear interest from the date incurred until paid
at
the rate of 6% per annum.
68
(c) Parent
Indemnitees and Company Stockholder Indemnitees are referred to as “Indemnitees”
as the context requires and Parent Indemnitors and Parent are referred to as
“Indemnitor(s)” as the context requires. No Indemnitor shall be liable for any
Loss or Losses pursuant to Section 10.2(a)(i) or Section 10.2(b)(i)
(“Warranty
Losses”)
unless
and until the aggregate amount of all Warranty Losses incurred by the
Indemnitees exceeds $50,000 (the “Indemnification
Threshold”),
in
which event such Indemnitor(s) shall be liable for all Warranty Losses from
the
first dollar. In addition, no liability for any Warranty Loss hereunder shall
exceed 5,000,000 shares of Parent’s common stock, and in the event of any
indemnification required hereunder, an Indemnitor may deliver Parent Common
Stock to satisfy any indemnification obligation hereunder. In such case, each
share of Parent Common Stock shall be valued at the higher of the value on
the
Closing Date or the value on the date the parties determine that such
indemnification is required (the “Indemnification
Date”).
In
the later case, the value shall be determined by the average bid and ask prices
of Parent Common Stock during the thirty (30) day period prior to
Indemnification Date.
(d) Nothing
contained in this Article X shall be deemed to limit or restrict in any manner
any rights or remedies which Parent or the Company or the Company Stockholders
have, or might have, at Law, in equity or otherwise, based on fraud or a willful
misrepresentation or willful breach of any representation, warranty, covenant
or
agreement contained
in this Agreement or certificate or other document furnished or to be furnished
to such party in connection with the transactions contemplated
hereby.
(e) The
adoption of this Agreement by each party hereto and its Stockholders constitutes
approval of the indemnification obligations set forth in this Article
X.
10.3 Escrow
Fund.
(a) As
soon
as practicable after the Effective Time, Parent shall cause to be delivered
to
the Escrow Agent a certificate or certificates representing the Escrow Shares.
The term “Escrow
Shares”
means
an aggregate of 1,500,000 shares of Parent Common Stock plus any shares as
may
be issued upon any stock split, stock dividend or similar recapitalization
with
respect to such shares. The Escrow Shares allocable to each Company Stockholder
shall be equal to the aggregate number of Escrow Shares multiplied by a fraction
the numerator of which is the number of shares of Parent Common Stock issuable
to each such Company Stockholder pursuant to the Merger and the denominator
of
which is the aggregate number of shares of Parent Common Stock issuable to
all
Company Stockholders pursuant to the Merger. Notwithstanding the foregoing,
no
shares of Parent Common Stock will be deposited into the Escrow Fund with
respect to Dissenting Shares (and the shares of Parent Common Stock issuable
with respect to such Dissenting Shares shall not be included in the foregoing
calculation) unless and until the Company Stockholder shall have failed to
perfect or shall have effectively withdrawn or lost his right to appraisal
and
payment under the Delaware Code, as the case may be, with respect to such
Dissenting Shares. The Escrow Shares, together with any and all income and
proceeds thereon, shall be referred to hereinafter as the “Escrow
Fund.”
The
Escrow Fund shall be available to compensate the Parent Indemnitees pursuant
to
the indemnification obligations of the Indemnitors.
69
(b) The
Escrow Fund shall be held and disbursed by the Escrow Agent in accordance with
the Escrow Agreement. Subject to and in accordance with the Escrow Agreement,
once the Indemnification Threshold has been reached, the full amount of all
Losses (aggregating all of the claims against the Indemnitors) shall be subject
to indemnification from the first dollar and a number of Escrow Shares shall
be
released to Parent from the Escrow Fund that have an aggregate value equal
to
the amount of all such Losses. The value of the Escrow Shares shall be computed,
with respect to Losses attributable to each respective claim, on the basis
of
the closing price of Parent Common Stock on the trading day immediately
preceding the Closing (the “Indemnity
Stock Price”).
Any
Escrow Shares that are disbursed from the Escrow Fund in satisfaction of any
claim shall be drawn pro rata from the Escrow Shares allocable to the Company
Stockholders in accordance with their respective interests therein as set forth
in Exhibit A to the Escrow Agreement.
(c) The
Indemnitors 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 agreement, then (without limiting any of the rights of the Surviving
Corporation as a Parent 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.
(d) One-third
of the Escrow Shares shall be released from the Escrow Fund on each of the
following dates: (i) six months after the Closing Date; (ii) 12 months after
the
Closing Date and (ii) 18 months after the Closing Date; provided,
that in
the event Parent has made a claim under the indemnification provisions herein,
any Escrow Shares subject to such claim shall not be subject to release, and
the
foregoing calculation shall be based upon one-third of the remaining Escrow
Shares.
10.4 Third
Party Claims.
(a) In
the
event that an Indemnitee receives notice of the assertion of any claim or the
commencement of any Action by a third party in respect of which indemnity may
be
sought under the provisions of this Article X (“Third
Party Claim”),
such
party shall notify the other parties hereto, including, if appropriate, the
Stockholders’ Representative, in writing of such Third Party Claim
(“Notice
of Claim”)
and
concurrently therewith shall send a duplicate copy of such Notice of Claim
to
the Escrow Agent. The Notice of Claim shall set forth: (i) that an Indemnitee
has incurred Losses or anticipates that it will incur Losses for which such
Indemnitee is entitled to indemnification pursuant to this Agreement; (ii)
the
amount of such Losses, if known, or, if not known, an estimate of the
foreseeable maximum amount of such Losses (which estimate shall not be
conclusive of the final amount of such Losses); (iii) a description of the
basis
for such Third Party Claim; and (iv) if the amount of such Losses is known,
the
number of Escrow Shares, if applicable, to be disbursed by the Escrow Agent
to
the Indemnitee in satisfaction of such Third Party Claim based on the Indemnity
Stock Price and, if the amount of such Losses is not known, the number of Escrow
Shares, if applicable to be disbursed by the Escrow Agent to the Indemnitee
in
satisfaction of such Third Party Claim based on the Indemnity Stock Price and
the estimate of the foreseeable maximum amount of such Losses (which number
of
Escrow Shares shall not be conclusive of the final number of Escrow Shares
to be
disbursed in satisfaction of such Third Party Claim). Failure or delay in
notifying the other parties hereto will not relieve the Indemnitors of any
liability they may have to the Indemnitee, except and only to the extent that
such failure or delay causes actual harm to the Indemnitors with respect to
such
Third Party Claim.
70
(b) Subject
to the further provisions of this Section 10.4, the Indemnitor will have 10
Business Days (or less if the nature of the Third Party Claim requires) from
the
date on which the Indemnitor received the Notice of Claim to notify the
Indemnitee that the Indemnitor will assume the defense or prosecution of such
Third Party Claim and any litigation resulting therefrom with counsel of its
choice (reasonably satisfactory to the Indemnitee) and at its sole cost and
expense (a “Third
Party Defense”).
If
the Indemnitor assumes the Third Party Defense in accordance with the preceding
sentence, the Indemnitors shall be conclusively deemed to have acknowledged
that
the Third Party Claim is within the scope of their indemnity obligation
hereunder and shall hold the Indemnitee harmless from and against the full
amount of any Losses resulting therefrom (subject to the terms and conditions
of
this Agreement). Any Indemnitee shall have the right to employ separate counsel
in any such Action and to participate in the defense thereof, but the fees
and
expenses of such counsel shall not be at the expense of the Indemnitors unless
(A) the Indemnitor shall have failed, within the time after having been notified
by the Indemnitee of the exist-ence of the Third Party Claim as provided in
the
first sentence of this paragraph (b), to assume the defense of such Third Party
Claim, or (ii) the employment of such counsel has been specifically authorized
in writing by the Indemnitor, which authorization shall not be unreasonably
withheld.
(c) The
Indemnitor will not be entitled to assume the Third Party Defense
if:
(i) a
Third
Party Claim seeks, in addition to or in lieu of monetary damages, any injunctive
or other equitable relief (except where non-monetary relief is merely incidental
to a primary claim or claims for monetary damages);
(ii) the
claim
for indemnification relates to or arises in connection with any criminal
proceed-ing, action, indictment, allegation or investigation;
(iii) with
respect to any Action in which Parent is Indemnitee, the claim for
indemnification relates to or arises in connection with any Environmental
Action;
71
(iv) under
applicable standards of professional conduct, a conflict on any significant
issue exists between the Indemnitee and the Indemnitor in respect of such Third
Party Claim;
(v) with
respect to any Action in which Parent is Indemnitee, the Third Party Claim
involves a material customer or supplier of the Company or any of its
Subsidiaries;
(vi) upon
petition by the Indemnitee, the appropriate court rules that the Indemnitor
failed or is failing to vigorously prosecute or defend such Third Party Claim;
or
(vii) with
respect to any Action in which Parent is Indemnitee, the amount of claimed
Losses subject to all outstanding Notices of Claim exceeds the value of the
Escrow Shares (calculated on the basis of the Indemnity Stock Price) remaining
in the Escrow Fund.
(d) If
by
reason of the Third Party Claim a lien, attachment, garnishment or execution
is
placed upon any of the property or assets of such Indemnitee, the Indemnitor,
if
it desires to exercise its right to assume such Third Party Defense, must
furnish a satisfactory indemnity bond to obtain the prompt release of such
lien,
attachment, garnishment or execution.
(e) If
the
Indemnitor assumes a Third Party Defense, it will take all steps necessary
in
the defense, prosecution, or settlement of such claim or litigation and the
Indemnitors shall reimburse the Indemnitees promptly for any and all Losses
caused by or arising out of such Third Party Claim (subject to the last sentence
of Section 10.4(b)). The Indemnitor will not consent to the entry of any
judgment or enter into any settlement except with the written consent of the
Indemnitee; provided,
however,
the
consent of the Indemnitee shall not be required if all of the following
conditions are met: (i) the terms of the judgment or proposed settlement include
as an unconditional term thereof the giving to the Indemnitee by the third
party
of a release of the Indemnitee from all liability in respect of such Third
Party
Claim; (ii) there is no finding or admission of (A) any violation of Law by
the
Indemnitee (or any Affiliate thereof), (B) any violation of the rights of any
Person and (C) no effect on any other Action or claims of a similar nature
that
may be made against the Indemnitee (or any Affiliate thereof); and (iii) the
sole form of relief is monetary damages which are paid in full by the
Indemnitor. The Indemnitor shall conduct the defense of the Third Party Claim
actively and diligently, and the Indemnitee will provide reasonable cooperation
in the defense of the Third Party Claim. Notwithstanding the foregoing, the
Indemnitee shall have the right to pay or settle any Third Party Claim,
provided
that in
such event, subject to the following sentence, it shall waive any right to
indemnity therefor by the Indemnitors for such claim unless the Indemnitor
shall
have consented to such payment or settlement (such consent not to be
unreasonably withheld or delayed). If the Indemnitor is not reasonably
conducting the Third Party Defense in good faith, the Indemnitee shall have
the
right to consent to the entry of any judgment or enter into any settlement
with
respect to the Third Party Claim without the prior written consent of the
Indemnitee and the Indemnitors shall reimburse the Indemnitee promptly for
all
Losses incurred in connection with such judgment or settlement.
72
(f) In
the
event that (i) an Indemnitee gives Notice of Claim to the Indemnitor and the
Indemnitor fails or elects not to assume a Third Party Defense which the
Indemnitor had the right to assume under this Section 10.4 or (ii) the
Indemnitor is not entitled to assume the Third Party Defense pursuant to this
Section 10.4, the Indemnitee shall have the right, with counsel of its choice,
to defend, conduct and control the Third Party Defense, at the sole cost and
expense of the Indemnitors. In each case, the Indemnitee shall conduct the
Third
Party Defense actively and diligently, and the Indemnitee will provide
reasonable cooperation in the Third Party Defense and, if appropriate, use
his
commercially reasonable efforts to cause the former Company Stockholders to
cooperate in the Third Party Defense. The Indemnitee shall have the right to
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim on such terms as it may deem appropriate; provided,
however,
that
the amount of any settlement made or entry of any judgment consented to by
the
Indemnitee without the consent of the Indemnitee Representative shall not be
determinative of the validity of the claim against the Escrow Fund, except
with
the consent of the Indemnitor (which shall not be unreasonably withheld or
delayed). Notwithstanding Section 11.5 hereof, in connection with any Third
Party Claim, the Indemnitor hereby consents to the nonexclusive jurisdiction
of
any court in which an Action in respect of a Third Party Claim is brought
against any Indemnitee for purposes of any claim that an Indemnitee may have
under this Article X with respect to such Action or the matters alleged therein
and agrees that process may be served on the Indemnitor with respect to such
a
claim anywhere in the world. If the Indemnitor does not elect to assume a Third
Party Defense which it has the right to assume hereunder, the Indemnitee shall
have no obligation to do so.
10.5 Non-Third
Party Claims.
Indemnitee will send a Notice of Claim to the Indemnitor promptly following
discovery by any Indemnitee of any matter that gives rise to a claim of
indemnity pursuant hereto and that does not involve a Third Party Claim being
asserted against it. Concurrently therewith if the Indemnitee is Parent, it
shall send a duplicate copy of such Notice of Claim to the Escrow Agent. Failure
or delay in notifying the Indemnitor will not relieve the Indemnitors of any
liability they may have to the Indemnitee, except and only to the extent that
such failure or delay causes actual harm to the Indemnitors with respect to
such
claim. The Indemnitor will reasonably cooperate and assist the Indemnitee in
determining the validity of the claim for indemnity.
10.6 Claims
Upon Escrow Fund.
Notwithstanding any other provision of this Article X, if the Stockholders’
Representative does not timely give notice to Parent and the Escrow Agent in
accordance with the terms of the Escrow Agreement that it disputes the claim
for
indemnity that is subject to the Notice of Claim, the Losses specified in such
Notice of Claim will be conclusively deemed Losses subject to indemnification
hereunder and the Escrow Agreement. In the event that the Stockholders’
Representative timely gives notice to Parent and the Escrow Agent pursuant
to
the Escrow Agreement that he disputes such claim, the dispute shall be resolved
in accordance with the terms of the Escrow Agreement; provided
that the
Stockholders’ Representative shall not be entitled to dispute a Parent
Indemnitee’s right to indemnification with respect to a Third Party Claim if the
Stockholders’ Representative has assumed the Third Party Defense of such Third
Party Claim in accordance with Section 10.4(b).
73
10.7 Contingent
Claims.
Nothing
herein shall be deemed to prevent an Indemnitee from making a claim hereunder
for potential or contingent claims or demands; provided that
the
Notice of Claim sets forth the specific basis for any such contingent claim
to
the extent then feasible and the Indemnitee has reasonable grounds to believe
that such a claim may be made.
10.8 Effect
of Investigation; Waiver.
(a) An
Indemnitee’s right to indemnification or other remedies based upon the
representations and warranties and covenants and agreements of the other parties
will not be affected by any investigation, knowledge or waiver of any condition
by the Indemnitee. Such representations and warranties and covenants and
agreements shall not be affected or deemed waived by reason of the fact that
the
Indemnitee knew or should have known that any representation or warranty might
be inaccurate or that the other party failed to comply with any agreement or
covenant. Any investigation by such party shall be for its own protection only
and shall not affect or impair any right or remedy hereunder.
(b) The
waiver by any Indemnitee of any condition based on the accuracy of any
representation or warranty, or compliance with any covenant or agreement, will
not affect any right to indemnification or other remedy based on such
representations and warranties and covenants and agreements unless otherwise
expressly agreed in writing by the Indemnitee.
ARTICLE
XI
MISCELLANEOUS
11.1 Notices.
Any
notice, request, demand, waiver, consent, approval or other communication which
is required or permitted hereunder shall be in writing and shall be deemed
given: (a) on the date established by the sender as having been delivered
personally; (b) on the date delivered by a private courier as established by
the
sender by evidence obtained from the courier; (c) on the date sent by facsimile,
with confirmation of transmission, if sent during normal business hours of
the
recipient, if not, then on the next business day; or (d) on the fifth day after
the date mailed, by certified or registered mail, return receipt requested,
postage prepaid. Such communications, to be valid, must be addressed as
follows:
74
If
to
Parent or Sub, to:
International
Microcomputer Software, Inc.
▇▇
▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇▇▇▇, III, Chief Executive Officer
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
With
a
required copy to:
▇▇▇▇▇▇,
▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
2
Palo
Alto Square
▇▇▇▇
▇▇
▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇
▇▇▇▇▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
If
to the
Company, to:
AccessMedia
Networks, Inc..
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇ ▇▇▇▇
Facsimile:
▇▇▇-▇▇▇-▇▇▇▇
If
to the
Stockholders’ Representative, to:
▇▇.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
or
to
such other address or to the attention of such Person or Persons as the
recipient party has specified by prior written notice to the sending party
(or
in the case of counsel, to such other readily ascertainable business address
as
such counsel may hereafter maintain). If more than one method for sending notice
as set forth above is used, the earliest notice date established as set forth
above shall control.
11.2 Amendments
and Waivers.
(a) Any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and is signed, in the case of an amendment,
by
each party to this Agreement, or in the case of a waiver, by the party against
whom the waiver is to be effective; provided that,
after
adoption of this Agreement by the Company Stockholders, no amendment or waiver
shall be made which by Law requires further approval by the Company Stockholders
without such further approval. Notwithstanding the foregoing, any amendment
to
Article X that adversely affects the rights of the Stockholders’ Representative
in his capacity as such shall require the prior written consent of the
Stockholders’ Representative.
75
(b) No
failure or delay by any party in exercising any right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.
(c) To
the
maximum extent permitted by Law, (i) no waiver that may be given by a party
shall be applicable except in the specific instance for which it was given
and
(ii) no notice to or demand on one party shall be deemed to be a waiver of
any
obligation of such party or the right of the party giving such notice or demand
to take further action without notice or demand.
11.3 Successors
and Assigns.
This
Agreement may not be assigned by any party hereto without the prior written
consent of the other parties. Subject to the foregoing, all of the terms and
provisions of this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective executors, heirs, personal
representatives, successors and assigns.
11.4 Governing
Law.
This
Agreement and the Exhibits and Schedules hereto shall be governed by and
interpreted and enforced in accordance with the Laws of the State of California,
without giving effect to any choice of Law or conflict of Laws rules or
provisions (whether of the State of California or any other jurisdiction) that
would cause the application of the Laws of any jurisdiction other than the
State
of California.
11.5 Consent
to Jurisdiction.
Each
party irrevocably submits to the exclusive jurisdiction of (a) California,
and
(b) the United States District Court for the Northern District of California,
for the purposes of any Action arising out of this Agreement or any transaction
contemplated hereby. Each party agrees to commence any such Action either in
the
United States District Court for the Northern District of California or if
such
Action may not be brought in such court for jurisdictional reasons, in the
Superior Court of the State of California Santa ▇▇▇▇▇ County. Each party further
agrees that service of any process, summons, notice or document by U.S.
registered mail to such party’s respective address set forth above shall be
effective service of process for any Action in California with respect to any
matters to which it has submitted to jurisdiction in this Section 11.5. Each
party irrevocably and unconditionally waives any objection to the laying of
venue of any Action arising out of this Agreement or the transactions
contemplated hereby in (i) the United States District Court for the Northern
District of California, or (ii) the Superior Court of the State of California
Santa ▇▇▇▇▇ County, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such Action brought
in any such court has been brought in an inconvenient forum.
76
11.6 Counterparts.
This
Agreement may be executed in any number of counterparts, and any party hereto
may execute any such counterpart, each of which when executed and delivered
shall be deemed to be an original and all of which counterparts taken together
shall constitute but one and the same instrument. This Agreement shall become
effective when each party hereto shall have received a counterpart hereof signed
by the other parties hereto. The parties agree that the delivery of this
Agreement may be effected by means of an exchange of facsimile signatures with
original copies to follow by mail or courier service.
11.7 Third
Party Beneficiaries.
No
provision of this Agreement is intended to confer upon any Person other than
the
parties hereto any rights or remedies hereunder; except that (i) in the case
of
Article X hereof, the Indemnitees and their respective heirs, executors,
administrators, legal representatives, successors and assigns, and (ii) in
the
case of Section 2.8 hereof, the Company’s stockholders, are intended third party
beneficiaries of such sections and shall have the right to enforce such sections
in their own names.
11.8 Entire
Agreement.
This
Agreement and the documents, instruments and other agreements specifically
referred to herein or delivered pursuant hereto set forth the entire
understanding of the parties hereto with respect to the Acquisition. All
Exhibits and Schedules referred to herein are intended to be and hereby are
specifically made a part of this Agreement. Any and all previous agreements
and
understandings between or among the parties regarding the subject matter hereof,
whether written or oral, are superseded by this Agreement, other than the
Confidentiality Agreement which shall continue in full force and effect in
accordance with its terms.
11.9 Captions.
All
captions contained in this Agreement are for convenience of reference only,
do
not form a part of this Agreement and shall not affect in any way the meaning
or
interpretation of this Agreement.
11.10 Severability.
Any
provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall be ineffective to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
provisions hereof, and any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any
other jurisdiction.
11.11 Specific
Performance.
Parent
and the Company each agree that irreparable damage would occur in the event
that
any of the provisions of this Agreement were not performed by them in accordance
with the terms hereof and that each party shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at Law or
equity.
77
ARTICLE
XII
DEFINITIONS
12.1 Definitions.
When
used in this Agreement, the following terms shall have the meanings assigned
to
them in this Section 12.1, or in the applicable Section of this Agreement to
which reference is made in this Section 12.1.
“Affiliate”
means,
with respect to any specified Person, any other Person directly or indirectly
controlling, controlled by or under common control with such specified
Person.
“Authorization”
means
any authorization, approval, consent, certificate, license, permit or franchise
of or from any Governmental Entity or pursuant to any Law.
“Business
Day”
means a
day other than a Saturday, Sunday or other day on which banks located in New
York City are authorized or required by Law to close.
“Contract”
means
any agreement, contract, license, lease, commitment, arrangement or
understanding, written or oral, including any sales order and purchase
order.
“Governmental
Entity”
means
any entity or body exercising executive, legislative, judicial, regulatory
or
administrative functions of or pertaining to United States federal, state,
local, or municipal government, foreign, international, multinational or other
government, including any department, commission, board, agency, bureau,
subdivision, instrumentality, official or other regulatory, administrative
or
judicial authority thereof, and any non-governmental regulatory body to the
extent that the rules and regulations or orders of such body have the force
of
Law.
“Indebtedness”
means
any of the following: (a) any indebtedness for borrowed money, (b) any
obligations evidenced by bonds, debentures, notes or other similar instruments,
(c) any obligations to pay the deferred purchase price of property or services,
except trade accounts payable and other current Liabilities arising in the
ordinary course of business, (d) any obligations as lessee under capitalized
leases, (e) any indebtedness created or arising under any conditional sale
or
other title retention agreement with respect to acquired property, (f) any
obligations, contingent or otherwise, under acceptance credit, letters of credit
or similar facilities, and (g) any guaranty of any of the
foregoing.
“Knowledge”
of the
Company or any similar phrase means, with respect to any fact or matter, the
actual knowledge of the directors and executive officers of the Company and
each
of its Subsidiaries and any other employee of the Company and each of its
Subsidiaries, together with such knowledge that such directors, executive
officers and other employees could be expected to discover after due
investigation concerning the existence of the fact or matter in
question.
78
“Law”
means
any statute, law (including common law), constitution, treaty, ordinance, code,
order, decree, judgment, rule, regulation and any other binding requirement
or
determination of any Governmental Entity.
“Order”
means
any award, injunction, judgment, decree, order, ruling, subpoena or verdict
or
other decision entered, issued or rendered by any Governmental
Entity.
“Person”
means
an individual, a corporation, a partnership, a limited liability company, a
trust, an unincorporated association, a Governmental Entity or any agency,
instrumentality or political subdivision of a Governmental Entity, or any other
entity or body.
“Subsidiary”
or
“Subsidiaries”
means,
with respect to any party, any Person, of which (i) such party or any Subsidiary
of such party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any Subsidiary of such
party do not have a majority of the voting interest in such partnership) or
(ii)
at least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such Person is directly or
indirectly owned or controlled by such party and/or by any one or more of its
Subsidiaries.
“$”
means
United States dollars.
12.2 Other
Defined Terms.
The
following terms have the meanings assigned to such terms in the Sections of
the
Agreement set forth below:
|
Action
|
3.18(a)
|
|
Agent
|
5.7
|
|
Agreement
|
Preface
|
|
Allocation
Certificate
|
5.9
|
|
Applicable
Survival Period
|
10.1(d)
|
|
Application
Survival Period
|
10.1(d)
|
|
Balance
Sheet
|
3.6(b)
|
|
Balance
Sheet Date
|
3.6(b)
|
|
Baseline
Measurement Period
|
2.8(b)
|
|
Baseline
Revenue
|
2.8(b)
|
|
Baytree
Capital
|
3.26
|
|
California
Commissioner
|
7.2(a)
|
|
California
Securities Law
|
7.2(a)
|
|
CERCLA
|
3.21(a)(iv)
|
|
Certificates
|
2.2(c)
|
79
|
Charter
Documents
|
3.1(b)
|
|
Common
Stock
|
2.1(a)
|
|
Clickthroughs
|
6.4(b)(ii)
|
|
Closing
|
1.2
|
|
Closing
Consideration
|
2.1(b)(i)
|
|
Closing
Date
|
1.2
|
|
Code
|
Recitals
|
|
Company
|
Preface
|
|
Company
Benefit Plan
|
3.19(a)
|
|
Company
Common Stock
|
2.1(a)
|
|
Company
Common Stock Equivalents
|
2.1(a)
|
|
Company
Disclosure Schedule
|
Preamble
Article III
|
|
Company
Equity Holders
|
5.9
|
|
Company
Intellectual Property
|
3.15(e)
|
|
Company
Milestone
|
6.4(b)(i)
|
|
Company
Owned Intellectual Property
|
3.15(b)
|
|
Company
Owned Software
|
3.15(n)(i)
|
|
Company
Registered Items
|
3.15(f)
|
|
Company
Shares
|
3.2(a)
|
|
Company
Stock Options
|
2.1(a)
|
|
Company
Stockholder
|
2.1(b)
|
|
Company
Stockholder Approval
|
3.4(b)
|
|
Company
Stockholder Indemnitees
|
10.2(b)
|
|
Company
Voting Agreements
|
Recitals
|
|
Confidentiality
Agreement
|
5.3
|
|
Consents
|
3.5(a)
|
|
Constituent
Corporations
|
1.1
|
|
Conversion
Rate
|
6.4(b)(iii)
|
|
Copyrights
|
3.15(a)
|
|
Delaware
Code
|
1.1
|
|
Dissenting
Share Payments
|
2.6(b)
|
|
Dissenting
Shares
|
2.6(a)
|
|
Earnout
Consideration
|
2.1(b)(i)
|
|
Earnout
Dispute Notice
|
2.8(c)(ii)
|
80
|
Earnout
Measurement Period
|
2.8(a)(ii)
|
|
Earnout
Payment
|
2.8(a)
|
|
Effective
Time
|
1.2
|
|
Environment
|
3.21(a)(i)
|
|
Environmental
Action
|
3.21(a)(ii)
|
|
Environmental
Clean-Up Site
|
3.21(a)(iii)
|
|
Environmental
Laws
|
3.21(a)(iv)
|
|
Environmental
Liabilities
|
3.21(a)(v)
|
|
Environmental
Permit
|
3.21(a)(vi)
|
|
ERISA
|
3.19(a)
|
|
ERISA
Affiliate
|
3.19(a)
|
|
Escrow
Agent
|
2.2(d)
|
|
Escrow
Agreement
|
2.2(d)
|
|
Escrow
Fund
|
10.3(a)
|
|
Excess
Revenue
|
2.8(b)
|
|
Exchange
Act
|
4.4(b)
|
|
Exchange
Ratio
|
2.1(b)(i)
|
|
Final
Statement of Revenue
|
2.8(c)(ii)
|
|
Financial
Statements
|
3.6(a)
|
|
FIRPTA
Certificate
|
5.10
|
|
Funding
|
6.4(a)
|
|
GAAP
|
3.6(b)
|
|
Hazardous
Substances
|
3.21(a)(vii)
|
|
Hearing
|
7.2(a)
|
|
Hearing
Notice
|
7.2(a)
|
|
In-Bound
Licenses
|
3.15(c)
|
|
Indemnification
Date
|
10.2(c)
|
|
Indemnification
Threshold
|
10.2(c)
|
|
Indemnitors
|
10.2(a)
|
|
Indemnity
Stock Price
|
10.3(b)
|
|
Information
Statement
|
7.2(a)
|
|
Intellectual
Property
|
3.15(a)
|
|
Intellectual
Property Rights
|
3.15(a)
|
|
Interim
Balance Sheet
|
3.6(b)
|
81
|
Interim
Balance Sheet Date
|
3.6(b)
|
|
Interim
Financial Statements
|
3.6(a)
|
|
Joint
Operating Agreement
|
Recitals
|
|
Liabilities
|
3.7
|
|
Liens
|
3.3(a)
|
|
Lockup
Agreement
|
6.2
|
|
Losses
|
10.2(a)
|
|
Marks
|
3.15(a)
|
|
Material
Contracts
|
3.17(b)
|
|
Merger
|
1.1
|
|
Merger
Consideration
|
2.1(b)(i)
|
|
Merger
Sub
|
Preface
|
|
Minor
Contracts
|
3.17(e)
|
|
Monthly
Budget
|
6.4(b)(iv)
|
|
Nondisclosure
Agreements
|
3.15(i)
|
|
Notice
of Claim
|
10.4(a)
|
|
Out-Bound
Licenses
|
3.15(d)
|
|
Parent
|
Preface
|
|
Parent
Common Stock
|
2.1(b)(i)
|
|
Parent
Indemnitees
|
10.2(a)
|
|
Parent
Preferred Stock
|
4.2
|
|
Parent
SEC Reports
|
4.5(a)
|
|
Parent
Stockholder Approval
|
4.3(a)
|
|
Patents
|
3.15(a)
|
|
PCBs
|
3.21(h)
|
|
Pension
Plan
|
3.19(b)
|
|
Permit
|
7.2(b)
|
|
Permit
Application
|
7.2(a)
|
|
Permitted
Liens
|
3.12(a)
|
|
Policies
|
3.23(a)
|
|
Principal
Company Stockholder
|
Recitals
|
|
Proposal
|
5.7
|
|
Proprietary
Information
|
3.15(a)
|
|
Proxy
Statement
|
7.2(a)
|
82
|
RCRA
|
3.21(a)(iv)
|
|
Real
Property
|
3.14(a)
|
|
Release
|
3.21(a)(viii)
|
|
Representatives
|
5.3
|
|
Revenue
|
2.8(a)(i)
|
|
Reviewing
Accountant
|
2.8(c)(ii)
|
|
SEC
|
4.5(a)
|
|
Securities
Act
|
4.5(a)
|
|
Software
|
3.15(a)
|
|
Statement
of Revenue
|
2.8(c)(i)
|
|
Stockholders'
Representative
|
Preface
|
|
Stockholders'
Representative Agreement
|
2.2(d)
|
|
Surviving
Corporation
|
1.1
|
|
Tax
|
3.9(a)(i)
|
|
Tax
Returns
|
3.9(a)(ii)
|
|
Taxing
Authority
|
3.9(a)(iii)
|
|
Third
Party Claim
|
10.4(a)
|
|
Third
Party Defense
|
10.4(b)
|
|
Total
Parent Shares
|
2.1(b)(i)
|
|
Transitioned
Employees
|
6.1
|
|
Transmittal
Letter
|
2.2(b)
|
|
Treasury
Shares
|
2.1(b)(i)
|
|
Warranty
Losses
|
10.2(c)
|
|
Work
Product Agreements
|
3.15(j)
|
12.3 Interpretation.
(a) The
meaning assigned to each term defined herein shall be equally applicable to
both
the singular and the plural forms of such term and vice versa, and words
denoting either gender shall include both genders as the context requires.
Where
a word or phrase is defined herein, each of its other grammatical forms shall
have a corresponding meaning.
(b) The
terms
"hereof", "herein" and "herewith" and words of similar import shall, unless
otherwise stated, be construed to refer to this Agreement as a whole and not
to
any particular provision of this Agreement.
83
(c) When
a
reference is made in this Agreement to an Article, Section, paragraph, Exhibit
or Schedule, such reference is to an Article, Section, paragraph, Exhibit or
Schedule to this Agreement unless otherwise specified.
(d) The
word
"include", "includes", and "including" when used in this Agreement shall be
deemed to be followed by the words "without limitation", unless otherwise
specified.
(e) A
reference to any party to this Agreement or any other agreement or document
shall include such party's predecessors, successors and permitted
assigns.
(f) Reference
to any Law means such Law as amended, modified, codified, replaced or reenacted,
and all rules and regulations promulgated thereunder.
(g) The
parties have participated jointly in the negotiation and drafting of this
Agreement. Any rule of construction or interpretation otherwise requiring this
Agreement to be construed or interpreted against any party by virtue of the
authorship of this Agreement shall not apply to the construction and
interpretation hereof.
(h) All
accounting terms used and not defined herein shall have the respective meanings
given to them under GAAP.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
84
IN
WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto, duly authorized as of
the
date first written above.
|
INTERNATIONAL
MICROCOMPUTER SOFTWARE,
INC.
|
||
| |
|
|
| By: | /s/ ▇▇▇▇▇▇ ▇▇▇▇, III | |
|
|
||
|
Name:
▇▇▇▇▇▇ ▇▇▇▇, III
Title:
Chief Executive Officer
|
||
|
ACCM
ACQUISITION CORP.
|
||
| |
|
|
| By: | /s/ ▇▇▇▇▇▇ ▇▇▇▇, III | |
|
|
||
|
Name:
▇▇▇▇▇▇ ▇▇▇▇, III
Title:
Chief Executive
Officer
|
||
|
ACCESSMEDIA
NETWORKS, INC.
|
||
| |
|
|
| By: | /s/ ▇▇▇▇▇ ▇▇▇▇ | |
|
|
||
|
Name:
▇▇▇▇▇ ▇▇▇▇
Title:
Director
|
||
|
STOCKHOLDERS'
REPRESENTATIVE
|
||
| |
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ | |
|
|
||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
||
| STOCKHOLDERS: | ||
|
SOFTWARE
PEOPLE, LLC
|
||
| |
|
|
| By: | /s/ ▇▇▇▇▇ ▇▇▇▇ | |
|
|
||
|
Name:
▇▇▇▇▇ ▇▇▇▇
Title:
Director
|
||
|
TRANS
GLOBAL MEDIA, LLC
|
||
| |
|
|
| By: | /s/ ▇▇▇▇▇ ▇▇▇▇ | |
|
|
||
|
Name:
▇▇▇▇▇ ▇▇▇▇
Title:
Director
|
||
|
BROADCASTER,
LLC
|
||
| |
|
|
| By: | /s/ ▇▇▇▇▇ ▇▇▇▇ | |
|
|
||
|
Name:
▇▇▇▇▇ ▇▇▇▇
Title:
Director
|
||
|
ACCESSMEDIA
TECHNOLOGIES, LLC
|
||
| |
|
|
| By: | /s/ ▇▇▇▇▇ ▇▇▇▇ | |
|
|
||
|
Name:
▇▇▇▇▇ ▇▇▇▇
Title:
Director
|
||
| |
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ |
|
|
|
||
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
||
Annex
A
Principal
Company Stockholders
Software
People, LLC
Trans
Global Media, LLC
Broadcaster,
LLC
AccessMedia
Technologies, LLC
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
Annex
B
Principal
Parent Stockholders
▇▇▇▇▇▇
▇▇▇▇, III
Digital
Creative Development Corp.
Baytree
Capital Associates, LLC
Exhibit
A
COMPANY
VOTING AGREEMENT
This
COMPANY VOTING AGREEMENT ("Agreement")
is
made as of August 8, 2005, between International Microcomputer Software,
Inc., a
California corporation ("IMSI"),
and
the undersigned stockholder ("Stockholder")
of
AccessMedia Networks, Inc., a Delaware corporation (the "Company").
RECITALS:
WHEREAS,
concurrently with the execution and delivery of this Agreement, IMSI, ACCM
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of
IMSI
("Merger
Sub"),
and
the Company are entering into an Agreement of Plan of Merger of even date
herewith (the "Merger
Agreement"),
pursuant to which Merger Sub will be merged with and into the Company, and
the
Company will become a wholly owned subsidiary of IMSI (the "Merger");
WHEREAS,
as of the date hereof, Stockholder is the Beneficial Owner (as defined below)
of
Subject Shares (as defined below); and
WHEREAS,
in order to induce IMSI and Merger Sub to enter into the Merger Agreement,
Stockholder has agreed to enter into this Agreement.
NOW,
THEREFORE, in consideration of the foregoing premises and of the covenants
and
agreements set forth herein and in the Merger Agreement, and intending to
be
legally bound hereby, the parties agree as follows:
1. Definitions.
(a) "Beneficially
Own"
or
"Beneficial
Owner"
with
respect to any securities means having "beneficial ownership" as determined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange
Act").
(b) "Company
Capital Stock"
means
shares of the Company’s common stock, no par value per share.
(c) "Company
Options and Other Rights"
means
options, warrants and other rights to acquire, directly or indirectly, shares
of
Company Capital Stock.
(d) "Expiration
Date"
means
the earlier to occur of (i) the Effective Time (as defined in the Merger
Agreement) or (ii) the date on which the Merger Agreement is terminated pursuant
to its terms; provided,
however,
that
the obligations of Stockholder under Sections 2(a)(iv) and (b) hereof shall
survive the Expiration Date until December 31, 2010.
(e) "Subject
Shares"
means
(i) all shares of Company Capital Stock Beneficially Owned by Stockholder
as of
the date of this Agreement; (ii) all additional shares of Company Capital
Stock
of which Stockholder acquires Beneficial Ownership during the period from
the
date of this Agreement through the Expiration Date, and (iii) for purposes
of
Stockholder’s obligations under Sections 2(a)(iv) and (b) hereof, all shares of
IMSI’s capital stock Beneficially Owned by Stockholder at each election of
directors specified therein.
2. Voting.
(a) Stockholder
hereby agrees that, prior to the Expiration Date, at any meeting of the
stockholders of the Company, however called, and in any written action by
consent of stockholders of the Company, unless otherwise directed in writing
by
IMSI, Stockholder shall cause to be counted as present thereat for purposes
of
establishing a quorum and shall vote, or cause to be voted, any and all Subject
Shares Beneficially Owned by Stockholder as of the record date of such meeting
or written consent:
(i) in
favor
of the Merger, the execution and delivery by the Company of the Merger Agreement
and the adoption and approval of the Merger Agreement and the terms thereof,
in
favor of each of the other actions contemplated by the Merger Agreement and
in
favor of any action in furtherance of any of the foregoing;
(ii) against
any action or agreement that would result in a breach of any representation,
warranty, covenant or obligation of the Company in the Merger Agreement;
(iii) against
the following actions (other than the Merger and the transactions contemplated
by the Merger Agreement): (A) any extraordinary corporate transaction, such
as a
merger, consolidation or other business combination involving the Company
or any
subsidiary of the Company; (B) any sale, lease, sublease, exclusive license,
sublicense or transfer of a material portion of the rights or other assets
of
the Company or any subsidiary of the Company; (C) any reorganization,
recapitalization, dissolution or liquidation of the Company or any subsidiary
of
the Company; (D) any amendment to the Company's articles of incorporation
or
bylaws; and (E) any other action which is intended, or could reasonably be
expected, to impede, interfere with, delay, postpone, discourage or adversely
affect the Merger or any of the other transactions contemplated by the Merger
Agreement or this Agreement; and
(iv) with
respect to each election of directors of IMSI following the Closing Date,
in
favor of ▇▇▇▇▇▇ ▇▇▇▇, III (subject to Stockholder’s right to have certain
individuals designated by the Stockholders’ Representative pursuant to the
Merger Agreement).
(b) Stockholder
also agrees to vote all of his, her or its shares from time to time and at
all
times in whatever manner as shall be necessary to ensure that the director
elected pursuant to Section 2(a)(iv) of this Agreement may not be removed
from
office (other than for cause) unless (A) such removal is directed or approved
by
IMSI or (B) IMSI is no longer so entitled to designate or approve such director.
Stockholder agrees to execute any written consents required to effectuate
the
obligations of this Agreement.
2
(c) Prior
to
the Expiration Date, Stockholder shall not enter into any agreement or
understanding with any Person to vote or give instructions in any manner
inconsistent with Section 2(a).
(d) Stockholder
hereby waives and agrees not to exercise any applicable "appraisal rights"
under
the Delaware General Corporations Law with respect to the Subject Shares
in
connection with the Merger and the Merger Agreement.
3. Revocation
of Prior Proxies.
(a) Stockholder
hereby revokes any and all prior proxies or powers of attorney given by
Stockholder with respect to the voting of the Subject Shares and agrees not
to
grant any subsequent proxies or powers of attorney with respect to the voting
of
the Subject Shares until the Expiration Date.
(b) Stockholder
shall, at IMSI’s expense, perform such further acts and execute such further
documents and instruments as may reasonably be required to vest in IMSI the
power to carry out and give effect to the provisions of this
Agreement.
4. No
Restrictions on Transfer.
It is
understood and agreed that (i) this Agreement does not prohibit the Stockholder
from selling or otherwise transferring the Subject Shares, and (ii) the
obligations under this Agreement shall terminate with respect to any Subject
Shares that are sold or otherwise transferred by the Stockholder.
5. Covenants
of Stockholder.
The
Stockholder covenants and agrees for the benefit of IMSI that, until the
Expiration Date, Stockholder will not:
(a) sell,
transfer, pledge, hypothecate, encumber, assign, tender or otherwise dispose
of,
or enter into any contract, option or other arrangement or understanding
with
respect to the sale, transfer, pledge, hypothecation, encumbrance, assignment,
tender or other disposition of, (i) any Subject Shares or any interest therein,
or (ii) any Company Options and Other Rights or any interest therein;
provided,
however,
that
Stockholder may convert, exercise or exchange Company Options and Other Rights
into or for shares of Company Capital Stock in which event such shares of
Capital Stock shall become and be deemed Subject Shares subject to all the
terms
and conditions of this Agreement;
(b) grant
any
powers of attorney or proxies or consents in respect of any of the Subject
Shares, deposit any of such Subject Shares into a voting trust, or enter
into a
voting agreement with respect to any of such Subject Shares; and
(c) take
any
other action with respect to the Subject Shares that would in any way restrict,
limit or interfere with the performance of Stockholder's obligations hereunder
or the transactions contemplated hereby and the Merger Agreement.
6. Representations
and Warranties of Stockholder.
Stockholder represents and warrants to IMSI as follows:
3
(a) As
of the
date of this Agreement and at all times through the Expiration
Date:
(i) Stockholder
is and will be the Beneficial Owner (free and clear of any encumbrances or
restrictions) of the outstanding shares of Company Capital Stock set forth
under
the heading "Shares of Company Capital Stock Beneficially Owned", on the
signature page hereof.
(ii) Stockholder
is and will be the Beneficial Owner (free and clear of any encumbrances or
restrictions) of the outstanding Company Options and Other Rights set forth
under the heading "Company Options and Other Rights Beneficially Owned" on
the
signature page hereof (except to the extent that such Company Options and
Other
Rights are converted into, exercised or exchanged for shares of Company Capital
Stock); and
(iii) Stockholder
does not directly or indirectly Beneficially Own any shares of Company Capital
Stock or Company Options or Other Rights or other securities of the Company,
other than the shares of Company Capital Stock and Company Options and Other
Rights set forth on the signature page hereof.
(b) Stockholder
has and will have the legal capacity, power and authority to enter into and
perform all of Stockholder's obligations under this Agreement. This Agreement
has been duly executed and delivered by Stockholder and, if Stockholder is
a
corporation or partnership, has been duly authorized by all requisite corporate
or partnership action of Stockholder, as the case may be, and upon its execution
and delivery by IMSI, will constitute a legal, valid and binding obligation
of
Stockholder, enforceable against Stockholder in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
creditors rights generally, and the availability of injunctive relief and
other
equitable remedies.
(c) The
execution, delivery and performance by Stockholder of this Agreement will
not
(i) conflict with, require a consent, waiver or approval under, or result
in a
breach of or default under, any of the terms of any contract, commitment
or
other obligation (written or oral) to which Stockholder is a party or by
which
any of Stockholder's assets may be bound, and, if Stockholder is a corporation
or partnership, the organizational documents of Stockholder, or (ii) violate
any
order, writ injunction, decree, judgment, order, statute, rule or regulation
applicable to Stockholder or any of its assets.
(d) No
filing
with, and no permit, authorization, consent or approval of, any state or
federal
public body or authority is necessary for the execution of this Agreement
by
Stockholder and the consummation by Stockholder of the transactions contemplated
hereby.
4
7. Adjustments;
Additional Shares.
In the
event (a) of any stock dividend, stock split, merger, recapitalization,
reclassification, combination, exchange of shares or the like of the capital
stock of the Company on, of or affecting the Subject Shares or (b) that
Stockholder shall become the Beneficial Owner of any additional shares of
Company Capital Stock or other securities entitling the holder thereof to
vote
or give consent with respect to the matters set forth in Section 2(a), then
the
terms of this Agreement shall apply to the shares of Company Capital Stock
or
other instruments or documents held by Stockholder immediately following
the
effectiveness of the events described in clause (a) or Stockholder becoming
the
Beneficial Owner thereof as described in clause (b), as though, in either
case,
they were Subject Shares hereunder.
8. Amendments
and Waivers.
Any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and is signed, in the case of an amendment,
by
each party to this Agreement, or in the case of a waiver, by the party against
whom the waiver is to be effective. No failure or delay by any party in
exercising any right or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
To the
maximum extent permitted by Law, (a) no waiver that may be given by a party
shall be applicable except in the specific instance for which it was given
and
(b) no notice to or demand on one party shall be deemed to be a waiver of
any
obligation of such party or the right of the party giving such notice or
demand
to take further action without notice or demand.
9. Assignment.
This
Agreement may not be assigned by either party hereto without the prior written
consent of the other party. Subject to the foregoing, all of the terms and
provisions of this Agreement shall inure to the benefit of and be binding
upon
the parties hereto and their respective executors, heirs, personal
representatives, successors and assigns.
10. Entire
Agreement.
This
Agreement and the documents, instruments and other agreements specifically
referred to herein or delivered pursuant hereto, set forth the entire
understanding of the parties with respect to the subject matter hereof. Any
and
all previous agreements and understandings between or among the parties
regarding the subject matter hereof, whether written or oral, are superseded
by
this Agreement.
11. Notices.
Any
notice, request, demand, waiver, consent, approval or other communication
which
is required or permitted hereunder shall be in writing and shall be deemed
given
(a) on the date established by the sender as having been delivered personally;
(b) on the date delivered by a private courier as established by the sender
by
evidence obtained from the courier; (c) on the date sent by facsimile, with
confirmation of transmission, if sent during normal business hours of the
recipient, if not, then on the next business day; or (d) on the fifth day
after
the date mailed, by certified or registered mail, return receipt requested,
postage prepaid. Such communications, to be valid, must be addressed as
follows:
5
If
to
IMSI, to:
International
Microcomputer Software, Inc.
▇▇
▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇▇▇▇ III, Chief Executive Officer
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
With
a
required copy to:
▇▇▇▇▇▇,
▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
2
Palo
Alto Square
▇▇▇▇
▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
Attn:
▇▇▇
▇▇▇▇▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
If
to
Stockholder:
_________________________
_________________________
_________________________
Attn:_____________________
Facsimile:_________________
With
a
required copy to:
_________________________
_________________________
_________________________
Attn:_____________________
Facsimile:_________________
or
to
such other address or to the attention of such Person or Persons as the
recipient party has specified by prior written notice to the sending party
(or
in the case of counsel, to such other readily ascertainable business address
as
such counsel may hereafter maintain). If more than one method for sending
notice
as set forth above is used, the earliest notice date established as set forth
above shall control.
12. Captions.
All
captions contained in this Agreement are for convenience of reference only,
do
not form a part of this Agreement and shall not affect in any way the meaning
or
interpretation of this Agreement.
13. Counterparts.
This
Agreement may be executed in counterparts, and either party may execute such
counterpart, both of which when executed and delivered shall be deemed to
be an
original and which counterparts taken together shall constitute but one and
the
same instrument.
14. Severability;
Enforcement.
Any
provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall be ineffective to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
provisions hereof, and any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision
in any
other jurisdiction.
6
15. Specific
Performance.
Stockholder acknowledges that the agreements contained in this Agreement
are an
integral part of the transactions contemplated by the Merger Agreement, and
that, without these agreements, IMSI would not enter into the Merger Agreement,
and acknowledges that damages would be an inadequate remedy for any breach
by
Stockholder of the provisions of this Agreement. Accordingly, Stockholder
agrees
that Stockholder's obligations hereunder shall be specifically enforceable
and
Stockholder shall not take any action to impede the other from seeking to
enforce such right of specific performance.
16. Governing
Law.
This
Agreement shall be governed by and interpreted and enforced in accordance
with
the Laws of the State of California, without giving effect to any choice
of Law
or conflict of Laws rules or provisions (whether of the State of California
or
any other jurisdiction) that would cause the application of the Laws of any
jurisdiction other than the State of California. Each party irrevocably submits
to the exclusive jurisdiction of (a) California, and (b) the United States
District Court for the Northern District of California, for the purposes
of any
Action arising out of this Agreement or any transaction contemplated hereby.
Each party agrees to commence any such Action either in the United States
District Court for the Northern District of California or if such Action
may not
be brought in such court for jurisdictional reasons, in the Superior Court
of
the State of California, Santa ▇▇▇▇▇ County. Each party further agrees that
service of any process, summons, notice or document by U.S. registered mail
to
such party's respective address set forth above shall be effective service
of
process for any Action in California with respect to any matters to which
it has
submitted to jurisdiction in this Section 15. Each party irrevocably and
unconditionally waives any objection to the laying of venue of any Action
arising out of this Agreement or the transactions contemplated hereby in
(i) the
United States District Court for the Northern District of California, or
(ii)
the Superior Court of the State of California Santa ▇▇▇▇▇ County, and hereby
further irrevocably and unconditionally waives and agrees not to plead or
claim
in any such court that any such Action brought in any such court has been
brought in an inconvenient forum.
[Signature
Page To Follow]
7
IN
WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
all
as of the day and year first above written.
|
INTERNATIONAL
MICROCOMPUTER SOFTWARE,
INC.
By:
_____________________________
Name:
Title:
|
|
|
ACCM
ACQUISITION CORP.
By:
_____________________________
Name:
Title:
|
|
| If stockholder is a natural person |
STOCKHOLDER
______________________________
(Signature)
______________________________
Print
Name
|
| If stockholder is a business or other entity |
STOCKHOLDER
[
]
By:
_____________________________
Name:
Title:
|
| Number and class of shares of Capital Stock: |
______________________________
______________________________
______________________________
|
| Number of Company Options and Other Rights: |
______________________________
______________________________
______________________________
|
Exhibit
B
PARENT
VOTING AGREEMENT
This
PARENT VOTING AGREEMENT ("Agreement")
is
made as of August 8, 2005, between AccessMedia Networks, Inc., a Delaware
corporation ("AccessMedia"),
and
the undersigned stockholder ("Stockholder")
of
International Microcomputer Software, Inc., a California corporation
("IMSI").
RECITALS:
WHEREAS,
AccessMedia, ACCM Acquisition Corp., a Delaware corporation and wholly
owned
subsidiary of IMSI ("Merger
Sub"),
and
IMSI have entered into an Agreement of Plan of Merger dated as of August
8, 2005
(the "Merger
Agreement"),
pursuant to which Merger Sub will be merged with and into AccessMedia,
and
AccessMedia will become a wholly owned subsidiary of IMSI (the "Merger");
WHEREAS,
as of the date hereof, Stockholder is the Beneficial Owner (as defined
below) of
Subject Shares (as defined below); and
WHEREAS,
in order to induce AccessMedia to consummate the transactions contemplated
by
the Merger Agreement, Stockholder has agreed to enter into this
Agreement.
NOW,
THEREFORE, in consideration of the foregoing premises and of the covenants
and
agreements set forth herein and in the Merger Agreement, and intending
to be
legally bound hereby, the parties agree as follows:
1. Definitions.
(a) "Beneficially
Own"
or
"Beneficial
Owner"
with
respect to any securities means having "beneficial ownership" as determined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange
Act").
(b) "IMSI
Capital Stock"
means
shares of IMSI’s common stock, no par value per share.
(c) "IMSI
Options and Other Rights"
means
options, warrants and other rights to acquire, directly or indirectly,
shares of
IMSI Capital Stock.
(d) "Expiration
Date"
means
the earlier to occur of (i) December 31, 2010 and (ii) the date on which
the
former stockholders of AccessMedia Beneficially Own a majority of the
outstanding IMSI Capital Stock.
(e) "Subject
Shares"
means
(i) all shares of IMSI Capital Stock Beneficially Owned by Stockholder
as of the
date of this Agreement; and (ii) all additional shares of IMSI Capital
Stock of
which Stockholder acquires Beneficial Ownership during the period from
the date
of this Agreement through the Expiration Date.
2. Voting.
(a) Stockholder
hereby agrees that, prior to the Expiration Date, at any meeting of the
stockholders of IMSI, however called, and in any written action by consent
of
stockholders of IMSI, unless otherwise directed in writing by AccessMedia,
Stockholder shall cause to be counted as present thereat for purposes of
establishing a quorum and shall vote, or cause to be voted, any and all
Subject
Shares Beneficially Owned by Stockholder as of the record date of such
meeting
or written consent:
(i) in
favor
of the Merger, the execution and delivery by IMSI of the Merger Agreement
and
the adoption and approval of the Merger Agreement and the terms thereof,
in
favor of each of the other actions contemplated by the Merger Agreement
and in
favor of any action in furtherance of any of the foregoing;
(ii) against
any action or agreement that would result in a breach of any representation,
warranty, covenant or obligation of IMSI in the Merger Agreement;
(iii) in
favor
of electing ▇▇▇▇▇▇ ▇▇▇▇ III and each individual nominated by the Stockholders’
Representative (as defined in the Merger Agreement and who shall initially
be
▇▇▇▇▇▇ ▇▇▇▇▇▇▇), to become a member of the IMSI Board of Directors, following
the Closing Date of the Merger and until the Expiration Date; and
(iv) in
favor
of electing a sufficient number of individuals for the IMSI Board of Directors,
nominated by the Stockholders’ Representative, such that said individuals would
represent a majority of the IMSI Board of Directors, after the date upon
which
AccessMedia achieves Revenue of $20 million and until the Expiration
Date.
(b) Stockholder
also agrees to vote all of his, her or its shares from time to time and
at all
times in whatever manner as shall be necessary to ensure that (i) no director
elected pursuant to Section 2(a) of this Agreement may be removed from
office
(other than for cause) unless (A) such removal is directed or approved
by the
Stockholders’ Representative or (B) the Stockholders’ Representative is no
longer so entitled to designate or approve such director and (ii) any vacancies
created by the resignation, removal or death of a director elected pursuant
to
Section 2(a) shall be filled pursuant to the provisions of Section 2(a).
Stockholder agrees to execute any written consents required to effectuate
the
obligations of this Agreement.
(c) Prior
to
the Expiration Date, Stockholder shall not enter into any agreement or
understanding with any Person to vote or give instructions in any manner
inconsistent with Section 2(a).
2
3. Grant
of Proxy; Appointment of Proxy.
(a) In
furtherance of the transactions contemplated hereby and by the Merger Agreement,
and in order to secure the performance by Stockholder of Stockholder's
duties
under this Agreement, Stockholder, concurrently with the execution of this
Agreement, shall execute, in accordance with the provisions of applicable
California law, and deliver to AccessMedia an irrevocable proxy, substantially
in the form of Annex A hereto, and irrevocably appoint AccessMedia or its
designees, with full power of substitution, Stockholder's attorney and
proxy to
vote, or, if applicable, to give consent with respect to, all of the Subject
Shares Beneficially Owned by Stockholder as of the record date of such
vote or
consent in respect of any of the matters set forth in, and in accordance
with
the provisions of, Section 2(a) (the "Proxy").
(b) Stockholder
understands and acknowledges that AccessMedia is consummating the transactions
contemplated by the Merger Agreement in reliance upon such Proxy. Stockholder
hereby affirms that the Proxy set forth in this Section 3 is given to secure
the
performance of the duties of Stockholder under this Agreement. Stockholder
hereby affirms that the irrevocable proxy is coupled with an interest and
may
under no circumstances be revoked. Stockholder hereby ratifies and confirms
all
that such irrevocable proxy may lawfully do or cause to be done by virtue
hereof.
(c) Stockholder
hereby revokes any and all prior proxies or powers of attorney given by
Stockholder with respect to the voting of the Subject Shares and agrees
not to
grant any subsequent proxies or powers of attorney with respect to the
voting of
the Subject Shares until the Expiration Date.
(d) Stockholder
shall, at IMSI’s expense, perform such further acts and execute such further
proxies and other documents and instruments as may reasonably be required
to
vest in AccessMedia the power to carry out and give effect to the provisions
of
this Agreement.
4. No
Restrictions on Transfer.
It is
understood and agreed that (i) this Agreement does not prohibit the Stockholder
from selling or otherwise transferring the Subject Shares, and (ii) the
obligations under this Agreement shall terminate with respect to any Subject
Shares that are sold or otherwise transferred by the Stockholder.
5. Representations
and Warranties of Stockholder.
Stockholder represents and warrants to AccessMedia as follows:
(a) As
of the
date of this Agreement:
(i) Stockholder
is the Beneficial Owner (free and clear of any encumbrances or restrictions)
of
the outstanding shares of IMSI Capital Stock set forth under the heading
"Shares
of IMSI Capital Stock Beneficially Owned", on the signature page
hereof.
(ii) Stockholder
is the Beneficial Owner (free and clear of any encumbrances or restrictions)
of
the outstanding IMSI Options and Other Rights set forth under the heading
"IMSI
Options and Other Rights Beneficially Owned" on the signature page hereof
(except to the extent that such IMSI Options and Other Rights are converted
into, exercised or exchanged for shares of IMSI Capital Stock); and
3
(iii) Stockholder
does not directly or indirectly Beneficially Own any shares of IMSI Capital
Stock or IMSI Options or Other Rights or other securities of IMSI, other
than
the shares of IMSI Capital Stock and IMSI Options and Other Rights set
forth on
the signature page hereof.
(b) Stockholder
has and will have the legal capacity, power and authority to enter into
and
perform all of Stockholder's obligations under this Agreement and the Proxy.
This Agreement has been duly executed and delivered by Stockholder and,
if
Stockholder is a corporation or partnership, has been duly authorized by
all
requisite corporate or partnership action of Stockholder, as the case may
be,
and upon its execution and delivery by AccessMedia, will constitute a legal,
valid and binding obligation of Stockholder, enforceable against Stockholder
in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to creditors rights generally, and the availability
of
injunctive relief and other equitable remedies.
(c) The
execution, delivery and performance by Stockholder of this Agreement will
not
(i) conflict with, require a consent, waiver or approval under, or result
in a
breach of or default under, any of the terms of any contract, commitment
or
other obligation (written or oral) to which Stockholder is a party or by
which
any of Stockholder's assets may be bound, and, if Stockholder is a corporation
or partnership, the organizational documents of Stockholder, or (ii) violate
any
order, writ injunction, decree, judgment, order, statute, rule or regulation
applicable to Stockholder or any of its assets.
(d) No
filing
with, and no permit, authorization, consent or approval of, any state or
federal
public body or authority is necessary for the execution of this Agreement
by
Stockholder and the consummation by Stockholder of the transactions contemplated
hereby.
6. Adjustments;
Additional Shares.
In the
event (a) of any stock dividend, stock split, merger, recapitalization,
reclassification, combination, exchange of shares or the like of the capital
stock of IMSI on, of or affecting the Subject Shares or (b) that Stockholder
shall become the Beneficial Owner of any additional shares of IMSI Capital
Stock
or other securities entitling the holder thereof to vote or give consent
with
respect to the matters set forth in Section 2(a), then the terms of this
Agreement shall apply to the shares of IMSI Capital Stock or other instruments
or documents held by Stockholder immediately following the effectiveness
of the
events described in clause (a) or Stockholder becoming the Beneficial Owner
thereof as described in clause (b), as though, in either case, they were
Subject
Shares hereunder.
4
7. Amendments
and Waivers.
Any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and is signed, in the case of an amendment,
by
each party to this Agreement, or in the case of a waiver, by the party
against
whom the waiver is to be effective. No failure or delay by any party in
exercising any right or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise thereof preclude any other or
further
exercise thereof or the exercise of any other right, power or privilege.
To the
maximum extent permitted by Law, (a) no waiver that may be given by a party
shall be applicable except in the specific instance for which it was given
and
(b) no notice to or demand on one party shall be deemed to be a waiver
of any
obligation of such party or the right of the party giving such notice or
demand
to take further action without notice or demand.
8. Assignment.
This
Agreement may not be assigned by either party hereto without the prior
written
consent of the other party. Subject to the foregoing, all of the terms
and
provisions of this Agreement shall inure to the benefit of and be binding
upon
the parties hereto and their respective executors, heirs, personal
representatives, successors and assigns.
9. Entire
Agreement.
This
Agreement and the documents, instruments and other agreements specifically
referred to herein or delivered pursuant hereto, set forth the entire
understanding of the parties with respect to the subject matter hereof.
Any and
all previous agreements and understandings between or among the parties
regarding the subject matter hereof, whether written or oral, are superseded
by
this Agreement.
10. Notices.
Any
notice, request, demand, waiver, consent, approval or other communication
which
is required or permitted hereunder shall be in writing and shall be deemed
given
(a) on the date established by the sender as having been delivered personally;
(b) on the date delivered by a private courier as established by the sender
by
evidence obtained from the courier; (c) on the date sent by facsimile,
with
confirmation of transmission, if sent during normal business hours of the
recipient, if not, then on the next business day; or (d) on the fifth day
after
the date mailed, by certified or registered mail, return receipt requested,
postage prepaid. Such communications, to be valid, must be addressed as
follows:
If
to
AccessMedia, to:
AccessMedia
Networks, Inc.
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
With
a
required copy to:
Alchemy
Communications, Inc.
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile:
(▇▇▇)▇▇▇-▇▇▇▇
5
If
to
Stockholder:
_______________
_______________
_______________
Attn:
Facsimile:
With
a
required copy to:
_______________
_______________
_______________
Attn:
Facsimile:
or
to
such other address or to the attention of such Person or Persons as the
recipient party has specified by prior written notice to the sending party
(or
in the case of counsel, to such other readily ascertainable business address
as
such counsel may hereafter maintain). If more than one method for sending
notice
as set forth above is used, the earliest notice date established as set
forth
above shall control.
11. Captions.
All
captions contained in this Agreement are for convenience of reference only,
do
not form a part of this Agreement and shall not affect in any way the meaning
or
interpretation of this Agreement.
12. Counterparts.
This
Agreement may be executed in counterparts, and either party may execute
such
counterpart, both of which when executed and delivered shall be deemed
to be an
original and which counterparts taken together shall constitute but one
and the
same instrument.
13. Severability;
Enforcement.
Any
provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall be ineffective to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
provisions hereof, and any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision
in any
other jurisdiction.
6
14. Specific
Performance.
Stockholder acknowledges that the agreements contained in this Agreement
are an
integral part of the transactions contemplated by the Merger Agreement,
and
that, without these agreements, AccessMedia would not enter into the Merger
Agreement, and acknowledges that damages would be an inadequate remedy
for any
breach by Stockholder of the provisions of this Agreement. Accordingly,
Stockholder agrees that Stockholder's obligations hereunder shall be
specifically enforceable and Stockholder shall not take any action to impede
the
other from seeking to enforce such right of specific performance.
15. Governing
Law.
This
Agreement shall be governed by and interpreted and enforced in accordance
with
the Laws of the State of California, without giving effect to any choice
of Law
or conflict of Laws rules or provisions (whether of the State of California
or
any other jurisdiction) that would cause the application of the Laws of
any
jurisdiction other than the State of California. Each party irrevocably
submits
to the exclusive jurisdiction of (a) California, and (b) the United States
District Court for the Northern District of California, for the purposes
of any
Action arising out of this Agreement or any transaction contemplated hereby.
Each party agrees to commence any such Action either in the United States
District Court for the Northern District of California or if such Action
may not
be brought in such court for jurisdictional reasons, in the Superior Court
of
the State of California, Santa ▇▇▇▇▇ County. Each party further agrees
that
service of any process, summons, notice or document by U.S. registered
mail to
such party's respective address set forth above shall be effective service
of
process for any Action in California with respect to any matters to which
it has
submitted to jurisdiction in this Section 14. Each party irrevocably and
unconditionally waives any objection to the laying of venue of any Action
arising out of this Agreement or the transactions contemplated hereby in
(i) the
United States District Court for the Northern District of California, or
(ii)
the Superior Court of the State of California Santa ▇▇▇▇▇ County, and hereby
further irrevocably and unconditionally waives and agrees not to plead
or claim
in any such court that any such Action brought in any such court has been
brought in an inconvenient forum.
[Signature
Page To Follow]
7
IN
WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
all
as of the day and year first above written.
|
ACCESSMEDIA
NETWORKS, INC.
By:
_____________________________
Name:
▇▇▇▇▇ ▇▇▇▇
Title:
Director
|
|
| If stockholder is a natural person |
STOCKHOLDER
______________________________
(Signature)
______________________________
Print
Name
|
| If stockholder is a business or other entity |
STOCKHOLDER
[
]
By:
_____________________________
Name:
Title:
|
| Number and class of shares of Capital Stock: |
______________________________
______________________________
______________________________
|
| Number of IMSI Options and Other Rights: |
______________________________
______________________________
______________________________
|
8
ANNEX
A
IRREVOCABLE
PROXY
Capitalized
terms used but not defined herein shall have the meaning ascribed to such
terms
in the Parent Voting Agreement, dated as of August 8, 2005 (the "Parent
Voting Agreement"),
between AccessMedia Networks, Inc., a Delaware corporation (“AccessMedia”),
and
the undersigned stockholder of International Microcomputer Software, Inc.,
a
California corporation (“IMSI”).
A copy
of the Parent Voting Agreement is attached hereto and is incorporated by
reference herein.
This
Proxy is given to secure the performance of the duties of the undersigned
Stockholder pursuant to the Parent Voting Agreement and is granted in
consideration of AccessMedia consummation of the transactions contemplated
by
the Merger Agreement.
The
undersigned Stockholder hereby irrevocably appoints ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
Stockholders’ Representative of AccessMedia, as the sole and exclusive attorney,
agent and proxy, with full power of substitution, for the undersigned
Stockholder and in the name, place and stead of the undersigned Stockholder,
to
vote or, if applicable, to give written consent, with respect to, all Subject
Shares Beneficially Owned by the undersigned Stockholder and which the
undersigned Stockholder is or may be entitled to vote at any meeting of
IMSI
held after the date hereof, whether annual or special and whether or not
an
adjourned meeting, or, if applicable, to give written consent with respect
thereto, in accordance with the provisions of Section 2(a) of the Parent
Voting
Agreement as follows:
(i) in
favor
of the Merger, the execution and delivery by IMSI of the Merger Agreement
and
the adoption and approval of the Merger Agreement and the terms thereof,
in
favor of each of the other actions contemplated by the Merger Agreement
and in
favor of any action in furtherance of any of the foregoing;
(ii) against
any action or agreement that would result in a breach of any representation,
warranty, covenant or obligation of IMSI in the Merger Agreement;
(iii) in
favor
of electing ▇▇▇▇▇▇ ▇▇▇▇ III and each individual nominated by the Stockholders’
Representative (as defined in the Merger Agreement and who shall initially
be
▇▇▇▇▇▇ ▇▇▇▇▇▇▇), to become a member of the IMSI Board of Directors, following
the Closing Date of the Merger and until the Expiration Date (as defined
in the
Parent Voting Agreement); and
(iv) in
favor
of electing a sufficient number of individuals for the IMSI Board of Directors,
nominated by the Stockholders’ Representative, such that said individuals would
represent a majority of the IMSI Board of Directors, after the date upon
which
AccessMedia achieves Revenue of $20 million and until the Expiration Date
(as
defined in the Parent Voting Agreement).
This
Proxy is coupled with an interest, shall be irrevocable to the fullest
extent
permitted by law and shall be binding on any successor in interest of the
undersigned Stockholder. This Proxy shall not be terminated by operation
of law
upon the occurrence of any event, including, without limitation, the death
or
incapacity of the undersigned Stockholder.
This
Proxy shall operate to revoke any prior proxy as to the Subject Shares
heretofore granted by the undersigned Stockholder with respect to the subject
matter of the Parent Voting Agreement and the Merger Agreement.
This
Proxy shall terminate on the Expiration Date.
SIGNATURE
TO IRREVOCABLE PROXY
| If Stockholder is a natural person |
STOCKHOLDER
______________________________
(Signature)
______________________________
Print
Name
Date:__________________________
|
| If Stockholder is a business or other entity |
STOCKHOLDER
[__________________________]
By:
_____________________________
Name:
Title:
Date:__________________________
|
Exhibit
C
JOINT
OPERATING AGREEMENT
THIS
JOINT OPERATING AGREEMENT ("Agreement")
is
entered into as of August 8, 2005, between AccessMedia Networks, Inc.,
a
Delaware corporation (the "Company"),
and
International Microcomputer Software, Inc., a California corporation
("IMSI").
RECITALS:
WHEREAS,
concurrently with the execution of this Agreement, the Company and
IMSI have
entered into an Agreement and Plan of Merger (the “Merger
Agreement”),
pursuant to which the Company will become a wholly-owned subsidiary
of IMSI,
subject to the terms and conditions set forth in the Merger Agreement;
WHEREAS,
the Company and IMSI desire to cooperate in the management and operation
of the
Company;
WHEREAS,
the Company desires to issue and sell to IMSI a Note in the form attached
hereto
as Exhibit
A
(the
"Note")
in an
amount up to the Maximum Available Credit (as defined below); and
WHEREAS,
the Company desires to sell, and IMSI desires to purchase, the Note
on the terms
and conditions set forth herein;
AGREEMENT:
NOW,
THEREFORE, in consideration of the foregoing recitals and the respective
representations and warranties, covenants and agreements contained
herein and in
the Merger Agreement, and other good and valuable consideration, the
adequacy
and receipt of which are hereby acknowledged, the parties hereto, intending
to
be legally bound, agree as follows:
I. JOINT
OPERATION OF THE COMPANY
1. Operating
Budget; Joint Operating Plan.
Between
the date hereof and the Termination Date (as defined below), the parties
(i)
intend to cooperate in the development of certain capabilities of the
Company;
(ii) intend to explore certain methods to integrate the parties’ existing
capabilities, as determined by the Joint Operating Committee (as defined
below)
and set forth in a Joint Operating Plan (“Joint
Operating Plan”);
and
(iii) shall use commercially reasonable efforts to conduct the operation
of the
Company in accordance with an Operating Budget which shall be delivered
by the
Company to the Joint Operating Committee within five (5) days of the
date hereof
(“Operating
Budget”);
provided
that,
without the prior notice to the IMSI Representative (as defined below),
in no
event shall the Company take any action, or omit to take any action,
that is
inconsistent with the Joint Operating Plan or could reasonably be expected
to
result in the failure by the Company to comply with the Operating Budget.
2. Joint
Operating Committee.
For
administration of the Joint Operating Plan the parties shall establish
an
operating committee (the “Joint
Operating Committee”).
The
Joint Operating Committee shall have a maximum of four (4) members,
with equal
numbers of representatives from the Company and IMSI. Any determinations
made by
the Joint Operating Committee must be made by a majority of members.
The Joint
Operating Committee will have the following initial members:
For
IMSI: ▇▇▇▇▇▇
▇▇▇▇, III and ▇▇▇▇▇▇ ▇’▇▇▇▇▇▇▇▇
For
the
Company: ▇▇▇▇▇▇
▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇
Each
Party may change its members of the Joint Operating Committee only
with the
approval of the other party.
3. The
Joint
Operating Committee will be responsible for the establishment and progress
of
the Joint Operating Plan. Meetings of the Joint Operating Committee
may be
requested by either IMSI or the Company upon reasonable notice to the
other, and
may be held in person or by telephone. In-person meetings shall occur
at least
once per month until the Termination Date unless waived by both parties
and must
include at least one (1) representative from IMSI and at least one
(1)
representative from the Company. The results of each meeting will be
documented
in writing within one (1) week after the meeting by the Company and
will include
at a minimum:
(a) progress
to date;
(b) technical
difficulties encountered to date;
(c) anticipated
difficulties which might impact schedules; and
(d) action
plans to address any anticipated or existing problems.
4. Records.
Each
party shall keep and maintain adequate records and reports to enable
it to
furnish the Joint Operating Committee with complete and accurate information
regarding all aspects of the Joint Operating Plan.
II. CAPITAL
ADVANCE
1. Definitions.
(a) "Advance"
means
an advance under the Line.
(b) "Line"
means
the line of credit made available by IMSI to the Company up to the
Maximum
Available Credit.
(c) "Effective
Time"
means
the Effective Time, as defined in the Merger Agreement.
2
(d) "Maximum
Available Credit"
means
$3,000,000.
(e) "Term"
means
the period commencing on the date hereof and ending on the Termination
Date.
(f) "Termination
Date"
means
the earlier to occur of (a) the Effective Time or (b) the date on which
the
Merger Agreement is terminated pursuant to Section 9.1 thereto.
2. Line
of Credit.
(a) Line
of Credit Established.
Subject
to the terms and conditions hereof, commencing on the date hereof and
expiring
on the Termination Date, IMSI hereby agrees, from time to time during
the Term,
to extend one or more Advances, the aggregate of which at any time
shall not
exceed the Maximum Available Credit. From and after the Termination
Date, IMSI
shall have no obligation to make Advances.
(b) Note.
On the
date hereof, the Company shall execute and deliver a Note payable to
IMSI in the
original principal amount of the Maximum Available Credit. Each Advance
from
time to time shall be deemed evi-denced by the Note, which is deemed
incorporated in this Agreement by reference and made part hereof.
(c) Line
Interest Rate.
Advances shall bear interest on the unpaid principal balance outstanding
at any
time from the Funding Date of each such Advance to maturity (or repayment)
at
the rate of 8% per annum (the "Line
Interest Rate")
or
such lesser rate permitted by applicable law, if the Line Interest
Rate would
violate applicable law. Interest shall be calculated on the basis of
a 365-day
year, but charged for the actual number of days elapsed. "Funding
Date"
means,
with respect to any Advance, the date on which such Advance is made
to the
Company.
(d) Funding
Requests.
(i) Upon
satisfaction of all conditions precedent set forth in Section 2(f),
IMSI will
make an Advance (the "Initial
Advance")
to the
Company in the aggregate amount set forth in the Operating Budget.
(ii) At
any
time and from time to time during the Term until the Termination Date,
the
Company may request one or more Advances by submitting to IMSI a completed
and
executed Funding Request in a form reasonably satisfactory to IMSI
("Funding
Request")
no
later than three (3) business days prior to the Funding Date of such
Advance.
Each such Advance shall be in the aggregate amount of not less than
the amount
specified in the Operating Budget (or, if less, the remaining amount
available
under the Line). Subject to the provisions of this Section 2 and upon
satisfaction of all conditions precedent set forth in Section 2(f),
IMSI shall
make the Advance on the proposed Funding Date in accordance with the
Company's
Funding Request.
3
(e) Maximum
Available Credit.
The
aggregate amount of principal which the Company may have outstanding
under the
Line at any time shall not exceed the Maximum Available Credit. In
no event
shall IMSI have any obligation to extend credit to the Company in excess
of the
Maximum Available Credit. The Company agrees, without notice or demand,
to repay
within three (3) business days any principal balance of the Line in
excess of
the Maximum Available Credit.
(f) Conditions.
(i) Conditions
Precedent to Initial Advance.
(a)
The
Company shall deliver or cause to be delivered to IMSI, in form and
substance
satisfactory to IMSI and its counsel, in addition to this Agreement,
the
following documents and instruments and the following conditions shall
have been
satisfied:
(1) The
Company shall have filed the Certificate of Designation attached hereto
as
Exhibit
B;
(2) The
Company shall have executed and delivered the Note to IMSI.
(3) The
Company shall have delivered to IMSI’s counsel (i) copies of all corporate
documents of the Company as IMSI shall reasonably request, and (ii)
a
certificate having attached thereto resolutions approved by
the Company's
Board of Directors authorizing the transactions contemplated hereby
and the
Notes.
(b)
The
Operating Budget shall have been determined by the Joint Operating
Committee,
which Operating Budget shall, among other things, specify the amount
of the
Initial Advance.
(ii) Conditions
Precedent to All Advances.
The
agreement of IMSI to make any Advances on or after the date hereof
is subject to
satisfaction of the following conditions precedent:
(1) The
Certificate of Designation shall continue to be in effect;
(2) IMSI
shall have timely received a Funding Request as required under Section
2(d)
hereof.
(3) The
Company shall have delivered to IMSI, a certificate, dated as of the
date of the
Advance, signed by the Chief Financial Officer of the Company certifying
(i) the
compliance in all material respects with all covenants and agreements
herein and
(ii) the Company’s compliance with the Operating Budget and a detailed
description of the need of the Company for such additional funding
and (iii) the
truth of all representations and warranties contained herein with the
same
effect as though made on and as of such date, except to the extent
such
representations and warranties specifically relate to an earlier
date.
4
(4) No
injunction, writ, restraining order, or other order of any nature prohibiting,
directly or indirectly, the extending of such credit shall have been
issued and
remain in force by any governmental authority against the Company or
IMSI.
(5) The
Joint
Operating Committee shall have unanimously approved in writing the
Funding
Request.
3. Representations
and Warranties of the Company.
The
Company represents and warrants to IMSI as follows:
(a) Authorization;
Binding Obligation.
All
corporate action on the part of the Company necessary for the authorization
of
this Agreement, the Note and the performance of all obligations of
the Company
hereunder and thereunder have been taken. This Agreement constitutes,
and the
Note, when executed and delivered, will constitute, valid and binding
obligations of the Company enforceable in accordance with their terms,
except as
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium
or
other laws of general application affecting enforcement of creditors'
rights,
and (ii) general principles of equity that restrict the availability
of
equitable remedies.
(b) Absence
of Conflicts; Consents.
(i) The
execution and delivery of this Agreement and the Note by the Company
does not,
and the consummation of the transactions contemplated hereby and thereby
(in
each case, with or without the passage of time or the giving of notice),
will
not, directly or indirectly, (A) violate the provisions of any of the
charter
documents of the Company, (B) violate or constitute a default, an event
of
default or an event creating rights of acceleration, termination, cancellation,
imposition of additional obligations or loss of rights under any contract
to
which the Company is a party or by which the Company or any of its
assets is
bound, (C) violate or conflict with any law, authorization or governmental
order
applicable to the Company, or give any governmental entity or other
person the
right to challenge any of the transactions contemplated hereby or to
exercise
any remedy, obtain any relief under or revoke or otherwise modify any
rights
held under, any such law, authorization or governmental order, or (D)
result in
the creation of any security interest, mortgage, pledge, lien, claim,
charge,
title retention or other encumbrance (collectively, "Liens")
upon
any of the assets owned or used by the Company, except for any such
violations,
conflicts, defaults and events referred to in clause (B) and for any
such
violations, conflicts, challenges, remedies, relief, revocations, modifications
or Liens referred to in clauses (C) and (D) that would not in the aggregate
be
material to the Company.
(ii) No
consent, approval, order or authorization of, or registration, declaration
or
filing with, any governmental entity or other person, is required by
or with
respect to the Company in connection with the execution and delivery
of this
Agreement and the Note, except for such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under
applicable federal and state securities laws.
5
(c) Proceeds.
The
Company shall use the proceeds from the issuance and sale of the Note
for the
operation of the business of the company and for other general corporate
purposes and as provided in the Operating Budget and the Joint Operating
Plan.
(d) Merger
Agreement.
The
representations and warranties of the Company contained in the Merger
Agreement
are true and correct in all material respects.
4. Representations
and Warranties of IMSI.
IMSI
represents and warrants to the Company that:
(a) Requisite
Power and Authority.
All
action on the part of IMSI necessary for the authorization of this
Agreement,
the Note and the performance of all obligations of IMSI hereunder and
thereunder
have been taken. This Agreement constitutes, and the Note, when executed
and
delivered, will constitute, valid and binding obligations of IMSI enforceable
in
accordance with their terms, except as limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights, and (ii) general
principles of
equity that restrict the availability of equitable remedies.
(b) Investment
Representations.
IMSI
understands that the Note has not been registered under the Securities
Act of
1933, as amended (the "Securities
Act").
IMSI
also understands that the Note is being offered and sold pursuant to
an
exemption from registration contained in the Securities Act based in
part upon
IMSI's representations contained in the Agreement.
(c) Experience;
Risk.
IMSI
has such knowledge and experience in financial and business matters
that IMSI is
capable of evaluating the merits and risks of the purchase of the Note
and the
shares of the Company's capital stock issuable pursuant to the terms
thereof
(the "Shares")
and of
protecting IMSI's interests in connection therewith. IMSI is able to
fend for
itself in the transactions contemplated by this Agreement and has the
ability to
bear the economic risk of the investment, including complete loss of
the
investment.
(d) Investment.
IMSI is
acquiring the Note and the Shares for investment for its own account,
not as a
nominee or agent, and not with a view to, or for resale in connection
with, any
distribution thereof, and IMSI has no present intention of selling,
granting any
participation in, or otherwise distributing the same. IMSI understands
that the
Note and the Shares have not been registered under the Securities Act
and
applicable state securities laws (collectively, the “Acts”)
by
reason of a specific exemption from the registration provisions of
the Acts
which depends upon, among other things, the bona fide nature of the
investment
intent and the accuracy of IMSI's representations as expressed
herein.
6
(e) Restricted
Securities.
IMSI
understands that the Note and the Shares will be "restricted securities"
under
applicable securities laws in as much as they are being acquired from
the
Company in a transaction not involving a public offering and that under
such
laws and applicable regulations the Note and the Shares may be resold
without
registration under the Acts only in certain limited circumstances.
IMSI
acknowledges that the Note and the Shares must be held indefinitely
unless
subsequently registered under the Acts or an exemption from such registration
is
available.
5. Covenants
of the Company.
(a) Affirmative
Covenants.
From
the date hereof until the Termination Date, the Company will, unless
IMSI shall
otherwise consent in writing:
(i) Certificate
of Designation.
The
Company shall cause the Certificate of Designation to be in full force
and
effect.
(ii) Merger
Agreement.
The
Company shall comply in all material respects with the covenants and
agreements
contained in the Merger Agreement.
(iii) Indemnification.
The
Company hereby indemnifies and agrees to protect, defend and hold harmless
IMSI
and IMSI's directors, officers, employees, agents, attorneys and shareholders
from and against any and all losses, damages, expenses or liabilities
of any
kind or nature from any suits, claims, or demands, including reasonable
counsel
fees incurred in evaluating or defending any such claim, suffered by
any of them
and caused by, relating to, arising out of, resulting from, or in any
way
connected with this Agreement or the Note and any transaction contemplated
therein unless resulting from acts, omissions or conduct of IMSI constituting
gross negligence or willful misconduct. This covenant shall survive
payment of
the Note and the termination or satisfaction of this Agreement.
(iv) IMSI
hereby indemnifies and agrees to protect, defend and hold harmless
the Company
and the Company's directors, officers, employees, agents, attorneys
and
shareholders from and against any and all losses, damages, expenses
or
liabilities of any kind or nature from any suits, claims, or demands,
including
reasonable counsel fees incurred in evaluating or defending any such
claim,
suffered by any of them and caused by, relating to, arising out of,
resulting
from, or in any way connected with this Agreement or the Note and any
transaction contemplated therein unless resulting from acts, omissions
or
conduct of the Company constituting gross negligence or willful misconduct.
This
covenant shall survive payment of the Note and the termination or satisfaction
of this Agreement
(b) Negative
Covenants.
From
the date hereof until the Termination Date, the Company shall not do
any of the
following without the prior written consent of IMSI:
(i) Indebtedness.
Incur,
create, assume, or permit to exist any indebtedness (not including
trade
payables incurred in the ordinary course of business) except the indebtedness
under this Agreement and the Note.
7
(ii) Liens
and Encumbrances.
Create,
assume or permit to exist any Lien upon any of the Collateral, or any
of its
other properties or assets, whether now owned or hereafter acquired
other than
(A) liens for taxes which are not delinquent or are being contested
in good
faith, (B) deposits or pledges to secure obligations under worker's
compensation, social security or similar laws, (C) statutory liens
of landlords
and liens of carriers, warehousemen, mechanics, materialmen and other
liens
imposed by law created in the ordinary course of business for amounts
not yet
due or which are being contested in good faith, and (D) liens existing
on the
date hereof and disclosed in the Schedule of Exceptions to the Merger
Agreement
(“Permitted
Liens”).
(c) Conversion
of Note.
(i) At
the
Effective Time, the Note shall be surrendered to the Company without
payment and
treated as a capital contribution to the Company on its books and
records.
(ii) Upon
the
termination of the Merger Agreement pursuant to Section 9.1 thereto,
the Note
and the principal amount of any Advances and interest thereon shall
convert
without further action by the Company or IMSI into the right to receive
Preferred Stock of the Company (the “Conversion
Stock”)
the
terms of which are set forth in the Certificate of Designation.
6. Post-Signing
Covenant.
The
Company agrees to take any and all action as is necessary or desirable
to
authorize, reserve and issue any shares of the Company's capital stock
that are
issuable pursuant to the Note and that are issuable upon the conversion
or
exercise of such Notes promptly upon a determination of the terms of
such
securities.
7. Miscellaneous.
(a) Governing
Law.
This
Agreement and the Note shall be governed, construed and interpreted
in
accordance with the laws of the State of California, without giving
effect to
principles of conflicts of law and choice of law that would cause the
laws of
any other jurisdiction to apply.
(b) Jurisdiction.
Each
party irrevocably submits to the exclusive jurisdiction of (i) California,
and
(ii) the United States District Court for the Northern District of
California,
for the purposes of any action, suit or proceeding, claim, arbitration
or
litigation (“Action”)
arising out of this Agreement or any transaction contemplated hereby.
Each party
agrees to commence any such Action either in the United States District
Court
for the Northern District of California or if such Action may not be
brought in
such court for jurisdictional reasons, in the Superior Court of the
State of
California Santa ▇▇▇▇▇ County. Each party further agrees that service
of any
process, summons, notice or document by U.S. registered mail to such
party's
respective address set forth above shall be effective service of process
for any
Action in California with respect to any matters to which it has submitted
to
jurisdiction in this Section 11.5. Each party irrevocably and unconditionally
waives any objection to the laying of venue of any Action arising out
of this
Agreement or the transactions contemplated hereby in (i) the United
States
District Court for the Northern District of California, or (ii) the
Superior
Court of the State of California Santa ▇▇▇▇▇ County, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim
in any
such court that any such Action brought in any such court has been
brought in an
inconvenient forum.
8
(c) Successors
and Assigns.
This
Agreement may not be assigned, conveyed or transferred without the
prior written
consent of the Company and IMSI and any such attempted assignment,
conveyance or
transfer shall be null and void.
(d) Entire
Agreement.
This
Agreement, the exhibits and schedules hereto, the Note delivered pursuant
to the
terms hereof and the Merger Agreement and any exhibits or ancillary
agreements
thereto constitute the full and entire understanding and agreement
between the
parties with regard to the subjects hereof and no party shall be liable
or bound
to any other in any manner by any representations, warranties, covenants
and
agreements except as specifically set forth herein and therein. Any
previous
agreement among the parties relative to the specific subject matter
hereof is
superseded by this Agreement.
(e) Severability.
In case
any provision of the Agreement shall be invalid, illegal or unenforceable,
the
validity, legality and enforceability of the remaining provisions shall
not in
any way be affected or impaired thereby.
(f) Amendment
or Waiver.
(i) Subject
to Section 2(b) of this Agreement, this Agreement and the Note may
be amended,
and any term or provision of this Agreement and of the Note may be
waived,
(either generally or in a particular instance and either retroactively
or
prospectively) upon the written consent of the Company and IMSI. Any
amendment
of this Agreement or the Note, or waiver of any term or provision of
this
Agreement or the Note effected in accordance with this Agreement, shall
be
binding upon IMSI under this Agreement.
(g) Notices.
All
notices required or permitted hereunder shall comply with Section 11.1
of the
Merger Agreement.
(h) Expenses.
Each
party shall pay all costs and expenses that it incurs with respect
to the
negotiation, execution, delivery and performance of the Agreement.
(i) Titles
and Subtitles.
The
titles of the sections and subsections of the Agreement are for convenience
of
reference only and are not to be considered in construing this
Agreement.
(j) Counterparts.
This
Agreement may be executed in any number of counterparts, each of which
shall be
an original, but all of which together shall constitute one
instrument.
9
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
10
IN
WITNESS WHEREOF the parties hereto have executed the Joint Operating
Agreement
as of the date set forth in the first paragraph hereof.
|
ACCESSMEDIA
NETWORKS, INC.
By:
_____________________________
Name:
Title:
|
|
|
INTERNATIONAL
MICROCOMPUTER SOFTWARE, INC.
By:
_____________________________
Name:
Title:
|
EXHIBIT
A
FORM
OF NOTE
Exhibit
A
NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES
LAWS. NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF MAY
BE TRANSFERRED EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
LAWS, OR
(B) IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT
OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS. THIS
NOTE IS SUBJECT
TO THAT CERTAIN JOINT OPERATING AGREEMENT, DATED AUGUST __, 2005
BETWEEN THE
COMPANY AND INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
CONVERTIBLE
PROMISSORY NOTE
| $3,000,000 |
August__,
2005
|
For
value
received, AccessMedia Networks, Inc., a Delaware corporation (together
with its
successors and assigns, the "Company"),
promises to pay to International Microcomputer Software, Inc. (the
"Holder"),
unless this Note is earlier converted pursuant to Section 2, the
maximum
principal sum of Three Million Dollars ($3,000,000), together with
any and all
interest accrued but unpaid thereon. Advances shall be noted in
the attached
Record of Advances by the Company; provided,
however,
that
the Company’s failure to make such notations shall not affect the obligations
of
the Company hereunder. This Note is issued pursuant to that certain
Joint
Operating Agreement dated as of the date hereof between the Company
and the
Holder (the "Joint
Operating Agreement")
and
any defined terms not herein defined shall have the meaning set
forth in the
Joint Operating Agreement. In addition to the terms and conditions
of the Joint
Operating Agreement, this Note is subject to the following terms
and
conditions.
1. Maturity.
1.1 Maturity
Date.
Unless
earlier converted as provided in Section 2, this Note, all principal
amounts of
Advances and interest thereon will automatically mature and be
due and payable
ten (10) days following the termination of the Merger Agreement
(the
"Maturity
Date").
1.2 Interest.
(a) Advances
shall bear interest on the unpaid principal balance outstanding
at any time from
the Funding Date of each such Advance to maturity (or repayment)
at the rate of
8% (the "Line
Interest Rate")
or
such lesser rate permitted by applicable law, if the Line Interest
Rate would
violate applicable law. Interest shall be calculated on the basis
of a 365-day
year, but charged for the actual number of days elapsed. "Funding
Date"
means,
with respect to any Advance, the date on which such Advance is
made to the
Company.
(b) Notwithstanding
the foregoing, if during any period for which interest is computed
hereunder,
the amount of interest provided for in this Note, together with
all fees,
charges and other payments which are treated as interest under
applicable law,
would exceed the amount of such interest computed on the basis
of the Highest
Lawful Rate, the Company shall not be obligated to pay, and the
Holder shall not
be entitled to charge, collect, receive, reserve or take, interest
in excess of
the Highest Lawful Rate, and during any such period the interest
payable
hereunder shall be computed on the basis of the Highest Lawful
Rate. As used
herein, "Highest
Lawful Rate"
means
the maximum non-usurious rate of interest, as in effect from time
to time, which
may be charged, contracted for, reserved, received or collected
by the Holder in
connection with this Note under applicable law.
1.3 Prepayment.
The
Company shall not have the right to prepay the unpaid principal
amount or any
part thereof without the prior written consent of the Holder, which
consent may
be withheld in the Holder's sole discretion. Any prepayment of
the principal sum
permitted by the Holder shall be accompanied by any and all interest
accrued on
the principal amount being prepaid.
2. Conversion.
2.1 Automatic
Conversion upon Effective Time of Merger.
At the
Effective Time, this Note shall be surrendered to the Company without
payment
and any Advances and the interest thereon shall be treated as a
capital
contribution to the Company on its books and records.
2.2 Automatic
Conversion upon Effective Termination of the Merger Agreement.
Upon
the termination of the Merger Agreement pursuant to Section 9.1
thereto, this
Note and the principal amount of any Advances and accrued interest
thereon shall
convert without further action by the Company or Parent into the
right to
receive that number of shares of Series A Preferred Stock of the
Company (the
“Series
A Preferred Stock”),
the
terms of which are set forth in the Certificate of Designation
of the Company,
determined by dividing the principal amount of any Advances and
interest thereon
by the Original Series A Issue Price (as defined in the Certificate
of
Designation of the Company).
2.3 Mechanics
and Effect of Conversion.
(a) No
fractional shares will be issued upon conversion of this Note.
In lieu of any
fractional share to which the Holder would otherwise be entitled,
the Company
will pay to the Holder in cash the unconverted Outstanding Amount
that would
otherwise be converted into such fractional share.
(b) In
the
event that this Note is converted into Series A Preferred Stock
pursuant to
Section 2.2, the Holder shall surrender this Note, duly endorsed,
to the Company
and, at its expense, the Company will issue and deliver to such
Holder, a
certificate or certificates representing the number of shares of
Series A
Preferred Stock to which such Holder is entitled upon such conversion,
together
with a check payable to the Holder for any cash amounts in lieu
of fractional
shares as described in clause (a) above.
2
2.4 Termination
of Rights.
Upon
conversion of this Note in accordance with this Section 2, all
rights with
respect to this Note shall terminate, whether or not the Note has
been
surrendered for cancellation, and the Company will be forever released
from all
of its obligations and liabilities under this Note except its obligations
pursuant to Section 2.3(b).
3. Payment.
Except
as set forth herein, all payments shall be made in lawful money
of the United
States of America at the principal offices of the Company. Payment
shall be
credited first to any accrued interest then due and payable and
the remainder
applied to principal. In addition to all other sums payable under
this Note, the
Company also agrees to pay to the Holder, on demand, all reasonable
costs and
expenses (including attorneys' fees and legal expenses) incurred
by the Holder
in the enforcement of the Company's obligations under this Note.
4. Transfer;
Successors and Assigns.
This
Note may be transferred only upon surrender of the original Note
for
registration of transfer, duly endorsed, or accompanied by a duly
executed
written instrument of transfer. Thereupon, a new note for the same
principal
amount and interest will be issued to, and registered in the name,
of, the
transferee. Interest and principal are payable only to the registered
holder of
this Note. The terms and conditions of this Note shall inure to
the benefit of
and binding upon the respective successors and assigns of the parties.
5. Governing
Law.
This
Note and all acts and transactions pursuant hereto and the rights
and
obligations of the parties hereto shall be governed, construed
and interpreted
in accordance with the laws of the State of California, without
giving effect to
principles of conflicts of law and choice of law that would cause
the laws of
any other jurisdiction to apply.
6. Notices.
Any
notice or other communication required or permitted to be given
hereunder shall
be in writing and given as provided in the Joint Operating Agreement.
7. Amendments
and Waivers.
This
Note and any term hereof may be amended, waived, discharged or
terminated only
by an instrument in writing signed by the party against whom enforcement
of such
amendment, waiver, discharge or termination is sought. No waivers
of any term,
condition or provision of this Note, in any one or more instances,
shall be
deemed to be, or construed as, a further or continuing waiver of
any such term,
condition or provision.
8. Headings.
The
headings in this Note are for purposes of reference only, and shall
not limit or
otherwise affect the meaning hereof.
3
9. Presentment.
The
Company hereby waives diligence, demand, presentment for payment,
protest and
notice of protest, notice of acceleration, and all other notices
or demands of
any kind except as expressly provided herein.
10. Delay
or Omission not Waiver of Default.
No
delay or omission of the Holder to exercise any right or power
accruing upon any
Event of Default shall impair any such right or power or shall
be construed to
be a waiver of any such Event of Default or an acquiescence therein.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
4
IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed
and
delivered by its authorized officer, as of the date first above
written.
ACCESSMEDIA
NETWORKS, INC.
By:
________________________________
Name:
Title:
Address:
Facsimile:
AGREED
TO
AND ACCEPTED:
INTERNATIONAL
MICROCOMPUTER
SOFTWARE,
INC.
________________________________
Address:
Facsimile:
5
RECORD
OF
ADVANCES AND INTEREST ACCRUED
|
Date
|
Advance
Amount
|
Outstanding
Principal
Balance
|
Initialed
and
Agreed
by
Parties:
|
6
EXHIBIT
B
CERTIFICATE
OF DESIGNATION
Exhibit
B
CERTIFICATE
OF DESIGNATION
of
SERIES
A
PREFERRED STOCK
of
ACCESSMEDIA
NETWORKS, INC.
(Pursuant
to Section 242 of the
Delaware
General Corporation Law)
August
__, 2005
The
undersigned, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, hereby certifies that:
A. He
is the
duly elected and acting Chief Executive Officer and Secretary, respectively,
of
AccessMedia Networks, Inc., a Delaware corporation (the “Corporation”).
B. The
authorized number of shares of Preferred Stock is 5,000,000, none of which
have
been designated or issued.
C. Pursuant
to the authority given by the Corporation’s Certificate of Incorporation, the
Board of Directors of the Corporation (the “Board
of Directors”)
has
duly adopted the following recitals and resolutions:
WHEREAS,
the Certificate of Incorporation of the Corporation authorizes a class
of
Preferred Stock comprising of 5,000,000 shares issuable from time to time
in one
or more series; and
WHEREAS,
the Board of Directors is authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock including but not limited to conversion rights,
voting
rights and the liquidation preference, and the number of shares constituting
and
such series and the designation thereof, or any of them; and
WHEREAS,
the Corporation heretofore has not issued or designated any series of Preferred
Stock, and it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to fix the rights, privileges,
preferences, restrictions and other matters relating to the Series A Preferred
Stock and the number of shares constituting such series;
NOW
THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide
for
the issue of a series of Preferred Stock constituting 5,000,0001
shares
designated as “Series A Preferred Stock” and does hereby fix the rights,
privileges, preferences, and restrictions and other matters relating to
the
Series A Preferred Stock as follows:
Series A
Preferred Stock:
Section
1. Designation
and Amount.
The
shares of such series shall be designated as "Series A Preferred
Stock"
(the "Series
A Preferred Stock")
and
the number of shares constituting the Series A Preferred Stock shall be
five
million (5,000,000). Such number of shares may be increased or decreased
by
resolution of the Board of Directors; provided,
that no
decrease shall reduce the number of shares of Series A Preferred Stock
to a
number less than the number of shares then outstanding plus the number
of shares
reserved for issuance upon the exercise of outstanding warrants to purchase
Series A Preferred Stock.
Section
2. Dividend
Provisions.
Subject
to the rights of Series of Preferred Stock which may from time to time
come into
existence, the holders of shares of Series A Preferred Stock shall be entitled
to receive dividends, out of any assets legally available therefor, prior
and in
preference to any declaration or payment of any dividend (payable other
than in
Common Stock or other securities and rights convertible into or entitling
the
holder thereof to receive, directly or indirectly, additional shares of
Common
Stock of the Corporation) on the Common Stock of the Corporation, at the
rate of
$0.08 per share per annum at the beginning of each calendar quarter beginning
after the first issuance of Series A Preferred Stock, provided,
however,
in the
event a cash dividend is declared on the Series A Preferred Stock, the
Corporation may, at its option, declare and pay the corresponding dividend
on
shares of Series A Preferred Stock by issuance of additional shares of
fully
paid and nonassessable shares of Series A Preferred Stock. The number of
shares
of Series A Preferred Stock to be issued in lieu of cash shall be determined
by
dividing the amount of the cash dividend per share by the Original Series
A
Issue Price. No fractional shares of Series A Preferred Stock shall be
issued as
a dividend. Instead, the aggregate number of shares of Series A Preferred
Stock
issued to each record holder shall be rounded to the nearest whole number.
The
payment of dividends to holders of Series A Preferred Stock in shares of
Series
A Preferred Stock as set forth above shall constitute full payment of such
dividend. Dividends shall accrue on each share (including any shares issued
as
dividends) from the date of issuance, and shall accrue from day to day,
whether
or not earned or declared. Such dividends shall be cumulative so that,
except as
provided below, if such dividends in respect of any previous or current
annual
dividend period, at the annual rate specified above, shall not have been
paid
the deficiency shall first be fully paid before any dividend or other
distribution shall be paid on or declared and set apart for the Common
Stock.
Cumulative dividends with respect to a share of Series A Preferred Stock
which
are accrued, payable and/or in arrears shall, upon conversion of such share
to
Common Stock, subject to the rights of Series of Preferred Stock which
may from
time to time come into existence, be paid to the extent assets are legally
available therefor and any amounts for which assets are not legally available
shall be paid promptly as assets become legally available therefor; any
partial
payment will be made pro rata among the holders of such shares.
1
The
actual number of shares to be issued would equal a number of Series A
Preferred
shares that will represent a percentage of the total outstanding capital
stock
of AccessMedia Networks, Inc. after giving effect to such issuance determined
by
dividing (i) the total dollar amount advanced pursuant to the Note, plus
all
accrued interest thereon (the “Advance”) by (ii) the amount of the Advance plus
$25,000,000.
2
Unless
full dividends on the Series A Preferred Stock for all past dividend periods
and
the then current dividend period shall have been paid or declared and a
sum
sufficient for the payment thereof set apart: (A) no dividend whatsoever
(other
than a dividend payable solely in Common Stock or other securities and
rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock) shall be paid or declared,
and no
distribution shall be made, on any Common Stock, and (B) no shares of Common
Stock shall be purchased, redeemed, or acquired by the corporation and
no funds
shall be paid into or set aside or made available for a sinking fund for
the
purchase, redemption, or acquisition thereof; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock
held by
employees, officers, directors, consultants or other persons performing
services
for the corporation or any wholly-owned subsidiary (including, but not
by way of
limitation, distributors and sales representatives) that are subject to
restrictive stock purchase agreements under which the corporation has the
option
to repurchase such shares at cost upon the occurrence of certain events,
such as
the termination of employment.
Section
3. Liquidation
Preference.
(a)
In
the event of any liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary, subject to the rights of series of Preferred
Stock that may from time to time come into existence, the holders of Series
A
Preferred Stock shall be entitled to receive, prior and in preference to
any
distribution of any of the assets of the Corporation to the holders of
Common
Stock by reason of their ownership thereof, an amount per share equal to
the sum
of (i) $1.00 for each outstanding share of Series A Preferred Stock (the
“Original
Series A Issue Price”)
and
(ii) all declared or accumulated but unpaid dividends on such shares. If
upon
the occurrence of such event, the assets and funds thus distributed among
the
holders of the Series A Preferred Stock shall be insufficient to permit
the
payment to such holders of the full aforesaid preferential amounts, then,
subject to the rights of Series of Preferred Stock that may from time to
time
come into existence, the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders
of the
Series A Preferred Stock in proportion to the amount of such stock owned
by each
such holder.
(b) Upon
the
completion of the distribution required by subparagraph (a) of this Section
2
and any other distribution that may be required with respect to series
of
Preferred Stock that may from time to time come into existence, if assets
remain
in the Corporation, the holders of the Common Stock of the Corporation,
shall
receive all of the remaining assets of the Corporation.
3
(c)
(i) For
purposes of this Section 2, a liquidation, dissolution or winding up of
the
Corporation shall be deemed to be occasioned by, or to include, (A) the
acquisition of the Corporation by another entity by means of any transaction
or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the Corporation);
or (B)
a sale of all or substantially all of the assets of the Corporation; unless
the
Corporation’s stockholders of record as constituted immediately prior to such
acquisition or sale will, immediately after such acquisition or sale (by
virtue
of securities issued as consideration for the Corporation’s acquisition or sale
or otherwise) hold at least 50% of the voting power of the surviving or
acquiring entity.
(ii)
In
any of such events, if the consideration received by the Corporation is
other
than cash, its value will be deemed its fair market value. Any securities
shall
be valued as follows:
(A)
Securities not subject to investment letter or other similar restrictions
on
free marketability:
(1)
If
traded on a securities exchange or The NASDAQ Stock Market, the value shall
be
deemed to be the average of the closing prices of the securities on such
exchange over the thirty-day period ending three (3) days prior to the
closing;
(2)
If
actively traded over-the-counter, the value shall be deemed to be the average
of
the closing bid or sale prices (whichever is applicable) over the thirty-day
period ending three (3) days prior to the closing; and
(3)
If
there is no active public market, the value shall be the fair market value
thereof, as mutually determined by the Corporation and the holders of at
least a
majority of the voting power of all then outstanding shares of Preferred
Stock.
(B)
The
method of valuation of securities subject to investment letter or other
restrictions on free marketability (other than restrictions arising solely
by
virtue of a stockholder’s status as an affiliate or former affiliate) shall be
to make an appropriate discount from the market value determined as above
in (A)
(1), (2) or (3) to reflect the approximate fair market value thereof, as
mutually determined by the Corporation and the holders of at least a majority
of
the voting power of all then outstanding shares of such Preferred
Stock.
4
(iii)
In
the event the requirements of this subsection 2(c) are not complied with,
the
Corporation shall forthwith either:
(A)
cause
such closing to be postponed until such time as the requirements of this
Section
2 have been complied with; or
(B)
cancel such transaction, in which event the rights, preferences and privileges
of the holders of the Series A Preferred Stock shall revert to and be the
same
as such rights, preferences and privileges existing immediately prior to
the
date of the first notice referred to in subsection 2(c)(iv) hereof.
(iv)
The
Corporation shall give each holder of record of Series A Preferred Stock
written
notice of such impending transaction not later than twenty (20) days prior
to
the stockholders’ meeting called to approve such transaction, or twenty (20)
days prior to the closing of such transaction, whichever is earlier, and
shall
also notify such holders in writing of the final approval of such transaction.
The first of such notices shall describe the material terms and conditions
of
the impending transaction and the provisions of this Section 2, and the
Corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than twenty
(20)
days after the Corporation has given the first notice provided for herein
or
sooner than ten (10) days after the Corporation has given notice of any
material
changes provided for herein; provided, however, that such periods may be
shortened upon the written consent of the holders of Preferred Stock that
are
entitled to such notice rights or similar notice rights and that represent
at
least a majority of the voting power of all then outstanding shares of
such
Preferred Stock.
Section
4. Redemption.
a.
Mandatory
Redemption.
Subject
to the rights of Preferred Stock which may from time to time come into
existence, the Corporation shall redeem, from any source of funds legally
available therefor, the Series A Preferred Stock on the five year anniversary
of
the date of the first issuance of Series A Preferred Stock (the “Series
A Redemption Date”).
The
Corporation shall effect such redemption on the Series A Redemption Date
by
paying in cash in exchange for the shares of Series A Preferred Stock to
be
redeemed a sum equal to $1.00 per share of Series A Preferred Stock (as
adjusted
for any stock dividends, combinations or splits with respect to such shares)
plus all declared or accumulated but unpaid dividends on such shares (the
“Series
A Redemption Price”).
b.
Redemption
at the Option of the Corporation.
(i) Subject
to the rights of Series of Preferred Stock which may from time to time
come into
existence, the Corporation may at any time it may lawfully do so but not
before
sixty (60) days after the date of the first issuance of the Series A Preferred
Stock, at the option of the Board of Directors, redeem in whole or in part
the
Series A Preferred Stock by paying in cash therefor a sum equal to the
Series A
Redemption Price. Any redemption effected pursuant to this subSection (4)(b)
shall be made on a pro rata basis among the holders of the Series A Preferred
Stock in proportion to the number of shares of Series A Preferred Stock
then
held by them.
5
(ii) As
used
herein and in subSection (4)(b)(iii) and (iv) below, the term “Redemption Date”
shall refer to each “Series A Redemption Date” and the term “Redemption Price”
shall refer to each of “Series A Redemption Price.” Subject to the rights of
Series of Preferred Stock which may from time to time come into existence,
at
least sixty (60) but no more than ninety (90) days prior to each Redemption
Date, written notice shall be mailed, first class postage prepaid, to each
holder of record (at the close of business on the business day next preceding
the day on which notice is given) of the Series A Preferred Stock to be
redeemed, at the address last shown on the records of the Corporation for
such
holder, notifying such holder of the redemption to be effected, specifying
the
number of shares to be redeemed from such holder, the Redemption Date,
the
Redemption Price, the place at which payment may be obtained and calling
upon
such holder to surrender to the Corporation, in the manner and at the place
designated, his, her or its certificate or certificates representing the
shares
to be redeemed (the “Redemption
Notice”).
Except as provided in subSection (4)(b)(iii) on or after the Redemption
Date,
each holder of Series A Preferred Stock to be redeemed shall surrender
to the
Corporation the certificate or certificates representing such shares, in
the
manner and at the place designated in the Redemption Notice, and thereupon
the
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof
and
each surrendered certificate shall be cancelled. In the event less than
all the
shares represented by any such certificate are redeemed, a new certificate
shall
be issued representing the unredeemed shares.
(iii) From
and
after the Redemption Date, unless there shall have been a default in payment
of
the Redemption Price, all rights of the holders of shares of Series A Preferred
Stock designated for redemption in the Redemption Notice as holders of
Series A
Preferred Stock (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates) shall cease
with
respect to such shares, and such shares shall not thereafter be transferred
on
the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. Subject to the rights of Series of Preferred Stock which may
from
time to time come into existence, if the funds of the Corporation legally
available for redemption of shares of Series A Preferred Stock on any Redemption
Date are insufficient to redeem the total number of shares of Series A
Preferred
Stock to be redeemed on such date, those funds which are legally available
will
be used to redeem the maximum possible number of such shares ratably among
the
holders of such shares to be redeemed based upon their holdings of Series
A
Preferred Stock. The shares of Series A Preferred Stock not redeemed shall
remain outstanding and entitled to all the rights and preferences provided
herein. Subject to the rights of Series of Preferred Stock which may from
time
to time come into existence, at any time thereafter when additional funds
of the
Corporation are legally available for the redemption of shares of Series
A
Preferred Stock, such funds will immediately be used to redeem the balance
of
the shares which the Corporation has become obliged to redeem on any Redemption
Date but which it has not redeemed.
6
(iv) On
or
prior to each Redemption Date, the Corporation shall deposit the Redemption
Price of all shares of Series A Preferred Stock designated for redemption
in the
Redemption Notice, and not yet redeemed or converted, with a bank or trust
corporation having aggregate capital and surplus in excess of $100,000,000
as a
trust fund for the benefit of the respective holders of the shares designated
for redemption and not yet redeemed, with irrevocable instructions and
authority
to the bank or trust corporation to publish the notice of redemption thereof
and
pay the Redemption Price for such shares to their respective holders on
or after
the Redemption Date, upon receipt of notification from the corporation
that such
holder has surrendered his, her or its share certificate to the corporation
pursuant to subSection (4)(b)(ii) above. The balance of any moneys deposited
by
the Corporation pursuant to this subSection (4)(b)(iv) remaining unclaimed
at
the expiration of two (2) years following the Redemption Date shall thereafter
be returned to the Corporation upon its request expressed in a resolution
of its
Board of Directors.
Section
5. Conversion.
The
holders of the Series A Preferred Stock shall have conversion rights as
follows
(the “Conversion
Rights”):
(a)
Right
to Convert.
Each
share of Series A Preferred Stock shall be convertible, at the option of
the
holder thereof, at any time after the date of issuance of such share at
the
office of the Corporation or any transfer agent for such stock, into such
number
of fully paid and nonassessable shares of Common Stock as is determined
by
dividing the Original Series A Issue Price by the Conversion Price applicable
to
such shares, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. The initial Conversion Price
per
share for shares of Series A Preferred Stock shall be the Original Series
A
Issue Price; provided, however, that the Conversion Price for the Series
A
Preferred Stock shall be subject to adjustment as set forth in subsection
5(d).
(b)
Automatic
Conversion.
Each
share of Series A Preferred Stock shall automatically be converted into
shares
of Common Stock at the Conversion Price at the time in effect for such
Series A
Preferred Stock immediately upon the earlier of (i) except as provided
below in
subsection 5(c), the Corporation’s sale of its Common Stock in a Qualified
Public Offering (as defined below) or (ii) the date specified by written
consent
or agreement of the holders of a majority of the then outstanding shares
of
Series A Preferred Stock. As used herein, “Qualified
Public Offering”
means a
firm commitment underwritten public offering pursuant to a registration
statement under the Securities Act of 1933, as amended, covering any of
the
Corporation’s securities (as that term is defined under the Securities Act of
1933, as then in effect) with a price per share of not less than three
(3) times
the Original Series A Issue Price and aggregate gross proceeds to the
Corporation of at least $30,000,000.
(c)
Mechanics
of Conversion.
Before
any holder of Series A Preferred Stock shall be entitled to convert the
same
into shares of Common Stock, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series A Preferred Stock, and shall give written notice to
the
Corporation at its principal corporate office, of the election to convert
the
same and shall state therein the name or names in which the certificate
or
certificates for shares of Common Stock are to be issued. The Corporation
shall,
as soon as practicable thereafter, issue and deliver at such office to
such
holder of Series A Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common
Stock
to which such holder shall be entitled as aforesaid. Such conversion shall
be
deemed to have been made immediately prior to the close of business on
the date
of such surrender of the shares of Series A Preferred Stock to be converted,
and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder
or
holders of such shares of Common Stock as of such date. If the conversion
is in
connection with an underwritten offering of securities registered pursuant
to
the Securities Act of 1933, the conversion may, at the option of any holder
tendering Series A Preferred Stock for conversion, be conditioned upon
the
closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
upon
conversion of the Series A Preferred Stock shall not be deemed to have
converted
such Series A Preferred Stock until immediately prior to the closing of
such
sale of securities.
7
(d)
Conversion
Price Adjustments of Preferred Stock for Certain Dilutive Issuances, Splits
and
Combinations.
The
Conversion Price of the Series A Preferred Stock shall be subject to adjustment
from time to time as follows:
(i)
(A) If
the
Corporation shall issue, after the date upon which any shares of Series
A
Preferred Stock were first issued (the “Purchase
Date”
with
respect to such series), any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion
Price
for such series in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for such series in effect immediately prior
to each
such issuance shall forthwith (except as otherwise provided in this clause
(i))
be adjusted to equal the price per share of such Additional Stock.
(B)
No
adjustment of the Conversion Price for the Series A Preferred Stock shall
be
made in an amount less than one cent per share, provided that any adjustments
which are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment
made
prior to three years from the date of the event giving rise to the adjustment
being carried forward, or shall be made at the end of three years from
the date
of the event giving rise to the adjustment being carried forward. Except
to the
limited extent provided for in subsections (E)(3) and (E)(4), no adjustment
of
such Conversion Price pursuant to this subsection 5(d)(i) shall have the
effect
of increasing the Conversion Price above the Conversion Price in effect
immediately prior to such adjustment.
(C)
In
the case of the issuance of Common Stock for cash, the consideration shall
be
deemed to be the amount of cash paid therefor before deducting any reasonable
discounts, commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the issuance
and sale thereof.
8
(D)
In
the case of the issuance of the Common Stock for a consideration in whole
or in
part other than cash, the consideration other than cash shall be deemed
to be
the fair value thereof as determined by the Board of Directors irrespective
of
any accounting treatment.
(E)
In
the case of the issuance (whether before, on or after the applicable Purchase
Date) of options to purchase or rights to subscribe for Common Stock, securities
by their terms convertible into or exchangeable for Common Stock or options
to
purchase or rights to subscribe for such convertible or exchangeable securities,
the following provisions shall apply for all purposes of this subsection
5(d)(i)
and subsection 5(d)(ii):
(1)
The
aggregate maximum number of shares of Common Stock deliverable upon exercise
(assuming the satisfaction of any conditions to exercisability, including
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) of such options to purchase or rights
to
subscribe for Common Stock shall be deemed to have been issued at the time
such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections 5(d)(i)(C) and (d)(i)(D)),
if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum exercise price provided in such options or rights (without
taking into account potential antidilution adjustments) for the Common
Stock
covered thereby.
(2)
The
aggregate maximum number of shares of Common Stock deliverable upon conversion
of or in exchange (assuming the satisfaction of any conditions to convertibility
or exchangeability, including, without limitation, the passage of time,
but
without taking into account potential antidilution adjustments) for any
such
convertible or exchangeable securities or upon the exercise of options
to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights
were
issued and for a consideration equal to the consideration, if any, received
by
the Corporation for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued dividends),
plus the
minimum additional consideration, if any, to be received by the Corporation
(without taking into account potential antidilution adjustments) upon the
conversion or exchange of such securities or the exercise of any related
options
or rights (the consideration in each case to be determined in the manner
provided in subsections 5(d)(i)(C) and (d)(i)(D)).
(3)
In
the event of any change in the number of shares of Common Stock deliverable
or
in the consideration payable to the Corporation upon exercise of such options
or
rights or upon conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of the Series A Preferred
Stock, to the extent in any way affected by or computed using such options,
rights or securities, shall be recomputed to reflect such change, but no
further
adjustment shall be made for the actual issuance of Common Stock or any
payment
of such consideration upon the exercise of any such options or rights or
the
conversion or exchange of such securities.
9
(4)
Upon
the expiration of any such options or rights, the termination of any such
rights
to convert or exchange or the expiration of any options or rights related
to
such convertible or exchangeable securities, the Conversion Price of the
Series
A Preferred Stock, to the extent in any way affected by or computed using
such
options, rights or securities or options or rights related to such securities,
shall be recomputed to reflect the issuance of only the number of shares
of
Common Stock (and convertible or exchangeable securities which remain in
effect)
actually issued upon the exercise of such options or rights, upon the conversion
or exchange of such securities or upon the exercise of the options or rights
related to such securities.
(5)
The
number of shares of Common Stock deemed issued and the consideration deemed
paid
therefor pursuant to subsections 5(d)(i)(E)(1) and (2) shall be appropriately
adjusted to reflect any change, termination or expiration of the type described
in either subsection 5(d)(i)(E)(3) or (4).
(ii)
“Additional
Stock”
shall
mean any shares of Common Stock issued (or deemed to have been issued pursuant
to subsection 5(d)(i)(E)) by the Corporation after the Purchase Date other
than:
(A)
Common Stock issued upon conversion of any of the shares of Preferred
Stock;
(B)
Common Stock issued pursuant to a transaction described in subsection 5(d)(iii)
hereof;
(C)
shares of Common Stock issuable or issued to employees, consultants, advisors,
officers, directors or vendors (if in transactions with primarily non-financing
purposes) of the Corporation directly or pursuant to a stock option plan,
restricted stock plan or other stock incentive program or arrangement;
(D)
shares of Common Stock issuable or issued as a dividend or distribution
on the
Preferred Stock;
(E)
shares of Common Stock issuable or issued to financial institutions or
lessors
in connection with real estate leases, commercial credit arrangements,
debt
financings, equipment lease financings or similar transactions; or
(F)
shares of Common Stock issuable or issued in connection with the issuance
of
securities of the Corporation pursuant to a merger, acquisition or strategic
business, joint venture, partnering or other similar transaction.
10
(iii)
In
the event the Corporation should at any time or from time to time after
the
Purchase Date fix a record date for the effectuation of a split or subdivision
of the outstanding shares of Common Stock or the determination of holders
of
Common Stock entitled to receive a dividend or other distribution payable
in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as “Common
Stock Equivalents”)
without payment of any consideration by such holder for the additional
shares of
Common Stock or the Common Stock Equivalents (including the additional
shares of
Common Stock issuable upon conversion or exercise thereof), then, as of
such
record date (or the date of such dividend distribution, split or subdivision
if
no record date is fixed), the Conversion Price of the Series A Preferred
Stock
shall be appropriately decreased so that the number of shares of Common
Stock
issuable on conversion of each share of such series shall be increased
in
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock
Equivalents.
(iv)
If
the number of shares of Common Stock outstanding at any time after the
Purchase
Date is decreased by a combination of the outstanding shares of Common
Stock,
then, following the record date of such combination, the Conversion Price
for
the Series A Preferred Stock shall be appropriately increased so that the
number
of shares of Common Stock issuable on conversion of each share of such
series
shall be decreased in proportion to such decrease in outstanding
shares.
(e)
Recapitalizations.
If at
any time or from time to time there shall be a recapitalization of the
Common
Stock (other than a subdivision, combination or merger or sale of assets
transaction provided for elsewhere in this Section 5 or Section 3) provision
shall be made so that the holders of the Series A Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series A Preferred
Stock the number of shares of stock or other securities or property of
the
Company or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such
case,
appropriate adjustment shall be made in the application of the provisions
of
this Section 5 with respect to the rights of the holders of the Series
A
Preferred Stock after the recapitalization to the end that the provisions
of
this Section 5 (including adjustment of the Conversion Price then in effect
and
the number of shares purchasable upon conversion of the Series A Preferred
Stock) shall be applicable after that event as nearly equivalent as may
be
practicable.
(g)
No
Fractional Shares and Certificate as to Adjustments.
(i)
No
fractional shares shall be issued upon the conversion of any share or shares
of
the Series A Preferred Stock. In lieu of any fractional share to which
any
holder of Preferred Shares would otherwise be entitled, the Corporation
shall
pay the holder cash equal to the product of such fraction multiplied by
the
Common Stock’s fair market value as determined in good faith by the Board of
Director as of the date of conversion. Whether or not fractional shares
are
issuable upon such conversion shall be determined on the basis of the total
number of shares of Series A Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
11
(ii)
Upon
the occurrence of each adjustment or readjustment of the Conversion Price
of
Series A Preferred Stock pursuant to this Section 5, the Corporation, at
its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series
A
Preferred Stock a certificate setting forth such adjustment or readjustment
and
showing in detail the facts upon which such adjustment or readjustment
is based.
The Corporation shall, upon the written request at any time of any holder
of
Series A Preferred Stock, furnish or cause to be furnished to such holder
a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price for such series of Preferred Stock at the time in effect,
and
(C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share
of
Series A Preferred Stock.
(i)
Notices
of Record Date.
In the
event of any taking by the Corporation of a record of the holders of any
class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire
any
shares of stock of any class or any other securities or property, or to
receive
any other right, the Corporation shall mail to each holder of Series A
Preferred
Stock, at least 20 days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right.
(j)
Reservation
of Stock Issuable Upon Conversion.
The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting
the
conversion of the shares of the Series A Preferred Stock, such number of
its
shares of Common Stock as shall from time to time be sufficient to effect
the
conversion of all outstanding shares of the Series A Preferred Stock; and
if at
any time the number of authorized but unissued shares of Common Stock shall
not
be sufficient to effect the conversion of all then outstanding shares of
the
Series A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, the Corporation will take
such
corporate action as may, in the opinion of its counsel, be necessary to
increase
its authorized but unissued shares of Common Stock to such number of shares
as
shall be sufficient for such purposes, including, without limitation, engaging
in best efforts to obtain the requisite stockholder approval of any necessary
amendment to this certificate of incorporation.
(k)
Notices.
Any
notice required by the provisions of this Section 5 to be given to the
holders
of shares of Series A Preferred Stock shall be deemed given if deposited
in the
United States mail, postage prepaid, and addressed to each holder of record
at
his address appearing on the books of the Corporation.
Section
6. Voting
Rights.
The
holder of each share of Series A Preferred Stock shall have the right to
one
vote for each share of Common Stock into which such Series A Preferred
Stock
could then be converted, and with respect to such vote, such holder shall
have
full voting rights and powers equal to the voting rights and powers of
the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders’ meeting in accordance with the bylaws of
the Corporation, and shall be entitled to vote, together with holders of
Common
Stock, with respect to any question upon which holders of Common Stock
have the
right to vote.
12
Section
7. Protective
Provisions.
Subject
to the rights of Series of Preferred Stock which may from time to time
come into
existence, so long as any shares of Series A Preferred Stock are outstanding,
the Corporation shall not without first obtaining the approval (by vote
or
written consent, as provided by law) of the holders of at least a majority
of
the then outstanding shares of Series A Preferred Stock:
(a) sell,
convey, or otherwise dispose of or encumber all or substantially all of
its
property or business or merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation) or effect any transaction
or
Series of related transactions in which more than fifty percent (50%) of
the
voting power of the corporation is disposed of;
(b) alter
or
change the rights, preferences or privileges of the shares of Series A
Preferred
Stock so as to affect adversely the shares;
(c) increase
or decrease (other than by redemption or conversion) the total number of
authorized shares of Series A Preferred Stock;
(d) authorize
or issue, or obligate itself to issue, any other equity security, including
any
other security convertible into or exercisable for any equity security
(i)
having a preference over, or being on a parity with, the Series A Preferred
Stock with respect to voting, dividends or upon liquidation, or (ii) having
rights similar to any of the rights of the Series A Preferred Stock under
this
Section 6; or
(e) redeem,
purchase or otherwise acquire (or pay into or set aside for a sinking fund
for
such purpose) any share or shares of Preferred Stock or Common Stock; provided,
however, that this restriction shall not apply to (i) the repurchase of
shares
of Common Stock from employees, officers, directors, consultants or other
persons performing services for the Company or any subsidiary pursuant
to
agreements under which the Company has the option to repurchase such shares
at
cost or at cost upon the occurrence of certain events, such as the termination
of employment provided further, however, that the total amount applied
to the
repurchase of shares of Common Stock shall not exceed $100,000 during any
twelve
(12) month period or (ii) the redemption of any share or shares of Preferred
Stock otherwise than by redemption in accordance with Section 4; or
(f) issue
any
dividends with respect to the Corporation’s Common Stock; or
(g) amend
the
Corporation’s Certificate of Incorporation or bylaws; or
13
(h) change
the authorized number of directors of the corporation.
Section
8. Status
of Converted Stock.
In the
event any shares of Series A Preferred Stock shall be converted pursuant
to
Section 5 hereof, the shares so converted shall be cancelled and shall
not be
issuable by the Corporation.
RESOLVED
FURTHER, that the Chief Executive Officer and the Secretary are hereby
authorized and directed to execute, acknowledge, file and record a Certificate
of Determination of Preferences in accordance with the foregoing resolutions
and
provisions of Delaware law.
14
IN
WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the
Corporation by its Chief Executive Officer and attested by the Secretary
on the
first day set forth above.
_________________________
Name:
___________
Title:
Chief Executive Officer
Attest:
_________________________
Name:
_____________
Title:
Secretary
15
Exhibit
D
ESCROW
AGREEMENT
This
ESCROW AGREEMENT (this “Agreement”)
is
made and entered into as of _______ ___, 2005, by and among (i) International
Microcomputer Software, Inc., a California corporation (“IMSI”),
(ii)
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, as representative (the “Stockholders’
Representative”)
of the
former stockholders of AccessMedia Networks, Inc., a Delaware corporation
(the
“Company”)
(collectively, the “Company
Stockholders”),
and
(iii) US Bank, National Association, a _____ corporation (the “Escrow
Agent”).
IMSI
and the Stockholders’ Representative are sometimes hereinafter referred to
herein collectively as the “Indemnification
Parties.”
Capitalized terms used but not defined herein shall have the meaning ascribed
to
such terms in the Agreement and Plan of Merger, dated as of August 8, 2005,
by
and among IMSI, AM Acquisition Corp., a Delaware corporation, and the Company
(the “Merger
Agreement”).
RECITALS
WHEREAS,
Article 10 of the Merger Agreement provides for the establishment of an
Escrow
Fund; and
WHEREAS,
the Escrow Fund is to be used to fund and secure indemnification obligations
of
the Indemnitors in favor of the IMSI Indemnitees under Article 10 of the
Merger
Agreement.
NOW,
THEREFORE, in consideration of the foregoing premises and of the covenants
and
agreements set forth herein and in the Merger Agreement, and intending
to be
legally bound hereby, the parties agree as follows:
1. Appointment
of Escrow Agent.
IMSI
and the Stockholders’ Representative hereby appoint and designate the Escrow
Agent as escrow agent hereunder, and the Escrow Agent hereby agrees to
act as
escrow agent hereunder, to hold and release the Escrow Fund in accordance
with
the terms hereof.
2. Escrow
Deposit.
As soon
as practicable following the Effective Time, there shall be deposited with
the
Escrow Agent on behalf of the Company Stockholders, and upon such deposit
the
Escrow Agent shall acknowledge receipt of, a stock certificate representing
1,500,000 shares of IMSI Common Stock (the “Escrow
Shares”).
The
Escrow Agent shall hold the Escrow Shares and shall administer the same
in
accordance with the terms of this Agreement.
3. Release
of Escrow Fund.
(a) Certain
Definitions:
For
purposes of this Agreement, the following terms shall have the meaning
ascribed
to such terms below:
(i) “Business
Day”
shall
mean a regular business day of the Escrow Agent. Whenever under the terms
hereof
the time for giving a notice or performing an act falls upon a Saturday,
Sunday
or bank holiday, such time shall be extended to the Escrow Agent’s next Business
Day.
(ii) “Claim”
shall
mean a claim, including without limitation any third party claim, by any
IMSI
Indemnitee for indemnification for Losses under Article 10 of the Merger
Agreement.
(iii) “Claim
Shares”
shall
mean, with respect to any Claim, a number of Escrow Shares that have an
aggregate value equal to the amount of the Losses stated in the Notice
of Claim,
computed on the basis of the Indemnity Stock Price as the deemed value
of an
Escrow Share.
(iv) “Indemnification
Period”
shall
mean the period which commences on the date hereof and which terminates
on the
date occurring eighteen (18) months from the date hereof.
(v) “Indemnity
Stock Price”
shall
mean the average closing price of IMSI Common Stock for the five trading
days
following the public announcement of the Merger.
(b) IMSI
may,
by giving written notice (an “Indemnity
Notice”)
to the
Stockholders’ Representative and the Escrow Agent, make a Claim against the
Escrow Shares at any time during the Indemnification Period. Such Indemnity
Notice shall contain such facts and information as are then reasonably
available
and the specific basis for indemnification. If such amount is liquidated
in
amount, the Indemnity Notice shall so state and such amount shall be deemed
the
amount of the claim against the Escrow Funds. If the amount is not liquidated,
then the Indemnity Notice shall so state and, in such event, a claim shall
be
deemed asserted against the Escrow Funds, but no transfer shall be made
on
account thereof until the amount of such claim is liquidated and such transfer
is to be made in accordance with (c) or (d) below. The Claim Shares shall
be
drawn pro rata from the Escrow Shares allocable to the Company Stockholders
in
accordance with their respective interests therein as set forth in Exhibit
A.
(c) Upon
receipt of a written statement executed by IMSI and the Stockholders’
Representative evidencing their agreement to the amounts and directions
in
question or pursuant to a final award determined by a court of competent
jurisdiction from which no appeal can be timely taken, the Escrow Agent
shall
promptly transfer to IMSI as directed by such written notice, from the
Escrow
Shares (to the extent that the Escrow Shares are sufficient therefor) the
Claim
Shares. The Escrow Agent shall take the action specified in notices signed
by,
and received from, the Indemnification Parties as soon as practicable after
its
receipt thereof.
(d) As
promptly as is practicable after the expiration of the Indemnification
Period,
the Escrow Agent shall distribute the balance, if any, of the remaining
Escrow
Shares to the Company Stockholders in accordance with their respective
interests
therein as set forth in Exhibit A hereto; provided,
however,
that
one-third of the Escrow Shares shall be released from the Escrow Fund on
each of
the following dates: (i) six months after the Closing Date; (ii) 12 months
after
the Closing Date and (ii) 18 months after the Closing Date. Notwithstanding
the
foregoing, in the event of any Pending Claim (as hereinafter defined) at
the
time the foregoing distribution is to be made, a portion of such Escrow
Shares
with a value equal to the amount of such Pending Claim shall be withheld
(and
shall be available for payment in accordance with Section 3(c) above) until
such
time as the Pending Claim is finally resolved and the foregoing calculation
shall be based upon one-third of the remaining Escrow Shares. Upon resolution
of
such Pending Claim (whether by agreement of the parties or court order),
any
distribution thereby required under Section 3(c) above shall be made and
the
balance, if any, of such withheld Escrow Shares shall be paid to the Company
Stockholders in accordance with their respective interests therein as set
forth
in Exhibit
A
hereto.
For purposes of this Agreement, “Pending Claim” means any Claim that is included
in an Indemnity Notice which Claim has not been paid in full or otherwise
discharged.
2
4. Dividends;
Voting.
(a) Any
dividends declared and paid, and any distributions, whether in cash, stock
or
other property, made with respect to, the Escrow Shares, including by way
of
stock split, stock dividend recapitalization, reorganization or the like
made in
respect of any securities in the Escrow Fund, shall be delivered to the
Escrow
Agent and shall be held and transferred by the Escrow Agent in the same
manner
that the Escrow Shares are held and transferred hereunder. The Escrow Agent
shall treat the Stockholders’ Representative as the duly authorized agent and
representative of the Company Stockholders with respect to property added
to the
Escrow Fund.
(b) The
Company Stockholders shall vote the Escrow Shares in accordance with their
respective interests as set forth in Exhibit
A
on all
matters submitted to a vote of the stockholders of IMSI during the term
of this
Agreement.
(c) The
Company Stockholders shall have no right to sell, pledge, hypothecate or
otherwise dispose of or transfer any Escrow Shares or instruct the Escrow
Agent
in any manner with respect thereto.
5. Rights
and Duties of the Escrow Agent.
(a) The
Escrow Agent shall be liable as a depository only with its duties being
only
those specifically provided herein and which are ministerial in nature
and not
discretionary. The Escrow Agent shall not be liable for any mistake of
fact or
error in judgment, or for any act or failure to act of any kind taken in
good
faith and believed by it to be authorized or within the rights or powers
conferred by this Agreement, unless there be shown willful misconduct or
gross
negligence. Anything in this Agreement to the contrary notwithstanding,
in no
event shall the Escrow Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Escrow Agent has been advised of the likelihood for
such
loss or damage and regardless of the form of action. The parties hereto
acknowledge that the foregoing indemnities shall survive the resignation
or
removal of the Escrow Agent or the termination of this Agreement.
(b) The
Escrow Agent shall not be liable in any respect on account of identity,
authority or rights of persons executing or delivering, or purporting to
execute
or deliver, any document or item, and may rely absolutely and be fully
protected
in acting upon any item, document or other writing believed by it to be
authentic in performing its duties hereunder.
(c) The
Escrow Agent shall be indemnified and held harmless by the parties to this
Agreement from and against all costs, damages, liabilities and expenses
which
the Escrow Agent may incur or sustain in connection with or arising out
of this
Escrow Agreement, including, but not limited to, any costs, damages, liabilities
and expenses that may be incurred as a result of claims or actions by third
parties. The Escrow Agent shall be entitled to consult with and engage
the
services of legal counsel of its choice with respect to any matter pertaining
to
this Agreement and shall be entitled to reimbursement for the reasonable
costs
and expenses of such legal counsel.
3
(d) The
duties and responsibilities of the Escrow Agent hereunder shall be determined
solely by the express provisions of this Escrow Agreement and no other
or
further duties or responsibilities shall be implied. The Escrow Agent shall
not
have any liability under, nor duty to inquire into the terms and provisions
of
any agreement or instructions, other than outlined in the Purchase
Agreement.
(e) The
Escrow Agent shall have the right to resign after first having given the
Indemnification Parties notice in writing of its intent to resign at least
20
Business Days in advance. At the expiration of such 20 Business Day period,
the
Escrow Agent shall deliver the remaining Escrow Fund to a successor Escrow
Agent
designated in writing by the Indemnification Parties. If the Indemnification
Parties fail to designate a successor to the Escrow Agent within such 20
Business Day period, the Escrow Agent shall, at the expense of the
Indemnification Parties, institute a ▇▇▇▇ of interpleader as contemplated
by
Section 4(e)(ii) hereof. Any corporation or association into which the
Escrow
Agent in its individual capacity may be merged or converted or with which
it may
be consolidated, or any corporation or association resulting from any
reorganization, conversion or consolidation to which the Escrow Agent in
its
individual capacity shall be a party, or any corporation or association
to which
all or substantially all the corporate trust business of the Escrow Agent
in its
individual capacity may be sold or otherwise transferred, shall be the
Escrow
Agent under this Agreement without further act.
(f) If
(i)
the Escrow Fund is at any time attached, garnished or levied upon under
any
court order, or (ii) the payment, assignment, transfer, conveyance or delivery
of any such property shall be stayed or enjoined by any court order, or
(iii)
any order, judgment or decree shall be made or entered by any court of
competent
jurisdiction from which no appeal may timely be taken affecting such property
or
any part thereof, then in any of such events the Escrow Agent is authorized,
in
its sole discretion, to rely upon and comply with any such order, judgment
or
decree which it is advised by legal counsel of its own choosing is binding
upon
it, and if it complies with any such order, judgment or decree it shall
not be
liable to any of the parties hereto or to any other person, firm or corporation
by reason of such compliance, even though such order, judgment or decree
may be
subsequently reversed, modified, annulled, set aside or vacated.
(g) IMSI
and
Stockholders’ Representative may, by joint written direction, request the
resignation of the Escrow Agent. The Escrow Agent shall not be required
to
resign until its reasonable fees and out-of-pocket expenses have been paid.
Such
direction shall also include the designation of the successor Escrow Agent.
Upon
the turnover of the Escrow Fund to the successor Escrow Agent, the Escrow
Agent
shall be released from any further liability or responsibility in connection
therewith other than liability resulting from the Escrow Agent’s gross
negligence, bad faith or misconduct or breach of the specific provisions
of this
Agreement.
6. Fees
of Escrow Agent.
IMSI
shall pay one hundred percent of the reasonable fees and out-of-pocket
expenses
of the Escrow Agent incurred by it in connection with carrying out its
duties
hereunder.
4
7. TINS.
IMSI
represents that its correct Taxpayer Identification Number (“TIN”), and the
Stockholders’ Representative represents that the correct TINs of the Company
Stockholders, assigned by the Internal Revenue Service (“IRS”) or any other
taxing authority are set forth on Schedule
1.
In
addition, all interest or other income earned under this Agreement shall
be
allocated and/or paid as directed in Section 4(a) or, to the extent not
set
forth therein, as directed in a joint written direction of IMSI and the
Stockholders’ Representative and reported by the recipient to the Internal
Revenue Service or any other taxing authority. Notwithstanding the foregoing,
the Escrow Agent shall report and withhold any taxes as it determines may
be
required by any law or regulation in effect at the time of the distribution.
In
the absence of timely direction, all proceeds of the Escrow Fund shall
be
retained in the Escrow Fund and reinvested from time to time by the Escrow
Agent
as provided in Section 10. In the event that any earnings remain undistributed
at the end of any calendar year, Escrow Agent shall report to the Internal
Revenue Service or such other authority such earnings as it deems appropriate
or
as required by any applicable law or regulation or, to the extent consistent
therewith, as directed in writing by IMSI and the Stockholders’ Representative.
In addition, the Escrow Agent shall withhold any taxes it deems appropriate
and
shall remit such taxes to the appropriate authorities.
8. Investment
of Escrow Earnings.
The
Escrow Agent shall invest any cash in the Escrow Fund at the written direction
of both IMSI and the Stockholders’ Representative or in the absence of such
direction in any mutual fund invested solely in United States Treasury
obligations.
9. Term.
This
Agreement shall continue in full force and effect until all Escrow Shares
and
other assets comprising the Escrow Fund have been transferred in accordance
with
Section 3 hereof.
10. Miscellaneous.
(a) Notices.
Any
notice, request, demand, waiver, consent, approval or other communication
which
is required or permitted hereunder shall be in writing and shall be deemed
given
(i) on the date established by the sender as having been delivered personally;
(ii) on the date delivered by a private courier as established by the sender
by
evidence obtained from the courier; (iii) on the date sent by facsimile,
with
confirmation of transmission, or (iv) on the date mailed, by certified
or
registered mail, return receipt requested, postage prepaid. Such communications,
to be valid, must be addressed as follows:
(i) if
to
IMSI:
International
Microcomputer Software, Inc.
▇▇
▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇▇▇▇ III, Chief Executive Officer
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
5
With
a
required copy to:
▇▇▇▇▇▇,
▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
2
Palo
Alto Square
▇▇▇▇
▇▇
▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇
▇▇▇▇▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
(ii) if
to the
Stockholders’ Representative:
▇▇.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
(iii) If
to the
Escrow Agent:
US
Bank,
National Association
____________________________
____________________________
Attn:
Facsimile:
or
to
such other address or to the attention of such person or persons as the
recipient party has specified by prior written notice to the sending party
(or
in the case of counsel, to such other readily ascertainable business address
as
such counsel may hereafter maintain). If more than one method for sending
notice
as set forth above is used, the earliest notice date established as set
forth
above shall control.
(b) Amendment
and Waiver.
Any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and is signed, in the case of an amendment,
by
each party to this Agreement, or in the case of a waiver, by the party
against
whom the waiver is to be effective. No failure or delay by any party in
exercising any right or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise thereof preclude any other or
further
exercise thereof or the exercise of any other right, power or privilege.
To the
maximum extent permitted by Law, (i) no waiver that may be given by a party
shall be applicable except in the specific instance for which it was given
and
(ii) no notice to or demand on one party shall be deemed to be a waiver
of any
obligation of such party or the right of the party giving such notice or
demand
to take further action without notice or demand.
6
(c) Assignment.
This
Agreement may not be assigned by any party hereto without the prior written
consent of the other parties. Subject to the foregoing, all of the terms
and
provisions of this Agreement shall inure to the benefit of and be binding
upon
the parties hereto and their respective executors, heirs, personal
representatives, successors and assigns.
(d) Governing
Law.
This
Agreement shall be governed by and interpreted and enforced in accordance
with
the laws of the State
of
California, without giving effect to any choice of law or conflict of laws
rules
or provisions (whether of the State of California or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other
than the
State of California.
(e) Jurisdiction.
Each
party irrevocably submits to the exclusive jurisdiction of (a) California,
and
(b) the United States District Court for the Northern District of California,
for the purposes of any action, suit or proceeding, claim, arbitration
or
litigation (“Action”)
arising out of this Agreement or any transaction contemplated hereby. Each
party
agrees to commence any such Action either in the United States District
Court
for the Northern District of California or if such Action may not be brought
in
such court for jurisdictional reasons, in the Superior Court of the State
of
California Santa ▇▇▇▇▇ County. Each party further agrees that service of
any
process, summons, notice or document by U.S. registered mail to such party's
respective address set forth above shall be effective service of process
for any
Action in California with respect to any matters to which it has submitted
to
jurisdiction in this Section 11.5. Each party irrevocably and unconditionally
waives any objection to the laying of venue of any Action arising out of
this
Agreement or the transactions contemplated hereby in (i) the United States
District Court for the Northern District of California, or (ii) the Superior
Court of the State of California Santa ▇▇▇▇▇ County, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim
in any
such court that any such Action brought in any such court has been brought
in an
inconvenient forum
(f) Counterparts.
This
Agreement may be executed in any number of counterparts, and any party
hereto
may execute any such counterpart, each of which when executed and delivered
shall be deemed to be an original and all of which counterparts taken together
shall constitute but one and the same instrument.
(g) Third
Party Beneficiaries.
No
provision of this Agreement is intended to confer upon any person other
than the
parties hereto any rights or remedies hereunder; provided that,
in the
case of Section 3, the other IMSI Indemnitees and their respective heirs,
executors, administrators, legal representatives, successors and assigns,
are
intended third-party beneficiaries of such sections and shall have the
right to
enforce such section in their own names.
(h) Entire
Agreement.
This
Agreement and the documents, instruments and other agreements specifically
referred to herein or delivered pursuant hereto, set forth the entire
understanding of the parties hereto with respect to the subject matter
hereof.
Any and all previous agreements and understandings between or among the
parties
regarding the subject matter hereof, whether written or oral, are superseded
by
this Agreement.
(i) Headings.
All
captions contained in this Agreement are for convenience of reference only,
do
not form a part of this Agreement and shall not affect in any way the meaning
or
interpretation of this Agreement.
7
(j) Severability.
Any
provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall be ineffective to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
provisions hereof, and any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision
in any
other jurisdiction.
(k) Specific
Performance.
The
parties agree that irreparable damage would occur in the event that any
of the
provisions of this Agreement were not performed by them in accordance with
the
terms hereof and that each party shall be entitled to specific performance
of
the terms hereof, in addition to any other remedy at law or equity.
(l) Percentage
Interests.
If for
any reason the percentage interests set forth on Exhibit
A should
need to be recalculated, IMSI and the Stockholders’ Representative shall
jointly: (i) calculate revised percentage interests for the Company
Stockholders and (ii) submit a revised Exhibit A in writing to the Escrow
Agent,
in which event such revised Exhibit
A
shall be
the Exhibit
A
for all
purposes under this Agreement.
[Signature
Page To Follow]
8
IN
WITNESS WHEREOF, this Agreement has been executed by the parties as of
the date
first above written.
|
INTERNATIONAL
MICROCOMPUTER SOFTWARE,
INC.
By:
__________________________________
Name:
Title:
|
|
|
STOCKHOLDERS’
REPRESENTATIVE
By:
__________________________________
|
|
|
US
BANK, NATIONAL ASSOCIATION
By:
__________________________________
Name:
Title:
|
EXHIBIT
A
|
Software
People, LLC
|
4
|
240,000
|
|
Trans
Global Media, LLC
|
4
|
240,000
|
|
Broadcaster,
LLC
|
8
|
480,000
|
|
AccessMedia
Technologies, LLC
|
2
|
120,000
|
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
7
|
420,000
|
|
TOTAL
|
25
|
1,500,000
|
Schedule
1
Software
People, LLC
Trans
Global Media, LLC
Broadcaster,
LLC
AccessMedia
Technologies, LLC
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
Exhibit
E
August
__, 2005
International
Microcomputer Software, Inc.
▇▇
▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇ ▇▇▇▇, III
Chief
Executive Officer
Re: IMSI
Lock-Up Agreement
Dear
Sirs:
In
connection with the execution and delivery of the Agreement and Plan
of Merger
dated as of the date hereof (“Merger
Agreement”)
by and
among International Microcomputer Software, Inc. (“IMSI”),
AM
Acquisition Corp., a wholly-owned subsidiary of IMSI, and AccessMedia
Networks,
Inc., and as an inducement to such parties to enter into the Merger Agreement,
the undersigned (“Holder”)
hereby
agrees that he, she or it shall not sell, offer, pledge, contract to
sell, make
any short sale of, grant any option for the purchase of, or enter into
any
hedging or similar transaction with the same economic effect as a sale,
or
otherwise transfer or dispose of, directly or indirectly (collectively,
“Transfer”),
any
common stock (or other securities) of IMSI owned by such Holder (“Holder’s
Securities”)
for a
period of twelve (12) months following the Closing Date as defined in
the Merger
Agreement.
Notwithstanding
the foregoing, Holder may Transfer up to two percent (2%) of Holder’s Securities
in each sixty (60) day period during such twelve (12) month period; provided,
however,
that
the number of shares of Common Stock (or other securities) that may be
Transferred during any sixty (60) day period may be increased above two
percent
(2%) by Baytree Capital Associates, LLC (“Baytree
Capital”)
if (i)
Baytree Capital determines in good faith that such Transfers will not
have an
adverse effect on the market for IMSI’s common stock, and (ii) such increase
applies on a pro rata basis to each IMSI stockholder who has executed
a lockup
agreement on the date hereof. Furthermore, Holder may Transfer Holder’s
Securities to any revocable trust established for the benefit of Holder,
Holders
children and which Holder remains trustee. Any such Transfer shall be
bound by
the terms hereof.
Holder
also agrees and consents to the entry of stop transfer instructions with
IMSI’s
transfer agent and registrar against the transfer of the Holder’s Securities
except in compliance with the foregoing restrictions. It is understood
that this
Agreement shall become effective only upon execution and delivery of
the Merger
Agreement and shall be void and of no further force or effect if the
Merger
Agreement is terminated.
Sincerely,
_______________________________
Name
of
Holder