Exhibit 2.1
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AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF NOVEMBER 22, 2000
BY AND AMONG
PHOTOLOFT, INC.,
PHOTOL ACQUISITION CORP.,
EXTREME VELOCITY GROUP, INC.,
AL MARCO,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
AND
EVG I, A CALIFORNIA GENERAL PARTNERSHIP
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TABLE OF CONTENTS
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ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Merger; Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . . . 1
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1.2 Closing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
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1.3 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
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1.4 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
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1.5 Nomination of Board Member. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
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1.6 Reorganization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
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ARTICLE II EFFECT OF THE MERGER; EXCHANGE OF CERTIFICATES . . . . . . . . . . . . . . . . 2
2.1 Effect on EVG Stock.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
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2.2 MFA Payable.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
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2.3 CNB Letter of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
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2.4 Appraisal Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
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2.5 Surrender of EVG Stock Certificates and Delivery of PhotoLoft Stock Certificates. 5
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2.6 No Further Ownership Rights in EVG Stock. . . . . . . . . . . . . . . . . . . . . 5
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2.7 Lost, Stolen or Destroyed Certificates. . . . . . . . . . . . . . . . . . . . . . 6
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2.8 Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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2.9 Legends.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF EVG AND THE SHAREHOLDERS. . . . . . . . . . 7
3.1 Corporate Existence, Good Standing and Authority. . . . . . . . . . . . . . . . . 7
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3.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
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3.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
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3.4 AMP Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
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3.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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3.6 Projections.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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3.7 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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3.8 Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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3.9 Accounts Receivable.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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3.10 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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3.11 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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3.12 No Breach.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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3.13 Employees and Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . 13
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3.14 Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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3.15 Contracts and Permits.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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3.16 Charter Documents.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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3.17 Directors, Officers and Employees.. . . . . . . . . . . . . . . . . . . . . . . . 18
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3.18 Powers of Attorney; Bank Accounts.. . . . . . . . . . . . . . . . . . . . . . . . 18
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3.19 Environmental Matters.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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3.20 Affiliate Relationships.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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TABLE OF CONTENTS
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3.21 No Termination of Business Relationship.. . . . . . . . . . . . . . . . . . . . . 18
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3.22 Compliance with Law, Governmental Consent.. . . . . . . . . . . . . . . . . . . . 18
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3.23 Consents of Non-Governmental Third Parties; Third Party Interests.. . . . . . . . 19
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3.24 Patents, Trademarks, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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3.25 Employees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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3.26 Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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3.27 Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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3.28 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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3.29 Change of Control Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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3.30 Workers' Compensation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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3.31 Warranty Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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3.32 EVG Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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3.33 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PHOTOLOFT AND MERGER SUB . . . . . . . . . . 24
4.1 Organization and Standing; Certificate of Incorporation and Bylaws. . . . . . . . 24
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4.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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4.3 Authorization.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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4.4 Compliance with Other Instruments.. . . . . . . . . . . . . . . . . . . . . . . . 25
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4.5 Governmental Consent, Etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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4.6 PhotoLoft Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 26
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4.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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4.8 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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4.9 Registration Rights.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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4.10 Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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4.11 PhotoLoft Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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ARTICLE V CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; ADDITIONAL AGREEMENTS. . . . . 27
5.1 Conduct of Business of EVG. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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5.2 Access to Information.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
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5.3 Other Negotiations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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5.4 Breach of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . 30
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5.5 Transaction Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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5.6 Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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5.7 FIRPTA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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5.8 Regulatory Filings; Consents; Reasonable Efforts. . . . . . . . . . . . . . . . . 31
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5.9 Termination of EVG Rights.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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5.10 Shareholder Certificate.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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5.11 Transfer of Rights to Technology. . . . . . . . . . . . . . . . . . . . . . . . . 32
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5.12 PhotoLoft Stock Option Plan.. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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5.13 CNB Lines of Credit.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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TABLE OF CONTENTS
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ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES. . . . . . . . . . . . . . . 32
6.1 Statutes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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6.2 Legal Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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6.3 Approvals.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF PHOTOLOFT AND MERGER SUB. . . . . . . . 33
7.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.2 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.3 Performance of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.4 Employment Agreements.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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7.5 Employment Offer Letters; Termination of Employment Arrangements. . . . . . . . . 34
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7.6 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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7.7 Noncompetition Agreements.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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7.8 Dissenter's Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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7.9 Secretary's Certificate.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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7.10 Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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7.11 Registration Rights Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . 34
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7.12 Lease Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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7.13 EVG Board and Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . . . 34
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7.14 Shareholder Certificate.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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7.15 EVG Board and Officer Resignations. . . . . . . . . . . . . . . . . . . . . . . . 35
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7.16 Life Insurance Policies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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7.17 MFA Receipt.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF EVG AND THE SHAREHOLDERS . . . . . . . 35
8.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . 35
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8.2 Performance of Obligations of PhotoLoft and Merger Sub. . . . . . . . . . . . . . 35
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8.3 Employment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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8.4 Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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8.5 Registration Rights Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . 35
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8.6 PhotoLoft Board Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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ARTICLE IX TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Termination Prior to Effective Time.. . . . . . . . . . . . . . . . . . . . . . . 36
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9.2 Authorization by Board of Directors.. . . . . . . . . . . . . . . . . . . . . . . 36
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9.3 Termination of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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ARTICLE X INDEMNIFICATION AND ESCROW FUND. . . . . . . . . . . . . . . . . . . . . . . . . 37
10.1 Indemnity and Escrow Fund.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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10.2 Escrow Period.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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10.3 Claims Upon the Escrow Fund.. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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10.4 Objections to Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
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10.5 Attempt to Resolve Conflicts; Arbitration.. . . . . . . . . . . . . . . . . . . . 38
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10.6 Shareholders' Agent.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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TABLE OF CONTENTS
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10.7 Actions of the Shareholders' Agent. . . . . . . . . . . . . . . . . . . . . . . . 40
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10.8 Third-Party Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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10.9 Limitations.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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ARTICLE XI GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.1 Survival of Representations, Warranties and Agreements. . . . . . . . . . . . . . 42
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11.2 Amendment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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11.3 Extension; Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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11.4 Notices and Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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11.5 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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11.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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11.7 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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11.8 No Transfer.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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11.9 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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11.10 Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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11.11 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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11.12 Absence of Third-Party Beneficiary Rights.. . . . . . . . . . . . . . . . . . . . 45
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11.13 Mutual Drafting.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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11.14 Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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11.15 Attorney's Fees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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TABLE OF CONTENTS
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EXHIBITS
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Exhibit 5.10 Shareholder Certificate
Exhibit 7.4 Form of Employment Agreement
Exhibit 7.7 Form of Noncompetition Agreement
Exhibit 7.10 Escrow Agreement
Exhibit 7.11 Registration Rights Agreement
Exhibit 7.12 Lease Agreement
Exhibit 10.1 Additional Indemnifiable Items
SCHEDULES
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EVG Disclosure Schedule
PhotoLoft Disclosure Schedule
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is entered into as of November
22, 2000 by and among PhotoLoft, Inc., a Nevada corporation ("PhotoLoft"),
PhotoL Acquisition Corp., a California corporation and a wholly-owned subsidiary
of PhotoLoft ("Merger Sub"), Extreme Velocity Group, Inc., a California
corporation ("EVG"), and EVG I, a California general partnership, Al Marco
("Marco"), ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇") and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ("▇▇▇▇▇▇")
(individually, a "Shareholder" and collectively, the "Shareholders").
NOW, THEREFORE, for good and valuable consideration, the receipt, adequacy
and sufficiency of which hereby are acknowledged, the parties hereto covenant
and agree as follows:
ARTICLE I
THE MERGER
1.1 Merger; Effective Time of the Merger. Upon the terms and
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conditions hereinafter set forth and in accordance with the California General
Corporation Law ("CGCL"), at the Effective Time (as defined in Section 1.3
below), Merger Sub shall be merged with and into EVG (the "Merger"), and
thereupon, the separate existence of Merger Sub shall cease and EVG, as the
Surviving Corporation (as defined in Section 1.4 below), shall continue to exist
under and be governed by the CGCL.
1.2 Closing. Subject to the terms and conditions of this Agreement,
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the closing of the Merger (the "Closing") shall take place at the offices of
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP, ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
as promptly as practicable after satisfaction or waiver of the conditions set
forth in ARTICLES VI, VII and VIII, or at such other location, time and/or date
as may be agreed to in writing by the parties hereto. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."
1.3 Effective Time. As soon as practicable after all of the conditions
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set forth in ARTICLES VI, VII and VIII are satisfied or waived, the parties
hereto shall cause an Agreement of Merger (or like instrument) and any other
appropriate documentation ("Agreement of Merger") meeting the requirements of
Section 1103 of the CGCL to be properly executed and filed in accordance with
the CGCL on the Closing Date. The Merger shall become effective at the time of
acceptance by the Secretary of State of the State of California of such filing
in accordance with the CGCL, or at such other time which the parties hereto
shall have agreed upon and designated in such filing as the effective time of
the Merger (the "Effective Time").
1.4 Effect of the Merger. At the Effective Time (i) the separate
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existence of Merger Sub shall cease and Merger Sub shall be merged with and into
EVG (EVG and Merger Sub are sometimes referred to herein as the "Constituent
Corporations," and EVG, after giving effect to the Merger, is sometimes referred
to herein as the "Surviving Corporation"); (ii) the Articles of Incorporation of
Merger Sub shall become and thereafter be the Articles of Incorporation of the
Surviving Corporation; (iii) the Bylaws of Merger Sub shall become and
thereafter be the Bylaws of the Surviving Corporation; (iv) the directors and
officers of Merger Sub shall become and thereafter be the directors and officers
of the Surviving Corporation; and (v) the Merger shall have all the effects
provided by the applicable provisions of the CGCL. Without limiting the
1
generality of the foregoing, at and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises, and
be subject to all the restrictions and duties of each of the Constituent
Corporations.
1.5 Nomination of Board Member. As long as Shareholders collectively
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hold at least ten percent (10%) of the PhotoLoft Stock then outstanding,
Shareholders as a group shall be allowed to designate one nominee, subject to
the approval of Intellect Capital Group, LLC, which approval shall not be
unreasonably withheld, on the slate of directors presented for election in any
election of the full Board of Directors.
1.6 Reorganization. The Merger is intended to be a reorganization
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within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986,
as amended (the "Code").
ARTICLE II
EFFECT OF THE MERGER;
EXCHANGE OF CERTIFICATES
2.1 Effect on EVG Stock. At the Effective Time, by virtue of the
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Merger and without any further action on the part of PhotoLoft, Merger Sub, EVG,
the Shareholders or any other holder of any capital stock of EVG:
(a) Conversion of EVG Stock. Subject to the terms and conditions
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of this Agreement, including, without limitation, the expense provisions set
forth in Section 5.5 hereof and the escrow provisions set forth in ARTICLE X
hereof,
(i) each outstanding share of EVG Stock (other than shares,
if any, for which the holder has perfected appraisal rights under
Section 1300 of the CGCL ("Dissenting Shares") which shall not be
converted into the right to receive any shares of PhotoLoft capital
stock ("PhotoLoft Stock") as set forth herein, but shall be converted
into the right to receive such consideration as may be determined to
be due with respect to such Dissenting Shares pursuant to the CGCL)
will be converted into the right to receive (A) that number of shares
of the Common Stock of PhotoLoft ("PhotoLoft Common Stock") equal to
the Primary Exchange Ratio plus (B) that number of shares of PhotoLoft
Common Stock equal to the Secondary Exchange Ratio, if such number is
greater than zero; and
(ii) all shares of EVG capital stock held at the Effective
Time by EVG as treasury stock or by a subsidiary of EVG shall be
canceled and no payment shall be made with respect thereto.
(b) Exchange Ratios.
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(i) The Primary Exchange Ratio shall be determined by
dividing (A) 17,192,648 shares of PhotoLoft Common Stock less the
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number of shares of PhotoLoft Common Stock equal to the quotient
obtained by dividing (1) the sum of any Excess Liabilities and any Net
Working Deficit by (2) the Average Price by (B) the number of shares
of EVG capital stock issued and outstanding immediately prior to the
Effective Time (the "EVG Stock").
2
(ii) The Secondary Exchange Ratio shall be determined by
dividing (A) 1,000,000 by (B) the number of shares of EVG Stock.
For purposes of this Agreement:
"Average Price" shall mean the per share average of the closing
prices of one share of PhotoLoft Common Stock on the NASD O-T-C Market
Bulletin Board (or comparable reporting service if the PhotoLoft
Common Stock is traded on an exchange or on Nasdaq) for the ten
trading days ending one day prior to the Closing Date.
"Excess Liabilities" means any and all liabilities for borrowed
money and capital lease obligations and all long-term liabilities
(shown or required to be shown on EVG's financial statements under
generally accepted accounting principles in the United States) of EVG,
including, without limitation, all outstanding amounts under the lines
of credit from City National Bank to be assumed by PhotoLoft in
connection with the Merger (the "CNB Lines of Credit"), which in no
event shall exceed $690,000, in excess of $690,000 in the aggregate,
existing as of the Closing Date.
"Merger Shares" shall mean the aggregate of the PhotoLoft Common
Stock to be issued to the shareholders of EVG pursuant to this Section
2.1.
"Net Working Deficit" means the amount by which (A) EVG's current
liabilities (which shall mean accounts payable, accrued payable,
domain name payable and other liabilities payable within 30 days of
the Closing, but shall not include the MFA Payable (as defined below)
which shall be paid by PhotoLoft pursuant to Section 2.2) exceeds (B)
-------
the sum of $225,000 and EVG's current assets (which shall mean cash,
inventory (net of reserves), and accounts receivable (net of
reserves)), if any, as of the Closing Date. All such amounts shall be
as shown or required to be shown on EVG's financial statements
pursuant to generally accepted accounting principles in the United
States.
(c) Termination of EVG Rights. Immediately prior to the Effective
-------------------------
Time, all then-issued and outstanding EVG Rights (as defined in Section 3.2
below), if any, shall be cancelled and terminated by EVG pursuant to Section 5.9
of this Agreement.
(d) Adjustments to Exchange Ratios. Both the Primary Exchange
---------------------------------
Ratio and the Secondary Exchange Ratio shall be appropriately adjusted to
reflect fully the effect of any stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities convertible into PhotoLoft
Stock and EVG Stock), reorganization, recapitalization or other like change with
respect to PhotoLoft Stock and EVG Stock occurring after the date of this
Agreement and prior to the Effective Time. In addition, the 17,192,648 share
number used for calculation of the Primary Exchange Ratio in Section 2.1(b)(i)
shall be increased by one (1) share for every three (3) shares of PhotoLoft
Stock issued after the date of this Agreement and prior to the Effective Time;
provided that no such increase shall be effected for PhotoLoft Stock (i) issued
pursuant to the conversion or exercise of convertible or exercisable securities
which are issued and outstanding as of the date of this Agreement or (ii) issued
to employees, consultants or directors of PhotoLoft or its affiliates for the
primary purpose of soliciting or retaining their employment or services, whether
such issuance be pursuant to a written compensatory plan or otherwise.
3
(e) Fractional Shares. No fraction of a share of PhotoLoft Common
-----------------
Stock will be issued by virtue of the Merger, and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
shareholder of PhotoLoft. In lieu of issuing fractional shares of PhotoLoft
Common Stock, each holder of shares of EVG Stock who would otherwise be entitled
to a fraction of a share of PhotoLoft Common Stock (after aggregating all
fractional shares of PhotoLoft Common Stock to be received by such holder) shall
receive from PhotoLoft with respect to the fraction of a share of PhotoLoft
Common Stock, an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction multiplied by (ii) the Average Price.
(f) Capital Stock of Merger Sub. Each share of Common Stock of
-------------------------------
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into and exchanged for one fully-paid and non-assessable share of
the Surviving Corporation's Common Stock.
2.2 MFA Payable. On the Closing Date, PhotoLoft shall pay to Marco
------------
Fine Arts ("MFA") on behalf of EVG $800,000 in cash (the "MFA Payment"), in
satisfaction of the EVG payable to MFA of the same amount.
2.3 CNB Letter of Credit. On the Closing Date or as soon as
-----------------------
practicable thereafter, PhotoLoft and/or the Surviving Corporation shall assume
the obligations under the letter of credit issued by City National Bank on
behalf of EVG, in connection with EVG's purchase of approximately $30,000 of
paper from Konica, Inc., under a line of credit maintained by MFA with City
National Bank.
2.4 Appraisal Rights.
-----------------
(a) Holders of Dissenting Shares who have complied with all
requirements for perfecting the appraisal rights as set forth in Section 1300 of
the CGCL shall be entitled to their rights under such laws as may be agreed to
by such shareholders and EVG or as finally determined by a court of competent
jurisdiction. Each holder of Dissenting Shares who becomes entitled to payment
of the value of shares of stock shall receive payment therefor (but only after
the value therefor shall have been agreed upon or finally determined pursuant to
such provisions).
(b) Notwithstanding the provisions of subsection 2.3(a), if after
the Effective Time any Dissenting Shares shall lose their status as Dissenting
Shares, such shares shall automatically thereupon be converted into and
represent only the right to receive PhotoLoft Stock in accordance with Section
2.1, without interest thereon, less any Escrow Shares required to be set aside
with respect to such Dissenting Shares (that lose their status as such) pursuant
to ARTICLE X.
(c) EVG shall give PhotoLoft (i) prompt notice of any written
demands for appraisal of any shares of EVG Stock, withdrawals of such demands,
and any other instruments served pursuant to the CGCL and received by EVG which
relate to any such demand for appraisal; and (ii) the opportunity to participate
in all negotiations and proceedings which take place prior to the Effective Time
with respect to demands for appraisal under the CGCL. EVG shall not, except
with the prior written consent of PhotoLoft, voluntarily make any payment with
respect to any demands for appraisal of EVG Stock or offer to settle or settle
any such demands.
4
2.5 Surrender of EVG Stock Certificates and Delivery of PhotoLoft Stock
-------------------------------------------------------------------
Certificates.
------------
(a) Exchange Agent. PhotoLoft shall act as the exchange and
---------------
paying agent (the "Exchange Agent") in the Merger.
(b) PhotoLoft to Provide Merger Shares. Promptly after the
--------------------------------------
Effective Time, PhotoLoft shall make available to the holders of EVG Stock for
exchange in accordance with this ARTICLE II, through such reasonable procedures
as PhotoLoft may adopt, the Merger Shares issuable at the Effective Time, less
such number of shares of the PhotoLoft Common Stock as shall be deposited into
the Escrow Fund (as defined in Section 10.1 below) pursuant to the requirements
of ARTICLE X of this Agreement and cash in an amount sufficient for payment in
lieu of fractional shares pursuant to Section 2.1(e).
(c) Distributions With Respect to Unexchanged Shares. No
-----------------------------------------------------
dividends or other distributions declared or made after the date of this
Agreement with respect to PhotoLoft Stock with a record date after the Effective
Time will be paid to the holder of any unsurrendered certificate, which
immediately prior to the Effective Time represented outstanding shares of EVG
Stock (the "Certificate"), with respect to the shares of PhotoLoft Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
Certificates representing shares of PhotoLoft Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of dividends or
other distributions, if any, with a record date after the Effective Time payable
with respect to such shares of PhotoLoft Stock.
(d) No Liability. Notwithstanding anything to the contrary in
-------------
this Agreement, none of PhotoLoft, the Surviving Corporation or any other party
hereto shall be liable to a holder of shares of PhotoLoft Stock or EVG Stock for
any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.6 No Further Ownership Rights in EVG Stock. All Merger Shares issued
----------------------------------------
upon the surrender for exchange of shares of EVG Stock in accordance with the
terms of Section 2.1 hereof, shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of EVG Stock and there
shall be no further registration of transfers on the records of EVG of shares of
EVG Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this ARTICLE II.
2.7 Lost, Stolen or Destroyed Certificates. In the event any
------------------------------------------
Certificates evidencing shares of EVG Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof, such shares of PhotoLoft Stock and cash for fractional shares,
if any, as may be required pursuant to Section 2.1; provided, that PhotoLoft
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificates to indemnify
PhotoLoft against any loss or cost incurred by or claim that may be made against
PhotoLoft, the Surviving Corporation, or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
5
2.8 Escrow Agreement. At the Effective Time, pursuant to the terms of
-----------------
an Escrow Agreement to be entered into pursuant to Sections 7.10 and 8.4 hereof,
PhotoLoft will, on behalf of the Shareholders, deposit into escrow certificates
representing the number of Merger Shares equal in value (based on the Average
Price of the shares) to fifteen percent (15%) of the Total Consideration (the
"Escrow Shares"). For purposes of this Agreement, "Total Consideration" shall
mean the sum of (i) the value of the Merger Shares (based on the Average Price
of the shares), (ii) the MFA Payment, and (iii) the full amount of any and all
liabilities for borrowed money and capital lease obligations and all long-term
liabilities (shown or required to be shown on EVG's financial statements under
generally accepted accounting principles in the United States) of EVG, up to
$690,000, existing as of the Closing Date (which includes the outstanding
amounts under the CNB Lines of Credit), to be assumed by PhotoLoft or the
Surviving Corporation in connection with the Merger (the "Assumed Liabilities").
The Escrow Shares will be held in escrow on behalf of the Shareholders, on a pro
rata basis in accordance with each Shareholder's percentage ownership of EVG
Stock (relative to the other Shareholders) immediately prior to the Effective
Time. The Escrow Shares shall be held as security for the indemnification
obligation under ARTICLE X hereof. All fees and expenses related to the
administration of the Escrow Fund, including, without limitation, the fees and
expenses of the Escrow Agent (as defined in Section 10.1 below), shall be paid
by PhotoLoft.
2.9 Legends. In addition to any other legend that may be required by
-------
federal or state securities laws, each certificate for the Merger Shares issued
hereunder shall bear a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED (A) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT COVERING SUCH SECURITIES OR (B) UNLESS TRANSFERRED
PURSUANT TO RULE 144 OF THE ACT OR PURSUANT TO ANOTHER EXEMPTION FROM
THE ACT AND ASSURANCES, WHICH MAY BE REQUIRED BY THE CORPORATION, ARE
PROVIDED TO THE CORPORATION, SATISFACTORY IN FORM AND CONTENT TO THE
CORPORATION OR ITS COUNSEL, STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SUCH ACT."
6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
EVG AND THE SHAREHOLDERS
Except as disclosed in the EVG Disclosure Schedule attached hereto (the
"EVG Disclosure Schedule"), EVG and each of the Shareholders, jointly and
severally, represent and warrant to PhotoLoft and Merger Sub as set forth below.
The EVG Disclosure Schedule shall be arranged in sections corresponding to the
specific numbered and lettered section contained in this Agreement that it
relates to. Applicable information so disclosed with specificity on the EVG
Disclosure Schedule shall be deemed to be disclosed under and incorporated into
any other section of this ARTICLE III relating to the same subject matter with
the understanding that EVG shall use its reasonable best efforts to include such
information or provide cross-references in the EVG Disclosure Schedule wherever
information is called for under more than one section of this ARTICLE III.
Notwithstanding the foregoing, the mere listing by name and date of a contract,
agreement or other document or the mere attachment of an agreement or other
document by EVG on or to the EVG Disclosure Schedule shall not be deemed an
exception to any section of this Agreement unless a specific reference and
disclosure is included in the EVG Disclosure Schedule to the particular
provision in such agreement or document that gives rise to the exception to any
section of this Agreement.
As used in this ARTICLE III, the words "know", "knowledge", "believe", or
any similar expression or phrase with respect to EVG's or the Shareholders'
knowledge shall mean knowledge that the executive officers and directors of EVG
(including Marco, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇) or the Shareholders actually have or
should have based on reasonable inquiry and diligence.
EVG further acknowledges that pursuant to the merger with and into EVG of
Advanced Media Products, Inc. ("AMP") effected in November 2000, all
representations and warranties with respect to EVG in this ARTICLE III shall
also be construed to include AMP.
3.1 Corporate Existence, Good Standing and Authority. EVG is a
-----------------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California. EVG has full corporate power and corporate
authority to carry on its business as now being conducted and is entitled to
own, lease or operate the property and assets now owned, leased or operated by
it, and has no operations or employees and conducts no business outside of the
states or countries listed in Section 3.1 of the EVG Disclosure Schedule. EVG
is qualified to do business, is in good standing and has all required and
appropriate licenses in each jurisdiction in which its failure to obtain or
maintain such qualification, good standing or licensing (i) would, individually
or in the aggregate, have, or reasonably could be expected to have, a material
adverse effect on the assets, liabilities, business, financial condition,
results of operations, or prospects of EVG (a "Material Adverse Effect") or (ii)
would result in a material breach of any of the other representations,
warranties or covenants set forth in this Agreement. EVG has all requisite
corporate power and authority to enter into this Agreement and all agreements
and other documents to be entered into in connection herewith and to consummate
the transactions contemplated hereby. All corporate or other action on the part
of EVG and its respective directors and shareholders, necessary for the
authorization, execution, delivery and performance of this Agreement and all
other agreements to be entered into in connection herewith by EVG and the
Shareholders, and the performance of the respective obligations of EVG and the
Shareholders hereunder and thereunder has been taken or will be taken prior to
the Closing Date. This Agreement and all agreements and other documents to be
entered into in connection herewith have been or will be duly executed and
delivered by EVG and the Shareholders and constitute legal, valid and binding
obligations of EVG and each of the Shareholders, enforceable against EVG and
each of the Shareholders in accordance with its terms, except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies.
7
3.2 Capitalization.
--------------
(a) The authorized capital stock of EVG consists of 10,000,000
shares of Common Stock, no par value, of which 1,064 shares are issued and
outstanding. All of the EVG Stock is owned, beneficially and of record, only by
the shareholders listed in Section 3.2(a) of the EVG Disclosure Schedule, which
lists the names, addresses and number of shares held. All of the issued and
outstanding capital stock of EVG have been duly authorized, validly issued and
is fully paid and nonassessable and, as of the Closing Date, will be issued in
compliance with all federal and state securities laws (including, without
limitation, any filing, notice, qualification or registration requirements with
any federal or state authority). Other than as described in Section 3.2(a) of
the EVG Disclosure Schedule, there are no options, warrants, calls, conversion
rights, rights of exchange, or other rights, plans, agreements or commitments of
any nature whatsoever (including, without limitation, conversion or preemptive
rights), written or oral, providing for the purchase, issuance, sale or pledge
of any shares of EVG Stock or any securities convertible into or exchangeable
for any shares of EVG Stock ("EVG Rights"). Section 3.2(a) of the EVG
Disclosure Schedule also contains a schedule listing each holder of an EVG Right
and the number of shares of EVG Stock into which such right is exercisable,
convertible or exchangeable. Except as set forth in Section 3.2(a) of the EVG
Disclosure Schedule, there are no obligations, contingent or otherwise, of EVG
to repurchase, redeem or otherwise acquire any shares of EVG Stock or make any
investment (in the form of a loan, capital contribution or otherwise) in any
other entity. Section 3.2(a) of the EVG Disclosure Schedule will be updated
immediately prior to Closing to reflect the conversion of all EVG Rights into
EVG Stock.
(b) Except as set forth in Section 3.2(b) of the EVG Disclosure
Schedule, EVG is not in active discussion, formal or informal, with any person
or entity regarding the issuance of any form of additional EVG equity or EVG
Right. Except as provided in this Agreement, there are no voting trusts,
proxies or other agreements or understandings with respect to the voting of EVG
Stock.
3.3 Subsidiaries. Except as set forth in Section 3.3 of the EVG
------------
Disclosure Schedule, EVG has never been a subsidiary of any other entity and
does not currently own, nor has it ever owned, directly or indirectly, any
interest in any other corporation, association, joint venture or other business
entity. EVG does not control, directly or indirectly, the management or
policies of any other corporation, association, joint venture or other business
entity.
8
3.4 AMP Merger. The merger of AMP with and into EVG (the "AMP
-----------
Merger"), completed November 22, 2000, was effected in accordance with all
applicable laws and regulations, including, without limitation, federal, state
and local laws and regulations, and in accordance with the Articles of
Incorporation and Bylaws of AMP and EVG. EVG, AMP and Shareholders have filed
or obtained all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any governmental entity required by
EVG or AMP in connection with the AMP Merger. No consent, waiver or approval of
any non-governmental third party is or was required to be obtained by AMP, EVG
or the Shareholders for the consummation of the AMP Merger. The AMP Merger and
EVG's, or the Surviving Corporation's, operation of the business of AMP
following the consummation of the AMP Merger have not and will not result in or
constitute any of the following: (i) a conflict, violation or default with or an
event that, with notice or lapse of time or both, would be a default, breach, or
violation of the Articles of Incorporation or Bylaws of AMP, any material
contracts or agreements, and any material permit, license, franchise, and each
other material certificate or authorization required to conduct the business of
AMP by any governmental or other authority having jurisdiction in any area where
AMP provides products or services; (ii) an event that would permit any party to
terminate any agreement or to accelerate the maturity of or permit the
subordination of any right of AMP, EVG or Surviving Corporation; (iii) the
creation or imposition of any lien, charge, interest, or encumbrance on any of
the assets of EVG or the EVG Stock, other than those created or imposed pursuant
to the assumption of the debts and liabilities of AMP by EVG in connection with
the AMP Merger; or (iv) to the knowledge of EVG and the Shareholders, conflict
with or result in the violation or breach of any law, rule or regulation of any
governmental authority, or any judgment, order, injunction or decree applicable
to AMP or EVG, their intellectual property rights, assets or the EVG Stock.
3.5 Financial Statements. The financial statements which include an
---------------------
internally generated income statement and balance sheet at and for the 8-month
period ended August 30, 2000 (unaudited) (the "Financial Statements") are
attached to Section 3.5 of the EVG Disclosure Schedule. The internal books and
records of EVG from which the Financial Statements were prepared do not contain
any information which is false or misleading. The Financial Statements (i) were
prepared in accordance with such books and records; and (ii) present fairly the
financial position and results of operations of EVG at the dates and for the
periods reflected therein. The reserves set forth in the Financial Statements
are adequate for EVG's business in light of the contingencies with respect to
which they were established.
3.6 Projections. All projections, whether financial or otherwise
-----------
related to EVG's business as currently conducted or proposed, and all other
information based on such projections, provided to PhotoLoft or its agents by
EVG and the Shareholders were prepared in good faith. However, such projections
and information shall not be construed as a guarantee of any particular results.
To the knowledge of EVG and the Shareholders, such projections do not contain
any information which is false or misleading.
3.7 Absence of Certain Changes. Since August 30, 2000, except as set
----------------------------
forth in Section 3.7 of the EVG Disclosure Schedule and except for the events
and transactions expressly contemplated by this Agreement, there has not been
with respect to EVG:
(a) Any Material Adverse Effect;
9
(b) The entering into of any Contract, material commitment or
transaction or the incurrence of any liabilities outside the ordinary course of
business consistent with past practice;
(c) Any material increase in the compensation paid or payable by
EVG to any of its officers, directors, employees, agents, consultants or
shareholders;
(d) Any declaration, setting aside or payment of dividends or
distributions with respect to EVG Stock, or any split-up or other
recapitalization with respect to EVG Stock or any direct or indirect redemption,
purchase or other acquisition of any such capital stock, or any agreement to do
any of the foregoing;
(e) Any indebtedness incurred by EVG exceeding $25,000,
individually or in the aggregate;
(f) Any loan made or agreed to be made by EVG, nor has EVG become
liable or agreed to become liable as a guarantor with respect to any loan;
(g) Any amendment to EVG's Articles of Incorporation or Bylaws;
(h) Any change in the accounting methods, practices or policies
followed by EVG, whether for general financial or tax purposes, from those in
effect from inception;
(i) Other than in the ordinary course of its business, any sale,
assignment, transfer or licensing of any patents, trademarks, copyrights, trade
secrets or other proprietary or intangible assets of EVG;
(j) Any purchase or other acquisition of, or any sale, lease,
disposition of, mortgage, pledge or subjection to any lien or encumbrance on
(except for liens for taxes not yet due), any material property or asset,
tangible or intangible, of EVG or any agreement to do any of the foregoing,
other than acquisitions of inventory, or licenses of products, in the ordinary
course of business consistent with past practice;
(k) Any capital expenditures or commitments for additions to
property, plant or equipment of EVG constituting capital assets in an amount
exceeding $25,000 individually or $50,000 in the aggregate;
(l) Any payment, discharge or satisfaction, in an amount in excess
of $25,000 in any one case or $50,000 in the aggregate, of any claim, liability
or obligation (whether absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the Financial
Statements and other than liabilities incurred in the ordinary course of
business since August 30, 2000;
(m) Any failure to pay or otherwise satisfy any liabilities
presently due and payable of EVG except such liabilities which are being
contested in good faith by appropriate means or proceedings or which are
immaterial in amount;
10
(n) Any issuance of shares of EVG Stock or any options, warrants,
or other rights to purchase shares of EVG Stock;
(o) Any actual or threatened amendment, termination or loss of (i)
any material contract, lease, license or other agreement to which EVG was or is
a party; (ii) any material certificate, license or other authorization required
for the continued operation by EVG of any portion of any of its business; or
(iii) any customer or other material revenue source;
(p) Any resignation or termination of any key officer, employee or
consultant of EVG; and any impending or threatened resignation or termination of
employment of any such officer, employee or consultant;
(q) The entering into of any transaction with any officer,
director or shareholder of EVG, other than pursuant to any Contract disclosed
pursuant to Section 3.15 of the EVG Disclosure Schedule;
(r) Any change in any material election with respect to taxes,
adoption or change in any accounting method with respect to taxes, the entering
into any tax allocation agreement, tax sharing agreement, tax indemnity
agreement or closing agreement, any settlement or compromise of any claim or
assessment with respect to taxes, or any consent to any extension or waiver of
the limitation period applicable to any claim or assessment with respect to
taxes with any taxing authority or otherwise;
(s) The commencement of any legal or administrative action or
proceeding by EVG or the commencement of any legal or administrative action or
proceeding against EVG of which EVG has knowledge;
(t) Any agreement or commitment by EVG to do any of the things
described in this Section 3.7; or
(u) Any fact or circumstance that would reasonably be expected to
cause the reserves set forth in the Financial Statements to be inadequate.
3.8 Properties. Except as listed in Section 3.8 of the EVG Disclosure
----------
Schedule, EVG does not own or hold title to any real property. With respect to
the property and assets it leases, EVG is in compliance with such leases and
holds a valid leasehold interest in such property and assets free of any liens,
claims or encumbrances of any kind whatsoever (except for liens for taxes not
yet due). There is set forth in Section 3.8 of the EVG Disclosure Schedule: (i)
a list of all leases or rental contracts under which EVG is a lessee, lessor,
sublessee or sublessor and (ii) a list of all equipment used by EVG in the
operation of its business which is owned or leased by EVG and which had an
original cost of $25,000 or more. EVG has beneficial ownership of and good and
marketable title to, or sufficient rights to use for the purposes of the
business of EVG, all properties and assets used in its operations or necessary
for the conduct of its business, and except as set forth in Section 3.8 of the
EVG Disclosure Schedule, the properties and assets owned by EVG are subject to
no mortgages, liens, pledges, loans or encumbrances of any kind whatsoever. All
real and tangible personal property, including machinery, equipment and fixtures
currently used by EVG in the operation of its business is, and at the time of
Closing will be, in good operating condition and repair, ordinary wear and tear
excepted, and are adequate and suitable for the purposes for which they are
currently being used. Except as set forth in Section 3.8 of the EVG Disclosure
Schedule, all improvements on leased property used by EVG in the operation of
its business and the current use thereof are in accordance with all applicable
laws and the agreements under which such improvements are leased. The value of
any fixed asset used by EVG in the operation of its business has not been
written up or down.
11
3.9 Accounts Receivable. Section 3.9 of the EVG Disclosure Schedule
--------------------
contains (i) a complete and accurate list of the accounts and notes receivable
in excess of $1,000 of EVG as of the date of this Agreement (which section will
be updated immediately prior to Closing); and (ii) a complete and accurate
schedule showing the aging of such accounts and notes receivable. Such accounts
and notes receivables arose in bona-fide, arms length transactions in the normal
course of EVG's business and such accounts and notes receivable (A) are and will
be at the Closing valid and binding obligations of the account debtors without
counterclaims, set offs or other defenses thereto and (B) are (except to the
extent of the reserves thereon as set forth in the Financial Statements)
collectible in the ordinary course of business. The reserves for bad debt or
uncollectible receivables set forth in the Financial Statements is sufficient to
cover all such uncollectible amounts.
3.10 Indebtedness. Section 3.10 of the EVG Disclosure Schedule
------------
contains a complete list of each and every agreement or other instrument under
or pursuant to which EVG has outstanding indebtedness for borrowed money. EVG
has furnished PhotoLoft with true and correct copies of each such agreement and
instrument, including all amendments with respect thereto through the date of
this Agreement. EVG is not in default under any such agreement or instrument
and, to the knowledge of EVG and the Shareholders, no other party to any such
agreement or instrument is in default under any such agreement or instrument.
3.11 Litigation. No litigation, arbitration or other judicial or
----------
regulatory proceeding is pending or, to the knowledge of EVG and the
Shareholders, threatened by or against EVG, its properties or assets, the EVG
Stock or the officers or directors of EVG (in their capacity as such) before any
court or any government agency, foreign or domestic, and no facts exist which
may form the basis for any such litigation, arbitration or proceeding. EVG is
not the subject of any investigation for violation of any laws, regulations or
administrative orders applicable to its business by any governmental authority
or any other person, and no facts exist which may form the basis for any such
investigation. There is no judgment, writ, decree, injunction, rule or order of
any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against EVG, its properties, intellectual property rights
or assets or the EVG Stock.
3.12 No Breach. The execution and delivery of this Agreement and the
----------
other agreements to be entered into in connection herewith, the consummation of
the transactions contemplated by this Agreement and such other agreements, and
PhotoLoft's or the Surviving Corporation's operation of the business of EVG
following the Closing in a manner consistent with the conduct of such operations
prior to the Closing will not result in or constitute any of the following: (i)
a conflict, violation or default with or an event that, with notice or lapse of
time or both, would be a default, breach, or violation of the Articles of
Incorporation or Bylaws of EVG, any Contracts (as defined in Section 3.15) and,
except as set forth in Section 3.12 of the EVG Disclosure Schedule, any Permits
(as defined in Section 3.15); (ii) an event that would permit any party to
terminate any agreement or to accelerate the maturity of or permit the
subordination of any right of EVG; (iii) the creation or imposition of any lien,
charge, interest, or encumbrance on any of the assets of EVG or the EVG Stock;
or (iv) to the knowledge of EVG and the Shareholders, conflict with or result in
the violation or breach of any law, rule or regulation of any governmental
authority, or any judgment, order, injunction or decree applicable to EVG, its
intellectual property rights, assets or the EVG Stock.
12
3.13 Employees and Employee Benefit Plans.
----------------------------------------
(a) Section 3.13 of the EVG Disclosure Schedule contains a list of
each labor and employment agreement to which EVG is a party or by which it is
bound and each employee benefit program, arrangement, contract, and plan
(including, without limitation, any consulting agreement providing for annual
compensation in excess of $25,000, any severance, deferred compensation, bonus,
stock option, stock purchase, phantom stock, and stock appreciation plan or
agreement, and any "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA")) currently maintained
or contributed to by EVG or any EVG subsidiary or other trade or business
(whether or not incorporated) treated as a single employer with EVG pursuant to
Section 414(b), (c), (m) or (o) of the Code (an "EVG ERISA Affiliate") or with
respect to which EVG or any EVG ERISA Affiliate could incur liability under
Section 4069, 4212(c) or 4204 of ERISA or Section 412 of the Code (the "EVG
Benefit Plans").
(b) With respect to each EVG Benefit Plan, EVG has delivered or
made available to PhotoLoft a true, complete and correct copy of (i) such EVG
Benefit Plan document(s) and the most recent summary plan description related to
such EVG Benefit Plan, if a summary plan description is required therefor; (ii)
each trust agreement or other funding arrangement relating to such EVG Benefit
Plan; (iii) the most recent annual report (Form 5500), filed with the Internal
Revenue Service ("IRS") with respect to such EVG Benefit Plan; (iv) the most
recent actuarial report or financial statement relating to such EVG Benefit
Plan; (v) the most recent actual deferral percentage test and actual
contribution percentage test; and (vi) the most recent determination letter
issued by the IRS with respect to such EVG Benefit Plan, if it is qualified
under Section 401(a) of the Code. Neither EVG nor any EVG Affiliate has any
express or implied commitment, whether legally enforceable or not, to modify,
change or terminate any EVG Benefit Plan, other than with respect to a
modification, change or termination required by ERISA or the Code.
(c) Each EVG Benefit Plan has been administered in all material
respects in accordance with its terms, and all contributions required to be made
under the terms of any of the EVG Benefit Plans on the date of this Agreement
and the Closing Date have been or will be timely made or have been reflected on
the most recent consolidated balance sheet filed or incorporated by reference in
the EVG Benefit Plans prior to the date of this Agreement. With respect to the
EVG Benefit Plans, no event has occurred and there exists no condition or set of
circumstances in connection with which EVG or any EVG ERISA Affiliate could be
subject to any liability under the terms of such EVG Benefit Plans, ERISA, the
Code or any other applicable law which could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on EVG or the
Surviving Corporation.
13
(d) EVG on behalf of itself and all of the EVG ERISA Affiliates
hereby represents that, except in those instances where the failure of such
representation to be true could not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on EVG or the Surviving
Corporation: (i) each EVG Benefit Plan which is intended to be qualified under
Section 401(a) of the Code or Section 401(k) of the Code has received a
favorable determination letter from the IRS as to its qualified status under the
Code, including, without limitation, its qualification under the Tax Reform Act
of 1986, and each trust established in connection with any EVG Benefit Plan
which is intended to be exempt from federal income taxation under Section 501(a)
of the Code has received a determination letter from the IRS that it is so
exempt, and no fact or event has occurred since the date of such determination
letter from the IRS to adversely affect the qualified status of any such EVG
Benefit Plan or the exempt status of any such trust; (ii) there has been no
prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) with respect to any EVG Benefit Plan; (iii) no reportable
event (within the meaning of Section 4043 of ERISA) has occurred or is expected
to occur with respect to any EVG Benefit Plan subject to Title IV of ERISA; (iv)
no EVG Benefit Plan had an accumulated funding deficiency (within the meaning of
Section 302 of ERISA or Section 412 of the Code), whether or not waived, as of
the most recently ended plan year of such EVG Benefit Plan; (v) none of the
assets of EVG or any EVG ERISA Affiliate is the subject of any lien arising
under Section 302(f) of ERISA or Section 412(n) of the Code, and no EVG Benefit
Plan which is subject to Title IV of ERISA has an "unfunded benefit liability"
(within the meaning of Section 4001(a)(18) of ERISA); and (vi) each EVG Benefit
Plan can be amended, terminated or otherwise discontinued after the Effective
Time in accordance with its terms, without liability (other than ordinary
administrative expenses typically incurred in a termination event). No suit,
administrative proceeding, action or other litigation has been brought, or is
threatened, against or with respect to any such EVG Benefit Plan, including any
audit or inquiry by the IRS or United States Department of Labor (other than
routine benefits claims).
(e) No payment or benefit which will be made by EVG or any EVG
ERISA Affiliate under any EVG Benefit Plan will constitute an excess parachute
payment under Code Section 280(G)(1), and the consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee or other service provider of EVG or any EVG ERISA Affiliate to
severance benefits or any other payment, except as expressly provided by this
Agreement; or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or service provider.
(f) Except as required by law, no EVG Benefit Plan provides any of
the following retiree benefits to any person: medical, disability or life
insurance benefits. EVG and the EVG ERISA Affiliates are in compliance with (i)
the requirements of the applicable health care continuation and notice
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") and the regulations (including proposed regulations) thereunder; and
(ii) the applicable requirements of the Health Insurance Portability and
Accountability Act of 1996 and the regulations (including the proposed
regulations) thereunder, except to the extent that such non-compliance would not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect on EVG or the Surviving Corporation.
14
(g) EVG is not a party to any collective bargaining or other labor
union contract applicable to persons employed by EVG and no collective
bargaining agreement is being negotiated by EVG. As of the date of this
Agreement, there is no labor dispute, strike or work stoppage against EVG
pending or, to the knowledge of EVG and the Shareholders, threatened which may
interfere with the respective business activities of EVG, except where such
dispute, strike or work stoppage could not reasonably be expected to have a
Material Adverse Effect on EVG or the Surviving Corporation. As of the date of
this Agreement, none of EVG or any of its respective representatives or
employees has committed any unfair labor practice in connection with the
operation of the respective businesses of EVG, and there is no charge or
complaint against EVG by the National Labor Relations Board or any comparable
governmental entity pending or threatened in writing, except where such unfair
labor practice, charge or complaint could not reasonably be expected to have a
Material Adverse Effect on EVG or the Surviving Corporation.
(h) EVG is not involved in any labor discussion with any unit or
group seeking to become the bargaining unit for any of employees of EVG, nor has
any such unit or group notified EVG of an intention to commence any
organizational activities among the employees of EVG. Section 3.13 of the EVG
Disclosure Schedule contains a list of (i) each collective bargaining agreement
and other labor agreement to which EVG is a party or by which it is bound.
(i) The consummation of the transactions contemplated by this
Agreement will not (A) entitle any current or former employee or other service
provider of EVG to severance benefits or any other payment (including, without
limitation, unemployment compensation, golden parachute or bonus) except as
expressly provided in this Agreement, or (B) accelerate the time of payment or
vesting of any such benefits, or (C) increase or accelerate any benefits or the
amount of compensation due any such employee or service provider
3.14 Insurance. There is set forth in Section 3.14 of the EVG
---------
Disclosure Schedule a complete and accurate list and summary of all policies of
insurance of any nature whatsoever maintained by EVG pertaining to the business
of EVG, showing, among other things, the amount of coverage, the company issuing
the policy, the expiration date of each policy and the amount of any premiums
thereunder which are due and payable. Such policies are in full force and
effect and such policies, or other policies covering the same risks, have been
in full force and effect, without gaps, continuously since inception. True and
correct copies of all current insurance policies of EVG have been made available
to PhotoLoft for inspection. EVG is not in default under any of such policies,
and EVG has not failed to give any notice or to present any claim under any such
policy in a due and timely fashion. To their knowledge, EVG and the
Shareholders are not aware of any facts concerning EVG or its business,
operations, assets and liabilities, contingent or otherwise, upon which an
insurer might be justified in reducing coverage or increasing premiums on
existing policies and all such insurance policies can be maintained in full
force and effect without substantial increase in premium or reducing the
coverage thereof following the Closing. There is no claim pending under any of
such policies as to which coverage has been questioned, denied or disputed by
the underwriters of such policy.
15
3.15 Contracts and Permits.
-----------------------
(a) There is set forth in Section 3.15(a) of the EVG Disclosure
Schedule a complete and accurate list of:
(i) Each agreement, contract or commitment, whether written
or oral, between EVG and any party to whom EVG provides products or
services, which involved payments to EVG of more than $25,000 during
any 12-month period or can reasonably be expected to involve payments
to EVG of more than $25,000 during any 12-month period;
(ii) Each agreement, contract or commitment (except for real
property leases, equipment lease contracts, evidence of indebtedness
and insurance contracts), whether written or oral, between EVG and any
party to whom EVG is obligated or can reasonably be expected to be
obligated to pay more than $25,000 for or over any 12-month period;
(iii) Each agreement, contract or commitment for the license
of any patent, copyright, trade secret, know-how, idea, technology
process, or other proprietary right of EVG or of any third party to
which EVG is a party;
(iv) Each material permit, license, franchise, and each other
material certificate or authorization required to conduct the business
of EVG by any governmental or other authority having jurisdiction in
any area where EVG provides products or services (a "Permit" or
"Permits"); EVG has provided, or prior to the Closing will provide,
PhotoLoft with true, correct and complete copies of each Permit.
(v) Each agreement, contract or commitment containing any
covenant limiting the freedom of EVG or, after reasonable inquiry of
such persons, any EVG employee or consultant to engage in any line of
business or compete, directly or indirectly, with any person;
(vi) Each marketing, development, OEM or other strategic
distribution agreement;
(vii) Each agreement, contract or commitment of
indemnification or guaranty;
(viii) Each agreement, contract or commitment relating to the
disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership,
joint venture or other business enterprise; or
(ix) Each agreement, contract or commitment with any employee
or consultant related to (A) non-disclosure, confidentiality,
assignment of inventions or proprietary rights and non-competition
("Inventions and Non-Disclosure Agreement") or (B) severance payments
that become payable in connection with or following the Merger.
16
(b) The contracts and agreements which are required to be
identified in Section 3.15(a) of the EVG Disclosure Schedule are referred to
herein as the "Contracts." True and complete copies of each written Contract
and true and complete written summaries of each oral Contract have been
delivered to PhotoLoft by EVG. Except as set forth in Section 3.15(b) of the
EVG Disclosure Schedule:
(i) Each of the Contracts is a valid, binding and enforceable
agreement of EVG and, to the knowledge of EVG and the Shareholders,
the other parties thereto;
(ii) EVG and the Shareholders have no reason to believe that
EVG will not be able to fulfill all of its obligations under the
Contracts which remain to be performed after the date hereof, and EVG
has not been notified by any governmental or other party that such
parties intend to cancel, terminate or modify any of such Contracts or
the basis upon which EVG is paid thereunder, and EVG and the
Shareholders do not know of any valid grounds for any such
cancellation, termination or modification;
(iii) There has not occurred any default (or event which upon
the provision of notice or lapse of time or both would become such a
default) under any of the Contracts on the part of EVG;
(iv) The Contracts are all of the agreements, contracts and
commitments that are material to EVG and necessary for the operation
of its business;
(v) The Permits are the only governmental and other permits,
licenses, franchises, and other certificates and authorizations that
are required for and are material to the operation of the business of
EVG;
(vi) Except as set forth in Section 3.15(b) of the EVG
Disclosure Schedule, the Permits are, and as of the Closing will be,
in full force and effect and the continuing validity and effectiveness
of such Permits will not be affected by the transactions contemplated
by this Agreement;
(vii) EVG is in compliance in all respects with all
conditions or requirements of the Permits, and EVG has not been
notified by any governmental or licensing authority that such parties
intend to cancel, terminate or modify any of such Permits, and EVG and
the Shareholders know of no valid grounds for any such cancellation,
termination or modification; and
(viii) EVG is not contractually liable, nor has it made any
contract or arrangement whereby it may become liable, to any person or
entity for any royalty or other consideration for use of any of the
Intellectual Property Rights.
3.16 Charter Documents. EVG has provided to PhotoLoft for its
------------------
examination (i) true and complete copies of the Articles of Incorporation and
Bylaws of EVG, both as amended to the date hereof; (ii) the minute books of EVG
containing all proceedings, consents, actions and meetings of the shareholders
and board of directors of EVG; and (iii) the stock transfer books of EVG setting
forth all transfers of EVG Stock since its inception.
17
3.17 Directors, Officers and Employees. Section 3.17 of the EVG
------------------------------------
Disclosure Schedule sets forth a true and complete list of the names and current
salaries of all employees and consultants of EVG who earned $50,000 or more, or
who will, at their present salaries, earn $50,000 or more for the fiscal year
ending December 31, 2000.
3.18 Powers of Attorney; Bank Accounts. Section 3.18 of the EVG
-------------------------------------
Disclosure Schedule lists (i) the names and addresses of all persons holding a
power of attorney on behalf of EVG; and (ii) the names and addresses of all
banks or other financial institutions in which EVG has an account, deposit, or
safe-deposit box, with the number and a description of the account and the names
of all persons authorized to draw on such accounts or deposits or to have access
to such boxes.
3.19 Environmental Matters. EVG and the Shareholders are not aware of
----------------------
any facts, events, or conditions (including, without limitation, the generation,
treatment, transport, storage, emission, disposal, release or other placement,
deposit or location of any substance) which give rise to any present or
potential liability (including with respect to past activities) under, or
interfere with or prevent continued compliance by EVG with, any federal, state
and local environmental protection, occupational, health and safety or similar
laws, ordinances, restrictions, licenses, rules, regulations and permit
conditions.
3.20 Affiliate Relationships. Except as set forth in Section 3.20 of
------------------------
the EVG Disclosure Schedule, no officer, director or shareholder of EVG (nor any
spouse of any of such persons, or any trust, partnership or corporation in which
any of such persons has or has had a material economic interest), has or has
had, directly or indirectly, (i) an interest in any entity that purchases from
or sells or furnishes to EVG, or proposes to purchase from or furnish or sell,
any material amount of products or services; or (ii) a beneficial interest in
any contract or commitment set forth in the EVG Disclosure Schedule; provided,
that ownership of no more than one percent of the outstanding voting stock of a
publicly traded corporation shall not be deemed an "interest in any entity" for
purposes of this Section 3.20.
3.21 No Termination of Business Relationship. None of the entities,
------------------------------------------
governmental or otherwise, with which EVG has a material business relationship
has given notice, orally or by written communication, of any intention to cancel
or otherwise terminate a business relationship with EVG and EVG does not have
any knowledge of any event (including, without limitation, the transactions
contemplated hereby) which would precipitate the cancellation or termination of,
or entitle any such entity or customer to terminate, such a business
relationship.
3.22 Compliance with Law, Governmental Consent. The business and
---------------------------------------------
operations of EVG have been and are being conducted in all material respects in
compliance with all laws, rules, regulations and licensing requirements thereto,
including, without limitation, federal, state and local laws and regulations
affecting the protection of consumers and the health and safety of employees and
equal employment opportunities. No consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental entity is
required by EVG in connection with the execution and delivery of this Agreement
or the consummation by EVG of the transactions contemplated hereby, except for
(i) the filing of the Agreement of Merger or any other appropriate documentation
with the California Secretary of State and appropriate documents with the
relevant authorities of other states in which EVG is qualified to do business;
(ii) such consents, approvals, orders, authorizations, registrations, or
qualifications as may be required under state securities or Blue Sky laws in
connection with the distribution of PhotoLoft Stock pursuant to the Merger; and
(iii) such other consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required, which if not obtained or made would
not have a Material Adverse Effect on EVG.
18
3.23 Consents of Non-Governmental Third Parties; Third Party Interests.
-----------------------------------------------------------------
No consent, waiver or approval of any non-governmental third party is required
to be obtained by EVG or the Shareholders for the consummation by EVG of the
transactions contemplated hereby. EVG and the Shareholders are not bound by any
oral or written agreement with any third party to sell EVG or any interest
therein, including by way of merger, asset sale or otherwise.
3.24 Patents, Trademarks, etc.
--------------------------
(a) Except as set forth in Section 3.24(a) of the EVG Disclosure
Schedule, EVG owns exclusively or has the exclusive right, or prior to the
Closing Date will own exclusively or have the exclusive right to use, free and
clear of all liens, charges, claims and restrictions, all technology, software,
software tools, patents, trade secrets, trademarks, service marks, trade names,
copyrights, licenses, domain names and other intangible rights and proprietary
information necessary for its business as now conducted or currently proposed to
be conducted ("Intellectual Property Rights"), and is not infringing upon or
otherwise acting adversely to the right or claimed right of any person under or
with respect to any of the foregoing, including, but not limited to, any right
or claimed right of any of ▇▇▇▇▇▇▇▇'▇ former employers. Without limiting the
generality of the foregoing, EVG further represents that it owns exclusively or
has the exclusive right, or prior to the Closing Date will own exclusively or
have the exclusive right to use, free and clear of all liens, charges, claims
and restrictions, all technology, software, software tools, patents, trade
secrets, trademarks, service marks, trade names, copyrights, licenses, domain
names and other intangible rights and proprietary information necessary for the
manufacture and sale of Xtremegamut papers, inks and other consumables and is
not infringing upon or otherwise acting adversely to the right or claimed right
of any person under or with respect to the foregoing. Section 3.24(a) of the
EVG Disclosure Schedule identifies each patent, trademark registration, service
▇▇▇▇ registration and copyright registration with respect to the Intellectual
Property Rights, or application for any of the foregoing, which is owned or
licensed by EVG, has been issued to EVG or has been submitted by EVG for
issuance and lists the application and registration number, date of application,
date of registration, names of all assignors and registered owners and the
country of filing for each such right, if applicable. To the knowledge of EVG
and the Shareholders, (i) all applications for registration of such Intellectual
Property Rights were true and accurate at the time of filing; and (ii) all fees
to maintain such Intellectual Property Rights including, without limitation,
registration, maintenance and prosecution fees, and all professional fees
incurred in connection therewith, have been paid. The Intellectual Property
Rights constitute all the intellectual property used in and/or necessary to the
conduct of EVG's business as it is currently conducted and all intellectual
property required for products under development by EVG as of the date hereof.
Section 3.24(a) of the EVG Disclosure Schedule includes a list of all
Intellectual Property Rights.
19
(b) EVG has taken all actions that are customary and reasonable in
the industry to protect the confidentiality of all trade secrets and
confidential information (including, without limitation, know-how,
specifications, financial and business and marketing plans) comprising the
Intellectual Property Rights, and has not disclosed any trade secrets or other
intellectual property whose value is contingent upon confidentiality without
securing an appropriate confidentiality agreement. Except as disclosed in
Section 3.24(b) of the EVG Disclosure Schedule, all former and current employees
of EVG and former and current consultants and contractors performing services
for or on behalf of EVG have entered into a written agreement assigning to EVG
all right, title and interest in and to proprietary information, inventions and
other work product developed, conceived or reduced to practice during their
employment or, in the case of consultants and contractors, performance of
services for or on behalf of EVG. Each such agreement contains a requirement
for such other party to sign documents reasonably requested by EVG to perfect
such assignments, and true and complete copies of each such agreement have been
provided to PhotoLoft. Except as listed in Section 3.24(b) of the EVG
Disclosure Schedule, each person formerly or presently employed by EVG has
executed an Inventions and Non-Disclosure Agreement in EVG's standard form, a
true and complete copy of which has been provided to PhotoLoft. Such agreements
constitute valid and binding obligations of EVG and, to the knowledge of EVG and
Shareholders, such other persons.
(c) Except as set forth in Section 3.24(c) of the EVG Disclosure
Schedule, there are no outstanding options, licenses, or agreements of any kind
relating to the Intellectual Property Rights held by any third party, nor is EVG
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of any
other person or entity. To the knowledge of EVG and the Shareholders, no person
or entity has interfered with, infringed upon, misappropriated or violated any
rights in or to the Intellectual Property Rights. Neither EVG nor any of the
Shareholders has received any communications alleging that EVG has violated or,
by conducting its business as proposed, would violate any patent, trademark,
service ▇▇▇▇, trade name, copyright, trade secret or other proprietary right of
any other person or entity, nor is EVG or any of the Shareholders aware of any
factual basis upon which such a claim can reasonably be asserted.
(d) There are no contracts or licenses between EVG and any other
person with respect to the Intellectual Property Rights under which there is any
dispute known to EVG regarding the scope of such contract or license, or
performance under such contract or license, including with respect to any
payments to be made or received by EVG thereunder. There are no royalties or
other payment obligations associated with EVG's use of the Intellectual Property
Rights that have not been disclosed and EVG is current in all payments therefor.
(e) Except as set forth in Section 3.24(d) of the EVG Disclosure
Schedule, no EVG employee is obligated under any fiduciary duty or any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of such employee's best efforts to
promote the interests of EVG and the Surviving Corporation or that would
conflict with EVG's business or the business of the Surviving Corporation as
presently conducted or conducted in a manner consistent with the conduct of such
business and operations prior to the Closing. Neither the execution nor
delivery of this Agreement, nor the carrying on of EVG's business by the
employees of EVG, nor the conduct of EVG's business by EVG or the Surviving
Corporation in a manner consistent with the conduct of such business and
operations prior to the Closing, will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or a
violation of any fiduciary duty or any contract, covenant or instrument under
which EVG or any of such employees is now obligated. EVG and the Shareholders
do not believe it is or will be necessary to utilize in the business of EVG or
the Surviving Corporation any inventions of any EVG employees (or people it
currently intends to hire) made prior to their employment by EVG. No
shareholder of EVG has any right, title or interest, individually or jointly
with EVG or any other party, in or to the Intellectual Property Rights.
20
(f) Section 3.24(f) of the EVG Disclosure Schedule lists all
contracts, licenses and agreements between EVG and any other person wherein or
whereby EVG has agreed to, or assumed, any obligation or duty to warrant,
indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any
obligation or liability or provide a right of rescission with respect to the
infringement or misappropriation by EVG or such other person of the intellectual
property of any person other than EVG.
(g) No Intellectual Property Rights or product, technology or
service of EVG is subject to any order, action or proceeding, or pending order,
action or proceeding, or, to the knowledge of EVG and the Shareholders,
threatened order, action or proceeding, that does or would restrict, or that is
reasonably expected to restrict in any manner, the use, transfer or licensing of
any Intellectual Property Rights by EVG or the Surviving Corporation or that
could reasonably be expected to affect the validity, use or enforceability of
such Intellectual Property Rights.
(h) The principal products of EVG are listed in Section 3.24(h) of
the EVG Disclosure Schedule.
3.25 Employees. To the knowledge of EVG and the Shareholders, no
---------
employee of EVG is in violation of any term of any employment contract, or any
other contract, agreement or commitment or of any fiduciary duty, relating to
the relationship of any such employee with EVG or any other party because of the
nature of the business conducted or to be conducted by EVG.
3.26 Brokers or Finders. Except as set forth in Section 3.26 of the
--------------------
EVG Disclosure Schedule, EVG has not incurred, and will not incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
3.27 Taxes.
-----
(a) All tax returns, statements, reports and forms (including
estimated tax returns and reports and information returns and reports)
(collectively, the "Tax Returns") required to be filed with any taxing authority
with respect to any taxable period ending on or before the Effective Time, by or
on behalf of EVG, and any member of any consolidated, combined or unitary group
of which EVG is or has been a member (a "Relevant Group"), have been or will be
filed when due (including any extensions of such due date) and all amounts shown
due thereon on or before the Effective Time have been or will be paid on or
before such date. The Financial Statements have fully accrued all material
actual and contingent liabilities for taxes with respect to all periods through
August 31, 2000, and EVG has not and will not incur any tax liability in excess
of the amount reflected on the Financial Statements with respect to such
periods. All information set forth in the notes to the Financial Statements
relating to tax matters is true, complete and accurate in all material respects.
No tax liability has been incurred or accrued since August 31, 2000 by EVG other
than in the ordinary course of business. EVG has withheld and paid over all
taxes required to have been withheld and paid over, and complied with all
information reporting and backup withholding requirements, including maintenance
of required records with respect thereto, in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third party.
EVG (or any member of any affiliated or combined group of which EVG is or has
been a member) has not granted any extension or waiver of the limitation period
applicable to any Tax Returns.
21
(b) All such Tax Returns are or will be true, complete and correct
in all material respects. All taxes due and payable by EVG or any member of a
Relevant Group, whether or not shown on any Tax Return, or claimed to be due by
any taxing authority, have been paid or accrued on the balance sheet included in
the Financial Statements, except for unpaid accruable taxes incurred by EVG in
the ordinary course of its business since August 31, 2000.
(c) Except in the ordinary course of its business, EVG will not
incur any liability for material taxes after the date of this Agreement and
prior to the Closing.
(d) No claim has ever been made by a taxing authority of any
jurisdiction in which EVG or any member of a Relevant Group does not file Tax
Returns that such entity is or may be subject to taxation by that jurisdiction.
(e) EVG and all members of a Relevant Group have withheld and paid
all taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, creditor or independent contractor.
(f) Neither EVG nor any member of a Relevant Group has knowledge
of any actions by any taxing authority in connection with assessing additional
taxes against or with respect to it for any past period. There is no dispute or
claim concerning any tax liability of EVG or any member of a Relevant Group
either (i) threatened, claimed or raised by any taxing authority or (ii) of
which EVG is otherwise aware. There are no liens for taxes upon the assets and
properties of EVG or any member of a Relevant Group other than liens for taxes
not yet due. EVG has delivered to PhotoLoft complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by, and all tax
examination reports and statements of deficiencies assessed against or agreed to
by, EVG since EVG's inception.
(g) There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Returns required to be
filed by, or which include or are treated as including, EVG or with respect to
any tax assessment or deficiency affecting EVG or any member of a Relevant
Group.
22
(h) For purposes of this Agreement, "taxes" shall include any
interest, penalty or other additional amount imposed with respect to any tax
liability.
3.28 No Undisclosed Liabilities. Except for liabilities incurred in
----------------------------
the ordinary course of its business, EVG does not have, and as of the Effective
Time will not have, any debts or, to the knowledge of EVG and the Shareholders,
any liabilities, obligations or commitments (absolute, accrued, contingent or
otherwise) matured or unmatured (such debts, liabilities, obligations or
commitments are collectively referred to herein as "EVG Liabilities") except (i)
EVG Liabilities which are adequately reflected or fully accrued or provided for
in the Financial Statements; and (ii) EVG Liabilities expressly disclosed in the
EVG Disclosure Schedule.
3.29 Change of Control Payments. Section 3.29 of the EVG Disclosure
-----------------------------
Schedule sets forth the terms of all agreements, commitments, employment
policies, plans or arrangements binding on EVG pursuant to which any amounts may
become payable by EVG or the Surviving Corporation (whether currently or in the
future) to current or former officers, directors or employees of EVG or others
as a result of or in connection with the Merger, including any termination of
employment relating to or within one year following the Merger.
3.30 Workers' Compensation. To the knowledge of EVG and the
----------------------
Shareholders, there are no pending material claims against EVG under any
workers' compensation plan or policy or for long-term disability.
3.31 Warranty Obligations. Section 3.31 of the EVG Disclosure Schedule
--------------------
sets forth (a) a list of all forms of written warranties, guarantees and written
warranty policies of EVG with respect to any of EVG's products and services,
which are currently in effect (the "Warranty Obligations"), and the duration of
each such Warranty Obligation, (b) each of the Warranty Obligations which is
subject to any dispute or, to the knowledge of EVG, threatened dispute and (c)
the experience of EVG with respect to warranties, guarantees and warranty
policies of or relating to EVG's products and services. True and correct copies
of the Warranty Obligations have been delivered to PhotoLoft prior to the
execution of this Agreement. There have not been any material deviations from
the Warranty Obligations, and salespersons, employees and agents of EVG are not
authorized to undertake obligations to any customer or other person in excess of
such Warranty Obligations. The balance sheet included in the Financial
Statement reflects adequate reserves for Warranty Obligations. All products
manufactured, designed, licensed, or sold by EVG are operational and will
conform substantially with published documentation and satisfy any and all
contract or other specifications related thereto to the extent stated in writing
in such contracts or specifications, in each case, in all material respects.
3.32 EVG Action. The Board of Directors of EVG, by unanimous written
-----------
consent or at a meeting duly called and held, has by the unanimous vote of all
directors (i) determined that the Merger is fair and in the best interests of
EVG and its shareholders, (ii) approved the Merger and this Agreement in
accordance with the provisions of the CGCL, and (iii) directed that this
Agreement and the Merger be submitted to its shareholders for their approval and
resolved to recommend that EVG shareholders vote in favor of the approval of
this Agreement and the Merger.
23
3.33 Disclosure. No statement (including the representations,
----------
warranties and covenants) by EVG and the Shareholders contained in this
Agreement, the EVG Disclosure Schedule, the other agreements, documents to be
entered into or filed in connection herewith, the exhibits and schedules
attached hereto, any document furnished to PhotoLoft and its representatives by
EVG and the Shareholders or their financial or legal advisors in response to due
diligence requests from PhotoLoft or its representatives, and any
officer-certified written statement or certificate furnished to PhotoLoft and
its representatives by EVG and the Shareholders or their financial advisors
pursuant hereto or in connection with the transactions contemplated hereby,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PHOTOLOFT AND MERGER SUB
Except as disclosed in the PhotoLoft disclosure schedule attached hereto
(the "PhotoLoft Disclosure Schedule"), PhotoLoft and Merger Sub, jointly and
severally, represent and warrant to EVG and the Shareholders as set forth below.
The PhotoLoft Disclosure Schedule shall be arranged in sections corresponding to
the specific numbered and lettered Section contained in this Agreement.
Applicable information so disclosed with specificity on the PhotoLoft Disclosure
Schedule shall be deemed to be disclosed under and incorporated into any other
section of this ARTICLE IV relating to the same subject matter with the
understanding that PhotoLoft shall use its reasonable best efforts to include
such information or provide cross-references in the PhotoLoft Disclosure
Schedule wherever information is called for under more than one section of this
ARTICLE IV. Notwithstanding the foregoing, the mere listing by name and date of
a contract, agreement or other document or the mere attachment of an agreement
or other document by PhotoLoft on or to the PhotoLoft Disclosure Schedule shall
not be deemed an exception to any section of this Agreement unless a specific
reference and disclosure is included in the PhotoLoft Disclosure Schedule to the
particular provision in such agreement or document that gives rise to the
exception to any section of this Agreement.
As used in this ARTICLE IV, the words "know", "knowledge", "believe", or
any similar expression or phrase with respect to PhotoLoft's or Merger Sub's
knowledge shall mean knowledge that the respective executive officers and
directors of PhotoLoft or Merger Sub actually have or should have based on
reasonable inquiry and diligence.
4.1 Organization and Standing; Certificate of Incorporation and Bylaws.
------------------------------------------------------------------
PhotoLoft is a corporation duly organized and validly existing under and is in
good standing under the laws of the State of Nevada. Merger Sub is a
corporation duly organized and validly existing under and is in good standing
under the laws of the State of California. Each of PhotoLoft and Merger Sub has
requisite corporate power to own and operate its properties and assets, and to
carry on its business as presently conducted and as proposed to be conducted.
Each of PhotoLoft and Merger Sub is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the business conducted
by it or the location of the properties owned or leased by it make such
qualification necessary, except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the assets, liabilities,
business, financial condition, results of operations, or prospects of PhotoLoft
and Merger Sub taken as a whole. Each of PhotoLoft and Merger Sub has furnished
EVG with copies of its respective Articles of Incorporation and Bylaws. Said
copies are true, correct and complete and contain all amendments through the
date hereof. PhotoLoft and Merger Sub shall furnish EVG with amendments to
their respective Articles of Incorporation and Bylaws, if any, from the date
hereof to the Closing Date.
24
4.2 Capitalization. The authorized capital stock of PhotoLoft consists
--------------
of 200,000,000 shares of Common Stock, par value $0.001 per share, of which
51,577,943 shares were issued and outstanding as of the date of this Agreement,
and 500,000 shares of Preferred Stock, par value $0.001 per share, none of which
are currently outstanding. The Merger Shares have been duly authorized, and,
upon issuance in accordance with the terms hereof, will be validly issued,
fully paid and nonassessable. Except as disclosed in Section 4.2 of the
PhotoLoft Disclosure Schedule, as of September 30, 2000, there were no options,
warrants, conversion rights, rights of exchange or other rights, plans,
agreements or commitments of any nature whatsoever (including, without
limitation, conversion or preemptive rights) providing for the purchase,
issuance or sale of any shares of PhotoLoft Stock or any securities convertible
into or exchangeable for any shares of PhotoLoft Stock, other than as
contemplated by this Agreement.
4.3 Authorization. All corporate action on the part of each of
-------------
PhotoLoft and Merger Sub, and their respective directors and shareholders,
necessary for the authorization, execution, delivery and performance of this
Agreement and all other agreements to be entered into in connection herewith by
PhotoLoft and Merger Sub, and the performance of the respective obligations of
PhotoLoft and Merger Sub hereunder and thereunder has been taken or will be
taken prior to the Closing Date. This Agreement and all other agreements to be
entered into in connection herewith have been duly executed and delivered and
constitute the legal, valid and binding obligations of each of PhotoLoft and
Merger Sub as the case may be, enforceable in accordance with their respective
terms, except that such enforceability may be limited by principles of public
policy and subject to the laws of general application relating to bankruptcy,
insolvency, and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
4.4 Compliance with Other Instruments. The execution and delivery of
-----------------------------------
this Agreement and all other agreements to be entered into in connection
herewith and the consummation of the transactions contemplated hereby and
thereby will not conflict with or result in any violation or breach of any law,
rule or regulation of any governmental authority, or any judgment, order,
decree, injunction or ordinance applicable to PhotoLoft or Merger Sub or their
respective properties or assets, or conflict with or result in any breach or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit, under (i) any provision of the Bylaws or Articles of
Incorporation of PhotoLoft or Merger Sub; or (ii) any material agreement,
contract, note, mortgage, indenture, lease, instrument, permit, concession,
franchise or license to which PhotoLoft or Merger Sub is a party or by which
PhotoLoft or Merger Sub or their respective properties or assets may be bound or
affected.
4.5 Governmental Consent, Etc. No consent, approval, order or
----------------------------
authorization of, or registration, declaration or filing with, any governmental
entity is required by or with respect to PhotoLoft or Merger Sub in connection
with the execution and delivery of this Agreement or the consummation by
PhotoLoft and Merger Sub of the transactions contemplated hereby, except for (i)
the filing of the Agreement of Merger and any other appropriate documentation
with the California Secretary of State; (ii) such consents, approvals, orders,
authorizations, registrations, or qualifications as may be required under state
securities or Blue Sky laws in connection with the offer and sale of PhotoLoft
Stock pursuant to the Merger; and (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings which if not obtained or
made would not have a material adverse effect on PhotoLoft or Merger Sub.
25
4.6 PhotoLoft Financial Statements. PhotoLoft has furnished EVG with a
------------------------------
true and complete copy of its financial statements at and for its fiscal year
ended December 31, 1999 (audited) and an internally generated income statement
and balance sheet at and for the 6-month period ended June 30, 2000 (unaudited)
(the "PhotoLoft Interim Information"). Such financial statements (i) were
prepared in accordance with GAAP, applied on a consistent basis throughout the
periods presented; and (ii) present fairly the financial position and results of
operations of PhotoLoft at the dates and for the periods reflected therein. The
PhotoLoft Interim Information fairly presents the financial position and results
of operations of PhotoLoft at the dates and for the periods reflected therein.
4.7 Litigation. Except as disclosed in Section 4.7 of the PhotoLoft
----------
Disclosure Schedule and as set forth in any reports or documents filed with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities
Exchange Act of 1934, as amended (the "1934 Act"), no litigation, arbitration or
other judicial or regulatory proceeding is pending or, to the knowledge of
PhotoLoft, threatened by or against PhotoLoft, its properties or assets, the
PhotoLoft Stock or the officers or directors of PhotoLoft (in their capacity as
such) before any court or any government agency, foreign or domestic, and no
facts exist which may form the basis for any such litigation, arbitration or
proceeding. PhotoLoft is not the subject of any investigation for violation of
any laws, regulations or administrative orders applicable to its business by any
governmental authority or any other person, and no facts exist which may form
the basis for any such investigation. There is no judgment, writ, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or arbitrator outstanding against PhotoLoft, its
properties, intellectual property rights or assets or the PhotoLoft Stock.
4.8 No Undisclosed Liabilities. Except for liabilities incurred in the
--------------------------
ordinary course of its business, PhotoLoft does not have, and as of the
Effective Time will not have, any debts or, to the knowledge of PhotoLoft, any
liabilities, obligations or commitments (absolute, accrued, contingent or
otherwise) matured or unmatured (such debts, liabilities, obligations or
commitments are collectively referred to herein as "PhotoLoft Liabilities")
except (i) PhotoLoft Liabilities which are adequately reflected or fully accrued
or provided for in the PhotoLoft's financial statements and any interim
financial information; and (ii) PhotoLoft Liabilities expressly disclosed in the
PhotoLoft Disclosure Schedule or set forth in any reports or documents filed
with the SEC pursuant to the 1934 Act.
4.9 Registration Rights. Except as listed in Section 4.9 of the
--------------------
PhotoLoft Disclosure Schedule and except as contemplated by this Agreement and
related agreements, no shareholder of PhotoLoft has demand registration rights.
26
4.10 Brokers or Finders. Except as set forth in Section 4.10 of the
---------------------
PhotoLoft Disclosure Schedule, PhotoLoft has not incurred, and will not incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
4.11 PhotoLoft Action. The Board of Directors of PhotoLoft, by
-----------------
unanimous written consent or at a meeting duly called and held, has by the
affirmative vote of the directors approved the Merger and this Agreement.
ARTICLE V
CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME;
ADDITIONAL AGREEMENTS
During the period from the date hereof and continuing until the earlier of
the termination of this Agreement and the Effective Time (except as otherwise
provided herein), the parties hereto agree that:
5.1 Conduct of Business of EVG. EVG shall carry on its business in the
--------------------------
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use best
efforts to preserve intact its present business, keep available the services of
its present officers and key employees and preserve its relationships with
customers, vendors, licensors and licensees, and others having business dealings
with it, to the end that its goodwill and ongoing businesses shall be unimpaired
at the Effective Time. EVG shall promptly notify PhotoLoft of any event or
occurrence not in the ordinary course of business of EVG, and any event of which
EVG is aware which reasonably would be expected to have a Material Adverse
Effect on EVG (even if the likelihood of such event has previously been
disclosed or could result from any item set forth in the EVG Disclosure
Schedule). Without limiting the generality of the foregoing, except as
expressly contemplated by this Agreement or disclosed in the EVG Disclosure
Schedule, EVG shall not, without the prior written consent of PhotoLoft:
(a) Accelerate, amend or change the period of exercisability or
the vesting schedule of any options, warrants or rights to purchase EVG Stock or
authorize cash payments in exchange for any such options;
(b) Enter into any commitment or transaction not in the ordinary
course of business to be performed over a period longer than six months in
duration, or to purchase fixed assets with an aggregate purchase price exceeding
$25,000;
(c) Grant any severance or termination pay to any director,
officer, employee or consultant;
(d) Transfer to any person or entity any rights to EVG's
Intellectual Property Rights;
(e) Enter into or amend any agreements pursuant to which any other
party is granted marketing, advertising or other similar rights of any type or
scope with respect to any products or services of EVG;
27
(f) Amend or otherwise modify the material terms of any of the
Contracts or Permits;
(g) Commence a lawsuit other than for the routine collection of
bills;
(h) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) with respect to any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or repurchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with agreements
providing for the repurchase of shares at cost in connection with any
termination of service to EVG;
(i) Issue, deliver or sell, authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating EVG to issue any such shares of capital stock or other convertible
securities, other than upon the exercise of options outstanding on the date
hereof;
(j) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(k) Acquire or agree to acquire by merging, consolidating or
entering into a joint venture arrangement with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the financial condition, results of
operations, business or properties of EVG taken as a whole;
(l) Sell, lease, license or otherwise dispose of any of EVG's
properties or assets outside of the ordinary course of business;
(m) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(n) Adopt, amend or terminate any employee benefit plans,
programs, policies or other arrangements, or enter into any employment contract,
pay any special bonus or special remuneration to any director, employee or
consultant, or increase the salaries or wage rates of its employees other than
pursuant to scheduled employee reviews under EVG's normal employee review cycle,
or in connection with the hiring of employees other than officers in the
ordinary course of business, or accrue any additional bonuses or deferred
compensation, in all cases consistent with past practice;
(o) Revalue any of its assets, including without limitation,
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business and consistent with past practice;
(p) Pay, discharge or satisfy in an amount in excess of $10,000 in
any one case any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of obligations in the ordinary course of business or liabilities
reflected or reserved against in EVG's Financial Statements;
28
(q) Make any material tax election other than in the ordinary
course of business and consistent with past practice, change any material tax
election, adopt any material tax accounting method other than in the ordinary
course of business and consistent with past practice, change any material tax
accounting method, file any material tax return (other than any estimated tax
returns, payroll tax returns or sales tax returns) or any amendment to a
material tax return, enter into any closing agreement, settle any tax claim or
assessment, or consent to any extension or waiver of the limitation period,
applicable to any tax claim or assessment;
(r) Engage in any activities or transactions that are outside the
ordinary course of its business;
(s) Fail to pay or otherwise satisfy its monetary obligations as
they become due, except such as are being contested in good faith;
(t) Waive or commit to waive any rights with a value in excess of
$25,000, or forgive any indebtedness owed to EVG;
(u) Cancel, materially amend or renew any insurance policy other
than in the ordinary course of business;
(v) Alter, or enter into any commitment to alter, its interest in
any corporation, association, joint venture, partnership or business entity in
which EVG directly or indirectly holds any interest on the date hereof;
(w) Enter into any transactions with its officers, directors or
shareholders or their affiliates;
(x) Knowingly take any action or fail to take any action that
would cause a Material Adverse Effect; or
(y) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1 (a) through (x) above.
5.2 Access to Information. EVG shall afford PhotoLoft and its
-----------------------
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (i) all of EVG's
properties, books, contracts, commitments and records; and (ii) all other
information concerning the business, properties and personnel of EVG as
PhotoLoft may reasonably request. Without limiting the generality of the
foregoing, EVG shall facilitate any contacts with EVG's customers that PhotoLoft
may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 5.2 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger. PhotoLoft shall provide
similar access to EVG of its properties, books, contracts, commitments and
records and other information concerning the business, properties and personnel
of PhotoLoft as EVG may reasonably request. All information gained in such
investigations will be kept confidential, except for such information required
to be disclosed by court order or decree in compliance with applicable law or
29
that is otherwise in the public domain. Notwithstanding the generality of the
foregoing, the parties shall comply with the terms of the Non-Disclosure
Agreement dated July 7, 2000 entered into by PhotoLoft and EVG.
5.3 Other Negotiations. Unless and until this Agreement shall have
-------------------
been terminated pursuant to ARTICLE IX hereof, neither EVG nor any Shareholder
will, directly or indirectly, (and it will use its best efforts to assure that
its officers, directors, employees, affiliates and legal, accounting and
financial advisors do not on its behalf) take any action to solicit, initiate,
seek, encourage or support any inquiry, proposal or offer from, furnish any
information to, or participate in any negotiations with, any corporation,
partnership, person or other entity or group (other than negotiations with
PhotoLoft) regarding any acquisition of EVG, any merger or consolidation with or
involving EVG, or any acquisition of a portion of the stock or assets of EVG.
EVG agrees that any negotiations referred to in this Section 5.3 (other than
negotiations with PhotoLoft) in progress as of the date hereof will be suspended
during the period referred to above and that, in no event, will EVG accept or
enter into an agreement with any such third party regarding matters contemplated
herein during such period. EVG and the Shareholders represent and warrant that
they have the legal right to terminate or suspend any such pending negotiations
with third parties, including, but not limited to, any pending negotiations with
▇▇▇▇▇.▇▇▇. EVG will notify PhotoLoft immediately after receipt by EVG (or any
of its officers, directors, employees, shareholders, affiliates or advisors) of
any unsolicited proposal for, or inquiry respecting, any third party acquisition
transaction or any request for nonpublic information in connection with such a
proposal or inquiry or for access to the properties, books or records of EVG by
any person or entity that informs EVG that it is considering making, or has
made, such a proposal or inquiry. Such notice to PhotoLoft will be made orally
and in writing and will indicate in reasonable detail the identity of the person
making the proposal or inquiry and the terms and conditions of such proposal or
inquiry.
5.4 Breach of Representations and Warranties. In the event of and
--------------------------------------------
promptly after becoming aware of the occurrence or pending or threatened
occurrence of any event which would cause any of the representations and
warranties not to be true and correct, each party shall give detailed notice
thereof to the other.
5.5 Transaction Expenses. All costs and expenses incurred in
---------------------
connection with this Agreement and the transactions contemplated hereby will be
paid by the party incurring such costs and expenses; provided, that all EVG
Transaction Expenses shall be deemed expenses of the Shareholders and will be
borne and paid by the Shareholders. For purposes of this Agreement, "EVG
Transaction Expenses" means any and all costs and expenses of EVG and the
Shareholders incurred in connection with the Merger and this Agreement and
related agreements, including, without limitation, fees and expenses of legal
counsel, financial and business advisors and accountants, and any investment
banking and broker commissions.
5.6 Public Announcements. The parties shall make no public
---------------------
announcement concerning this Agreement or the matters contemplated herein, their
discussions or any other memoranda, letters or agreements between the parties
relating to the matters contemplated herein without the prior consent of the
other party; provided, that the parties may at any time make disclosure if it is
advised by independent counsel that such disclosure is required under applicable
law or regulatory authority, which disclosure will be subject to the prior
review of PhotoLoft or EVG, as the case may be. Except as permitted by the
preceding proviso, under no circumstances will the parties (or any of their
30
respective officers, directors, employees or affiliates) discuss or disclose the
existence or terms of this Agreement with or to any third party other than such
legal, accounting and financial advisors of such parties who have a need to know
such information.
5.7 FIRPTA. EVG shall, prior to the Closing Date, provide PhotoLoft
------
with a properly executed Foreign Investment and Real Property Tax Act of 1980
Notification Letter, in form and substance satisfactory to PhotoLoft, which
states that shares of EVG Stock do not constitute "United States real property
interests" under Section 897(c) of the Code, for purposes of satisfying
PhotoLoft's obligations under Treasury Regulation Section 1.1445-2(c)(3). In
addition, simultaneously with the delivery of such Notification Letter, EVG
shall have provided to PhotoLoft, as agent for EVG, a form of notice to the IRS
in accordance with the requirements of Treasury Regulation Section 1.897-2(h)(2)
along with written authorization for PhotoLoft to deliver such notice form to
the IRS on behalf of EVG upon the Closing of the Merger.
5.8 Regulatory Filings; Consents; Reasonable Efforts. Subject to the
--------------------------------------------------
terms and conditions of this Agreement, PhotoLoft and EVG shall use their
respective best efforts to (i) make all necessary filings with respect to the
Merger and this Agreement under the Exchange Act and applicable Blue Sky or
similar securities laws and obtain required approvals and clearances with
respect thereto and supply all additional information requested in connection
therewith; (ii) obtain all consents, waivers, approvals, authorizations and
orders required in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Merger; and (iii) take, or cause to
be taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable. Each party hereto,
at the reasonable request of another party hereto, shall execute and deliver
such other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of the
transactions contemplated hereby.
5.9 Termination of EVG Rights. All outstanding EVG Rights, if any,
----------------------------
shall be terminated. Each of the holders of the EVG Rights listed on Section
5.9 of the EVG Disclosure Schedule shall execute and deliver an agreement and
acknowledgment of such termination in form and substance satisfactory to
PhotoLoft, which shall include a release of claims against EVG, PhotoLoft, the
Surviving Corporation and any of their affiliates.
5.10 Shareholder Certificate. Each shareholder of EVG shall execute
------------------------
and deliver to PhotoLoft a certificate substantially in the form attached as
Exhibit 5.10 (the "Shareholder Certificate") and PhotoLoft will be relying upon
the representations made by each shareholder of EVG in the applicable
Shareholder Certificate in connection with the issuance of PhotoLoft Stock to
such shareholder. The shares of PhotoLoft Stock so issued pursuant to Section
2.1 will not be registered under the Act and will constitute "restricted
securities" within the meaning of the Act, and the certificates representing the
shares of PhotoLoft Stock shall bear appropriate legends to identify such
privately placed shares as being restricted under the Act, to comply with
applicable state securities laws and, if applicable, to notice the restrictions
on transfer of such shares.
31
5.11 Transfer of Rights to Technology. Each of the Shareholders,
------------------------------------
effective as of the Effective Time, hereby transfers, sells, assigns and
otherwise conveys to the Surviving Corporation, all right, title and interest
that he or she may hold, individually or jointly with any other person or
entity, directly or indirectly, in or to the Intellectual Property Rights.
5.12 PhotoLoft Stock Option Plan. PhotoLoft shall have increased the
-----------------------------
number of shares of PhotoLoft Common Stock reserved for issuance under its 1999
Stock Option Plan (or a successor plan approved by the Board of Directors of
PhotoLoft that is comparable to the 1999 Stock Option Plan) to at least
13,750,000 shares.
5.13 CNB Lines of Credit. Prior to the Closing or as soon as
----------------------
practicable thereafter, subject to the consent of City National Bank, PhotoLoft
or the Surviving Corporation shall assume or make reasonable best efforts to
assume, the CNB Lines of Credit (the outstanding amounts under which shall in no
event be greater than $690,000 in the aggregate) and to have Marco released from
the personal guarantees made by him for such lines of credit. In the event that
PhotoLoft and/or the Surviving Corporation are either (i) unable to obtain the
consent of City National Bank to assume one or more of the CNB Lines of Credit
or (ii) unable to have Marco released from the personal guarantee made by him
for one or more of the CNB Lines of Credit, PhotoLoft or the Surviving
Corporation shall reimburse MFA or Marco for any payments made by MFA or Marco
to City National Bank subsequent to the Closing Date on such line or lines of
credit for which PhotoLoft and/or the Surviving Corporation were unable to
obtain both consent and release. PhotoLoft and/or the Surviving Corporation
shall only reimburse MFA or Marco on payments made by MFA or Marco to City
National Bank with respect to amounts outstanding on the line or lines of credit
for which PhotoLoft and/or the Surviving Corporation are unable to obtain both
consent and release, which when aggregated with amounts outstanding as of the
Closing Date on any line or lines credit for which PhotoLoft and/or the
Surviving Corporation was able to obtain both consent and release, do not exceed
$690,000.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES
The respective obligation of each party to effect the Merger shall be
subject to the satisfaction prior to the Closing of the following conditions:
6.1 Statutes. No action shall have been taken, and no statute, rule,
--------
regulation or order shall have been enacted, promulgated or issued or deemed
applicable to the Merger by any governmental entity which would (i) make the
consummation of the Merger illegal; (ii) prohibit PhotoLoft or the Surviving
Corporation's ownership or operation of all or a material portion of the
business or assets of EVG or PhotoLoft, or compel PhotoLoft or EVG to dispose of
or hold separate all or a material portion of the business or assets of EVG or
PhotoLoft as a result of the Merger; or (iii) render PhotoLoft, Merger Sub or
EVG unable to consummate the Merger.
6.2 Legal Action. No temporary restraining order, preliminary
-------------
injunction or permanent injunction or other order preventing the consummation of
the Merger shall have been issued by any court or other governmental entity and
remain in effect, and no litigation seeking the issuance of such an order or
injunction, or seeking relief against EVG, the Surviving Corporation or
PhotoLoft if the Merger is consummated, shall be pending which, in the good
faith judgment of EVG's or PhotoLoft's Board of Directors (acting upon the
written opinion of outside counsel) has a reasonable probability of resulting in
32
such order, injunction or relief and such relief would have a Material Adverse
Effect on PhotoLoft or the Surviving Corporation. In the event any such order
or injunction shall have been issued, each party agrees to use all reasonable
commercial efforts to have any such injunction lifted.
6.3 Approvals. All authorizations, consents, orders or approvals of,
---------
or declarations or filings with, or expiration of waiting periods imposed by,
any governmental entity necessary for the consummation of the transactions
contemplated by this Agreement shall have been filed, occurred or been obtained,
other than filings and approvals relating to the Merger or affecting PhotoLoft's
ownership of EVG or any of its properties if failure to make such filing or
obtain such approval would not be materially adverse to PhotoLoft or EVG.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF
PHOTOLOFT AND MERGER SUB
The obligations of PhotoLoft and Merger Sub to effect the Merger are
subject to the satisfaction of the following conditions, unless waived by
PhotoLoft and Merger Sub:
7.1 Representations and Warranties. The representations and warranties
------------------------------
of EVG and the Shareholders set forth in this Agreement shall be true and
correct in all material respects (except for such representations and warranties
which are qualified by their terms by a reference to materiality, which
representations and warranties as so qualified shall be true in all respects)
(i) as of the date of this Agreement and (ii) as of the Closing Date, as though
made on and as of each such date, and PhotoLoft shall have received a
certificate signed by the President of EVG and from the Shareholders to such
effect on and dated the Closing Date.
7.2 No Material Adverse Change. There shall have been no material
-----------------------------
adverse change in the assets, liabilities, business, financial condition or
prospects of EVG from the date hereof through the Closing Date, and PhotoLoft
shall have received a certificate signed by the President of EVG and from the
Shareholders to such effect on and dated the Closing Date.
7.3 Performance of Obligations. EVG and the Shareholders shall have
----------------------------
performed all obligations and covenants required to be performed by them under
this Agreement and any other agreement or document entered into in connection
herewith prior to the Closing Date, and PhotoLoft shall have received a
certificate signed by the President of EVG to such effect with respect to EVG on
and dated the Closing Date.
7.4 Employment Agreements. Each of the Shareholders shall continue to
----------------------
be employed by PhotoLoft or the Surviving Corporation at the Closing (and shall
not have given any notice or other indication that they will not continue to be
willing to be employed by PhotoLoft or the Surviving Corporation following the
Merger). Each of the Shareholders shall have delivered to PhotoLoft an
executed copy of his or her respective employment agreement in the form attached
hereto as Exhibit 7.4 and a standard PhotoLoft proprietary information and
inventions assignment agreement.
33
7.5 Employment Offer Letters; Termination of Employment Arrangements.
------------------------------------------------------------------
Certain employees of EVG, identified by PhotoLoft in its sole discretion (the
"EVG Employees"), will receive a standard PhotoLoft employment offer letter
providing for the "at-will" employment of such employees by PhotoLoft or the
Surviving Corporation under terms consistent with PhotoLoft's current employment
practices for similarly situated employees. Each EVG Employee who accepts such
offer of at-will employment shall also execute and deliver to PhotoLoft a
standard PhotoLoft proprietary information and inventions assignment agreement.
Immediately prior to the Effective Time and subject to the Closing of the
Merger, EVG shall terminate all employment arrangements with its employees.
7.6 Consents. PhotoLoft shall have received duly executed copies of
--------
all consents of third parties (other than governmental entities) required by EVG
to consummate the transactions contemplated by this Agreement, in form and
substance reasonably satisfactory to PhotoLoft.
7.7 Noncompetition Agreements. PhotoLoft shall have received
--------------------------
Noncompetition Agreements in the form attached hereto as Exhibit 7.7, executed
by each of the Shareholders.
7.8 Dissenter's Rights. No holder of record of EVG Stock as of the
-------------------
Closing shall have elected to exercise appraisal rights under the CGCL with
respect to the Merger.
7.9 Secretary's Certificate. EVG shall have delivered to PhotoLoft a
------------------------
certificate of its Secretary certifying as to:
(a) Resolutions of its shareholders and Board of Directors
authorizing the execution, delivery and performance of this Agreement and the
execution, delivery and performance of all other agreements, documents and
transactions contemplated hereby; and
(b) The incumbency of its officers executing this Agreement and
all other agreements and documents contemplated hereby.
7.10 Escrow Agreement. The Shareholders, the Shareholders' Agent (as
-----------------
defined in Section 10.6 below) and MFA shall have entered into the Escrow
Agreement in the form attached hereto as Exhibit 7.10 ("Escrow Agreement").
7.11 Registration Rights Agreement. The Shareholders shall have
-------------------------------
executed the Registration Rights Agreement in the form attached hereto as
Exhibit 7.11 ("Registration Rights Agreement").
7.12 Lease Agreement. PhotoLoft and/or the Surviving Corporation shall
---------------
have entered into a lease agreement with Al Marco and/or MFA with respect to the
property located on ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, substantially in
the form which is attached hereto as Exhibit 7.12.
7.13 EVG Board and Shareholder Approval. This Agreement shall have
--------------------------------------
been approved and adopted, and the Merger shall have been duly approved, by the
requisite votes of the Board of Directors of EVG and by all of the shareholders
of EVG in accordance with the CGCL.
34
7.14 Shareholder Certificate. Each shareholder of EVG shall have
------------------------
completed and returned a Shareholder Certificate in the form attached as Exhibit
5.10.
7.15 EVG Board and Officer Resignations. EVG shall have received
--------------------------------------
written letters of resignation from each of the current members of the EVG Board
of Directors and from each of the officers of EVG.
7.16 Life Insurance Policies. All life insurance policies maintained
-------------------------
by EVG on behalf of any of its employees or shareholders shall be terminated.
7.17 MFA Receipt. Simultaneously with the payment of the MFA Payable
------------
to MFA by PhotoLoft pursuant to Section 2.2, MFA shall execute and deliver a
duly executed receipt or other document acknowledging receipt of full payment of
all amounts to be paid or owed to it by EVG, the Surviving Corporation or
PhotoLoft and releasing EVG, Surviving Corporation and PhotoLoft from any and
all claims with respect thereto.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF
EVG AND THE SHAREHOLDERS
The obligation of EVG and the Shareholders to effect the Merger is subject
to the satisfaction of the following conditions unless waived by EVG and the
Shareholders:
8.1 Representations and Warranties. The representations and warranties
------------------------------
of PhotoLoft and Merger Sub set forth in this Agreement shall be true and
correct in all material respects (except for such representations and warranties
which are qualified by their terms by a reference to materiality, which
representations and warranties as so qualified shall be true in all respects)
(i) as of the date of this Agreement; and (ii) as of the Closing Date as though
made on and as of each such date, except as otherwise contemplated by this
Agreement, and EVG and the Shareholders shall have received a certificate signed
by the President of PhotoLoft to such effect on and dated the Closing Date.
8.2 Performance of Obligations of PhotoLoft and Merger Sub. PhotoLoft
--------------------------------------------------------
and Merger Sub shall have performed all obligations and covenants required to be
performed by them under this Agreement and any other related agreement prior to
the Closing Date, and EVG shall have received a certificate signed by the
President of PhotoLoft to such effect on and dated the Closing Date.
8.3 Employment Agreement. PhotoLoft shall have entered into an
---------------------
employment agreement, substantially in the form attached hereto as Exhibit 7.4,
with each of the Shareholders.
8.4 Escrow Agreement. PhotoLoft shall have executed the Escrow
-----------------
Agreement.
8.5 Registration Rights Agreement. PhotoLoft shall have executed the
-------------------------------
Registration Rights Agreement.
35
8.6 PhotoLoft Board Approval. This Agreement shall have been approved
-------------------------
and adopted, and the Merger shall have been duly approved, by the requisite vote
of the Board of Directors of PhotoLoft.
ARTICLE IX
TERMINATION
9.1 Termination Prior to Effective Time. This Agreement may be
----------------------------------------
terminated at any time prior to the Effective Time:
(a) by mutual written agreement of PhotoLoft and EVG;
(b) by PhotoLoft (provided PhotoLoft is not in material breach of
this Agreement), if there has been a breach by EVG or the Shareholders of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of EVG or the Shareholders which is material and which EVG or the
Shareholders fail to cure within 10 business days after notice thereof is given
by PhotoLoft (except that no cure period shall be provided for a breach by EVG
or the Shareholders which by its nature cannot be cured);
(c) by PhotoLoft if the Board of Directors of EVG amends,
withholds or withdraws its recommendation of the Merger (provided PhotoLoft is
not in material breach of this Agreement);
(d) by EVG (provided EVG is not in material breach of this
Agreement), if there has been a breach by PhotoLoft or Merger Sub of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of PhotoLoft or Merger Sub which is material and which PhotoLoft or
Merger Sub, as the case may be, fails to cure within 10 business days after
notice thereof is given by EVG (except that no cure period shall be provided for
a breach by PhotoLoft or Merger Sub which by its nature cannot be cured);
(e) by PhotoLoft, by giving written notice to EVG, if the Closing
shall not have occurred on or before December 15, 2000 by reason of the failure
of any condition precedent under ARTICLE VI and ARTICLE VII (unless the failure
results primarily from a breach by PhotoLoft or Merger Sub of any
representation, warranty, or covenant of PhotoLoft or of Merger Sub contained in
this Agreement); or
(f) by EVG, by giving written notice to PhotoLoft, if the Closing
shall not have occurred on or before December 15, 2000 by reason of the failure
of any condition precedent under ARTICLE VI and ARTICLE VIII (unless the failure
results primarily from a breach by EVG or the Shareholders of any
representation, warranty, or covenant of EVG or the Shareholders contained in
this Agreement).
9.2 Authorization by Board of Directors. Where action is taken to
----------------------------------------
terminate this Agreement pursuant to Section 9.1, it shall be sufficient for
such action to be authorized by the Board of Directors of the party authorized
to take such action.
9.3 Termination of Obligations. If either PhotoLoft or EVG terminates
----------------------------
this Agreement pursuant to Section 9.1, all obligations of the parties hereunder
shall terminate without any liability of any party to any other party (except
for any liability of any party for breach of this Agreement); provided, that the
agreements contained in Sections 5.5, 5.6, 9.3, 11.7, 11.8, 11.13 and 11.14
hereof shall survive.
36
ARTICLE X
INDEMNIFICATION AND ESCROW FUND
10.1 Indemnity and Escrow Fund. The Shareholders shall indemnify and
---------------------------
hold harmless PhotoLoft and the Surviving Corporation with respect to any and
all Damages (as defined below) that PhotoLoft or the Surviving Corporation incur
by reason of any Indemnifiable Items (as defined below). To secure performance
of such indemnification obligations, as soon as practicable after the Effective
Time, the Escrow Shares shall be deposited with and registered in the name of an
institution selected by PhotoLoft with the consent of the Shareholders (which
consent shall not be unreasonably withheld) as escrow agent (the "Escrow
Agent"). Such deposited shares shall constitute the escrow fund (the "Escrow
Fund") to secure the performance of the indemnification obligation contained in
this Section 10.1 and be governed by the terms set forth herein and in the
Escrow Agreement attached hereto as Exhibit 7.10. The Escrow Fund shall be
available to compensate PhotoLoft and the Surviving Corporation for any loss,
expense, liability or other damage, including, without limitation, reasonable
attorneys' fees, accountants' fees, and all other reasonable costs and expenses
of litigation, investigation, defense or settlement of claims (including costs
of all appeals related thereto) or threats thereof and amounts paid in
settlement to the extent of the amount of such loss, expense, liability or other
damage (collectively, "Damages") that PhotoLoft and the Surviving Corporation
incur by reason of (i) the breach by EVG or any Shareholder of any
representation, warranty, covenant or agreement of EVG or any Shareholder
contained herein; and (ii) any of the matters set forth in Exhibit 10.1 hereto
(collectively, (i) and (ii) shall be referred to as "Indemnifiable Items").
Except as provided in Section 10.9, nothing contained in this ARTICLE X shall
limit the liability of EVG or any Shareholder for any breach of any
representation, warranty or covenant if this Agreement is terminated pursuant to
Section 9.1.
10.2 Escrow Period. The "Escrow Period" shall terminate at the
--------------
expiration of 12 months following the Closing Date; provided, that a portion of
the Escrow Fund, which, in the judgment of PhotoLoft, subject to the objection
of the Shareholders' Agent (defined in Section 10.6 below) and the subsequent
resolution or arbitration of the matter in the manner provided in Section 10.5,
is necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate (as defined in Section 10.3(a) below) theretofore delivered to the
Escrow Agent prior to termination of the Escrow Period with respect to facts and
circumstances existing prior to expiration of the Escrow Period, shall remain in
the Escrow Fund until such claims have been resolved.
10.3 Claims Upon the Escrow Fund.
-------------------------------
(a) Upon receipt by the Escrow Agent on or before the last day of
the Escrow Period of a certificate of PhotoLoft (an "Officer's Certificate")
specifying in reasonable detail the individual items of such Damages included in
the amount so stated, the date each such item was paid, or properly accrued or
arose, the nature of the Indemnifiable Item to which such item is related, the
Escrow Agent shall, subject to the provisions of Section 10.4 hereof, deliver to
37
PhotoLoft out of the Escrow Fund, as promptly as practicable, PhotoLoft Stock or
other assets held in the Escrow Fund having a value equal to such Damages. The
Shareholders' Agent may elect to pay cash in lieu of any Escrow Shares, up to
the full amount of the Damages. At such election and upon payment of cash
amounts by the Shareholders for any portion of the Damages, the number of Escrow
Shares (valued as set forth in Section 10.3(b) below) equal to the cash amounts
paid by the Shareholders shall be released from escrow.
(b) For the purpose of compensating PhotoLoft for its Damages from
the Escrow Fund, the Escrow Shares in the Escrow Fund shall be valued at the
average of the closing prices of the Common Stock of PhotoLoft, as reported by
the NASD O-T-C Market Bulletin Board (or comparable reporting service if the
PhotoLoft Common Stock is traded on an exchange or on Nasdaq) over the period of
ten trading days ending on the trading day preceding the date on which the
PhotoLoft Stock is delivered by the Escrow Agent to PhotoLoft.
10.4 Objections to Claims. At the time of delivery of any Officer's
----------------------
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered by PhotoLoft to the Shareholders' Agent and for a period of
15 days after such delivery, the Escrow Agent shall make no delivery of
PhotoLoft Stock or other property pursuant to Section 10.3 hereof unless the
Escrow Agent shall have received written authorization from the Shareholders'
Agent to make such delivery. After the expiration of such 15-day period, the
Escrow Agent shall make delivery of the PhotoLoft Stock or other property in the
Escrow Fund in accordance with Section 10.3 hereof; provided, that no such
payment or delivery may be made if the Shareholders' Agent shall object in a
written statement to the claim made in the Officer's Certificate, and such
statement shall have been delivered to the Escrow Agent and to PhotoLoft prior
to the expiration of such 15-day period.
10.5 Attempt to Resolve Conflicts; Arbitration.
---------------------------------------------
(a) In case the Shareholders' Agent shall so object in writing to
any claim or claims by PhotoLoft made in any Officer's Certificate or otherwise,
PhotoLoft shall have 30 days to respond in a written statement to the objection
of the Shareholders' Agent. If after such 30-day period there remains a dispute
as to any claims, the Shareholders' Agent and PhotoLoft shall attempt in good
faith for 30 days to agree upon the rights of the respective parties with
respect to each of such claims. If the Shareholders' Agent and PhotoLoft should
so agree, a memorandum setting forth such agreement shall be prepared and signed
by both parties and shall, if a claim is being made against the Escrow Fund, be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and shall distribute the PhotoLoft Stock or other property
from the Escrow Fund in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either PhotoLoft or the Shareholders' Agent may, by written notice
to the other, demand binding arbitration of the matter unless the Damages are at
issue in pending litigation with a third party. If the Damages are at issue in
pending litigation, then the arbitration shall not be commenced until such
amount is ascertained or both parties agree to arbitration; and in either such
event the matter shall be settled by arbitration conducted by three arbitrators.
Within 15 days after such written notice is sent, PhotoLoft and the
38
Shareholders' Agent shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The decision of the arbitrators as to
the validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and the Escrow Agent
shall be entitled to act in accordance with such decision and make or withhold
payments out of the Escrow Fund in accordance therewith.
(c) Any such arbitration shall be held in the County of Los
Angeles, California under the commercial rules then in effect of the American
Arbitration Association. The parties hereto agree that any action to compel
arbitration pursuant to this Agreement may be brought in any appropriate court
in the County of Los Angeles, California and in connection with such action to
compel the laws of the State of California to control. Application may also be
made to such court for confirmation of any decision or award of the arbitrator,
for an order of the enforcement and for any other remedies which may be
necessary to effectuate such decision or award. The parties hereto hereby
consent to the jurisdiction of the arbitrator and of such court and waive any
objection to the jurisdiction of such arbitrator and court. The prevailing
party in any such arbitration shall be entitled to reasonable attorney's fees,
costs and necessary disbursements in addition to any other relief to which such
party may be entitled under this Agreement or the Escrow Agreement.
(d) If a dispute is submitted for arbitration as provided in this
Section 10.5, the Escrow Agent shall continue to hold Escrow Shares in the
Escrow Fund having a value sufficient to cover the Damages related to such
dispute (the "Contested Damages") (but only to the extent that there are Escrow
Shares remaining in the Escrow Fund) until: (i) delivery of a copy of a
settlement agreement executed by PhotoLoft and the Shareholders' Agent setting
forth instructions to the Escrow Agent as to the release of such Escrow
Sharesthat shall be made with respect to the Contested Damages; (ii) delivery of
a copy of the final decision of the arbitrators setting forth instructions to
the Escrow Agent as to the release of Escrow Shares that shall be made with
respect to the Contested Damages; or (iii) receipt of a court order or judgment
directing the Escrow Agent to act with respect to the distribution of any Escrow
Shares. The Escrow Agent shall thereupon release the Escrow Shares from the
Escrow Fund (to the extent Escrow Shares are then held in the Escrow Fund) in
accordance with such settlement agreement, arbitrator's instructions, court
order or judgment, as applicable. If any controversy arises involving any party
to this Agreement (other than the Escrow Agent) concerning the subject matter of
this Agreement, including Contested Damages, the Escrow Agent will not be
required to resolve the controversy.
10.6 Shareholders' Agent.
--------------------
(a) Marco shall be constituted and appointed as agent
("Shareholders' Agent") for and on behalf of the Shareholders to give and
receive notices and communications, to authorize delivery to PhotoLoft of the
PhotoLoft Stock or other property from the Escrow Fund in satisfaction of claims
by PhotoLoft or the Surviving Corporation, to settle any other claims for
indemnification, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of the Shareholders'
Agent for the accomplishment of the foregoing. Such agency may be changed by
the holders of a majority in interest of the Escrow Fund from time to time upon
39
not less than 10 days' prior written notice to PhotoLoft. No bond shall be
required of the Shareholders' Agent, and the Shareholders' Agent shall receive
no compensation for his services. Notices or communications to or from the
Shareholders' Agent shall constitute notice to or from each of the Shareholders.
(b) The Shareholders' Agent shall not be liable for any act done
or omitted hereunder as Shareholders' Agent while acting in good faith and in
the exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The
Shareholders shall severally indemnify the Shareholders' Agent and hold him
harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Shareholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Shareholders' Agent shall have reasonable access to
information about EVG or the Surviving Corporation and the reasonable assistance
of EVG's officers and employees for purposes of performing its duties and
exercising its rights hereunder; provided, that the Shareholders' Agent shall
treat confidentially and not disclose any nonpublic information from or about
EVG to anyone (except on a need to know basis to individuals who agree to treat
such information confidentially).
10.7 Actions of the Shareholders' Agent. A decision, act, consent or
------------------------------------
instruction of the Shareholders' Agent shall constitute a decision of all
Shareholders for whom shares of PhotoLoft Stock otherwise issuable to them are
deposited in the Escrow Fund, and shall be final, binding and conclusive upon
each such Shareholder, and the Escrow Agent and PhotoLoft may rely upon any
decision, act, consent or instruction of the Shareholders' Agent as being the
decision, act, consent or instruction of each and every such Shareholder. The
Escrow Agent, Surviving Corporation and PhotoLoft are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Shareholders' Agent.
10.8 Third-Party Claims. In the event that a third party asserts or
-------------------
threatens a claim which PhotoLoft or the Surviving Corporation believes may
result in Damages and a demand against the Escrow Fund, PhotoLoft shall notify
the Shareholders' Agent of such claim, and the Shareholders' Agent on behalf of
the Shareholders shall be entitled, at such Shareholders' expense, to
participate in any defense of such claim. Shareholders' Agent may elect to
assume such defense (with counsel reasonably acceptable to PhotoLoft, and,
provided, that the Shareholders' Agent has the reasonable means to put on such a
defense); provided that, whether acting individually or collectively,
Shareholders and Shareholders' Agent may not effect the settlement of any such
claim without the consent of PhotoLoft, which consent shall not be unreasonably
withheld. Unless Shareholders' Agent so assumes such defense, PhotoLoft shall
have the right to settle any such claim (with its own counsel); provided that
PhotoLoft may not effect the settlement of any such claim without the consent of
the Shareholders' Agent, which consent shall not be unreasonably withheld. In
the event that the Shareholders' Agent has consented to any such settlement, the
Shareholders' Agent and the Shareholders shall have no power or authority to
object under Section 10.4 or any other provision of this ARTICLE X to the amount
of any Damages with respect to such settlement.
40
10.9 Limitations.
-----------
(a) Notwithstanding anything else set forth herein, PhotoLoft and
the Surviving Corporation shall not be entitled to receive any Escrow Shares
from the Escrow Fund and shall not otherwise be entitled to any indemnification
under this ARTICLE X unless and until an Officer's Certificate or Certificates
identifying Damages of at least an amount equal to the sum of $50,000 in the
aggregate for any and all claims for Damages has or have been delivered to the
Escrow Agent and Shareholders' Agent as provided in Sections 10.3 and 10.4, in
which case PhotoLoft shall be entitled to receive Escrow Shares pursuant to this
ARTICLE X equal in value to the full amount of any and all Damages.
(b) Notwithstanding anything else set forth herein, PhotoLoft and
the Surviving Corporation shall not be entitled to be compensated from the
Escrow Fund or otherwise with respect to any Damages that are covered by
insurance proceeds from insurance obtained and paid for by the Shareholders
prior to the Effective Time to the extent that PhotoLoft and/or such other
persons actually receive such insurance proceeds to cover such Damages from such
insurance (including all costs and expenses incurred in pursuing and collecting
such insurance proceeds).
(c) The parties hereto understand and agree that the indemnity
obligations of the Shareholders under this ARTICLE X shall terminate 12 months
from the Closing Date, except (i) insofar as a claim for indemnification under
this ARTICLE X by delivery of an Officer's Certificate has been asserted and
such claim has not been resolved in accordance with the terms of the this
Agreement, the Escrow Agreement or otherwise, or (ii) for any Damages incurred
by PhotoLoft or the Surviving Corporation as a result of a breach of the
representations and warranties set forth in Sections 3.2 (Capitalization) and
3.27 (Taxes), in which case the indemnity obligations shall terminate upon the
expiration of the relevant statute of limitations.
(d) The indemnification obligations of the Shareholders hereunder
shall not exceed fifty percent (50%) of the Total Consideration. Such
indemnification obligations may be satisfied with PhotoLoft Stock rather than
cash at the option of Shareholders, and such stock shall be valued at the
average of the closing prices of the Common Stock of PhotoLoft, as reported by
the NASD O-T-C Market Bulletin Board (or comparable reporting service if the
PhotoLoft Common Stock is traded on an exchange or on Nasdaq) over the period of
ten trading days ending on the trading day preceding the date on which the
PhotoLoft Stock is delivered by Shareholders to PhotoLoft. In addition, as to
each Shareholder, the indemnification obligations of such Shareholder hereunder
shall not exceed fifty percent (50%) of the sum of (i) the value of the Merger
Shares received by such Shareholder plus (ii) an amount equal to the Assumed
Liabilities multiplied by such Shareholder's percentage ownership of EVG Stock.
(e) The indemnification obligations set forth in this ARTICLE X
shall be the sole and exclusive remedy of PhotoLoft and the Surviving
Corporation for the breach by EVG or any Shareholder of any representation,
warranty, covenant or agreement of EVG or any Shareholder contained in this
Agreement, in any certificate delivered pursuant to this Agreement and in the
Escrow Agreement. However, nothing herein shall limit PhotoLoft's or the
Surviving Corporation's rights to seek recourse against any person or entity for
claims based on fraud.
41
ARTICLE XI
GENERAL PROVISIONS
11.1 Survival of Representations, Warranties and Agreements. All
-----------------------------------------------------------
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
consummation of the Merger and shall terminate 12 months after the Closing Date;
provided, that the representations and warranties set forth in Sections 3.2 and
3.27 shall survive until the expiration of the relevant statute of limitations.
11.2 Amendment. This Agreement may be amended by the parties hereto,
---------
by action taken by their respective Board of Directors, at any time before or
after approval of the Merger by the shareholders of EVG; provided, that
following approval of the Merger by the shareholders of EVG, no amendment shall
be made which by law requires the further approval of such shareholders without
obtaining such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
11.3 Extension; Waiver. At any time prior to the Effective Time, each
------------------
of EVG, Merger Sub and PhotoLoft, by action taken by its Board of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other party; (ii) waive any
inaccuracies in the representations and warranties made by the other party to it
contained herein or in any document delivered by the other party pursuant
hereto; and (iii) waive compliance with any of the agreements or conditions for
the benefit of it contained herein. Any agreement on the part of a party hereto
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
11.4 Notices and Consents. All notices and other communications
----------------------
hereunder shall be in writing and shall be deemed given (i) upon delivery if
delivered personally or by an express courier (with confirmation), including by
overnight delivery service, (ii) one day after being sent by facsimile (with
receipt confirmed) or (iii) three days after being sent by registered or
certified mail (return receipt requested) to the parties at the following
addresses or facsimile number (or at such other address for a party as shall be
specified by like notice):
(a) if to PhotoLoft or Merger Sub to:
PhotoLoft, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: President
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
42
with a copy to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to EVG to:
Extreme Velocity Group, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Al Marco, President
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to the Shareholders to:
EVG I, a California general partnership
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Al Marco
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may change its address for purposes of this paragraph by giving
notice of the new address to each of the other parties in the manner set forth
above. Rejection or other refusal to accept, or the inability to deliver
43
because of a changed address of which no notice was given, shall not affect the
date of such notice sent in accordance with the foregoing provisions.
11.5 Interpretation. When a reference is made in this Agreement to
--------------
Sections or Exhibits, such reference shall be to a Section or Exhibit to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
11.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
11.7 Entire Agreement. This Agreement and the documents and
-----------------
instruments and other agreements among the parties delivered pursuant hereto,
including the Non-Disclosure Agreement dated July 7, 2000 entered into by
PhotoLoft and EVG, constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and are not intended to confer upon any other person any
rights or remedies hereunder except as otherwise expressly provided herein.
11.8 No Transfer. This Agreement and the rights and obligations set
------------
forth herein may not be transferred or assigned by operation of law or otherwise
without the consent of each party hereto. This Agreement is binding upon and
will inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
11.9 Severability. If any provision of this Agreement, or the
------------
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
11.10 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law or equity on
such party, and the exercise of any one remedy will not preclude the exercise of
any other.
11.11 Further Assurances. Each party agrees to cooperate fully with
--------------------
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and purposes
of this Agreement.
44
11.12 Absence of Third-Party Beneficiary Rights. No provision of this
------------------------------------------
Agreement is intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, employee, partner of any party hereto or any
other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be solely between the parties
to this Agreement.
11.13 Mutual Drafting. This Agreement is the joint product of
----------------
PhotoLoft, Merger Sub, EVG and the Shareholders, and each provision hereof has
been subject to the mutual consultation, negotiation and agreement of PhotoLoft,
Merger Sub, EVG and the Shareholders, and shall not be construed for or against
any party hereto.
11.14 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the domestic laws of the State of California, without giving
effect to any choice of law or conflict of law provision or rule (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.
11.15 Attorney's Fees. If any action at law or in equity is necessary
----------------
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
[SIGNATURE PAGES TO FOLLOW]
45
IN WITNESS WHEREOF, PhotoLoft, Merger Sub, EVG and the Shareholders have
caused this Agreement to be signed, all as of the date first written above.
PHOTOLOFT, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman
PHOTOL ACQUISITION CORP.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman
EXTREME VELOCITY GROUP, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
SHAREHOLDERS
(Individually)
/s/ Al Marco
--------------
Al Marco
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
46
EVG I, a California general partnership
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
FIRST AMENDMENT TO AGREEMENT
----------------------------
AND PLAN OF REORGANIZATION
--------------------------
This First Amendment, dated as of December 7, 2000 (this "First
Amendment"), to that certain Agreement and Plan of Reorganization, dated as of
November 22, 2000 (the "Agreement"), by and among PhotoLoft, Inc. ("PhotoLoft"),
PhotoL Acquisition Corp. ("Merger Sub"), Extreme Velocity Group, Inc. ("EVG"),
and EVG I, Al Marco ("Marco"), ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇") and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
("▇▇▇▇▇▇") (individually, a "Shareholder" and collectively, the "Shareholders")
is made by and among the parties set forth on the signature pages hereto.
Unless otherwise defined herein, capitalized terms shall have the meanings given
them in the Agreement.
WHEREAS, PhotoLoft, Merger Sub, EVG and Shareholders desire to enter into
this First Amendment to make certain changes to the Agreement in light of the
settlement of the lawsuit between Legion Paper Corp., et. al. ("Legion") and
▇▇▇▇▇▇▇▇, et. al., dated December 7, 2000 ("Settlement Agreement").
NOW, THEREFORE, for good and valuable consideration, the receipt, adequacy
and sufficiency of which are hereby acknowledged, the parties hereto covenant
and agree as follows:
1. Section 2.2 of the Agreement is hereby deleted in its entirety and
replaced by the following:
"2.2 Payables.
--------
(a) MFA Payable. On the Closing Date, PhotoLoft shall pay to
------------
Marco Fine Arts ("MFA"), on behalf of EVG, $774,000 in cash (the
"MFA Payment") in full satisfaction (along with the other items
noted below in subsection (b)) of the EVG payable to MFA in the
amount of $800,000. The receipt to be executed by MFA pursuant to
Section 7.17 of the Agreement shall indicate that such payment
entirely extinguishes all outstanding payables owed to MFA and
any of its affiliates by EVG.
(b) Legion Legal Fees. As part of the Settlement Agreement, on
-----------------
the Closing Date, PhotoLoft, on behalf of EVG under the terms of
the Settlement Agreement, shall pay $26,000 directly to Legion to
cover Legion's legal fees."
2. Except as expressly stated in this First Amendment, all of the
remaining terms of the Agreement shall remain in full force and effect.
3. This First Amendment shall be governed by and construed in
accordance with the laws of the State of California without regard to the
conflicts of law provisions thereof.
IN WITNESS WHEREOF, the parties have caused this First Amendment to
Agreement and Plan of Reorganization to be executed and delivered as of the date
first written above.
PHOTOLOFT, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman
PHOTOL ACQUISITION CORP.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman
EXTREME VELOCITY GROUP, INC.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
SHAREHOLDERS
(Individually)
/s/ Al Marco
--------------
Al Marco
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
EVG I, a California general partnership
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
SECOND AMENDMENT TO AGREEMENT
AND PLAN OF REORGANIZATION
This Second Amendment, dated as of December 20, 2000 (this "Second
Amendment"), to that certain Agreement and Plan of Reorganization, dated as of
November 22, 2000, as amended (the "Agreement"), by and among BrightCube, Inc.
(formerly PhotoLoft, Inc.), a Nevada corporation which shall be referred to
herein as "PhotoLoft", PhotoL Acquisition Corp., a California corporation and a
wholly-owned subsidiary of PhotoLoft ("Merger Sub"), Extreme Velocity Group,
Inc., a California corporation ("EVG"), and EVG I, a California general
partnership, Al Marco, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ (individually, a
"Shareholder" and collectively, the "Shareholders") is made by and among the
parties set forth on the signature pages hereto. Unless otherwise defined
herein, capitalized terms shall have the meanings ascribed to them in the
Agreement.
WHEREAS, PhotoLoft, Merger Sub, EVG and Shareholders desire to enter into
this Second Amendment to make certain changes to the Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt, adequacy
and sufficiency of which hereby are acknowledged, the parties hereto covenant
and agree as follows:
1. The Agreement is hereby amended as follows:
(a) Section 7.18 of the Merger Agreement shall be added in its entirety
as follows:
"7.18 Co-Sale Agreement. The required parties shall have executed the
-----------------
Co-Sale Agreement in the form attached hereto as Exhibit 7.18
("Co-Sale Agreement")."
(b) Section 8.7 of the Merger Agreement shall be added in its entirety
as follows:
"8.7 Co-Sale Agreement. The required parties shall have entered into
------------------
the Co-Sale Agreement."
(c) The definition of "Excess Liabilities" in Section 2.1(b)(ii) of the
Agreement shall be amended and restated in its entirety as follows:
"Excess Liabilities" means any and all liabilities for borrowed money
and capital lease obligations and all long-term liabilities (shown or
required to be shown on EVG's financial statements under generally
accepted accounting principles in the United States) of EVG,
including, without limitation, all outstanding amounts under the lines
of credit from City National Bank to be assumed by PhotoLoft in
connection with the Merger (the "CNB Lines of Credit"), which in no
event shall exceed $690,000, in excess of $690,000 in the aggregate,
existing as of the Closing Date; provided, however, that for purposes
of this definition, the promissory note dated December 7, 2000
evidencing the loan of $38,641 by the PhotoLoft to EVG (the "Note")
shall be assumed to have been cancelled.
1
(d) The definition of "Net Working Deficit" in Section 2.1(b)(ii) of
the Agreement shall be amended and restated in its entirety as follows:
"Net Working Deficit" means the amount by which (A) EVG's current
liabilities (which shall mean accounts payable, accrued payable,
domain name payable and other liabilities payable within 30 days of
the Closing, but shall not include the MFA Payable (as defined below)
which shall be paid by PhotoLoft pursuant to Section 2.2) exceeds (B)
the sum of $325,000 and EVG's current assets (which shall mean cash,
inventory (net of reserves), and accounts receivable (net of
reserves)), if any, as of the Closing Date. All such amounts shall be
as shown or required to be shown on EVG's financial statements
pursuant to generally accepted accounting principles in the United
States; provided, however, that for purposes of this definition, the
amount (principal plus accrued interest) of the Note shall be deemed
an accounts payable and as such shall be a current liability.
(e) Section 2.1(g) of the Agreement shall be added in its entirety as
follows:
"(g) Adjustment After Audit. Notwithstanding, and in addition to the
----------------------
foregoing, the Primary Exchange Ratio shall be recalculated promptly
after and shall be based on the financial statements of the Surviving
Corporation that have been audited in connection with the normal
December 31, 2000 year-end consolidated audit of PhotoLoft, which is
currently scheduled to be conducted in the first quarter of 2001 by
the independent accountants of PhotoLoft in accordance with Generally
Accepted Accounting Principals (the "Audit"). In the event that a
discrepancy exists between the ratio calculated as of the Closing and
the ratio calculated from the Audit, PhotoLoft shall calculate the
difference between (i) the number of shares of PhotoLoft Stock that
the Shareholders received based on the ratio calculated as of the
Closing and (ii) the number of shares of PhotoLoft Stock that the
Shareholders should have received based on the ratio calculated from
the Audit (such difference to be referred to herein as the "Share
Deficit"). Such Share Deficit shall be considered an Indemnifiable
Item (as defined below) for purposes of ARTICLE X hereof and shall be
taken from the Escrow Fund (as defined below)."
(f) Section 10.1 of the Agreement shall be amended and restated in its
entirety as follows:
"10.1 Indemnity and Escrow Fund. The Shareholders shall indemnify and
-------------------------
hold harmless PhotoLoft and the Surviving Corporation with respect to
any and all Damages (as defined below) that PhotoLoft or the Surviving
Corporation incur by reason of any Indemnifiable Items (as defined
below). To secure performance of such indemnification obligations, as
soon as practicable after the Effective Time, the Escrow Shares shall
be deposited with and registered in the name of an institution
selected by PhotoLoft with the consent of the Shareholders (which
consent shall not be unreasonably withheld) as escrow agent (the
"Escrow Agent"). Such deposited shares shall constitute the escrow
fund (the "Escrow Fund") to secure the performance of the
indemnification obligation contained in this Section 10.1 and be
2
governed by the terms set forth herein and in the Escrow Agreement
attached hereto as Exhibit 7.10. The Escrow Fund shall be available to
compensate PhotoLoft and the Surviving Corporation for any loss,
expense, liability, Share Deficit or other damage, including, without
limitation, reasonable attorneys' fees, accountants' fees, and all
other reasonable costs and expenses of litigation, investigation,
defense or settlement of claims (including costs of all appeals
related thereto) or threats thereof and amounts paid in settlement to
the extent of the amount of such loss, expense, liability, Share
Deficit or other damage (collectively, "Damages") that PhotoLoft and
the Surviving Corporation incur by reason of (i) the breach by EVG or
any Shareholder of any representation, warranty, covenant or agreement
of EVG or any Shareholder contained herein; (ii) any Share Deficit as
determined after the Audit in accordance with Section 2.1(g) hereof
and (iii) any of the matters set forth in Exhibit 10.1 hereto
(collectively, (i), (ii) and (iii) shall be referred to as
"Indemnifiable Items"). Except as provided in Section 10.9, nothing
contained in this ARTICLE X shall limit the liability of EVG or any
Shareholder for any breach of any representation, warranty or covenant
if this Agreement is terminated pursuant to Section 9.1."
(g) Section 10.3(c) of the Agreement shall be added in its entirety as
follows:
"(c) Notwithstanding the foregoing, claims for Damages due to the
existence of a Share Deficit shall be paid with the number of Escrow
Shares equal to the number of shares constituting such Share Deficit."
(h) Items 2(p) and 2(q) shall be added in their entirety to Exhibit
10.1 of the Agreement as follows:
"▇. ▇▇▇▇▇ Packaging Co. Inc.
q. Studio Moulding"
2. Except as expressly stated in this Second Amendment, all of the remaining
terms of the Agreement shall remain in full force and effect.
3. This Second Amendment shall be governed by and construed in accordance
with the laws of the State of California without regard to conflicts of law
provision thereof.
[SIGNATURE PAGES TO FOLLOW]
3
IN WITNESS WHEREOF, PhotoLoft, Merger Sub, EVG and the Shareholders have
caused this Agreement to be signed, all as of the date first written above.
BRIGHTCUBE, INC. (formerly PhotoLoft, Inc.)
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman
PHOTOL ACQUISITION CORP.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman
EXTREME VELOCITY GROUP, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
SHAREHOLDERS
(Individually)
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------
Al Marco
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
EVG I, a California general partnership
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President