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ASSET PURCHASE AGREEMENT
AMONG
CANON U.S.A., INC.,
BRIGHTCUBE, INC.
AND
BRIGHTCUBE CALIFORNIA, INC.
DATED AS OF
OCTOBER 26, 2001
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TABLE OF CONTENTS
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II SALE AND TRANSFER OF ASSETS; CLOSING . . . . . . . . . . . . . . . .8
Section 2.1 Assets to Be Sold . . . . . . . . . . . . . . . . . . . . . . .8
Section 2.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . .9
Section 2.3 Consideration. . . . . . . . . . . . . . . . . . . . . . . . .10
Section 2.4 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.5 Allocation . . . . . . . . . . . . . . . . . . . . . . . . . .10
Section 2.6 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.7 Closing Obligations . . . . . . . . . . . . . . . . . . . . . 11
Section 2.8 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS . . . . . . . . . . . . 13
Section 3.1 Organization and Good Standing. . . . . . . . . . . . . . . . 13
Section 3.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . .13
Section 3.3 Enforceability, Authority, No Conflict . . . . . . . . . . . .13
Section 3.4 Books and Records. . . . . . . . . . . . . . . . . . . . . . .14
Section 3.5 Sufficiency of Assets. . . . . . . . . . . . . . . . . . . . .15
Section 3.6 Intellectual Property. . . . . . . . . . . . . . . . . . . . .15
Section 3.7 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.8 Location of Tangible Personal Property. . . . . . . . . . . . 19
Section 3.9 Title to and Condition of Personal Property . . . . . . . . . 19
Section 3.10 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . 19
Section 3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.12 No Material Adverse Change. . . . . . . . . . . . . . . . . . 20
Section 3.13 Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.14 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.15 Compliance With Legal Requirements; Governmental
Authorizations . . . . . . . . . . . . . . . . . . . . . . . .20
Section 3.16 Legal Proceedings; Orders. . . . . . . . . . . . . . . . . . .21
Section 3.17 Absence of Certain Changes and Events. . . . . . . . . . . . .21
Section 3.18 Contracts; No Defaults. . . . . . . . . . . . . . . . . . . . 22
Section 3.19 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . .23
Section 3.20 Environmental Matters. . . . . . . . . . . . . . . . . . . . .23
Section 3.21 Relationships with Related Persons . . . . . . . . . . . . . .24
Section 3.22 Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . 25
Section 3.23 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . . . 25
Section 4.1 Organization and Good Standing. . . . . . . . . . . . . . . . 25
Section 4.2 Authority, No Conflict. . . . . . . . . . . . . . . . . . . . 26
Section 4.3 Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE V COVENANTS OF SELLERS PRIOR TO CLOSING. . . . . . . . . . . . . . . .26
Section 5.1 Access and Investigation. . . . . . . . . . . . . . . . . . . 26
Section 5.2 Operation of the Business of Seller. . . . . . . . . . . . . .26
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Section 5.3 Required Approvals. . . . . . . . . . . . . . . . . . . . . . 27
Section 5.4 Notification. . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.5 No Negotiation. . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.6 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.7 Payment of Liabilities. . . . . . . . . . . . . . . . . . . . 28
Section 5.8 Key Personnel. . . . . . . . . . . . . . . . . . . . . . . . .28
ARTICLE VI COVENANTS OF BUYER PRIOR TO CLOSING. . . . . . . . . . . . . . . . 28
Section 6.1 Required Approvals. . . . . . . . . . . . . . . . . . . . . . 28
Section 6.2 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VII CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. . . . . . . .28
Section 7.1 Accuracy of Representations. . . . . . . . . . . . . . . . . .29
Section 7.2 Sellers' Performance. . . . . . . . . . . . . . . . . . . . . 29
Section 7.3 No Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.4 Governmental Authorizations. . . . . . . . . . . . . . . . . .29
Section 7.5 Personnel. . . . . . . . . . . . . . . . . . . . . . . . . . .29
Section 7.6 Satisfactory Due Diligence . . . . . . . . . . . . . . . . . .30
Section 7.7 No Change in Business. . . . . . . . . . . . . . . . . . . . .30
Section 7.8 Authorization. . . . . . . . . . . . . . . . . . . . . . . . .30
Section 7.9 Termination of ASP Contracts . . . . . . . . . . . . . . . . .30
Section 7.10 Partition, Testing of, and Other Matters Related to
Continuing PhotoLoft System and Related Data . . . . . . . . .30
Section 7.11 Working Photo Retained License and Internet Services and
License Agreement . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.12 Delivery of Tangible Personal Property . . . . . . . . . . . .31
ARTICLE VIII CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE . . . . . . 31
Section 8.1 Accuracy of Representations. . . . . . . . . . . . . . . . . .31
Section 8.2 Buyer's Performance . . . . . . . . . . . . . . . . . . . . . 32
Section 8.3 Working Photo Retained License and Internet Services and
License Agreement . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE IX TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Section 9.1 Termination Events . . . . . . . . . . . . . . . . . . . . . .32
Section 9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . 33
ARTICLE X SELLERS' ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . 33
Section 10.1 Payment of All Taxes Resulting From Sale of Assets by Seller. 33
Section 10.2 Payment of Liabilities . . . . . . . . . . . . . . . . . . . .33
Section 10.3 Reports and Returns . . . . . . . . . . . . . . . . . . . . . 33
Section 10.4 Covenant of Sellers Not to Compete . . . . . . . . . . . . . .34
Section 10.5 Further Assurances . . . . . . . . . . . . . . . . . . . . . .34
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ARTICLE XI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . .35
Section 11.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Section 11.2 Indemnification and Reimbursement By Seller . . . . . . . . . 35
Section 11.3 Access to Escrow Fund for Indemnification Liability . . . . . 36
Section 11.4 Method for Asserting Claim . . . . . . . . . . . . . . . . . .36
ARTICLE XII GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . .37
Section 12.1 Confidentiality; Public Announcements . . . . . . . . . . . .37
Section 12.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 12.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Section 12.4 Jurisdiction, Service of Process . . . . . . . . . . . . . . 38
Section 12.5 Enforcement of Agreement . . . . . . . . . . . . . . . . . . 38
Section 12.6 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.7 Entire Agreement and Modification . . . . . . . . . . . . . .39
Section 12.8 Assignments, Successors, and No Third-Party Rights . . . . . 39
Section 12.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.10 Section Headings, Construction, Schedules . . . . . . . . . .40
Section 12.11 Time of Essence . . . . . . . . . . . . . . . . . . . . . . .40
Section 12.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .40
Section 12.13 Joint and Several Obligations . . . . . . . . . . . . . . . .40
Section 12.14 Execution of Agreement, Counterparts . . . . . . . . . . . . 40
EXHIBITS AND SCHEDULES
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Exhibit A Form of Working Photo Retained License Agreement
Schedule 1.1 Working Photo Exclusive Software and Data
Schedule 2.1(c) Other Seller Contracts Included Within the Assets
Schedule 2.1(f) Equipment List
Schedule 2.2(f) Other Excluded Property and Assets
Schedule 2.2(g) Excluded Marks
Schedule 2.5 Purchase Price Allocation
Schedule 3 Schedule of Exceptions
Schedule 3.1(a) Organization and Good Standing
Schedule 3.3(c) Required Consents
Schedule 3.6(b) PhotoLoft Software and Data
Schedule 3.6(l) Third Party Software and Third Party Licenses-In
Schedule 3.6(n) Patents
Schedule 3.6(o) Marks
Schedule 3.6(p) Copyrights
Schedule 3.7(b) PhotoLoft URLs
Schedule 3.9(a) Permitted Encumbrances
Schedule 3.10 PhotoLoft Business or Assets Liabilities
Schedule 3.13(a) PhotoLoft Personnel
Schedule 3.13(c) PhotoLoft Personnel Not Terminable At Will
Schedule 3.15(a) Governmental Authorizations
Schedule 3.17(a) Key Personnel Retention Bonuses
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Schedule 3.18(a) Seller Contracts
Schedule 3.19 Insurance
Schedule 3.21 Related Persons Transactions
Schedule 5.8 Key Personnel
Schedule 7.10 Partition, Testing of, and Other Matters Relating
to Continuing PhotoLoft System and Related Data
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement"), made and entered into as
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of October 26, 2001, is by and among CANON U.S.A., INC., a New York corporation
("Buyer"), BRIGHTCUBE, INC., a Nevada corporation ("BrightCube") and BRIGHTCUBE
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CALIFORNIA, INC., a California corporation ("Original PhotoLoft" and, together
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with BrightCube, "Sellers").
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WHEREAS, Sellers desire to sell, and Buyer desires to purchase, the
PhotoLoft Software and Data (as defined below) and other assets of Sellers that
comprise the PhotoLoft Business (as defined below), for the consideration and on
the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the respective covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms and variations thereof
have the meanings specified or referred to in this Article I:
"Adjustment Amount" - the cost to Buyer of obtaining (taking into account
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any volume or other discounts available to Buyer), or reduction in the value of
the PhotoLoft Business (as determined by Buyer in its reasonable discretion)
caused by Sellers' failure or inability to sell, transfer or assign to Buyer,
(i) Third Party Licenses-In intended to be included within the Assets but which
are not, or for which Sellers cannot provide adequate documentation evidencing
that such license is, in Buyer's reasonable determination freely transferable or
assignable to Buyer in accordance with the terms of this Agreement and in
compliance with Sellers' representations under Section 3.6, (ii) any computer or
telecommunications hardware or equipment which Buyer must acquire in addition to
the Assets in order to operate the PhotoLoft Business in the Ordinary Course of
Business, or (iii) any Seller Contracts intended to be included within the
Assets but which are not transferable to Buyer in accordance with the terms of
this Agreement; and in addition to the foregoing, the liabilities with respect
to the AboveNet Seller Contract referred to in Section 2.8; the "Escrow
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Adjustment Amount" shall mean the first $50,000 in the aggregate of all
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Adjustment Amounts and the "Closing Payment Adjustment Amount" shall mean the
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aggregate of all Adjustment Amounts to the extent in excess of $50,000.
"Agreement" - as defined in the first paragraph of this Agreement.
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"ASP Contracts" - those Seller Contracts, identified as such on Schedule
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3.18(a), between a Seller and third parties (including Buyer) pursuant to which
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such Seller provides PhotoLoft Service to such third parties in order for such
third parties to make PhotoLoft Service available to their end-user customers.
"Assets" - as defined in Section 2.1.
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"▇▇▇▇ of Sale" - as defined in Section 2.7(a)(i).
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"Business Day" - any day other than Saturday or Sunday or any other day on
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which banks in New York City are permitted or required to be closed.
"Buyer" - as defined in the first paragraph of this Agreement.
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"Buyer's Advisors" - as defined in Section 5.1.
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"Buyer Indemnified Persons" - as defined in Section 11.2(a).
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"Buyer's Closing Documents" - as defined in Section 4.2(a).
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"Closing" - as defined in Section 2.6.
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"Closing Date" - as defined in Section 2.6.
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"Common System Know-How" - that portion of the PhotoLoft Intellectual
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Property that comprises information about how to build, install and configure
the PhotoLoft Software and Data into an operational system and test it and is
used by both the PhotoLoft Business and the Working Photo Business.
"Computer Viruses" - as defined in Section 3.6(s).
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"Consent" - any approval, consent, ratification, waiver, or other
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authorization.
"Contemplated Transactions" - all of the transactions contemplated by this
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Agreement and the other Sellers' Closing Documents.
"Contract" - any agreement, contract, lease, consensual obligation,
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promise, or undertaking (whether written or oral and whether express or
implied), including, but not limited to, any Seller Contract.
"Copyrights" - all rights arising under domestic and foreign copyright
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laws, whether or not the subject of any copyrights registration or copyright
application.
"Database Layer Common Functions" - that portion of the PhotoLoft Software
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and Data that is used in the database layer by both the PhotoLoft Business and
the Working Photo Business, as further identified in Schedule 3.6(b).
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"Employee Benefit Plan" - any plan, program or agreement which a Seller has
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maintained, sponsored or obligated itself under with respect to employees'
benefits or welfare, including without limitation pension or retirement plans,
medical or dental plans, life or long-term disability insurance, bonus or
incentive compensation, stock option or equity participation plans.
"Encumbrance" - any charge, claim, community property interest, condition,
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equitable interest, lien, option, pledge, security interest, mortgage,
right-of-way, easement, encroachment, servitude, right of first option, right of
first refusal or restriction of any kind, including any restriction on use,
voting (in the case of any security), transfer, receipt of income, or exercise
of any other attribute of ownership.
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"Environmental, Health and Safety Liabilities" - any Losses, obligation, or
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other responsibility arising from or under any Environmental Law or Occupational
Safety and Health Law.
"Environmental Law" - any Legal Requirement designed to minimize, prevent,
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punish or remedy the consequences of actions that damage or threaten the
environment or public health and safety.
"Escrow Agreement" - the escrow agreement to be executed and delivered at
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the Closing by Buyer, Sellers and the Escrow Agent as contemplated by Section
2.3(b) and in form reasonably acceptable to Buyer and Sellers.
"Escrow Agent" - as defined in the Escrow Agreement.
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"Exchange Act" - the Securities Exchange Act of 1934, as amended.
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"Excluded Assets" - as defined in Section 2.2.
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"Excluded Marks" - as defined in Section 2.2(g).
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"Facilities" - (i) Sellers' principal place of business located at ▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and (ii) the San Jose, California
web site hosting facility operated by AboveNet Communications, Inc.
"Governing Documents" - with respect to any particular entity: (a) the
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articles or certificate of incorporation and the bylaws (or comparable
documents); (b) all equityholders' agreements, voting agreements, voting trust
agreements, joint venture agreements, registration rights agreements or other
agreements or documents relating to the organization, management or operation of
any Person, or relating to the rights, duties and obligations of the
equityholders of any Person; and (c) any amendment or supplement to any of the
foregoing.
"Governmental Authorization" - any Consent, license, or permit issued,
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granted, given, or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement, but specifically
excluding any general business license.
"Governmental Body" - any (a) domestic or foreign federal, state, local, or
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municipal government; (b) domestic or foreign governmental or quasi-governmental
authority of any nature (including any agency, branch, department, board,
commission, court, tribunal or other entity exercising governmental or
quasi-governmental powers); (c) domestic or foreign body exercising any
administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power; or (d) official of any of the foregoing.
"Hazardous Material" - any substance, material or waste which is regulated
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by any Governmental Body, including any waste which is defined as a "hazardous
waste," "hazardous material," "hazardous substance," "extremely hazardous
waste," "restricted hazardous waste," "contaminant," "toxic waste" or "toxic
3
substance" under any provision of Environmental Law, and including petroleum,
petroleum products, asbestos, presumed asbestos-containing material or
asbestos-containing material, urea formaldehyde and polychlorinated biphenyls.
"Intellectual Property" - Patents, Copyrights, Marks, Trade Secrets and
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other intangible property rights and all copies of software, data and other
tangible embodiments of the foregoing in whatever form or medium.
"Internet Services and License Agreement" - as defined in Section
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2.7(b)(iii).
"IRS" - the United States Internal Revenue Service or any successor agency,
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and, to the extent relevant, the United States Department of the Treasury.
"Key Personnel" - those employees, consultants or other personnel of a
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Seller listed on Schedule 5.8.
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"Legal Requirement" - any applicable domestic or foreign federal, state,
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local, or municipal law, ordinance, principle of common law, code, regulation,
statute, or treaty.
"Liability" - with respect to any Person, any liability or obligation of
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such Person of any kind, character or description, whether known or unknown,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated,
secured or unsecured, joint or several, due or to become due, vested or
unvested, executory, determined, determinable or otherwise and whether or not
the same is required to be accrued on the financial statements of such Person.
"Losses" - as defined in Section 11.2(a).
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"Marks" - all names, assumed fictional business names, trade names, all
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registered and unregistered domestic and foreign trademarks, registered and
unregistered domestic and foreign service marks, domain names, applications for
domestic and foreign service marks, and applications for domestic and foreign
trademarks.
"Occupational Safety and Health Law" - any Legal Requirement designed to
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provide safe and healthful working conditions and to reduce occupational safety
and health hazards, including the Occupational Safety and Health Act, 29 U.S.C.
Sec. 651 et seq., and any program whether governmental or private (such as those
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promulgated or sponsored by industry associations and insurance companies),
designed to provide safe and healthful working conditions.
"Order" - any order, injunction, judgment, decree, ruling, assessment or
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arbitration award of any Governmental Body or arbitrator.
"Ordinary Course of Business" - an action taken by a Person will be deemed
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to have been taken in the "Ordinary Course of Business" only if such action: (a)
is consistent in nature, scope and magnitude with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day operations
of such Person; (b) does not require authorization by the board of directors or
shareholders of such Person (or by any Person or group of Persons exercising
similar authority) and does not require any other separate or special
authorization of any nature; and (c) is similar in nature, scope and magnitude
to actions customarily taken, without any separate or special authorization, in
the ordinary course of the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
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"Patents" - all domestic and foreign patents, domestic and foreign patent
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applications, and inventions and discoveries (whether patentable or unpatentable
and whether or not reduced to practice).
"Person" - an individual, partnership, corporation, business trust, limited
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liability company or partnership, joint stock company, trust, unincorporated
association, joint venture or other entity, or a Governmental Body.
"Personnel" - as defined in Section 3.13(a).
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"PhotoLoft Business" - Sellers' PhotoLoft Service business.
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"PhotoLoft Intellectual Property" - rights in all software, data,
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technology, e-commerce models and other Intellectual Property owned, used or
licensed (as licensor or licensee) by a Seller or its predecessors-in-interest
in connection with the PhotoLoft Business, including, but not limited to, rights
in the PhotoLoft Software and Data and all other rights and technology
identified in Schedules 3.6(b), 3.6(n), 3.6(o) and 3.6(p) and all improvements,
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changes and modifications thereto that at any time in the past were, or
currently are, in the process of being made, tested or developed.
"PhotoLoft Service" - Sellers' consumer-oriented photo storage,
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presentation, sharing and printing services and related products, whether or not
marketed by a Seller under the "PhotoLoft" name and whether provided by a Seller
directly to end-users or provided by a Seller indirectly to end-users on an
application service provider or private label basis or otherwise.
"PhotoLoft Software and Data" - that portion of the PhotoLoft Intellectual
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Property that is embodied in object and/or source code or any form of computer
instructions or data structures and schema, related documentation and related
data stored or accessed by such instructions or data structures and schema, and
any software tools used in development, quality assurance and testing or
deployment of PhotoLoft Software and Data, or comprising any improvements,
changes and modifications to the PhotoLoft Software and Data that at any time in
the past were, or currently are, in the process of being made, tested or
developed. The PhotoLoft Software and Data includes, but is not limited to, the
PhotoLoft Exclusive Software and Data, the Presentation Layer Common Functions,
the PSA Behavior Layer Common Functions and the Database Layer Common Functions.
"PhotoLoft Exclusive Software and Data" - that portion of the PhotoLoft
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Software and Data that is used or intended for use exclusively in the PhotoLoft
Business and not in the Working Photo Business, as further identified in
Schedule 3.6(b), or used or intended for use in development, quality assurance
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and testing or deployment of PhotoLoft Software and Data, as further identified
in Schedule 3.6(b).
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5
"Presentation Layer Common Functions" - that portion of the PhotoLoft
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Software and Data that is used in the presentation layer by both the PhotoLoft
Business and the Working Photo Business, as further identified in Schedule
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3.6(b).
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"PSA Behavior Layer Common Functions" - that portion of the PhotoLoft
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Software and Data that is present in the behavior layer of the Photo Sharing
Array (PSA) and is used by both the PhotoLoft Business and the Working Photo
Business, as further identified in Schedule 3.6(b).
"Proceeding" - any action, arbitration, audit, hearing, investigation,
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litigation, or suit (whether civil, criminal, administrative, judicial or
investigative, whether formal or informal, whether public or private) commenced,
brought, conducted, or heard by or before, or otherwise involving, any
Governmental Body or arbitrator.
"Purchase Price" - as defined in Section 2.3.
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"Related Person" - is: (a) any Person that, directly or indirectly,
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controls, is controlled by, or is under common control with a specified Person;
(b) any Person that holds a Material Interest in a specified Person; (c) each
Person that serves as a director, officer, partner, executor, or trustee of a
specified Person (or in a similar capacity); and (d) any Person in which a
specified Person holds a Material Interest. For purposes of this definition, (a)
"control" (including "controlling," "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise; and (b) "Material
Interest" means direct or indirect beneficial ownership (defined as the power to
vote or to direct the voting of, or the power to dispose of, an equity security)
of voting securities or other voting interests representing at least three
percent (3%) of the outstanding voting power of a Person or equity securities or
other equity interests representing at least three percent (3%) of the
outstanding equity securities or equity interests in a Person.
"Representative" - with respect to a particular Person, any director,
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officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Sellers" - as defined in the first paragraph of this Agreement.
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"Seller Contract" - any Contract (a) under which a Seller has or may
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acquire any rights or benefits, or that assigns to a Seller rights to any
inventions, improvements, discoveries or information, relating in whole or in
part to the PhotoLoft Business or the Assets, including, but not limited to,
Third Party Licenses-In, Third Party Licenses-Out, Seller Personnel IP
Agreements, maintenance or vendor services agreements and unexpired warranties,
(b) under which Seller has or may become subject to any obligation or liability
relating in whole or in part to the PhotoLoft Business or the Assets, or (c) by
which a Seller is or may become bound in whole or in part with respect to the
PhotoLoft Business or any of the Assets.
"Seller Personnel IP Agreements" - any Contract entered into by a Seller or
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any predecessor-in-interest thereof with any of the employees, consultants or
other personnel thereof relating to nondisclosure and non-use of confidential or
proprietary information, or assigning or transferring, as works made for hire,
6
any inventions, improvements, discoveries or information made or other rights
created by such personnel, in any other way relating to PhotoLoft Intellectual
Property, or obligating such personnel relating to PhotoLoft Intellectual
Property, or obligating such personnel not to engage in any activities
competitive with any business of Seller or any predecessor-in-interest thereof.
"Sellers' Closing Documents" - as defined in Section 3.3(a).
--------------------------
"Subsidiary" - with respect to any Person (the "Owner"), any corporation or
---------- -----
other Person of which securities or other interests having the power to elect a
majority of board of directors or similar governing body, or otherwise having
the power to direct its business and policies (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by Owner, directly or indirectly.
"Tangible Personal Property" - all computer or telecommunications hardware
--------------------------
or equipment of every kind owned or leased by a Seller in connection with the
PhotoLoft Business (wherever located and whether or not carried on such Seller's
books), including, but not limited to, all such equipment used by Personnel,
together with any express or implied warranty by the manufacturers or sellers or
lessors of any item or component part thereof, and all maintenance records and
other documents relating thereto. "Tangible Personal Property", as used herein,
includes all CPUs and storage devices on which any of the PhotoLoft Software and
Data is stored in electronic form and, but shall not include any furniture,
photocopiers or other ordinary office equipment.
"Tax" - any income, gross receipts, license, payroll, employment, excise,
---
severance, stamp, occupation, premium, property, environmental, windfall profit,
customs, vehicle, airplane, boat, vessel or other title or registration, capital
stock, franchise, employees' income withholding, foreign or domestic
withholding, social security, unemployment, disability, real property, personal
property, sales, use, transfer, value added, alternative, add-on minimum, and
other tax, fee, assessment, levy tariff, charge or duty of any kind whatsoever,
and any interest, penalties, additions or additional amounts thereon, imposed,
assessed, collect by or under the authority of any Governmental Body or payable
under any tax-sharing agreement or any other Contract.
"Third Party Licenses-In" - all rights of a Seller as a licensee or
-----------------------
authorized user of the Intellectual Property of any third party that is used in
connection with the PhotoLoft Business.
"Third Party Licenses-Out" - all rights of a Seller as a licensor of the
------------------------
PhotoLoft Intellectual Property to any third party.
"Trade Secrets" - all trade secrets and confidential information,
-------------
including, but not limited to, all ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, software, software-related
developer and user documentation, supplier lists, customer lists to the extent
transferable by law, pricing and cost information, business and marketing plans
and proposals and other information or material within the definition of a
"trade secret" as set forth in Section 1(4) of the Uniform Trade Secrets Act of
1985, as amended.
7
"Working Photo Business" - Sellers' line of business operated by it as of
----------------------
the date hereof and marketed or identified by it under the "Working Photo" name
(and not marketed or identified under the "PhotoLoft" name) which provides
Web-based photo storage, presentation and printing services (but not photo
sharing services) intended solely for professional photographers.
"Working Photo Exclusive Intellectual Property" - rights in all software,
---------------------------------------------
data, e-commerce models and other Intellectual Property owned or licensed (as
licensor or licensee) by a Seller, used exclusively in connection with the
Working Photo Business (and not in connection with the PhotoLoft Business).
"Working Photo Exclusive Software and Data" - that portion of the Working
-----------------------------------------
Photo Exclusive Intellectual Property comprising the software and data listed in
Schedule 1.1.
"Working Photo Retained License" - as defined in Section 2.7(b).
------------------------------
"Working Photo Retained License Rights" - the "Retained License Rights", as
-------------------------------------
such term is defined in the Working Photo Retained License.
ARTICLE II
SALE AND TRANSFER OF ASSETS; CLOSING
SECTION 2.1 ASSETS TO BE SOLD.
-----------------
Upon the terms and subject to the conditions set forth in this Agreement,
at the Closing Sellers shall sell, convey, assign, transfer and deliver to
Buyer, and Buyer shall purchase and acquire from Sellers, free and clear of any
Encumbrances, all of Sellers' right, title and interest in and to the PhotoLoft
Business, and all of the following property and assets, personal or mixed,
tangible and intangible, owned or leased, of every kind and description,
wherever located (but excluding the Excluded Assets):
(a) all rights of ownership in and to the PhotoLoft Intellectual
Property on a worldwide basis, including, but not limited to, all rights in
the PhotoLoft Software and Data and other technology therein, and all
source or object code relating thereto, but exclusive of the Working Photo
Retained License Rights;
(b) all of the other intangible rights and property of each
Seller relating to the PhotoLoft Business or to the utilization of the
PhotoLoft Intellectual Property, including, but not limited to, going
concern value, goodwill, telephone, telecopy and e-mail addresses,
websites, domain names, and listings and those items listed on Schedule
--------
3.6(b), Schedule 3.6(n), Schedule 3.6(o) and Schedule 3.6(p), including,
------ --------------- --------------- ---------------
but not limited to, all rights to the name "PhotoLoft" and the website at
the URL ;
(c) all of Sellers' rights in, to and under (i) all Third Party
Licenses-In and all Third Party Licenses-Out, (ii) all Seller Personnel IP
Agreements to the extent, and only to the extent, they relate to the
PhotoLoft Business, (iii) all other Seller Contracts to the extent, and
8
only to the extent, that such Seller Contracts obligate Persons party
thereto to nondisclosure or non-use of confidential or proprietary
information which is PhotoLoft Intellectual Property or which otherwise
relates to the PhotoLoft Business, and (iv) all other Seller Contracts
listed in Schedule 2.1(c) (as such schedule may be amended by written
--------------
notice given by Buyer to BrightCube on or before the Closing Date to delete
any Seller Contracts listed therein and/or by notice given by Buyer to
BrightCube at any time on or after the date hereof to include any
additional Seller Contracts);
(d) all data and records relating to the PhotoLoft Business,
including, but not limited to, end-user and customer lists and records, all
raw data, all data on client use and experience with the PhotoLoft
Business, research and development reports and records, production reports
and records, service and warranty records, equipment logs, operating guides
and manuals, financial and accounting records, creative materials,
advertising materials, promotional materials, reports, correspondence and
other similar documents and records, and copies of all personnel records of
Key Personnel and copies of all records described in Section 2.2(c) which
relate to such Key Personnel;
(e) all of Sellers' rights to images and related image data
stored by or otherwise acquired by or provided to a Seller in connection
with the PhotoLoft Business;
(f) all Tangible Personal Property, including, but not limited
to, the equipment listed in Schedule 2.1(f) hereto;
---------------
(g) all Governmental Authorizations relating to the PhotoLoft
Business and all pending applications therefor or renewals thereof, in each
case to the extent transferable to Buyer, including those listed in
Schedule 3.15(b); and
---------------
(h) all insurance benefits, including rights and proceeds,
arising from or relating to the Assets prior to the Closing Date, including
all benefits paid after the Closing Date for occurrences prior to the
Closing Date.
All of the property and assets to be transferred to Buyer hereunder,
including, but not limited to, the items referred to in paragraphs (a) through
(h) above, but excluding the Excluded Assets, are herein referred to
collectively as the "Assets".
------
SECTION 2.2 EXCLUDED ASSETS.
---------------
Notwithstanding anything to the contrary contained in Section 2.1 or
elsewhere in this Agreement, the following items (collectively, the "Excluded
--------
Assets") are not part of the sale and purchase contemplated hereunder, are
------
excluded from the Assets, and shall remain the property of Sellers after the
Closing:
(a) all cash, cash equivalents and accounts receivable;
(b) all Seller Contracts other than (i) all Third Party Licenses-In
and (ii) all Seller Contracts included within the Assets pursuant to Section
2.1(c).
9
(c) all personnel Records and other Records relating to the PhotoLoft
Business that a Seller is required by law to retain in its possession;
(d) all claims for refund of Taxes and other governmental charges of
whatever nature relating to the PhotoLoft Business for periods prior to the
Closing Date;
(e) all rights in connection with, and assets of, any Employee
Benefit Plans;
(f) the property and assets, if any, expressly designated in Schedule
--------
2.2(f);
------
(g) those Marks to be retained by BrightCube expressly designated in
Schedule 2.2(g) (the "Excluded Marks");
--------------- ---------------------
(h) the Working Photo Exclusive Intellectual Property; and
(i) the Working Photo Retained License Rights.
SECTION 2.3 CONSIDERATION.
--------------
(a) Purchase Price. The purchase price for the Assets is One Million
Two Hundred Thousand Dollars ($1,200,000), subject to Section 2.7(b) (the
"Purchase Price").
--------------
(b) Payments to Escrow Account. One Hundred Eighty Thousand Dollars
--------------------------
($180,000) of the Purchase Price, less any Escrow Adjustment Amount determined
as of the Closing Date, shall be paid to the Escrow Agent to be held in escrow
and distributed in accordance with Escrow Agreement.
SECTION 2.4 LIABILITIES.
------------
Seller shall retain, and Buyer shall not assume, and nothing contained in
this Agreement shall be construed as an assumption by Buyer or any of its
Related Persons of, any Liabilities, obligations or undertakings of Seller,
whether accrued, absolute, fixed or contingent, known or unknown due or to
become due, unliquidated or otherwise, except for obligations arising from
------
Seller Contracts (other than Seller Personnel IP Agreements) included within the
Assets to the extent, and only to the extent, that such obligations arise or
accrue after the date of assignment thereof by Seller to Buyer pursuant hereto.
SECTION 2.5 ALLOCATION.
-----------
The Purchase Price shall be allocated in accordance with Schedule 2.5.
------------
After the Closing, the parties shall make consistent use of the allocation
specified in Schedule 2.5 for all Tax purposes and in any tax returns filed with
------------
the IRS in respect thereof, including IRS Form 8594. In any Proceeding related
to the determination of any Tax, neither Buyer nor Seller shall contend or
represent that such allocation is not a correct allocation.
10
SECTION 2.6 CLOSING.
--------
The consummation of the purchase and sale provided for in this Agreement
(the "Closing") will take place at the offices of Buyer's counsel at ▇▇▇▇▇▇ &
-------
Whitney LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m. (local
time) on the later of (i) November 9, 2001 or (ii) such other time and place as
the parties may agree to (the "Closing Date"). Subject to the provisions of
------------
Article IX, failure to consummate the purchase and sale provided for in this
Agreement on the date and time and at the place determined pursuant to this
Section 2.6 will not result in the termination of this Agreement and will not
relieve any party of any obligation under this Agreement.
SECTION 2.7 CLOSING OBLIGATIONS.
--------------------
In addition to any other documents to be delivered under other provisions
of this Agreement, at the Closing:
(a) Sellers shall deliver to Buyer, together with funds sufficient to
pay all Taxes necessary for the transfer, filing or recording thereof:
(i) a ▇▇▇▇ of sale and assignment agreement for all of the Assets
in form acceptable to Buyer (the "▇▇▇▇ of Sale"), executed by Seller;
------------
(ii) an opinion of Sellers' counsel in form and substance
reasonable acceptable to Buyer and Buyer's counsel;
(iii) such deeds, bills of sale, assignments, certificates of
title, documents and other instruments of transfer and conveyance as may
reasonably be requested by Buyer, each in form and substance satisfactory
to Buyer and its counsel and executed by Sellers;
(iv) a certificate executed by each Seller as to the accuracy of
its representations and warranties as of the Closing Date in accordance
with Section 7.1 and as to its compliance with and performance of its
covenants and obligations to be performed or complied with at or before the
Closing in accordance with Section 7.2; and
(v) a certificate of the Secretary of each Seller certifying and
attaching all requisite resolutions or actions of such Seller's board of
directors approving the execution and delivery of this Agreement and the
consummation of the Contemplated Transactions and certifying to the
incumbency of the officers of such Seller executing this Agreement and any
other document relating to the Contemplated Transactions; and
(b) Buyer shall deliver to BrightCube the following:
(i) $1,020,000, less any Closing Payment Adjustment Amount
determined as of the Closing Date, by wire transfer to an account(s)
specified in writing by BrightCube and delivered to Buyer at least five (5)
Business Days prior to the Closing,
11
(ii) $180,000, less any Escrow Adjustment Amount determined as of
the Closing Date, by wire transfer to the Escrow Agent in accordance with
the Escrow Agreement,
(iii) an internet services and license agreement (the "Internet
--------
Services and License Agreement"), pursuant to which Buyer shall provide to
------------------------------
BrightCube, at Buyer's risk, cost and expense, except for the
indemnification and other obligations of BrightCube therein, certain
services and licenses to enable BrightCube to continue to perform and
satisfy, for a period of not longer than 95 days after the Closing Date,
its obligations under the not more than five (5) ASP Contracts to be
identified therein and to provide, for such period of time, if any, after
the Closing Date as Buyer elects in its sole discretion, PhotoLoft Services
to BrightCube's other customers (including its direct end-user customers),
and
(iv) an Agreement for Working Photo Retained License in the form
of Exhibit A, executed by Buyer (the "Working Photo Retained License").
--------- ------------------------------
SECTION 2.8 CONSENTS; ADJUSTMENT AMOUNTS.
-----------------------------
If there are any Consents of any Person (other than a Governmental Body)
necessary for the assignment and transfer to Buyer of any Seller Contracts
included within the Assets which have not yet been obtained as of the Closing
(whether or not such Consents have been listed on Schedule 3.3(c)), then the
---------------
applicable Seller shall retain such Seller Contract and all liabilities and
obligations relating thereto and no document related to the consummation of the
Contemplated Transactions shall constitute a sale, assignment, assumption,
conveyance or delivery, or an attempted sale, assignment, assumption, transfer,
conveyance or delivery, of such Seller Contract until such time as the required
consent is obtained. With respect to each Seller Contract which is retained by
a Seller as aforesaid Sellers shall use their best efforts to ensure that Buyer
receives the benefit of such Seller Contract from and after the Closing Date.
With respect to each Seller Contract which is retained by Seller as
aforesaid, or with respect to each Third Party License-In which is not in
compliance with Sellers' representations under Section 3.6, Buyer shall, without
limiting Buyer's other rights hereunder, reduce the Purchase Price by an
Adjustment Amount therefor, such reduction, if determined prior to the Closing
Date, to be applied as provided in Section 2.7(b), and if determined thereafter
to be paid from the escrow account maintained pursuant to the Escrow Agreement
or to be promptly paid by Seller to Buyer if there are no remaining amounts in
the escrow account; provided, that any such Adjustment Amount which has been
applied against the Purchase Price by reason of the failure to obtain a
necessary Consent shall be promptly paid by Buyer to BrightCube (or restored to
the escrow account, as applicable) if the Consent necessary for assignment and
transfer of the relevant Seller Contract has been obtained prior to the time
Buyer obtains a replacement therefor. With respect to the AboveNet Seller
Contract, Buyer shall (whether or not the AboveNet Seller Contract is included
within the Assets) reduce the Purchase Price by an Adjustment Amount equal to
the amount, as reasonably determined by Buyer, due and owing thereunder by
Sellers through the Closing Date, such reduction, if determined prior to the
Closing Date, to be applied as provided in Section 2.7(b), and if determined
thereafter to be paid from the escrow account maintained pursuant to the Escrow
Agreement or to be promptly paid by Seller to Buyer if there are no remaining
12
amounts in the escrow account; provided, that such Adjustment Amount so applied
against the Purchase Price or paid from the escrow account shall be paid by
Buyer against Sellers' liabilities under the AboveNet Seller Contract and to the
extent Buyer does not do so, the unpaid portion of such Adjustment Amount shall
be refunded by Buyer to BrightCube (or restored to the escrow account, as
applicable).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer that, except as set forth in the
schedule of exceptions attached hereto as Schedule 3:
----------
SECTION 3.1 ORGANIZATION AND GOOD STANDING.
-------------------------------
Schedule 3.1(a) contains a complete and accurate list of each Seller's
---------------
jurisdiction of incorporation and any other jurisdictions in which it is
qualified to do business as a foreign corporation. Each Seller is a corporation
duly organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct the PhotoLoft Business and utilize the PhotoLoft Intellectual Property
as it is now being conducted and utilized, to own or use the properties and
assets that it purports to own or use in connection with the PhotoLoft Business,
and to perform all its obligations under all Seller Contracts. Each Seller is
duly qualified to do business as a foreign corporation and is in good standing
under the laws of each state or other jurisdiction in which either the ownership
or use of the properties owned or used by it in connection with the PhotoLoft
Business, or the nature of the activities conducted by it in connection with the
PhotoLoft Business, requires such qualification. Such jurisdictions are
separately noted on Schedule 3.1(a).
---------------
SECTION 3.2 SUBSIDIARIES.
-------------
Neither Seller has any Subsidiaries that conduct any portion of the
PhotoLoft Business or which have any right, title or interest in or to any
property or assets, tangible or intangible, used or useful in the conduct of
PhotoLoft Business or necessary or desirable for Buyer to use and exploit the
PhotoLoft Intellectual Property, except that Original PhotoLoft is a
wholly-owned Subsidiary of BrightCube.
SECTION 3.3 ENFORCEABILITY, AUTHORITY, NO CONFLICT.
---------------------------------------
(a) Each of this Agreement, the ▇▇▇▇ of Sale, the Internet Services
and License Agreement, the Working Photo Retained License and each other
document or instrument to be executed or delivered by each Seller at Closing
(collectively, the "Sellers' Closing Documents") constitutes the legal, valid,
--------------------------
and binding obligation of the Seller or Sellers party thereto, enforceable
against it in accordance with its terms. Each Seller has the power and authority
to execute and deliver the Sellers' Closing Documents to which it is a party and
to perform its obligations under such Sellers' Closing Documents, and such
action has been duly authorized by all necessary action by such Seller's
shareholders and board of directors.
13
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time or both):
(i) breach (A) any provision of any of the Governing Documents
of either Seller, or (B) any resolution adopted by the board of directors
or the shareholders of either Seller;
(ii) breach, or give any Governmental Body or other Person the
right to challenge any of the Contemplated Transactions or to exercise any
remedy or obtain any relief under, any Legal Requirement or any Order to
which either Seller, or any of the Assets, may be subject;
(iii) contravene, conflict with, or result in a violation or
breach of any of the terms or requirements of, or give any Governmental
Body the right to revoke, withdraw, suspend, cancel, terminate, or modify,
any Governmental Authorization that is held by a Seller and used in or that
relates to the Assets or to the PhotoLoft Business;
(iv) cause Buyer to become subject to, or to become liable for,
the payment of any Tax;
(v) breach any provision of, or give any Person the right to
declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or payment under, or to cancel, terminate, or
modify, any Seller Contract (except for any such provision prohibiting the
assignment of such Seller Contract to Buyer without the consent of a party
(other than a Seller) to such Seller Contract); or
(vi) result in the imposition or creation of any Encumbrance upon
or with respect to any of the Assets.
(c) Except as set forth in Schedule 3.3(c), neither Seller is
required to give any notice to or obtain any Consent from, or make any filing
with, any Person or Governmental Body in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions. With respect to each Third Party License-In for with
Consent of the licensor is required for the consummation of the Contemplated
Transactions, either (i) such Consent shall be obtained on or before the Closing
Date, or (ii) substitute software that is comparable both functionally and in
performance for the software that is the subject of such Third Party License-In
is readily commercially available to Buyer and such substitute software can be
implemented by Buyer without any material disruptions of Buyer's operation after
the Closing of the PhotoLoft Service.
SECTION 3.4 BOOKS AND RECORDS.
------------------
The books of account and other financial records of Sellers relating to the
PhotoLoft Business, all of which have been made available to Buyer, are complete
and correct and represent actual, bona fide transactions and have been
maintained in accordance with sound business practices and the requirements of
Section 13(b)(2) of the Exchange Act, including the maintenance of an adequate
system of internal controls.
14
SECTION 3.5 SUFFICIENCY OF ASSETS.
----------------------
The Assets constitute all of the assets, tangible and intangible, of any
nature whatsoever, necessary to operate the PhotoLoft Business in the manner
presently operated by Sellers and to use and exploit the PhotoLoft Intellectual
Property.
SECTION 3.6 INTELLECTUAL PROPERTY.
----------------------
(a) Sellers are the owners of all right, title, and interest in, or
with respect to third party software programs included within the PhotoLoft
Intellectual Property, have the right to use pursuant to the Third Party
Licenses-In, all of the PhotoLoft Intellectual Property, free and clear of all
Encumbrances. Sellers have the right to use all the PhotoLoft Intellectual
Property, including such Intellectual Property licensed pursuant to the Third
Party Licenses-In, without payment of royalties, fees or other compensation to
any Person (other than any such royalties, fees or other compensation which have
been paid in full).
(b) Schedule 3.6(b) contains a complete and accurate list and summary
--------------
description of all software and data owned, used or licensed by Sellers in
connection with the PhotoLoft Business. Except as otherwise provided in the
Working Photo Retained License, upon consummation of the Contemplated
Transactions, all copies of the data and the source code for such software and
any other software available to, or in possession of, Sellers or their Personnel
for the PhotoLoft Intellectual Property will have been conveyed to Buyer.
(c) Sellers have obtained all rights in the U.S.A., Canada and New
Zealand in Intellectual Property which are necessary (i) for the operation of
the PhotoLoft Business, (ii) for the utilization of the PhotoLoft Intellectual
Property, and (iii) for each Seller to perform its obligations hereunder. All
such PhotoLoft Intellectual Property is subsisting and valid and Sellers have no
knowledge of any Proceeding or any claim of whatsoever nature that may mature
into a Proceeding by any Person with respect thereto.
(d) Sellers are the sole owners, developer and original author of the
PhotoLoft Intellectual Property, exclusive of the Marks and the subject matter
of the Third Party Licenses-In, and are the sole owner of the Marks included in
the PhotoLoft Intellectual Property. The PhotoLoft Software and Data included
in the PhotoLoft Intellectual Property, other than software that is the subject
of Third Party Licenses-In and data provided by customers, was developed
entirely by individuals while they were employees of or consultants to a Seller
or its predecessors-in-interest working under nondisclosure agreements in favor
of such Seller or its predecessors-in-interest and without any legal restriction
or impediment during the time they were employees or consultants only of such
Seller or its predecessors-in-interest, and such software includes neither any
inventions of the employees or consultants made prior to the times the employees
or consultants became employees or consultants of such Seller or such Seller's
predecessor-in-interest nor any intellectual property of any previous employer
(other than such Seller) of such employee or consultant. All consultants
utilized by either Seller, or utilized by the predecessors-in-interest to a
Seller, and who performed development or other work in connection with the
software included in the PhotoLoft Intellectual Property, have executed written
agreements assigning to a Seller, or transferring to a Seller as works made for
hire, any inventions or discoveries made or other rights created during their
15
work for such Seller or its predecessors-in-interest. Neither Seller has used
any Trade Secret or other confidential or proprietary information owned by any
Person in developing or producing the PhotoLoft Intellectual Property, except
with the express written permission of the relevant Person.
(e) Neither a Seller nor any Person performing or developing services
in connection with the PhotoLoft Intellectual Property (other than software that
is the subject of Third Party Licenses-In) is under any obligation to assign or
give any work heretofore performed for a Seller to any Person other than a
Seller.
(f) Each Seller and its predecessors-in-interest have kept secret and
have not disclosed the source code or developer or maintenance documentation for
the software included in the PhotoLoft Intellectual Property (other than
software that is the subject of Third Party Licenses-In) or the Trade Secret
portion of such software to any Person other than certain employees or
consultants of a Seller or its predecessors-in-interest who are (and were, at
the time of disclosure) subject to the terms of a binding confidentiality and
non-disclosure agreement with respect thereto. Each Seller and its
predecessors-in-interest have taken all appropriate measures to protect the
confidential and proprietary nature of software included in the PhotoLoft
Intellectual Property, including, but not limited to, the use of confidentiality
and non-disclosure agreements with all of each Seller's employees and
consultants having access to computer programs, materials, tapes, know-how,
object and source codes, other written materials, know-how and processes related
to such software.
(g) The software in the PhotoLoft Intellectual Property has been
reviewed and tested by BrightCube, and has been determined to be "Year 2000
compliant," such that such software will correctly transmit, process, provide
and/or receive date data within and between the twentieth and twenty-first
centuries, including dates added in any leap year, without error, problems,
delays, or the need for modifications.
(h) The PhotoLoft Intellectual Property reflects all of the platforms
or other technology or software which Sellers own or have licensed or have
otherwise available to them, for use in the PhotoLoft Business.
(i) Neither Seller is a party to any Third Party License-Out with
respect to any Intellectual Property used in the PhotoLoft Intellectual
Property.
(j) No Person (other than Sellers, and other than Buyer for purposes
of its investigation of the Assets for purposes of the Contemplated
Transactions) holds, or has access to, source code that is part of the PhotoLoft
Intellectual Property (other than the Intellectual Property in the Third Party
Licenses-In).
(k) Except for those portions of the PhotoLoft Software documentation
subject to Section 7.10, the source code for all software in the PhotoLoft
Intellectual Property (other than Intellectual Property licensed in the Third
Party Licenses-In) is fully documented consistent with best industry standards
so as to enable a programmer of ordinary skill and three (3) years of experience
in website development and support to enhance, customize, correct, update and
upgrade the software as to which such source code relates. The relevant source
code includes all improvements, changes, updates, upgrades, customizations and
other modifications of the PhotoLoft Software made thereto by a Seller or by any
other Persons, whether in production or still under development.
16
(l) Schedule 3.6(l) lists all third party software programs (and
--------------
identifies the specific release or version thereof currently being used by a
Seller) that are included within the PhotoLoft Intellectual Property. Except as
specifically identified in Schedule 3.6(l), each Third Party License-In is in
full force and effect and is fully paid-up, neither Seller is in material
default of its obligations thereunder and the applicable Seller's rights
thereunder to use the third party software programs covered thereby are
sufficient for Sellers' development and operation of the PhotoLoft Business as
currently conducted by Sellers.
(m) Except for Third Party Licenses-In listed in Schedule 3.18(a) for
---------------
the third party software programs listed on Schedule 3.6(l), there are no
---------------
Contracts in effect between a Seller and any vendor or producer of off-the-shelf
software or other licensor of Intellectual Property that is included within or
used in conjunction with the PhotoLoft Intellectual Property.
(n) Schedule 3.6(n) contains a complete and accurate list and summary
--------------
description of all Patents owned, used or licensed by a Seller in connection
with the PhotoLoft Business. All such Patents that are the subject of
registrations or applications are currently in compliance with formal Legal
Requirements (including payment of filing, examination, and maintenance fees and
proofs of working or use), are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due within a period from signing of
this Agreement to ninety (90) days after the Closing Date. No such Patent has
been or is now involved in any interference, reissue, reexamination, or
opposition Proceeding. To Sellers' knowledge, there is no potentially
interfering Patent or Patent application of any third party. No such Patent is
infringed or, to Sellers' knowledge, has been challenged or threatened in any
way.
(o) Schedule 3.6(o) (together with Marks listed in Schedule 2.2(g))
--------------
contains a complete and accurate list and summary description of all Marks
owned, used or licensed by either Seller in connection with the PhotoLoft
Business. All such Marks that have been registered with, or are the subject of
an application in, the United States Patent and Trademark Office or the patent
and trademark offices (or other appropriate Governmental Body) of any other
jurisdiction are currently in compliance with all formal Legal Requirements
(including the timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety (90) days after the Closing Date. No such ▇▇▇▇ has been and is now
involved in any opposition, invalidation, or cancellation Proceeding or any
other contest over ownership or right to use and, to Sellers' knowledge, no such
action is threatened with respect to any such Marks. To Sellers' knowledge,
there is no potentially interfering trademark or trademark application of any
other Person. No such ▇▇▇▇ is infringed or, to Sellers' knowledge, has been
challenged or threatened in any way.
(p) Schedule 3.6(p) contains a complete and accurate list and summary
--------------
description of all Copyrights owned or used by Sellers in connection with the
PhotoLoft Business which have been registered with, or are the subject of an
application in, the United States Copyright Office or the corresponding offices
of any other jurisdiction. All such Copyrights are currently in compliance with
all formal Legal Requirements (domestic and foreign), are valid and enforceable,
17
and are not subject to any fees or taxes or actions falling due within ninety
(90) days after the Closing Date. None of either Sellers' Copyrights has been
or is now involved in any infringement or other Proceeding and, to Sellers'
knowledge, no such action is threatened with respect to any such Copyright. To
Sellers' knowledge, there are no potentially interfering Copyrights of any other
Person. No such Copyright is infringed or, to Sellers' knowledge, has been
challenged or threatened in any way. All products and materials protectable by
Copyrights bear the proper domestic or foreign federal notice where permitted by
law.
(q) With respect to each Trade Secret owned, used or licensed by
Sellers in connection with the PhotoLoft Business or needed to utilize the
PhotoLoft Intellectual Property, the documentation relating to such Trade Secret
is current, accurate, and sufficient in detail and content to identify and
explain it and to allow its full and proper use without reliance on the
knowledge or memory of any individual. Sellers have taken all reasonable
precautions to protect the secrecy, confidentiality and value of all such Trade
Secrets (including the enforcement by Sellers of a policy requiring each
employee or contractor to execute proprietary information and confidentiality
agreements substantially in Sellers' standard form and all current and former
employees and contractors of Sellers providing services in connection with the
PhotoLoft Business have executed such an agreement). Except for Trade Secrets
that are the subject of a Third Party License-In, Sellers have good title and an
absolute right to use such Trade Secrets, subject, with respect to customer
lists and information, only to restrictions which have been identified by
Sellers to Buyer as applicable to customers of PhotoLoft Service. Such Trade
Secrets are not part of the public knowledge or literature, and, to Sellers'
knowledge, have not been used, divulged, or appropriated either for the benefit
of any Person (other than Sellers') or to the detriment of Sellers. No such
Trade Secret is subject to any adverse claim or has been challenged or
threatened in any way.
(r) The operation of the PhotoLoft Business and the use of the
PhotoLoft Intellectual Property as presently used or under development by
Sellers does not infringe, and has not been alleged to infringe, any
Intellectual Property of any other Person.
(s) The PhotoLoft Software as used has been and up through Closing
shall be free of any remote or automatic disabling or recapture devices,
passwords, keys, security devices or trap doors and Computer Viruses. For the
purposes of this Agreement, "Computer Viruses" means any computer instructions
----------------
(including, but not limited to, computer instructions commonly referred to as
Trojan Horses, anomalies, worms, self-destruct mechanisms or time/logic bombs)
which do not provide the functionality clearly described in the documentation
for the PhotoLoft Software and Data and which interfere with the use of the
PhotoLoft Software and Data, any portion thereof, or other software, firmware or
computer hardware.
(t) Sellers' collection and maintenance of personal data in connection
with services and products of the PhotoLoft Business and all PhotoLoft software
that collects or maintains personal data is in compliance with privacy laws of
all jurisdictions where such data is collected or maintained, and all images and
other data included within the PhotoLoft Intellectual Property are in compliance
with the laws and regulations of all jurisdictions where such data and images
are collected, maintained, accessed or delivered. Without limiting Section 3.3,
-----------
Sellers' transfer to Buyer of all data as contemplated by this transaction is
not prohibited under any laws relating to privacy or data rights in any
18
jurisdiction where such data is collected, maintained, accessed or delivered,
the "privacy policy" or other terms and conditions applicable to the PhotoLoft
Service or other e-commerce service through which such data was obtained by a
Seller or the provisions of any Seller Contract or other Contract binding on a
Seller.
SECTION 3.7 CUSTOMERS.
----------
(a) Since June 1, 2001, no end-user customer or application service
provider customer of the PhotoLoft Business has made any written, or to Sellers'
knowledge, oral, complaint, which is material and which has not been resolved to
the satisfaction of such customer, regarding the PhotoLoft Service. No such
customer has obtained from, or asserted against, either Seller any credit or
offset with respect to any payment due and owing to such Seller in connection
with the PhotoLoft Business.
(b) Except for the ASP Contracts, (i) there are no dealers,
distributors, aggregators or other Persons that provide PhotoLoft Services,
under the "PhotoLoft" name and/or any other name, to end-user customers, and
(ii) BrightCube provides PhotoLoft Service directly to all of its end-user
customers. The URL for each website at which PhotoLoft Service is provided to
end-user customers, under the "PhotoLoft" name, and the jump link from all
third-party referring sites, is listed in Schedule 3.7(b); all such URLs are
owned by Sellers except as otherwise indicated in Schedule 3.7(b).
SECTION 3.8 LOCATION OF TANGIBLE PERSONAL PROPERTY.
--------------------------------------
All Tangible Personal Property is in the control of BrightCube and is
either located at the Facilities or is in the possession of the Key Personnel.
SECTION 3.9 TITLE TO AND CONDITION OF PERSONAL PROPERTY.
-------------------------------------------
(a) Sellers own good and transferable title to all of the Assets free
and clear of any Encumbrances. At the time of Closing, all Assets shall be free
and clear of all Encumbrances other than those identified on Schedule 3.9(a) as
---------------
acceptable to Buyer ("Permitted Encumbrances").
----------------------
(b) Each item of Tangible Personal Property is in good repair and
good operating condition, ordinary wear and tear excepted, is suitable for
immediate use in the Ordinary Course of Business, and is free from material
defects
SECTION 3.10 NO UNDISCLOSED LIABILITIES.
---------------------------
Except as set forth in Schedule 3.10, neither Seller has any Liability
-------------
relating to the PhotoLoft Business or the Assets except for current liabilities
incurred in the Ordinary Course of Business of Sellers.
SECTION 3.11 TAXES.
------
(a) Each Seller has paid or made provision for the payment of, all
sales and use Taxes that have or may become due in connection with the PhotoLoft
Business.
19
(b) There are no liens for Taxes (other than for current Taxes not
yet due and payable) on the Assets.
SECTION 3.12 NO MATERIAL ADVERSE CHANGE.
---------------------------
Since August 14, 2001, there has not been any material adverse change with
respect to the PhotoLoft Business or the Assets, and no event has occurred or
circumstance exists that may result in such a material adverse change.
SECTION 3.13 PERSONNEL.
----------
(a) Schedule 3.13(a) sets forth a complete and accurate list, giving
---------------
name, job title, current compensation paid or payable and vacation accrued for
each employee, consultant or other personnel hired or retained by either Seller
who performs some or all of his or her services in connection with the PhotoLoft
Business ("Personnel").
---------
(b) With respect to all Personnel, each Seller is in compliance in
all material respects with all applicable Legal Requirements regarding
employment and employment practices, terms and conditions of employment, wages
and hours, and Occupational Safety and Health Laws.
(c) To the knowledge of Sellers, no Personnel intends to terminate
his employment with either Seller or his or her provision of consulting services
to either Seller, nor do Sellers have a present intention (other than in
connection with the consummation or termination of the transactions contemplated
hereby) to terminate the employment or consulting services of any of its
Personnel. Except as set forth on Schedule 3.13(c) and subject to general
---------------
principles related to wrongful termination of employees, the employment or
retention of each Personnel is terminable at the will of the applicable Seller.
Except for Seller Personnel IP Agreements the benefits of which, with respect to
the PhotoLoft Business, shall be assigned by Sellers to Buyer at the Closing, no
member of Personnel is a party to, or is otherwise bound by, any employment,
confidentiality or noncompetition Contract with a Seller or any other Person, or
any other Contract that in any way adversely affected, affects, or will affect
the ability of Sellers or Buyer to conduct the PhotoLoft Business as heretofore
carried on by Sellers.
SECTION 3.14 EMPLOYEE BENEFITS.
------------------
Neither Seller has any Liability with respect to Personnel under any
Employee Benefit Plan other than normal salary or wage accruals and paid
vacation, sick leave and holiday accruals in accordance with Sellers' past
practice and policy. Each Seller has performed all obligations required to be
performed under, and has complied with all Legal Requirements in connection
with, all such Employee Benefit Plans and is not in arrears under any of the
terms thereof.
SECTION 3.15 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
------------------------------------------------
AUTHORIZATIONS.
--------------
(a) Schedule 3.15(a) contains a complete and accurate list of each
----------------
Governmental Authorization that is held by a Seller which relates to the
PhotoLoft Business or any of the Assets. Each Governmental Authorization listed
or required to be listed in Schedule 3.15(a) is valid and in full force and
----------------
effect.
20
(i) Each Seller is, and at all times has been, in full compliance
with each Legal Requirement and Governmental Authorization that is or was
applicable to the operation of the PhotoLoft Business, or the ownership or
use of any of the Assets.
(ii) No event has occurred or circumstance exists, nor has
either Seller received, at any time, any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding an event or circumstance, that may (with or without notice or
lapse of time or both) (A) constitute or result in a violation by a Seller
of, or a failure on the part of a Seller to comply with, any Legal
Requirement or Governmental Authorization in connection with the PhotoLoft
Business or any of the Assets or (B) give rise to any obligation on the
part of a Seller to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature relating to the PhotoLoft Business or
any of the Assets.
(b) The Governmental Authorizations listed in Schedule 3.15(a)
----------------
collectively constitute all of the Governmental Authorizations necessary to
permit Sellers to lawfully conduct and operate the PhotoLoft Business and to own
and use the Assets in the manner in which it currently owns and uses the
Assets.
SECTION 3.16 LEGAL PROCEEDINGS; ORDERS.
--------------------------
(a) There are no Proceedings pending (i) by or against a Seller that
may affect the PhotoLoft Business, or the Assets, or (ii) that challenge, or
that may have the effect of preventing, delaying, making illegal or otherwise
interfering with, any of the Contemplated Transactions. To the knowledge of
Sellers, no such Proceeding has been threatened, and no event has occurred or
circumstance exists that may give rise to or serve as a basis for the
commencement of any such Proceeding.
(b) There are no Orders outstanding (i) against a Seller that may
affect the PhotoLoft Business or the Assets, or (ii) that challenge, or that may
have the effect of preventing, delaying, making illegal or otherwise interfering
with, any of the Contemplated Transactions. To the knowledge of Sellers, no such
Order has been threatened, and no event has occurred or circumstance exists that
may give rise to or serve as a basis for the commencement of any such Order.
Each Seller is, and at all times has been, in compliance with all of the terms
and requirements of each Order relating to the PhotoLoft Business or the Assets.
SECTION 3.17 ABSENCE OF CERTAIN CHANGES AND EVENTS.
--------------------------------------
Since August 14, 2001, Sellers have conducted the PhotoLoft Business only
in the Ordinary Course of Business and there has not been any:
(a) payment (except in the Ordinary Course of Business) or increase
by a Seller of any bonuses, salaries, or other compensation to any employee
in connection with the PhotoLoft Business or entry into any employment,
severance, or similar Contract in connection with the PhotoLoft Business,
other than the retention bonuses described in Schedule 3.17(a) for the Key
----------------
Personnel;
21
(b) adoption of, amendment to, or increase in the payments to or
benefits under, any Employee Benefit Plan with respect to the Employees;
(c) damage to or destruction or loss of any Asset, whether or not
covered by insurance;
(d) entry into, termination of, or receipt of notice of termination
in connection with the PhotoLoft Business of (i) any license,
distributorship, dealer, sales representative, joint venture, credit, or
similar agreement to which a Seller is a party, or (ii) any Contract or
transaction involving a total remaining commitment by a Seller of at least
$10,000;
(e) sale, lease, or other disposition of any Asset other than in the
Ordinary Course of Business;
(f) mortgage, pledge, or imposition of any Encumbrance on any Asset;
(g) modification of any material Contract or Governmental
Authorization in connection with the PhotoLoft Business;
(h) failure to spend funds for any budgeted capital expenditures in
connection with the PhotoLoft Business;
(i) compromise or settlement of any Proceeding relating to the
PhotoLoft Business or the Assets;
(j) cancellation or waiver of any claims or rights with a value to
Seller in excess of $10,000 in connection with the PhotoLoft Business;
(k) indication by any customer or supplier of an intention to
discontinue or change the terms of its relationship with Seller in
connection with the PhotoLoft Business;
(l) material change in the accounting methods used by Sellers; or
(m) agreement, whether oral or written, by a Seller to do any of the
foregoing.
SECTION 3.18 CONTRACTS; NO DEFAULTS.
----------------------
(a) Schedule 3.18(a) contains an accurate and complete list of, and
---------------
BrightCube has delivered to Buyer accurate and complete copies of, all Seller
Contracts (whether or not the same are included within the Assets), including
without limitation all Seller Contracts covered by clauses (i), (ii) and (iii)
of Section 2.1(c)).
(i) Each Seller Contract is valid and binding and in full force
and effect;
22
(ii) neither a Seller nor any other party to any Seller Contract
is in default under any Seller Contract, except for defaults of a Seller
resulting in liabilities of BrightCube listed on Schedule 3.10;
-------------
(iii) no Person has failed to comply with any obligation under
any Seller Contract which would materially adversely affect, either
individually or together with other defaults, the financial condition of
the PhotoLoft Business or the Assets; and
(iv) BrightCube is as of the date of this Agreement, and shall be
as of the Closing Date except as is necessary for Sellers to comply with
their obligations under Section 7.9 hereof, continuing to provide PhotoLoft
Service under each of the ASP Contracts in accordance with the provisions
thereof, except as otherwise specified in Schedule 3.18(a).
----------------
(b) Notwithstanding Section 3.18(a), Schedule 3.18(a) does not list,
-------------- ---------------
and BrightCube has not delivered to Buyer accurate and complete copies of, any
confidentiality or non-disclosure agreements entered into by a Seller with a
Person not otherwise listed on Schedule 3.18(a) (the "Non-Disclosed NDAs").
--------------- ------------------
None of the Non-Disclosed NDAs are binding with respect to any of the PhotoLoft
Intellectual Property or other Assets or are inconsistent with the transactions
contemplated hereby or Buyer's use, after the Closing, as contemplated hereby of
the PhotoLoft Intellectual Property or any of the other Assets.
(c) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to a
Seller under current or completed Seller Contracts with any Person and, to the
knowledge of Sellers, no such Person has made written demand for such
renegotiation.
SECTION 3.19 INSURANCE.
----------
Schedule 3.19 sets forth (a) a complete and accurate list of all insurance
-------------
under which any of the Assets is covered or otherwise relating to the PhotoLoft
Business, including policy numbers, names and addresses of insurers and
liability or risk covered, amounts of coverage, limitations and deductions and
expiration dates, and (b) all life insurance policies covering the life of
Personnel for which a Seller has paid any premiums, including the policy
numbers, names and addresses of insurers, lives covered, death benefits, owner
and beneficiary under each policy, and cash surrender value. Such policies are
in full force and effect, and the applicable Seller has paid all premiums due,
and has otherwise performed all of its obligations under, each such policy of
insurance. Neither Seller has received any notice of (i) cancellation or intent
to cancel, or (ii) an increase or intent to increase premiums, with respect to
such insurance policies, and is not aware of any basis for any such action.
Schedule 3.19 indicates the insurance policies that provide coverage on a "per
-------------
occurrence" basis.
SECTION 3.20 ENVIRONMENTAL MATTERS.
----------------------
(a) Each Seller is, and at all times has been, in compliance with,
and has not been and is not in violation of or liable under, any Environmental
Law in connection with the PhotoLoft Business.
23
(b) There are no pending or, to the knowledge of Sellers, threatened,
claims, Encumbrances, or other restrictions of any nature, resulting from any
Environmental, Health, and Safety Liabilities or arising under or pursuant to
any Environmental Law, with respect to or affecting any of the Facilities, the
Assets or any other properties and assets (whether real, personal, or mixed) in
which a Seller has or had an interest in connection with the PhotoLoft
Business.
(c) Neither either Seller, nor any other Person for whose conduct it
is or may be held responsible, has any Environmental, Health, and Safety
Liabilities with respect to the Facilities, the Assets or, to the knowledge of
Sellers, with respect to any other properties and assets (whether real,
personal, or mixed) in which a Seller (or any predecessor) has or had an
interest, or at any property geologically or hydrologically adjoining the
Facilities or any such other property or assets.
(d) Sellers have no basis to expect, nor has it or any other Person
for whose conduct it may be held to be responsible, received any actual or
threatened order, notice, or other communication from (i) any Governmental Body
or private citizen acting in the public interest, or (ii) the current or prior
owner or operator of the Facilities, of any actual or potential violation or
failure to comply with any Environmental Law in connection with the PhotoLoft
Business, or of any actual or threatened obligation to undertake or bear the
cost of any Environmental, Health, and Safety Liabilities.
(e) There are no Hazardous Materials present on or in the environment
at the Facilities or, to the knowledge of Sellers, at any geologically or
hydrologically adjoining property.
(f) There has been no release or, to the knowledge of Sellers, threat
of Release, of any Hazardous Materials at or from the Facilities or at any other
locations where any Hazardous Materials were generated, manufactured, refined,
transferred, produced, imported, used or processed.
(g) BrightCube has delivered to Buyer true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by a Seller pertaining to Hazardous Materials or the disposal thereof
in, on, or under the Facilities, or concerning compliance by Seller or any other
Person for whose conduct it is or may be held responsible, with Environmental
Laws.
SECTION 3.21 RELATIONSHIPS WITH RELATED PERSONS.
----------------------------------
Except as disclosed in Schedule 3.21, no Related Person of a Seller has, or
-------------
has had, any interest in any property (whether real, personal, or mixed and
whether tangible or intangible), used in or pertaining to the PhotoLoft
Business. Neither either Seller nor any Related Person of a Seller owns, or has
owned, of record or as a beneficial owner, an equity interest or any other
financial or profit interest in any Person that has (a) had business dealings or
a material financial interest in any transaction with a Seller in connection
with the PhotoLoft Business other than business dealings or transactions
disclosed in Schedule 3.21, each of which has been conducted in the Ordinary
-------------
24
Course of Business with such Seller at substantially prevailing market prices
and on substantially prevailing market terms, or (b) engaged in, or to Sellers'
knowledge intends to or is reasonably likely to engage in, competition with a
Seller with respect to any part of the PhotoLoft Business. Except as set forth
in Schedule 3.21, no Related Person of a Seller is a party to any Contract with,
-------------
or has any claim or right against, a Seller in connection with the PhotoLoft
Business.
SECTION 3.22 BROKERS OR FINDERS.
------------------
Neither either Seller nor any of its Related Persons have incurred any
Liability for brokerage or finders' fees or agents' commissions or other similar
payment in connection with the Contemplated Transactions.
SECTION 3.23 DISCLOSURE.
----------
(a) No representation or warranty or other statement made by Sellers
in this Agreement or in connection with the Contemplated Transactions omits to
state a material fact necessary to make any of them, in light of the
circumstances in which it was made, not misleading.
(b) No notice given by a Seller pursuant to this Agreement will
contain any untrue statement or omit to state a material fact necessary to make
the statements in such notice or in this Agreement, in light of the
circumstances in which they were made, not misleading.
(c) Sellers do not have knowledge of any fact that has specific
application to either Seller (other than general economic or industry
conditions) and that may materially adversely affect the Assets, the PhotoLoft
Business, prospects, financial condition, or results of operations of Sellers,
that has not been set forth in this Agreement.
(d) BrightCube has filed an annual report of Form 10-KSB for the
fiscal year ended December 31, 2000, and quarterly reports on Form 10-QSB for
the quarterly periods ended March 31, 2001 and June 30, 2001 (the "Commission
----------
Reports") with the Securities and Exchange Commission. The Commission Reports
-------
complied, as of their respective filing dates, in all material respects with all
applicable requirements of the Exchange Act and the rules and regulations
promulgated thereunder. Such filings, as of their respective filing dates, did
not contain any untrue statement of a material fact required to be stated
therein or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
SECTION 4.1 ORGANIZATION AND GOOD STANDING.
------------------------------
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of New York, with full corporate power and authority to
conduct its business as it is now being conducted.
25
SECTION 4.2 AUTHORITY, NO CONFLICT.
----------------------
This Agreement and each other agreement to be executed or delivered by
Buyer at Closing (collectively, the "Buyer's Closing Documents") constitutes the
-------------------------
legal, valid, and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms. Buyer has the power, and authority to execute and
deliver the Buyer's Closing Documents and to perform its obligations under the
Buyer's Closing Documents, and such action has been duly authorized by all
necessary corporate action.
SECTION 4.3 BROKERS OR FINDERS.
------------------
Neither Buyer nor any of its Related Persons have incurred any Liability
for brokerage or finders' fees or agents' commissions or other similar payment
in connection with the Contemplated Transactions.
ARTICLE V
COVENANTS OF SELLERS PRIOR TO CLOSING
SECTION 5.1 ACCESS AND INVESTIGATION.
------------------------
Between the date of this Agreement and the Closing Date, and upon
reasonable advance notice received from Buyer, Sellers shall (a) afford Buyer
and its Representatives (collectively, "Buyer's Advisors") full and free access,
----------------
during regular business hours, to, with respect to the PhotoLoft Business,
Sellers' personnel, properties, internal operations, Contracts to which a Seller
is a party (including access to customers and suppliers), Governmental
Authorizations, books and records, and other documents and data, such rights of
access to be exercised in a manner that does not unreasonably interfere with the
operations of Sellers, (b) furnish Buyer and Buyer's Advisors with copies of all
such Contracts, Governmental Authorizations, books and records, and other
existing data as Buyer may reasonably request, (c) furnish Buyer and Buyer's
Advisors with such additional financial, operating, and other relevant data and
information as Buyer may reasonably request, (d) introduce Buyer to third
parties providing services to the PhotoLoft Business, whether under Contract or
otherwise and assist Buyer in any discussions and negotiations with such
parties, and (e) otherwise cooperate and assist, to the extent reasonably
requested by Buyer, with Buyer's investigation of the properties, assets and
financial condition of Sellers. In addition, Buyer shall have the right to have
the real property, if any, and Tangible Personal Property inspected by Buyer's
Representatives, at Buyer's sole cost and expense, for purposes of determining
the physical condition and legal characteristics of such property.
SECTION 5.2 OPERATION OF THE BUSINESS OF SELLER.
-----------------------------------
Between the date of this Agreement and the Closing Date, Sellers shall:
(a) conduct the PhotoLoft Business only in the Ordinary Course
of Business;
26
(b) with respect to the PhotoLoft Business, use their best
efforts to preserve intact its current business organization, keep
available the services of its officers, Personnel, and agents, not sell,
transfer or Encumber any Assets or grant any licenses to any Person to use
any PhotoLoft Intellectual Property and maintain its relations and good
will with suppliers, customers, landlords, creditors, employees, agents,
and others having business relationships with it;
(c) confer with Buyer prior to implementing operational
decisions of a material nature relating to the PhotoLoft Business; and
(d) otherwise report periodically to Buyer concerning the status
of their operations and finances and the PhotoLoft Business.
SECTION 5.3 REQUIRED APPROVALS.
------------------
As promptly as practicable after the date of this Agreement, Sellers shall
make all filings, if any, required by Legal Requirements to be made by it in
order to consummate the Contemplated Transactions. Sellers also shall cooperate
with Buyer and its Representatives with respect to all filings that Buyer elects
to make, or pursuant to Legal Requirements shall be required to make, in
connection with the Contemplated Transactions. Sellers also shall cooperate with
Buyer in obtaining all Consents necessary for the assignment to Buyer of any
Seller Contracts included within the Assets, to the extent such Consents were
not obtained prior to the Closing and to the extent Buyer requests such
assistance.
SECTION 5.4 NOTIFICATION.
------------
Between the date of this Agreement and the Closing Date, BrightCube shall
promptly notify Buyer in writing if either Seller becomes aware of (a) any fact
or condition that causes or constitutes a breach of any of Sellers'
representations and warranties made as of the date of this Agreement, or (b) the
occurrence after the date of this Agreement of any fact or condition that would
or be reasonably likely to (except as expressly contemplated by this Agreement)
cause or constitute a breach of any such representation or warranty had that
representation or warranty been made as of the time of the occurrence of, or
Sellers' discovery of, such fact or condition. Should any such fact or
condition require any change to the Schedules, Sellers shall promptly deliver to
Buyer updated Schedules containing such changes. During the same period,
BrightCube also shall promptly notify Buyer of the occurrence of any breach of
any covenant of Sellers in this Article V or of the occurrence of any event that
may make the satisfaction of the conditions in Article VII impossible or
unlikely.
SECTION 5.5 NO NEGOTIATION.
--------------
Until such time as this Agreement shall be terminated pursuant to Section
9.1, Sellers shall not directly or indirectly solicit, initiate, encourage or
entertain any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any inquiries or
proposals from, any Person (other than Buyer) relating to any business
combination transaction involving the sale of the Assets. BrightCube shall
notify Buyer of any such inquiry or proposal within twenty-four (24) hours of
receipt or awareness of the same by a Seller.
27
SECTION 5.6 BEST EFFORTS.
------------
Sellers shall use their best efforts to cause the conditions in Article VII
and Section 8.3 to be satisfied.
SECTION 5.7 PAYMENT OF LIABILITIES.
----------------------
Sellers shall pay or otherwise satisfy in the Ordinary Course of Business
all of their liabilities and obligations relating to the PhotoLoft Business.
SECTION 5.8 KEY PERSONNEL.
-------------
Each Seller shall terminate, effective as of the Closing Date, its
employment or retention of the Key Personnel listed on Schedule 5.8, and shall
------------
use its best efforts to cause all such Key Personnel to become, effective as of
the Closing Date, full-time employees of or consultant to Buyer (as elected by
Buyer), pursuant to employment or consulting agreements containing non-compete
and work-for-hire provisions and such other provisions as Buyer may require.
Key Personnel hired or otherwise retained by Buyer shall be entitled to such
benefits as Buyer generally makes available to its employees from time to time,
with such Key Personnel receiving credit for his or her service time with Seller
or its predecessor-in-interest. Buyer shall not be required to hire or retain
the services of any of the individuals currently employed or retained by Sellers
primarily or substantially in connection with the PhotoLoft Business, and to the
extent that it does elect to hire such Persons or retain their services, the
terms thereof shall be in Buyer's sole discretion.
ARTICLE VI
COVENANTS OF BUYER PRIOR TO CLOSING
SECTION 6.1 REQUIRED APPROVALS.
------------------
As promptly as practicable after the date of this Agreement, Buyer shall
make, or cause to be made, all filings, if any, required by Legal Requirements
to be made by it to consummate the Contemplated Transactions. Buyer also shall
fully cooperate, and cause any Related Person to cooperate, with Sellers (a)
with respect to all filings either Seller shall be required by Legal
Requirements to make, and (b) in obtaining all Consents identified in Schedule
--------
3.3(c).
-----
SECTION 6.2 BEST EFFORTS.
-------------
Buyer shall use its best efforts to cause the conditions in Article VIII to
be satisfied.
ARTICLE VII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Assets and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
28
SECTION 7.1 ACCURACY OF REPRESENTATIONS.
---------------------------
All of Sellers' representations and warranties in this Agreement must have
been accurate in all material respects as of the date of this Agreement, and
must be accurate in all material respects as of the Closing Date as if made on
the Closing Date.
SECTION 7.2 SELLERS' PERFORMANCE.
--------------------
(a) All of the covenants and obligations that either Seller is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing must have been duly performed and complied with in all material
respects.
(b) Sellers shall have delivered each of the documents required to be
delivered by it pursuant to Section 2.7(a).
SECTION 7.3 NO PROCEEDINGS.
--------------
There shall not have been commenced or threatened against Buyer, or against
any Related Person of Buyer, any Proceeding (a) involving any challenge to, or
resulting in Losses or other relief in connection with, any of the Contemplated
Transactions, or (b) that may have the effect of preventing, enjoining,
delaying, making illegal, imposing limitations or conditions on, or otherwise
interfering, with any of the Contemplated Transactions.
SECTION 7.4 GOVERNMENTAL AUTHORIZATIONS.
---------------------------
Buyer shall have received such Governmental Authorizations as are necessary
or desirable to allow Buyer to operate the Assets from and after the Closing.
SECTION 7.5 PERSONNEL.
---------
(a) Each of the Key Personnel shall have signed employment,
consultancy or such other services agreements with Buyer (at Buyer's discretion)
at or prior to the Closing Date as Buyer may have required, each such agreement
to be on terms satisfactory to Buyer. Sellers shall have terminated the
employment, consultancy or services of all Key Personnel effective as of the
Closing Date.
(b) Each of the Key Personnel and/or Sellers, as appropriate, shall
have signed an assignment of rights in works made for hire and all other works
created in the course of their duties and assignments covering future works to
be created at Buyer's direction, such assignment to be in form and substance
acceptable to Buyer.
(c) Sellers shall have paid the retention bonuses described in
Schedule 3.17(a) all accrued salary and other benefits owing to the Key
----------------
Personnel in respect of their employment by Sellers through the Closing, and in
addition thereto all severance payments due to each of the Key Personnel who
have been employed or retained by Buyer in accordance with the terms of Seller's
policies therefor or any Contract between a Seller and such Personnel as if such
Personnel had been terminated without cause. All such terminations shall be
evidenced by all appropriate notices and information (such as rights under
COBRA) required by law.
29
(d) ▇▇▇▇ ▇▇▇▇▇▇▇▇ shall have executed and delivered to Buyer a
Non-Disclosure Agreement relating to the Assets and PhotoLoft Business in form
and substance satisfactory to Buyer.
SECTION 7.6 SATISFACTORY DUE DILIGENCE.
--------------------------
Buyer shall have completed a due diligence investigation of Sellers, the
PhotoLoft Business, the PhotoLoft Intellectual Property and the other Assets and
the results thereof shall have been satisfactory to Buyer in Buyer's sole
discretion.
SECTION 7.7 NO CHANGE IN BUSINESS.
---------------------
Between August 14, 2001 and the Closing Date, there shall have been no
material adverse change in the Assets, liabilities, properties, earnings,
prospects or business of the PhotoLoft Business.
SECTION 7.8 AUTHORIZATION.
-------------
All actions necessary on the part of each Seller to authorize the
execution, delivery and performance to this Agreement and the consummation of
the Contemplated Transactions shall have been duly and validly taken (including
approval by the board of directors of each Seller).
SECTION 7.9 TERMINATION OF ASP CONTRACTS.
----------------------------
No later than the Closing Date, the applicable Seller shall have sent
notice of termination, such termination to be effective no later than the
Closing Date, to each counterparty to each of the ASP Contracts, and each other
Seller Contract as Buyer shall designate by notice to Seller on or prior to the
Closing Date; provided, however, that termination of the four ASP Contracts
specified in the Internet Services and License Agreement may be effective after
the Closing Date to the extent and under the conditions set forth in the
Internet Services and License Agreement.
SECTION 7.10 PARTITION, TESTING OF, AND OTHER MATTERS RELATED TO
---------------------------------------------------
CONTINUING PHOTOLOFT SYSTEM AND RELATED DATA.
--------------------------------------------
Sellers shall have completed the following by the Closing Date, all to the
satisfaction of Buyer:
(a) partitioning of the hardware, software and data used to run the
PhotoLoft Business and the Working Photo Business to exclude any Excluded Assets
at the Facilities and to identify and segregate those Assets located at the
Facilities needed to produce a server system utilizing only Assets on which all
functions, features, services and products of the PhotoLoft Business are
available and all data of, and relating to, the customers of the PhotoLoft
Business are available in the same manner as such data are currently available
("Continuing PhotoLoft System");
---------------------------
(b) building, installing, configuring, and/or unit testing, as
needed, each component and the assemble components of the Continuing PhotoLoft
System to produce a production system on which all customers of the PhotoLoft
Business can be served at a service level not less than the best service level
achieved in the thirty (30) day period preceding the date of this Agreement;
30
(c) executing Buyer's testing plan and performing successful, live
production operation of the Continuing PhotoLoft System for a period of five
(5) days, as further detailed in Schedule 7.10, with observers selected by Buyer
-------------
present at the Facilities, to demonstrate that Sections 7.10(a) and (b) above
have been successfully completed so that the Continuing PhotoLoft System
performs and functions at least as well as it performed and functioned prior to
the partitioning and that the Continuing PhotoLoft System can perform services
for all customers of the PhotoLoft Business without material errors or
interruptions of service;
(d) completion and delivery to Buyer of electronic and hard copies of
the additional or supplemental documentation for the PhotoLoft Software listed
in Schedule 7.10;
-------------
(e) demonstrating to an observer selected by Buyer the presence on a
single operating server site and a single back-up storage device the presence of
the permitted, retained copies of the software and/or data that will be used to
exploit the Working Photo License Rights; and
(f) those additional actions specified in Schedule 7.10.
-------------
SECTION 7.11 WORKING PHOTO RETAINED LICENSE AND INTERNET SERVICES AND
--------------------------------------------------------
LICENSE AGREEMENT.
-----------------
Sellers shall have entered into the Working Photo Retained License and the
Internet Services and License Agreement, and delivered a duly executed copy
thereof to Buyer.
SECTION 7.12 DELIVERY OF TANGIBLE PERSONAL PROPERTY.
Buyer shall have completed to its satisfaction, with such assistance from
BrightCube as Buyer may have requested, an inventory of the equipment listed in
Schedule 2.1(f) hereto and the results thereof shall have been satisfactory to
---------------
Buyer; and all Tangible Personal Property shall be delivered to the possession
and control of Buyer, except for Tangible Personal Property which has been
identified to the satisfaction of Buyer as being in the possession of the Key
Personnel.
ARTICLE VIII
CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Sellers' obligation to sell the Assets and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by BrightCube, in whole or in part):
SECTION 8.1 ACCURACY OF REPRESENTATIONS.
---------------------------
All of Buyer's representations and warranties in this Agreement must have
been accurate in all material respects as of the date of this Agreement and must
be accurate in all material respects as of the Closing Date as if made on the
Closing Date.
31
SECTION 8.2 BUYER'S PERFORMANCE.
-------------------
(a) All of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
must have been performed and complied with in all material respects.
(b) Buyer shall have delivered each of the documents required to be
delivered, and made each of the payments required to be made, by it pursuant to
Section 2.7(b).
SECTION 8.3 WORKING PHOTO RETAINED LICENSE AND INTERNET SERVICES AND
--------------------------------------------------------
LICENSE AGREEMENT.
-----------------
Buyer shall have entered into the Working Photo Retained License and the
Internet Services and License Agreement, and delivered a duly executed copy
thereof to Sellers.
ARTICLE IX
TERMINATION
SECTION 9.1 TERMINATION EVENTS.
------------------
By notice given prior to or at the Closing, subject to Section 9.2, this
Agreement may be terminated as follows:
(a) by Buyer if a material breach of any provision of this Agreement
has been committed by a Seller and such breach has not been waived by Buyer;
(b) by Buyer if prior to Closing a Seller delivers to Buyer an update
to any Schedule disclosing any fact which is unacceptable to Buyer in its sole
discretion;
(c) by BrightCube if a material breach of any provision of this
Agreement has been committed by Buyer and such breach has not been waived by
BrightCube;
(d) by Buyer if any condition in Article VII has not been satisfied
as of the date specified for Closing in the first sentence of Section 2.6 or if
satisfaction of such a condition by such date is or becomes impossible (other
than through the failure of Buyer to comply with its obligations under this
Agreement) and Buyer has not waived such condition on or before such date;
(e) by BrightCube, if any condition in Article VIII has not been
satisfied as of the date specified for Closing in the first sentence of Section
2.6 or if satisfaction of such a condition by such date is or becomes impossible
(other than through the failure of a Seller to comply with its obligations under
this Agreement) and BrightCube has not waived such condition on or before such
date;
(f) by mutual consent of Buyer and BrightCube;
(g) by Buyer if the Closing has not occurred on or before December 3,
2001 or such later date as the parties may agree upon, unless Buyer is in
material breach of this Agreement; or
32
(h) by BrightCube if the Closing has not occurred on or before
December 3, 2001 or such later date as the parties may agree upon, unless a
Seller is in material breach of this Agreement or has otherwise failed to
satisfy a condition precedent to the Closing that is within the control of a
Seller.
SECTION 9.2 EFFECT OF TERMINATION.
---------------------
Each party's right of termination under Section 9.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
such right of termination will not be an election of remedies. If the Agreement
is terminated pursuant to Section 9.1, all obligations of the parties under this
Agreement will terminate, except that the obligations of the parties in this
Section 9.2 and Articles XII will survive; provided, that if this Agreement is
terminated because of a breach of this Agreement by the non-terminating party or
because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the party's failure to
comply with its obligations under this Agreement, the terminating party's right
to pursue all legal remedies will survive such termination unimpaired.
ARTICLE X
SELLERS' ADDITIONAL COVENANTS
From and after the Closing Date, the Seller shall:
SECTION 10.1 PAYMENT OF ALL TAXES RESULTING FROM SALE OF ASSETS BY SELLER.
-------------------------------------------------------------
Sellers shall pay in a timely manner all Taxes resulting from or payable in
connection with the sale of the Assets pursuant to this Agreement, regardless of
the Person on whom such Taxes are imposed by Legal Requirements.
SECTION 10.2 PAYMENT OF LIABILITIES.
-----------------------
In addition to payment of Taxes pursuant to Section 10.2, Sellers shall
pay, or make adequate provision for the payment, in full of all of the
Liabilities relating to the PhotoLoft Business, including without limitation all
Liabilities accrued prior to the Closing Date under all Seller Contracts
included within the Assets. If any such Liabilities are not so paid or provided
for, or if Buyer reasonably determines that failure to make any payments will
impair Buyer's use or enjoyment of the Assets or conduct of the PhotoLoft
Business, Buyer may at any time after the Closing Date elect to make all such
payments directly (but shall have no obligation to do so) and receive
indemnification from Sellers as provided in Article XI.
SECTION 10.3 REPORTS AND RETURNS.
--------------------
Sellers shall promptly after the Closing prepare and file all reports and
returns required by applicable Legal Requirements relating to the PhotoLoft
Business.
33
SECTION 10.4 COVENANT OF SELLERS NOT TO COMPETE.
----------------------------------
(a) Sellers acknowledge that the agreements and covenants contained
in this Section 10.4 are essential to protect the business and goodwill being
purchased by Buyer, and Buyer would not purchase the Assets but for the
agreements and covenants of Sellers contained in this Section 10.4.
(b) For a period of five (5) years following the Closing Date,
neither either Seller nor any of its Related Persons shall engage in a business
similar to or competitive with the PhotoLoft Business, either directly or
indirectly, or enter the employ of, or render any services to, any Person
engaged, directly or indirectly, in such activities; or become interested in any
Person engaged in such business, directly or indirectly, as a partner, lender,
member, shareholder, agent, trustee, consultant or in any other relationship or
capacity; provided that each such party may own, directly or indirectly, solely
as an investment, securities of any Person which are traded on any national
securities exchange if such party is not a controlling person of, or a member of
a group which controls, such Person or does not, directly or indirectly, own 1%
or more of any class of securities of such Person.
(c) For purposes of this Section 10.4, a Seller's use, sublicensing
or other commercial exploitation of the Working Photo Exclusive Intellectual
Property or the Working Photo Retained License Rights shall not be deemed to be
competitive with the PhotoLoft Business, provided that such use, sublicensing or
other commercial exploitation is in compliance with the provisions of the
Working Photo Retained License and does not involve the business of consumer
photo storage, sharing, presentation or printing.
SECTION 10.5 FURTHER ASSURANCES.
-------------------
The parties shall cooperate reasonably with each other and with their
respective Representatives in connection with any steps required to be taken as
part of their respective obligations under this Agreement, and the parties agree
(a) to furnish upon request to each other such further information, (b) to
execute and deliver to each other such other documents, and (c) to do such other
acts and things, all as the other party may reasonably request for the purpose
of carrying out the intent of this Agreement and the Contemplated Transactions.
Without limiting the generality of the foregoing, following the Closing Date
Sellers shall (X) permit Buyer to solicit and hire or retain the services of any
of the Personnel, (Y) provide Buyer with access to such employees, consultants
or personnel of Sellers as Buyer shall deem reasonably necessary to operate the
PhotoLoft Business, and (Z) to the extent a Seller has failed to comply with all
or part of such Seller's obligations under Section 7.10 or has otherwise failed
to deliver Assets to Buyer pursuant to the terms of this Agreement (and so long
as Buyer has consented or otherwise waived in writing that such obligations be
performed prior to or on the Closing Date), use its best efforts to perform all
such obligations and, in the case of Assets not delivered to Buyer as of the
Closing Date, grant Buyer access to obtain such Assets.
34
ARTICLE XI
INDEMNIFICATION
SECTION 11.1 SURVIVAL.
---------
All representations, warranties, covenants, and obligations in this
Agreement, the Schedules attached hereto, and the other Sellers' Closing
Documents shall survive the Closing and the consummation of the Contemplated
Transactions. The right to indemnification, reimbursement, or other remedy
based on such representations, warranties, covenants and obligations shall not
be affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) about, the accuracy or inaccuracy of or
compliance with, any such representation, warranty, covenant or obligation.
SECTION 11.2 INDEMNIFICATION AND REIMBURSEMENT BY SELLER.
-------------------------------------------
(a) Subject to the limitations of Section 11.2(b), Sellers shall
indemnify and hold harmless Buyer, its Representatives and shareholders, and its
Related Persons (collectively, the "Buyer Indemnified Persons"), and shall
reimburse the Buyer Indemnified Persons, for any and all damages, fines,
penalties, deficiencies, losses and expenses (including interest, court costs,
reasonable fees of attorneys, accountants and other experts or other reasonable
expenses of litigation or other proceedings or of any claim, default or
assessment) (collectively, "Losses"), arising from or in connection with:
(i) any breach of any representation or warranty made by a Seller
in this Agreement, the certificates delivered pursuant to Section 2.7 (for
this purpose, each such certificate will be deemed to have stated that
Seller's representations and warranties in this Agreement fulfill the
requirements of Section 7.1 as of the Closing Date as if made on the
Closing Date), Sellers' Closing Documents, any other transfer instrument or
any other certificate or document delivered by a Seller pursuant to this
Agreement;
(ii) any breach of any covenant or obligation of Seller in this
Agreement, Sellers' Closing Documents in any other document, writing or
instrument delivered by a Seller pursuant to this Agreement;
(iii) any noncompliance with any bulk sales law or fraudulent
transfer law in respect of the Contemplated Transactions;
(iv) any other Liability of a Seller; or
(v) arising out of the actions or inactions of a Seller with
respect to the PhotoLoft Business at any time on or prior to the Closing
Date.
(b) Sellers' liability under this Article XI shall be limited as
follows:
(i) The aggregate amount of Sellers' liability under this Article
XI, other than for liabilities resulting from breach of its representations
and warranties contained in Section 3.6 or any other representation,
warranty or covenant in any Sellers' Closing Document relating to
Intellectual Property rights in the PhotoLoft Intellectual Property and the
Assets, shall be limited to an amount equal to the Purchase Price; Seller's
35
liability under this Article XI for breach of its representations and
warranties contained in Section 3.6 or any other representation, warranty
or covenant in any Sellers' Closing Document relating to Intellectual
Property rights in the PhotoLoft Intellectual Property and the Assets shall
not be limited.
(ii) Sellers' indemnification obligation under this Article XI
shall be limited to Losses that are asserted, whether by notice, filing of
a Proceeding or otherwise, no later than 30 months following the Closing
Date and which relate to or arise out of, whether in whole or in part,
facts, stated events or circumstances that occurred prior to the Closing
Date.
Notwithstanding the foregoing, the limitations under this paragraph (b) shall
not apply to any breach by a Seller of any of its representations, warranties,
covenants or other obligations under the Working Photo Retained License or the
Internet Services and License Agreement, and shall not be construed to be in
limitation of any rights Buyer may have hereunder or under any other Sellers'
Closing Document to specific performance, injunctive relief or other equitable
remedies in the event of breach by Seller of any of its obligations hereunder or
thereunder,
SECTION 11.3 ACCESS TO ESCROW FUND FOR INDEMNIFICATION LIABILITY.
---------------------------------------------------
The parties have established an escrow fund pursuant to the Escrow
Agreement and Buyer has been granted the right of payment pursuant to such
agreement. Recourse to such escrow fund shall be a non-exclusive means of
indemnification by Sellers.
SECTION 11.4 METHOD FOR ASSERTING CLAIM.
--------------------------
Promptly after receipt by a Buyer Indemnified Person of notice, or threat,
of the commencement of any Proceeding against it or if a Buyer Indemnified Party
otherwise intends to assert a claim for indemnity hereunder (each, a "Claim"),
-----
such Buyer Indemnified Person will, if a claim is to be made against Sellers
hereunder, provide notice of such Claim to BrightCube, but the failure to so
notify BrightCube will not relieve Sellers of any liability that they may have
to any Buyer Indemnified Person.
(a) To the extent that a Claim is made by a third party, then:
(i) The Buyer Indemnified Person and BrightCube shall cooperate
in the defense thereof, which defense (and settlement thereof) shall be
controlled by the Buyer Indemnified Person with the right of BrightCube to
participate at its cost by counsel of its choosing; and
(ii) If BrightCube notifies the Buyer Indemnified Person that it
does not dispute a Claim of which it has been given notice or fails to
notify such Buyer Indemnified Person within 30 days after delivery of
notice of a Claim whether BrightCube disputes such Claim, Losses arising
from such Claim will be conclusively deemed a liability of Sellers and
Sellers shall pay the amount of such Losses to such Buyer Indemnified
Person on demand.
36
SECTION 11.5 INDEMNIFICATION NOT EXCLUSIVE REMEDY.
------------------------------------
Sellers' obligations and liabilities under this Article XI shall not be
exclusive of its obligations and liabilities under the Working Photo Retained
License and the Internet Services and License Agreement.
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS.
--------------------------------------
(a) Information obtained in confidence by either party in connection
with this Agreement or the Contemplated Transactions, shall be subject to the
Confidentiality Agreement dated August 16, 2001 between BrightCube and Buyer.
The obligations of Buyer under the aforesaid Confidentiality Agreement with
respect to information relating to the PhotoLoft Business shall terminate and be
of no force or effect upon the occurrence of the Closing.
(b) Any public announcement or similar publicity with respect to this
Agreement or the Contemplated Transactions may be issued, if at all, at such
time and in such manner as mutually agreed to by Buyer and BrightCube; provided,
that in the case of announcements, statements, acknowledgments or revelations
which either party is required by applicable Legal Requirements to make, issue
or release, the making, issuing or releasing of any such announcement,
statement, acknowledgment or revelation by the party so required to do by
applicable Legal Requirements shall not constitute a breach of this Agreement if
such party shall have given, to the extent reasonably possible, notice thereof
to the other party not less than two (2) days prior to such disclosure and shall
have attempted, to the extent reasonably possible, to clear such announcement,
statement, acknowledgment or revelation with the other party. Subject to the
foregoing, BrightCube and Buyer shall consult with each other concerning the
means by which Sellers' employees, customers, and suppliers and others having
dealings with Sellers will be informed of the Contemplated Transactions, and
Buyer will have the right to be present for any such communication.
SECTION 12.2 EXPENSES.
---------
Except as otherwise expressly provided in this Agreement, each party to
this Agreement shall bear its respective expenses incurred in connection with
the preparation, execution, and performance of this Agreement and the
Contemplated Transactions, including all fees and expenses of its
Representatives.
SECTION 12.3 NOTICES.
-------
All notices, Consents, waivers, and other communications under this
Agreement must be in writing and are deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
or with confirmation of transmission by the transmitting equipment, (c) five (5)
days after delivery, if sent by certified mail, return receipt requested, or (d)
one (1) day after delivery, if sent by a nationally recognized overnight
delivery service, return receipt requested, in each case to the appropriate
addresses, facsimile numbers or email addresses set forth below (or to such
other addresses, facsimile numbers or as a party may designate by notice to the
other parties):
37
Buyer: Canon U.S.A., Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Dr. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Executive Vice President & Chief
Technical Officer
Research and Development Group
Corporate Development Division
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Canon U.S.A., Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.,
Executive Vice President and
General Counsel
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Sellers: BrightCube, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Al Marco
Chief Executive Officer
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 12.4 JURISDICTION, SERVICE OF PROCESS.
--------------------------------
The parties hereby irrevocably and unconditionally:
(a) agree that any and all actions, suits or other legal proceedings,
whether or not arising under this Agreement and regardless of the legal theory
upon which the claims are based, shall be brought by a party only in a state or
federal court situated within the geographical boundaries of the United States
Eastern District or Southern District of New York and consent to the exclusive
jurisdiction of such courts in any such legal proceeding;
(b) consent to the exclusive jurisdiction of the state and federal
courts situated within the geographical boundaries of the United States Eastern
District or Southern District of New York in any and all actions, suits or other
legal proceedings brought against either party, and agree that service of
process in any such legal proceeding may be effected in accordance with the
statutes of New York and the United States, as appropriate; and
(c) waive any objection it may now or hereafter have to the venue of
any such legal proceeding in any such court.
SECTION 12.5 ENFORCEMENT OF AGREEMENT.
------------------------
Sellers acknowledge and agree that Buyer would be damaged irreparably in
the event any of the provisions of this Agreement are not performed in
accordance with their specific terms and that any breach of this Agreement by
38
Sellers could not be adequately compensated by monetary damages. Accordingly,
Sellers agree that, in addition to any other right or remedy to which Buyer may
be entitled, at law or in equity, it shall be entitled to enforce any provision
of this Agreement by a decree of specific performance and to temporary,
preliminary and permanent injunctive relief to prevent breaches or threatened
breaches of the provisions of this Agreement, without posting any bond or other
undertaking.
SECTION 12.6 WAIVER.
-------
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by any party in exercising
any right under this Agreement or the documents referred to in this Agreement
operates as a waiver of such right, and no single or partial exercise of any
such right precludes any other or further exercise of such right or the exercise
of any other right. To the maximum extent permitted by applicable law, (a) no
claim or right arising out of this Agreement or the documents referred to in
this Agreement can be discharged by one party, in whole or in part, by a waiver
or renunciation of the claim or right unless in writing signed by the other
party; (b) no waiver that may be given by a party will be applicable except in
the specific instance for which it is given; and (c) no notice to or demand on
one party will be deemed to be a waiver of any obligation of such party or of
the right of the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement or the documents referred
to in this Agreement.
SECTION 12.7 ENTIRE AGREEMENT AND MODIFICATION.
---------------------------------
This Agreement supersedes all prior agreements, whether written or oral,
between the parties with respect to its subject matter and constitutes (along
with the Schedules, Exhibits and other documents delivered pursuant to this
Agreement) a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement signed on behalf of each of the parties
hereto.
SECTION 12.8 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS.
--------------------------------------------------
No party may assign any of its rights or delegate any of its obligations
under this Agreement without the prior written consent of the other parties,
except that Buyer may assign any of its rights and delegate any of its
obligations under this Agreement to any Subsidiary of Buyer, provided that no
such assignment or delegation shall relieve Buyer from any of its obligations
hereunder. Subject to the preceding sentence, this Agreement applies to, is
binding in all respects upon, and inures to the benefit of the successors and
permitted assigns of the parties. Nothing in this Agreement is to be construed
to give any Person other than the parties to this Agreement any legal or
equitable right under or with respect to this Agreement or any provision of this
Agreement, except such rights as shall inure to a successor or permitted
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assignee pursuant to this Section 12.8.
SECTION 12.9 SEVERABILITY.
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If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement remain
in full force and effect. The parties further agree that if any provision
contained herein is, to any extent, held invalid or unenforceable in any respect
under the laws governing this Agreement, they shall take any actions necessary
to render the remaining provisions of this Agreement valid and enforceable to
the fullest extent permitted by law and, to the extent necessary, shall amend or
otherwise modify this Agreement to replace any provision contained herein that
is held invalid or unenforceable with a valid and enforceable provision giving
effect to the intent of the parties.
SECTION 12.10 SECTION HEADINGS, CONSTRUCTION, SCHEDULES.
-----------------------------------------
The headings of Articles and Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
Exhibits and Schedules to this Agreement are incorporated into and constitute an
integral part of this Agreement as if fully set forth herein. The statements in
the Schedules, and those in any supplement thereto, relate only to the
representations and warranties in the Section of the Agreement to which they
expressly relate and not to any other representation or warranty in this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the context requires. All references to documents,
instruments or agreements shall be deemed to refer as well to all addenda,
exhibits, schedules or amendments thereto. The language used in the Agreement
shall be construed, in all cases, according to its fair meaning, and not for or
against any party hereto. The parties acknowledge that each party has reviewed
this Agreement and that rules of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be available in the
interpretation of this Agreement.
SECTION 12.11 TIME OF ESSENCE.
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With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
SECTION 12.12 GOVERNING LAW.
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This Agreement will be governed by and construed under the laws of the
State of New York without regard to conflicts of laws principles that would
require the application of any other law, other than Section 5-1401 of the New
York General Obligations Law.
SECTION 12.13 JOINT AND SEVERAL OBLIGATIONS.
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All covenants, representations, warranties and other obligations of
Sellers under this Agreement and the other Seller's Closing Documents shall be
joint and several, except for covenants, representations, warranties and other
obligations which are expressly provided to be several and not joint obligations
of BrightCube and/or Original PhotoLoft.
SECTION 12.14 EXECUTION OF AGREEMENT, COUNTERPARTS.
------------------------------------
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement. The
exchange of copies of this Agreement and of signature pages by facsimile
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transmission shall constitute effective execution and delivery of this Agreement
as to the parties and may be used in lieu of the original Agreement for all
purposes. Signatures of the parties transmitted by facsimile shall be deemed to
be their original signatures for any purpose whatsoever.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
BUYER:
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CANON U.S.A., INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: EVP & CTO
SELLERS:
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BRIGHTCUBE, INC.
By: /s/ Al Marco
---------------------------
Name: Al Marco
Its: Chief Executive Officer
BRIGHTCUBE CALIFORNIA, INC.
By: /s/ Al Marco
---------------------------
Name: Al Marco
Its: Chief Executive Officer
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