EXHIBIT 2.4
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AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 1, 2006
BY AND AMONG
WEBSIDESTORY, INC.,
("PARENT")
VS ACQUISITION, LLC
("MERGER SUB")
VISUAL SCIENCES, LLC,
(THE "COMPANY")
AND
▇▇▇ ▇▇▇▇▇▇▇,
(THE "MEMBER REPRESENTATIVE")
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (as amended from time to time pursuant to
the terms hereof, this "Agreement") is made and entered into as of February 1,
2006 by and among WebSideStory, Inc., a Delaware corporation ("Parent"), VS
Acquisition, LLC, a Delaware limited liability company ("Merger Sub"), Visual
Sciences, LLC, a Delaware limited liability company (the "Company"), and ▇▇▇
▇▇▇▇▇▇▇, solely in his capacity as the Member Representative (as hereinafter
defined).
WITNESSETH:
WHEREAS, the Board of Directors of Parent and the respective Managers
of Merger Sub and the Company have each determined that the merger of the
Company with and into Merger Sub (the "Merger") is advisable and in the best
interests of their respective stockholders and members, such Board of Directors
and Managers have approved the Merger, Parent as the sole member of Merger Sub
has approved the Merger and the requisite Unitholders (as defined below) have
approved the Merger, upon the terms and subject to the conditions set forth in
this Agreement;
WHEREAS, concurrently with the execution and delivery of this
Agreement, as a condition and inducement to Parent's willingness to enter into
this Agreement, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ have executed and delivered to
Parent an agreement in substantially the form of Exhibit A (the "Non-Competition
Agreements"), pursuant to which they have agreed, among other things, to refrain
from competing with Parent or the Company following consummation of the
transactions contemplated by this Agreement during the period specified therein;
WHEREAS, concurrently with the execution and delivery of this
Agreement, as a condition and inducement to the Company's willingness to enter
into this Agreement, Parent and the Unitholders have executed and delivered the
Amended and Restated Registration Rights Agreement, which agreement is in full
force and effect; and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated by this Agreement and also prescribe various
conditions to the transactions contemplated by this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants, promises and agreements hereinafter set forth, the mutual benefits to
be gained by the performance thereof, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
accepted, the parties hereto hereby agree as follows:
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ARTICLE I.
DEFINITIONS
SECTION 1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Accredited Investor" is defined in Rule 501(a) promulgated under the
Securities Act.
"Action" means any claim, action, suit, litigation or proceeding,
arbitral action, governmental inquiry or audit, criminal prosecution or other
investigation.
"Affiliate" means, when used with respect to a specified Person, (a)
another Person that either directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Person specified or (b) any director, partner or officer of such Person or, for
any Person that is a limited liability company, any manager or managing member
thereof. For purposes of this definition, "control" (and its derivatives) means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of equity, voting or other interests, as trustee or executor, by contract or
otherwise.
"Amended and Restated Registration Rights Agreement" means an amended
and restated registration rights agreement for the benefit of certain holders of
Parent Common Stock and Parent Warrants pursuant to which certain Unitholders
will receive registration rights, substantially in the form attached as Exhibit
C.
"Ancillary Agreements" means the Non-Competition Agreements, the
Amended and Restated Registration Rights Agreement, the Senior Notes, the Parent
Warrants and the Escrow Agreement.
"Business" means the business and operations of the Company or Parent,
as appropriate, as currently conducted.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which banks are required or authorized by Law or Governmental Order to be
closed in the State of New York.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601 et seq.
"Class A Units" means the Class A units of membership interest in the
Company.
"Class B Units" means the Class B units of membership interest in the
Company.
"Class C Units" means the Class C units of membership interest in the
Company.
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"Closing Date Payment Amount" means $52,500,000 (Fifty-Two Million
Five Hundred Thousand U.S. Dollars) less any Transaction Expenses that Parent
pays on behalf of the Company pursuant to Section 7.7.
"Closing Dividend" means a special cash distribution to the
Unitholders pro rata in respect of their outstanding Units that may be made by
the Company, at the sole discretion of the Managers of the Company, prior to
Closing from that portion, if any, of the Company's cash and cash equivalents
that exceeds $2,000,000 (Two Million U.S. Dollars), after taking into account
all Transaction Expenses to be paid at or prior to the Closing. Such dividend
will be in addition to any distribution made by the Company with respect to
taxes payable by Unitholders with respect to taxable income for 2005.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Benefit Plan" means any plan, program, policy, practice,
Contract or other arrangement providing for compensation, severance, termination
pay, deferred compensation, performance awards, Units or Unit-related awards,
other equity-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten, funded or unfunded,
including each "employee benefit plan," within the meaning of Section 3(3) of
ERISA, which the Company or any ERISA Affiliate of the Company maintains,
administers, contributes to or is required to contribute to, or maintained,
administered, contributed to or was required to contribute to, or under or with
respect to which the Company or any ERISA Affiliate of the Company has or may
have any liability or obligation.
"Company Employee" means an employee of the Company.
"Company Intellectual Property" means, collectively, (i) Trademarks,
Patents, Company Copyrights, Domain Names and Trade Secrets, as those terms are
defined in Section 5.13 of this Agreement and (ii) any proprietary interest in
or to any documents or other tangible media containing any of the foregoing
owned by or exclusively licensed to the Company.
"Company Material Adverse Effect" means a Material Adverse Effect with
respect to the Company.
"Company Option Plan" means The VYSICS, LLC 2001 Equity Incentive
Plan, as amended through immediately prior to the Effective Time.
"Company Option" means an option to purchase Class A Units, whether
vested or unvested, granted pursuant to the Company Option Plan that is
outstanding, unexercised and unexpired immediately prior to the Closing.
"Confidentiality Agreement" means the Non-Disclosure Agreement between
Parent and the Company, dated as of August 3, 2005.
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"Consent" means any consent, approval, authorization, clearance,
novation or waiver by any Person under any Contract, Law, Permit or Governmental
Order.
"Contract" means any contract (including subcontracts), agreement,
indenture, note, bond, loan, instrument, lease, conditional sales contract,
mortgage, license, franchise agreement, commitment, obligation, understanding or
undertaking, whether written or oral.
"Debt" means any amount owed (including, without limitation, unpaid
interest and fees thereon) in respect of (i) borrowed money and (ii) capitalized
lease obligations; provided, however, that notwithstanding the foregoing, Debt
shall not be deemed to include any accounts payable incurred in the ordinary
course of business or any undrawn letters of credit.
"Default" means (a) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Governmental Order or
Permit, (b) any occurrence of any event that with the passage of time or the
giving of notice or both would constitute a breach or violation of, default
under, contravention of, or conflict with, any Contract, Law, Governmental Order
or Permit, or (c) any occurrence of any event that with or without the passage
of time or the giving of notice would give rise to a right of any Person to
exercise any remedy or obtain any relief under, to terminate or revoke, suspend,
cancel, or materially modify or change the current terms of, or renegotiate, or
to accelerate the maturity or performance of, or to increase or impose any
Liability under, any Contract, Law, Governmental Order or Permit.
"DLLCA" means the Delaware Limited Liability Company Act.
"Encumbrance" means any security interest, pledge, mortgage, lien,
charge, adverse claim of ownership or use, restriction on transfer (such as a
right of first refusal or other similar rights), defect of title, or other
encumbrance of any kind or character.
"Environmental Law" means any Law pertaining to land use, air, soil,
surface water, groundwater (including the protection, cleanup, removal,
remediation or damage thereof), public or employee health or safety or any other
environmental matter, including, without limitation, the following laws as in
effect on the Closing Date: (i) Clean Air Act (42 U.S.C. Section 7401, et seq.);
(ii) Clean Water Act (33 U.S.C. Section 1251, et seq.); (iii) Resource
Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.); (iv)
Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C.
Section 9601, et seq.); (v) Safe Drinking Water Act (42 U.S.C. Section 300f, et
seq.); (vi) Toxic Substances Control Act (15 U.S.C. Section 2601, et seq.);
(vii) Rivers and Harbors Act (33 U.S.C. Section 401, et seq.); (viii) Endangered
Species Act (16 U.S.C. Section 1531, et seq.); (ix) Occupational Safety and
Health Act (29 U.S.C. Section 651, et seq.); and (x) any other Law relating to
Hazardous Materials or Hazardous Materials Activities.
"Environmental Permit" means any permit, approval, identification
number, license and other authorization required under any applicable
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, any successor statute thereto, and the rules and regulations
promulgated thereunder.
"ERISA Affiliate" of any Person means any entity that is, or at any
relevant time was, a member of (i) a controlled group of corporations (as
defined in Section 414(b) of the
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Internal Revenue Code), (ii) a group of trades or businesses under common
control (as defined in Section 414(c) of the Internal Revenue Code) or (iii) an
affiliated service group (as defined under Section 414(m) of the Internal
Revenue Code or the regulations under Section 414(o) of the Internal Revenue
Code) with such Person.
"Escrow Fund" means the Escrowed Common Stock.
"Escrowed Common Stock" means the 568,512 shares of Parent Common
Stock to be held by the Escrow Agent pursuant to Article III.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fully Diluted Number of Units" means the aggregate number of Units
issued and outstanding as of the Closing and Class A Units issuable pursuant to
vested Company Options outstanding immediately prior to the Closing.
"GAAP" means generally accepted accounting principles in the United
States.
"Governmental Authority" means any government, any governmental
entity, department, commission, board, agency or instrumentality, and any court,
tribunal, or judicial body, whether federal, state, county, local or foreign.
"Governmental Order" means any order, judgment, injunction, decree,
stipulation or determination issued, promulgated or entered by or with any
Governmental Authority of competent jurisdiction.
"Hazardous Material" means any material or substance that is
prohibited or regulated by any Environmental Law or that has been designated by
any Governmental Authority to be toxic, hazardous or otherwise a danger to
health, reproduction or the environment, including asbestos, petroleum, radon
gas, and radioactive matter.
"Hazardous Materials Activity" means the handling, transportation,
transfer, recycling, storage, use, treatment, manufacture, investigation,
removal, remediation, release, exposure of others to, sale, or distribution of
any Hazardous Material or any product containing a Hazardous Material.
"IRS" means the United States Internal Revenue Service, and any
successor agency thereto.
"Knowledge of the Company" or "known to the Company" and any other
phrases of similar import means, with respect to any matter in question relating
to the Company, the actual knowledge of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇ or ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇.
"Law" means any federal, state, county, local or foreign statute, law,
ordinance, regulation, rule, code, order or rule of common law.
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"Liability" means any and all debts, liabilities and obligations of
any kind or nature, whether accrued or fixed, absolute or contingent, matured or
unmatured, or determined or determinable.
"Manager" means those Persons who are from time to time Managers of
the Company in accordance with the terms of the Operating Agreement.
"Material Adverse Effect" as to any party means any change or effect
that is materially adverse to the assets (including intangible assets),
Liabilities, business, financial condition or results of operations of such
party or which would materially impair the ability of such party to perform its
obligations under this Agreement or to consummate the transactions contemplated
by this Agreement, except for any such changes or effects resulting directly or
indirectly from: (i) changes in the industry in which such party operates, which
changes do not disproportionately affect such party relative to other
participants in such industry in any material respect; (ii) changes in general
economic conditions worldwide or in one country or region where such party has
significant operations or sales; (iii) (A) the announcement or pendency of any
of the transactions contemplated by this Agreement, (B) legal, accounting, or
other professional fees or expenses (other than investment banking or broker
fees) incurred in connection with the transactions contemplated by this
Agreement, (C) the payment of any amounts due to, or the provision of any other
benefits to, any officers or employees under employment contracts,
non-competition agreements, employee benefit plans, severance arrangements or
other arrangements in existence as of the date of this Agreement and disclosed
in a Disclosure Schedule, (D) any change in accounting requirements or
principles or any change in applicable laws, rules or regulations or the
interpretation thereof, provided such changes do not disproportionately affect
such party relative to the other participants in such party's industry in any
material respect; or (iv) any acts of terrorism not directed at such party's
facilities or the outbreak of war (whether or not declared).
"Multiemployer Plan" means any "multiemployer plan," as defined in
Section 4001(a)(3) or 3(37) of ERISA.
"Optionholder" means a holder of one or more Company Options as of
immediately prior to the Closing, whether or not such Company Options are
vested.
"Overtly Threatened" means that a potential claimant has manifested an
awareness of and present intention to assert a possible claim or assessment.
"Parent Common Stock" means the common stock, $0.001 par value per
share, of Parent.
"Parent Common Stock Price" means $18.4685 per share.
"Parent Material Adverse Effect" means a Material Adverse Effect with
respect to Parent.
"Parent Warrant" means any of the warrants to purchase Parent Common
Stock to be issued pursuant to Article III.
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"Pension Plan" means any "employee pension benefit plan" as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan).
"Permitted Encumbrances" means (i) all statutory or other liens for
Taxes or assessments which are not yet due or delinquent, (ii) all cashiers',
landlords', workmen's, repairmen's, warehousemen's and carriers' liens and other
similar liens imposed by Law incurred in the ordinary course of business, and
(iii) all leases, subleases, licenses, concessions or service contracts to which
the Company is a party in the ordinary course of business.
"Performance Plan Shares" means that number of shares of Parent Common
Stock equal to (i) $3,500,000 (Three Million Five Hundred Thousand U.S.
Dollars), divided by (ii) Parent Common Stock Price.
"Person" means any natural person or any legal, commercial or
governmental entity such as, but not limited to, any general or limited
partnership, firm, corporation, limited liability company, association, joint
venture, trust, unincorporated organization or person acting in a representative
capacity, as well as any syndicate or group that would be deemed to be a person
under Section 13(d)(3) of the Exchange Act, any successor statutes thereto, and
the rules and regulations promulgated thereunder.
"Pro Rata Share" means, with respect to each Unitholder, an amount
equal to the quotient of (i) all Units held by such Person immediately prior to
the Closing, divided by (ii) the Adjusted Fully Diluted Number of Units.
"Representative" means, with respect to a Person, any one or more of
its officers, directors, managers, members, employees, representatives and
agents.
"Residuals" means information in non-tangible form that may be
retained by individuals who have had authorized access to the Company
Intellectual Property, including ideas, concepts, know-how or techniques
contained therein.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Notes" means the unsecured promissory notes in the aggregate
principal amount of $20,000,000 (Twenty Million U.S. Dollars), each
substantially in the form attached hereto as Exhibit D.
"Software" means individually each, and collectively all, of the
computer programs, including interfaces and any embedded software programs or
applications, owned or licensed by the Company and used in the Company's
Business, including as to each program, the processes and routines used in the
processing of data, the object code, source code (as to third-party source code,
when rights to the source code may be obtained), tapes, disks, and all
improvements, modifications, enhancements, versions and releases relating
thereto.
"Subsidiary" means, any corporation or other organization, whether
incorporated or unincorporated, (i) of which such party or any other Subsidiary
of such party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any Subsidiary of such
party do not have a majority of the voting interests in such partnership) or
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(ii) at least a majority of the securities or other interests of which having by
their terms ordinary voting power to elect a majority of the Board of Directors
or others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
"Tax" means any income, gross receipts, sales, use, occupancy, ad
valorum, transfer, real estate, gains, excise, employment, franchise, profits,
property, capital stock, premium, minimum and alternative minimum or other
taxes, fees, stamp taxes and duties, assessments, levies, fees or charges of any
kind whatsoever (whether payable directly or by withholding), together with any
interest and any penalties, additions to tax or additional amounts imposed by
any Taxing Authority with respect thereto.
"Tax Return" means a report, return, declaration or other information
or statement required to be supplied to a Taxing Authority with respect to any
Tax, including any claim for refund of any Tax.
"Taxing Authority" means any Governmental Authority responsible for
the imposition or collection of any Tax.
"Transaction Expenses" means the amount of all fees, costs and
expenses that have been incurred or that are incurred by the Company in
connection with the transactions contemplated by this Agreement, including any
fees, costs or expenses payable to the Company's outside legal counsel or to any
financial advisor, accountant or other Person who performed services for or on
behalf of the Company, or who is otherwise entitled to any compensation from the
Company, in connection with this Agreement or any of the transactions
contemplated by this Agreement (except for salaries and other compensation paid
or payable to employees of the Company and fees (including accounting fees)
payable to service providers, in each case unrelated to this Agreement or any
transaction contemplated by this Agreement, and arising only in the ordinary
course of business consistent with past practice), but not including (x) any and
all premiums, fees, costs and expenses incurred by the Company, or for which the
Company has become obligated, prior to the Closing in connection with the
purchase of any directors' and officers' liability insurance tail policy, such
premiums, fees, costs and expenses not to exceed $40,000 in the aggregate or (y)
any fees, costs or expenses payable with respect to the audit of the Company's
financial statements for the year 2005, including without limitation those
incurred by BDO ▇▇▇▇▇▇▇, LLP and work done by third parties in support thereof,
such fees, costs and expenses not to exceed $100,000 in the aggregate.
"Units" means, collectively, the Class A Units, the Class B Units and
the Class C Units.
"Unitholder" means a Person who holds any Units.
"Unpaid Transaction Expenses" means any Transaction Expenses incurred
by the Company or for which the Company is otherwise liable that have not been
paid in full at or prior to the Closing.
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"User Data" means, to the extent collected or acquired by or on behalf
of the Company: (w) all data related to impression and "click through" activity
of users, including user identification and associated activities at a web site
as well as pings and activity related to closed loop reporting and all other
data associated with a user's behavior on the Internet, including without
limitation all e-mail lists or other user information acquired by the Company
directly or indirectly from a third party that collected such information, (x)
all data that contains a personal element allowing for the identification of a
natural person, (y) known, assumed or inferred information or attributes about a
user or identifier, and (z) all derivatives and aggregations of (w), (x) and
(y), including user profiles.
"Welfare Plan" means any "employee welfare benefit plan" as defined in
Section 3(1) of ERISA.
SECTION 1.2 Certain Additional Definitions. As used in this Agreement, the
following terms shall have the respective meanings ascribed thereto in the
respective sections of this Agreement set forth opposite each such term below:
Term Section
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Accounting Firm 3.9(b)
Accounts Receivable 5.5(c)
Adjusted Closing Date Payment Amount 3.3(a)(i)
Agreement Preamble
Article IX Indemnified Parties 9.2
Article IX Indemnity Notice 9.3(a)
Audited Company Financial Statements 5.5(a)
Cash 3.9(a)
Certificate of Formation 5.1
Certificate of Merger 2.3
Closing Certificate 3.7
Claim Notice 8.3(a)
Closing 2.2
Closing Date 2.2
Company Preamble
Company Assets 5.12
Company Benefit Plan(s) 5.14
Company Copyrights 5.13(d)
Company Disclosure Schedule Article V Preamble
Company Financial Statements 5.5(a)
Company Inbound License Agreements 5.13(f)
Company Indemnified Parties 7.2(b)
Company Insurance Policies 5.17
Company Outbound License Agreements 5.13(f)
Consents 5.4(c)
Content 5.13(g)
Copyrights 5.13(a)
Deductible Amount 8.4
Domain Names 5.13(a)
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Term Section
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Effective Time 2.3
Escrow Agent 3.2
Escrow Agreement 3.2
Final Closing Amount 3.9(b)
Incentive Option Pool 7.8
Indemnified Party 8.3(a)
Indemnity Notice 8.3(d)
Investment Company Act 5.24
Losses 8.2(a)
Majority Unitholders 8.8(a)
Member Consent 5.25(a)
Member Representative 8.8(a)
Merger Sub Preamble
Non-Competition Agreements Recitals
Operating Agreement 5.1
Parent Benefit Plans 7.3(a)
Parent Disclosure Schedule Article VI Preamble
Parent Indemnified Parties 8.2(a)
Parent SEC Filings 6.7
Parent Subsidiaries 6.4
Patents 5.13(a)
Payment Fund 4.1(a)
Permit 5.10
Privacy Policies 5.13(o)
Scheduled Contracts 5.7
SEC 6.7
Survival Period 8.1
Surviving Company 2.1
Third Party Claim 8.3(a)
Trademarks 5.13(a)
Trade Secrets 5.13(e)
Transaction Expenses List 7.7
Unaudited Company Balance Sheet 5.5(a)
Unaudited Company Financial Statements 5.5(a)
Valuation 7.4(a)
ARTICLE II.
THE MERGER
SECTION 2.1 Merger. Upon the terms and subject to the conditions hereof,
and in accordance with the DLLCA, the Company shall be merged with and into
Merger Sub at the Effective Time (as hereinafter defined). Following the Merger,
the separate existence of the Company shall cease. Merger Sub shall continue as
the surviving limited liability company following the Merger (the "Surviving
Company") and shall succeed to and assume all the rights
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and obligations of the Company in accordance with the DLLCA. The separate
existence of Merger Sub, with all of its rights, privileges, immunities, powers
and franchises, shall continue unaffected by the Merger.
SECTION 2.2 Closing. The closing of the Merger (the "Closing") shall take
place at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ immediately after the signing of this Agreement or
at such other date and place as Parent and the Company shall agree in writing
(such date hereinafter, the "Closing Date").
SECTION 2.3 Effective Time. The Merger shall become effective when the
Certificate of Merger (the "Certificate of Merger"), executed in accordance with
the relevant provisions of the DLLCA, is accepted for record by the Secretary of
State of the State of Delaware. When used in this Agreement, the term "Effective
Time" means the later of the date and time at which the Certificate of Merger is
accepted for record or the date and time established by the Certificate of
Merger.
SECTION 2.4 Effects of the Merger. At and after the Effective Time, the
Merger shall have the effects set forth in the DLLCA, including without
limitation, the effects set forth in Section 18-209(g) of the DLLCA.
SECTION 2.5 Limited Liability Company Operating Agreement; Manager and
Officers.
(a) At the Effective Time, the Operating Agreement of the Surviving
Company shall be amended to read in form and substance substantially the same as
Exhibit E hereto, until thereafter changed or amended as provided therein or
applicable Law.
(b) The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Company as of the Effective Time, until
the earlier of their resignation or removal or otherwise ceasing to be an
officer or until their respective successors are duly elected and qualified, as
the case may be. As the sole member of the Surviving Company, Parent shall be
the managing member of the Surviving Company.
ARTICLE III.
CONVERSION OF SECURITIES
SECTION 3.1 Conversion of Securities.
(a) As of the Effective Time, by virtue of the Merger and without any
action on the part of the holder of any Units or any outstanding units of
membership interest in Merger Sub:
(i) Each Unit, if any, that is held in the treasury of the
Company or by any wholly owned subsidiary of the Company shall be cancelled and
retired and no consideration shall be delivered in exchange therefor.
(ii) Each Unit (whether a Class A Unit, Class B Unit or Class C
Unit) issued and outstanding immediately prior to the Effective Time (other than
Units to be cancelled in accordance with Section 3.1(a)(i)) shall be converted,
pursuant to Article IV, at the Effective
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Time into the right to receive from Parent: (A) an amount in cash, without
interest, equal to the Closing Date Payment Amount plus the aggregate exercise
price of all vested Company Options that were outstanding as of January 31, 2006
but were exercised between January 31, 2006 and the Closing less the aggregate
amount of cash to be received by holders of vested Company Options pursuant to
Section 3.3(a)(i), less $20,000,000 (i.e., the original principal amount of the
Senior Notes), less $10,500,000 (i.e., the initial value of the Escrowed Common
Stock); plus (B) Senior Notes in the original principal amount equal to
$20,000,000 (Twenty Million U.S. Dollars); plus (C) the total number of shares
of Escrowed Common Stock required to be disbursed from the Escrow Fund in
accordance with the Escrow Agreement (as and when any such disbursements are
required to be made); plus (D) Parent Warrants exercisable for the total number
of shares of Parent Common Stock reserved for issuance pursuant to Section 3.6,
in the case of each of such clauses (A), (B), (C) and (D), divided by the number
of Units outstanding as of immediately prior to the Effective Time.
All such Units, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired, and each Unitholder shall cease to have
any rights with respect to such Units, except the right to receive the
consideration provided for herein.
(b) Issued and outstanding units of membership interest in Merger Sub
shall remain outstanding and not be affected by the Merger.
SECTION 3.2 Escrow. Concurrently with the execution and delivery of this
Agreement (i) Parent, the escrow agent (the "Escrow Agent") and the Member
Representative shall execute the escrow agreement substantially in the form
attached hereto as Exhibit F (the "Escrow Agreement") and (ii) Parent shall
deposit with the Escrow Agent, the Escrow Fund, for disbursement in accordance
with the terms of the Escrow Agreement. Each Unitholder holding Units shall be
entitled to receive his, her or its proportionate share of distributions of
Escrowed Common Stock (or proceeds thereof) from the Escrow Fund in respect of
each such Unit at such times and in the manner set forth in the Escrow
Agreement. The parties intend for federal income tax purposes, that property
held by the Escrow Agent shall be treated as delivered to recipient Unitholders
at the time such property is distributed to them from escrow (and not at the
time of deposit into escrow).
SECTION 3.3 Cancellation of Company Options.
(a) The Managers of the Company have taken such actions as are
necessary to provide that:
(i) each vested Company Option outstanding immediately prior to
the Effective Time shall, in accordance with the Company Option Plan, be
cancelled, terminated and extinguished immediately prior to the Effective Time
in exchange for the right to receive from Parent an amount in cash, without
interest, equal to (A) the number of Class A Units issuable pursuant to such
vested Company Option, multiplied by (B) (x) the sum of the Closing Date Payment
Amount plus the aggregate exercise price of all vested Company Options
outstanding as of January 31, 2006 (such sum, the "Adjusted Closing Date Payment
Amount") divided by (y) the Fully Diluted Number of Units, provided, that the
cash consideration payable pursuant to this
12
subsection (i) shall be reduced by the amount of the aggregate exercise price
for the Class A Units issuable pursuant to such vested Company Option;
(ii) each unvested Company Option outstanding immediately prior
to the Effective Time shall, in accordance with the Company Option Plan, be
cancelled, terminated and extinguished immediately prior to the Effective Time
in exchange for the right to receive from Parent a restricted stock award as set
forth in Section 3.4; and
(iii) the Company shall take or cause to be taken all actions
required to effect the terminations and cancellations set forth in this Section
3.3(a) and the Company Option Plan shall terminate immediately prior to the
Effective Time.
(b) Upon the cancellation of each Company Option, whether vested or
unvested, each Optionholder shall cease to have any rights with respect thereto,
except the right to receive from Parent the consideration payable with respect
thereto pursuant to Section 3.3(a)(i) or Section 3.3(a)(ii), as applicable.
SECTION 3.4 Restricted Stock Performance Plan.
(a) Parent has set aside the pool of Performance Plan Shares of Parent
Common Stock for grants of restricted stock awards to the holders of unvested
Company Options immediately prior to the Closing that are cancelled pursuant to
Section 3.3(a)(ii) and others as indicated on Schedule 3.4(a). The number of
Performance Plan Shares to be allocated to each recipient as of the Closing is
set forth on Schedule 3.4(a). Each such restricted stock award shall vest
according to the vesting schedule set forth on Schedule 3.4(a).
(b) All such restricted stock awards shall otherwise be subject to the
terms and conditions of Parent's 2004 Equity Incentive Award Plan and form of
Restricted Stock Award Agreement and such other terms and conditions as have
been established by Parent's Board of Directors or the Compensation Committee
thereof. Parent and its Board of Directors shall take such actions as are
necessary or appropriate to effect such restricted stock awards as promptly as
practicable after the Closing.
SECTION 3.5 Withholding Rights. Each of the Company, Parent, and the Escrow
Agent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any Unitholder or Optionholder holding
vested Company Options such amounts as it is required to deduct and withhold
with respect to the making of such payment under the Code, or any provision of
state, local or foreign Tax Law. To the extent that amounts are so withheld by
the Company, Parent or the Escrow Agent, as the case may be, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the Unitholder or Optionholder, as applicable, in respect of which such
deduction and withholding was made.
SECTION 3.6 Reservation of Warrant Stock. 1,082,923 shares of Parent Common
Stock have been duly reserved for future issuance upon the exercise of Parent
Warrants issuable pursuant to this Article III. When issued upon exercise of
Parent Warrants in exchange for payment of the exercise price therefor, such
shares will be duly authorized, validly issued, fully paid and nonassessable.
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SECTION 3.7 Closing Certificate. The Company has provided to Parent a
certificate, duly executed by an officer of the Company (the "Closing
Certificate"), pursuant to which the Company certifies and represents and
warrants to Parent as to the following amounts and provides documents supporting
such amounts: (1) the name and address of record of each Person who is a
Unitholder immediately prior to the Effective Time; (2) the name and address of
each Optionholder immediately prior to the Effective Time, and with respect to
Company Options held by each such Person, the number of Class A Units subject to
such Company Options (after giving effect to any exercises of Company Options
occurring prior to the Effective Time), the vesting schedule of such Company
Options and the per Unit exercise price with respect to such Company Options;
(3) the number (on a per class basis) of Units held by each Unitholder
immediately prior to the Effective Time; (4) the amount of cash, the number of
Parent Warrants and the principal amount of Senior Notes that each such
Unitholder is entitled to receive in connection with the Closing pursuant to
Section 3.1(a)(ii); (5) the amount of cash that each such Optionholder is
entitled to receive with respect to his or her vested Company Options in
connection with the Closing pursuant to Section 3.3(a)(i); and (6) the number of
shares of Escrowed Common Stock to be deposited in the Escrow Fund by Parent
pursuant to Section 3.2, and each Unitholder's Pro Rata Share of the Escrow
Fund.
SECTION 3.8 Payment by Parent. Parent shall make all payments required by
Section 3.3 concurrently with the Effective Time either directly or by
depositing the cash and securities to be distributed hereunder with the
Surviving Company's payroll service or any combination thereof.
SECTION 3.9 Closing Cash Adjustment.
(a) The "Closing Cash Adjustment," if any, shall mean the positive
difference, if any, between (x) $2,000,000 (Two Million U.S. Dollars) less (y)
the amount of the Company's cash and cash equivalents ("Cash") as of the close
of business on the Closing Date.
(b) Post-Closing Determination. As promptly as practicable, but in no
event later than sixty (60) days after the Closing, Parent shall deliver to the
Member Representative Parent's determination of the actual amounts of Cash of
the Company as of the close of business on the Closing Date (the "Final Closing
Amount"). The Final Closing Amount shall be prepared in accordance with GAAP,
based on the Company's books and records and other information then available.
The Final Closing Amount shall take into account the Closing Dividend, if any,
paid to the Company's Members prior to the Closing and all Transaction Expenses
paid at or prior to the Closing. Parent shall provide access to and make
reasonably available to the Member Representative and its agents, advisors and
representatives all books, records, work papers, schedules and calculations used
in preparing Parent's determination of the Final Closing Amount. If the Member
Representative disagrees with Parent's determination of the Final Closing
Amount, the Member Representative shall, within ten (10) days after receipt of
Parent's determination of the Final Closing Amount, notify Parent in writing of
such disagreement (such notice setting forth the basis for such disagreement in
reasonable detail) and Parent and the Member Representative thereafter shall
negotiate to resolve any such disagreement. If Parent and the Member
Representative are unable to resolve any such disagreement within twenty (20)
days after the Member Representative delivers its notice of disagreement to
Parent, the Member Representative and Parent shall submit the dispute to
Deloitte & Touche LLP (the "Accounting
14
Firm"). Parent and the Member Representative shall use reasonable efforts to
cause the Accounting Firm to resolve all disagreements over the Final Closing
Amount as soon as practicable, but in any event within thirty (30) days after
submission of the dispute to the Accounting Firm. Parent and the Member
Representative shall instruct the Accounting Firm to resolve all disagreements
over the computations of the Final Closing Amount at an amount determined by the
Member Representative or at an amount determined by Parent or at any amount
between such amounts. The resolution of such disagreements and the determination
of the Final Closing Amount by the Accounting Firm shall be final and binding on
Parent, the Member Representative and the Members. Parent and the Member
Representative (on behalf of the Members) shall each pay one half of the fees
and expenses of the Accounting Firm.
(c) Post-Closing Adjustment. In the event there is a Closing Cash
Adjustment, then Parent may give written notice to the Escrow Agent and the
Member Representative asserting a claim against the Escrow Fund in the full
amount of such adjustment, without regard to the Deductible Amount.
(d) Ordinary Course Operations by the Company. On the Closing Date
after the Closing, the Company shall not at any time during such period (i)
accelerate or delay in any material respect the collection of any account
receivable in advance of or beyond its regular due date or the date on which the
same would have been collected in the ordinary course of business consistent
with past practice, (ii) delay or accelerate in any material respect the payment
of any account payable in advance of its due date or the date such liability
would have been paid in the ordinary course of business consistent with past
practice or (iii) make any loans or distributions to the members of the Company
or the Surviving Company or their respective Affiliates.
SECTION 3.10 Total Cash Consideration. In no event shall the total amount
of cash distributed by parent pursuant to Sections 3.1 and 3.3 exceed
$22,000,000.
ARTICLE IV.
EXCHANGE OF UNITS
SECTION 4.1 Exchange of Units.
(a) Payment Fund. Subject to Section 4.1(b), following the Closing,
Parent shall (i) issue and deliver Parent Warrants issuable pursuant to Section
3.1(a)(ii), (ii) issue and deliver Senior Notes pursuant to Section 3.1(a), and
(iii) deliver cash deliverable pursuant to Section 3.1(a), in each case in
exchange for Units (the Parent Warrants, the Senior Notes, and the cash
delivered pursuant to Section 3.1(a) being hereinafter referred to as the
"Payment Fund"). Except as contemplated by Section 4.1(f) hereof, the Payment
Fund shall not be used for any other purpose.
(b) Exchange Procedures. Promptly following the date of this
Agreement, the Surviving Company shall deliver to each Unitholder (other than
with respect to Units to be canceled or retired pursuant to Section 3.1(a)(i)),
(i) a letter of transmittal in a form and having such provisions as Parent and
the Company have agreed and (ii) instructions for use in effecting the surrender
of the Units in exchange for the consideration provided herein. Upon delivery of
a letter of transmittal to Parent, duly executed, and such other documents as
may reasonably be
15
required by Parent, the Unitholder shall receive the amount of consideration
into which such Units shall have been converted pursuant to Section 3.1(a). No
interest will be paid or will accrue on any cash payable between the date of
submission of the letter of transmittal and payment with respect thereto by
Parent. If payment is to be made to a person or entity other than the registered
holder of a Unit, it shall be a condition of payment that the Unitholder
requesting such payment follow the reasonable procedures requested by Parent and
that the Person requesting such payment shall pay any transfer or other taxes
required by reason of such request or establish to the satisfaction of Parent
that such tax has been paid or is not applicable. Parent shall cause all cash,
Senior Notes and Parent Warrants payable with respect to any Unit to be
delivered to each former Unitholder no later than two (2) Business Days after
Parent's receipt of the executed and delivered letter of transmittal in proper
form.
(c) No Liability. None of Parent, the Company or any party hereto
shall be liable to any holder of Units for any shares of Parent Common Stock (or
dividends or distributions with respect thereto), Parent Warrants, Senior Notes
or cash or interest from the Payment Fund delivered to a public official
pursuant to any abandoned property, escheat or similar Law. Persons who prior to
the Merger held Units shall look only to Parent (subject to the terms of this
Agreement and abandoned property, escheat and other similar laws) with respect
to any consideration that may be payable upon due surrender of the Units held by
them, without interest.
(d) Distributions with Respect to Unexchanged Shares of Parent Common
Stock. No dividends or other distributions declared or made after the Effective
Time with respect to Parent Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Unit with respect to the
shares of Parent Common Stock represented thereby, unless and until the holder
of such Unit shall have delivered a properly executed letter of transmittal to
Parent.
(e) Fractional Shares. No certificates, scrip or book-entries
representing fractional shares of Parent Common Stock shall be issued in
connection with the Merger, no dividend or distribution with respect to Parent
Common Stock shall be payable on or with respect to any fractional share and
such fractional share interests will not entitle the owner thereof to any rights
of a stockholder of Parent, in lieu of such fractional shares, after aggregating
all fractional shares of Parent Common Stock issuable to any holder, such holder
shall be issued a number of whole shares of Parent Common Stock rounded down to
the next whole share. The fractional share determination shall be made
individually for each Unitholder. Each Parent Warrant initially shall be
exercisable for the number of shares of Parent Common Stock determined in
accordance with Section 3.1(a)(ii), rounded up or down to the nearest whole
share.
(f) Termination of Payment Fund. Any portion of the Payment Fund which
remains undistributed to the Unitholders for twelve (12) months after the
Effective Time shall be retained by Parent without restriction, and any
Unitholders who have not theretofore complied with this Article IV shall
thereafter look only to Parent for the shares of Parent Common Stock, Senior
Notes, Parent Warrants, cash deliverable pursuant to Section 3.1(a) to which
they are entitled pursuant to Section 4.1(e), in each case, without any interest
thereon, and any disbursements required to be made from the Escrow Fund pursuant
to the terms of the Escrow Agreement.
16
SECTION 4.2 No Further Ownership Rights in Units; Closing of Company
Transfer Books. At and after the Effective Time, each Unitholder shall cease to
have any rights as a Unitholder, except the right to surrender his, her or its
Units in exchange for payment of the consideration specified herein and no
transfer of Units shall be made on the Unit transfer books of the Company. At
the Effective Time, the Unit transfer books of the Company shall be closed, and
no transfer of Units shall thereafter be made.
SECTION 4.3 Further Assurances. At and after the Effective Time, the
officers and Managers of the Company will be authorized to execute and deliver,
in the name and on behalf of the Company or Merger Sub, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf of
the Company or Merger Sub, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Company any and all right, title
and interest in, to and under any of the rights, properties or assets acquired
or to be acquired by the Surviving Company as a result of, or in connection
with, the Merger.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the written disclosure schedule dated as of the
date of this Agreement and previously delivered by the Company to Parent (the
"Company Disclosure Schedule") (it being understood that the Company Disclosure
Schedule shall be arranged in sections corresponding to the sections contained
in this Agreement, and the disclosures in any section of the Company Disclosure
Schedule shall qualify the representations in the corresponding section of this
Article V and shall be deemed made in any other section or sections of the
Company Disclosure Schedule where the relevance of such disclosures is
reasonably apparent from the text of such disclosure), the Company hereby
represents and warrants to Parent and Merger Sub as follows:
SECTION 5.1 Organization. The Company is a limited liability company duly
organized, validly existing and in good standing under the Laws of the State of
Delaware, and has all requisite limited liability company power and authority to
own, operate or lease the properties and assets now owned, operated or leased by
it, and to carry on its Business in all material respects as currently
conducted. The Company is duly qualified to do business, and is in good
standing, under the Laws of the Commonwealth of Virginia. True and complete
copies of the Certificate of Formation (the "Certificate of Formation") and
Operating Agreement of the Company (the "Operating Agreement"), each as amended
and in effect as of the date of this Agreement, have been made available to
Parent. The Company is not in material violation of any of the provisions of the
Certificate of Formation or Operating Agreement. True and complete copies of all
minutes of meetings (and consents in lieu thereof) of the Company's Unitholders
and of its Managers have been made available by the Company to Parent.
SECTION 5.2 Capitalization.
(a) As of the date of this Agreement, 755,000 uncertificated Class A
Units are issued and outstanding, 20,000,000 uncertificated Class B Units are
issued and outstanding and 12,188,690 uncertificated Class C Units are issued
and outstanding. Except as set forth in the immediately preceding sentence or on
the Closing Certificate, no other equity securities of
17
the Company are issued or outstanding. All such issued and outstanding Units
have been duly authorized and validly issued, and were not issued in violation
of any preemptive or similar rights created by statute, the Certificate of
Formation, the Operating Agreement or any agreement to which the Company is a
party or by which it is bound. At the Effective Time, by virtue of the Merger
and assuming Parent's payment of the consideration payable pursuant to Article
III, Parent will acquire good and marketable title to all of the issued and
outstanding Units as of the Closing, free and clear of all Encumbrances. The
Closing Certificate sets forth, as of the date of this Agreement, the name of
each Unitholder, his, her or its address of record and the number and class of
Units held of record by each such Unitholder. There are no accrued or unpaid
dividends or distributions with respect to any issued and outstanding Units. At
the Closing, the holders of the Units shall have no claims against Parent (other
than a claim for payment of the consideration payable pursuant to Article III)
or the Company or their respective Affiliates, Managers, officers, directors,
stockholders or Unitholders with respect to such Units.
(b) As of the date of this Agreement, except as set forth in the
Closing Certificate, there are (i) no outstanding options, warrants, calls,
rights of conversion or other rights, agreements, arrangements or commitments of
any kind or character, whether written or oral, relating to the Units to which
the Company is a party, or by which it is bound, obligating the Company to
issue, deliver or sell, or cause to be issued, delivered or sold, any Units, and
(ii) no outstanding or authorized Unit appreciation, phantom Unit, profit
participation, or other similar rights with respect to the Company. Each Company
Option was issued pursuant to and in accordance with the documents listed on
Section 5.2(b) of the Company Disclosure Schedule. At the Closing, all
outstanding Company Options shall be extinguished and, except for the right to
receive the consideration payable pursuant to Article III, the holders of vested
and unvested Company Options shall have no claims against Parent or the Company
or their respective Affiliates, Managers, officers, directors or Unitholders
with respect to such Company Options.
(c) As of the date of this Agreement and except as set forth in
Section 5.2(c) of the Company Disclosure Schedule, there are (i) no rights,
agreements, arrangements or commitments of any kind or character, whether
written or oral, relating to the Units to which the Company is a party, or by
which it is bound, obligating the Company to repurchase, redeem or otherwise
acquire any issued and outstanding Units; (ii) no voting agreements, member
agreements, proxies or other agreements or understandings in effect to which the
Company is a party, or by which it is bound, with respect to the governance of
the Company or the voting or transfer of any Units and (iii) no rights,
agreements, arrangements or commitments of any kind or character, whether
written or oral, granting any right of first refusal with respect to, or any
preemptive or antidilutive right with respect to, any Units.
SECTION 5.3 Subsidiaries. The Company has never had and it does not
currently have any Subsidiaries. There are no other Persons in which the Company
owns, of record or beneficially, any direct or indirect equity interest or any
right (contingent or otherwise) to acquire any equity interest, other than
investment securities in which cash in excess of that needed for the Company's
operations is invested. The Company is not a member of any partnership or
limited liability company, nor is the Company a participant in any joint venture
or similar arrangement constituting a legal entity.
SECTION 5.4 Authorization; No Conflicts
18
(a) The Company has full power and authority to execute and deliver
this Agreement and the Ancillary Agreements to which it is a party, to perform
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Ancillary Agreements to which the Company is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly approved by the Company's Managers and Unitholders and no other
limited liability company proceedings on the part of the Company and its
Managers and Unitholders are necessary to approve this Agreement or the
Ancillary Agreements to which the Company is a party or to authorize or
consummate the transactions contemplated hereby or thereby. This Agreement and
the Ancillary Agreements to which the Company is a party have been duly and
validly executed and delivered by the Company and (assuming the due
authorization, execution and delivery of this Agreement and the Ancillary
Agreements to which the Company is a party by each of the other parties hereto
and thereto) constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as the enforceability thereof may be subject to or limited by bankruptcy,
insolvency, reorganization, moratorium or similar Laws relating to or affecting
the rights of creditors generally and the availability of equitable relief
(whether in proceedings at law or in equity).
(b) Assuming the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, and that those consents,
authorizations, filings, notifications and other actions set forth on Section
5.4(b) of the Company Disclosure Schedule have been obtained or made, neither
the execution and delivery by the Company of this Agreement or the Ancillary
Agreements to which the Company is a party nor the consummation by the Company
of any of the transactions contemplated hereby or thereby, nor compliance by the
Company with any of the terms or provisions hereof or thereof, will (i) violate
any provision of the Certificate of Formation or Operating Agreement or (ii)
violate, conflict with or require any notice, filing, consent, waiver or
approval under any material Law to which the Company or any of its properties,
contracts or assets are subject.
(c) Set forth on Section 5.4(c) of the Company Disclosure Schedule is
a list of each consent, notice, approval or waiver under any material Contract
to which the Company is a party, or by which the Company or any of its
properties or assets may be bound, which is required in order for the Company to
consummate the transactions contemplated by this Agreement or to comply with any
of the terms or provisions hereof or (y) where consummation of the transactions
contemplated by this Agreement in the absence of such consent, notice, approval
or waiver would violate, conflict with, result in a breach of any provision of
or the loss of any benefit under, constitute a default (or an event which, with
or without notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation under,
result in the creation of any Encumbrance under, or accelerate or result in a
right of acceleration of the performance required by, any such material Contract
(collectively, the "Consents"). The Company has not obtained any of the
Consents.
SECTION 5.5 Financial Statements.
(a) Attached as Section 5.5(a) of the Company Disclosure Schedule are
the following items: (i) the unaudited consolidated balance sheet of the Company
as of December
19
31, 2005 and the related consolidated statements of income and cash flows for
the year ended December 31, 2005 (the statements referred to in this clause (i)
(including the balance sheet), the "Unaudited Company Financial Statements" and
the unaudited balance sheet as of December 31, 2005, the "Unaudited Company
Balance Sheet"); and (ii) the audited consolidated balance sheets of the Company
as of December 31, 2004 and 2003 and the related consolidated statements of
income and cash flows for the fiscal years ended December 31, 2004 and 2003 (the
statements referred to in this clause (ii) (including the balance sheets), the
"Audited Company Financial Statements" and together with the Unaudited Company
Financial Statements, the "Company Financial Statements"). The Company Financial
Statements present fairly, in all material respects, the financial position of
the Company as of the respective dates thereof and the results of the Company's
operations for the fiscal periods therein set forth. Section 5.5 of the Company
Disclosure Schedule sets forth the Company's accounting policies with respect to
certain matters and any instances in which the Company Financial Statements have
not been prepared in accordance with GAAP consistently applied throughout such
fiscal periods (subject to normal year-end audit adjustments with respect to the
Unaudited Company Financial Statements), except as may be indicated in the notes
thereto with respect to the Unaudited Company Financial Statements.
(b) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
with management's authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP and to
maintain accountability for assets, (iii) the Company tracks and monitors its
material assets and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(c) The Company has made available to Parent an itemization of the
accounts receivable (including aging) of the Company as of December 31, 2005
(the "Accounts Receivable"). The Accounts Receivable represent bona fide claims
against debtors for sales, services performed (or to be performed) or other
charges arising pursuant to binding agreements entered into on or before the
respective dates of recording thereof. All Accounts Receivable have been billed
in accordance with the past practice of the Company consistently applied and, to
the Knowledge of the Company, are collectible in the ordinary course of business
within one hundred eighty (180) days, except to the extent of an amount not in
excess of the reserve for doubtful accounts reflected on the Unaudited Company
Balance Sheet.
(d) To the Knowledge of the Company, there are no outstanding claims
against the Company to return any products by reason of alleged overshipments,
defective products or otherwise.
(e) The Company has made and kept (and made available to Parent) its
books and records and accounts, which, in reasonable detail, accurately and
fairly reflect the activities of the Company's Business. All minutes of meetings
of the Company's Unitholders and Managers (and consents in lieu thereof) have
been made available to Parent and are true and correct in all material respects.
The Company has not maintained any bank account except for bank accounts which
have been and are reflected in the Company's books and records.
20
SECTION 5.6 Undisclosed Liabilities
(a) Except as set forth on Section 5.6 of the Company Disclosure
Schedule, to the Knowledge of the Company, it has no liabilities or obligations
(absolute, accrued, contingent or otherwise) except (a) liabilities and
obligations (including warranties) under contracts and commitments incurred in
the ordinary course of business and not required under GAAP to be reflected in
the Company Financial Statements (including the notes thereto), which are not
material to the assets, properties, business, financial condition or operating
results of the Company, (b) liabilities and obligations which are reflected and
properly reserved against in the Company Financial Statements in accordance with
GAAP, and (c) liabilities and obligations incurred in the ordinary course of
business and consistent with past practice since the Unaudited Company Balance
Sheet Date. None of the liabilities or obligations described in this Section 5.6
relates to any breach of Contract, breach of warranty, tort, infringement,
misappropriation or violation of law or arose out of any Action.
(b) The Company has never affected or otherwise been involved in any
"off-balance sheet arrangements" (as defined in Item 303(a)(4) of Regulation S-K
under the Exchange Act). Without limiting the generality of the foregoing, the
Company is not providing a guarantee of any debt or other obligation of any
other Person.
SECTION 5.7 Contracts. Section 5.7 of the Company Disclosure Schedule sets
forth a complete and accurate list or description of all Contracts as of the
date of this Agreement: (v) pursuant to which the Company (i) was billed by or
paid to a counterparty, or invoiced a customer, in excess of $75,000 in calendar
year 2005 or (ii) has an obligation that the Company reasonably believes will
result in it being billed by or making payments to a counterparty, or that the
Company reasonably believes will result in it invoicing customers, in excess of
$75,000 in 2006 or any calendar year thereafter pursuant to Contracts currently
in force (other than, in the case of 2006 or thereafter, purchases by the
Company of items costing less than $25,000 in any individual case and made in
the ordinary course of business) and that is not otherwise required to be
disclosed pursuant to subsections (x), (y) or (z) of this Section 5.7; (w)
agreements set forth under subsection (v) that are not terminable by the Company
within ninety (90) days from the date of this Agreement without penalty or
further obligation on the part of the Company; (x) that involve material
payments based on profits or revenues of the Company; (y) that are employment,
management, consulting or severance agreements or other agreements or
arrangements with any employees or independent contractors of the Company that
differ in any material respect from the Company's current standard form of any
of the foregoing (other than standard offer letters which provide for no
severance benefits materially in excess of such benefits afforded to Company
employees generally), of which copies of such standard forms have been
previously made available by the Company to Parent; or (z) that include any
noncompetition or nonsolicitation covenant or any exclusive dealing or similar
arrangement that limits the ability of the Company or any of its Affiliates to
compete (geographically or otherwise) in any line of business (collectively, the
"Scheduled Contracts"). True, correct and complete copies of the current
standard form of offer letter, employee invention and proprietary rights
assignment agreements or option agreements used by the Company (and any prior
forms of employment agreement, employee invention and proprietary rights
assignment agreements or option agreements that are currently in effect and that
differ in any material respect from the Company's current standard forms) have
been previously made available to Parent. True,
21
correct and complete copies of each Scheduled Contract have been made available
to Parent. As of the date of this Agreement, each of the Scheduled Contracts is
a legal, valid and binding obligation of the Company (assuming the due
authorization, execution and delivery by the other parties thereto) and is in
full force and effect and enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar Laws relating to or affecting creditors generally and by
the availability of equitable remedies (whether in proceedings at law or in
equity). The Company has not received written notice of cancellation of or
default under or intent to cancel or call a default under any of the Scheduled
Contracts. The Company has performed all obligations required to be performed by
it to date under the Scheduled Contracts where such nonperformance would result
in a material breach of or material default under any such Scheduled Contract,
and there exists no event or condition which with or without notice or lapse of
time or both would be a material breach or a material default on the part of the
Company or, to the Knowledge of the Company, on the part of any other party to
such Scheduled Contracts.
SECTION 5.8 Tax Matters.
(a) Filing of Tax Returns. Set forth on Section 5.8(a) of the Company
Disclosure Schedule is a list of all Tax Returns that the Company has filed.
Except as set forth on Section 5.8(a) of the Company Disclosure Schedule, the
Tax Returns filed are complete and accurate in all respects. The Company has
used the accrual method of accounting for income tax purposes since January 1,
2003.
(b) Payment of Taxes. Except as set forth on Section 5.8(b) of the
Company Disclosure Schedule: (i) the Company does not have, and will not have,
any Liability for Taxes in respect to periods or partial periods ending on or
before the Closing Date and (ii) all Taxes that the Company is required by
applicable Law to withhold or collect for periods ending on or before the
Closing Date have been duly withheld or collected and have been timely paid over
to the appropriate governmental authorities to the extent due and payable.
(c) Audits, Investigations or Claims. Except as set forth on Section
5.8(c) of the Company Disclosure Schedule, no deficiencies for Taxes of the
Company have been claimed, proposed or assessed by any taxing or other
governmental authority. There are no pending audits, assessments or other
Actions for or relating to any Liability in respect of Taxes of the Company, and
to the Knowledge of the Company no audits, assessments or other Actions for or
relating to any Liability in respect of Taxes of the Company are Overtly
Threatened. The Company has not been notified that any taxing authority intends
to audit a Tax Return for any other period. No extension of a statute of
limitations relating to Taxes is in effect with respect to the Company.
(d) Lien. There are no Encumbrances for Taxes (other than Permitted
Encumbrances) on any asset of the Company.
(e) Derivative Liability for Taxes. The Company has never been a
member of an affiliated group of corporations within the meaning of Section 1504
of the Code. The Company has no Liability for the Taxes of any other Person (i)
under Treasury Regulations
22
Section 1.1502-6 (or any similar Regulations), (ii) as a transferee or
successor, (iii) by contract, or (iv) otherwise.
(f) Tax Sharing Agreements. There are no Tax-sharing agreements or
similar arrangements (including indemnity arrangements) with respect to or
involving the Company, and, after the Closing Date, neither the Company nor
Merger Sub (by virtue of the Merger) shall be bound by any such Tax-sharing
agreements or similar arrangements (entered into prior to the Closing) or have
any Liability thereunder for amounts due in respect of periods prior to or after
the Closing Date.
(g) Foreign Person. Except as set forth on Section 5.8(g) of the
Company Disclosure Schedule, for purposes of withholding under Section 1445 of
the Code, neither the Company nor, to the Company's Knowledge, any Person having
a direct or derivative equity interest in the Company is a "foreign person" as
defined in Section 1445(f)(3) of the Code.
(h) Permanent Establishment; State Presence. The Company does not have
and has not had a permanent establishment in any foreign country, as defined in
any applicable tax treaty or convention between the United States of America and
such foreign country. All jurisdictions in which the Company has been or is as
of the Closing Date required to file a Tax Return is set forth on Section 5.8(h)
of the Company Disclosure Schedule.
(i) Disallowance of Interest Deductions. None of the outstanding
indebtedness of the Company constitutes indebtedness with respect to which any
interest deductions may be disallowed under Section 163(i) or 163(l) or 279 of
the Code or under any other applicable Regulations.
(j) International Boycotts. The Company has never participated in and
is not participating in an international boycott within the meaning of Code
Section 999.
(k) Partnership Characterization. The Company is, will be through the
time of the Closing, and at all times since its formation has been, properly
characterized as a partnership for United States income tax purposes and all
applicable state and local income and franchise tax purposes.
SECTION 5.9 Litigation and Governmental Orders. Except as set forth on
Section 5.9 of the Company Disclosure Schedule, there are no material legal,
administrative, arbitral or other proceedings (including disciplinary
proceedings) or Actions of any nature pending or of which the Company has
received written notice or that, to the Knowledge of the Company, are Overtly
Threatened (i) against the Company, any assets of the Company or its Business or
that challenge the validity or propriety of the transactions contemplated by
this Agreement or by any of the Ancillary Agreements; (ii) involving any of the
Company's products or services; or (iii) challenging the Company's right to use
any products owned or licensed by any of the Company's vendors. There is no
injunction, order, judgment, decree or material regulatory restriction imposed
upon the Company or any assets of the Company or its Business.
SECTION 5.10 Compliance with Laws.
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(a) The Company holds, and at all times has held, and at Closing will
hold, all material licenses, franchises, decrees, permits and authorizations
required under applicable Law (collectively, "Permits") for the lawful
ownership, operation and use of the assets of the Company and the conduct of the
Company's Business under and pursuant to, and has complied with each in all
material respects, and the Company is not in material default under any
applicable Law relating to the Company or any of its material assets, properties
or operations, and there are no outstanding material violations of any of the
above, and the Company has not received written notice asserting any such
violation. The Company has been and is in compliance with all Permits in all
material respects. Section 5.10(a) of the Company Disclosure Schedule sets forth
a true and complete list of all material Permits currently held by the Company.
The Company has all material Permits required to permit the Company to conduct
its Business.
(b) No Governmental Authority has provided written notice to the
Company of, and, to the Knowledge of the Company, no Governmental Authority has
otherwise initiated or Overtly Threatened to commence, any Action, proceeding or
investigation into the Business or operations of the Company or any of its
officers, directors or employees in their capacity as such with the Company.
There is no material unresolved deficiency, violation or exception claimed by
any Governmental Authority with respect to any examination of the Company.
SECTION 5.11 Properties.
(a) The Company has good and marketable title to, or valid leasehold
interests in, all of its tangible properties and tangible assets. All tangible
properties and tangible assets, other than tangible properties and tangible
assets in which the Company has a leasehold interest, are free and clear of all
Encumbrances, other than Permitted Encumbrances. The Company has complied in all
material respects with all leases to which it is a party and under which it is
in occupancy, and all such leases are in full force and effect. The Company
enjoys peaceful and undisturbed possession under all such leases. Section 5.11
of the Company Disclosure Schedule sets forth a complete list of all real
property and interests in real property owned or leased by the Company and a
true and complete list of all personal property, equipment and fixtures (other
than individual items as noted on the respective invoices to the Company for
such items having an invoiced amount of less than $25,000) owned by the Company,
all of which personal property, equipment and fixtures are in good condition,
normal wear and tear excepted.
(b) There are no pending or, to the Knowledge of the Company, Overtly
Threatened, condemnation or similar Actions against the Company or otherwise
relating to any of the properties or assets and the Company has not received any
written notice of the same.
(c) Since December 31, 2005, there has not been any damage,
destruction or loss (whether or not covered by insurance) affecting the
Company's assets or its Business which would reasonably be expected to have a
Company Material Adverse Effect.
SECTION 5.12 Sufficiency of and Title to Assets. The Company owns all
right, title and interest in and to or has sufficient rights to all of the
properties, assets and rights of any
24
kind, whether tangible or intangible, real or personal (including, without
limitation, the Company Intellectual Property), necessary to enable the Company
(prior to the Closing) and the Surviving Company (immediately after the Closing)
to conduct the Business as currently conducted (the "Company Assets"), free and
clear of any Encumbrances, other than Permitted Encumbrances. The Company has
sole right, title and interest in and to or has sufficient rights to all of its
assets, free and clear of any Encumbrances, other than Permitted Encumbrances.
SECTION 5.13 Intellectual Property.
(a) Generally. Section 5.13(a) of the Company Disclosure Schedule sets
forth a complete and accurate list of all of the Company's United States and
foreign: (i) registered or filed applications for trademarks, service marks and
trade names and designs owned by or exclusively licensed to the Company
(collectively, "Trademarks") and for each Trademark, the application serial
number or registration number thereof, if applicable, the class of goods or the
description of the goods or services covered thereby, the countries in which
such Trademark is registered, and the expiration date for each country in which
trademark, service ▇▇▇▇, trade name or design has been registered; (ii) patents
and patent applications (including utility models and applications therefor, as
applicable, and any continuations, continuations-in-part, divisionals, reissues,
renewals and applications for any of the foregoing) that are owned by or
exclusively licensed to the Company (collectively, "Patents") and for each
Patent, the number, issue date, title and priority information for each country
in which such Patent has been issued, and for each Patent application, the
application number, date of filing, title and priority information for each
country in which a Patent application is pending and (iii) registered domain
names, and World Wide Web Universal Resource Locators that are owned by or
exclusively licensed to the Company (collectively, "Domain Names"); in each
case, except where such intellectual property relates to (x) Software generally
available on reasonable terms without charge or for a license fee of no more
than $50,000 or (y) agreements relating to Company Intellectual Property not
incorporated into or used in the development, manufacturing or distribution of
the products or services of the Company.
(b) Trademarks.
(i) All required registration, maintenance and renewal fees have
been made with respect to all Trademarks. No Trademark is now involved in any
opposition or cancellation proceeding in the United States Patent and Trademark
Office. Except as set forth on Section 5.13(b)(i) of the Company Disclosure
Schedule, to the Knowledge of the Company, there has been no prior use of any
Trademark of the Company by any third party that confers upon said third party
superior rights in any such Trademark.
(ii) The Company has not received any written notice or claim or
overt oral threat challenging the Company's ownership of the Trademarks.
(c) Patents.
(i) All required registration, maintenance and renewal fees have
been made with respect to all Patents that, if not made, would result in a
revocation or lapse of the Patent in question.
25
(ii) No Patent of the Company is now involved in any
interference, reissue, reexamination or opposition proceeding in the United
States Patent and Trademark Office or any foreign patent office, and, to the
Knowledge of the Company, no such action has been Overtly Threatened.
(iii) The Company is the owner of all right, title and interest
in and to all of the Patents, in each case free and clear of any and all
Encumbrances, and the Company has not received any written notice or claim
challenging the Company's ownership of the Patents, and to the Knowledge of the
Company, no such claim has been Overtly Threatened. There is no agreement,
decree, arbitral award or other provision or contingency which obligates the
Company to grant licenses in future Patents.
(d) Copyrights. Section 5.13(d) of the Company Disclosure Schedule
sets forth a complete and accurate list of all the Company's registered
copyrights. The Company is the owner of each of the copyrights used by the
Company in its Business, in each case free and clear of any and all
Encumbrances, other than those as to which the rights being exercised by the
Company (i) have been licensed from another Person or (ii) that are not
incorporated into, or used in the development, manufacturing, or distribution of
the products or services of the Company (collectively, "Company Copyrights"),
and no third party has challenged the Company's ownership or use of the Company
Copyrights in any written notice and to the Knowledge of the Company, no such
challenge has been Overtly Threatened. To the Knowledge of the Company, no other
Person has infringed or is infringing any of the Company Copyrights.
(e) Trade Secrets.
(i) Except as would not reasonably be expected to cause a Company
Material Adverse Effect, the Company has taken commercially reasonable steps to
protect its rights in confidential information and proprietary information,
including any formula, pattern, compilation, program, device, method, technique,
or process for which the Company has not sought Patent protection used by the
Company in its Business, explicitly excluding Residuals, that the Company has
reasonably determined: (1) derives independent economic value, actual or
potential, from not being generally known to the public or to other Persons who
can obtain economic value from its disclosure or use and (2) is the subject of
efforts that are reasonable under the circumstances to maintain its secrecy
(collectively, "Trade Secrets").
(ii) Without limiting the generality of Section 5.13(e)(i), and
except as set forth in Section 5.13(e)(ii) of the Company Disclosure Schedule,
the Company has a policy of requiring each relevant employee, consultant and
contractor to execute proprietary information, confidentiality and assignment
agreements substantially in the Company's standard forms that assign to the
Company all rights to any Company Intellectual Property that are developed by
the employees, consultants or contractors in the course of their employment or
other service to the Company, as applicable, and that the Company reasonably
believes otherwise appropriately protect the Company Intellectual Property, to
the Knowledge of the Company such policy has been complied with in all material
respects; and, except (A) subject to appropriate confidentiality obligations,
(B) situations that would not reasonably be expected to cause a Company Material
Adverse Effect or (C) demonstrations of Software and the functionality of such
Software to customers, potential customers, vendors, partners or other
26
Persons with whom the Company has or is seeking a business relationship in the
ordinary course of business, there has been no disclosure by the Company of its
confidential information or Trade Secrets; nor, to the Knowledge of the Company,
have any actions been taken by the Company which would affect the Company's
ability to obtain U.S. or foreign protection for the Company's inventions for
which Patent applications have been filed.
(f) License Agreements
(i) Section 5.13(f)(i) of the Company Disclosure Schedule sets
forth a complete and accurate list of all license agreements granting to the
Company any right to use or practice any rights under any intellectual property
rights of third parties currently used by the Company in the operation of the
Company's Business (other than (x) Software generally available on reasonable
terms without charge or for a license fee of no more than $50,000 or (y)
agreements relating to intellectual property rights of third parties not
incorporated into or used in the development, manufacturing or distribution of
the products or services of the Company) (collectively, the "Company Inbound
License Agreements"), indicating for each the title and the parties thereto.
(ii) Section 5.13(f)(ii) of the Company Disclosure Schedule sets
forth a complete and accurate list of all license agreements (other than "click
through" end user license agreements entered into by the Company in the ordinary
course of business) currently in effect and under which the Company invoiced in
calendar year 2005, or reasonably expects to invoice during calendar year 2006,
providing for payments during either such year to the Company in excess of
$100,000 under which the Company has granted licenses of Software or other
rights to in or to use or practice any rights under any Company Intellectual
Property (indicating for each the title and parties thereto) (the "Company
Outbound License Agreements").
(iii) The Company has not received written notice of any material
disagreement with respect to any Company Inbound License Agreement or any
Company Outbound License Agreement. Correct and complete executed copies of all
Company Inbound License Agreements and Company Outbound License Agreements have
been made available to Parent.
(g) Domain Names. The Company is the sole owner of the Domain Names,
and all such Domain Names are currently registered by the Company, as sole
owner, with an ICANN accredited registrar, and the registration fees are paid
through the date(s) listed on Section 5.13(g) of the Company Disclosure
Schedule. To the Company's Knowledge and except as may be provided on any such
internet site or in any terms of use or other policy governing the use of or
access to any such internet site, the Company is the owner or has sufficient
rights to display all content displayed on the Internet site associated with
each of the Domain Names (collectively, the "Content"), and, except pursuant to
Contracts listed on Section 5.4(c) of the Company Disclosure Schedule, no
consent, license or approval from any third party is required in connection with
the sale or transfer of the ownership of the Domain Names and the continued use
of the Content by the Surviving Company.
(h) Ownership; Sufficiency of Intellectual Property Assets. The
Company owns or possesses adequate licenses or other rights to use, free and
clear of Encumbrances
27
(except in the case of licenses, the interests of the licensing party) all
Company Intellectual Property and Software (to the extent owned or exclusively
licensed), and, to the Knowledge of the Company, software not owned or
exclusively licensed by the Company, in each case used in the conduct of the
Company's Business. To the Company's Knowledge, the Company Intellectual
Property together with the Company's rights granted to it under the Company
Inbound License Agreements, constitute all intellectual property used in the
operation of the Company's Business as currently conducted.
(i) No Infringement by the Company. Except as set forth on Section
5.13(i) of the Company Disclosure Schedule, no litigation is now pending and no
written notice has been received by the Company, or to the Knowledge of the
Company, Overtly Threatened, (A) alleging that the Company has engaged in any
activity or conduct that infringes upon, violates or constitutes the
unauthorized use of the intellectual property rights of the Person by whom such
notice or threat was made, including any contamination or misappropriation of
trade secrets claims, or (B) challenging the ownership, use, validity or
enforceability of any Patent.
(j) No Infringement by Third Parties. Except as set forth on Section
5.13(b)(j) of the Company Disclosure Schedule, to the Knowledge of the Company,
no third party is misappropriating, infringing, diluting or violating any
Company Intellectual Property or Company Software, and no claims for any of the
foregoing have been brought against any third party by the Company. The Company
has taken commercially reasonable steps to protect the Company Intellectual
Property and the Company Software.
(k) Assignment; Change of Control. To the Knowledge of the Company,
except for consents required pursuant to Contracts listed on Section 5.4(c) of
the Company Disclosure Schedule, the execution, delivery and performance by the
Company of this Agreement, the Ancillary Agreements and each of the other
documents contemplated hereby or thereby to which it is a party, and the
consummation of the transactions contemplated hereby and thereby, will not
result in the loss or impairment of, or give rise to any right of any third
party to terminate, any of the Company's rights to own any Company Intellectual
Property or Company Software or rights under any Company Inbound License
Agreement, nor require the consent of any Governmental Authority or third party
in respect of any Company Intellectual Property or Company Software.
(l) Software.
(i) The Software owned or purported to be owned by the Company
was: (i) developed by employees of the Company within the scope of their
employment; (ii) developed by independent contractors who have assigned their
rights in such Software to the Company pursuant to written agreements; or (iii)
otherwise acquired by the Company from a third party who assigned all
intellectual property rights in the Software to the Company. None of the
Software owned or purported to be owned by the Company is, in whole or in part,
subject to the provisions of any open source or quasi-open source license
agreement that requires the disclosure of the source code to any Software owned
or purported to be owned by the Company. The Company has made no submission with
standards bodies or other entities, other than under Company Inbound License
Agreements or Company Outbound License Agreements which
28
would obligate the Company to grant licenses to or otherwise impair its control
of the Company Intellectual Property or Company Software.
(ii) Section 5.13(l)(ii) of the Company Disclosure Schedule
includes a list of source code escrow arrangements into which the Company has
entered.
(m) Encryption Technology. The Company's Business as currently
conducted complies with all U.S. applicable Laws, rules and regulations
regarding encryption technology, including, without limitation, the import and
export thereof. All CCAT's received by the Company are listed on Section 5.13(m)
of the Company Disclosure Schedule.
(n) Use of User Data.
(i) The Company's use, license, sublicense and sale of any User
Data collected from users at its website and any co-branded websites which the
Company manages comply in all material respects with the Company's published
privacy policy, (collectively, the "Privacy Policies"), excluding any violation
that, if disclosed, would not reasonably be expected to result in a Company
Material Adverse Effect.
(ii) To the Company's Knowledge, it is in compliance in all
material respects with all contractual obligations binding on the Company that
relate to or govern the compilation, use and transfer of User Data.
(iii) There is no Action pending by any Person or any
Governmental Authority involving the use, disclosure or transfer of any User
Data by the Company, nor, has the Company been contacted in writing by any
Governmental Authority regarding the use, disclosure or transfer of any User
Data by the Company.
(iv) None of the Privacy Policies currently in effect prohibits
the transfer of the User Data referred to in subsection (i) above to Parent and
its Affiliates pursuant to Parent's acquisition of the websites, products and
other assets of the Company pursuant to this Agreement (it being understood
that, following such transfer, such User Data remains subject to the applicable
use limitations set forth in such Privacy Policies).
(v) To the Knowledge of the Company, no Person has obtained
unauthorized access to User Data stored on the computer systems of the Company
(including, without limitation, any User Data contained in any hard copy
printouts), nor has there been any other unauthorized acquisition of material
computerized data of the Company (including, without limitation, any data
contained in any hard copy printouts) that has compromised the security,
confidentiality or integrity of any User Data maintained by the Company in any
material manner.
SECTION 5.14 Employee Benefit Matters.
(a) General. Section 5.14(a) of the Company Disclosure Schedule
contains a complete list of Company Benefit Plans. The Company and its ERISA
Affiliates have performed in all material respects all obligations required to
be performed by them under, are not in default under or violation of any Company
Benefit Plan, and each Company Benefit Plan has been established and maintained
in all material respects in accordance with its terms and in
29
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA and the Code. For the purposes of this
Section 5.14(a), no action taken pursuant to this Agreement shall be deemed to
constitute a default under or violation of any Company Benefit Plan.
(b) Documents. True and complete copies of (i) each Company Benefit
Plan listed on Section 5.14(a) of the Company Disclosure Schedule (ii) the most
recent determination and opinion letters received from the Internal Revenue
Service with respect to each such Company Benefit Plan that is intended to be a
"qualified plan" under Section 401(a) of the Code or each standardized prototype
plan on which each such Company Benefit Plan is based, (iii) for the three (3)
most recent plan years, Annual Reports on Form 5500 Series required to be filed
with any governmental agency for any Company Benefit Plan or related trust, (iv)
if such Company Benefit Plan is funded, the most recent annual accounting of
Company Benefit Plan assets, and (v) discrimination tests demonstrating
compliance with Sections 401(a)(4), 401(k), 401(m) and 410(b) of the Code (or
other applicable provisions of the Code) for each Company Benefit Plan for each
year since the date of the plan's establishment, have been made available to
Parent.
(c) Qualified Plans. Each Company Benefit Plan intended to be
qualified under Section 401(a) of the Code has received either a favorable
determination letter or a favorable opinion letter from the Internal Revenue
Service stating that such Company Benefit Plan, or the standardized prototype
plan on which such Company Benefit Plan is based, is qualified and that its
related trust, if any, is tax-exempt under the provisions of Sections 401(a) (or
403(a), as appropriate) and 501(a) of the Code. For each Company Benefit Plan
that is intended to be qualified under Section 401(a) of the Code, to the
Company's Knowledge, there has been no event, condition or circumstance that has
adversely affected or is likely to adversely affect such qualified status that
could not be cured without material liability to the Company.
(d) Types of Plans. Neither the Company nor any ERISA Affiliate has
ever maintained, established, sponsored, participated in or contributed to, been
required to contribute to, or had any liability or obligation under or relating
to any (i) Pension Plan that is subject to Section 302 or Title IV of ERISA or
Section 412 of the Code, (ii) Multiemployer Plan, or (iii) "multiple employer
plan" as defined in Section 3(40) of ERISA or Section 413(c) of the Code, or
(iii) "welfare benefit fund" within the meaning of Section 419 of the Code. No
Company Benefit Plan provides welfare benefits that are not fully insured
through an insurance contract. Neither the Company nor any ERISA Affiliate has
engaged in any transaction subject to Section 4069(a) or 4212(c) of ERISA.
(e) No Post-Employment Obligations. No Company Benefit Plan provides,
or represents any material liability to provide, life insurance, health or other
welfare benefits to any Company Employee upon his or her retirement or
termination of employment or any reason, other than (i) coverage mandated by
COBRA or any similar state or local law, (ii) death benefits under any Pension
Plan, or (iii) disability benefits under any Welfare Plan that has been fully
provided for by insurance or otherwise, and neither the Company nor any ERISA
Affiliate has represented, promised or contracted (whether in oral or written
form) to any Company Employee or any other person that such Company Employee or
other person would be
30
provided with life insurance, health or other welfare benefits upon their
retirement or termination of employment, except those set forth in clauses (i)
through (iii) of this Section 5.14(e).
(f) Unrelated Business Taxable Income. No Company Benefit Plan (or
trust or other funding vehicle pursuant thereto) has incurred any liability
under Code Section 511.
(g) Fiduciary Duties and Prohibited Transactions. No non-exempt
"prohibited transaction," within the meaning of Section 4975 of the Code, or
transaction in violation of Section 406 or 407 of ERISA has occurred with
respect to any Company Benefit Plan. Neither the Company nor any ERISA Affiliate
is subject to any penalty or tax with respect to any Company Benefit Plan under
Section 502(i) or 502(l) of ERISA or Subtitle A, Chapter 43 of the Code.
(h) Litigation. There is no action, order, writ, injunction, judgment
or decree outstanding or claim (other than routine claims for benefits), suit,
litigation, proceeding, arbitration proceeding, governmental audit or
investigation relating to or seeking benefits under any Company Benefit Plan
that is pending against the Company, any ERISA Affiliate or any Company Benefit
Plan.
(i) No Amendments. Neither the Company nor any ERISA Affiliate has any
plan or commitment, whether legally binding or not, to establish any new Company
Benefit Plan, to modify any Company Benefit Plan (except to the extent required
by law or to conform any such Company Benefit Plan to the requirements of any
applicable law, or as required by this Agreement), or to adopt or enter into any
Company Benefit Plan. Except as set forth in Section 5.14(i) of the Company
Disclosure Schedule, each Company Benefit Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability to Parent, the Company or any of its ERISA Affiliates (other
than ordinary administration expenses normally associated with a termination).
(j) Insurance Contracts. No Company Benefit Plan holds as an asset of
any Company Benefit Plan any interest in any annuity contract, guaranteed
investment contract or any other investment or insurance contract issued by an
insurance company that is the subject of bankruptcy, conservatorship or
rehabilitation proceedings.
(k) Health Care Compliance. Neither the Company nor any ERISA
Affiliate has, in any material respect, violated the requirements of COBRA, the
Family Medical Leave Act, the Health Insurance Portability and Accountability
Act of 1996, the Women's Health and Cancer Rights Act of 1998, the Newborns' and
Mothers' Health Protection Act of 1996, or any amendment to each such act or any
similar provisions of state law applicable to Company Employees.
(l) Effect of Transaction. Except as set forth in Section 5.14(l) of
the Company Disclosure Schedule or distributions to be made pursuant to Article
III, the execution and delivery of this Agreement or the Ancillary Agreements by
the Company and the consummation of the transactions contemplated hereby or
thereby will not (either alone or upon the occurrence of any additional or
subsequent events) constitute an event under any Company
31
Benefit Plan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any Company
Employee. No payment or benefit (or portion thereof) that will or may be made by
the Company, its ERISA Affiliates or Parent or any of its affiliates under any
Company Benefit Plan or this Agreement or the Ancillary Agreements with respect
to any Company Employee will be a "parachute payment" within the meaning of
Section 280G(b)(2) of the Code.
(m) No Other Material Liability. To the Knowledge of the Company, no
event has occurred in connection with which the Company, any ERISA Affiliate or
any Company Benefit Plan, directly or indirectly, could be subject to any
material liability (other than the payment of benefits under the terms of such
Company Benefit Plan) (A) under any statute, regulation or governmental order
relating to any Company Benefit Plan or (B) pursuant to any obligation of the
Company to indemnify any person against liability incurred under any such
statute, regulation or order as they relate to the Company Benefit Plans.
SECTION 5.15 Labor Matters
(a) Section 5.15(a) of the Company Disclosure Schedule includes a
complete and accurate list (giving name, job title, credited service, current
annual compensation (including a separate statement of base salary, bonus and
benefits for each individual)) of each current Company Employee. Except as set
forth on Section 5.15 of the Company Disclosure Schedule, the employment of each
Company Employee is terminable at-will by the Company. The Company has never
been materially delinquent in payments to any Company Employees or Company
independent contractors for any wages, salaries, commissions, bonuses or other
direct compensation for any services performed for it or amounts required to be
reimbursed to such employee or contractor. The Company is and has always been in
compliance in all material respects with all applicable Laws respecting labor,
employment, immigration, fair employment practices, terms and conditions of
employment, workers' compensation, occupational safety, plant closings, wages
and hours. The Company has withheld all amounts required by applicable Law or by
agreement to be withheld from the wages, salaries, and other payments to
employees; and the Company has never been materially liable for any arrears of
wages or any penalty for failure to comply with any of the foregoing. The
Company has never been liable for any payment to any trust or other fund or to
any Governmental Authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the ordinary course of business and consistent
with past practice).
(b) There are no pending claims against the Company under any workers'
compensation plan or policy or for long-term disability. The Company is not
bound by or subject to (and none of its assets or properties are bound by or
subject to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has requested or, to the
Knowledge of the Company, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending or, to the Knowledge of the Company,
Overtly Threatened. The Company has not, during the three year period prior to
the date of this Agreement, received any demand letters, civil rights charges,
suits, drafts of suits, or administrative claims of or from any
32
of its employees. There are no material controversies pending or, to the
Knowledge of the Company, Overtly Threatened, between the Company and any
Company Employees or Company independent contractors.
(c) Except as set forth on Section 5.15(c) of the Company Disclosure
Schedule, to the Knowledge of the Company, no Company Employees or Company
independent contractors are or have ever been in material violation of any term
of any employment contract, non-disclosure agreement, noncompetition agreement,
or any restrictive covenant to a former employer relating to the right of any
such employee to be employed by the Company because of the nature of the
Company's Business or to the use by the Company of trade secrets or proprietary
information of others. To the Knowledge of the Company, no Company Employees or
Company independent contractors are or have ever been in material violation of
any term of any employment contract, non-disclosure agreement, noncompetition
agreement, or any restrictive covenant relating to the Company's Business.
(d) No current Company Employees or Company independent contractors
have given notice to the Company, nor is the Company otherwise aware, that any
such Person intends to terminate his or her employment with the Company. The
Company is in compliance with all Laws concerning the classification of
employees and independent contractors and has properly classified all such
Persons for purposes of participation in the Company Benefit Plans.
SECTION 5.16 Environmental Matters. The Company (v) is in material
compliance with all, and is not subject to any material liability, in each case
with respect to any, applicable Environmental Laws, (w) holds or has applied for
all Environmental Permits necessary to conduct its current operations, and (x)
is in material compliance with its Environmental Permits. The Company has not
received any notice, demand, letter, claim or request for information alleging
that the Company may be in violation of, or liable under, any Environmental Law.
The Company (y) has not entered into or agreed to any consent decree or order or
is subject to any judgment, decree or judicial order relating to compliance with
Environmental Laws, Environmental Permits or the investigation, sampling,
monitoring, treatment, remediation, removal or cleanup of Hazardous Materials
and no investigation, litigation or other proceeding is pending or Overtly
Threatened with respect thereto, or (z) is not an indemnitor in connection with
any claim Overtly Threatened by any third-party indemnitee for any liability
under any Environmental Law or relating to any Hazardous Materials. To the
Company's Knowledge, the Company does not use any Hazardous Materials in the
conduct or operation of the Company's Business. None of the real property owned
or leased by the Company is listed or, to the Knowledge of the Company, proposed
for listing on the "National Priorities List" under CERCLA, as updated through
the date of this Agreement, or any similar state or foreign list of sites
requiring investigation or cleanup. (i) To the Company's Knowledge, no Hazardous
Material is present at any of the real property owned or leased by the Company
in material violation of any applicable Environmental Law, (ii) the Company has
not engaged in any Hazardous Materials Activity in material violation of any
applicable Environmental Law, and (iii) no Action seeking material damages is
pending or, to the Knowledge of the Company, has been Overtly Threatened against
the Company concerning any of the Hazardous Materials Activities of the Company,
or Hazardous Materials Activity on any of the real property owned or leased by
the Company.
33
SECTION 5.17 Insurance. Section 5.17 of the Company Disclosure Schedule
includes a list of all material policies of fire, liability, product liability,
workmen's compensation, health and other forms of insurance presently in effect
with respect to the Company's Business (the "Company Insurance Policies"),
including the named insured(s), true and complete copies of which have been made
available for review by Parent. All Company Insurance Policies are valid,
outstanding and enforceable policies and provide insurance coverage for the
Company Assets and operation of the Company's Business, of the kinds, in the
amounts and against the risks required to comply with applicable Law and/or any
contractual or other obligations. The Company has not been refused any insurance
with respect to any aspect of the operations of its Business, nor has its
coverage been limited by any insurance carrier to which it has applied for
insurance or with which it has carried insurance. No notice of cancellation or
termination has been received with respect to any such policy. The activities
and operations of the Company have been conducted in a manner so as to conform
in all material respects to all applicable provisions of the Company Insurance
Policies.
SECTION 5.18 Brokers. No broker, finder or similar intermediary has acted
for or on behalf of, or is entitled to any broker's, finder's or similar fee or
other commission from, the Company or any of its Affiliates in connection with
this Agreement, any of the Ancillary Agreements or the transactions contemplated
hereby or thereby.
SECTION 5.19 Warranties; Product Liability.
(a) Warranties. Except pursuant to the terms of any Scheduled Contract
or Company Outbound License Agreement or other standard agreement to purchase or
license the Company's products in its ordinary course of business or as may be
required by Law, there are no warranties, express or implied, written or oral,
with respect to the products or services of the Company, and there are no
Actions pending or, to the Knowledge of the Company, Overtly Threatened, with
respect to any such warranty.
(b) Product Liability. Since January 1, 2001, there have been no
product liability Actions involving the Company relating to products or services
developed, manufactured, sold or provided by the Company, nor, to the Knowledge
of the Company, has any such Action been Overtly Threatened.
SECTION 5.20 Absence of Certain Changes or Events. Since December 31, 2005
until the date of this Agreement, other than as set forth on Section 5.20 of the
Company Disclosure Schedule there has not been any:
(a) Company Material Adverse Effect or any event or development that
would reasonably be expected to have a Company Material Adverse Effect;
(b) material failure to operate the Company's Business in the ordinary
course so as to use all commercially reasonable efforts to preserve the
Company's Business intact and to preserve the continued services of the
Company's employees and the goodwill of suppliers, customers and others having
business relations with the Company;
(c) resignation or termination of any key employee or independent
contractor, officer or manager, or (except with respect to changes in
compensation to the amount
34
reflected on the list of employees made available to Parent) any increase in the
rate of compensation payable or to become payable to any officer or manager of
the Company (other than in connection with general, regularly-scheduled
reviews), including the making of any loan to, or the payment, grant or accrual
of any bonus, incentive compensation, service award or other similar benefit to,
any such Person, or the addition to, modification of, or contribution to any
Company Benefit Plan;
(d) sale, assignment, license, transfer or Encumbrance of any material
Company Assets, tangible or intangible, singly or in the aggregate, other than
(i) sales or licenses of products and services in the ordinary course of
business and consistent with past practice and (ii) Permitted Encumbrances;
(e) new Contracts, or extensions, modifications, terminations or
renewals thereof, except for Contracts entered into, modified or terminated in
the ordinary course of business and consistent with past practice or Contracts
that are otherwise immaterial to the Company;
(f) change in accounting methods or practices by the Company or
revaluation by the Company of any of the Company Assets, including writing off
or establishing reserves with respect to inventory, notes or accounts receivable
(other than for which adequate reserves have been previously established);
(g) declaration, setting aside or payment of any dividend or
distribution in respect of any Units of the Company or any redemption, purchase
or other acquisition of any Units or other equity securities of the Company
other than the Closing Dividend, any distribution made with respect to taxes
payable by Unitholders with respect to taxable income for 2005 and purchases by
the Company of Class A Units held by Unitholders who are not Accredited
Investors;
(h) failure to pay any material obligation of the Company when due,
unless the Company is disputing such obligation in good faith and maintaining
appropriate reserves therefor;
(i) acceleration or delay in any material respect of the collection of
any account receivable in advance of or beyond its regular due date or the date
on which the same would have been collected in the ordinary course of business
consistent with past practice or (ii) delay or acceleration in any material
respect of the payment of any account payable in advance of its due date or the
date such liability would have been paid in the ordinary course of business
consistent with past practice;.
(j) failure to pay any material obligation of the Company when due,
unless the Company is disputing such obligation in good faith and maintaining
appropriate reserves therefor;
(k) cancellation of any material indebtedness or waiver of any rights
of substantial value to the Company, except in the ordinary course of business
and consistent with past practice;
35
(l) indebtedness incurred by the Company for borrowed money or any
commitment to borrow money entered into by the Company, or any loans made or
agreed to be made by the Company;
(m) acquisition of any equity interest in any other Person;
(n) adoption, modification or termination of any Company Benefit Plan
except (x) as required by Law, or (y) changes to the Company Option Plan
contemplated by this Agreement; or
(o) agreement by the Company directly or indirectly to do any of the
foregoing.
SECTION 5.21 Customers. Section 5.21 of the Company Disclosure Schedule
sets forth the Company's ten largest customers by revenues recognized in the
Unaudited Company Financial Statements. None of such ten largest customers has
notified the Company in writing of its intent to terminate the license agreement
or services agreement between such customer and the Company or to materially
reduce the services thereunder (nor, to the Knowledge of the Company, has any
such customer Overtly Threatened to terminate the license agreement or services
agreement between such customer and the Company or to materially reduce the
services thereunder).
SECTION 5.22 Prohibited Transactions. None of Company or any Representative
acting on its behalf, has offered, paid, or agreed to pay any Person, including
any Government Authority, directly or indirectly, any thing of value for the
purpose of, or with the intent of obtaining or retaining any business included
in the Company's Business in violation of applicable Laws, including (i) using
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity, (ii) making any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds, (iii) violating any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (iv) making any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment.
SECTION 5.23 Conflicts of Interest; Affiliate Transactions.
(a) Neither the Company, nor, to the Knowledge of the Company, any
Unitholder, Manager or officer of the Company:
(i) owns, directly or indirectly, any interest in (excepting less
than one percent (1%) stock holdings for investment purposes in securities of
publicly traded companies), or is an officer, director, employee or consultant
of, any Person that carries on business in competition with the Company; or
(ii) has any material claim against, or owes any material amount
to, the Company, except for claims for salary, commissions, accrued vacation pay
and accrued benefits under Company Benefit Plans.
36
(b) No Contract, understanding or arrangement between the Company, on
the one hand, and any of its respective Unitholders, Managers or officers, on
the other hand, will continue in effect subsequent to the Closing Date, except
for such rights as pertain to such person as an employee of the Company or a
holder of the Company's equity securities.
SECTION 5.24 Investment Company Act. The Company is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended
(the "Investment Company Act"), which is required to be registered under the
Investment Company Act in order to engage in the transactions described in
Section 7 of that Act. The Company is not a "broker" or "dealer" within the
meaning of the Exchange Act. The Company does not act as investment adviser or
subadviser to any "investment company," as defined in the Investment Company
Act, which is registered under such Act.
SECTION 5.25 Member Consent; Accredited Investors.
(a) The only vote of any class or series of the Company's Units or the
Company Options necessary to adopt or approve this Agreement, the Ancillary
Agreements, the Merger and the other transactions contemplated hereby and
thereby are: (i) the consent of a majority of the Units, voting together as a
single class, (ii) the consent of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇ as Chief Executive
Officer of the Company, and (iii) the consent of ▇▇▇▇▇ ▇▇▇▇▇▇▇ as Chief
Technology Officer of the Company (collectively, the "Member Consent"). The
Member Consent has been obtained.
(b) Each Unitholder holding Class A Units, each Unitholder holding
Class B Units and each Unitholder holding Class C Units is an Accredited
Investor.
(c) The information supplied by the Company for inclusion in the
materials submitted to the holders of Units in connection with the solicitation
of their votes regarding this Agreement and the transactions contemplated hereby
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the written disclosure schedule dated as of the
date of this Agreement and previously delivered by Parent and Merger Sub to the
Company (the "Parent Disclosure Schedule") (it being understood that Parent
Disclosure Schedule shall be arranged in sections corresponding to the sections
contained in this Agreement, and the disclosures in any section of Parent
Disclosure Schedule shall qualify the representations in the corresponding
section of this Article VI and shall be deemed made in any other section or
sections of Parent Disclosure Schedule where the relevance of such disclosures
is reasonably apparent from the text of such disclosure), Parent and Merger Sub
hereby jointly and severally represent and warrant to the Company as follows:
SECTION 6.1 Organization. Parent is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware, and has
all requisite corporate power
37
and authority to own, operate or lease the properties and assets now owned,
operated or leased by it, and to carry on its Business in all material respects
as currently conducted. Merger Sub is a limited liability company duly
organized, validly existing and in good standing under the Laws of the State of
Delaware and has all requisite limited liability company power and authority to
own, operate or lease the properties and assets now owned, operated or leased by
it, and to carry on its Business in all material respects as currently
conducted. Parent is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, under the Laws of each jurisdiction in which
the character of its properties owned, operated or leased by it, or the nature
of its activities, makes such qualification necessary, except in those
jurisdictions where the failure to be so qualified or licensed and in good
standing would not have a Parent Material Adverse Effect.
SECTION 6.2 Authorization; No Conflicts
(a) Each of Parent and Merger Sub has full power and authority to
execute and deliver this Agreement and the Ancillary Agreements to which it is a
party and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Ancillary Agreements to which
each of Parent and Merger Sub is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of each of Parent and Merger Sub, and no
other corporate action on the part of Parent or Merger Sub is necessary to
approve this Agreement or the Ancillary Agreements to which they are a party or
authorize or consummate the transactions contemplated hereby and thereby. This
Agreement and the Ancillary Agreements to which each of Parent and Merger Sub is
a party have been duly and validly executed and delivered by each of Parent and
Merger Sub (assuming the due authorization, execution and delivery of this
Agreement and the Ancillary Agreements by the other parties hereto and thereto)
and constitute valid and binding obligations of each of Parent and Merger Sub,
enforceable against each of Parent and Merger Sub in accordance with their
terms, except as the enforceability thereof may be subject to or limited by
bankruptcy, insolvency, reorganization, moratorium or similar Laws relating to
or affecting the rights of creditors generally and the availability of equitable
relief (whether in proceedings at law or in equity).
(b) Assuming all consents, approvals, authorizations, filings and
notifications and other actions set forth in Section 6.3 have been obtained or
made, neither the execution and delivery of this Agreement or the Ancillary
Agreements to which it is a party by each of Parent and Merger Sub nor the
consummation by Parent or Merger Sub of the transactions contemplated hereby or
thereby to be performed by Parent or Merger Sub, nor compliance by Parent or
Merger Sub with any of the terms or provisions hereof or thereof, will (i)
violate any provision of the organizational documents of Merger Sub or violate
any provision of the certificate of incorporation or bylaws of Parent, (ii) (x)
violate, conflict with or require any notice, filing, consent or approval under
any material applicable Law to which Parent, Merger Sub or any of their
respective properties, contracts or assets are subject, or (y) violate, conflict
with, result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event which, with or without notice or lapse of
time, or both, would constitute a default) under, result in the termination of
or a right of termination or cancellation under, accelerate or result in a right
of acceleration of the performance required by, result in the creation of any
Encumbrance upon Parent Common Stock, properties, contracts or assets of Parent
or Merger
38
Sub under, or require any notice, approval or consent under, any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Parent Merger Sub is a party, or by which
Parent Merger Sub, or any of their respective properties or assets, may be bound
or affected in any material respect.
SECTION 6.3 Consents, Approvals, Etc. Except where the failure to obtain
any consents, approvals, authorizations or actions, or to make such filings or
notifications would not, when taken together with all other such failures by
Parent and Merger Sub, have a material adverse effect on the ability of Parent
or Merger Sub to perform its respective obligations under this Agreement or
consummate the transactions contemplated by this Agreement, no consents,
waivers, approvals, authorizations, orders or permits of, or declarations,
filings or registrations with, or notifications to, any Governmental Authority
or any third party are necessary in connection with the execution and delivery
by Parent or Merger Sub of this Agreement and the Ancillary Agreements to which
it is a party or the consummation by Parent of the transactions contemplated
hereby or thereby.
SECTION 6.4 Litigation and Governmental Orders. As of the date of this
Agreement, there are no material Actions pending or of which Parent has received
written notice against Parent, Merger Sub or any Subsidiaries of Parent ("Parent
Subsidiaries"), or any of the assets or properties of Parent, Merger Sub or any
Parent Subsidiaries, that would (x) prevent either Parent or Merger Sub from
performing its obligations under this Agreement, (y) prevent either Parent or
Merger Sub from consummating the transactions contemplated hereby, or (z)
reasonably be expected to result in a Parent Material Adverse Effect. Parent,
Merger Sub and Parent Subsidiaries and their respective assets and properties
are not subject to any material Governmental Order that would prevent either
Parent or Merger Sub from performing its obligations under this Agreement or
consummating the transactions contemplated hereby.
SECTION 6.5 Brokers. Except for Friedman, Billings, ▇▇▇▇▇▇ & Co., Inc., no
broker, finder or similar intermediary has acted for or on behalf of, or is
entitled to any broker's, finder's or similar fee or other commission from,
Parent or Merger Sub in connection with this Agreement or the transactions
contemplated hereby.
SECTION 6.6 Valid Issuance of Shares. The shares of Parent Common Stock to
be issued by Parent in connection with the transactions contemplated by this
Agreement, when issued in accordance with the terms of this Agreement, will be
duly authorized, validly issued, fully paid and nonassessable and will not be
issued in violation of any preemptive rights.
SECTION 6.7 SEC Filings. As of their respective filing dates, all of the
forms, reports and documents filed by Parent with the U.S. Securities and
Exchange Commission ("SEC") since October 1, 2004 (collectively, the "Parent SEC
Filings") complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as the case may be, and none of Parent SEC
Filings contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading, in each case except to the extent corrected by a subsequent Parent
SEC Filing. The financial statements of Parent included in Parent SEC Filings
filed on or after November 25, 2005 complied as to form in all material respects
with applicable accounting requirements and the published rules and
39
regulations of the SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly presented the consolidated financial position of Parent as of the
dates thereof and the consolidated results of its operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Between September 30, 2005 and the date of this
Agreement, Parent has not incurred any liabilities of the type required to be
disclosed in the liabilities column of a balance sheet prepared in accordance
with U.S. generally accepted accounting principles, except for (i) liabilities
incurred in the ordinary course of business, and (ii) liabilities that would not
have a Parent Material Adverse Effect.
SECTION 6.8 Capitalization.
Authorized, Issued and Outstanding Capital Stock. The authorized
capital stock of Parent consists of 85,000,000 shares, of which (i) 75,000,000
shares are Parent Common Stock and (ii) 10,000,000 shares are preferred stock,
none of which have been designated or issued. As of January 1, 2006: Parent had
18,992,886 shares of Parent Common Stock issued and outstanding; 2,823,099
shares of Parent Common Stock were duly reserved for future issuance upon the
exercise of stock options and stock awards granted on or prior to such date
pursuant to Parent's option and incentive plans; 10,000 shares of Parent Common
Stock were duly reserved for issuance upon the exercise of warrants issuable to
a third party; and 1,690,582 shares of Parent Common Stock were duly reserved
for future issuance upon the exercise of employee stock options and stock awards
available for grant after such date pursuant to Parent's option and incentive
plans. Other than as set forth in the previous sentence and other than
securities issuable pursuant to the transactions contemplated by this Agreement,
there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind (contingent or
otherwise) to which Parent is a party or bound obligating Parent to issue,
deliver or sell, or cause to be issued, delivered or sold additional shares of
capital stock or other voting securities of Parent or obligating Parent to
issue, grant, extend or enter into any agreement to issue, deliver or sell any
such capital stock or securities. Neither Parent nor any Subsidiary of Parent is
subject to any obligation or requirement to provide material funds for or to
make any material investment (in the form of a loan or capital contribution) in
any Person (other than to or in the Parent or any of its Subsidiaries). There
are no accrued or unpaid dividends with respect to any issued and outstanding
shares of Parent Common Stock. There are no bonds, debentures, notes or other
indebtedness of Parent having the right to vote (or convertible into securities
having the right to vote) on any matters on which stockholders of Parent may
vote.
SECTION 6.9 Absence of Certain Changes or Events. Since September 30, 2005
through the date of this Agreement, there has not occurred (i) any Parent
Material Adverse Effect, (ii) except as set forth on Section 6.9 of Parent
Disclosure Schedule, any material change by Parent in its accounting methods,
principles or practices except as required by concurrent changes in U.S.
generally accepted accounting principles, (iii) any material reevaluation by
Parent of any of its assets, including, without limitation, writing down the
value of capitalized inventory or writing off notes or accounts receivable other
than in the ordinary course, (iv) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock
40
or property) with respect to any of Parent's capital stock, (v) any damage,
destruction or loss (whether or not covered by insurance) materially adversely
affecting Parent's assets or the Business of Parent, (vi) material indebtedness
incurred by Parent for borrowed money or any commitment to borrow money entered
into by Parent, or any loans made or agreed to be made by Parent, (vii) any
failure to pay any material obligation of Parent when due (subject to any
applicable grace periods) or (viii) agreement by Parent directly or indirectly
to do any of the foregoing.
SECTION 6.10 Interim Operations of Merger Sub (No Parent Vote Required).
Merger Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement, has engaged in no other business activities and
has conducted its operations only as contemplated in this Agreement. No vote or
other action of the stockholders of Parent is required by Law, Parent's
Certificate of Incorporation or Parent's Bylaws or otherwise in order for Parent
and Merger Sub to consummate the Merger.
SECTION 6.11 Solvency. As of and immediately following the Effective Time,
(a) Parent and the Surviving Company shall be able to pay their respective debts
as they become due and shall own assets having a fair saleable value greater
than the amounts required to pay their respective debts (including a reasonable
estimate of the amount of all contingent liabilities) as they become due, and
(b) Parent and the Surviving Company shall have reasonably adequate capital to
carry on their respective Businesses. No transfer of property is being made and
no obligation is being incurred in connection with the Merger and the other
transactions contemplated by this Agreement with the intent to hinder, delay or
defraud either present or future creditors of Parent or the Surviving Company.
SECTION 6.12 Compliance with Laws.
(a) The Parent holds, and at all times has held, and at Closing will
hold, all material Permits for the lawful ownership, operation and use of the
assets of the Parent under and pursuant to, and has complied with each in all
material respects, and the Parent is not in material default under any
applicable Law relating to the Parent or any of its material assets, properties
or operations in any material respect, and there are no outstanding material
violations of any of the above, and the Parent has not received written notice
asserting any such violation. The Parent has been and is in compliance with all
Permits in all material respects. The Parent has all material Permits required
to permit the Parent to conduct its Business.
(b) No Governmental Authority has provided written notice to the
Parent of, and, to the knowledge of Parent's executive officers as of the date
hereof, no Governmental Authority has otherwise initiated or Overtly Threatened
to commence, any Action, proceeding or investigation into the Business or
operations of the Parent or any of its officers, directors or employees in their
capacity as such with the Parent. There is no material unresolved deficiency,
violation or exception claimed by any Governmental Authority with respect to any
examination of the Parent.
SECTION 6.13 No Infringement by Parent. No litigation is now pending, no
written notice has been received by Parent, and no overt oral threat of
litigation has been received by any of Parent's executive officers as of the
date hereof, (A) alleging that Parent has engaged in any activity or conduct
that infringes upon, violates or constitutes the unauthorized
41
use of the intellectual property rights of the Person by whom such notice or
threat was made, including any contamination or misappropriation of trade
secrets claims, or (B) challenging the ownership, use, validity or
enforceability of any patent owned by or exclusively licensed to Parent.
ARTICLE VII.
ADDITIONAL AGREEMENTS
SECTION 7.1 Further Action. Subject to the terms and conditions herein
provided, each of the parties hereto shall use its commercially reasonable
efforts to deliver, or cause to be delivered, such further certificates,
instruments and other documents, and to take, or cause to be taken, such further
actions, as may be necessary, proper or advisable under applicable Law to
consummate and make effective the transactions contemplated by this Agreement.
SECTION 7.2 Indemnification; Officers' and Directors' Insurance.
(a) The Company may purchase a six (6) year extended reporting period
endorsement ("reporting tail coverage") with respect to the Company's directors
and officers liability insurance currently in effect, and maintain such
endorsement in full force and effect for its full term, provided that neither
Parent nor the Surviving Company shall be required to pay more than $40,000 for
such reporting tail coverage.
(b) Parent and the Surviving Company shall, until the sixth (6th)
anniversary of the Effective Time, jointly and severally, indemnify and hold
harmless, with respect to claims or events existing or occurring at or prior to
the Effective Time, each person who is now, or has been at any time prior to the
date hereof, or who becomes prior to the Effective Time, a director or officer
of the Company (the "Company Indemnified Parties"), against all Losses arising
out of or by reason of the fact that the Company Indemnified Party is or was an
officer or director of the Company whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that the Company would have been
permitted under the Company Operating Agreement as in effect on the date of this
Agreement.
(c) The Certificate of Formation and Operating Agreement of the
Surviving Company shall contain, and Parent shall cause the Certificate of
Formation and Operating Agreement of the Surviving Company to so contain,
provisions no less favorable with respect to indemnification, advancement of
expenses and exculpation of present and former directors and officers of the
Company than are presently set forth in the Certificate of Formation and
Operating Agreement of the Company.
(d) Parent shall pay all expenses, including reasonable attorneys'
fees, that may be incurred by the persons referred to in this Section 7.2 in
connection with their enforcement of their rights provided in this Section 7.2.
(e) The provisions of this Section 7.2 are intended to be in addition
to the rights otherwise available to the current officers and directors of the
Company by Law, charter document or agreement, and shall operate for the benefit
of, and shall be enforceable by, each of the Company Indemnified Parties, their
heirs and their representatives.
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SECTION 7.3 Employee Benefit Matters.
(a) Each Company Employee has been offered employment by Parent and
those who are hired by Parent or retained by the Surviving Company will be
eligible to: (i) during the period following the Closing until December 31,
2006, participate in each Company Benefit Plan that was offered to Company
Employees as of immediately before the Effective Time and (ii) commencing
January 1, 2007, participate in Parent's employee benefit programs, to the same
extent as similarly situated employees of Parent. For purposes of determining
eligibility to participate, vesting and entitlement to benefits (including for
purposes of benefit accrual) where length of service is relevant under any
benefit plan or arrangement of Parent, the Company or any of their respective
Subsidiaries (collectively, "Parent Benefit Plans"), Parent shall, and shall
cause such Subsidiary to, take such actions as are necessary and appropriate to
provide that Company Employees as of the Effective Time shall receive full
service credit for service with the Company. Parent shall (i) waive all
limitations as to preexisting condition exclusions and waiting periods with
respect to participation and coverage requirements applicable to the Company
Employees as of the Effective Time under any Parent Benefit Plan that is a
Welfare Plan that such employees may be eligible to participate in after the
Effective Time, other than limitations or waiting periods that are already in
effect with respect to such Company Employees and that have not been satisfied
as of the Effective Time under the Company Benefit Plans that are welfare
benefit plans maintained for the Company Employees immediately prior to the
Effective Time, and (ii) provide each Company Employee as of the Effective Time
with credit for any co-payments and deductibles paid prior to the Effective Time
in satisfying any applicable co-payment, deductible or out-of-pocket
requirements under any Parent Benefit Plan that is a Welfare Plan that such
employees are eligible to participate in after the Effective Time.
(b) Nothing contained in this Agreement shall confer upon any employee
of the Company any right with respect to continued employment by Parent or the
Surviving Company.
SECTION 7.4 Tax Matters.
(a) Valuation for Income Tax Purposes. Attached hereto as Schedule 7.4
is the valuation of the assets of the Company (the "Valuation") agreed upon by
the Parent, Merger Sub and the Member Representative. Company, Merger Sub and
Parent shall file their respective Tax Returns in a manner consistent with the
Valuation.
(b) Filing of Tax Returns for the Company. The Member Representative
shall prepare and file or cause to be prepared and filed any Tax Returns
required to be filed with any taxing authority in connection with the
determination, assessment, collection, administration or imposition of any Taxes
on the Company relating to any taxable year or period through and including the
Closing Date. Such Tax Returns shall be prepared on a basis consistent with the
Tax Returns prepared for prior taxable years or periods, except as otherwise
required by Law, and such Tax Returns may not be amended without the consent of
Parent. The Member Representative shall provide a copy of such Tax Returns to
Parent no later than ten (10) days before the due date therefor for Parent's
review and comment. The Member Representative shall pay or cause to be paid,
within the time and in the manner prescribed by Law, from its
43
own funds or funds provided by certain or all of the holders of Units in the
Company on the Closing Date all Taxes imposed on the Company relating to any
year or period through and including the Closing Date.
(c) Closing of the Books. The taxable year of the Company will close
on the Closing Date for Tax purposes pursuant to Section 708 of the Code, and
that items of income, deduction or credit will be allocated between the taxable
period ending on the Closing Date and the taxable period beginning after the
Closing Date based on a "closing of the books" of the Company on the Closing
Date.
(d) Tax Identification Numbers. For Tax purposes, the federal, state,
local, and foreign tax identification numbers and accounts related to all
existing and required Tax Return reporting of the Company will be closed and
terminated by the Member Representative within the prescribed time for filing
the final Tax Returns of the Company.
(e) Cooperation. Merger Sub, the Company and the Member Representative
shall reasonably cooperate, as and to the extent reasonably requested by another
party, in connection with the filing of Tax Returns and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include signing
any Tax Return, amended Tax Returns, claims or other documents necessary to
settle any Tax controversy, the retention and (upon the other party's request)
the provision of records and information which are reasonably relevant to any
such audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder.
SECTION 7.5 Notice of Proceedings. Parent will promptly notify the Member
Representative in writing, upon receiving any notice from any Governmental
Authority of its intention to institute an Action to nullify or render
ineffective the transactions contemplated by this Agreement.
SECTION 7.6 Nasdaq Listing. Parent shall use its commercially reasonable
efforts to cause the shares of Parent Common Stock issuable pursuant to the
Merger to be authorized for listing on the Nasdaq National Market, subject to
official notice of issuance, prior to the issuance of such shares of Parent
Common Stock. Parent shall use its commercially reasonable efforts to cause the
shares of Parent Common Stock issuable upon exercise of the Parent Warrants to
be listed for trading on any securities exchange on which the Parent Common
Stock is at the time listed for trading.
SECTION 7.7 Transaction Expenses. The Company has provided to Parent an
itemized and complete list (the "Transaction Expenses List") of all Transaction
Expenses incurred or to be incurred by the Company and the Company has paid the
Transaction Expenses prior to the Closing or requested that Parent pay such
Transaction Expenses and provided to Parent detailed instructions for payment.
Any Transaction Expenses that were not set forth on the Transaction Expenses
List or that were not paid at or prior to the Closing shall be paid by Parent
and Parent shall have recourse to the Escrow Fund pursuant to Section 8.2(a)(v)
of this Agreement on a dollar-for-dollar basis for reimbursement thereof, but
only to the extent that the aggregate amount of Transaction Expenses that are
not set forth on the Transaction Expenses List exceeds
44
$25,000. Except as expressly provided otherwise in this Agreement, the parties
shall each bear their respective direct and indirect expenses incurred in
connection with the negotiation and preparation of this Agreement and the
Ancillary Agreements and the consummation of the Merger and the other
transactions contemplated hereby and thereby.
SECTION 7.8 Employee Option Pool. Parent has set aside for grant to the
Company's employees a pool of non-qualified stock options to purchase 350,000
shares of Parent Common Stock (the "Incentive Option Pool"), with an exercise
price per share equal to the closing price of Parent Common Stock (as reported
by the Nasdaq National Market or such other securities exchange or automated
quotation service upon which Parent Common Stock may then be listed or quoted
for trading) on the trading day immediately preceding the Closing Date. The
Company employees to be granted such stock options and the individual share
amounts of such stock options are included on Schedule 3.4(a); provided, that
each grantee of any such Parent Common Stock options must be an employee of the
Company on the grant date. Such stock options shall vest as follows: 25% of such
options on the first anniversary of the date of grant, with the remaining shares
vesting in equal monthly installments for the next 36 months thereafter. Such
stock options shall expire 10 years after the date of grant, and shall otherwise
be subject to the terms and conditions of Parent's 2004 Equity Incentive Award
Plan and form of Stock Option Agreement, and such other terms and conditions as
shall be established by Parent's Board of Directors or the Compensation
Committee thereof. Parent and its Board of Directors shall take such actions as
are necessary or appropriate to cause such grants to be effected as promptly as
practicable after the Closing.
SECTION 7.9 Performance Plan Shares. Parent has set aside the Performance
Plan Shares for grant to the Company's employees in accordance with the
provisions of Section 3.4. Parent and its Board of Directors has taken such
actions as are necessary or appropriate to cause such grants to be effected as
promptly as practicable after the Closing.
ARTICLE VIII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS OF
THE COMPANY; INDEMNIFICATION FROM ESCROW FUND; MEMBER
REPRESENTATIVE
SECTION 8.1 Survival
(a) The representations and warranties made by the Company in Article
V and in each certificate delivered at Closing and the covenants made by the
Company in this Agreement shall survive until March 31, 2007 (the "Survival
Period"). No claim for a breach of a representation, warranty or covenant may be
made or brought by a Parent Indemnified Party after the expiration of the
Survival Period for such representation, warranty or covenant; provided, that
if, prior to the expiration of the applicable Survival Period, a Parent
Indemnified Party shall have given to the Member Representative a Claim Notice
or Indemnity Notice, as applicable, pursuant to this Article VIII (whether or
not an Action shall have been commenced based upon such claim), such claim shall
continue to be subject to indemnification in accordance with this Article VIII
notwithstanding such expiration until such claim is finally determined. The
representations and warranties made by the Company (as modified by the Company
Disclosure Schedule and the Closing Certificate) and the rights and remedies
that may be
45
exercised by the Parent Indemnified Parties, shall not be limited or otherwise
affected by or as a result of any information furnished to, or any investigation
made by or knowledge of, any of the Parent Indemnified Parties or any of their
agents or representatives.
(b) Except as set forth in Section 8.2(b), nothing contained in this
Section 8.1 or elsewhere in this Agreement shall limit any rights or remedy of
any Parent Indemnified Party for claims for fraud.
SECTION 8.2 Indemnification.
(a) Subject to the provisions of this Article VIII, from and after the
Closing, Parent and the Surviving Company (collectively, the "Parent Indemnified
Parties") shall be held harmless and indemnified from and against all
Liabilities, losses, injuries, damages, judgments, settlements, costs and
expenses (including reasonable fees and expenses of counsel, consultants,
experts and other professional fees) (collectively, "Losses") that Parent
Indemnified Parties or any of them incur arising from (i) any inaccuracy in or
breach of any representation or warranty made by the Company in this Agreement
(as modified by the Company Disclosure Schedule and the Closing Certificate)
without regard to any "materiality" or "Company Material Adverse Effect"
qualifiers set forth in such representations or warranties, (ii) any inaccuracy
in or breach of any representation or warranty made by the Company or its
officers in the Closing Certificate (as modified by the Company Disclosure
Schedule) without regard to any "materiality" or "Company Material Adverse
Effect" qualifiers set forth in such representations or warranties, (iii) the
breach of any covenants of the Company contained herein requiring performance on
or prior to the Closing Date, (iv) any Liability of the Company for a breach of
the representations and warranties set forth in Section 5.8, except for breaches
that result in Liabilities that do not to exceed $25,000 in the aggregate, (v)
any unpaid Transaction Expenses, and (vi) any claims of Unitholders or
Optionholders against the Company, Merger Sub, the Surviving Company or any of
their respective Affiliates arising from or related to the Merger, this
Agreement, any Ancillary Agreement or the transactions contemplated hereby or
thereby.
(b) Notwithstanding anything to the contrary in this Agreement, Parent
Indemnified Parties shall have indemnification as to each Unitholder as of the
Closing, pro rata in proportion to their respective amounts contributed to the
Escrow Fund, and the sole sources of payment for any claim by a Parent
Indemnified Party pursuant to this Article VIII shall be the amount contained in
the Escrow Fund; provided however, that in the case of claims for fraud, the
liability of each such holder may exceed such holder's pro rata portion of the
Escrow Fund, but shall not exceed the net proceeds received by such holder under
this Agreement (including the Escrow Agreement). The terms and conditions under
which Parent and the Surviving Company shall be entitled to recover amounts from
the Escrow Fund are set forth in the Escrow Agreement.
SECTION 8.3 Indemnification Procedures. Claims for indemnification under
this Agreement shall be asserted and resolved as follows:
46
(a) A Parent Indemnified Party claiming indemnification under this
Agreement (an "Indemnified Party") with respect to any claims asserted against
the Indemnified Party by a third party ("Third Party Claim") that could give
rise to a right of indemnification under this Agreement shall promptly (i)
notify the Member Representative of the Third Party Claim, and (ii) transmit to
the Escrow Agent and the Member Representative a written notice ("Claim Notice")
describing in reasonable detail the nature of the Third Party Claim, a copy of
all papers served with respect to such claim (if any), the Indemnified Party's
best estimate of the amount of Losses attributable to the Third Party Claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. Failure to provide such Claim Notice shall not affect the right of
the Indemnified Party's indemnification hereunder, except to the extent the
Member Representative demonstrates actual prejudice as a result of such failure.
(b) Parent shall have full control of the defense of the Indemnified
Party against such Third Party Claim. Parent shall defend such Third Party Claim
by all appropriate proceedings, which proceedings shall be prosecuted by Parent
to a final conclusion or settled by Parent, provided, that no settlement shall
be reached without the consent of the Member Representative, which consent shall
not be unreasonably withheld or delayed, unless such settlement does not require
any indemnification pursuant to this Article VIII. Parent shall keep the Member
Representative reasonably informed as to the status of the defense. The Member
Representative may participate in, but not control, any defense or settlement of
any Third Party Claim controlled by Parent pursuant to this Section 8.3(b), and
the Member Representative shall bear its own costs and expenses with respect to
such participation.
(c) If the Member Representative reserves the right to dispute whether
any claim is an indemnifiable Loss under this Article VIII, the determination of
whether the Indemnified Party is entitled to indemnification hereunder shall be
resolved either by the parties or pursuant to the dispute resolution procedures
set forth in the Escrow Agreement.
(d) In the event any Indemnified Party should have a claim hereunder
which does not involve a Third Party Claim, the Indemnified Party shall promptly
transmit to the Member Representative a written notice (the "Indemnity Notice")
describing in reasonable detail the nature of the claim, the Indemnified Party's
best estimate of the amount of Losses attributable to such claim and the basis
of the Indemnified Party's request for indemnification under this Agreement. Any
Indemnity Notice related to a claim for misrepresentation or breach of warranty
shall state in reasonable detail the alleged basis for the breach of the
representation or warranty with respect to which the claim is made. The
resolution of such claims shall be resolved as set forth in the Escrow
Agreement.
(e) In the event a Parent Indemnified Party shall recover Losses in
respect of a claim of indemnification under this Article VIII, no other Parent
Indemnified Party shall be entitled to recover the same Losses in respect of a
claim for indemnification.
(f) Parent, the Surviving Company and the Member Representative shall
cooperate with each other in respect to resolving any claims, including by
making commercially reasonable efforts to mitigate or resolve any such claims.
Parent Indemnified Parties shall provide the Member Representative and its
Representatives with reasonable access to their
47
records, books, and Representatives during normal business hours in connection
with the investigation and evaluation of any claim made from time to time.
SECTION 8.4 Limitation on Liability. Notwithstanding anything to the
contrary in this Agreement, a Parent Indemnified Party shall not be entitled to
indemnification under Sections 8.2(a)(i), (ii) (other than with respect to the
Closing Certificate) and (iii), unless and until (x) any individual Loss exceeds
$20,000 and (y) the aggregate Losses incurred by Parent Indemnified Parties
exceed the sum of $500,000 (the "Deductible Amount"), at which point such
Indemnified Party shall be entitled to indemnification for all such Losses in
excess of such Deductible Amount.
SECTION 8.5 Sole Remedy. Subject to the exceptions set forth in Section
8.2(b) with respect to claims for indemnification for fraud, the sole sources of
recovery for the indemnification obligations set forth in this Article VIII
shall be the amount in the Escrow Fund, to be held and disbursed pursuant to the
terms and conditions set forth in the Escrow Agreement. Subject to the
exceptions set forth in Section 8.2(b) with respect to claims for
indemnification for fraud, all claims for indemnification made pursuant to this
Article VIII shall be effected solely by recovery against funds held in the
Escrow Fund, if any, at the time of any such claim for indemnification. The
terms and conditions under which Parent and the Surviving Company shall be
entitled to recover amounts from the Escrow Fund are set forth in the Escrow
Agreement.
SECTION 8.6 No Indemnification or Contribution. Each holder of Units hereby
waives, and acknowledges and agrees that he, she or it shall not have and shall
not exercise or assert (or attempt to exercise or assert), any right of
contribution, right of indemnity or other right or remedy against Parent or the
Surviving Company (whether as a result of the Company's Operating Agreement, any
indemnification agreement, any statute, common law, equitable right or
otherwise) in connection with any indemnification obligation to which he, she or
it may become subject under or in connection with this Agreement or any other
agreement or document delivered to Parent in connection with this Agreement.
SECTION 8.7 Exclusive Remedy. Subject to Section 8.2(b), the remedies
provided for in this Article VIII shall be Parent Indemnified Parties' exclusive
remedy with respect to all claims arising pursuant to or as a result of this
Agreement and the transactions contemplated hereby, including for any
misrepresentation or breach of warranty or breach of covenant under this
Agreement, and no Parent Indemnified Party shall pursue or seek to pursue any
other remedy (other than injunctive relief, specific performance or other
equitable relief). Notwithstanding the foregoing provisions of this Section 8.7,
the right to indemnification or other rights based on the representations,
warranties, covenants, agreements, undertakings and obligations of the parties
contained in this Agreement or any other exhibit or schedule hereto or any
certificate or document delivered pursuant to this Agreement, will not be
affected by any investigation or examination conducted with respect to, or any
knowledge acquired (or capable of being acquired) at any time, whether before or
after the execution and delivery of this Agreement or the Closing Date, with
respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, agreement, undertaking or obligation.
Without limiting the foregoing, no information or knowledge obtained in any due
diligence investigation done by Parent shall affect or be deemed to modify any
representation or warranty contained in Article V or in any certificate
delivered pursuant to this Agreement, provided, that Parent shall be deemed
48
to have knowledge of matters and documents referenced on the Company Disclosure
Schedule and the Closing Certificate.
SECTION 8.8 Member Representative.
(a) The parties have agreed that it is desirable to designate a
representative to act on behalf of the holders of Units for certain limited
purposes, as specified herein (the "Member Representative"). The parties have
designated ▇▇▇ ▇▇▇▇▇▇▇ as the initial Member Representative, and approval of
this Agreement by or on behalf of the requisite holders of each class of Units
shall constitute ratification and approval of such designation. The Member
Representative may resign at any time, and the Member Representative may be
removed by the vote of Persons that collectively owned Units constituting more
than a majority of the outstanding Units immediately prior to the Effective Time
(the "Majority Unitholders"). In the event that the Member Representative has
resigned or been removed, a new Member Representative shall be appointed by the
Majority Unitholders, such appointment to become effective upon the written
acceptance thereof by the new Member Representative.
(b) The Member Representative shall have such powers and authority as
are necessary to carry out the functions assigned to it under this Agreement;
provided, however, that the Member Representative will have no obligation to act
on behalf of the holders of Units and Company Options except as expressly
provided herein. The Member Representative will have no liability to Parent,
Merger Sub, the Company or the holders of Units with respect to actions taken or
omitted to be taken in its capacity as Member Representative, except with
respect to the Member Representative's willful misconduct. The Member
Representative will at all times be entitled to rely on any directions received
from the Majority Unitholders; provided, however, that the Member Representative
shall not be required to follow any such direction, and shall be under no
obligation to take any action in its capacity as Member Representative, unless
the Member Representative has been provided with funds, security or indemnities
which, in the sole determination of the Member Representative, are sufficient to
protect the Member Representative against the Losses which may be incurred by
the Member Representative in responding to such direction or taking such action.
The Member Representative shall be entitled to engage such counsel, experts and
other agents and consultants as it shall deem necessary in connection with
exercising its powers and performing its function hereunder and (in the absence
of bad faith on the part of the Member Representative) shall be entitled to
conclusively rely on the opinions and advice of such Persons. Any expenses
incurred by the Member Representative with respect to the foregoing shall be
solely the responsibility of the holders of the Units as of the Closing, and in
no event shall the Member Representative be entitled to reimbursement for any
such expenses from the Escrow Fund, except as set forth in the Escrow Agreement.
SECTION 8.9 Characterization of Indemnity Payments. For all applicable
income tax purposes, indemnity payments pursuant to this Article VIII shall be
accounted for by the parties as adjustments to the consideration transferred by
Parent pursuant to or as a result of the Merger.
SECTION 8.10 No Double Recovery; Tax Benefits; Use of Insurance.
Notwithstanding anything herein to the contrary, no Indemnified Party shall be
entitled to indemnification or reimbursement under any provision of this
Agreement for any amount to the extent such Indemnified Party has been
indemnified or reimbursed for such amount under any
49
other provision of this Agreement or otherwise. The amount of any
indemnification payable under this Agreement will be net of (a) any net Tax
benefits that the Indemnified Party receives or is entitled to by reason of the
Loss giving rise to the indemnification payment (taking into account the amount
of income or gain recognized or required to be recognized by Merger Sub or
Parent or their respective successors and assigns by virtue of all indemnity
payments arising as a result of such Loss) and (b) the receipt of any insurance
proceeds paid or payable to the Indemnified Party under any policies of
insurance covering the Loss giving rise to the claim. The Indemnified Party will
use commercially reasonable efforts to collect any such insurance and will
account to the Member Representative therefor. If, at any time subsequent to the
Indemnified Party receiving an indemnity payment for a claim under this
Agreement, the Indemnified Party receives payment in respect of the Loss
underlying such claim through recovery, settlement or otherwise under or
pursuant to any insurance coverage, or pursuant to any claim, recovery,
settlement or payment by or against another Person, the amount of such payment,
less any costs, expenses or premiums incurred or increased directly in
connection therewith, will promptly be repaid by the Indemnified Party to the
Indemnifying Party.
SECTION 8.11 Measure of Damages. Except in the case of claims for fraud,
Parent shall only be entitled to recover to recover direct damages and shall not
be entitled to make a claim for any amounts in respect of consequential,
incidental or indirect damages, lost profits or punitive damages and, in
particular, no "multiple of profits" or "multiple of cash flow" or similar
valuation methodology shall be used in calculating the amount of any Losses.
SECTION 8.12 Valuation of Escrowed Common Stock. In the event that recovery
with respect to any claim for indemnification is made hereunder by any Parent
Indemnified Party which results in the transfer of Escrowed Common Stock (or
cash received by the Escrow Agent from the disposition of Escrowed Common
Stock), such Escrowed Common Stock shall be valued for the purposes of this
Agreement at the Parent Common Stock Price.
ARTICLE IX.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS OF
PARENT; INDEMNIFICATION
SECTION 9.1 Survival
(a) The representations and warranties made by Parent in Article VI
and in each certificate delivered at Closing and the covenants made by Parent in
Article VII shall survive through the Survival Period. No claim for a breach of
a representation, warranty or covenant may be made or brought by a Article IX
Indemnified Party after the expiration of the Survival Period for such
representation, warranty or covenant; provided, that if, prior to the expiration
of the applicable Survival Period, an Article IX Indemnified Party shall have
given to Parent an Article IX Indemnity Notice pursuant to this Article IX, such
claim shall continue to be subject to indemnification in accordance with this
Article IX notwithstanding such expiration until such claim is finally
determined.
(b) Nothing contained in this Section 9.1 or elsewhere in this
Agreement shall limit any rights or remedy of any Article IX Indemnified Party
for claims for fraud.
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SECTION 9.2 Indemnification. Subject to the provisions of this Article IX,
from and after the Closing, Persons who were, immediately prior to the Effective
Time, Unitholders (collectively, the "Article IX Indemnified Parties") shall be
held harmless and indemnified from and against all Losses that the Article IX
Indemnified Parties or any of them incur arising from (i) any inaccuracy in or
breach of any representation or warranty made by Parent in this Agreement as of
the date of this Agreement (as modified by Parent Disclosure Schedule), (ii) any
inaccuracy in or breach of any representation or warranty, as modified by Parent
Disclosure Schedule, contained in any certificate delivered by Parent pursuant
to this Agreement at Closing, or (iii) the breach of any covenants of Parent
contained herein requiring performance on or prior to the Closing Date.
SECTION 9.3 Indemnification Procedures. Claims for indemnification under
Article IX of this Agreement shall be asserted and resolved as follows:
(a) No claim for indemnification shall be brought by any Article IX
Indemnified Party under this Agreement unless holders of a majority of the
outstanding Units of the Company immediately prior to the Effective Time join in
the prosecution of, and become parties to, any such claim.
(b) The Article IX Indemnified Party shall promptly transmit to Parent
a written notice (the "Article IX Indemnity Notice") describing in reasonable
detail the nature of the claim, the Article IX Indemnified Party's best estimate
of the amount of Losses attributable to such claim and the basis of the Article
IX Indemnified Party's request for indemnification under this Agreement. Any
Article IX Indemnity Notice related to a claim for misrepresentation or breach
of warranty shall state in reasonable detail the alleged basis for the breach of
the representation or warranty with respect to which the claim is made.
(c) Parent and the Article IX Indemnified Parties shall cooperate with
each other in respect to resolving any claims, including by making commercially
reasonable efforts to mitigate or resolve any such claims. Article IX
Indemnified Parties shall promptly provide to Parent copies of excerpts from
their books and records and such other information as Parent may reasonably
request, in each case to the extent relevant to the claims under this Article
IX.
SECTION 9.4 Limitation on Liability. Except for the failure to make
payments of consideration pursuant to Article III, an Article IX Indemnified
Party shall not be entitled to indemnification under this Article IX unless and
until (x) such party's individual Loss exceeds $20,000 and (y) the aggregate
Losses incurred by all Article IX Indemnified Parties exceed the sum of $500,000
(for purposes of this Article IX, the "Article IX Deductible Amount"), at which
point such Article IX Indemnified Party shall be entitled to indemnification for
all such Losses in excess of such Article IX Deductible Amount. Notwithstanding
any provision hereof to the contrary, except for the failure to make payments of
consideration pursuant to Article III, in no event shall the Article IX
Indemnified Parties be entitled to recover from Parent an amount in excess of
$10,500,000 (Ten Million Five Hundred Thousand U.S. Dollars) in the aggregate.
SECTION 9.5 Exclusive Remedy. The remedies provided for in this Article IX
shall be the Article IX Indemnified Parties' exclusive remedy with respect to
all claims arising pursuant to or as a result of this Agreement and the
transactions contemplated hereby, including
51
for any misrepresentation or breach of warranty or breach of covenant under this
Agreement, and no Article IX Indemnified Party shall pursue or seek to pursue
any other remedy (other than injunctive relief, specific performance or other
equitable relief).
SECTION 9.6 No Double Recovery; Tax Benefits; Use of Insurance.
Notwithstanding anything herein to the contrary, no Article IX Indemnified Party
shall be entitled to indemnification under any provision of this Agreement for
any amount to the extent such Article IX Indemnified Party has been indemnified
or reimbursed for such amount under any other provision of this Agreement or
otherwise. The amount of any indemnification payable under this Agreement will
be net of (a) any net Tax benefits that the Article IX Indemnified Party
receives or is entitled to by reason of the Loss giving rise to the
indemnification payment (taking into account the amount of income or gain
recognized or required to be recognized by such Article IX Indemnified Party or
his or her respective successors and assigns by virtue of all indemnity payments
arising as a result of such Loss) and (b) the receipt of any insurance proceeds
paid or payable to such Article IX Indemnified Party under any policies of
insurance covering the Loss giving rise to the claim. The Article IX Indemnified
Party will use commercially reasonable efforts to collect any such insurance and
will account to Parent therefor. If, at any time subsequent to the Article IX
Indemnified Party receiving an indemnity payment for a claim under this
Agreement, the Article IX Indemnified Party receives payment in respect of the
Loss underlying such claim through recovery, settlement or otherwise under or
pursuant to any insurance coverage, or pursuant to any claim, recovery,
settlement or payment by or against another Person, the amount of such payment,
less any costs, expenses or premiums incurred or increased directly in
connection therewith, will promptly be repaid by the Article IX Indemnified
Party to Parent.
SECTION 9.7 Measure of Damages. Except in the case of claims for fraud,
each Article IX Indemnified Party shall only be entitled to recover direct
damages and shall not be entitled to make a claim for any amounts in respect of
consequential, incidental or indirect damages, lost profits or punitive damages
and, in particular, no "multiple of profits" or "multiple of cash flow" or
similar valuation methodology shall be used in calculating the amount of any
Losses.
ARTICLE X.
GENERAL PROVISIONS
SECTION 10.1 Expenses. Except as otherwise expressly provided in this
Agreement, all costs and expenses (including, without limitation, all fees and
disbursements of counsel, financial advisors and accountants) incurred in
connection with the negotiation and preparation of this Agreement, the
performance of the terms hereof and the consummation of the transactions
contemplated hereby, shall be paid by the respective party incurring such costs
and expenses, whether or not the Closing shall have occurred.
SECTION 10.2 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given or made as follows: (i) if sent by registered or certified
mail in the United States return receipt requested, upon receipt; (ii) if sent
by nationally recognized overnight air courier (such as DHL or Federal Express),
two (2) business days after mailing; (iii) if sent by facsimile transmission,
with a copy
52
mailed on the same day in the manner provided in clauses (i) or (ii) of this
Section 10.2, when transmitted and receipt is confirmed by telephone; and (iv)
if otherwise actually personally delivered, when delivered, provided that such
notices, requests, demands and other communications are delivered to the address
set forth below, or to such other address as any party shall provide by like
notice to the other parties hereto:
(a) if to the Company, to:
Visual Sciences, LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇)▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Chrysler Center
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇)▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
(b) if to Parent or, if after the Closing, to the Company, to:
WebSideStory, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇)▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)▇▇▇-▇▇▇▇
Attention: General Counsel
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇)▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
53
(c) if to the Member Representative, to:
▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, PLLC
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇)▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)▇▇▇-▇▇▇▇
SECTION 10.3 Interpretation. The Article and Section headings in this
Agreement are for convenience of reference only and shall not be deemed to alter
or affect the meaning or interpretation of any provision hereof. References to
Articles or Sections in this Agreement, unless otherwise indicated, are
references to Articles or Sections of this Agreement. The parties to this
Agreement have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises with respect to any term or provision of this Agreement, this Agreement
shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party
hereto by virtue of the authorship of any of the terms or provisions hereof. Any
reference to any federal, state, county, local or foreign statute or Law shall
be deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. For all purposes of and under this
Agreement, (i) the word "including" shall be deemed to be immediately followed
by the words "without limitation," (ii) words (including defined terms) in the
singular shall be deemed to include the plural and vice versa, (iii) words of
one gender shall be deemed to include the other gender as the context requires,
and (iv) the terms "hereof," "herein," "hereto," "herewith" and any other words
of similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits hereto) and
not to any particular term or provision of this Agreement, unless otherwise
specified.
SECTION 10.4 Severability. In the event that any one or more of the terms
or provisions contained in this Agreement or in any other certificate,
instrument or other document referred to herein, shall, for any reason, be held
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or provision of
this Agreement or any other such certificate, instrument or other document
referred to herein, and the parties hereto shall use their commercially
reasonable efforts to substitute one or more valid, legal and enforceable terms
or provisions into this Agreement which, insofar as practicable, implement the
purposes and intent hereof. Any term or provision of this Agreement held invalid
or unenforceable only in part, degree or within certain jurisdictions will
remain in full force and effect to the extent not held invalid or unenforceable
to the extent consistent with the intent of the parties as reflected by this
Agreement. To the extent permitted by applicable Law, each party waives any term
or provision of Law which renders any term or provision of this Agreement to be
invalid, illegal or unenforceable in any respect.
SECTION 10.5 Entire Agreement. This Agreement (including the Company
Disclosure Schedule, Parent Disclosure Schedule and the other Schedules and
Exhibits hereto and thereto) and the Confidentiality Agreement constitute the
entire agreement of the parties hereto with respect to the subject matter
hereof, and supersede all prior agreements and
54
undertakings, both written and oral, among the parties hereto with respect to
the subject matter hereof, except as otherwise expressly provided herein.
SECTION 10.6 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties hereto, and any purported assignment or other
transfer without such consent shall be void and unenforceable, except that,
after the Closing Date, the Surviving Company and Parent may each assign its
rights and obligations under this Agreement to (i) any Person that succeeds to
substantially all of its assets and liabilities or (ii) any Person that succeeds
to substantially all of the assets of the Business, as currently conducted or as
it may be conducted after the Closing Date; provided, that no such assignment by
the Surviving Company or Parent shall relieve the Surviving Company or Parent of
any of its obligations under this Agreement and each shall remain liable for
performance of its obligations hereunder as a primary obligor; and provided
further, that, prior to the Effective Time, Merger Sub shall not assign any of
its rights, interests or obligations under this Agreement. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns.
SECTION 10.7 No Third Party Beneficiaries. Except as specifically provided
in Article III and Article IV (and solely with respect to parties to receive
consideration for Units and Company Options thereunder); Section 7.2 (and solely
with respect to parties indemnified thereunder); Section 7.7 (and solely with
respect to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with respect to
Transaction Expenses payable by Parent thereunder); or Section 7.8 (and solely
with respect to the Company employees receiving options as described therein),
this Agreement is for the sole benefit of the parties hereto and nothing herein,
express or implied, is intended to or shall confer upon any other Person any
legal or equitable right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
SECTION 10.8 Waivers and Amendments. This Agreement may be amended or
modified only by a written instrument executed by the parties hereto. Any
failure of a party hereto to comply with any obligation, covenant, agreement or
condition herein may be waived by the party entitled to the benefits thereof
only by a written instrument signed by the party granting such waiver. No delay
on the part of any party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party hereto of any right, power or privilege hereunder operate as a waiver
of any other right, power or privilege hereunder, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege hereunder. Unless otherwise provided, the rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies which
the parties hereto may otherwise have at law or in equity. Whenever this
Agreement requires or permits consent by or on behalf of a party, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 10.8.
SECTION 10.9 Equitable Remedies. Each of the parties hereto acknowledges
and agrees that the other parties hereto would be irreparably damaged in the
event that any of the terms or provisions of this Agreement are not performed in
accordance with their specific terms or otherwise are breached. Therefore,
notwithstanding anything to the contrary set forth in this
55
Agreement, each of the parties hereto hereby agrees that the other parties
hereto shall be entitled to an injunction or injunctions to prevent breaches of
any of the terms or provisions of this Agreement, and to enforce specifically
the performance by such first party under this Agreement. The equitable remedies
described in this Section 10.9 shall be in addition to, and not in lieu of, any
other remedies at law or in equity that the parties hereto may elect to pursue.
SECTION 10.10 Governing Law; Consent to Jurisdiction. This Agreement shall
be governed by, and construed in accordance with, the laws of the State of
Delaware applicable to contracts executed in and to be performed entirely within
the State of Delaware. Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its assets and properties, to the
exclusive jurisdiction of any state court or Federal court of the United States
of America located in the State of Delaware, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Agreement, the agreements delivered in connection herewith, or the transactions
contemplated hereby or thereby, or for recognition or enforcement of any
judgment relating thereto, and each of the parties hereto hereby irrevocably and
unconditionally (i) agrees not to commence any such action or proceeding except
in such courts, (ii) agrees that any claim in respect of any such action or
proceeding may be heard and determined in such Delaware State court or, to the
extent permitted by law, in such Federal court, (iii) waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any such action or proceeding in any
such Delaware State or Federal court, and (iv) waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such Delaware State or Federal court. Each of
the parties hereto hereby agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Each of the parties
hereto hereby irrevocably consents to service of process in the manner provided
for notices in Section 10.2. Nothing in this Agreement will affect the right of
any party to this Agreement to serve process in any other manner permitted by
applicable Law.
SECTION 10.11 Waiver of Jury Trial. EACH PARTY HERETO ACKNOWLEDGES AND
AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE, IT HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HERETO CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (II) IT UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (III) IT MAKES SUCH WAIVERS
VOLUNTARILY, AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.11.
56
SECTION 10.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which when executed shall be deemed to be an original, but
all of which taken together shall constitute one and the same agreement.
[Remainder of Page Intentionally Left Blank]
57
IN WITNESS WHEREOF, Parent, Merger Sub, the Company and the Member
Representative have caused this Agreement to be duly executed, each as of the
date first above written.
WEBSIDESTORY, INC.,
a Delaware corporation
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
VS ACQUISITION LLC,
a Delaware limited liability company
BY: WEBSIDESTORY, INC.,
a Delaware corporation, its sole
managing member
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
VISUAL SCIENCES, LLC,
a Delaware limited liability company
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇
----------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇
Title: Chief Executive Officer
▇▇▇ ▇▇▇▇▇▇▇,
solely as Member Representative
/s/ ▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------
58
EXHIBIT A
NON-COMPETITION AGREEMENT
This Non-Competition Agreement (this "Agreement") is being executed
and delivered as of February __, 2006 by and between ___________ ("Unitholder")
and WebSideStory, Inc., a Delaware corporation ("Parent").
WHEREAS, Visual Sciences, LLC, a Delaware limited liability company
(the "Company"), Parent and VS Acquisition, LLC, a Delaware limited liability
company and a wholly owned subsidiary of Parent ("Merger Sub"), have entered
into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which
the Company will merge with and into Merger Sub (the "Transaction").
WHEREAS, goodwill was a material consideration in Parent's decision to
enter into the Transaction. If Unitholder were to compete with the business of
Parent and the Company and Merger Sub subsequent to the consummation of the
Transaction, such competition would materially and adversely affect the value of
the business acquired by Parent in the Transaction.
WHEREAS, in connection with the Transaction and to more fully secure
unto Parent the benefits of the Transaction, Parent has requested that
Unitholder enter into this Agreement, and Unitholder has agreed to enter into
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and intending to be legally bound hereby, the parties hereto agree as
follows:
1. ACKNOWLEDGMENTS BY UNITHOLDER. Unitholder acknowledges that the promises
and restrictive covenants that Unitholder is providing in this Agreement are
reasonable and necessary to the protection of Parent's business and Parent's
legitimate interests in the Transaction (including the Company's goodwill)
pursuant to the Merger Agreement. Unitholder acknowledges that, in connection
with the consummation of the Transaction, all of Unitholder's Units in the
Company will be converted into Parent Common Stock, Senior Notes, Parent
warrants and cash. Unitholder further acknowledges that he will be eligible to
receive additional stock options from Parent, and that goodwill was a material
consideration in Parent's decision to enter into the Transaction. Unitholder
acknowledges that if Unitholder were to compete with the business of the Company
subsequent to the consummation of the Transaction, such competition could
materially and adversely affect the value of the business acquired by Parent in
the Transaction.
2. NON-COMPETITION. During the period commencing at the Effective Time and
ending on twenty-four (24) months from the Effective Time (the "Restrictive
Period"), Unitholder shall not be or become an officer, director, Unitholder,
owner, affiliate, salesperson, co-owner, partner, trustee, promoter, technician,
engineer, analyst, employee, agent, representative, supplier, investor or
lender, consultant, advisor or manager of or to, or otherwise acquire or hold
any interest in any person or entity that competes directly with the Company
Business (as defined below) as conducted by the Company on or during the six (6)
months preceding the Effective Time, which for purposes of this Agreement shall
mean and be limited to
the business of developing and providing software or enabling services for use
by businesses to conduct web site and/or interactive telephone system usage
analytics (collectively, the "Company Business"); provided, however, that
nothing in this Section 2 shall prevent Unitholder from owning as a passive
investment less than one percent (1%) of the outstanding shares of the capital
stock of a publicly-held corporation if (A) such shares are actively traded on
an established national securities market in the United States and (B)
Unitholder is not otherwise associated directly or indirectly with such
corporation or any affiliate of such corporation.
3. NON-SOLICITATION. During the Restrictive Period, Unitholder shall not,
directly or indirectly, solicit to employ (other than for the benefit of the
Company) any person who is at the time of such solicitation known by Unitholder
to be an employee of Parent or any of its Subsidiaries (including the Company
and its successors) without obtaining the prior written consent of Parent (it
being understood that any newspaper or other public solicitation not directed
specifically to such person shall not be deemed to be a solicitation for
purposes of this provision).
4. INDEPENDENCE OF OBLIGATIONS. The covenants and obligations of Unitholder
set forth in this Agreement shall be construed as independent of any other
agreement or arrangement between Unitholder, on the one hand, and Parent, on the
other hand.
5. SPECIFIC PERFORMANCE. Unitholder agrees that in the event of any breach
or threatened breach by Unitholder of any covenant, obligation or other
provision contained in this Agreement, Parent shall be entitled (in addition to
any other remedy that may be available to it) to the extent permitted by
Applicable Law to (a) a decree or order of specific performance to enforce the
observance and performance of such covenant, obligation or other provision and
(b) an injunction restraining such breach or threatened breach.
6. NON-EXCLUSIVITY. The rights and remedies of Parent hereunder are not
exclusive of or limited by any other rights or remedies which Parent may have,
whether at law, in equity, by contract or otherwise, all of which shall be
cumulative (and not alternative). Without limiting the generality of the
foregoing, the rights and remedies of Parent hereunder, and the obligations and
liabilities of Unitholder hereunder, are in addition to their respective rights,
remedies, obligations and liabilities under the law of unfair competition,
misappropriation of trade secrets and the like. This Agreement does not limit
Unitholder's obligations or the rights of Parent under the terms of (a) the
Merger Agreement or (b) the terms of any other agreement executed by Unitholder
and Parent.
7. NOTICES. Any notice or other communication required or permitted to be
delivered to Unitholder or Parent under this Agreement shall be in writing and
shall be deemed properly delivered, given and received if (a) delivered in
person, (b) transmitted by telecopy (with written confirmation), (c) mailed by
certified or registered mail (return receipt requested) (in which case such
notice shall be deemed given on the third (3rd) day after such mailing, but only
if deposited at a U.S. Postal Service office in California) or (d) delivered by
an express courier (with written confirmation) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
2
IF TO PARENT: WebSideStory, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
With copies (which shall not constitute notice) to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
IF TO UNITHOLDER: [Name]
[Address]
8. SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broadly as is enforceable.
9. GOVERNING LAW. The validity and effect of this Agreement and the rights
and obligations of the parties hereto shall be construed and determined in
accordance with the law of the Commonwealth of Virginia, and the parties agree
that any dispute arising out of or relating to this Agreement will be litigated
in the federal, state or local courts in the Commonwealth of Virginia, which
shall have exclusive jurisdiction and venue over the parties with respect to any
such dispute.
10. WAIVER. No failure on the part of any party to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
party in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy. No party shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such party; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
11. CAPTIONS. The captions contained in this Agreement are for convenience
of reference only, shall not be deemed to be a part of this Agreement and shall
not be referred to in connection with the construction or interpretation of this
Agreement.
3
12. FURTHER ASSURANCES. Unitholder shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take such
other actions as Parent may reasonably request to effectuate the intent and
purposes of this Agreement.
13. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of
the parties hereto relating to the subject matter hereof and supersedes all
prior agreements and understandings between any of such parties relating to the
subject matter hereof.
14. AMENDMENTS; TERMINATION. This Agreement may not be amended, modified,
altered, or supplemented other than by means of a written instrument duly
executed and delivered on behalf of Parent and Unitholder. This Agreement shall
automatically terminate and be of no further force or effect upon the
termination of the Restrictive Period.
15. ASSIGNMENT. This Agreement and all obligations hereunder are personal
to Unitholder and may not be transferred or assigned by Unitholder at any time.
Parent may assign its rights and delegate its obligations under this Agreement
in whole or in part, without the consent or approval of Unitholder or any other
person or entity, to (i) a wholly owned subsidiary of Parent, in which event all
of the rights and powers of Parent and remedies available to Parent under this
Agreement shall extend to and be enforceable by such subsidiary (provided that
Parent remains jointly and severally liable with such assignee for any
obligations of Parent hereunder after such assignment) or (ii) any person or
entity that acquires Parent, whether by way of merger or the purchase of all of
Parent's outstanding capital stock or substantially all of Parent's assets.
16. BINDING NATURE; INTERPRETATION OF THIS AGREEMENT. Subject to Section 15
hereof, this Agreement shall be binding upon the parties and their
representatives, executors, administrators, estate, heirs, successors and
assigns, and shall inure to the benefit of the parties and their respective
successors and assigns. The parties agree that this Agreement shall not be
interpreted against either party solely because this Agreement was drafted by
attorneys for Parent.
17. SIGNATURE IN COUNTERPARTS. This Agreement may be signed in
counterparts.
18. DEFINED TERMS. Capitalized terms used herein without definition shall
have the meanings ascribed to them in the Merger Agreement.
[Signature page follows]
4
IN WITNESS WHEREOF, the parties here executed this Agreement as of the date
first above written.
UNITHOLDER: PARENT:
Name: WEBSIDESTORY, INC.,
------------------------------- A DELAWARE CORPORATION
Signature: By:
-------------------------- ------------------------------------
Address: Name:
---------------------------- ----------------------------------
Title:
---------------------------- ---------------------------------
[Counterpart Signature Page to Non-Competition Agreement]
IN WITNESS WHEREOF, the parties here executed this Agreement as of the date
first above written.
UNITHOLDER: PARENT:
Name: WEBSIDESTORY, INC.,
------------------------------- A DELAWARE CORPORATION
Signature: By:
-------------------------- ------------------------------------
Address: Name:
---------------------------- ----------------------------------
Title:
---------------------------- ---------------------------------
[Counterpart Signature Page to Non-Competition Agreement]
EXHIBIT B
[RESERVED]
EXHIBIT C
WEBSIDESTORY, INC.
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Second Amended and Restated Registration Rights Agreement (this
"AGREEMENT") dated as of February ____, 2006 is entered into by and among
WebSideStory, Inc., a Delaware corporation (the "COMPANY"), certain investors as
listed on Schedule A attached hereto (each an "EXISTING INVESTOR," and
collectively, the "EXISTING INVESTORS"), certain entities and individuals as
listed on Schedule B attached hereto (each an "AVIVO INVESTOR," and
collectively, the "AVIVO INVESTORS"), and certain entities and individuals as
listed on Schedule C attached hereto (each a "VS INVESTOR," and collectively,
the "VS INVESTORS," and together with the Existing Investors and the Avivo
Investors, the "INVESTORS").
RECITALS
WHEREAS, the Company and the Existing Investors entered into that certain
Registration Rights Agreement dated June 18, 1999, as amended on June 30, 2000,
December 12, 2000, March 2, 2001, July 21, 2004 and September 16, 2004
(collectively, the "ORIGINAL AGREEMENT"), under which the Company granted
certain registration rights to the Existing Investors;
WHEREAS, the Company, the Existing Investors and the Avivo Investors
entered into that certain Amended and Restated Registration Rights Agreement
dated May 4, 2005 (the "AMENDED AND RESTATED AGREEMENT"), under which the
Company granted certain registration rights to the Avivo Investors;
WHEREAS, the Company, VS Acquisition, LLC, a Delaware limited liability
company and a direct, wholly owned subsidiary of the Company ("MERGER SUB"), and
Visual Sciences, LLC, a Delaware limited liability company ("VS") are entering
into an Agreement and Plan of Merger, of even date herewith (as it may be
amended from time to time pursuant to the terms thereof, the "MERGER
AGREEMENT"), which provides for the merger (the "MERGER") of VS with and into
Merger Sub, in accordance with the terms of the Merger Agreement;
WHEREAS, as a condition to consummating the Merger, the Company and the
undersigned Existing Investors and Avivo Investors are required to enter into
this Agreement to grant the VS Investors certain registration rights hereunder;
WHEREAS, the Amended and Restated Agreement provides that an amendment of
the Amended and Restated Agreement may be effected by the written consent of the
Company and investors holding a majority of the Registrable Securities (as such
term is defined in the Amended and Restated Agreement) thereunder;
WHEREAS, the Amended and Restated Agreement provides that the Company may
not grant registration rights to third parties that are on a parity with the
registration rights granted under the Amended and Restated Agreement without the
consent of a Majority Interest (as such term is defined in the Amended and
Restated Agreement) of the Existing Investors;
WHEREAS, the undersigned Existing Investors constitute holders of not less
than a Majority Interest of the Existing Investors and the undersigned Existing
Investors and Avivo Investors constitute holders of not less than a majority of
the Registrable Securities under the Amended and Restated Agreement, and
therefore, are entitled to bind all other holders of Registrable Securities who
are parties to the Amended and Restated Agreement; and
WHEREAS, the Company and the undersigned Existing Investors and Avivo
Investors hereby agree that the Amended and Restated Agreement shall be
superseded and replaced in its entirety by this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"BOARD OF DIRECTORS" means the Board of Directors of the Company.
"COMMISSION" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act and the Exchange Act.
"COMMON STOCK" shall mean the common stock of the Company and any other
securities into which or for which such common stock may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
"COMPANY" shall refer to the Company and any successor or successors
thereto.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
or any similar successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"MAJORITY INTEREST" means the Existing Investors holding not less than a
majority in interest in the outstanding Registrable Securities held by all
Existing Investors.
"PERSON" shall mean an individual, a corporation, a partnership, a joint
venture, a trust, an unincorporated organization, a limited liability company or
partnership, a government and any agency or political subdivision thereof.
"REGISTRABLE SECURITIES" shall mean (i) with respect to the Existing
Investors and Avivo Investors, any shares of Common Stock that constituted
Registrable Securities pursuant to the terms of the Amended and Restated
Agreement, (ii) with respect to the VS Investors, the shares of Common Stock (x)
issuable pursuant to the Merger Agreement and originally held in escrow pursuant
thereto or (y) issuable upon exercise of the Parent Warrants (as such term is
defined in the Merger Agreement) issued pursuant to Sections 3.1(a)(ii) and
3.3(a)(ii) of the Merger Agreement, and (iii) any other securities issued and
issuable with respect to any such shares of
2
Common Stock described in clauses (i) and (ii) above by way of a stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization; provided, however, that
notwithstanding anything to the contrary contained herein, "REGISTRABLE
SECURITIES" shall not at any time include any securities (i) registered and sold
pursuant to the Securities Act, (ii) sold to the public pursuant to Rule 144,
(iii) which could then be sold in their entirety pursuant to Rule 144(k) without
limitation or restriction, (iv) shares of Common Stock issued upon exercise of
stock options or issued upon restricted stock grants or (v) shares acquired in
open market transactions.
"REGISTRATION EXPENSES" shall mean the expenses so described in Section 6
hereof.
"RULE 144" shall mean Rule 144 promulgated under the Securities Act (or any
comparable successor rules).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
similar successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
2. Demand Registrations.
(a) At any time after the date hereof, (x) a Majority Interest or (y)
VS Investors holding a majority of the Registrable Securities held by all VS
Investors may notify the Company that they intend to offer or cause to be
offered for public sale all or any portion of their Registrable Securities
(representing offering proceeds aggregating not less than $10 million) in the
manner specified in such request. Upon receipt of such request, the Company
shall promptly deliver notice of such request to all Persons holding Registrable
Securities who shall then have thirty (30) days to notify the Company in writing
of their desire to be included in such registration. If the request for
registration contemplates an underwritten public offering, the Company shall
state such in the written notice and in such event the right of any Person to
participate in such registration shall be conditioned upon their participation
in such underwritten public offering and the inclusion of their Registrable
Securities in the underwritten public offering to the extent provided herein.
The Company shall expeditiously prepare and file, and use its reasonable best
efforts to cause to become effective, the registration statement for all
Registrable Securities whose holders request participation in such registration
under the Securities Act and to qualify such Registrable Securities for sale
under any state blue sky law; provided, however, that the Company shall not be
required to effect registration pursuant to a request under this Section 2 more
than two (2) times pursuant to (x) above or one (1) time pursuant to (y) above
for the holders of the Registrable Securities as a group. Notwithstanding
anything to the contrary contained herein, if the Company receives a request for
registration under this Section 2, then (i) the Company may advise the
requesting Investors, within fifteen (15) days of its receipt of such request,
that it intends to file a registration statement for the primary issuance of
securities in an underwritten public offering, and (ii) assuming that the
Company files such registration statement within seventy-five (75) days of its
receipt of such request, the Company's registration obligations under this
Section 2 shall not apply with respect to such request and no additional request
may be made under this Section 2 within one hundred eighty (180) days after the
effective date of such registration statement. In addition, the Company may
postpone the filing or the effectiveness of any registration statement pursuant
to this Section
3
2 for a reasonable time period, provided that such postponements shall not
exceed one hundred twenty (120) days in the aggregate during any twelve (12)
month period, if (i) the Company has been advised by legal counsel that such
filing or effectiveness would require disclosure of a material financing,
acquisition or other corporate transaction or development, and the Board of
Directors of the Company determines in good faith that such disclosure is not in
the best interests of the Company and its stockholders or (ii) the Board of
Directors of the Company determines in good faith that there is a valid business
purpose or reason for delaying filing or effectiveness. A registration will not
count as a requested registration under this Section 2(a) until the registration
statement relating to such registration has been declared effective by the
Commission at the request of the initiating holders and remained effective for
the lesser of (i) the period during which all Registrable Securities registered
thereunder have been sold or (ii) 45 days; provided, however, that, if a
majority in interest of the participating holders of Registrable Securities
shall request, in writing, that the Company withdraw a registration statement
which has been filed under this Section 2(a) but not yet been declared
effective, a majority in interest of such holders may thereafter request the
Company to reinstate such registration statement, if permitted under the
Securities Act, or to file another registration statement, in accordance with
the procedures set forth herein.
(b) If a requested registration pursuant to Section 2(a) involves an
underwritten public offering and the managing underwriter of such offering
determines in good faith that the number of securities sought to be offered
should be limited due to market conditions, then the number of securities to be
included in such underwritten public offering shall be reduced to a number
deemed satisfactory by such managing underwriter, provided that the shares to be
excluded shall be determined in the following sequence: (i) first, securities
held by any other Persons (other than the Investors holding Registrable
Securities) not having either registration rights or contractual, incidental
"piggy back" rights to include such securities in the registration statement,
(ii) second, shares sought to be registered by the Company, and (iii) third,
Registrable Securities, it being understood that no shares shall be registered
for the account of the Company or any shareholder other than the Investors
unless all Registrable Securities for which Investors have requested
registration have been registered. If there is a reduction of the number of
Registrable Securities pursuant to clauses (i) or (iii), such reduction shall be
made on a pro rata basis (based upon the aggregate number of shares of
Registrable Securities held by the holders in each tranche and subject to the
priorities set forth in the preceding sentence).
(c) With respect to a request for registration pursuant to Section
2(a) which is for an underwritten public offering, the managing underwriter
shall be chosen by the Investors holding not less than a Majority Interest of
the Registrable Securities to be sold in such offering, subject to the Company's
consent, which consent shall not be unreasonably withheld, conditioned or
delayed. The Company may not cause any other registration of securities for sale
for its own account (other than a registration effected solely to implement an
employee benefit plan or a transaction to which Rule 145 of the Securities Act
is applicable) to become effective within one hundred eighty (180) days
following the effective date of any registration required pursuant to this
Section 2 or such lesser period as may be consented to by the managing
underwriter.
3. Piggyback Registration. If the Company at any time proposes to register
any of its Common Stock under the Securities Act for sale to the public
(including pursuant to a demand under Section 2 hereof as provided therein and
except with respect to registration statements on
4
Forms ▇-▇, ▇-▇ or another form not available for registering the Registrable
Securities for sale to the public), each such time it will give written notice
at the applicable address of record to each holder of Registrable Securities of
its intention to do so. Upon the written request of any of such holders of the
Registrable Securities, given within thirty (30) days after receipt by such
Person of such notice, the Company will, subject to the limits contained in this
Section 3, use its reasonable best efforts to cause all such Registrable
Securities of said requesting holders to be registered under the Securities Act
and qualified for sale under any state blue sky law, all to the extent required
to permit such sale or other disposition of said Registrable Securities;
provided, however, that if the Company is advised in writing in good faith by
any managing underwriter of the Company's securities being offered in a public
offering pursuant to such registration statement that the amount to be sold by
Persons other than the Company (collectively, "SELLING STOCKHOLDERS") is greater
than the amount which can be offered without adversely affecting the offering,
the Company may reduce the amount offered for the accounts of Selling
Stockholders (including such holders of shares of Registrable Securities) to a
number deemed satisfactory by such managing underwriter; and provided further,
that the shares to be excluded shall be determined in the following sequence
(except with respect to a demand under Section 2 hereof): (i) first, securities
held by any Persons not having any such contractual, incidental registration
rights; (ii) second, securities held by any Persons having contractual,
incidental registration rights pursuant to an agreement which is not this
Agreement; (iii) third, securities held by the Founders (as defined in the Stock
Purchase Agreement, dated as of June 19, 1999, by and among the Company, the
Founders and the investors named in Exhibit A thereto); and (iv) fourth, all
Registrable Securities in each case as determined on a pro rata basis in
accordance with their holdings. Notwithstanding the foregoing, in no event shall
the number of Registrable Securities included in a registration pursuant to this
section be reduced to less than twenty percent (20%) of all shares to be
registered.
4. Resale Shelf Registration Statement.
(a) Within thirty (30) days following the earlier to occur of (i) the
date that the Company qualifies for the use of Form S-3 and (ii) March 15, 2007,
the Company shall file with the Commission a registration statement (the "Shelf
Registration Statement") relating to the offer and sale of all Registrable
Securities by the VS Investors to the public, from time to time, on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act (subject to any
Suspension Period(s) referred to below). The Company shall use its reasonable
best efforts to cause the Shelf Registration Statement to be declared effective
by the Commission as soon as practicable after the filing thereof with the
Commission. The Shelf Registration Statement shall specify the intended methods
of distribution of the subject Registrable Securities, which in no event shall
include underwritten offerings, whether on a firm commitment or best efforts
basis.
(b) The Company shall (i) cause the Shelf Registration Statement to
include a resale prospectus intended to permit each VS Investor to sell, at such
Investor's election, all or part of the Registrable Securities held by such
Investor without restriction but in accordance with the intended methods of
distribution set forth therein, (ii) prepare and file with the Commission such
supplements, amendments and post-effective amendments to the Shelf Registration
Statement as may be necessary to keep the Shelf Registration Statement
continuously effective (subject to any Suspension Period(s) referred to below)
until August 15, 2007 (the "Required Period"), and (iii) use its reasonable
efforts to cause the resale prospectus to be supplemented by any required
5
prospectus supplement (subject to any Suspension Period(s) referred to below)
during the Required Period; provided, however, that with respect to Registrable
Securities registered pursuant to such Shelf Registration Statement, each VS
Investor agrees that it will not enter into any transaction for the sale of any
Registrable Securities pursuant to such registration statement during the time
after the furnishing of the Company's notice that the Company is preparing a
supplement to or an amendment of such resale prospectus or Shelf Registration
Statement and until the filing and effectiveness thereof.
(c) The Company may, by notice in writing to each Investor, require
Investors to suspend use of any resale prospectus included in the Shelf
Registration Statement for a reasonable time period (each such period, a
"Suspension Period"), provided that all such suspensions shall not exceed one
hundred twenty (120) days in the aggregate during any twelve (12) month period,
if (i) the Company has been advised by legal counsel that such continued use
would require disclosure of a material financing, acquisition or other corporate
transaction or development, and the Board of Directors of the Company determines
in good faith that such disclosure is not in the best interests of the Company
and its stockholders or (ii) the Board of Directors of the Company determines in
good faith that there is a valid business purpose or reason for suspending such
continued use. In the event of each Suspension Period, the Required Period shall
be extended for a period equal to the number of days elapsed during such
Suspension Period.
(d) Each Investor agrees that, upon receipt of notice from the Company
of the commencement of a Suspension Period (a "Suspension Notice"), such
Investor will forthwith discontinue any disposition of Registrable Securities
pursuant to the Shelf Registration Statement or any public sale or distribution,
including pursuant to Rule 144, until the earlier of (i) the expiration of the
Suspension Period and (ii) such Investor's receipt of a notice from the Company
to the effect that such suspension has terminated. If so directed by the
Company, such Investor will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in such Investor's
possession, of the most recent resale prospectus covering such Registrable
Securities at the time of receipt of such Suspension Notice. In the event of a
Suspension Notice, the Company shall, promptly after the expiration of such
Suspension Period, provide notice to all Investors that the Suspension Period
has ended, and take any and all actions necessary or desirable to give effect to
any Investor's rights under this Agreement that may have been affected by such
notice.
(e) Each Investor agrees that it shall furnish to the Company such
information regarding such Investor and the methods of distribution of
Registrable Securities intended by such Investor permitted hereunder (i) as the
Company may, from time to time, reasonably request in writing and (ii) as shall
be required by law or by the Commission in connection therewith. Each Investor
agrees that information obtained by it or by its Inspectors (as defined below)
shall be deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of the Company unless and until such
information is made generally available to the public.
5. Form S-3 Registration. In case the Company shall receive from any VS
Investor a written request or requests that the Company effect a registration on
Form S-3 (or any successor to Form S-3) or any similar short-form registration
statement with respect to all or a
6
part of the Registrable Securities owned by such Investor or Investors (a "Form
S-3 Registration"), the Company will:
(a) promptly give written notice of the proposed registration to all
other Investors of Registrable Securities; and
(b) as soon as practicable, prepare and file and use its reasonable
best efforts to cause to become effective such registration statement as would
permit or facilitate the sale and distribution from time to time, of all or such
portion of such Investor's or Investors' Registrable Securities as are specified
in such request, together with all or such portion of the Registrable Securities
of any other Investor or Investors joining in such request as are specified in a
written request given within fifteen (15) days after receipt of such written
notice from the Company, on a delayed or continuous basis pursuant to Rule 415
under the Securities Act (subject to any S-3 Suspension Period(s) referred to
below); provided, however, that the Company shall not be obligated to effect any
such registrations pursuant to this Section 5:
(i) if Form S-3 is not available for such offering by the
Investors;
(ii) if the Investors, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than two million dollars ($2,000,000);
(iii) if within thirty (30) days of receipt of a written request
from any Investor or Investors pursuant to this Section 5, the Company gives
notice to such Investor or Investors of the Company's intention to make a public
offering within ninety (90) days, other than pursuant to a registration
statement on Forms ▇-▇, ▇-▇ or another form not available for registering the
Registrable Securities for sale to the public;
(iv) if the Company shall furnish to the Investors a certificate
signed by the Chairman of the Board stating that in the good faith judgment of
the Board, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Investor or Investors under this Section 5; provided, that such
right to delay a request shall be exercised by the Company not more than once in
any twelve (12) month period; or
(v) if the Company has already effected two (2) registrations on
Form S-3 for the Investors pursuant to this Section 5.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
requests of the Investors. Registrations effected pursuant to this Section 5
shall not be counted as a demand for registration effected pursuant to Section
2. Each Form S-3 Registration Statement shall specify the intended methods of
distribution of the subject Registrable Securities, which in no event shall
include underwritten offerings, whether on a firm commitment or best efforts
basis. The Company use its reasonable efforts to cause the resale prospectus in
such Form S-3 Registration to be supplemented by any required prospectus
7
supplement (subject to any S-3 Suspension Period(s) referred to below) during
the 180 day period following initial effectiveness; provided, however, that with
respect to Registrable Securities registered pursuant to such Form S-3
Registration Statement, each VS Investor agrees that it will not enter into any
transaction for the sale of any Registrable Securities pursuant to such
registration statement during the time after the furnishing of the Company's
notice that the Company is preparing a supplement to such resale prospectus or
Form S-3 Registration Statement and until the filing and effectiveness thereof.
(d) The Company may, by notice in writing to each Investor, require
Investors to suspend use of any resale prospectus included in a Form S-3
Registration for a reasonable time period (each such period, an "S-3 Suspension
Period"), provided that all such suspensions shall not exceed one hundred twenty
(120) days in the aggregate during any twelve (12) month period, if (i) the
Company has been advised by legal counsel that such continued use would require
disclosure of a material financing, acquisition or other corporate transaction
or development, and the Board of Directors of the Company determines in good
faith that such disclosure is not in the best interests of the Company and its
stockholders or (ii) the Board of Directors of the Company determines in good
faith that there is a valid business purpose or reason for suspending such
continued use. In the event of each Suspension Period, the period of the
Company's obligation to maintain the effectiveness of such Form S-3 Registration
shall be extended for a period equal to the number of days elapsed during such
S-3 Suspension Period.
(e) Each Investor agrees that, upon receipt of notice from the Company
of the commencement of an S-3 Suspension Period (an "S-3 Suspension Notice"),
such Investor will forthwith discontinue any disposition of Registrable
Securities pursuant to the Form S-3 Registration Statement or any public sale or
distribution, including pursuant to Rule 144, until the earlier of (i) the
expiration of the S-3 Suspension Period and (ii) such Investor's receipt of a
notice from the Company to the effect that such suspension has terminated. If so
directed by the Company, such Investor will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in such
Investor's possession, of the most recent resale prospectus covering such
Registrable Securities at the time of receipt of such S-3 Suspension Notice. In
the event of an S-3 Suspension Notice, the Company shall, promptly after the
expiration of such S-3 Suspension Period, provide notice to all Investors that
the S-3 Suspension Period has ended, and take any and all actions necessary or
desirable to give effect to any Investor's rights under this Agreement that may
have been affected by such notice.
(f) Each Investor agrees that it shall furnish to the Company such
information regarding such Investor and the methods of distribution of
Registrable Securities intended by such Investor permitted hereunder (i) as the
Company may, from time to time, reasonably request in writing and (ii) as shall
be required by law or by the Commission in connection therewith. Each Investor
agrees that information obtained by it or by its Inspectors (as defined below)
shall be deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of the Company unless and until such
information is made generally available to the public.
6. Registration Procedures. If and whenever the Company is required by the
provisions of this Agreement to effect the registration of any of its securities
under the Securities Act, the Company will, as expeditiously as possible:
8
(a) diligently prepare and file with the Commission a registration
statement on the appropriate form under the Securities Act with respect to such
securities, which form shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the Commission to be filed therewith, and use its reasonable best
efforts to cause such registration statement to become and remain effective
until completion of the proposed offering (but not for more than one hundred
eighty (180) days, except as provided in Sections 4 and 5 and except that any
demand registration statement for the VS Investors pursuant to Section 2 need
not remain effective for more than forty-five (45) days);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the completion of the offering (but not for more than one hundred eighty
(180) days, except as provided in Sections 4 and 5 and except that any demand
registration statement for the VS Investors pursuant to Section 2 need not
remain effective for more than forty-five (45) days); and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities covered by such registration statement whenever the seller or
sellers of such securities shall desire to sell or otherwise dispose of the
same, but only to the extent provided in this Agreement;
(c) furnish to each selling holder of Registrable Securities and the
underwriters, if any, such number of copies of such registration statement, any
amendments thereto, any documents incorporated by reference therein, the
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such selling
holder may reasonably request in order to facilitate the public sale or other
disposition of the securities owned by such selling holder;
(d) use its reasonable best efforts to register or qualify the
securities covered by such registration statement under and to the extent
required by such other securities or state blue sky laws of such jurisdictions
as each selling holder of Registrable Securities shall reasonably request, and
do any and all other acts and things which may be necessary under such
securities or blue sky laws to enable such selling holder to consummate the
public sale or other disposition in such jurisdictions of the securities owned
by such selling holder, except that the Company shall not for any such purpose
be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(e) within a reasonable time before each filing of the registration
statement or prospectus or amendments or supplements thereto with the
Commission, furnish to counsel selected by the holders of a majority in interest
of the Registrable Securities subject to such registration copies of such
documents proposed to be filed, which documents shall be subject to the
reasonable approval of such counsel, which approval shall not be unreasonably
withheld, conditioned or delayed;
(f) subject to Sections 4(d) and 5(e), promptly notify each selling
holder of Registrable Securities, such selling holders' counsel and any
underwriter and (if requested by any such Person) confirm such notice in
writing, of the happening of any event which makes any statement made in the
registration statement or related prospectus untrue or which requires the making
of any changes in such registration statement or prospectus so that they will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein in the light of the circumstances under which
9
they were made not misleading; and, subject to Sections 4(d) and 5(e), as
promptly as practicable thereafter, prepare and file with the Commission and
furnish a supplement or amendment to such prospectus so that, as thereafter
deliverable to the purchasers of such Registrable Securities, such prospectus
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(g) use its reasonable best efforts to prevent the issuance of any
order suspending the effectiveness of a registration statement, and if one is
issued use its reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement at the earliest
possible moment;
(h) in connection with a registration of an underwritten offering
pursuant to a request under Section 2, if requested by the managing underwriter
or underwriters (if any), any selling holder of Registrable Securities, or such
selling holder's counsel, promptly incorporate in a prospectus supplement or
post-effective amendment such information as such Person requests to be included
therein with respect to the selling holder or the securities being sold,
including, without limitation, with respect to the securities being sold by such
selling holder to such underwriter or underwriters, the purchase price being
paid therefor by such underwriter or underwriters and with respect to any other
terms of an underwritten offering of the securities to be sold in such offering,
and promptly make all required filings of such prospectus supplement or
post-effective amendment;
(i) make available to each selling holder of Registrable Securities,
any underwriter participating in any disposition pursuant to a registration
statement, and any attorney, accountant or other agent or representative
retained by any such selling holder or underwriter (collectively, the
"INSPECTORS"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "RECORDS"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information requested by any such Inspector in connection with such
registration statement subject, in each case, to such confidentiality agreements
as the Company shall reasonably request;
(j) in connection with a registration of an underwritten offering
pursuant to a request under Section 2, enter into any reasonable underwriting
agreement required by the proposed underwriter(s) for the selling holders of
Registrable Securities, if any, and use its reasonable best efforts to
facilitate the public offering of the securities;
(k) in connection with a registration of an underwritten offering
pursuant to a request under Section 2, request that each prospective selling
holder be furnished a signed counterpart, addressed to the prospective selling
holder, of , if and to the extent permitted applicable professional standards, a
"comfort" letter signed by the independent public accountants who have certified
the Company's financial statements included in the registration statement,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and with respect to events
subsequent to the date of the financial statements, as are customarily covered
(at the time of such registration) in accountants' letters delivered to the
underwriters in underwritten public offerings of securities;
(l) use its reasonable best efforts to cause the securities covered by
such registration statement to be listed on the securities exchange or quoted on
the quotation system on which the
10
Common Stock is then listed or quoted (or, if the Common Stock is not yet listed
or quoted, then on such exchange or quotation system as the selling holders of
Registrable Securities and the Company shall determine);
(m) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission and make generally available
to its security holders, in each case as soon as reasonably practicable, but not
later than 90 days after the close of the period covered thereby, an earnings
statement of the Company which will satisfy the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder (or any comparable successor
provisions); and
(n) otherwise cooperate with the underwriter(s), if any, and the
Commission and other regulatory agencies and take all reasonable actions and
execute and deliver or cause to be executed and delivered all documents
reasonably necessary to effect the registration of any securities under this
Agreement.
7. Expenses. All reasonable expenses incurred by the Company and the
Investors in effecting the registrations provided for in this Agreement,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company and one counsel for
the selling stockholders as a group (selected by a majority in interest of the
holders of Registrable Securities who participate in the registration),
underwriting expenses (other than fees, commissions or discounts), expenses of
any audits incident to or required by any such registration and expenses of
complying with the securities or blue sky laws of any jurisdictions pursuant to
Section 6(d) hereof (all of such expenses referred to as "REGISTRATION
EXPENSES"), shall be paid by the Company.
8. Indemnification.
(a) To the maximum extent permitted by law, the Company shall
indemnify and hold harmless the selling holder of Registrable Securities, each
underwriter (as defined in the Securities Act), and each other Person, if any,
who controls (within the meaning of the Securities Act) such selling holder or
underwriter (individually and collectively, the "INDEMNIFIED PERSON") against
any losses, claims, damages or liabilities (collectively, "LIABILITY"), joint or
several, to which such Indemnified Person may become subject under the
Securities Act or any other statute or at common law, insofar as such liability
(or action in respect thereof) arises out of or is based upon (i) any untrue
statement or alleged untrue statement of any material fact contained, on the
effective date thereof, in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or (ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading. Except as otherwise provided in Section 8(e), the Company shall
reimburse each such selling holder of Registrable Securities in connection with
investigating or defending any such liability as reasonable expenses in
connection with the same are incurred; provided, however, that the Company shall
not be liable to any such selling holder of Registrable Securities in any such
case to the extent that any such liability arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, preliminary or final prospectus, or
amendment or supplement thereto in reliance upon and in conformity with
information furnished in writing to the Company by such selling holder of
Registrable Securities specifically for use therein; and provided further, that
the Company
11
shall not be required to indemnify any Indemnified Person for any liability
which arises out of the failure of any Indemnified Person to deliver a
prospectus as required by the Securities Act.
(b) Each selling holder of any securities included in such
registration being effected shall indemnify and hold harmless each other selling
holder of any securities, the Company, its directors and officers, each
underwriter and each other Person, if any, who controls (within the meaning of
the Securities Act) the Company or such underwriter (individually and
collectively also the "INDEMNIFIED PERSON"), against any liability, joint or
several, to which any such Indemnified Person may become subject under the
Securities Act or any other statute or at common law, insofar as such liability
(or actions in respect thereof) arises out of or is based upon (i) any untrue
statement or alleged untrue statement of any material fact contained, on the
effective date thereof, in any registration statement under which securities
were registered under the Securities Act at the request of such selling holder,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or (ii) any omission or alleged omission by
such selling holder to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in the case
of (i) and (ii) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in such registration statement, preliminary or final prospectus, amendment or
supplement thereto in reliance upon and in conformity with information furnished
in writing to the Company by such selling holder specifically for use therein.
Such selling holder shall reimburse any Indemnified Person for any legal fees
incurred in investigating or defending any such liability; provided, however,
that such selling holder's obligations hereunder shall be limited to an amount
equal to the proceeds to such selling holder of the securities sold in any such
registration; and provided further, that no selling holder shall be required to
indemnify any Person for any liability which arises out of the failure of any
Person to deliver a prospectus as required by the Securities Act.
(c) Indemnification similar to that specified in Sections 8(a) and (b)
shall be given by the Company and each selling holder (with such modifications
as may be appropriate) with respect to any required registration or other
qualification of their securities under any federal or state law or regulation
of governmental authority other than the Securities Act.
(d) Promptly after receipt by an Indemnified Person under this Section
8 of notice of the commencement of any action (including any governmental
action), such Indemnified Person will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 8, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party will have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with qualified counsel;
provided, however, that an Indemnified Person (together with all other
Indemnified Persons which may be represented without conflict by one counsel)
will have the right to retain one separate counsel, with the reasonable fees and
expenses to be paid by the indemnifying party, if representation of such
Indemnified Person by the counsel retained by the indemnifying party is
inappropriate due to actual or potential differing interests between such
Indemnified Person and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, will relieve
12
such indemnifying party of any liability to the Indemnified Person under this
Section 8, but the omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any Indemnified
Person otherwise than under this Section 8.
(e) If the indemnification provided for in this Section 8 for any
reason is held by a court of competent jurisdiction to be unavailable to an
Indemnified Person in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this Section
8, in lieu of indemnifying such Indemnified Person thereunder, shall contribute
to the amount paid or payable by such Indemnified Person as a result of such
losses, claims, damages, expenses or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, the
selling holders and the underwriters from the offering of the Registrable
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the other selling holders and the underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
selling holders and the underwriters shall be deemed to be in the same
respective proportions that the net proceeds from the offering (before deducting
expenses) received by the Company and the selling holders and the underwriting
discount received by the underwriters, in each case as set forth in the table on
the cover page of the applicable prospectus, bear to the aggregate public
offering price of the Registrable Securities. The relative fault of the Company,
the selling holders and the underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the selling holders or the underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
(f) The Company, the selling holders and the underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8
were determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. In no event, however, shall a selling
holder be required to contribute any amount under this Section 8(f) in excess of
the lesser of (i) that proportion of the total of such losses, claims, damages
or liabilities indemnified against equal to the proportion of the total
Registrable Securities sold under such registration statement which are being
sold by such selling holder or (ii) the proceeds received by such selling holder
from its sale of Registrable Securities under such registration statement. No
Person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not found guilty of such fraudulent misrepresentation.
(g) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with an underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
13
9. Compliance with Rule 144.
(a) The Company will use its best efforts to file with the Commission
such information as is required under the Exchange Act for so long as there are
holders of Registrable Securities; and in such event, the Company shall use its
best efforts to take all action as may be required as a condition to the
availability of Rule 144. The Company shall furnish to any holder of Registrable
Securities upon reasonable request a written statement executed by the Company
as to the steps it has taken to comply with the current public information
requirement of Rule 144. Subject to the limitations on transfers imposed by this
Agreement, the Company shall use its reasonable best efforts to facilitate and
expedite transfers of Registrable Securities pursuant to Rule 144, which efforts
shall include timely notice to its transfer agent to expedite such transfers of
Registrable Securities.
(b) Except with respect to a demand registration pursuant to Section
2, prior to the Company's registration of any Registrable Securities hereunder
on behalf of an Investor, such Investor shall (i) use its reasonable best
efforts to sell the maximum number of Registrable Securities that such Investor
is able to sell pursuant to Rule 144 and (ii) exercise the registration rights
hereunder only in the case that such Investor determines in good faith that such
rights are necessary to sell such Registrable Securities in a timely manner.
10. Amendments. The provisions of this Agreement may be amended, and the
Company may take any action herein prohibited or omit to perform any act herein
required to be performed by it, only with the written consent of the Company and
Investors holding a majority of the Registrable Securities.
11. Transferability of Registration Rights. The Registration Rights set
forth in this Agreement are transferable to each valid and proper transferee of
at least Two Hundred Five (200,000) shares of Registrable Securities. Each such
transferee of Registrable Securities must consent in writing to be bound by the
terms and conditions of this Agreement in order to acquire the rights granted
pursuant to this Agreement.
12. Rights Which May Be Granted to Subsequent Investors. Other than
transferees of Registrable Securities under Section 11 hereof, the Company shall
not, without the prior written consent of a Majority Interest, (a) allow
purchasers of the Company's securities to become a party to this Agreement or
(b) grant any other registration rights to any third parties other than
subordinate piggyback registration rights.
13. Damages. The Company recognizes and agrees that each holder of
Registrable Securities will not have an adequate remedy if the Company fails to
comply with the terms and provisions of this Agreement and that damages will not
be readily ascertainable, and the Company expressly agrees that, in the event of
such failure, it shall not oppose an application by any holder of Registrable
Securities or any other Person entitled to the benefits of this Agreement
requiring specific performance of any and all provisions hereof or enjoining the
Company from continuing to commit any such breach of this Agreement.
14
14. Miscellaneous.
(a) All notices, requests, demands and other communications provided
for hereunder shall be in writing and mailed (by first class registered or
certified mail, postage prepaid), telegraphed, sent by express overnight courier
service or electronic facsimile transmission (with a copy by mail), or delivered
to the applicable party at the addresses indicated below:
If to the Company: WebSideStory, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: General Counsel
If to Existing Investors: At such Person's address listed opposite
their name on Schedule A attached hereto.
If to Avivo Investors: At such Person's address listed opposite
their name on Schedule B attached hereto.
If to VS Investors: At such Person's address listed opposite
their name on Schedule C attached hereto.
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to other parties complying as to delivery with
the terms of this subsection (a). All such notices, requests, demands and other
communications shall, when mailed, telegraphed or sent, respectively, be
effective (i) two days after being deposited in the mails or (ii) one day after
being delivered to the telegraph company, deposited with the express overnight
courier service or sent by electronic facsimile transmission, respectively,
addressed as aforesaid.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of California, without giving effect to conflict of
laws principles thereof.
(c) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(d) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
15
15. Dispute Resolution. Except as provided below, any dispute arising out
of or relating to this Agreement or the breach, termination or validity hereof
shall be finally settled by binding arbitration conducted expeditiously by one
arbitrator in accordance with the J.A.M.S./Endispute Streamlined Arbitration
Rules and Procedures (the "J.A.M.S. RULES"). The arbitration shall be governed
by the United States Arbitration Act, 9 U.S.C. Sections 1-16, and judgment upon
the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of arbitration shall be San Diego, California.
Such proceedings shall be administered by the arbitrator in accordance with the
J.A.M.S. Rules as he/she deems appropriate, however, such proceedings shall be
conducted in accordance with the following agreed upon procedures:
(a) mandatory exchange of all relevant documents, to be accomplished
within forty-five (45) days of the initiation of the procedure (documents not so
exchanged will be excluded from the evidence considered at the hearing absent a
showing of good cause);
(b) no other discovery;
(c) hearings before the arbitrator which shall consist of a summary
presentation by each side of not more than three (3) hours; such hearings to
take place on one or two days at a maximum; and
(d) decision to be rendered not more than ten (10) days following such
hearings.
Notwithstanding anything to the contrary contained herein, the provisions of
this Section 14 shall not apply with regard to any equitable remedies to which
any party may be entitled hereunder.
Each of the parties hereto (x) hereby irrevocably submits to the personal
jurisdiction of any court of competent jurisdiction in the United States for the
purpose of enforcing the award or decision in any such proceeding, (y) hereby
waives, and agrees not to assert, by way of motion, as a defense, or otherwise,
in any such suit, action or proceeding, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is
exempt or immune from attachment or execution (except as protected by applicable
law), that the suit, action or proceeding is brought in an inconvenient forum,
that the venue of the suit, action or proceeding is improper or that this
Agreement or the subject matter hereof may not be enforced in or by such court,
and hereby waives and agrees not to seek any review by any court of any other
jurisdiction which may be called upon to grant an enforcement of the judgment of
any such court. Each of the parties hereto hereby consents to service of process
by registered mail at the address to which notices are to be given. Each of the
parties hereto agrees that its or his submission to jurisdiction and its or his
consent to service of process by mail is made for the express benefit of the
other parties hereto. Final judgment against any party hereto in any such
action, suit or proceeding may be enforced in other jurisdictions by suit,
action or proceeding on the judgment, or in any other manner provided by or
pursuant to the laws of such other jurisdiction.
[The remainder of this page intentionally left blank.]
16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
"COMPANY"
WEBSIDESTORY, INC.
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President, Chief Executive Officer
and Chairman
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
"EXISTING INVESTOR"
TA/ADVENT VIII L.P.
By: TA Associates VIII LLC, its General
Partner
By: TA Associates, Inc., its Manager
By: *
------------------------------------
ADVENT ATLANTIC AND PACIFIC III L.P.
By: TA Associates AAP III Partners,
its General Partner
By: TA Associates, Inc., its General
Partner
By: *
------------------------------------
TA INVESTORS LLC
By: TA Associates, Inc., its Manager
*By: By: *
-------------------------------- ------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Managing Director
TA EXECUTIVES FUND LLC
By: TA Associates, Inc., its Manager
By: *
------------------------------------
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
"EXISTING INVESTOR"
SUMMIT INVESTORS III, L.P.
By: *
------------------------------------
General Partner
SUMMIT V ADVISORS FUND (QP), L.P.
By: Summit Partners V, L.P., its General
Partner
By: Summit Partners, LLC, its General
Partner
By: *
------------------------------------
SUMMIT V ADVISORS FUND, L.P.
By: Summit Partners V, L.P., its General
Partner
By: Summit Partners, LLC, its General
Partner
*By: By: *
-------------------------------- ------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇.
Partner
SUMMIT V COMPANION FUND, L.P.
By: Summit Partners V, L.P., its General
Partner
By: Summit Partners, LLC, its General
Partner
By: *
------------------------------------
SUMMIT VENTURES V, L.P.
By: Summit Partners V, L.P., its General
Partner
By: Summit Partners, LLC, its General
Partner
By: *
------------------------------------
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
"EXISTING INVESTOR"
----------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above
"AVIVO INVESTOR"
NEW ENTERPRISE ASSOCIATES 10, L.P.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
"AVIVO INVESTOR"
SOFINNOVA VENTURE PARTNERS IV, L.P.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
SOFINNOVA VENTURE AFFILIATES IV, L.P.
By:
------------------------------------
Name:
----------------------------------
Title:
----------------------------------
SOFINNOVA CAPITAL III
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
"AVIVO INVESTOR"
----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
"AVIVO INVESTOR"
----------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
"AVIVO INVESTOR"
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
"AVIVO INVESTOR"
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
"VS INVESTOR"
----------------------------------------
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
EXHIBIT D
THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH NOTE, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THIS NOTE REASONABLY
SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT.
WEBSIDESTORY, INC.
SENIOR NOTE
$_________ February 1, 2006
FOR VALUE RECEIVED, WEBSIDESTORY, INC., a Delaware corporation, having
its principal office at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ (the "Company"), hereby unconditionally promises to pay to
____________________ (including any permitted transferee hereunder, the
"Holder") on August 1, 2007 (the "Maturity Date") the principal sum of
___________________ DOLLARS ($_________), together with any and all accrued but
unpaid interest on the unpaid principal amount of this Note as provided in
Section 1.2 hereof. This Note is one of a series of Notes (together, the
"Notes") initially being issued pursuant to the terms of that certain Agreement
and Plan of Merger dated as of February 1, 2006 by and among the Company, VS
Acquisition, LLC, Visual Sciences, LLC and ▇▇▇ ▇▇▇▇▇▇▇ (the "Merger Agreement")
as part of the consideration payable to the Holder pursuant to the Merger
Agreement. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings given to such terms in Article IV hereof.
ARTICLE I
PRINCIPAL AND INTEREST
Section 1.1 Principal. Unless earlier (i) paid in full prior to the
Maturity Date in accordance with the terms of Section 1.3 hereof, (ii) paid in
full prior to the Maturity Date in accordance with the terms of Section 1.4
hereof, or (iii) paid in full prior to the Maturity Date in accordance with the
terms of Section 1.5 hereof, the entire outstanding principal amount of this
Note, together with any and all accrued but unpaid interest thereon, shall be
due and payable on the Maturity Date. Concurrently with the payment in full of
this Note, the Holder shall surrender this Note to the Company for cancellation.
Section 1.2 Interest. Interest shall accrue on the daily unpaid
principal amount of this Note, for each day during the period from and including
the date hereof (the "Commencement Date") to but excluding the date such Note
shall be paid in full, at a rate of 4.0% per annum (the "Interest Rate"),
compounded daily. Interest on this Note shall be computed on the basis of a year
of 365 days and paid for the actual number of days elapsed as provided herein.
Section 1.3 Demand for Repayment Prior to Maturity. At any time after
the first to occur of (i) April 1, 2007 and (ii) the consummation by the Company
of a Subsequent Offering that generates at least $20.0 million in net cash
proceeds to the Company, the Holder may, upon not less than five (5) Business
Days' prior written notice to the Company, demand the repayment of the entire
outstanding principal amount of this Note and any and all accrued but unpaid
interest thereon. In the event of any such demand, the Company shall pay to the
Holder the entire outstanding principal amount of this Note and any and all
accrued but unpaid interest thereon, on the fifth (5th) Business Day (such date,
the "Demand Repayment Date") following the Company's receipt of such repayment
demand notice. Concurrently with the payment in full of this Note, the Holder
shall surrender this Note to the Company for cancellation.
Section 1.4 Mandatory Prepayment. In the event the Company incurs any
Indebtedness (other than Permitted Indebtedness) which ranks senior to or pari
passu with the priority of payment attributable to the indebtedness owing under
this Note, unless the Holder consents to the incurrence of such Indebtedness,
the Company shall prepay in full the outstanding principal amount of this Note
and any and all accrued but unpaid interest thereon prior to or concurrently
with the closing of the transactions under which the evidences of Indebtedness
are issued (such date, the "Mandatory Prepayment Date"). On the Mandatory
Prepayment Date, in exchange for this Note, the Company shall pay to the Holder
the full outstanding principal amount of this Note and any and all accrued but
unpaid interest thereon. Concurrently with the payment in full of this Note, the
Holder shall surrender this Note to the Company for cancellation.
Section 1.5 Optional Prepayment. The Company may prepay, in whole or
in part, the outstanding principal amount of this Note and/or any and all
accrued but unpaid interest thereon, at any time without premium or penalty.
Concurrently with the payment in full of this Note, the Holder shall surrender
this Note to the Company for cancellation.
Section 1.6 Notes identical; Ranking of Note. The terms of all Notes
are and will be identical except as to the name of the holder, the original
principal amount and the date of issuance thereof. The indebtedness evidenced by
this Note shall rank pari passu in right of payment with all other Notes.
ARTICLE II
PAYMENTS; REGISTRATION AND TRANSFER
Section 2.1 Payments Generally. All payments of principal and interest
to be made by the Company in respect of this Note shall be made to the Holder in
Dollars by delivery
2
of a Company check or by wire transfer in immediately available funds not later
than 12:00 p.m. California time on the date on which such payment shall become
due (each such payment made after such time on such due date to be deemed to
have been made on the next succeeding Business Day). If the due date of any
payment in respect of this Note would otherwise fall on a day that is not a
Business Day, such due date shall be instead the next succeeding Business Day.
Payments shall be credited first to the accrued but unpaid interest under this
Note and the remainder applied to outstanding principal under this Note.
Section 2.2 Replacement of Note. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Note and,
if requested in the case of any such loss, theft or destruction, upon delivery
of an indemnity bond or other agreement or security reasonably satisfactory to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of such Note, the Company will issue a new Note, of like tenor and
amount, in lieu of such lost, stolen, destroyed or mutilated Note.
Section 2.3 Registration, etc. The Company shall maintain at its
principal office a register with respect to the Note and shall record therein
the name and address of the registered Holder thereof, to which notices are to
be sent and the address to which payments are to be made as designated by the
registered Holder if other than the address of such Holder, and the particulars
of all transfers, exchanges and replacements of the Note. The Company shall
record on such register any and all transfers of the Note by or for the
registered Holder, in form reasonably satisfactory to the Company, in order to
maintain an accurate record of the Holder thereof. Each Note, whether issued
originally or upon transfer, exchange or replacement, shall be registered in the
Company's register on the date of execution thereof by the Company. The
registered Holder of the Note shall be that Person in whose name the Note has
been so registered by the Company. The registered Holder shall be deemed the
owner of this Note for all purposes.
Section 2.4 Transfers of this Note. Subject to the Holder's compliance
with all applicable state and Federal securities laws, this Note may be
transferred in whole (but not in part), upon ten (10) days' prior written notice
by the Holder to the Company of such proposed transfer, to any Person that (i)
does not compete with the Company Business, (ii) does not beneficially own,
directly or indirectly, more than 5% of any class of any debt or equity
investment in any Person that competes with the Company Business, and (iii) is
an "accredited investor," as defined under Rule 501(a) promulgated under the
Securities Act of 1933, as amended. The Holder shall pay any and all transfer
taxes and other governmental charges imposed on any such transfer.
Section 2.5 Holder Representations. Holder specifically represents and
warrants to the Company, by acceptance of this Note, as follows:
(i) The Holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Note. The Holder
is acquiring this Note for its own account for investment purposes only and not
with a view to, or for the resale in connection with, any "distribution" thereof
in violation of the Securities Act.
3
(ii) The Holder understands that this Note has not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Holder's investment intent as expressed herein.
(iii) The Holder further understands that this Note must be held
indefinitely unless subsequently registered under the Securities Act and
qualified under any applicable state securities laws, or unless exemptions from
registration and qualification are otherwise available. The Holder is aware of
the provisions of Rule 144, promulgated under the Securities Act.
(iv) The Holder is an "accredited investor" within the meaning of
Rule 501(a) promulgated under the Securities Act.
(v) The Holder acknowledges and agrees that this Note is a
"restricted security" under the Securities Act, and that such security may not
be resold, pledged or otherwise transferred without registration under the
Securities Act or an exemption therefrom.
Section 2.7 Legends. This Note, and any note issued in exchange,
substitution or replacement of this Note, will bear the following legend:
"THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH NOTE, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THIS
NOTE REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
In addition, all such certificates shall bear any legend(s) required under
applicable state or foreign securities laws.
ARTICLE III
EVENTS OF DEFAULT
Section 3.1 Events of Default. "Event of Default," wherever used
herein, means any one of the following events (whatever the reasons for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment,
4
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) default in the payment of the outstanding principal amount of
this Note and/or any accrued but unpaid interest thereon at the Mandatory
Prepayment Date, the Demand Repayment Date, or the Maturity Date, and such
default shall not have been cured within five (5) days after notice thereof from
Holder to the Company; or
(ii) the failure by the Company to perform any of its other
obligations under this Note and such failure continues for twenty (20) days
after written notice to the Company describing in reasonable detail the
Company's failure to perform any such obligation; or
(iii) the Company makes an assignment for the benefit of
creditors or an order, judgment or decree is entered adjudicating the Company
bankrupt or insolvent; or any order for relief with respect to the Company is
entered under the Federal Bankruptcy Code; or the Company petitions or applies
to any tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Company, or of any substantial part of the assets of the
Company, or commences any proceeding relating to the Company under any
bankruptcy reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced, against the Company
and either (A) the Company by any act indicates its approval thereof, consent
thereto or acquiescence therein, or (B) such petition, application or proceeding
is not dismissed within 60 days.
Section 3.2 Acceleration of Note. If an Event of Default occurs and is
continuing, then and in every such case the Holder may declare the outstanding
principal amount of this Note (including any and all accrued but unpaid interest
thereon) to be due and payable immediately, by a notice in writing to the
Company, and upon any such declaration such outstanding principal amount and
accrued interest shall become immediately due and payable. At any time after the
outstanding principal amount and accrued interest under this Note shall become
immediately due and payable and before a judgment or decree for payment of the
money due has been obtained, the Holder, by written notice to the Company, may
rescind and annul any acceleration and its consequences.
ARTICLE IV
DEFINITIONS
Section 4.1 Definitions. The following terms shall have the meanings
set forth below:
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of California are authorized or obligated to
close.
"Company Business" means the design, development, marketing, sales,
service or support of software or services that provide online surveys,
search-engine management, bid
5
management, enterprise analytics, web analytics, analysis of online behavior,
internet search or content management or analyses or management of online
promotions, as well as any related business, product or service under active
consideration by the Company or any of its Subsidiaries or by Visual Sciences,
LLC or any of its Subsidiaries as of the date of transfer of this Note.
"Dollars" and "$" means lawful money of the United States of America.
"Indebtedness" means, as to any Person at a particular time, without
duplication:
(a) all obligations of such Person for borrowed money;
(b) all capitalized lease obligations of such Person; and
(c) all guarantees of such Person in respect of any of the foregoing.
"Note" means this Senior Note of the Company, as modified and
supplemented and in effect from time to time.
"Person" means any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a limited liability company, a trust or other entity.
"Permitted Indebtedness" means, as to any Person at a particular time,
without duplication:
(a) the Indebtedness created under the Notes;
(b) all purchase money financing or capitalized leases for equipment,
vehicles or other tangible personal property utilized in the
Company's business;
(c) all accrued expenses and trade accounts payable;
(d) all Indebtedness incurred for the purpose of fixing, hedging or
swapping interest rate, commodity price or foreign currency
exchange rate risk (or to reverse or amend any such agreements
previously made for such purposes);
(e) all Indebtedness constituting reimbursement obligations with
respect to letters of credit issued in the ordinary course of the
Company's business;
(f) all other Indebtedness not to exceed at any one time outstanding
$1,000,000 (One Million Dollars) in the aggregate; and
(g) any and all renewals, extensions, replacements, refinancings or
refundings of any of the foregoing that do not increase the
principal amount of such Indebtedness.
"Subsequent Offering" means an underwritten public offering by the
Company of its Common Stock for its own account, registered under the Securities
Act of 1933, as amended
6
(other than pursuant to a registration on Form S-4 or any successor form or Form
S-8 or any successor form).
"Subsidiary" of any Person means any corporation or other entity of
which a majority of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such Person.
ARTICLE V
MISCELLANEOUS
Section 5.1 Delay or Omission Not Waiver. No failure or delay on the
part of the Holder in the exercise of any power, right, or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any right, power or privilege. All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
Section 5.2 Governing Law. This Note shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without regard
to the conflicts of laws provisions thereof.
Section 5.3 Successors. All agreements of the Company in this Note
shall bind its successors and assigns. All agreements of the Holder in this Note
shall bind, and this Note shall inure to the benefit of, the Holder and its
successors and permitted assigns.
Section 5.4 Amendment, Modification or Waiver. No provision of this
Note may be amended, modified or waived except by an instrument in writing
signed by the Company and the Holder.
Section 5.5 Waivers. The Company waives demand, presentment for
payment, notice of dishonor, protest, notice of protest and notice of
non-payment of this Note.
Section 5.6 Notices. All notices, demands and requests of any kind to
be delivered to any party in connection with this Note shall be in writing and
shall be deemed to have been duly given if personally or hand delivered or if
sent by an internationally-recognized overnight delivery courier or by
registered or certified mail, return receipt requested and postage prepaid, or
by facsimile transmission addressed as follows:
if to the Company, to:
WebSideStory, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
7
if to the Holder, to the address set forth
in the register for this Note maintained
pursuant to Section 2.3 hereof;
or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 5.6. Any such notice or communication shall be deemed to have been
effectively given (i) in the case of personal or hand delivery, on the date of
such delivery, (ii) in the case of an internationally-recognized overnight
delivery courier, on the first Business Day after the date when sent, (iii) in
the case of mailing, on the third Business Day following that day on which the
piece of mail containing such communication is posted and (iv) in the case of
facsimile transmission, the date of telephone confirmation of receipt.
Section 5.7 Captions. The section and subsection headings of this note
are inserted for convenience only and shall not constitute a part of this note
in construing or interpreting any provision hereof.
Section 5.8 Costs of collection. The company agrees to pay all
expenses, including reasonable attorneys' fees and legal expenses, incurred by
the holder of this note in endeavoring to collect any amounts payable hereunder
which are not paid when due.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed by an authorized officer thereof as of the date and year first above
written.
WEBSIDESTORY, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
9
EXHIBIT E
LIMITED LIABILITY COMPANY AGREEMENT
OF
VS ACQUISITION, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT of VS Acquisition, LLC (this
"Agreement"), is entered into by WebSideStory, Inc., a Delaware corporation (the
"Member").
The Member, by execution of this Agreement, hereby forms a limited
liability company pursuant to and in accordance with the Delaware Limited
Liability Company Act (6 Del.C. Section 18-101, et seq.), as amended from time
to time (the "Act"), and hereby agrees as follows:
1. Names and Addresses. The name of the limited liability company formed
hereby is VS Acquisition, LLC (the "Company"). The name and address of the
registered office of the Company in the State of Delaware is Corporation Service
Company, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The
principal office for the Company shall be maintained at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The name and address of the Member is
WebSideStory, Inc., ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
2. Certificates. ▇▇▇▇▇ ▇. ▇▇▇▇▇, as an authorized person within the meaning
of the Act, shall execute, deliver and file the Certificate of Formation for the
Company with the Delaware Secretary of State. Such authorized person or such
other person as is designated by the Member shall execute, deliver and file any
other certificates (and any amendments and/or restatements thereof) necessary
for the Company to qualify to do business in any jurisdiction in which the
Company may wish to conduct business.
3. Purpose. The Company may engage in any and all businesses or activities
in which a limited liability company may be engaged under applicable law,
including, without limitation, the Act.
4. Term. The term of the Company shall commence on the date the Certificate
of Formation for the Company is filed with the Delaware Secretary of State. The
Company shall have a perpetual existence, unless dissolved pursuant to Paragraph
16 hereof.
5. Limited Liability. Except as otherwise provided by the Act, the debts,
obligations and liabilities of the Company, whether arising in contract, tort or
otherwise, shall be solely the debts, obligations and liabilities of the
Company, and the Member shall not be obligated personally for any such debt,
obligation or liability of the Company solely by reason of being a member of the
Company.
6. Admission of Member. The Member shall be admitted as the sole member of
the Company on the date upon which the Certificate of Formation is filed with
the Delaware Secretary of State.
7. Capital Contributions. The Member shall not be obligated to make a
contribution to the capital of the Company in connection with the execution of
this Agreement.
The Member may make one or more contributions to the capital of the Company at
such times and in such amounts as are determined by the Member in its sole
discretion.
8. Allocation of Profits and Losses. Net losses and net profits of the
Company shall be allocated 100% to the Member.
9. Distributions of Cash Flow. Distributions of cash flow shall be made to
the Member at such times and in such amounts as are determined by the Member in
its sole discretion. Notwithstanding any other provision contained in this
Agreement, the Company shall not make a distribution to the Member on account of
its interest in the Company if such distribution would violate Section 18-607 of
the Act or other applicable law.
10. Management.
(a) Management by the Member. In accordance with Section 18-402 of the
Act, management of the Company shall be vested in the Member. The Member
shall have the full power and authority to do any and all acts necessary,
convenient or incidental to or for the furtherance of the purposes
described herein, including, without limitation, all powers, statutory or
otherwise, possessed by a member of a limited liability company under the
laws of the State of Delaware. The Member has the authority to bind the
Company.
(b) Member Standards of Conduct. Whenever the Member is required or
permitted to make a decision, take or approve an action, or omit to do any
of the foregoing, then the Member shall be entitled to consider only such
interests and factors, including its own, as it desires, and shall have no
duty or obligation to consider any other interests or factors whatsoever.
To the extent that the Member has, at law or in equity, duties (including,
without limitation, fiduciary duties) to the Company or other person bound
by the terms of this Agreement, if any, the Member, acting in accordance
with this Agreement, shall not be liable to the Company or any such other
person for its good faith reliance on the provisions of this Agreement. The
provisions of this Agreement, to the extent that they restrict the duties
of the Member otherwise existing at law or in equity, replace such other
duties to the greatest extent permitted under applicable law.
(c) Officers. The Member may from time to time designate officers of
the Company and delegate to such officers such authority and duties as the
Member may deem advisable in its sole and absolute discretion. Unless the
Member decides otherwise, if the title assigned to any officer is one
commonly used for officers of a business corporation formed under the
Delaware General Corporation Law, the assignment of such title shall
constitute the delegation to such person of the authorities and duties that
are normally associated with that office. Unless otherwise agreed to in
writing by the Member, any delegation pursuant to this Paragraph 10(c) may
be revoked at any time by the Member in its sole discretion.
(d) Non-Liability of Officers. No officer of the Company appointed by
the Member pursuant to Paragraph 10(c) above shall be personally liable to
the Company or the Member for monetary damages for breach of fiduciary duty
as an officer, except to
2
the extent that exemption from liability or limitation thereof is not
permitted under the laws of the State of Delaware as in effect at the time
such liability or limitation thereof is determined. No amendment,
modification or repeal of this Paragraph 10(d) shall apply to or have any
effect on the liability or alleged liability of any officer of the Company
for or with respect to any acts or omissions of such officer occurring
prior to such amendment, modification or repeal. If the applicable laws of
the State of Delaware are amended after the date hereof to authorize action
further eliminating or limiting the personal liability of officers, then
the liability of officers of the Company shall be eliminated or limited to
the fullest extent permitted by such laws, as so amended.
11. Other Businesses. The Member may engage in or possess an interest in
one or more other business ventures (unconnected with the Company) of any kind
and description, independently or with others. The Company shall not have any
rights in or to such independent ventures or the income or profits therefrom by
virtue of this Agreement.
12. Liability and Indemnity.
(a) Mandatory Indemnification. To the maximum extent permitted by law,
the Company will indemnify the Member and any officer of the Company acting
in his or her official capacity (collectively, the "Indemnified Parties")
made or threatened to be made a party to a proceeding by reason of the
former or present capacity as such against judgments, penalties, fines,
including, without limitation, excise taxes, assessed against such
Indemnified Party with respect to an employee benefit plan, settlements,
and reasonable expenses, including attorneys' fees and disbursements,
incurred by the Indemnified Party in connection with the proceeding;
provided that the Indemnified Party acted in good faith and, subject to
Paragraph 10(b) and Paragraph 11, in a manner which he, she or it believed
to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe that his, her or its conduct was unlawful. The termination of a
proceeding by judgment, order, settlement, or conviction, or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a
presumption that the Person did not act in good faith and, subject to
Paragraph 10(b) and Paragraph 11, in a manner which he, she or it
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his, her or its conduct was unlawful.
(b) Advances. If an Indemnified Party is made or threatened to be made
a party to a proceeding, such Indemnified Party is entitled, upon written
request to the Company, to payment or reimbursement by the Company of
reasonable expenses, including attorneys' fees and disbursements, incurred
by such Indemnified Party in advance of the final disposition of the
proceeding, (i) upon receipt by the Company of a written affirmation by the
Indemnified Party of a good faith belief that the criteria for
indemnification set forth in Paragraph 12(a) above have been satisfied and
a written undertaking by such Indemnified Party to repay all amounts so
paid or reimbursed by the Company, if it is ultimately determined that the
criteria for indemnification have not been satisfied, and (ii) after a
determination that the facts then known to those making the determination
would not preclude indemnification under this Paragraph. The written
undertaking required by paragraph 12(b)(i) above is an unlimited general
obligation of the Indemnified Party making
3
it, but need not be secured and will be accepted without reference to
financial ability to make the repayment.
(c) Discretionary Indemnification. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Paragraph 12 shall
not be deemed exclusive of any other rights to which those provided
indemnification or advancement of expenses may be entitled under any
agreement, vote of the Member or otherwise, both as to action in such
person's official capacity and as to action in another capacity while
holding such office.
13. Transfers. The Member may freely transfer or encumber its interest in
the Company. Any transferee shall be admitted into the Company as a substituted
member upon the written consent of the Member and the transferee's execution of
an instrument signifying its agreement to be bound by the terms and conditions
of this Agreement.
14. Admission of Additional Members. One or more additional members of the
Company may be admitted into the Company as substituted members therein upon the
written consent of the Member.
15. Meetings. The Member shall not be required to hold any required or
regularly scheduled meetings. Notwithstanding the foregoing, a meeting may be
called by the Member for the purpose of discussing or voting on matters relating
to the business and affairs of the Company. Any such meetings shall be held
during normal business hours either telephonically or in person at the principal
office of the Company in California (or at such other location as is determined
in the sole and absolute discretion of the Member).
16. Dissolution.
(a) Generally. The admission of one or more additional members shall
not dissolve the Company. However, the Company shall dissolve, and its
affairs shall be wound up, upon the first to occur of the following: (i)
the sale, transfer or other disposition by the Company of all or
substantially all of its assets and the collection by the Company of any
and all cash proceeds derived therefrom, (ii) the election of the Member,
(iii) the retirement, resignation or dissolution of the Member or the
occurrence of any other event which terminates the continued membership of
the Member in the Company, unless the business of the Company is continued
in a manner permitted by the Act, or (iv) the entry of a decree of judicial
dissolution under Section 18-802 of the Act.
(b) Bankruptcy. The bankruptcy of the Member shall not cause the
Member to cease to be a member of the Company and, upon the occurrence of
such an event, the business of the Company shall continue without
dissolution.
(c) Application of Assets. In the event of dissolution, the Company
shall conduct only such activities as are necessary to wind up its affairs
(including the sale of the assets of the Company in an orderly manner), and
the assets of the Company shall be applied in the manner, and in the order
of priority, set forth in Section 18-804 of the Act.
4
17. Separability of Provisions. Each provision of this Agreement shall be
considered separable and if for any reason any provision or provisions herein
are determined to be invalid, unenforceable or illegal under any existing or
future law, such invalidity, unenforceability or illegality shall not impair the
operation of or affect those portions of this Agreement which are valid,
enforceable and legal.
18. Entire Agreement. This Agreement constitutes the entire agreement of
the Member with respect to the subject matter hereof.
19. Governing Law. This Agreement and all of the rights and remedies
hereunder shall be governed by, and construed under, the laws of the State of
Delaware without regard to conflict of laws principles.
20. Amendments. This Agreement may not be modified, altered, supplemented
or amended except pursuant to a written agreement executed and delivered by the
Member.
21. No Third-Party Beneficiary. Subject to Paragraph 12 above, any
agreement to pay any amount and any assumption of liability herein contained,
express or implied, shall be only for the benefit of the Member, and such
agreements and assumptions shall not inure to the benefit of the obligees of any
indebtedness or any other party, whomsoever, deemed to be a third-party
beneficiary of this Agreement.
[SIGNATURE PAGE TO FOLLOW]
5
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, has
duly executed this Agreement as of the 31st day of January, 2006.
WEBSIDESTORY, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
EXHIBIT F
ESCROW AGREEMENT
This Escrow Agreement (this "Agreement") dated as of February ____,
2006, is made by and among WebSideStory, Inc., a Delaware corporation
("Parent"), ▇▇▇ ▇▇▇▇▇▇▇, an individual, in his capacity as the representative
(the "Member Representative") of all of the Unitholders and Accredited
Optionholders (each, a "Holder" and collectively, the "Holders") of Visual
Sciences, LLC, a Delaware limited liability company (the "Company"), and U.S.
Stock Transfer Corporation, as Depository Agent (the "Depository Agent").
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Merger made and entered
into as of February ___, 2006 by and among Parent, VS Acquisition, LLC, a
Delaware limited liability company and a direct, wholly owned subsidiary of
Parent ("Merger Sub"), the Company and the Member Representative (as it may be
amended from time to time pursuant to the terms thereof, the "Merger
Agreement"), at the Effective Time, the Company will be merged with and into
Merger Sub, in accordance with the terms of the Merger Agreement.
WHEREAS, Section 3.2 of the Merger Agreement provides that in order to
satisfy any claims for indemnification made by Parent pursuant to Article VIII
of the Merger Agreement, an escrow account (the "Escrow Account") shall be
established into which Parent shall deposit shares of Parent Common Stock
constituting the Escrow Fund at the Effective Time.
WHEREAS, a material condition to the consummation of the transactions
contemplated by the Merger Agreement is that the parties hereto enter into this
Agreement.
AGREEMENT
NOW THEREFORE, as a material inducement to Parent, Merger Sub, the
Company and the Member Representative to consummate the transactions
contemplated by the Merger Agreement, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereby agree as follows:
1. Defined Terms. Capitalized terms used herein without definition
shall have the meanings ascribed to them in the Merger Agreement.
2. Commencement of Duties. Parent, concurrently with the execution and
delivery of this Agreement and pursuant to Section 3.2 of the Merger Agreement,
is transferring to the Depository Agent the Escrow Fund consisting entirely of
the Escrowed Shares. Upon receipt of the Escrowed Shares by the Depository
Agent, the duties and obligations of each of the parties to this Agreement will
commence.
3. Escrow Fund.
(a) Upon receipt of the Escrowed Shares, the Depository Agent
shall send a notice to Parent and the Member Representative acknowledging
receipt of the Escrowed Shares and shall hold the Escrowed Shares in escrow in
the Escrow Account pursuant to the terms of this Agreement.
(b) The certificates representing the Escrowed Shares shall be
retained in the Escrow Account until released pursuant to Section 6 of this
Agreement. The proceeds of all dividends or distributions in respect of the
Escrowed Shares (including dividends and distributions described in Section
3(c)), and all other cash, securities or other property received in exchange for
or in substitution of the Escrowed Shares (including as described in Section
3(d)) (collectively, "Proceeds") shall be retained in the Escrow Account until
released pursuant to Section 6 of this Agreement.
(c) Parent and the Holders agree that any cash dividends,
securities or other property distributable in respect of the Escrowed Shares
shall be distributed by the Parent to, and held by, the Depository Agent in the
Escrow Account subject to the provisions of this Agreement to the same extent as
the Escrowed Shares.
(d) If, after the date of this Agreement, the Escrowed Shares
shall have been changed into a different number of shares or a different type or
class of securities, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination, merger or exchange of
shares, such different number of shares or type or class of securities shall be
held in the Escrow Account subject to the provisions of this Agreement to the
same extent as the Escrowed Shares, and the provisions of this Agreement shall
be correspondingly adjusted to the extent appropriate to reflect equitably such
stock dividend, subdivision, reclassification, recapitalization, split,
combination, merger or exchange of shares.
4. Holders' Pro Rata Shares of the Escrow Fund.
(a) Each Unitholder as of the Closing and each Accredited
Optionholder holding vested Company Options immediately prior to the Closing, as
identified on Schedule A-1 hereto, shall have the following interest in the
Escrow Account, from time to time:
(i) an interest in all Escrowed Shares equal to such proportion
of the total number thereof equal to such Holder's Pro Rata Share of the Escrow
Fund, as set forth on Schedule A-2 hereto; and
(ii) an interest in all Proceeds, if any, of the Escrowed Shares
equal to the portion thereof equal to such Holder's Pro Rata Share of the Escrow
Fund, as set forth on Schedule A-2 hereto.
5. No Stockholder Rights.
(a) As long as any Escrowed Shares are held in the Escrow
Account, and pending the distribution thereof to Parent or the Holders, as the
case may be, in connection with any distributions from the Escrow Account in
accordance with the terms hereof, the Depositary
2
Agent will have the right to exercise any voting rights with respect to the
Escrowed Shares. In connection with any Parent stockholder meetings or
solicitations of proxies or written consents from Parent stockholders, Parent
will direct the Depositary Agent in writing as to the exercise of voting and
consent rights for the Escrowed Shares, which directions shall replicate as
closely as practicable the split of yes, no and abstain votes cast by all other
stockholders of Parent in connection with such meeting or consent. The
Depository Agent shall comply with any such directions of the Parent. In the
absence of such directions from the Parent, the Depository Agent shall not vote
or grant its consent with respect to any of the Escrowed Shares.
(b) Prior to the distribution of the Escrowed Shares in
accordance with the terms hereof, the Holders shall have no rights in the
Escrowed Shares, including without limitation, no rights to sell, assign,
pledge, hypothecate or otherwise dispose of or encumber such Escrowed Shares or
any interest therein.
6. Payments from the Escrow Account.
(a) A Parent Indemnified Party shall initiate a claim against the
Escrow Fund by delivering to the Member Representative, with a copy to the
Depository Agent, a written notice (an "Indemnification Notice"), which
Indemnification Notice shall:
(i) state that such Parent Indemnified Party is a Parent
Indemnified Party under the Merger Agreement and has paid or incurred one or
more Losses that satisfy the indemnification provisions set forth in Section 8.2
of the Merger Agreement (each, a "Covered Loss");
(ii) state in good faith the aggregate amount (the
"Indemnification Amount") of each such Covered Loss; and
(iii) specify in reasonable detail the nature and basis of each
such Covered Loss.
(b) If the Member Representative shall object in good faith to
any portion of any Indemnification Amount specified in any Indemnification
Notice, the Member Representative shall, within thirty (30) calendar days after
delivery by the Parent Indemnified Party to the Member Representative of such
Indemnification Notice, deliver to the Depository Agent (with a copy to the
Parent Indemnified Party) a certificate, executed by the Member Representative
(a "Certificate of Objections"):
(i) specifying each such amount to which the Member
Representative objects in good faith; and
(ii) specifying in reasonable detail the nature and basis for
each such good faith objection.
Promptly upon receipt of a Certificate of Objections, the Depository Agent shall
deliver a copy of such Certificate of Objections to the Parent Indemnified
Party.
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(c) If the Depository Agent shall not have received a Certificate
of Objections objecting to an Indemnification Amount within thirty (30) calendar
days after delivery to the Member Representative of an Indemnification Notice
specifying such Indemnification Amount, the Holders and the Member
Representative shall be deemed to have acknowledged that the Indemnification
Amount claimed on such Indemnification Notice is correct and final and the
Depository Agent shall thereafter transfer to such Parent Indemnified Party out
of the Escrow Account (such transfer to be applied and deducted from the Escrow
Fund pro rata in accordance with each Holder's Pro Rata Share of the Escrow
Fund) such number of Escrowed Shares with an aggregate value equal to the
Indemnification Amount set forth in the Indemnification Notice, together with
any Proceeds attributable to such transferred Escrowed Shares. For purposes of
this Agreement, each Escrowed Share shall be deemed to have a value equal to the
Parent Common Stock Price (as such amount may be appropriately adjusted for
stock splits, stock dividends, stock combinations, and the like).
(d) If the Depository Agent receives, within thirty (30) calendar
days after delivery to the Member Representative of an Indemnification Notice, a
Certificate of Objections objecting to the Indemnification Amount specified in
such Indemnification Notice, the amount so objected to shall be held by the
Depository Agent and shall not be released from the Escrow Account, except in
accordance with either:
(i) written instructions executed by Parent and the Member
Representative, or
(ii) written instructions from the Parent Indemnified Party and
the final judgment of the arbitrator having jurisdiction over the matters
relating to the claim, as provided in Section 7,
after which time the Depository Agent shall cause: (A) a transfer to the Parent
Indemnified Party in the manner set forth in Section 6(c); provided, that all
references to the Indemnification Amount shall be deemed to be references to the
amount to be transferred to the Parent Indemnified Party as specified in the
written instruction or judgment, as the case may be; and (B) in the event such
written instruction or judgment is delivered following the First Release Date
(as defined below), a distribution to the Holders in an aggregate amount equal
to the amount so objected to and not released pursuant to (A) above (the
"Holdback Release"). Any Holdback Release shall be distributed to each Holder,
in an amount equal to the product of the Holdback Release multiplied by such
Holder's Pro Rata Share of the Escrow Fund, together with any Proceeds
attributable to such released Escrowed Shares.
(e) Subject to Section 11, on the earlier of (i) April 1, 2007 or
(ii) such date as shall have been specified in a joint written notice of Parent
and the Member Representative to the Depository Agent (the "First Release
Date"), the Depository Agent shall distribute a number of Escrowed Shares that
have a value equal to the amount, if any, by which the value of the Escrowed
Shares at such date (valued at the Parent Common Stock Price (as such amount may
be appropriately adjusted for stock splits, stock dividends, stock combinations,
and the like)), exceeds the First Reserved Amount (the "First Released Amount").
The First Released Amount shall be transferred to each Holder, in an amount
equal to the product of the
4
First Released Amount multiplied by such Holder's Pro Rata Share of the Escrow
Fund, together with any Proceeds attributable to such released Escrowed Shares.
The "First Reserved Amount" means an amount equal to the aggregate of the
Indemnification Amounts claimed and unpaid (other than claims which shall have
been resolved and for which no payment shall be due), in all Indemnification
Notices delivered to the Depository Agent prior to the First Release Date,
subject to the limitations set forth in Section 8.4 of the Merger Agreement.
(f) Upon the termination of this Agreement in accordance with
Section 10, but subject to Section 11, the Depository Agent shall promptly
distribute the remaining Escrowed Shares to each Holder, in an amount equal to
the product of the remaining value multiplied by such Holder's Pro Rata Share of
the Escrow Fund, together with any Proceeds attributable to such released
Escrowed Shares.
(g) Notwithstanding the provisions of this Section 6, if a Holder
of Units has not submitted to Parent a letter of transmittal in proper form
pursuant to Section 4.1(b) of the Merger Agreement prior to the time of any
distribution to the Holders, the amount deliverable to such Holder shall be
delivered to Parent, to be held by Parent on behalf of such Holder pursuant to
Section 4.1(f) of the Merger Agreement.
(h) Notwithstanding any other provision of this Agreement to the
contrary, at any time prior to the termination of this Agreement, the Depository
Agent shall, if so instructed in writing signed by Parent and the Member
Representative, pay from the Escrow Account, as instructed, to Parent, any
Indemnified Party or any Holder, as directed in such writing, the number of
Escrow Shares and any Proceeds attributable thereto.
7. Resolution of Conflicts
(a) In case the Member Representative shall timely object in
writing to any claim or claims by a Parent Indemnified Party made in any
Indemnification Notice, as provided in Section 6(b), the Member Representative
and the Parent Indemnified Party shall attempt in good faith for thirty (30)
calendar days following delivery of the Certificate of Objections to agree upon
the rights of the respective parties with respect to each of such claims. If the
Member Representative and the Indemnified Party should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties and
shall be furnished to the Depository Agent. The Depository Agent shall be
entitled to rely on any such memorandum and shall distribute amounts from the
Escrow Fund in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either the Parent Indemnified Party or the Member Representative
may, by written notice to the other, demand arbitration of the matter unless the
amount of the damage or loss is at issue in pending litigation with a third
party, in which event arbitration shall not be commenced until such amount is
ascertained or both parties agree to arbitration; and in either such event the
matter shall be settled by arbitration conducted by a single arbitrator. The
arbitrator shall be jointly selected by the Parent Indemnified Party and the
Member Representative within fifteen (15) calendar days after such written
notice is sent, or absent such agreement, such arbitrator shall be
5
appointed pursuant to the Commercial Arbitration Rules then in effect of the
American Arbitration Association. The decision of the arbitrator as to the
validity and amount of any claim in such Indemnification Notice shall be binding
and conclusive upon the parties to this Agreement, and the Depository Agent
shall be entitled to act in accordance with such decision and make or withhold
payments out of the Escrow Fund in accordance therewith.
(c) Any such arbitration shall be held in Washington, D.C. under
the Commercial Arbitration Rules then in effect of the American Arbitration
Association. For purposes of this Section 7, in any arbitration hereunder in
which any claim or the amount thereof stated in the Indemnification Notice is at
issue, the Parent Indemnified Party shall be deemed to be the "Non-Prevailing
Party" unless the arbitrator awards the Parent Indemnified Party more than
one-half (1/2) of the amount in dispute; otherwise, the Member Representative
(on behalf of the Holders) shall be deemed to be the Non-Prevailing Party. The
Non-Prevailing Party to an arbitration shall pay its own expenses, the fees of
the arbitrator, the administrative fee of the American Arbitration Association,
and the expenses, including without limitation, attorneys' fees and costs,
reasonably incurred by the other party to the arbitration. Judgment upon any
award rendered by the arbitrators may be entered in any court having
jurisdiction.
8. Tax Matters
(a) The parties intend for federal income tax purposes, that
property held by the Depository Agent shall be treated as delivered to recipient
Unitholders and Accredited Optionholders at the time such property is
distributed to them from escrow (and not at the time of deposit into escrow).
(b) All earnings, if any, on the Escrow Fund shall be treated as
having been received by Parent for United States federal income tax purposes.
(c) The Holders shall provide to the Depository Agent within
thirty (30) days after the Closing Date all forms and information that the
Depository Agent may reasonably require (including, without limitation, IRS
Forms W-8 or W-9, as applicable).
(d) The Depository Agent annually shall file any applicable
information returns with the IRS and provide statements to Parent, with copies
to the Member Representative, documenting any earnings on the Escrow Fund. In
the event that the Depository Agent becomes liable for the payment of Taxes
relating to earnings on the Escrow Fund or any payment made hereunder
(including, but not limited to, withholding Taxes), the Depository Agent may
collect such Taxes directly from the Parent or the applicable Holders. Except as
otherwise provided in this Agreement, the Depository Agent shall have no
obligation to prepare or file any other Tax Returns or to pay any Taxes or
estimated Taxes.
9. Depository Agent.
(a) Duties of the Depository Agent. The Depository Agent shall
have no duties or responsibilities other than those expressly set forth in this
Agreement, and no implied duties or obligations shall be read into this
Agreement against the Depository Agent. The Depository Agent shall have no duty
to enforce any obligation of any Person, other than as provided herein. The
Depository Agent shall be under no liability to anyone by reason of any
6
failure on the part of any party hereto or any maker, endorser or other
signatory of any document or any other person to perform such person's
obligations under any such document.
(b) Liability of the Depository Agent.
(i) In performing any duties under this Agreement, the
Depository Agent shall not be liable to any party for consequential damages,
(including, without limitation lost profits) losses, or expenses, except for
gross negligence or willful misconduct on the part of the Depository Agent. The
Depository Agent shall not incur any such liability for any act or failure to
act made or omitted in good faith or for any action taken or omitted in reliance
upon any instrument, including any written statement or affidavit provided for
in this Agreement that the Depository Agent shall in good faith believe to be
genuine, nor will the Depository Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Depository Agent may consult with legal counsel in connection
with the Depository Agent's duties under this Agreement and shall be fully
protected in any act taken, suffered, or permitted by him/her in good faith in
accordance with the advice of counsel. The Depository Agent is not responsible
for determining and verifying the authority of any person acting or purporting
to act on behalf of any party to this Agreement. The parties shall indemnify and
hold the Depository Agent harmless from any and all liability for acting on an
investment instruction purported to be given by Parent and the Member
Representative to the extent of 50% for Parent and 50% for the Member
Representative (on behalf of the Holders, and which indemnification by the
Member Representative and the Holders shall be solely out of and only to the
extent of the Escrow Fund). The Depository Agent shall not be responsible for
the authenticity of any instructions, or be in any way liable for any
unauthorized instruction or for acting on such an instruction, whether or not
the person giving the instruction was, in fact, an authorized representative of
Parent and the Member Representative.
(ii) In no event shall the Depository Agent be liable to the
parties for any consequential, special, or exemplary damages, including but not
limited to lost profits, from any cause whatsoever arising out of, or in any way
connected with acting upon instructions believed by the Depository Agent to be
genuine. The Depository Agent shall not be liable for any loss from such
investments, including upon the sale or disposition of any investments. The
Depository Agent shall not be liable for any loss arising directly or
indirectly, in whole or in part, from the inability to invest funds on the day
the instructions are received. The Depository Agent shall not be liable for any
loss incurred by the actions of third parties or by any loss arising by error,
failure, or delay in making an investment which is caused by circumstances
beyond the Depository Agent's reasonable control.
(iii) Parent and the Member Representative (on behalf of the
Holders) agree, to the extent of 50% for Parent and 50% for the Member
Representative (on behalf of the Holders, which indemnification by the Member
Representative and the Holders shall be solely out of and only to the extent of
the Escrow Fund), to jointly and severally indemnify and hold the Depository
Agent harmless against any and all losses, claims, damages, liabilities, and
expenses, including reasonable costs of investigation, counsel fees, including
allocated costs of in-house counsel and disbursements that may be imposed on the
Depository Agent or incurred by the Depository Agent in connection with the
performance of its/his/her duties under this Agreement, including but not
limited to any litigation arising from this
7
Agreement or involving its subject matter, except in the case of the Depository
Agent's gross negligence or willful misconduct.
(iv) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Depository Agent will not be required to
determine the controversy or to take any action regarding it. The Depository
Agent may hold all documents and funds and may wait for settlement of any such
controversy by final appropriate legal proceedings or other means as, in the
Depository Agent's discretion, the Depository Agent may require, despite what
may be set forth elsewhere in this Agreement. In such event, the Depository
Agent will not be liable for interest or damage. Furthermore, the Depository
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Depository Agent
is authorized to deposit with the clerk of the court all documents and funds
held in escrow, except all costs, expenses, charges and reasonable attorneys'
fees incurred by the Depository Agent due to the interpleader action and which
the parties jointly and severally agree to pay. Upon initiating such action, the
Depository Agent shall be fully released and discharged of and from all
obligations and liability imposed by the terms of this Agreement.
(c) Withdrawal of Depository Agent. The Depository Agent may
resign at any time upon giving at least thirty (30) days' written notice to the
parties; provided, however, that no such resignation shall become effective
until the appointment of a successor Depository Agent, which shall be
accomplished as follows: The parties shall use their reasonable efforts to
mutually agree on a successor Depository Agent within thirty (30) days after
receiving such notice. If the parties fail to agree upon a successor Depository
Agent within such time, the Depository Agent shall have the right to appoint a
successor Depository Agent authorized to do business in the State of California.
The successor Depository Agent shall execute and deliver an instrument accepting
such appointment, and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor Depository
Agent as if originally named as the Depository Agent. The Depository Agent shall
thereafter be discharged from any further duties and liability under this
Agreement.
(d) Change of Control of Depository Agent. Any company into which
the Depository Agent may be merged or with which it may be consolidated, or any
company to whom the Depository Agent may transfer a substantial amount of its
business, shall be the successor to the Depository Agent without the execution
or filing of any paper or any further act on the part of any of the parties,
anything herein to the contrary notwithstanding.
(e) Fees. The Depository Agent's fees shall be as set forth on
Exhibit B hereto, payable by Parent. It is understood that the fees and usual
charges agreed upon for services of the Depository Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Depository Agent renders any service not provided for in this Agreement, or
if the parties request a substantial modification of its terms, or if any
controversy arises, or if the Depository Agent is made a party to, or intervenes
in, any litigation pertaining to this escrow or its subject matter, the
Depository Agent shall be reasonably compensated for such extraordinary services
and reimbursed for all reasonable costs, attorneys' fees, including allocated
costs of in-house counsel, and expenses occasioned by such default, delay,
controversy
8
or litigation, and the Depository Agent shall have the right to retain all
documents and/or other things of value at any time held by the Depository Agent
in this escrow until such compensation, fees, costs and expenses are paid. Any
such extraordinary fees, costs and expenses shall be payable 50% by Parent and
50% by the Member Representative (on behalf of the Holders out of the Escrow
Fund and only to the extent of the funds and property comprising the Escrow
Fund).
10. Termination. This Agreement shall terminate on the later of: (a)
the date on which there are no Escrowed Shares or other property remaining in
the Escrow Fund and (b) ten business days following the date on which all claims
made in Indemnification Notices timely delivered to the Depository Agent shall
have been resolved.
11. Holder Representative Costs and Expenses. By virtue of their
approval of the Merger (including this Agreement), the Holders hereby agree to
pay (i) the reasonable fees of the Member Representative relating to its/his/her
services performed in such capacity and (ii) all costs and expenses, including
those of any legal counsel or other professional retained by the Member
Representative, in connection with the acceptance and administration of the
Member Representative's duties hereunder. Subject to the prior right of Parent
to make claims for indemnification hereunder, the Member Representative shall
have the right to recover from distributions to the Holders from the Escrow
Account pursuant to this Agreement, and prior to any such distribution, a number
of Escrowed Shares set forth in a certificate of the Member Representative
delivered to the Depository Agent three (3) business days prior to the date on
which a distribution is to be made to the Holders, which number of shares shall
be equal to (A) any fees, costs and expenses set forth in such certificate,
including those of any legal counsel or other professional retained by the
Member Representative, in connection with the acceptance and administration of
the Holder Representative's duties hereunder, multiplied by (B) the closing
price of Parent Common Stock on the securities exchange or automated quotation
service upon which the Parent Common Stock is then listed or quoted for trading
on the trading day immediately preceding the third business day prior to the
date on which a distribution is to be made to the Holders.
12. Miscellaneous.
(a) Inspection. The Escrow Fund shall at all times be clearly
identified as being held by the Depository Agent hereunder. Any party hereto may
at any time during the Depository Agent's business hours (with reasonable
notice) inspect any records or reports relating to the Escrow Fund.
(b) Controlling Document. To the extent provisions of the Merger
Agreement are inconsistent with the provisions contained herewith, this
Agreement shall supersede the Merger Agreement and be the controlling document;
provided, however, that the provisions of Article VIII of the Merger Agreement
shall control for all purposes, except with regard to the Depository Agent's
duties.
(c) Notices. Unless otherwise provided herein, all notices and
other communications hereunder shall be in writing and shall be deemed given if
(a) delivered in person, (b) transmitted by telecopy (with written
confirmation), (c) mailed by certified or registered mail (return receipt
requested) (in which case such notice shall be deemed given on
9
the third (3rd) day after such mailing, but only if deposited at a U.S. Postal
Service office) or (d) delivered by an express courier (with written
confirmation) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to Parent:
WebSideStory, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
With a copy (which shall not constitute notice) to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
If to the Member Representative:
▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, PLLC
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy (which shall not constitute notice) to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Chrysler Center
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
10
If to the Depository Agent:
U.S. Stock Transfer Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇ ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Any party may, from time to time, designate any other address to which
any such notice to it or such party shall be sent. Any such notice shall be
deemed to have been delivered upon receipt.
(d) Governing Law. THIS AGREEMENT, THE LEGAL RELATIONS BETWEEN
THE PARTIES AND THE ADJUDICATION AND THE ENFORCEMENT THEREOF, SHALL BE GOVERNED
BY AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE
STATE OF DELAWARE WITHOUT REGARD TO APPLICABLE CHOICE OF LAW PROVISIONS THEREOF.
(e) Binding Effect. This Agreement shall be binding upon the
Holders, the parties hereto and their respective successors and permitted
assigns. No provision of this Agreement is intended or shall be construed to
confer upon any entity or Person other than the Holders (solely with respect to
Sections 6(d), 6(e), and 6(f)), the parties hereto and their respective
successors and permitted assigns any benefit, right, remedy or claim under or by
reason of this Agreement or any part hereof. This Agreement may not be assigned
by any of the parties hereto; provided, however, that Parent may assign all or
part of its rights under this Agreement and delegate all or part of its
obligations under this Agreement to (i) a wholly owned Subsidiary of Parent, in
which event all of the rights and powers of Parent and remedies available to
Parent under this Agreement shall extend to and be enforceable by such
Subsidiary (provided that Parent remains jointly and severally liable with such
assignee for any obligations of Parent hereunder after such assignment) or (ii)
any Person who acquires Parent, whether by way of merger or the purchase of all
of Parent's outstanding capital stock or all or substantially all of Parent's
assets. In the event of any such assignment and delegation, the term "Parent" as
used in this Agreement shall be deemed to refer to such Subsidiary or successor
of Parent, as the case may be, where reference is made with respect to actions
to be taken with respect to the transactions contemplated by the Merger
Agreement and this Agreement, and shall be deemed to include both Parent and
such Subsidiary or successor of Parent, as the case may be, where appropriate.
(f) Modification. This Agreement may be amended or modified at
any time by a writing executed by each of Parent, the Member Representative and
the Depository Agent.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall
11
constitute one and the same agreement, it being understood that all of the
parties need not sign the same counterpart.
(h) Headings. The section headings contained in this Agreement
are inserted for convenience only, and shall not affect in any way, the meaning
or interpretation of this Agreement.
(i) Entire Agreement; Severability and Further Assurances. Except
as provided herein, this Agreement together with the Merger Agreement and all
exhibits and schedules attached hereto constitute the entire agreement among the
parties and supersede all prior and contemporaneous agreements and undertakings
of the parties in connection herewith. No failure or delay of a party in
exercising any right, power or remedy may be, or may be deemed to be, a waiver
thereof; nor may any single or partial exercise of any right, power or remedy
preclude any other or further exercise of any right, power or remedy. In the
event that any one or more of the provisions contained in this Agreement, shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
then to the maximum extent permitted by Law, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement. Each of
the parties hereto shall, at the request of the other party, deliver to the
requesting party all further documents or other assurances as may reasonably be
necessary or desirable in connection with this Agreement.
(j) No Third Party Beneficiaries. This Agreement is not intended
to confer upon any Person other than the parties hereto (and the Holders with
respect to Sections 6(d), 6(e), and 6(f)) any rights or remedies.
[Signature Page Follows]
12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first written above.
WEBSIDESTORY, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
▇▇▇ ▇▇▇▇▇▇▇,
as Member Representative
-----------------------------------
U.S. STOCK TRANSFER CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
13